diff --git a/raw/proxies/0000742278/0000912057-01-008534/proxy.txt b/raw/proxies/0000742278/0000912057-01-008534/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..99b2ba379406bafad304b088a360d408c60508df --- /dev/null +++ b/raw/proxies/0000742278/0000912057-01-008534/proxy.txt @@ -0,0 +1,927 @@ +DEF 14A +1 +a2041076zdef14a.htm +DEF 14A +Prepared by MERRILL CORPORATION www.edgaradvantage.com +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant / / +Filed by a Party other than the Registrant / / +Check the appropriate box: +/ / +Preliminary Proxy Statement +/ / +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +/x/ +Definitive Proxy Statement +/ / +Definitive Additional Materials +/ / +Soliciting Material Pursuant to §240.14a-12 +RPC, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +/x/ +No fee required. +/ / +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +/ / +Fee paid previously with preliminary materials. +/ / +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2170 Piedmont Road, NE, Atlanta, Georgia 30324 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2001 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation +("RPC" or "the Company"), will be held at the Company's offices located at 2170 Piedmont Road, NE, Atlanta, Georgia, on Tuesday, April 24, 2001, at 9:30 A.M., or any adjournment thereof, +for the following purposes: +(1) To +elect three Class III directors to the Board of Directors; +(2) To +elect one Class II director to the Board of Directors; and +(3) To +transact such other business as may properly come before the meeting or any adjournment thereof. +The +Proxy Statement dated March 26, 2001 is attached. +The +Board of Directors has fixed the close of business on February 26, 2001, as the record date for the determination of stockholders entitled to notice of, and to vote at, the +meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is used +and mailed in the United States. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, +Georgia +March 26, 2001 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 26, 2001. +The +following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of Stockholders to be held on April 24, 2001 is submitted to the +stockholders for their information. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the +Company will be voted in favor of the candidates for election to the Board of Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority if he so elects, by +contacting either proxyholder. +RECENT DEVELOPMENTS +On February 12, 2001, the Board of Directors of RPC approved plans to spin-off Chaparral Boats, Inc. ("Chaparral"), the recreational +powerboat manufacturing business of RPC, to RPC stockholders. RPC accomplished the spin-off by contributing 100 percent of the issued and outstanding Common Stock of Chaparral to +Marine Products Corporation ("Marine Products"), a newly formed wholly-owned subsidiary of RPC, and then distributing the Common Stock of Marine Products to RPC stockholders. Holders of RPC Common +Stock received 0.6 shares of Marine Products Common Stock for each share of RPC Common Stock owned at the close of business on February 16, 2001, the record date for the spin-off. +The spin-off occurred on February 28, 2001, and +as of that date, Marine Products became an independent public company. Marine Products Common Stock is listed on the American Stock Exchange, and trades under the ticker symbol "MPX". +RPC +continues to own oil and gas services businesses including Cudd Pressure Control, Patterson Services and Patterson Tubular Services as well as other business operations and +assets. Marine Products, through its wholly-owned subsidiary Chaparral, will continue to design, manufacture and sell recreational fiberglass powerboats in the sportboat, deckboat and cruiser markets. +CAPITAL STOCK +The outstanding capital stock of the Company on February 26, 2001 consisted of 28,353,795 shares of Common Stock, par value $0.10 per share. Holders of +Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on February 26, 2001, the record +date for determining stockholders entitled to notice of and to vote at the meeting or any adjournment thereof. +The +name and address of each stockholder who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on February 26, 2001, together with the +number of shares so owned and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the Company's Chief Executive Officer and the other four +most highly compensated executive officers of the Company (the "Named Executives"), and the executive +2 +officers and directors of the Company as a group (according to information received by the Company), is set out below: +Name and Address +of Beneficial Owner +Amount +Beneficially +Owned(1) +Percent of +Outstanding +Shares +FMR Corporation +82 Devonshire Street +Boston, Massachusetts +2,903,700 +(2) +10.2 +R. Randall Rollins +Chairman of the Board and Chief Executive Officer +2170 Piedmont Road, NE +Atlanta, Georgia +15,534,999 +(3) +54.8 +Gary W. Rollins +Director +2170 Piedmont Road, NE +Atlanta, Georgia +15,576,389 +(4) +54.9 +Richard A. Hubbell +President and Chief Operating Officer +2170 Piedmont Road, NE +Atlanta, Georgia +362,808 +(5) +1.3 +James A. Lane, Jr. +Executive Vice President and President, Chaparral Boats, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +134,130 +(6) +0.5 +Jonathan W. Moss +Executive Vice President +2170 Piedmont Road, NE +Atlanta, Georgia +40,000 +(7) +0.1 +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +2170 Piedmont Road, NE +Atlanta, Georgia +40,500 +(8) +0.1 +All Directors and Executive Officers as a group (10 persons) +17,657,433 +(9) +61.9 +(1) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) Based +on Schedule 13G/A filed with the Securities and Exchange Commission on February 15, 2001. +(3) Includes +434,195 shares of the Company held as Trustee, Guardian, or Custodian for his children or as Custodian for the children of his brother, Gary W. Rollins. Also includes +1,385,560 shares of the Company in four trusts of which he is a Co-Trustee and as to which he shares voting and investment power. Also includes 12,493,828 shares owned by LOR, Inc. +Mr. Rollins is an officer, director and stockholder of LOR, Inc. Also includes 345,600 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an officer, director and +stockholder of Rollins Holding Company, Inc. Also includes 299,101 shares held by Rollins Investment Fund, a Georgia general partnership, of which Mr. Rollins is a general partner. Also +includes 73,430 shares held by RWR Investment Partnership, a Georgia limited partnership, of which Mr. Rollins is a general partner. Does not include 23,333* shares of the Company held by his +wife. +(4) Includes +401,665 shares of the Company held as Trustee or Custodian for his children or as Custodian for the grandchildren of his brother, R. Randall Rollins. Also includes +1,358,680 shares of the Company in four trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 12,493,828 shares owned by LOR, Inc. +Mr. Rollins is an officer, director and stockholder of LOR, Inc. Also includes 345,600 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an officer, director and +stockholder of Rollins Holding Company, Inc. Also includes 301,334 shares held by Rollins Investment Fund, a Georgia general partnership, of which Mr. Rollins is a general partner. Does +not include 100,004* shares of the Company held by his wife. +(5) Includes +135,200 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 148,000 shares of restricted stock +awards. One-third of the options and performance restricted stock awards that have not been earned and issued into escrow will be surrendered for cancellation and replaced with options and +awards under the Marine Products 2001 Employee Stock Incentive Plan. +(6) Includes +40,000 shares of restricted stock awards. See information contained in footnote (3) to the Summary Compensation table in the Executive Compensation section. +(7) Includes +32,000 shares of restricted stock awards. +(8) Includes +19,200 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 19,200 shares of restricted stock +awards. One-third of the options and performance restricted stock awards that have not been earned and issued into escrow will be surrendered for cancellation and replaced with options and +awards under the Marine Products 2001 Employee Stock Incentive Plan. +3 +(9) Shares +held in trusts as to which more than one officer and/or director are Co-Trustees have been included only once. Includes an aggregate of 428,800 shares which may +be purchased by 5 executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of the date hereof, or restricted stock grants awarded to +or earned by them pursuant to the Company's 1984 Incentive Stock Option Plan and 1994 Employee Stock Incentive Plan. +* Messrs. R. +Randall Rollins and Gary W. Rollins disclaim any beneficial interest in these holdings. +ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. Wilton Looney, Gary W. Rollins and James A. Lane, Jr. will be nominated to serve as Class III directors and +Linda H. Graham will be nominated to serve as a Class II director. The directors in each class serve for a three year term, except that Ms. Graham, who has agreed to fill the vacancy +created by the death of John W. Rollins, will serve a two year term and stand for re-election at the expiration of the term of other directors serving as Class II directors. The +director nominees will serve in their respective class until their successors are elected and qualified. Four other individuals serve as directors but are not standing for re-election +because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company's Bylaws which provide for the election of directors for staggered terms, with each director +serving a three-year term. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below as directors. Although Management does not contemplate the +possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who +shall be designated by the present Board of Directors to fill such vacancy. +The +name and age of each of the four director nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, +by him or her and the percentage of outstanding shares that ownership represents, all as of the close of business on February 26, 2001, (according to information received by the Company) are +set out below. Similar information is also provided for those directors whose terms expire in future years. Each director was originally elected as a director shortly after incorporation of the +Company in January 1984, with the exception of Messrs. Richard A. Hubbell and James A. Lane, Jr., who were elected as directors on January 27, 1987, and Linda H. Graham, +who is a current director nominee. +4 +Names of Nominees +Principal Occupation(1) +Age +Common +Stock(2) +Percentage of +Outstanding +Shares +Class II (Term Expires 2003) +Linda H. Graham +Vice President and Secretary +64 +81,731 +(3) +0.3 +Class III (New Term Expires 2004) +Wilton Looney +Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor). +81 +1,200 +less than +0.1 +Gary W. Rollins(4) +President and Chief Operating Officer of Rollins, Inc. (consumer services). +56 +15,576,389 +(5) +54.9 +James A. Lane, Jr. +Executive Vice President of the Company and President, Chaparral Boats, Inc. +58 +134,130 +(6) +0.5 +Names of Directors Whose Terms Have Not Expired +Class I (Term Expires 2002) +R. Randall Rollins(4) +Chairman of the Board and Chief Executive Officer of the Company; Chairman of the Board and Chief Executive Officer of Rollins, Inc. (consumer services) (since October 1991); Vice Chairman of the Board of +Rollins, Inc. (prior to October 1991). +69 +15,534,999 +(7) +54.8 +Henry B. Tippie +Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services). +74 +1,668,678 +(8) +5.9 +James B. Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) since 1998; and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1995 to 1998 +67 +40,000 +0.1 +Class II (Term Expires 2003) +Richard A. Hubbell +President and Chief Operating Officer of the Company. +56 +362,808 +(9) +1.3 +(1) Unless +otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five +years. In addition to the directorships listed in this column, the following individuals also serve on the boards of directors of the following companies: Henry B. Tippie: Matlack +Systems, Inc., Dover Downs Entertainment, Inc. and SafetyKleen; James B. Williams: SunTrust Banks, Inc., The Coca-Cola Company, Genuine Parts Company, and +Georgia-Pacific Corporation; R. Randall Rollins: SunTrust Banks, Inc., SunTrust Banks of Georgia and Dover Downs Entertainment, Inc. All of the directors shown in the above table, with +the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. In addition, all of the directors listed above will also be directors of Marine +Products, pursuant to the spin-off, effective on February 28, 2001. +(2) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) Includes +16,000 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 19,200 shares of restricted stock +awards. One-third of the options and performance restricted stock +awards that have not been earned and issued into escrow will be surrendered for cancellation and replaced with options and awards under the Marine Products 2001 Employee Stock Incentive Plan. +(4) R. +Randall Rollins and Gary W. Rollins are brothers. +(5) See +information contained in footnote (4) to the table appearing in Capital Stock section. +(6) See +information contained in footnote (6) to the table appearing in Capital Stock section. +(7) See +information contained in footnote (3) to the table appearing in Capital Stock section. +5 +(8) Includes +1,418,678 shares of Common Stock of the Company in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Does not +include 12,408 shares held by the Estate of John W. Rollins; Mr. Tippie is the executor of the estate. +(9) See +information contained in footnote (5) to the table appearing in Capital Stock section. +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +During 2000 non-employee Directors received from the Company $1,000 for each meeting of the Board of Directors or committee they attended, plus +$10,000 per year. +The +Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie, Chairman, Wilton Looney and James B. Williams. The Audit Committee held five meetings during +the fiscal year ended December 31, 2000. Its functions are described under the caption, "Report of the Audit Committee." The Compensation Committee of the Board of Directors of the Company +consists of Henry B. Tippie, Chairman, Wilton Looney, and James B. Williams. It held one meeting during the fiscal year ended December 31, 2000. The functions of the Compensation Committee are +to review the Company's executive compensation structure and to report to the Board any recommendation as to changes to insure continued effectiveness. The Board of Directors met four times during the +fiscal year ended December 31, 2000. The Company does not have a nominating committee of the Board of Directors. No Director attended fewer than 75 percent of +the aggregate of the Board meetings and meetings of committees on which he served during the fiscal year. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the Directors named above who serve on the Company's Compensation Committee are or have ever been employees of the Company. No executive officer of the +Company serves on a Compensation Committee of another company. R. Randall Rollins, an executive of the Company, serves on the Board of Directors of both SunTrust Banks, Inc. and SunTrust Banks +of Georgia, a subsidiary of SunTrust Banks, Inc. Mr. Williams is the Chairman of the Executive Committee, SunTrust Banks, Inc. Mr. Rollins is not on the Compensation +Committee of SunTrust Banks, Inc., or SunTrust Banks of Georgia. All banking services provided to the Company by SunTrust Banks of Georgia are priced at market-competitive rates. +6 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years +ended December 31, 2000, 1999 and 1998 of those persons who were at December 31, 2000 (i) the Chief Executive Officer and (ii) the other Named Executives of the Company: +SUMMARY COMPENSATION TABLE +Long-Term +Compensation Awards +Annual +Compensation +Restricted +Stock +Awards +($) (1) +Securities +Underlying +Options (#)(1) +All Other +Compensation(2) +Name and Principal Position +Year +Salary +Bonus +R. Randall Rollins +Chairman of the Board and Chief Executive Officer +2000 +1999 +1998 +$ +450,000 +450,000 +450,000 +$ +0 +0 +0 +0 +0 +0 +0 +0 +0 +$ +0 +0 +0 +Richard A. Hubbell +President and Chief Operating Officer +2000 +1999 +1998 +437,568 +400,000 +400,000 +225,000 +0 +100,000 +0 +206,250 +0 +0 +68,000 +50,000 +2,040 +1,920 +1,920 +James A. Lane, Jr.(3) +Executive Vice President, and President, Chaparral Boats, Inc. +2000 +1999 +1998 +67,841 +67,841 +67,841 +3,259,448 +2,168,007 +1,900,350 +(4) +0 +0 +0 +0 +0 +0 +2,040 +1,920 +1,920 +Jonathan W. Moss +Executive Vice President +2000 +1999 +1998 +189,036 +189,036 +189,036 +6,494 +0 +36,471 +0 +0 +0 +0 +0 +0 +2,040 +1,920 +1,920 +Ben M. Palmer +Vice President, Chief Financial Officer, and Treasurer +2000 +1999 +1998 +172,100 +160,000 +137,500 +50,000 +30,000 +31,250 +0 +41,250 +102,000 +0 +13,000 +10,000 +2,040 +1,920 +1,920 +(1) The +total number of shares held and their values on December 31, 2000 were as follows: Mr. Hubbell, 150,000 shares valued at $2,175,000 of which 8,000 shares are +subject to issuance upon meeting performance criteria as defined in the related Performance Restricted Stock Agreement; Mr. Lane, 40,000 shares valued at $580,000; Mr. Moss 32,000 shares +valued at $464,000; and Mr. Palmer, 24,000 shares valued at $348,000 of which 6,000 shares are subject to issuance upon meeting performance criteria as defined in the related Performance +Restricted Stock Agreement. The December 31, 2000 values are based on the December 29, 2000 closing market stock price of $14.50 and do not take into account any diminution of value +attributable to vesting provisions on these shares. One-third of the options and performance restricted stock awards that have not been earned and issued into escrow will be surrendered +for cancellation and replaced with options and awards under the Marine Products 2001 Employee Stock Incentive Plan, pursuant to the spin-off. Time-Lapse Restricted Stock vests +ten years from the date of grant. This stock is forfeited if the employment of the Named Executive terminates prior to vesting for reasons other than death, retirement or permanent disability. During +these ten years, grantees receive all dividends declared and retain voting rights for the granted shares. Performance Restricted Stock is granted, but not earned and issued, until certain five year +tiered performance criteria are met. The performance criteria are predetermined market prices of the Company's stock. On the date the stock appreciates to each level (determination date), +20 percent of performance shares are earned. Once earned, the stock vests five years from the determination date. After the determination date, the grantee will receive all dividends declared +and also voting rights to the shares. +(2) Effective +July 1, 1984, the Company adopted the RPC, Inc. 401(k) Plan ("401(k) Plan"), a qualified retirement plan designed to meet the requirements of +Section 401(k) of the Internal Revenue Code. The 401(k) Plan provides for a matching contribution of forty cents ($.40) for each one dollar ($1.00) of a participant's contribution to the 401(k) +Plan, not to exceed 3 percent of his or her annual compensation (which includes commissions, overtime and bonuses). A participant's voluntary pretax salary deferrals made under the 401(k) Plan +are in lieu of payment of compensation to the participant. The amounts shown in this column represent the Company match for the Named Executives. +(3) James +A. Lane, Jr. will no longer be an employee of RPC, effective with the spin-off of Marine Products on February 28, 2001, but will serve as a director +of RPC. +7 +(4) Includes +a bonus of $2,407,323 pursuant to Mr. Lane's employment agreement plus an additional bonus of $852,125 from the gain on settlement of claim of an antitrust +allegation asserted against Brunswick Corporation by the American Boatbuilders Association (ABA), of which Chaparral is a member. +OPTION/SAR GRANTS IN FISCAL YEAR 2000 +No Options or Stock Appreciation Rights were granted during the year ending December 31, 2000. +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2000 +AND YEAR-END OPTION/SAR VALUES +Name +Shares Acquired +on Exercise +Value +Realized +Number of +Securities +Underlying +Unexercised +Options/SARs +at FY End(#)(1) +Exercisable/ +Unexercisable +Value of +Unexercised +In-the-Money +Options/SARs +At FY END($)(1) +Exercisable/ +Unexercisable +R. Randall Rollins +0 +0 +0/0 +0/0 +Richard A. Hubbell +0 +0 +135,200/64,800 +1,005,380/374,100 +James A. Lane, Jr. +0 +0 +0/0 +0/0 +Jonathan W. Moss +0 +0 +0/0 +0/0 +Ben M. Palmer +0 +0 +19,200/13,800 +106,150/80,475 +(1) Based +on the closing price of Company Common Stock on the New York Stock Exchange on December 29, 2000 of $14.50 per share. One-third of the options and awards +that have not been earned and issued into escrow will be surrendered for cancellation and replaced with options and awards under the Marine Products 2001 Employee Stock Incentive Plan pursuant to the +spin-off. +8 +Notwithstanding anything to the contrary set forth in any of the Company's filings under the Securities Act of 1933, as +amended, or the Securities Exchange Act of 1934, as amended, that might incorporate other Company filings, including this Proxy Statement, in whole or in part, the following Audit Committee and +Compensation Committee reports and the Performance Graph included herein shall not be incorporated by reference into any such filings. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee oversees RPC's reporting process on behalf of the Board of Directors. The Audit Committee of the Board of Directors is established pursuant +to the Company's Bylaws and the Audit Committee Charter adopted by the Board of Directors on April 25, 2000. A copy of the Audit Committee Charter is attached to this Proxy Statement as +Appendix A. +Management +is responsible for the Company's internal controls and the financial reporting process. The Company's independent auditors are responsible for performing an independent +audit of the Company's consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and for issuing a report thereon. The Audit +Committee's responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. +Each +member of the Audit Committee is independent in the judgment of the Company's Board of Directors and as required by the listing standards of the New York Stock Exchange. +With +respect to the year ended December 31, 2000, in addition to its other work, the Audit Committee: +• Reviewed +and discussed with the Company's management the audited financial statements of the Company as of December 31, 2000 and for the year then +ended; +• Discussed +with the independent auditors the matters required to be discussed by auditing standards generally accepted in the United States of America; and +• Received +from the independent auditors written affirmation of their independence required by Independence Standards Board No.1 and discussed with the +auditors the firm's independence. +Based +upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements of the Company, as of +December 31, 2000 and for the year then ended, be included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for filing with the +Securities and Exchange Commission. +AUDIT +COMMITTEE +Henry +B. Tippie, Chairman +Wilton Looney +James B. Williams +9 +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +Overview +During the fiscal year 2000, the members of the Compensation Committee of the Board of Directors held primary responsibility for determining executive +compensation levels. The Compensation Committee is comprised of outside directors who are not eligible to participate in the Company's compensation plans and over whose name this report is presented. +The +Company is engaged in highly competitive industries. The actions of the executive officers have a profound impact on the short-term and long-term +profitability of the Company; therefore, the design of the executive officer compensation package is very important. In order to retain key employees, the Company has an executive compensation package +that is driven by an increase in shareholder value, the overall performance of the Company, and the individual performance of the executive. The measures of the Company's performance include revenues +and net income. +Pursuant +to the above compensation philosophy, the three main components of the executive compensation package are base salary, cash based incentive plans, and stock based incentive +plans. +Base Salary +The factors subjectively used in determining base salary include the recent profit performance of the Company, the magnitude of responsibilities, the scope of +the position, individual performance, and the salary received by peers in similar positions in the same geographic area. These factors are not used in any specific formula or weighting. The salaries +of the Named Executives are reviewed annually. Increases to base salaries for the Named Executives ranged up to 13 percent based on individual performance. +Cash Based Incentive Plans +The Company has individualized cash based incentive plans developed to reward individual performance. The Company includes several subsidiaries conducting +business in unrelated industries, so each compensation plan was designed to be motivational and appropriate, based on the norms in that industry. +The +annual cash based incentive compensation package for the executive officers is developed by the Chief Executive Officer of the Company prior to the end of each fiscal year. It is +based upon performance objectives for the ensuing fiscal year. The Named Executives participate in a variety of individualized performance bonus plans designed to encourage achievement of +short-term objectives. These plans all have payouts subjectively based on net income, budget objectives, and other individual specific performance objectives. The specific performance +objectives relate to each executive improving the contribution of his functional area of responsibility to further enhance the earnings of the Company. The performance objectives and incentive package +are then reviewed by the Committee and are either accepted or modified. The Chief Executive Officer does not participate in the cash incentive plans. +One +of the Named Executives, James A. Lane, Jr. has an employment agreement with the Company that was first entered into as part of the Company's acquisition of Chaparral +Boats, Inc. on November 4, 1986. Under this agreement, Mr. Lane receives an annual cash incentive bonus of 10 percent of pretax profit of Chaparral Boats, Inc. This +incentive payment was approximately 98 percent of the total cash compensation paid to this executive in 2000. During 2000, Mr. Lane received in excess of $1 million in aggregate +compensation (the maximum amount for which an employer may claim a compensation deduction, pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, unless certain +performance related compensation exemptions are met, during any one fiscal year). The Company obtained stockholder approval of this agreement at the April 25, 1995 Stockholders' meeting in +order to qualify for the performance related compensation exemption. As of February 28, 2001, the effective date of the spin-off, Mr. Lane's employment agreement will no +longer be an obligation of RPC. +10 +Stock Based Incentive Plans +Awards under the Company's 1994 Employee Stock Incentive Plan are purely discretionary, and are not based on any specific formula and may or may not be granted +in any given fiscal year. Grants are made under the Plan, and the Plan is administered by, non-employee Directors within the meaning of Rule 16b-3 under the Securities +Exchange Act of 1934, as amended. When considering the grant of stock options, the Compensation Committee gives consideration to the overall performance of the Company and the performance of +individual employees. The Chief Executive Officer, R. Randall Rollins, maintains significant ownership interest in the Company, and was, therefore, not considered for grants in 2000 under the 1994 +Employee Stock Incentive Plan. During the fiscal year 2000, no options were granted to any of the Named Executives pending the completion of the spin-off of the Company's powerboat +manufacturing business, which became effective on February 28, 2001. +The +Committee considers it unlikely that any participants in the Company's stock plans will, in the foreseeable future, receive in excess of $1 million in aggregate +compensation (the maximum amount for which an employer may claim a compensation deduction pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, unless certain performance +related compensation exemptions are met) during any fiscal year, and has therefore, determined that since the exemption requirement does not apply, the Company will not change its various compensation +plans, or otherwise meet the requirements of such exemption, at this time. +CEO Pay +The CEO's compensation is determined by the Compensation Committee. For fiscal year 2000, the cash compensation of R. Randall Rollins, Chairman and Chief +Executive Officer, was $450,000, the same as it was in 1999. This represents the total compensation for Mr. Rollins, no portion of which was in performance driven bonuses or stock based +incentive plans. The CEO's compensation is based upon the long-term growth in net income, stockholder value improvements and the CEO's individual performance. The decision of the Committee +is subjective and is not based upon any specific formula or guidelines. The CEO does not consult with the Committee when his salary or incentive is determined. Neither the CEO nor any member of the +Compensation Committee participates in any Company incentive program. +COMPENSATION +COMMITTEE +Henry +B. Tippie, Chairman +Wilton Looney +James B. Williams +11 +COMMON STOCK PERFORMANCE +As part of the executive compensation information presented in this Proxy Statement, the Securities and Exchange Commission requires a five-year +comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an +industry or peer group index. The indices included in the following graph are the S&P 500 Index and a peer group which includes companies that are considered peers of the subsidiaries of the Company. +See "Recent Developments" for a discussion of the spin-off of the business conducted by Chaparral. The companies included in the peer group have been weighted according to each respective +issuer's stock market capitalization at the beginning of each year. The companies are Brunswick Corporation, which competes with the Company's boat manufacturing subsidiary; and Weatherford +International, Inc., which competes with one of the largest oil and gas services subsidiaries of the Company. +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN * +* Assumes +reinvestment of dividends. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Prior to June 30, 1984, the Company was a wholly-owned subsidiary of Rollins, Inc. ("Rollins"). On June 30, 1984, Rollins effected a +spin-off distribution to its stockholders of all of the outstanding shares of the Company (the "Rollins Spin-off"). Messrs. Gary W. Rollins and R. Randall Rollins, named +in the table under "Capital Stock" on page 2, have substantially similar interests in Rollins as they do in the Company. +The +Company receives certain administrative services from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement +basis and are terminable on six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges to the +Company (or to corporations which are subsidiaries of the Company) for such services aggregated $30,200 in 2000. +12 +Effective February 28, 2001, the Company will provide certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide +for the provision of services on a cost reimbursement basis and are terminable on 30 days notice. The services covered by these agreements include administration of certain employee benefit programs +and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services will be billed to Marine Products starting in March, 2001. +BENEFIT PLANS +The Company's Retirement Income Plan, effective July 1, 1984, is a trusteed defined benefit pension plan. The amounts shown on the following table are +those annual benefits payable for life on retirement at age 65. The amounts computed in the following table assume: (a) that the participant remains in the service of the Company until his +normal retirement date at age 65; (b) that the participant's earnings continue at the same rate as paid in the fiscal year ended December 31, 2000 during the remainder of his service +until age 65; (c) that the normal form of benefit is a single-life annuity, and (d) that the Plan continues without substantial modification. The column entitled remuneration +represents all compensation in the Summary Compensation table included herein. +PENSION PLAN TABLE +Remuneration +15 +20 +25 +30 +35 +$ +100,000 +$ +22,500 +$ +30,000 +$ +37,500 +$ +45,000 +$ +45,000 +200,000 +45,000 +60,000 +75,000 +90,000 +90,000 +300,000 +67,500 +90,000 +112,500 +135,000 +135,000 +400,000 +90,000 +120,000 +150,000 +180,000 +180,000 +500,000 +112,500 +150,000 +187,500 +225,000 +225,000 +600,000 +135,000 +180,000 +225,000 +270,000 +270,000 +700,000 +157,500 +210,000 +262,500 +315,000 +315,000 +800,000 +180,000 +240,000 +300,000 +360,000 +360,000 +900,000 +202,500 +270,000 +337,500 +405,000 +405,000 +1,000,000 +225,000 +300,000 +375,000 +450,000 +450,000 +The +above table does not reflect the Plan offset for Social Security average earnings, the maximum benefit limitations under Section 415 of the Internal Revenue +Code of 1986, as amended (the "Code"), or the maximum compensation limitation under Section 401(a)(17) of the Code. +Retirement +income benefits are based on the average of the employee's compensation from the Company for the five consecutive complete calendar years of highest compensation during the +last ten consecutive complete calendar years ("final average compensation") immediately preceding the employee's retirement date or, if earlier, the date of his termination of employment. All +corporate employees of the Company and its subsidiaries (other than employees subject to collective bargaining agreements) are eligible to participate in the Retirement Income Plan after completing +1 year of service as an employee. The benefit formula is 1 1 / 2 percent of final average compensation less 3 / 4 of 1 percent (0.75%) of final average FICA +earnings multiplied by years of service (maximum 30 years). The Plan also provides reduced early retirement benefits under certain conditions. In accordance with the Code, the maximum annual +benefit that could be payable to a Retirement Income Plan beneficiary in 2000 was $135,000. However, this limitation does not affect previously accrued benefits of those individuals who became +entitled to benefits in excess of $135,000 prior to the effective date of the applicable provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Tax Reform Act of 1986. In +accordance with the Code (as amended by the Omnibus Budget Reconciliation Act of 1993), the maximum compensation recognized by the Retirement Income Plan was $170,000 in 2000. Retirement benefits +accrued at the end of any calendar year will not be reduced by any subsequent changes in the maximum compensation limit. Participants in the Rollins, Inc. Retirement Income Plan who transferred +their employment to the Company as a result of the Rollins Spin-off participated immediately in the Plan. The current credited years of service for the five individuals named in the +Summary Compensation table are: R. Randall Rollins—30, Richard A. Hubbell—14, James A. Lane, Jr.—13, Jonathan W. +Moss—30, and Ben M. Palmer—4. +13 +Effective July 1, 1984, the Company adopted a qualified 401(k) Plan. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to +the vested balance in the +participant's account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant's vested accrued benefit is payable upon his termination of employment, +retirement, total and permanent disability, or death. Also under the 401(k) Plan, the pre-tax account is payable upon attainment of age 59 1 / 2 or in the event of certain +specified instances of financial hardship. Amounts contributed by the Company to the accounts of Named Executives for 2000 under this plan are reported in the "All Other Compensation" column of the +Summary Compensation table included herein. +INDEPENDENT PUBLIC ACCOUNTANTS +Arthur Andersen LLP served as the auditors for the Company for the fiscal year ended December 31, 2000. In addition to performing the audit of +the Company's consolidated financial statements, Arthur Andersen provided various other services during 2000. The aggregate fees billed for 2000 for each of the following categories of services are +set forth below: +Audit and quarterly reviews +$ +90,000 +All other services +$ +400,000 +Arthur +Andersen did not provide any services related to financial information systems design and implementation during 2000. All other services include: +1. Tax +planning and preparation of tax returns of the Company +2. Audit +of the Company's employee benefit plans +3. Acquisitions, +due diligence reviews and services related to the spin-off transaction +For +the year ended December 31, 2000 the Company's Audit Committee has considered whether the provision of non-audit services is compatible with maintaining auditor +independence. +As +is its policy, upon the recommendation of the Audit Committee, the Board of Directors shall select a firm of independent public accountants for fiscal 2001. It is anticipated that +a representative of Arthur Andersen LLP will be present at the Annual Meeting to answer questions and make a statement should such representative so desire. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all Directors, Officers and greater than +10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all +Directors, Officers and greater than 10 percent stockholders from whom no Form 5 was received, indicating that no Form 5 filing was required. Based solely on this review, the +Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2000 have been satisfied, except that Mr. Moss filed one +Form 5 late reporting one 1999 transaction. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company's 2002 Annual Meeting of Stockholders pursuant to Rule 14a-8 +promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must be received by the Company by November 23, 2001 for inclusion in its Proxy Statement and form of +proxy relating to that meeting. In addition, all stockholder proposals submitted outside of the stockholder proposal rules promulgated pursuant to Rule 14a-8 under the +Exchange Act must be received by the Company by February 6, 2002 in order to +14 +be considered timely. If such stockholder proposals are not timely received, proxyholders will have discretionary voting authority with regard to any such stockholder proposals which may come before +the 2002 Annual Meeting. With regard to such stockholder proposals, if the date of the 2002 Annual Meeting is subsequently advanced or delayed by more than 30 days from the date of the 2001 +Annual Meeting, the Company shall, in a timely manner, inform stockholders of the change and the date by which proposals must be received. +VOTING PROCEDURES AND VOTE REQUIRED +The Chairman of the Board of Directors of the Company will select a representative of the Company's transfer agent as Inspector of the Election, to determine +the eligibility of persons present at the Annual Meeting to vote and to determine whether the name signed on each proxy card corresponds to the name of a stockholder of the Company. The Inspector +shall also determine whether or not a quorum of the shares of the Company (consisting of a majority of the votes entitled to be cast at the Annual Meeting) exists at the Annual Meeting. Abstentions +and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. If a quorum exists and a vote is taken at the Annual +Meeting, the Inspector shall tabulate (i) the votes cast for or against each nominee for Director and (ii) the abstentions with respect to each nominee for Director. +In +accordance with the Delaware General Corporation Law, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by +the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Meeting. In the case of a plurality vote requirement (as in the election of Directors), +where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast in favor of each nominee, and hence only votes for a nominee (and not abstentions +or broker non-votes) are relevant to the outcome. +MISCELLANEOUS +The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 is being mailed to stockholders with this Proxy +Statement. +Management +knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time that may come +before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named +in the proxy to vote in accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, +Georgia +March 26, 2001 +15 +APPENDIX A +AUDIT COMMITTEE CHARTER +RPC INCORPORATED +AUDIT COMMITTEE CHARTER +PURPOSE +The primary purpose of the Audit Committee (the "Committee") is to assist the Company's Board of Directors (the "Board") in fulfilling its responsibility to +oversee management's conduct of the Company's financial reporting process, including (by overseeing the financial reports and other financial information provided by the Company to any governmental or +regulatory body, the public or other users thereof) the Company's systems of internal accounting and financial controls, and the annual independent audit of Company's financial statements. +In +discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of +the Company. The Committee is authorized to retain outside counsel, auditors or other experts and professional for this purpose. The Board and the Committee are in place to represent the Company's +shareholders; accordingly, the outside auditor is ultimately accountable to the Board and the Committee. +MEMBERSHIP +The Committee shall be comprised of not less than three members of the Board, and the Committee's composition shall meet all requirements of the Audit +Committee Policy of the New York Stock Exchange. +Accordingly, +all of the members must be directors: +• Who +have no relationship to the Company that may interfere with the exercise of their independence from management and the Company; and +• Who +are financially literate or who become financially literate within a reasonable period of time after appointment to the Committee. In addition, at +least one member of the Committee must have accounting or related financial management expertise. +KEY RESPONSIBILITIES +The Committee's job is one of oversight and it recognizes that the Company's management members are responsible for the preparation of the Company's financial +statements. Consequently, in discharging its oversight responsibilities, the Committee is not providing any expertise or special assurance as to the Company's financial statements or any professional +certification as to the outside auditor's work. +The +following functions shall be the common recurring activities of the Committee in carrying out its oversight function. These functions are set forth as a guide with the +understanding that the Committee may diverge from this guide as appropriate under the circumstances. +• The +Committee shall review with management and the outside Company's auditors the audited financial statements to be included in the Company's Annual +Report on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K) and review and consider with the outside auditors the +matters required to be discussed by Statement of Auditing Standards ("SAS") No. 61. The management review shall include consultation with the Company's counsel relative to legal matters that +could have a significant impact on the Company's financial statements. +• As +a whole, or through the Committee chair, the Committee shall review with the outside auditors the Company's interim financial results to be included in +the Company's Quarterly Reports on Form 10-Q to be filed with the Commission and the matters required to be discussed by SAS No. 61. Such review shall occur prior to the +filing of the Company's Quarterly Reports on Form 10-Q. +• The +Committee shall discuss with management and the outside auditors the quality and adequacy of the Company's internal controls. +• The +Committee shall: +• +Request from the outside auditors annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standards Board Standard No. 1; +• +Discuss with the outside auditors any such disclosed relationships and their impact on the outside auditor's independence; and +• +Recommend that the Board take appropriate action in response to the outside auditor's report to satisfy itself of the auditor's independence. +• The +Committee, subject to any action that may be taken by the full Board, shall have the ultimate authority and responsibility to select (or nominate for +shareholder approval), evaluate and, where appropriate, replace the outside auditor. +• The +Committee shall review the adequacy of the Charter on an annual basis. +RPC, INC. +Proxy Solicited by the Board of Directors of RPC, Inc. +for Annual Meeting of Stockholders on Tuesday, April 24, 2001, 9:30 A.M. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with +full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 24, 2001, at 9:30 A.M. +at 2170 Piedmont Road, NE, Atlanta, Georgia, or any adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 26, 2001, grants authority to said proxies, or either of +them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that +said proxies or their substitutes may lawfully do in the undersigned's name, place and stead. The undersigned instructs said proxies, or either of them, to vote as follows: +1. +/ / +FOR Wilton Looney, Gary W. Rollins and James A. Lane, Jr. as Class III Directors except as indicated below +/ / +ABSTAIN from voting for the election of all Class III nominees +2. +/ / +FOR Linda H. Graham as a Class II Director +/ / +ABSTAIN from voting for the election of Linda H. Graham +INSTRUCTIONS: To refrain from voting for any individual nominee, write that nominee's name in the space provided below: +3. ON +ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +(over) +RPC, INC. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED "FOR" THE ABOVE-NAMED NOMINEES FOR +DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please +sign below, date and return promptly. +Signature +Dated: +, 2001 +(Signature +should conform to name and title stenciled hereon. Executors, administrators, trustees, guardians and attorneys should add their title upon signing) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +QuickLinks +PROXY STATEMENT +SOLICITATION OF AND POWER TO REVOKE PROXY +RECENT DEVELOPMENTS +CAPITAL STOCK +ELECTION OF DIRECTORS +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +OPTION/SAR GRANTS IN FISCAL YEAR 2000 +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2000 AND YEAR-END OPTION/SAR VALUES +REPORT OF THE AUDIT COMMITTEE +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +COMMON STOCK PERFORMANCE +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +BENEFIT PLANS +PENSION PLAN TABLE +INDEPENDENT PUBLIC ACCOUNTANTS +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +STOCKHOLDER PROPOSALS +VOTING PROCEDURES AND VOTE REQUIRED +MISCELLANEOUS +RPC INCORPORATED AUDIT COMMITTEE CHARTER +RPC, INC. \ No newline at end of file diff --git a/raw/proxies/0000742278/0000912057-01-008534/proxy_rpt.txt b/raw/proxies/0000742278/0000912057-01-008534/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..29a0b097824dd905c0c75d5b8eff8a673a91fe84 --- /dev/null +++ b/raw/proxies/0000742278/0000912057-01-008534/proxy_rpt.txt @@ -0,0 +1,12 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Prior to June 30, 1984, the Company was a wholly-owned subsidiary of Rollins, Inc. ("Rollins"). On June 30, 1984, Rollins effected a +spin-off distribution to its stockholders of all of the outstanding shares of the Company (the "Rollins Spin-off"). Messrs. Gary W. Rollins and R. Randall Rollins, named +in the table under "Capital Stock" on page 2, have substantially similar interests in Rollins as they do in the Company. +The +Company receives certain administrative services from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement +basis and are terminable on six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges to the +Company (or to corporations which are subsidiaries of the Company) for such services aggregated $30,200 in 2000. +12 +Effective February 28, 2001, the Company will provide certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide +for the provision of services on a cost reimbursement basis and are terminable on 30 days notice. The services covered by these agreements include administration of certain employee benefit programs +and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services will be billed to Marine Products starting in March, 2001. \ No newline at end of file diff --git a/raw/proxies/0000742278/0000912057-02-012168/proxy.txt b/raw/proxies/0000742278/0000912057-02-012168/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..df7ceb7c15e52a8485e7f1cb7ab4b8ee15135305 --- /dev/null +++ b/raw/proxies/0000742278/0000912057-02-012168/proxy.txt @@ -0,0 +1,1030 @@ +DEF 14A +1 +a2073224zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant / / +Filed by a Party other than the Registrant / / +Check the appropriate box: +/ / +Preliminary Proxy Statement +/ / +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +/X/ +Definitive Proxy Statement +/ / +Definitive Additional Materials +/ / +Soliciting Material Pursuant to §240.14a-12 +RPC, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +/X/ +No fee required. +/ / +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +/ / +Fee paid previously with preliminary materials. +/ / +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2170 Piedmont Road, NE, Atlanta, Georgia 30324 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2002 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation ("RPC" +or "the Company"), will be held at the Company's offices located at 2170 Piedmont Road, NE, Atlanta, Georgia, on Tuesday, April 23, 2002, at 9:20 A.M., or any adjournment thereof, for +the following purposes: +(1) To +elect three Class I directors to the Board of Directors; +(2) To +transact such other business as may properly come before the meeting or any adjournment thereof. +The +Proxy Statement dated March 18, 2002 is attached. +The +Board of Directors has fixed the close of business on February 26, 2002 as the record date for the determination of stockholders entitled to notice of, and to vote at, the +meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in +the United States. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March 18, 2002 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 22, 2002. The following information concerning the enclosed +proxy and the matters to be acted upon at the Annual Meeting of Stockholders to be held on April 23, 2002, is submitted by the Company to the stockholders for their information. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the +Company will be voted in favor of the candidates for election to the Board of Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority if he so elects, by +contacting either proxyholder. +CAPITAL STOCK +The outstanding capital stock of the Company on February 26, 2002 consisted of 28,704,075 shares of Common Stock, par value $0.10 per share. Holders of +Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on February 26, 2002, the record +date for determining stockholders entitled to notice of and to vote at the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of determining the presence or +absence of a quorum for the transaction of business. In accordance with General Corporation Law of the state +of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the +election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the +outcome is solely a matter of comparing the number of votes cast for each nominee, and hence only votes for director nominees (and not abstentions or broker non-votes) are relevant to the +outcome. +The +executives named in the Summary Compensation Table, all of the directors of the Company and the name and address of each stockholder who owned beneficially five percent (5%) or more +of the shares of Common Stock of the Company on February 26, 2002, together with the number of shares so owned and the percentage of outstanding shares that ownership represents, and +information as to +2 +Common Stock ownership of the executive officers and directors of the Company as a group (according to information received by the Company), is set out below: +Name and Address +of Beneficial Owner +Amount +Beneficially +Owned(1) +Percent of +Outstanding +Shares +FMR Corporation +82 Devonshire Street +Boston, Massachusetts +2,933,300 +(2) +10.2 +R. Randall Rollins +Chairman of the Board and Chief Executive Officer +2170 Piedmont Road, NE +Atlanta, Georgia +15,376,787 +(3) +53.3 +Gary W. Rollins +Director +2170 Piedmont Road, NE +Atlanta, Georgia +15,599,915 +(4) +54.0 +Richard A. Hubbell +President and Chief Operating Officer +2170 Piedmont Road, NE +Atlanta, Georgia +354,003 +(5) +1.2 +Jonathan W. Moss +Executive Vice President +2170 Piedmont Road, NE +Atlanta, Georgia +22,111 +(6) +** +Linda H. Graham +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia +81,109 +(7) +** +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +2170 Piedmont Road, NE +Atlanta, Georgia +54,930 +(8) +** +Henry B. Tippie +Chairman of the Board and Chief Executive Officer, +Tippie Services, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +1,658,280 +(9) +5.7 +Wilton Looney +Honorary Chairman of the Board, +Genuine Parts Company +2170 Piedmont Road, NE +Atlanta, Georgia +1,200 +** +James B. Williams +Chairman of the Executive Committee, +SunTrust Banks, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +40,000 +** +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation, and President of +Chaparral Boats, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +130,130 +(10) +** +All Directors and Executive Officers as a group (10 persons) +17,719,315 +(11) +61.4 +** Less +than one percent +(1) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) Based +on Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2002. +(3) Includes +514,702 shares of Common Stock held as Trustee, Guardian, or Custodian for his children or as Custodian for the children of his brother, Gary W. Rollins. Also includes +1,385,560 shares of Common Stock in four trusts of which he is a Co-Trustee and as to which Mr. Rollins shares voting and investment power. Also includes 12,493,828 shares owned by +LOR, Inc. Mr. Rollins is an officer, director and stockholder of LOR, Inc. Also includes 345,600 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an +officer, director and stockholder of Rollins Holding Company, Inc. Also includes 77,482 shares held by Rollins Investment Fund, a Georgia general partnership, of which Mr. Rollins is a +general partner. Also includes 73,430 shares held by RWR Investment Partnership, a Georgia limited partnership, of which Mr. Rollins is a +3 +general +partner. Does not include 24,473 shares of Common Stock held by his wife, in which Mr. Rollins disclaims any beneficial interest. +(4) Includes +418,861 shares of Common Stock held as Trustee or Custodian for his children or as Custodian for the children of his brother, R. Randall Rollins. Also includes 1,358,680 +shares of Common Stock in four trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 12,493,828 shares owned by LOR, Inc. +Mr. Rollins is an officer, director and stockholder of LOR, Inc. Also includes 345,600 shares owned by Rollins Holding Company, Inc. Mr. Rollins is an officer, director and +stockholder of Rollins Holding Company, Inc. Also includes 307,664 shares held by Rollins Investment Fund, a Georgia general partnership, of which Mr. Rollins is a general partner. Does +not include 100,004 shares of Common Stock held by his wife, in which Mr. Rollins disclaims any beneficial interest. +(5) Includes +133,195 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 131,913 shares of restricted stock +awards. +(6) Mr. Moss +retired as an Executive Vice President of RPC, effective July 1, 2001, at which time the Compensation Committee waived additional vesting requirements on 28,800 +shares of restricted stock held in escrow. Such shares would have vested at various times between July, 2001 and April, 2004. +(7) Includes +14,773 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 17,405 shares of restricted stock +awards. +(8) Includes +22,525 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 30,305 shares of restricted stock +awards. +(9) Includes +1,408,280 shares of common stock held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Does not include +12,408 shares held by the Estate of John W. Rollins; Mr. Tippie is the executor of the estate. +(10) Includes +40,000 shares of restricted stock awards. +(11) Shares +held in trusts as to which more than one officer and/or director are Co-Trustees have been included only once. Includes an aggregate of 390,116 shares which may be +purchased by three executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of the date hereof, or restricted stock grants awarded to +or earned by them pursuant to the Company's 1984 Incentive Stock Option Plan and 1994 Employee Stock Incentive Plan. +ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. R. Randall Rollins, Henry B. Tippie and James B. Williams will be nominated to serve as Class I directors. The +directors in each class serve for a three year term. The director nominees will serve in their respective class until their successors are elected and qualified. Five other individuals serve as +directors but are not standing for re-election because +their terms as directors extend past this Annual Meeting pursuant to provisions of the Company's Bylaws which provide for the election of directors for staggered terms, with each director serving a +three-year term. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below as directors. Although management does not contemplate the +possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who +shall be designated by the present Board of Directors to fill such vacancy. +The +name and age of each of the three director nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, +by him or her and the percentage of outstanding shares that ownership represents, all as of the close of business on February 26, 2002, (according to information received by the Company) are +set out below. Similar information is also provided for those directors whose terms expire in future years. Each director was originally elected as a director shortly after incorporation of the +Company in January 1984, with the exception of Messrs. Richard A. Hubbell and James A. Lane, Jr., who were elected as directors on January 27, 1987, and Ms. Linda H. +Graham, who has served as Vice President and Secretary of RPC since January 27, 1987, who was elected as director on April 24, 2001. +4 +Names of Nominees +Principal Occupation(1) +Age +Common +Stock(2) +Percentage of +Outstanding +Shares +Class I (New Term Expires 2005) +R. Randall Rollins(3) +Chairman of the Board and Chief Executive Officer of the Company; Chairman of the Board of Marine Products Corporation (since March 2001); Chairman of the Board of Rollins, Inc. (consumer services) (since October 1991); +Vice Chairman of the Board of Rollins, Inc. (prior to October 1991). +70 +15,376,787 +(4) +53.3 +Henry B. Tippie +Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services). +75 +1,658,280 +(5) +5.7 +James B. Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) since 1998; and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1995 to 1998. +68 +40,000 +** +Names of Directors Whose Terms Have Not Expired +Class II (Term Expires 2003) +Richard A. Hubbell +President and Chief Operating Officer of the Company; President and Chief Executive Officer of Marine Products Corporation +57 +354,003 +(6) +1.2 +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation +65 +81,109 +(7) +** +Class III (Term Expires 2004) +Wilton Looney +Honorary Chairman of the Board, Genuine Parts Company (automotive parts distributor). +82 +1,200 +** +Gary W. Rollins(3) +President and Chief Executive Officer of Rollins, Inc. (consumer services) +57 +15,599,915 +(8) +54.0 +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation; President of Chaparral Boats, Inc. +59 +130,130 +(9) +** +** less +than one percent +(1) Unless +otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. +In addition to the directorships listed in this column, the following individuals also serve on the boards of directors of the following companies: Henry B. Tippie: Dover Downs +Entertainment, Inc. and SafetyKleen; James B. Williams: SunTrust Banks, Inc., The Coca-Cola Company, and Genuine Parts Company; R. Randall Rollins: SunTrust +Banks, Inc., SunTrust Banks of Georgia and Dover Downs Entertainment, Inc. All of the directors shown in the above table are also directors of Marine Products Corporation and with the +exception of Messrs. Hubbell and Lane and Ms. Graham are also directors of Rollins, Inc. +(2) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) R. +Randall Rollins and Gary W. Rollins are brothers. +(4) See +information contained in footnote (3) to the table appearing in Capital Stock section. +(5) See +information contained in footnote (9) to the table appearing in Capital Stock section. +(6) See +information contained in footnote (5) to the table appearing in Capital Stock section. +(7) See +information contained in footnote (7) to the table appearing in Capital Stock section. +(8) See +information contained in footnote (4) to the table appearing in Capital Stock section. +(9) See +information contained in footnote (10) to the table appearing in Capital Stock section. +5 +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +During 2001, non-employee Directors received from the Company $1,000 for each meeting of the Board of Directors or committee they attended, plus +$10,000 per year. +The +Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie, Chairman, Wilton Looney and James B. Williams. The Audit Committee held six meetings during the +fiscal year ended December 31, 2001. Its functions are described under the caption, "Report of the Audit Committee." The Compensation Committee of the Board of Directors of the Company +consists of Henry B. Tippie, Chairman, Wilton Looney, and James B. Williams. It held two meetings during the fiscal year ended December 31, 2001. The function of the Compensation Committee is +to review the compensation of R. Randall Rollins, Chairman and Chief Executive Officer, and recommend to the Board any changes to insure continued effectiveness. The Compensation Committee also +administers the RPC, Inc. 1994 Employee Stock Incentive Plan. The Executive Committee of the Board of Directors consists of R. Randall Rollins and Gary W. Rollins. The Executive Committee had +one meeting related to executive compensation during the year ended December 31, 2001. The function of the Executive Committee is to review the compensation for the Named Executives excluding +R. Randall Rollins and recommend to the Board any changes to insure continued effectiveness and to take all permitted actions of the Board in its stead. The Board of Directors met five times during +the fiscal year ended December 31, 2001. The Company does not have a nominating committee of the Board of Directors. No director attended fewer than 75 percent of the Board meetings and +meetings of committees on which he or she served during 2001. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company's Compensation Committee are or have ever been employees of the Company. R. Randall Rollins and Gary +W. Rollins serve on the Company's Executive Committee. R. Randall Rollins is an employee of the Company. R. Randall Rollins and Gary W. Rollins also serve on the executive committees of +Rollins, Inc. and Marine Products Corporation. Richard A. Hubbell, who is an employee of the Company, also serves on the executive committee of Marine Products Corporation. These committees +make certain decisions with respect to the compensation of the executive officers of those companies. Except as otherwise noted, no executive officer of the Company serves on a Compensation Committee +of another company. R. Randall Rollins, an executive of the Company, serves on the Board of Directors of both SunTrust Banks, Inc. and SunTrust Banks of Georgia, a subsidiary of SunTrust +Banks, Inc. Mr. Williams is the Chairman of the Executive Committee, SunTrust Banks, Inc. Mr. Rollins is not on the Compensation Committee of SunTrust Banks, Inc., +or SunTrust Banks of Georgia. RPC maintains a significant banking relationship with SunTrust Bank of Georgia. All banking services provided to the Company by SunTrust Banks of Georgia are priced at +market-competitive rates. +6 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended +December 31, 2001, 2000 and 1999 of those persons who were at December 31, 2001 (i) the Chief Executive Officer and (ii) the most highly compensated executive officers of +the Company whose total annual compensation exceeded $100,000, and the one person who would have been among the most highly compensated executive officers had he continued as an executive officer +until the end of the year (the "Named Executives"): +SUMMARY COMPENSATION TABLE +Long-Term +Compensation Awards +Annual +Compensation +Restricted +Stock +Awards +($) (1) +Name and Principal Position +Securities +Underlying +Options (#)(1) +All Other +Compensation(2) +Year +Salary +Bonus +R. Randall Rollins +Chairman of the Board and Chief Executive Officer +2001 +2000 +1999 +$ +325,000 +450,000 +450,000 +$ +50,000 +0 +0 +0 +0 +0 +0 +0 +0 +$ +0 +0 +0 +Richard A. Hubbell +President and Chief Operating Officer +2001 +2000 +1999 +391,667 +437,568 +400,000 +200,000 +225,000 +0 +0 +0 +206,250 +50,000 +0 +51,458 +(3) +2,040 +2,040 +1,920 +Jonathan W. Moss (4) +Executive Vice President +2001 +2000 +1999 +122,518 +189,036 +189,036 +0 +6,494 +0 +0 +0 +0 +0 +0 +0 +2,040 +2,040 +1,920 +Linda H. Graham +Vice President and Secretary +2001 +2000 +1999 +102,083 +118,750 +100,000 +25,000 +25,000 +0 +0 +0 +0 +5,000 +0 +3,783 +(3) +1,975 +1,425 +1,320 +Ben M. Palmer +Vice President, Chief Financial Officer, and Treasurer +2001 +2000 +1999 +155,621 +172,100 +160,000 +60,000 +50,000 +30,000 +196,500 +0 +41,250 +15,000 +0 +9,838 +(3) +2,040 +2,040 +1,920 +(1) The +total number of shares held and their values on December 31, 2001 were as follows: Mr. Hubbell, 131,913 shares valued at $2,328,000, Ms. Graham, 18,918 shares +valued at $334,000 of which 1,513 shares are subject to issuance upon meeting performance criteria as defined in the related Performance Restricted Stock Agreement and Mr. Palmer, 37,472 shares +valued at $661,000 of which 10,167 shares are subject to issuance upon meeting performance criteria as defined in the related Performance Restricted Stock Agreement. The December 31, 2001 +values are based on the closing stock market price of $17.65 and do not take into account any diminution of value attributable to vesting provisions on these shares. Time-Lapse Restricted +Stock vests ten years from the date of grant. This stock is forfeited if the employment of the Named Executive terminates prior to vesting for reasons other than death, retirement or permanent +disability. During these ten years, grantees receive all dividends declared and retain voting rights for the granted shares. Performance Restricted Stock is granted, but not earned and issued, until +certain five year tiered performance criteria are met. The performance criteria are predetermined market prices of the Company's stock. On the date the stock appreciates to each level (determination +date), 20 percent of performance shares are earned. Once earned, the stock vests five years from the determination date. After the determination date, the grantee will receive all dividends +declared and also voting rights to the shares. During 2001, 17,600 shares and 2,400 shares of restricted stock vested and were released to Mr. Hubbell and Ms. Graham, respectively, and +are not included in the year end holdings stated above. +(2) Effective +July 1, 1984, the Company adopted the RPC, Inc. 401(k) Plan ("401(k) Plan"), a qualified retirement plan designed to meet the requirements of +Section 401(k) of the Internal Revenue Code. The 401(k) Plan provides for a matching contribution of forty cents ($0.40) for each one dollar ($1.00) of a participant's contribution to the +401(k) Plan, that does not exceed 3 percent of his or her annual compensation (which includes commissions, overtime and bonuses). A participant's voluntary pretax salary deferrals made under +the 401(k) Plan are in lieu of payment of compensation to the participant. The amounts shown in this column represent the Company match for the Named Executives. +7 +(3) Amounts +have been adjusted pursuant to the spin-off in February 2001. One-third of the outstanding options as of the spin-off were +surrendered for cancellation and replaced with options under the Marine Products 2001 Employee Stock Incentive Plan. +(4) J.W. +Moss retired from the Company in July, 2001 and is no longer an executive officer of the Company. All of his restricted stock awards were released to him upon his retirement. +OPTION/SAR GRANTS IN FISCAL YEAR 2001 +The following table sets forth stock options granted in the fiscal year ending December 31, 2001 to each of the Company's Named Executives. Employees of +the Company and its subsidiaries are eligible for stock option grants based on individual performance. The table sets forth the hypothetical gains that would exist for the options at the end of their +ten-year term, assuming compound rates of stock appreciation of five percent and ten percent. The actual future value of the option will depend on the market value of the Company's Common +Stock. All option exercise prices are based on the market price on the grant date. +Individual Grants(1) +Potential Realizable +Value At Annual Rates +Of Stock Price +Appreciation For +Option Term(2) +Percent +Of Total +Options +Granted To +Employees +In Fiscal +Year +Number of +Securities +Underlying +Options +Granted(#) +Name +Exercise Or +Base Price +($/Share) +Expiration +Date +5% +10% +R. Randall Rollins +0 +0 +0 +0 +0 +0 +Richard A. Hubbell +50,000 +(3) +10.9 +% +13.10 +4/24/11 +411,926 +1,043,901 +J.W. Moss +0 +0 +0 +0 +0 +0 +Linda H. Graham +5,000 +(4) +1.1 +% +13.10 +4/24/11 +41,193 +104,390 +Ben M. Palmer +15,000 +(4) +3.3 +% +13.10 +4/24/11 +123,578 +313,170 +(1) Options +were granted on April 24, 2001 at a price of $13.10 per share. No Stock Appreciation Rights were granted to the Named Executives during 2001. +(2) These +amounts, based on assumed appreciation rates of five percent and 10 percent as prescribed by the Securities and Exchange Commission rules, are not intended to forecast +possible future appreciation, if any, of the Company's stock price. These numbers do not take into account certain provisions of options providing for termination of the option following termination +of employment, nontransferability or phased-in vesting. The Company did not use an alternative formula for a grant date valuation as it is not aware of any formula which will determine +with reasonable accuracy a present value based on future unknown or volatile factors. Future compensation resulting from option grants is based solely on the performance of the Company's stock price. +(3) Of +the total options granted, 21,534 are non-qualified options. All of the options vest and become exercisable at predetermined percentages and expire after +10 years. +(4) These +Incentive Stock Options vest and become exercisable 20 percent each year and expire after 10 years. +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2001 +AND YEAR-END OPTION/SAR VALUES +Name +Shares Acquired +on Exercise +Value +Realized +Number of +Securities +Options/SARs +at FY-End(#) +Exercisable/ +Unexercisable +Value of +Unexercised +In-the-Money +Options/SARs +At FY-End($)(1) +Exercisable/ +Unexercisable +R. Randall Rollins +0 +0 +0 +0 +Richard A. Hubbell +0 +0 +98,192/103,153 +1,121,389/763,628 +Jonathan W. Moss +0 +0 +0 +0 +Linda H. Graham +0 +0 +12,108/8,783 +149,497/60,171 +Ben M. Palmer +0 +0 +14,530/25,444 +141,601/172,808 +(1) Based +on the closing price of Company Common Stock on the New York Stock Exchange on December 31, 2001 of $17.65 per share. +8 +REPORTS OF THE AUDIT, COMPENSATION AND EXECUTIVE COMMITTEES AND +PERFORMANCE GRAPH +Notwithstanding anything to the contrary set forth in any of the Company's filings under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, that might incorporate other Company filings, including this Proxy Statement, in whole or in part, the following Report of the Audit Committee, Report of +the Compensation Committee and Executive Committee on Executive Compensation and the Performance Graph included herein shall not be incorporated by reference into any such +filings. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors is established pursuant to the Company's Bylaws and the Audit Committee Charter adopted by the Board of Directors on +April 25, 2000. A copy of the Audit Committee Charter is attached to this Proxy Statement as Appendix A. +Each +member of the Audit Committee is independent in the judgement of the Company's Board of Directors and as required by the listing standards of the New York Stock Exchange. +The +Audit Committee of the Board of Directors of the Company has reviewed and discussed the consolidated financial statements of the Company and its subsidiaries to be set forth in the +Company's 2001 Annual Report to stockholders and at Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2001, with management of the Company +and Arthur Andersen LLP, independent public accountants for the Company. +The +Audit Committee has discussed with Arthur Andersen LLP the matters required to be discussed by Statement on Auditing Standards No. 61, "Communications with Audit Committees," +as amended, which includes, among other items, matters relating to the conduct of an audit of the Company's financial statements. +The +Audit Committee has received the written disclosures and the letter from Arthur Andersen LLP required by Independence Standards Board Standard No.1, "Independence Discussions with +Audit Committees" and has discussed with Arthur Andersen LLP its independence from the Company. +Based +on the review and discussions with management of the Company and Arthur Andersen LLP referred to above, the Audit Committee has recommended to the Board of Directors that the +Company publish the consolidated financial statements of the Company and subsidiaries for the year ended December 31, 2001 in the Company's Annual Report on Form 10-K for the +year ended December 31, 2001 and in the Company's 2001 Annual Report to Stockholders. +It +is not the duty of the Audit Committee to plan or conduct audits or determine that the Company's financial statements are complete and accurate and in accordance with generally +accepted accounting principles; that is the responsibility of management and the Company's independent public accountants. In giving its recommendation to the Board of Directors, the Audit Committee +has relied on (i) management's representation that such financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles +(management relies in part on a business ethics questionnaire completed by all supervisory personnel) and (ii) the report of the Company's independent auditors with respect to such financial +statements. +Submitted +by the members of the Audit Committee of the Board of Directors. +AUDIT +COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +9 +REPORT OF THE COMPENSATION COMMITTEE AND EXECUTIVE COMMITTEE ON EXECUTIVE COMPENSATION +Overview +During the fiscal year 2001, the members of the Compensation Committee of the Board of Directors held primary responsibility for determining the compensation for +R. Randall Rollins, Chairman of the Board and Chief Executive Officer, and the stock based incentives for all the Named Executives. The Executive Committee held responsibility for determining the +compensation of the Named Executives excluding Mr. Rollins. The Compensation Committee is comprised of outside directors who are not eligible to participate in the Company's compensation plans. +The +Company is engaged in a highly competitive industry. The actions of the executive officers have a profound impact on the short-term and long-term +profitability of the Company; therefore, the design of the executive officer compensation package is very important. In order to retain key employees, the Company has an executive compensation package +that is driven by an increase in shareholder value, the overall performance of the Company, and the individual performance of the executive. The measures of the Company's performance include revenues +and net income. +Pursuant +to the above compensation philosophy, the three main components of the executive compensation package are base salary, cash based incentive plans, and stock based incentive +plans. +In +connection with the spin-off of Marine Products Corporation in February 2001, the responsibilities of the Chairman and Chief Executive Officer, and certain of the +other Named Executives were reassessed and their compensation packages were restructured. Mr. Rollins, Mr. Hubbell, Mr. Palmer and Ms. Graham are now employees of the +Company and Marine Products Corporation. Accordingly, the compensation of these Named Executives was reduced at RPC as these Named Executives receive compensation directly from Marine Products +Corporation. +Base Salary +The factors subjectively used in determining base salary include the recent profit performance of the Company, the magnitude of responsibilities, the scope of the +position, individual performance, and the salary received by peers in similar positions in the same geographic area. These factors are not used in any specific formula or weighting. The salaries of +the Named Executives are reviewed annually. Decreases in base salaries for the Named Executives ranged up to 10 percent, after taking into consideration factors associated with the +spin-off in February 2001. +Cash Based Incentive Plans +The annual cash based incentive compensation package for the other Named Executives is developed by the Chief Executive Officer of the Company prior to the end of +each fiscal year. It is based upon performance objectives for the ensuing fiscal year. The Named Executives participate in a variety of individualized performance bonus plans designed to encourage +achievement of short-term objectives. These plans all have payouts subjectively based on net income, budget objectives, and other individual specific performance objectives. The specific +performance objectives relate to each executive improving the contribution of his functional area of responsibility to further enhance the earnings of the Company. These performance objectives and +incentive package are then reviewed by the Executive Committee and either accepted, amended, or modified. All of the Named Executives participating in this plan earned a bonus during 2001 as a result +of progress toward achieving the Company's strategic objectives. +10 +Stock Based Incentive Plans +Awards under the Company's 1994 Employee Stock Incentive Plan are purely discretionary, and are not based on any specific formula and may or may not be granted in +any given fiscal year. When considering the grants under the plan, the Compensation Committee gives consideration to the overall performance of the Company and the performance of individual employees. +The Chief Executive Officer, R. Randall Rollins, maintains significant ownership interest in the Company, and was, therefore, not considered for grants in 2001 under the 1994 Employee Stock Incentive +Plan. Grants are made under the Plan, and the Plan is administered by, non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, +as amended. During the fiscal year 2001, the Named Executives were granted a total of 70,000 Stock Options and one of the Named Executives was awarded 7,500 shares of Time Lapse Restricted Stock and +7,500 shares of Performance Restricted Stock. In general, these grants were based upon the scope of the position and performance of each individual. +The +Compensation and the Executive Committees currently believe that option grants under the Company's 1994 Employee Stock Incentive Plan will be exempt for purposes of determining the +$1 million deductibility limit of Section 162(m) of the Internal Revenue Code of 1986, as amended. As a result, the Committees consider it unlikely that any participants in the Company's +stock plans will, in the foreseeable future, receive in excess of $1 million in aggregate compensation (the maximum amount for which an employer may claim a compensation deduction unless +certain performance related compensation exemptions are met) during any fiscal year, and have therefore determined that since the exemption requirement does not apply, the Company will not change its +various compensation plans, or otherwise meet the requirements of such exemption, at this time in order to exempt other types of compensation under Section 162(m). +Chief Executive Officer Compensation +The Chief Executive Officer's compensation is determined by the Compensation Committee. For fiscal year 2001, the cash compensation of R. Randall Rollins, +Chairman and Chief Executive Officer, was $375,000, $50,000 of which was cash based incentive compensation. This represents the total compensation for Mr. Rollins, no portion of which was in +stock based incentive plans. The Chief Executive Officer's compensation is based upon the long-term growth in net income, stockholder value improvements and the Chief Executive Officer's +individual performance. The decision of the Compensation Committee is subjective and is not based upon any specific formula or guidelines. The Chief Executive Officer does not consult with the +Committee when his compensation is determined. No member of the Compensation Committee participates in any Company incentive program. +COMPENSATION +COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +EXECUTIVE +COMMITTEE +R. Randall Rollins +Gary W. Rollins +11 +COMMON STOCK PERFORMANCE +As part of the executive compensation information presented in this Proxy Statement, the Securities and Exchange Commission requires a 5-year +comparison of the cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an +industry or peer group index. The indices included in the following graph are the Russell 2000 Index, of which the Company is a component, the Philadelphia Stock Exchange's Oil Service Index ("OSX"), +and a peer group which includes companies that are considered peers of the Company, as discussed below (the "Peer Group"). The graph also includes a peer group consisting of two companies (Weatherford +International, Inc., and the Brunswick Corporation) which were utilized for comparison in prior years (the "Former Peer Group"). +The +companies included in the Peer Group are Weatherford International, Inc., BJ Services Company, Superior Energy Services, Inc., and Halliburton Company. The companies +included in the peer group have been weighted according to each respective issuer's stock market capitalization at the beginning of each year. +The +Company reexamined its peer group following the February 28, 2001 spin-off of its powerboat manufacturing segment. One company in the Former Peer Group, Brunswick +Corporation, was included because of its involvement in the powerboat manufacturing business. Since the Company is no longer involved in the boat manufacturing business, Brunswick has been eliminated +from the peer group, and the others shown above were added. The graph below assumes the value of $100.00 invested on December 31, 1996. +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN * +12 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products +and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include administration of certain +employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $868,000 +in 2001. +During +2001, a subsidiary of RPC conducted business with a company owned by LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. Randall +Rollins, Chairman and Chief Executive Officer, and Mr. Gary W. Rollins, Director. In 2001, payments totaling approximately $434,000 were made to this LOR, Inc. company for the purchase +of parts and repair services related to certain of RPC's oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. +BENEFIT PLANS +The Company's Retirement Income Plan, effective July 1, 1984, is a trusteed defined benefit pension plan. The amounts shown on the following table are +those annual benefits payable for life on retirement at age 65. The amounts computed in the following table assume: (a) that the participant remains in the service of the Company until his +normal retirement date at age 65; (b) that the participant's earnings continue at the same rate as paid in the fiscal year ended December 31, 2001 during the remainder of his service +until age 65; (c) that the normal form of benefit is a single-life annuity, and (d) that the Plan continues without substantial modification. The column entitled remuneration +represents all compensation in the Summary Compensation Table included herein. +PENSION PLAN TABLE +Remuneration +15 +20 +25 +30 +35 +$ +100,000 +$ +22,500 +$ +30,000 +$ +37,500 +$ +45,000 +$ +45,000 +200,000 +45,000 +60,000 +75,000 +90,000 +90,000 +300,000 +67,500 +90,000 +112,500 +135,000 +135,000 +400,000 +90,000 +120,000 +150,000 +180,000 +180,000 +500,000 +112,500 +150,000 +187,500 +225,000 +225,000 +600,000 +135,000 +180,000 +225,000 +270,000 +270,000 +700,000 +157,500 +210,000 +262,500 +315,000 +315,000 +800,000 +180,000 +240,000 +300,000 +360,000 +360,000 +900,000 +202,500 +270,000 +337,500 +405,000 +405,000 +1,000,000 +225,000 +300,000 +375,000 +450,000 +450,000 +The +above table does not reflect the Plan offset for Social Security average earnings, the maximum benefit limitations under Section 415 of the Internal Revenue +Code of 1986, as amended (the "Code"), or the maximum compensation limitation under Section 401(a)(17) of the Code. +Retirement +income benefits are based on the average of the employee's compensation from the Company for the five consecutive complete calendar years of highest compensation during the +last ten consecutive complete calendar years ("final average compensation") immediately preceding the employee's retirement date or, if earlier, the date of his termination of employment. All +full-time corporate employees of the Company and its subsidiaries (other than employees subject to collective bargaining agreements) are eligible to participate in the Retirement Income +Plan after completing 1 year of service as an employee. The benefit formula is 1 1 / 2 percent of final average compensation less 3 / 4 of 1 percent (0.75%) of +final average FICA earnings multiplied by years of service (maximum 30 years). The Plan also provides reduced early retirement benefits under certain conditions. In +13 +accordance with the Code, the maximum annual benefit that could be payable to a Retirement Income Plan beneficiary in 2001 was $140,000. However, this limitation does not affect previously accrued +benefits of those individuals who became entitled to benefits in excess of $140,000 prior to the effective date of the applicable provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and +the Tax Reform Act of 1986. In accordance with the Code (as amended by the Omnibus Budget Reconciliation Act of 1993), the maximum compensation recognized by the Retirement Income Plan was $170,000 in +2001. Retirement benefits accrued at the end of any calendar year will not be reduced by any subsequent changes in the maximum compensation limit. The current credited years of service for the five +individuals named in the executive compensation table are: R. Randall Rollins—30, Richard A. Hubbell—15, Jonathan W. Moss—30, Linda H. Graham—15 and Ben +M. Palmer—5. +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code ("401(k) Plan"). The only form of +benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant's account on the date the distribution is processed. Under the 401(k) +Plan, the full amount of a participant's vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, the +pre-tax account is payable upon attainment of age 59 1 / 2 or in the event of certain specified instances of financial hardship. Amounts contributed by the Company to the +accounts of Named Executives for 2001 under this plan are reported in the "All Other Compensation" column of the Summary Compensation Table on page 7 included herein. +Subsequent +to year-end, the Company's Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan effective +March 31, 2002, and increase the matching contribution to fifty cents ($0.50) for each dollar ($1.00) of a participant's contribution to the 401(k) plan, not to exceed 6 percent of his +or her annual compensation. In addition, the Company will be providing additional benefits to longer serviced employees that will vest over a five year period beginning in 2002. The amount to be +contributed for the Named Executives, if any, has not been determined. +INDEPENDENT PUBLIC ACCOUNTANTS +Arthur Andersen LLP served as the Company's auditor for the fiscal year ended December 31, 2001. In addition to performing the audit of the Company's +consolidated financial statements, Arthur Andersen provided various other services during 2001. The aggregate fees billed for 2001 for each of the following categories of services are set forth below: +Audit and quarterly reviews +$ +99,000 +All other services +$ +170,000 +Arthur +Andersen did not provide any services related to financial information systems design and implementation during 2001. All other services include: +1. Tax +planning and preparation of tax returns of the Company +2. Audit +of the Company's 401(k) plan +3. Preparation +of registration statement to the spin-off transaction +For +the year ended December 31, 2001 the Company's Audit Committee has considered and determined that the provision of non-audit services is compatible with +maintaining auditor independence. +As +is its policy, upon the recommendation of the Audit Committee, the Board of Directors shall select a firm of independent public accountants for fiscal 2002. It is anticipated that a +representative +14 +of Arthur Andersen LLP will be present at the Annual Meeting to answer questions and make a statement should such representative so desire. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all Directors, Officers and greater than +10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all +Directors, Officers and greater than 10 percent stockholders from whom no Form 5 was received (except for FMR Corporation), indicating that no Form 5 filing was required. Based +solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2001 have been satisfied. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company's 2003 Annual Meeting of Stockholders pursuant to Rule 14a-8 +promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must be received by the Company by November 22, 2002 for inclusion in its Proxy Statement and form of +proxy relating to that meeting. With respect to the Company's annual meeting of the stockholders to be held in 2003, all stockholder proposals submitted outside of the stockholder proposal rules +contained in Rule 14a-8 promulgated under the Exchange Act must be received by the Company by February 5, 2003 in order to be considered timely. With regard to such +stockholder proposals, if the date of the next annual meeting of stockholders is advanced or delayed by more than 30 calendar days from April 23, 2003, the Company will, in a timely manner, +inform stockholders of the change and the date by which proposals must be received. +MISCELLANEOUS +The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 is being mailed to stockholders with this proxy +statement. +Management +knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the +Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the +proxy to vote in accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March 18, 2002 +15 +APPENDIX A +AUDIT COMMITTEE CHARTER +RPC INCORPORATED +AUDIT COMMITTEE CHARTER +PURPOSE +The primary purpose of the Audit Committee (the "Committee") is to assist the Company's Board of Directors (the "Board") in fulfilling its responsibility to +oversee management's conduct of the Company's financial reporting process, including (by overseeing the financial reports and other financial information provided by the Company to any governmental or +regulatory body, the public or other users thereof) the Company's systems of internal accounting and financial controls, and the annual independent audit of Company's financial statements. +In +discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the +Company. The Committee is authorized to retain outside counsel, auditors or other experts and professional for this purpose. The Board and the Committee are in place to represent the Company's +shareholders; accordingly, the outside auditor is ultimately accountable to the Board and the Committee. +MEMBERSHIP +The Committee shall be comprised of not fewer than three members of the Board, and the Committee's composition shall meet all requirements of the Audit Committee +Policy of the New York Stock Exchange. +Accordingly, +all of the members must be directors: +• Who +have no relationship to the Company that may interfere with the exercise of their independence from management and the Company; and +• Who +are financially literate or who become financially literate within a reasonable period of time after appointment to the Committee. In addition, at least +one member of the committee must have accounting or related financial management expertise. +KEY RESPONSIBILITIES +The Committee's job is one of oversight and it recognizes that the Company's management members are responsible for the preparation of the Company's financial +statements. Consequently, in discharging its oversight responsibilities, the Committee is not providing any expertise or special assurance as to the Company's financial statements or any professional +certification as to the outside auditor's work. +The +following functions shall be the common recurring activities of the Committee in carrying out its oversight function. These functions are set forth as a guide with the understanding +that the Committee may diverge from this guide as appropriate under the circumstances. +• The +Committee shall review with management and the outside Company's auditors the audited financial statements to be included in the Company's Annual Report +on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of Form 10-K) and review and consider with the outside auditors the matters +required to be discussed by Statement of Auditing Standards ("SAS") No. 61. The management review shall include consultation with the Company's counsel relative to legal matters that could have +a significant impact on the Company's financial statements. +• As +a whole, or through the Committee chair, the Committee shall review with the outside auditors the Company's interim financial results to be included in +the Company's Quarterly Reports on Form 10-Q to be filed with the Commission and the matters required to be discussed by SAS No. 61. Such review shall occur prior to the +filing of the Company's Quarterly Reports on Form 10-Q. +• The +Committee shall discuss with management and the outside auditors the quality and adequacy of the Company's internal controls. +• The +Committee shall: +• +Request from the outside auditors annually, a formal written statement delineating all relationships between the auditor and the Company consistent with Independence Standard Board Standard No. 1; +• +Discuss with the outside auditors any such disclosed relationships and their impact on the outside auditor's independence; and +• +Recommend that the Board take appropriate action in response to the outside auditor's report to satisfy itself of the auditor's independence. +• The +Committee, subject to any action that may be taken by the full Board, shall have the ultimate authority and responsibility to select (or nominate for +shareholder approval), evaluate and, where appropriate, replace the outside auditor. +• The +Committee shall review the adequacy of the Charter on an annual basis. +RPC, Inc. +Proxy Solicited by the Board of Directors of RPC, Inc. +for Annual Meeting of Stockholders on Tuesday, April 23, 2002, 9:20 A.M. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full +power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 23, 2002, at 9:20 A.M. at +2170 Piedmont Road, NE, Atlanta, Georgia, or any adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 18, 2002, grants authority to said proxies, or either of +them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that +said proxies or their substitutes may lawfully do in the undersigned's name, place and stead. The undersigned instructs said proxies, or either of them, to vote as follows: +1. +o +FOR R. Randall Rollins, Henry B. Tippie and James B. Williams, as Class I Directors except as indicated below +o +ABSTAIN from voting for the election of all Class I nominees +INSTRUCTIONS: To refrain from voting for any individual nominee, write that nominee's name in the space provided below: +2. ON +ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +(over) +RPC, INC. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED +"FOR" THE ABOVE-NAMED NOMINEES FOR DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please sign below, date and return promptly. +Signature +Dated: +, 2002 +(Signature should conform to name and title stenciled hereon. Executors, administrators, trustees, guardians and attorneys should add their title upon signing) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +QuickLinks +PROXY STATEMENT +SOLICITATION OF AND POWER TO REVOKE PROXY +CAPITAL STOCK +ELECTION OF DIRECTORS +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +OPTION/SAR GRANTS IN FISCAL YEAR 2001 +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2001 AND YEAR-END OPTION/SAR VALUES +REPORTS OF THE AUDIT, COMPENSATION AND EXECUTIVE COMMITTEES AND PERFORMANCE GRAPH +REPORT OF THE AUDIT COMMITTEE +REPORT OF THE COMPENSATION COMMITTEE AND EXECUTIVE COMMITTEE ON EXECUTIVE COMPENSATION +COMMON STOCK PERFORMANCE +COMPARISON OF FIVE–YEAR CUMULATIVE TOTAL RETURN +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +BENEFIT PLANS +PENSION PLAN TABLE +INDEPENDENT PUBLIC ACCOUNTANTS +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +STOCKHOLDER PROPOSALS +MISCELLANEOUS +RPC INCORPORATED AUDIT COMMITTEE CHARTER \ No newline at end of file diff --git a/raw/proxies/0000742278/0000912057-02-012168/proxy_rpt.txt b/raw/proxies/0000742278/0000912057-02-012168/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..142c24da8c5981b5edfe6ced4aa1b7c2f166cff6 --- /dev/null +++ b/raw/proxies/0000742278/0000912057-02-012168/proxy_rpt.txt @@ -0,0 +1,10 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products +and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include administration of certain +employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $868,000 +in 2001. +During +2001, a subsidiary of RPC conducted business with a company owned by LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. Randall +Rollins, Chairman and Chief Executive Officer, and Mr. Gary W. Rollins, Director. In 2001, payments totaling approximately $434,000 were made to this LOR, Inc. company for the purchase +of parts and repair services related to certain of RPC's oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001047469-03-010163/proxy.txt b/raw/proxies/0000742278/0001047469-03-010163/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..55fbbfdbb84afca2394530a94c4d041281e18624 --- /dev/null +++ b/raw/proxies/0000742278/0001047469-03-010163/proxy.txt @@ -0,0 +1,907 @@ +DEF 14A +1 +a2106108zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2170 Piedmont Road, NE, Atlanta, Georgia 30324 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2003 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation ("RPC" or "the Company"), will +be held at the Company's offices located at 2170 Piedmont Road, NE, Atlanta, Georgia, on Tuesday, April 22, 2003, at 1:20 P.M., or any adjournment thereof, for the following purposes: +(1) To +elect two Class II directors to the Board of Directors; +(2) To +transact such other business as may properly come before the meeting or any adjournment thereof. +The +Proxy Statement dated March 17, 2003 is attached. +The +Board of Directors has fixed the close of business on February 24, 2003 as the record date for the determination of stockholders entitled to notice of, and to vote at, the +meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in +the United States. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ Linda H. Graham +Linda H. Graham, Secretary +Atlanta, +Georgia +March 17, 2003 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 21, 2003. The following information concerning the enclosed +proxy and the matters to be acted upon at the Annual Meeting of Stockholders to be held on April 22, 2003, is submitted by the Company to the stockholders for their information. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the +Company will be voted in favor of the candidates for election to the Board of Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority if he so elects, by +contacting either proxyholder at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324. +CAPITAL STOCK +The outstanding capital stock of the Company on February 24, 2003 consisted of 28,617,601 shares of Common Stock, par value $0.10 per share. Holders of +Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on February 24, 2003, the record +date for determining stockholders entitled to notice of and to vote at the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of determining the presence or +absence of a quorum for the transaction of business. In accordance with General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the +affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in +the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, +the outcome is solely a matter of comparing the number of votes cast for each nominee, and hence only votes for director nominees (and not abstentions or broker non-votes) are relevant to +the outcome. +The +executives named in the Summary Compensation Table, all of the directors of the Company and the name and address of each stockholder who owned beneficially five percent (5%) or more +of the shares of Common Stock of the Company on February 24, 2003, together with the number of shares owned by such persons and the percentage of outstanding shares that ownership represents, +and +2 +information as to Common Stock ownership of the executive officers and directors of the Company as a group (according to information received by the Company), is set out below: +Name and Address of +Beneficial Owner +Amount Beneficially Owned (1) +Percent of Outstanding Shares +FMR Corporation +82 Devonshire Street +Boston, Massachusetts +2,899,100 +(2) +10.1 +LOR, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +16,972,692 +(3) +59.3 +R. Randall Rollins +Chairman of the Board and Chief Executive Officer +2170 Piedmont Road, NE +Atlanta, Georgia +17,514,441 +(4) +60.8 +Gary W. Rollins +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +17,728,934 +(5) +61.5 +Richard A. Hubbell +President and Chief Operating Officer +2170 Piedmont Road, NE +Atlanta, Georgia +371,172 +(6) +1.3 +Linda H. Graham +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia +83,470 +(7) +** +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +2170 Piedmont Road, NE +Atlanta, Georgia +60,218 +(8) +** +Henry B. Tippie +Chairman of the Board and Chief Executive Officer, +Tippie Services, Inc. +P.O. Box 26557 +Austin, Texas 78755 +298,960 +(9) +1.0 +Wilton Looney +Honorary Chairman of the Board, Genuine Parts Company +2170 Piedmont Road, NE +Atlanta, Georgia +1,200 +** +James B. Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +40,000 +** +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation, and President of +Chaparral Boats, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +130,130 +(10) +** +All Directors and Executive Officers as a group (9 persons) +19,155,913 +(11) +66.5 +** Less +than one percent +(1) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) Based +on Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2003. +3 +(3) LOR, Inc. +wholly owns LOR Investment Company, LLC, a Georgia limited liability company, that is the general partner of RFPS Investments II, L.P., +a Georgia limited partnership that owns 16,972,692 shares of Company common stock. +(4) Includes +2,160 shares of common stock held as Trustee, Guardian, or Custodian for his children. Also includes 80,960 shares of common stock in two trusts +of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 16,972,692 shares owned by RFPS Investments II, L.P., a Georgia limited partnership, of which +LOR Investment Company, LLC is the general partner. LOR Investment Company, LLC is owned by LOR, Inc. of which Mr. Rollins is an officer, director and stockholder. Mr. R. Randall +Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Does not include 26,359 shares of common stock held by his wife, as to which Mr. Rollins disclaims any beneficial +interest. +(5) Includes +80,960 shares of common stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also +includes 16,972,692 shares owned by RFPS Investments II, L.P., a Georgia limited partnership, of which LOR Investment Company, LLC is the general partner. LOR Investment Company, LLC is owned by +LOR, Inc. of which Mr. Rollins is an officer, director and stockholder. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Does not +include 100,004 shares of common stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. +(6) Includes +161,053 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 97,513 +shares of restricted stock awards. +(7) Includes +17,134 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 12,605 +shares of restricted stock awards. +(8) Includes +29,006 shares subject to options that are currently exercisable or that become exercisable within 60 days of the date hereof, and 27,105 +shares of restricted stock awards. +(9) Includes +18,960 shares of common stock held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment +power. Also includes shares held by a wholly owned corporation that owns a beneficial partnership interest in 300 shares and voting rights for 30,000 shares. +(10) Includes +40,000 shares of restricted stock awards. +(11) Shares +held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have +been included only once. Includes an aggregate of 207,193 shares that may be purchased by three executive officers upon exercise of options that are currently exercisable or that become exercisable +within 60 days of the date hereof and 137,223 of restricted stock grants awarded to or earned by them pursuant to the Company's 1984 Incentive Stock Option Plan and 1994 Employee Stock +Incentive Plan. +ELECTION OF DIRECTORS +At the Annual Meeting, Mr. Richard A. Hubbell and Ms. Linda H. Graham will be nominated to serve as Class II directors. The directors in each +class serve for a three year term. The director nominees will serve in their respective class until their successors are elected and qualified. Six other individuals serve as directors but are not +standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company's Bylaws that provide for the election of directors for +staggered terms, with each director serving a three-year term. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below as directors. Although +management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies +will be voted for any nominee who shall be designated by the present Board of Directors to fill such vacancy. +The +name and age of both of the director nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by him +or her and the percentage of outstanding shares that ownership represents, all as of the close of business on February 24, 2003, (according to information received by the Company) are set out +below. Similar information is also provided for those directors whose terms expire in future years. Each director was originally elected as a director shortly after incorporation of the Company in +January 1984, with the exception of Messrs. Richard A. Hubbell and James A. Lane, Jr., who were elected as directors on January 27, 1987, and Ms. Linda H. Graham, who has +served as Vice President and Secretary of the Company since January 27, 1987, and who was elected as director on April 24, 2001. +4 +Names of Nominees +Principal Occupation(1) +Age +Common Stock(2) +Percentage of +Outstanding Shares +Class II (New Term Expires 2006) +Richard A. Hubbell +President and Chief Operating Officer of the Company; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing) since February 2001. +58 +371,172 +(3) +1.3 +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing) since February 2001. +66 +83,470 +(4) +** +Names of Directors Whose Terms Have Not Expired +Class III (Term Expires 2004) +Wilton Looney +Honorary Chairman of the Board, Genuine Parts Company (automotive parts distributor). +83 +1,200 +** +Gary W. Rollins(5) +President and Chief Executive Officer of Rollins, Inc. (consumer services) since 2001; President and Chief Operating Officer of Rollins, Inc. prior to 2001. +58 +17,728,934 +(6) +61.5 +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) since February 2001; President of Chaparral Boats, Inc. +60 +130,130 +(7) +** +Class I (Term Expires 2005) +R. Randall Rollins(5) +Chairman of the Board and Chief Executive Officer of the Company; Chairman of the Board of Marine Products Corporation (boat manufacturing) since February 2001; Chairman of the Board of Rollins, Inc. (consumer services) +since October 1991. +71 +17,514,441 +(8) +60.8 +Henry B. Tippie +Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services). Chairman of the Board of Dover Downs Gaming and Entertainment, Inc. (operator of multi- purpose gaming and entertainment +complex) since January 2002; and Chairman of the Board of Dover Motorsports, Inc. (operator of motorsports tracks). +76 +298,960 +(9) +1.0 +James B. Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) since 1998; and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. until 1998. +69 +40,000 +** +** less +than one percent +(1) Unless +otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. +In addition to the directorships listed in this column, the following individuals also serve on the boards of directors of the following companies: James B. Williams: The Coca-Cola Company +and Genuine Parts Company; R. Randall Rollins: SunTrust Banks, Inc., SunTrust Banks of Georgia, Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. All of the +directors shown in the above table are also directors of Marine Products Corporation and with the exception of Messrs. Hubbell and Lane and Ms. Graham are also directors of +Rollins, Inc. +(2) Except +as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) See +information contained in footnote (6) to the table appearing in Capital Stock section. +(4) See +information contained in footnote (7) to the table appearing in Capital Stock section. +(5) R. +Randall Rollins and Gary W. Rollins are brothers. +5 +(6) See +information contained in footnote (5) to the table appearing in Capital Stock section. +(7) See +information contained in footnote (10) to the table appearing in Capital Stock section. +(8) See +information contained in footnote (4) to the table appearing in Capital Stock section. +(9) See +information contained in footnote (9) to the table appearing in Capital Stock section. +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +During 2002, non-employee Directors received from the Company $1,000 for each meeting of the Board of Directors or committee they attended, plus +$10,000 per year. +The +Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie, Chairman, Wilton Looney and James B. Williams. The Audit Committee held six meetings during the +fiscal year ended December 31, 2002. Its functions are described under the caption, "Report of the Audit Committee." The Compensation Committee of the Board of Directors of the Company consists +of Henry B. Tippie, Chairman, Wilton Looney and James B. Williams. It held one meeting during the fiscal year ended December 31, 2002. The function of the Compensation Committee is to review +the base salary and cash based incentive compensation of R. Randall Rollins, Chairman and Chief Executive Officer, and recommend to the Board any changes to insure continued effectiveness. The +Compensation Committee also administers the RPC, Inc. 1994 Employee Stock Incentive Plan. The Executive Committee of the Board of Directors consists of R. Randall Rollins and Gary W. Rollins. +The Executive Committee had one meeting related to executive compensation during the year ended December 31, 2002. The function of the Executive Committee is to review the base salary and cash +based incentive compensation for the Named Executives excluding R. Randall Rollins and recommend to the Board any changes to insure continued effectiveness and to take all permitted actions of the +Board in its stead. The Board of Directors met four times during the fiscal year ended December 31, 2002. No director attended fewer than 75 percent of the Board meetings and meetings of +committees on which he or she served during 2002. +During +2002, the Board passed resolutions authorizing the formation of the Diversity Committee and the Nominating and Governance Committee. The Diversity Committee's function is to +monitor compliance with applicable non-discrimination laws. The Nominating and Governance Committee's function is to recommend to the Board of Directors nominees for election as director +and to insure that the Company's corporate governance rules are in compliance with the New York Stock Exchange and Securities and Exchange Commission rules. Both of these committees consist of Henry +B. Tippie, Chairman, Wilton Looney, and James B. Williams. Neither of these committees met during the fiscal year ended December 31, 2002. +6 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company's Compensation Committee are or have ever been employees of the Company. R. Randall Rollins and Gary W. +Rollins serve on the Company's Executive Committee. R. Randall Rollins is an employee of the Company. R. Randall Rollins and Gary W. Rollins also serve on the executive committees of +Rollins, Inc. and Marine Products Corporation ("Marine Products"). Richard A. Hubbell, who is an employee of the Company, also serves on the executive committee of Marine Products. These +committees make certain decisions with respect to the compensation of the executive officers of those companies. Except as set forth in the previous sentence, no executive officer of the Company +serves on a Compensation Committee of another company. R. Randall Rollins, an executive of the Company, serves on the Board of Directors of both SunTrust Banks, Inc. and SunTrust Banks of +Georgia, a subsidiary of SunTrust Banks, Inc. Mr. Williams is the Chairman of the Executive Committee, SunTrust Banks, Inc. Mr. Rollins is not on the Compensation Committee +of SunTrust Banks, Inc. RPC maintains a significant banking relationship with SunTrust Bank of Georgia. All banking services provided to the Company by SunTrust Bank of Georgia are priced at +market-competitive rates. Mr. Rollins is a member of the Compensation Committee of Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.; Mr. Henry B. +Tippie serves as Chairman of both companies. +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended +December 31, 2002, 2001 and 2000 of those persons who were at December 31, 2002 (i) the Chief Executive Officer and (ii) all other most highly compensated executive +officers of the Company whose total annual compensation exceeded $100,000, (the "Named Executives"): +SUMMARY COMPENSATION TABLE +Long-Term Compensation Awards +Annual +Compensation +Restricted +Stock +Awards +($)(1) +Name and Principal Position +Securities +Underlying +Options(#)(1) +All Other +Compensation(2) +Year +Salary +Bonus +R. Randall Rollins (3) +Chairman of the Board and +Chief Executive Officer +2002 +2001 +2000 +$ +325,000 +325,000 +450,000 +$ +0 +50,000 +0 +0 +0 +0 +0 +0 +0 +$ +0 +0 +0 +Richard A. Hubbell (3) +President and Chief Operating Officer +2002 +2001 +2000 +400,000 +391,667 +437,568 +0 +200,000 +225,000 +0 +0 +0 +0 +50,000 +0 +31,762 +2,040 +2,040 +Linda H. Graham (3) +Vice President and Secretary +2002 +2001 +2000 +104,833 +102,083 +118,750 +0 +25,000 +25,000 +0 +0 +0 +0 +5,000 +0 +3,895 +1,975 +1,425 +Ben M. Palmer (3) +Vice President, Chief Financial Officer and Treasurer +2002 +2001 +2000 +158,400 +155,621 +172,100 +0 +60,000 +50,000 +0 +196,500 +0 +0 +15,000 +0 +5,500 +2,040 +2,040 +(1) Time-Lapse +Restricted Stock vests ten years from the date of grant. These shares are forfeited if the employment of the Named Executive terminates prior to vesting for +reasons other than death, retirement or permanent disability. During these ten years, grantees receive all dividends declared and retain voting rights for the granted shares. Performance Restricted +Stock is granted, but not earned and issued, until certain five year tiered performance criteria are met. The performance criteria are predetermined market prices of the Company's common stock. On the +date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the shares vest five years from the determination date. After the +determination date, the grantee will receive all dividends declared and also voting rights to the shares. As of December 31, 2002, the number of shares of time lapse restricted stock and the +number of shares of performance restricted stock held were 81,000 and 16,513 for Mr. Hubbell, 12,000 and 605 for +7 +Ms. Graham, +and 20,500 and 11,105 for Mr. Palmer. The total number of shares held and their values on December 31, 2002 were as follows: Mr. Hubbell, 97,513 shares valued +at $1,131,000, Ms. Graham, 12,605 shares valued at $146,000 and Mr. Palmer, 31,605 shares valued at $367,000 of which 4,500 shares are subject to issuance upon meeting performance +criteria as defined in the related Performance Restricted Stock Agreement. The December 31, 2002 values are based on the closing stock market price of $11.60 and do not take into account any +diminution of value attributable to vesting provisions on these shares. During 2002, 42,400 shares of restricted stock vested of which 34,400 were released to Mr. Hubbell, 4,800 shares were +released to Ms. Graham, and 3,200 shares were released to Mr. Palmer, and are included in the direct holdings held at February 24, 2003 stated in the Capital Stock section of this +document. +(2) Effective +July 1, 1984, the Company adopted the RPC 401(k) Plan ("401(k) Plan"), a qualified retirement plan designed to meet the requirements of Section 401(k) of the +Internal Revenue Code (the "Code"). The 401(k) Plan provides for a matching contribution of fifty cents ($0.50) for each dollar ($1.00) of a participant's contribution to the 401(k) Plan, that does +not exceed six percent of his or her annual compensation (which includes commissions, overtime and bonuses). A participant's voluntary pretax salary deferrals made under the 401(k) Plan are in lieu of +payment of compensation to the participant. The Company's Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In +the first quarter of 2002, the Company's Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan effective March 31, 2002. In +lieu thereof, the Company began providing enhanced benefits in the form of cash contributions on behalf of certain longer serviced employees that had not reached the normal retirement age of 65 as of +March 31, 2002. These enhanced benefit contributions are discretionary and made annually subject to continued employment for a maximum of seven years beginning in 2002. The contributions are +made either to the RPC Supplemental Retirement Plan ("Supplemental Plan") established by the Company or to the 401(k) Plan for each employee who is entitled to the enhanced benefits. The amounts shown +in this column represent the Company match under the 401(k) Plan and, in the case of Mr. Hubbell, it includes $26,262 towards enhanced benefits. +(3) Mr. Rollins, +Mr. Hubbell, Mr. Palmer and Ms. Graham are now employees of both the Company and Marine Products, pursuant to the spin-off of +Marine Products from the Company in February 2001. +OPTION/SAR GRANTS IN FISCAL YEAR 2002 +No options or Stock Appreciation Rights were granted to the Named Executives during the fiscal year ended December 31, 2002. +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2002 +AND YEAR-END OPTION/SAR VALUES +Name +Shares +Acquired +on Exercise +Value +Realized +Number of Securities +Underlying +Unexercised +Options/SARs +at FY End(#) +Exercisable/Unexercisable +Value of Unexercised +In-the-Money +Options/SARs +At FY End($)(1) +Exercisable/Unexercisable +R. Randall Rollins +0 +$ +0 +0/0 +0/0 +Richard A. Hubbell +0 +0 +132,891/68,454 +664,158/77,721 +Linda H. Graham +0 +0 +14,772/6,119 +82,170/8,607 +Ben M. Palmer +0 +0 +22,525/17,449 +72,706/22,361 +(1) Based +on the closing price of Company Common Stock on the New York Stock Exchange on December 31, 2002 of $11.60 per share. +8 +REPORTS OF THE AUDIT, COMPENSATION AND EXECUTIVE COMMITTEES AND +PERFORMANCE GRAPH +Notwithstanding anything to the contrary set forth in any of the Company's filings under the Securities Act of 1933, as amended, or the +Securities Exchange Act of 1934, as amended, that might incorporate other Company filings, including this Proxy Statement, in whole or in part, the following Report of the Audit Committee, Report of +the Compensation Committee and Executive Committee on Executive Compensation and the Performance Graph included herein shall not be incorporated by reference into any such +filings. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors is established pursuant to the Company's Bylaws and the Audit Committee Charter, as amended and adopted by the Board +of Directors on January 28, 2003. A copy of the Audit Committee Charter is attached to this Proxy Statement as Appendix A. +Management +is responsible for the Company's internal controls and the financial reporting process. The Company's independent public accountants are responsible for performing an +independent audit of the Company's consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and for issuing a report thereon. The +Audit Committee's responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits +or to determine that the Company's financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management and the +Company's independent public accountants. +Each +member of the Audit Committee is independent in the judgment of the Company's Board of Directors and as required by the listing standards of the New York Stock Exchange. +In +fulfilling its oversight responsibilities with respect to the year ended December 31, 2002, the Audit Committee: +• Approved +the terms of the engagement of Ernst & Young LLP as independent public accountants of the Company for the year ended December 31, +2002; +• Reviewed +and discussed with the Company's management and the independent public accountants the audited consolidated financial statements of the Company as +of December 31, 2002 and for the year then ended; +• Discussed +with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, "Communications with +Audit Committees;" and +• Received +from the independent public accountants written affirmation of their independence required by Independence Standards Board Standard No. 1, +"Independence Discussions with Audit Committees," and has discussed with the public accountants the firm's independence from the Company. +Based +upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and +subsidiaries as of December 31, 2002 and 2001 and for the three years then ended, be included in the Company's Annual Report on Form 10-K for the year ended +December 31, 2002 and for filing with the Securities and Exchange Commission. +In +giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management's representation that such financial statements have been prepared with +integrity and objectivity and in conformity with accounting principles generally accepted in the United States of +9 +America and (ii) the report of the Company's independent public accountants with respect to such financial statements. +Submitted +by the Audit Committee of the Board of Directors. +AUDIT +COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +REPORT OF THE COMPENSATION COMMITTEE AND EXECUTIVE COMMITTEE ON +EXECUTIVE COMPENSATION +Overview +During the fiscal year 2002, the members of the Compensation Committee of the Board of Directors held primary responsibility for determining the compensation for +R. Randall Rollins, Chairman of the Board and Chief Executive Officer, and the stock based incentives for all the Named Executives. The Executive Committee held responsibility for determining the +compensation of the Named Executives excluding Mr. Rollins. The Compensation Committee is comprised of outside directors who are not eligible to participate in the Company's compensation plans. +The +Company is engaged in a highly competitive industry. The actions of the executive officers have a profound impact on the short-term and long-term +profitability of the Company; therefore, the design of the executive officer compensation package is very important. In order to retain key employees, the Company has an executive compensation package +that is driven by an increase in shareholder value, the overall performance of the Company, and the individual performance of the executive. The measures of the Company's performance include revenues +and net income. +Pursuant +to the above compensation philosophy, the three main components of the executive compensation package are base salary, cash based incentive plans, and stock based incentive +plans. +In +connection with the spin-off of Marine Products in February 2001, the responsibilities of the Chairman and Chief Executive Officer, and certain of the other Named +Executives were reassessed and their compensation packages were restructured. Mr. Randall Rollins, Mr. Hubbell, Mr. Palmer and Ms. Graham are now employees of the Company +and Marine Products. Accordingly, the compensation of these Named Executives was reduced at RPC as these Named Executives also receive compensation directly from Marine Products. +Base Salary +The factors subjectively used in determining base salary include the recent profit performance of the Company, the magnitude of responsibilities, the scope of the +position, individual performance, and the salary received by peers in similar positions in the same geographic area. These factors are not used in any specific formula or weighting. The salaries of +the Named Executives are reviewed annually. Increases in base salaries for the Named Executives ranged up to four percent. +Cash Based Incentive Plans +The annual cash based incentive compensation package for the other Named Executives is developed by the Chief Executive Officer of the Company prior to the end of +each fiscal year. It is based upon performance objectives for the ensuing fiscal year. The Named Executives participate in a variety of individualized performance bonus plans designed to encourage +achievement of short-term objectives. These plans all have payouts subjectively based on net income, budget objectives, and other +10 +individual specific performance objectives. The specific performance objectives relate to each executive improving the contribution of his functional area of responsibility to further enhance the +earnings of the Company. These performance objectives and incentive package are then reviewed by the Executive Committee and either accepted, amended, or modified. None of the Named Executives +participating in this plan earned a bonus during 2002. +Stock Based Incentive Plans +Awards under the Company's 1994 Employee Stock Incentive Plan are purely discretionary, and are not based on any specific formula and may or may not be granted in +any given fiscal year. When considering the grants under the plan, the Compensation Committee gives consideration to the overall performance of the Company and the performance of individual employees. +Grants are made under the Plan, and the Plan is administered by, non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as +amended. During the fiscal year 2002, the Named Executives were not granted any stock options or other stock incentives. +The +Compensation and the Executive Committees currently believe that there are no employees whose total compensation including option grants under the Company's 1994 Employee Stock +Incentive Plan will materially exceed the $1 million deductibility limit of Section 162(m) of the Internal Revenue Code of 1986, as amended. Therefore, the Committees have determined +that the Company will not change its various compensation plans, or otherwise meet the requirements of such exemption, at this time in order to exempt stock incentive grants and other types of +compensation under Section 162(m). +Chief Executive Officer Compensation +The Chief Executive Officer's compensation is determined by the Compensation Committee. For fiscal year 2002, the cash compensation of R. Randall Rollins, +Chairman and Chief Executive Officer, was $325,000, none of which was cash based incentive compensation. This represents the total compensation for Mr. Rollins, no portion of which was in stock +based incentive plans. The Chief Executive Officer's compensation is based upon the long-term growth in net income, stockholder value improvements and the Chief Executive Officer's +individual performance. The decision of the Compensation Committee is subjective and is not based upon any specific formula or guidelines. The Chief Executive Officer does not consult with the +Committee when his compensation is determined. No member of the Compensation Committee, nor any non-employee member of the Executive Committee, participates in any Company incentive program. +COMPENSATION +COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +EXECUTIVE COMMITTEE +R. Randall Rollins +Gary W. Rollins +11 +COMMON STOCK PERFORMANCE +As part of the executive compensation information presented in this Proxy Statement, the Securities and Exchange Commission requires a five year comparison of the +cumulative total stockholder return based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry or peer +group index. The indices included in the following graph are the Russell 2000 Index ("Russell 2000"), the Philadelphia Stock Exchange's Oil Service Index ("OSX"), and a peer group which includes +companies that are considered peers of the Company, as discussed below (the "Peer Group"). The Company has voluntarily chosen to provide both an industry and a peer group index. +The +Russell 2000 is a stock index representing small capitalization U.S. stocks. The components of the index had an average market capitalization in 2002 of $395 million, and the +Company was a component of the Russell 2000 during 2002. The Russell 2000 was chosen because it represents companies with comparable market capitalizations to the Company. The OSX is a stock index of +15 companies that provide oil drilling and production services, oil field equipment, support services and geophysical / reservoir services. The Company is not a component of the OSX, but it was chosen +because it represents a large group of companies that provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford +International, Inc., BJ Services Company, Superior Energy Services, Inc. and Halliburton Company. The companies included in the Peer Group have been weighted according to each respective +issuer's stock market capitalization at the beginning of each year. +* Assumes +reinvestment of dividends. +12 +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products +and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months' notice. The services covered by these agreements include administration of certain +employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $454,000 +in 2002. During 2002, a division of RPC conducted business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine Products. The Company recorded $332,000 in revenues from Chaparral +related to the sale, installation and service of overhead cranes. +During +2002, a subsidiary of RPC conducted business with a company owned by LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. R. Randall +Rollins, Chairman and Chief Executive Officer, and Mr. Gary W. Rollins, Director. In 2002, payments totaling approximately $381,000 were made to this LOR, Inc. company for the purchase +of parts and repair services related to certain of RPC's oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. +BENEFIT PLANS +The Company's Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In the +first quarter of 2002, the Company's Board of Directors approved a resolution to cease all future retirement benefit accruals under the Retirement Income Plan effective March 31, 2002. +Retirement income benefits are based on the average of the employee's compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten +consecutive complete calendar years ("final average compensation") immediately preceding March 31, 2002. Accordingly the pension plan table has not been presented under this section. The +current credited years of service for the four individuals named in the executive compensation table are: R. Randall Rollins—30, Richard A. Hubbell—15, Linda H. +Graham—15 and Ben M. Palmer—4. The estimated annual benefit payable at the later of retirement or age 65 for the Named Executives is $261,600 for Mr. Rollins, $41,400 +for Mr. Hubbell, $24,900 for Ms. Graham and $9,400 for Mr. Palmer. The Plan also provides reduced early retirement benefits under certain conditions. In accordance with the Code, +the maximum annual benefit that could be payable to a Retirement Income Plan beneficiary in 2002 was $160,000. However, this annual dollar limitation is actuarially increased for a participant (such +as Mr. Rollins) whose pension commences later than his Normal Retirement Date. In accordance with the Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the +maximum compensation recognized by the Retirement Income Plan was $200,000 in 2002. Retirement benefits accrued at the end of any calendar year will not be reduced by any subsequent changes in the +maximum compensation limit. +Beginning +in 2002, the Company provides additional benefits on behalf of certain longer serviced employees in the form of discretionary cash contributions made either to the Company's +401(k) Plan or the Supplemental Plan. Amounts contributed to the accounts of Named Executives are reported in the "All Other Compensation" column of the Summary Compensation Table on page 7. The +Company's Supplemental Plan also permits deferral of a portion of the compensation by certain highly compensated employees beginning in 2002. +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code ("401(k) Plan"). The Company makes +matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant's contribution to the 401(k) Plan, that does not exceed six percent of his or her annual compensation. The only +form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant's +13 +account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant's vested accrued benefit is payable upon his termination of employment, retirement, total +and permanent disability, or death. Also under the 401(k) Plan, the pre-tax account is payable upon attainment of age 59 1 / 2 or in the event of certain specified instances of +financial hardship. Amounts contributed by the Company to the accounts of the Named Executives for 2002 under this plan are reported in the "All Other Compensation" column of the Summary Compensation +Table on page 7. During the year ended December 31, 2002, Mr. R. Randall Rollins turned 70 1 / 2 and withdrew the required minimum distribution from his 401(k) account in +2003. +INDEPENDENT PUBLIC ACCOUNTANTS +The independent public accounting firm of Arthur Andersen LLP ("Andersen") was initially engaged as the Company's auditors for the fiscal year ended +December 31, 2002. Effective subsequent to the filing of the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 2002, the Board of Directors, upon +recommendation of the Audit Committee, decided on July 23, 2002 to terminate Andersen as the Company's independent public accountants, and to appoint Ernst &Young LLP ("Ernst & +Young") as its independent public accountants for the year ended December 31, 2002. Representatives of Ernst & Young are expected to be present at the Annual Meeting and will have an +opportunity to make a statement if they so desire and will be available to respond to appropriate questions. No representative of Andersen is expected to attend the meeting. +During +the Company's fiscal years ended December 31, 2001 and 2000, and the subsequent interim period through July 23, 2002, there were no disagreements between the Company +and Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Andersen's satisfaction would +have caused them to make reference to the subject matter of the disagreement in connection with their reports. +None +of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the Company's fiscal years ended December 31, 2001 and +2000, or during any subsequent interim period through July 23, 2002. The Company did not consult Ernst & Young on the application of accounting principles to a specified transaction, or +the type of audit opinion that might be rendered on its financial statements during the fiscal years ended December 31, 2001 and 2000 or any subsequent interim period. +The +audit reports of Andersen on the consolidated financial statements of the Company and subsidiaries as of and for the two fiscal years ended December 31, 2001 and 2000 did not +contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. The Company filed a Report on +Form 8-K with the SEC on July 24, 2002 regarding the change in accountants. +The +aggregate fees billed by Andersen and Ernst & Young for the year ended December 31, 2002 were as follows: +Arthur Andersen LLP +Ernst & Young LLP +Audit and quarterly reviews +$ +4,000 +$ +101,000 +All other services +$ +30,000 +$ +56,000 +Andersen +and Ernst & Young did not provide any services related to financial information systems design and implementation during 2002. All other services include: +1. Tax +planning and preparation of tax returns of the Company 2. Audit +of the Company's 401(k) Plan +For +the year ended December 31, 2002, the Company's Audit Committee has considered and determined that the provision of non-audit services is compatible with +maintaining auditor independence. +14 +As +is its policy, upon the recommendation of the Audit Committee, the Board of Directors shall select a firm of independent public accountants for fiscal year 2003. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4 and 5 and amendments thereto furnished to the Company by all Directors, Officers and greater than +10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all +Directors, Officers and greater than 10 percent stockholders from whom no Form 5 was received (except for FMR Corporation), indicating that no Form 5 filing was required. Based +solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2002 have been satisfied. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company's 2004 Annual Meeting of Stockholders pursuant to Rule 14a-8 +promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), must be received by the Company by December 24, 2003 for inclusion in its Proxy Statement and form of +proxy relating to that meeting. With respect to the Company's annual meeting of the stockholders to be held in 2004, all stockholder proposals submitted outside of the stockholder proposal rules +contained in Rule 14a-8 promulgated under the Exchange Act must be received by the Company by March 8, 2004 in order to be considered timely. With regard to such stockholder +proposals, if the date of the next annual meeting of stockholders is advanced or delayed by more than 30 calendar days from April 22, 2004, the Company will, in a timely manner, inform +stockholders of the change and the date by which proposals must be received. +EXPENSES OF SOLICITATION +RPC will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in +forwarding copies of the proxy material to their beneficial shareholders of record. Solicitation of proxies will be made principally +by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation +for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of $5,000 plus shipping +expenses. +MISCELLANEOUS +The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 is being mailed to stockholders with this proxy +statement. +Management +knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the +Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the +proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ Linda H. Graham +Linda H. Graham, Secretary +Atlanta, +Georgia +March 17, 2003 +15 +APPENDIX A +AUDIT COMMITTEE CHARTER +A-1 +RPC, INC. +CHARTER OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +PURPOSE +The Audit Committee (the "Committee") is appointed by the Board of Directors (the "Board") to assist the Board in fulfilling its oversight responsibilities. The +Committee's primary purpose is to monitor the integrity of the Company's financial reporting process, including (by overseeing the financial reports and other financial information provided by the +Company to any governmental or regulatory body, the public or other users thereof) the Company's systems of internal accounting and financial controls, the performance of the Company's internal audit +function, the independent auditor's qualifications and independence, the Company's compliance with ethics policies and legal and regulatory requirements statements, and the annual independent audit of +the Company's financial statements. The Committee will monitor the independence, performance, and qualifications of the Company's independent auditors. +In +discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the +Company. The Committee is authorized to retain outside counsel, auditors or other experts and professionals for this purpose. The Board and the Committee are in place to represent the Company's +shareholders; accordingly, the outside auditor is ultimately accountable to the Board and the Committee. +MEMBERSHIP +The Committee shall be comprised of not less than three members of the Board, and the Committee's composition shall meet all requirements of the Audit Committee +policy of the New York Stock Exchange. +Accordingly, +all of the members must be directors: +• Who +are independent of management and the Company. Members of the Committee shall be considered independent as long as they do not accept any consulting, +advisory, or compensatory fee from the company and are not an affiliated person of the Company or its subsidiaries, and meet the independence requirements of the New York Stock Exchange; +• Who +are financially literate or who become financially literate within a reasonable period of time after appointment to the Committee. In addition, at least +one member of the Committee must be a "financial expert" as defined by SEC regulations. +KEY RESPONSIBILITIES +The Committee's primary responsibility is to oversee the Company's financial reporting process on behalf of the Board and report results of their activities to +the Board. While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial +statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for the preparation, presentation, and integrity of the Company's +financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company as well as the Company's internal controls. The independent auditors +are responsible for performing an independent audit of the Company's financial statements in accordance with auditing standards generally accepted in the United States and for issuing a report hereon. +The +Committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The +Committee +A-2 +should take appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior. The following shall be the principal duties +and responsibilities of the Committee. These functions are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate under the circumstances. +The +Committee shall be directly responsible for the appointment and termination (subject, if applicable, to shareholder ratification), compensation, and oversight of the work of the +independent auditors, including resolution of disagreements between management and the auditor regarding financial reporting. The Committee shall pre-approve all audit and +non-audit services provided by the independent auditors and shall not engage the independent auditors to perform the specific non-audit services proscribed by law or +regulation. The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member to whom pre-approval authority is delegated +must be presented to the full Committee at its next scheduled meeting. +At +least annually, the Committee shall obtain and review a report by the independent auditors describing: +• The +firm's internal quality control procedures. +• Any +material issues raised by the most recent internal quality control review, or peer review, of the firm, or by any inquiry or investigation by +governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues. +• All +relationships between the independent auditor and the Company (to assess the auditor's independence). +In +addition, the Committee shall set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and the New York Stock Exchange +listing standards. +The +Committee shall discuss with the internal auditors and the independent auditors the overall scope and plans for their respective audits, including the adequacy of staffing and +compensation. Also, the Committee shall discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including +the Company's policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance programs (e.g., Company's Code of Conduct). +The +Committee shall meet separately periodically with management, the internal auditors, and the independent auditors to discuss issues and concerns warranting Committee attention. The +Committee shall provide sufficient opportunity for the internal auditors and the independent +auditors to meet privately with the members of the Committee. The Committee shall review with the independent auditor any audit problems or difficulties and management's response. +The +Committee shall receive regular reports from the independent auditor on the critical policies and practices of the Company, and all alternative treatments of financial information +within generally accepted accounting principles that have been discussed with management. +The +Committee shall review management's assertion on its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditors' +report on management's assertion. +The +Committee shall review and discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. +The +Committee shall review the interim financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations with management +A-3 +and the independent auditors prior to the filing of the Company's Quarterly Report on Form 10-Q. Also, the Committee shall discuss the results of the quarterly review and any other +matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards. The chair of the Committee may represent the entire Committee for the +purposes of this review. +The +Committee shall review with management and the independent auditors the financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and +Results of Operations to be included in the Company's Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of +Form 10-K), including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the +disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent +auditors under generally accepted auditing standards. +The +Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing +matters, and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters. +The +Committee shall receive corporate attorneys' reports of evidence of a material violation of securities laws or breaches of fiduciary duty. +The +Committee also prepares its report to be included in the Company's annual proxy statement, as required by SEC regulations. +The +Committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively. +A-4 +RPC, Inc. +Proxy Solicited by the Board of Directors of RPC, Inc. +for Annual Meeting of Stockholders on Tuesday, April 22, 2003, 1:20 P.M. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of +substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 22, 2003, at 1:20 P.M. at 2170 +Piedmont Road, NE, Atlanta, Georgia, or any adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 17, 2003, grants authority to said proxies, or either of +them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that +said proxies or their substitutes may lawfully do in the undersigned's name, place and stead. The undersigned instructs said proxies, or either of them, to vote as follows: +1. +o +FOR Richard A. Hubbell and Linda H. Graham, as Class II Directors except as indicated below +o +ABSTAIN from voting for the election of all Class II +nominees +INSTRUCTIONS: To refrain from voting for any individual nominee, write that nominee's name in the space provided below: +2. ON +ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +(over) +RPC, INC. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED +"FOR" THE ABOVE-NAMED NOMINEES FOR DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please sign below, date and return promptly. +Signature +Dated: +, 2003 +(Signature should conform to name and title stenciled hereon. Executors, administrators, trustees, guardians and attorneys should add their title upon signing) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +QuickLinks +PROXY STATEMENT +SOLICITATION OF AND POWER TO REVOKE PROXY +CAPITAL STOCK +ELECTION OF DIRECTORS +BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +EXECUTIVE COMPENSATION +SUMMARY COMPENSATION TABLE +OPTION/SAR GRANTS IN FISCAL YEAR 2002 +AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2002 AND YEAR-END OPTION/SAR VALUES +REPORTS OF THE AUDIT, COMPENSATION AND EXECUTIVE COMMITTEES AND PERFORMANCE GRAPH +REPORT OF THE AUDIT COMMITTEE +REPORT OF THE COMPENSATION COMMITTEE AND EXECUTIVE COMMITTEE ON EXECUTIVE COMPENSATION +COMMON STOCK PERFORMANCE +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +BENEFIT PLANS +INDEPENDENT PUBLIC ACCOUNTANTS +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +STOCKHOLDER PROPOSALS +EXPENSES OF SOLICITATION +MISCELLANEOUS \ No newline at end of file diff --git a/raw/proxies/0000742278/0001047469-03-010163/proxy_rpt.txt b/raw/proxies/0000742278/0001047469-03-010163/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ef2c41d7c19b816f2d13180296313c3375e2a471 --- /dev/null +++ b/raw/proxies/0000742278/0001047469-03-010163/proxy_rpt.txt @@ -0,0 +1,11 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective February 28, 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products +and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months' notice. The services covered by these agreements include administration of certain +employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $454,000 +in 2002. During 2002, a division of RPC conducted business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine Products. The Company recorded $332,000 in revenues from Chaparral +related to the sale, installation and service of overhead cranes. +During +2002, a subsidiary of RPC conducted business with a company owned by LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. R. Randall +Rollins, Chairman and Chief Executive Officer, and Mr. Gary W. Rollins, Director. In 2002, payments totaling approximately $381,000 were made to this LOR, Inc. company for the purchase +of parts and repair services related to certain of RPC's oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001145443-05-000746/proxy.txt b/raw/proxies/0000742278/0001145443-05-000746/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..00e67f6955d041ebb43d512414f47ced07ff2526 --- /dev/null +++ b/raw/proxies/0000742278/0001145443-05-000746/proxy.txt @@ -0,0 +1,1465 @@ +DEF 14A +1 +d16723.htm +UNITED +STATES +OMB APPROVAL +SECURITIES +AND EXCHANGE COMMISSION +OMB Number: 3235-00595 +Washington, +D.C. 20549 +Expires: February 28, 2006 +SCHEDULE +14A +Estimated average burden +hours per response......... 12.75 +Proxy +Statement Pursuant to Section 14(a) of +the Securities +Exchange Act of 1934 (Amendment No. ) +Filed +by the Registrant x +Filed +by a Party other than the Registrant o +Check +the appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive +Proxy Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to Rule §240.14a-12 +RPC, INC. +(Name of Registrant as Specified In Its Charter) +(Name of +Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check +the appropriate box): +x +No fee +required. +o +Fee computed +on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +1. +Title +of each class of securities to which transaction applies: +2. +Aggregate +number of securities to which transaction applies: +3. +Per unit +price or other underlying value of transaction computed pursuant to Exchange +Act Rule 0-11 (set forth the amount on which the filing fee is calculated +and state how it was determined): +4. +Proposed maximum aggregate +value of transaction: +5. +Total fee paid: +SEC 1913 (03-04) +Persons who are to respond to the Collection of information +contained in this form are not required to respond unless the +form displays a currently valid OMB cotrol number. +o +Fee paid +previously with preliminary materials. +o +Check +box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) +and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the Form +or Schedule and the date of its filing. +1. +Amount Previously +Paid: +2. +Form, Schedule or +Registration Statement No.: +3. +Filing Party: +4. +Date Filed: +RPC, +INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2170 Piedmont Road, NE, Atlanta, Georgia 30324 +TO THE HOLDERS +OF THE COMMON STOCK: +PLEASE TAKE NOTICE that +the 2005 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or “the Company”), will be held at the +Company’s offices located at 2170 Piedmont Road, NE, Atlanta, Georgia, on Tuesday, April 26, 2005, at 12:20 P.M., or any adjournment thereof, for +the following purposes: +1. +To elect three Class I directors to the Board of Directors; +and +2. +To transact such other business as may properly come before the +meeting or any adjournment thereof. +The Proxy Statement dated March +31, 2005 is attached. +The Board of Directors has fixed +the close of business on March 17, 2005 as the record date for the determination of stockholders entitled to notice of, and to vote at, the +meeting. +Stockholders who do not expect to +be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in +the United States. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, +Secretary +Atlanta, Georgia +March 31, 2005 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first +mailed to stockholders on or about March 31, 2005. The following information concerning the enclosed proxy and the matters to be acted upon at the +Annual Meeting of the Stockholders to be held on April 26, 2005, is submitted by the Company to the stockholders in connection with the solicitation of +proxies on behalf of the Company’s Board of Directors. +Three-for-two stock split — The Board of +Directors, at their meeting on January 25, 2005, authorized a three-for-two stock split to stockholders of record on February 10, 2005, payable on +March 10, 2005. All share, per share and market price data herein have been adjusted for this split. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted +will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the +candidates for election to the Board of Directors. +A stockholder executing and delivering a proxy has +power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either +proxy holder or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a +proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on +March 17, 2005 consisted of 43,473,336 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote +(non-cumulative) for each share of such stock registered in their respective names at the close of business on March 17, 2005, the record date for +determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute +a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of +business. Because the only currently scheduled item to be acted on at the meeting is the election of directors, there will be no broker non-votes. In +accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the +affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is +present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is +required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being +elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the three nominees receiving the +most votes will be elected. +The executives named in the Summary Compensation +Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Exchange Act) who owned +beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 17, 2005, together with the number of shares owned by each +such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and +executive officers of the Company as a group (according to information received by the Company), are set out below: +Name and Address of Beneficial Owner +Amount Beneficially +Owned (1) +Percent of +Outstanding Shares +R. Randall +Rollins +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia +26,440,824 +(2) +60.2 +Gary W. +Rollins +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia +26,766,756 +(3) +60.9 +Name and Address of Beneficial Owner +Amount Beneficially +Owned (1) +Percent of +Outstanding Shares +Richard A. +Hubbell +President and Chief Executive Officer +2170 Piedmont Road, NE +Atlanta, Georgia +626,744 +(4) +1.4 +Linda H. +Graham +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia +150,341 +(5) +** +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +2170 Piedmont Road, NE +Atlanta, Georgia +148,764 +(6) +** +All Directors +and Executive Officers as a group +(10 persons) +29,051,626 +(7) +66.1 +** +Less than one percent +(1) +Except as otherwise noted, the nature of the beneficial +ownership for all shares is sole voting and investment power. +(2) +Includes 3,240 shares of the Company Common Stock held as +Trustee, Guardian, or Custodian for his children. Also includes 121,440 shares of Common Stock in two trusts of which he is Co-Trustee and as to which +he shares voting and investment power. Also includes 25,572,438 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which +RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the +General Partner are held by two revocable trusts, one of which each of Gary or Randall Rollins is the grantor and sole trustee. LOR, Inc. is the +manager of the General Partner. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are options to purchase +90,000 shares, which are currently exercisable or will become exercisable within 60 days of the date hereof, and 30,000 shares of restricted stock +awards. This excludes options to purchase 60,000 shares that are not currently exercisable and will not become exercisable within 60 days of the date +hereof. This also excludes 43,821 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. +Rollins is part of a control group holding Company securities that includes Mr. Gary Rollins, as disclosed on a Schedule 13D on file with the U.S. +Securities and Exchange Commission. +(3) +Includes 121,440 shares of the Company Common Stock in two +trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 59,955 shares of Common Stock held as Trustee, +Guardian or Custodian for his children. Also includes 25,572,438 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which +RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the +General Partner are held by two revocable trusts, one of which each of Gary or Randall Rollins is the grantor and sole trustee. LOR, Inc. is the +manager of the General Partner. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. This also excludes 90,006 shares of the +Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding +Company securities that includes Mr. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange +Commission. +(4) +Includes 277,046 shares subject to options that are currently +exercisable or that become exercisable within 60 days of the date hereof, and 119,270 shares of restricted stock awards. +(5) +Includes 24,485 shares subject to options that are currently +exercisable or that become exercisable within 60 days of the date hereof, and 33,908 shares of restricted stock awards. +(6) +Includes 64,461 shares subject to options that are currently +exercisable or that become exercisable within 60 days of the date hereof, and 77,108 shares of restricted stock awards. +(7) +Shares held in trusts as to which more than one officer and/or +director are Co-Trustees or entities in which there is common ownership have been included only once. Includes an aggregate of 455,992 shares that may +be purchased by four executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of the date +hereof, and 260,286 shares of restricted stock awards earned by them pursuant to the Company’s 1994 Employee Stock Incentive Plan and 2004 Stock +Incentive Plan. +2 +ELECTION OF DIRECTORS +On January 25, 2005, on the recommendation of the +Nominating and Governance Committee, the Board of Directors expanded the size of the Board to nine members and elected Bill J. Dismuke as a Class II +Director effective the same date. Mr. Dismuke, 68, is the retired President of Edwards Baking Company. Mr. Dismuke serves as a director of Rollins, +Inc., a position he has held since 1984, and was also recently elected as a director of Marine Products Corporation. Mr. Dismuke has not been appointed +to any committee of the Board of Directors. Mr. Dismuke’s term expires at the Annual Meeting of Stockholders in 2006. +At the Annual Meeting, Mr. R. Randall Rollins, Mr. +Henry B. Tippie, and Mr. James B. Williams will be nominated to serve as Class I directors. The directors in each class serve for a term of three +years. The director nominees will serve in their respective class until their successors are elected and qualified. Six other individuals serve as +directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the +Company’s By-laws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless +authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the +possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, +the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance +Committee, to fill such vacancy. +The name and age of the director nominees, their +principal occupations, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of +outstanding shares that ownership represents, all as of the close of business on March 17, 2005, (according to information received by the Company) are +set out below. Similar information is also provided for those directors whose terms expire in future years. +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class I (Current Term Expires 2005, New Term Will Expire 2008) +R. Randall +Rollins (3) +Chairman of the Board of the Company since April 2004; Chairman of the Board and Chief Executive Officer of the Company prior to April 2004; +Chairman of the Board of Marine Products Corporation (boat manufacturing) since February 2001; Chairman of the Board of Rollins, Inc. (consumer +services) since October 1991. +1984 to +date +73 +26,440,824 +(4) +60.2 +Henry B. +Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman +of the Board of Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex) since January 2003; Chairman of +the Board of Dover Motorsports, Inc. (operator of motorsports tracks) since April 2000 and Vice Chairman prior to April 2000. +1984 to +date +78 +403,890 +(5) +** +3 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +James B. +Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004; Chairman of the Board and Chief +Executive Officer of SunTrust Banks, Inc. from 1991 to 1998. +1984 to +date +72 +60,000 +** +Names of Directors Whose Terms Have Not Expired +Class II (Term Expires 2006) +Richard A. +Hubbell +President and Chief Executive Officer of the Company since April 2004; President and Chief Operating Officer of the Company prior to April +2004; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing) since February 2001. +1987 to +date +60 +626,744 +(6) +1.4 +Linda H. +Graham +Vice +President and Secretary of the Company since 1987; Vice President and Secretary of Marine Products Corporation (boat manufacturing) since February +2001. +2001 to +date +68 +150,341 +(7) +** +Bill J. +Dismuke +Retired President of Edwards Baking Company. +January 25, 2005 +to date +68 +1,500 +** +Class III (Term Expires 2007) +Wilton +Looney +Honorary Chairman of the Board, Genuine Parts Company (automotive parts distributor). +1984 to +date +85 +1,800 +** +Gary W. Rollins +(3) +President and Chief Executive Officer of Rollins, Inc. (consumer services) since 2001; President and Chief Operating Officer of Rollins, Inc. +prior to 2001. +1984 to +date +60 +26,766,756 +(8) +60.9 +James A. Lane, +Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) since February 2001; President of Chaparral Boats, Inc. since +1976. +1987 to +date +61 +173,325 +** +** +less than one percent +(1) +Unless otherwise noted, each of the directors has held the +positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the +directorships listed in this column, the following individuals also serve on the Boards of Directors of the following companies: James B. Williams: The +Coca-Cola Company, Genuine Parts Company and Georgia Pacific Corporation; R. Randall Rollins: Dover Downs Gaming +4 +and Entertainment, Inc. and Dover Motorsports, Inc.; Henry B. +Tippie: Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc. All of the directors shown in the above table are also directors of +Marine Products Corporation (“Marine Products” or “MPC”) and with the exception of Messrs. Hubbell and Lane and Ms. Graham are also +directors of Rollins, Inc. +(2) +Except as otherwise noted, the nature of the beneficial +ownership for all shares is sole voting and investment power. +(3) +R. Randall Rollins and Gary W. Rollins are brothers. +(4) +See information contained in footnote (2) to the table appearing +in Capital Stock section. +(5) +Includes 28,440 shares held in trusts of which he is a Trustee +or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 450 +shares. +(6) +See information contained in footnote (4) to the table appearing +in Capital Stock section. +(7) +See information contained in footnote (5) to the table appearing +in Capital Stock section. +(8) +See information contained in footnote (3) to the table appearing +in Capital Stock section. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS +COMPENSATION, COMMITTEES AND +MEETINGS +Board Meetings and Compensation +Under current compensation arrangements, +non-employee directors each receive an annual retainer fee of $16,000. The Chairman of the Audit Committee receives an annual retainer of $12,000 and +the Chairman of each of the Compensation Committee, Nominating and Governance Committee and Diversity Committee receives an annual retainer of $4,000. +A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a +quarterly basis. Per meeting fees for non-employee directors are as follows: +• +For meetings of the Board of Directors, Compensation Committee, +Nominating and Governance Committee and Diversity Committee, $1,000. +• +For meetings of the Audit Committee, $2,000. In addition, the +Chairman of the Audit Committee receives an additional $1,000 for preparing to conduct each quarterly meeting. +All non-employee directors are also entitled to +reimbursement of expenses for all services as a director, including committee participation or special assignments. +The Board of Directors met four times during the +fiscal year ended December 31, 2004. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on +which he or she served during 2004. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and all Board members were in +attendance at last year’s meeting. +The Board of Directors has the following standing +committees: Audit Committee, Compensation Committee, Executive Committee, Diversity Committee and Nominating and Governance Committee. +Audit Committee +The Audit Committee of the Board of Directors of the +Company consists of Henry B. Tippie, (Chairman), Wilton Looney and James B. Williams. The Audit Committee held five meetings during the fiscal year +ended December 31, 2004. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the +rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also +determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. Additionally, the +Board of Directors determined that the simultaneous service by Mr. James B. Williams on the Audit Committees of three other publicly traded companies +does not impair his ability to effectively serve on the Audit Committee of RPC, Inc. The Audit Committee meets with the Company’s independent +registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits +and +5 +recommendations made with respect to internal +and external accounting controls and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and +assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out +its duties. The Audit Committee charter is included herein as Appendix A and is also available on the Company’s website at www.rpc.net under the +Governance section. A written copy of the charter can be obtained free of charge by writing to The Secretary, RPC, Inc., 2170 Piedmont Road NE, +Atlanta, Georgia 30324. +Compensation Committee +The Compensation Committee of the Board of Directors +of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held two meetings during the fiscal year ended December +31, 2004. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the Named Executive +Officers. The Compensation Committee also administers the RPC, Inc. Stock Incentive Plans. +Executive Committee +The Executive Committee of the Board of Directors of +the Company consists of R. Randall Rollins and Gary W. Rollins. It held no meetings during the fiscal year ended December 31, 2004. However, it took +action three times by unanimous consent. The function of the Executive Committee is to take all permitted actions of the Board in its stead as +permitted by the Company’s By-laws and Delaware law. The members of the Executive Committee do not receive any additional compensation for their +duties on this committee. +Diversity Committee +The Diversity Committee of the Board of Directors of +the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting during the fiscal year ended December 31, +2004. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +Nominating and Governance Committee +The Nominating and Governance Committee of the Board +of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, each of whom is independent, as discussed +more fully under “Director Independence and NYSE guidelines.” The Committee was formed in 2002 pursuant to a resolution passed by the Board +of Directors for the following purposes: +• +to recommend to the Board of Directors nominees for director and +to consider any nominations properly made by a stockholder; +• +upon request of the Board of Directors, to review and report to +the Board with regard to matters of corporate governance; and +• +to make recommendations to the Board of Directors regarding the +agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one +meeting during the fiscal year ended December 31, 2004. The Board of Directors of the Company established the Nominating and Governance Committee to +promote responsible corporate governance practices and currently intends to maintain the Committee going forward. +Director Nominations +Under Delaware law, there are no statutory criteria +or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee +does not have a charter or a formal policy with regard to the consideration of director candidates. However, it acts under the guidance of the +corporate governance guidelines approved by the Board of Directors on January 27, +6 +2004, as amended January 25, 2005, and posted on +the Company’s website at www.rpc.net under the Governance section. A written copy of the Corporate Governance Guidelines can be obtained free of +charge by writing to The Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. The Board believes that it should preserve maximum +flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s corporate governance +guidelines, the Board of Directors will be responsible for selecting its own members. The Board delegates the screening process to the Nominating and +Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context +of the then current make-up of the Board. This determination takes into account all factors which the Committee considers appropriate, such as +independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a +present need on the Board. The Company’s By-laws provide that nominations for the election of directors may be made by any stockholder entitled to +vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for +directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, +not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the +nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by +the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other +requirements related to the notice are contained in the Company’s By-laws. The Committee will consider nominations from stockholders who satisfy +these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and +for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the +nominees for directors being voted upon at the Annual Meeting to be held on April 26, 2005 are directors standing for re-election. +Director Communications +The Company also has a process for interested +parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the +non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, +Inc. +2170 Piedmont Road NE +Atlanta, Georgia 30324. +Instructions for communications with the directors +are posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board +of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the +appropriate addressee(s). +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing +requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors the majority of which +are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules +303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a +group that includes the Company’s Chairman of the Board R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain +companies under their control, possesses in excess of fifty percent of the Company’s voting power. +7 +The Company’s Audit Committee is composed of +three “independent” directors as defined by the Company’s Corporate Governance Guidelines, the New York Stock Exchange rules, the +Securities Exchange Act of 1934, SEC regulations thereunder, and the Company’s Audit Committee Charter. However, because the current members of +the Compensation and Nominating and Governance Committees are the same as the members of the Audit Committee, those committees are in fact currently +composed of independent directors as well. +Independence Guidelines +Under New York Stock Exchange listing standards, to +be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The New York Stock +Exchange standards set forth a nonexclusive list of relationships which are conclusively deemed material. +The Company’s Independence Guidelines (Appendix +A to the Company’s Corporate Governance Guidelines) provide that to be independent, a director must not have any relationship that would be +considered material under New York Stock Exchange Standards. In addition, the Company’s Guidelines provide that, except in special circumstances +as determined by a majority of the Board, the following relationships are not material: +(i) +If the director, or a member of the director’s immediate +family, has received less than one hundred thousand dollars (US $100,000) in direct compensation from the Company (other than director and committee +fees and compensation for prior service which are not contingent in any way on continued services) during every 12 month period within the past three +(3) years; +(ii) +If the director is a director or officer, or any member of the +director’s immediate family is a director or officer of a bank to which the Company is indebted, and the total amount of the indebtedness does not +exceed one percent (1%) of the total assets of the bank for any of the past three (3) years; +(iii) +If the director or any member of the director’s immediate +family serves as an officer, director, trustee or primary spokesperson of a charitable or educational organization, and donations by the Company do not +exceed the greater of one million dollars (US $1,000,000) or two percent (2%) of the organization’s total annual charitable receipts for any of +the past three (3) years; +(iv) +If the director has a relationship with the Company of a type +covered by item 404(a) and/or item 404(b) of the Securities and Exchange Commission’s Regulation S-K (or any successor regulation), and that +relationship need not, according to the terms of those items and any then-current proxy regulations, be disclosed in the Company’s annual proxy +statement (except for relationships described elsewhere in these guidelines in which case the other guidelines will govern); +(v) +If the director, or a member of the director’s immediate +family, has direct or beneficial ownership (as defined by Rule 13d-3 under the Securities Exchange Act of 1934) of any amount of any class of common +stock of the Company. +Audit Committee Charter +Under the Company’s Audit Committee Charter, in +accordance with New York Stock Exchange listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be +independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any +consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the +Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the New York Stock Exchange and the Company’s Corporate +Governance Guidelines. +Nonmaterial Relationships +After reviewing all of the relationships between the +members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee had any relationships +not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +8 +1. +Mr. Tippie was employed by Rollins, Inc. (“Rollins”) +from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President — Finance, Secretary, +Treasurer and Chief Financial Officer. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that +has voting control of Rollins. +2. +Mr. Tippie is Chairman of the Board of Directors of Dover +Motorsports, Inc. and Dover Downs Gaming and Entertainment, Inc., on both of which Mr. Randall Rollins is a director. +3. +Mr. Tippie is the executor of the Estate of John W. Rollins, +Sr., the uncle of Gary and Randall Rollins, the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins +is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Gary and +Randall Rollins. +4. +Prior to its acquisition by Penske Truck Leasing, Mr. Tippie +served as the Chairman and Mr. Gary Rollins served on the Board of Directors of Rollins Truck Leasing Corp. +5. +Until April 2004, Mr. Williams and Mr. Randall Rollins served +together for nine years on the board of directors of SunTrust Banks, Inc. +6. +Each of Messrs. Looney, Tippie and Williams also serve on the +Boards of Rollins, Inc. and Marine Products Corporation, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held +by a control group of which Messrs. Randall and Gary Rollins are a part; Mr. Randall Rollins is an executive officer of Marine Products; +and +7. +Messrs. Williams and Looney have overlapping social club +memberships and charitable and educational institution affiliations with Mr. Randall Rollins. +As required by the Independence Guidelines, the +Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the respective members of the +Audit Committee. All of the members are also independent under the heightened standards required for Audit Committee members. +In accordance with the NYSE corporate governance +listing standards, Mr. Henry B. Tippie was elected as the Presiding director. The Company’s non-employee directors meet at regularly scheduled +executive sessions without management at which Mr. Tippie presides and had their first meeting in January 2005. +Code of Business Ethics +The Company has adopted a Code of Business Ethics +applicable to all directors, officers and employees generally, as well as a Supplemental Code of Business Ethics applicable to the principal executive +officer, principal financial officers, and directors. Both codes are available on the Company’s website at www.rpc.net. Copies are also available +in print, without charge, to any shareholder who requests one by writing to: The Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the +Company’s Compensation Committee are or have ever been employees of the Company. There are no Compensation Committee interlocks requiring +disclosure. +REPORTS OF THE AUDIT AND COMPENSATION COMMITTEES AND PERFORMANCE +GRAPH +Notwithstanding anything to the contrary set +forth in any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might +incorporate other Company filings, including this Proxy Statement, in whole or in part, the following Report of the Audit Committee, Report of the +Compensation Committee on Executive Compensation and the Performance Graph included herein shall not be incorporated by reference into any such +filings. +9 +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s +internal controls and the financial reporting process. The Company’s independent registered public accountants are responsible for performing +independent audits of the Company’s consolidated financial statements and management’s assessment that the Company maintained effective +control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing +reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee +Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete +and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +In fulfilling its oversight responsibilities with +respect to the year ended December 31, 2004, the Audit Committee: +• +Authorized both the dismissal of Ernst & Young LLP +(“Ernst & Young”) as its independent registered public accounting firm and the appointment of Grant Thornton LLP (“Grant +Thornton”) as its new independent registered public accounting firm; +• +Reviewed with management the interim financial information +included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management prior to +their release; +• +Reviewed and discussed with the Company’s management and +the applicable independent registered public accountants the audited consolidated financial statements of the Company as of December 31, 2004 and 2003 +and for the three years ended December 31, 2004. The discussion included matters related to the conduct of the audit, such as the selection of and +changes in accounting policies, significant adjustments arising from the audit and the absence of any disagreements with management over the +application of accounting principles, the basis for management’s accounting estimates and the disclosures in the financial statements; +• +Reviewed and discussed with the Company’s management and +Grant Thornton, management’s assessment that the Company maintained effective control over financial reporting as of December 31, +2004; +• +Discussed with the independent registered public accountants +matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees;” and +• +Received from the independent registered public accountants the +written disclosures and the letter required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” +and discussed with the registered public accountants the firm’s independence from the Company. +Based upon the review and discussions referred to +above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of +December 31, 2004 and 2003 and for the three years ended December 31, 2004, management’s report on internal control over financial reporting as of +December 31, 2004 and the report of independent registered public accounting firm on internal control over financial reporting as of December 31, 2004 +be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and for filing with the Securities and Exchange +Commission. +In giving its recommendation to the Board of +Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and +objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s +independent registered public accountants with respect to such financial statements. +Submitted by the Audit Committee of the Board of +Directors. +AUDIT COMMITTEE +Henry B. Tippie, Chairman +Wilton +Looney +James B. Williams +10 +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +Overview +During the fiscal year 2004, the members of the +Compensation Committee of the Board of Directors held responsibility for determining the base salary and cash based incentive plans for the Named +Executive Officers. The Compensation Committee also administers the stock based incentives for all of the Named Executive Officers. The Compensation +Committee is comprised of outside directors who do not participate in the Company’s compensation plans. +The Company is engaged in a highly competitive +industry. The actions of the Named Executive Officers have a profound impact on the short-term and long-term profitability of the Company; therefore, +the designs of the Named Executive Officers’ compensation packages are very important. In order to retain key employees, the Company has an +executive compensation package that is determined by increase in shareholder value, the overall performance of the Company, and the individual +performance of the executive. The measures of the Company’s performance considered by the Compensation Committee in determining the 2004 Named +Executive Officers’ compensation were long-term growth in net income and stockholder value improvements in addition to individual performance. The +Committee subjectively weights these factors without any specific formula and adjusts the compensation of an executive based on individual performance +compared to Company expectations and performance. During fiscal 2004, the Company performance met or exceeded its expectations at the time it set +executive pay. +Pursuant to the above compensation philosophy, the +three main components of the executive compensation packages are base salary, cash based incentives, and stock based incentive plans. +The Company’s Named Executive Officers are also +executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee +also constitute the Compensation Committee of Marine Products. In determining the compensation for the Named Executive Officers at the Company, the +Committee considers the dual responsibilities and sets compensation from the Company at such levels that the aggregate compensation received from both +Marine Products and the Company is reasonable in light of the responsibilities and the performance of each Company. A discussion of the Company’s +executive officers’ compensation at Marine Products is contained in its annual proxy statement filed with the U.S. Securities and Exchange +Commission. +Base Salary +The factors subjectively used in determining base +salary include the recent profit performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance, and +the salary received by peers in similar positions in the same geographic area, in addition to the base salary from Marine Products. These factors are +not used in any specific formula or weighting. The base salaries of the Named Executive Officers are reviewed annually. Increases to base salaries for +the Named Executive Officers ranged up to 18 percent in 2004 based on all the factors discussed above. +Cash Based Incentives +The annual cash based incentive compensation for the +Named Executive Officers are based upon broad performance objectives. The Named Executive Officers participate in a variety of individualized +performance bonus plans designed by the Committee to encourage achievement of short-term goals. These programs all have payouts subjectively based on +net income, budget objectives, and other individual performance objectives. The individual performance objectives relate to each Named Executive +Officer improving the contribution of his or her functional area of responsibility to further enhance the earnings of the Company. Bonuses are not made +subject to any plan or program, written or unwritten, that is communicated in advance to the Named Executive Officers. No specific performance criteria +are established in advance, and no specific ranges for bonuses are established in advance. Bonuses for a particular fiscal year are generally +determined during the first quarter of the following fiscal year and paid at the discretion of the Compensation Committee. Bonuses were paid in the +first +11 +quarter of 2005 for the year ended December 31, 2004 and totaled +$690,000 for the Named Executive Officers, based on improved financial performance of the Company in 2004 compared to 2003 and individual +performance. +Stock Based Incentive Plans +Awards under the Company’s Stock Incentive Plan +are discretionary, and are not based on any specific formula and may or may not be granted in any given fiscal year. When considering grants under the +plan, the Compensation Committee gives consideration to the overall performance of the Company and the performance of individual employees. The Plan is +administered by the Committee, which consists of non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as +amended. Based on improved financial performance of the Company in 2004 compared to 2003 and individual performance, the Committee granted to the Named +Executive Officers a total of 79,500 shares of restricted stock. The restricted stock granted vests in 20 percent increments annually beginning in +2006. +The Compensation Committee currently believes that +there are no employees whose total compensation including option grants under the Company’s Stock Incentive Plans will materially exceed the $1 +million deductibility limit of Section 162(m) of the Internal Revenue Code of 1986, as amended, except as disclosed below. The most recent grants vest +ratably over a six year period, thereby minimizing the likelihood of increasing stock prices resulting in an employee’s annual compensation +exceeding the Section 162(m) limitation. Therefore, the Committee has determined that the Company will not change its various compensation plans, or +otherwise meet the requirements of such exemption, or take other actions to qualify such grants (or other compensation) for an exemption from the +Section 162(m) limitation at this time. +However, in 2004, Richard A. Hubbell received total +taxable compensation in excess of $1 million due to the vesting of ten-year time lapse restricted shares issued in 1994. This resulted in an estimated +increase in the Company’s income tax liability of approximately $257,000. +Chief Executive Officer Compensation +The Chief Executive Officer’s compensation is +determined by the Compensation Committee. For fiscal year 2004, the cash compensation of Richard A. Hubbell, was $655,000, of which $455,000 was base +salary and $200,000 was cash based incentive compensation. In addition, Mr. Hubbell was granted 30,000 shares of restricted stock, valued at $9.21 per +share, that vest in 20 percent increments annually beginning in 2006. The Chief Executive Officer’s total 2004 compensation including base salary +increases, cash based incentives and stock based incentives was based upon the long-term growth in revenues, net income, stockholder value improvements +including increase in stock price and the Chief Executive Officer’s individual performance towards achieving the goals listed above. The decision +of the Compensation Committee was subjective and was not based upon any specific formula or guidelines. No member of the Compensation Committee +participates in any Company incentive program. +COMPENSATION COMMITTEE +Henry B. Tippie, +Chairman +Wilton Looney +James B. Williams +12 +COMMON STOCK PERFORMANCE +As part of the executive compensation information +presented in this proxy statement, the Securities and Exchange Commission requires a five year comparison of the cumulative total stockholder return +based on the performance of the stock of the Company, assuming dividend reinvestment, as compared with both a broad equity market index and an industry +or peer group index. The indices included in the following graph are the Russell 2000 Index (“Russell 2000”), the Philadelphia Stock +Exchange’s Oil Service Index (“OSX”), and a peer group which includes companies that are considered peers of the Company, as discussed +below (the “Peer Group”). The Company has voluntarily chosen to provide both an industry and a peer group index. +The Russell 2000 is a stock index representing small +capitalization U.S. stocks. The components of the index had an average market capitalization in 2004 of $857 million, and the Company was a component +of the Russell 2000 during 2004. The Russell 2000 was chosen because it represents companies with comparable market capitalizations to the Company. The +OSX is a stock index of 15 U.S. companies that provide oil drilling and production services, oilfield equipment, support services and +geophysical/reservoir services. The Company is not a component of the OSX, but it was chosen because it represents a large group of companies that +provide the same or similar products and services as the Company. The companies included in the Peer Group are Weatherford International, Inc., BJ +Services Company, Superior Energy Services, Inc., and Halliburton Company. The companies included in the peer group have been weighted according to +each respective issuer’s stock market capitalization at the beginning of each year. +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* +* +Assumes reinvestment of dividends; also assumes that Marine +Products Corporation shares issued in connection with the spin-off were sold and reinvested in RPC stock. +13 +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company +began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the +provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include +administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are +subsidiaries of the Company) for such services aggregated approximately $546,000 in 2004. +During 2004, a subsidiary of RPC conducted business +with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director are officers, directors and controlling +stockholders of LOR, Inc. In 2004, payments totaling approximately $529,000 were made to these LOR, Inc. companies for the purchase of parts and repair +services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable +as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services +including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on +a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of +certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) +for such services and rent aggregated $76,000 in 2004. +EXECUTIVE EMPLOYMENT CONTRACTS +The Company’s employment contracts with its +Chief Executive Officer and the Company’s other three most highly compensated executive officers (the “Named Executive Officers”) as of +March 1, 2005 are oral, at will arrangements. Set forth below is a summary of the material terms of the compensation under such at will arrangements. +Except as disclosed elsewhere in this proxy statement, the Named Executive Officers do not have guaranteed terms of employment. None of the Named +Executive Officers are entitled to severance or other termination payments relating to a change of control in excess of $100,000. +Base Salaries +None of the Named Executive Officers of the Company +received salary increases in 2005. The annual base salaries for the Company’s Named Executive Officers are disclosed in the Summary Compensation +Table on page 16. +Discretionary Bonuses +All of the Named Executive Officers are eligible for +annual cash bonuses which are awarded on an entirely discretionary basis, following a review by the Company’s Compensation Committee of the +performance of the Company and the executives for the relevant year. The Compensation Committee’s decisions are based upon broad performance +objectives. The bonus program focuses on the achievement of short-term objectives. Bonus decisions are made based on a review of net income, budget +objectives, and other individual performance objectives. The individual performance objectives considered by the Committee relate to each Named +Executive Officer improving the contribution of his or her functional area of responsibility to further enhance the earnings of the +Company. +Discretionary bonuses are not made subject to any +plan or program, written or unwritten, that is communicated in advance to the Named Executive Officers. No specific performance criteria are +established in advance, and no specific ranges for bonuses are established in advance. Bonuses for a particular fiscal year are generally determined +during the first quarter of the following fiscal year and paid at the discretion of the Compensation Committee. +Bonuses were paid in the first quarter of 2005 for +the year ended December 31, 2004 and totaled $690,000 for all of the Named Executive Officers, as disclosed in the Summary Compensation Table on page +16. +14 +Stock Options and Other Equity Awards +The Named Executive Officers are eligible to receive +options and restricted stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the +Committee at the time of grant. +Supplemental Retirement Plan +Salary and Bonus Deferrals +All of the Named Executive Officers are eligible to +participate in the Company’s Supplemental Retirement Plan (“Plan”). Messrs. Rollins and Hubbell declined to participate in the +Company’s Plan with respect to fiscal year 2005. Mr. Palmer and Ms. Graham have elected to participate in the Company’s Plan. Ms. Graham also +participates in the Supplemental Retirement Plan sponsored by Marine Products Corporation. +The Plan allows participants to defer up to 25 +percent of base salary and up to 50 percent of annual bonus and commissions, subject to an overall maximum of $500,000 in any given year, and other +terms and conditions set forth in the Plan. +Company Contributions +The Company makes certain “Enhanced Benefit +Contributions” under the Plan on behalf of Mr. Hubbell, as disclosed in the Summary Compensation Table on page 16. The Company has retained +absolute discretion to reduce the amount of Enhanced Benefit Contributions at any time for any reason, and may elect not to make any such contributions +at all. The Company currently expects that Mr. Hubbell’s last Enhanced Benefit Contribution will be made with respect to fiscal year +2008. +In addition to the Enhanced Benefit Contributions, +the Company may make discretionary contributions on behalf of a Participant under the Plan in any amount and at any time. The Company has no obligation +to make any such discretionary contribution, has no current plans to make such a contribution on behalf of any Named Executive Officer, and has never +made any such contribution under the Supplemental Retirement Plan since its creation in August of 2002. +A copy of the Plan is filed as an exhibit to the +Form 10-K for the year ended December 31, 2004 filed with the SEC on March 16, 2005. The material terms and conditions of the Plan are more +particularly described in the Company’s Form 8-K filed with the SEC on December 23, 2004. +Automobile Usage +Mr. Hubbell has the use of a Company owned +automobile. The automobile is self-insured and maintained by the Company. The Company also pays all fuel expenses. Mr. Hubbell’s personal use of +the automobile is treated as taxable income for federal and state income tax purposes. His personal use of the automobile is valued at approximately +$690 per month. Mr. Palmer receives an automobile allowance of $700 per month in addition to reimbursement of fuel expenses that is treated as taxable +income for federal and state income tax purposes. +Other Benefits +The Named Executive Officers are eligible to +participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical +and dental coverage and other group benefit plans. All of the Named Executive Officers are eligible for the Retirement Income Plan that was frozen in +March 2002. See Supplemental Retirement Plan above for further discussion. +15 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and +long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2004, 2003 and 2002 of those persons who +were at December 31, 2004 (i) the Chief Executive Officer and (ii) all other most highly compensated executive officers of the Company whose total +annual compensation exceeded $100,000, (the “Named Executive Officers”): +SUMMARY COMPENSATION TABLE +Annual Compensation +Long-Term Compensation Awards +Name and Principal Position +Year +Salary($) +Bonus($) +Restricted +Stock +Awards +($)(1) +Securities +Underlying +Options/ +SARs(#) +All Other +Compensation($)(2) +R. Randall +Rollins (3) +2004 +$ +355,000 +$ +300,000 +$ +276,200 +0 +$ +0 +Chairman of +the Board +2003 +300,000 +175,000 +0 +150,000 +0 +2002 +300,000 +0 +0 +0 +0 +Richard A. +Hubbell (3) +2004 +455,000 +200,000 +276,200 +0 +32,412 +President and +Chief Executive Officer +2003 +400,000 +110,000 +0 +37,500 +32,262 +2002 +400,000 +0 +0 +0 +31,762 +Linda H. Graham +(3) +2004 +120,000 +40,000 +69,050 +0 +3,480 +Vice +President and Secretary +2003 +104,000 +25,000 +0 +15,000 +3,120 +2002 +102,833 +0 +0 +0 +3,895 +Ben M. Palmer +(3) +2004 +150,000 +150,000 +110,480 +0 +6,150 +Vice +President, Chief Financial +2003 +150,000 +60,000 +47,450 +22,500 +4,752 +Officer, and +Treasurer +2002 +150,000 +0 +0 +0 +5,500 +(1) +The Company has granted employees two forms of restricted stock; +performance restricted and time lapse restricted. The performance restricted shares are granted, but not earned and issued until certain five-year +tiered performance criteria are met. The performance criteria are predetermined market prices of RPC common stock. On the date the common stock +appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from +the determination date. After the determination date, the grantee will receive all dividends declared and also voting rights to the shares. Time lapse +restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. The Company has issued time lapse +restricted shares that vest over ten years in prior years and in 2004 issued time lapse restricted shares that vest in 20 percent increments annually +starting with the second anniversary of the grant, over six years from the date of grant. During these years, grantees receive all dividends declared +and retain voting rights for the granted shares. As of December 31, 2004, 85,500 time lapse restricted shares and 15,770 performance restricted shares +were held by Mr. Hubbell, 25,500 time lapse restricted shares and 908 performance restricted shares were held by Ms. Graham, and 42,750 time lapse +restricted shares and 22,358 performance restricted shares were held by Mr. Palmer. The total number of shares held and their values on December 31, +2004 were as follows: Mr. Hubbell, 101,270 shares valued at $1,696,000, Ms. Graham, 26,408 shares valued at $442,000 and Mr. Palmer, 65,108 shares +valued at $1,091,000 of which 4,500 shares are subject to issuance upon meeting performance criteria as defined in the related Performance Restricted +Stock Agreement. The time lapse restricted share certificates and the performance restricted share certificates that have been earned and issued are +being held by the Company and may not be transferred by the Named Executive Officers until the shares vest. The December 31, 2004 values are based on +the closing stock market price of $16.75 and do not take into account any diminution of value attributable to vesting provisions of these +shares. +(2) +Effective July 1, 1984, the Company adopted the RPC 401(k) Plan +(“401(k) Plan”), a qualified retirement plan designed to meet the requirements of Section 401(k) of the Internal Revenue Code (the +“Code”). The 401(k) Plan provides for a matching contribution of fifty cents ($0.50) for each dollar ($1.00) of a participant’s +contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation (which includes commissions, overtime and bonuses). +A participant’s voluntary pre-tax salary deferrals made under the 401(k) Plan are in lieu of payment of compensation to the participant. The +Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible +employees. In the first quarter of 2002, the Company’s Board of Directors approved +16 +a resolution to cease all future benefit accruals under the +Retirement Income Plan effective March 31, 2002. In lieu thereof, beginning in 2002, the Company began providing enhanced benefits in the form of cash +contributions on behalf of certain long-service employees who were 40-65 years of age on or before December 31, 2002. These enhanced benefit +contributions are discretionary and may be made annually, subject to a participant’s continued employment, for a maximum of seven years. The +contributions are made either to the non-qualified Supplemental Retirement Plan (“SRP”) or to the 401(k) Plan for each employee who is +entitled to the enhanced benefits. The amounts shown in this column represent the Company match under the 401(k) Plan. In the case of Mr. Hubbell, the +amount shown includes $26,262 towards enhanced benefits. Beginning late in 2002, the Company began permitting selected highly compensated employees to +defer a portion of their compensation into the SRP. +(3) +Mr. Rollins, Mr. Hubbell, Mr. Palmer and Ms. Graham are also +executive officers of Marine Products and receive compensation directly from Marine Products. +OPTION/SAR GRANTS IN FISCAL YEAR 2004 +No options or stock appreciation rights were granted +to the Named Executive Officers during 2004. +AGGREGATED OPTION/SAR EXERCISES +IN FISCAL YEAR 2004 AND YEAR-END +OPTION/SAR VALUES +Name +Shares +Acquired +on Exercise(#) +Value +Realized($) +Number of Securities +Underlying +Unexercised +Options/SARs +at FY End(#) +Exercisable/Unexercisable +Value of Unexercised +In-the-Money +Options/SARs +At +FY-End($)(1) +Exercisable/Unexercisable +R. Randall +Rollins +0 +$ +0 +60,000 / 90,000 +$ +605,285 / 907,928 +Richard A. +Hubbell +24,972 +162,651 +254,546 / 60,000 +2,867,782 / 553,200 +Linda H. +Graham +11,352 +61,301 +19,986 / 15,000 +209,541 / 149,100 +Ben M. +Palmer +0 +0 +55,461 / 27,000 +587,925 / 259,740 +(1) +Based on the closing price of Company Common Stock on the New +York Stock Exchange on December 31, 2004 of $16.75 per share. +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth certain information +regarding equity compensation plans as of December 31, 2004. +Plan Category +(A) +Number of Securities To +Be Issued Upon Exercise +of +Outstanding Options, +Warrants and Rights +(B) +Weighted Average +Exercise Price of +Outstanding +Options, +Warrants and Rights +(C) +Number of Securities +Remaining Available for +Future +Issuance Under +Equity Compensation +Plans (Excluding +Securities Reflected in +Column (A)) +Equity +compensation plans approved by securityholders +1,939,577 +(1) +$ +7.01 +(2) +1,930,500 +(3) +Equity +compensation plans not approved by securityholders +— +— +— +Total +1,939,577 +$ +7.01 +1,930,500 +(1) +Includes 9,000 performance restricted shares granted but not +earned and issued. +(2) +Does not include performance restricted shares granted but not +earned and issued because these grants do not have exercise prices. +(3) +All of the securities are available to be issued as restricted +stock or other stock awards. +17 +BENEFIT PLANS +The Company’s Retirement Income Plan, a +trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In the first quarter of 2002, the +Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. +Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete +calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately +preceding March 31, 2002. Accordingly the pension plan table has not been presented under this section. +The current years of service for the four +individuals named in the Summary Compensation Table are: R. Randall Rollins — 30, Richard A. Hubbell — 15, Linda H. Graham — 15 and Ben +M. Palmer — 4. The annual benefit payable at the later of retirement or age 65 for the Named Executive Officers is $261,600 for Mr. Rollins, +$41,400 for Mr. Hubbell, $24,900 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Code (as amended by the Economic Growth and Tax +Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2004 was $165,000. Retirement +benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum +compensation limit. +The Plan also provides reduced early retirement +benefits under certain conditions. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. +Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distribution received +during 2004 was approximately $261,600 and is not subject to change after retirement. +In 2002, the Company began providing additional +benefits on behalf of certain long-service employees in the form of discretionary cash contributions made either to the Company’s 401(k) Plan +(which is described below) or the Supplemental Retirement Plan as described above under “Executive Employment Contracts.” Amounts contributed +to the accounts of the Named Executive Officers are reported in the “All Other Compensation” column of the Summary Compensation Table on page +16. +Effective July 1, 1984, the Company adopted a +qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents +($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual +compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s +account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable +upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or +her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax +contribution account for any reason after attaining age 59-1/2. In addition, a participant may withdraw any amount from his or her rollover account for +any reason. Amounts contributed by the Company to the accounts of the Named Executive Officers for 2004 under this plan are reported in the “All +Other Compensation” column of the Summary Compensation Table on page 16. +18 +INDEPENDENT PUBLIC ACCOUNTANTS +Change in Accountants +The independent public accounting firm of Ernst +& Young was initially engaged as the Company’s auditors for the fiscal year ended December 31, 2004. +Effective subsequent to the filing of its Quarterly report on Form 10-Q for the quarter ended June 30, 2004, the Company decided on August 17, 2004, to +terminate Ernst & Young as the Company’s independent registered public accountants, and to appoint Grant Thornton +as its independent registered public accountants for the year ended December 31, 2004. The decisions to dismiss Ernst & Young and +to appoint Grant Thornton were authorized by the Company’s Audit Committee. +For the fiscal years ended December 31, 2002 and +2003, Ernst & Young’s report on the financial statements of the Company did not contain an adverse opinion or a disclaimer of opinion, nor was +it qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s fiscal years ended December 31, 2002 and +2003, and the subsequent interim period through August 17, 2004, there were no disagreements between the Company and Ernst & Young on any matter of +accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which if not resolved to the satisfaction of Ernst +& Young would have caused them to make reference to the subject matter of the disagreement in connection with their reports. The following +reportable events described under Item 304(a)(1)(v) of Regulation S-K did not occur within the Company’s fiscal years ended December 31, 2002 and +2003 or during any subsequent interim period through August 17, 2004. +1. +Ernst & Young did not advise the Company that the internal +controls necessary to develop reliable financial statements did not exist, +2. +Ernst & Young did not advise the Company that it would be +unable to rely on management’s representation, +3. +Ernst & Young did not advise the Company of the need to +significantly expand the scope of its audit, +4. +Ernst & Young did not advise the Company that information +had come to its attention that had caused it to conclude that there was a material impact to the fairness or reliability of a previously issued audit +report or the underlying financial statements. +During the Company’s fiscal years ended +December 31, 2002 and 2003, and from January 1, 2004 through August 17, 2004, neither the Company nor someone acting on the Company’s behalf +consulted Grant Thornton regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) +the type of audit opinion that might be rendered on the Company’s financial statements, or (iii) any matter that was either the subject of a +disagreement, as defined in Regulation S-K Item 304 (a)(1)(iv), or a “reportable event” as defined in Regulation S-K Item +304(a)(1)(v). +The Company filed a Report on Form 8-K with the SEC +on August 20, 2004 regarding the change in accountants. +Principal Auditor +Grant Thornton has served as the Company’s +independent public accountants since August 17, 2004 for the fiscal year ended December 31, 2004. In addition to performing the audit of the +Company’s consolidated financial statements, Grant Thornton provided various other services during 2004. +The Audit Committee has appointed Grant Thornton as +the Company’s independent registered public accountants for the fiscal year ending December 31, 2005. Representatives of Grant Thornton are +expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to +appropriate questions. No representative of Ernst & Young is expected to attend the meeting. +19 +The aggregate fees billed by independent registered +public accountants are set forth below: +2004* +2003** +Audit fees +and quarterly reviews (1) +$ +846,000 +$ +215,500 +Audit related +fees (2) +12,800 +23,000 +Tax +fees +— +263,000 +All other +fees +— +— +(1) +Audit fees include fees for audit or review services in +accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the +Sarbanes-Oxley Act. These fees are subject to final approval by the Audit Committee. +(2) +Audit related fees represents audit of the 401(k) +Plan. +* +Fees related to 2004 disclosed above represent Grant +Thornton’s charges. In addition, the Company paid approximately $45,000 to Ernst & Young in audit fees and $230,000 in tax fees. Tax fees +related to tax compliance, planning and advice, consultation and research on tax consequences for potential acquisitions, foreign tax issues and filing +amended tax returns for prior years. +** +All fees paid in 2003 were to Ernst & Young. +Pre-approval +All of the services described above were +pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public +accountants for these services are compatible with maintaining such auditors’ independence. All of the hours expended on the principal +accountant’s engagement to audit the financial statements of the Company for the years 2004 and 2003 were attributable to work performed by +full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the +appointment and termination (subject, if applicable, to shareholder ratification), compensation, and oversight of the work of the independent +registered public accountants, including resolution of disagreements between management and the independent registered public accountants regarding +financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered +public accountants and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit +Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its +next scheduled meeting. The Audit Committee has no other pre-approval policies. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, +and 5 and amendments thereto furnished to the Company by all Directors, Officers and greater than 10 percent stockholders subject to the provisions of +Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all Directors, Officers and +greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the +Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2004 have been satisfied, except that +Mr. Ben M. Palmer filed one late Form 4 to report performance restricted shares earned based on achieving pre-determined stock prices. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be +presented at the Company’s 2006 Annual Meeting of the Stockholders must be received by the Company by December 1, 2005, in order to be included, +pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the proxy statement and form of proxy relating to that +meeting. All stockholder proposals submitted outside the stockholder proposal rules contained in Rule 14a-8 promulgated under the Securities Exchange +Act of 1934, as amended, except director +20 +nominations +must be received by the Company by February 14, 2006, in order to be considered timely. +With regard to such stockholder proposals, if the date of the next Annual Meeting of the +Stockholders is advanced or delayed more than 30 calendar days from April 26, 2006, the +Company will, in a timely manner, inform its stockholders of the change and of the date +by which such proposals must be received. +With respect to stockholder nomination of directors, +the Company’s By-laws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of +directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at +an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days +prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the +nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the +class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information +relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such +notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s By-laws. +Notices of nominations must be received by the Secretary of the Company no later than January 26, 2006, with respect to directors to be elected at the +2006 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +RPC will bear the cost of soliciting proxies. Upon +request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material +to their beneficial shareholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by +telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for +these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an +estimated fee of $5,500 plus shipping expenses. +MISCELLANEOUS +The Company’s Annual Report to Stockholders, +including its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, without exhibits, is being mailed to stockholders with this proxy +statement. +Upon the written request of any record or +beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2005 Annual Meeting of Stockholders, the Company +will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement +schedules (but without exhibits), for its fiscal year ended December 31, 2004. Requests for a copy of such Annual Report on Form 10-K should be +addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the +matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the Annual +Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the +intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF +DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 31, 2005 +21 +APPENDIX A +AUDIT COMMITTEE CHARTER +RPC, +INC. +CHARTER OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +PURPOSE +The Audit Committee (the “Committee”) is +appointed by the Board of Directors (the “Board”) to assist the Board in fulfilling its oversight responsibilities. The Committee’s +primary purpose is to monitor the integrity of the Company’s financial reporting process, including (by overseeing the financial reports and other +financial information provided by the Company to any governmental or regulatory body, the public or other users thereof) the Company’s systems of +internal accounting and financial controls, the performance of the Company’s internal audit function, the independent auditor’s +qualifications and independence, the Company’s compliance with ethics policies and legal and regulatory requirements statements, and the annual +independent audit of the Company’s financial statements. The Committee will monitor the independence, performance, and qualifications of the +Company’s independent auditors. +In discharging its oversight role, the Committee is +empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The +Committee is authorized to retain outside counsel, auditors or other experts and professionals for this purpose. The Board and the Committee are in +place to represent the Company’s shareholders; accordingly, the outside auditor is ultimately accountable to the Board and the +Committee. +The Company shall provide appropriate funding, as +determined by the Committee, for payment of compensation to any registered public accounting firm engaged for the purpose of rendering or issuing an +audit report or related work or performing other audit, review or attest services for the company and to any advisors employed by the Company as well +as ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties. +MEMBERSHIP +The Committee shall be comprised of not less than +three members of the Board, and the Committee’s composition shall meet all requirements of the Audit Committee policy of the New York Stock +Exchange. +Accordingly, all of the members must be +directors: +• +Who are independent of management and the Company. Members of +the Committee shall be considered independent as long as they do not accept any consulting, advisory, or compensatory fee from the Company and are not +an affiliated person of the Company or its subsidiaries, and meet the independence requirements of the New York Stock Exchange. Under Rule 10A-3 to +Securities Exchange Act of 1934, disallowed payments to an Audit Committee member includes payments made directly or indirectly, and for these purposes +“indirect” acceptance shall include (a) payments to spouses, minor children or stepchildren or children or stepchildren sharing a home with +the member and (b) payments accepted by an entity in which such member is a partner, member, officer such as a managing director occupying a comparable +position or executive officer, or occupies a similar position (except limited partners, non-managing members and those occupying similar positions who, +in each case, have no active role in providing services to the entity) and which provides accounting, consulting, legal, investment banking or +financial advisory to the Company or any subsidiary. +• +Who are financially literate or who become financially literate +within a reasonable period of time after appointment to the Committee. In addition, at least one member of the Committee must be an Audit Committee +“financial expert” as defined by SEC regulations. +A-1 +KEY RESPONSIBILITIES +The Committee’s primary responsibility is to +oversee the Company’s financial reporting process on behalf of the Board and report results of their activities to the Board on a regular basis. +While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to +determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. +Management is responsible for the preparation, presentation, and integrity of the Company’s financial statements and for the appropriateness of +the accounting principles and reporting policies that are used by the Company as well as the Company’s internal controls. The independent auditors +are responsible for performing an independent audit of the Company’s financial statements in accordance with auditing standards generally accepted +in the United States and for issuing a report hereon. +The Committee, in carrying out its responsibilities, +believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Committee should take +appropriate actions to set the overall corporate “tone” for quality financial reporting, sound business risk practices, and ethical behavior. +The following shall be the principal duties and responsibilities of the Committee. These functions are set forth as a guide with the understanding that +the Committee may diverge from this guide as appropriate under the circumstances. +The Committee shall be directly responsible for the +appointment and termination (subject, if applicable, to shareholder ratification), compensation, and oversight of the work of the independent auditors, +including resolution of disagreements between management and the auditor regarding financial reporting. The Committee shall pre-approve all audit and +non-audit services provided by the independent auditors and shall not engage the independent auditors to perform the specific non-audit services +proscribed by law or regulation. The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member +to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting. +At least annually, the Committee shall obtain and +review a report by the independent auditors describing: +• +The firm’s internal quality control procedures. +• +Any material issues raised by the most recent internal quality +control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five +years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues. +• +All relationships between the independent auditor and the +Company (to assess the auditor’s independence). +In addition, the Committee shall set clear hiring +policies for employees or former employees of the independent auditors that meet the SEC regulations and the New York Stock Exchange listing +standards. +The Committee shall discuss with the internal +auditors and the independent auditors the overall scope and plans for their respective audits, including the adequacy of staffing and compensation. +Also, the Committee shall discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the accounting +and financial controls, including the Company’s policies and procedures to assess, monitor, and manage business risk, and legal and ethical +compliance programs (e.g., Company’s Code of Conduct). +The Committee shall meet separately periodically +with management, the internal auditors, and the independent auditors to discuss issues and concerns warranting Committee attention. The Committee shall +provide sufficient opportunity for the internal auditors and the independent auditors to meet privately with the members of the Committee. The +Committee shall review with the independent auditor any audit problems or difficulties and management’s response. +The Committee shall receive regular reports from the +independent auditor on the critical policies and practices of the Company, and all alternative treatments of financial information within generally +accepted accounting principles that have been discussed with management. +A-2 +The Committee shall review management’s +assertion on its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditors’ +report on management’s assertion. +The Committee shall review and discuss earnings +press releases, as well as financial information and earnings guidance provided to analysts and rating agencies. +The Committee shall review the interim financial +statements and disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations with management and the +independent auditors prior to the filing of the Company’s Quarterly Report on Form 10-Q. Also, the Committee shall discuss the results of the +quarterly review and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing +standards. The chair of the Committee may represent the entire Committee for the purposes of this review. +The Committee shall review with management and the +independent auditors the financial statements and disclosures under Management’s Discussion and Analysis of Financial Condition and Results of +Operations to be included in the Company’s Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of +Form 10-K), including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant +judgments, and the clarity of the disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any +other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards. +The Committee shall establish procedures for the +receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters, and the +confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters. +The Committee shall receive corporate +attorneys’ reports of evidence of a material violation of securities laws or breaches of fiduciary duty. +The Committee also prepares its report to be +included in the Company’s annual proxy statement, as required by SEC regulations. +The Committee shall perform an evaluation of its +performance at least annually to determine whether it is functioning effectively. +A-3 +RPC, Inc. +Proxy Solicited by the Board of Directors of RPC, Inc. +For Annual Meeting of Stockholders on Tuesday, April 26, 2005, 12:20 P.M. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all +shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 26, 2005, at 12:20 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 31, 2005, grants authority to said proxies, or either of them, +or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place and stead. The +undersigned instructs said proxies, or either of them, to vote as follows: +1. +o +FOR R. RANDALL ROLLINS, HENRY B. TIPPIE +AND JAMES B. WILLIAMS, AS CLASS I DIRECTORS +EXCEPT AS INDICATED BELOW +o +ABSTAIN FROM VOTING FOR THE +ELECTION OF ALL CLASS I NOMINEES +INSTRUCTIONS: To refrain from voting for any individual nominee, write that nominee’s name in the space provided below: +2. +ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +Over +RPC, INC. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR. THIS PROXY IS +SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please sign below, date and return promptly. +Signature(s) +Dated: +, 2005 +(Signature should conform to name and title stenciled hereon. Executors, administrators, trustees, guardians and attorneys should add their title upon signing.) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001145443-05-000746/proxy_rpt.txt b/raw/proxies/0000742278/0001145443-05-000746/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..6bc505e20d64e5d1800f2caa02bb41e462c80c81 --- /dev/null +++ b/raw/proxies/0000742278/0001145443-05-000746/proxy_rpt.txt @@ -0,0 +1,16 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company +began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the +provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include +administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are +subsidiaries of the Company) for such services aggregated approximately $546,000 in 2004. +During 2004, a subsidiary of RPC conducted business +with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director are officers, directors and controlling +stockholders of LOR, Inc. In 2004, payments totaling approximately $529,000 were made to these LOR, Inc. companies for the purchase of parts and repair +services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable +as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services +including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on +a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of +certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) +for such services and rent aggregated $76,000 in 2004. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-04-000397/proxy.txt b/raw/proxies/0000742278/0001188112-04-000397/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..95b9234e34c0eb90c11f5ef12dc779e29a4451ba --- /dev/null +++ b/raw/proxies/0000742278/0001188112-04-000397/proxy.txt @@ -0,0 +1,2368 @@ +DEF 14A +1 +tdef14a-1856.txt +DEF 14A +SECURITIES AND EXCHANGE COMMISSION +WASHINGTON, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant /X/ +Filed by a party other than the Registrant / / +Check the appropriate box: +/ / Preliminary Proxy Statement +/ / Confidential, for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +/X/ Definitive Proxy Statement +/ / Definitive Additional Materials +/ / Soliciting Material Pursuant to Section 240.14a-12 +RPC, INC. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +/X/ No fee required. +/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) +and 0-11. +(1) Title of each class of securities to which transaction applies: +----------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +----------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (set forth the amount on which the +filing fee is calculated and state how it was determined): +----------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +----------------------------------------------------------------------- +(5) Total fee paid: +----------------------------------------------------------------------- +/ / Fee paid previously with preliminary materials. +/ / Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +----------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +----------------------------------------------------------------------- +(3) Filing Party: +----------------------------------------------------------------------- +(4) Date Filed: +----------------------------------------------------------------------- +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2170 PIEDMONT ROAD, NE, ATLANTA, GEORGIA 30324 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2004 Annual Meeting of Stockholders of RPC, +Inc., a Delaware corporation ("RPC" or "the Company"), will be held at the +Company's offices located at 2170 Piedmont Road, NE, Atlanta, Georgia, on +Tuesday, April 27, 2004, at 1:10 P.M., or any adjournment thereof, for the +following purposes: +1. To elect three Class III directors to the Board of Directors; +2. To approve the proposed 2004 Stock Incentive Plan; and +3. To transact such other business as may properly come before the +meeting or any adjournment thereof. +The Proxy Statement dated March 22, 2004 is attached. +The Board of Directors has fixed the close of business on March 5, 2004 as +the record date for the determination of stockholders entitled to notice of, and +to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to +complete, date, sign and return the enclosed proxy. No postage is required if +the enclosed envelope is mailed in the United States. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ Linda H. Graham, Secretary +Linda H. Graham, Secretary +Atlanta, Georgia +March 22, 2004 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders +on or about March 26, 2004. The following information concerning the enclosed +proxy and the matters to be acted upon at the Annual Meeting of Stockholders to +be held on April 27, 2004, is submitted by the Company to the stockholders for +their information. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as +directed, but if not otherwise specified, proxies solicited by the Board of +Directors of the Company will be voted in favor of the candidates for election +to the Board of Directors. +A stockholder executing and delivering a proxy has power to revoke the same +and the authority thereby given at any time prior to the exercise of such +authority if he so elects, by contacting either proxyholder at 2170 Piedmont +Road, NE, Atlanta, Georgia, 30324. +CAPITAL STOCK +The outstanding capital stock of the Company on March 5, 2004 consisted of +28,633,524 shares of Common Stock, par value $0.10 per share. Holders of Common +Stock are entitled to one vote (non-cumulative) for each share of such stock +registered in their respective names at the close of business on March 5, 2004, +the record date for determining stockholders entitled to notice of and to vote +at the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual +Meeting. Abstentions and broker non-votes are counted for purposes of +determining the presence or absence of a quorum for the transaction of business. +In accordance with General Corporation Law of the state of Delaware, the +election of the nominees named herein as Directors will require the affirmative +vote of a plurality of the votes cast by the shares of Company Common Stock +entitled to vote in the election provided that a quorum is present at the Annual +Meeting. In the case of a plurality vote requirement (as in the election of +directors), where no particular percentage vote is required, the outcome is +solely a matter of comparing the number of votes cast for each nominee, and +hence only votes for director nominees (and not abstentions or broker non-votes) +are relevant to the outcome. The affirmative vote of holders of a majority of +the outstanding shares of Common Stock of the Company entitled to vote and +present in person or by proxy at the Annual Meeting is required for approval of +the Company's 2004 Stock Incentive Plan. With respect to the proposal to approve +the Company's Stock Incentive Plan, abstentions will have the effect of a vote +against the proposal and broker non-votes will be disregarded and will have no +effect on the outcome of the vote. There are no rights of appraisal or similar +dissenter's rights with respect to any matter to be acted upon pursuant to this +Proxy Statement. It is expected that shares beneficially held by officers and +directors of the Company, which in the aggregate represent approximately 67 +percent of the outstanding shares of Common Stock, will be voted for the +nominees for directors and in favor of the proposal to approve the 2004 Stock +Incentive Plan. +The executives named in the Summary Compensation Table, and the name and +address of each stockholder who owned beneficially five percent (5%) or more of +the shares of Common Stock of the Company on March 5, 2004, together with the +number of shares owned by each such person and the percentage of outstanding +shares that ownership represents, and information as to Common Stock ownership +of the executive officers and directors of the Company as a group (according to +information received by the Company), is set out below: +AMOUNT BENEFICIALLY PERCENT OF +NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OUTSTANDING SHARES +------------------------------------ ------------------- ----------------- +R. Randall Rollins +Chairman of the Board 17,600,296 (2) 60.9 +2170 Piedmont Road, NE +Atlanta, Georgia +Gary W. Rollins +President and Chief Executive Officer, Rollins, Inc. 17,832,296 (3) 61.7 +2170 Piedmont Road, NE +Atlanta, Georgia +AMOUNT BENEFICIALLY PERCENT OF +NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) OUTSTANDING SHARES +------------------------------------ ------------------- ----------------- +FMR Corporation +82 Devonshire Street 2,154,900 (4) 7.5 +Boston, Massachusetts +Richard A. Hubbell +President and Chief Executive Officer 396,364 (5) 1.4 +2170 Piedmont Road, NE +Atlanta, Georgia +Linda H. Graham +Vice President and Secretary 87,227 (6) ** +2170 Piedmont Road, NE +Atlanta, Georgia +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer 69,186 (7) ** +2170 Piedmont Road, NE +Atlanta, Georgia +All Directors and Executive Officers as a group 19,277,747 (8) 66.7 +(9 persons) +------------------------------ +** Less than one percent +(1) Except as otherwise noted, the nature of the beneficial ownership for all +shares is sole voting and investment power. +(2) Includes 2,160 shares held as Trustee, Guardian, or Custodian for his +children. Also includes 80,960 shares of common stock in two trusts of +which he is Co-Trustee and as to which he shares voting and investment +power. Also includes 17,048,292 shares of the Company held by RFPS +Management Company II, L.P. of which RFA Management Company, LLC ("General +Partner"), a Georgia limited liability company, is the general partner. The +voting interests of the General Partner are held by two revocable trusts, +one of which each of Gary or Randall Rollins is the grantor and sole +trustee. LOR, Inc. is the manager of the General Partner. Mr. R. Randall +Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included +herein are options to purchase 40,000 shares, which are currently +exercisable or will become exercisable within 60 days of the date hereof. +This excludes options to purchase 60,000 shares that are not currently +exercisable and will not become exercisable within 60 days of the date +hereof. This also excludes 28,342 shares of common stock held by his wife, +as to which Mr. Rollins disclaims any beneficial interest. +(3) Includes 80,960 shares of common stock in two trusts of which he is +Co-Trustee and as to which he shares voting and investment power. Also +includes 27,762 shares of common stock held as Trustee, Guardian or +Custodian for his children. Also includes 17,048,292 shares of the Company +held by RFPS Management Company II, L.P. of which RFA Management Company, +LLC ("General Partner"), a Georgia limited liability company, is the +general partner. The voting interests of the General Partner are held by +two revocable trusts, one of which each of Gary or Randall Rollins is the +grantor and sole trustee. LOR, Inc. is the manager of the General Partner. +Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, +Inc. This also excludes 60,004 shares of common stock held by his wife, as +to which Mr. Rollins disclaims any beneficial interest. +(4) Based on Schedule 13G/A filed with the Securities and Exchange Commission +on February 17, 2004. +(5) Includes 186,245 shares subject to options that are currently exercisable +or that become exercisable within 60 days of the date hereof, and 97,513 +shares of restricted stock awards. +(6) Includes 20,891 shares subject to options that are currently exercisable or +that become exercisable within 60 days of the date hereof, and 12,605 +shares of restricted stock awards. +(7) Includes 36,974 shares subject to options that are currently exercisable or +that become exercisable within 60 days of the date hereof, and 28,105 +shares of restricted stock awards. +(8) Shares held in trusts as to which more than one officer and/or director are +Co-Trustees or entities in which there is common ownership have been +included only once. Includes an aggregate of 284,110 shares that may be +purchased by +2 +four executive officers upon exercise of options that are currently +exercisable or that become exercisable within 60 days of the date hereof, +and 138,223 shares of restricted awards earned by them pursuant to the +Company's 1984 Incentive Stock Option Plan and 1994 Employee Stock +Incentive Plan. +ELECTION OF DIRECTORS +At the Annual Meeting, Mr. Wilton Looney, Mr. Gary W. Rollins, and Mr. +James A. Lane, Jr. will be nominated to serve as Class III directors. The +directors in each class serve for a term of three years. The director nominees +will serve in their respective class until their successors are elected and +qualified. Five other individuals serve as directors but are not standing for +re-election because their terms as directors extend past this Annual Meeting +pursuant to provisions of the Company's By-laws that provide for the election of +directors for staggered terms, with each director serving a term of three years. +Unless authority is withheld, the proxy holders will vote for the election of +each nominee named below. Although management does not contemplate the +possibility, in the event any nominee is not a candidate or is unable to serve +as a director at the time of the election, unless authority is withheld, the +proxies will be voted for any nominee who shall be designated by the present +Board of Directors and screened by the Nominating and Governance Committee, to +fill such vacancy. +The name and age of the director nominees, his principal occupation, +together with the number of shares of Common Stock beneficially owned, directly +or indirectly, by him and the percentage of outstanding shares that ownership +represents, all as of the close of business on March 5, 2004, (according to +information received by the Company) are set out below. Similar information is +also provided for those directors whose terms expire in future years. +SHARES OF PERCENT OF +SERVICE AS COMMON OUTSTANDING +NAMES OF DIRECTORS PRINCIPAL OCCUPATION (1) DIRECTOR AGE STOCK (2) SHARES +----------------------------------------------------------------------------------------------------------------------------------- +NAMES OF DIRECTOR NOMINEES +-------------------------- +CLASS III (NEW TERM EXPIRES 2007) +--------------------------------- +Wilton Looney........... Honorary Chairman of the Board, 1984 to 84 1,200 ** +Genuine Parts Company (automotive date +parts distributor) +Gary W. Rollins (3)..... President and Chief Executive Officer of 1984 to 59 17,832,296 (4) 61.7 +Rollins, Inc. (consumer services) since date +2001; President and Chief Operating +Officer of Rollins, Inc. prior to 2001 +James A. Lane, Jr....... Executive Vice President of Marine +Products Corporation (boat 1987 to 61 130,130 (5) ** +manufacturing) since February 2001; date +President of Chaparral Boats, Inc. +NAMES OF DIRECTORS WHOSE TERMS HAVE NOT EXPIRED +----------------------------------------------- +Class I (Term Expires 2005) +--------------------------- +R. Randall Rollins (3).. Chairman of the Board of the Company 1984 to 72 17,600,296 (6) 60.9 +since April 2003; Chairman of the date +Board and Chief Executive Officer of +the Company prior to April 2003; +Chairman of the Board of Marine +Products Corporation (boat +manufacturing) since February 2001; +Chairman of the Board of Rollins, Inc. +(consumer services) since October 1991 +3 +SHARES OF PERCENT OF +SERVICE AS COMMON OUTSTANDING +NAMES OF DIRECTORS PRINCIPAL OCCUPATION (1) DIRECTOR AGE STOCK (2) SHARES +----------------------------------------------------------------------------------------------------------------------------------- +Henry B. Tippie......... Chairman of the Board and Chief 1984 to 77 269,260 (7) ** +Executive Officer of Tippie Services, date +Inc. (management services); Chairman +of the Board of Dover Downs Gaming +and Entertainment, Inc. (operator of +multi-purpose gaming and +entertainment complex) since January +2002; and Chairman of the Board of +Dover Motorsports, Inc. (operator of +motorsports tracks) since April 2000 +and Vice Chairman prior to April 2000 +James B. Williams....... Chairman of the Executive Committee, 1984 to 70 40,000 ** +SunTrust Banks, Inc.(bank holding date +company) since 1998 +Class II (Term Expires 2006) +---------------------------- +Richard A. Hubbell...... President and Chief Executive Officer 1987 to 59 396,364 (8) 1.4 +of the Company since April 2003; date +President and Chief Operating Officer +of the Company prior to April 2003; +President and Chief Executive Officer +of Marine Products Corporation (boat +manufacturing) since February 2001 +Linda H. Graham......... Vice President and Secretary of the 2001 to 67 87,227 (9) ** +Company; Vice President and Secretary date +of Marine Products Corporation (boat +manufacturing) since February 2001 +----------------------- +** Less than one percent +(1) Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not +necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the +following individuals also serve on the Boards of Directors of the following companies: James B. Williams: The Coca-Cola +Company, Genuine Parts Company and Georgia Pacific Corporation; R. Randall Rollins: SunTrust Banks, Inc., SunTrust Banks of +Georgia, Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.; Henry B. Tippie: Dover Downs Gaming and +Entertainment, Inc. and Dover Motorsports, Inc. All of the directors shown in the above table are also directors of Marine +Products Corporation and with the exception of Messrs. Hubbell and Lane and Ms. Graham are also directors of Rollins, Inc. +(2) Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) R. Randall Rollins and Gary W. Rollins are brothers. +(4) See information contained in footnote (3) to the table appearing in Capital Stock section. +(5) Includes 40,000 shares of restricted stock awards. +(6) See information contained in footnote (2) to the table appearing in Capital Stock section. +(7) Includes 18,960 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment +power. Also includes shares held by a wholly owned corporation that owns 300 shares. +(8) See information contained in footnote (5) to the table appearing in Capital Stock section. +(9) See information contained in footnote (6) to the table appearing in Capital Stock section. +4 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMPENSATION, +COMMITTEES AND MEETINGS +BOARD MEETINGS AND COMPENSATION +During 2003, non-employee directors received $12,000 from the Company, plus +$1,000 for each meeting of the Board of Directors or committee they attended. In +addition, a non-employee director that served as Chairman of a Committee +received $4,000 for each committee of which he or she was chairman. The Board of +Directors met four times during the fiscal year ended December 31, 2003. No +director attended fewer than 75 percent of the Board meetings and meetings of +committees on which he or she served during 2003. Board members are encouraged +to attend the Company's Annual Stockholder Meetings and all Board members were +in attendance at last year's meeting. +The Board of Directors has the following Committees: Audit Committee, +Compensation Committee, Executive Committee, Diversity Committee and Nominating +and Governance Committee. +AUDIT COMMITTEE +The Audit Committee of the Board of Directors of the Company consists of +Henry B. Tippie, (Chairman), Wilton Looney and James B. Williams. The Audit +Committee held five meetings during the fiscal year ended December 31, 2003. The +Board of Directors has determined that all of the members of the Audit Committee +are independent as that term is defined by the rules of the Securities and +Exchange Commission ("SEC") and the New York Stock Exchange ("NYSE"). The Board +of Directors at its meeting on January 27, 2004 determined that all of the Audit +Committee members are "Audit Committee Financial Expert(s)" as defined in the +SEC rules. Additionally, at the January 27, 2004 Board of Directors meeting, the +Board of Directors determined that the simultaneous service by Mr. James B. +Williams on the Audit Committees of three other publicly traded companies does +not impair his ability to effectively serve on the Audit Committee of RPC, Inc. +The Audit Committee meets with the Company's independent public accountants, +internal auditor, Chief Executive Officer and Chief Financial Officer to review +the scope and results of audits and recommendations made with respect to +internal and external accounting controls and specific accounting and financial +reporting issues. The Audit Committee has the authority to obtain advice and +assistance from, and receive appropriate funding from the Company for, outside +legal, accounting or other advisors as it deems necessary to carry out its +duties. On January 27, 2004, the Audit Committee recommended and the Board of +Directors approved changes to the audit committee charter. This charter is +included herein as Appendix A and is also available on the Company's website at +WWW.RPC.NET, under the Governance section. +COMPENSATION COMMITTEE +The Compensation Committee of the Board of Directors of the Company +consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It +held one meeting during the fiscal year ended December 31, 2003. The function of +the Compensation Committee is to set the base salary and cash based incentive +compensation of all of the Named Executives. The Compensation Committee also +administers the RPC, Inc. Stock Incentive Plans and will administer the 2004 +Stock Incentive Plan if it is approved by the stockholders. +EXECUTIVE COMMITTEE +The Executive Committee of the Board of Directors of the Company consists +of R. Randall Rollins and Gary W. Rollins. It held one meeting and took action +once by unanimous consent during the fiscal year ended December 31, 2003. The +function of the Executive Committee is to take all permitted actions of the +Board in its stead as permitted by the Company's By-laws and Delaware law. The +members of the Executive Committee do not receive any additional compensation +for their duties on the committee. +5 +DIVERSITY COMMITTEE +The Diversity Committee of the Board of Directors of the Company consists +of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one +meeting during the fiscal year ended December 31, 2003. The function of the +Diversity Committee is to monitor compliance with applicable non-discrimination +laws. +NOMINATING AND GOVERNANCE COMMITTEE +The Nominating and Governance Committee of the Board of Directors of the +Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. +Williams, each of whom is independent, as discussed on page 5. The Committee was +formed in 2002 pursuant to a resolution passed by the Board of Directors for the +following purposes: +o to recommend to the Board of Directors nominees for director and to +consider any nominations properly made by a stockholder; +o upon request of the Board of Directors, to review and report to the +Board with regard to matters of corporate governance; and +o to make recommendations to the Board of Directors regarding the agenda +for Annual Stockholders Meetings and with respect to appropriate +action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal +year ended December 31, 2003. The Company is not required by law or by NYSE +rules to have a nominating committee or a compensation committee composed of +independent directors since we are a "controlled corporation" as defined by NYSE +Rule 303A. The Company is a "controlled corporation" because a group that +includes the Company's Chairman of the Board and his brother, Gary W. Rollins, +who is also a director, and certain companies under their control, possess in +excess of fifty percent of the Company's voting power. The Board of Directors of +the Company established the Nominating and Governance Committee to promote +responsible corporate governance practices and currently intends to maintain the +Committee going forward. +DIRECTOR NOMINATIONS +Under Delaware law, there are no statutory criteria or qualifications for +directors. No criteria or qualifications have been prescribed by the Board at +this time. The Nominating and Governance Committee does not have a formal +charter or a formal policy with regard to the consideration of director +candidates, however it acts under the guidance of the corporate governance +guidelines approved by the Board of Directors on January 27, 2004 and posted on +the Company's website at WWW.RPC.NET under the Governance section. The Board +believes that it should preserve maximum flexibility in order to select +directors with sound judgment and other qualities, which are desirable in +corporate governance. According to the Company's corporate governance +guidelines, the Board of Directors will be responsible for selecting its own +members. The Board delegates the screening process involved to the Nominating +and Governance Committee. This Committee is responsible for determining the +appropriate skills and characteristics required of Board members in the context +of the then current make-up of the Board. This determination should take into +account all factors which the Committee considers appropriate, such as +independence, experience, strength of character, mature judgment, technical +skills, diversity, age and the extent to which the individual would fill a +present need on the Board. The Company's By-laws provide that nominations for +the election of directors may be made by any stockholder entitled to vote for +the election of directors. Nominations must comply with an advance notice +procedure which generally requires, with respect to nominations for directors +for election at an Annual Meeting, that written notice be addressed to: +Secretary, RPC Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less +than ninety days prior to the anniversary of the prior year's Annual Meeting of +Stockholders and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal +occupation or employment of the nominee for the past five years, the nominee's +qualifications, the class or series and number of shares of capital stock of the +Corporation which are owned beneficially or of record by the person and any +other information relating to the person that would be required to be disclosed +in a proxy statement or other filings. The Committee +6 +is responsible for screening the nominees that are selected by the Board of +Directors for nomination to the Board and for service on committees of the +Board. The Company has not received a recommendation for a director nominee from +a shareholder. The Company has not engaged, nor does it believe that it is +necessary to engage, any third party to assist it in identifying director +candidates. All of the nominees for directors being voted upon at the Annual +Meeting to be held on April 27, 2004 are directors standing for re-election. +DIRECTOR COMMUNICATIONS +The Company also has a process for interested parties, including +stockholders, to send communications to the Board of Directors. Communications +to the Board of Directors may be sent in the following manner: by corresponding +with Internal Audit Department, RPC, Inc., 2170 Piedmont Road NE, Atlanta, +Georgia 30324. Instructions for communications with the directors are posted on +our website at WWW.RPC.NET under the Governance section. All communications +received from interested parties are forwarded to the Board of Directors. Any +communication addressed solely to the non-management directors will be forwarded +to them. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company's Compensation +Committee are or have ever been employees of the Company. There are no +Compensation Committee interlocks requiring disclosure. +REPORTS OF THE AUDIT AND COMPENSATION COMMITTEES AND PERFORMANCE GRAPH +NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S +FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE +ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE OTHER COMPANY FILINGS, INCLUDING +THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE AUDIT +COMMITTEE, REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION AND +THE PERFORMANCE GRAPH INCLUDED HEREIN SHALL NOT BE INCORPORATED BY REFERENCE +INTO ANY SUCH FILINGS. +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company's internal controls and the +financial reporting process. The Company's independent public accountants are +responsible for performing an independent audit of the Company's consolidated +financial statements in accordance with auditing standards generally accepted in +the United States of America and for issuing a report thereon. The Audit +Committee's responsibility is generally to monitor and oversee these processes, +as described in the Audit Committee Charter. It is not the duty of the Audit +Committee to plan or conduct audits or to determine that the Company's financial +statements are complete and accurate and in accordance with generally accepted +accounting principles; that is the responsibility of management. +In fulfilling its oversight responsibilities with respect to the year ended +December 31, 2003, the Audit Committee: +o Approved the terms of the engagement of Ernst & Young LLP as +independent public accountants of the Company for the year ended +December 31, 2003; +o Reviewed with management and the independent public accountants the +interim financial information included in the Forms 10-Q prior to +their being filed with the SEC. In addition, the Committee reviewed +all earnings releases with management and independent public +accountants prior to their release; +o Reviewed and discussed with the Company's management and the +independent public accountants the audited consolidated financial +statements of the Company as of December 31, 2003 and 2002 and for the +three years ended December 31, 2003. The discussion included matters +related to the conduct of the audit, such as the selection of and +changes in accounting policies, significant adjustments arising from +the audit and the absence of any disagreements with management over +the application of accounting principles, the basis for management's +accounting estimates and the disclosures in the financial statements; +o Discussed with the independent public accountants the matters required +to be discussed by Statement on Auditing Standards No. 61, +"Communications with Audit Committees;" and +7 +o Received from the independent public accountants the written +disclosures and the letter required by Independence Standards Board +Standard No. 1, "Independence Discussions with Audit Committees," and +discussed with the public accountants the firm's independence from the +Company +Based upon the review and discussions referred to above, the Committee +recommended to the Board of Directors that the audited consolidated financial +statements of the Company and subsidiaries as of December 31, 2003 and 2002 and +for the three years ended December 31, 2003, be included in the Company's Annual +Report on Form 10-K for the year ended December 31, 2003 and for filing with the +Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee +has relied on (i) management's representation that such financial statements +have been prepared with integrity and objectivity and in conformity with +accounting principles generally accepted in the United States of America and +(ii) the report of the Company's independent public accountants with respect to +such financial statements. +Submitted by the Audit Committee of the Board of Directors. +AUDIT COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +OVERVIEW +During the fiscal year 2003, the members of the Compensation Committee of +the Board of Directors held responsibility for determining the compensation for +all of the Named Executives, and the stock based incentives for all of the Named +Executives. The Compensation Committee is comprised of outside directors who do +not participate in the Company's compensation plans. +The Company is engaged in a highly competitive industry. The actions of the +executive officers have a profound impact on the short-term and long-term +profitability of the Company; therefore, the designs of the executive officers' +compensation packages are very important. In order to retain key employees, the +Company has an executive compensation package that is driven by an increase in +shareholder value, the overall performance of the Company, and the individual +performance of the executive. The measures of the Company's performance include +long-term growth in net income and stockholder value improvements in addition to +individual performance. +Pursuant to the above compensation philosophy, the three main components of +the executive compensation packages are base salary, cash based incentive plans, +and stock based incentive plans. +In connection with the spin-off of Marine Products in February 2001, the +responsibilities of the Chairman, the Chief Executive Officer, and certain of +the other Named Executives were reassessed and their compensation packages were +restructured. Mr. Randall Rollins, Mr. Hubbell, Mr. Palmer and Ms. Graham are +now employees of the Company and Marine Products. Accordingly, the compensation +of these Named Executives was reduced at RPC, beginning in 2001, as these Named +Executives also receive compensation directly from Marine Products. +BASE SALARY +The factors subjectively used in determining base salary include the recent +profit performance of the Company, the magnitude of responsibilities, the scope +of the position, individual performance, and the salary received by peers in +similar positions in the same geographic area. These factors are not used in any +specific formula or weighting. The salaries of the Named Executives are reviewed +annually. Increases to base salaries for the Named Executives ranged up to four +percent based on all of the factors discussed above. +8 +CASH BASED INCENTIVE PLANS +The annual cash based incentive compensation packages for the executive +officers are based upon performance objectives for the ensuing fiscal year. The +Named Executives participate in a variety of individualized performance bonus +plans designed by the Committee to encourage achievement of short-term +objectives. These plans all have payouts subjectively based on net income, +budget objectives, and other individual specific performance objectives. The +specific performance objectives relate to each executive improving the +contribution of his functional area of responsibility to further enhance the +earnings of the Company. These performance objectives and incentive package are +then reviewed by the Committee and either accepted, amended, or modified. +Bonuses were paid in the first quarter of 2004 for the year ended December 31, +2003 and totaled $370,000 for all of the Named Executives, based on improved +financial performance of the Company in 2003 compared to 2002. +STOCK BASED INCENTIVE PLANS +Awards under the Company's Employee Stock Incentive Plan are purely +discretionary, and are not based on any specific formula and may or may not be +granted in any given fiscal year. When considering the grants under the plan, +the Compensation Committee gives consideration to the overall performance of the +Company and the performance of individual employees. Grants are made under the +Plan, and the Plan is administered, by the Committee, which consists of +non-employee directors within the meaning of Rule 16b-3 under the Securities +Exchange Act of 1934, as amended. During the fiscal year 2003, total grants to +the Named Executives were comprised of 150,000 stock options and 5,000 shares of +restricted stock. All future awards will be made pursuant to the 2004 Stock +Incentive Plan if it is approved by the stockholders. +The Compensation Committee currently believes that there are no employees +whose total compensation including option grants under the Company's 1994 +Employee Stock Incentive Plan will materially exceed the $1 million +deductibility limit of Section 162(m) of the Internal Revenue Code of 1986, as +amended. Therefore the Committee has determined that the Company will not change +its various compensation plans, or otherwise meet the requirements of such +exemption, at this time in order to exempt stock incentive grants and other +types of compensation under Section 162(m). +CHIEF EXECUTIVE OFFICER COMPENSATION +The Chief Executive Officer's compensation is determined by the +Compensation Committee. R. Randall Rollins was Chief Executive Officer of RPC, +Inc. from January 1, 2003 through April 21, 2003. For fiscal year 2003, the cash +compensation for R. Randall Rollins was $475,000, of which $300,000 was base +salary and $175,000 was cash based incentive compensation. In addition, Mr. +Rollins was granted 52,685 stock options with an exercise price of $10.44 per +share and 47,315 stock options with an exercise price of $9.49 per share. +Richard A. Hubbell was named Chief Executive Officer of RPC, Inc. effective +April 22, 2003. For fiscal year 2003, the cash compensation of Richard A. +Hubbell, was $510,000, of which $400,000 was base salary and $110,000 was cash +based incentive compensation. In addition, Mr. Hubbell was granted 25,000 stock +options with an exercise price of $9.49 per share. The Chief Executive Officer's +compensation is based upon the long-term growth in net income, stockholder value +improvements and the Chief Executive Officer's individual performance. There was +no change in the base salary of the Chief Executive Officer in 2003 compared to +2002 due to the weak industry conditions in 2002 and the resulting financial +performance of the Company. The decision of the Compensation Committee is +subjective and is not based upon any specific formula or guidelines. No member +of the Compensation Committee participates in any Company incentive program. +COMPENSATION COMMITTEE +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +9 +COMMON STOCK PERFORMANCE +As part of the executive compensation information presented in this Proxy +Statement, the Securities and Exchange Commission requires a five year +comparison of the cumulative total stockholder return based on the performance +of the stock of the Company, assuming dividend reinvestment, as compared with +both a broad equity market index and an industry or peer group index. The +indices included in the following graph are the Russell 2000 Index ("Russell +2000"), the Philadelphia Stock Exchange's Oil Service Index ("OSX"), and a peer +group which includes companies that are considered peers of the Company, as +discussed below (the "Peer Group"). The Company has voluntarily chosen to +provide both an industry and a peer group index. +The Russell 2000 is a stock index representing small capitalization U.S. +stocks. The components of the index had an average market capitalization in 2003 +of $900 million, and the Company was a component of the Russell 2000 during +2003. The Russell 2000 was chosen because it represents companies with +comparable market capitalizations to the Company. The OSX is a stock index of 15 +U.S. companies that provide oil drilling and production services, oil field +equipment, support services and geophysical / reservoir services. The Company is +not a component of the OSX, but it was chosen because it represents a large +group of companies that provide the same or similar products and services as the +Company. The companies included in the Peer Group are Weatherford International, +Inc., BJ Services Company, Superior Energy Services, Inc., and Halliburton +Company. The companies included in the peer group have been weighted according +to each respective issuer's stock market capitalization at the beginning of each +year. +COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* +[PERFORMANCE GRAPH] +RUSSELL PEER +RPC 2000 OSX GROUP +12/31/98 100 100 100 100 +12/31/99 80 120 167 156 +12/31/00 204 115 242 208 +12/31/01 316 116 169 178 +12/31/02 209 91 168 254 +12/31/03 201 132 182 250 +------------------------ +* Assumes reinvestment of dividends; also assumes that Marine Products +Corporation shares issued in connection with the spin-off were sold and +reinvested in RPC stock. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective February 28, 2001, the Company began providing certain +administrative services to Marine Products. The service agreements between +Marine Products and the Company provide for the provision of services on a cost +reimbursement basis and may be terminated upon six months notice. The services +covered by these agreements include administration of certain employee benefit +programs and other administrative services. Charges from the Company (or from +corporations which are subsidiaries of the Company) for such services aggregated +approximately $496,000 in 2003. During 2003, a division of RPC conducted +business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine +Products. The Company recorded $171,000 in revenues from Chaparral related to +the sale, installation and service of overhead cranes. +During 2003, a subsidiary of RPC conducted business with companies owned by +LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. +Randall Rollins, Chairman, and Mr. Gary W. Rollins, +10 +Director. In 2003, payments totaling approximately $871,000 were made to these +LOR, Inc. companies for the purchase of parts and repair services related to +certain of RPC's oilfield operating equipment. RPC believes the charges incurred +by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. +RPC sponsors a multiple employer benefit plan that includes Marine +Products. Following the spin-off, RPC charged Marine Products for, and Marine +Products has been obligated to pay, its allocable share of pension costs and the +associated funding obligation related to the prior service liabilities of +Chaparral employees. Effective December 2003, the related prior service +liabilities totaling $3,314,000 and pension assets totaling $2,517,000 were +transferred within the multiple employer plan from RPC to Marine Products. +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation +for services in all capacities to the Company for the calendar years ended +December 31, 2003, 2002 and 2001 of those persons who were at December 31, 2003 +(i) the Chief Executive Officer and (ii) all other most highly compensated +executive officers of the Company whose total annual compensation exceeded +$100,000, (the "Named Executives"): +SUMMARY COMPENSATION TABLE +LONG-TERM COMPENSATION AWARDS +------------------------------------------------ +ANNUAL COMPENSATION +------------------------------ +RESTRICTED +STOCK SECURITIES +AWARDS UNDERLYING ALL OTHER +NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($)(1) OPTIONS(#)(1) COMPENSATION (2) +--------------------------- ---- -------- --------- ---------- ------------- ---------------- +R. Randall Rollins (3) (4) ............... 2003 $300,000 $ 175,000 0 100,000 $ 0 +Chairman of the Board 2002 300,000 0 0 0 0 +2001 325,000 50,000 0 0 0 +Richard A. Hubbell (3) (4) ............... 2003 400,000 110,000 0 25,000 32,262 +President and Chief Executive Officer 2002 400,000 0 0 0 31,762 +2001 391,667 200,000 0 50,000 2,040 +Linda H. Graham (3) ...................... 2003 104,000 25,000 0 10,000 3,120 +Vice President and Secretary 2002 102,833 0 0 0 3,895 +2001 102,083 25,000 0 5,000 1,975 +Ben M. Palmer (3) ........................ 2003 158,400 60,000 47,450 15,000 4,752 +Vice President, Chief Financial 2002 158,400 0 0 0 5,500 +Officer, and Treasurer 2001 155,621 60,000 196,500 15,000 2,040 +----------------------- +(1) Time-Lapse Restricted Stock vests ten years from the date of grant. These +shares are forfeited if the employment of the Named Executive terminates +prior to vesting for reasons other than death, retirement or permanent +disability. During these ten years, grantees receive all dividends declared +and retain voting rights for the granted shares. Performance Restricted +Stock is granted, but not earned and issued, until certain five year tiered +performance criteria are met. The performance criteria are predetermined +market prices of the Company's common stock. On the date the common stock +appreciates to each level (determination date), 20 percent of performance +shares are earned. Once earned, the shares vest five years from the +determination date. After the determination date, the grantee will receive +all dividends declared and also voting rights to the shares. As of December +31, 2003, the number of shares of Time Lapse Restricted Stock and the +number of shares of Performance Restricted Stock held were 81,000 and +16,513 for Mr. Hubbell, 12,000 and 605 for Ms. Graham, and 20,500 and +16,105 for Mr. Palmer. The total number of shares held and their values on +December 31, 2003 were as follows: Mr. Hubbell, 97,513 shares valued at +$1,072,000, Ms. Graham, 12,605 shares valued at $139,000 and Mr. Palmer, +36,605 shares valued at $402,000 of which 8,500 shares are subject to +issuance upon meeting performance criteria as defined in the related +Performance Restricted Stock Agreement. The December 31, 2003 values are +based on the closing stock market price of $10.99 and do not take into +account any diminution of value attributable to vesting provisions of these +shares. +11 +(2) Effective July 1, 1984, the Company adopted the RPC 401(k) Plan ("401(k) +Plan"), a qualified retirement plan designed to meet the requirements of +Section 401(k) of the Internal Revenue Code (the "Code"). The 401(k) Plan +provides for a matching contribution of fifty cents ($0.50) for each dollar +($1.00) of a participant's contribution to the 401(k) Plan that does not +exceed six percent of his or her annual compensation (which includes +commissions, overtime and bonuses). A participant's voluntary pretax salary +deferrals made under the 401(k) Plan are in lieu of payment of compensation +to the participant. The Company's Retirement Income Plan, a trusteed +defined benefit pension plan, provides monthly benefits upon retirement at +age 65 to eligible employees. In the first quarter of 2002, the Company's +Board of Directors approved a resolution to cease all future benefit +accruals under the Retirement Income Plan effective March 31, 2002. In lieu +thereof, beginning in 2002, the Company began providing enhanced benefits +in the form of cash contributions on behalf of certain long-serviced +employees who were 40 years of age or older on or before December 31, 2002. +These enhanced benefit contributions are discretionary and may be made +annually, subject to a participant's continued employment, for a maximum of +seven years. The contributions are made either to the non-qualified +Supplemental Executive Retirement Plan ("SERP") or to the 401(k) Plan for +each employee who is entitled to the enhanced benefits. The amounts shown +in this column represent the Company match under the 401(k) Plan and, in +the case of Mr. Hubbell, it includes $26,262 towards enhanced benefits. +Beginning late in 2002, the Company began permitting selected highly +compensated employees to defer a portion of their compensation into the +SERP. +(3) Mr. Rollins, Mr. Hubbell, Mr. Palmer and Ms. Graham are now employees of +both the Company and Marine Products, pursuant to the spin-off of Marine +Products from the Company in February, 2001. +(4) Mr. Rollins held the position of Chief Executive Officer of the Company +until April 22, 2003, at which time Mr. Hubbell was named to that position. +OPTION/SAR GRANTS IN FISCAL YEAR 2003 +The following table sets forth stock options granted in the fiscal year +ending December 31, 2003 to each of the Company's Named Executives. Employees of +the Company and its subsidiaries are eligible for stock option grants based on +individual performance. The table sets forth the hypothetical gains that would +exist for the options at the end of their ten-year term, assuming compound rates +of stock appreciation of five percent and ten percent. The actual future value +of the option will depend on the market value of the Company's Common Stock. All +option exercise prices are based on the market price on the grant date. +INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE +------------------------------------------------- VALUE AT ANNUAL RATES +NUMBER OF PERCENT OF OF STOCK PRICE +SECURITIES TOTAL OPTIONS APPRECIATION FOR +UNDERLYING GRANTED TO EXERCISE OPTION TERM (2) +OPTIONS EMPLOYEES IN OR EXPIRATION --------------------- +NAME GRANTED FISCAL YEAR BASE PRICE DATE 5% 10% +------------------------- ---------- ------------- ---------- ---------- ---------- ---------- +R. Randall Rollins ...... 52,685 (3) 8.3 $10.44 1/28/2008 $264,437 $746,842 +R. Randall Rollins ...... 47,315 (4) 7.4 9.49 1/28/2008 282,386 715,621 +Richard A. Hubbell ...... 25,000 (5) 3.9 9.49 1/28/2013 149,205 378,115 +Linda H. Graham ......... 10,000 (6) 1.6 9.49 1/28/2013 59,682 151,246 +Ben M. Palmer ........... 15,000 (6) 2.4 9.49 1/28/2013 89,523 226,869 +----------------------- +(1) No Stock Appreciation Rights were granted to the Named Executives during +2003. +(2) These amounts, based on assumed appreciation rates of five percent and ten +percent as prescribed by the Securities and Exchange Commission rules, are +not intended to forecast possible future appreciation, if any, of the +Company's stock price. These numbers do not take into account certain +provisions of options providing for termination of the option following +termination of employment, non-transferability or phased-in vesting. The +Company did not use an alternative formula for a grant date valuation as it +is not aware of any formula that will determine with reasonable accuracy a +present value based on future unknown or volatile factors. Future +compensation resulting from option grants is based solely on the +performance of the Company's stock price. +(3) These Incentive Stock Options were granted on January 28, 2003 at an +exercise price of $10.44 per share, which was 110% of market price, on the +date of grant. The market price on the date of the grant was $9.49. Twenty +percent of these options immediately vest and become exercisable on the +date of the grant and the remaining options vest and become exercisable +ratably each year thereafter over the next four years and expire after five +years. +12 +(4) These Non-Qualified Stock Options were granted on January 28, 2003 at an +exercise price of $9.49 per share, the market price on the date of grant. +Twenty percent of these options immediately vest and become exercisable on +the date of the grant and the remaining options vest and become exercisable +ratably each year thereafter over the next four years and expire after five +years. +(5) These stock options granted during 2003 are comprised of 10,000 Incentive +Stock Options and 15,000 Non-Qualified Stock Options. The incentive stock +options become exercisable as follows: 0 in 2004, 0 in 2005, 0 in 2006, +5,000 in 2007 and 5,000 in 2008. The non-qualified stock options become +exercisable as follows: 5,000 in 2004, 5,000 in 2005 and 5,000 in 2006. +(6) These Incentive Stock Options were granted on January 28, 2003 at an +exercise price of $9.49 per share, the market price on the date of grant. +These options vest and become exercisable 20 percent each year over five +years and expire after 10 years. +AGGREGATED OPTION/SAR EXERCISES +IN FISCAL YEAR 2003 AND YEAR-END OPTION/SAR VALUES +NUMBER OF SECURITIES +UNDERLYING VALUE OF UNEXERCISED +UNEXERCISED IN-THE-MONEY +SHARES OPTIONS/SARS OPTIONS/SARS +ACQUIRED VALUE AT FY END(#) AT FY END($)(1) +NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE +----------------------- ----------- -------- ------------------------- ------------------------- +R. Randall Rollins .... 0 $0 40,000 / 60,000 $ 39,980 / 59,970 +Richard A. Hubbell .... 0 0 161,053 / 65,292 607,900 / 88,240 +Linda H. Graham ....... 0 0 17,134 / 13,757 78,080 / 18,730 +Ben M. Palmer ......... 0 0 29,006 / 35,968 71,949 / 47,200 +Based on the closing price of Company Common Stock on the New York Stock Exchange on December 31, 2003 of $10.99 per share. +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth certain information regarding equity compensation plans as of December 31, 2003. +NUMBER OF SECURITIES +REMAINING AVAILABLE FOR +FUTURE ISSUANCE UNDER +NUMBER OF SECURITIES TO WEIGHTED AVERAGE EQUITY COMPENSATION +BE ISSUED UNDER EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING +OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN +WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A)) +PLAN CATEGORY (A) (B) (C) +------------- ------------------------ -------------------- ----------------------- +Equity compensation plans approved by +securityholders 1,489,555 (1) $10.22 (2) -- +Equity compensation plans not approved by +securityholders -- -- -- +--------- ------ -------- +Total 1,489,555 $10.22 -- +========= ====== ======== +----------------------- +(1) Includes Performance Restricted Shares granted but not issued. +(2) Does not include Performance Restricted Shares granted but not issued +because these grants do not have exercise prices. +BENEFIT PLANS +The Company's Retirement Income Plan, a trusteed defined benefit pension +plan, provides monthly benefits upon retirement at age 65 to eligible employees. +In the first quarter of 2002, the Company's Board of Directors approved a +resolution to cease all future benefit accruals under the Retirement Income Plan +effective March 31, 2002. Retirement Income Plan benefits are based on the +average of the employee's compensation from the Company for the five consecutive +complete calendar years of highest compensation during the last ten +13 +consecutive complete calendar years ("final average compensation") immediately +preceding March 31, 2002. Accordingly the pension plan table has not been +presented under this section. The current credited years of service for the four +individuals named in the executive compensation table are: R. Randall +Rollins--30, Richard A. Hubbell--15, Linda H. Graham--15 and Ben M. Palmer--4. +The estimated annual benefit payable at the later of retirement or age 65 for +the Named Executives is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, +$9,400 for Mr. Palmer and $24,900 for Ms. Graham. The Plan also provides reduced +early retirement benefits under certain conditions. In accordance with the Code, +the maximum annual benefit payable to a Retirement Income Plan beneficiary in +2003 was $160,000. In accordance with the Code (as amended by the Economic +Growth and Tax Relief Reconciliation Act of 2001), the maximum compensation +recognized by the Retirement Income Plan was $200,000 in 2002. Retirement +benefits accrued at the end of any calendar year or as of March 31, 2002 will +not be reduced or increased by any subsequent changes in the maximum +compensation limit. +Beginning in 2002, the Company provided additional benefits on behalf of +certain longer serviced employees in the form of discretionary cash +contributions made either to the Company's 401(k) Plan (which is described +below) or the SERP. Amounts contributed to the accounts of Named Executives are +reported in the "All Other Compensation" column of the Summary Compensation +Table on page 11. +Effective July 1, 1984, the Company adopted a qualified retirement plan +designed to meet the requirements of Section 401(k) of the Code ("401(k) Plan"). +The Company makes matching contributions of fifty cents ($0.50) for each dollar +($1.00) of a participant's contribution to the 401(k) Plan that does not exceed +six percent of his or her annual compensation. The only form of benefit payment +under the 401(k) Plan is a single lump-sum payment equal to the vested balance +in the participant's account on the date the distribution is processed. Under +the 401(k) Plan, the full amount of a participant's vested accrued benefit is +payable upon his termination of employment, retirement, total and permanent +disability, or death. Also under the 401(k) Plan, a participant may withdraw his +or her pre-tax contributions to the extent of certain specified instances of +financial hardship and may withdraw any amount from his or her pre-tax +contribution account for any reason after attaining age 59 1/2. In addition, a +participant may withdraw any amount from his or her rollover account for any +reason. Amounts contributed by the Company to the accounts of the Named +Executives for 2003 under this plan are reported in the "All Other Compensation" +column of the Summary Compensation Table on page 11. +PROPOSAL TO APPROVE THE +RPC, INC. 2004 STOCK INCENTIVE PLAN +The RPC, Inc. 2004 Stock Incentive Plan (the "2004 Plan") is intended to +replace the Company's 1994 Employee Stock Incentive Plan (the "1994 Plan"; +collectively with the 2004 Plan, the "Plans"), which expired in January 2004. If +the 2004 Plan is approved, all future equity compensation awards by the Company +will be made under the 2004 Plan. Under the 2004 Plan, the Company can tailor +incentive awards to support its corporate objectives and to keep pace with +competitive business practices. Generally, the 2004 Plan is intended to +strengthen the mutuality of interests between award recipients and the Company's +stockholders. +The Board of Directors adopted the "2004 Plan," subject to approval by the +Company's stockholders, on January 27, 2004. The 2004 Plan provides for the +delivery of up to 1.5 million shares of the Company's common stock ("Shares"). +SUMMARY DESCRIPTION OF THE 2004 PLAN +THE FOLLOWING SUMMARIZES THE MAJOR PROVISIONS OF THE 2004 PLAN AND IS +QUALIFIED IN ITS ENTIRETY BY THE TEXT OF THE 2004 PLAN, WHICH IS ATTACHED AS +APPENDIX B TO THIS PROXY STATEMENT. +Generally, the 2004 Plan authorizes the Compensation Committee (or, if so +designated by the Board of Directors, the full Board of Directors or some other +committee of non-employee directors) to grant to directors, officers and other +key employees ("Participants") stock options and other equity compensation more +fully described below. +ELIGIBILITY. Directors, officers and other key employees of the Company or +its subsidiaries and affiliates who are responsible for or contribute to the +growth and/or profitability of the business of the Company are eligible to +14 +be granted awards under the 2004 Plan. Notwithstanding the foregoing, Incentive +Stock Options ("ISOs" as defined in the 2004 Plan) may only be granted to +employees of the Company and any of its subsidiaries or affiliates that are a +"subsidiary corporation" (within the meaning of Section 424(f) of the Internal +Revenue Code of 1986, as amended (the "Code")). Furthermore, no director who is +not also an employee of the Company shall be eligible to receive Incentive Stock +Options. +AWARDS THAT MAY BE ISSUED UNDER THE 2004 PLAN. The 2004 Plan authorizes the +grant of stock options, stock appreciation rights ("SARs"), and any other type +of award valued by reference to (or otherwise based on) Shares, including +restricted stock. If the Shares covered by an award are not delivered because +the award is forfeited or canceled, or because the award is settled in cash or +used to satisfy an applicable tax withholding obligation, such shares will not +be deemed delivered for purposes of determining the number of Shares remaining +available for delivery. The maximum number of Shares available for delivery +under the 2004 Plan will be unaffected by the availability of Shares under any +plan assumed in connection with the acquisition of another company or business. +The Compensation Committee shall have full authority to grant, pursuant to +the terms of the 2004 Plan (i) stock options, including, without limitation, +ISOs, non-qualified options ("NQOs") and premium stock options, (ii) SARs and/or +(iii) other stock-based awards, including, without limitation, restricted stock, +stock units ("stock units" are grants of a right to receive shares of stock in +the future), performance-accelerated restricted stock, performance stock and +performance units (as defined in the 2004 Plan). +ADDITIONAL PLAN LIMITATIONS. The 2004 Plan imposes additional limitations. +Under the 2004 Plan, no more than 1.5 million Shares may be issued pursuant to +Incentive Stock Options ("ISOs"). In addition, no one individual may be granted +options or SARs representing over 200,000 Shares during any fiscal year or other +stock-based awards, including restricted stock, representing over 200,000 Shares +during any fiscal year. There is no maximum number of persons eligible to +receive awards under the 2004 Plan. The Company estimates that approximately 200 +persons are currently eligible. +PLAN ADMINISTRATION. The 2004 Plan may be administered by the Board of +Directors, or any committee of at least two "Non-Employee Directors" (as that +term is defined by Rule 16b-3 under the Exchange Act) who are also "outside +directors" as defined by regulations promulgated under Section 162(m) of the +Internal Revenue Code of 1986, as amended (the "Code"). The Company expects the +2004 Plan to be administered by the Compensation Committee (the "Compensation +Committee"), which will have exclusive discretion to select participants and +determine the timing, type, size and terms of each award, and to make all other +determinations necessary or desirable in the interpretation and administration +of the 2004 Plan. The Committee may also determine whether awards may be settled +in cash and whether amounts payable with respect to an award will be deferred +(either automatically or at the election of the Participant). +REPRICING AND AMENDMENT OF AWARDS. If the exercise or base prices of any +options or SARs exceed the current fair market value (as defined in the 2004 +Plan) of the Shares, the Committee may, without stockholder approval, reprice +such options or SARs to a price no lower than the then-current Fair Market +Value. The Committee may also, without stockholder approval, amend any award to +provide its holder with additional rights or benefits of the type otherwise +permitted by the 2004 Plan, including extending its term. However, the term of +any Option or SAR may not exceed ten years. +TERMINATION OF THE PLAN. The 2004 Plan will terminate ten years from the +date of stockholder approval. +TRANSFERABILITY. Except as may be provided by the Committee, awards will +not be transferable except by will or by the laws of descent and distribution. +TERMINATION OF EMPLOYMENT. Generally, awards are forfeited if the +recipient's employment or performance of services terminates before the award is +exercised or vests. However, the Committee may provide otherwise, and there are +limited exceptions where employment terminates because of death, disability or +retirement. Generally, if an option or SAR holder's employment terminates due +to: +o death, options or SARs exercisable at termination (or whose vesting +was accelerated by the Committee) remain exercisable for six months or +for the remaining term of the option, if shorter; +15 +o disability, options or SARs exercisable at termination (or whose +vesting was accelerated by the Committee) remain exercisable for one +year, or for the remaining term of the option, if shorter; and +o retirement, options or SARs exercisable at termination remain +exercisable for a period of three months, less one day, or for the +remaining term of the option, if shorter. +The Committee has discretion to alter the extension periods. The holders of +other stock-based awards, including restricted stock, performance-accelerated +restricted stock, performance stock, performance units and stock awards, are +subject to different termination provisions that involve pro rata distribution +or forfeiture, depending on the reason for termination of employment and length +of service with the Company (see Section 7.b. of the 2004 Plan attached hereto +as Exhibit A to this Proxy Statement). +OPTION PRICING. The Committee has the authority to fix the exercise price +of option awards. Generally, the exercise price of incentive stock options must +be at least 100 percent of the fair market value of the Shares at the time of +grant. However, if the grantee is a person with over 10 percent of the voting +power of the Company (or any subsidiary or parent of the Company), then the +exercise price must be at least 110 percent of such fair market value. The +exercise price of nonqualified stock options must be at least 90 percent of such +fair market value. On March 15, 2004, the closing price of the Shares on the New +York Stock Exchange was $11.53 per share. +OPTION TERM. The term of each stock option shall be fixed by the Committee, +but no stock option shall be exercised more than ten years (or, in the case of +an Incentive Stock Option granted to an employee who owns stock possessing more +than 10 percent of the total combined voting power of all classes of stock of +the Company or any of its subsidiary or parent corporations, more than five +years) after the date the option is granted. Options will become exercisable at +such times and in such installments as the Committee shall determine. Payment of +the option price must be made in full at the time of exercise in such form +(including, but not limited to, cash, unrestricted common stock held for at +least six months, or any combination thereof) as the Committee may determine. +CERTAIN ISO RESTRICTIONS. In order to comply with certain federal tax +restrictions, no employee may be granted an incentive stock option if taking +into account such option the aggregate fair market value of the stock with +respect to which incentive stock options are exercisable for the first time by +such employee during any given calendar year, under this and all other incentive +stock option plans of the Company, would exceed $100,000. +CASHLESS EXERCISES. If permitted by the Committee, a Participant may elect +to pay the exercise price upon the exercise of an option by irrevocably +authorizing a third party to sell shares of stock (or a sufficient portion of +the shares) acquired upon exercise of the option and remit to the Company a +sufficient portion of the sale proceeds to pay the entire exercise price and any +tax withholding resulting from such exercise. +SARS. An SAR may be granted alone, or a holder of an option or other award +may be granted a related SAR either at the time of grant or by amendment of the +option or award thereafter. Upon exercise of an SAR, the holder must surrender +the SAR and surrender, unexercised, any related option or other award, and the +holder will receive in exchange, at the election of the Committee, cash or +common stock, or any combination thereof, equal in value to the difference +between the exercise price or option price per share and the fair market value +per share on the last business day preceding the date of exercise, times the +number of shares subject to the SAR, or portion thereof, which is exercised. +RESTRICTED STOCK AWARDS. A restricted stock award is an award of a given +number of shares of common stock which are subject to a restriction against +transfer and to a risk of forfeiture during a period set by the Committee. +During the restriction period, the Participant generally has the right to vote +and receive dividends on the shares. +PERFORMANCE-BASED COMPENSATION. The Committee may determine whether an +award is "performance-based compensation" as defined by Section 162(m) of the +Code. Any awards designated as "performance-based compensation" must be +conditioned on achievement of one or more performance measures, as selected by +the Committee: increase in stock price, return on capital or increase in pretax +earnings of the Company and/or one or more divisions and/or subsidiaries, return +on stockholders' equity of the Company, increase in earnings per share of the +Company, sales of the Company and/or one or more divisions and/or subsidiaries, +pretax earnings of the Company and/or one or more divisions and/or subsidiaries, +net earnings of the Company and/or one or more divisions and/or subsidiaries, +control of operating and/or non-operating expenses of the Company and/or one or +more divisions and/or subsidiaries, margins of the Company and/or one or more +divisions and/or subsidiaries, market price of the Company's securities and +solely for an award not intended to constitute "performance-based compensation" +under Section 162(m) of the Code, other factors directly tied to the performance +of the Company and/or one or more +16 +divisions and/or subsidiaries or other performance criteria. Any award so +designated must also meet any additional requirements of Section 162(m) of the +Code and the regulations thereunder. +AMENDMENT AND TERMINATION. The 2004 Plan is subject to amendment or +termination by the Board of Directors without stockholder approval as deemed in +the best interests of the Company. However, no such amendment may (i) increase +the number of shares that may be issued under the 2004 Plan (except by certain +adjustments provided for under the 2004 Plan); (ii) change the class of persons +eligible to receive ISOs under the 2004 Plan; (iii) change the requirements +regarding the exercise price; or (iv) amend the 2004 Plan in a manner that would +require approval of RPC's stockholders under applicable law, regulation or rule. +Options may not be granted under the 2004 Plan after the date of termination of +the 2004 Plan, but options granted prior to that date shall continue to be +exercisable according to their terms. +RIGHTS UPON CHANGE IN CORPORATE STRUCTURE. In general, if the Company is +merged into or consolidated with another corporation (and is not the surviving +corporation), or is liquidated, or sells substantially all its assets +(collectively hereinafter referred to as a "Non-Acquiring Transaction") while +unexercised options are outstanding, thereafter, each holder of an outstanding +option shall be entitled, upon exercise of such option, to receive such stock or +other securities as the holders of the same class of stock as those shares +subject to the option shall be entitled to receive in such Non-Acquiring +Transaction based upon the agreed upon conversion ratio or per share +distribution. However, in the discretion of the Board of Directors, any +limitations on exercisability of options may be waived so that all options, from +and after a date prior to the effective date of such Non-Acquiring Transaction +shall be exercisable in full. Furthermore, in the discretion of the Board of +Directors, the right to exercise may be given to each holder of an option during +a 30-day period preceding the effective date of such Non-Acquiring Transaction. +Any outstanding options not exercised within such 30-day period may be cancelled +by the Board. Any such adjustments relating to Company securities shall be made +by the Board and be final, binding and conclusive. The Committee need not treat +all optionees and/or options in the same manner. +In the event of any merger, reorganization, consolidation, +recapitalization, stock dividends, stock split or other changes in corporate +structure affecting the stock, and subject to the 2004 Plan, shares reserved for +issuance under this 2004 Plan shall be adjusted or substituted, as may be +determined to be appropriate by the Committee, provided that the number of +shares subject to any award shall always be a whole number. Such adjusted option +price shall be used to determine the amount payable by the Company upon the +exercise of any SAR associated with any stock option. +2003 AWARDS. The following table sets forth all awards granted under the +1994 Plan during 2003 to each of the individuals and groups named therein. All +such grants were in the form of stock options, restricted stock or some +combination of the two. Although it is anticipated that grants under the 2004 +Plan will be made in 2004, the nature and amounts of such grants are not +determinable at this time. +17 +NEW PLAN BENEFITS* +DOLLAR VALUE ($) OF +AWARDS NUMBER OF UNITS +NAME AND POSITION GRANTED IN 2003** GRANTED IN 2003*** +----------------- ----------------- ------------------ +R. Randall Rollins ......................... $ 0 100,000 +Richard A. Hubbell ......................... 0 25,000 +Linda H. Graham ............................ 0 10,000 +Ben M. Palmer .............................. 47,450 20,000 +Executive Group ............................ 47,450 155,000 +Non-Executive Director Group ............... 0 0 +Non-Executive Officer Employee Group ....... 94,900 507,500 +----------------------- +* Grants shown were made pursuant to the 1994 Plan. +** Given with respect to restricted stock only. +*** Includes options and restricted stock. +FEDERAL INCOME TAX CONSEQUENCES +The following discussion addresses certain anticipated federal income tax +consequences to recipients of awards made under the 2004 Plan and to the +Company. It is based on the Code and interpretations thereof as in effect on the +date of this proxy statement. It is not intended as tax advice to any +individual. +SUMMARY OF CURRENT FEDERAL INCOME TAX RATES FOR INDIVIDUALS +As a result of changes made by the Job and Growth Tax Relief Reconciliation +Act of 2003 (the "2003 Tax Act"), for tax years 2003 through 2010, ordinary +income of individuals, such as compensation income, will be taxed at a top +marginal rate of 35 percent. In addition, for capital assets sold on or after +May 6, 2003 and before 2009, the maximum long-term capital gains rate for +individuals will be 15 percent. The 2003 Tax Act also reduces to 15 percent the +maximum federal income tax rate for qualified dividends received by individuals +for tax years 2003 through 2008. +OPTIONS +GRANT OF OPTIONS. There will be no federal income tax consequences to the +grantee of an Option or the Company upon the grant of either an ISO or a NQO +under the 2004 Plan. An "NQO" is an Option that is not intended to be an +"incentive stock option" as that term is described in section 422(b) of the +Code. +EXERCISE OF NQOS. Upon the exercise of an NQO, the grantee generally will +recognize ordinary compensation income, subject to withholding and employment +taxes, in an amount equal to: (a) the fair market value, on the date of +exercise, of the acquired shares of common stock, less (b) the exercise price +paid for those shares. Subject to Sections 162(m) and 280G of the Code (as +discussed below) and the Company satisfying applicable reporting requirements, +the Company will be entitled to a tax deduction in the same amount. Gains or +losses recognized by the grantee upon a subsequent disposition of the shares +will be treated as long-term capital gain or loss if the shares are held for +more than a year from the date of exercise. Such gains or losses will be +short-term gains or losses if the shares are held for one year or less. For +purposes of computing gain or loss, the grantee's basis in the shares received +will be the exercise price paid for the shares plus the amount of income, if +any, recognized upon exercise of the option. +EXERCISE OF ISOS. Upon the exercise of an ISO, the grantee will recognize +no immediate taxable income for regular income tax purposes, provided the +grantee was continuously employed by the Company or a subsidiary from the date +of grant through the date which is three months prior to the date of exercise +(or through the date which is one year prior to the exercise date in the case of +total disability). +The exercise of an ISO will, however, result in an adjustment for +alternative minimum tax purposes in an amount equal to the excess of the fair +market value of the shares at exercise over the exercise price. That adjustment +may result in alternative minimum tax liability to the grantee upon the exercise +of the ISO. Subject to +18 +certain limitations, alternative minimum tax paid in one year may be carried +forward and credited against regular federal income tax liability for subsequent +years. If the grantee retains the shares acquired upon the exercise of the ISO +for more than two years from the date of grant and one year from the date of +exercise, any gain on a later sale of the shares will be treated as long-term +capital gain, and the Company will not be entitled to any tax deduction with +respect to the ISO. +If the grantee disposes of the shares of common stock received upon the +exercise of an ISO before the expiration of the two-year and one-year holding +periods discussed above, a "Disqualifying Disposition" occurs, and the grantee +will have ordinary compensation income, and the Company will have a +corresponding deduction, at the time of such disposition. The amount of ordinary +income and deduction generally will be equal to the lesser of: (a) the fair +market value of the shares of common stock on the date of exercise minus the +exercise price; or (b) the amount realized upon disposition of the common stock +minus the exercise price. If the amount realized on disposition exceeds the +value of the shares on the date of exercise, that additional amount will be +taxable as capital gain. To be entitled to a deduction as a result of a +Disqualifying Disposition, the Company must satisfy applicable reporting +requirements. In addition, for Disqualifying Dispositions by certain executive +officers, the Company's deduction is subject to the limits of Sections 162(m) +and 280G of the Code. +STOCK APPRECIATION RIGHTS +There will be no federal income tax consequences to either the grantee or +the Company upon the grant of an SAR. However, the grantee generally will +recognize ordinary compensation income upon the exercise of an SAR in an amount +equal to the aggregate amount of cash and the fair market value of any shares of +common stock received upon exercise. Subject to Sections 162(m) and 280G of the +Code and the Company satisfying applicable reporting requirements, the Company +will be entitled to a deduction equal to the amount included in the grantee's +taxable income as a result of the exercise of the SAR. Any shares of common +stock received by the grantee upon exercise of an SAR will have a tax basis +equal to their fair market value on the date of exercise. Upon a subsequent sale +of those shares, any gain or loss realized will be capital gain or loss, +long-term or short-term, depending upon whether the shares were held for more +than one year from the date of exercise. +RESTRICTED SHARES +Unless a grantee who receives an award of restricted stock makes an +election under Section 83(b) of the Code as described below, there will be no +federal income tax consequences to either the grantee or the Company upon the +grant of the restricted shares until expiration of the restricted period and the +satisfaction of any performance goals or other conditions applicable to the +restricted shares. At that time, the grantee generally will recognize ordinary +income equal to the then fair market value of the shares of common stock and, +subject to Sections 162(m) and 280G of the Code and the Company satisfying +applicable reporting requirements, the Company will be entitled to a +corresponding deduction. In general, any dividends paid to the grantee while the +restrictions or other conditions applicable to the restricted shares apply will +be taxable compensation income to the grantee, and the Company will be entitled +to a corresponding deduction with respect to such dividends, subject to Sections +162(m) and 280G of the Code. +If the grantee makes an election under Section 83(b) of the Code with +respect to the restricted shares (a "Section 83(b) Election"), the grantee will +recognize ordinary income equal to the fair market value of the restricted +shares as of the date of grant and the Company generally will be entitled to a +corresponding deduction subject to Sections 162(m) and 280G of the Code. In +addition, dividends paid to the grantee would generally be eligible for the +current maximum tax rate of 15 percent applicable to qualified dividends. The +Company would not be entitled to a deduction with respect to any dividends paid +to the grantee if a Section 83(b) Election is made with respect to the +restricted shares. +Upon a subsequent sale of restricted shares, any gain or loss realized by +the grantee will be capital gain or loss, long-term or short-term, depending +upon whether the restricted shares were held for more than one year from the +date of grant if a Section 83(b) Election is made or, if no Section 83(b) +Election is made, more than one year from the date of vesting. The basis of the +restricted shares sold for purposes of calculating gain or loss will be the fair +market value of those shares at the time of grant if a Section 83(b) Election is +made or at the time of vesting if a Section 83(b) Election is not made. +19 +STOCK UNITS +There will be no federal income tax consequences to the grantee or the +Company upon the grant of stock units. Grantees generally will recognize +ordinary income, taxable as compensation, at the time payment for the stock +units is received in an amount equal to the aggregate amount of cash and the +fair market value of any shares of common stock received. Subject to Sections +162(m) and 280G of the Code and the Company satisfying applicable reporting +requirements, the Company will be entitled to a deduction equal to the amount +included in the grantee's income at that time. +SECTION 162(m) LIMITATION +In general, Section 162(m) of the Code limits to $1 million the federal +income tax deductions that may be claimed in any tax year of the Company with +respect to compensation payable to any employee who is chief executive officer +or one of the other four highest paid executive officers of the Company on the +last day of that tax year. This limit does not apply to certain +performance-based compensation paid under a plan that meets the requirements of +Section 162(m) the Code and the regulations promulgated thereunder. The Company +believes that the options and SARs to be granted under the 2004 Plan by the +Compensation Committee which have an exercise price that is at least equal to +100 percent of the fair market value of the shares at the time of grant will +qualify for the performance-based compensation exception to the Section 162(m) +limitations. Deductions attributable to restricted stock and stock units may +also qualify for this exception provided the compensation is contingent on +attaining one or more performance goals. However, the Committee has the ability +to grant NQOs, SARS, restricted stock and stock units that do not qualify for +this exception. +GOLDEN PARACHUTE TAX AND SECTION 280G OF THE CODE +If an award is accelerated as a result of a change in control, all or a +portion of the value of the award at that time may be a "parachute payment" +under Section 280G of the Code for certain employees and other individuals who +perform services for the Company. Section 280G generally provides that if +parachute payments equal or exceed three times an Award holder's average W-2 +compensation for the five tax years preceding the year of the change in control, +the Company will not be permitted to claim its deduction with respect to any +"excess parachute payments" made to the individual. An "excess parachute +payment" generally is the portion of a parachute payment that exceeds such +individual's historical average compensation. Section 280G of the Code generally +applies to employees or other individuals who perform services for the Company +if, within the 12-month period preceding the change in control, the individual +is an officer of the Company, a shareholder owning more than 1 percent of the +stock of the Company, or a member of the group consisting of the lesser of the +highest paid 1 percent of the employees of the Company or the highest paid 250 +employees of the Company. A recipient of an excess parachute payment is subject +to a 20 percent excise tax on such excess parachute payment under Section 4999 +of the Code. +The discussion set forth above is intended only as a summary and does not +purport to be a complete enumeration or analysis of all potential tax effects +relevant to recipients of awards under the 2004 Plan. We have not undertaken to +discuss the tax treatment of awards under the 2004 Plan in connection with a +merger, consolidation or similar transaction. Such treatment will depend on the +terms of the transaction and the method of dealing with the awards in connection +therewith. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +FOR +THE PROPOSAL TO APPROVE THE RPC, INC. 2004 STOCK INCENTIVE PLAN. +PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS +STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE. +20 +INDEPENDENT PUBLIC ACCOUNTANTS +Ernst & Young LLP ("Ernst & Young") served as the Company's independent +public accountants for the year ended December 31, 2003. Representatives of +Ernst & Young are expected to be present at the Annual Meeting and will have an +opportunity to make a statement if they so desire and will be available to +respond to appropriate questions. For the year ended December 31, 2002, the +independent public accounting firm of Arthur Andersen LLP ("Andersen") was +initially engaged as the auditors but was terminated on July 23, 2002 by the +Board of Directors, pursuant to the recommendation by the Audit Committee. +The aggregate fees billed by independent public accountants are set forth +below: +ERNST & Young Andersen +-------------------------------- -------------- +2003 2002 2002 +-------------- -------------- -------------- +Audit fees ............................... $174,000 $145,000 $4,000 +Audit related fees (1) ................... 23,000 12,000 -- +Tax fees (2) ............................. 263,000 44,000 30,000 +All other fees ........................... -- -- -- +----------------------- +(1) Audit related fees represent audits of 401(k) Plan and Retirement Income +Plan. +(2) Tax fees related to tax compliance, planning and advice, consultation and +research on tax consequences for potential acquisitions, foreign tax issues +and filing amended tax returns for prior years. During 2002, a third party +other than Andersen was paid for the preparation of tax returns. +All of the services described above were approved by the Company's audit +committee. The audit committee has determined that the payments made to its +independent public accountants for these services are compatible with +maintaining such auditors' independence. All of the hours expended on the +principal accountant's engagement to audit the financial statements of the +Company for the years 2003 and 2002 were attributable to work performed by +full-time, permanent employees of the principal accountant. There are no +pre-approved services or amounts currently set by the Audit Committee. +The Audit Committee is directly responsible for the appointment and +termination (subject, if applicable, to shareholder ratification), compensation, +and oversight of the work of the independent public accountants, including +resolution of disagreements between management and the independent public +accountants regarding financial reporting. The Audit Committee is responsible +for pre-approving all audit and non-audit services provided by the independent +public accountants and ensuring that they are not engaged to perform the +specific non-audit services proscribed by law or regulation. The Audit Committee +has delegated pre-approval authority to its Chairman with the stipulation that +his decision is to be presented to the full Committee at its next scheduled +meeting. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments +thereto furnished to the Company by all Directors, Officers and greater than 10 +percent stockholders subject to the provisions of Section 16 of the Securities +Exchange Act of 1934, as amended. In addition, the Company has a written +representation from all Directors, Officers and greater than 10 percent +stockholders from whom no Form 5 was received indicating that no Form 5 filing +was required. Based solely on this review, the Company believes that filing +requirements of such persons under Section 16 for the fiscal year ended December +31, 2003 have been satisfied, except that Gary W. Rollins filed one late Form 4 +to report seven sales of Company Common Stock by his spouse. +21 +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the +Company's 2005 Annual Meeting of the Stockholders, pursuant to Rule 14a-8 +promulgated under the Securities Exchange Act of 1934, as amended, must be +received by the Company by November 22, 2004 for inclusion in its proxy +statement and form of proxy relating to that meeting. With respect to the +Company's Annual Meeting of the Stockholders to be held in 2005, all stockholder +proposals submitted outside the stockholder proposal rules contained in Rule +14a-8 promulgated under the Securities Exchange Act of 1934, as amended, which +pertains to the inclusion of stockholder proposals in a Company's proxy +materials, must be received by the Company by February 5, 2005, in order to be +considered timely. With regard to such stockholder proposals, if the date of the +next annual meeting of stockholders is advanced or delayed more than 30 calendar +days from April 27, 2005, the Company will, in a timely manner, inform its +stockholders of the change and of the date by which such proposals must be +received. With respect to stockholder nomination of directors, the Company's +By-laws provide that nominations for the election of directors may be made by +any stockholder entitled to vote for the election of directors. Nominations must +comply with an advance notice procedure which generally requires with respect to +nominations for directors for election at an annual meeting, that written notice +be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324, not less than ninety days prior to the anniversary of the prior year's +Annual Meeting and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal +occupation or employment of the nominee for the past five years, the nominee's +qualifications, the class or series and number of shares of capital stock of the +Company which are owned beneficially or of record by the person and any other +information relating to the person that would be required to be disclosed in a +proxy statement or other filings. Such nominations must be submitted by January +27, 2005, with respect to directors to be elected at the 2005 Annual Meeting of +Stockholders. +EXPENSES OF SOLICITATION +RPC will bear the cost of soliciting proxies. Upon request, we will +reimburse brokers, dealers and banks, or their nominees, for reasonable expenses +incurred in forwarding copies of the proxy material to their beneficial +shareholders of record. Solicitation of proxies will be made principally by +mail. Proxies also may be solicited in person or by telephone, facsimile or +other means by our directors, officers and regular employees. These individuals +will receive no additional compensation for these services. The Company has +retained Georgeson Shareholder Communications, Inc. to conduct a broker search +and to send proxies by mail for an estimated fee of $5,000 plus shipping +expenses. +MISCELLANEOUS +The Company's Annual Report and its Form 10-K for the fiscal year ended +December 31, 2003 is being mailed to stockholders with this proxy statement. +Management knows of no business other than the matters set forth herein +which will be presented at the Annual Meeting. In as much as matters not known +at this time may come before the Annual Meeting, the enclosed proxy confers +discretionary authority with respect to such matters as may properly come before +the Annual Meeting; and it is the intention of the persons named in the proxy to +vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ Linda H. Graham, Secretary +Linda H. Graham, Secretary +Atlanta, Georgia +March 22, 2004 +22 +APPENDIX A +AUDIT COMMITTEE CHARTER +RPC, INC. +CHARTER OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +PURPOSE +The Audit Committee (the "Committee") is appointed by the Board of +Directors (the "Board") to assist the Board in fulfilling its oversight +responsibilities. The Committee's primary purpose is to monitor the integrity of +the Company's financial reporting process, including (by overseeing the +financial reports and other financial information provided by the Company to any +governmental or regulatory body, the public or other users thereof) the +Company's systems of internal accounting and financial controls, the performance +of the Company's internal audit function, the independent auditor's +qualifications and independence, the Company's compliance with ethics policies +and legal and regulatory requirements statements, and the annual independent +audit of the Company's financial statements. The Committee will monitor the +independence, performance, and qualifications of the Company's independent +auditors. +In discharging its oversight role, the Committee is empowered to +investigate any matter brought to its attention with full access to all books, +records, facilities and personnel of the Company. The Committee is authorized to +retain outside counsel, auditors or other experts and professionals for this +purpose. The Board and the Committee are in place to represent the Company's +shareholders; accordingly, the outside auditor is ultimately accountable to the +Board and the Committee. +The Company shall provide appropriate funding, as determined by the +Committee, for payment of compensation to any registered public accounting firm +engaged for the purpose of rendering or issuing an audit report or related work +or performing other audit, review or attest services for the company and to any +advisors employed by the Company as well as ordinary administrative expenses of +the Committee that are necessary or appropriate in carrying out its duties. +MEMBERSHIP +The Committee shall be comprised of not less than three members of the +Board, and the Committee's composition shall meet all requirements of the Audit +Committee policy of the New York Stock Exchange. +Accordingly, all of the members must be directors: +o Who are independent of management and the Company. Members of the +Committee shall be considered independent as long as they do not +accept any consulting, advisory, or compensatory fee from the Company +and are not an affiliated person of the Company or its subsidiaries, +and meet the independence requirements of the New York Stock Exchange. +Under Rule 10A-3 to Securities Exchange Act of 1934, disallowed +payments to an Audit Committee member includes payments made directly +or indirectly, and for these purposes "indirect" acceptance shall +include (a) payments to spouses, minor children or stepchildren or +children or stepchildren sharing a home with the member and (b) +payments accepted by an entity in which such member is a partner, +member, officer such as a managing director occupying a comparable +position or executive officer, or occupies a similar position (except +limited partners, non-managing members and those occupying similar +positions who, in each case, have no active role in providing services +to the entity) and which provides accounting, consulting, legal, +investment banking or financial advisory to the Company or any +subsidiary. +o Who are financially literate or who become financially literate within +a reasonable period of time after appointment to the Committee. In +addition, at least one member of the Committee must be an Audit +Committee "financial expert" as defined by SEC regulations. +A-1 +KEY RESPONSIBILITIES +The Committee's primary responsibility is to oversee the Company's +financial reporting process on behalf of the Board and report results of their +activities to the Board on a regular basis. While the Committee has the +responsibilities and powers set forth in this Charter, it is not the duty of the +Committee to plan or conduct audits or to determine that the Company's financial +statements are complete and accurate and are in accordance with generally +accepted accounting principles. Management is responsible for the preparation, +presentation, and integrity of the Company's financial statements and for the +appropriateness of the accounting principles and reporting policies that are +used by the Company as well as the Company's internal controls. The independent +auditors are responsible for performing an independent audit of the Company's +financial statements in accordance with auditing standards generally accepted in +the United States and for issuing a report hereon. +The Committee, in carrying out its responsibilities, believes its policies +and procedures should remain flexible, in order to best react to changing +conditions and circumstances. The Committee should take appropriate actions to +set the overall corporate "tone" for quality financial reporting, sound business +risk practices, and ethical behavior. The following shall be the principal +duties and responsibilities of the Committee. These functions are set forth as a +guide with the understanding that the Committee may diverge from this guide as +appropriate under the circumstances. +The Committee shall be directly responsible for the appointment and +termination (subject, if applicable, to shareholder ratification), compensation, +and oversight of the work of the independent auditors, including resolution of +disagreements between management and the auditor regarding financial reporting. +The Committee shall pre-approve all audit and non-audit services provided by the +independent auditors and shall not engage the independent auditors to perform +the specific non-audit services proscribed by law or regulation. The Committee +may delegate pre-approval authority to a member of the Committee. The decisions +of any Committee member to whom pre-approval authority is delegated must be +presented to the full Committee at its next scheduled meeting. +At least annually, the Committee shall obtain and review a report by the +independent auditors describing: +o The firm's internal quality control procedures. +o Any material issues raised by the most recent internal quality control +review, or peer review, of the firm, or by any inquiry or +investigation by governmental or professional authorities, within the +preceding five years, respecting one or more independent audits +carried out by the firm, and any steps taken to deal with any such +issues. +o All relationships between the independent auditor and the Company (to +assess the auditor's independence). +In addition, the Committee shall set clear hiring policies for employees or +former employees of the independent auditors that meet the SEC regulations and +the New York Stock Exchange listing standards. +The Committee shall discuss with the internal auditors and the independent +auditors the overall scope and plans for their respective audits, including the +adequacy of staffing and compensation. Also, the Committee shall discuss with +management, the internal auditors, and the independent auditors the adequacy and +effectiveness of the accounting and financial controls, including the Company's +policies and procedures to assess, monitor, and manage business risk, and legal +and ethical compliance programs (e.g., Company's Code of Conduct). +The Committee shall meet separately periodically with management, the +internal auditors, and the independent auditors to discuss issues and concerns +warranting Committee attention. The Committee shall provide sufficient +opportunity for the internal auditors and the independent auditors to meet +privately with the members of the committee. The Committee shall review with the +independent auditor any audit problems or difficulties and management's +response. +The Committee shall receive regular reports from the independent auditor on +the critical policies and practices of the Company, and all alternative +treatments of financial information within generally accepted accounting +principles that have been discussed with management. +A-2 +The Committee shall review management's assertion on its assessment of the +effectiveness of internal controls as of the end of the most recent fiscal year +and the independent auditors' report on management's assertion. +The Committee shall review and discuss earnings press releases, as well as +financial information and earnings guidance provided to analysts and rating +agencies. +The Committee shall review the interim financial statements and disclosures +under Management's Discussion and Analysis of Financial Condition and Results of +Operations with management and the independent auditors prior to the filing of +the Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss +the results of the quarterly review and any other matters required to be +communicated to the committee by the independent auditors under generally +accepted auditing standards. The chair of the committee may represent the entire +committee for the purposes of this review. +The Committee shall review with management and the independent auditors the +financial statements and disclosures under Management's Discussion and Analysis +of Financial Condition and Results of Operations to be included in the Company's +Annual Report on Form 10-K (or the annual report to shareholders if distributed +prior to the filing of Form 10-K), including their judgment about the quality, +not just the acceptability, of accounting principles, the reasonableness of +significant judgments, and the clarity of the disclosures in the financial +statements. Also, the Committee shall discuss the results of the annual audit +and any other matters required to be communicated to the Committee by the +independent auditors under generally accepted auditing standards. +The Committee shall establish procedures for the receipt, retention, and +treatment of complaints received by the issuer regarding accounting, internal +accounting controls, or auditing matters, and the confidential, anonymous +submission by employees of the issuer of concerns regarding questionable +accounting or auditing matters. +The Committee shall receive corporate attorneys' reports of evidence of a +material violation of securities laws or breaches of fiduciary duty. +The Committee also prepares its report to be included in the Company's +annual proxy statement, as required by SEC regulations. +The Committee shall perform an evaluation of its performance at least +annually to determine whether it is functioning effectively. +A-3 +APPENDIX B 2004 +STOCK INCENTIVE PLAN +RPC, INC. +2004 STOCK INCENTIVE PLAN +SECTION 1. PURPOSES; DEFINITIONS. +The purpose of the RPC, Inc. 2004 Stock Incentive Plan (the "Plan") is to +enable RPC, Inc. (the "Company") to attract, retain and reward directors and key +employees of the Company and its Subsidiaries and Affiliates, and strengthen the +mutuality of interests between such persons and the Company's shareholders, by +offering such persons performance-based stock incentives and/or other equity +interests or equity-based incentives in the Company, as well as +performance-based incentives payable in cash. +For purposes of this Plan, the following terms shall be defined as set +forth below: +1. "Affiliate" means any entity other than the Company and its +Subsidiaries that is designated by the Board as a participating +employer under this Plan, provided that the Company directly or +indirectly owns at least 20% of the combined voting power of all +classes of stock of such entity or at least 50% of the ownership +interests in such entity. +2. "Award" shall mean any Award or benefit granted under the Plan, +including, without limitation, the grant of Options, SARs, Stock Unit +Awards, Restricted Stock Awards, Performance Stock Awards and +Performance Unit Awards. +3. "Board" means the Board of Directors of the Company. +4. "Book Value" means, at any given date, (i) the consolidated +stockholders' equity in the Company and its Subsidiaries, as shown on +the Company's consolidated balance sheet as of the end of the +immediately preceding fiscal year, subject to such adjustments as the +Committee shall in good faith specify at or after grant, divided by +(ii) the number of shares of Outstanding Stock as of such year-end +date (as adjusted by the Committee for subsequent events). +5. "Code" means the Internal Revenue Code of 1986, as amended from time +to time, and any successor thereto. +6. "Committee" means the Committee referred to in Section 2 of this Plan. +If at any time no Committee shall be in office, then the functions of +the Committee specified in this Plan may be exercised by the Board or +the Compensation Committee of the Board, as set forth in Section 2 +hereof. +7. "Company" means RPC, Inc., a corporation organized under the laws of +the State of Delaware, or any successor corporation. +8. "Disability" means disability as determined under procedures +established by the Committee for purposes of this Plan and shall in +all events be consistent with the definition of "disabled" provided in +Sections 422(c)(6) and 22(e)(8) of the Code. +9. "Early Retirement" means retirement with the express written consent +of the Committee (given for purposes of this Plan only at or before +the time of such retirement) from active employment with the Company +and/or any Subsidiary or Affiliate or pursuant to the early retirement +provisions of the applicable pension plan of such entity. +10. "Fair Market Value" means, as of any given date, unless otherwise +determined by the Committee in good faith: +(i) if the Stock is listed on an established stock exchange or +exchanges, or traded on the NASDAQ National Market System +("NASDAQ/NMS") the highest closing price of the Stock as listed +thereon on the applicable day, or if no sale of Stock has been +made on any exchange or on NASDAQ/NMS on that date, on the next +preceding day on which there was a sale of Stock; +B-1 +(ii) if the Stock is not listed on an established stock exchange or +NASDAQ/NMS but is instead traded over-the-counter, the mean of +the dealer "bid" and "ask" prices of the Stock in the +over-the-counter market on the applicable day, as reported by +the National Association of Securities Dealers, Inc.; and +(iii) if the Stock is not listed on any exchange or traded +over-the-counter, the value determined in good faith by the +Committee. +11. "Incentive Stock Option" means any Stock Option designated as an +"Incentive Stock Option" within the meaning of Section 422 of the +Code. +12. "Non-Employee Director" shall have the meaning set forth in Rule 16b-3 +promulgated pursuant to the Securities Exchange Act of 1934, as +amended. +13. "Non-Qualified Stock Option" means any Stock Option that is not an +Incentive Stock Option. +14. "Normal Retirement" means retirement from active employment with the +Company and/or any Subsidiary or Affiliate on or after age 65. +15. "Other Stock-Based Award" means an Award under Section 7 below that is +valued in whole or in part by reference to or is otherwise based on, +Stock, including, without limitation, Restricted Stock, +Performance-Accelerated Restricted Stock, Performance Stock, +Performance Units and Stock Awards or Options valued by reference to +book value or Subsidiary performance. +16. "Outstanding Stock" shall include all outstanding shares of Common +Stock, $.10 par value, of the Company as well as the number of shares +of Common Stock into which then outstanding shares of capital stock of +the Company, of whatever class, are convertible as of the year-end +immediately preceding the date of calculation thereof (as adjusted by +the Committee for certain events). +17. "Participants" shall include those persons who are granted one or more +Awards under the Plan, subject to the terms and conditions of the Plan +as the Committee shall determine and designate, from time to time, +from among those eligible for Award grants hereunder. +18. "Performance-Accelerated Restricted Stock" means Restricted Stock +which is subject to restrictions for a stated period of time based on +continued employment, with the opportunity for the restriction period +to be shortened based on the achievement of predetermined performance +goals. +19. "Performance Stock" means Stock awarded under Section 7 below at the +end of a specified performance period, the amount of which is +determined by multiplying a performance factor times either (i) the +Fair Market Value of the Stock on the last day of the performance +period, or (ii) the difference between the Fair Market Value of the +Stock on the first and last days of the performance period, provided, +however, that at the discretion of the Committee, Participants may +receive the value of Performance Stock in cash, as determined by +reference to the Fair Market Value on the date the amount of the award +is determined. +20. "Performance Unit" means an Award pursuant to Section 7 with a +starting value and an associated performance period, such. that at the +end of the performance period Participants receive an amount, payable +in either cash or Stock, at the discretion of the Committee, equal to +(i) the number of units earned based on a predetermined performance +schedule times the starting unit value, or (ii) the number of units +granted times the ending unit value based on a predetermined +performance schedule. +21. "Plan" means this RPC, Inc. 2004 Stock Incentive Plan, as hereafter +amended from time to time. +22. "Premium Stock Option" means any Stock Option with an exercise price +in excess of the Fair Market Value, as computed on the date of grant +of the Stock Option. +23. "Retirement" means Normal or Early Retirement. +B-2 +24. "Restricted Stock" means Stock awarded under Section 7 below which is +(i) subject to restrictions for a stated period of time based on +continued employment, (ii) subject to restrictions which will only +lapse upon the achievement of predetermined performance goals, or +(iii) subject to a combination of the restrictions described in (i) +and (ii) above. +25. "Stock" means the Common Stock, $.10 par value per share, of the +Company. +26. "Stock Appreciation Right" or "SAR" means the right pursuant to an +award granted under Section 6 below to receive an amount in either +cash or stock, equal to the difference between the Fair Market Value +of the Stock on the date of exercise and the Fair Market Value of the +Stock on the date of grant of the right. +27. "Stock Option" or "Option" means any option to purchase shares of +Stock granted pursuant to Section 5 below. +28. "Subsidiary" means any present or future subsidiary corporation of the +Company within the meaning of Section 424(f) of the Code, and any +present or future business venture designated by the Committee in +which the Company has a significant interest, as determined in the +discretion of the Committee. +SECTION 2. ADMINISTRATION. +This Plan shall be administered by the Board of Directors or by a Committee +of not less than two Non-Employee Directors, who shall be members of the Board +and who shall serve at the pleasure of the Board, such Committee to be +designated by the Board. Each member of the Committee shall also be an "outside +director" as defined in the regulations promulgated pursuant to Section 162(m) +of the Internal Revenue Code of 1986, as amended. Except as otherwise directed +by the Board, the functions of the Committee specified in this Plan shall be +exercised by the Compensation Committee of the Board. +The Committee shall have full authority to grant, pursuant to the terms of +this Plan, to Participants under Section 4: (i) Stock Options, including, +without limitation, Incentive Stock Options, Non-Qualified Stock Options and +Premium Stock Options, (ii) Stock Appreciation Rights and/or (iii) Other +Stock-Based Awards, including, without limitation, Restricted Stock, Stock +Units, Performance-Accelerated Restricted Stock, Performance Stock and +Performance Units. +In particular, the Committee shall have the authority: +(i) subject to Section 4 hereof, to select the Participants to whom +Stock Options, Stock Appreciation Rights and/or Other Stock-Based Awards +may from time to time be granted hereunder; +(ii) to determine whether and to what extent Stock Options, Stock +Appreciation Rights and/or Other Stock-Based Awards, or any combination +thereof, are to be granted hereunder to one or more Participants; +(iii )to determine the number of shares of Stock to be covered by each +such award granted hereunder; +(iv) to determine the terms and conditions, not inconsistent with the +terms of this Plan, of any Award granted hereunder (including, but not +limited to, the share price and any restriction or limitation, or any +vesting, acceleration or waiver of forfeiture restrictions regarding any +Stock Option or other Award and/or the shares of Stock relating thereto, +based in each case on such factors as the Committee shall determine, in its +sole discretion); +(v) to determine whether and under what circumstances Stock Options, +Stock Appreciation Rights, Performance Stock and Performance Units may be +settled in cash; +(vi) to determine whether, to what extent and under what circumstances +Stock Option grants and/or other Awards under this Plan and/or other cash +Awards made by the Company are to be made, and operate, on a tandem basis +vis-a-vis other Awards under this Plan and/or cash Awards made outside of +this Plan, or on an additive basis; and +B-3 +(vii) to determine whether, to what extent and under what +circumstances Stock and other amounts payable with respect to an Award +under this Plan shall be deferred either automatically or at the election +of the Participant (including providing for and determining the amount (if +any) of any deemed earnings on any deferred amount during any deferral +period). +(viii) to the extent that Options or SARs have exercise or base prices +that exceed the current Fair Market Value of the Stock, the Committee has +the discretion, without obtaining shareholder approval, to reprice such +Options or SARs and lower their exercise or base prices to prices not lower +than the then current Fair Market Value of the Stock. The Committee may +also, without obtaining shareholder approval, amend any outstanding Award +to provide the holder thereof with additional rights or benefits of the +type otherwise permitted by the Plan, including without limitation, +extending the term thereof; provided, however, that in no event may the +term of any Option or SAR exceed ten (10) years; and +The Committee shall have the authority to adopt, alter and repeal such +rules, guidelines and practices governing this Plan as it shall, from time to +time, deem advisable; to interpret the terms and provisions of this Plan and any +Award issued under this Plan (and any agreements relating thereto); and to +otherwise supervise the administration of this Plan. +Except to the extent prohibited by applicable law or the applicable rules +of a stock exchange, the Committee may allocate all or any portion of its +responsibilities and powers to any one or more of its members and may delegate +all or any part of its responsibilities and powers hereunder, including without +limitation, the power to designate Participants hereunder and determine the +amount, timing and terms of Awards hereunder, to any person or persons selected +by it, including without limitation, any executive officer of the Company. Any +such allocation or delegation may be revoked by the Committee at any time. +Except as otherwise provided by the Committee, Awards under the Plan are +not transferable except as designated by the Participant by will or by the laws +of descent and distribution. +Except as otherwise specifically provided herein, all decisions made by the +Committee pursuant to the provisions of this Plan shall be made in the +Committee's sole discretion and shall be final and binding on all persons, +including the Company and all Plan Participants. +SECTION 3. STOCK SUBJECT TO PLAN. +(a) Subject to the following provisions of this Section 3, the maximum +number of shares of Stock that may be delivered to Participants and their +beneficiaries under the Plan shall be 1.5 million shares of Stock. +(b) To the extent any shares of Stock covered by an Award are not +delivered to a Participant or beneficiary because the Award is forfeited or +canceled, or the shares of Stock are not delivered because the Award is settled +in cash or used to satisfy the applicable tax withholding obligation, such +shares shall not be deemed to have been delivered for purposes of determining +the maximum number of shares of Stock available for delivery under the Plan. The +maximum number of shares of Stock available for delivery under the Plan shall +not be reduced for shares subject to plans assumed by the Company in an +acquisition of an interest in another company. +(c) Subject to the aggregate maximum set forth in (a) above and to +adjustment in accordance with paragraphs (d) and (f) of this Section 3, the +following additional maximums are imposed under the Plan: +(i) The maximum number of shares of Stock that may be issued pursuant +to Options intended to be ISOs shall be 1.5 million shares; +(ii) The maximum number of shares of Stock that may be covered by +Awards granted to any one individual pursuant to Sections 5 and 6 (relating +to Options and SARs) shall be 200,000 during any fiscal year; and +B-4 +(iii) The maximum number of shares of Stock that may be covered by +Awards granted to any one individual pursuant to Section 7 (relating to +Other Stock-Based Awards) shall be 200,000 during any fiscal year. +(d) In general, if the Company is merged into or consolidated with another +corporation under circumstances in which the Company is not the surviving +corporation, or if the Company is liquidated, or sells or otherwise disposes of +substantially all of its assets to another corporation (any such merger, +consolidation, etc. being hereinafter referred to as a "Non-Acquiring +Transaction") while unexercised Options are outstanding under this Plan, after +the effective date of a Non-Acquiring Transaction each holder of an outstanding +Option shall be entitled, upon exercise of such Option, to receive such stock or +other securities as the holders of the same class of stock as those shares +subject to the Option shall be entitled to receive in such Non-Acquiring +Transaction based upon the agreed upon conversion ratio or per share +distribution. However, in the discretion of the Board of Directors, after giving +due consideration to the impact on the optionee, if any, pursuant to Rule 16b-3, +any limitations on exercisability of Options may be waived so that all Options, +from and after a date prior to the effective date of such Non-Acquiring +Transaction shall be exercisable in full. Furthermore, in the discretion of the +Board of Directors, the right to exercise may be given to each holder of an +Option during a 30-day period preceding the effective date of such Non-Acquiring +Transaction. Any outstanding Options not exercised within such 30-day period may +be cancelled by the Board of Directors as of the effective date of any such +Non-Acquiring Transaction. To the extent that the foregoing adjustments relate +to stock or securities of the Company, such adjustments shall be made by the +Board of Directors, whose determination in that respect shall be final, binding +and conclusive. The Committee need not treat all optionees and/or Options in the +same manner. +(e) Except as set forth in this Plan, Award holders shall have no rights by +reason of any subdivision or consolidation of shares of stock of any class or +the payment of any stock dividend or any other increase or decrease in the +number of shares of stock of any class or by reason of any dissolution, +liquidation, merger, or consolidation or spinoff of stock of another +corporation, and no issue by the Company of shares of stock of any class shall +affect, and no adjustment by reason thereof shall be made with respect to, the +number or price of shares subject to the Award. The grant of any Award pursuant +to this Plan shall not affect in any way the right or power of the Company to +make adjustments, reclassifications, reorganizations or changes of its capital +or business structure or to merge or to consolidate or to dissolve, liquidate or +sell, or to transfer all or any part of its business or assets. +(f) In the event of any merger, reorganization, consolidation, +recapitalization, stock dividends, stock split or other changes in corporate +structure affecting the Stock, and subject to Section 5(j), such substitution or +adjustment shall be made in the aggregate number of shares reserved for issuance +under this Plan, in the number and option price of shares subject to outstanding +Options granted under this Plan and in the number of shares subject to other +outstanding Awards granted under this Plan as may be determined to be +appropriate by the Committee, in its sole discretion, provided that the number +of shares subject to any Award shall always be a whole number. Such adjusted +option price shall be used to determine the amount payable by the Company upon +the exercise of any Stock Appreciation Right associated with any Stock Option. +SECTION 4. ELIGIBILITY. +Directors, officers and other key employees of the Company or its +Subsidiaries and Affiliates who are responsible for or contribute to the growth +and/or profitability of the business of the Company and/or its Subsidiaries and +Affiliates are eligible to be granted Awards under this Plan. Notwithstanding +the foregoing, Incentive Stock Options may only be granted to employees of the +Company and any of its Subsidiaries or Affiliates that are a "subsidiary +corporation" (within the meaning of Section 424(f) of the Code). Furthermore, no +director who is not also an employee of the Company shall be eligible to receive +Incentive Stock Options. +B-5 +SECTION 5. STOCK OPTIONS. +Stock Options may be granted alone, in addition to or in tandem with other +Awards granted under this Plan and/or cash Awards made outside of this Plan. Any +Stock Option granted under this Plan shall be in such form as the Committee may +from time to time approve. +Stock Options granted under this Plan may be of two types: (i) Incentive +Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options and +Non-Qualified Stock Options may be issued as Premium Stock Options at the +discretion of the Board. +Subject to the restrictions contained in Section 4 hereof concerning the +grant of Incentive Stock Options, the Committee shall have the authority to +grant to any optionee Incentive Stock Options, Non-Qualified Stock Options, or +both types of Stock Options (in each case with or without Stock Appreciation +Rights). To the extent that the Fair Market Value of the shares with respect to +which Incentive Stock Options first become exercisable by an optionee during any +calendar year (under the Plan and any other plans granting Incentive Stock +Options which are established by the Company or its Subsidiaries) exceeds +$100,000, such Options shall be treated as Non-Qualified Stock Options. +Options granted under this Plan shall be subject to the following terms and +conditions and shall contain such additional terms and conditions, not +inconsistent with the terms of this Plan, as the Committee shall deem desirable: +(a) OPTION PRICE. The option price per share of Stock purchasable under a +Stock Option shall be determined by the Committee at the time of grant but shall +be (i) not less than 100% (or, in the case of an employee who owns stock +possessing more than 10% of the total combined voting power of all classes of +capital stock of the Company or of any of its subsidiary or parent corporations, +not less than 110%) of the Fair Market Value of the Stock at grant, in the case +of Incentive Stock Options, and (ii) not less than 90% of the Fair Market Value +of the Stock at grant, in the case of Non-Qualified Stock Options. +(b) OPTION TERM. The term of each Stock Option shall be fixed by the +Committee, but no Stock Option shall be exercised more than ten years (or, in +the case of an Incentive Stock Option granted to an employee who owns stock +possessing more than 10% of the total combined voting power of all classes of +stock of the Company or any of its subsidiary or parent corporations, more than +five years) after the date the Option is granted. +(c) EXERCISABILITY. Stock Options shall be exercised at such time or times +and subject to such terms and conditions as shall be determined by the Committee +at or after grant. If the Committee provides, in its sole discretion, that any +Stock Option is exercisable only in installments, the Committee may waive such +installment exercise provisions at any time at or after grant in whole or in +part, based on such factors as the Committee shall determine, in its sole +discretion. +(d) METHOD OF EXERCISE. Subject to whatever installment exercise provisions +or other restrictions apply under Section 5(c), Stock Options may be exercised +in whole or in part at any time during the option period, by giving written +notice of exercise to the Company specifying the number of shares to be +purchased; provided, however, that if exercised in part, a Stock Option may not +be exercised for fewer than 100 shares, unless the remaining balance of the +Stock Option is less than 100 shares, in which case the Stock Option may be +exercised for the remaining balance. +Such notice shall be accompanied by payment in full of the purchase price, +either by cash or such instrument as the Committee may accept. Payment in full +or in part may also be made in the form of unrestricted Stock already owned by +the optionee for a period of at least six months, based, in each case, on the +Fair Market Value of the Stock on the date the option is exercised, unless it +shall be determined by the Committee, at or after grant, in its sole discretion, +that unrestricted Stock is not a permissible form of payment with respect to any +Stock Option or Options. +If permitted by the Committee, a Plan Participant may elect to pay the +Exercise Price upon the exercise of an Option by irrevocably authorizing a third +party to sell shares of Stock (or a sufficient portion of the shares) +B-6 +acquired upon exercise of the Option and remit to the Company a sufficient +portion of the sale proceeds to pay the entire Exercise Price and any tax +withholding resulting from such exercise. +Subject to the immediately preceding paragraph, no shares of Stock shall be +issued until full payment therefor has been made. An optionee shall generally +have the rights to dividends or other rights of a shareholder with respect to +shares subject to the Stock Option when the optionee has given written notice of +exercise, has paid in full for such shares, and, if requested, has given the +representation described in Section 10(a). +(e) TERMINATION BY DEATH. Subject to Section 5(k), if an optionee's +employment by the Company and/or any Subsidiary or Affiliate terminates by +reason of death, any Stock Option held by such optionee may thereafter be +exercised to the extent such option was exercisable at the time of death or on +such accelerated basis as the Committee may determine at or after grant (or as +may be determined in accordance with procedures established by the Committee), +by the legal representative of the estate or by the legatee of the optionee +under the will of the optionee, for a period of six months (or such other period +as the Committee may specify at or after grant) from the date of such death or +until the expiration of the stated term of such Stock Option, whichever period +is the shorter. +(f) TERMINATION BY REASON OF DISABILITY. Subject to Section 3(d), if an +optionee's employment by the Company and/or any Subsidiary or Affiliate +terminates by reason of Disability, any Stock Option held by such optionee may +thereafter be exercised by the optionee or his/her guardian, to the extent it +was exercisable at the time of termination or on such accelerated basis as the +Committee may determine at or after grant (or as may be determined in accordance +with procedures established by the Committee), for a period of one year (or such +other period as the Committee may specify at grant) from the date of such +termination of employment or until the expiration of the stated term of such +Stock Option, whichever period is the shorter; provided, however, that, if the +optionee dies within such one-year period (or such other period as the Committee +may specify at or after grant), any unexercised Stock Option held by such +optionee shall thereafter be exercisable only pursuant to Section 5(e). +(g) TERMINATION BY REASON OF RETIREMENT. Subject to Section 3(d), an +optionee's employment by the Company and/or any Subsidiary or Affiliate +terminates by reason of Normal or Early Retirement, any Stock Option held by +such optionee may be exercised by the optionee, to the extent it was exercisable +at the time of such Retirement, for a period of three months, less one day, (or +such other period as the Committee may specify at or after grant) from the date +of such termination, or the expiration of the stated term of such Stock Option, +whichever period is the shorter; provided, however, that if the optionee dies +within such three-month, less one day; period (or such other period as the +Committee may specify at grant), any unexercised Stock Option held by such +optionee shall thereafter be exercisable only pursuant to Section 5(e). +(h) OTHER TERMINATION. Unless otherwise determined by the Committee (or +pursuant to procedures established by the Committee) at or after grant, if an +optionee's employment by the Company and/or any Subsidiary or Affiliate +terminates for any reason other than death, Disability or Normal or Early +Retirement, as in the case of voluntary resignation of employment by the +optionee, the Stock Option shall thereupon terminate and shall be immediately +forfeited, regardless of its vesting status. +(i) BUYOUT PROVISIONS. The Committee may at any time offer to buy out for a +payment in cash or Stock a Stock Option previously granted, based on such terms +and conditions as the Committee shall establish and communicate to the optionee +at the time that such offer is made. +(j) FRACTIONAL SHARE. If any adjustment referred to herein shall result in +a fractional share for any optionee under any Stock Option hereunder, such +fraction shall be completely disregarded and the optionee shall only be entitled +to the whole number of shares resulting from such adjustment. +(k) COMPLIANCE WITH SECTION 422. To the extent that any Option which is +designated as an Incentive Stock Option hereunder fails for any reason to comply +with the provisions of Section 422 it shall be treated as a Non-Qualified Stock +Option. +B-7 +SECTION 6. STOCK APPRECIATION RIGHTS. +(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted alone, in +addition to or in tandem with all or part of any other Award granted under this +Plan. In the case of a Non-Qualified Stock Option, such tandem rights may be +granted either at or after the time of the grant of such Stock Option. In the +case of an Incentive Stock Option, such tandem rights may be granted only at the +time of the grant of such Stock Option. +A Stock Appreciation Right or applicable portion thereof granted in tandem +with a given Stock Option shall terminate and no longer be exercisable upon the +termination or exercise of the related Stock Option, subject to such provisions +as the Committee may specify at grant where a Stock Appreciation Right is +granted with respect to less than the full number of shares covered by a related +Stock Option. +A Stock Appreciation Right may be exercised by an optionee, subject to +Section 6(b), in accordance with the procedures established by the Committee for +such purpose. Upon such exercise, the optionee shall be entitled to receive an +amount determined in the manner prescribed in Section 6(b). Stock Options which +were issued in tandem with exercised Stock Appreciation Rights shall no longer +be exercisable to the extent that the related Stock Appreciation Rights have +been exercised. +(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to +such terms and conditions, not inconsistent with the provisions of this Plan, as +shall be determined from time to time by the Committee, including the following: +(i) Except as set forth below, the term of each Stock Appreciation +Right shall be fixed by the Committee, but no such Stock Appreciation Right +shall be exercised more than ten years after the date it is granted. Stock +Appreciation Rights granted in tandem with Stock Options shall be +exercisable only at such time or times and to the extent that the Stock +Options to which they relate shall be exercisable in accordance with the +provisions of Section 5 and this Section 6 whenever the Fair Market Value +of the Stock exceeds the option price per share specified in the related +Stock Option. +(ii) Stock Appreciation Rights shall be exercised at such time or +times and subject to such terms and conditions as shall be determined by +the Committee at or after grant. If the Committee provides, in its sole +discretion, that any Stock Appreciation Right is exercisable only in +installments, the Committee may waive such installment exercise provisions +at any time at or after grant in whole or in part, based on such factors as +the Committee shall determine in its sole discretion. Upon the exercise of +a Stock Appreciation Right, a Participant shall be entitled to receive an +amount in cash and/or shares of Stock equal in value to the excess of Fair +Market Value Of the Stock on the date of exercise over the Fair Market +Value of the Stock on the date of grant multiplied by the number of Stock +Appreciation Rights exercised, with the Committee having the right to +determine the form of payment. Subject to whatever installment exercise +provisions or other restrictions apply hereunder, Stock Appreciation Rights +may be exercised in whole or in part at any time during the term thereof by +giving written notice of exercise to the Company specifying the number of +rights to be exercised. +(iii) Upon the exercise of a tandem Stock Appreciation Right, the +Stock Option or part thereof to which such Stock Appreciation Right is +related shall be deemed to have been exercised for the purpose of the +limitation set forth in Section 3 of this Plan on the number of shares of +Stock to be issued under this Plan, but only to the extent of the number of +shares issued under the Stock Appreciation Right at the time of exercise +based on the value of the Stock Appreciation Right at such time. +(iv) Stock Appreciation Rights issued in tandem with Incentive Stock +Options shall contain such terms and conditions as the Committee may +determine to be necessary for the qualification of the Incentive Stock +Options. +(v) Sections 5(e)-(j) hereof shall apply equally to all Stock +Appreciation Rights granted pursuant to this Plan, as if each reference +therein to a "Stock Option" was instead a reference to a "Stock +Appreciation Right." +B-8 +SECTION 7. OTHER STOCK-BASED AWARDS. +(a) ADMINISTRATION. Other Awards of Stock and other Awards that are valued +in whole or in part by reference to, or are otherwise based on, Stock ("Other +Stock-Based Awards"), including, without limitation, Restricted Stock, +Performance-Accelerated Restricted Stock, Performance Stock, Performance Units +and Stock Awards or options valued by reference to Book Value or Subsidiary +performance, may be granted either alone or in addition to or in tandem with +Stock Options or Stock Appreciation Rights granted under this Plan and/or cash +Awards made outside of this Plan. +Subject to the provisions of this Plan, the Committee shall have authority +to determine the persons to whom and the time or times at which such Awards +shall be made, the number of shares of Stock to be awarded pursuant to such +Awards, and all other conditions of the Awards. The Committee may also provide +for the grant of Stock upon the completion of a specified performance period or +event. +The Committee may designate whether any such Awards being granted to any +Participant are intended to be "performance-based compensation" as that term is +used in Section 162(m) of the Code. Any such Awards designated as intended to be +"performance-based compensation" shall be conditioned on the achievement of one +or more performance measures. The performance measures that may be used by the +Committee for such Awards shall be based on any one or more of the following, as +selected by the Committee: increase in stock price, return on capital or +increase in pretax earnings of the Company and/or one or more divisions and/or +subsidiaries, return on stockholders' equity of the Company, increase in +earnings per share of the Company, sales of the Company and/or one or more +divisions and/or subsidiaries, pretax earnings of the Company and/or one or more +divisions and/or subsidiaries, net earnings of the Company and/or one or more +divisions and/or subsidiaries, control of operating and/or non-operating +expenses of the Company and/or one or more divisions and/or subsidiaries, +margins of the Company and/or one or more divisions and/or subsidiaries, market +price of the Company's securities, and solely for an Award not intended to +constitute "performance-based compensation" under Section 162(m) of the Code, +other factors directly tied to the performance of the Company and/or one or more +divisions and/or subsidiaries or other performance criteria. For Awards intended +to be "performance-based compensation," the grant of the Awards and the +establishment of the performance measures shall be made during the period +required under Code Section 162(m). +The provisions of Other Stock-Based Awards need not be the same with +respect to each recipient. +(b) TERMS AND CONDITIONS. Other Stock-Based Awards made pursuant to this +Section 7 shall be subject to the following terms and conditions: +(i) Subject to the provisions of this Plan and the Award agreement +referred to in Section 7(b)(v) below, Other Stock-Based Awards and shares +subject to such Awards made under this Section 7 may not be sold, assigned, +transferred, pledged or otherwise encumbered, in the case of shares of +Stock, prior to the date on which the shares are issued, or, if later, the +date on which any applicable restriction, performance or deferral period +lapses, and in all other cases, not at all. +(ii) Subject to the provisions of this Plan and the Award agreement +and unless otherwise determined by the Committee at grant, the recipient of +an Award under this Section 7 shall be entitled to receive, currently or on +a deferred basis, as determined by the Committee, interest or dividends or +interest or dividend equivalents with respect to the number of shares +covered by the Award, as determined at the time of the Award by the +Committee, in its sole discretion, and the Committee may provide that such +amounts (if any) shall be deemed to have been reinvested in additional +Stock or otherwise reinvested. +(iii) Any Award under this Section 7 and any Stock covered by any such +Award shall vest or be forfeited to the extent so provided in the Award +agreement, as determined by the Committee, in its sole discretion, at or +after grant. +(iv) In the event of the Participant's Retirement, Disability or +death, and in other instances, the Committee may, in its sole discretion, +waive in whole or in part any or all of the remaining limitations, +performance requirements or restrictions imposed (if any) with respect to +any or all of an Award under this Section 7 and/or accelerate the payment +of cash or Stock pursuant to any such Award. +B-9 +(v) Each Award under this Section 7 shall be confirmed by, and +subject to the terms of, an agreement or other instrument executed by the +Company and by the Participant. +(vi) Stock (including securities convertible into Stock) issued on a +bonus basis under this Section 7 may be issued for no cash consideration. +(vii) Unless otherwise determined by the Committee at or after grant, +if a Participant's employment by the Company and/or any Subsidiary or +Affiliate terminates by reason of death or Disability, a pro rata portion +of the restrictions pertaining to continued employment on any Restricted +Stock will lapse, based on the number of full months the Participant was +employed during the restriction period divided by the total number of +months in the restriction period. All such pro rata Awards will be +determined and distributed at such time as Awards are paid to other Plan +Participants. +(viii) Unless otherwise determined by the Committee at or after grant, +if a Participant's employment by the Company and/or any Subsidiary or +Affiliate terminates by reason of Normal Retirement, all of the +restrictions pertaining to continued employment on any Restricted Stock +will lapse. Any such award will be determined and distributed at such time +as awards are paid to other Plan Participants. +(ix) Unless otherwise determined by the Committee at or after grant, +if a Participant's employment by the Company and/or any Subsidiary or +Affiliate terminates by reason of death or Disability, the estate of the +Participant or the Participant, as applicable, will receive a pro rata +portion of the payment or Stock the Participant would have received for +Performance Stock or Performance Units, based on the number of full months +in the performance period prior to the Participant's death or Disability, +divided by the total number of months in the performance period. All such +pro rata payments will be determined and distributed at such time as Awards +are paid to other Plan Participants. +(x) Unless otherwise determined by the Committee at or after grant, +if a Participant's employment by the Company and/or any Subsidiary or +Affiliate terminates by reason of Early Retirement and if such Early +Retirement occurs before age 65 and before completion of 10 years of +service with the Company and/or a Subsidiary or Affiliate subsequent to the +date of grant of Restricted Stock or Performance-Accelerated Restricted +Stock, all such Restricted Stock and Performance-Accelerated Restricted +Stock will be forfeited by the Participant. In addition, in the event of +Normal or Early Retirement before the end of the performance period for +Performance Stock or Performance Units, no Awards will be paid unless +specifically approved by the Committee on a case-by-case basis. +(xi) Unless otherwise determined by the Committee (or pursuant to +procedures established by the Committee) at or after grant, if a +Participant's employment by the Company and/or any Subsidiary or Affiliate +terminates for any reason other than death, Disability or Normal or Early +Retirement, as in the case of voluntary resignation of employment by the +Participant, all Other Stock-Based Awards shall be immediately forfeited. +(xii) The Committee may at any time offer to buy out for a payment in +cash or Stock an Other Stock-Based Award previously granted, based on such +terms and conditions as the Committee shall establish and communicate to +the Participant at the time that such offer is made. +(xiii) Except as set forth in this Plan, Participants shall have no +rights by reason of any subdivision or consolidation of shares of stock of +any class or the payment of any stock dividend or any other increase or +decrease in the number of shares of stock of any class or by reason of any +dissolution, liquidation, merger, or consolidation or spin-off of stock of +another corporation, and no issue by the Company of shares of stock of any +class shall affect, and no adjustment by reason thereof shall be made with +respect to, the number or price of shares subject to any Other Stock-Based +Award. The grant of any Other Stock-Based Award pursuant to this Plan shall +not affect in any way the right or power of the Company to make +adjustments, reclassifications, reorganizations or changes of its capital +or business structure or to merge or to consolidate or to dissolve, +liquidate or sell, or to transfer all or any part of its business or +assets. +B-10 +SECTION 8. AMENDMENTS AND TERMINATION. +The Board may amend, alter, or discontinue this Plan, but, except as +otherwise provided herein, no amendment, alteration, or discontinuation shall be +made which would impair the rights of a Participant under a Stock Option, Stock +Appreciation Right or Other Stock-Based Award theretofore granted, without the +Participant's consent, or which, without the approval of the Company's +stockholders, would: +(i) increase the number of shares that may be issued under the Plan +(except by certain adjustments provided for under the Plan); +(ii) change the class of persons eligible to receive ISOs under the +Plan; +(iii) change the requirements of Section 5 hereof regarding the +Exercise Price; +(iv) amend the Plan in a manner that would require approval of the +Company's shareholders under applicable law, regulation or rule. +Notwithstanding any of the foregoing, adjustments pursuant to Section 3, +paragraphs (d) or (f) shall not be subject to the foregoing limitations of this +Section 8. +Options may not be granted under the Plan after the date of termination of +the Plan, but Options granted prior to that date shall continue to be +exercisable according to their terms. +Subject to the above provisions, the Board shall have broad authority to +amend this Plan to take into account changes in applicable securities and tax +laws and accounting rules, as well as other developments. +SECTION 9. UNFUNDED STATUS OF PLAN. +This Plan is intended to constitute an "unfunded" plan. With respect to any +payments not yet made to a Participant by the Company, nothing contained herein +shall give any such Participant any rights that are greater than those of a +general creditor of the Company. In its sole discretion, the Committee may +authorize the creation of trusts or other arrangements to meet the obligations +created under this Plan to deliver Stock or payments in lieu of or with respect +to Awards hereunder; provided, however, that, unless the Committee otherwise +determines with the consent of the affected Participant, the existence of such +trusts or other arrangements is consistent with the "unfunded" status of this +Plan. +SECTION 10. GENERAL PROVISIONS. +(a) The Company shall not be obligated to sell or issue any shares pursuant +to any Option unless the shares with respect to which the Option is being +exercised are at the time effectively registered or exempt from registration +under the Securities Act of 1933, as amended (the "1933 Act"). The Company shall +have no obligation to register pursuant to the 1933 Act any shares of Stock +issued pursuant to this Plan. The Committee may require each person purchasing +shares pursuant to a Stock Option or other award under this Plan to represent to +and agree with the Company in writing that the optionee or Participant is +acquiring the shares for investment and without a view to distribution thereof. +The certificates for such shares may include any legend which the Committee +deems appropriate to reflect any restrictions on transfer. +All certificates for shares of Stock or other securities delivered under +this Plan shall be subject to such conditions, stop-transfer orders and other +restrictions as the Committee may deem advisable under the rules, regulations, +and other requirements of the Securities and Exchange Commission, any stock +exchange upon which the Stock is then listed, and any applicable federal or +state securities law, and the Committee may cause a legend or legends to be put +on any such certificates to make appropriate reference to such restrictions. +(b) Nothing contained in this Plan shall prevent the Board from adopting +other or additional compensation arrangements, subject to stockholder approval +if much approval is required, and such arrangements may be either generally +applicable or applicable only in specific cases. +B-11 +(c) The adoption of this Plan shall not confer upon any employee of the +Company or of any Subsidiary or Affiliate any right to continued employment with +the Company or a Subsidiary or Affiliate, as the case may be, nor shall it +interfere in any way with the right of the Company or a Subsidiary or Affiliate +to terminate the employment of any of its employees at any time. +(d) No later than the date as of which an amount first becomes includable +in the gross income of the Participant for federal income tax purposes with +respect to the exercise of any Option or Stock Appreciation Right or any award +under this Plan, the Participant shall pay to the Company, or make arrangements +satisfactory to the Committee regarding the payment of, any federal, state, or +local taxes of any kind required by law to be withheld with respect to such +amount. The obligations of the Company under this Plan shall be conditional on +such payment or arrangements, and the Company and its Subsidiaries or Affiliates +shall, to the extent permitted by law, have the right to deduct any such taxes +from any payment of any kind otherwise due to the Participant. +(e) The actual or deemed reinvestment of dividends or dividend equivalents +in additional types of Plan Awards at the time of any dividend payment shall +only be permissible if sufficient shares of Stock are available under Section 3 +for such reinvestment, taking into account other Plan Awards then outstanding. +(f) This Plan and all Awards made and actions taken hereunder shall be +governed by and construed in accordance with the Delaware General Corporation +Law, to the extent applicable, and in accordance with the laws of the State of +Georgia in all other respects. +(g) The value of Awards made pursuant to this Plan shall not be included as +part of the definition of "cash compensation" in connection with any other +benefit offered by the Company. +(h) An Award under the Plan shall be subject to such terms and conditions, +not inconsistent with the Plan, as the Committee shall, in its sole discretion, +prescribe. The terms and conditions of any Award to any Participant shall be +reflected in such form of written document as is determined by the Committee. A +copy of such document shall be provided to the Participant, and the Committee +may, but need not, require that the Participant shall sign a copy of such +document. Such document is referred to in the Plan as an "Award Agreement" +regardless of whether any Participant signature is required. +SECTION 11. EFFECTIVE DATE OF PLAN. +This Plan shall be effective as the date of its approval by the +stockholders of the Company (the "Effective Date"). +SECTION 12. TERM OF PLAN. +No Stock Option, Stock Appreciation Right or Other Stock-Based Award shall +be granted pursuant to this Plan on or after the tenth anniversary of the +Effective Date of this Plan, but Awards granted prior to such tenth anniversary +may extend beyond that date. +B-12 +RPC, INC. +PROXY SOLICITED BY THE BOARD OF DIRECTORS OF RPC, INC. +FOR ANNUAL MEETING OF STOCKHOLDERS ON TUESDAY, APRIL 27, 2004, 1:10 P.M. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and +each of them, jointly and severally, proxies, with full power of substitution, to vote all shares +of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders +to be held on April 27, 2004, at 1:10 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any +adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy +Statement, each dated March 22, 2004, grants authority to said proxies, or either of them, or +their substitutes, to act in the absence of others, with all the powers which the undersigned +would possess if personally present at such meeting and hereby ratifies and confirms all that +said proxies or their substitutes may lawfully do in the undersigned's name, place and stead. The +undersigned instructs said proxies, or either of them, to vote as follows: +1. |_| FOR WILTON LOONEY, GARY W. ROLLINS |_| ABSTAIN FROM VOTING FOR THE +AND JAMES A. LANE, JR., AS CLASS III DIRECTORS ELECTION OF ALL CLASS III NOMINEES +EXCEPT AS INDICATED BELOW +INSTRUCTIONS: TO REFRAIN FROM VOTING FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME +IN THE SPACE PROVIDED BELOW: +------------------------------------------------------------------------------------------------ +2. TO APPROVE THE PROPOSED 2004 STOCK INCENTIVE PLAN +|_| FOR |_| AGAINST |_| ABSTAIN +3. ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +OVER +RPC, INC. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH +YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED "FOR" THE ABOVE-NAMED +NOMINEES FOR DIRECTOR AND FOR APPROVAL OF THE STOCK INCENTIVE PLAN. THIS PROXY +IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please sign below, date and return promptly. +____________________________________________ +____________________________________________ +Signature(s) +Dated:________________________________, 2004 +(Signature should conform to name and title +stenciled hereon. Executors, administrators, +trustees, guardians and attorneys should add +their title upon signing.) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND +MAILED IN THE UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-04-000397/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-04-000397/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2c5119d5f12459933ea645c1a17057ec811f9a78 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-04-000397/proxy_rpt.txt @@ -0,0 +1,28 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective February 28, 2001, the Company began providing certain +administrative services to Marine Products. The service agreements between +Marine Products and the Company provide for the provision of services on a cost +reimbursement basis and may be terminated upon six months notice. The services +covered by these agreements include administration of certain employee benefit +programs and other administrative services. Charges from the Company (or from +corporations which are subsidiaries of the Company) for such services aggregated +approximately $496,000 in 2003. During 2003, a division of RPC conducted +business with Chaparral Boats, Inc. ("Chaparral"), a subsidiary of Marine +Products. The Company recorded $171,000 in revenues from Chaparral related to +the sale, installation and service of overhead cranes. +During 2003, a subsidiary of RPC conducted business with companies owned by +LOR, Inc. The officers, directors and stockholders of LOR, Inc. include Mr. +Randall Rollins, Chairman, and Mr. Gary W. Rollins, +10 +Director. In 2003, payments totaling approximately $871,000 were made to these +LOR, Inc. companies for the purchase of parts and repair services related to +certain of RPC's oilfield operating equipment. RPC believes the charges incurred +by its subsidiary are at least as favorable as the charges that would have been +incurred for similar services from unaffiliated third parties. +RPC sponsors a multiple employer benefit plan that includes Marine +Products. Following the spin-off, RPC charged Marine Products for, and Marine +Products has been obligated to pay, its allocable share of pension costs and the +associated funding obligation related to the prior service liabilities of +Chaparral employees. Effective December 2003, the related prior service +liabilities totaling $3,314,000 and pension assets totaling $2,517,000 were +transferred within the multiple employer plan from RPC to Marine Products. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-06-000950/proxy.txt b/raw/proxies/0000742278/0001188112-06-000950/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3d3c34ac7dc2b6249add2972da3dbce40bcb72b5 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-06-000950/proxy.txt @@ -0,0 +1,2911 @@ +DEF 14A +1 +t9634_def14a.htm +NOTICE AND PROXY STATEMENT +Notice and Proxy Statement +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE +14A +Proxy +Statement Pursuant to Section 14(a) of the +Securities +Exchange Act of 1934 +Filed +by +the Registrant x +Filed +by +a Party other than the Registrant o +Check +the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +Use of the +x +Definitive +Proxy Statement +Commission +Only (as permitted by +o +Definitive +Additional Materials +Rule +14a-6(e)(2) +o +Soliciting +Material Pursuant to (§)240.14a-11(c) or (§)240.14a-12 +RPC, +INC. +(Name +of Registrant as Specified In Its +Charter) +N/A +(Name +of Person(s) Filing Proxy Statement if other than the +Registrant) +Payment +of Filing Fee (Check the appropriate box): +x +No +fee required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) +Title +of each class of securities to which transaction +applies: +2) +Aggregate +number of securities to which transaction +applies: +3) +Per +unit price or other underlying value of transaction computed +pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing +fee is +calculated and state how it was +determined): +4) +Proposed +maximum aggregate value of +transaction: +5) +Total +fee paid: +o +Fee +paid previously with preliminary +materials. +o +Check +box if any part of the fee is offset as provided by Exchange +Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee +was paid +previously. Identify the previous filing by registration statement +number, +or the Form or Schedule and the date of its +filing. +1) +Amount +Previously Paid: +2) +Form, +Schedule or Registration Statement +No.: +3) +Filing +Party: +4) +Date +Filed: +RPC, +INC. +NOTICE +OF ANNUAL MEETING OF STOCKHOLDERS +2170 +Piedmont Road, NE, Atlanta, Georgia 30324 +TO +THE +HOLDERS OF THE COMMON STOCK: +PLEASE +TAKE NOTICE +that the +2006 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” +or the “Company”), will be held at the Company's offices located at 2170 +Piedmont Road, NE, Atlanta, Georgia, on Tuesday, April 25, 2006, at 12:15 P.M., +or any adjournment thereof, for the following purposes: +1. +To +elect three Class II directors to the Board of Directors; +2. +To +amend the Certificate of Incorporation of the Company to +increase the +number of authorized shares of capital stock to 160,000,000 +shares; +3. +To +approve the performance-based incentive cash compensation plan for +the +executive officers; and +4. +To +transact such other business as may properly come before the meeting +or +any adjournment thereof. +The +Proxy +Statement dated April 4, 2006 is attached. +The +Board +of Directors has fixed the close of business on March 17, 2006 as the record +date for the determination of stockholders entitled to notice of, and to vote +at, the meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, +sign +and return the enclosed proxy. No postage is required if the enclosed envelope +is mailed in the United States. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +April +4, +2006 +PROXY +STATEMENT +This +Proxy Statement and a form of proxy were first mailed to stockholders on or +about April 4, 2006. The following information concerning the enclosed proxy +and +the matters to be acted upon at the Annual Meeting of the Stockholders to be +held on April 25, 2006, is submitted by the Company to the stockholders in +connection with the solicitation of proxies on behalf of the Company’s Board of +Directors. +SOLICITATION +OF AND POWER TO REVOKE PROXY +A +form of +proxy is enclosed. Each proxy submitted will be voted as directed, but if not +otherwise specified, proxies solicited by the Board of Directors of the Company +will be voted in favor of the candidates for election to the Board of Directors, +in favor of the proposal to amend the Certificate of Incorporation to increase +the number of authorized shares of capital stock to 160,000,000 and +in +favor of the proposal to approve +the performance-based incentive cash compensation plan for the Company’s +executive officers. +A +stockholder executing and delivering a proxy has power to revoke the same and +the authority thereby given at any time prior to the exercise of such authority, +if he so elects, by contacting either proxy holder or by attending the meeting +and voting in person. However, a beneficial stockholder who holds his shares +in +street name must secure a proxy from his broker before he can attend the meeting +and vote. +CAPITAL +STOCK +The +outstanding capital stock of the Company on March 17, 2006 consisted of +64,781,345 shares of Common Stock, par value $0.10 per share. Holders of Common +Stock are entitled to one vote (non-cumulative) for each share of such stock +registered in their respective names at the close of business on March 17, +2006, +the record date for determining stockholders entitled to notice of, and to +vote +at, the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual +Meeting. Abstentions will be counted for purposes of determining the presence +or +absence of a quorum for the transaction of business. In accordance with the +General Corporation Law of the state of Delaware, the election of the nominees +named herein as Directors will require the affirmative vote of a plurality +of +the votes cast by the shares of Company Common Stock entitled to vote in the +election provided that a quorum is present at the Annual Meeting. In the case +of +a plurality vote requirement (as in the election of directors), where no +particular percentage vote is required, the outcome is solely a matter of +comparing the number of votes cast for each nominee, with those nominees +receiving the most votes being elected, and hence only votes for director +nominees (and not abstentions) are relevant to the outcome. In +this +case, the three nominees receiving the most votes will be elected. The +affirmative vote of holders of a majority of the outstanding shares of Common +Stock of the Company is required for approval to amend the Certificate of +Incorporation to increase the number of authorized shares of capital stock +to +160,000,000. With respect to the proposal to approve the amendment to the +Company’s Certificate of Incorporation, abstentions and broker non-votes will +have the effect of a vote against the proposal. +With respect to the proposal to approve the performance-based incentive cash +compensation plan, the majority of a quorum of the Company’s outstanding shares +of Common Stock present and entitled to vote at the meeting is required by +Delaware law for stockholder approval. Abstentions will have the effect of +a +vote against this proposal and broker non-votes will be disregarded and have +no +effect on the outcome of this proposal. +There are no rights of appraisal or similar dissenter's rights with respect +to +any matter to be acted upon pursuant to this Proxy Statement. It +is +expected that shares held of record by officers and directors of the Company, +which in the aggregate represent approximately 66.7 percent of the outstanding +shares of Common Stock, will be voted for the nominees for directors, in favor +of the proposal to increase the number of authorized shares to 160,000,000 +and in +favor of the proposal to approve +the performance-based incentive cash compensation plan for the Company’s +executive officers. +The +executives named in the Summary Compensation Table, and the name and address +of +each stockholder (or “group” as that term is used in Section 13(d)(3) of the +Exchange Act) who owned beneficially five percent (5%) or more of the shares +of +Common Stock of the Company on March 17, 2006, together with the number of +shares owned by each such person and the percentage of outstanding shares that +ownership represents, and information as to Common Stock ownership of the +directors and executive officers of the Company as a group (according to +information received by the Company), are set out below: +Name +and Address of Beneficial Owner +Amount +Beneficially Owned (1) +Percent +of Outstanding Shares +R. +Randall Rollins +Chairman +of the Board +2170 +Piedmont Road, NE +Atlanta, +Georgia +39,779,983 +(2) +60.8 +Gary +W. Rollins +President +and Chief Executive Officer, Rollins, Inc. +2170 +Piedmont Road, NE +Atlanta, +Georgia +40,297,125 +(3) +61.6 +Richard +A. Hubbell +President +and Chief Executive Officer +2170 +Piedmont Road, NE +Atlanta, +Georgia +969,522 +(4) +1.5 +Linda +H. Graham +Vice +President and Secretary +2170 +Piedmont Road, NE +Atlanta, +Georgia +231,309(5) +** +Ben +M. Palmer +Vice +President, Chief Financial Officer and Treasurer +2170 +Piedmont Road, NE +Atlanta, +Georgia +237,043 +(6) +** +All +Directors and Executive Officers as a group +( 10 +persons) +82,541,607 +(7) +67.1 +__________________________________ +** +Less than one percent +(1) +Except +as otherwise noted, the nature of the beneficial ownership for all +shares +is sole voting and investment power. +(2) +Includes +4,860 shares of Company Common Stock held as Trustee, Guardian, or +Custodian for his children. Also includes 182,160 shares of Company +Common +Stock in two trusts of which he is Co-Trustee and as to which he +shares +voting and investment power. Also includes 38,358,657 shares of the +Company Common Stock held by RFPS Management Company II, L.P. of +which RFA +Management Company, LLC ("General Partner"), a Georgia limited +liability company, is +the general partner. The voting interests of the General Partner +are held +by two revocable trusts, one of which each of Gary W. Rollins +or R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is +the manager of the General Partner. R. Randall Rollins and Gary +W. Rollins have voting control of LOR, Inc. Included +herein are options to purchase 180,000 shares of Company Common Stock +which are currently exercisable or will become exercisable within +60 days +of March 17, 2006, and 65,000 shares of restricted stock awards for +Company Common Stock. This excludes options to purchase 45,000 shares +of +Company Common Stock that are not currently exercisable and will +not +become exercisable within 60 days of March 17, 2006. This also includes +66,587 shares of Company Common Stock held by his wife, as to which +Mr. +Rollins disclaims any beneficial interest. Mr. +Rollins is part of a control group holding Company securities that +includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file +with +the U.S. Securities and Exchange Commission. +(3) +Includes +182,160 shares of Company Common Stock in two trusts of which he +is +Co-Trustee and as to which he shares voting and investment power. +Also +includes 101,916 shares of Company Common Stock held as Trustee, +Guardian +or Custodian for his children. Also +includes 38,358,657 shares of Company Common Stock held by RFPS Management +Company II, L.P. of which RFA Management Company, LLC ("General Partner"), +a Georgia limited +liability company, is +the general partner. The voting interests of the General Partner +are held +by two revocable trusts, one of which each of Gary or Randall Rollins +is +the grantor and sole +2 +trustee. +LOR, Inc. is the manager of the General Partner. R. Randall Rollins +and Gary W. Rollins have voting control of LOR, Inc. This also includes +135,009 shares of Company Common Stock held by his wife, as to which Mr. +Rollins disclaims any beneficial interest. Mr. +Rollins is part of a control group holding Company securities that includes +Mr. +Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities +and Exchange Commission. +(4) +Includes +381,210 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +17, 2006, and 151,653 shares of restricted stock awards for Company +Common +Stock. +(5) +Includes +43,474 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +17, 2006, and 42,362 shares of restricted stock awards for Company +Common +Stock. +(6) +Includes +74,028 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +17, 2006, and 119,610 shares of restricted stock awards for Company +Common +Stock. +(7) +Shares +held in trusts as to which more than one officer and/or director +are +Co-Trustees or entities in which there is common ownership have been +included only once. Includes an aggregate of 678,713 shares of Company +Common Stock that may be purchased by four executive officers upon +exercise of options that are currently exercisable or that become +exercisable within 60 days of March 17, 2006, and 378,626 shares +of +restricted stock awards for Company Common Stock earned by them pursuant +to the Company's 1994 Employee Stock Incentive Plan and 2004 Stock +Incentive Plan. +ELECTION +OF DIRECTORS +At +the +Annual Meeting, Mr. Richard A. Hubbell, Ms. Linda H. Graham, and Mr. Bill J. +Dismuke will be nominated to serve as Class II directors. The directors in +each +class serve for a term of three years. The director nominees will serve in +their +respective class until their successors are elected and qualified. Six +other +individuals serve as directors but are not standing for re-election because +their terms as directors extend past this Annual Meeting pursuant to provisions +of the Company's By-laws that provide for the election of directors for +staggered terms, with each director serving a term of three years. Unless +authority is withheld, the proxyholders will vote for the election of each +nominee named below. Although +management does not contemplate the possibility, in the event any nominee is +not +a candidate or is unable to serve as a director at the time of the election, +unless authority is withheld, the proxies will be voted for any nominee who +shall be designated by the present Board of Directors and recommended by the +Nominating and Governance Committee, to fill such vacancy. +The +name +and age of the director nominees, their principal occupations, together with +the +number of shares of Common Stock beneficially owned, directly or indirectly, +by +each and the percentage of outstanding shares that ownership represents, all +as +of the close of business on March 17, 2006 (according to information received +by +the Company) are set out below. Similar information is also provided for those +directors whose terms expire in future years. +Names +of Directors +Principal +Occupation (1) +Service +as +Director +Age +Shares +of +Common +Stock (2) +Percent +of +Outstanding +Shares +Names +of Director Nominees +Class +II (Current Term Expires 2006, New Term Will Expire +2009) +Richard +A. Hubbell +President +and Chief Executive Officer of the Company since April 2003; President +and +Chief Operating Officer of the Company prior to April 2003; President +and +Chief Executive Officer of Marine Products Corporation (boat +manufacturing) since February 2001. +1987 +to date +61 +969,522 +(3) +1.5 +3 +Linda +H. Graham +Vice +President and Secretary of the Company since 1987; Vice President +and +Secretary of Marine Products Corporation (boat manufacturing) since +February 2001. +2001 +to date +69 +231,309 +(4) +** +Bill +J. Dismuke +Retired +President of Edwards Baking Company. +January +25, 2005 to date +69 +2,250 +** +Names +of Directors Whose Terms Have Not Expired +Class +III (Term Expires 2007) +Wilton +Looney +Honorary +Chairman of the Board, Genuine Parts Company (automotive parts +distributor). +1984 +to date +86 +2,700 +** +Gary +W. Rollins (5) +President +and Chief Executive Officer of Rollins, Inc. (consumer services) +since +2001; President and Chief Operating Officer of Rollins, Inc. prior +to +2001. +1984 +to date +61 +40,297,125 +(6) +61.6 +James +A. Lane, Jr. +Executive +Vice President of Marine Products Corporation (boat +manufacturing) since February 2001 ; +President of Chaparral Boats, Inc. since 1976. +1987 +to date +62 +259,987 +** +Class +I (Term Expires 2008) +R. +Randall Rollins (5) +Chairman +of the Board of the Company since April 2003; Chairman of the Board +and +Chief Executive Officer of the Company prior to April 2003; Chairman +of +the Board of Marine Products Corporation (boat +manufacturing) since +February 2001; Chairman of the Board of Rollins, Inc. (consumer services) +since October 1991. +1984 +to date +74 +39,779,983 +(7) +60.8 +4 +Henry +B. Tippie +Presiding +Director of the Company; Chairman of the Board and Chief Executive +Officer +of Tippie Services, Inc. (management services); Chairman of the Board +of +Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose +gaming and entertainment complex) since January 2003; Chairman of +the +Board of Dover Motorsports, Inc. (operator of motorsports tracks) +since +April 2000 and Vice Chairman prior to April 2000. +1984 +to date +79 +605,835 +(8) +** +James +B. Williams +Chairman +of the Executive Committee, SunTrust Banks, Inc. (bank holding company) +from 1998 +to +April 2004 ; +Chairman +of the Board and Chief Executive Officer of SunTrust Banks, Inc. +from 1991 +to 1998. +1984 +to date +73 +90,000 +** +_____________________ +** +less +than one percent +(1) +Unless +otherwise noted, each of the directors has held the positions of +responsibility set out in this column (but not necessarily his or +her +present title) for more than five years. In addition to the directorships +listed in this column, the following individuals also serve on the +Boards +of Directors of the following companies: James B. Williams: The Coca-Cola +Company and Genuine Parts Company; R. Randall Rollins: Dover Downs +Gaming +and Entertainment, Inc. and Dover Motorsports, Inc.; Gary W. Rollins: +Genuine Parts Company and Emory University. All of the directors +shown in the above table are also directors of Marine Products Corporation +(“Marine Products” or “MPC”) and with the exception of Messrs. Hubbell and +Lane and Ms. Graham are also directors of Rollins, +Inc. +(2) +Except +as otherwise noted, the nature of the beneficial ownership for all +shares +is sole voting and investment +power. +(3) +See +information contained in footnote (4) to the table appearing in Capital +Stock section. +(4) +See +information contained in footnote (5) to the table appearing in Capital +Stock section. +(5) +R. +Randall Rollins and Gary W. Rollins are brothers. +(6) +See +information contained in footnote (3) to the table appearing in Capital +Stock section. +(7) +See +information contained in footnote (2) to the table appearing in Capital +Stock section. +(8) +Includes +42,660 shares held in trusts of which he is a Trustee or Co-Trustee +and as +to which he shares voting and investment power, with respect to which +he +disclaims beneficial interest. Also includes shares held by a wholly +owned +corporation that owns 675 shares. +5 +CORPORATE +GOVERNANCE AND BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND +MEETINGS +Board +Meetings and Compensation +Under +current compensation arrangements, non-employee directors each receive an annual +retainer fee of $16,000. In addition, the Chairman of the Audit Committee +receives an annual retainer of $12,000 and the Chairman of each of the +Compensation Committee, Nominating and Governance Committee and Diversity +Committee receives an annual retainer of $4,000. A director that chairs more +than one committee receives a retainer with respect to each committee he chairs. +All of the retainers are paid on a quarterly basis. Per meeting fees for +non-employee directors are as follows: +· +For +meetings of the Board of Directors, Compensation Committee, Nominating +and +Governance Committee and Diversity Committee, $1,000. +· +For +meetings of the Audit Committee, $2,000. In addition, the Chairman +of the +Audit Committee receives an additional $1,000 for preparing to conduct +each quarterly Audit Committee meeting. +All +non-employee directors are also entitled to reimbursement of expenses for all +services as a director, including committee participation or special +assignments. +The +Board +of Directors met four times during the fiscal year ended December 31, 2005. +No +director attended fewer than 75 percent of the aggregate of all Board meetings +and meetings of committees on which he or she served during 2005. Board members +are encouraged to attend the Company’s Annual Stockholder Meetings and all Board +members were in attendance at last year's meeting. +The +Board +of Directors has the following standing committees: Audit Committee, +Compensation Committee, Executive Committee, Diversity Committee and Nominating +and Governance Committee. +Audit +Committee +The +Audit +Committee of the Board of Directors of the Company consists of Henry B. Tippie +(Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit +Committee held five meetings during the fiscal year ended December 31, 2005. +The +Board of Directors has determined that all of the Audit Committee members are +independent as that term is defined by the rules of the Securities and Exchange +Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of +Directors has also determined that all of the Audit Committee members are “Audit +Committee Financial Experts” as defined in the SEC rules. The Audit Committee +meets with the Company’s independent registered public accountants, internal +auditor, Chief Executive Officer and Chief Financial Officer to review the +scope +and results of audits and recommendations made with respect to internal and +external accounting controls and specific accounting and financial reporting +issues. The Audit Committee has the authority to obtain advice and assistance +from, and receive appropriate funding from the Company for, outside legal, +accounting or other advisors as it deems necessary to carry out its duties. +The +Audit Committee Charter is included herein as Appendix A and is also available +on the Company’s website at www.rpc.net +under +the Governance section. A +written +copy of the charter can be obtained free of charge by writing to The Secretary, +RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Compensation +Committee +The +Compensation Committee of the Board of Directors of the Company consists of +Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one +meeting during the fiscal year ended December 31, 2005. The function of the +Compensation Committee is to set the base salary and cash based incentive +compensation of all of the executive officers. The Compensation Committee also +administers the RPC, Inc. Stock Incentive Plans. +6 +Executive +Committee +The +Executive Committee of the Board of Directors of the Company consists of R. +Randall Rollins and Gary W. Rollins. It held no meetings during the fiscal +year +ended December 31, 2005. However, it took action eight times by unanimous +consent. The function of the Executive Committee is to take all permitted +actions of the Board in its stead as permitted by the Company’s By-laws and +Delaware law. The members of the Executive Committee do not receive any +additional compensation for their duties on this committee. +Diversity +Committee +The +Diversity Committee of the Board of Directors of the Company consists of Henry +B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting +during the fiscal year ended December 31, 2005. The function of the Diversity +Committee is to monitor compliance with applicable non-discrimination +laws. +Nominating +and Governance Committee +The +Nominating and Governance Committee of the Board of Directors of the Company +consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, +each of whom is independent, as discussed more fully under “Director +Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant +to a resolution passed by the Board of Directors for the following purposes: +· +to +recommend to the Board of Directors nominees for director and to +consider +any nominations properly made by a +stockholder; +· +upon +request of the Board of Directors, to review and report to the Board +with +regard to matters of corporate governance; +and +· +to +make recommendations to the Board of Directors regarding the agenda +for +Annual Stockholders’ Meetings and with respect to appropriate action to be +taken in response to any stockholder +proposals. +The +Nominating and Governance Committee held one meeting during the fiscal year +ended December 31, 2005. +Director +Nominations +Under +Delaware law, there are no statutory criteria or qualifications for directors. +No criteria or qualifications have been prescribed by the Board at this time. +The Nominating and Governance Committee does not have a charter or a formal +policy with regard to the consideration of director candidates. H owever, +it acts under the guidance of the corporate governance guidelines approved +by +the Board of Directors and posted on the Company’s website at www.rpc.net +under +the Governance section . +A +written copy of the Corporate Governance Guidelines can be obtained free of +charge by writing to the Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, +Georgia 30324. The Board believes that it should preserve maximum flexibility +in +order to select directors with sound judgment and other desirable qualities. +According to the Company’s corporate governance guidelines, the Board of +Directors will be responsible for selecting nominees for election to the Board +of Directors. The Board delegates the screening process to the Nominating and +Governance Committee. This Committee is responsible for determining the +appropriate skills and characteristics required of Board members in the context +of the then current make-up of the Board. This determination takes into account +all factors which the Committee considers appropriate, such as independence, +experience, strength of character, mature judgment, technical skills, diversity, +age and the extent to which the individual would fill a present need on the +Board. The Company’s By-laws provide that nominations for the election of +directors may be made by any stockholder entitled to vote for the election +of +directors. Nominations must comply with an advance notice procedure which +generally requires, with respect to nominations for directors for election +at an +annual meeting, that written notice be addressed to: Secretary, RPC, Inc., +2170 +Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior +to +the anniversary of the prior year's annual meeting and set forth the name, +age, +business address and, if known, residence address of the nominee proposed in +the +notice, the principal occupation or employment of the nominee for the past +five +years, the class or series and number of shares of capital stock of the Company +which are owned beneficially or of record by the person and any other +information relating to the person +7 +that +would be required to be disclosed in a proxy statement or other +filings. +Other +requirements related to the notice are contained in the Company’s By-laws. The +Committee will consider nominations from stockholders who satisfy these +requirements. The Committee is responsible for screening the nominees that +are +selected by the Board of Directors for nomination to the Board and for service +on committees of the Board. To date, the +Company +has not received a recommendation for a director nominee from a stockholder. +All +of the nominees for directors being voted upon at the Annual Meeting to be +held +on April 25, 2006 are directors standing for re-election. +Director +Communications +The +Company also has a process for interested parties, including stockholders, +to +send communications to the Board of Directors, Presiding Director, any of the +Board Committees or the non-management directors as a group. Such communications +should be addressed as follows: +Mr. +Henry +B. Tippie +c/o +Internal Audit Department +RPC, +Inc. +2170 +Piedmont Road NE +Atlanta, +Georgia 30324 +Instructions +for communications with the directors are posted on our website at www.rpc.net +under +the Governance section. All communications received from interested parties +are +forwarded to the Board of Directors. Any communication addressed solely to +the +Presiding Director or the non-management directors will be forwarded directly +to +the appropriate addressee(s). +Director +Independence and NYSE Requirements +Controlled +Company Exemption +The +Company is not required by law or NYSE listing requirements to have a Nominating +or +Compensation Committee composed of independent directors , +nor to +have +a +Board of Directors, the majority of which are independent . +Because +the Company is +a +“controlled corporation ,” +as +defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, +303A.04 and 303A.05 and does not undertake compliance with those +provisions . +The +Company is a “controlled corporation” because a group that includes the +Company’s Chairman of the Board R. Randall Rollins, his brother Gary W. Rollins +who is also a director and +certain companies under their control, possesses +in +excess of fifty percent of the Company’s voting power. +The +Company’s Audit Committee is composed of four “independent” directors as defined +by the Company’s Corporate Governance Guidelines, the New York Stock Exchange +rules , +the +Securities Exchange Act of 1934, SEC regulations thereunder, and the Company’s +Audit Committee Charter. All of the members of the Compensation and Nominating +and Governance Committees are also independent directors. +The +independent directors of the Company are Henry B. Tippie, Wilton Looney, Bill +J. +Dismuke and James B. Williams. +Independence +Guidelines +Under +New +York Stock Exchange listing standards, to be considered independent, a director +must be determined to have no material relationship with the Company other +than +as a director. The +New +York Stock Exchange standards set forth a nonexclusive list of relationships +which are conclusively deemed material. +The +Company's Independence Guidelines (Appendix A to the Company’s Corporate +Governance Guidelines) provide that to be independent, a director must not +have +any relationship that would be considered material under New York Stock Exchange +standards. In addition, the Company’s Guidelines provide that, except in special +circumstances as determined by a majority of the Board, the following +relationships are not material: +8 +(i) +If +the director, or a member of the director’s immediate family, has received +less than one hundred thousand dollars (US $100,000) in direct +compensation from the Company (other than director and committee +fees and +compensation for prior service which are not contingent in any way +on +continued services) during every 12 month period within the past +three (3) +years; +(ii) +If +the director is a director or officer, or any member of the director’s +immediate family is a director or officer of a bank to which the +Company +is indebted, and the total amount of the indebtedness does not exceed +one +percent (1%) of the total assets of the bank for any of the past +three (3) +years; +(iii) +If +the director or any member of the director’s immediate family serves as an +officer, director, trustee or primary spokesperson of a charitable +or +educational organization, and donations by the Company do not exceed +the +greater of one million dollars (US $1,000,000) or two percent (2%) +of the +organization’s total annual charitable receipts for any of the past three +(3) years; +(iv) +If +the director has a relationship with the Company of a type covered +by item +404(a) and/or item 404(b) of the Securities and Exchange Commission’s +Regulation S-K (or any successor regulation), and that relationship +need +not, according to the terms of those items and any then-current proxy +regulations, be disclosed in the Company’s annual proxy statement (except +for relationships described elsewhere in the Company’s guidelines in which +case the other guidelines will +govern); +(v) +If +the director, or a member of the director’s immediate family, has direct +or beneficial ownership (as defined by Rule 13d-3 under the Securities +Exchange Act of 1934) of any amount of any class of common stock +of the +Company. +Audit +Committee Charter +Under +the +Company’s Audit Committee Charter, in accordance with New York Stock Exchange +listing requirements and the Securities Exchange Act of 1934, all members of +the +Audit Committee must be independent of management and the Company. A member +of +the Audit Committee is considered independent as long as he or she (i) +does +not +accept any consulting, advisory, or compensatory fee from the +Company , +other +than as a director or committee member ; +(ii) +is +not an +affiliated person of the Company or its subsidiaries ; +and +(iii) otherwise meets the independence requirements of the New York Stock +Exchange and +the +Company’s Corporate Governance Guidelines . +Nonmaterial +Relationships +After +reviewing all of +the +relationships between the members of the Audit Committee and the Company, the +Board of Directors determined that none of the members of the Audit Committee +had any relationships not included within the categorical standards set forth +in +the Independence Guidelines and +disclosed above +except +as follows: +1. +Mr. +Tippie was employed by Rollins, Inc. (“Rollins”) from 1953 to 1970, and +held several offices with that company during that time, including +as +Executive +Vice President - Finance, Secretary, Treasurer and Chief Financial +Officer . +Messrs. Randall and Gary Rollins are directors and executive officers +of +Rollins and are part of a group that has voting control of Rollins. +2. +Mr. +Tippie is Chairman of the Board of Directors of Dover Motorsports, +Inc. +and Dover Downs Gaming and Entertainment, Inc. Mr. Randall Rollins +is also +a director of these companies. +3. +Mr. +Tippie is the trustee of the O. Wayne Rollins Foundation and of the +Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and +Randall Rollins. The beneficiaries of the Rollins Children’s Trust include +the immediate family members of Gary and Randall Rollins. +4. +Each +of Messrs. Looney, Tippie and Williams also serve on the Boards +of +Rollins, Inc. and Marine Products Corporation, of which Messrs. +Gary and +Randall Rollins are directors, and voting control over which is +held by a +control group of which Messrs. Randall and Gary Rollins are a part. +Mr. Randall Rollins is an executive officer of Marine +Products. +9 +As +required by the Independence Guidelines, the Board of Directors unanimously +concluded that the above-listed relationships would not affect the independent +judgment of the independent directors, based on their experience, character +and therefore do not preclude an independence determination. All of the members +are also independent under the heightened standards required for Audit Committee +members. +In +accordance with the NYSE corporate governance listing standards, Mr. Henry +B. +Tippie was elected as the Presiding Director. The Company’s non-employee +directors meet at regularly scheduled executive sessions without management. +Mr. +Tippie presides during these executive sessions. +Code +of Business Ethics +The +Company has adopted a Code of Business Ethics applicable to all directors, +officers and employees generally, as well as a Supplemental Code of Business +Ethics applicable to the principal executive officer, principal financial +officers, and directors. Both codes are available on the Company’s website at +www.rpc.net . +Copies +are also available in print, without charge, to any shareholder who requests +one +by writing to: The Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None +of +the directors named above who serve on the Company's Compensation Committee +are +or have ever been employees of the Company. There are no Compensation Committee +interlocks requiring disclosure. +REPORTS +OF THE AUDIT AND COMPENSATION COMMITTEES AND PERFORMANCE +GRAPH +Notwithstanding +anything to the contrary set forth in any of the Company's filings under the +Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, +as +amended, that might incorporate other Company filings, including this Proxy +Statement, in whole or in part, the following Report of the Audit Committee, +Report of the Compensation Committee on Executive Compensation and the +Performance Graph included herein shall not be incorporated by reference into +any such filings. +REPORT +OF THE AUDIT COMMITTEE +Management +is responsible for the Company’s internal controls and the financial reporting +process. The Company’s independent registered public accountants are responsible +for performing independent audit s +of the +Company’s consolidated financial statements and management’s assessment that the +Company maintained effective control over financial reporting in accordance +with +the standards of the Public Company Accounting Oversight Board (United States) +and for issuing reports thereon. The Audit Committee’s responsibility is +generally to monitor and oversee these processes, as described in the Audit +Committee Charter. It is not the duty of the Audit Committee to plan or conduct +audits or to determine that the Company’s financial statements are complete and +accurate and in accordance with generally accepted accounting principles; that +is the responsibility of management. +In +fulfilling its oversight responsibilities with respect to the year ended +December 31, 2005, the Audit Committee: +· +Reviewed +with management the interim financial information included in the +Forms +10-Q prior to their being filed with the SEC. In addition, the Committee +reviewed all earnings releases with management prior to their +release; +10 +· +Reviewed +and discussed with the Company’s management and the independent +registered public accountants the audited consolidated financial +statements of the Company as of December 31, 2005 and 2004 and for +the +three years ended December 31, 2005. The discussion included matters +related to the conduct of the audit, such as the selection of and +changes +in accounting policies, significant adjustments arising from the +audit and +the absence of any disagreements with management over the application +of +accounting principles, the basis for management’s accounting estimates and +the disclosures in the financial +statements; +· +Reviewed +and discussed with the Company’s management and the independent +registered public accountants, management’s assessment that the Company +maintained effective control over financial reporting as of December +31, +2005; +· +Discussed +with the independent registered public accountants matters required +to be +discussed by +Statement on Auditing Standards No. 61, “Communications with Audit +Committees;” and +· +Received +from the independent registered public accountants the written disclosures +and the letter required by Independence Standards Board Standard +No. 1, +“Independence Discussions with Audit Committees,” and discussed with the +registered public accountants the firm’s independence from the +Company. +Based +upon the review and discussions referred to above, the Committee recommended +to +the Board of Directors that the audited consolidated financial statements of +the +Company and subsidiaries as of December 31, 2005 and 2004 and for the three +years ended December 31, 2005, management’s report on internal control over +financial reporting as of December 31, 2005 and the report of the Company’s +independent registered public accounting firm on internal control over financial +reporting as of December 31, 2005 be +included in the Company’s Annual Report on Form 10-K for the year ended December +31, 2005 and for filing with the Securities and Exchange +Commission. +In +giving +its recommendation to the Board of Directors, the Audit Committee has relied +on +(i) management’s representation that such financial statements have been +prepared with integrity and objectivity and in conformity with accounting +principles generally accepted in the United States of America and (ii) the +report of the Company’s independent registered public accounting firm with +respect to such financial statements. +Submitted +by the Audit Committee of the Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +Bill +J. Dismuke +REPORT +OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +Overview +The +Compensation Committee of the Board of Directors has responsibility for +determining the base salary and cash based incentive plans for the Company’s +executive officers. The Compensation Committee also administers the stock based +incentives for all employees including the executive officers. The Compensation +Committee is comprised of outside directors who do not participate in the +Company’s compensation plans. +The +Company is engaged in a highly competitive industry. The actions of the +executive officers have a profound impact on the short-term profitability and +long-term health and viability of the Company; therefore, the design of the +executive officers’ compensation packages is very important. In order to retain +key employees, the Company provides an executive compensation package that +rewards growth in revenues, net income and increase in shareholder value, the +overall performance of the Company and the individual performance of the +executive. The Compensation Committee considered all of these criteria in +determining the 2005 executive officers’ compensation. In evaluating shareholder +value improvements, the Committee considers various actions that the executive +officers undertake to better utilize the Company’s capital including +the creation of long-term growth in revenues and profitability. The Committee +subjectively weights these factors without any specific formula and adjusts +the +compensation of an executive based on individual performance compared to Company +expectations and performance. +11 +Pursuant +to the above compensation philosophy, the three main components of the executive +compensation packages are base salary, cash based incentives, and stock based +incentive plans. +The +Company’s executive officers are also executive officers of Marine Products and +receive compensation directly from Marine Products. The members of the Company’s +Compensation Committee also constitute the Compensation Committee of Marine +Products. In determining the compensation for the executive officers at the +Company, the Committee considers the dual responsibilities and sets compensation +from the Company at such levels that the aggregate compensation received from +both Marine Products and the Company is reasonable in light of the +responsibilities and the performance of each Company. A discussion of the +Company’s executive officers’ compensation at Marine Products is contained in +its annual proxy statement filed with the U.S. Securities and Exchange +Commission. +Base +Salary +The +factors subjectively used in determining base salary include the recent profit +performance of the Company, the magnitude of responsibilities, the scope of +the +position, individual performance, and the salary received by peers in similar +positions in the same geographic area, in addition to the base salary from +Marine Products. These factors are not used in any specific formula or +weighting. The base salaries of the executive officers are reviewed annually. +There were no increases to base salaries for the executive officers during +2005. +Cash +Based Incentives +The +annual cash based incentive compensation for the executive +officers are based upon broad performance objectives. The executive officers +participate in a variety of individualized performance bonus plans designed +by +the Committee. These programs all have payouts subjectively based on revenues, +net income, budget objectives, and other individual performance objectives. +The +individual performance objectives relate to each executive officer improving +the +contribution of his or her functional area of responsibility to further enhance +the earnings of the Company. Bonuses have not been made subject to any plan +or +program, written or unwritten, that was communicated in advance to the executive +officers for 2005. Bonuses for a particular fiscal year are generally determined +during the first quarter of the following fiscal year and paid at the discretion +of the Compensation Committee. Bonuses were paid in the first quarter of 2006 +for the year ended December 31, 2005 and totaled $1,210,000 for the executive +officers, based on continued improvements in revenues and profitability, +including improved financial performance of the Company in 2005 compared to +2004 +and evaluation of individual performance. +Stock +Based Incentive Plans +Awards +under the Company’s Stock Incentive Plan are discretionary, and are not based on +any specific formula and may or may not be granted in any given fiscal year. +When considering grants under the plan, the Compensation Committee gives +consideration to the overall performance of the Company and the performance +of +individual employees. The Plan is administered by the Committee, which consists +of non-employee directors within the meaning of Rule 16b-3 under the Securities +Exchange Act of 1934, as amended. Based +on +continued improvement in revenues and profitability and individual performance, +the +Committee granted to the executive officers a total of 56,250 shares of +restricted stock during awards for Company Common Stock 2005 having an aggregate +value at the grant date of $609,750. The restricted stock awards for Company +Common Stock granted vests in 20 percent increments annually beginning in 2007. +12 +Chief +Executive Officer Compensation +The +Chief +Executive Officer’s compensation is determined by the Compensation Committee. +For +fiscal year 2005, the cash compensation of Richard A. Hubbell, was $905,000, +of +which $455,000 was base salary and $450,000 was cash based incentive +compensation. In addition, Mr. Hubbell was granted 27,000 shares of restricted +stock award for Company Common Stock, valued at $10.84 per share, that vest +in +20 percent increments annually beginning in 2007. The Chief Executive Officer’s +total 2005 compensation including base salary cash based incentives and +stock based incentives was based upon the long-term growth in revenues, net +income, stockholder value improvements including increase in stock price and +the +Chief Executive Officer’s individual performance towards achieving these goals. +The decision of the Compensation Committee was subjective and was not based +upon +any specific formula or guidelines. No member of the Compensation Committee +participates in any Company incentive program. +General +Matters +The +Compensation Committee has considered the possibility that compensation of +one +or more of its executive officers may exceed the $1 million aggregate +compensation tax deductibility limit under Section 162(m) of the Internal +Revenue Code of 1986 in the future. Therefore, +the Compensation Committee has decided to propose to the shareholders the +performance-based incentive cash compensation plan discussed in further detail +under the heading “Approval of Performance-Based Incentive Cash Compensation +Plan for the Executive Officers” on page 21. +Submitted +by the Compensation Committee of the Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +COMMON +STOCK PERFORMANCE +As +part +of the executive compensation information presented in this proxy statement, +the +Securities and Exchange Commission requires a five year comparison of the +cumulative total stockholder return based on the performance of the stock of +the +Company, assuming dividend reinvestment, as compared with both a broad equity +market index and an industry or peer group index. The indices included in the +following graph are the Russell 2000 Index (“Russell 2000”), the Philadelphia +Stock Exchange’s Oil Service Index (“OSX”), and a peer group which includes +companies that are considered peers of the Company, as discussed below (the +“Peer Group”). The Company has voluntarily chosen to provide both an industry +and a peer group index. +The +Russell 2000 is a stock index representing small capitalization U.S. stocks. +The +components of the index had an average market capitalization in 2005 of $1.23 +billion, and the Company was a component of the Russell 2000 during 2005. The +Russell 2000 was chosen because it represents companies with comparable market +capitalizations to the Company. The OSX is a stock index of 15 U.S. companies +that provide oil drilling and production services, oilfield equipment, support +services and geophysical/reservoir services. The Company is not a component +of +the OSX, but it was chosen because it represents a large group of companies +that +provide the same or similar products and services as the Company. The +companies included in the Peer Group are Weatherford International, Inc., BJ +Services Company, Superior Energy Services, Inc., and Halliburton Company. +The +companies included in the peer group have been weighted according to each +respective issuer's stock market capitalization at the beginning of each year. +13 +* +Assumes +reinvestment of dividends; also assumes that Marine Products Corporation shares +issued in connection with the spin-off were sold and reinvested in RPC +stock. +14 +CERTAIN +RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective +with the spin-off in 2001, the Company began providing certain administrative +services to Marine Products. The service agreements between Marine Products +and +the Company provide for the provision of services on a cost reimbursement basis +and may be terminated upon six +months +notice. +The services covered by these agreements include administration of certain +employee benefit programs and other administrative services. Charges from the +Company (or from corporations which are subsidiaries of the Company) for such +services aggregated approximately $616,000 in 2005. +During +2005, a subsidiary of RPC conducted business with companies owned by LOR, Inc. +Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are +officers, directors, and controlling stockholders of LOR, Inc. In 2005, payments +totaling approximately $926,000 were made to these LOR, Inc. companies for +the +purchase of parts and repair services related to certain of RPC’s oilfield +operating equipment. RPC believes the charges incurred by its subsidiary are +at +least as favorable as the charges that would have been incurred for similar +services from unaffiliated third parties. +RPC +receives certain administrative services including an allocation for office +space from Rollins. The service agreements between Rollins and the Company +provide for the provision of services on a cost reimbursement basis and are +terminable on six months notice. The services covered by these agreements +include office space, administration of certain employee benefit programs, +and +other administrative services. Charges to the Company (or to corporations which +are subsidiaries of the Company) for such services and rent aggregated $71,000 +in 2005. +EXECUTIVE +EMPLOYMENT CONTRACTS +The +Company’s employment contracts with its Chief Executive Officer and the +Company’s other three most highly compensated executive officers (the "Named +Executive Officers") as of March 1, 2006 are oral, at will arrangements. Set +forth below is a summary of the material terms of the compensation under such +at +will arrangements. Except as disclosed elsewhere in this proxy statement, the +Named Executive Officers do not have guaranteed terms of employment. None of +the +Named Executive Officers are entitled by agreement, or contract to severance +or +other termination payments relating to a change of control in excess of +$100,000. +Base +Salaries +All +of the +Named Executive Officers received base salary increases in 2006. I ncreases +to base salaries for the Named Executive Officers ranged up to 17 percent in +2006 and has been disclosed in the Form 8-K filed with the SEC on January 30, +2006. +Discretionary +Bonuses +All +of +the Named Executive Officers are eligible for annual cash bonuses which are +awarded on a discretionary basis. The Compensation Committee’s decisions are +based upon broad performance objectives. Bonus decisions have been made based +on +a review of revenues, net income, budget objectives, and other individual +performance objectives. The individual performance objectives considered by +the +Committee relate to each Named Executive Officer improving the contribution +of +his or her functional area of responsibility to further enhance the financial +performance of the Company. Bonuses for a particular fiscal year are generally +determined during the first quarter of the following fiscal year and paid at +the +discretion of the Compensation Committee. +Bonuses +were paid in the first quarter of 2006 for the year ended December 31, 2005 +and +totaled $1,210,000 for all of the Named Executive Officers, as disclosed in +the +Summary Compensation Table on page 17. +15 +The +bonus +performance goals for 2006 has been established and approved by the Compensation +Committee for all current executive officers as of March 31, +2006. +Stock +Options and Other Equity Awards +The +Named +Executive Officers are eligible to receive shares of Company Common Stock +subject to options and restricted stock awards for Company Common Stock under +the Company’s Stock Incentive Plans, in such amounts and with such terms and +conditions as determined by the Committee at the time of grant. +Supplemental +Retirement Plan +All +of +the Named Executive Officers are eligible to participate in the Company’s +Supplemental Retirement Plan (“Plan”). +Salary +and Bonus Deferrals +The +Plan +allows participants to defer up to 25 percent of base salary and up to 50 +percent of annual bonus and commissions, subject to an overall maximum of +$500,000 in any given year, and other terms and conditions set forth in the +Plan. +Messrs. +Rollins and Hubbell declined to participate in the Company’s Plan with respect +to fiscal year 2006. Mr. Palmer and Ms. Graham have elected to participate +in +the Company’s Plan. Ms. Graham also participates in the Supplemental Retirement +Plan sponsored by MPC. +Company +Contributions +The Company makes certain “Enhanced Benefit +Contributions” under the Plan on behalf of Mr. Hubbell, as disclosed in the +Summary Compensation Table on page 17. The Company has retained absolute +discretion to reduce the amount of +Enhanced Benefit Contributions at any time for any reason, and +may elect not to make any such contributions at all. The Company currently +expects that Mr. Hubbell's last Enhanced Benefit Contribution will be made +with +respect to fiscal year 2008. +In +addition to the Enhanced Benefit Contributions, the Company may make +discretionary contributions on behalf of a Participant under the +Plan in any amount and at any time. The Company has +no obligation to make any such discretionary +contribution, has no current plans to make such a contribution on behalf +of any Named Executive Officer, and has never made any such contribution +under the Supplemental Retirement Plan since its creation in August of 2002. +A +copy of the Plan is filed as an exhibit to the Form 10-K for the year ended +December 31, 2004 filed with the SEC on March 16, 2005. +Automobile +Usage +Mr. +Hubbell has the use of a Company owned automobile. The automobile is +self-insured and maintained by the Company. The Company also pays all fuel +expenses. Mr. Hubbell’s personal use of the automobile is treated as taxable +income for federal and state income tax purposes. His personal use of the +automobile is valued at approximately $690 per month. Mr. Palmer receives an +automobile allowance of $700 per month in addition to reimbursement of fuel +expenses that is treated as taxable income for federal and state income tax +purposes. +Other +Benefits +The +Named +Executive Officers participate in the Company’s regular employee benefit +programs, including the 401(k) Plan with Company match, group life insurance, +group medical and dental coverage and other group benefit plans. All of the +Named Executive Officers are eligible for the Retirement Income Plan that was +frozen in March 2002. +16 +EXECUTIVE +COMPENSATION +Shown +below is information concerning the annual and long-term compensation for +services in all capacities +to the +Company for the calendar years ended December 31, 2005, 2004 and 2003 of those +persons who were at December 31, 2005 (i) the Chief Executive Officer and (ii) +all other most highly compensated executive officers of the Company whose total +annual compensation exceeded $100,000 (the “Named Executive +Officers”): +SUMMARY +COMPENSATION TABLE +Annual +Compensation +Long-Term +Compensation Awards +Name +and Principal Position +Year +Salary +Bonus +Restricted +Stock +Awards +(1) +Securities +Underlying Options (#) +LTIP +Payouts +All +Other Compensation (2) +R. +Randall Rollins +2005 +$ +355,000 +$ +500,000 +$ +0 +0 +0 +$ +0 +Chairman +of the Board +2004 +355,000 +300,000 +276,200 +0 +0 +0 +2003 +300,000 +175,000 +0 +225,000 +0 +0 +Richard +A. Hubbell +2005 +$ +455,000 +$ +450,000 +$ +292,680 +0 +0 +$ +32,562 +President +and +2004 +455,000 +200,000 +276,200 +0 +0 +32,412 +Chief +Executive Officer +2003 +400,000 +110,000 +0 +56,250 +0 +32,262 +Linda +H. Graham +2005 +$ +120,000 +$ +60,000 +$ +121,950 +0 +0 +$ +3,300 +Vice +President and Secretary +2004 +120,000 +40,000 +69,050 +0 +0 +3,480 +2003 +104,000 +25,000 +0 +22,500 +0 +3,120 +Ben +M. Palmer +2005 +$ +150,000 +$ +200,000 +$ +195,120 +0 +0 +$ +5,424 +Vice +President, +2004 +150,000 +150,000 +110,480 +0 +0 +6,150 +Chief +Financial Officer and +2003 +150,000 +60,000 +47,450 +33,750 +0 +4,752 +Treasurer +(1) +The +Company has granted employees two forms of restricted stock: time +lapse +restricted and performance restricted. During 2005, three Named Executive +Officers received time lapse restricted share grants as follows: +27,000 +shares to Mr. Richard A. Hubbell, 11,250 shares to Ms. Linda H. Graham +and +18,000 shares to Mr. Ben M. Palmer. Time lapse restricted shares +vest +after a stipulated number of years from the grant date, depending +on the +terms of the issue. Time lapse restricted shares issued in years 2003 +and prior vest after ten years. Time lapse restricted shares issued +in 2005 and 2004 vest in 20 percent increments annually starting +with the +second anniversary of the grant, over six years from the date of +grant. +Grantees receive dividends declared and retain voting rights for +the +granted shares. The performance restricted shares are granted, but +not +earned and issued until certain five-year tiered performance criteria +are +met. The performance criteria are predetermined market prices of +RPC +common stock. On the date the common stock appreciates to each level +(determination date), 20 percent of performance shares are earned. +Once +earned, the performance shares vest five years from the determination +date. After the determination date, the grantee will receive dividends +declared and voting rights to the shares. As +of December 31, 2005, 45,000 time lapse restricted shares were held +for +Mr. Rollins, 155,250 time lapse restricted shares and 16,903 performance +restricted shares were held for Mr. Hubbell, 49,500 time lapse restricted +shares and 1,362 performance restricted shares were held for Ms. +Graham, +and 82,125 time lapse restricted shares and 7,436 performance restricted +shares were held for Mr. Palmer. The total number of restricted shares +held and their values on December 31, 2005 were as follows: Mr. Rollins, +45,000 shares valued at $1,185,300, Mr. Hubbell, 172,153 shares valued +at +$4,534,510, Ms. Graham, 50,862 shares valued at $1,339,705 and Mr. +Palmer, +89,561 shares valued at $2,359,037. The time lapse restricted share +certificates and the performance restricted share certificates that +have +been earned and issued are being held by the Company and may not +be +transferred by the Named Executive Officers until the shares vest. +The +December 31, 2005 values are based on the closing market price of +$26.34 +per share and do not take into account any diminution of value +attributable to vesting provisions of these shares. +17 +(2) +Effective +July 1, 1984, the Company adopted the RPC 401(k) Plan (“401(k) Plan”), a +qualified retirement plan designed to meet the requirements of Section +401(k) of the Internal Revenue Code (the “Code”). The 401(k) Plan provides +for a matching contribution of fifty cents ($0.50) for each dollar +($1.00) +of a participant's contribution to the 401(k) Plan that does not +exceed +six percent of his or her annual compensation (which includes commissions, +overtime and bonuses). A participant’s voluntary pre-tax salary deferrals +made under the 401(k) Plan are in lieu of payment of compensation +to the +participant. The Company’s Retirement Income Plan, a trusteed defined +benefit pension plan, provides monthly benefits upon retirement at +age 65 +to eligible employees. In +the first quarter of 2002, the Company's Board of Directors approved +a +resolution to cease all future benefit accruals under the Retirement +Income Plan effective March 31, 2002. In lieu thereof, beginning +in 2002, +the Company began providing enhanced benefits in the form of cash +contributions on behalf of certain long-service employees who were +40 to +65 years of age on or before December 31, 2002. These enhanced benefit +contributions are discretionary and may be made annually, subject +to a +participant’s continued employment, for a maximum of seven years. The +contributions are made either to the non-qualified Supplemental Retirement +Plan (“SRP”) or to the 401(k) Plan for each employee who is entitled to +the enhanced benefits. The +amounts shown in this column represent the Company match under the +401(k) +Plan. In the case of Mr. Hubbell, the amount shown includes $26,262 +towards enhanced benefits. Beginning +late in 2002, the Company began permitting selected highly compensated +employees to defer a portion of their compensation into the +SRP. +OPTION/SAR +GRANTS IN FISCAL YEAR 2005 +No +options or stock appreciation rights were granted to the Named Executive +Officers during 2005. +AGGREGATED OPTION/SAR +EXERCISES IN FISCAL YEAR 2005 AND +YEAR-END +OPTION/SAR VALUES +Name +Shares +Acquired +on +Exercise +(#) +Value +Realized +($) +Number +of Securities +Underlying +Unexercised +Options/SARs +at +FY-End (#) +Exercisable/Unexercisable +Value +of Unexercised +In-the-Money +Options/SARs +At +FY-End ($)(1) +Exercisable/ +Unexercisable +R. +Randall Rollins +0 +$ +0 +135,000/ +90,000 +$3,023,828/ +2,015,886 +Richard +A. Hubbell +0 +0 +415,565/ +56,249 +9,520,906/ +1,236,354 +Linda +H. Graham +0 +0 +36,724/ +15,750 +828,431/ +352,665 +Ben +M. Palmer +36,163 +522,638 +60,528/ +27,000 +1,317,422/ +599,940 +(1) +Based +on the closing price of Company Common Stock on the New York Stock +Exchange on December 31, 2005 of $26.34 per share. +18 +EQUITY +COMPENSATION PLAN INFORMATION +The +following table sets forth certain information regarding equity compensation +plans as of December 31, 2005. +Plan +Category +(A) +Number +of +Securities +To Be +Issued +Upon +Exercise +of +Outstanding +Options, +Warrants +and Rights +(B) +Weighted +Average +Exercise +Price +of +Outstanding +Options, +Warrants +and +Rights +(C) +Number +of Securities +Remaining +Available +for +Future Issuance +Under +Equity Compensation +Plans +(Excluding Securities +Reflected +in Column (A)) +Equity +compensation plans approved by securityholders +2,329,110 +$4.64 +2,624,625 +(1) +Equity +compensation plans not approved by securityholders +- +- +- +Total +2,329,110 +$4.64 +2,624,625 +(1) +All +of the securities are available to be issued as restricted stock +or other +stock awards. +BENEFIT +PLANS +The +Company’s Retirement Income Plan, a trusteed defined benefit pension plan, +provides monthly benefits upon retirement at age 65 to eligible employees. +In +the +first quarter of 2002, the Company's Board of Directors approved a resolution +to +cease all future benefit accruals under the Retirement Income Plan effective +March 31, 2002. Retirement +Income Plan benefits are based on the average of the employee's compensation +from the Company for the five consecutive complete calendar years of highest +compensation during the last ten consecutive complete calendar years ("final +average compensation") immediately preceding March 31, 2002. Accordingly the +pension plan table has not been presented under this section. +The +current years of service for the four individuals named in the Summary +Compensation Table are: R. Randall Rollins - 30, Richard A. Hubbell - 15, Linda +H. Graham - 15 and Ben M. Palmer - 4. The annual benefit payable at the later +of +retirement or age 65 for the Named Executive Officers is $261,600 for Mr. +Rollins, $41,400 for Mr. Hubbell, $24,900 for Ms. Graham and $9,400 for Mr. +Palmer. In accordance with the Code (as amended by the Economic Growth and +Tax +Relief Reconciliation Act of 2001), the maximum annual benefit payable to a +Retirement Income Plan beneficiary in 2005 was $170,000. Retirement benefits +accrued at the end of any calendar year or as of March 31, 2002 will not be +reduced or increased by any subsequent changes in the maximum compensation +limit. +The +Plan +also provides reduced early retirement benefits under certain conditions. In +addition, as an owner with stock ownership in excess of five percent of the +Company’s voting securities, Mr. Rollins is required to receive mandatory +distributions currently, even though he has not retired from the Company. The +amount of distribution received during 2005 was approximately $261,600 and +is +not subject to change after retirement. +In +2002, +the Company began providing additional benefits on behalf of certain +long-service employees in the form of discretionary cash contributions made +either to the Company’s 401(k) Plan (which is described below) or the +Supplemental Retirement Plan as described above under “Executive Employment +Contracts.” Amounts contributed to the accounts of the Named Executive Officers +are reported in the “All Other Compensation” column of the Summary Compensation +Table on page 17. +19 +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to meet +the requirements of Section 401(k) of the Code. The Company makes matching +contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s +contribution to the 401(k) Plan that does not exceed six percent of his or +her +annual compensation. The only form of benefit payment under the 401(k) Plan +is a +single lump-sum payment equal to the vested balance in the participant’s account +on the date the distribution is processed. Under the 401(k) Plan, the full +amount of a participant’s vested accrued benefit is payable upon his termination +of employment, retirement, total and permanent disability, or death. Also under +the 401(k) Plan, a participant may withdraw his or her pre-tax contributions +to +the extent of certain specified instances of financial hardship and may withdraw +any amount from his or her pre-tax contribution account for any reason after +attaining age 59 ½. In addition, a participant may withdraw any amount from his +or her rollover account for any reason. Amounts contributed by the Company +to +the accounts of the Named Executive Officers for 2004 under this plan are +reported in the “All Other Compensation” column of the Summary Compensation +Table on page 17. +PROPOSAL +TO APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE +NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK +The +stockholders will be asked to vote on the approval of an amendment (“Amendment”) +to the Company's Certificate of Incorporation whereby the authorized capital +stock of the Company would be increased from 80,000,000 to 160,000,000 shares. +Authorized shares of common stock would be increased from 79,000,000 to +159,000,000 and authorized shares of preferred stock would remain 1,000,000. +There are currently no shares of preferred stock outstanding. The Amendment +pertains only to the first paragraph of Article Fourth of the Certificate of +Incorporation of the Company. As amended, such paragraph would be as +follows: +“FOURTH: +The total number of shares of all classes of stock which the Corporation shall +have authority to issue is one hundred sixty million (160,000,000), consisting +of one hundred fifty nine million (159,000,000) shares of Common Stock, par +value ten cents ($0.10) per share (the “Common Stock”) and one million +(1,000,000) shares of Preferred Stock, par value ten cents ($0.10) per share +(the “Preferred Stock”).” +As +of +March 17, 2006, there were 64,781,345 shares of Common Stock outstanding and +14,218,655 shares of Common Stock available for issuance. The Company has +2,624,625 shares reserved for issuance under stock incentive plans. The Board +of +Directors has unanimously approved the Amendment and believes the Amendment +is +necessary in order to meet the Company's business needs and to take advantage +of +potential future corporate opportunities. At present, there are no plans to +issue any authorized shares, other than those reserved under the Company’s stock +incentive plans. When the Company does issue authorized shares, unless required +by New York Stock Exchange Rules and Regulations or Delaware law, the Company +will not need stockholder approval. Under the Company’s Restated Certificate of +Incorporation, holders of capital stock are not entitled to preemptive +rights. +The +Board +recommends a vote “FOR” approval of the Amendment. +It +is +expected that members of the Board of Directors and executive officers, and +their affiliates, who own of record approximately 66.7 percent of the voting +securities of the Company, will vote “FOR” approval of the Amendment. Since the +affirmative vote of a majority of the outstanding Common Stock is required +in +order to approve the Amendment, the vote "FOR" approval of the Amendment by +the +stockholders who are members of the Board of Directors or executive officers +would assure such approval. +20 +PROPOSAL +TO APPROVE THE PERFORMANCE-BASED INCENTIVE CASH COMPENSATION PLAN FOR THE +EXECUTIVE OFFICERS +Background +The +Internal Revenue Code limits the tax deduction for expense in connection +with +compensation of its chief executive officer and its four other most +highly-compensated executive officers for any fiscal year to the extent that +the +remuneration of such person exceeds $1 million during such fiscal year, +excluding remuneration that qualifies as “performance-based compensation.” +Section 162(m) of the Internal Revenue Code provides that in order for +remuneration to be treated as qualified performance-based compensation, the +material terms of the performance goals must be disclosed to and approved +by the +stockholders of +the +employer. Material terms of a performance-based compensation plan +include : +(1) the +employees eligible to participate in the plan, (2) the business criteria +upon +which the performance goals will be based, and (3) either the maximum dollar +amount of compensation that is payable to an employee or the formula used +to +calculate the amount of compensation that is payable to an employee if the +performance goals are met. With regard to stockholder +approval, the 162(m) regulations further require that a company obtain +stockholder +approval +of its performance-based compensation plan every five years following the +last +such approval or if the material terms of the plan, including performance +goals, +are changed in the interim. +Summary +Description Of The Performance-Based Incentive Cash Compensation Plan +The +following discussion summarizes the material terms, including performance +objectives, of the Performance-Based Incentive Cash Compensation Plan (the +“Plan”). +Plan +Administration: +The Plan +is administered by the Compensation Committee of the Company’s Board of +Directors. +Eligibility: +The +participants in the Plan are the executive +officers of the Company who are annually designated as plan participants +by the +Compensation Committee. +Performance +Goals: +The +Compensation Committee establishes performance goals annually within ninety +days +after the commencement of the performance period to which such goals relate . +Performance goals for each participant may be based on corporate , +business +unit/function or individual performance, +or a combination of one +or +more such +measures. +1. +Corporate +Performance . +The +performance +measures +for corporate performance will be established based +on such measures +as stock price, market share, revenues, earnings per share, return +on +equity, return on average assets, return on invested capital, expense +management, or other objective criteria. +2. +Business +Unit/Function Performance . +The performance measures for business unit/function performance will +be +established separately for each participant whose performance goals +are +based in whole or in part on business unit/function performance. +Such +performance measures will be +based on such business criteria as achievement of financial or +non-financial goals, safety record, training goals, or other objective +criteria. +3. +Individual +Performance . +The performance measures for individual performance will be established +separately for each participant whose performance goals are based +in whole +or in part on individual performance. Such performance measures will +be +based on such business criteria as process improvement, expense +management, achievement of particular management objectives, or other +objective criteria. +21 +Cash +Award Amounts : +In +connection with the annual establishment of performance goals, the Compensation +Committee sets a target award for +each +participant in the Plan for the applicable +year, +which is expressed as a percentage of the participant’s base compensation +(the +“Target Award”) in +effect +on the last day of the final pay period of that year . +If the +Participant’s +performance +goals are +based +upon a combination of performance measures, the Compensation Committee will +weigh the importance of each performance measure by assigning a percentage +(the +“Weighted Percentage”) to those performance measures. The +participant’s cash award amount will also +depend +in +part upon +the +level of achievement that the participant attained with respect to each such +performance +measure +utilizing the formula set out in the Plan. +This formula provides for a performance value (“Performance Value”) which +ranges +from: +· +threshold +performance level (with a performance value of 25 percent of the +Target +Award ), +· +target +performance level (with a performance value up to 100 percent of +the +Target +Awar d), +to +· +superior +performance level (with a performance value up to 200 percent of +the +Target +Awar d). +Subject +to the limitations set forth in the next sentence, a participant’s cash award +amount for each year under the Plan equals the product of the Target Award +multiplied by the Weighted Percentage assigned to each performance measure +used +for a participant, multiplied by the Performance Value attained for each +performance measure , +multiplied by base compensation . +The +Committee will determine the maximum cash award as a percentage of participants’ +base compensation for each applicable year but in no event will a cash award +amount exceed 200 percent of participants’ base compensation, or +$2,000,000, whichever is less. +The +Plan +may be amended from time to time by the Board of Directors or the Compensation +Committee. +It +is not +possible to currently determine the amounts payable under the performance-based +incentive cash compensation plan for the year ending December 31, 2006 since +they are dependent on the Company’s financial performance. However, the +following table sets forth information regarding the theoretical maximum +amounts +that could have been earned by each of the following executives for the fiscal +year ending December 31, 2005. +NEW +PLAN BENEFITS +MAXIMUM +PERFORMANCE-BASED INCENTIVE CASH COMPENSATION FOR +RPC, +INC. NAMED EXECUTIVE OFFICERS +Name +and Position +Dollar +Value of Maximum 200% of 2005 Base Salary ($) (1) +R. +Randall Rollins +Chairman +of the Board +$ +710,000 +Richard +A. Hubbell +President +and Chief Executive Officer +$ +910,000 +Linda +H. Graham +Vice +President and Secretary +$ +240,000 +Ben +M. Palmer +Vice +President, Chief Financial Officer +and +Treasurer +$ +300,000 +Executive +Group +$ +2,160,000 +(1). +This +illustration shows a maximum of 200% of base salary in bonus compensation. +Actual 2006 bonus compensation may be less than +200%. +The +Board +recommends a vote “FOR” approval of the performance-based incentive cash +compensation plan for the executive officers. +22 +INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS +Change +in Accountants +The +independent public accounting firm of Ernst & Young LLP (“Ernst & +Young”) was initially engaged as the Company’s auditors for the fiscal year +ended December 31, 2004. Effective subsequent to the filing of its Quarterly +Report on Form 10-Q for the quarter ended June 30, 2004, the Company decided +on +August 17, 2004, to terminate Ernst & Young as the Company’s independent +registered public accountants, and to appoint Grant Thornton LLP (“Grant +Thornton”) as its independent registered public accountants for the year ended +December 31, 2004. The decisions to dismiss Ernst & Young and to appoint +Grant Thornton were authorized by the Company’s Audit Committee. +For +the fiscal +years ended December 31, +2002 and +2003, +Ernst & Young’s report on the financial statements of the Company did not +contain an adverse opinion or a disclaimer +of opinion, nor was +it qualified +or modified as to uncertainty, audit scope, or accounting +principles. During +the Company's fiscal years ended December 31, 2002 and 2003, and the +subsequent interim period through August 17, 2004, there were no disagreements +between the Company and Ernst & Young on any matter of accounting principles +or practices, financial statement disclosure, or auditing scope or procedure, +which if not resolved to the satisfaction of Ernst & Young would have caused +them to make reference to the subject matter of the disagreement in connection +with their reports. The following reportable events described under +Item 304(a)(1)(v) of Regulation S-K did not occur within the Company's +fiscal years ended December 31, 2002 and 2003 or during any subsequent +interim period through August 17, 2004. +1. +Ernst +& Young did not advise the Company that the internal controls +necessary to develop reliable financial statements did not +exist, +2. +Ernst +& Young did not advise the Company that it would be unable to rely +on +management’s representation, +3. +Ernst +& Young did not advise the Company of the need to significantly expand +the scope of its audit, +4. +Ernst +& Young did not advise the Company that information had come to its +attention that had caused it to conclude that there was a material +impact +to the fairness or reliability of a previously issued audit report +or the +underlying financial statements. +During the +Company’s fiscal years ended December 31, 2002 and 2003, and from January 1, +2004 through August 17, 2004, neither the Company nor someone acting on the +Company’s behalf consulted Grant Thornton regarding either: (i) the +application of accounting principles to a specified transaction , +either +completed or proposed, (ii) the type of audit opinion that might be rendered +on +the Company’s financial statements, or (iii) any matter that was either the +subject of a disagreement, as defined in Regulation S-K Item 304 (a)(1)(iv), +or +a “reportable event” as defined in Regulation S-K Item 304(a)(1)(v) . +The +Company filed a Report on Form 8-K with the SEC on August 20, 2004 regarding +the +change in accountants. +23 +Principal +Auditor +Grant +Thornton served as the Company's independent registered public accountants +for +the +fiscal year ended December 31, 2005 and since August 17, 2004 for the fiscal +year ended December 31, 2004. In addition to performing the audit of the +Company ’ s +consolidated financial statements, Grant Thornton provided various other +servicesw during 2005. +The +Audit +Committee has appointed Grant Thornton as the Company’s independent registered +public accountants for the fiscal year ending December 31, 2006. Representatives +of Grant Thornton are expected to be present at the Annual Meeting and will +have +an opportunity to make a statement if they so desire and will be available +to +respond to appropriate questions. +The +aggregate fees billed by independent registered public accountants are set +forth +below: +2005 +2004** +Audit +fees and quarterly reviews (1) +$ +877,200 +$ +846,000 +Audit +related fees (2) +12,600 +12,800 +Tax +fees (3) +8,500 +- +All +other fees +- +- +(1) +Audit +fees include fees for audit or review services in accordance with +generally accepted auditing standards, such as statutory audits and +services rendered for compliance with Section 404 of the Sarbanes-Oxley +Act. +(2) +Audit +related fees represent fees for the audit of the 401(k) +Plan. +(3) +Tax +fees related to tax planning and advice on international +issues. +** Fees +related to 2004 disclosed above represent Grant Thornton’s charges. In addition, +the Company paid approximately $45,000 to Ernst & Young in audit fees and +$230,000 in tax fees during 2004. Tax fees related to tax compliance, planning +and advice, +consultation and research on tax consequences for potential acquisitions, +foreign tax issues and filing amended tax returns for prior years. +Pre-approval +of Services +All +of +the services described above were pre-approved by the Company’s Audit Committee. +The Audit Committee has determined that the payments made to its independent +registered public accountants for these services are compatible with maintaining +such auditors’ independence. +All of +the hours expended on the principal accountant’s engagement to audit the +financial statements of the Company for the year 2005 was attributable to work +performed by full-time, permanent employees of the principal accountant. +The +Audit +Committee is directly responsible for the appointment and termination, +compensation, and oversight of the work of the independent registered public +accountants, including resolution of disagreements between management and the +independent registered public accountants regarding financial reporting. The +Audit Committee is responsible for pre-approving all audit and non-audit +services provided by the independent registered public accountants and ensuring +that they are not engaged to perform the specific non-audit services proscribed +by law or regulation. The Audit Committee has delegated pre-approval authority +to its Chairman with the stipulation that his decision is to be presented to +the +full Committee at its next scheduled meeting. The Audit Committee has no other +pre-approval policies. +24 +SECTION +16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The +Company has completed a review of Forms 3, 4, and 5 and amendments thereto +furnished to the Company by all directors, +officers and greater than 10 percent stockholders subject to the provisions +of +Section 16 of the Securities Exchange Act of 1934, as amended. In addition, +the +Company has a written representation from all directors, officers and greater +than 10 percent stockholders from whom no Form 5 was received indicating that +no +Form 5 filing was required. Based solely on this review, the Company believes +that filing requirements of such persons under Section 16 for the fiscal year +ended December 31, 2005 have been satisfied. +STOCKHOLDER +PROPOSALS +Appropriate +proposals of stockholders intended to be presented at the Company’s 2007 Annual +Meeting of the Stockholders must be received by the Company by December 6, +2006, +in order to be included, pursuant to Rule 14a-8 promulgated under the Securities +Exchange Act of 1934, as amended, in the proxy statement and form of proxy +relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities +Exchange Act of 1934, management proxyholders intend to use their discretionary +voting authority with respect to any stockholder proposal raised at the +Company’s 2007 Annual Meeting as to which the proponent fails to notify the +Company on or before February 18, 2007. With regard to such stockholder +proposals, if the date of the next Annual Meeting of the Stockholders is +advanced or delayed more than 30 calendar days from April 25, 2007, the Company +will, in a timely manner, inform its stockholders of the change and of the +date +by which such proposals must be received. +With +respect to stockholder nomination of directors, the Company’s By-laws provide +that nominations for the election of directors may be made by any stockholder +entitled to vote for the election of directors. Nominations must comply with +an +advance notice procedure which generally requires with respect to nominations +for directors for election at an Annual Meeting, that written notice be +addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324, not less than ninety days prior to the anniversary of the prior year’s +Annual Meeting and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal +occupation or employment of the nominee for the past five years, the nominee's +qualifications, the class or series and number of shares of capital stock of +the +Company which are owned beneficially or of record by the person and any other +information relating to the person that would be required to be disclosed in +a +proxy statement or other filings. Other +specific requirements related to such notice, including required disclosures +concerning the stockholder intending to present the nomination, are set forth +in +the Company’s By-laws. Notices of nominations must be received by the Secretary +of the Company no later than January 25, 2007 with +respect to directors to be elected at the 200 7 +Annual +Meeting of Stockholders. +EXPENSES +OF SOLICITATION +The +Company will bear the cost of soliciting proxies. Upon +request, we will reimburse brokers, dealers and banks, or their nominees, for +reasonable expenses incurred in forwarding copies of the proxy material to +their +beneficial shareholders of record. Solicitation of proxies will be made +principally by mail. Proxies also may be solicited in person or by telephone, +facsimile or other means by our directors, officers and regular employees. +These +individuals will receive no additional compensation for these services. The +Company has retained Georgeson Shareholder Communications, Inc. to conduct +a +broker search and to send proxies by mail for an estimated fee of approximately +$7,500 plus shipping expenses. +25 +MISCELLANEOUS +The +Company’s Annual Report to Stockholders, including its Annual Report on Form +10-K for the fiscal year ended December 31, 2005, without exhibits, is being +mailed to stockholders with this proxy statement. +Upon +the written request of any record or beneficial owner of the Company’s Common +Stock whose proxy was solicited in connection with the 2006 Annual Meeting +of +Stockholders, the Company will furnish such owner, without charge, a copy of +its +Annual Report on Form 10-K, including the financial statements and the financial +statement schedules (but without exhibits), for its fiscal year ended December +31, 2005. Requests for a copy of such Annual Report on Form 10-K should be +addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road +NE, Atlanta, Georgia 30324. +Management +knows of no business other than the matters set forth herein which will be +presented at the Annual Meeting. In as much as matters not known at this time +may come before the Annual Meeting, the enclosed proxy confers discretionary +authority with respect to such matters as may properly come before the Annual +Meeting; and it is the intention of the persons named in the proxy to vote +in +accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Atlanta, +Georgia +April +4, 2006 +Linda +H. Graham, Secretary +26 +APPENDIX +A +AUDIT +COMMITTEE CHARTER +27 +RPC, +INC. +CHARTER +OF THE AUDIT COMMITTEE +OF +THE BOARD OF DIRECTORS +PURPOSE +The +Audit +Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) +to assist the Board in fulfilling its oversight responsibilities. The +Committee’s primary purpose is to monitor the integrity of the Company’s +financial reporting process, including (by overseeing the financial reports +and +other financial information provided by the Company to any governmental or +regulatory body, the public or other users thereof) the Company’s systems of +internal accounting and financial controls, the performance of the Company’s +internal audit function, the independent auditor’s qualifications and +independence, the Company’s compliance with ethics policies and legal and +regulatory requirements statements, and the annual independent audit of the +Company’s financial statements. The Committee will monitor the independence, +performance, and qualifications of the Company’s independent +auditors. +In +discharging its oversight role, the Committee is empowered to investigate any +matter brought to its attention with full access to all books, records, +facilities and personnel of the Company. The Committee is authorized to retain +outside counsel, auditors or other experts and professionals for this purpose. +The Board and the Committee are in place to represent the Company’s +shareholders; accordingly, the outside auditor is ultimately accountable to +the +Board and the Committee. +The +Company shall provide appropriate funding, as determined by the Committee, +for +payment of compensation to any registered public accounting firm engaged for +the +purpose of rendering or issuing an audit report or related work or performing +other audit, review or attest services for the company and to any advisors +employed by the Company as well as ordinary administrative expenses of the +Committee that are necessary or appropriate in carrying out its +duties. +MEMBERSHIP +The +Committee shall be comprised of not less than three members of the Board, and +the Committee’s composition shall meet all requirements of the Audit Committee +policy of the New York Stock Exchange. +Accordingly, +all of the members must be directors: +- +Who +are independent of management and the Company. Members of the Committee +shall be considered independent as long as they do not accept any +consulting, advisory, or compensatory fee from the Company and are +not an +affiliated person of the Company or its subsidiaries, and meet the +independence requirements of the New York Stock Exchange. Under Rule +10A-3 +to Securities Exchange Act of 1934, disallowed payments to an Audit +Committee member includes payments made directly or indirectly, and +for +these purposes “indirect” acceptance shall include (a) payments to +spouses, minor children or stepchildren or children or stepchildren +sharing a home with the member and (b) payments accepted by an entity +in +which such member is a partner, member, officer such as a managing +director occupying a comparable position or executive officer, or +occupies +a similar position (except limited partners, non-managing members +and +those occupying similar positions who, in each case, have no active +role +in providing services to the entity) and which provides accounting, +consulting, legal, investment banking or financial advisory to the +Company +or any subsidiary. +- +Who +are financially literate or who become financially literate within +a +reasonable period of time after appointment to the Committee. In +addition, +at least one member of the Committee must be an Audit Committee “financial +expert” as defined by SEC +regulations. +A-1 +KEY +RESPONSIBILITIES +The +Committee’s primary responsibility is to oversee the Company’s financial +reporting process on behalf of the Board and report results of their activities +to the Board on a regular basis. While the Committee has the responsibilities +and powers set forth in this Charter, it is not the duty of the Committee to +plan or conduct audits or to determine that the Company’s financial statements +are complete and accurate and are in accordance with generally accepted +accounting principles. Management is responsible for the preparation, +presentation, and integrity of the Company’s financial statements and for the +appropriateness of the accounting principles and reporting policies that are +used by the Company as well as the Company’s internal controls. The independent +auditors are responsible for performing an independent audit of the Company’s +financial statements in accordance with auditing standards generally accepted +in +the United States and for issuing a report hereon. +The +Committee, in carrying out its responsibilities, believes its policies and +procedures should remain flexible, in order to best react to changing conditions +and circumstances. The Committee should take appropriate actions to set the +overall corporate “tone” for quality financial reporting, sound business risk +practices, and ethical behavior. The following shall be the principal duties +and +responsibilities of the Committee. These functions are set forth as a guide +with +the understanding that the Committee may diverge from this guide as appropriate +under the circumstances. +The +Committee shall be directly responsible for the appointment and termination +(subject, if applicable, to shareholder ratification), compensation, and +oversight of the work of the independent auditors, including resolution of +disagreements between management and the auditor regarding financial reporting. +The Committee shall pre-approve all audit and non-audit services provided by +the +independent auditors and shall not engage the independent auditors to perform +the specific non-audit services proscribed by law or regulation. The Committee +may delegate pre-approval authority to a member of the Committee. The decisions +of any Committee member to whom pre-approval authority is delegated must be +presented to the full Committee at its next scheduled meeting. +At +least +annually, the Committee shall obtain and review a report by the independent +auditors describing: +· +The +firm’s internal quality control +procedures. +· +Any +material issues raised by the most recent internal quality control +review, +or peer review, of the firm, or by any inquiry or investigation by +governmental or professional authorities, within the preceding five +years, +respecting one or more independent audits carried out by the firm, +and any +steps taken to deal with any such +issues. +· +All +relationships between the independent auditor and the Company (to +assess +the auditor’s independence). +In +addition, the Committee shall set clear hiring policies for employees or former +employees of the independent auditors that meet the SEC regulations and the +New +York Stock Exchange listing standards. +The +Committee shall discuss with the internal auditors and the independent auditors +the overall scope and plans for their respective audits, including the adequacy +of staffing and compensation. Also, the Committee shall discuss with management, +the internal auditors, and the independent auditors the adequacy and +effectiveness of the accounting and financial controls, including the Company’s +policies and procedures to assess, monitor, and manage business risk, and legal +and ethical compliance programs (e.g., Company’s Code of Conduct). +The +Committee shall meet separately periodically with management, the internal +auditors, and the independent auditors to discuss issues and concerns warranting +Committee attention. The Committee shall provide sufficient opportunity for +the +internal auditors and the independent auditors to meet privately with the +members of the Committee. The Committee shall review with the independent +auditor any audit problems or difficulties and management’s +response. +A-2 +The +Committee shall receive regular reports from the independent auditor on the +critical policies and practices of the Company, and all alternative treatments +of financial information within generally accepted accounting principles that +have been discussed with management. +The +Committee shall review management’s assertion on its assessment of the +effectiveness of internal controls as of the end of the most recent fiscal +year +and the independent auditors’ report on management’s assertion. +The +Committee shall review and discuss earnings press releases, as well as financial +information and earnings guidance provided to analysts and rating agencies. +The +Committee shall review the interim financial statements and disclosures under +Management’s Discussion and Analysis of Financial Condition and Results of +Operations with management and the independent auditors prior to the filing +of +the Company’s Quarterly Report on Form 10-Q. Also, the Committee shall discuss +the results of the quarterly review and any other matters required to be +communicated to the Committee by the independent auditors under generally +accepted auditing standards. The chair of the Committee may represent the entire +Committee for the purposes of this review. +The +Committee shall review with management and the independent auditors the +financial statements and disclosures under Management’s Discussion and Analysis +of Financial Condition and Results of Operations to be included in the Company’s +Annual Report on Form 10-K (or the annual report to shareholders if distributed +prior to the filing of Form 10-K), including their judgment about the quality, +not just the acceptability, of accounting principles, the reasonableness of +significant judgments, and the clarity of the disclosures in the financial +statements. Also, the Committee shall discuss the results of the annual audit +and any other matters required to be communicated to the Committee by the +independent auditors under generally accepted auditing standards. +The +Committee shall establish procedures for the receipt, retention, and treatment +of complaints received by the issuer regarding accounting, internal accounting +controls, or auditing matters, and the confidential, anonymous submission by +employees of the issuer of concerns regarding questionable accounting or +auditing matters. +The +Committee shall receive corporate attorneys’ reports of evidence of a material +violation of securities laws or breaches of fiduciary duty. +The +Committee also prepares its report to be included in the Company’s annual proxy +statement, as required by SEC regulations. +The +Committee shall perform an evaluation of its performance at least annually +to +determine whether it is functioning effectively. +A-3 +RPC, +Inc. +Proxy +Solicited by the Board of Directors of RPC, Inc. +For +Annual Meeting of Stockholders on Tuesday, April 25, 2006, 12:15 +P.M. +The +undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL +ROLLINS, and each of them, jointly and severally, proxies, with full power +of +substitution, to vote all shares of Common Stock which the undersigned is +entitled to vote at the Annual Meeting of Stockholders to be held on April +25, +2006, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any +adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders +and +Proxy Statement, each dated April 4, 2006, grants authority to said proxies, +or +either of them, or their substitutes, to act in the absence of others, with +all +the powers which the undersigned would possess if personally present at such +meeting and hereby ratifies and confirms all that said proxies or their +substitutes may lawfully do in the undersigned's name, place and stead. The +undersigned instructs said proxies, or either of them, to vote as +follows: +1. +o +FOR +RICHARD A. HUBBELL, LINDA H. GRAHAM +AND +BILL J. DISMUKE, AS CLASS II DIRECTORS +EXCEPT +AS INDICATED BELOW +o +ABSTAIN +FROM VOTING FOR THE +ELECTION +OF ALL CLASS II NOMINEES +INSTRUCTIONS: To refrain from voting for any individual nominee, write that +nominee's name in the space provided below: +2. +TO +APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE +THE +NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK TO 160 +MILLION +o FOR +o AGAINST +o ABSTAIN +3. +TO +APPROVE THE PERFORMANCE-BASED INCENTIVE CASH COMPENSATION FOR THE +EXECUTIVE OFFICERS +o FOR +o AGAINST +o ABSTAIN +4. +ON +ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY +ADJOURNMENT THEREOF. +(Over) +RPC, +INC. +ALL +PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH +YOUR +INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED "FOR" THE PROPOSALS +1 +THROUGH 3. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF +THE +COMPANY. +PROXY +Please +sign below, date and return promptly. +Signature +Dated: +__________________________, +2006 +(Signature +should conform to name and title stenciled hereon. +Executors, administrators, trustees, guardians and +attorneys should add their title upon signing.) +NO +POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED +IN THE UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-06-000950/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-06-000950/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000742278/0001188112-07-000828/proxy.txt b/raw/proxies/0000742278/0001188112-07-000828/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..67a1ff1e6e39a7f5b46861bf90a99d304579fb49 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-07-000828/proxy.txt @@ -0,0 +1,3142 @@ +DEF 14A +1 +t13442_def14a.htm +DEF 14A +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE +14A +Proxy +Statement Pursuant to Section 14(a) of the +Securities +Exchange Act of 1934 +Filed +by +the Registrant x +Filed +by +a Party other than the Registrant o +Check +the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +Use of the +x +Definitive +Proxy Statement +Commission +Only (as permitted by +o +Definitive +Additional Materials +Rule +14a-6(e)(2) +o +Soliciting +Material Pursuant to +(§)240.14a-11(c) +or (§)240.14a-12 +RPC, +INC. +(Name +of Registrant as Specified In Its +Charter) +N/A +(Name +of Person(s) Filing Proxy Statement if other than the +Registrant) +Payment +of Filing Fee (Check the appropriate box): +x +No +fee required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +1) +Title +of each class of securities to which transaction +applies: +2) +Aggregate +number of securities to which transaction +applies: +3) +Per +unit price or other underlying value of transaction computed +pursuant to +Exchange Act Rule +0-11 (Set forth the amount on which the filing fee is calculated +and state +how it was +determined): +4) +Proposed +maximum aggregate value of +transaction: +5) +Total +fee paid: +o +Fee +paid previously with preliminary +materials. +o +Check +box if any part of the fee is offset as provided by Exchange Act +Rule +0-11(a)(2) and identify the filing for which the offsetting fee was +paid +previously. Identify the previous filing by registration statement +number, +or the Form or Schedule and the date of its +filing. +1) +Amount +Previously Paid: +2) +Form, +Schedule or Registration Statement No.: +3) +Filing +Party: +4) +Date +Filed: +RPC, +INC. +NOTICE +OF ANNUAL MEETING OF STOCKHOLDERS +2801 +Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO +THE HOLDERS OF THE COMMON STOCK: +PLEASE +TAKE NOTICE +that the +2007 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” +or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, on +Tuesday, April 24, 2007, at 12:15 P.M., or any adjournment thereof, for the +following purposes: +1. +To +elect three Class III directors to the Board of Directors; and +2. +To +transact such other business as may properly come before the meeting or any +adjournment thereof. +The +Proxy +Statement dated March 27, 2007 is attached. +The +Board +of Directors has fixed the close of business on March 16, 2007 as the record +date for the determination of stockholders entitled to notice of, and to vote +at, the meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, +sign +and return the enclosed proxy. No postage is required if the enclosed envelope +is mailed in the United States. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March +27, +2007 +This +page +is intentionally left blank +PROXY +STATEMENT +This +Proxy Statement and a form of proxy were first mailed to stockholders on or +about March 27, 2007. The following information concerning the enclosed proxy +and the matters to be acted upon at the Annual Meeting of the Stockholders +to be +held on April 24, 2007, is submitted by the Company to the stockholders in +connection with the solicitation of proxies on behalf of the Company’s Board of +Directors. +SOLICITATION +OF AND POWER TO REVOKE PROXY +A +form of +proxy is enclosed. Each proxy submitted will be voted as directed, but if not +otherwise specified, proxies solicited by the Board of Directors of the Company +will be voted in favor of the candidates for election to the Board of +Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and +the authority thereby given at any time prior to the exercise of such authority, +if he so elects, by contacting either proxy holder or by attending the meeting +and voting in person. However, a beneficial stockholder who holds his shares +in +street name must secure a proxy from his broker before he can attend the meeting +and vote. +CAPITAL +STOCK +The +outstanding capital stock of the Company on March 16, 2007 consisted of +97,809,777 shares of Common Stock, par value $0.10 per share. Holders of Common +Stock are entitled to one vote (non-cumulative) for each share of such stock +registered in their respective names at the close of business on March 16, +2007, +the record date for determining stockholders entitled to notice of, and to +vote +at, the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual +Meeting. Abstentions will be counted for purposes of determining the presence +or +absence of a quorum for the transaction of business. In accordance with the +General Corporation Law of the state of Delaware, the election of the nominees +named herein as Directors will require the affirmative vote of a plurality +of +the votes cast by the shares of Company Common Stock entitled to vote in the +election provided that a quorum is present at the Annual Meeting. In the case +of +a plurality vote requirement (as in the election of directors), where no +particular percentage vote is required, the outcome is solely a matter of +comparing the number of votes cast for each nominee, with those nominees +receiving the most votes being elected, and hence only votes for director +nominees (and not abstentions) are relevant to the outcome. In this case, the +three nominees receiving the most votes will be elected. There are no rights +of +appraisal or similar dissenter’s rights with respect to any matter to be acted +upon pursuant to this Proxy Statement. It is expected that shares held of record +by officers and directors of the Company, which in the aggregate represent +approximately 67 percent of the outstanding shares of Common Stock, will be +voted for the nominees for directors. +The +executives named in the Summary Compensation Table, and the name and address +of +each stockholder (or “group” as that term is used in Section 13(d)(3) of the +Securities Exchange Act of 1934, as amended) who owned beneficially five percent +(5%) or more of the shares of Common Stock of the Company on March 16, 2007, +together with the number of shares owned by each such person and the percentage +of outstanding shares that ownership represents, and information as to Common +Stock ownership of the directors and executive officers of the Company as a +group (according to information received by the Company), are set out +below: +1 +Name +and Address of Beneficial Owner +Amount +Beneficially +Owned +(1) +Percent +of +Outstanding +Shares +R. +Randall Rollins +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +60,572,237 +(2) +61.3 +Gary +W. Rollins +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +61,299,324 +(3) +62.0 +Richard +A. Hubbell +President and Chief Executive Officer +2801 Buford +Highway, Suite 520 +Atlanta, Georgia 30329 +1,459,784 +(4) +1.5 +Linda +H. Graham +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +356,767 +(5) +** +Ben +M. Palmer +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway, Suite 520 +Atlanta, Georgia +30329 +314,305 +(6) +** +All +Directors and Executive Officers as a +group (10 +persons) +66,621,457 +(7) +67.4 +** +Less +than one percent +(1) +Except +as otherwise noted, the nature of the beneficial ownership for all +shares +is sole voting and investment +power. +(2) +Includes +7,290 shares of the Company Common Stock held as Trustee, Guardian, +or +Custodian for his children. Also includes 273,240 shares of Company +Common +Stock in two trusts of which he is Co-Trustee and as to which he +shares +voting and investment power. Also includes 57,537,985 shares of the +Company Common Stock held by RFPS Management Company II, L.P. of +which RFA +Management Company, LLC (“General Partner”), a Georgia limited liability +company, is the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. +Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. +LOR, +Inc. is the manager of the General Partner. Also includes 834,400 +shares +of the Company Common Stock held by RFT Investment Co., LLC of which +LOR, +Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins +have +voting control of LOR, Inc. Included herein are options to purchase +337,500 shares of Company Common Stock which are currently exercisable +or +will become exercisable within 60 days of March 16, 2007, and 104,000 +shares of restricted stock awards for Company Common Stock. This +also +includes 101,254 shares of Company Common Stock held by his wife, +as to +which Mr. Rollins disclaims any beneficial interest. Mr. Rollins +is part +of a control group holding Company securities that includes Mr. Gary +W. +Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities +and Exchange Commission. +(3) +Includes +273,240 shares of the Company Common Stock in two trusts of which +he is +Co-Trustee and as to which he shares voting and investment power. +Also +includes 172,110 shares of Company Common Stock held as Trustee, +Guardian +or Custodian for his children. Also includes 57,537,985 shares of +the +Company Common Stock held by RFPS Management Company II, L.P. of +which RFA +Management Company, LLC (“General Partner”), a Georgia limited liability +company, is the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. +Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. +LOR, +Inc. is the manager of the General Partner. Also includes 834,400 +shares +of the Company Common Stock held by RFT Investment Co., LLC of which +LOR, +Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins +have +voting control of LOR, Inc. This also includes 202,513 shares of +the +Company Common Stock held by his wife, as to which Mr. Rollins disclaims +any beneficial interest. Mr. Rollins is part of a control group holding +Company securities that includes Mr. R. Randall Rollins, as disclosed +on a +Schedule 13D on file with the U.S. Securities and Exchange +Commission. +2 +(4) +Includes +537,614 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +16, 2007, and 187,025 shares of restricted stock awards for Company +Common +Stock. +(5) +Includes +66,856 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +16, 2007, and 46,250 shares of restricted stock awards for Company +Common +Stock. +(6) +Includes +83,625 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +March +16, 2007, and 144,200 shares of restricted stock awards for Company +Common +Stock. +(7) +Shares +held in trusts as to which more than one officer and/or director +are +Co-Trustees or entities in which there is common ownership have been +included only once. Includes an aggregate of 1,025,595 shares of +Company +Common Stock that may be purchased by four executive officers upon +exercise of options that are currently exercisable or that become +exercisable within 60 days of March 16, 2007, and 481,475 shares +of +restricted stock awards for Company Common Stock awarded and issued +to +them pursuant to the Company’s 1994 Employee Stock Incentive Plan and 2004 +Stock Incentive Plan. +ELECTION +OF DIRECTORS +At +the +Annual Meeting, Messrs. Wilton Looney, Gary W. Rollins and James A. Lane, Jr., +will be nominated to serve as Class III directors. The directors in each class +serve for a term of three years. The director nominees will serve in their +respective class until their successors are elected and qualified. Six other +individuals serve as directors but are not standing for re-election because +their terms as directors extend past this Annual Meeting pursuant to provisions +of the Company’s Bylaws that provide for the election of directors for staggered +terms, with each director serving a term of three years. Unless authority is +withheld, the proxy holders will vote for the election of each nominee named +below. Although management does not contemplate the possibility, in the event +any nominee is not a candidate or is unable to serve as a director at the time +of the election, unless authority is withheld, the proxies will be voted for +any +nominee who shall be designated by the present Board of Directors and +recommended by the Nominating and Governance Committee, to fill such +vacancy. +The +name +and age of the director nominees, their principal occupations, together with +the +number of shares of Common Stock beneficially owned, directly or indirectly, +by +each and the percentage of outstanding shares that ownership represents, all +as +of the close of business on March 16, 2007 (according to information received +by +the Company) are set out below. Similar information is also provided for those +directors whose terms expire in future years. +3 +Names +of Directors +Principal +Occupation (1) +Service +as Director +Age +Shares +of Common Stock (2) +Percent +of Outstanding Shares +Names +of Director Nominees +Class +III (Current Term Expires 2007, New Term Will Expire +2010) +Wilton +Looney +Honorary +Chairman of the Board, Genuine Parts Company (automotive parts +distributor). +1984 +to date +87 +4,050 +** +Gary +W. Rollins (3) +President +and Chief Executive Officer of Rollins, Inc. (consumer +services). +1984 +to date +62 +61,299,324 +(4) +62.0 +James +A. Lane, Jr. +Executive +Vice President of Marine Products Corporation (boat manufacturing) +and +President of Chaparral Boats, Inc. +1987 +to date +64 +277,480 +** +Names +of Directors Whose Terms Have Not Expired +Class +I (Term Expires 2008) +R. +Randall Rollins (3) +Chairman +of the Board of the Company since April 2003; Chairman of the Board +and +Chief Executive Officer of the Company prior to April 2003; Chairman +of +the Board of Marine Products Corporation (boat manufacturing); Chairman +of +the Board of Rollins, Inc. (consumer services). +1984 +to date +75 +60,572,237 +(5) +61.3 +Henry +B. Tippie +Presiding +Director of the Company; Chairman of the Board and Chief Executive +Officer +of Tippie Services, Inc. (management services); Chairman of the Board +of +Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose +gaming and entertainment complex) and Chairman of the Board of Dover +Motorsports, Inc. (operator of motor racing tracks). +1984 +to date +80 +908,752 +(6) +** +James +B. Williams +Chairman +of the Executive Committee, SunTrust Banks, Inc. (bank holding company) +from 1998 to April 2004 . +1984 +to date +74 +135,000 +** +4 +Names +of Directors +Principal +Occupation (1) +Service +as Director +Age +Shares +of Common Stock (2) +Percent +of Outstanding Shares +Class +II (Term Expires 2009) +Richard +A. Hubbell +President +and Chief Executive Officer of the Company since April 2003; President +and +Chief Operating Officer of the Company prior to April 2003; President +and +Chief Executive Officer of Marine Products Corporation (boat +manufacturing). +1987 +to date +62 +1,459,784 +(7) +1.5 +Linda +H. Graham +Vice +President and Secretary of the Company; Vice President and Secretary +of +Marine Products Corporation (boat manufacturing). +2001 +to date +70 +356,767 +(8) +** +Bill +J. Dismuke +Retired +President of Edwards Baking Company (manufacturer of pies and pie +parts). +January +25, 2005 to date +70 +3,375 +** +** +less +than one percent +(1) +Unless +otherwise noted, each of the directors has held the positions of +responsibility set out in this column (but not necessarily his or +her +present title) for more than five years. In addition to the directorships +listed in this column, the following individuals also serve on the +Boards +of Directors of the following companies: James B. Williams: The Coca-Cola +Company; R. Randall Rollins: Dover Downs Gaming and Entertainment, +Inc. +and Dover Motorsports, Inc.; Gary W. Rollins: Genuine Parts Company +and +Emory University; All of the directors shown in the above table are +also +directors of Marine Products Corporation (“Marine Products” or “MPC”) and +with the exception of Messrs. Hubbell and Lane and Ms. Graham are +also +directors of Rollins, Inc. +(“Rollins”). +(2) +Except +as otherwise noted, the nature of the beneficial ownership for all +shares +is sole voting and investment +power. +(3) +R. +Randall Rollins and Gary W. Rollins are +brothers. +(4) +See +information contained in footnote (3) to the table appearing in Capital +Stock section. +(5) +See +information contained in footnote (2) to the table appearing in Capital +Stock section. +(6) +Includes +63,990 shares held in trusts of which he is a Trustee or Co-Trustee +and as +to which he shares voting and investment power. Also includes shares +held +by a wholly owned corporation that owns 1,012 +shares. +(7) +See +information contained in footnote (4) to the table appearing in Capital +Stock section. +(8) +See +information contained in footnote (5) to the table appearing in Capital +Stock section. +Our +Board +of Directors recommends a vote FOR the nominees +listed. +CORPORATE +GOVERNANCE AND BOARD OF DIRECTORS +COMMITTEES +AND MEETINGS +Board +Meetings and Compensation +The +Board +of Directors met five times during the fiscal year ended December 31, 2006. +No +director attended fewer than 75 percent of the aggregate of all Board meetings +and meetings of committees on which he or she served during 2006. Board members +are encouraged to attend the Company’s Annual Stockholder Meetings and all Board +members were in attendance at last year’s meeting. +The +Board +of Directors has an Audit Committee, a Compensation Committee and a Nominating +and Governance Committee. +5 +Audit +Committee +The +Audit +Committee of the Board of Directors of the Company consists of Henry B. Tippie +(Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit +Committee held five meetings during the fiscal year ended December 31, 2006. +The +Board of Directors has determined that all of the Audit Committee members are +independent as that term is defined by the rules of the Securities and Exchange +Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of +Directors has also determined that all of the Audit Committee members are “Audit +Committee Financial Experts” as defined in the SEC rules. Additionally, the +Board of Directors has determined that the simultaneous service by Mr. James +B. +Williams on the Audit Committees of three other publicly traded companies does +not impair his ability to effectively serve on the Audit Committee of RPC. +The +Audit Committee meets with the Company’s independent registered public +accountants, internal auditor, Chief Executive Officer and Chief Financial +Officer to review the scope and results of audits and recommendations made +with +respect to controls over financial reporting and specific accounting and +financial reporting issues. The Audit Committee has the authority to obtain +advice and assistance from, and receive appropriate funding from the Company +for, outside legal, accounting or other advisors as it deems necessary to carry +out its duties. The Audit Committee charter is available on the Company’s +website at www.rpc.net under the Governance section. A written copy of the +charter can be obtained free of charge by writing to The Secretary, RPC, Inc., +2170 Piedmont Road NE, Atlanta, Georgia 30324. +Compensation +Committee +The +Compensation Committee of the Board of Directors of the Company consists of +Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held two +meetings during the fiscal year ended December 31, 2006. The function of the +Compensation Committee is to set the base salary and cash based incentive +compensation of all of the executive officers. The Compensation Committee also +administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee +does +not have a formal charter, and is not required to have one under the “controlled +company” exemption under the NYSE rules, as described in the section titled +“Director Independence and NYSE Requirements” below. +Nominating +and Governance Committee +The +Nominating and Governance Committee of the Board of Directors of the Company +consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, +each of whom is independent, as discussed more fully under “Director +Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant +to a resolution passed by the Board of Directors for the following +purposes: +· +to +recommend to the Board of Directors nominees for director and to +consider +any nominations properly made by a +stockholder; +· +upon +request of the Board of Directors, to review and report to the Board +with +regard to matters of corporate governance; +and +· +to +make recommendations to the Board of Directors regarding the agenda +for +Annual Stockholders’ Meetings and with respect to appropriate action to be +taken in response to any stockholder +proposals. +The +Nominating and Governance Committee held one meeting during the fiscal year +ended December 31, 2006. +Director +Nominations +Under +Delaware law, there are no statutory criteria or qualifications for directors. +No criteria or qualifications have been prescribed by the Board at this time. +The Nominating and Governance Committee does not have a charter or a formal +policy with regard to the consideration of director candidates. However, it +acts +under the guidance of the corporate governance guidelines approved by the Board +of Directors and posted on the Company’s website at www.rpc.net under the +Governance section. A written copy of the Corporate Governance Guidelines can +be +obtained free of charge by writing to the Secretary, RPC, Inc., 2170 Piedmont +Road NE, Atlanta, Georgia 30324. The Board believes that it should preserve +maximum flexibility in order to select directors with sound judgment and other +desirable qualities. According to the Company’s corporate governance guidelines, +the Board of Directors will be responsible for selecting nominees for election +to the Board of Directors. The Board delegates the screening process to the +Nominating and Governance Committee. This Committee is responsible for +determining the appropriate skills and characteristics required of Board members +in the context of the then current make-up of the Board. This determination +takes into account all factors which the Committee considers appropriate, such +as independence, experience, strength of character, mature judgment, technical +skills, diversity, age and the extent to which the individual would fill a +present need on the Board. The Company’s Bylaws provide that nominations for the +election of directors may be made by any stockholder entitled to vote for the +election of directors. Nominations must comply with an advance notice procedure +which generally requires, with respect to nominations for directors for election +at an annual meeting, that written notice be addressed to: Secretary, RPC, +Inc., +2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior +to the anniversary of the prior year’s annual meeting and set forth the name, +age, business address and, if known, residence address of the nominee proposed +in the notice, the principal occupation or employment of the nominee for the +past five years, the class or series and number of shares of capital stock +of +the Company which are owned beneficially or of record by the person and any +other information relating to the person that would be required to be disclosed +in a proxy statement or other filings. Other requirements related to the notice +are contained in the Company’s Bylaws. The Committee will consider nominations +from stockholders who satisfy these requirements. The Committee is responsible +for screening the nominees that are selected by the Board of Directors for +nomination to the Board and for service on committees of the Board. To date, +the +Company has not received a recommendation for a director nominee from a +stockholder. All of the nominees for directors being voted upon at the Annual +Meeting to be held on April 24, 2007 are directors standing for +re-election. +6 +Director +Independence and NYSE Requirements +Controlled +Company Exemption +The +Company is not required by law or NYSE listing requirements to have a Nominating +or Compensation Committee composed of independent directors, nor to have a +Board +of Directors, the majority of which are independent. Because the Company is +a +“controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt +from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance +with those provisions. The Company is a “controlled corporation” because a group +that includes the Company’s Chairman of the Board, R. Randall Rollins, his +brother Gary W. Rollins who is also a director and certain companies under +their +control, possesses in excess of fifty percent of the Company’s voting +power. +The +Company’s Audit Committee is composed of four “independent” directors as defined +by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange +Act, SEC regulations there under, and the Company’s Audit Committee Charter. All +of the members of the Compensation and Nominating and Governance Committees +are +also independent directors. The independent directors of the Company are Henry +B. Tippie, Wilton Looney, James B. Williams and Bill J. Dismuke. +Independence +Guidelines +Under +NYSE listing standards, to be considered independent, a director must be +determined to have no material relationship with the Company other than as +a +director. The NYSE standards set forth a nonexclusive list of relationships +which are conclusively deemed material. +The +Company’s Independence Guidelines (Appendix A to the Company’s Corporate +Governance Guidelines) are posted on the Company’s website at www.rpc.net under +the Governance section. These independence guidelines provide that to be +independent, a director must not have any relationship that would be considered +material under NYSE standards and that except in special circumstances as +determined by a majority of the Board, the following relationships are not +material: +(i) +If +the director, or a member of the director’s immediate family, has received +less than one hundred thousand dollars (US $100,000) in direct +compensation from the Company (other than director and committee +fees and +compensation for prior service which are not contingent in any way +on +continued services) during every 12 month period within the past +three (3) +years; +7 +(ii) +If +the director is a director or officer, or any member of the director’s +immediate family is a director or officer of a bank to which the +Company +is indebted, and the total amount of the indebtedness does not exceed +one +percent (1%) of the total assets of the bank for any of the past +three (3) +years; +(iii) +If +the director or any member of the director’s immediate family is an +employee of a charitable or educational organization, and donations +by the +Company do not exceed the greater of one million dollars (US $1,000,000) +or two percent (2%) of the organization’s consolidated gross revenues +within the preceding three (3) +years; +(iv) +If +the director has a relationship with the Company of a type covered +by item +404(a) and/or item 407 of the Securities and Exchange Commission’s +Regulation S-K (or any successor regulation), and that relationship +need +not, according to the terms of those items and any then-current proxy +regulations, be disclosed in the Company’s annual Proxy Statement (except +for relationships described elsewhere in the Company’s guidelines in which +case the other guidelines will +govern); +(v) +If +the director, or a member of the director’s immediate family, has direct +or beneficial ownership (as defined by Rule 13d-3 under the Exchange +Act) +of any amount of any class of common stock of the +Company. +Audit +Committee Charter +Under +the +Company’s Audit Committee Charter, in accordance with NYSE listing requirements +and the Securities Exchange Act of 1934, all members of the Audit Committee +must +be independent of management and the Company. A member of the Audit Committee +is +considered independent as long as he or she (i) does not accept any consulting, +advisory, or compensatory fee from the Company, other than as a director or +committee member; (ii) is not an affiliated person of the Company or its +subsidiaries; and (iii) otherwise meets the independence requirements of the +NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial +Relationships +After +reviewing all of the relationships between the members of the Audit Committee +and the Company, the Board of Directors determined that none of the members +of +the Audit Committee had any relationships not included within the categorical +standards set forth in the Independence Guidelines and disclosed above except +as +follows: +1. +Mr. +Tippie was employed by Rollins from 1953 to 1970, and held several +offices +with that company during that time, including as Executive Vice +President +— Finance, Secretary, Treasurer and Chief Financial Officer. Messrs. +Randall and Gary Rollins are directors and executive officers of +Rollins +and are part of a group that has voting control of +Rollins. +2. +Mr. +Tippie is Chairman of the Board of Directors of Dover Motorsports, +Inc. +and Dover Downs Gaming and Entertainment, Inc. Mr. Randall Rollins +is also +a director of these companies. +3. +Mr. +Tippie is the trustee of the O. Wayne Rollins Foundation and of the +Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and +Randall Rollins. The beneficiaries of the Rollins Children’s Trust include +the immediate family members of Randall and Gary +Rollins. +4. +Each +of Messrs. Dismuke, Looney, Tippie and Williams also serve on the +Boards +of Rollins and Marine Products, of which Messrs. Gary and Randall +Rollins +are directors, and voting control over which is held by a control +group of +which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins +is +an executive officer of Marine +Products. +As +required by the Independence Guidelines, the Board of Directors unanimously +concluded that the above-listed relationships would not affect the independent +judgment of the independent directors, based on their experience, character +and +independent means, and therefore do not preclude an independence determination. +All of the members are also independent under the heightened standards required +for Audit Committee members. +8 +In +accordance with the NYSE corporate governance listing standards, Mr. Henry +B. +Tippie was elected as the Presiding Director. The Company’s non-management +directors meet at regularly scheduled executive sessions without management. +Mr. +Tippie presides during these executive sessions. +Corporate +Governance Guidelines +We +have +adopted Corporate Governance Guidelines to promote better understanding of +our +policies and procedures. At least annually, the Board reviews these guidelines. +As required by the rules of the New York Stock Exchange, our Corporate +Governance Guidelines require that our non-management directors meet in at +least +two regularly scheduled executive sessions per year without +management. +At +the +Company’s website at www.rpc.net, under the Governance section, you may access a +copy of our Corporate Governance Guidelines, our Audit Committee Charter, our +Code of Business Conduct and our Code of Business Conduct and Ethics for +Directors and Executive Officers and Related Party Transactions. Copies are +also +available in print, without charge, to any shareholder who requests one by +writing to: The Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +Code +of Business Conduct +The +Company has adopted a Code of Business Conduct applicable to all directors, +officers and employees generally, as well as a Code of Business Conduct and +Ethics for Directors and Executive Officers and Related Party Transactions +Policy applicable to the principal executive officer, principal financial +officer, and directors. Both codes are available on the Company’s website at +www.rpc.net under the Governance section. Copies are also available in print, +without charge, to any shareholder who requests one by writing to: The +Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +Director +Communications +The +Company also has a process for interested parties, including stockholders, +to +send communications to the Board of Directors, Presiding Director, any of the +Board Committees or the non-management directors as a group. Such communications +should be addressed as follows: +Mr. +Henry +B. Tippie +c/o +Internal Audit Department +RPC, +Inc. +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329 +The +above +instructions for communications with the directors are also posted on our +website at www.rpc.net under the Governance section. All communications received +from interested parties are forwarded to the Board of Directors. Any +communication addressed solely to the Presiding Director or the non-management +directors will be forwarded directly to the appropriate +addressee(s). +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None +of +the directors named above who serve on the Company’s Compensation Committee are +or have ever been employees of the Company. There are no Compensation Committee +interlocks requiring disclosure. +9 +DIRECTOR +COMPENSATION +The +following table sets forth compensation to the Company’s directors for services +rendered as a director. Three of the directors, Messrs. R. Randall Rollins, +Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their +compensation is set forth in the Summary Compensation Table below under +Executive Compensation. The directors listed below have never been employed +by +the Company or paid a salary or bonus by the Company; have never been granted +any options or other stock-based awards, and do not participate in any Company +sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who +was +an employee of the Company until the spin-off of Marine Products in +2001. +Name +Fees +Earned or +Paid +in Cash ($) +Stock +Awards +(1) ($) +Option +Awards +(1) ($) +Total +($) +Henry +B. Tippie +64,000 +— +— +64,000 +James +B. Williams +36,000 +— +— +36,000 +Wilton +Looney +36,000 +— +— +36,000 +Bill +J. Dismuke +31,000 +— +— +31,000 +Gary +W. Rollins +20,000 +— +— +20,000 +James +A. Lane, Jr. +21,000 +— +— +21,000 +(1) +Directors +are eligible for grants of stock awards under the Company’s 2004 Stock +Incentive Plan (“SIP”). No stock awards have been granted to the +non-management directors under the 2004 +SIP. +Under +current compensation arrangements, non-management directors each receive an +annual retainer fee of $20,000 ($16,000 in 2006). In addition, the Chairman +of +the Audit Committee receives an annual retainer of $14,000 ($12,000 in 2006), +the Chairman of the Compensation Committee receives an annual retainer of $8,000 +($4,000 in 2006), and the Chairman of each of the Nominating and Governance +Committee and Diversity Committee receives an annual retainer of $5,000 ($4,000 +in 2006). A director that chairs more than one committee receives a retainer +with respect to each committee he chairs. All of the retainers are paid on +a +quarterly basis. Per meeting fees for non-management directors are as +follows: +· +For +meetings of the Board of Directors, Compensation Committee, Nominating +and +Governance Committee and Diversity Committee, $1,250 ($1,000 in +2006). +· +For +meetings of the Audit Committee, $2,250 ($2,000 in 2006). In addition, +the +Chairman of the Audit Committee receives an additional $1,250 ($1,000 +in +2006) for preparing to conduct each quarterly Audit Committee +meeting. +All +non-management directors are also entitled to reimbursement of expenses for +all +services as a director, including committee participation or special +assignments. +Notwithstanding +anything to the contrary set forth in any of the Company’s previous filings +under the Securities Act of 1933 or the Securities Exchange Act of 1934, that +might incorporate future filings, including the Proxy Statement, in whole or +in +part, the Report of the Audit Committee shall not be incorporated by reference +into any such filings. +10 +REPORT +OF THE AUDIT COMMITTEE +Management +is responsible for the Company’s internal controls, assessing the effectiveness +of these controls and the financial reporting process. The Company’s independent +registered public accountants are responsible for performing independent audits +of the Company’s consolidated financial statements and management’s assessment +that the Company maintained effective control over financial reporting in +accordance with the standards of the Public Company Accounting Oversight Board +(United States) and for issuing reports thereon. The Audit Committee’s +responsibility is generally to monitor and oversee these processes, as described +in the Audit Committee Charter. It is not the duty of the Audit Committee to +plan or conduct audits or to determine that the Company’s financial statements +are complete and accurate and in accordance with generally accepted accounting +principles; that is the responsibility of management. +In +fulfilling its oversight responsibilities with respect to the year ended +December 31, 2006, the Audit Committee: +· +Approved +the terms of engagement of Grant Thornton LLP as the Company’s independent +registered public accountants for the year ended December 31, +2006; +· +Reviewed +with management the interim financial information included in the +Forms +10-Q prior to their being filed with the SEC. In addition, the Committee +reviewed all earnings releases with management and independent public +accountants prior to their release; +· +Reviewed +and discussed with the Company’s management and the independent registered +public accountants the audited consolidated financial statements +of the +Company as of December 31, 2006 and 2005 and for the three years +ended +December 31, 2006; +· +Reviewed +and discussed with the Company’s management and the independent registered +public accountants, management’s assessment that the Company maintained +effective control over financial reporting as of December 31, +2006; +· +Discussed +with the independent registered public accountants matters required +to be +discussed by the American Institute of Certified Public Accountants +Statement on Auditing Standards (“SAS”) No. 61, “Communications +with Audit Committees,” as amended by SAS 90, “Audit Committee +Communications,” the rules of the Securities and Exchange Commission and +the standards of the Public Company Accounting Oversight Board (United +States); and +· +Received +from the independent registered public accountants the written disclosures +and the letter required by Independence Standards Board Standard +No. 1, +“Independence Discussions with Audit Committees,” as amended, as adopted +by the Public Company Accounting Oversight Board, and discussed with +the +registered public accountants the firm’s independence from the +Company. +Based +upon the review and discussions referred to above, the Committee recommended +to +the Board of Directors that the audited consolidated financial statements of +the +Company and subsidiaries as of December 31, 2006 and 2005 and for the three +years ended December 31, 2006, management’s report on internal control over +financial reporting as of December 31, 2006 and the report of the Company’s +independent registered public accounting firm on internal control over financial +reporting as of December 31, 2006, be included in the Company’s Annual Report on +Form 10-K for the year ended December 31, 2006 and for filing with the +Securities and Exchange Commission. +In +giving +its recommendation to the Board of Directors, the Audit Committee has relied +on +(i) management’s representation that such financial statements have been +prepared with integrity and objectivity and in conformity with accounting +principles generally accepted in the United States of America and (ii) the +report of the Company’s independent registered public accounting firm with +respect to such financial statements. +Submitted +by the Audit Committee of the Board of Directors. +Henry +B. +Tippie, Chairman +Wilton +Looney +James +B. +Williams +Bill +J. +Dismuke +11 +COMPENSATION +DISCUSSION AND ANALYSIS +Compensation +Committee +During +the fiscal year ended December 31, 2006, the members of our Compensation +Committee held primary responsibility for determining executive compensation +levels. The Committee is composed of three of our non-management directors +who +do not participate in the Company’s compensation plans. The Committee determines +the compensation and administers the performance-based cash compensation plan +for our executive officers. In addition, the Committee also administers our +Stock Incentive Plan for all the employees. +The +members of our Compensation Committee have extensive and varied experience +with +various public and private corporations - as investors and stockholders, as +senior executives, and as directors charged with the oversight of management +and +the setting of executive compensation levels. Henry B. Tippie, the Chairman +of +the Compensation Committee, has served on the board of directors of twelve +different publicly traded companies and has been involved in setting executive +compensation levels at all of these companies. Messrs. Wilton Looney and James +B. Williams have served on the board of directors of several different publicly +traded companies and have similarly been involved in setting executive +compensation levels at many of these companies. +The +Compensation Committee has authority to engage attorneys, accountants and +consultants, including executive compensation consultants, to solicit input +from +management concerning compensation matters, and to delegate any of its +responsibilities to one or more directors or members of management where it +deems such delegation appropriate and permitted under applicable law. The +Committee has not used the services of any compensation consultants in +determining or recommending the amount or form of executive +compensation. +The +Compensation Committee believes that determinations relative to executive +compensation levels are best left to the discretion of the Committee. In +addition to the extensive experience and expertise of the Committee’s members +and their familiarity with the Company’s performance and the performance of our +executive officers, the Committee is able to draw on the experience of other +Directors and on various legal and accounting executives employed by the +Company, and the Committee has access to the wealth of readily available public +information relative to structuring executive compensation programs and setting +appropriate compensation levels. The Committee also believes that the structure +of our executive compensation programs should not become overly complicated +or +difficult to understand. The Committee solicits input from our Chairman with +respect to the performance of our executive officers and their compensation +levels. +General +Compensation Objectives and Guidelines +The +Company is engaged in a highly competitive industry. The success of the Company +depends on its ability to attract and retain highly qualified and motivated +executives. In order to accomplish this objective, the Company structures the +executive compensation in a fashion that takes into account the Company’s +overall performance and the individual performance of the +executive. +The +Compensation Committee endorses the philosophy that executive compensation +should reflect Company performance and the contribution of executive officers +to +that performance. The Company’s compensation policy is designed to reward growth +in revenues, net income and increase in shareholder value. The Committee +recognizes that there are many intangibles involved in evaluating performance +and in motivating performance, and that determining an appropriate compensation +level is a highly subjective endeavor. The analysis of the Committee is not +based upon a structured formula and the objectives referred to above are not +weighted in any formal manner. +The +Company’s executive officers are also executive officers of Marine Products and +receive compensation directly from Marine Products. The members of the Company’s +Compensation Committee also constitute the Compensation Committee of Marine +Products. In determining the compensation for the executive officers at the +Company, the Committee considers the dual responsibilities and sources of +compensation. The Company sets compensation of its executives at such levels +so +that, the aggregate compensation received from both Marine Products and the +Company is reasonable in light of their respective responsibilities and the +performance of both companies, and the compensation from the Company for +services solely to the Company is reasonable. A discussion of the Company’s +executive officers’ compensation at Marine Products is contained in its annual +Proxy Statement filed with the SEC. +12 +Pursuant +to the Company’s compensation philosophy, the total annual compensation of its +executive officers is primarily made up of base salary, performance-based +incentive cash compensation and stock-based incentive compensation. In addition, +the Company provides retirement compensation plans, group welfare benefits +and +certain perquisites. +We +believe a competitive base salary is important to attract, retain and motivate +top executives. We believe a performance-based incentive cash compensation +plan +is valuable in recognizing and rewarding individual achievement. Finally, we +believe stock-based incentives makes executives “think like owners” and, +therefore, aligns their interests with those of our stockholders. +The +Company does not have any formal stock ownership requirements for its executive +officers but notes that its directors and executive officers are stockholders +of +the Company, as is disclosed elsewhere in this Proxy Statement. The Company +is +mindful of the stock ownership of our directors and executive officers but +does +not believe that it is appropriate to provide a mechanism or formula to take +stock ownership (or gains from prior option or stock awards) into account when +setting compensation levels. The Company provides in its insider trading +policies that directors and executive officers may not sell Company securities +short and may not sell puts, calls or other derivative securities tied to our +Common Stock. +The +Company does not have a formal policy relative to the adjustment or recovery +of +incentives or awards in the event that the performance measures upon which +incentives or awards were based are later restated or otherwise adjusted in +a +manner that would have reduced the size of an incentive or award. However, +as +all incentives and awards remain within the discretion of the Compensation +Committee, the Committee retains the ability to take any such restatements +or +adjustments into account in subsequent years. In addition, the Sarbanes-Oxley +Act requires in the case of accounting restatements that result from material +non-compliance with SEC financial reporting requirements, that Chief Executive +Officers and Chief Financial Officers must disgorge bonuses and other +incentive-based compensation and profits on stock sales, if the non-compliance +results from misconduct. +Base +Salary +The +salary of each executive officer is determined by the Compensation Committee. +In +making its determinations, the Committee gives consideration to the recent +financial performance of the Company, the magnitude of responsibilities, the +scope of the position, individual performance and compensation paid by Marine +Products. The Committee solicits input from our Chairman with respect to the +performance of our executive officers and their compensation levels. During +2006, the base salaries of our executive officers were increased to the +following amounts: Mr. Richard A. Hubbell: $500,000 ($50,000 increase from +2005); Mr. Ben M. Palmer: $175,000 ($25,000 increase from 2005); Mr. R. Randall +Rollins: $400,000 ($55,000 increase from 2005); and Ms. Linda H. Graham: +$135,000 ($15,000 increase from 2005). These increases were subjectively based +on growth in revenues, recent profit performance of the Company and return +on +invested capital. On January 23, 2007, the Committee approved for its executive +officers the following base salary for 2007: Mr. Richard A. Hubbell: $600,000; +Mr. Ben M. Palmer: $200,000; Mr. R. Randall Rollins: $500,000; and Ms. Linda +H. +Graham: $150,000. +Performance-Based +Incentive Cash Compensation +In +2006, +stockholders of the Company approved the Performance-Based Incentive Cash +Compensation Plan (the “Management Incentive Plan”) for the executive officers. +Under the Management Incentive Plan, the Compensation Committee establishes +performance goals annually within ninety days after the commencement of the +performance period to which such goals relate. Performance goals for each +participant may be based on corporate, business unit/function or individual +performance, or a combination of one or more such measures. +13 +In +connection with the annual establishment of performance goals, the Compensation +Committee sets a target award for each participant in the Management Incentive +Plan for the applicable year, which is expressed as a percentage of the +participant’s base compensation (the “Target Award”) in effect on the last day +of the final pay period of that year . +If +the +participant’s performance goals are based upon a combination of performance +measures, the Compensation Committee will weigh the importance of each +performance measure by assigning a percentage (the “Weighted Percentage”) to +those performance measures. The +participant’s cash award amount will also depend in part upon +the +level of achievement that the participant attained with respect to each such +performance measure utilizing the formula set out in the Management Incentive +Plan. This formula provides for a performance value (“Performance Value”) which +ranges from: +· +threshold +performance level (with a performance value of 25 percent of the +Target +Award), +· +target +performance level (with a performance value up to 100 percent of +the +Target Award), to +· +superior +performance level (with a performance value up to 200 percent of +the +Target Award). +Subject +to the limitations set forth in the next sentence, a participant’s cash award +amount for each year under the Management Incentive Plan equals the product +of +the Target Award multiplied by the Weighted Percentage assigned to each +performance measure used for a participant, multiplied by the Performance Value +attained for each performance measure, multiplied by base +compensation . +The +Committee will determine the maximum cash award as a percentage of participants’ +base compensation for each applicable year. +For +2006, +the Compensation Committee established the target incentive award under the +Management Incentive Plan for the Chief Executive Officer and for the other +members of executive management at the amounts shown in the table below. The +amounts that could be earned under the Management Incentive Plan are reasonably +comparable to the prior year amounts before the Management Incentive Plan was +established. +Executive +Officer +Target +Award as a +percentage +of base salary +Richard +A. Hubbell +President +and Chief Executive Officer +100% +Ben +M. Palmer +Vice +President, Chief Financial Officer and Treasurer +80% +R. +Randall Rollins +Chairman +of the Board +100% +Linda +H. Graham +Vice +President and Secretary +40% +The +maximum bonus award for each participant under the Plan for 2006 was established +at 150 percent of such participant’s base salary. The performance criteria +applicable to the participants under the Management Incentive Plan for 2006 +were +determined based solely on corporate performance. The Compensation Committee +established corporate performance goals for 2006 under the Management Incentive +Plan based on return on invested capital, with specific goals established by +a +review of peer groups and prior year results. Return on invested capital is +a +widely used performance measure that typically correlates with long-term changes +in shareholder value. The Company uses return on invested capital for internal +measurement and chose to formalize it as a computation for the Management +Incentive Plan. The target performance was established at a level that was +difficult to achieve but not extraordinarily so. +The +executive officers earned their maximum awards based on the assigned performance +criteria for the year ended December 31, 2006. Performance-based cash +compensation earned under the Management Incentive Plan for 2006 was as follows: +Mr. Richard A. Hubbell: $750,000; Mr. Ben M. Palmer: $262,500; Mr. R. Randall +Rollins: $600,000; and Ms. Linda H. Graham $108,000. For 2007, the Committee +has +established the Target Award, performance criteria and maximum bonus awards +at +the same levels as 2006. +Stock-Based +Incentive Plans +Our +Stock +Incentive Plan allows for a wide variety of stock based awards such as stock +options and restricted stock. We last issued stock options in fiscal year ended +2003 and have no current plans to issue additional stock options. We have never +issued any stock appreciation rights. Partially in response to changes relative +to the manner in which stock options are accounted for under generally accepted +accounting principles, we have modified the structure and composition of the +long-term equity based component of our executive compensation. In recent years, +we have awarded time-based restricted stock in lieu of granting stock options. +The terms and conditions of these awards are described in more detail +below. +14 +Awards +under the Company’s Stock Incentive Plan are purely discretionary, are not based +upon any specific formula and may or may not be granted in any given fiscal +year. For the past three years, we have granted time-based restricted stock +to +various employees, including our executive officers, in early January during +our +regularly scheduled meetings of the Compensation Committee during which the +Committee reviews executive compensation. Consistent with this practice, we +granted restricted stock awards to our executive officers in January 2006 and +January 2007 in amounts which are reasonably comparable to grants made in prior +years. The number of shares awarded was as follows: Mr. Richard A. Hubbell: +30,000 shares in 2006 (20,000 shares in 2007); Mr. Ben M. Palmer: 12,000 shares +in 2006 (8,000 shares in 2007); Mr. R. Randall Rollins: 30,000 shares in 2006 +(20,000 shares in 2007); and Ms. Linda H. Graham: 7,500 shares in 2006 (5,000 +shares in 2007). When considering the grant of stock based awards, the Committee +gives consideration to our overall performance and the performance of individual +employees. It is our expectation to continue yearly grants of restricted stock +awards although we reserve the right to modify or discontinue this or any of +our +other compensation practices at anytime. +All +of +our restricted stock awards granted since 2004 have had the same features. +The +shares vest one-fifth per year beginning on the second anniversary of the grant +date. Restricted shares have full voting and dividend rights. However, until +the +shares vest, they cannot be sold, transferred or pledged. Should the executive +leave our employment for any reason prior to the vesting dates (other than +due +to death, disability or retirement on or after age 65), the unvested shares +will +be forfeited. In the event of a “change in control” of the Company, the +Compensation Committee has the discretion to accelerate vesting of the +shares. +Employment +Agreements +There +are +no agreements or understandings between the Company and any executive officer +which guarantee continued employment or guarantee any level of compensation, +including incentive or bonus payments, to the executive officer. +Retirement +Plans +The +Company maintains a defined benefit pension plan for all our eligible employees, +a non-qualified supplemental retirement plan for our executives and certain +other highly compensated employees and a 401(k) Plan for the benefit of all +regular full time employees. In 2002, the Company’s Board of Directors approved +a resolution to cease all future benefit accruals under the Retirement Income +Plan effective March 31, 2002. In lieu thereof, beginning in 2002, the Company +began providing enhanced benefits in the form of cash contributions on behalf +of +certain long-service employees who were 40 to 65 years of age on or before +December 31, 2002. These enhanced benefit contributions are discretionary and +may be made annually, subject to a participant’s continued employment, for a +maximum of seven years. The contributions are made either to the non-qualified +Supplemental Retirement Plan (“SRP”) or to the 401(k) Plan for each employee who +is entitled to the enhanced benefits. The Company contributed $26,262 towards +enhanced benefits for Mr. Hubbell in 2006. Beginning late in 2002, the Company +began permitting selected highly compensated employees to defer a portion of +their compensation into the SRP. +Other +Compensation +Other +compensation to our executives includes typical employee benefits such as group +medical, dental and vision coverage and group life insurance. The Company +provides an automobile (or an automobile allowance) to Messrs. Richard A. +Hubbell and Ben M. Palmer. +The +following Compensation Committee Report shall not be incorporated by reference +by any general statement incorporating by reference this Proxy Statement into +any filing under the Securities Act of 1933, as amended (the “Securities Act”), +except to the extent that the Company specifically incorporates this information +by reference, and shall not otherwise be deemed filed under the Securities +Act +or the Exchange Act. +15 +COMPENSATION +COMMITTEE REPORT +We +have +reviewed and discussed the above “Compensation Discussion and Analysis” with +management. +Based +upon this review and discussion, we have recommended to the Board of Directors +that the “Compensation Discussion and Analysis” be included in the Company’s +Annual Report on Form 10-K for the year ended December 31, 2006 and this Proxy +Statement. +Submitted +by the Compensation Committee of the Board of Directors. +Henry B. +Tippie, Chairman +Wilton +Looney +James +B. +Williams +SECTION +16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The +Company has completed a review of Forms 3, 4, and 5 and amendments thereto +furnished to the Company by all directors, officers and greater than 10 percent +stockholders subject to the provisions of Section 16 of the Securities Exchange +Act of 1934, as amended. In addition, the Company has a written representation +from all directors, officers and greater than 10 percent stockholders from +whom +no Form 5 was received indicating that no Form 5 filing was required. Based +solely on this review, the Company believes that filing requirements of such +persons under Section 16 for the fiscal year ended December 31, 2006 have been +satisfied. +EXECUTIVE +COMPENSATION +Shown +below is information concerning the annual and long-term compensation for +services in all capacities to the Company for the calendar year ended December +31, 2006 of those persons who were at December 31, 2006, +· +our +Principal Executive Officer and Principal Financial Officer; +and +· +our +two other executive officers of the +Company: +SUMMARY +COMPENSATION TABLE +Name +and Principal Position +Year +Salary +($) +Stock +Awards +($) (1) +Option +Awards +($) +(1) +Non-Equity +Incentive Plan Compensation (2) +Change +in Pension Value and Nonqualified Deferred Compensation Earnings +($) +(3) +All +Other Compensation ($) (4) +Total +($) +Richard +A. Hubbell +President and +Chief Executive Officer +2006 +500,000 +217,770 +41,290 +750,000 +102,950 +37,780 +1,649,790 +Ben +M. Palmer +Vice President, +Chief Financial Officer +and +Treasurer +2006 +175,000 +150,130 +18,360 +262,500 +9,880 +16,250 +632,120 +R. +Randall Rollins +Chairman of the Board +2006 +400,000 +148,300 +79,650 +600,000 +— +— +1,227,950 +Linda +H. Graham +Vice President +and Secretary +2006 +135,000 +63,280 +10,100 +108,000 +— +3,940 +320,320 +(1) +These +respective amounts represent the dollar amount recognized for financial +reporting purposes with respect to fiscal year 2006 for prior year +option +grants and current year and prior year grants of restricted Common +Stock +awarded under our Stock Incentive Plan, all computed in accordance +with +Statement of Financial Accounting Standard (“SFAS”) No. 123R. Please refer +to Note 10 to our Financial Statements contained in our Form 10-K +for the +period ending December 31, 2006 for a discussion of the assumptions +used +in these computations. For this computation, we do not include an +assumption for estimated forfeitures. Our Form 10-K has been included +in +our Annual Report and provided to our +stockholders. +16 +(2) +Bonuses +under the Management Incentive Plan are accrued in the fiscal year +earned +and paid in the following fiscal +year. +(3) +Represents +the aggregate change in the actuarial present value of the executive +officer’s accumulated benefit under the defined benefit plan during +2006. +(4) +All +other compensation includes the following items +for: +Mr. +Richard A. Hubbell: +Insurance +on automobile provided by the Company, cost of dining club dues, +cost of +gasoline for personal automobile, 401(k) Plan Company match of $6,600 +and +contribution towards enhanced benefits of $26,262. +Mr. +Ben M. Palmer: +Automobile +allowance of $8,400, cost of gasoline for personal automobile and +401(k) +Plan Company match of $6,600. +Ms. +Linda H. Graham: +401(k) +Plan Company match of $3,940. +GRANTS +OF PLAN-BASED AWARDS +Estimated +Future Payouts +Under +Non-Equity +Incentive +Plan Awards (1) +All +Other Stock +Awards: +Number +of Shares +Grant +Date +Fair +Value +of +Stock and +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +of +Stock or Units +(#) +Option +Awards +($) +(2) +Richard +A. Hubbell +4/25/06 +1/24/06 +125,000 +500,000 +750,000 +30,000 +669,600 +Ben +M. Palmer +4/25/06 +1/24/06 +43,750 +140,000 +262,500 +12,000 +267,840 +R. +Randall Rollins +4/25/06 +1/24/06 +100,000 +400,000 +600,000 +30,000 +669,600 +Linda +H. Graham +4/25/06 +1/24/06 +27,000 +54,000 +108,000 +7,500 +167,400 +(1) +These +amounts illustrate the potential bonus awards under the Management +Incentive Plan for 2006 that were paid out in early 2007. See Summary +Compensation Table on page 16 for actual amounts awarded in +2006. +(2) +These +amounts represent aggregate grant date fair value for grants of restricted +shares of Common Stock awarded in fiscal year 2006 under our Stock +Incentive Plan computed in accordance with SFAS 123R. Please refer +to Note +10 to our Financial Statements contained in our Form 10-K for the +period +ending December 31, 2006 for a discussion of assumptions used in +this +computation. For this computation, we do not include an assumption +for +estimated forfeitures. Our Form 10-K has been included in our Annual +Report and provided to our +stockholders. +The +table +above reflects grants of restricted shares of Company Common Stock under our +Stock Incentive Plan awarded in fiscal year 2006. All grants of restricted +shares of Common Stock vest one-fifth per year beginning on the second +anniversary of the grant date. Restricted shares have full voting and dividend +rights. However, until the shares vest, they cannot be sold, transferred or +pledged. Should the executive leave our employment for any reason prior to +the +vesting dates (other than due to death, disabiltiy or retirement on or after +age +65), the unvested shares will be forfeited. We have not issued any stock options +in the past three fiscal years and have no immediate plans to issue additional +stock options. Share amounts have been adjusted to reflect the three-for-two +stock split effective December 11, 2006. +The +Company’s employment contracts with its Chief Executive Officer and the +Company’s other executive officers are oral, at will arrangements. All of the +executive officers are eligible for annual cash bonuses which are awarded under +the Management Incentive Plan. The Compensation Committee’s decisions are based +upon broad performance objectives under that plan. The executive officers are +eligible to receive shares of Company Common Stock subject to options and +restricted shares of Company Common Stock under the Company’s Stock Incentive +Plans, in such amounts and with such terms and conditions as determined by +the +Committee at the time of grant. All of the executive officers are eligible +to +participate in the Company’s SRP. The executive officers are eligible to +participate in the Company’s regular employee benefit programs, including the +401(k) Plan with Company match, group life insurance, group medical and dental +coverage and other group benefit plans. All of the executive officers are +eligible for the Retirement Income Plan that was frozen in March 2002. For +more +information on these plans, see “Compensation Discussion and Analysis” at page +12, and “Benefit Plans” at page 19. +17 +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +The +table below sets forth details concerning outstanding option awards made +in +prior years to the executives named in our Summary Compensation Table, including +the grant date, the expiration date, the option exercise price, and the number +of shares of Common Stock underlying the grants both exercisable and +unexercisable. As we have not issued any stock options in the past three +fiscal +years, the grant dates for all of these options are from fiscal year ended +2003 +and earlier. The table below also sets forth the total number of restricted +shares of Common Stock that were granted in prior years to the executives +named +in our Summary Compensation Table but which have not yet vested, together +with +the market value of these unvested shares based on the $16.88 closing price +of +our Common Stock on December 29, 2006. Share amounts and exercise prices +have +been adjusted to reflect the three-for-two stock split effective December +11, +2006. +Option +Awards +Stock +Awards +Name +Number +of Securities Underlying Unexercised Options +(#)Exercisable +Number +of Securities Underlying Unexercised Options +(#)Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +(1) +Number +of Shares or Units of Stock That Have Not Vested +(#) +Market +Value of Shares or Units of Stock That Have Not Vested +($) +Richard +A. Hubbell +51,076 +— +1.96 +1/28/2007 +(2) +208,875 +(8) +3,525,810 +127,695 +— +3.33 +1/27/2008 +(3) +173,669 +— +1.79 +1/26/2009 +(4) +168,748 +— +3.88 +4/24/2011 +(5) +50,625 +33,750 +2.81 +1/28/2013 +(6) +Ben +M. Palmer +43,125 +— +3.88 +4/24/2011 +(5) +166,912 +(8) +2,817,470 +30,375 +20,250 +2.81 +1/28/2013 +(6) +R. +Randall Rollins +142,250 +35,562 +3.09 +1/28/2008 +(7) +84,000 +(8) +1,417,920 +127,750 +31,938 +2.81 +1/28/2008 +(7) +Linda +H. Graham +5,106 +— +1.96 +1/28/2007 +(2) +58,125 +(8) +981,150 +10,215 +— +3.33 +1/27/2008 +(3) +12,766 +— +1.79 +1/26/2009 +(4) +16,875 +— +3.88 +4/24/2011 +(5) +20,250 +13,500 +2.81 +1/28/2013 +(6) +(1) +Unless +otherwise noted, all options have ten year terms with vesting as +follows: +The options vest one-fifth per year beginning on the first anniversary +of +the grant date. +(2) +Options +granted 01/28/1997. +(3) +Options +granted 01/27/1998. +(4) +Options +granted 01/26/1999. +(5) +Options +granted 04/24/2001. +(6) +Options +granted 01/28/2003. +(7) +Options +granted 01/28/2003 with vesting as follows: The options vest one-fifth +per +year beginning on the grant date. +18 +(8) +The +Company has granted employees two forms of restricted stock: +time lapse +restricted and performance restricted. Time lapse restricted +shares vest +after a stipulated number of years from the grant date, depending +on the +terms of the issue. Time lapse restricted shares issued in years +2003 and +prior vest after ten years. Time lapse restricted shares issued +starting +in 2004 vest one-fifth per year beginning on the second anniversary +of the +grant date. The performance restricted shares are granted, but +not earned +and issued until certain five-year tiered performance criteria +are met. +The performance criteria are predetermined market prices of RPC +common +stock. On the date the common stock appreciates to each level +(determination date), 20 percent of performance shares are earned. +Once +earned, the performance shares vest five years from the determination +date. The Company has not granted performance restricted shares +since +2003. Shares of restricted stock granted to the executive officers +that +have not vested as of December 31, 2006 are summarized in the +table +below: +Name +Number +of shares +Grant +Date +Date +fully vested +Richard +A. Hubbell +33,750 +1/28/1997 +1/28/2007 +50,625 +1/26/1999 +1/26/2009 +54,000 +4/27/2004 +4/27/2010 +40,500 +1/25/2005 +1/25/2011 +30,000 +1/24/2006 +1/24/2012 +Ben +M. Palmer +20,250 +1/28/1997 +1/28/2007 +13,500 +1/27/1998 +1/27/2008 +10,125 +1/26/1999 +1/26/2009 +45,562 +4/24/2001 +4/24/2011 +16,875 +1/28/2003 +10/28/2009 +21,600 +4/27/2004 +4/27/2010 +27,000 +1/25/2005 +1/25/2011 +12,000 +1/24/2006 +1/24/2012 +R. +Randall Rollins +54,000 +4/27/2004 +4/27/2010 +30,000 +1/24/2006 +1/24/2012 +Linda +H. Graham +13,500 +1/28/1997 +1/28/2007 +6,750 +1/27/1998 +1/27/2008 +13,500 +4/27/2004 +4/27/2010 +16,875 +1/25/2005 +1/25/2011 +7,500 +1/24/2006 +1/24/2012 +OPTION +EXERCISES AND STOCK VESTED +The +following table sets forth: +· +the +number of shares of Common Stock acquired by the executives named +in the +Summary Compensation Table upon the exercise of stock options +during the +fiscal year ended December 31, +2006; +· +the +aggregate dollar amount realized on the exercise date for such +options +computed by multiplying the number of shares acquired by the +difference +between the market value of the shares on the exercise date and +the +exercise price of the +options; +· +the +number of restricted shares of Common Stock acquired by the executives +named in the Summary Compensation Table upon the vesting of shares +during +the fiscal year ended December 31, 2006; +and +· +the +aggregate dollar amount realized on the vesting date for such +restricted +stock computed by multiplying the number of shares which vested +by the +market value of the shares on the vesting +date. +Share +amounts have been adjusted to reflect the three-for-two stock split effective +December 11, 2006. +Option +Awards (1) +Stock +Awards +Name +Number +of Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number +of Shares +Acquired +on Exercise +(#) +Value +Realized +on +Vesting +($) +Richard +A. Hubbell +102,156 +1,869,500 +79,355 +1,501,600 +Ben +M. Palmer +37,542 +675,000 +16,554 +300,100 +R. +Randall Rollins +— +— +13,500 +239,500 +Linda +H. Graham +— +— +25,665 +451,500 +(1) +The +shares acquired on exercise of options are restricted for a period +of one +year from the date of exercise. +BENEFIT +PLANS +The +table below shows the present value of accumulated benefits payable to each +of +the named executive officers, including the number of years of service credited +to each such named executive officer, under the Retirement Income Plan +determined using interest rate and mortality rate assumptions consistent +with +those used in the Company’s financial statements. Information regarding the +Retirement Income Plan can be found under Note 10 to our Financial Statements +contained in our Form 10-K for the period ending December 31, +2006. +19 +Pension +Benefits +Name +Plan +Name +Number +of +Years +Credited +Service +(#) (1) +Present +Value +of +Accumulated +Benefit +($) +Payments +During +Last +Fiscal Year +($) +Richard +A. Hubbell +Retirement +Income Plan +15 +427,084 +— +Ben +M. Palmer +Retirement +Income Plan +4 +40,985 +— +R. +Randall Rollins +Retirement +Income Plan +30 +2,292,975 +261,600 +Linda +H. Graham +Retirement +Income Plan +15 +203,885 +— +(1) +The +difference in years of credited and actual service is due to the +freezing +of benefit accruals in 2002. See discussion below for further +details. +The +Company’s Retirement Income Plan, a trusteed defined benefit pension plan, +provides monthly benefits upon retirement at age 65 to eligible employees. +In +2002, the Company’s Board of Directors approved a resolution to cease all future +benefit accruals under the Retirement Income Plan effective March 31, 2002. +Retirement Income Plan benefits are based on the average of the employee’s +compensation from the Company for the five consecutive complete calendar +years +of highest compensation during the last ten consecutive complete calendar +years +(“final average compensation”) immediately preceding March 31, 2002. The +benefits are computed as the product of 1.5 percent of final average +compensation multiplied by years of credited service (up to 30 years) reduced +by +an adjustment for benefits drawn from social security. Adjustments have been +made for age and IRS mandated compensation limitations. The final average +compensation for the named executive officers is as follows: Mr. Hubbell +– +$205,890, Mr. Palmer – $179,900 +and Ms. +Graham – $127,325. +The +annual benefit payable at the later of retirement age or 65 for the named +executive officers is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, +$24,900 +for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Code (as +amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), +the +maximum annual benefit payable to a Retirement Income Plan beneficiary in +2006 +was $170,000. Retirement benefits accrued at the end of any calendar year +or as +of March 31, 2002 will not be reduced or increased by any subsequent changes +in +the maximum compensation limit. +The +Plan also provides reduced early retirement benefits at age 55 or older with +15 +or more years of service. Mr. Hubbell and Ms. Graham are eligible for early +retirement benefits and the amounts payable to them in such an event is +calculated using the computation described above reduced by a certain percentage +for each incremental month of early retirement. In addition, as an owner +with +stock ownership in excess of five percent of the Company’s voting securities, +Mr. Rollins is required to receive mandatory distributions currently, even +though he has not retired from the Company. The amount of distribution received +during 2006 has been disclosed in the table above and is not subject to change +after retirement. +In +2002, the Company began providing additional benefits on behalf of certain +long-service employees in the form of discretionary cash contributions made +either to the Company’s 401(k) Plan (which is described below) or the SRP as +described in the section below titled “Nonqualified Deferred Compensation.” +Amounts contributed by the Company to the accounts of the executive officers +are +reported in the “All Other Compensation” column of the Summary Compensation +Table on page 16. +401(k) +Plan +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to +meet +the requirements of Section 401(k) of the Code. The Company makes matching +contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s +contribution to the 401(k) Plan that does not exceed six percent of his or +her +annual compensation. The only form of benefit payment under the 401(k) Plan +is a +single lump-sum payment equal to the vested balance in the participant’s account +on the date the distribution is processed. Under the 401(k) Plan, the full +amount of a participant’s vested accrued benefit is payable upon his termination +of employment, retirement, total and permanent disability, or death. Also +under +the 401(k) Plan, a participant may withdraw his or her pre-tax contributions +to +the extent of certain specified instances of financial hardship and may withdraw +any amount from his or her pre-tax contribution account for any reason after +attaining age 59 ½ . In +addition, a +participant may withdraw any amount from his or her rollover account for +any +reason. Amounts contributed by the Company to the accounts of the named +executive officers under this plan are reported in the “All Other Compensation” +column of the Summary Compensation Table on page 16. +20 +NONQUALIFIED +DEFERRED COMPENSATION +The +SRP has been established as a non-qualified plan that is designed to comply +with +the provisions of the American Jobs Creation Act of 2004 (including Section +409A +of the Internal Revenue Code) for the cash contributions made to certain +longer +serviced employees in lieu of freezing of benefit accruals effective in 2002; +the SRP also has a compensation deferral option for eligible employees. The +contributions and deferrals to the SRP are invested in funds held in a rabbi +trust. +Name +Executive +Contributions +in +last +FY ($) +(1) +Registrant +contributions +in +last +FY ($) +(2) +Aggregate +earnings +in +last FY ($) +Aggregate +withdrawals/ +distributions +($) +Aggregate +balance +at +last +FYE ($) +Richard +A. Hubbell +— +26,262 +12,250 +— +155,400 +Ben +M. Palmer +30,000 +— +8,100 +— +87,300 +R. +Randall Rollins +— +— +— +— +— +Linda +H. Graham +63,750 +— +13,200 +— +186,900 +(1) +Includes +the following amounts related to the base salary for 2006 which +have been +deferred by the executive officer pursuant to the SRP: Mr. Ben +M. Palmer: +$14,000 and Ms. Linda H. Graham: $33,750. The remaining amounts +represent +deferrals of bonus compensation related to 2005 that were paid +in +2006. +(2) +Reflects +the amounts for each of the named executive officers which are +reported as +compensation to such named executive officer in the “All Other +Compensation” column of the Summary Compensation Table on page +16. +The +deferral option provides that participants may defer up to 50 percent of +their +base salary and up to 100 percent of their annual bonus with respect to any +given plan year, subject to a $2,000 per plan year minimum. The deferred +amounts +are voluntarily funded on a monthly basis; salary and bonus deferrals are +generally 100 percent vested. Accounts are credited with hypothetical earnings, +and/or debited with hypothetical losses, based on the performance of certain +“Measurement Funds.” Account values are calculated as if the funds from +deferrals and contributions had been converted into shares or other ownership +units of selected Measurement Funds by purchasing (or selling, where relevant) +such shares or units at the current purchase price of the relevant Measurement +Fund at the time of the participant’s selection. The benefits are unsecured +general obligations of the Company to the participants, and these obligations +rank in parity with the Company’s other unsecured and unsubordinated +indebtedness. To the extent that the Company’s obligations under the SRP exceed +assets available under the trust, the Company would be required to seek +additional funding sources to fund its liability under the SRP. +Generally, +the SRP provides for distributions of any deferred amounts upon the earliest +to +occur of a participant’s death, disability, retirement or other termination of +employment (a “Termination Event”). However, for any deferrals of base salary +and bonus compensation (but not Company contributions), participants would +be +entitled to designate a distribution date which is prior to a Termination +Event. +The SRP allows a participant to elect to receive distributions in installments +or lump-sum payments. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +following table describes the potential payments and benefits under the +Company’s compensation and benefit plans and arrangements to which the named +executive officers would be entitled upon termination of employment. There +are +no other agreements, arrangements or plans that entitle executive officers +to +severance, perquisites, or other enhanced benefits upon termination of their +employment except as described below. Additional payments or benefits to +a +terminating executive officer would be at the discretion of the Compensation +Committee. The executive officers are not entitled to additional benefits +at +death or disability per the terms of the defined benefit plan. The amounts +payable at retirement are disclosed in the “Benefit Plans” section on page 19. +The executive officers can choose to receive the amounts accumulated in the +SRP +either as a lump-sum or in installments at retirement, death or disability. +These amounts have been disclosed under the “Nonqualified Deferred Compensation” +section on page 21. The table below shows the incremental restricted shares +that +would become vested as of December 29, 2006 at the closing market price of +$16.88 per share for our Common Stock, as of that date in the case of +retirement, death or disability. +21 +Stock +Awards +Number +of shares +underlying +unvested +stock +(#) +Unrealized +value of +unvested +stock ($) +Richard +A. Hubbell +· +Retirement +— +— +· +Disability +113,568 +1,917,030 +· +Death +113,568 +1,917,030 +Ben +M. Palmer +· +Retirement +— +— +· +Disability +113,592 +1,917,430 +· +Death +113,592 +1,917,430 +R. +Randall Rollins +· +Retirement +27,083 +457,160 +· +Disability +27,083 +457,160 +· +Death +27,083 +457,160 +Linda +H. Graham +· +Retirement +31,568 +532,870 +· +Disability +31,568 +532,870 +· +Death +31,568 +532,870 +Accrued +Pay and Regular Retirement Benefits +The +amounts shown in the table above do not include the following since they +are +provided on a - non-discriminatory basis to salaried employees generally +upon +termination of employment. These include: +· +Accrued +salary and vacation pay. +· +Distributions +of plan balances under the 401(k) +Plan. +· +The +value of option continuation upon termination, as described below. +When an +employee terminates prior to retirement, his or her stock options +are +terminated immediately, except that the options may be exercised +for a +period after termination (not to exceed the original option termination +date) in the following +circumstances: +· +Permanent +Disability – one year after +termination +· +Death +– six months after the date of +death +· +Normal +or Early Retirement - one day less than three months after +retirement +The +termination of employment for any reason shall not accelerate the vesting +of +options. +Pension +Benefit and Deferred Compensation +The +Retirement Income Plan does not provide for lump-sum payments for a participant +including executive officers for instances other than retirement. The Retirement +Income Plan is described at “Pension Benefits” above. Upon termination, the +executive officers will receive a distribution of the balance in their SRP +account. These amounts are disclosed under the “Nonqualified Deferred +Compensation” section on page 21. +22 +Change +in Control or Severance. +The +Company does not have any change in control or severance arrangements for +its +executive officers. However, amounts may be paid at the discretion of the +Compensation Committee. +CERTAIN +RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective +with the spin-off in 2001, the Company began providing certain administrative +services to Marine Products. The service agreements between Marine Products +and +the Company provide for the provision of services on a cost reimbursement +basis +and may be terminated upon six months notice. The services covered by these +agreements include administration of certain employee benefit programs and +other +administrative services. Charges from the Company (or from corporations which +are subsidiaries of the Company) for such services aggregated approximately +$739,000 in 2006. +During +2006, a subsidiary of RPC conducted business with companies owned by LOR, +Inc. +Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director are +officers, directors and controlling stockholders of LOR, Inc. In 2006, payments +totaling approximately $1,235,000 were made to these LOR, Inc. companies +for the +purchase of parts and repair services related to certain of RPC’s oilfield +operating equipment. RPC believes the charges incurred by its subsidiary +are at +least as favorable as the charges that would have been incurred for similar +services from unaffiliated third parties. +RPC +receives certain administrative services including an allocation for office +space from Rollins. The service agreements between Rollins and the Company +provide for the provision of services on a cost reimbursement basis and are +terminable on six months notice. The services covered by these agreements +include office space, administration of certain employee benefit programs, +and +other administrative services. Charges to the Company (or to corporations +which +are subsidiaries of the Company) for such services and rent aggregated +approximately $70,000 in 2006. +A +group that includes the Company’s Chairman of the Board, R. Randall Rollins, his +brother Gary W. Rollins who is also a director and certain companies under +their +control, possesses in excess of fifty percent of the Company’s voting power. +Please refer to the discussion above under the heading, “Corporate Governance +and Board of Directors Committees and Meetings, Director Independence and +NYSE +Requirements, Controlled Company Exemption.” The group discussed above also +controls in excess of fifty percent of Marine Products’ voting +power. +Our +Code of Business Conduct and Ethics for Directors and Executive Officers +and +Related Party Transactions Policy provides that related party transactions, +as +defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or +ratified by our Nominating and Corporate Governance Committee. As set forth +in +our Code, our Nominating and Corporate Governance Committee has the +responsibility to ensure that it only approve or ratify related party +transactions that are in compliance with applicable law, consistent with +the +Company’s corporate governance policies (including those relative to conflicts +of interest and usurpation of corporate opportunities) and on terms that +are +deemed to be fair to the Company. The Committee has the authority to hire +legal, +accounting, financial or other advisors as it may deem necessary or desirable +and/or to delegate responsibilities to executive officers of the Company +in +connection with discharging its duties. A copy of the Code is available on +our +website at www.rpc.net, under the Governance section. All related party +transactions for fiscal year ended December 31, 2006 were reviewed, approved +and/or ratified by the Nominating & Corporate Governance Committee in +accordance with the Code. +INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS +Principal +Auditor +Grant +Thornton LLP (“Grant Thornton”) served as the Company’s independent registered +public accountants for the fiscal years ended December 31, 2006 and 2005. +In +addition to performing the audit of the Company’s consolidated financial +statements, Grant Thornton provided various other services during 2006 and +2005. +23 +The +Audit Committee has appointed Grant Thornton as the Company’s independent +registered public accountants for the fiscal year ending December 31, 2007. +Representatives of Grant Thornton are expected to be present at the Annual +Meeting and will have an opportunity to make a statement if they so desire +and +will be available to respond to appropriate questions. +The +aggregate fees billed by the Company’s independent registered public accountants +are set forth below: +2006 +2005 +Audit +fees and quarterly reviews (1) +$ +967,570 +$ +877,200 +Audit +related fees (2) +16,730 +12,600 +Tax +fees (3) +— +8,500 +All +other fees +— +— +(1) +Audit +fees include fees for audit or review services in accordance with +generally accepted auditing standards, such as statutory audits +and +services rendered for compliance with Section 404 of the Sarbanes-Oxley +Act. +(2) +Audit +related fees represent fees for the audit of the 401(k) +Plan. +(3) +Tax +fees related to tax planning and advice on international +issues. +Pre-approval +of Services +All +of the services described above were pre-approved by the Company’s Audit +Committee. The Audit Committee has determined that the payments made to its +independent registered public accountants for these services are compatible +with +maintaining such auditors’ independence. All of the hours expended on the +principal accountant’s engagement to audit the financial statements of the +Company for the year 2006 was attributable to work performed by full-time, +permanent employees of the principal accountant. +The +Audit Committee is directly responsible for the appointment and termination, +compensation, and oversight of the work of the independent registered public +accountants, including resolution of disagreements between management and +the +independent registered public accountants regarding financial reporting. +The +Audit Committee is responsible for pre-approving all audit and non-audit +services provided by the independent registered public accountants and ensuring +that they are not engaged to perform the specific non-audit services proscribed +by law or regulation. The Audit Committee has delegated pre-approval authority +to its Chairman with the stipulation that his decision is to be presented +to the +full Committee at its next scheduled meeting. The Audit Committee has no +other +pre-approval policies. +STOCKHOLDER +PROPOSALS +Appropriate +proposals of stockholders intended to be presented at the Company’s 2008 Annual +Meeting of the Stockholders must be received by the Company by November 28, +2007, in order to be included, pursuant to Rule 14a-8 promulgated under the +Securities Exchange Act of 1934, as amended, in the Proxy Statement and form +of +proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the +Securities Exchange Act of 1934, management proxy holders intend to use their +discretionary voting authority with respect to any stockholder proposal raised +at the Company’s 2008 Annual Meeting as to which the proponent fails to notify +the Company on or before February 11, 2008. With regard to such stockholder +proposals, if the date of the next Annual Meeting of the Stockholders is +advanced or delayed more than 30 calendar days from April 24, 2008, the Company +will, in a timely manner, inform its stockholders of the change and of the +date +by which such proposals must be received. +With +respect to stockholder nomination of directors, the Company’s Bylaws provide +that nominations for the election of directors may be made by any stockholder +entitled to vote for the election of directors. Nominations must comply with +an +advance notice procedure which generally requires with respect to nominations +for directors for election at an Annual Meeting, that written notice be +addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324, not less than ninety days prior to the anniversary of the prior year’s +Annual Meeting and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal +occupation or employment of the nominee for the past five years, the nominee’s +qualifications, the class or series and number of shares of capital stock +of the +Company which are owned beneficially or of record by the person and any other +information relating to the person that would be required to be disclosed +in a +proxy statement or other filings. Other specific requirements related to +such +notice, including required disclosures concerning the stockholder intending +to +present the nomination, are set forth in the Company’s Bylaws. Notices of +nominations must be received by the Secretary of the Company no later than +January 25, 2008 and +no +earlier than December 16, 2007 with respect to directors to be elected at +the +2008 Annual Meeting of Stockholders. +24 +EXPENSES +OF SOLICITATION +The +Company will bear the cost of soliciting proxies. Upon request, we will +reimburse brokers, dealers and banks, or their nominees, for reasonable expenses +incurred in forwarding copies of the proxy material to their beneficial +shareholders of record. Solicitation of proxies will be made principally +by +mail. Proxies also may be solicited in person or by telephone, facsimile +or +other means by our directors, officers and regular employees. These individuals +will receive no additional compensation for these services. The Company has +retained Georgeson Shareholder Communications, Inc. to conduct a broker search +and to send proxies by mail for an estimated fee of approximately $7,500 +plus +shipping expenses. +MISCELLANEOUS +The +Company’s Annual Report to Stockholders, including its Annual Report on Form +10-K for the fiscal year ended December 31, 2006, without exhibits, is being +mailed to stockholders with this Proxy Statement. +Upon +the written request of any record or beneficial owner of the Company’s Common +Stock whose proxy was solicited in connection with the 2007 Annual Meeting +of +Stockholders, the Company will furnish such owner, without charge, a copy +of its +Annual Report on Form 10-K, including the financial statements and the financial +statement schedules (but without exhibits), for its fiscal year ended December +31, 2006. Requests for a copy of such Annual Report on Form 10-K should be +addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont +Road +NE, Atlanta, Georgia 30324. +Management +knows of no business other than the matters set forth herein which will be +presented at the Annual Meeting. In as much as matters not known at this +time +may come before the Annual Meeting, the enclosed proxy confers discretionary +authority with respect to such matters as may properly come before the Annual +Meeting; and it is the intention of the persons named in the proxy to vote +in +accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, +Secretary +Atlanta, +Georgia +March +27, +2007 +25 +RPC, +Inc. +ooooo 4 +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +MR +A SAMPLE +000000000.000000 +ext +000000000.000000 +ext +DESIGNATION +(IF ANY) +ADD +1 +Electronic +Voting Instructions +You +can vote by Internet or telephone! +Available +24 hours a day, 7 days a week! +Instead +of mailing your proxy, you may choose one of the two voting methods +outlined below to vote your proxy. +VALIDATION +DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies +submitted by the Internet or telephone must be received by +1:00 a.m., Central +Time, on April 24, +2007. +ADD +2 +ADD +3 +ADD +4 +ADD +5 +ADD +6 +Vote +by Internet +• +Log on to the Internet and go to www.investorvote.com +• +Follow the steps outlined on the secured website. +Vote +by telephone +• +Call toll free 1-800-652-VOTE (8683) within the United States, +Canada & Puerto Rico any time on a touch tone telephone. There is +NO CHARGE to you for the call. +• +Follow the instructions provided by the recorded +message. +Using +a black ink pen, mark your votes with an +X as shown in this example. Please do not write +outside +the designated areas. +Annual +Meeting Proxy Card +123456 +C0123456789 +12345 +IF +YOU HAVE +NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. +----------------------------------------------------------------------------------------------------------------------------------------------------------------------- +A +Elections of +Directors — The Board of Directors recommends a vote FOR all the nominees +listed. +1. +Class III Directors Nominees: +01 +- Wilton Looney +02 +- Gary W. Rollins +03 +- James A. Lane, Jr. +Mark +here to vote FOR all nominees +Mark +here to WITHHOLD vote from all nominees +01 +02 +03 +For +All EXCEPT - To +withhold a vote for one or more nominees, mark the box to the left +and the +corresponding numbered box(es) to the right. +2. +On all other matters which may properly come before the meeting or any adjourment +thereof. +B +Non-Voting +Items +Change +of Address — Please print new address below. +C +Authorized +Signatures — This section must be completed for your vote to be counted. — +Date and Sign Below +Signature +should conform to name and title stenciled hereon. Executors, +administrators, trustees, guardians and attorneys should add their +title +upon signing. +Date +(mm/dd/yyyy) — Please print date below. +Signature +1 — Please keep signature within the box. +Signature +2 — Please keep signature within the box. +/ / +C +1234567890 +J +N T +MR +A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE +1 +U P X +0 1 2 6 8 5 1 +140 +CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND +MR +A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR +A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +IF +YOU +HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. +----------------------------------------------------------------------------------------------------------------------------------------------------------------------- +Proxy +— +RPC, +Inc. +Proxy +Solicited by the Board of Directors of RPC, Inc. +For +Annual +Meeting of Stockholders on Tuesday, April 24, 2007, 12:15 +P.M. +The +undersigned +hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and +each +of them, jointly and severally, proxies, with full power of substitution, to +vote all shares of Common Stock which the undersigned is entitled to vote at +the +Annual Meeting of Stockholders to be held on April 24, 2007, at 12:15 P.M. +at 2170 Piedmont Road, NE, Atlanta, Georgia, or any adjournment +thereof. +The +undersigned +acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy +Statement, each dated March 27, 2007, grants authority to said proxies, or +either of them, or their substitutes, to act in the absence of others, with +all +the powers which the undersigned would possess if personally present at such +meeting and hereby ratifies and confirms all that said proxies or their +substitutes may lawfully do in the undersigned ’ s +name, place and stead. The undersigned instructs said proxies, or either of +them, to vote as specified on the reverse. +ALL +PROXIES +SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR +INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED “ FOR ” +THE ABOVE-NAMED NOMINEES FOR DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF +THE +BOARD OF DIRECTORS OF THE COMPANY. +NO +POSTAGE +REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE +UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-07-000828/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-07-000828/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..bcd456d96d29ee57f8ed54730828652d16acfbc3 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-07-000828/proxy_rpt.txt @@ -0,0 +1,24 @@ +Related Party Transactions Policy provides that related party transactions, +as +defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or +ratified by our Nominating and Corporate Governance Committee. As set forth +in +our Code, our Nominating and Corporate Governance Committee has the +responsibility to ensure that it only approve or ratify related party +transactions that are in compliance with applicable law, consistent with +the +Company’s corporate governance policies (including those relative to conflicts +of interest and usurpation of corporate opportunities) and on terms that +are +deemed to be fair to the Company. The Committee has the authority to hire +legal, +accounting, financial or other advisors as it may deem necessary or desirable +and/or to delegate responsibilities to executive officers of the Company +in +connection with discharging its duties. A copy of the Code is available on +our +website at www.rpc.net, under the Governance section. All related party +transactions for fiscal year ended December 31, 2006 were reviewed, approved +and/or ratified by the Nominating & Corporate Governance Committee in +accordance with the Code. +INDEPENDENT \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-08-000875/proxy.txt b/raw/proxies/0000742278/0001188112-08-000875/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0115edd0aac543add4b80d1ca8846d2a56c0e8f8 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-08-000875/proxy.txt @@ -0,0 +1,2906 @@ +DEF 14A +1 +t61924_def14a.htm +SCHEDULE 14A +t61924_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE +COMMISSION +Washington, D.C. +20549 +SCHEDULE +14A INFORMATION +Proxy Statement Pursuant to Section +14(a) of the Securities +Exchange Act of 1934 (Amendment No. +___) +Filed by the Registrant x +Filed by a Party other than the +Registrant o +Check the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +x +Definitive +Proxy Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to §240.14a-12 +RPC, Inc. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment +of Filing Fee (Check the appropriate box): +x +No +fee required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title +of each class of securities to which transaction applies: +N/A +(2) +Aggregate +number of securities to which transaction applies: +N/A +(3) +Per unit price or +other underlying value of transaction computed pursuant to Exchange Act +Rule +0-11 (set forth the +amount on which the filing fee is calculated and state how it was +determined): +N/A +(4) +Proposed +maximum aggregate value of transaction: N/A +(5) +Total +fee paid: N/A +o +Fee +paid previously with preliminary materials. +o +Check box if any part +of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and +identify the +filing for which the offsetting fee was paid previously. Identify +the previous filing by registration statement number, +or the Form or Schedule and the date of its +filing: +(1) +Amount +previously paid: N/A +(2) +Form, +Schedule or Registration Statement No.: N/A +(3) +Filing +party: N/A +(4) +Date +Filed: N/A +RPC, +INC. +NOTICE +OF ANNUAL MEETING OF STOCKHOLDERS +2801 +Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE +HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the +2008 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” +or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, on +Tuesday, April 22, 2008, at 12:15 P.M., or any adjournment thereof, for the +following purposes: +1. +To +elect three Class I directors to the Board of Directors; +and +2. +To +transact such other business as may properly come before the meeting or +any adjournment thereof. +The +Proxy Statement dated March 17, 2008 is attached. +The +Board of Directors has fixed the close of business on February 29, 2008 as +the record date for the determination of stockholders entitled to notice +of, and to vote at, the meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, +date, sign and return the enclosed proxy. No postage is +required if the enclosed envelope is mailed in the United +States. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March 17, +2008 +1 +PROXY +STATEMENT +This +Proxy Statement and a form of proxy were first mailed to stockholders on or +about March 17, 2008. The following information concerning the +enclosed proxy and the matters to be acted upon at the Annual Meeting of the +Stockholders to be held on April 22, 2008, is submitted by the Company to the +stockholders in connection with the solicitation of proxies on behalf of the +Company’s Board of Directors. +SOLICITATION +OF AND POWER TO REVOKE PROXY +A form of +proxy is enclosed. Each proxy submitted will be voted as directed, +but if not otherwise specified, proxies solicited by the Board of Directors of +the Company will be voted in favor of the candidates for election to the Board +of Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and +the authority thereby given at any time prior to the exercise of such authority, +if he so elects, by contacting either proxy holder or by attending the meeting +and voting in person. However, a beneficial stockholder who holds his +shares in street name must secure a proxy from his broker before he can attend +the meeting and vote. +CAPITAL +STOCK +The +outstanding capital stock of the Company on February 29, 2008 consisted of +98,564,106 shares of Common Stock, par value $0.10 per share. Holders +of Common Stock are entitled to one vote (non-cumulative) for each share of such +stock registered in their respective names at the close of business on February +29, 2008, the record date for determining stockholders entitled to notice of, +and to vote at, the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual +Meeting. Abstentions will be counted for purposes of determining the presence or +absence of a quorum for the transaction of business. In accordance with the +General Corporation Law of the state of Delaware, the election of the nominees +named herein as Directors will require the affirmative vote of a plurality of +the votes cast by the shares of Company Common Stock entitled to vote in the +election provided that a quorum is present at the Annual Meeting. In the case of +a plurality vote requirement (as in the election of directors), where no +particular percentage vote is required, the outcome is solely a matter of +comparing the number of votes cast for each nominee, with those nominees +receiving the most votes being elected, and hence only votes for director +nominees (and not abstentions) are relevant to the outcome. In this +case, the three nominees receiving the most votes will be elected. There +are no rights of appraisal or similar dissenter's rights with respect to any +matter to be acted upon pursuant to this Proxy Statement. It is expected that +shares held of record by officers and directors of the Company, which in the +aggregate represent approximately 71 percent of the outstanding shares of Common +Stock, will be voted for the nominees for directors. +The +executives named in the Summary Compensation Table, and the name and address of +each stockholder (or “group” as that term is used in Section 13(d)(3) of the +Securities Exchange Act of 1934, as amended) who owned beneficially five percent +(5%) or more of the shares of Common Stock of the Company on February 29, 2008, +together with the number of shares owned by each such person and the percentage +of outstanding shares that ownership represents, and information as to Common +Stock ownership of the directors and executive officers of the Company as a +group (according to information received by the Company), are set out +below: +2 +Name and Address of Beneficial +Owner +Amount Beneficially Owned (1) +Percent of Outstanding +Shares +R. +Randall Rollins +Chairman +of the Board +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +64,599,898 +(2) +65.2 +Gary +W. Rollins +President +and Chief Executive Officer, Rollins, Inc. +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +65,929,508 +(3) +66.6 +Royce +& Associates LLC +1414 +Avenue of the Americas +New +York, NY 10019 +6,268,431 +(4) +6.3 +GAMCO +Investors, Inc. +One +Corporate Center +401 +Theodore Fremd Avenue +Rye, +NY 10580 -1433 +5,398,570 +(5) +5.5 +Artisan +Partners Limited Partnership +875 +East Wisconsin Avenue – 800 +Milwaukee, +WI 53202-5408 +5,073,050 (6) +5.1 +Richard +A. Hubbell +President +and Chief Executive Officer +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329 +1,351,077 +(7) +1.4 +Linda +H. Graham +Vice +President and Secretary +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +368,517 +(8) +** +Ben +M. Palmer +Vice +President, Chief Financial Officer and Treasurer +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329 +295,716 +(9) +** +All +Directors and Executive Officers as a group +(10 +persons) +70,565,349 +(10) +71.2 +__________________________________ +** +Less than one percent +(1) +Except +as otherwise noted, the nature of the beneficial ownership for all shares +is sole voting and investment power. +(2) +Includes +9,276 shares of the Company Common Stock held as Trustee, Guardian, or +Custodian for his children. Also includes 687,148 shares of +Company Common Stock in two trusts of which he is Co-Trustee and as to +which he shares voting and investment power. Also includes 57,537,985 +shares of the Company Common Stock held by RFPS Management Company II, +L.P. of which RFA Management Company, LLC ("General Partner"), a +Georgia limited liability +company, is +the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole +trustee. LOR, Inc. is the manager of the General +Partner. Also includes 5,018,900 shares of the Company Common +Stock held by RFT Investment Company, LLC of which LOR, Inc. is the +manager . Mr. +R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, +Inc. Included herein are 104,500 shares of restricted stock +awards for Company Common Stock. This also includes 103,240 +shares of Company Common Stock held by his wife, as to which Mr. Rollins +disclaims any beneficial interest. Mr. Rollins is part of a +control group holding Company securities that includes Mr. Gary W. +Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities +and Exchange Commission. +3 +(3) +Includes +687,148 shares of the Company Common Stock in two trusts of which he is +Co-Trustee and as to which he shares voting and investment +power. Also includes 203,886 shares of Company Common Stock +held as Trustee, Guardian or Custodian for his children. Also +includes 57,537,985 shares of the Company Common Stock held by RFPS +Management Company II, L.P. of which RFA Management Company, LLC ("General +Partner"), a Georgia limited liability +company, is +the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole +trustee. LOR, Inc. is the manager of the General +Partner. Also includes 5,018,900 shares of the Company Common +Stock held by RFT Investment Company, LLC of which LOR, Inc. is the +manager . Mr. +R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, +Inc. This also includes 202,513 shares of the Company Common +Stock held by his wife, as to which Mr. Rollins disclaims any beneficial +interest. Mr. Rollins is part of a control group holding +Company securities that includes Mr. R. Randall Rollins, as disclosed on a +Schedule 13D on file with the U.S. Securities and Exchange +Commission. +(4) +Per +Schedule 13G filed with the Securities and Exchange Commission (“SEC”) on +January 31, 2008. +(5) +Per +Schedule 13D filed with the SEC on February 11, 2008. +(6) +Per +Schedule 13F filed with the SEC on February 13, 2008. +(7) +Includes +426,792 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +February 29, 2008, and 179,425 shares of restricted stock awards for +Company Common Stock. +(8) +Includes +63,391 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +February 29, 2008, and 36,250 shares of restricted stock awards for +Company Common Stock. +(9) +Includes +10,125 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +February 29, 2008, and 127,500 shares of restricted stock awards for +Company Common Stock. +(10) +Shares +held in trusts as to which more than one officer and/or director are +Co-Trustees or entities in which there is common ownership have been +included only once. Includes an aggregate of 500,308 shares of +Company Common Stock that may be purchased by four executive officers upon +exercise of options that are currently exercisable or that become +exercisable within 60 days of February 29, 2008, and 447,675 shares of +restricted stock awards for Company Common Stock awarded and issued to +them pursuant to the Company's 1994 Employee Stock Incentive Plan and 2004 +Stock Incentive Plan. +ELECTION +OF DIRECTORS +At the +Annual Meeting, Messrs. R. Randall Rollins, Henry B. Tippie and James B. +Williams, will be nominated to serve as Class I directors. The +directors in each class serve for a term of three years. The director +nominees will serve in their respective class until their successors are elected +and qualified. Six other individuals serve as directors but are not +standing for re-election because their terms as directors extend past this +Annual Meeting pursuant to provisions of the Company's Bylaws that provide for +the election of directors for staggered terms, with each director serving a term +of three years. Unless authority is withheld, the proxy holders will +vote for the election of each nominee named below. Although +management does not contemplate the possibility, in the event any nominee is not +a candidate or is unable to serve as a director at the time of the election, +unless authority is withheld, the proxies will be voted for any nominee who +shall be designated by the present Board of Directors and recommended by the +Nominating and Governance Committee, to fill such vacancy. +4 +The name +and age of the director nominees, their principal occupations, together with the +number of shares of Common Stock beneficially owned, directly or indirectly, by +each and the percentage of outstanding shares that ownership represents, all as +of the close of business on February 29, 2008 (according to information received +by the Company) are set out below. Similar information is also +provided for those directors whose terms expire in future years. +Names +of Directors +Principal +Occupation (1) +Service +as +Director +Age +Shares +of +Common +Stock +(2) +Percent +of +Outstanding +Shares +Names +of Director Nominees +Class I (Current Term +Expires 2008, New Term Will Expire 2011) +R. +Randall Rollins (3) +Chairman +of the Board of the Company since April 2003; Chairman of the Board and +Chief Executive Officer of the Company prior to April 2003; Chairman of +the Board of Marine Products Corporation (boat manufacturing); Chairman of +the Board of Rollins, Inc. (consumer services). +1984 +to date +76 +64,599,898 +(4) +65.2 +Henry +B. Tippie +Presiding +Director of the Company; Chairman of the Board and Chief Executive Officer +of Tippie Services, Inc. (management services); Chairman of the Board of +Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose +gaming and entertainment complex) and Chairman of the Board of Dover +Motorsports, Inc. (operator of motor racing tracks). +1984 +to date +81 +908,752 +(5) +** +James +B. Williams +Chairman +of the Executive Committee, SunTrust Banks, Inc. (bank holding company) +from 1998 to +April 2004 . +1984 +to date +75 +135,000 +** +Names of Directors +Whose Terms Have Not Expired +Class II (Term Expires +2009) +Richard +A. Hubbell +President +and Chief Executive Officer of the Company since April 2003; President and +Chief Operating Officer of the Company prior to April 2003; President and +Chief Executive Officer of Marine Products Corporation (boat +manufacturing). +1987 +to date +63 +1,351,077 +(6) +1.4 +Linda +H. Graham +Vice +President and Secretary of the Company; Vice President and Secretary of +Marine Products Corporation (boat manufacturing). +2001 +to date +71 +368,517 +(7) +** +Bill +J. Dismuke +Retired +President of Edwards Baking Company (manufacturer of pies and pie +parts). +January +25, 2005 +to +date +71 +3,375 +** +5 +Names +of Directors +Principal +Occupation (1) +Service +as +Director +Age +Shares +of +Common +Stock +(2) +Percent +of +Outstanding +Shares +Class III (Term +Expires 2010) +Wilton +Looney +Honorary +Chairman of the Board, Genuine Parts Company (automotive parts +distributor). +1984 +to date +88 +4,050 +** +Gary +W. Rollins (3) +President +and Chief Executive Officer of Rollins, Inc. (consumer +services). +1984 +to date +63 +65,929,508 +(8) +66.6 +James +A. Lane, Jr. +Executive +Vice President of Marine Products Corporation (boat manufacturing) and +President of Chaparral Boats, Inc. +1987 +to date +65 +277,480 +** +_____________________ +** less +than one percent +(1) +Unless +otherwise noted, each of the directors has held the positions of +responsibility set out in this column (but not necessarily his or her +present title) for more than five years. In addition to the +directorships listed in this column, the following individuals also serve +on the Boards of Directors of the following companies: James B. +Williams: The Coca-Cola Company; R. Randall +Rollins: Dover Downs Gaming and Entertainment, Inc. and Dover +Motorsports, Inc.; Gary W. Rollins: Genuine Parts Company and Emory +University; All of the directors shown in the above table are +also directors of Marine Products Corporation +(“Marine Products” or “MPC”) and with the exception of Messrs. Hubbell and +Lane and Ms. Graham are also directors of Rollins, Inc. +(“Rollins”). +(2) +Except +as otherwise noted, the nature of the beneficial ownership for all shares +is sole voting and investment power. +(3) +R. +Randall Rollins and Gary W. Rollins are brothers. +(4) +See +information contained in footnote (2) to the table appearing in Capital +Stock section. +(5) +Includes +63,990 shares held in trusts of which he is a Trustee or Co-Trustee and as +to which he shares voting and investment power. Also includes +shares held by a wholly owned corporation that owns 1,012 +shares. +(6) +See +information contained in footnote (7) to the table appearing in Capital +Stock section. +(7) +See +information contained in footnote (8) to the table appearing in Capital +Stock section. +(8) +See +information contained in footnote (3) to the table appearing in Capital +Stock section. +Our +Board of Directors recommends a vote FOR the nominees listed. +CORPORATE +GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board +Meetings and Compensation +The Board +of Directors met five times during the fiscal year ended December 31, +2007. No director attended fewer than 75 percent of the aggregate of +all Board meetings and meetings of committees on which he or she served during +2007. Board members are encouraged to attend the Company’s Annual +Stockholder Meetings and all Board members were in attendance at last year's +meeting. +6 +The Board +of Directors has an Audit Committee, a Compensation Committee and a Nominating +and Governance Committee. +Audit +Committee +The Audit +Committee of the Board of Directors of the Company consists of Henry B. Tippie +(Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The +Audit Committee held five meetings during the fiscal year ended December 31, +2007. The Board of Directors has determined that all of the Audit +Committee members are independent as that term is defined by the rules of the +Securities and Exchange Commission (“SEC”) and the New York Stock Exchange +(“NYSE”). The Board of Directors has also determined that all +of the Audit Committee members are “Audit Committee Financial Experts” as +defined in the SEC rules. Additionally, the Board of Directors +has determined that the simultaneous service by Mr. James B. Williams on +the Audit Committees of three other publicly traded companies does not impair +his ability to effectively serve on the Audit Committee of RPC. The Audit +Committee meets with the Company’s independent registered public accountants, +internal auditor, Chief Executive Officer and Chief Financial Officer to review +the scope and results of audits and recommendations made with respect to +controls over financial reporting and specific accounting and financial +reporting issues. The Audit Committee has the authority to obtain +advice and assistance from, and receive appropriate funding from the Company +for, outside legal, accounting or other advisors as it deems necessary to carry +out its duties. The Audit Committee charter is available on the +Company’s website at www.rpc.net under the +Governance section. A written copy of the charter can be obtained +free of charge by writing to The Secretary, RPC, Inc., 2170 Piedmont Road NE, +Atlanta, Georgia 30324. +Compensation +Committee +The +Compensation Committee of the Board of Directors of the Company consists of +Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It +held two meetings during the fiscal year ended December 31, 2007. The function +of the Compensation Committee is to set the base salary and cash based incentive +compensation of all of the executive officers. The Compensation Committee also +administers the RPC, Inc. Stock Incentive Plans. The Compensation +Committee does not have a formal charter, and is not required to have one under +the “controlled company” exemption under the NYSE rules, as described in the +section titled “Director Independence and NYSE Requirements” below. +Nominating +and Governance Committee +The +Nominating and Governance Committee of the Board of Directors of the Company +consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, +each of whom is independent, as discussed more fully under “Director +Independence and NYSE Requirements.” The Committee was formed in 2002 +pursuant to a resolution passed by the Board of Directors for the following +purposes: +· +to +recommend to the Board of Directors nominees for director and to consider +any nominations properly made by a stockholder; +· +upon +request of the Board of Directors, to review and report to the Board with +regard to matters of corporate governance; and +· +to +make recommendations to the Board of Directors regarding the agenda for +Annual Stockholders’ Meetings and with respect to appropriate action to be +taken in response to any stockholder +proposals. +The +Nominating and Governance Committee held one meeting during the fiscal year +ended December 31, 2007. +7 +Director +Nominations +Under +Delaware law, there are no statutory criteria or qualifications for +directors. No criteria or qualifications have been prescribed by the +Board at this time. The Nominating and Governance Committee does not +have a charter or a formal policy with regard to the consideration of director +candidates. However, it acts under the guidance of the Corporate +Governance Guidelines approved by the Board of Directors and posted on the +Company’s website at www.rpc.net under the +Governance section. A written copy of the Corporate Governance +Guidelines can be obtained free of charge by writing to the Secretary, RPC, +Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. The Board +believes that it should preserve maximum flexibility in order to select +directors with sound judgment and other desirable +qualities. According to the Company’s Corporate Governance +Guidelines, the Board of Directors will be responsible for selecting nominees +for election to the Board of Directors. The Board delegates the +screening process to the Nominating and Governance Committee. This +Committee is responsible for determining the appropriate skills and +characteristics required of Board members in the context of the then current +make-up of the Board. This determination takes into account all +factors which the Committee considers appropriate, such as independence, +experience, strength of character, mature judgment, technical skills, diversity, +age and the extent to which the individual would fill a present need on the +Board. The Company’s Bylaws provide that nominations for the election +of directors may be made by any stockholder entitled to vote for the election of +directors. Nominations must comply with an advance notice procedure which +generally requires, with respect to nominations for directors for election at an +annual meeting, that written notice be addressed to: Secretary, RPC, +Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days +prior to the anniversary of the prior year's annual meeting and set forth the +name, age, business address and, if known, residence address of the nominee +proposed in the notice, the principal occupation or employment of the nominee +for the past five years, the class or series and number of shares of capital +stock of the Company which are owned beneficially or of record by the person and +any other information relating to the person that would be required to be +disclosed in a proxy statement or other filings. Other requirements related +to the notice are contained in the Company’s Bylaws. The Committee +will consider nominations from stockholders who satisfy these +requirements. The Committee is responsible for screening the nominees +that are selected by the Board of Directors for nomination to the Board and for +service on committees of the Board. To date, the Company has not +received a recommendation for a director nominee from a +stockholder. All of the nominees for directors being voted upon at +the Annual Meeting to be held on April 22, 2008 are directors standing for +re-election. +Director +Independence and NYSE Requirements +Controlled Company +Exemption +The +Company is not required by law or NYSE listing requirements to have a Nominating +or Compensation Committee composed of independent directors, nor to have a Board +of Directors, the majority of which are independent. Because the +Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the +Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not +undertake compliance with those provisions. The Company is a +“controlled corporation” because a group that includes the Company’s Chairman of +the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a +director and certain companies under their control, possesses in excess of fifty +percent of the Company’s voting power. +The +Company’s Audit Committee is composed of four “independent” directors as defined +by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange +Act, SEC regulations there under, and the Company’s Audit Committee +Charter. All of the members of the Compensation and Nominating and +Governance Committees are also independent directors. The independent +directors of the Company are Henry B. Tippie, Wilton Looney, James B. Williams +and Bill J. Dismuke. +Independence +Guidelines +Under +NYSE listing standards, to be considered independent, a director must be +determined to have no material relationship with the Company other than as a +director. The NYSE standards set forth a nonexclusive list of +relationships which are conclusively deemed material. +8 +The +Company's Independence Guidelines (Appendix A to the Company’s Corporate +Governance Guidelines) are posted on the Company’s website at www.rpc.net under the +Governance section. These independence guidelines provide that +to be independent, a director must not have any relationship that would be +considered material under NYSE standards and that except in special +circumstances as determined by a majority of the Board, the following +relationships are not material: +(i) +If +the director, or a member of the director’s immediate family, has received +less than one hundred thousand dollars (US $100,000) in direct +compensation from the Company (other than director and committee fees and +compensation for prior service which are not contingent in any way on +continued services) during every 12 month period within the past three (3) +years; +(ii) +If +the director is a director or officer, or any member of the director’s +immediate family is a director or officer of a bank to which the Company +is indebted, and the total amount of the indebtedness does not exceed one +percent (1%) of the total assets of the bank for any of the past three (3) +years; +(iii) +If +the director or any member of the director’s immediate family is an +employee of a charitable or educational organization, and donations by the +Company do not exceed the greater of one million dollars (US $1,000,000) +or two percent (2%) of the organization’s consolidated gross revenues +within the preceding three (3) years; +(iv) +If +the director has a relationship with the Company of a type covered by item +404(a) and/or item 407 of the Securities and Exchange Commission’s +Regulation S-K (or any successor regulation), and that relationship need +not, according to the terms of those items and any then- current proxy +regulations, be disclosed in the Company’s annual Proxy Statement (except +for relationships described elsewhere in the Company’s guidelines in which +case the other guidelines will govern); +(v) +If +the director, or a member of the director’s immediate family, has direct +or beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) +of any amount of any class of common stock of the +Company. +Audit Committee +Charter +Under the +Company’s Audit Committee Charter, in accordance with NYSE listing requirements +and the Securities Exchange Act of 1934, all members of the Audit Committee must +be independent of management and the Company. A member of the Audit Committee is +considered independent as long as he or she (i) does not accept any consulting, +advisory, or compensatory fee from the Company, other than as a director or +committee member; (ii) is not an affiliated person of the Company or its +subsidiaries; and (iii) otherwise meets the independence requirements of the +NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial +Relationships +After +reviewing all of the relationships between the members of the Audit Committee +and the Company, the Board of Directors determined that none of the members of +the Audit Committee had any relationships not included within the categorical +standards set forth in the Independence Guidelines and disclosed above except as +follows: +1. +Mr. +Tippie was employed by Rollins from 1953 to 1970, and held several offices +with that company during that time, including as Executive Vice President +– Finance, Secretary, Treasurer and Chief Financial +Officer. Messrs. Randall and Gary Rollins are directors and +executive officers of Rollins and are part of a group that has voting +control of Rollins. +9 +2. +Mr. +Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. +and Dover Downs Gaming and Entertainment, Inc. Mr. Randall Rollins is also +a director of these companies. +3. +Mr. +Tippie is the trustee of the O. Wayne Rollins Foundation and of the +Rollins Children’s Trust. O. Wayne Rollins is the father of +Gary and Randall Rollins. The beneficiaries of the Rollins +Children’s Trust include the immediate family members of Randall and Gary +Rollins. +4. +Each +of Messrs. Dismuke, Looney, Tippie and Williams also serve on the Boards +of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins +are directors, and voting control over which is held by a control group of +which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is +an executive officer of Marine +Products. +As +required by the Independence Guidelines, the Board of Directors unanimously +concluded that the above-listed relationships would not affect the independent +judgment of the independent directors, based on their experience, character and +independent means, and therefore do not preclude an independence +determination. All of the members are also independent under the +heightened standards required for Audit Committee members. +In +accordance with the NYSE corporate governance listing standards, Mr. Henry B. +Tippie was elected as the Presiding Director. The Company’s +non-management directors meet at regularly scheduled executive sessions without +management. Mr. Tippie presides during these executive +sessions. +Corporate +Governance Guidelines +We have +adopted Corporate Governance Guidelines to promote better understanding of our +policies and procedures. At least annually, the Board reviews these +guidelines. As required by the rules of the New York Stock Exchange, +our Corporate Governance Guidelines require that our non-management directors +meet in at least two regularly scheduled executive sessions per year without +management. +At the +Company’s website at www.rpc.net , under +the Governance section, you may access a copy of our Corporate Governance +Guidelines, our Audit Committee Charter, our Code of Business Conduct and our +Code of Business Conduct and Ethics for Directors and Executive Officers and +Related Party Transactions. Copies are also available in print, +without charge, to any shareholder who requests one by writing to: The +Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +Code +of Business Conduct +The +Company has adopted a Code of Business Conduct applicable to all directors, +officers and employees generally, as well as a Code of Business Conduct and +Ethics for Directors and Executive Officers and Related Party Transaction Policy +applicable to the principal executive officer, principal financial officer, and +directors. Both codes are available on the Company’s website at www.rpc.net under the +Governance section. Copies are also available in print, without +charge, to any shareholder who requests one by writing to: The Secretary, RPC, +Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Director +Communications +The +Company also has a process for interested parties, including stockholders, to +send communications to the Board of Directors, Presiding Director, any of the +Board Committees or the non-management directors as a group. Such +communications should be addressed as follows: +Mr. +Henry B. Tippie +c/o +Internal Audit Department +RPC, +Inc. +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329. +10 +The above +instructions for communications with the directors are also posted on our +website at www.rpc.net under the +Governance section. All communications received from interested +parties are forwarded to the Board of Directors. Any communication +addressed solely to the Presiding Director or the non-management directors will +be forwarded directly to the appropriate addressee(s). +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of +the directors named above who serve on the Company's Compensation Committee are +or have ever been employees of the Company. There are no Compensation +Committee interlocks requiring disclosure. +DIRECTOR +COMPENSATION +The +following table sets forth compensation to the Company’s directors for services +rendered as a director. Three of the directors, Messrs. R. Randall +Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the +Company. Their compensation is set forth in the Summary Compensation +Table under Executive Compensation. The directors listed below have +never been employed by the Company or paid a salary or bonus by the Company; +have never been granted any options or other stock-based awards, and do not +participate in any Company sponsored retirement plans, with the exception of Mr. +James A. Lane, Jr. who was an employee of the Company until the spin-off of +Marine Products in 2001. +Name +Fees +Earned or +Paid +in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry +B. Tippie +78,500 +–– +–– +78,500 +James +B. Williams +41,500 +–– +–– +41,500 +Wilton +Looney +41,500 +–– +–– +41,500 +Bill +J. Dismuke +36,500 +–– +–– +36,500 +Gary +W. Rollins +26,250 +–– +–– +26,250 +James +A. Lane, Jr. +27,500 +–– +–– +27,500 +(1) +Directors +are eligible for grants of stock awards under the Company’s 2004 Stock +Incentive Plan (“SIP”). No stock awards have been granted to +the non-management directors under the 2004 +SIP. +Directors +that are our employees do not receive additional compensation for services +rendered as a director. During 2007, the Company paid the following +cash fees to non-employee directors. +Annual +retainer +$ +20,000 +Audit +Committee Chair Additional Annual Retainer +$ +14,000 +Compensation +Committee Chair Additional Annual Retainer +$ +8,000 +Nominating +and Corporate Governance Committee Chair Additional Annual +Retainer +$ +5,000 +Diversity +Committee Chair Additional Annual Retainer +$ +5,000 +In +Person Board Meetings +$ +1,250 +In +Person Committee Meeting +$ +1,250 +Telephonic +Board Meeting +$ +1,250 +In +Person Audit Committee Meeting +$ +2,250 +Telephonic +Audit Committee Meeting +$ +1,250 +Pre-Board +Meeting +$ +1,250 +11 +Under +current compensation arrangements effective January 1, 2008, non-management +directors each receive an annual retainer fee of $24,000. In addition, the +Chairman of the Audit Committee receives an annual retainer of $16,000, the +Chairman of the Compensation Committee receives an annual retainer of $9,000, +and the Chairman of each of the Nominating and Governance Committee and +Diversity Committee receives an annual retainer of $6,000. A director +that chairs more than one committee receives a retainer with respect to each +committee he chairs. All of the retainers are paid on a quarterly +basis. Per meeting fees for non-management directors are as +follows: +· +For +meetings of the Board of Directors, Compensation Committee, Nominating and +Governance Committee and Diversity Committee, $1,500 and telephonic +meetings of the Audit Committee, $1,250. +· +For +in person meetings of the Audit Committee, $2,500. In addition, +the Chairman of the Audit Committee receives an additional $1,500 for +pre-board meetings. +All +non-management directors are also entitled to reimbursement of expenses for all +services as a director, including committee participation or special +assignments. +Notwithstanding +anything to the contrary set forth in any of the Company’s previous filings +under the Securities Act of 1933 or the Securities Exchange Act of 1934, that +might incorporate future filings, including the Proxy Statement, in whole or in +part, the Report of the Audit Committee shall not be incorporated by reference +into any such filings. +REPORT +OF THE AUDIT COMMITTEE +Management +is responsible for the Company’s internal controls, assessing the effectiveness +of these controls and the financial reporting process. The Company’s +independent registered public accounting firm is responsible for performing +independent audits of the Company’s consolidated financial statements and the +effectiveness of the Company’s internal control over financial reporting in +accordance with the standards of the Public Company Accounting Oversight Board +(United States) and for issuing reports thereon. The Audit +Committee’s responsibility is generally to monitor and oversee these processes, +as described in the Audit Committee Charter. It is not the duty of +the Audit Committee to plan or conduct audits or to determine that the Company’s +financial statements are complete and accurate and in accordance with generally +accepted accounting principles; that is the responsibility of +management. +In +fulfilling its oversight responsibilities with respect to the year ended +December 31, 2007, the Audit Committee: +· +Approved +the terms of engagement of Grant Thornton LLP as the Company’s independent +registered public accounting firm for the year ended December 31, +2007; +· +Reviewed +with management the interim financial information included in the Forms +10-Q prior to their being filed with the SEC. In addition, the +Committee reviewed all earnings releases with management and independent +public accountants prior to their release; +· +Reviewed +and discussed with the Company’s management and the independent registered +public accounting firm the audited consolidated financial statements of +the Company as of December 31, 2007 and 2006 and for the three years ended +December 31, 2007; +· +Reviewed +and discussed with the Company’s management and the independent registered +public accounting firm, management’s assessment that the Company +maintained effective control over financial reporting as of December 31, +2007; +· +Discussed +with the independent registered public accounting firm matters required to +be discussed by +the American Institute of Certified Public Accountants Statement on +Auditing Standards (“SAS”) No. 61, “Communications with Audit Committees,” +as amended by SAS 90, “Audit Committee Communications,” the rules of the +Securities and Exchange Commission and the standards of the Public Company +Accounting Oversight Board (United States); and +· +Received +from the independent registered public accounting firm the written +disclosures and the letter required by Independence Standards Board +Standard No. 1, “Independence Discussions with Audit Committees,” as +amended, as adopted by the Public Company Accounting Oversight Board, and +discussed the registered public accounting firm’s independence from the +Company. +12 +Based +upon the review and discussions referred to above, the Committee recommended to +the Board of Directors that the audited consolidated financial statements of the +Company and subsidiaries as of December 31, 2007 and 2006 and for the three +years ended December 31, 2007 be included in the Company’s Annual Report on Form +10-K for the year ended December 31, 2007 and for filing with the Securities and +Exchange Commission. +In giving +its recommendation to the Board of Directors, the Audit Committee has relied on +(i) management’s representation that such financial statements have been +prepared with integrity and objectivity and in conformity with accounting +principles generally accepted in the United States of America and (ii) the +report of the Company’s independent registered public accounting firm with +respect to such financial statements. +Submitted by the Audit Committee of the +Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +Bill +J. Dismuke +COMPENSATION +DISCUSSION AND ANALYSIS +Compensation +Committee +During +the fiscal year ended December 31, 2007, the members of our Compensation +Committee held primary responsibility for determining executive compensation +levels. The Committee is composed of three of our non-management +directors who do not participate in the Company’s compensation +plans. The Committee determines the compensation and administers the +performance-based cash compensation plan for our executive +officers. In addition, the Committee also administers our Stock +Incentive Plan for all the employees. +The +members of our Compensation Committee have extensive and varied experience with +various public and private corporations - as investors and stockholders, as +senior executives, and as directors charged with the oversight of management and +the setting of executive compensation levels. Henry B. Tippie, the +Chairman of the Compensation Committee, has served on the board of directors of +twelve different publicly traded companies and has been involved in setting +executive compensation levels at all of these companies. Messrs. +Wilton Looney and James B. Williams have served on the board of directors of +several different publicly traded companies and have similarly been involved in +setting executive compensation levels at many of these companies. +The +Compensation Committee has authority to engage attorneys, accountants and +consultants, including executive compensation consultants, to solicit input from +management concerning compensation matters, and to delegate any of its +responsibilities to one or more directors or members of management where it +deems such delegation appropriate and permitted under applicable +law. The Committee has not used the services of any compensation +consultants in determining or recommending the amount or form of executive +compensation. +The +Compensation Committee believes that determinations relative to executive +compensation levels are best left to the discretion of the +Committee. In addition to the extensive experience and expertise of +the Committee’s members and their familiarity with the Company’s performance and +the performance of our executive officers, the Committee is able to draw on the +experience of other Directors and on various legal and accounting executives +employed by the Company, and the Committee has access to the wealth of readily +available public information relative to structuring executive compensation +programs and setting appropriate compensation levels. The Committee +also believes that the structure of our executive compensation programs should +not become overly complicated or difficult to understand. The +Committee solicits input from our Chairman with respect to the performance of +our executive officers and their compensation levels. +13 +General +Compensation Objectives and Guidelines +The +Company is engaged in a highly competitive industry. The success of +the Company depends on its ability to attract and retain highly qualified and +motivated executives. In order to accomplish this objective, the +Company structures the executive compensation in a fashion that takes into +account the Company’s overall performance and the individual performance of the +executive. +The +Compensation Committee endorses the philosophy that executive compensation +should reflect Company performance and the contribution of executive officers to +that performance. The Company’s compensation policy is designed to +reward growth in revenues, net income and increase in shareholder +value. The Committee recognizes that there are many intangibles +involved in evaluating performance and in motivating performance, and that +determining an appropriate compensation level is a highly subjective +endeavor. The analysis of the Committee is not based upon a +structured formula and the objectives referred to above are not weighted in any +formal manner. +The +Company’s executive officers are also executive officers of Marine Products and +receive compensation directly from Marine Products. The members of +the Company’s Compensation Committee also constitute the Compensation Committee +of Marine Products. In determining the compensation for the executive +officers at the Company, the Committee considers the dual responsibilities and +sources of compensation. The Company sets compensation of its +executives at such levels so that the aggregate compensation received from both +Marine Products and the Company is reasonable in light of their respective +responsibilities and the performance of both companies, and the compensation +from the Company for services solely to the Company is reasonable. A +discussion of the Company’s executive officers’ compensation at Marine Products +is contained in its annual Proxy Statement filed with the SEC. +Pursuant +to the Company’s compensation philosophy, the total annual compensation of its +executive officers is primarily made up of base salary, performance-based +incentive cash compensation and stock-based incentive +compensation. In addition, the Company provides retirement +compensation plans, group welfare benefits and certain perquisites. +We +believe a competitive base salary is important to attract, retain and motivate +top executives. We believe a performance-based incentive cash +compensation plan is valuable in recognizing and rewarding individual +achievement. Finally, we believe stock-based incentives make +executives “think like owners” and, therefore, align their interests with those +of our stockholders. +The +Company does not have any formal stock ownership requirements for its executive +officers but notes that its directors and executive officers are stockholders of +the Company, as is disclosed elsewhere in this Proxy Statement. The +Company is mindful of the stock ownership of our directors and executive +officers but does not believe that it is appropriate to provide a mechanism or +formula to take stock ownership (or gains from prior option or stock awards) +into account when setting compensation levels. The Company provides in its +insider trading policies that directors and executive officers may not sell +Company securities short and may not sell puts, calls or other derivative +securities tied to our Common Stock. +The +Company does not have a formal policy relative to the adjustment or recovery of +incentives or awards in the event that the performance measures upon which +incentives or awards were based are later restated or otherwise adjusted in a +manner that would have reduced the size of an incentive or +award. However, as all incentives and awards remain within the +discretion of the Compensation Committee, the Committee retains the ability to +take any such restatements or adjustments into account in subsequent +years. In addition, the Sarbanes-Oxley Act requires in the case of +accounting restatements that result from material non-compliance with SEC +financial reporting requirements, that Chief Executive Officers and Chief +Financial Officers must disgorge bonuses and other incentive-based compensation +and profits on stock sales, if the non-compliance results from +misconduct. +14 +Base +Salary +The +salary of each executive officer is determined by the Compensation +Committee. In making its determinations, the Committee gives +consideration to the recent financial performance of the Company, the magnitude +of responsibilities, the scope of the position, individual performance and +compensation paid by Marine Products. The Committee solicits input +from our Chairman with respect to the performance of our executive officers and +their compensation levels. During 2007, the base salaries of our +executive officers were increased to the following amounts: Mr. +Richard A. Hubbell: $600,000 ($100,000 increase from 2006); Mr. Ben M. Palmer: +$200,000 ($25,000 increase from 2006); Mr. R. Randall Rollins: $500,000 +($100,000 increase from 2006); and Ms. Linda H. Graham: $150,000 ($15,000 +increase from 2006). These increases were subjectively based on +growth in revenues, recent profit performance of the Company and return on +invested capital. On January 22, 2008, the Committee approved for its +executive officers the following base salary for 2008: Mr. Richard A. Hubbell: +$700,000; Mr. Ben M. Palmer: $250,000; Mr. R. Randall Rollins: $600,000; and Ms. +Linda H. Graham: $165,000. +Performance-Based +Incentive Cash Compensation +The +Company implemented the Performance-Based Incentive Cash Compensation Plan (the +“Management Incentive Plan”) for the executive officers in +2006. Under the Management Incentive Plan, the Compensation Committee +establishes performance goals annually within ninety days after the commencement +of the performance period to which such goals relate. Performance +goals for each participant may be based on corporate, business unit/function or +individual performance, or a combination of one or more such +measures. +In +connection with the annual establishment of performance goals, the Compensation +Committee sets a target award for each participant in the Management Incentive +Plan for the applicable year, which is expressed as a percentage of the +participant’s base compensation (the “Target Award”) in effect on the last day +of the final pay period of that year . If the +participant’s performance goals are based upon a combination of performance +measures, the Compensation Committee will weigh the importance of each +performance measure by assigning a percentage (the “Weighted Percentage”) to +those performance measures. The participant’s cash +award amount will also depend in part upon the level of +achievement that the participant attained with respect to each such performance +measure utilizing the formula set out in the Management Incentive Plan. This +formula provides for a performance value (“Performance Value”) which ranges +from: +· +threshold +performance level (with a performance value of 25 percent of the Target +Award), +· +target +performance level (with a performance value up to 100 percent of the +Target Award), to +· +superior +performance level (with a performance value up to 200 percent of the +Target Award). +Subject +to the limitations set forth in the next sentence, a participant’s cash award +amount for each year under the Management Incentive Plan equals the product of +the Target Award multiplied by the Weighted Percentage assigned to each +performance measure used for a participant, multiplied by the Performance Value +attained for each performance measure, multiplied by base compensation . The Committee will determine +the maximum cash award as a percentage of participants’ base compensation for +each applicable year. +For 2007, +the Compensation Committee established the target incentive award under the +Management Incentive Plan for the Chief Executive Officer and for the other +members of executive management at the amounts shown in the table +below. The target awards that could be earned under the Management +Incentive Plan for 2007 are the same as for the prior year. +15 +Executive +Officer +Target +Award as a percentage +of +base salary +Richard +A. Hubbell +President +and Chief Executive Officer +100% +Ben +M. Palmer +Vice +President, Chief Financial Officer and Treasurer +80% +R. +Randall Rollins +Chairman +of the Board +100% +Linda +H. Graham +Vice +President and Secretary +40% +The +maximum bonus award for each participant under the Plan for 2007 was established +at 150 percent of such participant's base salary. The performance criteria +applicable to the participants under the Management Incentive Plan for 2007 were +determined based solely on corporate performance. The Compensation +Committee established corporate performance goals for 2007 under the Management +Incentive Plan based on return on invested capital, with specific goals +established by a review of peer groups and prior year results. Return +on invested capital is a widely used performance measure that typically +correlates with long-term changes in shareholder value. The Company +uses return on invested capital for internal measurement and chose to formalize +it as a computation for the Management Incentive Plan. The target +performance was established at a level that was difficult to achieve but not +extraordinarily so. +For 2007, +the Named Executive Officers earned awards that were higher than target but +lower than the superior performance level which qualified the officers to +receive bonus awards up to 163 percent of the target incentive award, limited in +2007 to 150 percent of base compensation. Performance-based cash +compensation earned under the Management Incentive Plan for 2007 was as follows: +Mr. Richard A. Hubbell: $900,000; Mr. Ben M. Palmer: $260,000; Mr. R. Randall +Rollins: $750,000; and Ms. Linda H. Graham $97,500. For 2008, the +Compensation Committee has increased the Target Award of Mr. Ben M. Palmer, Vice +President, Chief Financial Officer and Treasurer to 100 percent. The +target awards of the other members of executive management, performance criteria +and maximum awards were established at the same levels as 2007. +Stock +Based Incentive Plans +Our Stock +Incentive Plan allows for a wide variety of stock based awards such as stock +options and restricted stock. We last issued stock options in fiscal year ended +2003 and have no current plans to issue additional stock options. We +have never issued any stock appreciation rights. Partially in +response to changes relative to the manner in which stock options are accounted +for under generally accepted accounting principles, we have modified the +structure and composition of the long-term equity based component of our +executive compensation. In recent years, we have awarded time-based +restricted stock in lieu of granting stock options. The terms and +conditions of these awards are described in more detail below. +Awards +under the Company’s Stock Incentive Plan are purely discretionary, are not based +upon any specific formula and may or may not be granted in any given fiscal +year. For the past three years, we have granted time-based restricted +stock to various employees, including our executive officers, in early January +during our regularly scheduled meetings of the Compensation Committee during +which the Committee reviews executive compensation. Consistent with this +practice, we granted restricted stock awards to our executive officers in +January 2007 and January 2008 in amounts which are reasonably comparable to +grants made in prior years. The number of shares awarded was as +follows: Mr. Richard A. Hubbell: 20,000 shares in 2007 (20,000 shares +in 2008); Mr. Ben M. Palmer: 8,000 shares in 2007 (10,000 shares in 2008); Mr. +R. Randall Rollins: 20,000 shares in 2007 (20,000 shares in 2008); and Ms. Linda +H. Graham: 5,000 shares in 2007 (5,000 shares in 2008). When +considering the grant of stock based awards, the Committee gives consideration +to our overall performance and the performance of individual +employees. It is our expectation to continue yearly grants of +restricted stock awards although we reserve the right to modify or discontinue +this or any of our other compensation practices at any time. +16 +All of +our restricted stock awards granted since 2004 have had the same +features. The shares vest one-fifth per year beginning on the second +anniversary of the grant date. Restricted shares have full voting and +dividend rights. However, until the shares vest, they cannot be sold, +transferred or pledged. Should the executive leave our employment for +any reason prior to the vesting dates (other than due to death, disability or +retirement on or after age 65), the unvested shares will be +forfeited. In the event of a “change in control” of the Company, the +Compensation Committee has the discretion to accelerate vesting of the +shares. +Employment +Agreements +There are +no agreements or understandings between the Company and any executive officer +which guarantee continued employment or guarantee any level of compensation, +including incentive or bonus payments, to the executive officer. +Retirement +Plans +The +Company maintains a defined benefit pension plan (called the Retirement Income +Plan) for all our eligible employees, a non-qualified supplemental retirement +plan for our executives and certain other highly compensated employees and a +401(k) Plan for the benefit of all regular full time employees. In 2002, the +Company's Board of Directors approved a resolution to cease all future benefit +accruals under the Retirement Income Plan effective March 31, 2002. In lieu +thereof, beginning in 2002, the Company began providing enhanced benefits in the +form of cash contributions on behalf of certain long-service employees who were +40 to 65 years of age on or before December 31, 2002. These enhanced +benefit contributions are discretionary and may be made annually, subject to a +participant’s continued employment, for a maximum of seven years. The +contributions are made either to the non-qualified Supplemental Retirement Plan +(“SRP”) or to the 401(k) Plan for each employee who is entitled to the enhanced +benefits. The Company contributed $26,262 towards enhanced benefits +for Mr. Hubbell in 2007. Beginning late in 2002, the Company began +permitting selected highly compensated employees to defer a portion of their +compensation into the SRP. +Other +Compensation +Other +compensation to our executives includes typical employee benefits such as group +medical, dental and vision coverage and group life insurance. The +Company provides an automobile (or an automobile allowance) to Messrs. Richard +A. Hubbell and Ben M. Palmer. +The +following Compensation Committee Report shall not be incorporated by reference +by any general statement incorporating by reference this Proxy Statement into +any filing under the Securities Act of 1933, as amended (the “Securities Act”), +except to the extent that the Company specifically incorporates this information +by reference, and shall not otherwise be deemed filed under the Securities Act +or the Exchange Act. +COMPENSATION +COMMITTEE REPORT +We have +reviewed and discussed the above “Compensation Discussion and Analysis” with +management. +Based +upon this review and discussion, we have recommended to the Board of Directors +that the “Compensation Discussion and Analysis” be included in the Company’s +Annual Report on Form 10-K for the year ended December 31, 2007 and this Proxy +Statement. +Submitted by the Compensation +Committee of the Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +17 +SECTION +16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The +Company has completed a review of Forms 3, 4, and 5 and amendments thereto +furnished to the Company by all directors, officers and greater than 10 percent +stockholders subject to the provisions of Section 16 of the Securities Exchange +Act of 1934, as amended. In addition, the Company has a written +representation from all directors, officers and greater than 10 percent +stockholders from whom no Form 5 was received indicating that no Form 5 filing +was required. Based solely on this review, the Company believes that filing +requirements of such persons under Section 16 for the fiscal year ended December +31, 2007 have been satisfied. +EXECUTIVE +COMPENSATION +Shown +below is information concerning the annual and long-term compensation for +services in all capacities to the Company for the calendar years ended December +31, 2007 and 2006 of those persons who were at December 31, 2007, +· +our +Principal Executive Officer and Principal Financial Officer; +and +· +our +two other executive officers of the +Company: +SUMMARY +COMPENSATION TABLE +Name and Principal +Position +Year +Salary +($) +Stock +Awards +($) (1) +Option +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +(2) +Change in +Pension Value +and +Nonqualified +Deferred +Compensation +Earnings ($) (3) +All Other +Compensation +($) (4) +Total +($) +Richard +A. Hubbell +2007 +600,000 +271,950 +19,910 +900,000 +–– +39,550 +1,831,410 +President +and +2006 +500,000 +217,770 +41,290 +750,000 +102,950 +37,780 +1,649,790 +Chief +Executive Officer +Ben +M. Palmer +2007 +200,000 +163,560 +11,950 +260,000 +–– +16,970 +652,480 +Vice +President, +2006 +175,000 +150,130 +18,360 +262,500 +9,880 +16,250 +632,120 +Chief +Financial Officer and +Treasurer +R. +Randall Rollins +2007 +500,000 +212,250 +79,650 +750,000 +–– +–– +1,541,900 +Chairman +of the Board +2006 +400,000 +148,300 +79,650 +600,000 +–– +–– +1,227,950 +Linda +H. Graham +2007 +150,000 +76,200 +7,970 +97,500 +–– +4,990 +336,660 +Vice +President and Secretary +2006 +135,000 +63,280 +10,100 +108,000 +–– +3,940 +320,320 +(1) +These +respective amounts represent the dollar amount recognized for financial +reporting purposes with respect to each fiscal year for prior +year option grants and current year and prior year grants of restricted +Common Stock awarded under our Stock Incentive Plan, all computed in +accordance with Statement of Financial Accounting Standard (“SFAS”) No. +123R. Please refer to Note 10 to our Financial Statements +contained in our Form 10-K for the period ended December 31, 2007 for a +discussion of the assumptions used in these computations. For +this computation, we do not include an assumption for estimated +forfeitures. Our Form 10-K has been included in our Annual +Report and provided to our stockholders. +(2) +Bonuses +under the Management Incentive Plan are accrued in the fiscal year earned +and paid in the following fiscal year. +(3) +The +actuarial present value of the executive officers’ accumulated benefit +under the defined benefit plan decreased during 2007 as +follows: Messrs. Richard A. Hubbell $55,530, Ben M. Palmer +$9,150, R.Randall Rollins $211,300 and Ms. Linda H. Graham +$19,860. Change represents impact of lower discount rate only +as no additional benefits are being accrued. +18 +(4) +All +other compensation for 2007 includes the following items +for: +Mr. +Richard A. Hubbell: +Insurance +on automobile provided by the Company, cost of dining club dues, cost of +gasoline for personal automobile, 401(k) Plan Company match of $6,750 and +contribution towards enhanced benefits of $26,262. +Mr. +Ben M. Palmer: +Automobile +allowance of $8,400, cost of gasoline for personal automobile and 401(k) +Plan Company match of $6,750. +Ms. +Linda H. Graham: +401(k) +Plan Company match of $4,990. +GRANTS +OF PLAN-BASED AWARDS +Name +Grant +Date +Estimated +Future Payouts +Under +Non-Equity +Incentive +Plan Awards (1) +All +Other +Stock +Awards: +Number +of +Shares +of +Stock +or +Units +(#) +Grant +Date +Fair +Value +of +Stock and +Option +Awards +($) +(2) +Threshold +($) +Target +($) +Maximum +($) +Mr. +Richard A. Hubbell +1/23/07 +150,000 +600,000 +900,000 +1/23/07 +20,000 +357,600 +Mr. +Ben M. Palmer +1/23/07 +40,000 +160,000 +300,000 +1/23/07 +8,000 +143,040 +Mr. +R. Randall Rollins +1/23/07 +125,000 +500,000 +750,000 +1/23/07 +20,000 +357,600 +Ms. +Linda H. Graham +1/23/07 +15,000 +37,500 +120,000 +1/23/07 +5,000 +89,400 +(1) +These +amounts illustrate the potential bonus awards under the Management +Incentive Plan for 2007 that were paid out in early 2008. See +Summary Compensation Table on page 18 for actual amounts awarded in +2007. +(2) +These +amounts represent aggregate grant date fair value for grants of restricted +shares of Common Stock awarded in fiscal year 2007 under our Stock +Incentive Plan computed in accordance with SFAS 123R. Please +refer to Note 10 to our Financial Statements contained in our Form 10-K +for the period ended December 31, 2007 for a discussion of assumptions +used in this computation. For this computation, we do not +include an assumption for estimated forfeitures. Our Form 10-K has been +included in our Annual Report and provided to our +stockholders. +The table +above reflects grants of restricted shares of Company Common Stock under our +Stock Incentive Plan awarded in fiscal year 2007. All grants of +restricted shares of Common Stock vest one-fifth per year beginning on the +second anniversary of the grant date. Restricted shares have full +voting and dividend rights. However, until the shares vest, they +cannot be sold, transferred or pledged. Should the executive leave +our employment for any reason prior to the vesting dates (other than due to +death, disability or retirement on or after age 65), the unvested shares will be +forfeited. We have not issued any stock options since 2003 and have +no immediate plans to issue additional stock options. +The +Company’s employment contracts with its Chief Executive Officer and the +Company’s other executive officers are oral, at will arrangements. All of the +executive officers are eligible for annual cash bonuses which are awarded under +the Management Incentive Plan. The Compensation Committee’s decisions are based +upon broad performance objectives under that plan. The executive officers are +eligible to receive shares of Company Common Stock subject to options and +restricted shares of Company Common Stock under the Company’s Stock Incentive +Plans, in such amounts and with such terms and conditions as determined by the +Compensation Committee at the time of grant. All of the executive officers are +eligible to participate in the Company’s SRP. The executive officers are +eligible to participate in the Company’s regular employee benefit programs, +including the 401(k) Plan with Company match, group life insurance, group +medical and dental coverage and other group benefit plans. All of the executive +officers are eligible for the Retirement Income Plan that was frozen in March +2002. For more information on these plans, see “Compensation +Discussion and Analysis” at page 13, and “Benefit Plans” at page +22. +19 +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +The table +below sets forth details concerning outstanding option awards made in prior +years to the executives named in our Summary Compensation Table, including the +grant date, the expiration date, the option exercise price, and the number of +shares of Common Stock underlying the grants both exercisable and +un-exercisable. The grant dates for all of these options are from +fiscal year ended 2003 and earlier since we have not issued any stock options +after 2003. The table below also sets forth the total number of +restricted shares of Common Stock that were granted in prior years to the +executives named in our Summary Compensation Table but which have not yet +vested, together with the market value of these unvested shares based on the +$11.71 closing price of our Common Stock on December 31, 2007. +Option +Awards +Stock +Awards +Name +Number +of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number +of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date (1) +Number +of +Shares +or +Units +of Stock +That +Have Not +Vested +(#) +Market +Value +of +Shares or +Units +of Stock +That +Have +Not +Vested +($) +Richard +A. Hubbell +127,695 +–– +3.33 +1/27/2008 (2)(7) +173,525 (9) +2,031,980 +173,669 +–– +1.79 +1/26/2009 (3)(8) +168,748 +–– +3.88 +4/24/2011 (4) +67,500 +16,875 +2.81 +1/28/2013 (5) +Ben +M. Palmer +–– +10,125 +2.81 +1/28/2013 (5) +138,800 (9) +1,625,350 +R. +Randall Rollins +177,812 +–– +3.09 +1/28/2008 (6) +90,500 (8) +1,059,760 +159,688 +–– +2.81 +1/28/2008 (6) +Linda +H. Graham +10,215 +–– +3.33 +1/27/2008 (2) +42,875 (9) +502,070 +12,766 +–– +1.79 +1/26/2009 (3) +16,875 +–– +3.88 +4/24/2011 (4) +27,000 +6,750 +2.81 +1/28/2013 (5) +(1) +Unless +otherwise noted, all options have ten year terms with vesting as +follows: The options vest one-fifth per year beginning on the +first anniversary of the grant date. +(2) +Options +granted 01/27/1998. +(3) +Options +granted 01/26/1999. +(4) +Options +granted 04/24/2001. +(5) +Options +granted 01/28/2003. +(6) +Options +granted 01/28/2003 with vesting as follows: The options vest +one-fifth per year beginning on the grant +date. +20 +(7) +Includes +76,443 options granted 01/27/1998, that vest as follows: 22,153 in 1999, +18,633 in 2000, 18,630 in 2001, 11,519 in 2002 and 5,508 in +2003. +(8) +Also +includes 138,934 options granted 01/26/1999 that vest ratably over four +years. +(9) +The +Company has granted employees two forms of restricted stock: time lapse +restricted and performance restricted. Time lapse restricted shares vest +after a stipulated number of years from the grant date, depending on the +terms of the issue. Time lapse restricted shares issued in years 2003 and +prior vest after ten years. Time lapse restricted shares issued +starting in 2004 vest one-fifth per year beginning on the second +anniversary of the grant date. The performance restricted +shares are granted, but not earned and issued until certain five-year +tiered performance criteria are met. The performance criteria are +predetermined market prices of RPC common stock. On the date the common +stock appreciates to each level (determination date), 20 percent of +performance shares are earned. Once earned, the performance shares vest +five years from the determination date. The Company has not +granted performance restricted shares since 2003. Shares of +restricted stock granted to the executive officers that have not vested as +of December 31, 2007 are summarized in the table +below: +Name +Number +of shares +Grant +Date +Date +fully vested +Richard +A. Hubbell +50,625 +40,500 +32,400 +30,000 +20,000 +1/26/1999 +4/27/2004 +1/25/2005 +1/24/2006 +1/23/2007 +1/26/2009 +4/27/2010 +1/25/2011 +1/24/2012 +1/23/2013 +Ben +M. Palmer +13,500 +10,125 +40,500 +16,875 +16,200 +21,600 +12,000 +8,000 +1/27/1998 +1/26/1999 +4/24/2001 +1/28/2003 +4/27/2004 +1/25/2005 +1/24/2006 +1/23/2007 +1/27/2008 +1/26/2009 +4/24/2011 +10/28/2009 +4/27/2010 +1/25/2011 +1/24/2012 +1/23/2013 +R. +Randall Rollins +40,500 +30,000 +20,000 +4/27/2004 +1/24/2006 +1/23/2007 +4/27/2010 +1/24/2012 +1/23/2013 +Linda +H. Graham +6,750 +10,125 +13,500 +7,500 +5,000 +1/27/1998 +4/27/2004 +1/25/2005 +1/24/2006 +1/23/2007 +1/27/2008 +4/27/2010 +1/25/2011 +1/24/2012 +1/23/2013 +OPTION +EXERCISES AND STOCK VESTED +The following table sets +forth: +· +the +number of shares of Common Stock acquired by the executives named in the +Summary Compensation Table upon the exercise of stock options during the +fiscal year ended December 31, 2007; +· +the +aggregate dollar amount realized on the exercise date for such options +computed by multiplying the number of shares acquired by the difference +between the market value of the shares on the exercise date and the +exercise price of the options; +· +the +number of restricted shares of Common Stock acquired by the executives +named in the Summary Compensation Table upon the vesting of shares during +the fiscal year ended December 31, 2007; and +· +the +aggregate dollar amount realized on the vesting date for such restricted +stock computed by multiplying the number of shares which vested by the +market value of the shares on the vesting +date. +21 +Option +Awards (1) +Stock +Awards +Name +Number +of Shares +Acquired +on Exercise +(#) +Value +Realized on +Exercise +($) +Number +of Shares +Acquired +on Vesting +(#) +Value +Realized on +Vesting +($) +Richard +A. Hubbell +51,076 +826,920 +55,350 +877,700 +Ben +M. Palmer +83,625 +1,136,310 +36,112 +576,200 +R. +Randall Rollins +–– +–– +13,500 +236,800 +Linda +H. Graham +5,106 +82,670 +20,250 +318,000 +(1) +The +shares acquired on exercise of options are restricted for a period of one +year from the date of exercise. +BENEFIT +PLANS +The table +below shows the present value of accumulated benefits payable to each of the +named executive officers, including the number of years of service credited to +each such named executive officer, under the Retirement Income Plan determined +using interest rate and mortality rate assumptions consistent with those used in +the Company’s financial statements. Information regarding the Retirement Income +Plan can be found under Note 10 to our Financial Statements contained in our +Form 10-K for the period ending December 31, 2007. +Pension +Benefits +Name +Plan +Name +Number +of +Years +Credited +Service +(#) +(1) +Present +Value +of +Accumulated +Benefit +($) +Payments +During +Last +Fiscal Year +($) +Mr. +Richard A. Hubbell +Retirement +Income Plan +15 +371,550 +–– +Mr. +Ben M. Palmer +Retirement +Income Plan +4 +31,835 +–– +Mr. +R. Randall Rollins +Retirement +Income Plan +30 +1,820,100 +261,600 +Ms. +Linda H. Graham +Retirement +Income Plan +15 +232,091 +–– +(1) +The +difference in years of credited and actual service is due to the freezing +of benefit accruals in 2002. See discussion below for further +details. +The +Company’s Retirement Income Plan, a trusteed defined benefit pension plan, +provides monthly benefits upon retirement at age 65 to eligible +employees. In 2002, the Company's Board of Directors approved a +resolution to cease all future benefit accruals under the Retirement Income Plan +effective March 31, 2002. Retirement Income Plan benefits are based +on the average of the employee's compensation from the Company for the five +consecutive complete calendar years of highest compensation during the last ten +consecutive complete calendar years (“final average compensation”) immediately +preceding March 31, 2002. The benefits are computed as the product of +1.5 percent of final average compensation multiplied by years of credited +service (up to 30 years) reduced by an adjustment for benefits drawn from social +security. Adjustments have been made for age and IRS mandated +compensation limitations. The final average compensation for Mr. +Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is +$127,325. +The +annual benefit payable at the later of retirement age or 65 for the named +executive officers is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, $24,900 +for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the +Internal Revenue Code (as amended by the Economic Growth and Tax Relief +Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement +Income Plan beneficiary in 2007 was $180,000. Retirement benefits +accrued at the end of any calendar year or as of March 31, 2002 will not be +reduced or increased by any subsequent changes in the maximum compensation +limit. +22 +The Plan +also provides reduced early retirement benefits at age 55 or older with 15 or +more years of service. Mr. Hubbell and Ms. Graham are eligible for +early retirement benefits and the amounts payable to them in such an +event are calculated using the computation described above reduced by a +certain percentage for each incremental month of early retirement. In +addition, as an owner with stock ownership in excess of five percent of the +Company’s voting securities, Mr. Rollins is required to receive mandatory +distributions currently, even though he has not retired from the +Company. The amount of distribution received during 2007 has been +disclosed in the table above and is not subject to change after +retirement. +In 2002, +the Company began providing additional benefits on behalf of certain +long-service employees in the form of discretionary cash contributions made +either to the Company’s 401(k) Plan (which is described below) or the SRP as +described in the section below titled “Nonqualified Deferred +Compensation.” Amounts contributed by the Company to the accounts of +the executive officers are reported in the “All Other Compensation” column of +the Summary Compensation Table on page 18. +401(k) +Plan +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to meet +the requirements of Section 401(k) of the Code. The Company makes +matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a +participant’s contribution to the 401(k) Plan that does not exceed six percent +of his or her annual compensation. The only form of benefit payment +under the 401(k) Plan is a single lump-sum payment equal to the vested balance +in the participant’s account on the date the distribution is +processed. Under the 401(k) Plan, the full amount of a participant’s +vested accrued benefit is payable upon his termination of employment, +retirement, total and permanent disability, or death. Also under the +401(k) Plan, a participant may withdraw his or her pre-tax contributions to the +extent of certain specified instances of financial hardship and may withdraw any +amount from his or her pre-tax contribution account for any reason after +attaining age 59 ½. In addition, a participant may withdraw any +amount from his or her rollover account for any reason. Amounts contributed by +the Company to the accounts of the named executive officers under this plan are +reported in the “All Other Compensation” column of the Summary Compensation +Table on page 18. +NONQUALIFIED +DEFERRED COMPENSATION +The SRP +has been established as a non-qualified plan that is designed to comply with the +provisions of the American Jobs Creation Act of 2004 (including Section 409A of +the Internal Revenue Code) for the cash contributions made to certain longer +serviced employees in lieu of freezing of benefit accruals effective in 2002; +the SRP also has a compensation deferral option for eligible +employees. The contributions and deferrals to the SRP are invested in +funds held in a rabbi trust. +Name +Executive +Contributions +in +last +FY ($) (1) +Registrant +contributions +in +last +FY ($) (2) +Aggregate +earnings +in last +FY +($) +Aggregate +withdrawals/ +distributions +($) +Aggregate +balance +at last +FYE +($) +Richard +A. Hubbell +–– +25,880 +11,270 +–– +192,550 +Ben +M. Palmer +37,180 +–– +7,370 +–– +131,850 +R. +Randall Rollins +–– +–– +–– +–– +–– +Linda +H. Graham +91,500 +–– +16,450 +–– +294,850 +23 +(1) +Includes +the following amounts related to the base salary for 2007 which have been +deferred by the executive officer pursuant to the SRP and which are +included in the Summary Compensation Table: Mr. Ben M. Palmer: +$16,200 and Ms. Linda H. Graham: $37,500. The remaining amounts +represent deferrals of bonus compensation related to 2006 that were paid +in 2007. +(2) +Reflects +the amounts for each of the named executive officers which are reported as +compensation to such named executive officer in the “All Other +Compensation” column of the Summary Compensation Table on page +18. +The +deferral option provides that participants may defer up to 50 percent of their +base salary and up to 100 percent of their annual bonus with respect to any +given plan year, subject to a $2,000 per plan year minimum. The +deferred amounts are voluntarily funded on a monthly basis; salary and bonus +deferrals are generally 100 percent vested. Accounts are credited +with hypothetical earnings, and/or debited with hypothetical losses, based on +the performance of certain “Measurement Funds.” Account values are +calculated as if the funds from deferrals and contributions had been converted +into shares or other ownership units of selected Measurement Funds by purchasing +(or selling, where relevant) such shares or units at the current purchase price +of the relevant Measurement Fund at the time of the participant's +selection. The benefits are unsecured general obligations of the +Company to the participants, and these obligations rank in parity with the +Company's other unsecured and unsubordinated indebtedness. To the extent that +the Company's obligations under the SRP exceed assets available under the trust, +the Company would be required to seek additional funding sources to fund its +liability under the SRP. +Generally, +the SRP provides for distributions of any deferred amounts upon the earliest to +occur of a participant's death, disability, retirement or other termination of +employment (a “Termination Event”). However, for any deferrals of +base salary and bonus compensation (but not Company contributions), participants +would be entitled to designate a distribution date which is prior to a +Termination Event. The SRP allows a participant to elect to receive +distributions in installments or lump-sum payments. +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +following table describes the potential payments and benefits under the +Company’s compensation and benefit plans and arrangements to which the named +executive officers would be entitled upon termination of employment. There +are no other agreements, arrangements or plans that entitle executive officers +to severance, perquisites, or other enhanced benefits upon termination of their +employment except as described below. Additional payments or benefits to a +terminating executive officer would be at the discretion of the Compensation +Committee. +The +executive officers are not entitled to additional benefits at death or +disability per the terms of the defined benefit plan. The amounts +payable at retirement are disclosed in the “Benefit Plans” section on page +22. The executive officers can choose to receive the amounts +accumulated in the SRP either as a lump-sum or in installments at retirement, +death or disability. These amounts have been disclosed under the +“Nonqualified Deferred Compensation” section on page 23. The table +below shows the incremental restricted shares that would become vested as of +December 31, 2007 at the closing market price of $11.71 per share for our Common +Stock, as of that date in the case of retirement, death or +disability. +24 +Stock +Awards +Name +Number +of shares +underlying +unvested +stock +(#) +Unrealized +value of +unvested +stock ($) +Richard +A. Hubbell +· Retirement +· Disability +· Death +–– +98,280 +98,280 +–– +1,150,860 +1,150,860 +Ben +M. Palmer +· Retirement +· Disability +· Death +–– +99,340 +99,340 +–– +1,163,270 +1,163,270 +R. +Randall Rollins +· Retirement +· Disability +· Death +37,389 +37,389 +37,389 +437,830 +437,830 +437,830 +Linda +H. Graham +· Retirement +· Disability +· Death +22,603 +22,603 +22,603 +264,680 +264.680 +264.680 +Accrued Pay and Regular Retirement +Benefits. The amounts shown in +the table above do not include the following since they are provided on a +non-discriminatory basis to salaried employees generally upon termination of +employment. These include: +· +Accrued +salary and vacation pay. +· +Distributions +of plan balances under the 401(k) Plan. +· +The +value of option continuation upon termination, as described +below. When an employee terminates prior to retirement, his or +her stock options are terminated immediately, except that the options may +be exercised for a period after termination (not to exceed the original +option termination date) in the following +circumstances: +Ø +Permanent +Disability – one year after termination +Ø +Death +– six months after the date of death +Ø +Normal +or Early Retirement – one day less than three months after +retirement +The termination of employment for any +reason shall not accelerate the vesting of options. +Pension Benefit and Deferred +Compensation . The Retirement +Income Plan does not provide for lump sum payments for a participant including +executive officers for instances other than retirement. The +Retirement Income Plan is described at “Pension Benefits” above. Upon +termination, the executive officers will receive a distribution of the balance +in their SRP account. These amounts are disclosed under the +“Nonqualified Deferred Compensation” section on page 23. +Change in Control or +Severance . The Company does not have any change in control or +severance arrangements for its executive officers. However, amounts +may be paid at the discretion of the Compensation Committee. +CERTAIN +RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective +with the spin-off in 2001, the Company began providing certain administrative +services to Marine Products. The service agreements between Marine Products and +the Company provide for the provision of services on a cost reimbursement basis +and may be terminated upon six months notice. The services covered by +these agreements include administration of certain employee benefit programs and +other administrative services. Charges from the Company (or from +corporations which are subsidiaries of the Company) for such services aggregated +approximately $957,000 in 2007. +During +2007, a subsidiary of RPC conducted business with companies owned by LOR, +Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, +Director are officers, directors and controlling stockholders of LOR, +Inc. In 2007, payments totaling approximately $1,035,000 were made to +these LOR, Inc. companies for the purchase of parts and repair services related +to certain of RPC’s oilfield operating equipment. RPC believes the charges +incurred by its subsidiary are at least as favorable as the charges that would +have been incurred for similar services from unaffiliated third +parties. +25 +RPC +receives certain administrative services including an allocation for office +space from Rollins. The service agreements between Rollins and the +Company provide for the provision of services on a cost reimbursement basis and +are terminable on six months notice. The services covered by these +agreements include office space, administration of certain employee benefit +programs, and other administrative services. Charges to the Company (or to +corporations which are subsidiaries of the Company) for such services and rent +aggregated approximately $72,000 in 2007. +A group +that includes the Company’s Chairman of the Board, R. Randall Rollins, his +brother Gary W. Rollins who is also a director and certain companies under their +control, possesses in excess of fifty percent of the Company’s voting +power. Please refer to the discussion above under the heading, +“Corporate Governance and Board of Directors Committees and Meetings, Director +Independence and NYSE Requirements, Controlled Company +Exemption.” The group discussed above also controls in excess of +fifty percent of Marine Products’ voting power. +Our Code +of Business Conduct and Ethics for Directors and Executive Officers and Related +Party Transactions Policy provides that related party transactions, as defined +in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our +Nominating and Corporate Governance Committee. As set forth in our +Code, our Nominating and Corporate Governance Committee has the responsibility +to ensure that it only approve or ratify related party transactions that are in +compliance with applicable law, consistent with the Company’s corporate +governance policies (including those relative to conflicts of interest and +usurpation of corporate opportunities) and on terms that are deemed to be fair +to the Company. The Committee has the authority to hire legal, +accounting, financial or other advisors as it may deem necessary or desirable +and/or to delegate responsibilities to executive officers of the Company in +connection with discharging its duties. A copy of the Code is +available on our website at www.rpc.net , under +the Governance section. All related party transactions for fiscal +year ended December 31, 2007 were reviewed, approved and/or ratified by the +Nominating and Corporate Governance Committee in accordance with the +Code. +INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS +Principal +Auditor +Grant +Thornton LLP (“Grant Thornton”) served as the Company's independent registered +public accountants for the fiscal years ended December 31, 2007 and +2006. In addition to performing the audit of the Company’s consolidated +financial statements, Grant Thornton provided various other services during 2007 +and 2006. +The Audit +Committee has appointed Grant Thornton as the Company’s independent registered +public accountants for the fiscal year ending December 31, +2008. Representatives of Grant Thornton are expected to be present at +the Annual Meeting and will have an opportunity to make a statement if they so +desire and will be available to respond to appropriate questions. +The +aggregate fees billed by the Company’s independent registered public accountants +are set forth below: +2007 +2006 +Audit +fees and quarterly reviews (1) +$ +893,690 +$ +967,570 +Audit +related fees (2) +–– +16,730 +Tax +fees (3) +–– +–– +All +other fees +–– +–– +(1) +Audit +fees include fees for audit or review services in accordance with +generally accepted auditing standards, such as statutory audits and +services rendered for compliance with Section 404 of the Sarbanes-Oxley +Act. +(2) +Tax +fees related to tax planning and advice on international +issues. +26 +Pre-approval +of Services +All of +the services described above were pre-approved by the Company’s Audit +Committee. The Audit Committee has determined that the payments made +to its independent registered public accountants for these services are +compatible with maintaining such auditors’ independence. All of the hours +expended on the principal accountant’s engagement to audit the financial +statements of the Company for the year 2007 were attributable to work performed +by full-time, permanent employees of the principal accountant. +The Audit +Committee is directly responsible for the appointment and termination, +compensation, and oversight of the work of the independent registered public +accountants, including resolution of disagreements between management and the +independent registered public accountants regarding financial reporting. The +Audit Committee is responsible for pre-approving all audit and non-audit +services provided by the independent registered public accountants and ensuring +that they are not engaged to perform the specific non-audit services proscribed +by law or regulation. The Audit Committee has delegated pre-approval authority +to its Chairman with the stipulation that his decision is to be presented to the +full Committee at its next scheduled meeting. The Audit Committee has +no other pre-approval policies. +STOCKHOLDER +PROPOSALS +Appropriate +proposals of stockholders intended to be presented at the Company’s 2009 Annual +Meeting of the Stockholders must be received by the Company by November 20, +2008, in order to be included, pursuant to Rule 14a-8 promulgated under the +Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of +proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) +of the Securities Exchange Act of 1934, management proxy holders intend to use +their discretionary voting authority with respect to any stockholder proposal +raised at the Company’s 2008 Annual Meeting as to which the proponent fails to +notify the Company on or before January 31, 2009. With regard to such +stockholder proposals, if the date of the next Annual Meeting of the +Stockholders is advanced or delayed more than 30 calendar days from April 22, +2009, the Company will, in a timely manner, inform its stockholders of the +change and of the date by which such proposals must be received. +With +respect to stockholder nomination of directors, the Company’s Bylaws provide +that nominations for the election of directors may be made by any stockholder +entitled to vote for the election of directors. Nominations must +comply with an advance notice procedure which generally requires with respect to +nominations for directors for election at an Annual Meeting, that written notice +be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, +Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of +the prior year’s Annual Meeting and set forth the name, age, business address +and, if known, residence address of the nominee proposed in the notice, the +principal occupation or employment of the nominee for the past five years, the +nominee's qualifications, the class or series and number of shares of capital +stock of the Company which are owned beneficially or of record by the person and +any other information relating to the person that would be required to be +disclosed in a proxy statement or other filings. Other specific requirements +related to such notice, including required disclosures concerning the +stockholder intending to present the nomination, are set forth in the Company’s +Bylaws. Notices of nominations must be received by the Secretary of +the Company no later than January 24, 2009 and no earlier than +December 15, 2008 with respect to directors to be elected at the 2009 +Annual Meeting of Stockholders. +EXPENSES +OF SOLICITATION +The +Company will bear the cost of soliciting proxies. Upon request, we +will reimburse brokers, dealers and banks, or their nominees, for reasonable +expenses incurred in forwarding copies of the proxy material to their beneficial +shareholders of record. Solicitation of proxies will be made principally by +mail. Proxies also may be solicited in person or by telephone, facsimile or +other means by our directors, officers and regular employees. These individuals +will receive no additional compensation for these services. The Company has +retained Georgeson Shareholder Communications, Inc. to conduct a broker search +and to send proxies by mail for an estimated fee of approximately $7,500 plus +shipping expenses. +27 +MISCELLANEOUS +The +Company’s Annual Report to Stockholders, including its Annual Report on Form +10-K for the fiscal year ended December 31, 2007, without exhibits, is being +mailed to stockholders with this Proxy Statement. +Upon the written request of any +record or beneficial owner of the Company’s Common Stock whose proxy was +solicited in connection with the 2008 Annual Meeting of Stockholders, the +Company will furnish such owner, without charge, a copy of its Annual Report on +Form 10-K, including the financial statements and the financial statement +schedules (but without exhibits), for its fiscal year ended December 31, +2007. Requests for a copy of such Annual Report on Form 10-K should +be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road +NE, Atlanta, Georgia 30324. +Management +knows of no business other than the matters set forth herein which will be +presented at the Annual Meeting. Inasmuch as matters not known at this time may +come before the Annual Meeting, the enclosed proxy confers discretionary +authority with respect to such matters as may properly come before the Annual +Meeting; and it is the intention of the persons named in the proxy to vote in +accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Atlanta, +Georgia +March +17, 2008 +Linda +H. Graham, Secretary +28 +RPC, +INC. +C123456789 +000004 +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +000000000.000000 +ext +MR A SAMPLE +000000000.000000 +ext +000000000.000000 +ext +DESIGNATION (IF +ANY) +ADD 1 +Electronic Voting +Instructions +You can vote by Internet or +telephone! +Available 24 hours a day, 7 days a +week! +Instead of mailing your proxy, you +may choose one of the two voting +methods outlined below to vote +your proxy. +VALIDATION DETAILS ARE LOCATED +BELOW IN THE TITLE BAR. +Proxies submitted by the Internet +or telephone must be received by +1:00 a.m., Central Time, on April +22, 2008. +ADD 2 +ADD +3 +ADD 4 +ADD 5 +ADD 6 +Vote by +Internet +• ● Log on to +the Internet and go to +www.investorvote.com +• ● Follow the +steps outlined on the secured website. +Vote by +telephone +• ● Call toll +free 1-800-652-VOTE (8683) within the United +States , Canada & +Puerto Rico any time on a touch tone +telephone. +There is NO CHARGE +to you for the +call. +• ● Follow the +instructions provided by the recorded message. +Using a black +ink pen, mark your +votes with an X as shown in +this example. Please do not write +outside the designated areas. +Annual +Meeting Proxy Card +123456 +C0123456789 +12345 +IF YOU HAVE NOT VOTED VIA THE INTERNET +OR +TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM +PORTION IN THE ENCLOSED ENVELOPE. +A +Elections of Class I +Directors — The Board of Directors recommends a vote FOR all the nominees +listed. +1. +Nominees: +01 - R. RANDALL +ROLLINS +02 - HENRY B. +TIPPIE +03 - JAMES B. +WILLIAMS +Mark here to vote FOR all +nominees +Mark here to WITHHOLD vote from all +nominees +01 +02 +03 +For All +EXCEPT - To withhold a vote for one or more +nominees, mark +the box to the left and the +corresponding numbered box(es) to the right. +2. IN THE DISCRETION OF THE +PROXIES ON ALL OTHER MATTERS WHICH MAY +PROPERLY COME +BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +B +Non-Voting +Items +Change of +Address — Please +print new address below. +C +Authorized Signatures — This +section must be completed for your vote to be counted. — Date and Sign +Below +Signature should conform to name +and title stenciled hereon. Executors, administrators, trustees, guardians +and attorneys should add their title upon +signing. +Date (mm/dd/yyyy) — Please print +date below. +Signature 1 — Please keep +signature within the box. +Signature 2 — Please keep +signature within the box. +/ / +C +1234567890 +J N T +MR A SAMPLE (THIS AREA IS SET UP +TO ACCOMMODATE +1 U P X +0 1 6 4 9 7 1 +140 CHARACTERS) MR A SAMPLE AND MR +A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR +A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR +A SAMPLE AND +IF YOU +HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. +Proxy +— RPC, INC. +Proxy +Solicited by the Board of Directors of RPC, Inc. +For +Annual Meeting of Stockholders on Tuesday, April 22, 2008, 12:15 +P.M. +The +undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL +ROLLINS, and each of them, jointly and severally, proxies, with full power of +substitution, to vote all shares of Common Stock which the undersigned is +entitled to vote at the Annual Meeting of Stockholders to be held on April 22, +2008, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any +adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and +Proxy Statement, each dated March 17, 2008, grants authority to said proxies, or +either of them, or their substitutes, to act in the absence of others, with all +the powers which the undersigned would possess if personally present at such +meeting and hereby ratifies and confirms all that said proxies or their +substitutes may lawfully do in the undersigned ’ s name, place and +stead. The undersigned instructs said proxies, or either of them, to vote as +stated on the reverse side. +ALL +PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR +INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED “ FOR ” THE ABOVE-NAMED +NOMINEES FOR DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF +DIRECTORS OF THE COMPANY. +NO +POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED +IN THE UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-08-000875/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-08-000875/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a0a26d69cdf2dc16ab85c2c7388f24e3be69842d --- /dev/null +++ b/raw/proxies/0000742278/0001188112-08-000875/proxy_rpt.txt @@ -0,0 +1,41 @@ +Related Party Transactions. Copies are also available in print, +without charge, to any shareholder who requests one by writing to: The +Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +Code +of Business Conduct +The +Company has adopted a Code of Business Conduct applicable to all directors, +officers and employees generally, as well as a Code of Business Conduct and +Ethics for Directors and Executive Officers and Related Party Transaction Policy +applicable to the principal executive officer, principal financial officer, and +directors. Both codes are available on the Company’s website at www.rpc.net under the +Governance section. Copies are also available in print, without +charge, to any shareholder who requests one by writing to: The Secretary, RPC, +Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Director +Communications +The +Company also has a process for interested parties, including stockholders, to +send communications to the Board of Directors, Presiding Director, any of the +Board Committees or the non-management directors as a group. Such +communications should be addressed as follows: +Mr. +Henry B. Tippie +c/o +Internal Audit Department +RPC, +Inc. +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329. +10 +The above +instructions for communications with the directors are also posted on our +website at www.rpc.net under the +Governance section. All communications received from interested +parties are forwarded to the Board of Directors. Any communication +addressed solely to the Presiding Director or the non-management directors will +be forwarded directly to the appropriate addressee(s). +COMPENSATION \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-09-000629/proxy.txt b/raw/proxies/0000742278/0001188112-09-000629/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..3162e31d6ec07a009b86cc103e0bf0f2c70fbf22 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-09-000629/proxy.txt @@ -0,0 +1,2872 @@ +DEF 14A +1 +t64662_def14a.htm +SCHEDULE 14A +t64662_def14a.htm +UNITED +STATES +SECURITIES +AND EXCHANGE COMMISSION +Washington, +D.C. 20549 +SCHEDULE +14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of the Securities +Exchange +Act of 1934 (Amendment No. ___) +Filed +by the Registrant x +Filed +by a Party other than the Registrant o +Check the +appropriate box: +o +Preliminary +Proxy Statement +o +Confidential, +for Use of the Commission Only (as permitted by Rule +14a-6(e)(2)) +x +Definitive +Proxy Statement +o +Definitive +Additional Materials +o +Soliciting +Material Pursuant to §240.14a-12 +RPC, +Inc. +(Name +of Registrant as Specified In Its Charter) +(Name +of Person(s) Filing Proxy Statement, if other than the +Registrant) +Payment +of Filing Fee (Check the appropriate box): +x +No +fee required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(1) and +0-11. +(1) +Title +of each class of securities to which transaction applies: +N/A +(2) +Aggregate +number of securities to which transaction applies: +N/A +(3) +Per +unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule +0-11 +(set forth the amount on which the filing fee is calculated and state how +it was determined): +N/A +(4) +Proposed +maximum aggregate value of transaction: N/A +(5) +Total +fee paid: N/A +o +Fee +paid previously with preliminary materials. +o +Check +box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the +filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, +or +the Form or Schedule and the date of its filing: +(1) +Amount +previously paid: N/A +(2) +Form, +Schedule or Registration Statement No.: N/A +(3) +Filing +party: N/A +(4) +Date +Filed: N/A +RPC, +INC. +NOTICE +OF ANNUAL MEETING OF STOCKHOLDERS +2801 +Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE +HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the +2009 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” +or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, +30324, on Tuesday, April 28, 2009, at 12:15 P.M., or any adjournment thereof, +for the following purposes: +1. To +elect the four Class II nominees identified in the attached proxy statement to +the Board of Directors; and +2. To +transact such other business as may properly come before the meeting or any +adjournment thereof. +The +Proxy Statement dated March 20, 2009 is attached. +The +Board of Directors has fixed the close of business on February 27, 2009 as the +record date for the determination of stockholders entitled to notice of, and to +vote at, the meeting. +Stockholders +who do not expect to be present at the meeting are urged to complete, date, sign +and return the enclosed proxy. No postage is required if the enclosed envelope +is mailed in the United States. +The Proxy Statement and 2008 Annual +Report are available at www.edocumentview.com/RES +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March +20, 2009 +PROXY +STATEMENT +This +Proxy Statement and a form of proxy were first mailed to stockholders on or +about March 20, 2009. The following information concerning the enclosed proxy +and the matters to be acted upon at the Annual Meeting of the Stockholders to be +held on April 28, 2009, is submitted by the Company to the stockholders in +connection with the solicitation of proxies on behalf of the Company’s Board of +Directors. +SOLICITATION +OF AND POWER TO REVOKE PROXY +A +form of proxy is enclosed. Each proxy submitted will be voted as directed, but +if not otherwise specified, proxies solicited by the Board of Directors of the +Company will be voted in favor of the candidates for election to the Board of +Directors. +A +stockholder executing and delivering a proxy has power to revoke the same and +the authority thereby given at any time prior to the exercise of such authority, +if he so elects, by contacting either proxy holder or by attending the meeting +and voting in person. However, a beneficial stockholder who holds his shares in +street name must secure a proxy from his broker before he can attend the meeting +and vote. +CAPITAL +STOCK +The +outstanding capital stock of the Company on February 27, 2009 consisted of +98,419,782 shares of Common Stock, par value $0.10 per share. Holders of Common +Stock are entitled to one vote (non-cumulative) for each share of such stock +registered in their respective names at the close of business on February 27, +2009, the record date for determining stockholders entitled to notice of, and to +vote at, the meeting or any adjournment thereof. +A +majority of the outstanding shares will constitute a quorum at the Annual +Meeting. Abstentions will be counted for purposes of determining the presence or +absence of a quorum for the transaction of business. In accordance with the +General Corporation Law of the state of Delaware, the election of the nominees +named herein as Directors will require the affirmative vote of a plurality of +the votes cast by the shares of Company Common Stock entitled to vote in the +election provided that a quorum is present at the Annual Meeting. In the case of +a plurality vote requirement (as in the election of directors), where no +particular percentage vote is required, the outcome is solely a matter of +comparing the number of votes cast for each nominee, with those nominees +receiving the most votes being elected, and hence only votes for director +nominees (and not abstentions) are relevant to the outcome. In this case, the +four nominees receiving the most votes will be elected. There are no rights of +appraisal or similar dissenter’s rights with respect to any matter to be acted +upon pursuant to this Proxy Statement. It is expected that shares held of record +by officers and directors of the Company, which in the aggregate represent +approximately 71.4 percent of the outstanding shares of Common Stock, will be +voted for the nominees for directors. +The +executives named in the Summary Compensation Table, and the name and address of +each stockholder (or “group” as that term is used in Section 13(d)(3) of the +Securities Exchange Act of 1934, as amended) who owned beneficially five percent +(5%) or more of the shares of Common Stock of the Company on February 27, 2009, +together with the number of shares owned by each such person and the percentage +of outstanding shares that ownership represents, and information as to Common +Stock ownership of the directors and executive officers of the Company as a +group (according to information received by the Company), are set out +below: +1 +Name +and Address of Beneficial Owner +Amount +Beneficially +Owned +(1) +Percent +of +Outstanding +Shares +R. +Randall Rollins +64,591,383 +(2) +65.4 +Chairman +of the Board +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +Gary +W. Rollins +65,970,484 +(3) +66.8 +President +and Chief Executive Officer, Rollins, Inc. +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +GAMCO +Investors, Inc. +6,509,839 +(4) +6.6 +One +Corporate Center +401 +Theodore Fremd Avenue +Rye, +NY 10580 -1433 +Richard +A. Hubbell +1,261,951 +(5) +1.3 +President +and Chief Executive Officer +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329 +Linda +H. Graham +378,517 +(6) +** +Vice +President and Secretary +2170 +Piedmont Road, NE +Atlanta, +Georgia 30324 +Ben +M. Palmer +280,922 +(7) +** +Vice +President, Chief Financial Officer and Treasurer +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329 +All +Directors and Executive Officers as a group +(10 +persons) +70,580,147 +(8) +71.5 +** +Less +than one percent +(1) +Except +as otherwise noted, the nature of the beneficial ownership for all shares +is sole voting and investment power. +(2) +Includes +11,837 shares of the Company Common Stock held as Trustee, Guardian, or +Custodian for his children. Also includes 687,148 shares of Company Common +Stock in two trusts of which he is Co-Trustee and as to which he shares +voting and investment power. Also includes 57,537,985 shares of the +Company Common Stock held by RFPS Management Company II, L.P. of which RFA +Management Company, LLC (“General Partner”), a Georgia limited liability +company, is the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, +Inc. is the manager of the General Partner. Also includes 5,018,900 shares +of the Company Common Stock held by RFT Investment Company, LLC of which +LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins +have voting control of LOR, Inc. Included herein are 111,000 shares of +restricted stock awards for Company Common Stock. This also includes +105,801 shares of Company Common Stock held by his wife, as to which Mr. +Rollins disclaims any beneficial interest. Mr. Rollins is part of a +control group holding Company securities that includes Mr. Gary W. +Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities +and Exchange Commission. +2 +(3) +Includes +687,148 shares of the Company Common Stock in two trusts of which he is +Co-Trustee and as to which he shares voting and investment power. Also +includes 244,862 shares of Company Common Stock held as Trustee, Guardian +or Custodian for his children. Also includes 57,537,985 shares of the +Company Common Stock held by RFPS Management Company II, L.P. of which RFA +Management Company, LLC (“General Partner”), a Georgia limited liability +company, is the general partner. The voting interests of the General +Partner are held by two revocable trusts, one of which each of Mr. Gary W. +Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, +Inc. is the manager of the General Partner. Also includes 5,018,900 shares +of the Company Common Stock held by RFT Investment Company, LLC of which +LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins +have voting control of LOR, Inc. This also includes 202,513 shares of the +Company Common Stock held by his wife, as to which Mr. Rollins disclaims +any beneficial interest. Mr. Rollins is part of a control group holding +Company securities that includes Mr. R. Randall Rollins, as disclosed on a +Schedule 13D on file with the U.S. Securities and Exchange +Commission. +(4) +Per +Schedule 13D filed with the Securities and Exchange Commission (“SEC”) on +April 25, 2008. +(5) +Includes +253,123 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +February 27, 2009, and 127,200 shares of restricted stock awards for +Company Common Stock. +(6) +Includes +50,625 shares of Company Common Stock subject to options that are +currently exercisable or that become exercisable within 60 days of +February 27, 2009, and 37,000 shares of restricted stock awards for +Company Common Stock. +(7) +Includes +119,200 shares of restricted stock awards for Company Common +Stock. +(8) +Shares +held in trusts as to which more than one officer and/or director are +Co-Trustees or entities in which there is common ownership have been +included only once. Includes an aggregate of 303,748 shares of Company +Common Stock that may be purchased by two executive officers upon exercise +of options that are currently exercisable or that become exercisable +within 60 days of February 27, 2009, and 394,400 shares of restricted +stock awards for Company Common Stock awarded and issued to them pursuant +to the Company’s 1994 Employee Stock Incentive Plan and 2004 Stock +Incentive Plan. +ELECTION +OF DIRECTORS +At +the Annual Meeting, Messrs. Richard A. Hubbell, Bill J. Dismuke, Larry L. Prince +and Ms. Linda H. Graham will be nominated to serve as Class II directors. The +nominees for election at the 2009 Annual Meeting are all now directors of the +Company, except for Mr. Prince who was recommended to the Nominating and +Governance Committee as a director candidate by our Chairman. The directors in +each class serve for a term of three years. The director nominees will serve in +their respective class until their successors are elected and qualified. Six +other individuals serve as directors but are not standing for re-election +because their terms as directors extend past this Annual Meeting pursuant to +provisions of the Company’s Bylaws that provide for the election of directors +for staggered terms, with each director serving a term of three years. Unless +authority is withheld, the proxy holders will vote for the election of each +nominee named below. Although management does not contemplate the possibility, +in the event any nominee is not a candidate or is unable to serve as a director +at the time of the election, unless authority is withheld, the proxies will be +voted for any nominee who shall be designated by the present Board of Directors +and recommended by the Nominating and Governance Committee, to fill such +vacancy. +The +name and age of the director nominees, their principal occupations, together +with the number of shares of Common Stock beneficially owned, directly or +indirectly, by each and the percentage of outstanding shares that ownership +represents, all as of the close of business on February 27, 2009 (according to +information received by the Company) are set out below. Similar information is +also provided for those directors whose terms expire in future +years. +3 +Names +of Directors +Principal +Occupation (1) +Service +as +Director +Age +Shares +of +Common +Stock +(2) +Percent +of +Outstanding +Shares +Names of Director Nominees +Class II (Current Term +Expires 2009, New Term Will Expire 2012) +Richard +A. Hubbell +President +and Chief Executive Officer of the Company since April 2003; President and +Chief Operating Officer of the Company prior to April 2003; President and +Chief Executive Officer of Marine Products Corporation (boat +manufacturing). +1987 +to date +64 +1,261,951 +(3) +1.3 +Linda +H. Graham +Vice +President and Secretary of the Company; Vice President and Secretary of +Marine Products Corporation (boat manufacturing). +2001 +to date +72 +378,517 +(4) +** +Bill +J. Dismuke +Retired +President of Edwards Baking +Company +(manufacturer of pies and pie parts). +January +25, +2005 to date +72 +3,375 +** +Larry +L. Prince +Chairman +of the Executive Committee of the Board of Directors of Genuine Parts +Company (automotive parts distributor). +To +be elected +70 +— +** +Names of Directors Whose Terms Have Not +Expired +Class III (Term +Expires 2010) +Wilton +Looney +Honorary +Chairman of the Board of Genuine Parts Company (automotive parts +distributor). +1984 +to date +89 +4,050 +** +Gary +W. Rollins (5) +President +and Chief Executive Officer of Rollins, Inc. (consumer +services). +1984 +to date +64 +65,970,484 +(6) +66.8 +James +A. Lane, Jr. +Executive +Vice President of Marine Products Corporation (boat manufacturing) and +President of Chaparral Boats, Inc. +1987 +to date +66 +197,487 +** +4 +Names +of Directors +Principal +Occupation (1) +Service +as +Director +Age +Shares +of +Common +Stock +(2) +Percent +of +Outstanding +Shares +Class I (Term Expires +2011) +R. +Randall Rollins (5) +Chairman +of the Board of the Company since April 2003; Chairman of the Board and +Chief Executive Officer of the Company prior to April 2003; Chairman of +the Board of Marine Products Corporation (boat manufacturing); Chairman of +the Board of Rollins, Inc. (consumer services). +1984 +to date +77 +64,591,383 +(7) +65.4 +Henry +B. Tippie +Presiding +Director of the Company; Chairman of the Board and Chief Executive Officer +of Tippie Services, Inc. (management services); Chairman of the Board of +Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose +gaming and entertainment complex) and Chairman of the Board of Dover +Motorsports, Inc. (operator of motor racing tracks). +1984 +to date +82 +1,065,002 +(8) +1.1 +James +B. Williams +Chairman +of the Executive Committee, SunTrust Banks, Inc. (bank holding company) +from 1998 to April 2004. +1984 +to date +76 +135,000 +** +** +less +than one percent +(1) +Unless +otherwise noted, each of the directors has held the positions of +responsibility set out in this column (but not necessarily his or her +present title) for more than five years. In addition to the directorships +listed in this column, the following individuals also serve on the Boards +of Directors of the following companies: James B. Williams: The Coca-Cola +Company; R. Randall Rollins: Dover Downs Gaming and Entertainment, Inc. +and Dover Motorsports, Inc.; Gary W. Rollins: Genuine Parts Company and +Emory University: and Larry L. Prince: Genuine Parts Company, Crawford +& Company and SunTrust Banks, Inc. All of the directors shown in the +above table are also directors of Marine Products Corporation (“Marine +Products” or “MPC”) and with the exception of Messrs. Hubbell and Lane and +Ms. Graham are also directors of Rollins, Inc. (“Rollins”). Mr. Prince has +been nominated for election to the Board of Directors of MPC and +Rollins. +(2) +Except +as otherwise noted, the nature of the beneficial ownership for all shares +is sole voting and investment power. +(3) +See +information contained in footnote (5) to the table appearing in Capital +Stock section. +(4) +See +information contained in footnote (6) to the table appearing in Capital +Stock section. +(5) +R. +Randall Rollins and Gary W. Rollins are brothers. +(6) +See +information contained in footnote (3) to the table appearing in Capital +Stock section. +(7) +See +information contained in footnote (2) to the table appearing in Capital +Stock section. +(8) +Includes +63,990 shares held in trusts of which he is a Trustee or Co-Trustee and as +to which he shares voting and investment power. Also includes shares held +by a wholly owned corporation that owns 1,012 +shares. +Our +Board of Directors recommends a vote FOR the nominees listed. +5 +CORPORATE +GOVERNANCE AND BOARD OF DIRECTORS +COMMITTEES +AND MEETINGS +Board +Meetings +The +Board of Directors met five times during the fiscal year ended December 31, +2008. No director attended fewer than 75 percent of the aggregate of all Board +meetings and meetings of committees on which he or she served during 2008. Board +members are encouraged to attend the Company’s Annual Stockholder Meetings and +all Board members were in attendance at last year’s meeting. +The +Board of Directors has an Audit Committee, a Compensation Committee, a Diversity +Committee and a Nominating and Governance Committee. +Below +is a summary of our committee structure and membership information. +Board +of Directors +Audit +Committee +Compensation +Committee +Diversity +Committee +Nominating +& +Governance +Committee +Executive +Committee +R. Randall Rollins +(1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Wilton Looney (2) +Member +Member +Member +Member +James B. +Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary +W. Rollins +Member +(1) +Chairman +of the Board of Directors +(2) +Financial +Expert +Audit +Committee +The +Audit Committee of the Board of Directors of the Company consists of Henry B. +Tippie (Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The +Audit Committee held five meetings during the fiscal year ended December 31, +2008. The Board of Directors has determined that all of the Audit Committee +members are independent as that term is defined by the rules of the Securities +and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The +Board of Directors has also determined that all of the Audit Committee members +are “Audit Committee Financial Experts” as defined in the SEC rules. +Additionally, the Board of Directors has determined that the simultaneous +service by Mr. James B. Williams on the Audit Committees of three other publicly +traded companies does not impair his ability to effectively serve on the Audit +Committee of RPC. The Audit Committee meets with the Company’s independent +registered public accountants, internal auditor, Chief Executive Officer and +Chief Financial Officer to review the scope and results of audits and +recommendations made with respect to controls over financial reporting and +specific accounting and financial reporting issues. The Audit Committee has the +authority to obtain advice and assistance from, and receive appropriate funding +from the Company for, outside legal, accounting or other advisors as it deems +necessary to carry out its duties. The Audit Committee charter is available on +the Company’s website at www.rpc.net under the Governance section. A written +copy of the charter can be obtained free of charge by writing to The Secretary, +RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Compensation +Committee +The +Compensation Committee of the Board of Directors of the Company consists of +Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held two +meetings during the fiscal year ended December 31, 2008. The function of the +Compensation Committee is to set the base salary and cash based incentive +compensation of all of the executive officers. The Compensation Committee also +administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee does +not have a formal charter, and is not required to have one under the “controlled +company” exemption under the NYSE rules, as described in the section titled +“Director Independence and NYSE Requirements” below. +6 +Diversity +Committee +The +Diversity Committee of the Board of Directors of the Company consists of Henry +B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting +during the fiscal year ended December 31, 2008. The function of the Diversity +Committee is to monitor compliance with applicable non-discrimination +laws. +Nominating +and Governance Committee +The +Nominating and Governance Committee of the Board of Directors of the Company +consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, +each of whom is independent, as discussed more fully under “Director +Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant +to a resolution passed by the Board of Directors for the following +purposes: +● +to +recommend to the Board of Directors nominees for director and to consider +any nominations properly made by a stockholder; +● +upon +request of the Board of Directors, to review and report to the Board with +regard to matters of corporate governance; and +● +to +make recommendations to the Board of Directors regarding the agenda for +Annual Stockholders’ Meetings and with respect to appropriate action to be +taken in response to any stockholder +proposals. +The +Nominating and Governance Committee held one meeting during the fiscal year +ended December 31, 2008. +Director +Nominations +Under +Delaware law, there are no statutory criteria or qualifications for directors. +No criteria or qualifications have been prescribed by the Board at this time. +The Nominating and Governance Committee does not have a charter or a formal +policy with regard to the consideration of director candidates. However, it acts +under the guidance of the Corporate Governance Guidelines approved by the Board +of Directors and posted on the Company’s website at www.rpc.net under the +Governance section. A written copy of the Corporate Governance Guidelines can be +obtained free of charge by writing to the Secretary, RPC, Inc., 2170 Piedmont +Road NE, Atlanta, Georgia 30324. The Board believes that it should preserve +maximum flexibility in order to select directors with sound judgment and other +desirable qualities. According to the Company’s Corporate Governance Guidelines, +the Board of Directors will be responsible for selecting nominees for election +to the Board of Directors. The Board delegates the screening process to the +Nominating and Governance Committee. This Committee is responsible for +determining the appropriate skills and characteristics required of Board members +in the context of the then current make-up of the Board. This determination +takes into account all factors which the Committee considers appropriate, such +as independence, experience, strength of character, mature judgment, technical +skills, diversity, age and the extent to which the individual would fill a +present need on the Board. The Company’s Bylaws provide that nominations for the +election of directors may be made by any stockholder entitled to vote for the +election of directors. Nominations must comply with an advance notice procedure +which generally requires, with respect to nominations for directors for election +at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., +2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior +to the anniversary of the prior year’s annual meeting and set forth the name, +age, business address and, if known, residence address of the nominee proposed +in the notice, the principal occupation or employment of the nominee for the +past five years, the class or series and number of shares of capital stock of +the Company which are owned beneficially or of record by the person and any +other information relating to the person that would be required to be disclosed +in a proxy statement or other filings. Other requirements related to the notice +are contained in the Company’s Bylaws. The Committee will consider nominations +from stockholders who satisfy these requirements. The Committee is responsible +for screening the nominees that are selected by the Board of Directors for +nomination to the Board and for service on committees of the Board. To date, the +Company has not received a recommendation for a director nominee from a +stockholder. All of the nominees for directors being voted upon, at the Annual +Meeting to be held on April 28, 2009 are directors standing for re-election, +except for Mr. Prince. Mr. Prince was recommended to the Committee as a nominee +by our Chairman. +7 +Director +Independence and NYSE Requirements +Controlled +Company Exemption +The +Company is not required by law or NYSE listing requirements to have a Nominating +or Compensation Committee composed of independent directors, nor to have a Board +of Directors, the majority of which are independent. Because the Company is a +“controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt +from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance +with those provisions. The Company is a “controlled corporation” because a group +that includes the Company’s Chairman of the Board, R. Randall Rollins, his +brother Gary W. Rollins who is also a director and certain companies under their +control, possesses in excess of fifty percent of the Company’s voting +power. +The +Company’s Audit Committee is composed of four “independent” directors as defined +by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange +Act, SEC regulations there under, and the Company’s Audit Committee Charter. All +of the members of the Compensation, Diversity and Nominating and Governance +Committees are also independent directors. The independent directors of the +Company are Henry B. Tippie, Wilton Looney, James B. Williams and Bill J. +Dismuke. In addition, if elected, Mr. Prince will also be an independent +director of the Company. +Independence +Guidelines +Under +NYSE listing standards, to be considered independent, a director must be +determined to have no material relationship with the Company other than as a +director. The NYSE standards set forth a nonexclusive list of relationships +which are conclusively deemed material. +The +Company’s Independence Guidelines (Appendix A to the Company’s Corporate +Governance Guidelines) are posted on the Company’s website at www.rpc.net under +the Governance section. These independence guidelines provide that to be +independent, a director must not have any relationship that would be considered +material under NYSE standards and that except in special circumstances as +determined by a majority of the Board, the following relationships are not +material: +(i) +If +the director, or a member of the director’s immediate family, has received +less than one hundred twenty thousand dollars (US $120,000) in direct +compensation from the Company (other than director and committee fees and +compensation for prior service which are not contingent in any way on +continued services) during every 12 month period within the past three (3) +years; +(ii) +If +the director is a director or officer, or any member of the director’s +immediate family is a director or officer of a bank to which the Company +is indebted, and the total amount of the indebtedness does not exceed one +percent (1%) of the total assets of the bank for any of the past three (3) +years; +(iii) +If +the director or any member of the director’s immediate family is an +employee of a charitable or educational organization, and donations by the +Company do not exceed the greater of one million dollars (US $1,000,000) +or two percent (2%) of the organization’s consolidated gross revenues +within the preceding three (3) years; +(iv) +If +the director has a relationship with the Company of a type covered by item +404(a) and/or item 407 of the Securities and Exchange Commission’s +Regulation S-K (or any successor regulation), and that relationship need +not, according to the terms of those items and any then- current proxy +regulations, be disclosed in the Company’s annual Proxy Statement (except +for relationships described elsewhere in the Company’s guidelines in which +case the other guidelines will govern); +(v) +If +the director, or a member of the director’s immediate family, has direct +or beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) +of any amount of any class of common stock of the +Company. +8 +Audit +Committee Charter +Under +the Company’s Audit Committee Charter, in accordance with NYSE listing +requirements and the Securities Exchange Act of 1934, all members of the Audit +Committee must be independent of management and the Company. A member of the +Audit Committee is considered independent as long as he or she (i) does not +accept any consulting, advisory, or compensatory fee from the Company, other +than as a director or committee member; (ii) is not an affiliated person of the +Company or its subsidiaries; and (iii) otherwise meets the independence +requirements of the NYSE and the Company’s Corporate Governance +Guidelines. +Nonmaterial +Relationships +After +reviewing all of the relationships between the members of the Audit Committee +and the Company, the Board of Directors determined that none of the members of +the Audit Committee nor Mr. Prince had any relationships not included within the +categorical standards set forth in the Independence Guidelines and disclosed +above except as follows: +1. +Mr. +Tippie was employed by Rollins from 1953 to 1970, and held several offices +with that company during that time, including as Executive Vice President +– Finance, Secretary, Treasurer and Chief Financial Officer. Messrs. +Randall and Gary Rollins are directors and executive officers of Rollins +and are part of a group that has voting control of +Rollins. +2. +Mr. +Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. +and Dover Downs Gaming and Entertainment, Inc. Mr. Randall Rollins is also +a director of these companies. +3. +Mr. +Tippie is the trustee of the O. Wayne Rollins Foundation and of the +Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and +Randall Rollins. The beneficiaries of the Rollins Children’s Trust include +the immediate family members of Randall and Gary +Rollins. +4. +Each +of Messrs. Dismuke, Looney, Tippie and Williams also serve on the Boards +of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins +are directors, and voting control over which is held by a control group of +which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is +an executive officer of Marine Products. In addition, if elected, Mr. +Prince will also serve as a director of both Rollins and Marine +Products. +5. +Mr. +Prince is a director of Genuine Parts Company. Gary W. Rollins is also a +director of Genuine Parts +Company. +As +required by the Independence Guidelines, the Board of Directors unanimously +concluded that the above-listed relationships would not affect the independent +judgment of the independent directors, based on their experience, character and +independent means, and therefore do not preclude an independence determination. +All of the members are also independent under the heightened standards required +for Audit Committee members. +In +accordance with the NYSE corporate governance listing standards, Mr. Henry B. +Tippie was elected as the Presiding Director. The Company’s non-management +directors meet at regularly scheduled executive sessions without management. Mr. +Tippie presides during these executive sessions. +Corporate +Governance Guidelines +We +have adopted Corporate Governance Guidelines to promote better understanding of +our policies and procedures. At least annually, the Board reviews these +guidelines. As required by the rules of the New York Stock Exchange, our +Corporate Governance Guidelines require that our non-management directors meet +in at least two regularly scheduled executive sessions per year without +management. +At +the Company’s website at www.rpc.net, under the Governance section, you may +access a copy of our Corporate Governance Guidelines, our Audit Committee +Charter, our Code of Business Conduct and our Code of Business Conduct and +Ethics for Directors and Executive Officers and Related Party Transactions +Policy. Copies are also available in print, without charge, to any stockholder +who requests one by writing to: The Secretary, RPC, Inc., 2170 Piedmont Road NE, +Atlanta, Georgia 30324. +9 +Code +of Business Conduct +The +Company has adopted a Code of Business Conduct applicable to all directors, +officers and employees generally, as well as a Code of Business Conduct and +Ethics for Directors and Executive Officers and Related Party Transactions +Policy applicable to the principal executive officer, principal financial +officer, and directors. Both codes are available on the Company’s website at +www.rpc.net under the Governance section. Copies are also available in print, +without charge, to any stockholder who requests one by writing to: The +Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324. +Director +Communications +The +Company also has a process for interested parties, including stockholders, to +send communications to the Board of Directors, Presiding Director, any of the +Board Committees or the non-management directors as a group. Such communications +should be addressed as follows: +Mr. +Henry B. Tippie +c/o +Internal Audit Department +RPC, +Inc. +2801 +Buford Highway, Suite 520 +Atlanta, +Georgia 30329. +The +above instructions for communications with the directors are also posted on our +website at www.rpc.net under the Governance section. All communications received +from interested parties are forwarded to the Board of Directors. Any +communication addressed solely to the Presiding Director or the non-management +directors will be forwarded directly to the appropriate +addressee(s). +COMPENSATION +COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None +of the directors named above who serve on the Company’s Compensation Committee +are or have ever been an employee of the Company. There are no Compensation +Committee interlocks requiring disclosure. +10 +DIRECTOR +COMPENSATION +The +following table sets forth compensation to the Company’s directors for services +rendered as a director. Three of the directors, Messrs. R. Randall Rollins, +Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their +compensation is set forth in the Summary Compensation Table under Executive +Compensation. The directors listed below have never been employed by the Company +or paid a salary or bonus by the Company, have never been granted any options or +other stock-based awards, and do not participate in any Company sponsored +retirement plans, with the exception of Mr. James A. Lane, Jr. who was an +employee of the Company until the spin-off of Marine Products in +2001. +Name +Fees +Earned or +Paid +in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry +B. Tippie +91,750 +— +— +91,750 +James +B. Williams +48,750 +— +— +48,750 +Wilton +Looney +48,750 +— +— +48,750 +Bill +J. Dismuke +42,750 +— +— +42,750 +Gary +W. Rollins +31,500 +— +— +31,500 +James +A. Lane, Jr. +31,500 +— +— +31,500 +(1) +Directors +are eligible for grants of stock awards under the Company’s 2004 Stock +Incentive Plan (“SIP”). No stock awards have been granted to the +non-management directors under the 2004 +SIP. +Directors +that are our employees do not receive additional compensation for services +rendered as a director. +Under +current compensation arrangements effective January 1, 2008, non-management +directors each receive an annual retainer fee of $24,000. In addition, the +Chairman of the Audit Committee receives an annual retainer of $16,000, the +Chairman of the Compensation Committee receives an annual retainer of $9,000, +and the Chairman of each of the Nominating and Governance Committee and +Diversity Committee receives an annual retainer of $6,000. A director that +chairs more than one committee receives a retainer with respect to each +committee he chairs. All of the retainers are paid on a quarterly basis. Per +meeting fees for non-management directors are as follows: +● +For +meetings of the Board of Directors, Compensation Committee, Diversity +Committee and Nominating and Governance Committee, $1,500 and telephonic +meetings of the Audit Committee, $1,250. +● +For +in person meetings of the Audit Committee, $2,500. In addition, the +Chairman of the Audit Committee receives an additional $1,500 for +preparing to conduct each quarterly Board and Board Committee +meetings. +All +non-management directors are also entitled to reimbursement of expenses for all +services as a director, including committee participation or special +assignments. There have been no changes to the director compensation +arrangements for 2009. +Notwithstanding +anything to the contrary set forth in any of the Company’s previous filings +under the Securities Act of 1933 or the Securities Exchange Act of 1934, that +might incorporate future filings, including the Proxy Statement, in whole or in +part, the Report of the Audit Committee shall not be incorporated by reference +into any such filings. +11 +REPORT +OF THE AUDIT COMMITTEE +Management +is responsible for the Company’s internal controls, assessing the effectiveness +of these controls and the financial reporting process. The Company’s independent +registered public accounting firm is responsible for performing independent +audits of the Company’s consolidated financial statements and the effectiveness +of the Company’s internal control over financial reporting in accordance with +the standards of the Public Company Accounting Oversight Board (United States) +and for issuing reports thereon. The Audit Committee’s responsibility is +generally to monitor and oversee these processes, as described in the Audit +Committee Charter. It is not the duty of the Audit Committee to plan or conduct +audits or to determine that the Company’s financial statements are complete and +accurate and in accordance with generally accepted accounting principles; that +is the responsibility of management. +In +fulfilling its oversight responsibilities with respect to the year ended +December 31, 2008, the Audit Committee: +● +Approved +the terms of engagement of Grant Thornton LLP as the Company’s independent +registered public accounting firm for the year ended December 31, +2008; +● +Reviewed +with management the interim financial information included in the Forms +10-Q prior to their being filed with the SEC. In addition, the Committee +reviewed all earnings releases with management and the Company’s +independent public accountants prior to their release; +● +Reviewed +and discussed with the Company’s management and the independent registered +public accounting firm the audited consolidated financial statements of +the Company as of December 31, 2008 and 2007 and for the three years ended +December 31, 2008; +● +Reviewed +and discussed with the Company’s management and the independent registered +public accounting firm, management’s assessment that the Company +maintained effective control over financial reporting as of December 31, +2008; +● +Discussed +with the independent registered public accounting firm matters required to +be discussed by the American Institute of Certified Public Accountants +Statement on Auditing Standards (“SAS”) No. 61, “Communications with Audit +Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU Section +380), as adopted by the Public Company Accounting Oversight Board; +and +● +Received +from the independent registered public accounting firm the written +disclosures and the letter in accordance with the requirements of the +Public Company Accounting Oversight Board regarding the firm’s +communications with the Committee concerning independence, and discussed +with such firm its independence from the +Company. +Based +upon the review and discussions referred to above, the Committee recommended to +the Board of Directors that the audited consolidated financial statements of the +Company and subsidiaries as of December 31, 2008 and 2007 and for the three +years ended December 31, 2008 be included in the Company’s Annual Report on Form +10-K for the year ended December 31, 2008 and for filing with the Securities and +Exchange Commission. +In +giving its recommendation to the Board of Directors, the Audit Committee has +relied on (i) management’s representation that such financial statements have +been prepared with integrity and objectivity and in conformity with accounting +principles generally accepted in the United States of America and (ii) the +report of the Company’s independent registered public accounting firm with +respect to such financial statements. +Submitted +by the Audit Committee of the Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +Bill +J. Dismuke +12 +COMPENSATION +DISCUSSION AND ANALYSIS +Compensation +Committee +During +the fiscal year ended December 31, 2008, the members of our Compensation +Committee held primary responsibility for determining executive compensation +levels. The Committee is composed of three of our non-management directors who +do not participate in the Company’s compensation plans. The Committee determines +the compensation and administers the performance-based cash compensation plan +for our executive officers. In addition, the Committee also administers our +Stock Incentive Plan for all the employees. +The +members of our Compensation Committee have extensive and varied experience with +various public and private corporations - as investors and stockholders, as +senior executives, and as directors charged with the oversight of management and +the setting of executive compensation levels. Henry B. Tippie, the Chairman of +the Compensation Committee, has served on the board of directors of twelve +different publicly traded companies and has been involved in setting executive +compensation levels at all of these companies. Messrs. Wilton Looney and James +B. Williams have served on the board of directors of several different publicly +traded companies and have similarly been involved in setting executive +compensation levels at many of these companies. +The +Compensation Committee has authority to engage attorneys, accountants and +consultants, including executive compensation consultants, to solicit input from +management concerning compensation matters, and to delegate any of its +responsibilities to one or more directors or members of management where it +deems such delegation appropriate and permitted under applicable law. The +Committee has not used the services of any compensation consultants in +determining or recommending the amount or form of executive +compensation. +The +Compensation Committee believes that determinations relative to executive +compensation levels are best left to the discretion of the Committee. In +addition to the extensive experience and expertise of the Committee’s members +and their familiarity with the Company’s performance and the performance of our +executive officers, the Committee is able to draw on the experience of other +Directors and on various legal and accounting executives employed by the +Company, and the Committee has access to the wealth of readily available public +information relative to structuring executive compensation programs and setting +appropriate compensation levels. The Committee also believes that the structure +of our executive compensation programs should not become overly complicated or +difficult to understand. The Committee solicits input from our Chairman with +respect to the performance of our executive officers and their compensation +levels. +General +Compensation Objectives and Guidelines +The +Company is engaged in a highly competitive industry. The success of the Company +depends on its ability to attract and retain highly qualified and motivated +executives. In order to accomplish this objective, the Company structures the +executive compensation in a fashion that takes into account the Company’s +overall performance and the individual performance of the +executive. +The +Compensation Committee endorses the philosophy that executive compensation +should reflect Company performance and the contribution of executive officers to +that performance. The Company’s compensation policy is designed to reward growth +in revenues, net income and increase in shareholder value. The Committee +recognizes that there are many intangibles involved in evaluating performance +and in motivating performance, and that determining an appropriate compensation +level is a highly subjective endeavor. The analysis of the Committee is not +based upon a structured formula and the objectives referred to above are not +weighted in any formal manner. +The +Company’s executive officers are also executive officers of Marine Products and +receive compensation directly from Marine Products. The members of the Company’s +Compensation Committee also constitute the Compensation Committee of Marine +Products. In determining the compensation for the executive officers at the +Company, the Committee considers these dual responsibilities and sources of +compensation. The Company sets compensation of its executives at such levels so +that the aggregate compensation received from both Marine Products and the +Company is reasonable in light of their respective responsibilities and the +performance of both companies, and so that the compensation from the Company for +services solely to the Company is reasonable. A discussion of the Company’s +executive officers’ compensation at Marine Products is contained in its annual +Proxy Statement filed with the SEC. +13 +Pursuant +to the Company’s compensation philosophy, the total annual compensation of its +executive officers is primarily made up of base salary, performance-based +incentive cash compensation and stock-based incentive compensation. In addition, +the Company provides retirement compensation plans, group welfare benefits and +certain perquisites. +We +believe a competitive base salary is important to attract, retain and motivate +top executives. We believe a performance-based incentive cash compensation plan +is valuable in recognizing and rewarding individual achievement. Finally, we +believe stock-based incentives makes executives “think like owners” and, +therefore, aligns their interests with those of our stockholders. +The +Company does not have any formal stock ownership requirements for its executive +officers but notes that its current directors and executive officers are +stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. +The Company is mindful of the stock ownership of our directors and executive +officers but does not believe that it is appropriate to provide a mechanism or +formula to take stock ownership (or gains from prior option or stock awards) +into account when setting compensation levels. The Company provides in its +insider trading policies that directors and executive officers may not sell +Company securities short and may not sell puts, calls or other derivative +securities tied to our Common Stock. +The +Company does not have a formal policy relative to the adjustment or recovery of +incentives or awards in the event that the performance measures upon which +incentives or awards were based are later restated or otherwise adjusted in a +manner that would have reduced the size of an incentive or award. However, as +all incentives and awards remain within the discretion of the Compensation +Committee, the Committee retains the ability to take any such restatements or +adjustments into account in subsequent years. In addition, the Sarbanes-Oxley +Act requires in the case of accounting restatements that result from material +non-compliance with SEC financial reporting requirements, that Chief Executive +Officers and Chief Financial Officers must disgorge bonuses and other +incentive-based compensation and profits on stock sales, if the non-compliance +results from misconduct. +Base +Salary +The +salary of each executive officer is determined by the Compensation Committee. In +making its determinations, the Committee gives consideration to the recent +financial performance of the Company, the magnitude of responsibilities, the +scope of the position, individual performance and compensation paid by Marine +Products. The Committee solicits input from our Chairman with respect to the +performance of our executive officers and their compensation levels. During +2008, the base salaries of our executive officers were increased to the +following amounts: Mr. Richard A. Hubbell: $700,000 ($100,000 increase from +2007); Mr. Ben M. Palmer: $250,000 ($50,000 increase from 2007); Mr. R. Randall +Rollins: $600,000 ($100,000 increase from 2007); and Ms. Linda H. Graham: +$165,000 ($15,000 increase from 2007). These increases were subjectively based +on growth in revenues, recent profit performance of the Company and return on +invested capital. There have been no changes to these base salaries in +2009. +Performance-Based +Incentive Cash Compensation +The +Company implemented the Performance-Based Incentive Cash Compensation Plan (the +“Management Incentive Plan”) for the executive officers in 2006. Under the +Management Incentive Plan, the Compensation Committee establishes performance +goals annually within ninety days after the commencement of the performance +period to which such goals relate. Performance goals for each participant may be +based on corporate, business unit/function or individual performance, or a +combination of one or more such measures. +14 +In +connection with the annual establishment of performance goals, the Compensation +Committee sets a target award for each participant in the Management Incentive +Plan for the applicable year, which is expressed as a percentage of the +participant’s base compensation (the “Target Award”) in effect on the last day +of the final pay period of that year. If the participant’s performance goals are +based upon a combination of performance measures, the Compensation Committee +will weigh the importance of each performance measure by assigning a percentage +(the “Weighted Percentage”) to those performance measures. The participant’s +cash award amount will also depend in part upon the level of achievement that +the participant attained with respect to each such performance measure utilizing +the formula set out in the Management Incentive Plan. This formula provides for +a performance value (“Performance Value”) which ranges from: +● +threshold +performance level (with a Performance Value of 25 percent of the Target +Award), +● +target +performance level (with a Performance Value up to 100 percent of the +Target Award), to +● +superior +performance level (with a Performance Value up to 200 percent of the +Target Award). +Subject +to the limitations set forth below, a participant’s cash award amount for each +year under the Management Incentive Plan equals the product of the Target Award +multiplied by the Weighted Percentage assigned to each performance measure used +for a participant, multiplied by the Performance Value attained for each +performance measure, multiplied by base compensation. The Committee will +determine the maximum cash award as a percentage of participants’ base +compensation for each applicable year. +For +2008, the Compensation Committee established the target incentive award under +the Management Incentive Plan for the Chief Executive Officer and for the other +members of executive management at the amounts shown in the table below. The +target awards that could be earned under the Management Incentive Plan for 2008 +are the same as for the prior year except for Mr. Ben M. Palmer whose percentage +was increased to 100 percent from 80 percent. +Executive +Officer +Target +Award as a +percentage +of base salary +Richard +A. Hubbell +President +and Chief Executive Officer +100 +% +Ben +M. Palmer +Vice +President, Chief Financial Officer and Treasurer +100 +% +R. +Randall Rollins +Chairman +of the Board +100 +% +Linda +H. Graham +Vice +President and Secretary +40 +% +The +maximum bonus award for each participant under the Plan for 2008 and prior years +was established at 150 percent of such participant’s base salary. The +performance criteria applicable to the participants under the Management +Incentive Plan for 2008 were determined based solely on corporate performance. +The Compensation Committee established corporate performance goals for 2008 +under the Management Incentive Plan based on cash flow return on invested +capital. Return on invested capital (“ROIC”) is a widely used financial +performance measure that typically correlates with long-term changes in +shareholder value. The Company has used ROIC as the sole performance goal under +the Management Incentive Plan for several years. For 2008, the target +performance goal established by the Company is in excess of the comparable +historical average ROIC of our peers, is in excess of the Company’s weighted +average cost of capital, and is an amount which the Company believes represents +outstanding financial performance. Under the Management Incentive Plan, the +Company must achieve at least 80 percent of the target performance goal for +executive officers to be eligible for any bonus award. Bonus awards under the +Management Incentive Plan are determined on a sliding scale between the +threshold performance level and a superior performance level, which corresponds +to 175 percent of the target performance goal. The Company has consistently +followed the same method to compute ROIC, and the Compensation Committee has not +exercised discretion to waive the performance goals based on difficult industry +conditions or other factors. +15 +The +Company operates in a cyclical business where financial performance is +influenced by changes in oil and natural gas prices. The industry in general and +RPC in particular have generated very good financial performance in the last few +years due to higher oil and natural gas prices and correspondingly high levels +of customer activity. The +Company generated ROIC that resulted in 143 percent of the target award in 2008, +163 percent of the target award in 2007 and 200 percent of the target award in +2006. The level of performance achieved has been steadily trending downward +consistent with industry performance and the performance of our peers. Current +trends and expectations for the oilfield industry predict a challenging +environment in 2009. +For +2008, the executive officers earned awards that were higher than target but +lower than the superior performance level. This performance qualified the +officers to receive bonus awards of 143 percent of the Target Award. +Performance-based cash compensation earned under the Management Incentive Plan +for 2008 was as follows: Mr. Richard A. Hubbell: $1,001,000; Mr. Ben M. Palmer: +$357,500; Mr. R. Randall Rollins: $858,000; and Ms. Linda H. Graham $94,050. For +2009, the target awards, performance goal and maximum awards were established at +the same levels as 2008. +Stock +Based Incentive Plans +Our +Stock Incentive Plan allows for a wide variety of stock based awards such as +stock options and restricted stock. We last issued stock options in fiscal year +ended 2003 and have no current plans to issue additional stock options. We have +never issued any stock appreciation rights. Partially in response to changes +relative to the manner in which stock options are accounted for under generally +accepted accounting principles, we have modified the structure and composition +of the long-term equity based component of our executive compensation. In recent +years, we have awarded time-based restricted stock in lieu of granting stock +options. The terms and conditions of these awards are described in more detail +below. +Awards +under the Company’s Stock Incentive Plan are purely discretionary, are not based +upon any specific formula and may or may not be granted in any given fiscal +year. For the past three years, we have granted time-based restricted stock to +various employees, including our executive officers, in early January during our +regularly scheduled meetings of the Compensation Committee during which the +Committee reviews executive compensation. Consistent with this practice, we +granted restricted stock awards to our executive officers in January 2009, 2008 +and 2007 as follows: +Name +2009 +2008 +2007 +Richard +A. Hubbell +30,000 +20,000 +20,000 +Ben +M. Palmer +20,000 +10,000 +8,000 +R. +Randall Rollins +30,000 +20,000 +20,000 +Linda +H. Graham +10,000 +5,000 +5,000 +When +considering the grant of stock based awards, the Committee gives consideration +to our overall performance and the performance of individual employees. It is +our expectation to continue yearly grants of restricted stock awards although we +reserve the right to modify or discontinue this or any of our other compensation +practices at any time. +All +of our restricted stock awards granted since 2004 have had the same features. +The shares vest one-fifth per year beginning on the second anniversary of the +grant date. Restricted shares have full voting and dividend rights. However, +until the shares vest, they cannot be sold, transferred or pledged. Should the +executive leave our employment for any reason prior to the vesting dates (other +than due to death, disability or retirement on or after age 65), the unvested +shares will be forfeited. In the event of a “change in control” of the Company, +the Compensation Committee has the discretion to accelerate vesting of the +shares. +Grants +are made under our Stock Incentive Plan and the plan is administered pursuant to +Rule 16b-3 of the Securities Exchange Act of 1934. +Employment +Agreements +There +are no agreements or understandings between the Company and any executive +officer which guarantee continued employment or guarantee any level of +compensation, including incentive or bonus payments, to the executive +officer. +16 +Retirement +Plans +The +Company maintains a defined benefit pension plan (called the Retirement Income +Plan) for all our eligible employees, a non-qualified supplemental retirement +plan for our executives and certain other highly compensated employees and a +401(k) Plan for the benefit of all regular full time employees. In 2002, the +Company’s Board of Directors approved a resolution to cease all future benefit +accruals under the Retirement Income Plan effective March 31, 2002. In lieu +thereof, beginning in 2002, the Company began providing enhanced benefits in the +form of cash contributions on behalf of certain long-service employees who were +40 to 65 years of age on or before December 31, 2002. These enhanced benefit +contributions are discretionary and may be made annually, subject to a +participant’s continued employment, for a maximum of seven years. The +contributions are made either to the non-qualified Supplemental Retirement Plan +(“SRP”) or to the 401(k) Plan for each employee who is entitled to the enhanced +benefits. The Company contributed $26,262 towards enhanced benefits for Mr. +Hubbell in 2008 and has now completed all the scheduled contributions. Beginning +late in 2002, the Company began permitting selected highly compensated employees +to defer a portion of their compensation into the SRP. +Other +Compensation +Other +compensation to our executives includes typical employee benefits such as group +medical, dental and vision coverage and group life insurance. The Company +provides an automobile (or an automobile allowance) to Messrs. Richard A. +Hubbell and Ben M. Palmer. +The +following Compensation Committee Report shall not be incorporated by reference +by any general statement incorporating by reference this Proxy Statement into +any filing under the Securities Act of 1933, as amended (the “Securities Act”), +except to the extent that the Company specifically incorporates this information +by reference, and shall not otherwise be deemed filed under the Securities Act +or the Exchange Act. +COMPENSATION +COMMITTEE REPORT +We +have reviewed and discussed the above “Compensation Discussion and Analysis” +with management. +Based +upon this review and discussion, we have recommended to the Board of Directors +that the “Compensation Discussion and Analysis” be included in this Proxy +Statement. +Submitted +by the Compensation Committee of the Board of Directors. +Henry +B. Tippie, Chairman +Wilton +Looney +James +B. Williams +SECTION +16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The +Company has completed a review of Forms 3, 4, and 5 and amendments thereto +furnished to the Company by all directors, officers and greater than 10 percent +stockholders subject to the provisions of Section 16 of the Securities Exchange +Act of 1934, as amended. In addition, the Company has a written representation +from all directors, officers and greater than 10 percent stockholders from whom +no Form 5 was received indicating that no Form 5 filing was required. Based +solely on this review, the Company believes that filing requirements of such +persons under Section 16 for the fiscal year ended December 31, 2008 have been +satisfied. +17 +EXECUTIVE +COMPENSATION +Shown +below is information concerning the annual and long-term compensation for +services in all capacities to the Company for the calendar years ended December +31, 2008, 2007 and 2006 of those persons who were at December 31, +2008, +● +our +Principal Executive Officer and Principal Financial Officer; +and +● +our +two other executive officers: +SUMMARY +COMPENSATION TABLE +Name +and Principal Position +Year +Salary +($) +Stock +Awards +($) +(1) +Option +Awards +($) +(1) +Non-Equity +Incentive +Plan +Compensation +($) +(2) +Change +in +Pension +Value +and +Nonqualified +Deferred +Compensation +Earnings +($) +(3) +All +Other +Compensation +($) +(4) +Total +($) +Richard +A. Hubbell +2008 +700,000 +301,300 +1,660 +1,001,000 +13,990 +39,550 +2,057,500 +President +and +2007 +600,000 +271,950 +19,910 +900,000 +— +39,550 +1,831,410 +Chief +Executive Officer +2006 +500,000 +217,770 +41,290 +750,000 +102,950 +37,780 +1,649,790 +Ben +M. Palmer +2008 +250,000 +171,710 +1,000 +357,500 +— +19,740 +799,950 +Vice +President, +2007 +200,000 +163,560 +11,950 +260,000 +— +16,970 +652,480 +Chief +Financial Officer and +2006 +175,000 +150,130 +18,360 +262,500 +9,880 +16,250 +632,120 +Treasurer +R. +Randall Rollins +2008 +600,000 +242,220 +6,640 +858,000 +555,860 +— +2,262,720 +Chairman +of the Board +2007 +500,000 +212,250 +79,650 +750,000 +— +— +1,541,900 +2006 +400,000 +148,300 +79,650 +600,000 +— +— +1,227,950 +Linda +H. Graham +2008 +165,000 +83,440 +660 +94,050 +199,510 +4,650 +547,310 +Vice +President and Secretary +2007 +150,000 +76,200 +7,970 +97,500 +— +4,990 +336,660 +2006 +135,000 +63,280 +10,100 +108,000 +— +3,940 +320,320 +(1) +These +respective amounts represent the dollar amount recognized for financial +reporting purposes with respect to each fiscal year for prior year option +grants and current year and prior year grants of restricted Common Stock +awarded under our Stock Incentive Plan, all computed in accordance with +Statement of Financial Accounting Standard (“SFAS”) No. 123R. Please refer +to Note 10 to our Financial Statements contained in our Form 10-K for the +period ended December 31, 2008 for a discussion of the assumptions used in +these computations. For this computation, we do not include an assumption +for estimated forfeitures. Our Form 10-K has been included in our Annual +Report and provided to our stockholders. +(2) +Bonuses +under the Management Incentive Plan are accrued in the fiscal year earned +and paid in the following fiscal year. +(3) +The +actuarial present value of Mr. Ben Palmer’s accumulated benefit under the +defined benefit plan decreased during 2008 by approximately ($1,600). +Change represents impact of change in discount rate only as no additional +benefits are being accrued. +(4) +All +other compensation for 2008 includes the following items +for: +Mr. +Richard A. Hubbell: +Insurance +on automobile provided by the Company, cost of dining club dues, cost of +gasoline for personal automobile, 401(k) Plan Company match of $6,900 and +contribution towards enhanced benefits of $26,262. +Mr. +Ben M. Palmer: +Automobile +allowance, cost of gasoline for personal automobile and 401(k) Plan +Company match of $6,900. +Ms. +Linda H. Graham: +401(k) +Plan Company match of $4,650. +18 +GRANTS +OF PLAN-BASED AWARDS +Estimated +Future Payouts +Under +Non-Equity +Incentive +Plan Awards (1) +All +Other +Stock +Awards: +Number +of Shares +of +Stock or Units +(#) +Grant +Date +Fair +Value +of +Stock and +Option +Awards +($) +(2) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Mr. +Richard A. Hubbell +1/22/08 +175,000 +700,000 +1,050,000 +1/22/08 +20,000 +196,200 +Mr. +Ben M. Palmer +1/22/08 +62,500 +250,000 +375,000 +1/22/08 +10,000 +98,100 +Mr. +R. Randall Rollins +1/22/08 +150,000 +600,000 +900,000 +1/22/08 +20,000 +196,200 +Ms. +Linda H. Graham +1/22/08 +16,500 +66,000 +132,000 +1/22/08 +5,000 +49,050 +(1) +These +amounts illustrate the potential bonus awards under the Management +Incentive Plan for 2008 that were paid out in early 2009. See Summary +Compensation Table on page 18 for actual amounts awarded in +2008. +(2) +These +amounts represent aggregate grant date fair value for grants of restricted +shares of Common Stock awarded in fiscal year 2008 under our Stock +Incentive Plan computed in accordance with SFAS 123R. Please refer to Note +10 to our Financial Statements contained in our Form 10-K for the period +ended December 31, 2008 for a discussion of assumptions used in this +computation. For this computation, we do not include an assumption for +estimated forfeitures. Our Form 10-K has been included in our Annual +Report and provided to our +stockholders. +The +table above reflects grants of restricted shares of Company Common Stock under +our Stock Incentive Plan awarded in fiscal year 2008. All grants of restricted +shares of Common Stock vest one-fifth per year beginning on the second +anniversary of the grant date. Restricted shares have full voting and dividend +rights. However, until the shares vest, they cannot be sold, transferred or +pledged. Should the executive leave our employment for any reason prior to the +vesting dates (other than due to death, disability or retirement on or after age +65), the unvested shares will be forfeited. We have not issued any stock options +since 2003 and have no immediate plans to issue additional stock +options. +The +Company’s employment contracts with its Chief Executive Officer and the +Company’s other executive officers are oral, at will arrangements. All of the +executive officers are eligible for annual cash bonuses which are awarded under +the Management Incentive Plan. The Compensation Committee’s decisions are based +upon broad performance objectives under that plan. The executive officers are +eligible to receive shares of Company Common Stock subject to options and +restricted shares of Company Common Stock under the Company’s Stock Incentive +Plans, in such amounts and with such terms and conditions as determined by the +Compensation Committee at the time of grant. All of the executive officers are +eligible to participate in the Company’s SRP. The executive officers are +eligible to participate in the Company’s regular employee benefit programs, +including the 401(k) Plan with Company match, group life insurance, group +medical and dental coverage, vision and other group benefit plans. All of the +executive officers are eligible for the Retirement Income Plan that was frozen +in March 2002. For more information on these plans, see “Compensation Discussion +and Analysis” at page 13, and “Benefit Plans” at page 22. +19 +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +The +table below sets forth details concerning outstanding option awards made in +prior years to the executives named in our Summary Compensation Table, including +the grant date, the expiration date, the option exercise price, and the number +of shares of Common Stock underlying the grants both exercisable and +un-exercisable. The grant dates for all of these options are from fiscal year +ended 2003 and earlier since we have not issued any stock options after 2003. +The table below also sets forth the total number of restricted shares of Common +Stock that were granted in prior years to the executives named in our Summary +Compensation Table but which have not yet vested, together with the market value +of these unvested shares based on the $9.76 closing price of our Common Stock on +December 31, 2008. +Option +Awards +Stock +Awards +Name +Number +of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number +of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date (1) +Number +of +Shares +or +Units +of Stock +That +Have Not +Vested +(#) +Market +Value +of +Shares or +Units +of Stock +That +Have +Not +Vested ($) +Richard +A. Hubbell +173,669 +— +1.79 +1/26/2009 +(2)(5) +165,925 +(6) +1,619,430 +168,748 +— +3.88 +4/24/2011 +(3) +84,375 +— +2.81 +1/28/2013 +(4) +Ben +M. Palmer +— +— +— +— +118,725 +(6) +1,158,760 +R. +Randall Rollins +— +— +— +— +91,000 +(6) +888,160 +Linda +H. Graham +12,766 +— +1.79 +1/26/2009 +(2) +32,875 +(6) +320,860 +16,875 +— +3.88 +4/24/2011 +(3) +33,750 +— +2.81 +1/28/2013 +(4) +(1) +Unless +otherwise noted, all options have ten year terms with vesting as follows: +The options vest one-fifth per year beginning on the first anniversary of +the grant date. +(2) +Options +granted 01/26/1999. +(3) +Options +granted 04/24/2001. +(4) +Options +granted 01/28/2003. +(5) +Also +includes 138,934 options granted 01/26/1999 that vest ratably over four +years. +(6) +The +Company has granted employees two forms of restricted stock: time lapse +restricted and performance restricted. Time +lapse restricted shares vest after a stipulated number of years from the +grant date, depending on the terms of the issue. Time lapse restricted +shares issued in years 2003 and prior vest after ten years. Time lapse +restricted shares issued starting in 2004 vest one-fifth per year +beginning on the second anniversary of the grant date. The performance +restricted shares are granted, but not earned and issued until certain +five-year tiered performance criteria are met. The performance criteria +are predetermined market prices of RPC common stock. On the date the +common stock appreciates to each level (determination date), 20 percent of +performance shares are earned. Once earned, the performance shares vest +five years from the determination date. The Company has not granted +performance restricted shares since 2003. Shares of restricted stock +granted to the executive officers that have not vested as of December 31, +2008 are summarized in the table +below: +20 +Name +Number +of shares +Grant +Date +Date +fully vested +Richard +A. Hubbell +50,625 +1/26/1999 +1/26/2009 +27,000 +4/27/2004 +4/27/2010 +24,300 +1/25/2005 +1/25/2011 +24,000 +1/24/2006 +1/24/2012 +20,000 +1/23/2007 +1/23/2013 +20,000 +1/22/2008 +1/22/2014 +Ben +M. Palmer +10,125 +1/26/1999 +1/26/2009 +40,500 +4/24/2001 +4/24/2011 +13,500 +1/28/2003 +10/28/2009 +10,800 +4/27/2004 +4/27/2010 +16,200 +1/25/2005 +1/25/2011 +9,600 +1/24/2006 +1/24/2012 +8,000 +1/23/2007 +1/23/2013 +10,000 +1/22/2008 +1/22/2014 +R. +Randall Rollins +27,000 +4/27/2004 +4/27/2010 +24,000 +1/24/2006 +1/24/2012 +20,000 +1/23/2007 +1/23/2013 +20,000 +1/22/2008 +1/22/2014 +Linda +H. Graham +6,750 +4/27/2004 +4/27/2010 +10,125 +1/25/2005 +1/25/2011 +6,000 +1/24/2006 +1/24/2012 +5,000 +1/23/2007 +1/23/2013 +5,000 +1/22/2008 +1/22/2014 +OPTION +EXERCISES AND STOCK VESTED +The +following table sets forth: +● +the +number of shares of Common Stock acquired by the executives named in the +Summary Compensation Table upon the exercise of stock options during the +fiscal year ended December 31, 2008; +● +the +aggregate dollar amount realized on the exercise date for such options +computed by multiplying the number of shares acquired by the difference +between the market value of the shares on the exercise date and the +exercise price of the options; +● +the +number of restricted shares of Common Stock acquired by the executives +named in the Summary Compensation Table upon the vesting of shares during +the fiscal year ended December 31, 2008; and +● +the +aggregate dollar amount realized on the vesting date for such restricted +stock computed by multiplying the number of shares which vested by the +market value of the shares on the vesting +date. +Option +Awards (1) +Stock +Awards +Name +Number +of Shares +Acquired +on Exercise +(#) +Value +Realized +on +Exercise +($) +Number +of Shares +Acquired +on Vesting +(#) +Value +Realized +on +Vesting +($) +Richard +A. Hubbell +127,695 +2,440,960 +27,600 +329,590 +Ben +M. Palmer +10,125 +117,650 +30,075 +317,570 +R. +Randall Rollins +337,500 +875,980 +19,500 +247,050 +Linda +H. Graham +10,215 +76,920 +15,000 +157,090 +(1) +The +shares acquired on exercise of options are restricted for a period of one +year from the date of +exercise. +21 +BENEFIT +PLANS +The +table below shows the present value of accumulated benefits payable to each of +the named executive officers, including the number of years of service credited +to each such named executive officer, under the Retirement Income Plan +determined using interest rate and mortality rate assumptions consistent with +those used in the Company’s financial statements. Information regarding the +Retirement Income Plan can be found under Note 10 to our Financial Statements +contained in our Form 10-K for the period ended December 31, 2008. +Pension +Benefits +Name +Plan +Name +Number +of +Years +Credited +Service +(#) (1) +Present +Value +of +Accumulated +Benefit +($) +Payments +During +Last +Fiscal Year +($) +Mr. +Richard A. Hubbell +Retirement +Income Plan +15 +385,542 +— +Mr. +Ben M. Palmer +Retirement +Income Plan +4 +30,233 +— +Mr. +R. Randall Rollins +Retirement +Income Plan +30 +2,375,954 +261,600 +Ms. +Linda H. Graham +Retirement +Income Plan +15 +431,602 +36,530 +(1) +The +difference in years of credited and actual service is due to the freezing +of benefit accruals in 2002. See discussion below for further +details. +The +Company’s Retirement Income Plan, a trusteed defined benefit pension plan, +provides monthly benefits upon retirement at age 65 to eligible employees. In +2002, the Company’s Board of Directors approved a resolution to cease all future +benefit accruals under the Retirement Income Plan effective March 31, 2002. +Retirement Income Plan benefits are based on the average of the employee’s +compensation from the Company for the five consecutive complete calendar years +of highest compensation during the last ten consecutive complete calendar years +(“final average compensation”) immediately preceding March 31, 2002. The +benefits are computed as the product of 1.5 percent of final average +compensation multiplied by years of credited service (up to 30 years) reduced by +an adjustment for benefits drawn from social security. Adjustments have been +made for age and IRS mandated compensation limitations. The final average +compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham +is $127,325. +The +annual benefit payable at the later of retirement age or 65 for the named +executive officers is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, $24,900 +for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal +Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation +Act of 2001), the maximum annual benefit payable to a Retirement Income Plan +beneficiary in 2008 was $185,000. Retirement benefits accrued at the end of any +calendar year or as of March 31, 2002 will not be reduced or increased by any +subsequent changes in the maximum compensation limit. +The +Plan also provides reduced early retirement benefits at age 55 or older with 15 +or more years of service. Mr. Hubbell is eligible for early retirement benefits +and the amounts payable to him in such an event is calculated using the +computation described above reduced by a certain percentage for each incremental +month of early retirement. Ms. Graham is voluntarily receiving distributions +from the plan even though she has not retired from the Company. In addition, as +an owner with stock ownership in excess of five percent of the Company’s voting +securities, Mr. Rollins is required to receive mandatory distributions +currently, even though he has not retired from the Company. The amount of +distribution received during 2008 has been disclosed in the table above and is +not subject to change after retirement. +In +2002, the Company began providing additional benefits on behalf of certain +long-service employees in the form of discretionary cash contributions made +either to the Company’s 401(k) Plan (which is described below) or the SRP as +described in the section below titled “Nonqualified Deferred Compensation.” +Amounts contributed by the Company to the accounts of the executive officers are +reported in the “All Other Compensation” column of the Summary Compensation +Table on page 18. +22 +401(k) +Plan +Effective +July 1, 1984, the Company adopted a qualified retirement plan designed to meet +the requirements of Section 401(k) of the Code. The Company makes matching +contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s +contribution to the 401(k) Plan that does not exceed six percent of his or her +annual compensation. The only form of benefit payment under the 401(k) Plan is a +single lump-sum payment equal to the vested balance in the participant’s account +on the date the distribution is processed. Under the 401(k) Plan, the full +amount of a participant’s vested accrued benefit is payable upon his termination +of employment, retirement, total and permanent disability, or death. Also under +the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to +the extent of certain specified instances of financial hardship and may withdraw +any amount from his or her pre-tax contribution account for any reason after +attaining age 59 1/2. In addition, a participant may withdraw any amount from +his or her rollover account for any reason. Amounts contributed by the Company +to the accounts of the named executive officers under this plan are reported in +the “All Other Compensation” column of the Summary Compensation Table on page +18. +NONQUALIFIED +DEFERRED COMPENSATION +The +SRP has been established as a nonqualified plan that is designed to comply with +the provisions of the American Jobs Creation Act of 2004 (including Section 409A +of the Internal Revenue Code) for the cash contributions made to certain longer +serviced employees in lieu of freezing of benefit accruals effective in 2002; +the SRP also has a compensation deferral option for eligible employees. The +contributions and deferrals to the SRP are invested in funds held in a rabbi +trust. +Name +Executive +Contributions +in +last +FY ($) (1) +Registrant +contributions +in +last +FY ($) (2) +Aggregate +earnings +in last +FY +($) +Aggregate +withdrawals/ +distributions +($) +Aggregate +balance +at last +FYE +($) +Richard +A. Hubbell +— +25,880 +(52,250 +) +— +166,180 +Ben +M. Palmer +41,150 +— +(43,140 +) +— +129,860 +R. +Randall Rollins +— +— +— +— +— +Linda +H. Graham +90,000 +— +(98,470 +) +— +286,380 +(1) +Includes +the following amounts related to the base salary for 2008 which have been +deferred by the executive officer pursuant to the SRP and which are +included in the Summary Compensation Table: Mr. Ben M. Palmer: $20,000 and +Ms. Linda H. Graham: $41,250. The remaining amounts represent deferrals of +bonus compensation related to 2007 that were paid in +2008. +(2) +Reflects +the amounts for each of the named executive officers which are reported as +compensation to such named executive officer in the “All Other +Compensation” column of the Summary Compensation Table on page +18. +The +deferral option provides that participants may defer up to 50 percent of their +base salary and up to 100 percent of their annual bonus with respect to any +given plan year, subject to a $2,000 per plan year minimum. The deferred amounts +are voluntarily funded on a monthly basis; salary and bonus deferrals are +generally 100 percent vested. Accounts are credited with hypothetical earnings, +and/or debited with hypothetical losses, based on the performance of certain +“Measurement Funds.” Account values are calculated as if the funds from +deferrals and contributions had been converted into shares or other ownership +units of selected Measurement Funds by purchasing (or selling, where relevant) +such shares or units at the current purchase price of the relevant Measurement +Fund at the time of the participant’s selection. The benefits are unsecured +general obligations of the Company to the participants, and these obligations +rank in parity with the Company’s other unsecured and unsubordinated +indebtedness. To the extent that the Company’s obligations under the SRP exceed +assets available under the trust, the Company would be required to seek +additional funding sources to fund its liability under the SRP. +Generally, +the SRP provides for distributions of any deferred amounts upon the earliest to +occur of a participant’s death, disability, retirement or other termination of +employment (a “Termination Event”). However, for any deferrals of base salary +and bonus compensation (but not Company contributions), participants would be +entitled to designate a distribution date which is prior to a Termination Event. +The SRP allows a participant to elect to receive distributions in installments +or lump-sum payments. +23 +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The +following table describes the potential payments and benefits under the +Company’s compensation and benefit plans and arrangements to which the named +executive officers would be entitled upon termination of employment. There are +no other agreements, arrangements or plans that entitle executive officers to +severance, perquisites, or other enhanced benefits upon termination of their +employment except as described below. Additional payments or benefits to a +terminating executive officer would be at the discretion of the Compensation +Committee. The executive officers are not entitled to additional benefits at +death or disability per the terms of the defined benefit plan. The amounts +payable at retirement are disclosed in the “Benefit Plans” section on page 22. +The executive officers can choose to receive the amounts accumulated in the SRP +either as a lump-sum or in installments at retirement, death or disability. +These amounts have been disclosed under the “Nonqualified Deferred Compensation” +section on page 23. The table below shows the incremental restricted shares that +would become vested as of December 31, 2008 at the closing market price of $9.76 +per share for our Common Stock, as of that date in the case of retirement, death +or disability. +Stock +Awards +Name +Number +of shares +underlying +unvested +stock +(#) +Unrealized +value of +unvested +stock ($) +Richard +A. Hubbell +● +Retirement +— +— +● +Disability +108,180 +1,055,840 +● +Death +108,180 +1,055,840 +Ben +M. Palmer +● +Retirement +— +— +● +Disability +88,392 +862,710 +● +Death +88,392 +862,710 +R. +Randall Rollins +● +Retirement +45,111 +440,280 +● +Disability +45,111 +440,280 +● +Death +45,111 +440,280 +Linda +H. Graham +● +Retirement +17,137 +167,260 +● +Disability +17,137 +167,260 +● +Death +17,137 +167,260 +Accrued +Pay and Regular Retirement Benefits +The +amounts shown in the table above do not include the following since they are +provided on a non-discriminatory basis to salaried employees generally upon +termination of employment. These include: +● +Accrued +salary and vacation pay. +● +Distributions +of plan balances under the 401(k) Plan. +● +The +value of option continuation upon termination, as described below. When an +employee terminates prior to retirement, his or her stock options are +terminated immediately, except that the options may be exercised for a +period after termination (not to exceed the original option termination +date) in the following +circumstances: +→ +Permanent +Disability – one year after termination +→ +Death +– six months after the date of death +→ +Normal +or Early Retirement – one day less than three months after +retirement +The +termination of employment for any reason shall not accelerate the vesting +of +options. +24 +Pension +Benefit and Deferred Compensation +The +Retirement Income Plan does not provide for lump sum payments for a participant +including executive officers for instances other than retirement. The Retirement +Income Plan is described at “Pension Benefits” above. Upon termination, the +executive officers will receive a distribution of the balance in their SRP +account. These amounts are disclosed under the “Nonqualified Deferred +Compensation” section on page 23. +Change +in Control or Severance +The +Company does not have any change in control or severance arrangements for its +executive officers. However, amounts may be paid at the discretion of the +Compensation Committee. +CERTAIN +RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective +with the spin-off in 2001, the Company began providing certain administrative +services to Marine Products. The service agreements between Marine Products and +the Company provide for the provision of services on a cost reimbursement basis +and may be terminated upon six months notice. The services covered by these +agreements include administration of certain employee benefit programs and other +administrative services. Charges from the Company (or from corporations which +are subsidiaries of the Company) for such services aggregated approximately +$842,000 in 2008. +During +2008, a subsidiary of RPC conducted business with companies owned by LOR, Inc. +Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are +officers, directors and controlling stockholders of LOR, Inc. In 2008, payments +totaling approximately $393,000 were made to these LOR, Inc. companies for the +purchase of parts and repair services related to certain of RPC’s oilfield +operating equipment. RPC believes the charges incurred by its subsidiary are at +least as favorable as the charges that would have been incurred for similar +services from unaffiliated third parties. +RPC +receives certain administrative services including an allocation for office +space from Rollins. The service agreements between Rollins and the Company +provide for the provision of services on a cost reimbursement basis and are +terminable on six months notice. The services covered by these agreements +include office space, administration of certain employee benefit programs, and +other administrative services. Charges to the Company (or to corporations which +are subsidiaries of the Company) for such services and rent aggregated +approximately $90,000 in 2008. +A +group that includes the Company’s Chairman of the Board, R. Randall Rollins, his +brother Gary W. Rollins who is also a director, and certain companies under +their control, possesses in excess of fifty percent of the Company’s voting +power. Please refer to the discussion above under the heading, “Corporate +Governance and Board of Directors Committees and Meetings, Director Independence +and NYSE Requirements, Controlled Company Exemption.” The group discussed above +also controls in excess of fifty percent of Marine Products’ voting +power. +Our +Code of Business Conduct and Ethics for Directors and Executive Officers and +Related Party Transactions Policy provides that related party transactions, as +defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or +ratified by our Nominating and Corporate Governance Committee. As set forth in +our Code, our Nominating and Corporate Governance Committee has the +responsibility to ensure that it only approve or ratify related party +transactions that are in compliance with applicable law, consistent with the +Company’s corporate governance policies (including those relative to conflicts +of interest and usurpation of corporate opportunities) and on terms that are +deemed to be fair to the Company. The Committee has the authority to hire legal, +accounting, financial or other advisors as it may deem necessary or desirable +and/or to delegate responsibilities to executive officers of the Company in +connection with discharging its duties. A copy of the Code is available on our +website at www.rpc.net under the Governance section. All related party +transactions for the fiscal year ended December 31, 2008 were reviewed, approved +and/or ratified by the Nominating and Corporate Governance Committee in +accordance with the Code. +25 +INDEPENDENT +REGISTERED PUBLIC ACCOUNTANTS +Principal +Auditor +Grant +Thornton LLP (“Grant Thornton”) served as the Company’s independent registered +public accountants for the fiscal years ended December 31, 2008 and 2007. In +addition to performing the audit of the Company’s consolidated financial +statements, Grant Thornton provided various other services during 2008 and +2007. +The +Audit Committee has appointed Grant Thornton as the Company’s independent +registered public accountants for the fiscal year ending December 31, 2009. +Representatives of Grant Thornton are expected to be present at the Annual +Meeting and will have an opportunity to make a statement if they so desire and +will be available to respond to appropriate questions. +The +aggregate fees billed by the Company’s independent registered public accountants +are set forth below: +2008 +2007 +Audit +fees and quarterly reviews (1) +$ +932,440 +$ +893,690 +Audit +related fees +— +— +Tax +fees (2) +11,025 +— +All +other fees +— +— +(1) +Audit +fees include fees for audit or review services in accordance with +generally accepted auditing standards, such as statutory audits and +services rendered for compliance with Section 404 of the Sarbanes-Oxley +Act. +(2) +Tax +fees related to advice on international +issues. +Pre-approval +of Services +All +of the services described above were pre-approved by the Company’s Audit +Committee. The Audit Committee has determined that the payments made to its +independent registered public accountants for these services are compatible with +maintaining such auditors’ independence. All of the hours expended on the +principal accountant’s engagement to audit the financial statements of the +Company for the year 2008 was attributable to work performed by full-time, +permanent employees of the principal accountant. +The +Audit Committee is directly responsible for the appointment and termination, +compensation, and oversight of the work of the independent registered public +accountants, including resolution of disagreements between management and the +independent registered public accountants regarding financial reporting. The +Audit Committee is responsible for pre-approving all audit and non-audit +services provided by the independent registered public accountants and ensuring +that they are not engaged to perform the specific non-audit services proscribed +by law or regulation. The Audit Committee has delegated pre-approval authority +to its Chairman with the stipulation that his decision is to be presented to the +full Committee at its next scheduled meeting. The Audit Committee has no other +pre-approval policies. +STOCKHOLDER +PROPOSALS +Appropriate +proposals of stockholders intended to be presented at the Company’s 2010 Annual +Meeting of the Stockholders must be received by the Company by November 20, +2009, in order to be included, pursuant to Rule 14a-8 promulgated under the +Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of +proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the +Securities Exchange Act of 1934, management proxy holders intend to use their +discretionary voting authority with respect to any stockholder proposal raised +at the Company’s 2010 Annual Meeting as to which the proponent fails to notify +the Company on or before February 3, 2010. With regard to such stockholder +proposals, if the date of the next Annual Meeting of the Stockholders is +advanced or delayed more than 30 calendar days from April 28, 2010, the Company +will, in a timely manner, inform its stockholders of the change and of the date +by which such proposals must be received. +26 +With +respect to stockholder nomination of directors, the Company’s Bylaws provide +that nominations for the election of directors may be made by any stockholder +entitled to vote for the election of directors. Nominations must comply with an +advance notice procedure which generally requires with respect to nominations +for directors for election at an Annual Meeting, that written notice be +addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia +30324, not less than ninety days prior to the anniversary of the prior year’s +Annual Meeting and set forth the name, age, business address and, if known, +residence address of the nominee proposed in the notice, the principal +occupation or employment of the nominee for the past five years, the nominee’s +qualifications, the class or series and number of shares of capital stock of the +Company which are owned beneficially or of record by the person and any other +information relating to the person that would be required to be disclosed in a +proxy statement or other filings. Other specific requirements related to such +notice, including required disclosures concerning the stockholder intending to +present the nomination, are set forth in the Company’s Bylaws. Notices of +nominations must be received by the Secretary of the Company no later than +January 28, 2010 and no earlier than December 20, 2009 with respect to directors +to be elected at the 2010 Annual Meeting of Stockholders. +EXPENSES +OF SOLICITATION +The +Company will bear the cost of soliciting proxies. Upon request, we will +reimburse brokers, dealers and banks, or their nominees, for reasonable expenses +incurred in forwarding copies of the proxy material to their beneficial +shareholders of record. Solicitation of proxies will be made principally by +mail. Proxies also may be solicited in person or by telephone, facsimile or +other means by our directors, officers and regular employees. These individuals +will receive no additional compensation for these services. The Company has +retained Georgeson Shareholder Communications, Inc. to conduct a broker search +and to send proxies by mail for an estimated fee of approximately $7,500 plus +shipping expenses. +MISCELLANEOUS +The +Company’s Annual Report to Stockholders, including its Annual Report on Form +10-K for the fiscal year ended December 31, 2008, without exhibits, is being +mailed to stockholders with this Proxy Statement. +Upon the written request of any +record or beneficial owner of the Company’s Common Stock whose proxy was +solicited in connection with the 2009 Annual Meeting of Stockholders, the +Company will furnish such owner, without charge, a copy of its Annual Report on +Form 10-K, including the financial statements and the financial statement +schedules (but without exhibits), for its fiscal year ended December 31, 2008. +Requests for a copy of such Annual Report on Form 10-K should be addressed to +Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, +Georgia 30324. +Management +knows of no business other than the matters set forth herein which will be +presented at the Annual Meeting. In as much as matters not known at this time +may come before the Annual Meeting, the enclosed proxy confers discretionary +authority with respect to such matters as may properly come before the Annual +Meeting; and it is the intention of the persons named in the proxy to vote in +accordance with their best judgment on such matters. +BY +ORDER OF THE BOARD OF DIRECTORS +Linda +H. Graham, Secretary +Atlanta, +Georgia +March +20, 2009 +27 +RPC, +Inc. +Proxy +Solicited by the Board of Directors of RPC, Inc. +For +Annual Meeting of Stockholders on Tuesday, April 28, 2009, 12:15 +P.M. +The +undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL +ROLLINS, and each of them, jointly and severally, proxies, with full power of +substitution, to vote all shares of Common Stock which the undersigned is +entitled to vote at the Annual Meeting of Stockholders to be held on April 28, +2009, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or +any adjournment thereof. +The +undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and +Proxy Statement, each dated March 20, 2009, grants authority to said proxies, or +either of them, or their substitutes, to act in the absence of others, with all +the powers which the undersigned would possess if personally present at such +meeting and hereby ratifies and confirms all that said proxies or their +substitutes may lawfully do in the undersigned’s name, place and stead. The +undersigned instructs said proxies, or either of them, to vote as +follows: +1. +o +FOR +RICHARD A. HUBBELL, LINDA H. GRAHAM, +BiILL +J. DISMUKE, AND LARRY L. PRINCE, AS CLASS II +DIRECTORS +EXCEPT +AS INDICATED BELOW +o +WITHHOLD +AUTHORITY FROM VOTING FOR THE ELECTION OF ALL CLASS II +NOMINEES +INSTRUCTIONS: +To withhold authority from voting for any individual nominee, write that +nominee’s name in the space provided below: +2. +IN +THE DESCRETION OF THE PROXIES ON ALL OTHER MATTERS WHICH MAY PROPERLY COME +BEFORE THE MEETING OR ANY ADJOURNMENT +THEREOF. +(Over) +RPC, +INC. +ALL +PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR +INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE +ABOVE-NAMED NOMINEES FOR DIRECTOR. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS OF THE COMPANY. +PROXY +Please +sign below, date and return promptly. +Signature +Dated: +, +2009 +(Signature +should conform to name and title stenciled +hereon. +Executors, administrators, trustees, guardians +and +attorneys should add their title upon signing.) +NO +POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED +IN THE UNITED STATES. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-09-000629/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-09-000629/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..61e9bed7b114f419a06ac826faf418fbfd67e4ef --- /dev/null +++ b/raw/proxies/0000742278/0001188112-09-000629/proxy_rpt.txt @@ -0,0 +1,18 @@ +Related Party Transactions Policy provides that related party transactions, as +defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or +ratified by our Nominating and Corporate Governance Committee. As set forth in +our Code, our Nominating and Corporate Governance Committee has the +responsibility to ensure that it only approve or ratify related party +transactions that are in compliance with applicable law, consistent with the +Company’s corporate governance policies (including those relative to conflicts +of interest and usurpation of corporate opportunities) and on terms that are +deemed to be fair to the Company. The Committee has the authority to hire legal, +accounting, financial or other advisors as it may deem necessary or desirable +and/or to delegate responsibilities to executive officers of the Company in +connection with discharging its duties. A copy of the Code is available on our +website at www.rpc.net under the Governance section. All related party +transactions for the fiscal year ended December 31, 2008 were reviewed, approved +and/or ratified by the Nominating and Corporate Governance Committee in +accordance with the Code. +25 +INDEPENDENT \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-10-000607/proxy.txt b/raw/proxies/0000742278/0001188112-10-000607/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..23d8ef9f771ac9086fa23c14c165967c803f9ccc --- /dev/null +++ b/raw/proxies/0000742278/0001188112-10-000607/proxy.txt @@ -0,0 +1,1343 @@ +DEF 14A +1 +t67253_def14a.htm +SCHEDULE 14A +t67253_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: N/A +(2) +Aggregate number of securities to which transaction applies: N/A +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +N/A +(4) +Proposed maximum aggregate value of transaction: N/A +(5) +Total fee paid: N/A +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing: +(1) +Amount previously paid: N/A +(2) +Form, Schedule or Registration Statement No.: N/A +(3) +Filing party: N/A +(4) +Date Filed: N/A +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2801 Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2010 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324 on Tuesday, April 27, 2010, at 12:15 P.M., or any adjournment thereof, for the following purposes: +1. +To elect the three Class III nominees identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +The Proxy Statement dated March 24, 2010 is attached. +The Board of Directors has fixed the close of business on March 1, 2010 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in the United States. +The Proxy Statement and 2009 Annual Report are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 24, 2010 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 24, 2010. The following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of the Stockholders to be held on April 27, 2010, is submitted by the Company to the stockholders in connection with the solicitation of proxies on behalf of the Company’s Board of Directors. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the candidates for election to the Board of Directors and in favor of the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010. +A stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either proxy holder, by timely submitting a later dated proxy changing your vote or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on March 1, 2010 consisted of 98,822,439 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on March 1, 2010, the record date for determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. In accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the three nominees receiving the most votes will be elected. The affirmative vote of a majority of a quorum of the Company’s outstanding shares of Common Stock present and entitled to vote at the meeting is required to approve the ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year 2010. Abstentions will have the effect of a vote against the proposal and broker non-votes will have no effect on the proposal for ratification of the appointment of the Company’s independent registered public accountants. There are no rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon pursuant to this Proxy Statement. It is expected that shares held of record by officers and directors of the Company, which in the aggregate represent approximately 71.1 percent of the outstanding shares of Common Stock, will be voted for the nominees for directors and for the ratification of the appointment of the Company’s independent registered public accounting firm. +STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The executives named in the Summary Compensation Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 1, 2010, together with the number of shares owned by each such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and executive officers of the Company as a group (according to information received by the Company), are set out below: +1 +Name and Address of Beneficial Owner +Amount +Beneficially +Owned (1) +Percent of +Outstanding +Shares +R. Randall Rollins +64,579,848 +(2) +65.1 +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Gary W. Rollins +66,039,902 +(3) +66.6 +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +GAMCO Investors, Inc. +7,293,332 +(4) +7.4 +One Corporate Center +401 Theodore Fremd Avenue +Rye, NY 10580 -1433 +Richard A. Hubbell +1,271,546 +(5) +1.3 +President and Chief Executive Officer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +Linda H. Graham +386,517 +(6) +** +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Ben M. Palmer +239,156 +(7) +** +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +All Directors and Executive Officers as a group (11 persons) +70,585,306 +(8) +71.2 +** +Less than one percent +(1) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) +Includes 14,266 shares of the Company Common Stock held as Trustee, Guardian, or Custodian for his children. Also includes 717,702 shares of Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 57,537,985 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 5,018,900 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are 108,500 shares of restricted stock awards for Company Common Stock. This also includes 108,230 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding Company securities that includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(3) +Includes 717,702 shares of the Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 283,726 shares of Company Common Stock held as Trustee, Guardian or Custodian for his children. Also includes 57,537,985 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 5,018,900 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. This also includes 202,513 shares of the Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest; 86,505 of these shares are held in a margin account. Mr. Rollins is part of a control group holding Company securities that includes Mr. R. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +2 +(4) +Per Schedule 13F filed with the Securities and Exchange Commission (“SEC”) on December 31, 2009. +(5) +Includes 253,123 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 1, 2010, and 116,600 shares of restricted stock awards for Company Common Stock. +(6) +Includes 50,625 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 1, 2010, and 34,750 shares of restricted stock awards for Company Common Stock. +(7) +Includes 89,712 shares of restricted stock awards for Company Common Stock. +(8) +Shares held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have been included only once. Includes an aggregate of 303,748 shares of Company Common Stock that may be purchased by two executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of March 1, 2010, and 349,562 shares of restricted stock awards for Company Common Stock awarded and issued to them pursuant to the Company’s 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan. +PROPOSAL 1: ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. Wilton Looney, Gary W. Rollins and James A. Lane, Jr. will be nominated to serve as Class III directors. The nominees for election at the 2010 Annual Meeting are all now directors of the Company. The directors in each class serve for a term of three years. The director nominees will serve in their respective class until their successors are elected and qualified. Seven other individuals serve as directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company’s Bylaws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance Committee, to fill such vacancy. +The name and age of each of our directors and each of the nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of outstanding shares that ownership represents, all as of the close of business on March 1, 2010 (according to information received by the Company), other board memberships and the period during which he or she has served us as a director are set forth below. We believe that each of our directors and each of our nominees is well suited to serve on our Board for a variety of individual reasons and because collectively they bring a wealth of experience from diverse backgrounds that has combined to provide us with an excellent mix of experiences and viewpoints. Each has served on our Board since we became a public company in 1987 (with the exception of Linda H. Graham who joined our Board in 2001, Bill J. Dismuke, who joined our Board in 2005 and Larry L. Prince who joined our Board in 2009) and has considerable knowledge of and insights into our Company and our industry; each has served on the board of directors of one or more other public companies and brings with him or her experience from other industries; each has considerable financial expertise in our industry and other industries; and each has held senior executive positions in various industries. In addition, the vast majority of our directors have served as the chairman, chief executive officer and/or chief financial officer of one or more other publicly traded companies and several of our directors have served on the board of a financial institution or held a senior executive position with a financial institution. Additional qualifications of the members of our Audit Committee, all of whom qualify as audit committee financial experts, and the members of our Compensation Committee are noted elsewhere in this Proxy Statement under the headings, “Corporate Governance and Board of Directors’ Committees and Meetings” and “Compensation Discussion and Analysis.” +3 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class III (Current Term Expires 2010; New Term Will Expire 2013) +Wilton Looney +Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor). +1984 to +date +90 +4,050 +** +Gary W. Rollins (3) +President and Chief Executive Officer of Rollins, Inc. (consumer services). +1984 to +date +65 +66,039,902 +(4) +66.6 +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) and President of Chaparral Boats, Inc. +1987 to +date +67 +197,487 +** +Names of Directors Whose Terms Have Not Expired +Class I (Term Expires 2011) +R. Randall Rollins (3) +Chairman of the Board of the Company since April 2003; Chairman of the Board and Chief Executive Officer of the Company prior to April 2003; Chairman of the Board of Marine Products Corporation (boat manufacturing); Chairman of the Board of Rollins, Inc. (consumer services). +1984 to +date +78 +64,579,848 +(5) +65.1 +Henry B. Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman of the Board of Dover Downs Gaming and Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex) and Chairman of the Board of Dover Motorsports, Inc. (operator of motor racing tracks). +1984 to +date +83 +1,065,002 +(6) +1.1 +James B. Williams +Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004. +1984 to +date +76 +135,000 +** +4 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Class II (Term Expires 2012) +Richard A. Hubbell +President and Chief Executive Officer of the Company since April 2003; President and Chief Operating Officer of the Company prior to April 2003; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing). +1987 to +date +65 +1,271,546 +(7) +1.3 +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing). +2001 to +date +73 +386,517 +(8) +** +Bill J. Dismuke +Retired President of Edwards Baking Company (manufacturer of pies and pie parts). +2005 to +date +73 +3,375 +** +Larry L. Prince +Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company (automotive parts distributor). +April +2009 to +date +71 +2,000 +** +** +less than one percent +(1) +Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the following individuals also serve on the Boards of Directors of the following companies: James B. Williams: The Coca-Cola Company; R. Randall Rollins: Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports, Inc.; Gary W. Rollins: Genuine Parts Company and Emory University; and Larry L. Prince: Genuine Parts Company and SunTrust Banks, Inc. All of the directors shown in the above table are also directors of Marine Products Corporation (“Marine Products” or “MPC”) and, with the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. (“Rollins”). +During the past five years, in addition to the companies listed above, the following directors served on the board of directors of the following publicly traded companies: Prior to 2005, R. Randall Rollins served as a director of SunTrust Banks, Inc. Prior to 2007, James B. Williams served as a director of Genuine Parts Company and Georgia Pacific Corporation. Prior to 2009, Larry L. Prince served as a director of Crawford & Company and Equifax, Inc. +(2) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) +R. Randall Rollins and Gary W. Rollins are brothers. +(4) +See information contained in footnote (3) to the table appearing in Capital Stock section. +(5) +See information contained in footnote (2) to the table appearing in Capital Stock section. +(6) +Includes 63,990 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 1,012 shares. +(7) +See information contained in footnote (5) to the table appearing in Capital Stock section. +(8) +See information contained in footnote (6) to the table appearing in Capital Stock section. +Our Board of Directors recommends a vote FOR the nominees listed . +5 +PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2010. During fiscal 2009, Grant Thornton LLP served as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement. +Although the Company is not required to seek ratification of this appointment, the Audit Committee and the Board of Directors believes that it is appropriate to do so. If stockholders do not ratify the appointment of Grant Thornton LLP, the current appointment will stand, but the Audit Committee will consider the stockholder action in determining whether to retain Grant Thornton LLP as the Company’s independent registered public accounting firm. +Our Board of Directors recommends a vote FOR the ratification of the appointment of Grant +Thornton LLP as the Company’s independent registered public accounting firm for the 2010 fiscal year . +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board Meetings +The Board of Directors met five times during the fiscal year ended December 31, 2009. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on which he or she served during 2009. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and all Board members were in attendance at last year’s meeting. +The Board of Directors has an Audit Committee, a Compensation Committee, a Diversity Committee and a Nominating and Governance Committee. +Below is a summary of our committee structure and membership information. +Committee Members +Audit +Committee +Compensation +Committee +Diversity +Committee +Nominating & +Governance +Committee +Executive +Committee +R. Randall Rollins (1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Wilton Looney (2) +Member +Member +Member +Member +James B. Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary W. Rollins +Member +(1) +Chairman of the Board of Directors +(2) +Financial Expert +Audit Committee +The Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit Committee held five meetings during the fiscal year ended December 31, 2009. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. Additionally, the Board of Directors has determined that the simultaneous service by Mr. James B. Williams on the Audit Committees of three other publicly traded companies does not impair his ability to effectively serve on the Audit Committee of RPC. The Audit Committee meets with the Company’s independent registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits and recommendations made with respect to controls over financial reporting and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Audit Committee charter is available on the Company’s website at www.rpc.net under the Governance section. +6 +Compensation Committee +The Compensation Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney and James B. Williams. It held two meetings during the fiscal year ended December 31, 2009. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the executive officers. The Compensation Committee also administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee does not have a formal charter, and is not required to have one under the “controlled company” exemption under the NYSE rules, as described in the section titled “Director Independence and NYSE Requirements” below. +Diversity Committee +The Diversity Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney and James B. Williams. It held one meeting during the fiscal year ended December 31, 2009. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +Nominating and Governance Committee +The Nominating and Governance Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney and James B. Williams, each of whom is independent, as discussed more fully under “Director Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant to a resolution passed by the Board of Directors for the following purposes: +● +to recommend to the Board of Directors nominees for director and to consider any nominations properly made by a stockholder; +● +upon request of the Board of Directors, to review and report to the Board with regard to matters of corporate governance; and +● +to make recommendations to the Board of Directors regarding the agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal year ended December 31, 2009. +Director Nominations +Under Delaware law, there are no statutory criteria or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee does not have a charter or a formal policy with regard to the consideration of director candidates. As such, there is no formal policy relative to diversity, although as noted below, it is one of many factors that the Nominating and Corporate Governance Committee has the discretion to factor into its decision making. This discretion would extend to how the Committee might define diversity in a particular instance – whether in terms of background, viewpoint, experience, education, race, gender, national origin or other considerations. The Committee acts under the guidance of the Corporate Governance Guidelines approved by the Board of Directors and posted on the Company’s website at www.rpc.net under the Governance section. The Board believes that it should preserve maximum flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s Corporate Governance Guidelines, the Board of Directors will be responsible for selecting nominees for election to the Board of Directors. The Board delegates the screening process to the Nominating and Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of the then current makeup of the Board. This determination takes into account all factors which the Committee considers appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other requirements related to the notice are contained in the Company’s Bylaws. The Committee will consider nominations from stockholders who satisfy these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the nominees for directors being voted upon, at the Annual Meeting to be held on April 27, 2010 are directors standing for re-election. +7 +Board Leadership +The Company has had separate persons serving as its Chairman of the Board and Chief Executive Officer since 2003. Mr. R. Randall Rollins is our Chairman and chairs our Board meetings. Mr. Richard A. Hubbell is our President and Chief Executive Officer. We believe that it represents the appropriate structure for us at this time; the Chairman of the Board provides general oversight and strategic planning for the Company while the President focuses on optimizing operational efficiencies. Many authorities on corporate governance are of the view that a company’s principal executive officer should not also be chairman of its board and that it is best to keep board leadership separate from operational management. +Risk Oversight by Board +Our Board’s oversight of risk has not been delegated to any Board Committee. “Risk” is an extremely broad concept that extends to multiple functional areas and crosses multiple disciplines. As such, risk may be addressed from time to time by the full Board or by one or more of our Committees. Senior management is responsible for identifying and managing material risks that we face while insurable risks and litigation risks are handled primarily by the risk management department. Senior management provides the Board with a summary of insurance coverage annually and updates as deemed necessary. Liquidity risk, credit risk and risks associated with our credit facilities and cash management are handled primarily by our finance department which regularly provides a financial report to both the Audit Committee and to the full Board. Operational, business, regulatory and political risks are handled primarily by senior executive management which regularly provides various operational reports to, among others, the full Board or to the Executive Committee. +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors, the majority of which are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. +8 +The Company’s Audit Committee is composed of four “independent” directors as defined by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange Act, SEC regulations there under, and the Company’s Audit Committee Charter. All of the members of the Compensation, Diversity and Nominating and Governance Committees are also independent directors. The independent directors of the Company are Henry B. Tippie, Wilton Looney, James B. Williams, Bill J. Dismuke, and Larry L. Prince. +Independence Guidelines +Under NYSE listing standards, to be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The NYSE standards set forth a nonexclusive list of relationships which are conclusively deemed material. +The Company’s Independence Guidelines (Appendix A to the Company’s Corporate Governance Guidelines) are posted on the Company’s website at www.rpc.net under the Governance section. These independence guidelines provide that to be independent, a director must not have any relationship that would be considered material under NYSE standards and that except in special circumstances as determined by a majority of the Board, the following relationships are not material: +(i) +If the director, or a member of the director’s immediate family, has received less than one hundred twenty thousand dollars (US $120,000) in direct compensation from the Company (other than director and committee fees and compensation for prior service which are not contingent in any way on continued services) during every 12 month period within the past three (3) years; +(ii) +If the director is a director or officer, or any member of the director’s immediate family is a director or officer of a bank to which the Company is indebted, and the total amount of the indebtedness does not exceed one percent (1%) of the total assets of the bank for any of the past three (3) years; +(iii) +If the director or any member of the director’s immediate family is an employee of a charitable or educational organization, and donations by the Company do not exceed the greater of one million dollars (US $1,000,000) or two percent (2%) of the organization’s consolidated gross revenues within the preceding three (3) years; +(iv) +If the director has a relationship with the Company of a type covered by item 404(a) and/or item 407 of the Securities and Exchange Commission’s Regulation S-K (or any successor regulation), and that relationship need not, according to the terms of those items and any then-current proxy regulations, be disclosed in the Company’s annual Proxy Statement (except for relationships described elsewhere in the Company’s guidelines in which case the other guidelines will govern); +(v) +If the director, or a member of the director’s immediate family, has direct or beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) of any amount of any class of common stock of the Company. +Audit Committee Charter +Under the Company’s Audit Committee Charter, in accordance with NYSE listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the NYSE and the Company’s Corporate Governance Guidelines. +9 +Nonmaterial Relationships +After reviewing all of the relationships between the members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee nor Mr. Prince had any relationships not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +1. +Mr. Tippie was employed by Rollins from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President – Finance, Secretary, Treasurer and Chief Financial Officer. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that has voting control of Rollins. +2. +Mr. Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. and Dover Downs Gaming and Entertainment, Inc. Mr. Randall Rollins is also a director of these companies. +3. +Mr. Tippie is the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Gary and Randall Rollins. +4. +Each of Messrs. Dismuke, Looney, Prince, Tippie and Williams also serve on the Boards of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held by a control group of which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is an executive officer of Marine Products. +5. +Mr. Prince is a director of Genuine Parts Company. Mr. Gary W. Rollins is also a director of Genuine Parts Company. +As required by the Independence Guidelines, the Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the independent directors, based on their experience, character and independent means, and therefore do not preclude an independence determination. All of the members are also independent under the heightened standards required for Audit Committee members. +In accordance with the NYSE corporate governance listing standards, Mr. Henry B. Tippie was elected as the Presiding Director. The Company’s non-management directors meet at regularly scheduled executive sessions without management. Mr. Tippie presides during these executive sessions. +Corporate Governance Guidelines +We have adopted Corporate Governance Guidelines to promote better understanding of our policies and procedures. At least annually, the Board reviews these guidelines. As required by the rules of the New York Stock Exchange, our Corporate Governance Guidelines require that our non-management directors meet in at least two regularly scheduled executive sessions per year without management. +At the Company’s website at www.rpc.net, under the Governance section, you may access a copy of our Corporate Governance Guidelines, our Audit Committee Charter, our Code of Business Conduct and our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy. +Code of Business Conduct +The Company has adopted a Code of Business Conduct applicable to all directors, officers and employees generally, as well as a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to the principal executive officer, principal financial officer, and directors. Both codes are available on the Company’s website at www.rpc.net under the Governance section. +10 +Director Communications +The Company also has a process for interested parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, Inc. +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +The above instructions for communications with the directors are also posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the appropriate addressee(s). +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company’s Compensation Committee are or have ever been an employee of the Company. There are no Compensation Committee interlocks requiring disclosure. +11 +DIRECTOR COMPENSATION +The following table sets forth compensation to the Company’s directors for services rendered as a director for 2009. Three of the directors, Messrs. R. Randall Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their compensation is set forth in the Summary Compensation Table under Executive Compensation. The directors listed below have never been employed by the Company or paid a salary or bonus by the Company, have never been granted any options or other stock-based awards, and do not participate in any Company sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who was an employee of the Company until the spin-off of Marine Products in 2001. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry B. Tippie +91,750 +— +— +91,750 +James B. Williams +48,750 +— +— +48,750 +Wilton Looney +44,750 +— +— +44,750 +Bill J. Dismuke +42,750 +— +— +42,750 +Gary W. Rollins +31,500 +— +— +31,500 +James A. Lane, Jr. +31,500 +— +— +31,500 +Larry L. Prince +21,000 +— +— +21,000 +(1) +Directors are eligible for grants of stock awards under the Company’s 2004 Stock Incentive Plan (“SIP”). No stock awards have been granted to the non-management directors under the 2004 SIP. +Directors that are our employees do not receive additional compensation for services rendered as a director. +Under current compensation arrangements effective since January 1, 2008, non-management directors each receive an annual retainer fee of $24,000. In addition, the Chairman of the Audit Committee receives an annual retainer of $16,000, the Chairman of the Compensation Committee receives an annual retainer of $9,000, and the Chairman of each of the Nominating and Governance Committee and Diversity Committee receives an annual retainer of $6,000. A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a quarterly basis. Per meeting fees for non-management directors are as follows: +● +For meetings of the Board of Directors, Compensation Committee, Diversity Committee and Nominating and Governance Committee, $1,500 and telephonic meetings of the Audit Committee, $1,250. +● +For in person meetings of the Audit Committee, $2,500. In addition, the Chairman of the Audit Committee receives an additional $1,500 for preparing to conduct each quarterly Board and Board Committee meetings. +All non-management directors are also entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. There have been no changes to the director compensation arrangements for 2010. +Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that might incorporate future filings, including the Proxy Statement, in whole or in part, the Report of the Audit Committee shall not be incorporated by reference into any such filings. +12 +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s internal controls, assessing the effectiveness of these controls and the financial reporting process. The Company’s independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +In fulfilling its oversight responsibilities with respect to the year ended December 31, 2009, the Audit Committee: +● +Approved the terms of engagement of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2009; +● +Reviewed with management the interim financial information included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management and the Company’s independent public accountants prior to their release; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm the audited consolidated financial statements of the Company as of December 31, 2009 and 2008 and for the three years ended December 31, 2009; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm, management’s assessment that the Company maintained effective control over financial reporting as of December 31, 2009; +● +Discussed with the independent registered public accounting firm matters required to be discussed by the American Institute of Certified Public Accountants Statement on Auditing Standards (“SAS”) No. 61, “Communications with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board; and +● +Received from the independent registered public accounting firm the written disclosures and the letter in accordance with the requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Committee concerning independence, and discussed with such firm its independence from the Company. +Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of December 31, 2009 and 2008 and for the three years ended December 31, 2009 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and for filing with the Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s independent registered public accounting firm with respect to such financial statements. +Submitted by the Audit Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +Bill J. Dismuke +13 +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Committee +During the fiscal year ended December 31, 2009, the members of our Compensation Committee held primary responsibility for determining executive compensation levels. The Committee is composed of three of our non-management directors who do not participate in the Company’s compensation plans. The Committee determines the compensation and administers the performance-based cash compensation plan for our executive officers. In addition, the Committee also administers our Stock Incentive Plan for all the employees. +The members of our Compensation Committee have extensive and varied experience with various public and private corporations - as investors and stockholders, as senior executives, and as directors charged with the oversight of management and the setting of executive compensation levels. Henry B. Tippie, the Chairman of the Compensation Committee, has served on the board of directors of twelve different publicly traded companies and has been involved in setting executive compensation levels at all of these companies. Messrs. Wilton Looney and James B. Williams have served on the board of directors of several different publicly traded companies and have similarly been involved in setting executive compensation levels at many of these companies. +The Compensation Committee has authority to engage attorneys, accountants and consultants, including executive compensation consultants, to solicit input from management concerning compensation matters, and to delegate any of its responsibilities to one or more directors or members of management where it deems such delegation appropriate and permitted under applicable law. The Committee has not used the services of any compensation consultants in determining or recommending the amount or form of executive compensation. +The Compensation Committee believes that determinations relative to executive compensation levels are best left to the discretion of the Committee. In addition to the extensive experience and expertise of the Committee’s members and their familiarity with the Company’s performance and the performance of our executive officers, the Committee is able to draw on the experience of other directors and on various legal and accounting executives employed by the Company, and the Committee has access to the wealth of readily available public information relative to structuring executive compensation programs and setting appropriate compensation levels. The Committee also believes that the structure of our executive compensation programs should not become overly complicated or difficult to understand. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. +General Compensation Objectives and Guidelines +The Company is engaged in a highly competitive industry. The success of the Company depends on its ability to attract and retain highly qualified and motivated executives. In order to accomplish this objective, the Company structures the executive compensation in a fashion that takes into account the Company’s overall performance and the individual performance of the executive. +The Compensation Committee endorses the philosophy that executive compensation should reflect Company performance and the contribution of executive officers to that performance. The Company’s compensation policy is designed to achieve three fundamental objectives: (i) attract and retain qualified executives, (ii) motivate performance to achieve Company objectives, and (iii) align the interests of our executives with the long-term interests of the Company’s stockholders. The Committee recognizes that there are many intangibles involved in evaluating performance and in motivating performance, and that determining an appropriate compensation level is a highly subjective endeavor. The analysis of the Committee is not based upon a structured formula and the objectives referred to above are not weighted in any formal manner. +The Company’s executive officers are also executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee also constitute the Compensation Committee of Marine Products. In determining the compensation for the executive officers at the Company, the Committee considers these dual responsibilities and sources of compensation. The Company sets compensation of its executives at such levels so that the aggregate compensation received from both Marine Products and the Company is reasonable in light of their respective responsibilities and the performance of both companies, and so that the compensation from the Company for services solely to the Company is reasonable. A discussion of the Company’s executive officers’ compensation at Marine Products is contained in its annual Proxy Statement filed with the SEC. +14 +Pursuant to the Company’s compensation philosophy, the total annual compensation of its executive officers is primarily made up of base salary, performance-based incentive cash compensation and stock-based incentive compensation. In addition, the Company provides retirement compensation plans, group welfare benefits and certain perquisites. +We believe a competitive base salary is important to attract, retain and motivate top executives. We believe a performance-based incentive cash compensation plan is valuable in recognizing and rewarding individual achievement. Finally, we believe stock-based incentives make executives “think like owners” and, therefore, align their interests with those of our stockholders. +The Company does not have any formal stock ownership requirements for its executive officers but notes that its current directors and executive officers are stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. The Company is mindful of the stock ownership of our directors and executive officers but does not believe that it is appropriate to provide a mechanism or formula to take stock ownership (or gains from prior option or stock awards) into account when setting compensation levels. The Company provides in its insider trading policies that directors and executive officers may not sell Company securities short and may not sell puts, calls or other derivative securities tied to our Common Stock. +The Company does not have a formal policy relative to the adjustment or recovery of incentives or awards in the event that the performance measures upon which incentives or awards were based are later restated or otherwise adjusted in a manner that would have reduced the size of an incentive or award. However, as all incentives and awards remain within the discretion of the Compensation Committee, the Committee retains the ability to take any such restatements or adjustments into account in subsequent years. In addition, the Sarbanes-Oxley Act requires in the case of accounting restatements that result from material non-compliance with SEC financial reporting requirements, that Chief Executive Officers and Chief Financial Officers must disgorge bonuses and other incentive-based compensation and profits on stock sales, if the non-compliance results from misconduct. +Base Salary +The salary of each executive officer is determined by the Compensation Committee. In making its determinations, the Committee gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by Marine Products. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. During 2009, in light of the difficult operating environment faced by the Company, the executive officers voluntarily reduced their base salaries by 15 percent to the following amounts, effective April 16, 2009: Mr. Richard A. Hubbell: $595,000 ($105,000 decrease from 2008); Mr. Ben M. Palmer: $212,500 ($37,500 decrease from 2008); Mr. R. Randall Rollins: $510,000 ($90,000 decrease from 2008): and Ms. Linda H. Graham: $140,250 ($24,750 decrease from 2008). There have been no changes to the base salaries in 2010. +Performance-Based Incentive Cash Compensation +The Company implemented the Performance-Based Incentive Cash Compensation Plan (the “Management Incentive Plan”) for the executive officers in 2006. Under the Management Incentive Plan, the Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +15 +In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Management Incentive Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year . If the participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Management Incentive Plan. This formula provides for a performance value (“Performance Value”) which ranges from: +● +threshold performance level (with a Performance Value of 25 percent of the Target Award), +● +target performance level (with a Performance Value up to 100 percent of the Target Award), to +● +superior performance level (with a Performance Value up to 200 percent of the Target Award). +Subject to the limitations set forth below, a participant’s cash award amount for each year under the Management Incentive Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation . The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year. +For 2009, the Compensation Committee established the target incentive award under the Management Incentive Plan for the Chief Executive Officer and for the other members of executive management at the amounts shown in the table below. The target awards that could be earned under the Management Incentive Plan for 2009 are the same as for the prior year. +Executive Officer +Target Award as a +percentage of base salary +Richard A. Hubbell +President and Chief Executive Officer +100 +% +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +100 +% +R. Randall Rollins +Chairman of the Board +100 +% +Linda H. Graham +Vice President and Secretary +40 +% +The maximum bonus award for each participant under the Plan for 2009 and prior years was established at 150 percent of such participant’s base salary. The performance criteria applicable to the participants under the Management Incentive Plan for 2009 were determined based solely on corporate performance. The Compensation Committee established corporate performance goals for 2009 under the Management Incentive Plan based on cash flow return on invested capital. Return on invested capital (“ROIC”) is a widely used financial performance measure that typically correlates with long-term changes in stockholder value. The Company has used ROIC as the sole performance goal under the Management Incentive Plan for several years. For 2009, the target performance goal established by the Company is in excess of the comparable historical average ROIC of our peers, is in excess of the Company’s weighted average cost of capital, and is an amount which the Company believes represents outstanding financial performance. Under the Management Incentive Plan, the Company must achieve at least 80 percent of the target performance goal for executive officers to be eligible for any bonus award. Bonus awards under the Management Incentive Plan are determined on a sliding scale between the threshold performance level and a superior performance level, which corresponds to 175 percent of the target performance goal. The Company has consistently followed the same method to compute ROIC, and the Compensation Committee has not exercised discretion to waive the performance goals based on difficult industry conditions or other factors. +16 +The Company operates in a cyclical business where financial performance is influenced by changes in oil and natural gas prices. For years prior to 2009, the industry in general and RPC in particular have generated very good financial performance due to higher oil and natural gas prices and correspondingly high levels of customer activity. The Company’s computation of ROIC for 2009 resulted in the target awards not being met for the year. The Company generated ROIC that resulted in 143 percent of the target award in 2008 and 163 percent of the target award in 2007. The level of performance achieved has been steadily trending downward consistent with industry performance and the performance of our peers. Current trends and expectations for the oilfield industry predict a continued challenging environment in 2010, although there has been some recent improvement. +For 2009, the executive officers earned no performance-based cash compensation under the Management Incentive Plan since the Company did not meet the target performance levels established. For 2010, the target awards, performance goal and maximum awards were established at the same levels as 2009. +Stock Based Incentive Plans +Our Stock Incentive Plan allows for a wide variety of stock based awards such as stock options and restricted stock. We last issued stock options in 2003 and have no current plans to issue additional stock options. We have never issued any stock appreciation rights. Partially in response to changes relative to the manner in which stock options are accounted for under generally accepted accounting principles, we have modified the structure and composition of the long-term equity based component of our executive compensation. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. The terms and conditions of these awards are described in more detail below. +Awards under the Company’s Stock Incentive Plan are purely discretionary, are not based upon any specific formula and may or may not be granted in any given fiscal year. For the past three years, we have granted time-based restricted stock to various employees, including our executive officers, in early January during our regularly scheduled meetings of the Compensation Committee during which the Committee reviews executive compensation. Consistent with this practice, we granted restricted stock awards to our executive officers in January 2010, 2009 and 2008 as follows: +Name +2010 +2009 +2008 +Richard A. Hubbell +25,000 +30,000 +20,000 +Ben M. Palmer +16,000 +20,000 +10,000 +R. Randall Rollins +25,000 +30,000 +20,000 +Linda H. Graham +8,000 +10,000 +5,000 +When considering the grant of stock based awards, the Committee gives consideration to our overall performance and the performance of individual employees. It is our expectation to continue yearly grants of restricted stock awards although we reserve the right to modify or discontinue this or any of our other compensation practices at any time. +All of our restricted stock awards granted since 2004 have had the same features. The shares vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. In the event of a “change in control” of the Company, the Compensation Committee has the discretion to accelerate vesting of the shares. +Grants are made under our Stock Incentive Plan and the plan is administered pursuant to Rule 16b-3 of the Securities Exchange Act of 1934. +Employment Agreements +There are no agreements or understandings between the Company and any executive officer which guarantee continued employment or guarantee any level of compensation, including incentive or bonus payments, to the executive officer. +17 +Retirement Plans +The Company maintains a defined benefit pension plan (called the Retirement Income Plan) for all our eligible employees, a non-qualified supplemental retirement plan for our executives and certain other highly compensated employees and a 401(k) Plan for the benefit of all regular full time employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. In lieu thereof, beginning in 2002, the Company began providing enhanced benefits in the form of cash contributions on behalf of certain long-service employees who were 40 to 65 years of age on or before December 31, 2002. These enhanced benefit contributions are discretionary and may be made annually, subject to a participant’s continued employment, for a maximum of seven years. The contributions were made either to the non-qualified Supplemental Retirement Plan (“SRP”) or to the 401(k) Plan for each employee who is entitled to the enhanced benefits. The Company contributed $26,262 towards enhanced benefits for Mr. Hubbell in 2008, which completed all the scheduled contributions. Beginning late in 2002, the Company began permitting selected highly compensated employees to defer a portion of their compensation into the SRP. +Other Compensation +Other compensation to our executives includes typical employee benefits such as group medical, dental and vision coverage and group life insurance. The Company provides an automobile (or an automobile allowance) to Messrs. Richard A. Hubbell and Ben M. Palmer. +The following Compensation Committee Report shall not be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed the above “Compensation Discussion and Analysis” with management. +Based upon this review and discussion, we have recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement. +Submitted by the Compensation Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all directors, officers and greater than 10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all directors, officers and greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2009 have been satisfied. +18 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2009, 2008 and 2007 of those persons who were at December 31, 2009, +● +our Principal Executive Officer and Principal Financial Officer; and +● +our two other executive officers: +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Stock +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +($) (2) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +($) (3) +All Other +Compensation +($) (4) +Total ($) +Richard A. Hubbell +2009 +625,624 +256,500 +— +54,180 +12,910 +949,214 +President and +2008 +700,000 +196,200 +1,001,000 +13,990 +39,550 +1,950,740 +Chief Executive Officer +2007 +600,000 +352,200 +900,000 +— +39,550 +1,891,750 +Ben M. Palmer +2009 +223,437 +171,000 +— +8,890 +19,110 +422,437 +Vice President, +2008 +250,000 +98,100 +357,500 +— +19,740 +725,340 +Chief Financial Officer +2007 +200,000 +140,880 +260,000 +— +16,970 +617,850 +and Treasurer +R. Randall Rollins +2009 +536,250 +256,500 +— +48,310 +— +841,060 +Chairman of the Board +2008 +600,000 +196,200 +858,000 +555,860 +— +2,210,060 +2007 +500,000 +352,200 +750,000 +— +— +1,602,200 +Linda H. Graham +2009 +147,469 +85,500 +— +11,740 +5,020 +249,729 +Vice President and Secretary +2008 +165,000 +49,050 +94,050 +199,510 +4,650 +512,260 +2007 +150,000 +88,050 +97,500 +— +4,990 +340,540 +(1) +Represents the fair value of the award at the date of grant computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2009 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. +(2) +Bonuses under the Management Incentive Plan are accrued in the fiscal year earned and paid in the following fiscal year. +(3) +Change represents impact of change in discount rate only as no additional benefits are being accrued. The actuarial present value of Mr. Ben Palmer’s accumulated benefit under the defined benefit plan decreased during 2008 by approximately ($1,600). +(4) +All other compensation for 2009 includes the following items for: +Mr. Richard A. Hubbell: +Insurance on automobile provided by the Company, cost of dining club dues, cost of gasoline for personal automobile and 401(k) Plan Company match of $7,350. +Mr. Ben M. Palmer: +Automobile allowance, cost of gasoline for personal automobile and 401(k) Plan Company match of $7,350. +Ms. Linda H. Graham: +401(k) Plan Company match of $5,020. +19 +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +Under Non-Equity +Incentive Plan Awards (1) +All Other +Stock Awards: +Number of +Shares +of Stock or Units +(#) +Grant Date +Fair Value +of Stock and +Option Awards +($) (2) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Mr. Richard A. Hubbell +1/27/09 +148,750 +595,000 +892,500 +1/27/09 +30,000 +256,500 +Mr. Ben M. Palmer +1/27/09 +53,125 +212,500 +318,750 +1/27/09 +20,000 +171,000 +Mr. R. Randall Rollins +1/27/09 +127,500 +510,000 +765,000 +1/27/09 +30,000 +256,500 +Ms. Linda H. Graham +1/27/09 +14,025 +56,100 +112,200 +1/27/09 +10,000 +85,500 +(1) +These amounts illustrate the potential bonus awards under the Management Incentive Plan for 2009. No amounts were earned or paid under the Plan for 2009. +(2) +These amounts represent aggregate grant date fair value for grants of restricted shares of Common Stock awarded in fiscal year 2009 under our Stock Incentive Plan computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2009 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. Our Form 10-K has been included in our Annual Report and provided to our stockholders. +The table above reflects grants of restricted shares of Company Common Stock under our Stock Incentive Plan awarded in fiscal year 2009. All grants of restricted shares of Common Stock vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. +The Company’s employment contracts with its Chief Executive Officer and the Company’s other executive officers are oral, at will arrangements. All of the executive officers are eligible for annual cash bonuses which are awarded under the Management Incentive Plan. The Compensation Committee’s decisions are based upon broad performance objectives under that plan. The executive officers are eligible to receive shares of Company Common Stock subject to options and restricted shares of Company Common Stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the Compensation Committee at the time of grant. All of the executive officers are eligible to participate in the Company’s SRP. The executive officers are eligible to participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical and dental coverage, vision and other group benefit plans. All of the executive officers are eligible for the Retirement Income Plan that was frozen in March 2002. For more information on these plans, see “Compensation Discussion and Analysis” at page 14, and “Benefit Plans” at page 23. +20 +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The table below sets forth details concerning outstanding option awards made in prior years to the executives named in our Summary Compensation Table, including the grant date, the expiration date, the option exercise price, and the number of shares of Common Stock underlying the grants both exercisable and un-exercisable. The grant dates for all of these options are from fiscal year 2003 and earlier since we have not issued any stock options after 2003. The table below also sets forth the total number of restricted shares of Common Stock that were granted in prior years to the executives named in our Summary Compensation Table but which have not yet vested, together with the market value of these unvested shares based on the $10.40 closing price of our Common Stock on December 31, 2009. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Expiration +Date (1) +Number of +Shares or +Units of Stock +That Have Not +Vested (#) +Market Value +of Shares or +Units of Stock +That Have +Not Vested ($) +Richard A. Hubbell +168,748 +— +3.88 +4/24/2011 +113,700 +1,182,480 +84,375 +— +2.81 +1/28/2013 +Ben M. Palmer +— +— +— +— +95,238 +990,480 +R. Randall Rollins +— +— +— +— +97,500 +1,014,000 +Linda H. Graham +16,875 +— +3.88 +4/24/2011 +33,625 +349,700 +33,750 +— +2.81 +1/28/2013 +(1) +Unless otherwise noted, all options have ten year terms with vesting as follows: The options vest one-fifth per year beginning on the first anniversary of the grant date. +(2) +Options granted April 24, 2001. +(3) +Options granted January 28, 2003. +(4) +The Company has granted employees two forms of restricted stock: time lapse restricted and performance restricted. Time lapse restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest after ten years. Time lapse restricted shares issued starting in 2004 vest one-fifth per year beginning on the second anniversary of the grant date. The performance restricted shares are granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. The Company has not granted performance restricted shares since 2003. Shares of restricted stock granted to the executive officers that have not vested as of December 31, 2009 are summarized in the table that follows: +21 +Name +Number of shares +Grant Date +Date fully vested +Richard A. Hubbell +13,500 +4/27/2004 +4/27/2010 +16,200 +1/25/2005 +1/25/2011 +18,000 +1/24/2006 +1/24/2012 +16,000 +1/23/2007 +1/23/2013 +20,000 +1/22/2008 +1/22/2014 +30,000 +1/27/2009 +1/27/2015 +Ben M. Palmer +35,438 +4/24/2001 +4/24/2011 +5,400 +4/27/2004 +4/27/2010 +10,800 +1/25/2005 +1/25/2011 +7,200 +1/24/2006 +1/24/2012 +6,400 +1/23/2007 +1/23/2013 +10,000 +1/22/2008 +1/22/2014 +20,000 +1/27/2009 +1/27/2015 +R. Randall Rollins +13,500 +4/27/2004 +4/27/2010 +18,000 +1/24/2006 +1/24/2012 +16,000 +1/23/2007 +1/23/2013 +20,000 +1/22/2008 +1/22/2014 +30,000 +1/27/2009 +1/27/2015 +Linda H. Graham +3,375 +4/27/2004 +4/27/2010 +6,750 +1/25/2005 +1/25/2011 +4,500 +1/24/2006 +1/24/2012 +4,000 +1/23/2007 +1/23/2013 +5,000 +1/22/2008 +1/22/2014 +10,000 +1/27/2009 +1/27/2015 +OPTION EXERCISES AND STOCK VESTED +The following table sets forth: +● +the number of shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the exercise of stock options during the fiscal year ended December 31, 2009; +● +the aggregate dollar amount realized on the exercise date for such options computed by multiplying the number of shares acquired by the difference between the market value of the shares on the exercise date and the exercise price of the options; +● +the number of restricted shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the vesting of shares during the fiscal year ended December 31, 2009; and +● +the aggregate dollar amount realized on the vesting date for such restricted stock computed by multiplying the number of shares which vested by the market value of the shares on the vesting date. +Option Awards (1) +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Richard A. Hubbell +173,669 +1,127,120 +82,225 +622,230 +Ben M. Palmer +— +— +43,487 +372,830 +R. Randall Rollins +— +— +23,500 +209,970 +Linda H. Graham +12,766 +94,210 +9,250 +80,440 +(1) +The shares acquired on exercise of options are restricted for a period of one year from the date of exercise. +22 +BENEFIT PLANS +The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Income Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Information regarding the Retirement Income Plan can be found under Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2009. +Pension Benefits +Name +Plan Name +Number of +Years Credited +Service (#) (1) +Present +Value of +Accumulated +Benefit +($) +Payments During +Last Fiscal Year +($) +Mr. Richard A. Hubbell +Retirement Income Plan +15 +439,718 +— +Mr. Ben M. Palmer +Retirement Income Plan +4 +39,123 +— +Mr. R. Randall Rollins +Retirement Income Plan +30 +2,424,266 +261,600 +Ms. Linda H. Graham +Retirement Income Plan +15 +443,340 +48,710 +(1) +The difference in years of credited and actual service is due to the freezing of benefit accruals in 2002. See discussion below for further details. +The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately preceding March 31, 2002. The benefits are computed as the product of 1.5 percent of final average compensation multiplied by years of credited service (up to 30 years) reduced by an adjustment for benefits drawn from social security. Adjustments have been made for age and IRS mandated compensation limitations. The final average compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is $127,325. +The annual benefit payable at the later of retirement age or 65 for the named executive officers is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, $24,900 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2009 was $195,000. Retirement benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum compensation limit. +The Plan also provides reduced early retirement benefits at age 55 or older with 15 or more years of service. Mr. Hubbell is eligible for early retirement benefits and the amounts payable to him in such an event is calculated using the computation described above reduced by a certain percentage for each incremental month of early retirement. Ms. Graham is voluntarily receiving distributions from the plan even though she has not retired from the Company. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distribution received during 2009 has been disclosed in the table above and is not subject to change after retirement. +In 2002, the Company began providing additional benefits on behalf of certain long-service employees in the form of discretionary cash contributions made either to the Company’s 401(k) Plan (which is described below) or the SRP as described in the section below titled “Nonqualified Deferred Compensation.” Amounts contributed by the Company to the accounts of the executive officers are reported in the “All Other Compensation” column of the Summary Compensation Table on page 19. +23 +401(k) Plan +Effective July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax contribution account for any reason after attaining age 59 1/2. In addition, a participant may withdraw any amount from his or her rollover account for any reason. Amounts contributed by the Company to the accounts of the named executive officers under this plan are reported in the “All Other Compensation” column of the Summary Compensation Table on page 19. +NONQUALIFIED DEFERRED COMPENSATION +The SRP has been established as a nonqualified plan that is designed to comply with the provisions of the American Jobs Creation Act of 2004 (including Section 409A of the Internal Revenue Code) for the cash contributions made to certain longer serviced employees in lieu of freezing of benefit accruals effective in 2002; the SRP also has a compensation deferral option for eligible employees. The contributions and deferrals to the SRP are invested in funds held in a rabbi trust. +Name +Executive +Contributions in +last FY ($) (1) +Registrant +contributions in +last FY ($) (2) +Aggregate +earnings in last +FY ($) +Aggregate +withdrawals/ +distributions ($) +Aggregate +balance at last +FYE ($) +Richard A. Hubbell +— +— +43,100 +— +209,280 +Ben M. Palmer +46,760 +— +33,620 +(59,960 +) +150,280 +R. Randall Rollins +— +— +— +— +— +Linda H. Graham +83,890 +— +96,800 +— +467,070 +(1) +Includes the following amounts related to the base salary for 2009 which have been deferred by the executive officer pursuant to the SRP and which are included in the Summary Compensation Table: Mr. Ben M. Palmer: $18,160 and Ms. Linda H. Graham: $36,865. The remaining amounts represent deferrals of bonus compensation related to 2008 that were paid in 2009. +(2) +Reflects the amounts for each of the named executive officers which are reported as compensation to such named executive officer in the “All Other Compensation” column of the Summary Compensation Table on page 19. +The deferral option provides that participants may defer up to 50 percent of their base salary and up to 100 percent of their annual bonus with respect to any given plan year, subject to a $2,000 per plan year minimum. The deferred amounts are voluntarily funded on a monthly basis; salary and bonus deferrals are generally 100 percent vested. Accounts are credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and contributions had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. The benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company’s obligations under the SRP exceed assets available under the trust, the Company would be required to seek additional funding sources to fund its liability under the SRP. +Generally, the SRP provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of base salary and bonus compensation (but not Company contributions), participants are entitled to designate a distribution date which is prior to a Termination Event. The SRP allows a participant to elect to receive distributions in installments or lump-sum payments. +24 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. There are no other agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment except as described below. Additional payments or benefits to a terminating executive officer would be at the discretion of the Compensation Committee. +The executive officers are not entitled to additional benefits at death or disability per the terms of the defined benefit plan. The amounts payable at retirement are disclosed in the “Benefit Plans” section on page 23. The executive officers can choose to receive the amounts accumulated in the SRP either as a lump-sum or in installments at retirement, death or disability. These amounts have been disclosed under the “Nonqualified Deferred Compensation” section on page 24. The table below shows the incremental restricted shares that would become vested as of December 31, 2009 at the closing market price of $10.40 per share for our Common Stock, as of that date in the case of retirement, death or disability. +Stock Awards +Name +Number of shares +underlying unvested +stock (#) +Unrealized value of +unvested stock ($) +Richard A. Hubbell +● +Retirement +56,525 +587,860 +● +Disability +56,525 +587,860 +● +Death +56,525 +587,860 +Ben M. Palmer +● +Retirement +— +— +● +Disability +70,200 +730,080 +● +Death +70,200 +730,080 +R. Randall Rollins +● +Retirement +43,250 +449,800 +● +Disability +43,250 +449,800 +● +Death +43,250 +449,800 +Linda H. Graham +● +Retirement +16,726 +173,950 +● +Disability +16,726 +173,950 +● +Death +16,726 +173,950 +Accrued Pay and Regular Retirement Benefits +The amounts shown in the table above do not include the following since they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: +● +Accrued salary and vacation pay. +● +Distributions of plan balances under the 401(k) Plan. +● +The value of option continuation upon termination, as described below. When an employee terminates prior to retirement, his or her stock options are terminated immediately, except that the options may be exercised for a period after termination (not to exceed the original option termination date) in the following circumstances: +→ +Permanent Disability – one year after termination +→ +Death – six months after the date of death +→ +Normal or Early Retirement – one day less than three months after retirement +The termination of employment for any reason shall not accelerate the vesting of options. +25 +Pension Benefit and Deferred Compensation +The Retirement Income Plan does not provide for lump sum payments for a participant including executive officers for instances other than retirement. The Retirement Income Plan is described at “Pension Benefits” above. Upon termination, the executive officers will receive a distribution of the balance in their SRP account. These amounts are disclosed under the “Nonqualified Deferred Compensation” section on page 24. +Change in Control or Severance +The Company does not have any change in control or severance arrangements for its executive officers. However, amounts may be paid at the discretion of the Compensation Committee. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $713,000 in 2009. +During 2009, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2009, payments totaling approximately $409,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $87,000 in 2009. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2009 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +26 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Principal Auditor +Grant Thornton LLP (“Grant Thornton”) served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2009 and 2008. In addition to performing the audit of the Company’s consolidated financial statements, Grant Thornton provided various other services during 2009 and 2008. +The Audit Committee has appointed Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2010. Grant Thornton has served as the Company’s independent auditors for many years and is considered by management to be well qualified. Representatives of Grant Thornton are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. +Aggregate fees billed by the Company’s independent registered public accounting firm are set forth below: +2009 +2008 +Audit fees and quarterly reviews (1) +$ +824,370 +$ +932,440 +Audit related fees +— +— +Tax fees +— +11,025 +All other fees +— +— +(1) +Audit fees include fees for audit or review services in accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the Sarbanes-Oxley Act. +Pre-approval of Services +All of the services described above were pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public accounting firm for these services are compatible with maintaining such auditors’ independence. All of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for the year 2009 was attributable to work performed by full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accounting firm and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its next scheduled meeting. The Audit Committee has no other pre-approval policies. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company’s 2011 Annual Meeting of the Stockholders must be received by the Company by November 17, 2010, in order to be included, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, management proxy holders intend to use their discretionary voting authority with respect to any stockholder proposal raised at the Company’s 2011 Annual Meeting as to which the proponent fails to notify the Company on or before February 20, 2011. With regard to such stockholder proposals, if the date of the next Annual Meeting of the Stockholders is advanced or delayed more than 30 calendar days from April 27, 2011, the Company will, in a timely manner, inform its stockholders of the change and of the date by which such proposals must be received. +27 +With respect to stockholder nomination of directors, the Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s Bylaws. Notices of nominations must be received by the Secretary of the Company no later than January 27, 2011 with respect to directors to be elected at the 2011 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +The Company will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to their beneficial stockholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of approximately $18,000 including shipping expenses. +MISCELLANEOUS +The Company’s Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, without exhibits, is being mailed to stockholders with this Proxy Statement. +Upon the written request of any record or beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2010 Annual Meeting of Stockholders, the Company will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement schedules (but without exhibits), for its fiscal year ended December 31, 2009. Requests for a copy of such Annual Report on Form 10-K should be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 24, 2010 +28 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC . +Tuesday, April 27, 2010, 12:15 P.M. +PROXY VOTING INSTRUCTIONS +INTERNET - Access “www.voteproxy.com” and follow the on-screen instructions. Have your proxy card available when you access the web page, and use the Company Number and Account Number shown on your proxy card. +TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call and use the Company Number and Account Number shown on your proxy card. +COMPANY NUMBER +ACCOUNT NUMBER +Vote online/phone until 11:59 PM EST the day before the meeting. +MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible. +IN PERSON - You may vote your shares in person by attending the Annual Meeting. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : The Notice of Meeting, proxy statement and proxy card are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +ê +Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. +ê +20330000000000000000 9 +042710 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class III Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010. +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O +WILTON LOONEY +O +GARY W. ROLLINS +3. +IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +o +WITHHOLD AUTHORITY +O +JAMES A. LANE, JR. +FOR ALL NOMINEES +o +FOR ALL EXCEPT +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +(See instructions below) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 27, 2010, 12:15 P.M. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Notice of Meeting, proxy statement and proxy card +are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible . +ê Please detach along perforated line and mail in the envelope provided. ê +20330000000000000000 9 +042710 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class III Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010. +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O +WILTON LOONEY +O +GARY W. ROLLINS +3. +IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. +o +WITHHOLD AUTHORITY +O +JAMES A. LANE, JR. +FOR ALL NOMINEES +o +FOR ALL EXCEPT +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +(See instructions below) +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +o +RPC, INC. +Proxy for Annual Meeting of Stockholders on Tuesday, April 27, 2010 +Solicited on Behalf of the Board of Directors +As an alternative to completing this form, you may enter your vote instruction by telephone at 1-800-PROXIES, or via the Internet at WWW.VOTEPROXY.COM and follow the simple instructions. Use the Company Number and Account Number shown on your proxy card. +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 27, 2010, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 24, 2010, grants authority to said proxies, or either of them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place, and stead. The undersigned instructs said proxies, or either of them, to vote as stated on the reverse side. +(Continued and to be signed on the reverse side.) +14475 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-10-000607/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-10-000607/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e498c86135a432dccfdb677178c3a92eacd80c65 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-10-000607/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $713,000 in 2009. +During 2009, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2009, payments totaling approximately $409,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $87,000 in 2009. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2009 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +26 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-11-000579/proxy.txt b/raw/proxies/0000742278/0001188112-11-000579/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..40e1e80e0c7e5f09a88b73965ce943c4559716e0 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-11-000579/proxy.txt @@ -0,0 +1,1580 @@ +DEF 14A +1 +t69901b_def14a.htm +SCHEDULE 14A +t69901b_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: N/A +(2) +Aggregate number of securities to which transaction applies: N/A +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +N/A +(4) +Proposed maximum aggregate value of transaction: N/A +(5) +Total fee paid: N/A +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing: +(1) +Amount previously paid: N/A +(2) +Form, Schedule or Registration Statement No.: N/A +(3) +Filing party: N/A +(4) +Date Filed: N/A +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2801 Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2011 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324 on Tuesday, April 26, 2011, at 12:15 P.M., or any adjournment thereof, for the following purposes: +1. +To elect the three Class I nominees identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011; +3. +To amend the Certificate of Incorporation of the Company to increase the number of authorized shares of capital stock to 350,000,000 shares; +4. +To approve the performance-based incentive cash compensation plan for the executive officers; +5. +To hold a nonbinding vote on executive compensation as disclosed in these materials; +6. +To hold a nonbinding vote regarding the frequency of voting on executive compensation; and +7. +To transact such other business as may properly come before the meeting or any adjournment thereof. +The Proxy Statement dated March 16, 2011 is attached. +The Board of Directors has fixed the close of business on March 4, 2011 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in the United States. +The Proxy Statement and 2010 Annual Report are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 16, 2011 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 16, 2011. The following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of the Stockholders to be held on April 26, 2011, is submitted by the Company to the stockholders in connection with the solicitation of proxies on behalf of the Company’s Board of Directors. +Three-for-two stock split – The Board of Directors, at their meeting on October 26, 2010, authorized a three-for-two stock split to stockholders of record on November 10, 2010, payable on December 10, 2010. All share, per share and market price data herein have been adjusted for this split. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the candidates for election to the Board of Directors, in favor of ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011, in favor of the proposal to amend the Certificate of Incorporation to increase the number of authorized shares of capital stock to 350,000,000, in favor of the proposal to approve the performance-based incentive cash compensation of the executive officers and in favor of the nonbinding proposals to approve executive compensation and the frequency of such votes to every three years. +A stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either proxy holder, by timely submitting a later dated proxy changing his vote or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on March 4, 2011 consisted of 147, 961 ,162 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on March 4, 2011 the record date for determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. In accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the three nominees receiving the most votes will be elected. The affirmative vote of a majority of a quorum of the Company’s outstanding shares of Common Stock present and entitled to vote at the meeting is required to approve the ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year 2011, approve the performance-based incentive cash compensation plan for the executive officers and approve the nonbinding shareholder resolutions on executive compensation. Abstentions will have the effect of a vote against the proposals and broker non-votes will have no effect on the proposals for ratification of the appointment of the Company’s independent registered public accounting firm, approval of the performance-based incentive cash compensation plan for executive officers, and approval of the nonbinding proposals on executive compensation. The affirmative vote of holders of a majority of the outstanding shares of Common Stock of the Company is required for approval of the proposal to amend the Certificate of Incorporation. With respect to the proposal to approve the amendment of the Company’s Certificate of Incorporation, abstentions and broker non-votes will have the effect of a vote against the proposal. The affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote at the meeting is required on the proposal on whether an advisory vote on executive compensation should be held every one, two or three years, meaning that the option that receives the highest number of favorable votes will be considered to represent the non-binding preference of stockholders for the frequency of future advisory votes on executive compensation. There are no rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon pursuant to this Proxy Statement. It is expected that shares held of record by officers and directors of the Company, which in the aggregate represent approximately 71 percent of the outstanding shares of Common Stock, will be voted for the nominees for directors, for the ratification of the appointment of the Company’s independent registered public accounting firm, for the amendment to the Certificate of Incorporation, for the approval of the performance-based incentive cash compensation plan, for the approval, on an advisory basis, of the compensation of the Company’s named executive officers, and for a frequency of every three years for future advisory votes on executive compensation. +1 +STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The executives named in the Summary Compensation Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 4, 2011, together with the number of shares owned by each such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and executive officers of the Company as a group (according to information received by the Company), are set out below: +Name and Address of Beneficial Owner +Amount +Beneficially +Owned (1) +Percent of +Outstanding +Shares +R. Randall Rollins +96,903,736 +(2) +65.5 +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Gary W. Rollins +98,771,967 +(3) +66.8 +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +GAMCO Investors, Inc. +9,555,456 +(4) +6.5 +One Corporate Center +401 Theodore Fremd Avenue +Rye, NY 10580 -1433 +Richard A. Hubbell +1,930,882 +(5) +1.3 +President and Chief Executive Officer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +Linda H. Graham +588,892 +(6) +** +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Ben M. Palmer +362,176 +(7) +** +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +All Directors and Executive Officers as a group +105,585,157 +(8) +71.1 +(11 persons) +** +Less than one percent +2 +(1) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) +Includes 21,399 shares of the Company Common Stock held as Trustee, Guardian, or Custodian for his children. Also includes 1,076,553 shares of Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 86,306,977 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 7,528,350 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are 162,500 shares of restricted stock awards for Company Common Stock. This also includes 163,788 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding Company securities that includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(3) +Includes 1,076,553 shares of the Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 441,473 shares of Company Common Stock held as Trustee, Guardian or Custodian for his children. Also includes 86,306,977 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 7,528,350 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Mr. Rollins is part of a control group holding Company securities that includes Mr. R. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(4) +Per Schedule 13F filed with the Securities and Exchange Commission (“SEC”) on February 3, 2011. +(5) +Includes 379,684 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 4, 2011, and 162,500 shares of restricted stock awards for Company Common Stock. +(6) +Includes 75,937 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 4, 2011, and 48,750 shares of restricted stock awards for Company Common Stock. +(7) +Includes 133,368 shares of restricted stock awards for Company Common Stock. +(8) +Shares held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have been included only once. Includes an aggregate of 455,620 shares of Company Common Stock that may be purchased by two executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of March 4, 2011, and 507,118 shares of restricted stock awards for Company Common Stock awarded and issued to all of the executive officers pursuant to the Company’s 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan. +PROPOSAL 1: ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. R. Randall Rollins, Henry B. Tippie and James B. Williams will be nominated to serve as Class I directors. The nominees for election at the 2011 Annual Meeting are all now directors of the Company. The directors in each class serve for a term of three years. The director nominees will serve in their respective class until their successors are elected and qualified. Seven other individuals serve as directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company’s Bylaws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance Committee, to fill such vacancy. +3 +Director Qualifications +The name and age of each of our directors and each of the nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of outstanding shares that ownership represents, all as of the close of business on March 4, 2011 (according to information received by the Company), other board memberships and the period during which he or she has served us as a director are set forth below. We believe that each of our directors and each of our nominees is well suited to serve on our Board for a variety of individual reasons and because collectively they bring a wealth of experience from diverse backgrounds that has combined to provide us with an excellent mix of experiences and viewpoints. Each has served on our Board since we became a public company in 1987 (with the exception of Linda H. Graham who joined our Board in 2001, Bill J. Dismuke, who joined our Board in 2005 and Larry L. Prince who joined our Board in 2009) and has considerable knowledge of and insights into our Company and our industry; each has served on the board of directors of one or more other public companies and brings with him or her experience from other industries; each has considerable financial expertise in our industry and other industries; and each has held senior executive positions in various industries. In addition, the vast majority of our directors have served as the chairman, chief executive officer and/or chief financial officer of one or more other publicly traded companies and several of our directors have served on the board of a financial institution or held a senior executive position with a financial institution. Additional qualifications of the members of our Audit Committee, all of whom qualify as audit committee financial experts, and the members of our Compensation Committee are noted elsewhere in this Proxy Statement under the headings, “Corporate Governance and Board of Directors’ Committees and Meetings” and “Compensation Discussion and Analysis.” +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class I (Current Term Expires 2011; New Term Will Expire 2014) +R. Randall Rollins (3) +Chairman of the Board of the Company since April 2003; Chairman of the Board and Chief Executive Officer of the Company prior to April 2003; Chairman of the Board of Marine Products Corporation (boat manufacturing); Chairman of the Board of Rollins, Inc. (consumer services). +1984 to date +79 +96,903,736 +(4) +65.5 +Henry B. Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex) and Chairman of the Board of Dover Motorsports, Inc. (operator of motor racing tracks). +1984 to date +84 +1,597,503 +(5) +1.1 +James B. Williams +Retired Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004 and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1991 to 1998. +1984 to date +77 +202,500 +** +Names of Directors Whose Terms Have Not Expired +Class II (Term Expires 2012) +Richard A. Hubbell +President and Chief Executive Officer of the Company since April 2003; President and Chief Operating Officer of the Company prior to April 2003; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing). +1987 to date +66 +1,930,882 +(6) +1.3 +4 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing). +2001 to date +74 +588,892 +(7) +** +Bill J. Dismuke +Retired President of Edwards Baking Company (manufacturer of pies and pie parts). +2005 to date +74 +5,062 +** +Larry L. Prince +Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company (automotive parts distributor). +April 2009 to date +72 +3,000 +** +Class III (Term Expires 2013) +Wilton Looney +Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor). +1984 to date +91 +6,075 +** +Gary W. Rollins (3) +President and Chief Executive Officer of Rollins, Inc. (consumer services). +1984 to date +66 +98,771,967 +(8) +66.8 +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) and President of Chaparral Boats, Inc. +1987 to date +68 +221,230 +** +** less than one percent +(1) +Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the following individuals also serve on the boards of directors of the following companies: James B. Williams: The Coca-Cola Company; R. Randall Rollins: Dover Downs Gaming & Entertainment, Inc. and Dover Motorsports, Inc.; Gary W. Rollins: Genuine Parts Company and Emory University: and Larry L. Prince: Genuine Parts Company and SunTrust Banks, Inc. All of the directors shown in the above table are also directors of Marine Products Corporation (“Marine Products” or “MPC”) and, with the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. (“Rollins”). +During the past five years, in addition to the companies listed above, the following directors served on the board of directors of the following publicly traded companies: Prior to 2005, R. Randall Rollins served as a director of SunTrust Banks, Inc. Prior to 2007, James B. Williams served as a director of Genuine Parts Company and Georgia Pacific Corporation. Prior to 2009, Larry L. Prince served as a director of Crawford & Company and Equifax, Inc. +(2) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) +R. Randall Rollins and Gary W. Rollins are brothers. +(4) +See information contained in footnote (2) to the table appearing in Capital Stock section. +(5) +Includes 95,985 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 1,518 shares. +(6) +See information contained in footnote (5) to the table appearing in Capital Stock section. +(7) +See information contained in footnote (6) to the table appearing in Capital Stock section. +(8) +See information contained in footnote (3) to the table appearing in Capital Stock section. +5 +Key Attributes, Experience and Skills of Directors +R. Randall Rollins , 79, was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. Mr. Rollins serves as Chairman of the Board of the Company. He has held the position of Chairman of the Board since April 2003. He is also Chairman of the Board of Marine Products Corporation as well as Rollins, Inc. Mr. Rollins has been a director of Dover Motorsports, Inc. since 1996 and a director of Dover Downs Gaming & Entertainment Inc., since 2002. Mr. Rollins served as a director of SunTrust Banks, Inc. from 1995 to 2004. +Richard A. Hubbell , 66, was elected a Director of RPC in 1987. Mr. Hubbell has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. He has served as the President and Chief Executive Officer of the Company since 2003. Prior to 2003, Mr. Hubbell served as the President and Chief Operating Officer of the Company. Mr. Hubbell is also the President and Chief Executive Officer of Marine Products Corporation. +Gary W. Rollins, 66 , was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry. In addition, Mr. Rollins serves as the President and Chief Operating Officer of Rollins, Inc. Mr. Rollins has been serving as a director of Marine Products Corporation since 2001 and as a director of Rollins, Inc. since 1981. Mr. Rollins has served on the Board of Directors of Genuine Parts Company since 2005. +Henry B. Tippie , 84, was elected a Director of RPC in 1984. Mr. Tippie brings extensive financial and management experience to our Board of Directors serving as controller and chief financial officer of Rollins, Inc. from 1953 to 1970. Mr. Tippie has over 61 years of experience including being involved with publicly traded companies during the past 50 years in various positions including founder, CFO, CEO, President, Vice-Chairman and Chairman of the Board. He is currently Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. as well as Dover Motorsports, Inc. and is a director of Marine Products Corporation and Rollins, Inc. +Wilton Looney , 91, was elected a Director of RPC in 1984. Mr. Looney brings extensive financial and management experience to our Board of Directors serving as a Director for over 25 years. He is the Honorary Chairman of the Board of Genuine Parts Company. Mr. Looney has been a director of Rollins, Inc. since 1975. He has been a director of Marine Products Corporation since 2001. +James B. Williams , 77, was elected a Director of RPC in 1984. Mr. Williams brings extensive financial and management experience to our Board of Directors serving over 25 years as a Director. He retired in 1998 as Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc., a bank holding company, which positions he had held for more than five years. He is a director of Marine Products Corporation, Rollins, Inc. and The Coca-Cola Company. He also served as a director of Genuine Parts Company and Georgia Pacific Corporation during the past five years. +Bill J. Dismuke , 74, was elected a Director of RPC in 2005. Mr. Dismuke brings extensive financial, management and manufacturing experience to our Board of Directors. He served as a Senior Vice President of Rollins, Inc. for five years from 1979 until 1984. He retired as President of Edwards Baking Company in 1995. Mr. Dismuke has also been a director of Rollins, Inc. since 1984 and Marine Products Corporation since 2005. +Larry L. Prince , 72, was elected a Director of RPC in 2009. Mr. Prince brings extensive management experience to our Board of Directors. He serves as the Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company. He also served as Chairman of the Board from 1990 until 2005 and as Chief Executive Officer from 1989 until 2004 of Genuine Parts Company. Mr. Prince is also a director of SunTrust Banks, Inc., Rollins, Inc. and Marine Products Corporation. Mr. Prince previously served as a director of Crawford & Company, Equifax, Inc. and John H. Harland Company. +James A. Lane , Jr., 68, was elected a Director of RPC in 1984. Mr. Lane brings extensive financial, management and manufacturing experience to our Board of Directors. He has held the position of President of Chaparral Boats (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive Vice President and a director of Marine Products Corporation since it was spun off in 2001. +6 +Linda H. Graham , 74, was elected a Director of RPC in 2001. Ms. Graham brings extensive management experience to our Board of Directors. She has been the Vice President and Secretary of RPC since 1987. She also serves as the Vice President and Secretary of Marine Products Corporation. In addition, Ms. Graham serves as a director of Marine Products Corporation. +Our Board of Directors recommends a vote “FOR” the nominees listed above. +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2011. During fiscal 2010, Grant Thornton LLP served as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement. +Although the Company is not required to seek ratification of this appointment, the Audit Committee and the Board of Directors believes that it is appropriate to do so. If stockholders do not ratify the appointment of Grant Thornton LLP, the current appointment will stand, but the Audit Committee will consider the stockholder action in determining whether to retain Grant Thornton LLP as the Company’s independent registered public accounting firm. +Our Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the 2011 fiscal year. +PROPOSAL 3: APPROVE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK +The stockholders will be asked to vote on the approval of an amendment (“Amendment”) to the Company’s Certificate of Incorporation whereby the authorized capital stock of the Company would be increased from 160,000,000 to 350,000,000 shares. Authorized shares of common stock would be increased from 159,000,000 to 349,000,000 and authorized shares of preferred stock would remain at 1,000,000. There are currently no shares of preferred stock outstanding. The Amendment pertains only to the first paragraph of Article Fourth of the Certificate of Incorporation of the Company. As amended, such paragraph would be as follows: +“FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is three hundred fifty million (350,000,000), consisting of three hundred forty nine million (349,000,000) shares of Common Stock, par value ten cents ($0.10) per share (the “Common Stock”) and one million (1,000,000) shares of Preferred Stock, par value ten cents ($0.10) per share (the “Preferred Stock”).” +As of March 4, 2011, there were 147,961,162, shares of Common Stock outstanding and 11,038,838 shares of Common Stock available for issuance. The Company has 3,746,517 shares reserved for issuance under stock incentive plans. The Board of Directors has unanimously approved the Amendment and believes the Amendment is necessary in order to meet the Company’s business needs and to take advantage of potential future corporate opportunities. At present, there are no plans to issue any authorized shares, other than those reserved under the Company’s stock incentive plans. When the Company does issue authorized shares, unless required by New York Stock Exchange Rules and Regulations or Delaware law, the Company will not need stockholder approval. Under the Company’s Restated Certificate of Incorporation, holders of capital stock are not entitled to preemptive rights. +Our Board of Directors recommends a vote “FOR” approval of the Amendment. +It is expected that members of the Board of Directors and executive officers, and their affiliates, who own of record approximately 71 percent of the voting securities of the Company, will vote “FOR” approval of the Amendment. Since the affirmative vote of a majority of the outstanding Common Stock is required in order to approve the Amendment, the vote “FOR” approval of the Amendment by the stockholders who are members of the Board of Directors or executive officers would assure such approval. +7 +PROPOSAL 4: APPROVE THE PERFORMANCE-BASED INCENTIVE CASH COMPENSATION PLAN FOR THE EXECUTIVE OFFICERS +Background +The Internal Revenue Code limits the tax deduction for expense in connection with compensation of its chief executive officer and its four other most highly-compensated executive officers for any fiscal year to the extent that the remuneration of such person exceeds $1 million during such fiscal year, excluding remuneration that qualifies as “performance-based compensation.” Section 162(m) of the Internal Revenue Code provides that in order for remuneration to be treated as qualified performance-based compensation, the material terms of the performance goals must be disclosed to and approved by the stockholders of the employer. Material terms of a performance-based compensation plan include: (1) the employees eligible to participate in the plan, (2) the business criteria upon which the performance goals will be based, and (3) either the maximum dollar amount of compensation that is payable to an employee or the formula used to calculate the amount of compensation that is payable to an employee if the performance goals are met. With regard to stockholder approval, the 162(m) regulations further require that a company obtain stockholder approval of its performance-based compensation plan every five years following the last such approval or if the material terms of the plan, including performance goals, are changed in the interim. +Summary Description Of The Performance-Based Incentive Cash Compensation Plan +The following discussion summarizes the material terms, including performance objectives, of the Performance-Based Incentive Cash Compensation Plan (the “Plan”). +Plan Administration: The Plan is administered by the Compensation Committee of the Company’s Board of Directors. +Eligibility: The participants in the Plan are the executive officers of the Company who are annually designated as plan participants by the Compensation Committee. +Performance Goals: The Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +1. +Corporate Performance . The performance measures for corporate performance may be established based on such measures as stock price, market share, revenues, earnings per share, return on equity, return on average assets, return on invested capital, expense management, or other objective criteria. +2. +Business Unit/Function Performance . The performance measures for business unit/function performance may be established separately for each participant whose performance goals are based in whole or in part on business unit/function performance. Such performance measures may be based on such business criteria as achievement of financial or non-financial goals, safety record, training goals, or other objective criteria. +3. +Individual Performance . The performance measures for individual performance may be established separately for each participant whose performance goals are based in whole or in part on individual performance. Such performance measures may be based on such business criteria as process improvement, expense management, achievement of particular management objectives, or other objective criteria. +Cash Award Amounts: In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year. If the Participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Plan. This formula provides for a performance value (“Performance Value”) which ranges from: +8 +● +threshold performance level (with a performance value of 25 percent of the Target Award), +● +target performance level (with a performance value up to 100 percent of the Target Award), to +● +superior performance level (with a performance value up to 200 percent of the Target Award). +Subject to the limitations set forth in the next sentence, a participant’s cash award amount for each year under the Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation. The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year but in no event will a cash award amount exceed 200 percent of participants’ base compensation, or $2,000,000, whichever is less. +The Plan may be amended from time to time by the Board of Directors or the Compensation Committee. +It is not possible to currently determine the amounts payable under the performance-based incentive compensation plan for the year ending December 31, 2011 since they are dependent on the Company’s financial performance. However, the following table sets forth information regarding the theoretical maximum amounts that could have been earned by each of the following executives for the fiscal year ended December 31, 2010. +PLAN BENEFITS +MAXIMUM PERFORMANCE-BASED INCENTIVE CASH COMPENSATION FOR +RPC, INC. NAMED EXECUTIVE OFFICERS +Name and Position +Dollar Value of +Maximum 200% of +2010 Base Salary +($) (1) +Richard A. Hubbell +President and Chief Executive Officer +$ +1,400,000 +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +$ +500,000 +R. Randall Rollins +Chairman of the Board +$ +1,200,000 +Linda H. Graham +Vice President and Secretary +$ +330,000 +Executive Group +$ +3,430,000 +(1) +This illustration shows a maximum of 200% of base salary in bonus compensation. Actual 2010 bonus compensation was less than the amounts shown. +Our Board of Directors recommends a vote “FOR” approval of the performance-based incentive cash +compensation plan for the executive officers. +PROPOSAL 5: NONBINDING VOTE ON EXECUTIVE COMPENSATION +As required under the newly enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), our Board of Directors is submitting a “Say on Pay” proposal for stockholder consideration. While the vote on executive compensation is nonbinding and solely advisory in nature, our Board of Directors and the Compensation Committee value the opinion of our stockholders and will review the voting results and seek to determine the causes of any significant negative voting result to better understand issues and concerns not previously presented. Stockholders who want to communicate with the Board of Directors or management should refer to “Director Communications” on page 15 of this proxy statement for additional information. +9 +Executive compensation is an important matter for our stockholders. The core of our executive compensation philosophy and practice continues to be pay for performance. Our executive officers are compensated in a manner consistent with our strategy, competitive practice, sound corporate governance principles, and stockholder interests and concerns. We believe our compensation program is strongly aligned with the long-term interests of our stockholders. Compensation of our executive officers is designed to enable us to attract and retain talented and experienced senior executives to lead us successfully in a competitive environment. +Our named executive officers are identified on page 2, and the compensation of the named executive officers is described on pages 24 and 25 , including the Compensation Discussion and Analysis (“CD&A”) on pages 19 to 23 . The CD&A section of this proxy statement provides additional details on our executive compensation, including our compensation philosophy and objectives and the fiscal 2010 compensation of the named executive officers. +We are asking stockholders to vote on the following resolution: +“Resolved, that the stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and other related tables and narrative disclosures).” +As indicated above, the stockholder vote on this resolution will not be binding on us or the Board of Directors, and will not be construed as overruling any decision by us or the Board. The vote will not be construed to create or imply any change to our fiduciary duties or those of the Board, or to create or imply any additional fiduciary duties for us or the Board. +Our Board of Directors recommends a vote “FOR” the approval, on an advisory basis, of the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure. +PROPOSAL 6: NONBINDING VOTE REGARDING THE FREQUENCY OF VOTING ON EXECUTIVE COMPENSATION +Under the Dodd-Frank Act, we are also required to seek a nonbinding advisory stockholder vote regarding the frequency of submission to stockholders of a “Say on Pay” advisory vote such as Proposal 5. The Dodd-Frank Act specifies that stockholders be given the opportunity to vote on our executive compensation program either annually, every two years or every three years. Although this vote is advisory and nonbinding, our Board of Directors will review voting results and give serious consideration to the outcome of such voting. +Our Board of Directors recognizes the importance of receiving regular input from our stockholders on important issues such as our compensation programs. Our Board also believes that a well-structured compensation program should include plans that drive creation of stockholder value over the long-term, and that it should receive advisory input from our stockholders. Accordingly, as indicated below, the Board recommends that you vote in favor of a three year advisory vote on our compensation programs. +Stockholders may cast their vote on their preferred voting frequency by choosing the option of one year, two years, three years, or abstain from voting when voting in response to the resolution set forth below: +“Resolved that the option once every one year, two years or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold a stockholder vote to approve the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and other related tables and narrative disclosures).” +10 +The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation that has been selected by stockholders. However, as indicated above, the stockholder vote on this resolution will not be binding on us or the Board of Directors, and will not be construed as overruling any decision by us or the Board. The vote will not be construed to create or imply any change to our fiduciary duties or those of the Board, or to create or imply any additional fiduciary duties for us or the Board. +Our Board of Directors recommends a vote “FOR” the option of “Once Every Three Years” as the frequency with which stockholders are provided an advisory vote on executive compensation, as disclosed pursuant to the compensation disclosure rules of the SEC. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board Meetings +The Board of Directors met five times during the fiscal year ended December 31, 2010. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on which he or she served during 2010. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and all Board members were in attendance at last year’s meeting. +The Board of Directors has an Audit Committee, a Compensation Committee, a Diversity Committee and a Nominating and Governance Committee. +Below is a summary of our committee structure and membership information. +Committee Members +Audit +Committee +Compensation +Committee +Diversity +Committee +Nominating & +Governance +Committee +Executive +Committee +R. Randall Rollins (1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Wilton Looney (2) +Member +Member +Member +Member +James B. Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary W. Rollins +Member +(1) +Chairman of the Board of Directors +(2) +Financial Expert +Audit Committee +The Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit Committee held five meetings during the fiscal year ended December 31, 2010. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. Additionally, the Board of Directors has determined that the simultaneous service by Mr. James B. Williams on the Audit Committees of three other publicly traded companies does not impair his ability to effectively serve on the Audit Committee of RPC. The Audit Committee meets with the Company’s independent registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits and recommendations made with respect to controls over financial reporting and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Audit Committee charter is available on the Company’s website at www.rpc.net under the Governance section. +11 +Compensation Committee +The Compensation Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held three meetings during the fiscal year ended December 31, 2010. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the executive officers. The Compensation Committee also administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee does not have a formal charter, and is not required to have one under the “controlled company” exemption under the NYSE rules, as described in the section titled “Director Independence and NYSE Requirements” below. +Diversity Committee +The Diversity Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting during the fiscal year ended December 31, 2010. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +Nominating and Governance Committee +The Nominating and Governance Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, each of whom is independent, as discussed more fully under “Director Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant to a resolution passed by the Board of Directors for the following purposes: +● +to recommend to the Board of Directors nominees for director and to consider any nominations properly made by a stockholder; +● +upon request of the Board of Directors, to review and report to the Board with regard to matters of corporate governance; and +● +to make recommendations to the Board of Directors regarding the agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal year ended December 31, 2010. +Director Nominations +Under Delaware law, there are no statutory criteria or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee does not have a charter or a formal policy with regard to the consideration of director candidates. As such, there is no formal policy relative to diversity, although as noted below, it is one of many factors that the Nominating and Governance Committee has the discretion to factor into its decision making. This discretion would extend to how the Committee might define diversity in a particular instance – whether in terms of background, viewpoint, experience, education, race, gender, national origin or other considerations. The Committee acts under the guidance of the Corporate Governance Guidelines approved by the Board of Directors and posted on the Company’s website at www.rpc.net under the Governance section. The Board believes that it should preserve maximum flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s Corporate Governance Guidelines, the Board of Directors will be responsible for selecting nominees for election to the Board of Directors. The Board delegates the screening process to the Nominating and Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of the then current make-up of the Board. This determination takes into account all factors which the Committee considers appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other requirements related to the notice are contained in the Company’s Bylaws. The Committee will consider nominations from stockholders who satisfy these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the nominees for directors being voted upon, at the Annual Meeting to be held on April 26, 2011 are directors standing for re-election. +12 +Board Leadership +The Company has had separate persons serving as its Chairman of the Board and Chief Executive Officer since 2003. Mr. Randall Rollins is our Chairman and chairs our Board meetings. Mr. Richard Hubbell is our President and Chief Executive Officer. We believe that it represents the appropriate structure for us at this time; the Chairman of the Board provides general oversight and strategic planning for the Company while the President focuses on optimizing operational efficiencies. Many authorities on corporate governance are of the view that a company’s principal executive officer should not also be chairman of its board and that it is best to keep board leadership separate from operational management. +Risk Oversight by Board +Our Board’s oversight of risk has not been delegated to any Board Committee. “Risk” is an extremely broad concept that extends to multiple functional areas and crosses multiple disciplines. As such, risk may be addressed from time to time by the full Board or by one or more of our Committees. Senior management is responsible for identifying and managing material risks that we face while insurable risks and litigation risks are handled primarily by the risk management department. Senior management provides the Board with a summary of insurance coverage annually and updates as deemed necessary. Liquidity risk, credit risk and risks associated with our credit facilities and cash management are handled primarily by our finance department which regularly provides a financial report to both the Audit Committee and to the full Board. Operational, business, regulatory and political risks are handled primarily by senior executive management which regularly provides various operational reports to, among others, the full Board or to the Executive Committee. +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors, the majority of which are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. +The Company’s Audit Committee is composed of four “independent” directors as defined by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange Act, SEC regulations there under, and the Company’s Audit Committee Charter. All of the members of the Compensation, Diversity and Nominating and Governance Committees are also independent directors. The independent directors of the Company are Henry B. Tippie, Wilton Looney, James B. Williams, Bill J. Dismuke, and Larry L. Prince. +13 +Independence Guidelines +Under NYSE listing standards, to be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The NYSE standards set forth a nonexclusive list of relationships which are conclusively deemed material. +The Company’s Independence Guidelines (Appendix A to the Company’s Corporate Governance Guidelines) are posted on the Company’s website at www.rpc.net under the Governance section. These independence guidelines provide that to be independent, a director must not have any relationship that would be considered material under NYSE standards and that except in special circumstances as determined by a majority of the Board, the following relationships are not material: +(i) +If the director, or a member of the director’s immediate family, has received less than one hundred twenty thousand dollars (US $120,000) in direct compensation from the Company (other than director and committee fees and compensation for prior service which are not contingent in any way on continued services) during every 12 month period within the past three (3) years; +(ii) +If the director is a director or officer, or any member of the director’s immediate family is a director or officer of a bank to which the Company is indebted, and the total amount of the indebtedness does not exceed one percent (1%) of the total assets of the bank for any of the past three (3) years; +(iii) +If the director or any member of the director’s immediate family is an employee of a charitable or educational organization, and donations by the Company do not exceed the greater of one million dollars (US $1,000,000) or two percent (2%) of the organization’s consolidated gross revenues within the preceding three (3) years; +(iv) +If the director has a relationship with the Company of a type covered by item 404(a) and/or item 407 of the Securities and Exchange Commission’s Regulation S-K (or any successor regulation), and that relationship need not, according to the terms of those items and any then-current proxy regulations, be disclosed in the Company’s annual Proxy Statement (except for relationships described elsewhere in the Company’s guidelines in which case the other guidelines will govern); +(v) +If the director, or a member of the director’s immediate family, has direct or beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) of any amount of any class of common stock of the Company. +Audit Committee Charter +Under the Company’s Audit Committee Charter, in accordance with NYSE listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial Relationships +After reviewing all of the relationships between the members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee nor Mr. Prince had any relationships not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +1. +Mr. Tippie was employed by Rollins from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President – Finance, Secretary, Treasurer and Chief Financial Officer. Mr. Dismuke was employed by Rollins from 1979 to 1984 and held various offices within the company including Senior Vice President. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that has voting control of Rollins. +14 +2. +Mr. Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. and Dover Downs Gaming & Entertainment, Inc. Mr. Randall Rollins is also a director of these companies. +3. +Mr. Tippie is the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Messrs. Randall and Gary Rollins. +4. +Each of Messrs. Dismuke, Looney, Prince, Tippie and Williams also serve on the Boards of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held by a control group of which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is an executive officer of Marine Products. +5. +Mr. Prince is a director of Genuine Parts Company. Mr. Gary W. Rollins is also a director of Genuine Parts Company. +As required by the Independence Guidelines, the Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the independent directors, based on their experience, character and independent means, and therefore do not preclude an independence determination. All of the members are also independent under the heightened standards required for Audit Committee members. +In accordance with the NYSE corporate governance listing standards, Mr. Henry B. Tippie was elected as the Presiding Director. The Company’s non-management directors meet at regularly scheduled executive sessions without management. Mr. Tippie presides during these executive sessions. +Corporate Governance Guidelines +We have adopted Corporate Governance Guidelines to promote better understanding of our policies and procedures. At least annually, the Board reviews these guidelines. As required by the rules of the New York Stock Exchange, our Corporate Governance Guidelines require that our non-management directors meet in at least two regularly scheduled executive sessions per year without management. +At the Company’s website at www.rpc.net, under the Governance section, you may access a copy of our Corporate Governance Guidelines, our Audit Committee Charter, our Code of Business Conduct and our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy. +Code of Business Conduct +The Company has adopted a Code of Business Conduct applicable to all directors, officers and employees generally, as well as a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to the principal executive officer, principal financial officer, and directors. Both codes are available on the Company’s website at www.rpc.net under the Governance section. +Director Communications +The Company also has a process for interested parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, Inc. +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +15 +The above instructions for communications with the directors are also posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the appropriate addressee(s). +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company’s Compensation Committee are or have ever been an employee of the Company. There are no Compensation Committee interlocks requiring disclosure. +16 +DIRECTOR COMPENSATION +The following table sets forth compensation to the Company’s directors for services rendered as a director for 2010. Three of the directors, Messrs. R. Randall Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their compensation is set forth in the Summary Compensation Table under Executive Compensation. The directors listed below have never been employed by the Company or paid a salary or bonus by the Company, have never been granted any options or other stock-based awards, and do not participate in any Company sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who was an employee of the Company until the spin-off of Marine Products in 2001. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry B. Tippie +93,250 +— +— +93,250 +James B. Williams +50,250 +— +— +50,250 +Wilton Looney +50,250 +— +— +50,250 +Bill J. Dismuke +42,750 +— +— +42,750 +Gary W. Rollins +31,500 +— +— +31,500 +James A. Lane, Jr. +31,500 +— +— +31,500 +Larry L. Prince +31,500 +— +— +31,500 +(1) +Directors are eligible for grants of stock awards under the Company’s 2004 Stock Incentive Plan (“SIP”). No stock awards have been granted to the non-management directors under the 2004 SIP. +Directors that are our employees do not receive additional compensation for services rendered as a director. +Under current compensation arrangements effective January 1, 2011, non-management directors each receive an annual retainer fee of $26,000. In addition, the Chairman of the Audit Committee receives an annual retainer of $20,000, the Chairman of the Compensation Committee receives an annual retainer of $10,000, and the Chairman of each of the Nominating and Governance Committee and Diversity Committee receives an annual retainer of $6,000. A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a quarterly basis. Per meeting fees for non-management directors are as follows: +● +For meetings of the Board of Directors, $2,000 and for meetings of the Compensation Committee, Diversity Committee and Nominating and Governance Committee, $1,500. +● +For meetings of the Audit Committee either in person or over the telephone, $2,500. In addition, the Chairman of the Audit Committee receives an additional $2,000 for preparing to conduct each quarterly Board and Board Committee meetings. +All non-management directors are also entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. +Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that might incorporate future filings, including the Proxy Statement, in whole or in part, the Report of the Audit Committee shall not be incorporated by reference into any such filings. +17 +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s internal controls, assessing the effectiveness of these controls and the financial reporting process. The Company’s independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +In fulfilling its oversight responsibilities with respect to the year ended December 31, 2010, the Audit Committee: +● +Approved the terms of engagement of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2010; +● +Reviewed with management the interim financial information included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management and the Company’s independent registered public accounting firm prior to their release; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm the audited consolidated financial statements of the Company as of December 31, 2010 and 2009 and for the three years ended December 31, 2010; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm, management’s assessment that the Company maintained effective control over financial reporting as of December 31, 2010; +● +Discussed with the independent registered public accounting firm matters required to be discussed by the American Institute of Certified Public Accountants Statement on Auditing Standards (“SAS”) No. 61, “Communications with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board; and +● +Received from the independent registered public accounting firm the written disclosures and the letter in accordance with the requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Committee concerning independence, and discussed with such firm its independence from the Company. +Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of December 31, 2010 and 2009 and for the three years ended December 31, 2010 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 and for filing with the Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s independent registered public accounting firm with respect to such financial statements. +Submitted by the Audit Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +Bill J. Dismuke +18 +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Committee +During the fiscal year ended December 31, 2010, the members of our Compensation Committee held primary responsibility for determining executive compensation levels. The Committee is composed of three of our non-management directors who do not participate in the Company’s compensation plans. The Committee determines the compensation and administers the performance-based incentive cash compensation plan for our executive officers. In addition, the Committee also administers our Stock Incentive Plan for all the employees. +The members of our Compensation Committee have extensive and varied experience with various public and private corporations - as investors and stockholders, as senior executives, and as directors charged with the oversight of management and the setting of executive compensation levels. Henry B. Tippie, the Chairman of the Compensation Committee, has served on the board of directors of twelve different publicly traded companies and has been involved in setting executive compensation levels at all of these companies. Messrs. Wilton Looney and James B. Williams have served on the board of directors of several different publicly traded companies and have similarly been involved in setting executive compensation levels at many of these companies. +The Compensation Committee has authority to engage attorneys, accountants and consultants, including executive compensation consultants, to solicit input from management concerning compensation matters, and to delegate any of its responsibilities to one or more directors or members of management where it deems such delegation appropriate and permitted under applicable law. The Committee has not used the services of any compensation consultants in determining or recommending the amount or form of executive compensation. +The Compensation Committee believes that determinations relative to executive compensation levels are best left to the discretion of the Committee. In addition to the extensive experience and expertise of the Committee’s members and their familiarity with the Company’s performance and the performance of our executive officers, the Committee is able to draw on the experience of other Directors and on various legal and accounting executives employed by the Company, and the Committee has access to readily available public information relative to structuring executive compensation programs and setting appropriate compensation levels. The Committee also believes that the structure of our executive compensation programs should not become overly complicated or difficult to understand. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. +General Compensation Objectives and Guidelines +The Company is engaged in a highly competitive industry. The success of the Company depends on its ability to attract and retain highly qualified and motivated executives. In order to accomplish this objective, the Company structures the executive compensation in a fashion that takes into account the Company’s overall performance and the individual performance of the executive. +The Compensation Committee endorses the philosophy that executive compensation should reflect Company performance and the contribution of executive officers to that performance. The Company’s compensation policy is designed to achieve three fundamental objectives: (i) attract and retain qualified executives, (ii) motivate performance to achieve Company objectives, and (iii) align the interests of our executives with the long-term interests of the Company’s stockholders. The Committee recognizes that there are many intangibles involved in evaluating performance and in motivating performance, and that determining an appropriate compensation level is a highly subjective endeavor. The analysis of the Committee is not based upon a structured formula and the objectives referred to above are not weighted in any formal manner. +19 +The Company’s executive officers are also executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee also constitute the Compensation Committee of Marine Products. In determining the compensation for the executive officers at the Company, the Committee considers these dual responsibilities and sources of compensation. The Company sets compensation of its executives at such levels so that the aggregate compensation received from both Marine Products and the Company is reasonable in light of their respective responsibilities and the performance of both companies, and so that the compensation from the Company for services solely to the Company is reasonable. A discussion of the Company’s executive officers’ compensation at Marine Products is contained in its annual Proxy Statement filed with the SEC. During the year, none of the executive officers made recommendations or otherwise contributed input on their own compensation. However, the Compensation Committee may from time to time solicit input from the Chairman when reviewing executive compensation. +Pursuant to the Company’s compensation philosophy, the total annual compensation of its executive officers is primarily made up of base salary, performance-based incentive cash compensation and stock-based incentive compensation. In addition, the Company provides retirement compensation plans, group welfare benefits and certain perquisites. +We believe a competitive base salary is important to attract, retain and motivate top executives. We believe a performance-based incentive cash compensation plan is valuable in recognizing and rewarding individual achievement. Finally, we believe stock-based incentives make executives “think like owners” and, therefore, align their interests with those of our stockholders. +The Company does not have any formal stock ownership requirements for its executive officers but notes that its current directors and executive officers are stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. The Company is mindful of the stock ownership of our directors and executive officers but does not believe that it is appropriate to provide a mechanism or formula to take stock ownership (or gains from prior option or stock awards) into account when setting compensation levels. The Company provides in its insider trading policies that directors and executive officers may not sell Company securities short and may not sell puts, calls or other derivative securities tied to our Common Stock. +The Company does not have a formal policy relative to the adjustment or recovery of incentives or awards in the event that the performance measures upon which incentives or awards were based are later restated or otherwise adjusted in a manner that would have reduced the size of an incentive or award. However, as all incentives and awards remain within the discretion of the Compensation Committee, the Committee retains the ability to take any such restatements or adjustments into account in subsequent years. In addition, the Sarbanes-Oxley Act requires in the case of accounting restatements that result from material non-compliance with SEC financial reporting requirements, that Chief Executive Officers and Chief Financial Officers must disgorge bonuses and other incentive-based compensation and profits on stock sales, if the non-compliance results from misconduct. +Base Salary +The salary of each executive officer is determined by the Compensation Committee. In making its determinations, the Committee gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by Marine Products. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. During 2009, in light of the difficult operating environment faced by the Company, the executive officers voluntarily reduced their base salaries by 15 percent. During 2010, in light of the improved performance of the Company, the base salaries of the executive officers were restored to the following amounts, effective April 16, 2010: Mr. Richard A. Hubbell: $700,000; Mr. Ben M. Palmer: $250,000; Mr. Randall Rollins: $600,000; and Ms. Linda H. Graham: $165,000. On January 26, 2011, the Committee approved for its executive officers the following base salaries for 2011: Mr. Richard A. Hubbell: $800,000; Mr. Ben M. Palmer: $300,000; Mr. R. Randall Rollins: $700,000; and Ms. Linda H. Graham: $200,000. These increases were subjectively based on growth in revenues, recent profit performance of the Company and return on invested capital. +Performance-Based Incentive Cash Compensation +The Company implemented the Performance-Based Incentive Cash Compensation Plan (the “Management Incentive Plan”) for the executive officers in 2006. Under the Management Incentive Plan, the Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +20 +In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Management Incentive Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year. If the participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Management Incentive Plan. This formula provides for a performance value (“Performance Value”) which ranges from: +● +threshold performance level (with a Performance Value of 25 percent of the Target Award), +● +target performance level (with a Performance Value up to 100 percent of the Target Award), to +● +superior performance level (with a Performance Value up to 200 percent of the Target Award). +Subject to the limitations set forth below, a participant’s cash award amount for each year under the Management Incentive Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation. The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year. +For 2010, the Compensation Committee established the target incentive award under the Management Incentive Plan for the Chief Executive Officer and for the other members of executive management at the amounts shown in the table below. The target awards that could be earned under the Management Incentive Plan for 2010 were the same as for the prior year. +Executive Officer +Target Award as a +percentage of base salary +Richard A. Hubbell +President and Chief Executive Officer +100 +% +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +100 +% +R. Randall Rollins +Chairman of the Board +100 +% +Linda H. Graham +Vice President and Secretary +40 +% +The maximum bonus award for each participant under the Plan for 2010 and prior years was established at 150 percent of such participant’s base salary. The performance criteria applicable to the participants under the Management Incentive Plan for 2010 were determined based solely on corporate performance. The Compensation Committee established corporate performance goals for 2010 under the Management Incentive Plan based on cash flow return on invested capital. Return on invested capital (“ROIC”) is a widely used financial performance measure that typically correlates with long term change in stockholder value. The Company has used ROIC as the sole performance goal under the Management Incentive Plan for several years. ROIC is computed as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to invested capital. Invested capital is generally equal to the aggregate of stockholders’ equity, accumulated depreciation and other long-term liabilities. For 2010, the target performance goal established by the Committee is in excess of the comparable historical average ROIC of our peers, is in excess of the Company’s weighted average cost of capital, and is an amount which the Committee believes represents outstanding financial performance. Under the Management Incentive Plan, the Company must achieve at least 80 percent of the target performance goal for executive officers to be eligible for any bonus award. Bonus awards under the Management Incentive Plan are determined on a sliding scale between the threshold performance level and a superior performance level, which corresponds to 175 percent of the target performance goal. To be eligible for the bonus award under the Management Incentive Plan, the ROIC must be in the range of 16 percent to 35 percent. The Company has consistently followed the same method to compute ROIC, and the Compensation Committee has not exercised discretion to waive the performance goals based on difficult industry conditions or other factors. +21 +The Company operates in a cyclical business where financial performance is influenced by changes in oil and natural gas prices. The Company generated ROIC that resulted in 164 percent of the target award in 2010, zero percent of the target award in 2009 and 143 percent of the target award in 2008. The level of performance achieved had been trending downward in prior years until a significant improvement in 2010 consistent with the cyclical nature of industry performance and the performance of our peers. +For 2010, the executive officers earned awards that were higher than target but lower than the superior performance level which qualified the officers to receive bonus awards up to 164 percent of the target incentive award, limited to 150 percent of base compensation. Performance-based incentive cash compensation earned under the Management Incentive Plan for 2010 was as follows: Mr. Richard A. Hubbell: $1,050,000; Mr. Ben M. Palmer: $375,000; Mr. R. Randall Rollins: $900,000 and Ms. Linda H. Graham: $108,240. For 2011, the target awards, performance goal and maximum awards were established at the same levels as 2010. +Stock Based Incentive Plans +Our Stock Incentive Plan allows for a wide variety of stock based awards such as stock options and restricted stock. We last issued stock options in the fiscal year ended 2003 and have no current plans to issue additional stock options. We have never issued any stock appreciation rights. Partially in response to changes relative to the manner in which stock options are accounted for under generally accepted accounting principles, we have modified the structure and composition of the long-term equity based component of our executive compensation. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. The terms and conditions of these awards are described in more detail below. +Awards under the Company’s Stock Incentive Plan are purely discretionary, are not based upon any specific formula and may or may not be granted in any given fiscal year. For the past three years, we have granted time-based restricted stock to various employees, including our executive officers, in early January during our regularly scheduled meetings of the Compensation Committee during which the Committee reviews executive compensation. Consistent with this practice, we granted restricted stock awards to our executive officers in January 2011, 2010 and 2009 as follows: +Name +2011 +2010 +2009 +Richard A. Hubbell +50,000 +37,500 +45,000 +Ben M. Palmer +30,000 +24,000 +30,000 +R. Randall Rollins +50,000 +37,500 +45,000 +Linda H. Graham +15,000 +12,000 +15,000 +The amount of the aggregate stock based awards to our executive officers in any given year is influenced by the Company’s overall performance. The amount of each grant to our executive officers is influenced in part by the Committee’s subjective assessment of each individual’s respective contributions to achievement of the Company’s long-term goals and objectives. In evaluating individual performance for these purposes, the Committee considers the overall contributions of executive management as a group and the Committee’s subjective assessment of each individual’s relative contribution to that performance rather than specific aspects of each individual’s performance over a short-term period. It is our expectation to continue yearly grants of restricted stock awards although we reserve the right to modify or discontinue this or any of our other compensation practices at any time. +All of our restricted stock awards granted since 2004 have had the same features. The shares vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. In the event of a “change in control” of the Company, the Compensation Committee has the discretion to accelerate vesting of the shares. +Grants are made under our Stock Incentive Plan and the plan is administered pursuant to Rule 16b-3 of the Securities Exchange Act of 1934. +22 +Employment Agreements +There are no agreements or understandings between the Company and any executive officer which guarantee continued employment or guarantee any level of compensation, including incentive or bonus payments, to the executive officer. +Retirement Plans +The Company maintains a defined benefit pension plan (called the Retirement Income Plan) for all our eligible employees, a non-qualified supplemental retirement plan for our executives and certain other highly compensated employees and a 401(k) Plan for the benefit of all regular full time employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. In lieu thereof, beginning in 2002, the Company began providing enhanced benefits in the form of cash contributions on behalf of certain long-service employees who were 40 to 65 years of age on or before December 31, 2002. These enhanced benefit contributions were discretionary and were made annually, subject to a participant’s continued employment, for a maximum of seven years. The contributions were made either to the non-qualified Supplemental Retirement Plan (“SRP”) or to the 401(k) Plan for each employee who is entitled to the enhanced benefits. The Company contributed $26,262 towards enhanced benefits for Mr. Hubbell in 2008, which completed all the scheduled contributions. Beginning late in 2002, the Company began permitting selected highly compensated employees to defer a portion of their compensation into the SRP. +Other Compensation +Other compensation to our executives includes typical employee benefits such as group medical, dental and vision coverage and group life insurance. The Company provides an automobile (or an automobile allowance) to Messrs. Richard A. Hubbell and Ben M. Palmer. +The following Compensation Committee Report shall not be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed the above “Compensation Discussion and Analysis” with management. +Based upon this review and discussion, we have recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement. +Submitted by the Compensation Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all directors, officers and greater than 10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all directors, officers and greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2010 have been satisfied. +23 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2010, 2009 and 2008 of those persons who were at December 31, 2010, +● +our Principal Executive Officer and Principal Financial Officer; and +● +our two other executive officers: +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Stock +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +($) (2) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +($) (3) +All Other +Compensation +($) (4) +Total ($) +Richard A. Hubbell +2010 +669,375 +307,875 +1,050,000 +25,030 +14,302 +2,066,582 +President and +2009 +625,624 +256,500 +— +54,180 +12,910 +949,214 +Chief Executive Officer +2008 +700,000 +196,200 +1,001,000 +13,990 +39,550 +1,950,740 +Ben M. Palmer +2010 +239,063 +197,040 +375,000 +4,920 +18,120 +834,141 +Vice President, +2009 +223,437 +171,000 +— +8,890 +19,110 +422,437 +Chief Financial Officer +2008 +250,000 +98,100 +357,500 +— +19,740 +725,340 +and Treasurer +R. Randall Rollins +2010 +573,750 +307,875 +900,000 +25,970 +— +1,807,595 +Chairman of the Board +2009 +536,250 +256,500 +— +48,310 +— +841,060 +2008 +600,000 +196,200 +858,000 +555,860 +— +2,210,060 +Linda H. Graham +2010 +157,781 +98,520 +108,240 +7,410 +3,550 +375,501 +Vice President and Secretary +2009 +147,469 +85,500 +— +11,740 +5,020 +249,729 +2008 +165,000 +49,050 +94,050 +199,510 +4,650 +512,260 +(1) +Represents the fair value of the award at the date of grant computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2010 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. +(2) +Bonuses under the Management Incentive Plan are accrued in the fiscal year earned and paid in the following fiscal year. +(3) +Change represents impact of change in discount rate only as no additional benefits are being accrued. The actuarial present value of Mr. Ben Palmer’s accumulated benefit under the defined benefit plan decreased during 2008 by approximately $1,600. +(4) +All other compensation for 2010 includes the following items for: +Mr. Richard A. Hubbell: +Insurance on automobile provided by the Company, cost of dining club dues, cost of gasoline for personal automobile, and 401(k) Plan Company match of $8,250. +Mr. Ben M. Palmer: +Automobile allowance, cost of gasoline for personal automobile and 401(k) Plan Company match of $6,625. +Ms. Linda H. Graham: +401(k) Plan Company match of $3,550. +24 +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +Under Non-Equity +Incentive Plan Awards (1) +All Other +Stock Awards: +Number of Shares +of Stock or Units +(#) +Grant Date +Fair Value +of Stock and Option Awards ($) (2) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Mr. Richard A. Hubbell +1/26/10 +175,000 +700,000 +1,050,000 +1/26/10 +37,500 +307,875 +Mr. Ben M. Palmer +1/26/10 +62,500 +250,000 +375,000 +1/26/10 +24,000 +197,040 +Mr. R. Randall Rollins +1/26/10 +150,000 +600,000 +900,000 +1/26/10 +37,500 +307,875 +Ms. Linda H. Graham +1/26/10 +16,500 +66,000 +132,000 +1/26/10 +12,000 +98,520 +(1) +These amounts illustrate the potential bonus awards under the Management Incentive Plan for 2010 that were paid out in early 2011. See Summary Compensation Table on page 24 for actual amounts awarded in 2010. +(2) +These amounts represent aggregate grant date fair value for grants of restricted shares of Common Stock awarded in fiscal year 2010 under our Stock Incentive Plan computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2010 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. Our Form 10- K has been included in our Annual Report and provided to our stockholders. +The table above reflects grants of restricted shares of Company Common Stock under our Stock Incentive Plan awarded in fiscal year 2010. All grants of restricted shares of Common Stock vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. +The Company’s employment contracts with its Chief Executive Officer and the Company’s other executive officers are oral, at will arrangements. All of the executive officers are eligible for annual cash bonuses which are awarded under the Management Incentive Plan. The Compensation Committee’s decisions are based upon broad performance objectives under that plan. The executive officers are eligible to receive shares of Company Common Stock subject to options and restricted shares of Company Common Stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the Compensation Committee at the time of grant. All of the executive officers are eligible to participate in the Company’s SRP. The executive officers are eligible to participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical and dental coverage, vision and other group benefit plans. All of the executive officers are eligible for the Retirement Income Plan that was frozen in March 2002. For more information on these plans, see “Compensation Discussion and Analysis” at page 19, and “Benefit Plans” at page 28 . +25 +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The table below sets forth details concerning outstanding option awards made in prior years to the executives named in our Summary Compensation Table, including the grant date, the expiration date, the option exercise price, and the number of shares of Common Stock underlying the grants both exercisable and un-exercisable. The grant dates for all of these options are from fiscal year 2003 and earlier since we have not issued any stock options after 2003. The table below also sets forth the total number of restricted shares of Common Stock that were granted in prior years to the executives named in our Summary Compensation Table but which have not yet vested, together with the market value of these unvested shares based on the $18.12 closing price of our Common Stock on December 31, 2010. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Expiration +Date (1) +Number of +Shares or +Units of Stock +That Have Not +Vested (#) +Market Value +of Shares or +Units of Stock +That Have +Not Vested ($) +Richard A. Hubbell +253,122 +— +2.59 +4/24/2011 +(2) +154,650 +(4) +2,802,260 +126,562 +— +1.87 +1/28/2013 +(3) +Ben M. Palmer +— +— +— +— +126,468 +(4) +2,291,600 +R. Randall Rollins +— +— +— +— +142,500 +(4) +2,582,100 +Linda H. Graham +25,312 +— +2.59 +4/24/2011 +(2) +47,062 +(4) +852,760 +50,625 +— +1.87 +1/28/2013 +(3) +(1) +Unless otherwise noted, all options have ten year terms with vesting as follows: The options vest one-fifth per year beginning on the first anniversary of the grant date. +(2) +Options granted April 24, 2001. +(3) +Options granted January 28, 2003. +(4) +The Company has granted employees two forms of restricted stock: time lapse restricted and performance restricted. Time lapse restricted shares vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued in years 2003 and prior vest after ten years. Time lapse restricted shares issued starting in 2004 vest one-fifth per year beginning on the second anniversary of the grant date. The performance restricted shares are granted, but not earned and issued until certain five-year tiered performance criteria are met. The performance criteria are predetermined market prices of RPC common stock. On the date the common stock appreciates to each level (determination date), 20 percent of performance shares are earned. Once earned, the performance shares vest five years from the determination date. The Company has not granted performance restricted shares since 2003. Shares of restricted stock granted to the executive officers that have not vested as of December 31, 2010 are summarized in the table that follows: +26 +Number of shares +Grant d ate +Date fully vested +Richard A. Hubbell +12,150 +1/25/2005 +1/25/2011 +18,000 +1/24/2006 +1/24/2012 +18,000 +1/23/2007 +1/23/2013 +24,000 +1/22/2008 +1/22/2014 +45,000 +1/27/2009 +1/27/2015 +37,500 +1/26/2010 +1/26/2016 +Ben M. Palmer +37,968 +4/24/2001 +4/24/2011 +8,100 +1/25/2005 +1/25/2011 +7,200 +1/24/2006 +1/24/2012 +7,200 +1/23/2007 +1/23/2013 +12,000 +1/22/2008 +1/22/2014 +30,000 +1/27/2009 +1/27/2015 +24,000 +1/26/2010 +1/26/2016 +R. Randall Rollins +18,000 +1/24/2006 +1/24/2012 +18,000 +1/23/2007 +1/23/2013 +24,000 +1/22/2008 +1/22/2014 +45,000 +1/27/2009 +1/27/2015 +37,500 +1/26/2010 +1/26/2016 +Linda H. Graham +5,062 +1/25/2005 +1/25/2011 +4,500 +1/24/2006 +1/24/2012 +4,000 +1/23/2007 +1/23/2013 +6,000 +1/22/2008 +1/22/2014 +15,000 +1/27/2009 +1/27/2015 +12,000 +1/26/2010 +1/26/2016 +OPTION EXERCISES AND STOCK VESTED +The following table sets forth: +● +the number of shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the exercise of stock options during the fiscal year ended December 31, 2010; +● +the aggregate dollar amount realized on the exercise date for such options computed by multiplying the number of shares acquired by the difference between the market value of the shares on the exercise date and the exercise price of the options; +● +the number of restricted shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the vesting of shares during the fiscal year ended December 31, 2010; and +● +the aggregate dollar amount realized on the vesting date for such restricted stock computed by multiplying the number of shares which vested by the market value of the shares on the vesting date. +Option Awards (1) +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Richard A. Hubbell +— +—- +53,400 +435,995 +Ben M. Palmer +— +— +40,389 +319,660 +R. Randall Rollins +— +— +41,250 +338,390 +Linda H. Graham +— +— +15,374 +125,270 +(1) +The shares acquired on exercise of options are restricted for a period of one year from the date of exercise. +27 +BENEFIT PLANS +The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Income Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Information regarding the Retirement Income Plan can be found under Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2010. +Pension Benefits +Name +Plan Name +Number of +Years Credited +Service (#) (1) +Present +Value of +Accumulated +Benefit +($) +Payments During +Last Fiscal Year +($) +Mr. Richard A. Hubbell +Retirement Income Plan +15 +464,750 +38,790 +Mr. Ben M. Palmer +Retirement Income Plan +4 +44,040 +— +Mr. R. Randall Rollins +Retirement Income Plan +30 +2,450,230 +261,600 +Ms. Linda H. Graham +Retirement Income Plan +15 +450,750 +48,710 +(1) +The difference in years of credited and actual service is due to the freezing of benefit accruals in 2002. See discussion below for further details. +The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately preceding March 31, 2002. The benefits are computed as the product of 1.5 percent of final average compensation multiplied by years of credited service (up to 30 years) reduced by an adjustment for benefits drawn from social security. Adjustments have been made for age and IRS mandated compensation limitations. The final average compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is $127,325. +The annual benefit payable at the later of retirement age or 65 for the named executive officers is $261,600 for Mr. Rollins, $41,400 for Mr. Hubbell, $24,900 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2010 was $195,000. Retirement benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum compensation limit. +The Plan also provides reduced early retirement benefits at age 55 or older with 15 or more years of service. Ms. Graham and Mr. Hubbell are voluntarily receiving distributions from the plan even though they have not retired from the Company. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distribution received during 2010 has been disclosed in the table above and is not subject to change after retirement. +In 2002, the Company began providing additional benefits on behalf of certain long-service employees in the form of discretionary cash contributions made either to the Company’s 401(k) Plan (which is described below) or the SRP as described in the section below titled “Nonqualified Deferred Compensation.” Amounts contributed by the Company to the accounts of the executive officers are reported in the “All Other Compensation” column of the Summary Compensation Table on page 24 . +28 +401(k) Plan +Effective July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax contribution account for any reason after attaining age 59 1 / 2 . In addition, a participant may withdraw any amount from his or her rollover account for any reason. Amounts contributed by the Company to the accounts of the named executive officers under this plan are reported in the “All Other Compensation” column of the Summary Compensation Table on page 24 . +NONQUALIFIED DEFERRED COMPENSATION +The SRP has been established as a nonqualified plan that is designed to comply with the provisions of the American Jobs Creation Act of 2004 (including Section 409A of the Internal Revenue Code) for the cash contributions made to certain longer serviced employees in lieu of freezing of benefit accruals effective in 2002; the SRP also has a compensation deferral option for eligible employees. The contributions and deferrals to the SRP are invested in funds held in a rabbi trust. +Name +Executive +Contributions in +last FY ($) (1) +Registrant +contributions in +last FY ($) (2) +Aggregate +earnings in last +FY ($) +Aggregate +withdrawals/ +distributions ($) +Aggregate +balance at last +FYE ($) +Richard A. Hubbell +— +— +25,008 +— +234,288 +Ben M. Palmer +19,370 +— +19,401 +(36,681 +) +152,365 +R. Randall Rollins +— +— +— +— +— +Linda H. Graham +39,445 +— +59,017 +— +565,532 +(1) +Includes the following amounts related to the base salary for 2010 which have been deferred by the executive officer pursuant to the SRP and which are included in the Summary Compensation Table: Mr. Ben M. Palmer: $19,370 and Ms. Linda H. Graham: $39,445. There were no deferrals of bonus compensation in 2010. +(2) +Reflects the amounts for each of the named executive officers which are reported as compensation to such named executive officer in the “All Other Compensation” column of the Summary Compensation Table on page 24 . +The deferral option provides that participants may defer up to 50 percent of their base salary and up to 100 percent of their annual bonus with respect to any given plan year, subject to a $2,000 per plan year minimum. The deferred amounts are voluntarily funded on a monthly basis; salary and bonus deferrals are generally 100 percent vested. Accounts are credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and contributions had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. The benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company’s obligations under the SRP exceed assets available under the trust, the Company would be required to seek additional funding sources to fund its liability under the SRP. +Generally, the SRP provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of base salary and bonus compensation (but not Company contributions), participants are entitled to designate a distribution date which is prior to a Termination Event. The SRP allows a participant to elect to receive distributions in installments or lump-sum payments. +29 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. There are no other agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment except as described below. Additional payments or benefits to a terminating executive officer would be at the discretion of the Compensation Committee. +The executive officers are not entitled to additional benefits at death or disability per the terms of the defined benefit plan. The amounts payable at retirement are disclosed in the “Benefit Plans” section on page 28 . The executive officers can choose to receive the amounts accumulated in the SRP either as a lump-sum or in installments at retirement, death or disability. These amounts have been disclosed under the “Nonqualified Deferred Compensation” section on page 29 . The table below shows the incremental restricted shares that would become vested as of December 31, 2010 at the closing market price of $18.12 per share for our Common Stock, as of that date in the case of retirement, death or disability. +Stock Awards +Number of shares +underlying unvested +stock (#) +Unrealized value of +unvested stock ($) +Richard A. Hubbell +● +Retirement +70,252 +1,272,970 +● +Disability +70,252 +1,272,970 +● +Death +70,252 +1,272,970 +Ben M. Palmer +● +Retirement +— +— +● +Disability +74,373 +1,347,640 +● +Death +74,373 +1,347,640 +R. Randall Rollins +● +Retirement +58,271 +1,055,870 +● +Disability +58,271 +1,055,870 +● +Death +58,271 +1,055,870 +Linda H. Graham +● +Retirement +21,158 +383,380 +● +Disability +21,158 +383,380 +● +Death +21,158 +383,380 +Accrued Pay and Regular Retirement Benefits +The amounts shown in the table above do not include the following since they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: +● +Accrued salary and vacation pay. +● +Distributions of plan balances under the 401(k) Plan. +● +The value of option continuation upon termination, as described below. When an employee terminates prior to retirement, his or her stock options are terminated immediately, except that the options may be exercised for a period after termination (not to exceed the original option termination date) in the following circumstances: +→ +Permanent Disability – one year after termination +→ +Death – six months after the date of death +→ +Normal or Early Retirement – one day less than three months after retirement +30 +The termination of employment for any reason shall not accelerate the vesting of options. +Pension Benefit and Deferred Compensation +The Retirement Income Plan does not provide for lump sum payments for a participant including executive officers for instances other than retirement. The Retirement Income Plan is described at “Pension Benefits” above. Upon termination, the executive officers will receive a distribution of the balance in their SRP account. These amounts are disclosed under the “Nonqualified Deferred Compensation” section on page 29 . +Change in Control or Severance +The Company does not have any change in control or severance arrangements for its executive officers. However, amounts may be paid at the discretion of the Compensation Committee. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $689,000 in 2010. +During 2010, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2010, payments totaling approximately $551,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $94,000 in 2010. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a Director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Governance Committee. As set forth in our Code, our Nominating and Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2010 were reviewed, approved and/or ratified by the Nominating and Governance Committee in accordance with the Code. +31 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Principal Auditor +Grant Thornton LLP (“Grant Thornton”) served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2010 and 2009. +The Audit Committee has appointed Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2011. Grant Thornton has served as the Company’s independent auditors for many years and is considered by management to be well qualified. Representatives of Grant Thornton are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. +Aggregate fees billed by the Company’s independent registered public accounting firm are set forth below: +2010 +2009 +Audit fees and quarterly reviews (1) +$ +829,950 +$ +824,370 +Audit related fees +— +— +Tax fees +— +— +All other fees +— +— +(1) +Audit fees include fees for audit or review services in accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the Sarbanes-Oxley Act. +Pre-approval of Services +All of the services described above were pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public accounting firm for these services are compatible with maintaining such auditors’ independence. All of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for the year 2010 was attributable to work performed by full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accounting firm and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its next scheduled meeting. The Audit Committee has no other pre-approval policies. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company’s 2012 Annual Meeting of the Stockholders must be received by the Company by November 17, 2011, in order to be included, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, management proxy holders intend to use their discretionary voting authority with respect to any stockholder proposal raised at the Company’s 2011 Annual Meeting as to which the proponent fails to notify the Company on or before January 31, 2011. With regard to such stockholder proposals, if the date of the next Annual Meeting of the Stockholders is advanced or delayed more than 30 calendar days from April 24, 2012, the Company will, in a timely manner, inform its stockholders of the change and of the date by which such proposals must be received. +32 +With respect to stockholder nomination of directors, the Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s Bylaws. Notices of nominations must be received by the Secretary of the Company no later than January 27, 2012 with respect to directors to be elected at the 2012 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +The Company will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to their beneficial stockholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of approximately $20,500 including shipping expenses. +MISCELLANEOUS +The Company’s Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, without exhibits, is being mailed to stockholders with this Proxy Statement. +Upon the written request of any record or beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2011 Annual Meeting of Stockholders, the Company will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement schedules (but without exhibits), for its fiscal year ended December 31, 2010. Requests for a copy of such Annual Report on Form 10-K should be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. Inasmuch as matters not known at this time may come before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 16, 2011 +33 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 26, 2011, 12:15 P.M. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Notice of Meeting, proxy statement and proxy card +are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +↓ Please detach along perforated line and mail in the envelope provided. ↓ +20330303304000000000 0 +042611 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1, “FOR” PROPOSALS 2, 3, 4, AND 5, +AND A VOTE “FOR” ONCE EVERY THREE YEARS ON EXECUTIVE COMPENSATION ON PROPOSAL 6. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class I Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011; +o +o +o +NOMINEES: +o +o +FOR ALL NOMINEES +WITHHOLD AUTHORITY +FOR ALL NOMINEES +O R. RANDALL ROLLINS +O HENRY B. TIPPIE +O JAMES B. WILLIAMS +3. +To amend the Certificate of Incorporaton of Company to increase the number of authorized shares of capital stock to 350,000,000 shares; +o +o +o +o +FOR ALL EXCEPT +(See instructions below) +4. +To approve the performance-based incentive cash compensation plan for the executive officers; +o +o +o +5. +To approve on an advisory basis the compensation of the Company’s named executive officers; +o +o +o +6. +To hold an advisory vote on whether an advisory vote on executive compensation should be held every one, two or three years; and +1 year +o +2 years +o +3 years +o +ABSTAIN +o +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark +“FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +7. +To transact such other business as may properly come before the meeting or any adjournment thereof. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE NOMINEES FOR DIRECTOR, “FOR”THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, “FOR” THE PERFORMANCE-BASED INCENTIVE CASH COMPENSATION PLAN, “FOR”THE ADVISORY VOTE ON EXECUTIVE COMPENSATION, AND “FOR” A ONCE EVERY THREE YEARS ADVISORY VOTE ON EXECUTIVE COMPENSATION.THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +o +RPC, INC. +Proxy for Annual Meeting of Stockholders on Tuesday, April 26, 2011 +Solicited on Behalf of the Board of Directors +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 26, 2011, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia 30324, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 16, 2011, grants authority to said proxies, or either of them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place, and stead. The undersigned instructs said proxies, or either of them, to vote as stated on the reverse side. +(Continued and to be signed on the reverse side.) +14475 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 26, 2011, 12:15 P.M. +PROXY VOTING INSTRUCTIONS +INTERNET - Access “ www.voteproxy.com ” and follow the on-screen instructions. Have your proxy card available when you access the web page. +TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. +COMPANY NUMBER +ACCOUNT NUMBER +Vote online/phone until 11:59 PM EST the day before the meeting. +MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible. +IN PERSON - You may vote your shares in person by attending the Annual Meeting. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : The Notice of Meeting, proxy statement and proxy card are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +↓ Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. ↓ +20330303304000000000 0 +042611 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1, “FOR” PROPOSALS 2, 3, 4, AND 5, +AND A VOTE “FOR” ONCE EVERY THREE YEARS ON EXECUTIVE COMPENSATION ON PROPOSAL 6. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class I Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2011; +o +o +o +NOMINEES: +o +o +FOR ALL NOMINEES +WITHHOLD AUTHORITY +FOR ALL NOMINEES +O R. RANDALL ROLLINS +O HENRY B. TIPPIE +O JAMES B. WILLIAMS +3. +To amend the Certificate of Incorporaton of Company to increase the number of authorized shares of capital stock to 350,000,000 shares; +o +o +o +o +FOR ALL EXCEPT +(See instructions below) +4. +To approve the performance-based incentive cash compensation plan for the executive officers; +o +o +o +5. +To approve on an advisory basis the compensation of the Company’s named executive officers; +o +o +o +6. +To hold an advisory vote on whether an advisory vote on executive compensation should be held every one, two or three years; and +1 year +o +2 years +o +3 years +o +ABSTAIN +o +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark +“FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +7. +To transact such other business as may properly come before the meeting or any adjournment thereof. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE NOMINEES FOR DIRECTOR, “FOR” THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, “FOR” THE PERFORMANCE-BASED INCENTIVE CASH COMPENSATION PLAN, “FOR” THE ADVISORY VOTE ON EXECUTIVE COMPENSATION, AND “FOR” A ONCE EVERY THREE YEARS ADVISORY VOTE ON EXECUTIVE COMPENSATION. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +RPC, INC. +PERFORMANCE-BASED INCENTIVE CASH COMPENSATION PLAN +1. +The Plan . The purpose of this Performance-Based Incentive Cash Compensation Plan (the “Plan”) is to provide “ selected executives ” of RPC, Inc. or an affiliate thereof (the “Company”) with cash awards (the “Awards”) based upon pre-established, objective performance goals, thereby promoting alignment of the participating employees' interests with the interests of the Company and its shareholders, and focusing that employees' efforts toward enhancing the efficiency, profitability, growth and value of the Company. +2. +Plan Administration . The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company or a subcommittee thereof (the “Committee”). The Committee shall have full authority to interpret and administer the Plan and establish rules and regulations for the administration of the Plan. Any actions of the Committee may be taken by a written instrument signed by all of the members of the Committee and such action so taken by written consent shall be as fully effective as if it had been taken by a majority of the members at a meeting duly held and called. The decisions and determinations of the Committee in all matters regarding the Plan shall be in its sole discretion. Any decision made, or action taken, by the Committee in connection with the administration of the Plan shall be final, binding and conclusive. No member of the Committee shall be liable to any participant for any action, determination or decision made in good faith with respect to the Plan or any Award paid under it. Notwithstanding the foregoing, the Committee may delegate the administration of the Plan to one or more of its designees, but only with respect to matters regarding participants who are not in the executive management class. All matters regarding the participants in the executive management class shall be the sole responsibility of the Committee. +3. +Eligibility . The participants in the Plan (collectively, the “Participants” or individually, a “Participant”) shall be those executive officers of the Company who are designated each year as Participants by the Committee. Such designation shall be made during the first 90 days of each calendar year. Participation in the Plan in any one calendar year does not guarantee that an executive will be selected to participate in the Plan in any following calendar year. +4. +Size of Awards . Each calendar year, the Committee shall establish a target award for each Participant in the Plan, which shall be expressed as a percentage of his “Base Compensation” (the “Target Award”). For this purpose, “Base Compensation” means the base compensation in effect on the last day of the final pay period of the current Plan year. If and to the extent the performance goals established for the Participant by the Committee pursuant to Section 5 are met, the Participant's Award shall be determined in part based upon a range from the amount of his "Threshold Award" to the amount of his "Superior Award as set forth in Section 6. The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year but in no event will a cash award amount exceed 200 percent of participants’ base compensation, or $2,000,000, whichever is less. The Target Award of each Participant or class of Participants (e.g., executive management ) shall be established in writing by the Committee within the first 90 days of each calendar year. +5. +Establishment of Performance Goals . Within the first 90 days of each calendar year and at a time when the outcome is substantially uncertain, the Committee shall establish performance goals for each Participant. The performance goals established for each Participant or class of Participants (e.g., executive management) shall be in writing. The following rules shall apply in establishing performance goals: +1 +a. +Types of performance . The performance goals established by the Committee shall be based on one or more performance measures that apply to the Participant alone (“Individual Performance”), the Participant's business unit/function performance (“ Business Unit /Function Performance”), the Company as a whole (“Corporate Performance”), or any combination of one or more of Individual Performance, Business Unit/Function Performance or Corporate Performance. If a Participant's performance goals are based on a combination of Individual Performance, Business Unit/Function Performance or Corporate Performance, the Committee shall weight the importance of each type of performance that applies to such Participant by assigning a percentage to it (the “Weighted Percentage”). In no event shall the aggregate Weighted Percentages exceed 100 percent. +b. +Performance measures . The Committee shall establish the performance measures that apply to Corporate Performance, Business Unit/Function Performance and Individual Performance. +i. +Corporate Performance . The performance measures for Corporate Performance shall be established based on such measures as stock price, market share, revenues, earnings per share, return on equity, return on average assets, return on invested capital, expense management, or other objective criteria. +ii. +Business Unit/Function Performance . The performance measures for Business Unit/Function Performance shall be established separately for each Participant whose performance goals are based in whole or in part on Business Unit/Function Performance. Such performance measures shall be based on such business criteria as achievement of financial or non-financial goals, safety record, training goals, or other objective criteria. +iii. +Individual Performance . The performance measures for Individual Performance shall be established separately for each Participant whose performance goals are based in whole or in part on Individual Performance. Such performance measures shall be based on such business criteria as process improvement, expense management, achievement of particular management objectives, or other objective criteria. +If more than one business criteria is used as a performance measure for a type of performance (e.g., Corporate Performance), the Committee shall weight the importance of each business criteria by assigning a percentage to it. In no event shall the aggregate percentages exceed 100 percent. +6. +Levels of performance. The Committee shall establish a threshold, target and superior level of performance with respect to each measure of performance. A “ Performance Value ” shall be assigned to each such level of performance as follows: +Level of Performance +Performance Value +Threshold +25% +Target +100% +Superior +200% +Interpolation shall be used to determine the Performance Value associated with performance between the threshold, target and superior performance levels. Performance below the threshold level shall have a 0 value and performance above the superior level shall have a value equal to 200%. +7. +Determination and Payment of Cash Award Amounts. The determination of the Award (if any) payable to a Participant shall be made as soon as practicable after the end of each calendar year by the Committee. The Cash Award Amount shall be determined in accordance with the following formula: +[(AxBxC) + (AxDxE) + (AxFxG)] x Base Compensation = Cash Award Amount +2 +where: +(A) +is the Participant's Target Award; +(B) +is the Participant's Weighted Percentage (if any) for Individual Performance; +(C) +is the Performance Value assigned to the level of performance attained by the Participant for Individual Performance; +(D) +is the Participant's Weighted Percentage (if any) for Business Unit/Function Performance; +(E) +is the Performance Value assigned to the level of performance attained by the Participant for Business Unit/Function Performance; +(F) +is the Participant's Weighted Percentage (if any) for Corporate Performance; and +(G) +is the Performance Value assigned to the level of performance attained by the Participant for Corporate Performance. +The Award, if any, earned by a Participant with respect to a calendar year shall be paid to him in cash as soon as practicable following the determination of the Award and the Committee's written certification that the Participant achieved his performance goals. The Committee shall not have any discretion to increase the amount of an Award otherwise earned and payable pursuant to the terms of the Plan to a Participant. The Committee shall have the discretion to reduce or eliminate the amount of an Award otherwise earned and payable pursuant to the terms of the Plan to any Participant. No Award shall be paid under the Plan to a Participant with respect to any particular performance measure if his performance under the measure is below the threshold level of performance established by the Committee for that measure . However, see 13 . j. where Committee has discretion to pay amounts outside of the Plan for outstanding performance. +8. +Termination For Reasons Other Than Death, Disability or Retirement . If a Participant's employment as an executive officer with the Company is terminated for any reason other than death, disability or retirement during a calendar year or thereafter prior to payment of an Award , he shall forfeit his right to receive any Award under this Plan, except that the Committee may elect, in its sole and absolute discretion, to pay an Award to such Participant based on his performance and Base Compensation for that portion of the calendar year during which he was employed as an executive officer of the Company. +9. +Termination Due to Death, Disability or Retirement . If a Participant's employment with the Company as an executive officer of the Company is terminated during a calendar year or thereafter prior to payment of an Award by reason of death, disability or retirement, and the Participant has been actively employed by the Company as an executive officer of the Company for a minimum of 6 calendar months during such calendar year, he shall be eligible for an Award based on his performance and Base Compensation for that portion of the calendar year in which he was employed. The determination and payment of such Award shall be made by the Committee at the end of such calendar year in the manner described in Section 7. If a Participant ’s employment as an executive officer of the Company shall terminate during the calendar year for any reason with less than 6 calendar months of such employment, he shall forfeit his right to receive any Award under this Plan, except that the Committee may elect, in its sole and absolute discretion, to pay an Award to such Participant based on his performance and Base Compensation for that portion of the calendar year during which he was employed. +3 +10. +No Implied Contract . Nothing contained in this Plan shall be construed as conferring upon any Participant the right or imposing upon him the obligation to continue in the employment of the Company, nor shall it be construed as imposing upon the Company the obligation to continue to employ the Participant. +11. +Amendments . The Board of Directors of the Company or the Committee may amend or terminate the Plan in whole or in part at any time; provided, that no such action shall adversely affect any Award earned and payable under the Plan as of the date of such amendment or termination. +12. +Effective Date . The Plan shall become effective on March 31, 2006 subject to the approval by a majority vote of the stockholders of the Company voting on the proposal at the annual meeting of stockholders for 2006. +13. +Miscellaneous . +a. +Taxes and other deductions . Any tax required to be withheld by any government authority shall be deducted from each Award. Other deductions such as 401(k) may also be deducted. +b. +Non-assignability . Awards under the Plan shall not be subject to anticipation, alienation, pledge, transfer or assignment by any person entitled thereto, except by designation of a beneficiary or by will or the laws of descent and distribution. +c. +No trust . The obligation of the Company to make payments hereunder shall constitute a liability of the Company to the Participants. Such payments shall be made from the general funds of the Company, and the Company shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and neither the Participants nor their beneficiaries shall have any interest in any particular assets of the Company by reason of its obligations hereunder. Nothing contained in this Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and the Participants or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. +d. +Facility of payments . If a Participant or any other person entitled to receive an Award under this Plan (the "recipient") shall, at the time payment of any such amount is due, be incapacitated so that such recipient cannot legally receive or acknowledge receipt of the payment, then the Committee, in its sole and absolute discretion, may but shall not be required to direct that the payment be made to the legal guardian, attorney-in-fact or person with whom such recipient is residing, and such payment shall be in full satisfaction of the Company's obligation under the Plan with respect to such amount. +e. +Beneficiary designation . Each Participant may designate a beneficiary hereunder. Such designation shall be in writing, shall be made in the form and manner prescribed by the Committee, and shall be effective only if filed with the Committee prior to the Participant's death. A Participant may, at any time prior to his death, and without the consent of his beneficiary, change his designation of beneficiary by filing a written notice of such change with the Committee in the form and manner prescribed by the Committee. In the absence of a designated beneficiary, or if the designated beneficiary and any designated contingent beneficiary predecease the Participant, the beneficiary shall be the Participant's surviving spouse, or if the Participant has no surviving spouse, the Participant's estate. +4 +f. +Governing Law . The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Georgia. +g. +A Participant must be employed in the same position on December 31 to be eligible for payment of an Award, except as described below in i. +h. +A Participant will not receive an Award if for any reason he or she is in a position on December 31 that is not eligible for an Award or if you are not actively employed on the date that the Award is paid. +i. +Actions May Prohibit Bonus . A Participant will not receive any bonus if he or she shall falsify documents, violate Company policy or know of such actions by employees under his or her direction without taking corrective actions. +j. +Bonuses Outside the Plan . The Compensation Committee reserves the right to reward performance in situations by awarding a Participant an award outside the terms of this Plan. +k. +Adjustment or modification of performance goals . The Committee, in its discretion may adjust or modify the calculation of Performance Goals in the event of, in recognition of, or in anticipation of, any unanticipated, unusual nonrecurring or extraordinary corporate item, transaction, event, or development, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions. +This RPC, Inc. Performance-Based Incentive Cash Compensation Plan has been executed on behalf of the Company as of the 31st day of March, 2006. +RPC, Inc. +By: +/s/ Richard A. Hubbell +President and Chief Executive Officer +Attest: +/s/ Linda H. Graham +Secretary +[Corporate Seal] +5 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-11-000579/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-11-000579/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..c0f8bcb428a8ff43a3a08116fa91672f825a48a3 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-11-000579/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $689,000 in 2010. +During 2010, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2010, payments totaling approximately $551,000 were made to these LOR, Inc. companies for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $94,000 in 2010. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a Director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Governance Committee. As set forth in our Code, our Nominating and Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2010 were reviewed, approved and/or ratified by the Nominating and Governance Committee in accordance with the Code. +31 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-12-000724/proxy.txt b/raw/proxies/0000742278/0001188112-12-000724/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..6dca48132dcfd265c41e5f61a4677f4d947a3ef3 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-12-000724/proxy.txt @@ -0,0 +1,1313 @@ +DEF 14A +1 +t72721_def14a.htm +SCHEDULE 14A +t72721_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: N/A +(2) +Aggregate number of securities to which transaction applies: N/A +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +N/A +(4) +Proposed maximum aggregate value of transaction: N/A +(5) +Total fee paid: N/A +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing: +(1) +Amount previously paid: N/A +(2) +Form, Schedule or Registration Statement No.: N/A +(3) +Filing party: N/A +(4) +Date Filed: N/A +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2801 Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2012 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324 on Tuesday, April 24, 2012, at 12:15 P.M., or any adjournment thereof, for the following purposes: +1. +To elect the four Class II nominees identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012; and +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +The Proxy Statement dated March 19, 2012 is attached. +The Board of Directors has fixed the close of business on March 2, 2012 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in the United States. +The Proxy Statement and 2011 Annual Report are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 19, 2012 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 19, 2012. The following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of the Stockholders to be held on April 24, 2012, is submitted by the Company to the stockholders in connection with the solicitation of proxies on behalf of the Company’s Board of Directors. +Three-for-two stock split – The Board of Directors, at their meeting on January 24, 2012, authorized a three-for-two stock split to stockholders of record on February 10, 2012, payable on March 9, 2012. All share, per share and market price data herein have been adjusted for this split. The Company’s Annual Report on Form 10-K for the year ended December 31, 2011 did not adjust the Company’s outstanding shares and earnings per share for the effect of the three-for-two stock split, payable on March 9, 2012. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the candidates for election to the Board of Directors and in favor of ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. +A stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either proxy holder, by timely submitting a later dated proxy changing his vote or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on March 2, 2012 consisted of 219,500,434 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on March 2, 2012, the record date for determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. In accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the four nominees receiving the most votes will be elected. The affirmative vote of a majority of a quorum of the Company’s outstanding shares of Common Stock present and entitled to vote at the meeting is required to approve the ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year 2012. Abstentions will have the effect of a vote against the proposals and broker non-votes will have no effect on the proposals for ratification of the appointment of the Company’s independent registered public accounting firm. There are no rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon pursuant to this Proxy Statement. It is expected that shares held of record by officers and directors of the Company, which in the aggregate represent approximately 72 percent of the outstanding shares of Common Stock, will be voted for the nominees for directors and for the ratification of the appointment of the Company’s independent registered public accounting firm. +1 +STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The executives named in the Summary Compensation Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 2, 2012, together with the number of shares owned by each such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and executive officers of the Company as a group (according to information received by the Company), are set out below: +Name and Address of Beneficial Owner +Amount +Beneficially +Owned (1) +Percent of +Outstanding +Shares +R. Randall Rollins +145,391,788 +(2) +66.2 +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Gary W. Rollins +148,335,750 +(3) +67.6 +President and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Richard A. Hubbell +2,842,714 +(4) +1.3 +President and Chief Executive Officer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +Linda H. Graham +898,729 +(5) +** +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Ben M. Palmer +551,137 +(6) +** +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +All Directors and Executive Officers as a group +158,379,384 +(7) +72.1 +(11 persons) +** Less than one percent +(1) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) +Includes 16,402 shares of the Company Common Stock held as Trustee, Guardian, or Custodian for his children. Also includes 1,796,819 shares of Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are 262,500 shares of restricted stock awards for Company Common Stock. This also includes 247,783 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding Company securities that includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +2 +(3) +Includes 1,796,819 shares of the Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 658,020 shares of Company Common Stock held as Trustee, Guardian or Custodian for his children. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Mr. Rollins is part of a control group holding Company securities that includes Mr. R. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(4) +Includes 189,843 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 2, 2012, and 262,500 shares of restricted stock awards for Company Common Stock. +(5) +Includes 75,937 shares of Company Common Stock subject to options that are currently exercisable or that become exercisable within 60 days of March 2, 2012, and 79,650 shares of restricted stock awards for Company Common Stock. +(6) +Includes 158,400 shares of restricted stock awards for Company Common Stock. +(7) +Shares held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have been included only once. Includes an aggregate of 265,780 shares of Company Common Stock that may be purchased by two executive officers upon exercise of options that are currently exercisable or that become exercisable within 60 days of March 2, 2012, and 763,050 shares of restricted stock awards for Company Common Stock awarded and issued to all of the executive officers pursuant to the Company’s 1994 Employee Stock Incentive Plan and 2004 Stock Incentive Plan. +PROPOSAL 1: ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. Richard A. Hubbell, Bill J. Dismuke, Larry L. Prince and Ms. Linda H. Graham will be nominated to serve as Class II directors. The nominees for election at the 2012 Annual Meeting are all now directors of the Company. The directors in each class serve for a term of three years. The director nominees will serve in their respective class until their successors are elected and qualified. Six other individuals serve as directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company’s Bylaws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance Committee, to fill such vacancy. +3 +Director Qualifications +The name and age of each of our directors and each of the nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of outstanding shares that ownership represents, all as of the close of business on March 2, 2012 (according to information received by the Company), other board memberships and the period during which he or she has served us as a director are set forth as follows: +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class II (Current Term Expires 2012; New Term Will Expire 2015) +Richard A. Hubbell +President and Chief Executive Officer of the Company since April 2003; President and Chief Operating Officer of the Company prior to April 2003; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing). +1987 to date +67 +2,842,714 +(3) +1.3 +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing). +2001 to date +75 +898,729 +(4) +** +Bill J. Dismuke +Retired President of Edwards Baking Company (manufacturer of pies and pie parts). +2005 to date +75 +7,593 +** +Larry L. Prince +Retired Chairman of the Board of Directors of Genuine Parts Company (automotive parts distributor). +April 2009 +to date +73 +4,500 +** +Names of Directors Whose Terms Have Not Expired +Class III (Term Expires 2013) +Wilton Looney +Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor). +1984 to date +92 +9,112 +** +Gary W. Rollins (5) +President and Chief Executive Officer of Rollins, Inc. (consumer services). +1984 to date +67 +148,335,750 +(6) +67.6 +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) and President of Chaparral Boats, Inc. +1987 to date +69 +331,845 +** +Class I (Term Expires 2014) +R. Randall Rollins (5) +Chairman of the Board of the Company since April 2003; Chairman of the Board and Chief Executive Officer of the Company prior to April 2003; Chairman of the Board of Marine Products Corporation (boat manufacturing); Chairman of the Board of Rollins, Inc. (consumer services). +1984 to date +80 +145,391,788 +(7) +66.2 +Henry B. Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex) and Chairman of the Board of Dover Motorsports, Inc. (operator of motor racing tracks). +1984 to date +85 +2,396,254 +(8) +1.1 +James B. Williams +Retired Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004 and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1991 to 1998. +1984 to date +78 +303,750 +** +** +less than one percent +4 +(1) +Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the following individuals also serve on the Boards of Directors of the following companies: James B. Williams: The Coca-Cola Company; R. Randall Rollins: Dover Downs Gaming & Entertainment, Inc. and Dover Motorsports, Inc.; and Gary W. Rollins: Genuine Parts Company and Emory University. All of the directors shown in the above table are also directors of Marine Products Corporation (“Marine Products” or “MPC”) and, with the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. (“Rollins”). During the past five years, Larry L. Prince served as a director of Crawford & Company, Equifax, Inc., SunTrust Banks, Inc. and Genuine Parts Company. +(2) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) +See information contained in footnote (4) to the table appearing in Capital Stock section. +(4) +See information contained in footnote (5) to the table appearing in Capital Stock section. +(5) +R. Randall Rollins and Gary W. Rollins are brothers. +(6) +See information contained in footnote (3) to the table appearing in Capital Stock section. +(7) +See information contained in footnote (2) to the table appearing in Capital Stock section. +(8) +Includes 143,977 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 2,277 shares. +Key Attributes, Experience and Skills of Directors +R. Randall Rollins , 80, was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. Mr. Rollins serves as Chairman of the Board of the Company. He has held the position of Chairman of the Board since April 2003. He is also Chairman of the Board for Marine Products Corporation as well as Rollins, Inc. Mr. Rollins has been a Director of Dover Motorsports, Inc. since 1996 and a Director of Dover Downs Gaming & Entertainment, Inc. since 2002. Mr. Rollins served as a Director of SunTrust Banks of Georgia from 1995 to April 20, 2004. +Richard A. Hubbell , 67, was elected a Director of RPC in 1987. Mr. Hubbell has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. He has served as the Chief Executive Officer of the Company since 2003. In addition, Mr. Hubbell serves as the President and Chief Operating Officer of the Company. Mr. Hubbell is also the President and Chief Executive Officer of Marine Products Corporation. +Gary W. Rollins , 67, was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry. In addition, Mr. Rollins serves as the President and Chief Operating Officer of Rollins, Inc. Mr. Rollins has been serving as a Director of Marine Products Corporation since 2001 and as a director of Rollins, Inc. since 1981. Mr. Rollins has served on the Board of Director of Genuine Parts Company since 2005. +Henry B. Tippie , 85, was elected a Director of RPC in 1984. Mr. Tippie brings extensive financial and management experience to our Board of Directors serving as Controller and Chief Financial Officer of Rollins, Inc. from 1953 to 1970. Mr. Tippie has over 61 years of experience including being involved with publicly owned companies during the past 50 years in various positions including founder, CFO, CEO, President, Vice-Chairman and Chairman of the Board. He is currently Chairman of the Board for Dover Downs Gaming & Entertainment, Inc. as well as Dover Motorsports, Inc. and is a Director for Marine Products Corporation and Rollins, Inc. +Wilton Looney , 92, was elected a Director of RPC in 1984. Mr. Looney brings extensive financial and management experience to our Board of Directors serving as a Director for over 25 years. He is the Honorary Chairman of the Board of Genuine Parts Company. Mr. Looney has been a Director of Rollins, Inc. since 1975. He has been a Director of Marine Products Corporation since 2001. +5 +James B. Williams, 78, was elected a Director of RPC in 1984. Mr. Williams brings extensive financial and management experience to our Board of Directors serving over 25 years as a Director. He retired in March 1998 as Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc., a bank holding company, which positions he had held for more than five years. He is a Director of Marine Products Corporation, Rollins, Inc. and The Coca-Cola Company. He also previously served as a director of Genuine Parts Company and Georgia Pacific Corporation. +Bill J. Dismuke , 74, was elected a Director of RPC in 2005. Mr. Dismuke brings extensive financial, management and manufacturing experience to our Board of Directors. He served as a Senior Vice President of Rollins, Inc. for five years from 1979 until 1984. He retired as President of Edwards Baking Company in 1995. Mr. Dismuke has also been a Director of Rollins, Inc. since 1984 and Marine Products Corporation since 2005. +Larry L. Prince , 72, was elected a Director of RPC in 2009. Mr. Prince brings extensive management experience to our Board of Directors. He served as the Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company until his retirement in 2011. He also served as Chairman of the Board from 1990 through February 2005 and as Chief Executive Officer from 1989 through August 2004 of Genuine Parts Company. Mr. Prince is also a Director of Rollins, Inc. and Marine Products Corporation. Mr. Prince previously served as a director of SunTrust Banks, Inc., Crawford & Company, Equifax, Inc. and John H. Harland Company. +James A. Lane, Jr., 69 , was elected a Director of RPC in 1984. Mr. Lane brings extensive financial, management and manufacturing experience to our Board of Directors. He has held the position of President of Chaparral Boats, Inc. (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive Vice President and Director of Marine Products Corporation since it was spun off in 2001. +Linda H. Graham, 75 , was elected a Director of RPC in 2001. Mrs. Graham brings extensive management experience to our Board of Directors. She has been the Vice President and Secretary of RPC since 1987. She also serves as the Vice President and Secretary of Marine Products Corporation. In addition, Mrs. Graham serves as a director of Marine Products Corporation. +Our Board of Directors recommends a vote FOR the nominees listed above. +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM +The Audit Committee of the Board has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2012. During fiscal 2011, Grant Thornton LLP served as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement. +Although the Company is not required to seek ratification of this appointment, the Audit Committee and the Board of Directors believes that it is appropriate to do so. If stockholders do not ratify the appointment of Grant Thornton LLP, the current appointment will stand, but the Audit Committee will consider the stockholder action in determining whether to retain Grant Thornton LLP as the Company’s independent registered public accounting firm. +Our Board of Directors recommends a vote FOR the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the 2012 fiscal year. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board Meetings +The Board of Directors met six times during the fiscal year ended December 31, 2011. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on which he or she served during 2011. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and all Board members were in attendance at last year’s meeting. +6 +The Board of Directors has an Audit Committee, a Compensation Committee, a Diversity Committee and a Nominating and Governance Committee. +Below is a summary of our committee structure and membership information. +Committee Members +Audit +Committee +Compensation +Committee +Diversity +Committee +Nominating & +Governance +Committee +Executive +Committee +R. Randall Rollins (1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Wilton Looney (2) +Member +Member +Member +Member +James B. Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary W. Rollins +Member +1) +Chairman of the Board of Directors +2) +Financial Expert +Audit Committee +The Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit Committee held five meetings during the fiscal year ended December 31, 2011, including a meeting to review the Company’s Form 10-K for the year ended December 31, 2010. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. Additionally, the Board of Directors has determined that the simultaneous service by Mr. James B. Williams on the Audit Committees of three other publicly traded companies does not impair his ability to effectively serve on the Audit Committee of RPC. The Audit Committee meets with the Company’s independent registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits and recommendations made with respect to controls over financial reporting and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Audit Committee charter is available on the Company’s website at www.rpc.net under the Governance section. +Compensation Committee +The Compensation Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held three meetings during the fiscal year ended December 31, 2011. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the executive officers. The Compensation Committee also administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee does not have a formal charter, and is not required to have one under the “controlled company” exemption under the NYSE rules, as described in the section titled “Director Independence and NYSE Requirements” below. +Diversity Committee +The Diversity Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting during the fiscal year ended December 31, 2011. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +7 +Nominating and Governance Committee +The Nominating and Governance Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, each of whom is independent, as discussed more fully under “Director Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant to a resolution passed by the Board of Directors for the following purposes: +● +to recommend to the Board of Directors nominees for director and to consider any nominations properly made by a stockholder; +● +upon request of the Board of Directors, to review and report to the Board with regard to matters of corporate governance; and +● +to make recommendations to the Board of Directors regarding the agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal year ended December 31, 2011. +Director Nominations +Under Delaware law, there are no statutory criteria or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee does not have a charter or a formal policy with regard to the consideration of director candidates. As such, there is no formal policy relative to diversity, although as noted below, it is one of many factors that the Nominating and Corporate Governance Committee has the discretion to factor into its decision making. This discretion would extend to how the Committee might define diversity in a particular instance – whether in terms of background, viewpoint, experience, education, race, gender, national origin or other considerations. The Committee acts under the guidance of the Corporate Governance Guidelines approved by the Board of Directors and posted on the Company’s website at www.rpc.net under the Governance section. The Board believes that it should preserve maximum flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s Corporate Governance Guidelines, the Board of Directors will be responsible for selecting nominees for election to the Board of Directors. The Board delegates the screening process to the Nominating and Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of the then current make-up of the Board. This determination takes into account all factors which the Committee considers appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other requirements related to the notice are contained in the Company’s Bylaws. The Committee will consider nominations from stockholders who satisfy these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the nominees for directors being voted upon, at the Annual Meeting to be held on April 24, 2012 are directors standing for re-election. +Board Leadership +The Company has had separate persons serving as its Chairman of the Board and Chief Executive Officer since 2003. Mr. Randall Rollins is our Chairman and chairs our Board meetings. Mr. Richard Hubbell is our President and Chief Executive Officer. We believe that it represents the appropriate structure for us at this time; the Chairman of the Board provides general oversight and strategic planning for the Company while the President focuses on optimizing operational efficiencies. Many authorities on corporate governance are of the view that a company’s principal executive officer should not also be chairman of its board and that it is best to keep board leadership separate from operational management. +8 +Risk Oversight by Board +Our Board’s oversight of risk has not been delegated to any Board Committee. “Risk” is an extremely broad concept that extends to multiple functional areas and crosses multiple disciplines. As such, risk may be addressed from time to time by the full Board or by one or more of our Committees. Senior management is responsible for identifying and managing material risks that we face while insurable risks and litigation risks are handled primarily by the risk management department. Senior management provides the Board with a summary of insurance coverage annually and updates as deemed necessary. Liquidity risk, credit risk and risks associated with our credit facilities and cash management are handled primarily by our finance department which regularly provides a financial report to both the Audit Committee and to the full Board. Operational, business, regulatory and political risks are handled primarily by senior executive management which regularly provides various operational reports to, among others, the full Board or to the Executive Committee. +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors, the majority of which are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. +The Company’s Audit Committee is composed of four “independent” directors as defined by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange Act, SEC regulations thereunder, and the Company’s Audit Committee Charter. All of the members of the Compensation, Diversity and Nominating and Governance Committees are also independent directors. The independent directors of the Company are Henry B. Tippie, Wilton Looney, James B. Williams, Bill J. Dismuke, and Larry L. Prince. +Independence Guidelines +Under NYSE listing standards, to be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The NYSE standards set forth a nonexclusive list of relationships which are conclusively deemed material. +The Company’s Independence Guidelines (Appendix A to the Company’s Corporate Governance Guidelines) are posted on the Company’s website at www.rpc.net under the Governance section. These independence guidelines provide that to be independent, a director must not have any relationship that would be considered material under NYSE standards and that, except in special circumstances as determined by a majority of the Board, the following relationships are not material: +(i) +If the director, or a member of the director’s immediate family, has received less than one hundred twenty thousand dollars (US $120,000) in direct compensation from the Company (other than director and committee fees and compensation for prior service which are not contingent in any way on continued services) during every 12 month period within the past three (3) years; +(ii) +If the director is a director or officer, or any member of the director’s immediate family is a director or officer of a bank to which the Company is indebted, and the total amount of the indebtedness does not exceed one percent (1%) of the total assets of the bank for any of the past three (3) years; +9 +(iii) +If the director or any member of the director’s immediate family is an employee of a charitable or educational organization, and donations by the Company do not exceed the greater of one million dollars (US $1,000,000) or two percent (2%) of the organization’s consolidated gross revenues within the preceding three (3) years; +(iv) +If the director has a relationship with the Company of a type covered by item 404(a) and/or item 407 of the Securities and Exchange Commission’s Regulation S-K (or any successor regulation), and that relationship need not, according to the terms of those items and any then- current proxy regulations, be disclosed in the Company’s annual Proxy Statement (except for relationships described elsewhere in the Company’s guidelines in which case the other guidelines will govern); +(v) +If the director, or a member of the director’s immediate family, has direct or beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) of any amount of any class of common stock of the Company. +Audit Committee Charter +Under the Company’s Audit Committee Charter, in accordance with NYSE listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial Relationships +After reviewing all of the relationships between the members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee nor Mr. Prince had any relationships not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +1. +Mr. Tippie was employed by Rollins from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President – Finance, Secretary, Treasurer and Chief Financial Officer. Mr. Dismuke was employed by Rollins from 1979 to 1984 and held various offices within that company including Senior Vice President. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that has voting control of Rollins. +2. +Mr. Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. and Dover Downs Gaming & Entertainment, Inc. Mr. Randall Rollins is also a director of these companies. +3. +Mr. Tippie is the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Messrs. Randall and Gary Rollins. +4. +Each of Messrs. Dismuke, Looney, Prince, Tippie and Williams also serve on the Boards of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held by a control group of which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is an executive officer of Marine Products. +5. +Mr. Prince is a director of Genuine Parts Company. Mr. Gary W. Rollins is also a director of Genuine Parts Company. +As required by the Independence Guidelines, the Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the independent directors, based on their experience, character and independent means, and therefore do not preclude an independence determination. All of the members are also independent under the heightened standards required for Audit Committee members. +10 +In accordance with the NYSE corporate governance listing standards, Mr. Henry B. Tippie was elected as the Presiding Director. The Company’s non-management directors meet at regularly scheduled executive sessions without management. Mr. Tippie presides during these executive sessions. +Corporate Governance Guidelines +We have adopted Corporate Governance Guidelines to promote better understanding of our policies and procedures. At least annually, the Board reviews these guidelines. As required by the rules of the New York Stock Exchange, our Corporate Governance Guidelines require that our non-management directors meet in at least two regularly scheduled executive sessions per year without management. +At the Company’s website at www.rpc.net, under the Governance section, you may access a copy of our Corporate Governance Guidelines, our Audit Committee Charter, our Code of Business Conduct and our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy. +Code of Business Conduct +The Company has adopted a Code of Business Conduct applicable to all directors, officers and employees generally, as well as a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to the principal executive officer, principal financial officer, and directors. Both codes are available on the Company’s website at www.rpc.net under the Governance section. +Director Communications +The Company also has a process for interested parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, Inc. +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +The above instructions for communications with the directors are also posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the appropriate addressee(s). +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company’s Compensation Committee are or have ever been an employee of the Company. There are no Compensation Committee interlocks requiring disclosure. +11 +DIRECTOR COMPENSATION +The following table sets forth compensation to the Company’s directors for services rendered as a director for 2011. Three of the directors, Messrs. R. Randall Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their compensation is set forth in the Summary Compensation Table under Executive Compensation. The directors listed below have never been employed by the Company or paid a salary or bonus by the Company, have never been granted any options or other stock-based awards, and do not participate in any Company sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who was an employee of the Company until the spin-off of Marine Products in 2001. +Name +Fees Earned or +Paid in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry B. Tippie +111,500 +— +— +111,500 +James B. Williams +61,500 +— +— +61,500 +Wilton Looney +61,500 +— +— +61,500 +Bill J. Dismuke +52,500 +— +— +52,500 +Gary W. Rollins +40,000 +— +— +40,000 +James A. Lane, Jr. +40,000 +— +— +40,000 +Larry L. Prince +40,000 +— +— +40,000 +(1) +Directors are eligible for grants of stock awards under the Company’s 2004 Stock Incentive Plan (“SIP”). No stock awards have been granted to the non-management directors under the 2004 SIP. +Directors that are our employees do not receive additional compensation for services rendered as a director. +Under current compensation arrangements effective since January 1, 2011, non-management directors each receive an annual retainer fee of $26,000. In addition, the Chairman of the Audit Committee receives an annual retainer of $20,000, the Chairman of the Compensation Committee receives an annual retainer of $10,000, and the Chairman of each of the Nominating and Governance Committee and Diversity Committee receives an annual retainer of $6,000. A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a quarterly basis. Per meeting fees for non-management directors are as follows: +● +For meetings of the Board of Directors, $2,000 and for meetings of the Compensation Committee, Diversity Committee and Nominating and Governance Committee, $1,500. +● +For meetings of the Audit Committee either in person or over the telephone, $2,500. In addition, the Chairman of the Audit Committee receives an additional $2,000 for preparing to conduct each quarterly Board and Board Committee meetings. +All non-management directors are also entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. There have been no changes to the director compensation arrangements for 2012. +Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that might incorporate future filings, including the Proxy Statement, in whole or in part, the Report of the Audit Committee shall not be incorporated by reference into any such filings. +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s internal controls, assessing the effectiveness of these controls and the financial reporting process. The Company’s independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +12 +In fulfilling its oversight responsibilities with respect to the year ended December 31, 2011, the Audit Committee: +● +Approved the terms of engagement of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2011; +● +Reviewed with management the interim financial information included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management and the Company’s independent registered public accounting firm prior to their release; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm the audited consolidated financial statements of the Company as of December 31, 2011 and 2010 and for the three years ended December 31, 2011; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm, management’s assessment that the Company maintained effective control over financial reporting as of December 31, 2011; +● +Discussed with the independent registered public accounting firm matters required to be discussed by the American Institute of Certified Public Accountants Statement on Auditing Standards (“SAS”) No. 61, “Communications with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board; and +● +Received from the independent registered public accounting firm the written disclosures and the letter in accordance with the requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Committee concerning independence, and discussed with such firm its independence from the Company. +Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of December 31, 2011 and 2010 and for the three years ended December 31, 2011 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and for filing with the Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s independent registered public accounting firm with respect to such financial statements. +Submitted by the Audit Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +Bill J. Dismuke +13 +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Committee +During the fiscal year ended December 31, 2011, the members of our Compensation Committee held primary responsibility for determining executive compensation levels. The Committee is composed of three of our non-management directors who do not participate in the Company’s compensation plans. The Committee determines the compensation and administers the performance-based incentive cash compensation plan for our executive officers. In addition, the Committee also administers our Stock Incentive Plan for all the employees. +The members of our Compensation Committee have extensive and varied experience with various public and private corporations - as investors and stockholders, as senior executives, and as directors charged with the oversight of management and the setting of executive compensation levels. Henry B. Tippie, the Chairman of the Compensation Committee, has served on the board of directors of twelve different publicly traded companies and has been involved in setting executive compensation levels at all of these companies. Messrs. Wilton Looney and James B. Williams have served on the board of directors of several different publicly traded companies and have similarly been involved in setting executive compensation levels at many of these companies. +The Compensation Committee has authority to engage attorneys, accountants and consultants, including executive compensation consultants, to solicit input from management concerning compensation matters, and to delegate any of its responsibilities to one or more directors or members of management where it deems such delegation appropriate and permitted under applicable law. The Committee has not used the services of any compensation consultants in determining or recommending the amount or form of executive compensation. +The Compensation Committee believes that determinations relative to executive compensation levels are best left to the discretion of the Committee. In addition to the extensive experience and expertise of the Committee’s members and their familiarity with the Company’s performance and the performance of our executive officers, the Committee is able to draw on the experience of other Directors and on various legal and accounting executives employed by the Company, and the Committee has access to readily available public information relative to structuring executive compensation programs and setting appropriate compensation levels. The Committee also believes that the structure of our executive compensation programs should not become overly complicated or difficult to understand. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. +The Role of Shareholder Say-on-Pay Votes +The Company provides its shareholders with the opportunity to cast an every three years advisory vote on executive compensation (a “say-on-pay proposal”). At the Company’s annual meeting of shareholders held in April 2011, a substantial majority of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. The shareholders voted to hold a say-on-pay advisory vote on executive compensation every three years, and the Board resolved to accept the shareholders’ recommendation. As a result, the advisory vote on executive compensation will be held again at the 2014 annual shareholders’ meeting. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for its executive officers. +General Compensation Objectives and Guidelines +The Company is engaged in a highly competitive industry. The success of the Company depends on its ability to attract and retain highly qualified and motivated executives. In order to accomplish this objective, the Company structures the executive compensation in a fashion that takes into account the Company’s overall performance and the individual performance of the executive. +14 +The Compensation Committee endorses the philosophy that executive compensation should reflect Company performance and the contribution of executive officers to that performance. The Company’s compensation policy 14 is designed to achieve three fundamental objectives: (i) attract and retain qualified executives, (ii) motivate performance to achieve Company objectives, and (iii) align the interests of our executives with the long-term interests of the Company’s stockholders. The Committee recognizes that there are many intangibles involved in evaluating performance and in motivating performance, and that determining an appropriate compensation level is a highly subjective endeavor. The analysis of the Committee is not based upon a structured formula and the objectives referred to above are not weighted in any formal manner. +The Company’s executive officers are also executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee also constitute the Compensation Committee of Marine Products. In determining the compensation for the executive officers at the Company, the Committee considers these dual responsibilities and sources of compensation. The Company sets compensation of its executives at such levels so that the aggregate compensation received from both Marine Products and the Company is reasonable in light of their respective responsibilities and the performance of both companies, and so that the compensation from the Company for services solely to the Company is reasonable. A discussion of the Company’s executive officers’ compensation at Marine Products is contained in its annual Proxy Statement filed with the SEC. During the year, none of the executive officers made recommendations or otherwise contributed input on their own compensation. However, the Compensation Committee may from time to time solicit input from the Chairman when reviewing executive compensation. +Pursuant to the Company’s compensation philosophy, the total annual compensation of its executive officers is primarily comprised of base salary, performance-based incentive cash compensation and stock-based incentive compensation. In addition, the Company provides retirement compensation plans, group welfare benefits and certain perquisites. +We believe a competitive base salary is important to attract, retain and motivate top executives. We believe a performance-based incentive cash compensation plan is valuable in recognizing and rewarding individual achievement. Finally, we believe stock-based incentives make executives “think like owners” and, therefore, align their interests with those of our stockholders. +The Company does not have any formal stock ownership requirements for its executive officers but notes that its current directors and executive officers are stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. The Company is mindful of the stock ownership of our directors and executive officers but does not believe that it is appropriate to provide a mechanism or formula to take stock ownership (or gains from prior option or stock awards) into account when setting compensation levels. The Company provides in its insider trading policies that directors and executive officers may not sell Company securities short and may not sell puts, calls or other derivative securities tied to our Common Stock. +The Company does not have a formal policy relative to the adjustment or recovery of incentives or awards in the event that the performance measures upon which incentives or awards were based are later restated or otherwise adjusted in a manner that would have reduced the size of an incentive or award. However, as all incentives and awards remain within the discretion of the Compensation Committee, the Committee retains the ability to take any such restatements or adjustments into account in subsequent years. In addition, the Sarbanes-Oxley Act requires in the case of accounting restatements that result from material non-compliance with SEC financial reporting requirements, that Chief Executive Officers and Chief Financial Officers must disgorge bonuses and other incentive-based compensation and profits on stock sales, if the non-compliance results from misconduct. +Base Salary +The salary of each executive officer is determined by the Compensation Committee. In making its determinations, the Committee gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by Marine Products. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. During 2011, the base salaries of our executive officers were increased to the following amounts: Mr. Richard A. Hubbell: $800,000 ($100,000 increase from 2010); Mr. Ben M. Palmer: $300,000 ($50,000 increase from 2010); Mr. R. Randall Rollins: $700,000 ($100,000 increase from 2010); and Ms. Linda H. Graham: $200,000 ($35,000 increase from 2010). These increases were subjectively based on growth in revenues, recent profit performance of the Company and return on invested capital. On January 24, 2012, the Committee approved for its executive officers the following base salary for 2012: Mr. Richard A. Hubbell: $900,000; Mr. Ben M. Palmer: $375,000; Mr. R. Randall Rollins: $800,000; and Ms. Linda H. Graham: $250,000. +15 +Performance-Based Incentive Cash Compensation +The Company implemented the Performance-Based Incentive Cash Compensation Plan (the “Management Incentive Plan”) for the executive officers in 2006. Under the Management Incentive Plan, the Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Management Incentive Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year . If the participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Management Incentive Plan. This formula provides for a performance value (“Performance Value”) which ranges from: +● +threshold performance level (with a Performance Value of 25 percent of the Target Award), +● +target performance level (with a Performance Value up to 100 percent of the Target Award), to +● +superior performance level (with a Performance Value up to 200 percent of the Target Award). +Subject to the limitations set forth below, a participant’s cash award amount for each year under the Management Incentive Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation . The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year. +For 2011, the Compensation Committee established the target incentive award under the Management Incentive Plan for the Chief Executive Officer and for the other members of executive management at the amounts shown in the table below. The target awards that could be earned under the Management Incentive Plan for 2011 were the same as for the prior year. +Executive Officer +Target Award as a +percentage of base salary +Richard A. Hubbell +President and Chief Executive Officer +100 +% +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +100 +% +R. Randall Rollins +Chairman of the Board +100 +% +Linda H. Graham +Vice President and Secretary +40 +% +16 +The maximum bonus award for each participant under the Plan for 2011 and prior years was established at 150 percent of such participant’s base salary. The performance criteria applicable to the participants under the Management Incentive Plan for 2011 were determined based solely on corporate performance. The Compensation Committee established corporate performance goals for 2011 under the Management Incentive Plan based on cash flow return on invested capital. Return on invested capital (“ROIC”) is a widely used financial performance measure that typically correlates with long term change in stockholder value. The Company has used ROIC as the sole performance goal under the Management Incentive Plan for several years. ROIC is computed as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to invested capital. Invested capital is generally equal to the aggregate of stockholders’ equity, accumulated depreciation and other long-term liabilities. For 2011 year, the target performance goal established by the Company is in excess of the comparable historical average ROIC of our peers, is in excess of the Company’s weighted average cost of capital, and is an amount which the Company believes represents outstanding financial performance. Under the Management Incentive Plan, the Company must achieve at least 80 percent of the target performance goal for executive officers to be eligible for any bonus award. Bonus awards under the Management Incentive Plan are determined on a sliding scale between the threshold performance level and a superior performance level, which corresponds to 175 percent of the target performance goal. To be eligible for the bonus award under the Management Incentive Plan, the ROIC must be in the range of 16 percent to 35 percent. The Company has consistently followed the same method to compute ROIC, and the Compensation Committee has not exercised discretion to waive the performance goals based on difficult industry conditions or other factors. +The Company operates in a cyclical business where financial performance is influenced by changes in oil and natural gas prices. The Company generated ROIC that resulted in excess of 200 percent of the target award in 2011, 164 percent of the target award in 2010 and zero percent of the target award in 2009. The level of performance achieved had been trending downward with a significant improvement in 2010 that was sustained through 2011, consistent with the cyclical nature of industry performance and the performance of our peers. +For 2011, the executive officers earned awards that were higher than the superior performance level which qualified the officers to receive bonus awards up to 200 percent of the target incentive award, limited to 150 percent of base compensation. Performance-based cash compensation earned under the Management Incentive Plan for 2011 was as follows: Mr. Richard A. Hubbell: $1,200,000; Mr. Ben M. Palmer: $450,000; Mr. R. Randall Rollins: $1,050,000 and Ms. Linda H. Graham: $160,000. For 2012, the target awards, performance goal and maximum awards were established at the same levels as 2011. +Stock Based Incentive Plans +Our Stock Incentive Plan allows for a wide variety of stock based awards such as stock options and restricted stock. We last issued stock options in fiscal year ended 2003 and have no current plans to issue additional stock options. We have never issued any stock appreciation rights. Partially in response to changes relative to the manner in which stock options are accounted for under generally accepted accounting principles, we have modified the structure and composition of the long-term equity based component of our executive compensation. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. The terms and conditions of these awards are described in more detail below. +Awards under the Company’s Stock Incentive Plan are purely discretionary, are not based upon any specific formula and may or may not be granted in any given fiscal year. For the past three years, we have granted time-based restricted stock to various employees, including our executive officers, in early January during our regularly scheduled meetings of the Compensation Committee during which the Committee reviews executive compensation. Consistent with this practice, we granted restricted stock awards to our executive officers in January 2012, 2011 and 2010 as follows: +Name +2012 +2011 +2010 +Richard A. Hubbell +75,000 +75,000 +56,250 +Ben M. Palmer +45,000 +45,000 +36,000 +R. Randall Rollins +75,000 +75,000 +56,250 +Linda H. Graham +22,500 +22,500 +18,000 +The amount of the aggregate stock based awards to our executive officers in any given year is influenced by the Company’s overall performance. The amount of each grant to our executive officers is influenced in part by the Committee’s subjective assessment of each individual’s respective contributions to achievement of the Company’s long-term goals and objectives. In evaluating individual performance for these purposes, the Committee considers the overall contributions of executive management as a group and the Committee’s subjective assessment of each individual’s relative contribution to that performance rather than specific aspects of each individual’s performance over a short-term period. It is our expectation to continue yearly grants of restricted stock awards although we reserve the right to modify or discontinue this or any of our other compensation practices at any time. +17 +All of our restricted stock awards granted since 2004 have had the same features. The shares vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. In the event of a “change in control” as determined by the Board of Directors, all unvested restricted shares shall vest immediately. +Grants are made under our Stock Incentive Plan and the plan is administered pursuant to Rule 16b-3 of the Securities Exchange Act of 1934. +Employment Agreements +There are no agreements or understandings between the Company and any executive officer which guarantee continued employment or guarantee any level of compensation, including incentive or bonus payments, to the executive officer. +Retirement Plans +The Company maintains a defined benefit pension plan (called the Retirement Income Plan) for all our eligible employees, a non-qualified supplemental retirement plan for our executives and certain other highly compensated employees and a 401(k) Plan for the benefit of all regular full time employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. In lieu thereof, beginning in 2002, the Company began providing enhanced benefits in the form of cash contributions on behalf of certain long-service employees who were 40 to 65 years of age on or before December 31, 2002. These enhanced benefit contributions were discretionary and made annually, subject to a participant’s continued employment, for a maximum of seven years. The contributions were made either to the non-qualified Supplemental Retirement Plan (“SRP”) or to the 401(k) Plan for each employee who was entitled to the enhanced benefits. Beginning late in 2002, the Company began permitting selected highly compensated employees to defer a portion of their compensation into the SRP. +Other Compensation +Other compensation to our executives includes typical employee benefits such as group medical, dental and vision coverage and group life insurance. The Company provides an automobile (or an automobile allowance) to Messrs. Richard A. Hubbell and Ben M. Palmer. +The following Compensation Committee Report shall not be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed the above “Compensation Discussion and Analysis” with management. +Based upon this review and discussion, we have recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement. +Submitted by the Compensation Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +18 +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all directors, officers and greater than 10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all directors, officers and greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2011 have been satisfied. +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2011, 2010 and 2009 of those persons who were at December 31, 2011: +● our Principal Executive Officer and Principal Financial Officer; and +● our two other executive officers: +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Stock +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +($) (2) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +($) (3) +All Other +Compensation +($) (4) +Total ($) +Richard A. Hubbell +2011 +800,000 +869,500 +1,200,000 +6,230 +13,750 +2,889,480 +President and +2010 +669,375 +307,875 +1,050,000 +25,030 +14,302 +2,066,582 +Chief Executive Officer +2009 +625,624 +256,500 +— +54,180 +12,910 +949,214 +Ben M. Palmer +2011 +300,000 +521,700 +450,000 +11,580 +18,840 +1,302,120 +Vice President, +2010 +239,063 +197,040 +375,000 +4,920 +18,120 +834,141 +Chief Financial Officer and +2009 +223,437 +171,000 +— +8,890 +19,110 +422,437 +Treasurer +R. Randall Rollins +2011 +700,000 +869,500 +1,050,000 +— +— +2,619,500 +Chairman of the Board +2010 +573,750 +307,875 +900,000 +25,970 +— +1,807,595 +2009 +536,250 +256,500 +— +48,310 +— +841,060 +Linda H. Graham +2011 +200,000 +260,850 +160,000 +— +5,580 +626,430 +Vice President and Secretary +2010 +157,781 +98,520 +108,240 +7,410 +3,550 +375,501 +2009 +147,469 +85,500 +— +11,740 +5,020 +249,729 +(1) +Represents the fair value of the award at the date of grant computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2011 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. +(2) +Bonuses under the Management Incentive Plan are accrued in the fiscal year earned and paid in the following fiscal year. +(3) +Change represents impact of change in discount rate only as no additional benefits are being accrued. The actuarial present value of the following officers’ accumulated benefit under the defined benefit plan decreased during 2011 as follows: Mr. Randall Rollins – ($18,180) and Ms. Linda Graham – ($210). +(4) +All other compensation for 2011 includes the following items for: +Mr. Richard A. Hubbell: +Insurance on automobile provided by the Company, cost of dining club dues, cost of gasoline for personal automobile, and 401(k) Plan Company match of $7,350. +Mr. Ben M. Palmer: +Automobile allowance, cost of gasoline for personal automobile and 401(k) Plan Company match of $7,350. +Ms. Linda H. Graham: +401(k) Plan Company match of $5,580. +19 +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +Under Non-Equity +Incentive Plan Awards (1) +All Other +Stock Awards: +Number of Shares +of Stock or Units +(#) +Grant Date +Fair Value +of Stock and +Option Awards +($) (2) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Mr. Richard A. Hubbell +1/25/11 +200,000 +800,000 +1,200,000 +1/25/11 +75,000 +869,500 +Mr. Ben M. Palmer +1/25/11 +75,000 +300,000 +450,000 +1/25/11 +45,000 +521,700 +Mr. R. Randall Rollins +1/25/11 +175,000 +700,000 +1,050,000 +1/25/11 +75,000 +869,500 +Ms. Linda H. Graham +1/25/11 +20,000 +80,000 +160,000 +1/25/11 +22,500 +260,850 +(1) +These amounts illustrate the potential bonus awards under the Management Incentive Plan for 2011 that were paid out in early 2012. See Summary Compensation Table on page 19 for actual amounts awarded in 2011. +(2) +These amounts represent aggregate grant date fair value for grants of restricted shares of Common Stock awarded in fiscal year 2011 under our Stock Incentive Plan computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2011 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. Our Form 10-K has been included in our Annual Report and provided to our stockholders. +The table above reflects grants of restricted shares of Company Common Stock under our Stock Incentive Plan awarded in fiscal year 2011. All grants of restricted shares of Common Stock vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability or retirement on or after age 65), the unvested shares will be forfeited. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. +The Company’s employment contracts with its Chief Executive Officer and the Company’s other executive officers are oral, at will arrangements. All of the executive officers are eligible for annual cash bonuses which are awarded under the Management Incentive Plan. The Compensation Committee’s decisions are based upon broad performance objectives under that plan. The executive officers are eligible to receive shares of Company Common Stock subject to options and restricted shares of Company Common Stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the Compensation Committee at the time of grant. All of the executive officers are eligible to participate in the Company’s SRP. The executive officers are eligible to participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical and dental coverage, vision and other group benefit plans. All of the executive officers are eligible for the Retirement Income Plan that was frozen in March 2002. For more information on these plans, see “Compensation Discussion and Analysis” on page 14, and “Benefit Plans” on page 23. +20 +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The table below sets forth details concerning outstanding option awards made in prior years to the executives named in our Summary Compensation Table, including the grant date, the expiration date, the option exercise price, and the number of shares of Common Stock underlying the grants both exercisable and un-exercisable. The grant dates for all of these options are from fiscal year 2003 and earlier since we have not issued any stock options after 2003. The table below also sets forth the total number of restricted shares of Common Stock that were granted in prior years to the executives named in our Summary Compensation Table but which have not yet vested, together with the market value of these unvested shares based on the $12.17 closing price of our Common Stock on December 30, 2011. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Expiration +Date (1) +Number of +Shares or +Units of Stock +That Have Not +Vested (#) +Market Value +of Shares or +Units of Stock +That Have +Not Vested ($) +Richard A. Hubbell +189,843 +— +1.25 +1/28/2013 +(2) +243,750 +(3) +2,966,440 +Ben M. Palmer +— +— +— +— +143,100 +(3) +1,741,530 +R. Randall Rollins +— +— +— +— +243,750 +(3) +2,966,440 +Linda H. Graham +75,937 +— +1.25 +1/28/2013 +(2) +73,125 +(3) +889,930 +(1) +Unless otherwise noted, all options have ten year terms with vesting as follows: The options vest one-fifth per year beginning on the first anniversary of the grant date. +(2) +Options granted January 28, 2003. +(3) +The Company has granted employees time lapse restricted shares that vest one-fifth per year beginning on the second anniversary of the grant date. Shares of restricted stock granted to the executive officers that have not vested as of December 31, 2011 are summarized in the table that follows: +21 +Name +Number of shares +Grant Date +Date fully vested +Richard A. Hubbell +13,500 +1/24/2006 +1/24/2012 +18,000 +1/23/2007 +1/23/2013 +27,000 +1/22/2008 +1/22/2014 +54,000 +1/27/2009 +1/27/2015 +56,250 +1/26/2010 +1/26/2016 +75,000 +1/25/2011 +1/25/2017 +Ben M. Palmer +5,400 +1/24/2006 +1/24/2012 +7,200 +1/23/2007 +1/23/2013 +13,500 +1/22/2008 +1/22/2014 +36,000 +1/27/2009 +1/27/2015 +36,000 +1/26/2010 +1/26/2016 +45,000 +1/25/2011 +1/25/2017 +R. Randall Rollins +13,500 +1/24/2006 +1/24/2012 +18,000 +1/23/2007 +1/23/2013 +27,000 +1/22/2008 +1/22/2014 +54,000 +1/27/2009 +1/27/2015 +56,250 +1/26/2010 +1/26/2016 +75,000 +1/25/2011 +1/25/2017 +Linda H. Graham +3,375 +1/24/2006 +1/24/2012 +4,500 +1/23/2007 +1/23/2013 +6,750 +1/22/2008 +1/22/2014 +18,000 +1/27/2009 +1/27/2015 +18,000 +1/26/2010 +1/26/2016 +22,500 +1/25/2011 +1/25/2017 +OPTION EXERCISES AND STOCK VESTED +The following table sets forth: +● +the number of shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the exercise of stock options during the fiscal year ended December 31, 2011; +● +the aggregate dollar amount realized on the exercise date for such options computed by multiplying the number of shares acquired by the difference between the market value of the shares on the exercise date and the exercise price of the options; +● +the number of restricted shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the vesting of shares during the fiscal year ended December 31, 2011; and +● +the aggregate dollar amount realized on the vesting date for such restricted stock computed by multiplying the number of shares which vested by the market value of the shares on the vesting date. +Option Awards (1) +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Richard A. Hubbell +379,728 +5,102,940 +63,225 +728,030 +Ben M. Palmer +— +— +91,602 +1,401,200 +R. Randall Rollins +— +— +45,000 +516,780 +Linda H. Graham +37,968 +571,040 +19,968 +230,510 +(1) +The shares acquired on exercise of options are restricted for a period of one year from the date of exercise. +22 +BENEFIT PLANS +The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Income Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Information regarding the Retirement Income Plan can be found under Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2011. +Pension Benefits +Name +Plan Name +Number of +Years Credited +Service (#) (1) +Present +Value of +Accumulated +Benefit +($) +Payments During +Last Fiscal Year +($) +Mr. Richard A. Hubbell +Retirement Income Plan +15 +470,980 +42,312 +Mr. Ben M. Palmer +Retirement Income Plan +4 +55,620 +— +Mr. R. Randall Rollins +Retirement Income Plan +30 +2,432,050 +261,576 +Ms. Linda H. Graham +Retirement Income Plan +15 +450,550 +48,708 +(1) +The difference in years of credited and actual service is due to the freezing of benefit accruals in 2002. See discussion below for further details. +The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately preceding March 31, 2002. The benefits are computed as the product of 1.5 percent of final average compensation multiplied by years of credited service (up to 30 years) reduced by an adjustment for benefits drawn from social security. Adjustments have been made for age and IRS mandated compensation limitations. The final average compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is $127,325. +The annual benefit payable at the later of retirement age or 65 for the named executive officers is $261,600 for Mr. Rollins, $42,400 for Mr. Hubbell, $48,800 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2011 was $195,000. Retirement benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum compensation limit. +The Plan also provides reduced early retirement benefits at age 55 or older with 15 or more years of service. Ms. Graham and Mr. Hubbell are voluntarily receiving distributions from the plan even though they have not retired from the Company. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distribution received during 2011 has been disclosed in the table above and is not subject to change after retirement. +In 2002, the Company began providing additional benefits on behalf of certain long-service employees in the form of discretionary cash contributions made either to the Company’s 401(k) Plan (which is described below) or the SRP as described in the section below titled “Nonqualified Deferred Compensation.” Amounts contributed by the Company to the accounts of the executive officers are reported in the “All Other Compensation” column of the Summary Compensation Table on page 19. +23 +401(k) Plan +Effective July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax contribution account for any reason after attaining age 59 1/2. In addition, a participant may withdraw any amount from his or her rollover account for any reason. Amounts contributed by the Company to the accounts of the named executive officers under this plan are reported in the “All Other Compensation” column of the Summary Compensation Table on page 19. +NONQUALIFIED DEFERRED COMPENSATION +The SRP has been established as a nonqualified plan that is designed to comply with the provisions of the American Jobs Creation Act of 2004 (including Section 409A of the Internal Revenue Code) for the cash contributions made to certain longer serviced employees in lieu of freezing of benefit accruals effective in 2002; the SRP also has a compensation deferral option for eligible employees. The contributions and deferrals to the SRP are invested in funds held in a rabbi trust. +Name +Executive +Contributions in +last FY ($) (1) +Registrant +contributions in +last FY ($) (2) +Aggregate +earnings in last +FY ($) +Aggregate +withdrawals/ +distributions ($) +Aggregate +balance at last +FYE ($) +Richard A. Hubbell +— +— +— +— +234,286 +Ben M. Palmer +54,000 +— +(1,322 +) +— +205,043 +R. Randall Rollins +— +— +— +— +— +Linda H. Graham +104,120 +— +(2,310 +) +— +667,342 +(1) +Includes the following amounts related to the base salary for 2011 which have been deferred by the executive officer pursuant to the SRP and which are included in the Summary Compensation Table: Mr. Ben M. Palmer: $24,000 and Ms. Linda H. Graham: $50,000. The remaining amounts represent deferrals of bonus compensation related to 2010 that were paid in 2011. +(2) +Reflects the amounts for each of the named executive officers which are reported as compensation to such named executive officer in the “All Other Compensation” column of the Summary Compensation Table on page 19. +The deferral option provides that participants may defer up to 50 percent of their base salary and up to 100 percent of their annual bonus with respect to any given plan year, subject to a $2,000 per plan year minimum. The deferred amounts are voluntarily funded on a monthly basis; salary and bonus deferrals are generally 100 percent vested. Accounts are credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and contributions had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. The benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company’s obligations under the SRP exceed assets available under the trust, the Company would be required to seek additional funding sources to fund its liability under the SRP. +Generally, the SRP provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of base salary and bonus compensation (but not Company contributions), participants are entitled to designate a distribution date which is prior to a Termination Event. The SRP allows a participant to elect to receive distributions in installments or lump-sum payments. +24 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. There are no other agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment except as described below. Additional payments or benefits to a terminating executive officer would be at the discretion of the Compensation Committee. +The executive officers are not entitled to additional benefits at death or disability per the terms of the defined benefit plan. The amounts payable at retirement are disclosed in the “Benefit Plans” section on page 23. The executive officers can choose to receive the amounts accumulated in the SRP either as a lump-sum or in installments at retirement, death or disability. These amounts have been disclosed under the “Nonqualified Deferred Compensation” section on page 24. The table below shows the incremental restricted shares that would become vested as of December 30, 2011 at the closing market price of $12.17 per share for our Common Stock, as of that date in the case of retirement, disability, death or change in control. +Stock Awards +Name +Number of shares +underlying unvested +stock (#) +Unrealized value of +unvested stock ($) +Richard A. Hubbell +• Retirement +101,364 +1,233,600 +• Disability +101,364 +1,233,600 +• Death +243,750 +2,966,440 +• Change in control +243,750 +2,966,440 +Ben M. Palmer +• Retirement +— +— +• Disability +55,912 +680,450 +• Death +143,100 +1,741,530 +• Change in control +143,100 +1,741,530 +R. Randall Rollins +• Retirement +101,364 +1,233,600 +• Disability +101,364 +1,233,600 +• Death +243,750 +2,966,440 +• Change in control +243,750 +2,966,440 +Linda H. Graham +• Retirement +29,360 +357,310 +• Disability +29,360 +357,310 +• Death +73,125 +889,930 +• Change in control +73,125 +889,930 +Accrued Pay and Regular Retirement Benefits +The amounts shown in the table above do not include the following since they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: +● +Accrued salary and vacation pay. +● +Distributions of plan balances under the 401(k) Plan. +● +The value of option continuation upon termination, as described below. When an employee terminates prior to retirement, his or her stock options are terminated immediately, except that the options may be exercised for a period after termination (not to exceed the original option termination date) in the following circumstances: +→ +Permanent Disability – one year after termination +→ +Death – six months after the date of death +→ +Normal or Early Retirement – one day less than three months after retirement +The termination of employment for any reason shall not accelerate the vesting of options. +25 +Pension Benefit and Deferred Compensation +The Retirement Income Plan does not provide for lump sum payments for a participant including executive officers for instances other than retirement. The Retirement Income Plan is described at “Pension Benefits” above. Upon termination, the executive officers will receive a distribution of the balance in their SRP account. These amounts are disclosed under the “Nonqualified Deferred Compensation” section on page 24. +Severance. The Company does not have any severance arrangements for its executives. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011. +During 2011, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2011, payments totaling approximately $1,458,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $102,000 in 2011. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2011 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +26 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Principal Auditor +Grant Thornton LLP (“Grant Thornton”) served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2011 and 2010. +The Audit Committee has appointed Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012. Grant Thornton has served as the Company’s independent auditors for many years and is considered by management to be well qualified. Representatives of Grant Thornton are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. +Aggregate fees billed by the Company’s independent registered public accounting firm are set forth below: +2011 +2010 +Audit fees and quarterly reviews (1) +$ +884,000 +$ +829,950 +Audit related fees +— +— +Tax fees +— +— +All other fees +— +— +(1) +Audit fees include fees for audit or review services in accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the Sarbanes-Oxley Act. +Pre-approval of Services +All of the services described above were pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public accounting firm for these services are compatible with maintaining such auditors’ independence. A majority of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for the year 2011 was attributable to work performed by full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accounting firm and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its next scheduled meeting. The Audit Committee has no other pre-approval policies. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company’s 2013 Annual Meeting of the Stockholders must be received by the Company by November 19, 2012, in order to be included, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, management proxy holders intend to use their discretionary voting authority with respect to any stockholder proposal raised at the Company’s 2013 Annual Meeting as to which the proponent fails to notify the Company on or before February 2, 2013. With regard to such stockholder proposals, if the date of the next Annual Meeting of the Stockholders is advanced or delayed more than 30 calendar days from April 24, 2013, the Company will, in a timely manner, inform its stockholders of the change and of the date by which such proposals must be received. +27 +With respect to stockholder nomination of directors, the Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s Bylaws. Notices of nominations must be received by the Secretary of the Company no later than January 24, 2013 with respect to directors to be elected at the 2013 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +The Company will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to their beneficial stockholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of approximately $39,700 including shipping expenses. +MISCELLANEOUS +The Company’s Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, without exhibits, is being mailed to stockholders with this Proxy Statement. +Upon the written request of any record or beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2012 Annual Meeting of Stockholders, the Company will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement schedules (but without exhibits), for its fiscal year ended December 31, 2011. Requests for a copy of such Annual Report on Form 10-K should be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 19, 2012 +27 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 24, 2012, 12:15 P.M. +PROXY VOTING INSTRUCTIONS +INTERNET - Access “ www.voteproxy.com ” and follow the on-screen instructions. Have your proxy card available when you access the web page. +COMPANY NUMBER +TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. +Vote online/phone until 11:59 PM ET the day before the meeting. +MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible. +IN PERSON - You may vote your shares in person by attending the Annual Meeting. +ACCOUNT NUMBER +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : The Notice of Meeting, proxy statement and proxy +card are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. +20430000000000000000 +042412 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1 AND “FOR” ON PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class II Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012; and +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O RICHARD A. HUBBELL +O LINDA H. GRAHAM +O BILL J. DISMUKE +O LARRY L. PRINCE +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +o +FOR ALL EXCEPT +(See instructions below) +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 24, 2012, 12:15 P.M. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Notice of Meeting, proxy statement and proxy card +are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +Please detach along perforated line and mail in the envelope provided. +20430000000000000000 +042412 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1 AND “FOR” ON PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. Election of Class II Directors: +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012; and +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O RICHARD A. HUBBELL +O LINDA H. GRAHAM +O BILL J. DISMUKE +O LARRY L. PRINCE +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +o +FOR ALL EXCEPT +(See instructions below) +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +o +RPC, INC. +Proxy for Annual Meeting of Stockholders on Tuesday, April 24, 2012 +Solicited on Behalf of the Board of Directors +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 24, 2012, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia 30324, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 19, 2012, grants authority to said proxies, or either of them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place, and stead. The undersigned instructs said proxies, or either of them, to vote as stated on the reverse side. +(Continued and to be signed on the reverse side.) +14475 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-12-000724/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-12-000724/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a0aae229a70ec4520625f42ae13a30d386009ea9 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-12-000724/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $639,000 in 2011. +During 2011, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2011, payments totaling approximately $1,458,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $102,000 in 2011. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2011 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +26 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-13-000690/proxy.txt b/raw/proxies/0000742278/0001188112-13-000690/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0343eb0ec6ff1bd1c6ff6a536fb4551a0e1a7da9 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-13-000690/proxy.txt @@ -0,0 +1,1295 @@ +DEF 14A +1 +t75782_def14a.htm +SCHEDULE 14A +t75782_def14a.htm +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: N/A +(2) +Aggregate number of securities to which transaction applies: N/A +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +N/A +(4) +Proposed maximum aggregate value of transaction: N/A +(5) +Total fee paid: N/A +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing: +(1) +Amount previously paid: N/A +(2) +Form, Schedule or Registration Statement No.: N/A +(3) +Filing party: N/A +(4) +Date Filed: N/A +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2801 Buford Highway NE, Suite 520, Atlanta, Georgia 30329 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2013 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324 on Tuesday, April 23, 2013, at 12:15 P.M., or any adjournment thereof, for the following purposes: +1. +To elect the three Class III nominees and one Class II nominee identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013; and +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +The Proxy Statement dated March 18, 2013 is attached. +The Board of Directors has fixed the close of business on March 1, 2013 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in the United States. +The Proxy Statement and 2012 Annual Report are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 18, 2013 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 18, 2013. The following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of the Stockholders to be held on April 23, 2013, is submitted by the Company to the stockholders in connection with the solicitation of proxies on behalf of the Company’s Board of Directors. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the candidates for election to the Board of Directors and in favor of ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. +A stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either proxy holder, by timely submitting a later dated proxy changing his vote or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on March 1, 2013 consisted of 220,633,405 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on March 1, 2013, the record date for determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. In accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the four nominees receiving the most votes will be elected. The affirmative vote of a majority of a quorum of the Company’s outstanding shares of Common Stock present and entitled to vote at the meeting is required to approve the ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year 2013. Abstentions will have the effect of a vote against the proposals and broker non-votes will have no effect on the proposals for ratification of the appointment of the Company’s independent registered public accounting firm. There are no rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon pursuant to this Proxy Statement. It is expected that shares held of record by officers and directors of the Company, which in the aggregate represent approximately 71.4 percent of the outstanding shares of Common Stock, will be voted for the nominees for directors and for the ratification of the appointment of the Company’s independent registered public accounting firm. +1 +STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The executives named in the Summary Compensation Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 1, 2013, together with the number of shares owned by each such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and executive officers of the Company as a group (according to information received by the Company), are set out below: +Amount +Percent of +Beneficially +Outstanding +Name and Address of Beneficial Owner +Owned (1) +Shares +R. Randall Rollins +145,008,412 +(2) +65.7 +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Gary W. Rollins +148,904,674 +(3) +67.5 +Vice Chairman and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Richard A. Hubbell +2,840,564 +(4) +1.3 +President and Chief Executive Officer +2801 Buford Highway NE, Suite 520 +Atlanta, Georgia 30329 +Linda H. Graham +919,328 +(5) +** +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Ben M. Palmer +587,675 +(6) +** +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway NE, Suite 520 +Atlanta, Georgia 30329 +All Directors and Executive Officers as a group +157,605,147 +(7) +71.4 +(11 persons) +** Less than one percent +(1) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) +Includes 2,617,616 shares of Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are 279,750 shares of restricted stock awards for Company Common Stock. This also includes 249,920 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding Company securities that includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(3) +Includes 2,617,616 shares of the Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 681,527 shares of Company Common Stock held as Trustee, Guardian or Custodian for his children. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Mr. Rollins is part of a control group holding Company securities that includes Mr. R. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +2 +(4) +Includes 279,750 shares of restricted stock awards for Company Common Stock. +(5) +Includes 87,550 shares of restricted stock awards for Company Common Stock. +(6) +Includes 170,100 shares of restricted stock awards for Company Common Stock. +(7) +Shares held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have been included only once. Includes 817,150 shares of restricted stock awards for Company Common Stock awarded and issued to all of the executive officers pursuant to the Company’s 2004 Stock Incentive Plan. +PROPOSAL 1: ELECTION OF DIRECTORS +At the Annual Meeting, Mr. James A. Lane, Jr., Ms. Linda H. Graham, and Mr. Bill J. Dismuke will be nominated to serve as Class III directors and Mr. Gary W. Rollins will be nominated to serve as a Class II director. The nominees for election at the 2013 Annual Meeting are all now directors of the Company. The directors in each class serve for a term of three years. The director nominees will serve in their respective class until their successors are elected and qualified. Mr. Wilton Looney, currently a Class III director, will not be standing for re-election. Five other individuals serve as directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company’s Bylaws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance Committee, to fill such vacancy. +Director Qualifications +The name and age of each of our directors and each of the nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of outstanding shares that ownership represents, all as of the close of business on March 1, 2013 (according to information received by the Company), other board memberships and the period during which he or she has served us as a director are set forth as follows: +3 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class III (Current Term Expires 2013; New Term Will Expire 2016) +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) and President of Chaparral Boats, Inc. +1987 to date +70 +281,845 +** +Class III (Current Term Expires 2015; New Term Will Expire 2016) +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing). +2001 to date +76 +919,328 (3) +** +Bill J. Dismuke +Retired President of Edwards Baking Company (manufacturer of pies and pie parts). +2005 to date +76 +7,593 +** +Class II (Current Term Expires 2013; New Term Will Expire 2015) +Gary W. Rollins (4) +Vice Chairman and Chief Executive Officer of Rollins, Inc. (consumer services). +1984 to date +68 +148,904,674 (5) +67.5 +Name of Director Who Is Not a Nominee +Class III (Term Expires 2013) +Wilton Looney +Honorary Chairman of the Board of Genuine Parts Company (automotive parts distributor). +1984 to date +93 +9,112 +** +Names of Directors Whose Terms Have Not Expired +Class I (Term Expires 2014) +R. Randall Rollins (4) +Chairman of the Board of the Company; Chairman of the Board of Marine Products Corporation (boat manufacturing); Chairman of the Board of Rollins, Inc. (consumer services). +1984 to date +81 +145,008,412 (6) +65.7 +Henry B. Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex) and Chairman of the Board of Dover Motorsports, Inc. (operator of motor racing tracks). +1984 to date +86 +2,396,254 (7) +1.1 +4 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +James B. Williams +Retired Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004 and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1991 to 1998. +1984 to date +79 +303,750 +** +Class II (Term Expires 2015) +Richard A. Hubbell +President and Chief Executive Officer of the Company; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing). +1987 to date +68 +2,840,564 (8) +1.3 +Larry L. Prince +Retired Chairman of the Board of Directors of Genuine Parts Company (automotive parts distributor). +April 2009 to date +74 +4,500 +** +** less than one percent +(1) +Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the following individuals also serve on the Boards of Directors of the following companies: James B. Williams: The Coca-Cola Company; R. Randall Rollins: Dover Downs Gaming & Entertainment, Inc. and Dover Motorsports, Inc.; and Gary W. Rollins: Genuine Parts Company and Emory University. All of the directors shown in the above table are also directors of Marine Products Corporation (“Marine Products” or “MPC”) and, with the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. (“Rollins”). During the past five years, Larry L. Prince served as a director of Crawford & Company, Equifax, Inc., SunTrust Banks, Inc. and Genuine Parts Company. +(2) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) +See information contained in footnote (5) to the table appearing in Capital Stock section. +(4) +R. Randall Rollins and Gary W. Rollins are brothers. +(5) +See information contained in footnote (3) to the table appearing in Capital Stock section. +(6) +See information contained in footnote (2) to the table appearing in Capital Stock section. +(7) +Includes 143,977 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 2,277 shares. +(8) +See information contained in footnote (4) to the table appearing in Capital Stock section. +Key Attributes, Experience and Skills of Directors +R. Randall Rollins was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. Mr. Rollins serves as Chairman of the Board of the Company. He is also Chairman of the Board for Marine Products Corporation as well as Rollins, Inc. Mr. Rollins has been a Director of Dover Motorsports, Inc. since 1996 and a Director of Dover Downs Gaming & Entertainment, Inc. since 2002. Mr. Rollins served as a Director of SunTrust Banks, Inc. from 1995 to 2004. +Richard A. Hubbell was elected a Director of RPC in 1987. Mr. Hubbell has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. He has served as the Chief Executive Officer of the Company since 2003. In addition, Mr. Hubbell serves as the President of the Company. Mr. Hubbell is also the President, Chief Executive Officer and a Director of Marine Products Corporation. +5 +Gary W. Rollins was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry. In addition, Mr. Rollins serves as the Vice Chairman and Chief Executive Officer of Rollins, Inc. Mr. Rollins has been serving as a Director of Marine Products Corporation since 2001 and as a Director of Rollins, Inc. since 1981. Mr. Rollins has served on the Board of Director of Genuine Parts Company since 2005. +Henry B. Tippie was elected a Director of RPC in 1984. Mr. Tippie brings extensive financial and management experience to our Board of Directors serving as Controller and Chief Financial Officer of Rollins, Inc. from 1953 to 1970. Mr. Tippie has over 61 years of experience including being involved with publicly owned companies during the past 50 years in various positions including founder, CFO, CEO, President, Vice-Chairman and Chairman of the Board. He is currently Chairman of the Board for Dover Downs Gaming & Entertainment, Inc. as well as Dover Motorsports, Inc. and is also a Director for Marine Products Corporation and Rollins, Inc. +Wilton Looney was elected a Director of RPC in 1984. Mr. Looney brings extensive financial and management experience to our Board of Directors serving as a Director for over 25 years. He is the Honorary Chairman of the Board of Genuine Parts Company. Mr. Looney has been a Director of Rollins, Inc. since 1975. He has been a Director of Marine Products Corporation since 2001. +James B. Williams was elected a Director of RPC in 1984. Mr. Williams brings extensive financial and management experience to our Board of Directors serving over 25 years as a Director. He retired in March 1998 as Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc., a bank holding company, which positions he had held for more than five years. He is a Director of Marine Products Corporation, Rollins, Inc. and The Coca-Cola Company. He also previously served as a Director of Genuine Parts Company and Georgia Pacific Corporation. +Bill J. Dismuke was elected a Director of RPC in 2005. Mr. Dismuke brings extensive financial, management and manufacturing experience to our Board of Directors. He served as a Senior Vice President of Rollins, Inc. for five years from 1979 until 1984. He retired as President of Edwards Baking Company in 1995. Mr. Dismuke has also been a Director of Rollins, Inc. since 1984 and Marine Products Corporation since 2005. +Larry L. Prince was elected a Director of RPC in 2009. Mr. Prince brings extensive management experience to our Board of Directors. He served as the Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company until his retirement in 2011. He also served as Chairman of the Board from 1990 through February 2005 and as Chief Executive Officer from 1989 through August 2004 of Genuine Parts Company. Mr. Prince is also a Director of Rollins, Inc. and Marine Products Corporation. Mr. Prince previously served as a Director of SunTrust Banks, Inc., Crawford & Company, Equifax, Inc. and John H. Harland Company. +James A. Lane, Jr., was elected a Director of RPC in 1984. Mr. Lane brings extensive financial, management and manufacturing experience to our Board of Directors. He has held the position of President of Chaparral Boats, Inc. (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive Vice President and a Director of Marine Products Corporation since it was spun off in 2001. +Linda H. Graham was elected a Director of RPC in 2001. Ms. Graham brings extensive management experience to our Board of Directors. She has been the Vice President and Secretary of RPC since 1987. She also serves as the Vice President and Secretary of Marine Products Corporation. In addition, Ms. Graham serves as a Director of Marine Products Corporation. +Our Board of Directors recommends a vote “FOR” the nominees listed above. +6 +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2013. During fiscal 2012, Grant Thornton LLP served as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement. +Although the Company is not required to seek ratification of this appointment, the Audit Committee and the Board of Directors believes that it is appropriate to do so. If stockholders do not ratify the appointment of Grant Thornton LLP, the current appointment will stand, but the Audit Committee will consider the stockholder action in determining whether to retain Grant Thornton LLP as the Company’s independent registered public accounting firm. +Our Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the 2013 fiscal year. +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board Meetings +The Board of Directors met six times during the fiscal year ended December 31, 2012. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on which he or she served during 2012. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and a majority of the Board members were in attendance at last year’s meeting. +The Board of Directors has an Audit Committee, a Compensation Committee, a Diversity Committee and a Nominating and Governance Committee. +Below is a summary of our committee structure and membership information. Mr. Looney will be retiring from service on the Board of Directors and on the committee on which he serves at the conclusion of the Annual Meeting. +Committee Members +Audit +Committee +Compensation +Committee +Diversity +Committee +Nominating & +Governance +Committee +Executive +Committee +R. Randall Rollins (1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Wilton Looney (2) +Member +Member +Member +Member +James B. Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary W. Rollins +Member +(1) Chairman of the Board of Directors +(2) Financial Expert +7 +Audit Committee +The Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, Bill J. Dismuke and James B. Williams. The Audit Committee held five meetings during the fiscal year ended December 31, 2012, including a meeting to review the Company’s Form 10-K for the year ended December 31, 2011. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. Additionally, the Board of Directors has determined that the simultaneous service by Mr. James B. Williams on the Audit Committees of three other publicly traded companies does not impair his ability to effectively serve on the Audit Committee of RPC. The Audit Committee meets with the Company’s independent registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits and recommendations made with respect to controls over financial reporting and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Audit Committee charter is available on the Company’s website at www.rpc.net under the Governance section. +Compensation Committee +The Compensation Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held two meetings during the fiscal year ended December 31, 2012. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the executive officers. The Compensation Committee also administers the RPC, Inc. Stock Incentive Plans. The Compensation Committee does not have a formal charter, and is not required to have one under the “controlled company” exemption under the NYSE rules, as described in the section titled “Director Independence and NYSE Requirements” below. +Diversity Committee +The Diversity Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams. It held one meeting during the fiscal year ended December 31, 2012. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +Nominating and Governance Committee +The Nominating and Governance Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Wilton Looney, and James B. Williams, each of whom is independent, as discussed more fully under “Director Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant to a resolution passed by the Board of Directors for the following purposes: +● +to recommend to the Board of Directors nominees for director and to consider any nominations properly made by a stockholder; +● +upon request of the Board of Directors, to review and report to the Board with regard to matters of corporate governance; and +● +to make recommendations to the Board of Directors regarding the agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal year ended December 31, 2012. +8 +Director Nominations +Under Delaware law, there are no statutory criteria or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee does not have a charter or a formal policy with regard to the consideration of director candidates. As such, there is no formal policy relative to diversity, although as noted below, it is one of many factors that the Nominating and Corporate Governance Committee has the discretion to factor into its decision making. This discretion would extend to how the Committee might define diversity in a particular instance – whether in terms of background, viewpoint, experience, education, race, gender, national origin or other considerations. The Committee acts under the guidance of the Corporate Governance Guidelines approved by the Board of Directors and posted on the Company’s website at www.rpc.net under the Governance section. The Board believes that it should preserve maximum flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s Corporate Governance Guidelines, the Board of Directors will be responsible for selecting nominees for election to the Board of Directors. The Board delegates the screening process to the Nominating and Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of the then current make-up of the Board. This determination takes into account all factors which the Committee considers appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other requirements related to the notice are contained in the Company’s Bylaws. The Committee will consider nominations from stockholders who satisfy these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the nominees for directors being voted upon, at the Annual Meeting to be held on April 23, 2013 are directors standing for re-election. +Board Leadership +The Company has had separate persons serving as its Chairman of the Board and Chief Executive Officer since 2003. Mr. Randall Rollins is our Chairman and chairs our Board meetings. Mr. Richard Hubbell is our President and Chief Executive Officer. We believe that it represents the appropriate structure for us at this time; the Chairman of the Board provides general oversight and strategic planning for the Company while the President focuses on optimizing operational efficiencies. Many authorities on corporate governance are of the view that a company’s principal executive officer should not also be chairman of its board and that it is best to keep board leadership separate from operational management. +Risk Oversight by Board +Our Board’s oversight of risk has not been delegated to any Board Committee. “Risk” is an extremely broad concept that extends to multiple functional areas and crosses multiple disciplines. As such, risk may be addressed from time to time by the full Board or by one or more of our Committees. Senior management is responsible for identifying and managing material risks that we face while insurable risks and litigation risks are handled primarily by the risk management department. Senior management provides the Board with a summary of insurance coverage annually and updates as deemed necessary. Liquidity risk, credit risk and risks associated with our credit facilities and cash management are handled primarily by our finance department which regularly provides a financial report to both the Audit Committee and to the full Board. Operational, business, regulatory and political risks are handled primarily by senior executive management which regularly provides various operational reports to, among others, the full Board or to the Executive Committee. +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors, the majority of which are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. +9 +The Company’s Audit Committee is composed of four “independent” directors as defined by the Company’s Corporate Governance Guidelines, the NYSE rules, the Exchange Act, SEC regulations thereunder, and the Company’s Audit Committee Charter. All of the members of the Compensation, Diversity and Nominating and Governance Committees are also independent directors. The independent directors of the Company are Henry B. Tippie, Wilton Looney, James B. Williams, Bill J. Dismuke, and Larry L. Prince. +Independence Guidelines +Under NYSE listing standards, to be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The NYSE standards set forth a nonexclusive list of relationships which are conclusively deemed material. The Company’s Independence Guidelines (Appendix A to the Company’s Corporate Governance Guidelines) are posted on the Company’s website at www.rpc.net under the Governance section. +Audit Committee Charter +Under the Company’s Audit Committee Charter, in accordance with NYSE listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial Relationships +After reviewing all of the relationships between the members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee nor Mr. Prince had any relationships not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +1. +Mr. Tippie was employed by Rollins from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President – Finance, Secretary, Treasurer and Chief Financial Officer. Mr. Dismuke was employed by Rollins from 1979 to 1984 and held various offices within that company including Senior Vice President. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that has voting control of Rollins. +2. +Mr. Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. and Dover Downs Gaming & Entertainment, Inc. Mr. Randall Rollins is also a director of these companies. +3. +Mr. Tippie is the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Messrs. Randall and Gary Rollins. +4. +Each of Messrs. Dismuke, Looney, Prince, Tippie and Williams also serve on the Boards of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held by a control group of which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is an executive officer of Marine Products. +5. +Mr. Prince is a director of Genuine Parts Company. Mr. Gary W. Rollins is also a director of Genuine Parts Company. +10 +As required by the Independence Guidelines, the Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the independent directors, based on their experience, character and independent means, and therefore do not preclude an independence determination. All of the members are also independent under the heightened standards required for Audit Committee members. +In accordance with the NYSE corporate governance listing standards, Mr. Henry B. Tippie was elected as the Presiding Director. The Company’s non-management directors meet at regularly scheduled executive sessions without management. Mr. Tippie presides during these executive sessions. +Corporate Governance Guidelines +We have adopted Corporate Governance Guidelines to promote better understanding of our policies and procedures. At least annually, the Board reviews these guidelines. As required by the rules of the New York Stock Exchange, our Corporate Governance Guidelines require that our non-management directors meet in at least two regularly scheduled executive sessions per year without management. +At the Company’s website at www.rpc.net, under the Governance section, you may access a copy of our Corporate Governance Guidelines, our Audit Committee Charter, our Code of Business Conduct and our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy. +Code of Business Conduct +The Company has adopted a Code of Business Conduct applicable to all directors, officers and employees generally, as well as a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to the principal executive officer, principal financial officer, and directors. Both codes are available on the Company’s website at www.rpc.net under the Governance section. +Director Communications +The Company also has a process for interested parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, Inc. +2801 Buford Highway NE, Suite 520 +Atlanta, Georgia 30329 +The above instructions for communications with the directors are also posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the appropriate addressee(s). +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company’s Compensation Committee are or have ever been an employee of the Company. There are no Compensation Committee interlocks requiring disclosure. +11 +DIRECTOR COMPENSATION +The following table sets forth compensation to the Company’s directors for services rendered as a director for 2012. Three of the directors, Messrs. R. Randall Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their compensation is set forth in the Summary Compensation Table under Executive Compensation. The directors listed below have never been employed by the Company or paid a salary or bonus by the Company, have never been granted any options or other stock-based awards, and do not participate in any Company sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who was an employee of the Company until the spin-off of Marine Products in 2001. +Name +Fees Earned or Paid +in Cash +($) +Stock +Awards (1) +($) +Option +Awards (1) +($) +Total +($) +Henry B. Tippie +101,000 +— +— +101,000 +James B. Williams +51,000 +— +— +51,000 +Wilton Looney +51,000 +— +— +51,000 +Bill J. Dismuke +44,000 +— +— +44,000 +Gary W. Rollins +31,500 +— +— +31,500 +James A. Lane, Jr. +31,500 +— +— +31,500 +Larry L. Prince +31,500 +— +— +31,500 +(1) +Directors are eligible for grants of stock awards under the Company’s 2004 Stock Incentive Plan (“SIP”). No stock awards have been granted to the non-management directors under the 2004 SIP. +Directors that are our employees do not receive additional compensation for services rendered as a director. +Under current compensation arrangements effective since January 1, 2013, non-management directors each receive an annual retainer fee of $26,000. In addition, the Chairman of the Audit Committee receives an annual retainer of $20,000, the Chairman of the Compensation Committee receives an annual retainer of $10,000, and the Chairman of each of the Nominating and Governance Committee and Diversity Committee receives an annual retainer of $6,000. A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a quarterly basis. Per meeting fees for non-management directors are as follows: +● +For meetings of the Board of Directors, $2,500 and for meetings of the Compensation Committee, Diversity Committee and Nominating and Governance Committee, $1,500. +● +For meetings of the Audit Committee either in person or over the telephone, $2,500. In addition, the Chairman of the Audit Committee receives an additional $2,500 for preparing to conduct each quarterly Board and Board Committee meetings. +All non-management directors are also entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. +Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that might incorporate future filings, including the Proxy Statement, in whole or in part, the Report of the Audit Committee shall not be incorporated by reference into any such filings. +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s internal controls, assessing the effectiveness of these controls and the financial reporting process. The Company’s independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +12 +In fulfilling its oversight responsibilities with respect to the year ended December 31, 2012, the Audit Committee: +● +Approved the terms of engagement of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2012; +● +Reviewed with management the interim financial information included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management and the Company’s independent registered public accounting firm prior to their release; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm the audited consolidated financial statements of the Company as of December 31, 2012 and 2011 and for the three years ended December 31, 2012; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm, management’s assessment that the Company maintained effective control over financial reporting as of December 31, 2012; +● +Discussed with the independent registered public accounting firm matters required to be discussed by the American Institute of Certified Public Accountants Statement on Auditing Standards (“SAS”) No. 61, “Communications with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board; and +● +Received from the independent registered public accounting firm the written disclosures and the letter in accordance with the requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Committee concerning independence, and discussed with such firm its independence from the Company. +Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of December 31, 2012 and 2011 and for the three years ended December 31, 2012 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and for filing with the Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s independent registered public accounting firm with respect to such financial statements. +Submitted by the Audit Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +Bill J. Dismuke +13 +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Committee +During the fiscal year ended December 31, 2012, the members of our Compensation Committee held primary responsibility for determining executive compensation levels. The Committee is composed of three of our non-management directors who do not participate in the Company’s compensation plans. The Committee determines the compensation and administers the performance-based incentive cash compensation plan for our executive officers. In addition, the Committee also administers our Stock Incentive Plan for all the employees. +The members of our Compensation Committee have extensive and varied experience with various public and private corporations - as investors and stockholders, as senior executives, and as directors charged with the oversight of management and the setting of executive compensation levels. Henry B. Tippie, the Chairman of the Compensation Committee, has served on the board of directors of twelve different publicly traded companies and has been involved in setting executive compensation levels at all of these companies. Messrs. Wilton Looney and James B. Williams have served on the board of directors of several different publicly traded companies and have similarly been involved in setting executive compensation levels at many of these companies. +The Compensation Committee has authority to engage attorneys, accountants and consultants, including executive compensation consultants, to solicit input from management concerning compensation matters, and to delegate any of its responsibilities to one or more directors or members of management where it deems such delegation appropriate and permitted under applicable law. The Committee has not used the services of any compensation consultants in determining or recommending the amount or form of executive compensation. +The Compensation Committee believes that determinations relative to executive compensation levels are best left to the discretion of the Committee. In addition to the extensive experience and expertise of the Committee’s members and their familiarity with the Company’s performance and the performance of our executive officers, the Committee is able to draw on the experience of other Directors and on various legal and accounting executives employed by the Company, and the Committee has access to readily available public information relative to structuring executive compensation programs and setting appropriate compensation levels. The Committee also believes that the structure of our executive compensation programs should not become overly complicated or difficult to understand. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. +The Role of Shareholder Say-on-Pay Votes +The Company provides its shareholders with the opportunity to cast an every three years advisory vote on executive compensation (a “say-on-pay proposal”). At the Company’s annual meeting of shareholders held in April 2011, a substantial majority of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. The shareholders voted to hold a say-on-pay advisory vote on executive compensation every three years, and the Board resolved to accept the shareholders’ recommendation. As a result, the advisory vote on executive compensation will be held again at the 2014 annual shareholders’ meeting. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for its executive officers. +General Compensation Objectives and Guidelines +The Company is engaged in a highly competitive industry. The success of the Company depends on its ability to attract and retain highly qualified and motivated executives. In order to accomplish this objective, the Company structures the executive compensation in a fashion that takes into account the Company’s overall performance and the individual performance of the executive. +14 +The Compensation Committee endorses the philosophy that executive compensation should reflect Company performance and the contribution of executive officers to that performance. The Company’s compensation policy is designed to achieve three fundamental objectives: (i) attract and retain qualified executives, (ii) motivate performance to achieve Company objectives, and (iii) align the interests of our executives with the long-term interests of the Company’s stockholders. The Committee recognizes that there are many intangibles involved in evaluating performance and in motivating performance, and that determining an appropriate compensation level is a highly subjective endeavor. The analysis of the Committee is not based upon a structured formula and the objectives referred to above are not weighted in any formal manner. +The Company’s executive officers are also executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee also constitute the Compensation Committee of Marine Products. In determining the compensation for the executive officers at the Company, the Committee considers these dual responsibilities and sources of compensation. The Company sets compensation of its executives at such levels so that the aggregate compensation received from both Marine Products and the Company is reasonable in light of their respective responsibilities and the performance of both companies, and so that the compensation from the Company for services solely to the Company is reasonable. A discussion of the Company’s executive officers’ compensation at Marine Products is contained in its annual Proxy Statement filed with the SEC. During the year, none of the executive officers made recommendations or otherwise contributed input on their own compensation. However, the Compensation Committee may from time to time solicit input from the Chairman when reviewing executive compensation. +Pursuant to the Company’s compensation philosophy, the total annual compensation of its executive officers is primarily comprised of base salary, performance-based incentive cash compensation and stock-based incentive compensation. In addition, the Company provides retirement compensation plans, group welfare benefits and certain perquisites. +We believe a competitive base salary is important to attract, retain and motivate top executives. We believe a performance-based incentive cash compensation plan is valuable in recognizing and rewarding individual achievement. Finally, we believe stock-based incentives make executives “think like owners” and, therefore, align their interests with those of our stockholders. +The Company does not have any formal stock ownership requirements for its executive officers but notes that its current directors and executive officers are stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. The Company is mindful of the stock ownership of our directors and executive officers but does not believe that it is appropriate to provide a mechanism or formula to take stock ownership (or gains from prior option or stock awards) into account when setting compensation levels. The Company provides in its insider trading policies that directors and executive officers may not sell Company securities short and may not sell puts, calls or other derivative securities tied to our Common Stock. +The Company does not have a formal policy relative to the adjustment or recovery of incentives or awards in the event that the performance measures upon which incentives or awards were based are later restated or otherwise adjusted in a manner that would have reduced the size of an incentive or award. However, as all incentives and awards remain within the discretion of the Compensation Committee, the Committee retains the ability to take any such restatements or adjustments into account in subsequent years. In addition, the Sarbanes-Oxley Act requires in the case of accounting restatements that result from material non-compliance with SEC financial reporting requirements, that Chief Executive Officers and Chief Financial Officers must disgorge bonuses and other incentive-based compensation and profits on stock sales, if the non-compliance results from misconduct. +Base Salary +The salary of each executive officer is determined by the Compensation Committee. In making its determinations, the Committee gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by Marine Products. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. During 2012, the base salaries of our executive officers were increased to the following amounts: Mr. Richard A. Hubbell: $900,000 ($100,000 increase from 2011); Mr. Ben M. Palmer: $375,000 ($75,000 increase from 2011); Mr. R. Randall Rollins: $800,000 ($100,000 increase from 2011); and Ms. Linda H. Graham: $250,000 ($50,000 increase from 2011). These increases were subjectively based on growth in revenues, recent profit performance of the Company and return on invested capital. No salary increases have been granted in 2013, through the date of this proxy. +15 +Performance-Based Incentive Cash Compensation +The Company implemented the Performance-Based Incentive Cash Compensation Plan (the “Management Incentive Plan”) for the executive officers in 2006. Under the Management Incentive Plan, the Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Management Incentive Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year. If the participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Management Incentive Plan. This formula provides for a performance value (“Performance Value”) which ranges from: +● +threshold performance level (with a Performance Value of 25 percent of the Target Award), +● +target performance level (with a Performance Value up to 100 percent of the Target Award), to +● +superior performance level (with a Performance Value up to 200 percent of the Target Award). +Subject to the limitations set forth below, a participant’s cash award amount for each year under the Management Incentive Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation. The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year. +For 2012, the Compensation Committee established the target incentive award under the Management Incentive Plan for the Chief Executive Officer and for the other members of executive management at the amounts shown in the table below. The target awards that could be earned under the Management Incentive Plan for 2012 were the same as for the prior year. +Executive Officer +Target Award as a +percentage of base salary +Richard A. Hubbell +President and Chief Executive Officer +100% +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +100% +R. Randall Rollins +Chairman of the Board +100% +Linda H. Graham +Vice President and Secretary +40% +16 +The maximum bonus award for each participant under the Plan for 2012 and prior years was established at 150 percent of such participant’s base salary. The performance criteria applicable to the participants under the Management Incentive Plan for 2012 were determined based solely on corporate performance. The Compensation Committee established corporate performance goals for 2012 under the Management Incentive Plan based on cash flow return on invested capital. Return on invested capital (“ROIC”) is a widely used financial performance measure that typically correlates with long term change in stockholder value. The Company has used ROIC as the sole performance goal under the Management Incentive Plan for several years. ROIC is computed as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to invested capital. Invested capital is generally equal to the aggregate of stockholders’ equity, accumulated depreciation and long-term liabilities. For 2012, the target performance goal established by the Company is in excess of the comparable historical average ROIC of our peers, is in excess of the Company’s weighted average cost of capital, and is an amount which the Company believes represents outstanding financial performance. Under the Management Incentive Plan, the Company must achieve at least 80 percent of the target performance goal for executive officers to be eligible for any bonus award. Bonus awards under the Management Incentive Plan are determined on a sliding scale between the threshold performance level and a superior performance level, which corresponds to 175 percent of the target performance goal. To be eligible for the bonus award under the Management Incentive Plan, the ROIC must be in excess of 16 percent up to a maximum of 35 percent. The Company has consistently followed the same method to compute ROIC, and the Compensation Committee has not exercised discretion to waive the performance goals based on difficult industry conditions or other factors. +The Company operates in a cyclical business where financial performance is influenced by, among other things, changes in oil and natural gas prices. The Company generated ROIC that resulted in 192 percent of the target award in 2012, in excess of 200 percent of the target award in 2011 and 164 percent of the target award in 2010. The level of performance achieved had been trending downward with a significant improvement in 2011 that was sustained through 2012, consistent with the cyclical nature of industry performance and the performance of our peers. +For 2012, the executive officers earned awards that were higher than target but lower than the superior performance level which qualified the officers to receive bonus awards up to 192 percent of the target incentive award, limited to 150 percent of base compensation. Performance-based cash compensation earned under the Management Incentive Plan for 2012 was as follows: Mr. Richard A. Hubbell: $1,350,000; Mr. Ben M. Palmer: $562,500; Mr. R. Randall Rollins: $1,200,000 and Ms. Linda H. Graham: $192,000. For 2013, the target awards, performance goal and maximum awards were established at the same levels as 2012. +Stock Based Incentive Plans +Our Stock Incentive Plan allows for a wide variety of stock based awards such as stock options and restricted stock. We last issued stock options in fiscal year ended 2003 and have no current plans to issue additional stock options. We have never issued any stock appreciation rights. Partially in response to changes relative to the manner in which stock options are accounted for under generally accepted accounting principles, we have modified the structure and composition of the long-term equity based component of our executive compensation. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. The terms and conditions of these awards are described in more detail below. +Awards under the Company’s Stock Incentive Plan are purely discretionary, are not based upon any specific formula and may or may not be granted in any given fiscal year. For the past three years, we have granted time-based restricted stock to various employees, including our executive officers, in early January during our regularly scheduled meetings of the Compensation Committee during which the Committee reviews executive compensation. Consistent with this practice, we granted restricted stock awards to our executive officers in January 2013, 2012 and 2011 as follows: +Name +2013 +2012 +2011 +Richard A. Hubbell +75,000 +75,000 +75,000 +Ben M. Palmer +45,000 +45,000 +45,000 +R. Randall Rollins +75,000 +75,000 +75,000 +Linda H. Graham +25,000 +22,500 +22,500 +17 +The amount of the aggregate stock based awards to our executive officers in any given year is influenced by the Company’s overall performance. The amount of each grant to our executive officers is influenced in part by the Committee’s subjective assessment of each individual’s respective contributions to achievement of the Company’s long-term goals and objectives. In evaluating individual performance for these purposes, the Committee considers the overall contributions of executive management as a group and the Committee’s subjective assessment of each individual’s relative contribution to that performance rather than specific aspects of each individual’s performance over a short-term period. It is our expectation to continue yearly grants of restricted stock awards although we reserve the right to modify or discontinue this or any of our other compensation practices at any time. +All of our restricted stock awards granted since 2004 have had the same features. The shares vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to disability or retirement on or after age 65), the unvested shares will be forfeited. In the event of death or “change in control” as determined by the Board of Directors, all unvested restricted shares shall vest immediately. +Grants are made under our Stock Incentive Plan and the plan is administered pursuant to Rule 16b-3 of the Securities Exchange Act of 1934. +Employment Agreements +There are no agreements or understandings between the Company and any executive officer which guarantee continued employment or guarantee any level of compensation, including incentive or bonus payments, to the executive officer. +Retirement Plans +The Company maintains a defined benefit pension plan (called the Retirement Income Plan) for all our eligible employees, a non-qualified supplemental retirement plan for our executives and certain other highly compensated employees and a 401(k) Plan for the benefit of all regular full time employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. During 2002, the Company began permitting selected highly compensated employees to defer a portion of their compensation into the Company’s non-qualified Supplemental Retirement Plan (“SRP”). The SRP is described in more detail under the caption “Nonqualified Deferred Compensation” below. +Other Compensation +Other compensation to our executives includes typical employee benefits such as group medical, dental and vision coverage and group life insurance. The Company provides an automobile (or an automobile allowance) to Messrs. Richard A. Hubbell and Ben M. Palmer. +The following Compensation Committee Report shall not be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. +18 +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed the above “Compensation Discussion and Analysis” with management. +Based upon this review and discussion, we have recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement. +Submitted by the Compensation Committee of the Board of Directors. +Henry B. Tippie, Chairman +Wilton Looney +James B. Williams +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all directors, officers and greater than 10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all directors, officers and greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2012 have been satisfied. +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2012, 2011 and 2010 of those persons who were at December 31, 2012: +● +our Principal Executive Officer and Principal Financial Officer; and +● +our two other executive officers: +SUMMARY COMPENSATION TABLE +Name and Principal Position +Year +Salary +($) +Stock +Awards +($) (1) +Non-Equity +Incentive +Plan +Compensation +($) (2) +Change in +Pension +Value and +Nonqualified +Deferred +Compensation +Earnings +($) (3) +All Other +Compensation +($) (4) +Total ($) +Richard A. Hubbell +2012 +900,000 +876,750 +1,350,000 +18,439 +13,890 +3,159,079 +President and +2011 +800,000 +869,500 +1,200,000 +6,230 +13,750 +2,889,480 +Chief Executive Officer +2010 +669,375 +307,875 +1,050,000 +25,030 +14,302 +2,066,582 +Ben M. Palmer +2012 +375,000 +526,050 +562,500 +14,224 +20,620 +1,498,394 +Vice President, +2011 +300,000 +521,700 +450,000 +11,580 +18,840 +1,302,120 +Chief Financial Officer and +2010 +239,063 +197,040 +375,000 +4,920 +18,120 +834,141 +Treasurer +R. Randall Rollins +2012 +800,000 +876,750 +1,200,000 +24,168 +— +2,876,750 +Chairman of the Board +2011 +700,000 +869,500 +1,050,000 +— +— +2,619,500 +2010 +573,750 +307,875 +900,000 +25,970 +— +1,807,595 +Linda H. Graham +2012 +250,000 +263,025 +192,000 +8,763 +6,840 +720,628 +Vice President and Secretary +2011 +200,000 +260,850 +160,000 +— +5,580 +626,430 +2010 +157,781 +98,520 +108,240 +7,410 +3,550 +375,501 +(1) +Represents the fair value of the award at the date of grant computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2012 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. +19 +(2) +Bonuses under the Management Incentive Plan are accrued in the fiscal year earned and paid in the following fiscal year. +(3) +Change represents impact of change in discount rate only as no additional benefits are being accrued. +(4) +All other compensation for 2012 includes the following items for: +Mr. Richard A. Hubbell: +Insurance on automobile provided by the Company, cost of dining club dues, cost of gasoline for personal automobile, and 401(k) Plan Company match of $7,500. +Mr. Ben M. Palmer: +Automobile allowance, cost of gasoline for personal automobile and 401(k) Plan Company match of $7,500. +Ms. Linda H. Graham: +401(k) Plan Company match of $6,840. +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +Under Non-Equity +Incentive Plan Awards (1) +All Other +Stock Awards: +Number of Shares +of Stock or Units +(#) +Grant Date +Fair Value +of Stock and +Option Awards +($) (2) +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Name +Mr. Richard A. Hubbell +1/24/12 +225,000 +900,000 +1,350,000 +1/24/12 +75,000 +876,750 +Mr. Ben M. Palmer +1/24/12 +93,750 +375,000 +562,500 +1/24/12 +45,000 +526,050 +Mr. R. Randall Rollins +1/24/12 +200,000 +800,000 +1,200,000 +1/24/12 +75,000 +876,750 +Ms. Linda H. Graham +1/24/12 +25,000 +100,000 +192,000 +1/24/12 +22,500 +263,025 +(1) +These amounts illustrate the potential bonus awards under the Management Incentive Plan for 2012. See Summary Compensation Table on page 19 for actual amounts awarded in 2012. +(2) +These amounts represent aggregate grant date fair value for grants of restricted shares of Common Stock awarded in fiscal year 2012 under our Stock Incentive Plan computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2012 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. Our Form 10-K has been included in our Annual Report and provided to our stockholders. +The table above reflects grants of restricted shares of Company Common Stock under our Stock Incentive Plan awarded in fiscal year 2012. All grants of restricted shares of Common Stock vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability, change in control or retirement on or after age 65), the unvested shares will be forfeited. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. +The Company’s employment contracts with its Chief Executive Officer and the Company’s other executive officers are oral, at will arrangements. All of the executive officers are eligible for annual cash bonuses which are awarded under the Management Incentive Plan. The Compensation Committee’s decisions are based upon broad performance objectives under that plan. The executive officers are eligible to receive shares of Company Common Stock subject to options and restricted shares of Company Common Stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the Compensation Committee at the time of grant. All of the executive officers are eligible to participate in the Company’s SRP. The executive officers are eligible to participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical and dental coverage, vision and other group benefit plans. All of the executive officers are eligible for the Retirement Income Plan although benefit accruals were frozen in 2002. For more information on these plans, see “Compensation Discussion and Analysis” on page 14, and “Benefit Plans” on page 22. +20 +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The table below sets forth details concerning outstanding option awards made in prior years to the executives named in our Summary Compensation Table, including the grant date, the expiration date, the option exercise price, and the number of shares of Common Stock underlying the grants both exercisable and un-exercisable. The grant dates for all of these options are from fiscal year 2003 and earlier since we have not issued any stock options after 2003. The table below also sets forth the total number of restricted shares of Common Stock that were granted in prior years to the executives named in our Summary Compensation Table but which have not yet vested, together with the market value of these unvested shares based on the $12.24 closing price of our Common Stock on December 31, 2012. +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options (#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options (#) +Unexercisable +Option +Exercise +Price ($) +Option +Expiration +Date +Number of +Shares or +Units of Stock +That Have Not +Vested (#) +Market Value +of Shares or +Units of Stock +That Have +Not Vested ($) +Richard A. Hubbell +— +— +— +— +262,500 +(1) +3,213,000 +Ben M. Palmer +— +— +— +— +158,400 +(1) +1,938,820 +R. Randall Rollins +— +— +— +— +262,500 +(1) +3,213,000 +Linda H. Graham +— +— +— +— +79,650 +(1) +974,920 +(1) +The Company has granted employees time lapse restricted shares that vest one-fifth per year beginning on the second anniversary of the grant date. Shares of restricted stock granted to the executive officers that have not vested as of December 31, 2012 are summarized in the table that follows: +Name +Number of shares +Grant date +Date fully vested +Richard A. Hubbell +9,000 +1/23/2007 +1/23/2013 +18,000 +1/22/2008 +1/22/2014 +40,500 +1/27/2009 +1/27/2015 +45,000 +1/26/2010 +1/26/2016 +75,000 +1/25/2011 +1/25/2017 +75,000 +1/24/2012 +1/24/2018 +Ben M. Palmer +3,600 +1/23/2007 +1/23/2013 +9,000 +1/22/2008 +1/22/2014 +27,000 +1/27/2009 +1/27/2015 +28,800 +1/26/2010 +1/26/2016 +45,000 +1/25/2011 +1/25/2017 +45,000 +1/24/2012 +1/24/2018 +R. Randall Rollins +9,000 +1/23/2007 +1/23/2013 +18,000 +1/22/2008 +1/22/2014 +40,500 +1/27/2009 +1/27/2015 +45,000 +1/26/2010 +1/26/2016 +75,000 +1/25/2011 +1/25/2017 +75,000 +1/24/2012 +1/24/2018 +Linda H. Graham +2,250 +1/23/2007 +1/23/2013 +4,500 +1/22/2008 +1/22/2014 +13,500 +1/27/2009 +1/27/2015 +14,400 +1/26/2010 +1/26/2016 +22,500 +1/25/2011 +1/25/2017 +22,500 +1/24/2012 +1/24/2018 +21 +OPTION EXERCISES AND STOCK VESTED +The following table sets forth: +● +the number of shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the exercise of stock options during the fiscal year ended December 31, 2012; +● +the aggregate dollar amount realized on the exercise date for such options computed by multiplying the number of shares acquired by the difference between the market value of the shares on the exercise date and the exercise price of the options; +● +the number of restricted shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the vesting of shares during the fiscal year ended December 31, 2012; and +● +the aggregate dollar amount realized on the vesting date for such restricted stock computed by multiplying the number of shares which vested by the market value of the shares on the vesting date. +Option Awards (1) +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +Richard A. Hubbell +189,842 +2,010,432 +37,500 +620,910 +Ben M. Palmer +— +— +19,800 +323,040 +R. Randall Rollins +— +— +37,500 +620,910 +Linda H. Graham +75,937 +773,039 +10,650 +174,640 +(1) +The shares acquired on exercise of options are restricted for a period of one year from the date of exercise. +BENEFIT PLANS +The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Income Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Information regarding the Retirement Income Plan can be found under Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2012. +Pension Benefits +Name +Plan Name +Number of +Years Credited +Service (#) (1) +Present +Value of +Accumulated +Benefit +($) +Payments During +Last Fiscal Year +($) +Mr. Richard A. Hubbell +Retirement Income Plan +15 +489,419 +42,312 +Mr. Ben M. Palmer +Retirement Income Plan +4 +69,841 +— +Mr. R. Randall Rollins +Retirement Income Plan +30 +2,456,218 +261,576 +Ms. Linda H. Graham +Retirement Income Plan +15 +459,313 +48,708 +(1) +The difference in years of credited and actual service is due to the freezing of benefit accruals in 2002. See discussion below for further details. +The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately preceding March 31, 2002. The benefits are computed as the product of 1.5 percent of final average compensation multiplied by years of credited service (up to 30 years) reduced by an adjustment for benefits drawn from social security. Adjustments have been made for age and IRS mandated compensation limitations. The final average compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is $127,325. +22 +The annual benefit payable at the later of retirement age or 65 for the named executive officers is $261,600 for Mr. Rollins, $42,400 for Mr. Hubbell, $48,800 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2012 was $205,000. Retirement benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum compensation limit. +The Plan also provides reduced early retirement benefits at age 55 or older with 15 or more years of service. Ms. Graham and Mr. Hubbell are voluntarily receiving distributions from the plan even though they have not retired from the Company. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distribution received during 2012 has been disclosed in the table above and is not subject to change after retirement. +401(k) Plan +Effective July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax contribution account for any reason after attaining age 59 1/2. In addition, a participant may withdraw any amount from his or her rollover account for any reason. Amounts contributed by the Company to the accounts of the named executive officers under this plan are reported in the “All Other Compensation” column of the Summary Compensation Table on page 19. +NONQUALIFIED DEFERRED COMPENSATION +The SRP has been established as a nonqualified plan that is designed to comply with the provisions of the American Jobs Creation Act of 2004 (including Section 409A of the Internal Revenue Code) for the cash contributions made to certain longer serviced employees in lieu of freezing of benefit accruals effective in 2002; the SRP also has a compensation deferral option for eligible employees. The contributions and deferrals to the SRP are invested in funds held in a rabbi trust. +Name +Executive +Contributions in +last FY ($) (1) +Registrant +contributions in +last FY ($) (2) +Aggregate +earnings in last +FY ($) +Aggregate +withdrawals/ +distributions ($) +Aggregate +balance at last +FYE ($) +Richard A. Hubbell +— +— +28,365 +— +262,651 +Ben M. Palmer +99,844 +— +29,551 +(15,200 +) +319,238 +R. Randall Rollins +— +— +— +— +— +Linda H. Graham +200,000 +— +88,922 +— +956,264 +(1) +Includes the following amounts related to the base salary for 2012 which have been deferred by the executive officer pursuant to the SRP and which are included in the Summary Compensation Table: Mr. Ben M. Palmer: $36,000 and Ms. Linda H. Graham: $80,000. The remaining amounts represent deferrals of bonus compensation that were paid in 2012. +(2) +Reflects the amounts for each of the named executive officers which are reported as compensation to such named executive officer in the “All Other Compensation” column of the Summary Compensation Table on page 19. +23 +The deferral option provides that participants may defer up to 50 percent of their base salary and up to 100 percent of their annual bonus with respect to any given plan year, subject to a $2,000 per plan year minimum. The deferred amounts are voluntarily funded on a monthly basis; salary and bonus deferrals are generally 100 percent vested. Accounts are credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and contributions had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. The benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company’s obligations under the SRP exceed assets available under the trust, the Company may be required to seek additional funding sources to fund its liability under the SRP. +Generally, the SRP provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of base salary and bonus compensation (but not Company contributions), participants are entitled to designate a distribution date which is prior to a Termination Event. The SRP allows a participant to elect to receive distributions in installments or lump-sum payments. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. There are no other agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment except as described below. Additional payments or benefits to a terminating executive officer would be at the discretion of the Compensation Committee. +In accordance with the terms of the defined benefit plan, the executive officers are not entitled to additional benefits at death or disability. The amounts payable at retirement are disclosed in the “Benefit Plans” section on page 22. The executive officers can choose to receive the amounts accumulated in the SRP either as a lump-sum or in installments at retirement, death or disability. These amounts have been disclosed under the “Nonqualified Deferred Compensation” section on page 23. The table below reflects the incremental restricted shares that would become vested as of December 31, 2012 using the closing market price of $12.24 per share for our Common Stock, as of that date, in the case of retirement, disability, death or change in control. +Stock Awards +Name +Number of shares +underlying unvested +stock (#) +Unrealized value of +unvested stock ($) +Richard A. Hubbell +● Retirement +52,938 +647,960 +● Disability +86,823 +1,062,710 +● Death +262,500 +3,213,000 +● Change in control +262,500 +3,213,000 +Ben M. Palmer +● Retirement +— +— +● Disability +51,213 +626,850 +● Death +158,400 +1,938,820 +● Change in control +158,400 +1,938,820 +24 +Stock Awards +Name +Number of shares +underlying unvested +stock (#) +Unrealized value of +unvested stock ($) +R. Randall Rollins +● Retirement +52,938 +647,960 +● Disability +86,823 +1,062,710 +● Death +262,500 +3,213,000 +● Change in control +262,500 +3,213,000 +Linda H. Graham +● Retirement +15,675 +191,860 +● Disability +26,027 +318,570 +● Death +79,650 +974,920 +● Change in control +79,650 +974,920 +Accrued Pay and Regular Retirement Benefits +The amounts shown in the table above do not include the following since they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: +● +Accrued salary and vacation pay. +● +Distributions of plan balances under the 401(k) Plan. +Pension Benefit and Deferred Compensation +The Retirement Income Plan does not provide for lump sum payments for a participant including executive officers for instances other than retirement. The Retirement Income Plan is described at “Pension Benefits” above. Upon termination, the executive officers will receive a distribution of the balance in their SRP account. These amounts are disclosed under the “Nonqualified Deferred Compensation” section on page 23. +Severance. The Company does not have any severance arrangements for its executives. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012. +During 2012, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2012, payments totaling approximately $1,676,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $83,000 in 2012. +25 +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2012 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Principal Auditor +Grant Thornton LLP (“Grant Thornton”) served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2012 and 2011. +The Audit Committee has appointed Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. Grant Thornton has served as the Company’s independent auditors for many years and is considered by management to be well qualified. Representatives of Grant Thornton are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. +Aggregate fees billed by the Company’s independent registered public accounting firm are set forth below: +2012 +2011 +Audit fees and quarterly reviews (1) +$ +985,250 +$ +884,000 +Audit related fees +— +— +Tax fees +— +— +All other fees +— +— +(1) +Audit fees include fees for audit or review services in accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the Sarbanes-Oxley Act. +26 +Pre-approval of Services +All of the services described above were pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public accounting firm for these services are compatible with maintaining such auditors’ independence. A majority of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for the year 2012 was attributable to work performed by full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accounting firm and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its next scheduled meeting. The Audit Committee has no other pre-approval policies. +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company’s 2014 Annual Meeting of the Stockholders must be received by the Company by November 15, 2013, in order to be included, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, management proxy holders intend to use their discretionary voting authority with respect to any stockholder proposal raised at the Company’s 2014 Annual Meeting as to which the proponent fails to notify the Company on or before January 29, 2014. With regard to such stockholder proposals, if the date of the next Annual Meeting of the Stockholders is advanced or delayed more than 30 calendar days from April 23, 2014, the Company will, in a timely manner, inform its stockholders of the change and of the date by which such proposals must be received. +With respect to stockholder nomination of directors, the Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s Bylaws. Notices of nominations must be received by the Secretary of the Company no later than January 23, 2014 with respect to directors to be elected at the 2014 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +The Company will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to their beneficial stockholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of approximately $79,600 including shipping expenses. +27 +MISCELLANEOUS +The Company’s Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, without exhibits, is being mailed to stockholders with this Proxy Statement. +Upon the written request of any record or beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2013 Annual Meeting of Stockholders, the Company will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement schedules (but without exhibits), for its fiscal year ended December 31, 2012. Requests for a copy of such Annual Report on Form 10-K should be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 18, 2013 +28 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 23, 2013, 12:15 P.M. +PROXY VOTING INSTRUCTIONS +INTERNET - Access “ www.voteproxy.com ” and follow the on-screen instructions. Have your proxy card available when you access the web page. +COMPANY NUMBER +TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. +Vote online/phone until 11:59 PM ET the day before the meeting. +MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible. +IN PERSON - You may vote your shares in person by attending the Annual Meeting. +ACCOUNT NUMBER +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Proxy Statement and 2012 Annual Report are available at +http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. +20430000000000000000 +042313 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1 AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. To elect the three Class III nominees and one Class II nominee identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013; and +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O James A. Lane, Jr. Class III +O Linda H. Graham Class III +O Bill J. Dismuke Class III +O Gary W. Rollins Class II +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +o +FOR ALL EXCEPT +(See instructions below) +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 23, 2013, 12:15 P.M. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Proxy Statement and 2012 Annual Report are available at +http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=26231 +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +Please detach along perforated line and mail in the envelope provided. +20430000000000000000 +042313 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1 AND “FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +FOR +AGAINST +ABSTAIN +1. To elect the three Class III nominees and one Class II nominee identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013; and +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O James A. Lane, Jr. Class III +O Linda H. Graham Class III +O Bill J. Dismuke Class III +O Gary W. Rollins Class II +3. +To transact such other business as may properly come before the meeting or any adjournment thereof. +o +WITHHOLD AUTHORITY +FOR ALL NOMINEES +o +FOR ALL EXCEPT +(See instructions below) +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR AND “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +o +RPC, INC. +Proxy for Annual Meeting of Stockholders on Tuesday, April 23, 2013 +Solicited on Behalf of the Board of Directors +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 23, 2013, at 12:15 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia 30324, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 18, 2013, grants authority to said proxies, or either of them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place, and stead. The undersigned instructs said proxies, or either of them, to vote as stated on the reverse side. +(Continued and to be signed on the reverse side.) +14475 \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-13-000690/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-13-000690/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7a47d3efa8f2b7d0984ec39299c7a4265cf011f --- /dev/null +++ b/raw/proxies/0000742278/0001188112-13-000690/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $544,000 in 2012. +During 2012, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2012, payments totaling approximately $1,676,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred by its subsidiary are at least as favorable as the charges that would have been incurred for similar services from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $83,000 in 2012. +25 +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2012 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-14-000700/proxy.txt b/raw/proxies/0000742278/0001188112-14-000700/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a05e4fcb75f975400f7df7a9d970689f22013ce8 --- /dev/null +++ b/raw/proxies/0000742278/0001188112-14-000700/proxy.txt @@ -0,0 +1,1731 @@ +DEF 14A +1 +t78558_def14a.htm +SCHEDULE 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section +14(a) of the Securities +Exchange Act of 1934 (Amendment No. +___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +RPC, Inc. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: N/A +(2) +Aggregate number of securities to which transaction applies: N/A +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule +0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +N/A +(4) +Proposed maximum aggregate value of transaction: N/A +(5) +Total fee paid: N/A +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing: +(1) +Amount previously paid: N/A +(2) +Form, Schedule or Registration Statement No.: N/A +(3) +Filing party: N/A +(4) +Date Filed: N/A +RPC, INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +2801 Buford Highway, Suite 520, Atlanta, Georgia 30329 +TO THE HOLDERS OF THE COMMON STOCK: +PLEASE TAKE NOTICE that the 2014 Annual Meeting of Stockholders of RPC, Inc., a Delaware corporation (“RPC” or the “Company”), will be held at 2170 Piedmont Road, NE, Atlanta, Georgia, 30324 on Tuesday, April 22, 2014, at 12:30 P.M., or any adjournment thereof, for the following purposes: +1. +To elect the three Class I nominees identified in the attached proxy statement to the Board of Directors; +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014; +3. +To approve the proposed 2014 Stock Incentive Plan; +4. +To hold a nonbinding vote to approve executive compensation as disclosed in these materials; +5. +To vote on the stockholder proposal requesting that the Company issue a sustainability report, if properly presented at the meeting; and +6. +To transact such other business as may properly come before the meeting or any adjournment thereof. +The Proxy Statement dated March 17, 2014 is attached. +The Board of Directors has fixed the close of business on March 3, 2014 as the record date for the determination of stockholders entitled to notice of, and to vote at, the meeting. +Stockholders who do not expect to be present at the meeting are urged to complete, date, sign and return the enclosed proxy. No postage is required if the enclosed envelope is mailed in the United States. +The Proxy Statement and 2013 Annual Report are available at http://www.astproxyportal.com/ast/26231/ +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 17, 2014 +PROXY STATEMENT +This Proxy Statement and a form of proxy were first mailed to stockholders on or about March 17, 2014. The following information concerning the enclosed proxy and the matters to be acted upon at the Annual Meeting of the Stockholders to be held on April 22, 2014, is submitted by the Company to the stockholders in connection with the solicitation of proxies on behalf of the Company’s Board of Directors. +SOLICITATION OF AND POWER TO REVOKE PROXY +A form of proxy is enclosed. Each proxy submitted will be voted as directed, but if not otherwise specified, proxies solicited by the Board of Directors of the Company will be voted in favor of the candidates for election to the Board of Directors, in favor of ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014, in favor of the proposed 2014 Stock Incentive Plan, in favor of the advisory proposal to approve executive compensation and against the stockholder proposal requesting that the Company issue a sustainability report. +A stockholder executing and delivering a proxy has power to revoke the same and the authority thereby given at any time prior to the exercise of such authority, if he so elects, by contacting either proxy holder, by timely submitting a later dated proxy changing his vote or by attending the meeting and voting in person. However, a beneficial stockholder who holds his shares in street name must secure a proxy from his broker before he can attend the meeting and vote. +CAPITAL STOCK +The outstanding capital stock of the Company on March 3, 2014 consisted of 219,289,400 shares of Common Stock, par value $0.10 per share. Holders of Common Stock are entitled to one vote (non-cumulative) for each share of such stock registered in their respective names at the close of business on March 3, 2014, the record date for determining stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. +A majority of the outstanding shares will constitute a quorum at the Annual Meeting. Abstentions will be counted for purposes of determining the presence or absence of a quorum for the transaction of business. In accordance with the General Corporation Law of the state of Delaware, the election of the nominees named herein as Directors will require the affirmative vote of a plurality of the votes cast by the shares of Company Common Stock entitled to vote in the election provided that a quorum is present at the Annual Meeting. In the case of a plurality vote requirement (as in the election of directors), where no particular percentage vote is required, the outcome is solely a matter of comparing the number of votes cast for each nominee, with those nominees receiving the most votes being elected, and hence only votes for director nominees (and not abstentions) are relevant to the outcome. In this case, the three nominees receiving the most votes will be elected. The affirmative vote of a majority of a quorum of the Company’s outstanding shares of common stock present and entitled to vote at the meeting is required to approve the ratification of the appointment of the Company’s independent registered public accounting firm for fiscal year ending December 31, 2014, approve the proposed 2014 Stock Incentive Plan, approve the advisory proposal on executive compensation and approve the stockholder proposal requesting that the Company issue a sustainability report. Abstentions will have the effect of a vote against such proposals. Broker non-votes will have no effect on such proposals. +There are no rights of appraisal or similar dissenter’s rights with respect to any matter to be acted upon pursuant to this Proxy Statement. It is expected that shares held of record by officers and directors of the Company, which in the aggregate represent approximately 72 percent of the outstanding shares of Common Stock, will be voted for the nominees for directors, for the ratification of the appointment of the Company’s independent registered public accounting firm, for the proposed 2014 Stock Incentive Plan, for the approval on an advisory basis of the compensation of the Company’s named executive officers and against the stockholder proposal requesting that the Company issue a sustainability report. +1 +STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The executives named in the Summary Compensation Table, and the name and address of each stockholder (or “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who owned beneficially five percent (5%) or more of the shares of Common Stock of the Company on March 3, 2014, together with the number of shares owned by each such person and the percentage of outstanding shares that ownership represents, and information as to Common Stock ownership of the directors and executive officers of the Company as a group (according to information received by the Company), are set out below: +Amount +Percent of +Beneficially +Outstanding +Name and Address of Beneficial Owner +Owned (1) +Shares +R. Randall Rollins +145,411,744 +(2) +66.3 +Chairman of the Board +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Gary W. Rollins +149,272,377 +(3) +68.1 +Vice Chairman and Chief Executive Officer, Rollins, Inc. +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Richard A. Hubbell +2,875,374 +(4) +1.3 +President and Chief Executive Officer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +Linda H. Graham +931,395 +(5) +** +Vice President and Secretary +2170 Piedmont Road, NE +Atlanta, Georgia 30324 +Ben M. Palmer +608,320 +(6) +** +Vice President, Chief Financial Officer and Treasurer +2801 Buford Highway, Suite 520 +Atlanta, Georgia 30329 +All Directors and Executive Officers as a group +157,674,694 +(7) +71.9 +(10 persons) +** Less than one percent +(1) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(2) +Includes 3,377,514 shares of Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. of which RFA Management Company, LLC (“General Partner”), a Georgia limited liability company, is the general partner. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Included herein are 272,250 shares of restricted stock awards for Company Common Stock. This also includes 251,471 shares of Company Common Stock held by his wife, as to which Mr. Rollins disclaims any beneficial interest. Mr. Rollins is part of a control group holding Company securities that includes Mr. Gary W. Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +(3) +Includes 3,377,514 shares of the Company Common Stock in two trusts of which he is Co-Trustee and as to which he shares voting and investment power. Also includes 676,478 shares of Company Common Stock held as Trustee, Guardian or Custodian for his children. Also includes 129,460,465 shares of the Company Common Stock held by RFPS Management Company II, L.P. The voting interests of the General Partner are held by two revocable trusts, one of which each of Mr. Gary W. Rollins or Mr. R. Randall Rollins is the grantor and sole trustee. LOR, Inc. is the manager of the General Partner. Also includes 11,292,525 shares of the Company Common Stock held by RFT Investment Company, LLC of which LOR, Inc. is the manager. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting control of LOR, Inc. Mr. Rollins is part of a control group holding Company securities that includes Mr. R. Randall Rollins, as disclosed on a Schedule 13D on file with the U.S. Securities and Exchange Commission. +2 +(4) +Includes 272,250 shares of restricted stock awards for Company Common Stock. +(5) +Includes 86,950 shares of restricted stock awards for Company Common Stock. +(6) +Includes 165,150 shares of restricted stock awards for Company Common Stock. +(7) +Shares held in trusts as to which more than one officer and/or director are Co-Trustees or entities in which there is common ownership have been included only once. Includes 796,600 shares of restricted stock awards for Company Common Stock awarded and issued to all of the executive officers pursuant to the Company’s 2004 Stock Incentive Plan. +PROPOSAL 1: ELECTION OF DIRECTORS +At the Annual Meeting, Messrs. R. Randall Rollins, Henry B. Tippie and James B. Williams will be nominated to serve as Class I directors. The nominees for election at the 2014 Annual Meeting are all now directors of the Company. The directors in each class serve for a term of three years. The director nominees will serve in their respective class until their successors are elected and qualified. Six other individuals serve as directors but are not standing for re-election because their terms as directors extend past this Annual Meeting pursuant to provisions of the Company’s Bylaws that provide for the election of directors for staggered terms, with each director serving a term of three years. Unless authority is withheld, the proxy holders will vote for the election of each nominee named below. Although management does not contemplate the possibility, in the event any nominee is not a candidate or is unable to serve as a director at the time of the election, unless authority is withheld, the proxies will be voted for any nominee who shall be designated by the present Board of Directors and recommended by the Nominating and Governance Committee, to fill such vacancy. +3 +Director Qualifications +The name and age of each of our directors and each of the nominees, his or her principal occupation, together with the number of shares of Common Stock beneficially owned, directly or indirectly, by each and the percentage of outstanding shares that ownership represents, all as of the close of business on March 3, 2014 (according to information received by the Company), other board memberships and the period during which he or she has served us as a director are set forth as follows: +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Names of Director Nominees +Class I (Current Term Expires 2014; New Term Will Expire 2017) +R. Randall Rollins (3) +Chairman of the Board of the Company; Chairman of the Board of Marine Products Corporation (boat manufacturing); Chairman of the Board of Rollins, Inc. (consumer services). +1984 to date +82 +145,411,744 +(4) +66.3 +Henry B. Tippie +Presiding Director of the Company; Chairman of the Board and Chief Executive Officer of Tippie Services, Inc. (management services); Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. (operator of multi-purpose gaming and entertainment complex); Chairman of the Board of Dover Motorsports, Inc. (operator of motor racing tracks). +1984 to date +87 +2,396,254 +(5) +1.1 +James B. Williams +Retired Chairman of the Executive Committee, SunTrust Banks, Inc. (bank holding company) from 1998 to April 2004 and Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc. from 1991 to 1998. +1984 to date +80 +303,750 +** +Names of Directors Whose Terms Have Not Expired +Class II (Term Expires 2015) +Gary W. Rollins (3) +Vice Chairman and Chief Executive Officer of Rollins, Inc. (consumer services). +1984 to date +69 +149,272,377 +(6) +68.1 +Richard A. Hubbell +President and Chief Executive Officer of the Company; President and Chief Executive Officer of Marine Products Corporation (boat manufacturing). +1987 to date +69 +2,875,374 +(7) +1.3 +Larry L. Prince +Retired Chairman of the Board of Directors of Genuine Parts Company (automotive parts distributor). +April 2009 to date +75 +4,500 +** +4 +Names of Directors +Principal Occupation (1) +Service as +Director +Age +Shares of +Common +Stock (2) +Percent of +Outstanding +Shares +Class III (Term Expires 2016) +Linda H. Graham +Vice President and Secretary of the Company; Vice President and Secretary of Marine Products Corporation (boat manufacturing). +2001 to date +77 +931,395 +(8) +** +Bill J. Dismuke +Retired President of Edwards Baking Company (manufacturer of pies and pie parts). +2005 to date +77 +7,593 +** +James A. Lane, Jr. +Executive Vice President of Marine Products Corporation (boat manufacturing) and President of Chaparral Boats, Inc. +1987 +71 +281,845 +** +** less than one percent +(1) +Unless otherwise noted, each of the directors has held the positions of responsibility set out in this column (but not necessarily his or her present title) for more than five years. In addition to the directorships listed in this column, the following individuals also serve on the Boards of Directors of the following companies: R. Randall Rollins: Dover Downs Gaming & Entertainment, Inc. and Dover Motorsports, Inc.; and Gary W. Rollins: Genuine Parts Company and Emory University. All of the directors shown in the above table are also directors of Marine Products Corporation (“Marine Products” or “MPC”) and, with the exception of Messrs. Hubbell and Lane and Ms. Graham, are also directors of Rollins, Inc. (“Rollins”). Larry L. Prince formerly served as a director of Crawford & Company, Equifax, Inc., SunTrust Banks, Inc. and Genuine Parts Company and James B. Williams formerly served as a director of The Coca-Cola Company. +(2) +Except as otherwise noted, the nature of the beneficial ownership for all shares is sole voting and investment power. +(3) +R. Randall Rollins and Gary W. Rollins are brothers. +(4) +See information contained in footnote (2) to the table appearing in Capital Stock section. +(5) +Includes 143,977 shares held in trusts of which he is a Trustee or Co-Trustee and as to which he shares voting and investment power. Also includes shares held by a wholly owned corporation that owns 2,277 shares. +(6) +See information contained in footnote (3) to the table appearing in Capital Stock section. +(7) +See information contained in footnote (4) to the table appearing in Capital Stock section. +(8) +See information contained in footnote (5) to the table appearing in Capital Stock section. +Key Attributes, Experience and Skills of Directors +R. Randall Rollins was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. Mr. Rollins serves as Chairman of the Board of the Company. He is also Chairman of the Board for Marine Products Corporation as well as Rollins, Inc. Mr. Rollins has been a Director of Dover Motorsports, Inc. since 1996 and a Director of Dover Downs Gaming & Entertainment, Inc. since 2002. Mr. Rollins served as a Director of SunTrust Banks, Inc. from 1995 to 2004. +Richard A. Hubbell was elected a Director of RPC in 1987. Mr. Hubbell has extensive knowledge of the Company’s business and industry serving over 27 years at the Company. He has served as the Chief Executive Officer of the Company since 2003. In addition, Mr. Hubbell serves as the President of the Company. Mr. Hubbell is also the President, Chief Executive Officer and a Director of Marine Products Corporation. +5 +Gary W. Rollins was elected a Director of RPC in 1984. Mr. Rollins has extensive knowledge of the Company’s business and industry. In addition, Mr. Rollins serves as the Vice Chairman and Chief Executive Officer of Rollins, Inc. Mr. Rollins has been serving as a Director of Marine Products Corporation since 2001 and as a director of Rollins, Inc. since 1981. Mr. Rollins has served on the Board of Directors of Genuine Parts Company since 2005. +Henry B. Tippie was elected a Director of RPC in 1984. Mr. Tippie brings extensive financial and management experience to our Board of Directors serving as Controller and Chief Financial Officer of Rollins, Inc. from 1953 to 1970. Mr. Tippie has over 63 years of experience including being involved with publicly owned companies during the past 53 years in various positions including founder, CFO, CEO, President, Vice-Chairman and Chairman of the Board. He is currently Chairman of the Board of Dover Downs Gaming & Entertainment, Inc. as well as Dover Motorsports, Inc. and is also a Director of Marine Products Corporation and Rollins, Inc. +James B. Williams was elected a Director of RPC in 1984. Mr. Williams brings extensive financial and management experience to our Board of Directors serving over 25 years as a Director. He retired in March 1998 as Chairman of the Board and Chief Executive Officer of SunTrust Banks, Inc., a bank holding company, which positions he had held for more than five years. He is a Director of Marine Products Corporation and Rollins, Inc. He also previously served as a Director of Genuine Parts Company, Georgia Pacific Corporation and The Coca-Cola Company. +Bill J. Dismuke was elected a Director of RPC in 2005. Mr. Dismuke brings extensive financial, management and manufacturing experience to our Board of Directors. He served as a Senior Vice President of Rollins, Inc. for five years from 1979 until 1984. He retired as President of Edwards Baking Company in 1995. Mr. Dismuke has also been a Director of Rollins, Inc. since 1984 and Marine Products Corporation since 2005. +Larry L. Prince was elected a Director of RPC in 2009. Mr. Prince brings extensive management experience to our Board of Directors. He served as the Chairman of the Executive Committee of the Board of Directors of Genuine Parts Company until his retirement in 2012. He also served as Chairman of the Board of Genuine Parts Company from 1990 through February 2005 and as Chief Executive Officer from 1989 through August 2004. Mr. Prince is also a Director of Rollins, Inc. and Marine Products Corporation. Mr. Prince previously served as a Director of SunTrust Banks, Inc., Crawford & Company, Equifax, Inc. and John H. Harland Company. +James A. Lane, Jr. was elected a Director of RPC in 1984. Mr. Lane brings extensive financial, management and manufacturing experience to our Board of Directors. He has held the position of President of Chaparral Boats, Inc. (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive Vice President and a Director of Marine Products Corporation since 2001. +Linda H. Graham was elected a Director of RPC in 2001. Ms. Graham brings extensive management experience to our Board of Directors. She has been the Vice President and Secretary of RPC since 1987. She also serves as the Vice President and Secretary of Marine Products Corporation. In addition, Ms. Graham serves as a Director of Marine Products Corporation. +Our Board of Directors recommends a vote “FOR” the nominees listed above. +6 +PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +The Audit Committee of the Board has appointed Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. During fiscal year 2013, Grant Thornton LLP served as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to attend the annual meeting, where they will be available to respond to appropriate questions and, if they desire, to make a statement. +Although the Company is not required to seek ratification of this appointment, the Audit Committee and the Board of Directors believes that it is appropriate to do so. If stockholders do not ratify the appointment of Grant Thornton LLP, the current appointment will stand, but the Audit Committee will consider the stockholder action in determining whether to retain Grant Thornton LLP as the Company’s independent registered public accounting firm. +Our Board of Directors recommends a vote “FOR” the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year. +PROPOSAL 3: APPROVAL OF THE 2014 STOCK INCENTIVE PLAN +The 2014 Stock Incentive Plan (the “2014 Plan”) is intended to replace the Company’s 2004 Employee Stock Incentive Plan (the “2004 Plan”; collectively with the 2014 Plan, the “Plans”), which expires in April 2014. If the 2014 Plan is approved, all future equity compensation awards by the Company will be made under the 2014 Plan. Under the 2014 Plan, the Company can tailor incentive awards to support its corporate objectives and to keep pace with competitive business practices. Generally, the 2014 Plan is intended to strengthen the mutuality of interests between award recipients and the Company’s stockholders. +The Board of Directors adopted the 2014 Plan on January 28, 2014, effective upon and subject to approval by the Company’s stockholders. The 2014 Plan provides for the delivery of up to 8.0 million shares of the Company’s Common Stock (“Shares”). +Summary Description of the 2014 Plan +The following summarizes the major provisions of the 2014 Plan and is qualified in its entirety by the text of the 2014 Plan, which is attached as Appendix A to this Proxy Statement. +Generally, the 2014 Plan authorizes the Compensation Committee (or, if so designated by the Board of Directors, the full Board of Directors or some other committee of non-employee directors) to grant to directors, officers and other key employees (“Participants”) stock options and other equity compensation more fully described below. The Compensation Committee may delegate its powers and duties under the 2014 Plan subject to the limitations set forth in the 2014 Plan. +Eligibility. Directors, officers and other key employees of the Company or its subsidiaries and affiliates who are responsible for or contribute to the growth and/or profitability of the business of the Company are eligible to be granted awards under the 2014 Plan. Notwithstanding the foregoing, incentive stock options (as defined in the 2014 Plan) may only be granted to employees of the Company and any of its subsidiaries or affiliates that are a “subsidiary corporation” (within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (the “Code”)) and stock options and stock appreciation rights may be granted only to individuals with respect to whom the Shares will qualify as “service recipient stock” (within the meaning of Section 409A of the Code). Furthermore, no director who is not also an employee of the Company is eligible to receive incentive stock options. +7 +Awards That May Be Issued Under the 2014 Plan. The 2014 Plan authorizes the grant of stock options, stock appreciation rights (“SARs”), and any other type of award valued by reference to (or otherwise based on) Shares, including, without limitation, restricted stock, restricted stock units, performance accelerated restricted stock, performance stock and performance units. If the Shares covered by an award are not delivered because the award is forfeited or canceled, or because the award is settled in cash or because such Shares are withheld from the award or otherwise tendered, physically or by attestation, to pay the exercise or purchase price of an award granted under the 2014 Plan or to satisfy applicable tax withholding obligations incurred in connection with the award, such Shares will not be deemed delivered for purposes of determining the number of Shares remaining available for delivery. The maximum number of Shares available for delivery under the 2014 Plan will be unaffected by the availability of Shares under any plan assumed in connection with the acquisition of an interest in another company or awards granted upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity acquired directly or indirectly by the Company or with which the Company combines. +The Compensation Committee has full authority to grant, pursuant to the terms of the 2014 Plan (i) stock options, including, without limitation, incentive stock options (“ISO”), non-qualified options (“NQOs”) and premium stock options, (ii) SARs and/or (iii) other stock-based awards, including, without limitation, restricted stock, restricted stock units (stock units are grants of a right to receive shares of stock in the future), performance-accelerated restricted stock, performance stock and performance units (as such terms are defined in the 2014 Plan). +Additional Plan Limitations. The 2014 Plan imposes additional limitations. Under the 2014 Plan, no more than 8.0 million Shares may be issued pursuant to ISOs. In addition, no one individual may be granted options, SARs or other stock-based awards representing over 200,000 Shares during any fiscal year. There is no maximum number of persons eligible to receive awards under the 2014 Plan. The Company estimates that approximately 250 persons are currently eligible. +Plan Administration. The 2014 Plan may be administered by the Board of Directors, or any committee (the “Committee”) of at least two “non-employee directors” (as that term is defined by Rule 16b-3 under the Exchange Act) who are also “outside directors” as defined by regulations promulgated under Section 162(m) of the Code. The Company expects the 2014 Plan to be administered by the Compensation Committee which will have the authority to select participants and determine the timing, type, size and terms of each award, and to make all other determinations necessary or desirable in the interpretation and administration of the 2014 Plan. The Committee may also determine whether awards may be settled in cash. +Repricing and Amendment of Awards. If the exercise or base prices of any options or SARs exceed the current fair market value (as defined in the 2014 Plan) of the Shares, the Committee may, without stockholder approval, reprice such options or SARs to a price no lower than the then-current fair market value of the Shares. The Committee may also, without stockholder approval, amend any award to provide its holder with additional rights or benefits of the type otherwise permitted by the 2014 Plan, including extending its term. However, no amendment to the terms of any outstanding award that is subject to Section 409A of the Code may cause the award to violate such Section, no amendment to the terms of an outstanding award that is not subject to Section 409A of the Code may cause the award to become subject to such Section, and the term of an outstanding award may not be extended beyond the earlier of the latest date the award would have expired by its original terms or the tenth anniversary of the original grant date of the award, except to the extent that an award cannot be exercised because such exercise would violate the federal, state or local laws, then the expiration of such award shall automatically be tolled for the period in which such exercise would violate applicable law but not more than thirty (30) days. +Termination of the Plan. The 2014 Plan will terminate ten years from the date of stockholder approval. +Transferability. Except as may be provided by the Committee, awards will not be transferable except by will or by the laws of descent and distribution. +8 +Termination of Employment. Generally, options and SARs are forfeited if the recipient’s employment or performance of services terminates before the award is exercised. However, the Committee may provide otherwise, and there are limited exceptions where employment terminates because of death, disability or retirement. Generally, if an option or SAR holder’s employment terminates due to: +● +death or disability, options or SARs exercisable at termination (or whose vesting was accelerated by the Committee) remain exercisable for twelve months or for the remaining term of the option, if shorter; and +● +retirement, options or SARs exercisable at termination remain exercisable for a period of three months, less one day, or for the remaining term of the option, if shorter. +The Committee has discretion to alter the extension periods. Unless otherwise determined by the Committee, all unvested other stock-based awards, including without limitation restricted stock, restricted stock units and performance-accelerated restricted stock, are forfeited upon termination of the Participant’s employment for any reason other than death or disability. In the event of death, the 2014 plan provides that all restricted stock will vest unless otherwise determined by the Committee and, in the event of disability for restricted stock and restricted stock units or death for restricted stock units, the 2014 Plan provides that a pro rata portion of such restricted stock or restricted stock units will vest based on the elapsed portion of the applicable vesting period unless otherwise determined by the Committee. +Option Pricing. The Committee has the authority to fix the exercise price of option awards. Generally, the exercise price of an ISO must be at least 100 percent of the fair market value of the Shares at the time of grant. However, if the grantee is a person with over ten percent of the voting power of the Company (or any subsidiary or parent of the Company), then the exercise price must be at least 110 percent of such fair market value. The exercise price of NQOs must be at least 100 percent of such fair market value. On March 3, 2014, the closing price of the Shares on the New York Stock Exchange was $18.06 per share. +Option Term. The term of each stock option will be fixed by the Committee, but no stock option shall be exercised more than ten years (or, in the case of an ISO granted to an employee who owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any of its subsidiary or parent corporations, more than five years) after the date the option is granted. Options will become exercisable at such times and in such installments as the Committee shall determine. Payment of the option price must be made in full at the time of exercise in such form (including, but not limited to, cash, unrestricted common stock held for at least six months, or any combination thereof) as the Committee may determine. +Certain ISO Restrictions. In order to comply with certain federal tax restrictions, no employee may be granted an incentive stock option if, taking into account such option, the aggregate fair market value of the stock with respect to which incentive stock options are exercisable for the first time by such employee during any given calendar year, under this and all other incentive stock option plans of the Company, would exceed $100,000. +Cashless Exercises. If permitted by the Committee, a Participant may elect to pay the exercise price upon the exercise of an option by irrevocably authorizing a third party to sell shares of stock (or a sufficient portion of the shares) acquired upon exercise of the option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise. +SARs. Upon the exercise of a SAR, the holder shall be entitled to receive an amount in cash and/or Shares equal in value to the excess of the fair market value of the Shares on the date of exercise over the fair market value of the Shares on the date of grant, multiplied by the number of SARs exercised, with the Committee having the right to determine the form of payment. +Restricted Stock Awards. A restricted stock award is an award of a given number of shares of common stock which are subject to a restriction against transfer and to a risk of forfeiture during a period set by the Committee. During the restriction period, the Participant generally has the right to vote and receive dividends on the shares. +Performance-Based Compensation. The Committee may determine whether an award is “performance-based compensation” as defined by Section 162(m) of the Code. Any awards designated as “performance-based compensation” must be conditioned on achievement of one or more performance measures, as selected by the Committee: increase in stock price, return on capital or increase in pretax earnings of the Company and/or one or more divisions and/or subsidiaries, return on stockholders’ equity of the Company, increase in earnings per share of the Company, sales of the Company and/or one or more divisions and/or subsidiaries, pretax earnings of the Company and/or one or more divisions and/or subsidiaries, net earnings of the Company and/or one or more divisions and/or subsidiaries, control of operating and/or non-operating expenses of the Company and/or one or more divisions and/or subsidiaries, margins of the Company and/or one or more divisions and/or subsidiaries, cash flow of the Company and/or one or more divisions and/or subsidiaries, market price of the Company’s securities and, solely for an award not intended to constitute “performance-based compensation” under Section 162(m) of the Code, other factors directly tied to the performance of the Company and/or one or more divisions and/or subsidiaries or other performance criteria. Any award so designated must also meet any additional requirements of Section 162(m) of the Code and the regulations thereunder. +9 +Amendment and Termination. The 2014 Plan is subject to amendment or termination by the Board of Directors without stockholder approval but no amendment may without stockholder approval (i) increase the number of Shares that may be issued under the 2014 Plan (except by certain adjustments provided for under the 2014 Plan); (ii) change the class of persons eligible to receive ISOs under the 2014 Plan; (iii) change the requirements regarding the exercise price; or (iv) amend the 2014 Plan in a manner that would require approval of the Company’s stockholders under applicable law, regulation or rule. Options may not be granted under the 2014 Plan after the date of termination of the 2014 Plan, but options granted prior to that date shall continue to be exercisable according to their terms. +Changes in Capital Structure. If the Company effects a subdivision or consolidation of Shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Company stock outstanding, without receiving compensation therefor in money, services or property, then the terms and conditions of the 2014 Plan and any then outstanding awards shall be adjusted proportionally in order to prevent dilution or enlargement of benefits or potential benefits under the 2014 Plan and awards made under the 2014 Plan. +Merger and Consolidation. In the event the Company is a party to a merger or other reorganization, outstanding awards shall be subject to the agreement of merger or reorganization. That agreement may provide, without limitation, for the assumption of outstanding awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for their cancellation, for accelerated vesting and accelerated expiration, or for settlement in cash. +New Plan Benefits +As of the date of this proxy statement, no awards had been granted under the 2014 Plan and none will be granted unless and until the 2014 Plan is approved by the Company’s stockholders. Because of the discretionary nature of any future awards under the 2014 Plan, the amount of such awards is not determinable at this time with respect to the Company’s directors, executive officers, including the executive officers named in the Summary Compensation Table, and the Company’s other employees. Information regarding options and restricted stock granted in 2013 to the executive officers of the Company under the Company’s 2004 Plan is set forth in the table captioned “Grants of Plan-Based Awards,” and information regarding outstanding options and restricted stock under the Company’s stock plans to the Company’s executive officers is set forth in the table captioned “Outstanding Equity Awards at Fiscal Year-End.” In 2013, grants of restricted stock covering 630,500 Shares were made to the non-executive employee group under the 2004 Plan. Except as referred to in the preceding sentences, there were no other grants in 2013 under Company plans. Non-employee directors have never been granted any options or other stock-based awards by the Company for service as a director. +Federal Income Tax Consequences +The following discussion addresses certain anticipated United States federal income tax and certain employment tax consequences to the Company and to recipients of awards made under the 2014 Plan who are citizens or residents of the United States for federal income tax purposes. It is based on the Code and interpretations thereof in effect on the date of this proxy statement. This summary is not intended to be exhaustive and, among other things, does not describe state, local, or foreign tax consequences. Moreover, it is not intended as tax advice to any individual. +10 +IRS Circular 230 Notice. To ensure compliance with requirements imposed by the Internal Revenue Service, you are hereby notified that any discussion of tax matters set forth in this prospectus was written in connection with the promotion or marketing (within the meaning of IRS Circular 230) of awards made under the 2014 Plan, and was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any tax-related penalties under federal law. Each recipient of an award under the 2014 Plan should seek advice based on his or her particular circumstances from an independent tax advisor. +Options. +Grant of Options. There will be no federal income tax consequences to the grantee of an option or the Company upon the grant of either an ISO or an NQO under the 2014 Plan. +Exercise of NQOs. Upon the exercise of an NQO, the grantee generally will recognize ordinary compensation income, subject to withholding and employment taxes, in an amount equal to: (a) the fair market value, on the date of exercise, of the acquired shares of common stock, less (b) the exercise price paid for those shares. The Company will be entitled to a tax deduction equal to the compensation income recognized by the grantee. Gains or losses recognized by the grantee upon a subsequent disposition of the shares will be treated as long-term capital gain or loss if the shares are held for more than a year from the date of exercise. Such gains or losses will be short-term gains or losses if the shares are held for one year or less. For purposes of computing gain or loss, the grantee’s basis in the shares received will be the exercise price paid for the shares plus the amount of income, if any, recognized upon exercise of the option. +Exercise of ISOs. Upon the exercise of an ISO, the grantee will recognize no immediate taxable income for regular income tax purposes, provided the grantee was continuously employed by the Company or a subsidiary from the date of grant through the date which is three months prior to the date of exercise (or through the date which is one year prior to the exercise date in the case of termination of employment as a result of total disability). The exercise of an ISO may, however, result in alternative minimum tax liability to the grantee. If the grantee retains the shares acquired upon the exercise of the ISO for more than two years from the date of grant and more than one year from the date of exercise, any gain on a later sale of the shares will be treated as long-term capital gain, and the Company will not be entitled to any tax deduction with respect to the ISO. If the grantee disposes of the shares of common stock received upon the exercise of an ISO before the expiration of the two-year and one-year holding periods discussed above, a “Disqualifying Disposition” occurs. In that event, the grantee will have ordinary compensation income, and the Company will be entitled to a corresponding deduction, at the time of such disposition in the amount of such income. +Restricted Stock and Restricted Stock Units. A recipient of restricted stock or restricted stock units generally does not recognize income and the Company generally is not entitled to a deduction at the time of grant. Instead, the recipient recognizes compensation income and the Company is entitled to a deduction on the date on which vesting occurs (“Vesting Date”) in the case of restricted stock, or on the date on which stock is issued or cash is paid in the case of restricted stock units. The amount of income recognized and the amount of the Company’s deduction will equal the fair market value of the vested stock or stock unit on the Vesting Date in the case of restricted stock, or on the date on which stock is issued or cash is paid in the case of restricted stock units. However, the recipient may elect to include in income the fair market value of restricted stock at the time of grant by making a timely election under Section 83(b) of the Code. If such Section 83(b) election is made, the Company’s deduction will equal the fair market value of the restricted stock at the time of grant and there is no further recognition of income when the restrictions lapse. +Any dividends on restricted stock, or dividend equivalents with respect to restricted stock units, paid to the recipient prior to the Vesting Date will be includible in the recipient’s income as compensation and deductible as such by the Company. +11 +Section 162(m) Limitation. In general, Section 162(m) of the Code limits to $1 million the federal income tax deductions that may be claimed in any tax year of the Company with respect to certain compensation payable to any employee who is the chief executive officer, chief financial officer or one of the other three highest paid executive officers of the Company on the last day of that tax year. This limit does not apply to “performance-based compensation” paid under a plan that meets the requirements of Section 162(m) of the Code and the regulations promulgated thereunder. The Company believes that the options to be granted under the 2014 Plan will qualify for the performance-based compensation exception to the Section 162(m) limitations under current law because options will be issued only if stockholder approval is obtained, and any taxable compensation will be based solely on an increase in value of the stock after the date of the option since option exercise prices will be no less than fair market value on the date of grant. Compensation from restricted stock, restricted stock units and other stock-based awards generally will be performance-based only if the vesting conditions as established by the Committee are based upon performance goals. +Golden Parachute Tax and Section 280G of the Internal Revenue Code. The Committee may provide for immediate vesting of all then outstanding unvested awards upon a change in control of the Company. That immediate vesting may cause certain amounts to be characterized as “parachute payments” under Section 280G of the Code for certain employees of the Company. Section 280G of the Code generally applies to employees or other individuals who perform services for the Company if, within the 12-month period preceding the change in control, the individual is an officer of the Company, a shareholder owning more than 1% of the stock of the Company, or a member of the group consisting of the lesser of the highest paid 1% of the employees of the Company or the highest paid 250 employees of the Company. An employee generally is deemed to have received a parachute payment in the amount of compensation that is contingent upon an ownership change if such compensation exceeds, in the aggregate, three times the employee’s Base Amount. The “Base Amount” is generally the employee’s average annual compensation for the five preceding years. An employee’s “excess parachute payment” is the excess of the employee’s total parachute payments over the Base Amount. An employee will be subject to a 20% excise tax under Section 4999 of the Code, and the Company will be denied a deduction for, any “excess parachute payment.” +Deferred Compensation. Awards made under the 2014 Plan, including awards granted under the 2014 Plan that are considered to be deferred compensation for purposes of Section 409A of the Internal Revenue Code, must satisfy the requirements of Code Section 409A to avoid adverse tax consequences to recipients, which could include the inclusion of amounts not payable currently in income and interest and an additional tax on any amount included in income. The Company intends to structure any awards under the 2014 Plan such that the requirements under Code Section 409A are either satisfied or are not applicable to such awards. +Tax Withholding . The Company has the right to deduct or withhold, or require a participant to remit to the Company, an amount sufficient to satisfy federal, state and local taxes of any kind required by law to be withheld with respect to any exercise, lapse of restriction or other taxable event arising as a result of an award under the 2014 Plan. +The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of awards under the 2014 Plan. +Certain Interests of Directors +In considering the recommendations of the Board of Directors with respect to the 2014 Plan, stockholders should be aware that members of the Board of Directors have certain interests that may present them with conflicts of interest in connection with the proposal to approve the 2014 Plan. As discussed above, directors and employees of the Company are eligible for the grant of awards under the 2014 Plan. The Board of Directors believes that approval of the 2014 Plan will advance the interests of the Company and its stockholders by encouraging employees to make significant contributions to the long-term success of the Company. +Required Vote +The affirmative vote of a majority of votes is required to approve this proposal. For purposes of qualifying the shares authorized under the proposed plan for listing on the NYSE, the total votes cast on the proposal must represent over 50% of shares outstanding. Broker non-votes are not considered to be votes cast for this purpose. +Our Board of Directors recommends a vote “FOR” the Proposal to Approve the 2014 Stock Incentive Plan. +12 +PROPOSAL 4: NONBINDING VOTE ON EXECUTIVE COMPENSATION +As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), our Board of Directors is submitting a “Say on Pay” proposal for stockholder consideration. While the vote on executive compensation is nonbinding and solely advisory in nature, our Board of Directors and the Compensation Committee value the opinion of our stockholders and will review the voting results and seek to determine the causes of any significant negative voting result to better understand issues and concerns not previously presented. Stockholders who want to communicate with the Board of Directors or management should refer to “Director Communications” on page 20 of this proxy statement for additional information. +Executive compensation is an important matter for our stockholders. The core of our executive compensation philosophy and practice continues to be pay for performance. Our executive officers are compensated in a manner consistent with our strategy, competitive practice, sound corporate governance principles, and stockholder interests and concerns. We believe our compensation program is strongly aligned with the long-term interests of our stockholders. Compensation of our executive officers is designed to enable us to attract and retain talented and experienced senior executives to lead us successfully in a competitive environment. +Our named executive officers are identified on page 2, and the compensation of the named executive officers is described on pages 28 to 34, including the Compensation Discussion and Analysis (“CD&A”) on pages 22 to 27. The CD&A section of this proxy statement provides additional details on our executive compensation, including our compensation philosophy and objectives and the fiscal 2013 compensation of the named executive officers. +We are asking stockholders to vote on the following resolution: +“Resolved, that the stockholders approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the Proxy Statement for the 2014 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and other related tables and narrative disclosures).” +As indicated above, the stockholder vote on this resolution will not be binding on us or the Board of Directors, and will not be construed as overruling any decision by us or the Board. The vote will not be construed to create or imply any change to our fiduciary duties or those of the Board, or to create or imply any additional fiduciary duties for us or the Board. +Our Board of Directors unanimously recommends that you vote “FOR” the approval, on an advisory basis, of the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure. +PROPOSAL 5: STOCKHOLDER PROPOSAL REQUESTING THAT THE COMPANY ISSUE A SUSTAINABILITY REPORT +A stockholder, Walden Asset Management, a division of Boston Trust & Investment Management Company, One Beacon Street, Boston, Massachusetts 02108, has informed the Company that it intends to present the following proposal at the Company’s Annual Meeting of Stockholders on April 22, 2014. Walden Asset Management indicated in its proposal that it holds 223,346 shares of our common stock. The proposal is co-filed by Wallace Global Fund and Swift Foundation. The addresses and stockholdings of the co-filers will be furnished by the Company to any stockholder promptly upon the receipt of any oral or written request. +13 +STOCKHOLDER PROPOSAL +SUSTAINABILITY REPORTING +RESOLVED +Shareholders request that RPC, Inc. issue a sustainability report describing the company’s environmental, social and governance (ESG) risks and opportunities including greenhouse gas (GHG) emissions reduction targets and goals. The report should be available by year end 2014, prepared at reasonable cost, omitting proprietary information. +SUPPORTING STATEMENT +We believe tracking and reporting on ESG business practices makes a company more responsive to a transforming global business environment characterized by finite natural resources, changing legislation, and heightened public expectations for corporate accountability. Reporting also helps companies better integrate and gain strategic value from existing sustainability efforts, identify gaps and opportunities in products and processes, develop company-wide communications, publicize innovative practices, recruit and retain employees, and receive feedback. +Sustainability reporting is on the rise globally. In 2011, there was a 46% increase in the number of organizations worldwide using the Global Reporting Initiative’s (GRI) Guidelines for their ESG reporting according to G&A Institute. Likewise, there is a growing demand by investors for meaningful disclosure on ESG matters. For example: +(1) The Principles for Responsible Investment (PRI) is a United Nations initiative whose members seek the integration of ESG factors in investment decision making. Members collectively hold over $34 trillion of assets under management and seek ESG information from companies to be able to analyze fully the risks and opportunities associated with existing and potential investments. +(2) Carbon Disclosure Project (CDP), representing over 722 institutional investors globally with more than $87 trillion in assets, calls for disclosure from companies on their Greenhouse Gas emissions and climate change management programs. Over two thirds of the S&P 500 now report to CDP. +Climate change is one of the most financially significant environmental issues currently facing RPC’s investors and customers. Occupational safety and health, vendor and labor standards, waste and water reduction targets and product-related environmental impacts are particularly important ESG considerations in RPC’s sector and may have the potential to pose significant regulatory, legal, reputational and financial risks. +We are concerned that RPC, Inc. may be falling behind peers in disclosure and management of ESG issues. RPC’s competitors like Baker Hughes, Inc. and Halliburton already offer shareholders much of this important information through annual, GRI-based sustainability reports and by responding to CDP. In contrast, RPC does not report on its sustainability efforts nor disclose GHG data. +RPC recognizes in its 10-K that the company may be materially affected by “environmental laws and other regulations” and “subject to claims for personal injury and property damage due to the generation of hazardous substances in connection with our operations.” However, shareholders currently have no access to substantial information on how the company is managing its environmental footprint, hazardous releases, worker and community safety, or other business factors and risks. +We recommend that the report include a company-wide review of policies, practices and metrics related to ESG performance employing the GRI index and checklist for guidance. +14 +THE COMPANY’S STATEMENT IN OPPOSITION TO PROPOSAL +Global Reporting Initiative (“GRI”) Guidelines are a lengthy, complex and often vague reporting framework, which would require us to conduct extensive and detailed scientific and technical analyses, invest significant amounts of time and financial resources, and potentially engage consultants with specialized expertise. In addition, the proposed sustainability report would require us to collect, analyze and disclose certain information that we are not currently required to disclose pursuant to applicable laws, rules or regulations. +RPC has always been committed to ethical business practices and to compliance with the law in all aspects of our business, as stated in our Code of Business Conduct which is posted on our website. In addition, the Company has established an environmental management system that reviews and creates processes and practices that minimize our impact on the environment, and conducts environmental audits of facilities to ensure compliance. We also set annual quality, health, safety and environment performance targets for improvement, and we monitor our performance. The Company continually seeks products and processes such as low-toxicity additives, alternative fuel sources, and silica sand dust control that help conduct our operations in an environmentally responsible manner. The Company is also dedicated to cultivating a safe environment and provides our employees with continual training on accident prevention, environmental protection, and current industry standards from certified trainers. The Company has achieved ISO 14001 environmental certification. +The proposal fails to articulate the burden on human resources or the considerable expense involved in preparing a sustainability report. After careful consideration of the stockholder proposal, the Board has concluded that preparation of a sustainability report would not result in effective or prudent utilization of our human and financial resources, and would not be in the best interest of our stockholders. The amount of time, effort and resources required to produce such a sustainability report would divert significant resources that we believe could be better utilized in strengthening our business and creating value for our stockholders. +Required Vote +The affirmative vote of a majority of the Company’s shares of common stock present (or represented by proxy) and entitled to vote on the proposal is required to approve the stockholder proposal. Abstentions will have the effect of a vote against the stockholder proposal, but broker non-votes will not be included in the vote calculation, which means they will not count as affirmative or negative votes. +Our Board of Directors recommends a vote “AGAINST” the stockholder proposal requesting that the Company issue a sustainability report. +15 +CORPORATE GOVERNANCE AND BOARD OF DIRECTORS COMMITTEES AND MEETINGS +Board Meetings +The Board of Directors met six times during the fiscal year ended December 31, 2013. No director attended fewer than 75 percent of the aggregate of all Board meetings and meetings of committees on which he or she served during 2013. Board members are encouraged to attend the Company’s Annual Stockholder Meetings and a majority of the Board members were in attendance at last year’s meeting. +The Board of Directors has an Audit Committee, a Compensation Committee, a Diversity Committee and a Nominating and Governance Committee. +Below is a summary of our committee structure and membership information. +Nominating & +Audit +Compensation +Diversity +Governance +Executive +Committee Members +Committee +Committee +Committee +Committee +Committee +R. Randall Rollins (1) +Member +Henry B. Tippie (2) +Chair +Chair +Chair +Chair +Larry L. Prince (2) +Member +Member +Member +Member +James B. Williams (2) +Member +Member +Member +Member +Bill J. Dismuke (2) +Member +Gary W. Rollins +Member +(1) +Chairman of the Board of Directors +(2) +Financial Expert +Audit Committee +The Audit Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), Bill J. Dismuke, James B. Williams and Larry L. Prince, all of whom are independent as discussed below. The Audit Committee held five meetings during the fiscal year ended December 31, 2013, including a meeting to review the Company’s Form 10-K for the year ended December 31, 2012. The Board of Directors has determined that all of the Audit Committee members are independent as that term is defined by the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The Board of Directors has also determined that all of the Audit Committee members are “Audit Committee Financial Experts” as defined in the SEC rules. The Audit Committee meets with the Company’s independent registered public accountants, internal auditor, Chief Executive Officer and Chief Financial Officer to review the scope and results of audits and recommendations made with respect to controls over financial reporting and specific accounting and financial reporting issues. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from the Company for, outside legal, accounting or other advisors as it deems necessary to carry out its duties. The Audit Committee charter is available on the Company’s website at www.rpc.net under the Governance section. +Compensation Committee +The Compensation Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), James B. Williams, and Larry L. Prince. It held two meetings during the fiscal year ended December 31, 2013. The function of the Compensation Committee is to set the base salary and cash based incentive compensation of all of the executive officers. The Compensation Committee also administers the Company’s Stock Incentive Plans. The Compensation Committee does not have a formal charter, and is not required to have one under the “controlled company” exemption under the NYSE rules, as described in the section titled “Director Independence and NYSE Requirements” below. +16 +Diversity Committee +The Diversity Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), James B. Williams, and Larry L. Prince. It held one meeting during the fiscal year ended December 31, 2013. The function of the Diversity Committee is to monitor compliance with applicable non-discrimination laws. +Nominating and Governance Committee +The Nominating and Governance Committee of the Board of Directors of the Company consists of Henry B. Tippie (Chairman), James B. Williams, and Larry L. Prince, each of whom is independent, as discussed more fully under “Director Independence and NYSE Requirements.” The Committee was formed in 2002 pursuant to a resolution passed by the Board of Directors for the following purposes: +● +to recommend to the Board of Directors nominees for director and to consider any nominations properly made by a stockholder; +● +upon request of the Board of Directors, to review and report to the Board with regard to matters of corporate governance; and +● +to make recommendations to the Board of Directors regarding the agenda for Annual Stockholders’ Meetings and with respect to appropriate action to be taken in response to any stockholder proposals. +The Nominating and Governance Committee held one meeting during the fiscal year ended December 31, 2013. +Director Nominations +Under Delaware law, there are no statutory criteria or qualifications for directors. No criteria or qualifications have been prescribed by the Board at this time. The Nominating and Governance Committee does not have a charter or a formal policy with regard to the consideration of director candidates. As such, there is no formal policy relative to diversity, although as noted below, it is one of many factors that the Nominating and Corporate Governance Committee has the discretion to factor into its decision making. This discretion would extend to how the Committee might define diversity in a particular instance – whether in terms of background, viewpoint, experience, education, race, gender, national origin or other considerations. The Committee acts under the guidance of the Corporate Governance Guidelines approved by the Board of Directors and posted on the Company’s website at www.rpc.net under the Governance section. The Board believes that it should preserve maximum flexibility in order to select directors with sound judgment and other desirable qualities. According to the Company’s Corporate Governance Guidelines, the Board of Directors will be responsible for selecting nominees for election to the Board of Directors. The Board delegates the screening process to the Nominating and Governance Committee. This Committee is responsible for determining the appropriate skills and characteristics required of Board members in the context of the then current make-up of the Board. This determination takes into account all factors which the Committee considers appropriate, such as independence, experience, strength of character, mature judgment, technical skills, diversity, age and the extent to which the individual would fill a present need on the Board. The Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires, with respect to nominations for directors for election at an annual meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road, NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s annual meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other requirements related to the notice are contained in the Company’s Bylaws. The Committee will consider nominations from stockholders who satisfy these requirements. The Committee is responsible for screening the nominees that are selected by the Board of Directors for nomination to the Board and for service on committees of the Board. To date, the Company has not received a recommendation for a director nominee from a stockholder. All of the nominees for directors being voted upon, at the Annual Meeting to be held on April 22, 2014 are directors standing for re-election. +17 +Board Leadership +The Company has had separate persons serving as its Chairman of the Board and Chief Executive Officer since 2003. Mr. Randall Rollins is our Chairman and chairs our Board meetings. Mr. Richard Hubbell is our President and Chief Executive Officer. We believe that it represents the appropriate structure for us at this time; the Chairman of the Board provides general oversight and strategic planning for the Company while the President focuses on optimizing operational efficiencies. +Risk Oversight by Board +Our Board’s oversight of risk has not been delegated to any Board Committee. “Risk” is an extremely broad concept that extends to multiple functional areas and crosses multiple disciplines. As such, risk may be addressed from time to time by the full Board or by one or more of our Committees. Senior management is responsible for identifying and managing material risks that we face while insurable risks and litigation risks are handled primarily by the risk management department. Senior management provides the Board with a summary of insurance coverage annually and updates as deemed necessary. Liquidity risk, credit risk and risks associated with our credit facilities and cash management are handled primarily by our finance department which regularly provides a financial report to both the Audit Committee and to the full Board. Operational, business, regulatory and political risks are handled primarily by senior executive management which regularly provides various operational reports to, among others, the full Board or to the Executive Committee. +Director Independence and NYSE Requirements +Controlled Company Exemption +The Company is not required by law or NYSE listing requirements to have a Nominating or Compensation Committee composed of independent directors, nor to have a Board of Directors, the majority of which are independent. Because the Company is a “controlled corporation,” as defined by NYSE Rule 303A.00, the Company is exempt from NYSE Rules 303A.01, 303A.04 and 303A.05 and does not undertake compliance with those provisions. The Company is a “controlled corporation” because a group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. +The Company’s Audit Committee is composed of four “independent” directors as defined by the Company’s Corporate Governance Guidelines, the NYSE rules, the Securities Exchange Act of 1934, SEC regulations thereunder, and the Company’s Audit Committee Charter. All of the members of the Compensation, Diversity and Nominating and Governance Committees are also independent directors. The independent directors of the Company are Henry B. Tippie, James B. Williams, Bill J. Dismuke, and Larry L. Prince. +Independence Guidelines +Under NYSE listing standards, to be considered independent, a director must be determined to have no material relationship with the Company other than as a director. The NYSE standards set forth a nonexclusive list of relationships which are conclusively deemed material. The Company’s Independence Guidelines (Appendix A to the Company’s Corporate Governance Guidelines) are posted on the Company’s website at www.rpc.net under the Governance section. +18 +Audit Committee Charter +Under the Company’s Audit Committee Charter, in accordance with NYSE listing requirements and the Securities Exchange Act of 1934, all members of the Audit Committee must be independent of management and the Company. A member of the Audit Committee is considered independent as long as he or she (i) does not accept any consulting, advisory, or compensatory fee from the Company, other than as a director or committee member; (ii) is not an affiliated person of the Company or its subsidiaries; and (iii) otherwise meets the independence requirements of the NYSE and the Company’s Corporate Governance Guidelines. +Nonmaterial Relationships +After reviewing all of the relationships between the members of the Audit Committee and the Company, the Board of Directors determined that none of the members of the Audit Committee had any relationships not included within the categorical standards set forth in the Independence Guidelines and disclosed above except as follows: +1. +Mr. Tippie was employed by Rollins from 1953 to 1970, and held several offices with that company during that time, including as Executive Vice President – Finance, Secretary, Treasurer and Chief Financial Officer. Mr. Dismuke was employed by Rollins from 1979 to 1984 and held various offices within that company including Senior Vice President. Messrs. Randall and Gary Rollins are directors and executive officers of Rollins and are part of a group that has voting control of Rollins. +2. +Mr. Tippie is Chairman of the Board of Directors of Dover Motorsports, Inc. and Dover Downs Gaming & Entertainment, Inc. Mr. Randall Rollins is also a director of these companies. +3. +Mr. Tippie is the trustee of the O. Wayne Rollins Foundation and of the Rollins Children’s Trust. O. Wayne Rollins is the father of Gary and Randall Rollins. The beneficiaries of the Rollins Children’s Trust include the immediate family members of Messrs. Randall and Gary Rollins. +4. +Each of Messrs. Dismuke, Prince, Tippie and Williams also serve on the Boards of Rollins and Marine Products, of which Messrs. Gary and Randall Rollins are directors, and voting control over which is held by a control group of which Messrs. Randall and Gary Rollins are a part. Mr. Randall Rollins is an executive officer of Marine Products. +As required by the Independence Guidelines, the Board of Directors unanimously concluded that the above-listed relationships would not affect the independent judgment of the independent directors, based on their experience, character and independent means, and therefore do not preclude an independence determination. All of the members of the Audit Committee are also independent under the heightened standards required for Audit Committee members. +In accordance with the NYSE corporate governance listing standards, Mr. Henry B. Tippie was elected as the Presiding Director. The Company’s non-management directors meet at regularly scheduled executive sessions without management. Mr. Tippie presides during these executive sessions. +Corporate Governance Guidelines +We have adopted Corporate Governance Guidelines to promote better understanding of our policies and procedures. At least annually, the Board reviews these guidelines. As required by the rules of the New York Stock Exchange, our Corporate Governance Guidelines require that our non-management directors meet in at least two regularly scheduled executive sessions per year without management. +At the Company’s website at www.rpc.net, under the Governance section, you may access a copy of our Corporate Governance Guidelines, our Audit Committee Charter, our Code of Business Conduct and our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy. +19 +Code of Business Conduct +The Company has adopted a Code of Business Conduct applicable to all directors, officers and employees generally, as well as a Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy applicable to the principal executive officer, principal financial officer, and directors. Both codes are available on the Company’s website at www.rpc.net under the Governance section. +Director Communications +The Company also has a process for interested parties, including stockholders, to send communications to the Board of Directors, Presiding Director, any of the Board Committees or the non-management directors as a group. Such communications should be addressed as follows: +Mr. Henry B. Tippie +c/o Internal Audit Department +RPC, Inc. +2801 Buford Highway NE, Suite 520 +Atlanta, Georgia 30329 +The above instructions for communications with the directors are also posted on our website at www.rpc.net under the Governance section. All communications received from interested parties are forwarded to the Board of Directors. Any communication addressed solely to the Presiding Director or the non-management directors will be forwarded directly to the appropriate addressee(s). +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors named above who serve on the Company’s Compensation Committee are or have ever been an employee of the Company. There are no Compensation Committee interlocks requiring disclosure. +DIRECTOR COMPENSATION +The following table sets forth compensation to the Company’s directors for services rendered as a director for 2013. Three of the directors, Messrs. R. Randall Rollins, Richard A. Hubbell and Ms. Linda H. Graham are employees of the Company. Their compensation is set forth in the Summary Compensation Table under Executive Compensation. The directors listed below have never been employed by the Company or paid a salary or bonus by the Company, have never been granted any options or other stock-based awards, and do not participate in any Company sponsored retirement plans, with the exception of Mr. James A. Lane, Jr. who was an employee of the Company until the spin-off of Marine Products in 2001. Mr. Wilton Looney served as a director up to the Annual Stockholders’ Meeting held on April 23, 2013. +Fees Earned or +Stock +Option +Paid in Cash +Awards (1) +Awards (1) +Total +Name +($) +($) +($) +($) +Henry B. Tippie +112,500 +–– +–– +112,500 +James B. Williams +60,500 +–– +–– +60,500 +Bill J. Dismuke +53,500 +–– +–– +53,500 +Gary W. Rollins +41,000 +–– +–– +41,000 +James A. Lane, Jr. +41,000 +–– +–– +41,000 +Larry L. Prince +43,500 +–– +–– +43,500 +Wilton Looney +30,667 +–– +–– +30,667 +(1) +Directors are eligible for grants of stock awards under the Company’s 2004 Stock Incentive Plan (“SIP”). No stock awards have been granted to the non-management directors under the 2004 SIP. +20 +Directors that are our employees do not receive additional compensation for services rendered as a director. +Under current compensation arrangements effective since January 1, 2013, non-management directors each receive an annual retainer fee of $26,000. In addition, the Chairman of the Audit Committee receives an annual retainer of $20,000, the Chairman of the Compensation Committee receives an annual retainer of $10,000, and the Chairman of each of the Nominating and Governance Committee and Diversity Committee receives an annual retainer of $6,000. A director that chairs more than one committee receives a retainer with respect to each committee he chairs. All of the retainers are paid on a quarterly basis. Per meeting fees for non-management directors are as follows: +● +For meetings of the Board of Directors, $2,500. +● +For meetings of the Compensation Committee, $2,000. +● +For meetings of the Diversity Committee and Nominating and Governance Committee, $1,500. +● +For meetings of the Audit Committee either in person or over the telephone, $2,500. +● +In addition, the Chairman of the Audit Committee receives an additional $2,500 for preparing to conduct each quarterly Board and Board Committee meetings. +All non-management directors are also entitled to reimbursement of expenses for all services as a director, including committee participation or special assignments. +Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, that might incorporate future filings, including the Proxy Statement, in whole or in part, the Report of the Audit Committee shall not be incorporated by reference into any such filings. +REPORT OF THE AUDIT COMMITTEE +Management is responsible for the Company’s internal controls, assessing the effectiveness of these controls and the financial reporting process. The Company’s independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and for issuing reports thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter. It is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and in accordance with generally accepted accounting principles; that is the responsibility of management. +In fulfilling its oversight responsibilities with respect to the year ended December 31, 2013, the Audit Committee: +● +Approved the terms of engagement of Grant Thornton LLP as the Company’s independent registered public accounting firm for the year ended December 31, 2013; +● +Reviewed with management the interim financial information included in the Forms 10-Q prior to their being filed with the SEC. In addition, the Committee reviewed all earnings releases with management and the Company’s independent registered public accounting firm prior to their release; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm the audited consolidated financial statements of the Company as of December 31, 2013 and 2012 and for the three years ended December 31, 2013; +● +Reviewed and discussed with the Company’s management and the independent registered public accounting firm, management’s assessment that the Company maintained effective control over financial reporting as of December 31, 2013; +21 +● +Discussed with the independent registered public accounting firm matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board; and +● +Received from the independent registered public accounting firm the written disclosures and the letter in accordance with the requirements of the Public Company Accounting Oversight Board regarding the firm’s communications with the Committee concerning independence, and discussed with such firm its independence from the Company. +Based upon the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company and subsidiaries as of December 31, 2013 and 2012 and for the three years ended December 31, 2013 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and for filing with the Securities and Exchange Commission. +In giving its recommendation to the Board of Directors, the Audit Committee has relied on (i) management’s representation that such financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the United States of America and (ii) the report of the Company’s independent registered public accounting firm with respect to such financial statements. +Submitted by the Audit Committee of the Board of Directors. +Henry B. Tippie, Chairman +James B. Williams +Bill J. Dismuke +Larry L. Prince +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Committee +During the fiscal year ended December 31, 2013, the members of our Compensation Committee held primary responsibility for determining executive compensation levels. The Committee is composed of three of our non-management directors who do not participate in the Company’s compensation plans. The Committee determines the compensation and administers the performance-based incentive cash compensation plan for our executive officers. In addition, the Committee also administers our Stock Incentive Plan for all the employees. +The members of our Compensation Committee have extensive and varied experience with various public and private corporations - as investors and stockholders, as senior executives, and as directors charged with the oversight of management and the setting of executive compensation levels. Henry B. Tippie, the Chairman of the Compensation Committee, has served on the board of directors of twelve different publicly traded companies and has been involved in setting executive compensation levels at all of these companies. Messrs. James B. Williams and Larry L. Prince have served on the board of directors of several different publicly traded companies and have similarly been involved in setting executive compensation levels at many of these companies. +The Compensation Committee has authority to engage attorneys, accountants and consultants, including executive compensation consultants, to solicit input from management concerning compensation matters, and to delegate any of its responsibilities to one or more directors or members of management where it deems such delegation appropriate and permitted under applicable law. The Committee has not used the services of any compensation consultants in determining or recommending the amount or form of executive compensation. +The Compensation Committee believes that determinations relative to executive compensation levels are best left to the discretion of the Committee. In addition to the extensive experience and expertise of the Committee’s members and their familiarity with the Company’s performance and the performance of our executive officers, the Committee is able to draw on the experience of other Directors and on various legal and accounting executives employed by the Company, and the Committee has access to readily available public information relative to structuring executive compensation programs and setting appropriate compensation levels. The Committee also believes that the structure of our executive compensation programs should not become overly complicated or difficult to understand. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. +22 +The Role of Shareholder Say-on-Pay Votes +The Company provides its shareholders with the opportunity to cast an every three years advisory vote on executive compensation (a “say-on-pay proposal”). At the Company’s annual meeting of shareholders held in April 2011, a substantial majority of the votes cast on the say-on-pay proposal at that meeting were voted in favor of the proposal. The Compensation Committee believes this affirms shareholders’ support of the Company’s approach to executive compensation. The shareholders voted to hold a say-on-pay advisory vote on executive compensation every three years, and the Board resolved to accept the shareholders’ recommendation. As a result, the advisory vote on executive compensation will be held again at the 2014 Annual Meeting of Stockholders. The Compensation Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for its executive officers. +General Compensation Objectives and Guidelines +The Company is engaged in a highly competitive industry. The success of the Company depends on its ability to attract and retain highly qualified and motivated executives. In order to accomplish this objective, the Company structures the executive compensation in a fashion that takes into account the Company’s overall performance and the individual performance of the executive. +The Compensation Committee endorses the philosophy that executive compensation should reflect Company performance and the contribution of executive officers to that performance. The Company’s compensation policy is designed to achieve three fundamental objectives: (i) attract and retain qualified executives, (ii) motivate performance to achieve Company objectives, and (iii) align the interests of our executives with the long-term interests of the Company’s stockholders. The Committee recognizes that there are many intangibles involved in evaluating performance and in motivating performance, and that determining an appropriate compensation level is a highly subjective endeavor. The analysis of the Committee is not based upon a structured formula and the objectives referred to above are not weighted in any formal manner. +The Company’s executive officers are also executive officers of Marine Products and receive compensation directly from Marine Products. The members of the Company’s Compensation Committee also constitute the Compensation Committee of Marine Products. In determining the compensation for the executive officers at the Company, the Committee considers these dual responsibilities and sources of compensation. The Company sets compensation of its executives at such levels so that the aggregate compensation received from both Marine Products and the Company is reasonable in light of their respective responsibilities and the performance of both companies, and so that the compensation from the Company for services solely to the Company is reasonable. A discussion of the Company’s executive officers’ compensation at Marine Products is contained in its annual Proxy Statement filed with the SEC. During the year, none of the executive officers made recommendations or otherwise contributed input on their own compensation. However, the Compensation Committee may from time to time solicit input from the Chairman when reviewing executive compensation. +Pursuant to the Company’s compensation philosophy, the total annual compensation of its executive officers is primarily comprised of base salary, performance-based incentive cash compensation and stock-based incentive compensation. In addition, the Company provides retirement compensation plans, group welfare benefits and certain perquisites. +We believe a competitive base salary is important to attract, retain and motivate top executives. We believe a performance-based incentive cash compensation plan is valuable in recognizing and rewarding individual achievement. Finally, we believe stock-based incentives make executives “think like owners” and, therefore, align their interests with those of our stockholders. +23 +The Company does not have any formal stock ownership requirements for its executive officers but notes that its current directors and executive officers are stockholders of the Company, as is disclosed elsewhere in this Proxy Statement. The Company is mindful of the stock ownership of our directors and executive officers but does not believe that it is appropriate to provide a mechanism or formula to take stock ownership (or gains from prior option or stock awards) into account when setting compensation levels. The Company provides in its insider trading policies that directors and executive officers may not sell Company securities short and may not sell puts, calls or other derivative securities tied to our Common Stock. +The Company does not have a formal policy relative to the adjustment or recovery of incentives or awards in the event that the performance measures upon which incentives or awards were based are later restated or otherwise adjusted in a manner that would have reduced the size of an incentive or award. However, as all incentives and awards remain within the discretion of the Compensation Committee, the Committee retains the ability to take any such restatements or adjustments into account in subsequent years. In addition, the Sarbanes-Oxley Act requires in the case of accounting restatements that result from material non-compliance with SEC financial reporting requirements, that Chief Executive Officers and Chief Financial Officers must disgorge bonuses and other incentive-based compensation and profits on stock sales, if the non-compliance results from misconduct. +Base Salary +The salary of each executive officer is determined by the Compensation Committee. In making its determinations, the Committee gives consideration to the recent financial performance of the Company, the magnitude of responsibilities, the scope of the position, individual performance and compensation paid by Marine Products. The Committee solicits input from our Chairman with respect to the performance of our executive officers and their compensation levels. There was no change to the base salaries of the Company’s executive officers in 2013 or 2014 through the date of this proxy statement. +Performance-Based Incentive Cash Compensation +The Company implemented the Performance-Based Incentive Cash Compensation Plan (the “Management Incentive Plan”) for the executive officers in 2006. Under the Management Incentive Plan, the Compensation Committee establishes performance goals annually within ninety days after the commencement of the performance period to which such goals relate. Performance goals for each participant may be based on corporate, business unit/function or individual performance, or a combination of one or more such measures. +In connection with the annual establishment of performance goals, the Compensation Committee sets a target award for each participant in the Management Incentive Plan for the applicable year, which is expressed as a percentage of the participant’s base compensation (the “Target Award”) in effect on the last day of the final pay period of that year . If the participant’s performance goals are based upon a combination of performance measures, the Compensation Committee will weigh the importance of each performance measure by assigning a percentage (the “Weighted Percentage”) to those performance measures. The participant’s cash award amount will also depend in part upon the level of achievement that the participant attained with respect to each such performance measure utilizing the formula set out in the Management Incentive Plan. This formula provides for a performance value(“Performance Value”) which ranges from: +● +threshold performance level (with a Performance Value of 25 percent of the Target Award), +● +target performance level (with a Performance Value up to 100 percent of the Target Award), to +● +superior performance level (with a Performance Value up to 200 percent of the Target Award). +Subject to the limitations set forth below, a participant’s cash award amount for each year under the Management Incentive Plan equals the product of the Target Award multiplied by the Weighted Percentage assigned to each performance measure used for a participant, multiplied by the Performance Value attained for each performance measure, multiplied by base compensation . The Committee will determine the maximum cash award as a percentage of participants’ base compensation for each applicable year. +24 +For 2013, the Compensation Committee established the target incentive award under the Management Incentive Plan for the Chief Executive Officer and for the other members of executive management at the amounts shown in the table below. The target awards that could be earned under the Management Incentive Plan for 2013 were the same as for the prior year. +Target Award as a +Executive Officer +percentage of base salary +Richard A. Hubbell +President and Chief Executive Officer +100 +% +Ben M. Palmer +Vice President, Chief Financial Officer and Treasurer +100 +% +R. Randall Rollins +Chairman of the Board +100 +% +Linda H. Graham +Vice President and Secretary +40 +% +The maximum bonus award for each participant under the Plan for 2013 and prior years was established at 150 percent of such participant’s base salary. The performance criteria applicable to the participants under the Management Incentive Plan for 2013 were determined based solely on corporate performance. The Compensation Committee established corporate performance goals for 2013 under the Management Incentive Plan based on cash flow return on invested capital. Return on invested capital (“ROIC”) is a widely used financial performance measure that typically correlates with long term change in stockholder value. The Company has used ROIC as the sole performance goal under the Management Incentive Plan for several years. ROIC is computed as the ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to invested capital. Invested capital is generally equal to the aggregate of stockholders’ equity, accumulated depreciation and long-term liabilities. For 2013, the target performance goal established by the Company is in excess of the comparable historical average ROIC of our peers, is in excess of the Company’s weighted average cost of capital, and is an amount which the Company believes represents outstanding financial performance. Under the Management Incentive Plan, the Company must achieve at least 80 percent of the target performance goal for executive officers to be eligible for any bonus award. Bonus awards under the Management Incentive Plan are determined on a sliding scale between the threshold performance level and a superior performance level, which corresponds to 175 percent of the target performance goal. To be eligible for the bonus award under the Management Incentive Plan, the ROIC must be in excess of 16 percent up to a maximum of 35 percent. The Company has consistently followed the same method to compute ROIC, and the Compensation Committee has not exercised discretion to waive the performance goals based on difficult industry conditions or other factors. +The Company operates in a cyclical business where financial performance is influenced by, among other things, changes in oil and natural gas prices. The Company generated ROIC that resulted in 120 percent of the target award in 2013, 192 percent of the target award in 2012 and in excess of 200 percent of the target award in 2011. The level of performance achieved had been trending downward during 2013 and 2012 after a record performance in 2011, consistent with the cyclical nature of industry performance and the performance of our peers. +For 2013, the executive officers earned awards that were higher than target but lower than the superior performance level which qualified the officers to receive bonus awards up to 120 percent of the target incentive award. Performance-based cash compensation earned under the Management Incentive Plan for 2013 was as follows: Mr. Richard A. Hubbell: $1,080,000; Mr. Ben M. Palmer: $450,000; Mr. R. Randall Rollins: $960,000 and Ms. Linda H. Graham: $120,000. For 2014, the target awards, performance goal and maximum awards were established at the same levels as 2013. +Stock Based Incentive Plans +Our Stock Incentive Plan allows for a wide variety of stock based awards such as stock options and restricted stock. We last issued stock options in fiscal year ended 2003 and have no current plans to issue additional stock options. We have never issued any stock appreciation rights. Partially in response to changes relative to the manner in which stock options are accounted for under generally accepted accounting principles, we have modified the structure and composition of the long-term equity based component of our executive compensation. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. The terms and conditions of these awards are described in more detail below. +25 +Awards under the Company’s Stock Incentive Plan are purely discretionary, are not based upon any specific formula and may or may not be granted in any given fiscal year. For the past three years, we have granted time-based restricted stock to various employees, including our executive officers, in early January during our regularly scheduled meetings of the Compensation Committee during which the Committee reviews executive compensation. Consistent with this practice, we granted restricted stock awards to our executive officers in January 2014, 2013 and 2012 as follows: +Name +2014 +2013 +2012 +Richard A. Hubbell +56,250 +75,000 +75,000 +Ben M. Palmer +33,750 +45,000 +45,000 +R. Randall Rollins +56,250 +75,000 +75,000 +Linda H. Graham +18,750 +25,000 +22,500 +The amount of the aggregate stock based awards to our executive officers in any given year is influenced by the Company’s overall performance. The amount of each grant to our executive officers is influenced in part by the Committee’s subjective assessment of each individual’s respective contributions to achievement of the Company’s long-term goals and objectives. In evaluating individual performance for these purposes, the Committee considers the overall contributions of executive management as a group and the Committee’s subjective assessment of each individual’s relative contribution to that performance rather than specific aspects of each individual’s performance over a short-term period. We expect to continue yearly grants of restricted stock awards although we reserve the right to modify or discontinue this or any of our other compensation practices at any time. +All of our restricted stock awards granted since 2004 have had the same features. The shares vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to disability or retirement on or after age 65), the unvested shares will be forfeited. In the event of death or “change in control” as determined by the Board of Directors, all unvested restricted shares shall vest immediately. +Grants are made under our 2004 Stock Incentive Plan and the plan is administered pursuant to Rule 16b-3 of the Securities Exchange Act of 1934. +Employment Agreements +There are no agreements or understandings between the Company and any executive officer which guarantee continued employment or guarantee any level of compensation, including incentive or bonus payments, to the executive officer. +Retirement Plans +The Company maintains a defined benefit pension plan (called the Retirement Income Plan) for all our eligible employees, a non-qualified supplemental retirement plan for our executives and certain other highly compensated employees and a 401(k) Plan for the benefit of all regular full time employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. During 2002, the Company began permitting selected highly compensated employees to defer a portion of their compensation into the Company’s non-qualified Supplemental Retirement Plan (“SRP”). The SRP is described in more detail under the caption “Nonqualified Deferred Compensation” below. +26 +Other Compensation +Other compensation to our executives includes typical employee benefits such as group medical, dental and vision coverage and group life insurance. The Company provides an automobile (or an automobile allowance) to Messrs. Richard A. Hubbell and Ben M. Palmer. +The following Compensation Committee Report shall not be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. +COMPENSATION COMMITTEE REPORT +We have reviewed and discussed the above “Compensation Discussion and Analysis” with management. +Based upon this review and discussion, we have recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement. +Submitted by the Compensation Committee of the Board of Directors. +Henry B. Tippie, Chairman +James B. Williams +Larry L. Prince +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +The Company has completed a review of Forms 3, 4, and 5 and amendments thereto furnished to the Company by all directors, officers and greater than 10 percent stockholders subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended. In addition, the Company has a written representation from all directors, officers and greater than 10 percent stockholders from whom no Form 5 was received indicating that no Form 5 filing was required. Based solely on this review, the Company believes that filing requirements of such persons under Section 16 for the fiscal year ended December 31, 2013 have been satisfied. +27 +EXECUTIVE COMPENSATION +Shown below is information concerning the annual and long-term compensation for services in all capacities to the Company for the calendar years ended December 31, 2013, 2012 and 2011 of those persons who were at December 31, 2013: +● +our Principal Executive Officer and Principal Financial Officer; and +● +our two other executive officers: +SUMMARY COMPENSATION TABLE +Change in +Pension +Value and +Non-Equity +Nonqualified +Incentive +Deferred +Stock +Plan +Compensation +All Other +Salary +Awards +Compensation +Earnings +Compensation +Name and Principal Position +Year +($) +($) (1) +($) (2) +($) (3) +($) (4) +Total ($) +Richard A. Hubbell +2013 +900,000 +1,026,000 +1,080,000 +–– +16,830 +3,022,830 +President and +2012 +900,000 +876,750 +1,350,000 +18,439 +13,890 +3,159,079 +Chief Executive Officer +2011 +800,000 +869,500 +1,200,000 +6,230 +13,750 +2,889,480 +Ben M. Palmer +2013 +375,000 +615,600 +450,000 +–– +19,800 +1,460,400 +Vice President, +2012 +375,000 +526,050 +562,500 +14,224 +20,620 +1,498,394 +Chief Financial Officer and +2011 +300,000 +521,700 +450,000 +11,580 +18,840 +1,302,120 +Treasurer +R. Randall Rollins +2013 +800,000 +1,026,000 +960,000 +–– +–– +2,786,000 +Chairman of the Board +2012 +800,000 +876,750 +1,200,000 +24,168 +–– +2,900,918 +2011 +700,000 +869,500 +1,050,000 +–– +–– +2,619,500 +Linda H. Graham +2013 +250,000 +342,000 +120,000 +–– +6,360 +718,360 +Vice President and Secretary +2012 +250,000 +263,025 +192,000 +8,763 +6,840 +720,628 +2011 +200,000 +260,850 +160,000 +–– +5,580 +626,430 +(1) +Represents the fair value of the award at the date of grant computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2013 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. +(2) +Bonuses under the Management Incentive Plan are accrued in the fiscal year earned and paid in the following fiscal year. +(3) +The actuarial present value of the executive officers’ accumulated benefit under the defined benefit plan decreased during 2013 as follows: Messrs. Richard A. Hubbell $(50,129), Ben M. Palmer $(10,573), R. Randall Rollins $(237,912) and Ms. Linda H. Graham $(45,215). Change represents impact of change in discount rate only as no additional benefits are being accrued. +(4) +All other compensation for 2013 includes the following items for: +Mr. Richard A. Hubbell: +Insurance on automobile provided by the Company, cost of dining club dues, cost of gasoline for personal automobile, and 401(k) Plan Company match of $7,650. +Mr. Ben M. Palmer: +Automobile allowance, cost of gasoline for personal automobile and 401(k) Plan Company match of $6,620. +Ms. Linda H. Graham: +401(k) Plan Company match of $6,360. +28 +GRANTS OF PLAN-BASED AWARDS +Estimated Future Payouts +All Other +Grant Date +Under Non-Equity +Stock Awards: +Fair Value +Incentive Plan Awards (1) +Number of Shares +of Stock and +Grant +Threshold +Target +Maximum +of Stock or Units +Option Awards +Name +Date +($) +($) +($) +(#) +($) (2) +Mr. Richard A. Hubbell +1/22/13 +225,000 +900,000 +1,350,000 +1/22/13 +75,000 +1,026,000 +Mr. Ben M. Palmer +1/22/13 +93,750 +375,000 +562,500 +1/22/13 +45,000 +615,600 +Mr. R. Randall Rollins +1/22/13 +200,000 +800,000 +1,200,000 +1/22/13 +75,000 +1,026,000 +Ms. Linda H. Graham +1/22/13 +25,000 +100,000 +200,000 +1/22/13 +25,000 +342,000 +(1) +These amounts illustrate the potential bonus awards under the Management Incentive Plan for 2013. See Summary Compensation Table on page 28 for actual amounts awarded in 2013. +(2) +These amounts represent aggregate grant date fair value for grants of restricted shares of Common Stock awarded in fiscal year 2013 under the 2004 Stock Incentive Plan computed in accordance with ASC Topic 718. Please refer to Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2013 for a discussion of assumptions used in this computation. For this computation, we do not include an assumption for estimated forfeitures. Our Form 10-K has been included in our Annual Report and provided to our stockholders. +The table above reflects grants of restricted shares of Company Common Stock under the 2004 Stock Incentive Plan awarded in fiscal year 2013. All grants of restricted shares of Common Stock vest one-fifth per year beginning on the second anniversary of the grant date. Restricted shares have full voting and dividend rights. However, until the shares vest, they cannot be sold, transferred or pledged. Should the executive leave our employment for any reason prior to the vesting dates (other than due to death, disability, change in control or retirement on or after age 65), the unvested shares will be forfeited. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. +The Company’s employment contracts with its Chief Executive Officer and the Company’s other executive officers are oral, at will arrangements. All of the executive officers are eligible for annual cash bonuses which are awarded under the Management Incentive Plan. The Compensation Committee’s decisions are based upon broad performance objectives under that plan. The executive officers are eligible to receive shares of Company Common Stock subject to options and restricted shares of Company Common Stock under the Company’s Stock Incentive Plans, in such amounts and with such terms and conditions as determined by the Compensation Committee at the time of grant. All of the executive officers are eligible to participate in the Company’s SRP. The executive officers are eligible to participate in the Company’s regular employee benefit programs, including the 401(k) Plan with Company match, group life insurance, group medical and dental coverage, vision and other group benefit plans. All of the executive officers are eligible for the Retirement Income Plan although benefit accruals were frozen in 2002. For more information on these plans, see “Compensation Discussion and Analysis” on page 22 and “Benefit Plans” on page 31. +29 +OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END +The Company does not have any outstanding option awards made in prior years to the executives named in our Summary Compensation Table. The table below sets forth the total number of restricted shares of Common Stock that were granted in prior years to the executives named in our Summary Compensation Table but which have not yet vested, together with the market value of these unvested shares based on the $17.85 closing price of our Common Stock on December 31, 2013. +Option Awards +Stock Awards +Number of +Number of +Securities +Securities +Number of +Market Value +Underlying +Underlying +Shares or +of Shares or +Unexercised +Unexercised +Option +Option +Units of Stock +Units of Stock +Options (#) +Options (#) +Exercise +Expiration +That Have Not +That Have +Name +Exercisable +Unexercisable +Price ($) +Date +Vested (#) +Not Vested ($) +Richard A. Hubbell +–– +–– +–– +–– +279,750 +(1) +4,993,540 +Ben M. Palmer +–– +–– +–– +–– +170,100 +(1) +3,036,290 +R. Randall Rollins +–– +–– +–– +–– +279,750 +(1) +4,993,540 +Linda H. Graham +–– +–– +–– +–– +87,550 +(1) +1,562,770 +(1) The Company has granted employees time lapse restricted shares that vest one-fifth per year beginning on the second anniversary of the grant date. Shares of restricted stock granted to the executive officers that have not vested as of December 31, 2013 are summarized in the table that follows: +Name +Number of shares +Grant date +Date fully vested +Richard A. Hubbell +9,000 +1/22/2008 +1/22/2014 +27,000 +1/27/2009 +1/27/2015 +33,750 +1/26/2010 +1/26/2016 +60,000 +1/25/2011 +1/25/2017 +75,000 +1/24/2012 +1/24/2018 +75,000 +1/22/2013 +1/22/2019 +Ben M. Palmer +4,500 +1/22/2008 +1/22/2014 +18,000 +1/27/2009 +1/27/2015 +21,600 +1/26/2010 +1/26/2016 +36,000 +1/25/2011 +1/25/2017 +45,000 +1/24/2012 +1/24/2018 +45,000 +1/22/2013 +1/22/2019 +R. Randall Rollins +9,000 +1/22/2008 +1/22/2014 +27,000 +1/27/2009 +1/27/2015 +33,750 +1/26/2010 +1/26/2016 +60,000 +1/25/2011 +1/25/2017 +75,000 +1/24/2012 +1/24/2018 +75,000 +1/22/2013 +1/22/2019 +Linda H. Graham +2,250 +1/22/2008 +1/22/2014 +9,000 +1/27/2009 +1/27/2015 +10,800 +1/26/2010 +1/26/2016 +18,000 +1/25/2011 +1/25/2017 +22,500 +1/24/2012 +1/24/2018 +25,000 +1/22/2013 +1/22/2019 +30 +OPTION EXERCISES AND STOCK VESTED +The following table sets forth: +● +the number of shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the exercise of stock options during the fiscal year ended December 31, 2013; +● +the aggregate dollar amount realized on the exercise date for such options computed by multiplying the number of shares acquired by the difference between the market value of the shares on the exercise date and the exercise price of the options; +● +the number of restricted shares of Common Stock acquired by the executives named in the Summary Compensation Table upon the vesting of shares during the fiscal year ended December 31, 2013; and +● +the aggregate dollar amount realized on the vesting date for such restricted stock computed by multiplying the number of shares which vested by the market value of the shares on the vesting date. +Option Awards +Stock Awards +Number of Shares +Value Realized on +Number of Shares +Value Realized on +Acquired +on Exercise +Exercise +Acquired on Vesting +Vesting +Name +(#) +($) +(#) +($) +Richard A. Hubbell +–– +–– +57,750 +829,820 +Ben M. Palmer +–– +–– +33,300 +479,560 +R. Randall Rollins +–– +–– +57,750 +829,820 +Linda H. Graham +–– +–– +17,100 +246,200 +BENEFIT PLANS +The table below shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under the Retirement Income Plan determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements. Information regarding the Retirement Income Plan can be found under Note 10 to our Financial Statements contained in our Form 10-K for the period ended December 31, 2013. +Pension Benefits +Present +Value of +Number of +Accumulated +Payments During +Years Credited +Benefit +Last Fiscal Year +Name +Plan Name +Service (#) +($) +($) +Mr. Richard A. Hubbell +Retirement Income Plan +15 +439,290 +42,312 +Mr. Ben M. Palmer +Retirement Income Plan +4 +59,268 +–– +Mr. R. Randall Rollins +Retirement Income Plan +30 +2,218,306 +261,576 +Ms. Linda H. Graham +Retirement Income Plan +15 +414,098 +48,708 +The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. In 2002, the Company’s Board of Directors approved a resolution to cease all future benefit accruals under the Retirement Income Plan effective March 31, 2002. Retirement Income Plan benefits are based on the average of the employee’s compensation from the Company for the five consecutive complete calendar years of highest compensation during the last ten consecutive complete calendar years (“final average compensation”) immediately preceding March 31, 2002. The benefits are computed as the product of 1.5 percent of final average compensation multiplied by years of credited service (up to 30 years) reduced by an adjustment for benefits drawn from social security. Adjustments have been made for age and IRS mandated compensation limitations. The final average compensation for Mr. Hubbell is $205,890, Mr. Palmer is $179,900 and Ms. Graham is $127,325. +31 +The annual benefit payable at the later of retirement age or 65 for the named executive officers is $261,600 for Mr. Rollins, $42,400 for Mr. Hubbell, $48,800 for Ms. Graham and $9,400 for Mr. Palmer. In accordance with the Internal Revenue Code (as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the maximum annual benefit payable to a Retirement Income Plan beneficiary in 2013 was $205,000. Retirement benefits accrued at the end of any calendar year or as of March 31, 2002 will not be reduced or increased by any subsequent changes in the maximum compensation limit. +The Plan also provides reduced early retirement benefits at age 55 or older with 15 or more years of service. Ms. Graham and Mr. Hubbell are voluntarily receiving distributions from the plan even though they have not retired from the Company. In addition, as an owner with stock ownership in excess of five percent of the Company’s voting securities, Mr. Rollins is required to receive mandatory distributions currently, even though he has not retired from the Company. The amount of distributions received during 2013 has been disclosed in the table above and is not subject to change after retirement. +401(k) Plan +Effective July 1, 1984, the Company adopted a qualified retirement plan designed to meet the requirements of Section 401(k) of the Code. The Company makes matching contributions of fifty cents ($0.50) for each dollar ($1.00) of a participant’s contribution to the 401(k) Plan that does not exceed six percent of his or her annual compensation. The only form of benefit payment under the 401(k) Plan is a single lump-sum payment equal to the vested balance in the participant’s account on the date the distribution is processed. Under the 401(k) Plan, the full amount of a participant’s vested accrued benefit is payable upon his termination of employment, retirement, total and permanent disability, or death. Also under the 401(k) Plan, a participant may withdraw his or her pre-tax contributions to the extent of certain specified instances of financial hardship and may withdraw any amount from his or her pre-tax contribution account for any reason after attaining age 59 1/2. In addition, a participant may withdraw any amount from his or her rollover account for any reason. Amounts contributed by the Company to the accounts of the named executive officers under this plan are reported in the “All Other Compensation” column of the Summary Compensation Table on page 28. +NONQUALIFIED DEFERRED COMPENSATION +The SRP has been established as a nonqualified plan that is designed to comply with the provisions of the American Jobs Creation Act of 2004 (including Section 409A of the Internal Revenue Code) for the cash contributions made to certain longer serviced employees in lieu of freezing of benefit accruals effective in 2002; the SRP also has a compensation deferral option for eligible employees. The contributions and deferrals to the SRP are invested in funds held in a rabbi trust. +Executive +Registrant +Aggregate +Aggregate +Aggregate +Contributions in +contributions in +earnings in last +withdrawals/ +balance at last +Name +last FY ($) (1) +last FY ($) +FY ($) +distributions ($) +FYE ($) +Richard A. Hubbell +–– +–– +41,321 +–– +303,972 +Ben M. Palmer +41,250 +–– +50,175 +33,233 +377,433 +R. Randall Rollins +–– +–– +–– +–– +–– +Linda H. Graham +83,500 +–– +157,162 +–– +1,196,926 +(1) Includes the following amounts related to the base salary for 2013 which have been deferred by the executive officer pursuant to the SRP and which are included in the Summary Compensation Table: Mr. Ben M. Palmer: $30,000 and Ms. Linda H. Graham: $62,500. The remaining amounts represent deferrals of bonus compensation that were paid in 2013. +The deferral option provides that participants may defer up to 50 percent of their base salary and up to 100 percent of their annual bonus with respect to any given plan year, subject to a $2,000 per plan year minimum. The deferred amounts are voluntarily funded on a monthly basis; salary and bonus deferrals are generally 100 percent vested. Accounts are credited with hypothetical earnings, and/or debited with hypothetical losses, based on the performance of certain “Measurement Funds.” Account values are calculated as if the funds from deferrals and contributions had been converted into shares or other ownership units of selected Measurement Funds by purchasing (or selling, where relevant) such shares or units at the current purchase price of the relevant Measurement Fund at the time of the participant’s selection. The benefits are unsecured general obligations of the Company to the participants, and these obligations rank in parity with the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company’s obligations under the SRP exceed assets available under the trust, the Company may be required to seek additional funding sources to fund its liability under the SRP. +32 +Generally, the SRP provides for distributions of any deferred amounts upon the earliest to occur of a participant’s death, disability, retirement or other termination of employment (a “Termination Event”). However, for any deferrals of base salary and bonus compensation (but not Company contributions), participants are entitled to designate a distribution date which is prior to a Termination Event. The SRP allows a participant to elect to receive distributions in installments or lump-sum payments. +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL +The following table describes the potential payments and benefits under the Company’s compensation and benefit plans and arrangements to which the named executive officers would be entitled upon termination of employment. There are no other agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment except as described below. Additional payments or benefits to a terminating executive officer would be at the discretion of the Compensation Committee. +In accordance with the terms of the defined benefit plan, the executive officers are not entitled to additional benefits at death or disability. The amounts payable at retirement are disclosed in the “Benefit Plans” section on page 31. The executive officers can choose to receive the amounts accumulated in the SRP either as a lump-sum or in installments at retirement, death or disability. These amounts have been disclosed under the “Nonqualified Deferred Compensation” section on page 32. The table below reflects the incremental restricted shares that would become vested as of December 31, 2013 using the closing market price of $17.85 per share for our Common Stock, as of that date, in the case of retirement, disability, death or change in control. +Stock Awards +Number of shares +underlying unvested +Unrealized value of +Name +stock (#) +unvested stock ($) +Richard A. Hubbell +● Retirement +58,438 +1,043,120 +● Disability +94,281 +1,682,920 +● Death +279,750 +4,993,540 +● Change in control +279,750 +4,993,540 +Ben M. Palmer +● Retirement +–– +–– +● Disability +57,288 +1,022,590 +● Death +170,100 +3,036,290 +● Change in control +170,100 +3,036,290 +R. Randall Rollins +● Retirement +58,438 +1,043,120 +● Disability +94.281 +1,682,920 +● Death +279,750 +4,993,540 +● Change in control +279,750 +4,993,540 +Linda H. Graham +● Retirement +17,738 +316,620 +● Disability +29.027 +518,130 +● Death +87,550 +1,562,770 +● Change in control +87,550 +1,562,770 +33 +Accrued Pay and Regular Retirement Benefits +The amounts shown in the table above do not include the following since they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include: +● +Accrued salary and vacation pay. +● +Distributions of plan balances under the 401(k) Plan. +Pension Benefit and Deferred Compensation +The Retirement Income Plan does not provide for lump sum payments for a participant including executive officers for instances other than retirement. The Retirement Income Plan is described at “Pension Benefits” above. Upon termination, the executive officers will receive a distribution of the balance in their SRP account. These amounts are disclosed under the “Nonqualified Deferred Compensation” section on page 32. +Severance. The Company does not have any severance arrangements for its executives. +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $670,000 in 2013. +During 2013, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2013, payments totaling approximately $1,039,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred are at least as favorable as the charges that would have been incurred for similar purchases from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $83,000 in 2013. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2013 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +34 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Principal Auditor +Grant Thornton LLP (“Grant Thornton”) served as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2013 and 2012. +The Audit Committee has appointed Grant Thornton as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. Grant Thornton has served as the Company’s independent auditors for many years and is considered by management to be well qualified. Representatives of Grant Thornton are expected to be present at the Annual Meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. +Aggregate fees billed by the Company’s independent registered public accounting firm are set forth below: +2013 +2012 +Audit fees and quarterly reviews (1) +$ +947,970 +$ +985,250 +Audit related fees +–– +–– +Tax fees +–– +–– +All other fees +–– +–– +(1) Audit fees include fees for audit or review services in accordance with generally accepted auditing standards, such as statutory audits and services rendered for compliance with Section 404 of the Sarbanes-Oxley Act. +Pre-approval of Services +All of the services described above were pre-approved by the Company’s Audit Committee. The Audit Committee has determined that the payments made to its independent registered public accounting firm for these services are compatible with maintaining such auditors’ independence. A majority of the hours expended on the principal accountant’s engagement to audit the financial statements of the Company for the year 2013 was attributable to work performed by full-time, permanent employees of the principal accountant. +The Audit Committee is directly responsible for the appointment and termination, compensation, and oversight of the work of the independent registered public accounting firm, including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting. The Audit Committee is responsible for pre-approving all audit and non-audit services provided by the independent registered public accounting firm and ensuring that they are not engaged to perform the specific non-audit services proscribed by law or regulation. The Audit Committee has delegated pre-approval authority to its Chairman with the stipulation that his decision is to be presented to the full Committee at its next scheduled meeting. The Audit Committee has no other pre-approval policies. +35 +STOCKHOLDER PROPOSALS +Appropriate proposals of stockholders intended to be presented at the Company’s 2015 Annual Meeting of the Stockholders must be received by the Company by November 17, 2014, in order to be included, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended, in the Proxy Statement and form of proxy relating to that meeting. In accordance with Rule 14a-4(c)(1) of the Securities Exchange Act of 1934, management proxy holders intend to use their discretionary voting authority with respect to any stockholder proposal raised at the Company’s 2015 Annual Meeting as to which the proponent fails to notify the Company on or before January 31, 2015. With regard to such stockholder proposals, if the date of the next Annual Meeting of the Stockholders is advanced or delayed more than 30 calendar days from April 22, 2015, the Company will, in a timely manner, inform its stockholders of the change and of the date by which such proposals must be received. +With respect to stockholder nomination of directors, the Company’s Bylaws provide that nominations for the election of directors may be made by any stockholder entitled to vote for the election of directors. Nominations must comply with an advance notice procedure which generally requires with respect to nominations for directors for election at an Annual Meeting, that written notice be addressed to: Secretary, RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324, not less than ninety days prior to the anniversary of the prior year’s Annual Meeting and set forth the name, age, business address and, if known, residence address of the nominee proposed in the notice, the principal occupation or employment of the nominee for the past five years, the nominee’s qualifications, the class or series and number of shares of capital stock of the Company which are owned beneficially or of record by the person and any other information relating to the person that would be required to be disclosed in a proxy statement or other filings. Other specific requirements related to such notice, including required disclosures concerning the stockholder intending to present the nomination, are set forth in the Company’s Bylaws. Notices of nominations must be received by the Secretary of the Company no later than January 22, 2015 with respect to directors to be elected at the 2015 Annual Meeting of Stockholders. +EXPENSES OF SOLICITATION +The Company will bear the cost of soliciting proxies. Upon request, we will reimburse brokers, dealers and banks, or their nominees, for reasonable expenses incurred in forwarding copies of the proxy material to their beneficial stockholders of record. Solicitation of proxies will be made principally by mail. Proxies also may be solicited in person or by telephone, facsimile or other means by our directors, officers and regular employees. These individuals will receive no additional compensation for these services. The Company has retained Georgeson Shareholder Communications, Inc. to conduct a broker search and to send proxies by mail for an estimated fee of approximately $75,000 including shipping expenses. +36 +MISCELLANEOUS +The Company’s Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, without exhibits, is being mailed to stockholders with this Proxy Statement. +Upon the written request of any record or beneficial owner of the Company’s Common Stock whose proxy was solicited in connection with the 2014 Annual Meeting of Stockholders, the Company will furnish such owner, without charge, a copy of its Annual Report on Form 10-K, including the financial statements and the financial statement schedules (but without exhibits), for its fiscal year ended December 31, 2013. Requests for a copy of such Annual Report on Form 10-K should be addressed to Ms. Linda H. Graham, Secretary, at RPC, Inc., 2170 Piedmont Road NE, Atlanta, Georgia 30324. +Management knows of no business other than the matters set forth herein which will be presented at the Annual Meeting. In as much as matters not known at this time may come before the Annual Meeting, the enclosed proxy confers discretionary authority with respect to such matters as may properly come before the Annual Meeting; and it is the intention of the persons named in the proxy to vote in accordance with their best judgment on such matters. +BY ORDER OF THE BOARD OF DIRECTORS +Linda H. Graham, Secretary +Atlanta, Georgia +March 17, 2014 +37 +[This Page Intentionally Left Blank] +APPENDIX A +RPC, INC. +2014 STOCK INCENTIVE PLAN +SECTION 1. PURPOSES; DEFINITIONS. +The purpose of the RPC, Inc. 2014 Stock Incentive Plan (the “Plan”) is to enable RPC, Inc. (the “Company”) to attract, retain and reward directors and key employees of the Company and its Subsidiaries and Affiliates, and strengthen the mutuality of interests between such persons and the Company’s shareholders, by offering such persons performance-based stock incentives and/or other equity interests or equity-based incentives in the Company, as well as performance-based incentives payable in cash. +For purposes of this Plan, the following terms shall be defined as set forth below: +1. +“Affiliate” means any entity other than the Company and its Subsidiaries that is designated by the Board as a participating employer under this Plan, provided that the Company directly or indirectly owns at least 20% of the combined voting power of all classes of stock of such entity or at least 50% of the ownership interests in such entity. +2. +“Award” shall mean any award or benefit granted under this Plan, including, without limitation, the grant of Options, SARs, Restricted Stock Unit Awards, Restricted Stock Awards, Performance Stock Awards and Performance Unit Awards. “Award Agreement” shall have the meaning provided in Section 10(h) below. +3. +“Board” means the Board of Directors of the Company. +4. +“Book Value” means, at any given date, (i) the consolidated stockholders’ equity in the Company and its Subsidiaries, as shown on the Company’s consolidated balance sheet as of the end of the immediately preceding fiscal year, subject to such adjustments as the Committee shall in good faith specify at grant, divided by (ii) the number of shares of Outstanding Stock as of such year-end date (as adjusted by the Committee for subsequent events). +5. +“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the applicable rulings, regulations and guidance thereunder, and any successors to such Code and applicable rulings, regulations and guidance. +6. +“Committee” means the Committee referred to in Section 2 of this Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in this Plan may be exercised by the Board or the Compensation Committee of the Board, as set forth in Section 2 hereof. +7. +“Company” means RPC, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. +8. +“Disability” means disability as determined under procedures established by the Committee for purposes of this Plan and shall in all events be consistent with the definition of “disabled” provided in Sections 422(c)(6) and 22(e)(3) of the Code; provided, however, that with respect to an Award subject to Section 409A of the Code that is paid or settled on account of a Participant’s “disability,” the payment or settlement of the Award shall be made only if the Participant has a “disability” as defined in Section 409A of the Code. +9. +“Early Retirement” means retirement with the express written consent of the Committee (given for purposes of this Plan only at or before the time of such retirement) from active employment with the Company and/or any Subsidiary or Affiliate or pursuant to the early retirement provisions of the applicable pension plan of such entity. +10. +“Fair Market Value” means, unless otherwise determined by the Committee, in good faith and having due regard to Section 409A of the Code, as of any given date (the “Valuation Date”): +i. +if the Stock is listed on an established stock exchange or exchanges, the closing price of one share of the Stock as reported on such exchange on the Valuation Date, or if no sale of Stock has been made on any exchange on the Valuation Date, on the next preceding day on which there was a sale of Stock; +ii. +if the Stock is not listed on an established stock exchange but is instead traded over-the-counter, the mean of the dealer “bid” and “ask” prices of the Stock in the over-the-counter market on the applicable day, as reported by the National Association of Securities Dealers, Inc.; and +iii. +if the Stock is not listed on any exchange or traded over-the-counter, the fair market value of the Stock determined by the Committee in good faith and pursuant to a reasonable application of a reasonable valuation method in accordance with the relevant provisions of Section 409A of the Code. +11. +“Incentive Stock Option” means any Stock Option designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code. +12. +“Non-Employee Director” shall have the meaning set forth in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934, as amended. +A-1 +13. +“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option. +14. +“Normal Retirement” means retirement from active employment with the Company and/or any Subsidiary or Affiliate on or after age 65. +15. +“Other Stock-Based Award” means an Award granted to a Participant under Section 7 below that is valued in whole or in part by reference to, or is otherwise based on, Stock, including, without limitation, Restricted Stock, Restricted Stock Units, Performance-Accelerated Restricted Stock, Performance Stock, Performance Units and Awards (other than Options or SARs) valued by reference to Book Value or Subsidiary performance. +16. +“Outstanding Stock” shall include all outstanding shares of Common Stock, $0.10 par value, of the Company as well as the number of shares of Common Stock into which then outstanding shares of capital stock of the Company, of whatever class, are convertible as of the year-end immediately preceding the date of calculation thereof (as adjusted by the Committee for certain events). +17. +“Participants” shall include those persons who are granted one or more Awards under this Plan, subject to the terms and conditions of this Plan as the Committee shall determine and designate, from time to time, from among those eligible for Award grants hereunder. +18. +“Performance-Accelerated Restricted Stock” means Restricted Stock which is subject to restrictions for a stated period of time based on continued employment, with the opportunity for the restriction period to be shortened based on the achievement of predetermined performance goals. +19. +“Performance Stock” means Stock awarded under Section 7 below at the end of a specified performance period, the amount of which is determined by multiplying a performance factor times either (i) the Fair Market Value of the Stock on the last day of the performance period, or (ii) the difference between the Fair Market Value of the Stock on the first and last days of the performance period, provided, however, that at the discretion of the Committee, Participants may receive the value of Performance Stock in cash, as determined by reference to the Fair Market Value on the date the amount of the award is determined. +20. +“Performance Unit” means an Award pursuant to Section 7 with a starting value and an associated performance period, such that at the end of the performance period Participants receive an amount, payable in either cash or Stock, at the discretion of the Committee, equal to (i) the number of units earned based on a predetermined performance schedule times the starting unit value, or (ii) the number of units granted times the ending unit value based on a predetermined performance schedule. +21. +“Plan” means this RPC, Inc. 2014 Stock Incentive Plan, as hereafter amended from time-to-time. +22. +“Premium Stock Option” means any Stock Option with an exercise price in excess of the Fair Market Value, as computed on the date of grant of the Stock Option. +23. +“Retirement” means Normal or Early Retirement. +24. +“Restricted Stock” means Stock awarded under Section 7 below which is (i) subject to restrictions for a stated period of time based on continued employment, (ii) subject to restrictions which will lapse only upon the achievement of predetermined performance goals, or (iii) subject to a combination of the restrictions described in (i) and (ii) above. +25. +“Restricted Stock Unit” means a bookkeeping entry representing a right granted to a Participant to receive one share of Stock, a cash payment equal to the value of one share of Stock, or a combination thereof, as determined in the sole discretion of the Committee. +26. +“Stock” means the Common Stock, $0.10 par value per share, of the Company. +27. +“Stock Appreciation Right” or “SAR” means the right pursuant to an award granted under Section 6 below to receive an amount in either cash or Stock, equal to the difference between the Fair Market Value of the Stock on the date of exercise and the Fair Market Value of the Stock on the date of grant of the right. +28. +“Stock Option” or “Option” means any option to purchase shares of Stock granted pursuant to Section 5 below. +29. +“Subsidiary” means any present or future subsidiary corporation of the Company within the meaning of Section 424(f) of the Code, and any present or future business venture designated by the Committee in which the Company has a significant interest, as determined in the discretion of the Committee. +30. +“Substitute Awards” means Awards granted upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity acquired (directly or indirectly) by the Company or with which the Company combines. +A-2 +SECTION 2. ADMINISTRATION. +This Plan shall be administered by the Board of Directors or by a Committee of not less than two Non-Employee Directors, who shall be members of the Board and who shall serve at the pleasure of the Board, such Committee to be designated by the Board. Each member of the Committee shall also be an “outside director” as defined in the regulations promulgated pursuant to Section 162(m) of the Code. Except as otherwise directed by the Board, the functions of the Committee specified in this Plan shall be exercised by the Compensation Committee of the Board. +The Committee shall have full authority to grant, pursuant to the terms of this Plan, to Participants under Section 4: (i) Stock Options, including, without limitation, Incentive Stock Options, Non-Qualified Stock Options and Premium Stock Options, (ii) Stock Appreciation Rights and/or (iii) Other Stock-Based Awards, including, without limitation, Restricted Stock, Restricted Stock Units, Performance-Accelerated Restricted Stock, Performance Stock and Performance Units. +In particular, the Committee shall have the authority: +(a) +subject to Section 4 hereof, to select the Participants to whom Stock Options, Stock Appreciation Rights and/or Other Stock-Based Awards may from time to time be granted hereunder; +(b) +to determine whether and to what extent Stock Options, Stock Appreciation Rights and/or Other Stock-Based Awards, or any combination thereof, are to be granted hereunder to one or more Participants; +(c) +to determine the number of shares of Stock to be covered by each such award granted hereunder; +(d) +to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the Award price (if any) and any restriction or limitation, or any vesting, acceleration or waiver of forfeiture restrictions regarding any Stock Option or other Award and/or the shares of Stock relating thereto, based in each case on such factors as the Committee shall determine, in its sole discretion); +(e) +to determine whether and under what circumstances Stock Options, Stock Appreciation Rights, Performance Stock and Performance Units may be settled in cash; and +(f) +to the extent that Options or SARs have exercise or base prices that exceed the current Fair Market Value of the Stock, the Committee has the discretion, without obtaining shareholder approval, to re-price such Options or SARs and lower their exercise or base prices to prices not lower than the Fair Market Value of the Stock on the date of the action taken to effect the re-pricing. The Committee may also, without obtaining shareholder approval, amend any outstanding Award to provide the holder thereof with additional rights or benefits of the type otherwise permitted by this Plan, including without limitation, extending the term thereof; provided, however, that: +(i) +no amendment to the terms of an outstanding Award that is subject to Section 409A of the Code shall cause the Award to violate Section 409A of the Code; +(ii) +no amendment to the terms of an outstanding Award that is not subject to Section 409A of the Code shall cause the Award to become subject to Section 409A of the Code; and +(iii) +the term of an outstanding Award shall not be extended beyond the earlier of the latest date the Award would have expired by its original terms or the tenth anniversary of the original grant date of the Award, except that to the extent an Award cannot be exercised because such exercise would violate Federal, state or local laws, then the expiration of such Award shall automatically be tolled for the period during which such exercise would violate applicable law, but no more than 30 days. +The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of this Plan and any Award issued under this Plan (and any agreements relating thereto); and to otherwise supervise the administration of this Plan. +The Committee may delegate its powers and duties under this Plan to one or more Directors (including a Director who is also an officer of the Company) or a committee of Directors, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion; provided, however, that the Committee shall not delegate its powers and duties under this Plan (i) with regard to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Exchange Act or (ii) in such a manner as would cause this Plan not to comply with the requirements of Section 162(m). In addition, the Committee may authorize one or more officers of the Company to grant Options under this Plan, subject to the limitations of Section 157 of the Delaware General Corporation Law; provided, however, that such officers shall not be authorized to grant Options to officers or directors of the Company or any Affiliate who are subject to Section 16 of the Exchange Act. +A-3 +Except as otherwise provided by the Committee, Awards under this Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution. +Except as otherwise specifically provided herein, all decisions made by the Committee pursuant to the provisions of this Plan shall be made in the Committee’s sole discretion, shall not be subject to review by any person, and shall be final and binding on all persons, including the Company and all Plan Participants. +SECTION 3. STOCK SUBJECT TO PLAN; ADJUSTMENTS. +(a) +Aggregate Maximum Shares Available . Subject to adjustment in accordance with paragraph (d) of this Section 3, the maximum number of shares of Stock that may be delivered to Participants and their beneficiaries under this Plan shall be 8,000,000 shares of Stock. +(b) +Calculation of Shares Delivered . To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary for any of the following reasons, such shares shall not be deemed delivered for purposes of determining the number of shares of Stock remaining available for delivery under this Plan, and will therefore be available for re-grant or re-issuance: +(i) +the Award is forfeited or canceled; +(ii) +the Award is settled in cash; +(iii) +such shares are withheld from the Award or otherwise tendered, physically or by attestation, to pay the exercise or purchase price of an Award granted under this Plan, or to satisfy applicable tax withholding obligations incurred in connection with the Award. +The maximum number of shares of Stock available for delivery under this Plan shall not be reduced for shares subject to plans assumed by the Company in an acquisition of an interest in another company or for Substitute Awards. +(c) +Award Limitations . Subject to the aggregate maximum set forth in (a) above and to adjustment in accordance with paragraph (d) of this Section 3 (so long as such adjustment will not affect the status of any Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code or intended to qualify as an Incentive Stock Option), the following additional maximums are imposed under this Plan: +(i) +The full number of shares of Stock available for delivery under this Plan may be delivered pursuant to Incentive Stock Options; +(ii) +The maximum number of shares of Stock that may be covered by Awards granted to any one individual pursuant to Sections 5 and 6 (relating to Options and SARs) shall be 200,000 during any fiscal year; and +(iii) +The maximum number of shares of Stock that may be covered by Awards granted to any one individual pursuant to Section 7 (relating to Other Stock-Based Awards) shall be 200,000 during any fiscal year. +(d) +Adjustments . +(i) +In general. Except as provided in this Section 3(d), the existence of outstanding Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. +Furthermore, except as expressly provided in this Section 3 or otherwise expressly provided for in a writing approved by the Board or Committee, (i) the issuance by the Company of shares of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Shares, or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to Stock Options or other Awards theretofore granted or the purchase or repurchase price per Share. +A-4 +(ii) +Changes in Capital Structure. If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the Stock outstanding, without receiving compensation therefor in money, services or property, then the terms and conditions of this Plan and any then outstanding Awards shall be adjusted proportionately in order to prevent dilution or enlargement of the benefits or potential benefits intended to be provided under this Plan and Awards made hereunder as follows: +(a) +the number and type of shares that may be granted subject to Awards granted under this Plan; +(b) +the number and type of Awards that may be granted to any individual under this Plan; +(c) +the terms of any SAR; +(d) +the purchase price or repurchase price of any Stock Award; +(e) +the exercise price and number and class of securities issuable under each outstanding Option; and +(f) +the repurchase price of any securities substituted for shares underlying Awards that are subject to repurchase rights. +The specific adjustments to be made to effectuate the intent of the preceding sentence shall be determined by the Board or Committee, whose determination in this regard shall be final and binding on all parties. In the event of any other change to the capital structure of the Company, the Board or Committee shall have the discretion to determine what if any adjustments shall be made. Unless the Board or Committee specifies otherwise, any securities issuable as a result of any such adjustments shall be rounded down to the next lower whole security. The Board or Committee need not adopt the same rules for each Award or each holder of Awards. +(iii) +Merger and Consolidation. Any other provision hereof to the contrary notwithstanding (except the preceding paragraphs of this Section 3(d)), in the event the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for their cancellation, for accelerated vesting and accelerated expiration, or for settlement in cash. Notwithstanding the foregoing, any action taken in connection with such merger or reorganization shall not (i) cause an Award that is not otherwise subject to Section 409A of the Code to become subject to such section or (ii) cause an Award that is subject to Section 409A of the Code to violate such section. +SECTION 4. ELIGIBILITY. +Directors, officers and other key employees of the Company or its Subsidiaries and Affiliates who are responsible for or contribute to the growth and/or profitability of the business of the Company and/or its Subsidiaries and Affiliates are eligible to be granted Awards under this Plan. Notwithstanding the foregoing, Stock Options and SARs may be granted only to individuals with respect to whom the Company’s Stock will qualify as “Service Recipient Stock” under Section 409A of the Code and Incentive Stock Options may be granted only to employees of the Company and any of its Subsidiaries or Affiliates that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. Furthermore, no director who is not also an employee of the Company shall be eligible to receive Incentive Stock Options. +SECTION 5. STOCK OPTIONS. +Stock Options may be granted under this Plan, in such form as the Committee may from time to time approve. +Stock Options granted under this Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options and Non-Qualified Stock Options may be issued as Premium Stock Options at the discretion of the Board. +Subject to the restrictions contained in Section 4 hereof concerning the grant of Incentive Stock Options, the Committee shall have the authority to grant to any Participant Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. To the extent that the Fair Market Value of the shares with respect to which Incentive Stock Options first become exercisable by an optionee during any calendar year (under this Plan and any other plans granting Incentive Stock Options which are established by the Company or its Subsidiaries) exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. +Options granted under this Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable: +(a) +EXERCISE PRICE. The exercise price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant; provided that : +(i) +The exercise price shall not be less than 100% of the Fair Market Value of the Stock on the date of Stock Option grant; and +(ii) +In the case of an Incentive Stock Option granted to an employee who owns stock representing more than 10% of the total combined voting power of all classes of capital stock of the Company or of any of its subsidiary or parent corporations, the exercise price shall not be less than 110% of the Fair Market Value of the Stock on the date of Stock Option grant. +A-5 +Notwithstanding the foregoing, a Stock Option (whether an Incentive Stock Option or a Non-Qualified Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Stock Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. +(b) +OPTION TERM. The term of each Stock Option shall be determined by the Committee at grant, but no Stock Option shall be exercised more than ten years (or, in the case of an Incentive Stock Option granted to an employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its subsidiary or parent corporations, more than five years) after the date the Option is granted, except that to the extent a Stock Option cannot be exercised because such exercise would violate Federal, state or local laws, then the expiration of such Option shall automatically be tolled for the period during which such exercise would violate applicable law, but no more than 30 days. +(c) +EXERCISABILITY. Stock Options shall be exercised at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant. If the Committee provides, in its sole discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time after the grant date in whole or in part, based on such factors as the Committee shall determine, in its sole discretion. +(d) +METHOD OF EXERCISE. Subject to whatever installment exercise provisions or other restrictions apply under Section 5(c), Stock Options may be exercised in whole or in part at any time during the option term, by giving written notice of exercise to the Company specifying the number of shares to be purchased; provided, however, that unless otherwise permitted by the Committee, if exercised in part, a Stock Option may not be exercised for fewer than 100 shares, unless the remaining balance of the Stock Option is less than 100 shares, in which case the Stock Option may be exercised for the remaining balance. +Such notice shall be accompanied by payment in full of the purchase price, either by cash or such instrument as the Committee may accept. Payment in full or in part may also be made in the form of unrestricted Stock already owned by the optionee for a period of at least six months, based, in each case, on the Fair Market Value of the Stock on the date the Stock Option is exercised, unless it shall be determined by the Committee, at or after grant, in its sole discretion, that unrestricted Stock is not a permissible form of payment with respect to any Stock Option or Options. +If permitted by the Committee, a Plan Participant may elect to pay the exercise price upon the exercise of an Option by irrevocably authorizing a third party to promptly sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise. +Subject to the immediately preceding paragraph, no shares of Stock shall be issued until full payment therefor has been made. Subject to Section 10(a) and any other limitations set forth in this Plan or relevant Award Agreement, an optionee shall generally have the rights to dividends or other rights of a shareholder with respect to shares subject to the Stock Option when the optionee has given written notice of exercise, has paid in full for such shares, and, if so requested, has given any representations requested pursuant in Section 10(a). +(e) +TERMINATION BY DEATH. Subject to Section 3(d), if an optionee’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of death, any Stock Option held by such optionee may thereafter be exercised to the extent such option was exercisable at the time of death or on such accelerated basis as the Committee may determine at grant (or as may be determined in accordance with procedures established by the Committee), by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of twelve months (or such other period as the Committee may specify at grant) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. +(f) +TERMINATION BY REASON OF DISABILITY. Subject to Section 3(d), if an optionee’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the optionee or his/her guardian, to the extent it was exercisable at the time of termination or on such accelerated basis as the Committee may determine at grant (or as may be determined in accordance with procedures established by the Committee), for a period of one year (or such other period as the Committee may specify at grant) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that, if the optionee dies within such one-year period (or such other period as the Committee may specify at grant), any unexercised Stock Option held by such optionee shall thereafter be exercisable only pursuant to Section 5(e). +(g) +TERMINATION BY REASON OF RETIREMENT. Subject to Section 3(d), if an optionee’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of Normal or Early Retirement, any Stock Option held by such option-ee may be exercised by the optionee, to the extent it was exercisable at the time of such Retirement, for a period of three months, less one day (or such other period as the Committee may specify at grant), from the date of such termination, or the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the optionee dies within such period of three months less one day (or such other period as the Committee may specify at grant), any unexercised Stock Option held by such optionee shall thereafter be exercisable only pursuant to Section 5(e). +A-6 +(h) +OTHER TERMINATION. Unless otherwise determined by the Committee (or pursuant to procedures established by the Committee) at grant, if an optionee’s employment by the Company and/or any Subsidiary or Affiliate terminates for any reason other than death, Disability or Normal or Early Retirement, including without limitation in the case of voluntary or involuntary resignation of employment by the optionee, the entire Stock Option shall thereupon terminate and shall be immediately forfeited, regardless of its vesting status. +(i) +BUYOUT PROVISIONS. The Committee may at any time offer to buy out for a payment in cash or Stock a Stock Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the optionee at the time that such offer is made. +(j) +FRACTIONAL SHARE. If any adjustment referred to herein shall result in a fractional share for any optionee under any Stock Option hereunder, such fraction shall be completely disregarded and the optionee shall only be entitled to the whole number of shares resulting from such adjustment. +(k) +COMPLIANCE WITH SECTION 422 OF THE CODE. To the extent that any Stock Option which is designated as an Incentive Stock Option hereunder fails for any reason to comply with the provisions of Section 422 of the Code it shall be treated as a Non-Qualified Stock Option. +SECTION 6. STOCK APPRECIATION RIGHTS. +(a) +GRANT AND EXERCISE. The Committee may grant Stock Appreciation Rights under this Plan. +(b) +TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of this Plan, as shall be determined from time to time by the Committee, including the following: +(i) +The term of each Stock Appreciation Right shall be fixed by the Committee at grant, and no such Stock Appreciation Right shall be exercised more than ten years after the date it is granted, except that, to the extent a Stock Appreciation Right cannot be exercised during its initial term because such exercise would violate Federal, state or local laws, then the expiration of such Award shall automatically be tolled for the period during which such exercise would violate applicable law, but no more than 30 days. +(ii) +Stock Appreciation Rights shall be exercised at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant. If the Committee provides, in its sole discretion, that any Stock Appreciation Right is exercisable only in installments, the Committee may waive such installment exercise provisions at any time after grant in whole or in part, based on such factors as the Committee shall determine in its sole discretion. +(iii) +Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in cash and/or shares of Stock equal in value to the excess of Fair Market Value of the Stock on the date of exercise over the Fair Market Value of the Stock on the date of grant (the “Base Price”) multiplied by the number of Stock Appreciation Rights exercised, with the Committee having the right to determine the form of payment. +(iv) +Subject to whatever installment exercise provisions or other restrictions apply hereunder, Stock Appreciation Rights may be exercised in whole or in part at any time during the term thereof by giving written notice of exercise to the Company specifying the number of rights to be exercised. +(v) +Sections 5(e) through (j) hereof shall apply equally to all Stock Appreciation Rights granted pursuant to this Plan, as if each reference therein to a “Stock Option” was instead a reference to a “Stock Appreciation Right.” +SECTION 7. OTHER STOCK-BASED AWARDS. +(a) +ADMINISTRATION. The Committee may grant such Other Stock-Based Awards not described above that the Committee determines to be consistent with the purpose of this Plan and the interests of the Company. Subject to the provisions of this Plan, the Committee shall have authority to determine the persons to whom and the time or times at which such Other Stock-Based Awards shall be made, the number of shares of Stock to be awarded pursuant to such Other Stock-Based Awards, and all other conditions of the Other Stock-Based Awards. The Committee may also provide for the grant of Stock upon the completion of a specified performance period or event. +A-7 +The Committee may designate whether any such Awards being granted to any Participant are intended to be “performance-based compensation” as that term is used in Section 162(m) of the Code. Any such Awards designated as intended to be “performance-based compensation” shall be conditioned on the achievement of one or more performance measures. The performance measures that may be used by the Committee for such Awards shall be based on any one or more of the following, as selected by the Committee: increase in stock price, return on capital or increase in pretax earnings of the Company and/or one or more divisions and/or subsidiaries, return on stockholders’ equity of the Company, increase in earnings per share of the Company, sales of the Company and/or one or more divisions and/or subsidiaries, pretax earnings of the Company and/or one or more divisions and/or subsidiaries, net earnings of the Company and/or one or more divisions and/or subsidiaries, control of operating and/or non-operating expenses of the Company and/or one or more divisions and/or subsidiaries, margins of the Company and/or one or more divisions and/or subsidiaries, cash flow of the Company and/or one or more divisions and/or subsidiaries, market price of the Company’s securities, and solely for an Award not intended to constitute “performance-based compensation” under Section 162(m) of the Code, other factors directly tied to the performance of the Company and/or one or more divisions and/or subsidiaries or other performance criteria. For Awards intended to be “performance-based compensation,” the grant of the Awards and the establishment of the performance measures shall be made during the period required under Code Section 162(m). +The provisions of Other Stock-Based Awards need not be the same with respect to each recipient. +(b) +TERMS AND CONDITIONS. Other Stock-Based Awards made pursuant to this Section 7 shall be subject to the following terms and conditions: +(i) +Transferability. Subject to the provisions of this Plan and the Award Agreement, Other Stock-Based Awards and shares subject to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, in the case of shares of Stock, prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses, and in all other cases, not at all. +(ii) +Dividends and Interest. Subject to the provisions of this Plan and the Award Agreement and unless otherwise determined by the Committee at grant, the recipient of an Award under this Section 7 shall be entitled to receive interest or dividends or interest or dividend equivalents with respect to the number of shares covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Stock or otherwise reinvested. +(iii) +Vesting and Forfeiture. Any Award under this Section 7 and any Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award Agreement, as determined by the Committee, in its sole discretion, at grant. +(iv) +Settlement. In the case of any Other Stock-Based Award that is not subject to Section 8(a) below and that is subject to Section 409A of the Code, and that provides for a distribution upon the lapse of a risk of forfeiture, if the timing of such distribution is not otherwise specified in this Plan or Award Agreement or other governing document, the distribution shall be made no later than March 15 of the year following the calendar year in which receipt of such distribution is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the Code. +(v) +Waivers and Acceleration. In the event of the Participant’s Retirement, Disability or death, and in other instances, the Committee may, in its sole discretion, waive in whole or in part any or all of the remaining limitations, performance requirements or restrictions imposed (if any) with respect to any or all of an Award under this Section 7 and/or accelerate the payment of cash or Stock pursuant to any such Award; provided, however, that such acceleration of payment shall not result in such Award violating Section 409A of the Code. +(vi) +Consideration. Stock (including securities convertible into Stock) issued on a bonus basis under this Section 7 may be issued for no cash consideration, subject to Section 11(a) below. +(vii) +Restricted Stock, Disability or death. Unless otherwise determined by the Committee at grant, and except as otherwise provided by the Committee or permitted by this Plan, if a Participant’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of (i) permanent Disability in which case a portion of such unvested Restricted Stock may vest as determined by the Committee or (ii) death, in which case all unvested Restricted Stock shall vest immediately. +(viii) +Other Termination of Employment. Unless otherwise determined by the Committee (or pursuant to procedures established by the Committee) at grant, and except as otherwise provided by the Committee or permitted by this Plan, all unvested Other Stock-Based Awards shall be immediately forfeited upon the termination of a Participant’s employment by the Company and/or any Subsidiary or Affiliate for any reason other than Disability or death, including without limitation in the case of voluntary or involuntary resignation of employment by the Participant. +(ix) +Repurchase. The Committee may at any time offer to buy out for a payment in cash or Stock an Other Stock-Based Award previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made. +A-8 +SECTION 8. RESTRICTED STOCK UNITS; PERFORMANCE STOCK AND UNITS. +In addition to the other terms and provisions of this Plan (including the terms and provisions of Section 7) which apply to Restricted Stock Units, Performance Stock and Performance Units as an Award which is an Other Stock-Based Award, the following terms and provisions shall apply to Restricted Stock Units, Performance Stock and Performance Units: +(a) +Settlement . In all cases, payment of any Restricted Stock Unit, share of Performance Stock or Performance Unit will be made no later than March 15 of the year following the calendar year in which receipt of the payment thereon is no longer subject to a “substantial risk of forfeiture” within the meaning of Section 409A of the Code. +(b) +Performance Stock and Units – death or Disability . Unless otherwise determined by the Committee at grant, and except as otherwise provided by the Committee or permitted by this Plan, if a Participant’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of death or Disability, the estate of the Participant or the Participant, as applicable, will receive a pro rata portion of the payment or Stock the Participant would have received for Performance Stock or Performance Units, based on the number of full months in the performance period prior to the Participant’s death or Disability, divided by the total number of months in the performance period. All such pro rata payments with respect to Performance Stock and Units shall be made no later than 90 days following the date of the Participant’s death or Disability, as applicable. +(c) +Restricted Stock Units – death and Disability . Unless otherwise determined by the Committee at grant and except as otherwise provided by the Committee or permitted by this Plan, if a Participant’s employment by the Company and/or any Subsidiary or Affiliate terminates by reason of death or Disability, a pro rata portion of the restrictions pertaining to continued employment on any time-vested Restricted Stock Unit will lapse, based on the number of full months the Participant was employed during the restriction period divided by the total number of months in the restriction period. To the extent that any Restricted Stock Unit is subject to performance conditions, the estate of the Participant or the Participant, as applicable, will receive a pro rata portion of the payment or Stock the Participant would have received based on the number of full months in the performance period prior to the Participant’s death or Disability, divided by the total number of months in the performance period. All such pro rata payments of Restricted Stock Units shall be made no later than 90 days following the date of the Participant’s death or Disability, as applicable. +SECTION 9. AMENDMENTS AND TERMINATION. +The Board may amend, alter, or discontinue this Plan, but, except as otherwise provided herein, no amendment, alteration, or discontinuation shall be made which would impair the rights of a Participant under a Stock Option, Stock Appreciation Right or Other Stock-Based Award theretofore granted, without the Participant’s consent, or which, without the approval of the Company’s stockholders, would: +(i) +increase the number of shares that may be issued under this Plan (except by certain adjustments provided for under this Plan); +(ii) +change the class of persons eligible to receive Incentive Stock Options under this Plan; +(iii) +change the requirements of Section 5 hereof regarding the exercise price; or +(iv) +amend this Plan in a manner that would require approval of the Company’s shareholders under applicable law, regulation or rule. +Notwithstanding any of the foregoing, adjustments pursuant to Section 3 shall not be subject to the foregoing limitations of this Section 9. +Options may not be granted under this Plan after the date of termination of this Plan, but Options granted prior to that date shall continue to be exercisable according to their terms. +Subject to the above provisions, the Board shall have broad authority to amend this Plan to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments, without regard to whether such amendment adversely affects an individual Award or the rights of a holder thereof. +Notwithstanding the foregoing provisions of this Section 9 and any other provision of this Plan to the contrary, no action shall be taken under this Section 9 or any other provision of this Plan that would: (i) cause an Award that is not otherwise subject to Section 409A of the Code to become subject to such section or (ii) cause an Award subject to Section 409A of the Code to violate such section. +A-9 +SECTION 10. UNFUNDED STATUS OF PLAN. +This +Plan is intended to constitute an “unfunded” plan. With respect to any payments not yet made to a Participant by +the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general +creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to +meet the obligations created under this Plan to deliver Stock or payments in lieu of or with respect to Awards hereunder; +provided, however, that, unless the Committee otherwise determines with the consent of the affected Participant, the +existence of such trusts or other arrangements is consistent with the “unfunded” status of this +Plan. +SECTION 11. GENERAL PROVISIONS. +(a) +Compliance with Applicable Law. Notwithstanding anything contained herein to the contrary, the Company shall not be required to sell or issue shares of Stock under any Award if the issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority or any national securities exchange or inter_dealer quotation system or other forum in which shares of Stock are quoted or traded (including, without limitation, Sections 162(m) and 409A or 422 of the Code), and, as a condition of any sale or issuance of shares of Stock under an Award, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. This Plan, the grant and exercise of Awards hereunder, and the obligation of the Company to sell and deliver shares of Stock, shall be subject to all applicable laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. +In particular, the Company shall not be obligated to sell or issue any shares pursuant to any Option or other Award unless the shares underlying the Award are at the time effectively registered or exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”). The Company shall have no obligation to register pursuant to the 1933 Act any shares of Stock issued pursuant to this Plan. The Committee may require each person acquiring shares pursuant to an Award under this Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares for investment and without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. +All certificates for shares of Stock or other securities delivered under this Plan shall be subject to such conditions, stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. +The Company shall not issue any shares of Stock under this Plan before the Company has received the consideration to be paid therefor, to the extent required in order for such shares to be “fully paid” under Section 152 of the Delaware General Corporations Law, such consideration to have a value not less than the par value of such shares to the extent required by Section 153 of the Delaware General Corporation Law. +(b) +Other Compensation. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. +(c) +No Right to Employment. The adoption of this Plan shall not confer upon any employee of the Company or of any Subsidiary or Affiliate any right to continued employment with the Company or a Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary or Affiliate to terminate the employment of any of its employees at any time. +(d) +Tax Withholding. No later than the date as of which an amount first becomes includable in the gross income of the Participant for federal income tax purposes with respect to the exercise of any Option or Stock Appreciation Right or any Award under this Plan, the Participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Plan shall be conditional on such payment or arrangements, and the Company and its Subsidiaries or Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. +(e) +Dividend Reinvestment. The actual or deemed reinvestment of dividends or dividend equivalents in additional types of Awards at the time of any dividend payment shall only be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment, taking into account other Awards then outstanding. +(f) +Governing Law. This Plan and all Awards made and actions taken hereunder shall be governed by and construed in accordance with the Delaware General Corporation Law, to the extent applicable, and in accordance with the laws of the State of Georgia in all other respects. +A-10 +(g) +Other Benefits. The value of Awards made pursuant to this Plan shall not be included as part of the definition of “cash compensation” in connection with any other benefit offered by the Company. +(h) +Award Agreements; Electronic Delivery. An Award under this Plan shall be subject to such terms and conditions, not inconsistent with this Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written document or other evidence (including evidence in an electronic medium) as is approved by the Committee. A copy of such document or evidence shall be provided to the Participant. Such document or evidence is referred to in this Plan as an “Award Agreement” regardless of whether any Participant signature is required. +The Company may deliver by email or other electronic means (including posting on a web site maintained by the Company or by a third party under contract with the Company) all documents relating to this Plan or any Award thereunder (including without limitation prospectuses required by the SEC) and all other documents that the Company is required to deliver to its security holders (including without limitation annual reports and proxy statements). +(i) +Severability. If any provision of this Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction as to any Person or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award and the remainder of this Plan and any such Award shall remain in full force and effect. +(j) +No Liability. Subject to applicable law: (i) no Director shall be liable for anything whatsoever in connection with the exercise of authority under this Plan or the administration of this Plan except such Director’s own willful misconduct; (ii) under no circumstances shall any Director be liable for any act or omission of any other Director; and (iii) in the performance of its functions with respect to this Plan, the Board of Directors or Committee, as the case may be, shall be entitled to rely upon information and advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the Board or Committee deems necessary, and no Director shall be liable for any action taken or not taken in good faith reliance upon any such advice. +SECTION 12. EFFECTIVE DATE OF PLAN. +This Plan shall be effective as the date of its approval by the stockholders of the Company (the “Effective Date”). +SECTION 13. TERM OF PLAN. +No Stock Option, Stock Appreciation Right or Other Stock-Based Award shall be granted pursuant to this Plan on or after the tenth anniversary of the Effective Date of this Plan, but Awards granted prior to such tenth anniversary may extend beyond that date. +A-11 +o +RPC, INC. +Proxy for Annual Meeting of Stockholders on Tuesday, April 22, 2014 +Solicited on Behalf of the Board of Directors +The undersigned hereby constitutes and appoints GARY W. ROLLINS and R. RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full power of substitution, to vote all shares of Common Stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on April 22, 2014, at 12:30 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia 30324, or any adjournment thereof. +The undersigned acknowledges receipt of Notice of Annual Meeting of Stockholders and Proxy Statement, each dated March 17, 2014, grants authority to said proxies, or either of them, or their substitutes, to act in the absence of others, with all the powers which the undersigned would possess if personally present at such meeting and hereby ratifies and confirms all that said proxies or their substitutes may lawfully do in the undersigned’s name, place, and stead. The undersigned instructs said proxies, or either of them, to vote as stated on the reverse side. +(Continued and to be signed on the reverse side.) +14475 +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 22, 2014, 12:30 P.M. +GO GREEN +e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access. +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Proxy Statement and 2013 Annual Report +http://www.astproxyportal.com/ast/26231/ +Please sign, date and mail +your proxy card in the +envelope provided as soon +as possible. +Please detach along perforated line and mail in the envelope provided. +20330303030000000000 1 +042214 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1, “FOR” ON PROPOSAL 2, “FOR” ON PROPOSAL 3, +“FOR” ON PROPOSAL 4 AND “AGAINST” ON PROPOSAL 5. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +1. +Election of Class I Directors: +FOR +AGAINST +ABSTAIN +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014; +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O +R. RANDALL ROLLINS +O +HENRY B. TIPPIE +o +WITHHOLD AUTHORITY +O +JAMES B. WILLIAMS +FOR +AGAINST +ABSTAIN +FOR ALL NOMINEES +3. +To approve the proposed 2014 Stock Incentive Plan; +o +o +o +o +FOR ALL EXCEPT +FOR +AGAINST +ABSTAIN +(See instructions below) +4. +To hold a nonbinding vote to approve executive compensation; +o +o +o +FOR +AGAINST +ABSTAIN +5. +To vote on the stockholder proposal requesting that the Company issue a sustainability report; and +o +o +o +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “ FOR ALL EXCEPT ” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +6. +To transact such other business as may properly come before the meeting or any adjournment thereof. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR, “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, “FOR THE APPROVAL” OF THE 2014 STOCK INCENTIVE PLAN, “FOR” A NONBINDING VOTE TO APPROVE EXECUTIVE COMPENSATION AND “AGAINST” THE STOCKHOLDER PROPOSAL TO ISSUE A SUSTAINABILITY REPORT. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. +ANNUAL MEETING OF STOCKHOLDERS OF +RPC, INC. +Tuesday, April 22, 2014, 12:30 P.M. +PROXY VOTING INSTRUCTIONS +INTERNET - Access “ www.voteproxy.com ” and follow the on-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page. +TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. +Vote online/phone until 11:59 PM EST the day before the meeting. +COMPANY NUMBER +MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible. +IN PERSON - You may vote your shares in person by attending the Annual Meeting. +GO GREEN - e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access. +ACCOUNT NUMBER +CONTROL NUMBER +SHARES +NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL : +The Proxy Statement and 2013 Annual Report +http://www.astproxyportal.com/ast/26231/ +Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. +20330303030000000000 1 +042214 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL THE NOMINEES LISTED ON PROPOSAL 1, “FOR” ON PROPOSAL 2, “FOR” ON PROPOSAL 3, +“FOR” ON PROPOSAL 4 AND “AGAINST” ON PROPOSAL 5. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +1. +Election of Class I Directors: +FOR +AGAINST +ABSTAIN +2. +To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014; +o +o +o +NOMINEES: +o +FOR ALL NOMINEES +O +R. RANDALL ROLLINS +O +HENRY B. TIPPIE +o +WITHHOLD AUTHORITY +O +JAMES B. WILLIAMS +FOR +AGAINST +ABSTAIN +FOR ALL NOMINEES +3. +To approve the proposed 2014 Stock Incentive Plan; +o +o +o +o +FOR ALL EXCEPT +FOR +AGAINST +ABSTAIN +(See instructions below) +4. +To hold a nonbinding vote to approve executive compensation; +o +o +o +FOR +AGAINST +ABSTAIN +5. +To vote on the stockholder proposal requesting that the Company issue a sustainability report; and +o +o +o +INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: ● +6. +To transact such other business as may properly come before the meeting or any adjournment thereof. +ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE INDICATED WILL BE VOTED “FOR” THE ABOVE-NAMED NOMINEES FOR DIRECTOR, “FOR THE RATIFICATION” OF THE APPOINTMENT OF GRANT THORNTON LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, “FOR THE APPROVAL” OF THE 2014 STOCK INCENTIVE PLAN, “FOR” A NONBINDING VOTE TO APPROVE EXECUTIVE COMPENSATION AND “AGAINST” THE STOCKHOLDER PROPOSAL TO ISSUE A SUSTAINABILITY REPORT. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. +To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. +o +NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND MAILED IN THE UNITED STATES. +Signature of Stockholder +Date: +Signature of Stockholder +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. \ No newline at end of file diff --git a/raw/proxies/0000742278/0001188112-14-000700/proxy_rpt.txt b/raw/proxies/0000742278/0001188112-14-000700/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..42af04be6981d274ad69055b1116a4665f1f91ff --- /dev/null +++ b/raw/proxies/0000742278/0001188112-14-000700/proxy_rpt.txt @@ -0,0 +1,7 @@ +CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS +Effective with the spin-off in 2001, the Company began providing certain administrative services to Marine Products. The service agreements between Marine Products and the Company provide for the provision of services on a cost reimbursement basis and may be terminated upon six months notice. The services covered by these agreements include administration of certain employee benefit programs and other administrative services. Charges from the Company (or from corporations which are subsidiaries of the Company) for such services aggregated approximately $670,000 in 2013. +During 2013, a subsidiary of RPC conducted business with companies owned by LOR, Inc. Mr. R. Randall Rollins, Chairman, and Mr. Gary W. Rollins, Director, are officers, directors and controlling stockholders of LOR, Inc. In 2013, payments totaling approximately $1,039,000 were made to these LOR, Inc. companies primarily for the purchase of parts and repair services related to certain of RPC’s oilfield operating equipment. RPC believes the charges incurred are at least as favorable as the charges that would have been incurred for similar purchases from unaffiliated third parties. +RPC receives certain administrative services including an allocation for office space from Rollins. The service agreements between Rollins and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, administration of certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $83,000 in 2013. +A group that includes the Company’s Chairman of the Board, R. Randall Rollins, his brother Gary W. Rollins who is also a director, and certain companies under their control, possesses in excess of fifty percent of the Company’s voting power. Please refer to the discussion above under the heading, “Corporate Governance and Board of Directors Committees and Meetings, Director Independence and NYSE Requirements, Controlled Company Exemption.” The group discussed above also controls in excess of fifty percent of Marine Products’ voting power. +Our Code of Business Conduct and Ethics for Directors and Executive Officers and Related Party Transactions Policy provides that related party transactions, as defined in Regulation S-K, Item 404(a) must be reviewed, approved and/or ratified by our Nominating and Corporate Governance Committee. As set forth in our Code, our Nominating and Corporate Governance Committee has the responsibility to ensure that it only approves or ratifies related party transactions that are in compliance with applicable law, consistent with the Company’s corporate governance policies (including those relative to conflicts of interest and usurpation of corporate opportunities) and on terms that are deemed to be fair to the Company. The Committee has the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging its duties. A copy of the Code is available on our website at www.rpc.net under the Governance section. All related party transactions for the fiscal year ended December 31, 2013 were reviewed, approved and/or ratified by the Nominating and Corporate Governance Committee in accordance with the Code. +34 \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-02-000014/proxy.txt b/raw/proxies/0000893538/0000893538-02-000014/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..54f963acf3fc0e6b204cc6bd132ee81c427babea --- /dev/null +++ b/raw/proxies/0000893538/0000893538-02-000014/proxy.txt @@ -0,0 +1,1424 @@ +DEF 14A +1 +def_proxy.htm +2002 DEFINITIVE PROXY STATEMENT +Form 14A Definitive Proxy +1776 LINCOLN STREET, SUITE 1100 +DENVER, COLORADO 80203 - 1080 +303/861 - 8140 +FAX 303/861 - 0934 +April 1, 2001 +Securities and Exchange Commission +450 Fifth Street, N.W. +Washington, D.C. 20549 +RE: St. Mary Land & Exploration Company +File No. 0-20872 +Ladies and Gentlemen: +Transmitted herewith is St. Mary Land & Exploration Company's Proxy +Statement submitted on Schedule 14A. The Company intends to send the Proxy +Statement to its Shareholders' on or about April 15, 2002. +Very truly yours, +/s/ RICHARD C. NORRIS +Richard C. Norris +Vice President - Finance, +Secretary and Treasurer +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities and +Exchange Act of 1934 +Filed by the Registrant [ X ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted +by Rule 14a-6(e)(2)) +[ X ] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or +Section 240.14a-12 +ST. MARY LAND & EXPLORATION COMPANY +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +[ X ] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +1) Title of each class of securities to which transaction applies: +------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +------------------------------------------------------- +5) Total fee paid: +------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +1) Amount Previously Paid: +------------------------------------------------------- +2) Form, Schedule or Registration Statement Number: +------------------------------------------------------- +3) Filing party: +------------------------------------------------------- +4) Date filed: +------------------------------------------------------- +1776 LINCOLN STREET, SUITE 1100 +DENVER, COLORADO 80203 - 1080 +303/861 - 8140 +FAX 303/861 - 0934 +April 12, 2002 +Dear Stockholder: +You are cordially invited to attend the 2002 annual meeting of +stockholders, which will be held in the Tabor-Stratton Room of the Brown Palace +Hotel, 321 Seventeenth Street, Denver, Colorado on Wednesday, May 22, 2002 at +3:00 p.m. local time. +At the meeting you and the other stockholders will vote on the election +of nine directors and approval of an amendment to the certificate of +incorporation to authorize the issuance of up to a total of 5,000,000 shares of +preferred stock. You will also have the opportunity to hear reports on St. +Mary's operations and to ask questions of general interest. You can find other +detailed information about the meeting in the accompanying proxy statement, and +can find detailed information about St. Mary in the enclosed annual report. +Please complete and sign the enclosed proxy card and return it promptly +in the accompanying envelope, or use the telephone or Internet voting systems +described on the proxy card. This will ensure that your shares are represented +at the meeting even if you cannot attend. +Thank you for your cooperation in returning your proxy card or voting +by telephone or the Internet as promptly as possible. We hope to see many of you +at our meeting in Denver. +Very truly yours, +/s/ THOMAS E. CONGDON +Thomas E. Congdon +Chairman +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 1100 +Denver, Colorado 80203 +----------------------------------------------------------------- +Notice of Annual Meeting of Stockholders +----------------------------------------------------------------- +May 22, 2002 +To All Stockholders: +The 2002 annual meeting of the stockholders of St. Mary Land & +Exploration Company will be held in the Tabor-Stratton Room of the Brown Palace +Hotel, 321 Seventeenth Street, Denver, Colorado on Wednesday, May 22, 2002 at +3:00 p.m. local time. The purposes of the meeting are: +1. To elect nine directors to serve during the next year, +2. To vote on an amendment to the certificate of incorporation to +authorize the issuance of up to a total of 5,000,000 shares of +preferred stock with such powers, preferences, rights and +limitations as the board of directors may designate from time to +time, and +3. To transact any other business which may properly come before the +meeting. +Only stockholders of record at the close of business on April 5, 2002 may +vote at this meeting. +Please sign, date and return the accompanying proxy card in the enclosed +envelope as soon as possible, or use the telephone or Internet voting systems +described on the proxy card. Any stockholder may revoke their proxy at any time +before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +/s/ RICHARD C. NORRIS +Richard C. Norris +Secretary +Denver, Colorado +April 12, 2002 +Proxy Statement Table of Contents +Page +---- +General.................................................................... 1 +Purpose of the Annual Meeting.............................................. 1 +Who Can Vote............................................................... 1 +How to Vote................................................................ 1 +Revoking a Proxy........................................................... 2 +Quorum and Voting Requirements............................................. 2 +Payment of Proxy Solicitation Costs........................................ 2 +Election of Directors...................................................... 3 +Nominees for Election as Directors......................................... 4 +Board and Committee Meetings............................................... 5 +Director Compensation...................................................... 6 +Stock Ownership of Management.............................................. 7 +Audit Committee Report..................................................... 8 +Executive Compensation..................................................... 9 +Summary Compensation Table................................................. 9 +2001 Option Grants......................................................... 10 +Aggregated Option/SAR Exercises in 2001.................................... 10 +Report of the Compensation Committee on Executive Compensation............. 11 +Retirement Plans........................................................... 13 +Performance Graph.......................................................... 14 +Employment Agreements and Termination of Employment and Change-in-Control +Arrangements............................................................ 15 +Certain Relationships and Related Transactions............................. 15 +Other Matters to be Voted On............................................... 16 +Section 16(a) Beneficial Ownership Reporting Compliance.................... 18 +Independent Accountants.................................................... 18 +Future Stockholder Proposals............................................... 18 +Other Matters.............................................................. 19 +Annex A: Certificate of Amendment to the Restated Certificate of +Incorporation.......................................................... 20 +Annex B: St. Mary Charter of the Audit Committee........................... 23 +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 1100 +Denver, Colorado 80203 +(303) 861-8140 +Proxy Statement +------------------------ +General +This proxy statement contains information about the 2002 annual meeting of +stockholders of St. Mary Land & Exploration Company to be held in the +Tabor-Stratton Room of the Brown Palace Hotel, 321 Seventeenth Street, Denver, +Colorado on Wednesday, May 22, 2002 at 3:00 p.m. local time. The St. Mary board +of directors is using this proxy statement to solicit proxies for use at the +annual meeting. In this proxy statement "St. Mary" and "the Company" both refer +to St. Mary Land & Exploration Company. This proxy statement and the +enclosed proxy card are being mailed to you on or about April 15, 2002. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +o the election of directors as outlined in the accompanying notice of +meeting, +o to approve an amendment to the certificate of incorporation to +authorize the issuance of up to a total of 5,000,000 shares of +preferred stock with such powers, preferences, rights and limitations +as the board of directors may designate from time to time, and +o on any other business that properly comes before the meeting. +As of the date of this proxy statement, the Company is not aware of any +business to come before the meeting other than the items noted above. +Who Can Vote +Only stockholders of record at the close of business on the record date of +April 5, 2002 are entitled to receive notice of the annual meeting and to vote +the shares of St. Mary common stock they held on that date. As of April 5, 2002, +there were 27,808,151 shares of St. Mary common stock issued and outstanding. +Holders of St. Mary common stock are entitled to one vote per share and are not +allowed to cumulate votes in the election of directors. The enclosed proxy card +shows the number of shares that you are entitled to vote. +How to Vote +If your shares of St. Mary common stock are held by a broker, bank or other +nominee (in "street name"), you will receive information from them on how to +instruct them to vote your shares. +1 +If you hold shares of St. Mary common stock in your own name (as a +"stockholder of record"), you may give instructions on how your shares are to be +voted by marking, signing, dating and returning the enclosed proxy card in the +accompanying postage-paid envelope, or following the telephone or Internet +voting procedures described on the proxy card. The telephone and Intenet voting +procedures are designed to ensure that proxies are handled properly under +Delaware law by authenticating votes cast by use of a personal identification +number and allowing stockholders to confirm that their instructions have been +properly recorded. If you vote by telephone or the Internet, you do not have to +mail in your proxy card. +A proxy, when properly completed and not revoked, will be voted in +accordance with its instructions. If no instructions are given on a properly +executed and unrevoked proxy card, the proxy will be voted FOR management's +slate of directors and the amendment to the certificate of incorporation to +authorize the issuance of preferred stock. +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +o submitting a new proxy with a later date either signed and returned +by mail or transmitted using the telephone or Internet voting +procedures before the meeting, +o by voting in person at the meeting, or +o by filing a written revocation with St. Mary's corporate secretary. +Your attendance at the annual meeting will not automatically revoke your +proxy. +Quorum and Voting Requirements +A quorum of stockholders is necessary to hold a valid meeting. A quorum +will exist if stockholders of one-third of the outstanding shares of common +stock are present at the meeting in person or by proxy. Abstentions and broker +"non-votes" count as present for establishing a quorum. A broker non-vote occurs +on a matter when a broker is not permitted to vote on that matter without +instruction from the beneficial owner of the shares and no instruction is given. +Shares held by St. Mary in its treasury are not entitled to vote and do not +count toward a quorum. If a quorum is not present, the meeting may be adjourned +until a quorum is obtained. +The affirmative vote of a majority of shares entitled to vote at the +meeting will be required to amend the certificate of incorporation to authorize +the issuance of up to a total of 5,000,000 shares of preferred stock with such +powers, preferences, rights and limitations as the board of directors may +designate from time to time. If a quorum is present, the affirmative vote of a +majority of shares represented in person or by proxy will be required to elect +the directors and to decide any other matter which may properly be submitted to +a vote at the meeting. Accordingly, any shares present but not voted, including +abstentions and broker non-votes, will have the same effect as shares voted +against approval. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. The solicitation will be +made by mail. In addition to mailing proxy solicitation material, St. Mary +officers, directors and employees may also solicit proxies in person, by +telephone, or by other electronic means of communication. St. Mary will ask +banks, brokers, other institutions, nominees, and fiduciaries to forward the +proxy material to their principals and to obtain authority to execute proxies. +St. Mary will reimburse them for expenses. +2 +ELECTION OF DIRECTORS +All directors of the Company are elected annually. At this meeting, nine +directors are to be elected to serve for one year or until their successors are +elected and qualified. The Company's nominees for these directorships are +identified below, all but one of whom are currently serving in that capacity. +The board of directors as a whole acts as the nominating committee, +selecting the director nominees. The board performed its nominating committee +functions during the course of regular meetings of the full board of directors +in early 2002. They will consider suggestions by stockholders of possible future +nominees. Such suggestions should be delivered on or before November 1 in any +year before the next annual meeting. In addition, St. Mary's by-laws permit +stockholders to nominate directors for election at an annual meeting, provided +that advance written notice of the nomination containing the information +required under the by-laws is received by the Secretary of St. Mary not less +than 75 days nor more than 105 days before the first anniversary date of the +immediately preceding annual meeting. Accordingly, proper notice of a +stockholder nomination for election as director at the 2003 annual meeting must +be received by St. Mary between February 6, 2003 and March 8, 2003. +The proxies will be voted in favor of the nominees unless a contrary +specification is made in the proxy voting instructions by the stockholder. All +nominees have consented to serve as directors of the Company if elected. +However, if any nominee is unable to serve or for good cause will not serve as a +director, the persons named in the proxy intend to vote in their discretion for +a substitute who will be designated by the board of directors. +The board of directors recommends voting "For" electing the nominees. +3 +NOMINEES FOR ELECTION AS DIRECTORS +Biographical information, including principal occupation and business +experience during the last five years, of each nominee for director is set forth +below. Unless otherwise stated the principal occupation of each nominee has been +the same for the past five years. +Director +Age Since +-------------------------------------------------------------------------------- ------------- ------------ +Thomas E. Congdon has served the Company as an officer and director 75 1966 +since 1966, including service as its President and Chief Executive Officer +for more than 25 years. Mr. Congdon is also a director, officer or +general partner of a number of family corporations and partnerships which +produce iron ore and agricultural products, manage marketable securities and +own and operate developed real estate. +-------------------------------------------------------------------------------- ------------- ------------ +Mark A. Hellerstein joined the Company in September 1991 and served as 49 1992 +Executive Vice President and Chief Financial Officer until May 1992, at +which time he was elected President and a director of the Company. Mr. +Hellerstein was elected Chief Executive Officer of the Company in May 1995. +He also served as Chairman of the Board of Summo Minerals, a publicly traded +copper mining company, from 1995 to 1998. +-------------------------------------------------------------------------------- ------------- ------------ +Ronald D. Boone has served the Company as Executive Vice President since 54 1996 +1990, as Chief Operating Officer since 1992 and as a director of the Company +since 1996. +-------------------------------------------------------------------------------- ------------- ------------ +Barbara M. Baumann is currently Executive Vice President of Associated Energy 46 - +Managers LLC, an investment manager and general partner of a private equity +energy fund. She has held that position since 2001. Ms. Baumann was employed +for the prior eighteen years by BP Amoco, most recently as the Commercial +Operations Manager of the Western Business Unit. +-------------------------------------------------------------------------------- ------------- ------------ +Larry W. Bickle is currently Managing Director of Haddington Ventures, L.L.C., 56 1995 +a private company that invests in midstream energy companies and assets. He +has held that position since June 1997. He is also a Director of Unisource, +Inc., the holding company for Tucson Electric. He was the founder and was +Chairman and Chief Executive Officer of TPC Corporation, a NYSE gas storage, +transportation and marketing company from 1984 to May 1997. +-------------------------------------------------------------------------------- ------------- ------------ +William J. Gardiner was appointed to serve on the board of directors in 48 1999 +December 1999, following St. Mary's acquisition of King Ranch Energy. Mr. +Gardiner is currently Vice President - Chief Financial Officer of King Ranch, +Inc. Before his employment with King Ranch in 1996, Mr. Gardiner served +as Executive Vice President and Chief Financial Officer of CRSS, Inc., a +publicly traded independent power producer. He was employed by CRSS for +approximately 20 years. +-------------------------------------------------------------------------------- ------------- ------------ +Robert L. Nance has since 1969 served as President and Chief Executive 65 1999 +Officer of Nance Petroleum Corporation, a wholly owned subsidiary of St. Mary +since June 1999. He was appointed to the board in November 1999. Mr. Nance +also serves on the boards of MDU Resources Group, Inc. and First Interstate +BancSystem, Inc. +-------------------------------------------------------------------------------- ------------- ------------ +4 +-------------------------------------------------------------------------------- ------------- ------------ +Arend J. Sandbulte has served as a director of the Company since 1989. From 68 1989 +1964 to 1996, he was employed by ALLETE, Inc. (formerly Minnesota Power), +a publicly-held diversified services company (including electric utility +services), most recently as its Chairman of the Board, President and Chief +Executive Officer, and continues as a director of this company, a position +to which he was first elected in 1983. +-------------------------------------------------------------------------------- ------------- ------------ +John M. Seidl currently serves as an Executive of the Gordon and Betty 63 1994 +Moore Foundation headquartered in San Francisco, CA and Chairman of Language +Line Services Inc. of Monterey, California, a company involved in real-time +telephone language translation and interpration headquartered in San +Francisco. Mr. Seidl has been a director of IOMEGA Corporation, a NYSE +company, since 1999. Mr. Seidl was also Chairman of CellNet Data Systems +from 1994 through May 1999. In August 2000 CellNet Data Systems filed a +voluntary petition under Chapter 11 of the U.S. Bankruptcy Code as part +of an acquisition of its assets. +-------------------------------------------------------------------------------- ------------- ------------ +BOARD AND COMMITTEE MEETINGS +The full board of directors met six times during 2001. No director attended +less than 75% of the board and committee meetings held during the director's +tenure on the board and its committees. +The board has an audit, business plan, compensation and executive +committee. The following table sets forth the members of each committee and the +number of meetings held in 2001: +------------------------ ---------------- ---------------- ---------------- ---------------- +Name Audit Business Plan Compensation Executive +------------------------ ---------------- ---------------- ---------------- ---------------- +Larry W. Bickle X X +------------------------ ---------------- ---------------- ---------------- ---------------- +Ronald D. Boone +------------------------ ---------------- ---------------- ---------------- ---------------- +Thomas E. Congdon X X +------------------------ ---------------- ---------------- ---------------- ---------------- +David C. Dudley** X X +------------------------ ---------------- ---------------- ---------------- ---------------- +William J. Gardiner X +------------------------ ---------------- ---------------- ---------------- ---------------- +Mark A. Hellerstein X X +------------------------ ---------------- ---------------- ---------------- ---------------- +Jack Hunt** X X +------------------------ ---------------- ---------------- ---------------- ---------------- +Robert L. Nance +------------------------ ---------------- ---------------- ---------------- ---------------- +Arend J. Sandbulte X X* X* X +------------------------ ---------------- ---------------- ---------------- ---------------- +John M. Seidl X* +------------------------ ---------------- ---------------- ---------------- ---------------- +No. of Meetings in 2001 6 0 2 3 +------------------------ ----------------- --------------- ---------------- ---------------- +* Chairperson +** Mr. Dudley and Mr. Hunt have decided to not stand for re-election to the +board of directors. +The audit committee assists the board in fulfilling its responsibilities +for financial reporting by the Company. The audit committee recommends the +engagement and discharge of independent auditors, reviews the quarterly +financial results and directs and supervises special investigations when +necessary. The committee reviews with independent auditors the audit plan and +the results of the audit, reviews the independence of the independent auditors, +considers the range of audit fees, and reviews the scope and adequacy of St. +5 +Mary's system of internal accounting controls. See the "Audit Committee Report" +contained in this proxy statement. +The business plan committee reviews and reports to the board on St. Mary's +long range financial planning, capital structure, capital expenditures and risk +management. +The compensation committee's primary function is to oversee the +administration of the Company's employee benefit plans and to establish the +Company's compensation policies. The compensation committee recommends to the +board the compensation arrangements for senior management and directors, +adoption of compensation plans in which officers and directors are eligible to +participate, and the granting of stock options or other benefits under +compensation plans. See the "Report of Compensation Committee on Executive +Compensation" contained in this proxy statement. +The executive committee is vested with the authority to exercise the full +power of the board of directors, within established policies, in the intervals +between meetings of the board of directors. In addition to the general authority +vested in it, the executive committee may be vested with specific power and +authority by resolution of the board of directors. +Other than the following arrangements for Jack Hunt, a current director who +has decided to not stand for re-election to the board of directors, and William +J. Gardiner, there are no arrangements or understandings between any director +and any other person pursuant to which that director was or is to be elected. +Under the merger agreement for the acquisition by St. Mary of King Ranch Energy, +Inc. which was completed in December 1999, St. Mary agreed to: +o appoint Mr. Hunt and Mr. Gardiner to the board of directors, and +o until March 31, 2001 use reasonable efforts at the time of each +annual meeting of stockholders to cause Mr. Hunt and Mr. Gardiner to +be elected to the board of directors. With the expiration of this +agreement, Mr. Hunt has decided not to stand for re-election. +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on +the board of directors or any committee. Each non-employee director receives +1,200 shares of St. Mary common stock per year for serving as a director and is +paid $750 for each meeting attended. Non-employee directors serving on a +committee are paid $600 for each committee meeting attended and $375 for +telephonic meetings. Directors are reimbursed for expenses incurred in attending +board and committee meetings. +Members of the board of directors also participate in the Company's Stock +Option Plan. Non-employee directors currently receive a total number of options +each year equal to the average number of options granted to the two most senior +employees of the Company divided by six. These options have an exercise price +equal to the fair market value of St. Mary common stock on the date of grant and +vest over a three-year period in the same manner as for employee participants, +except that the options of a director who retires after five years of service +shall become fully vested upon retirement. For 2001, each non-employee director +was granted under this arrangement an option to purchase 6,542 shares of St. +Mary common stock at an exercise price of $21.19 per share. +6 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table shows beneficial ownership of shares of St. Mary common +stock as of April 5, 2002 by all beneficial owners as known to the Company, of +more than 5% of the outstanding shares of St. Mary common stock and by each +director and director nominee, each of the executive officers named in the +Summary Compensation Table, and all directors, director nominees and executive +officers as a group. +--------------------------------------------- --------------- --------------- --------------- --------------- +Shares +beneficially Options +owned exercisable Total shares Percent +excluding within beneficially beneficially +Name and Address of Beneficial Owner options 60 days owned(1) owned +--------------------------------------------- --------------- --------------- --------------- --------------- +Stockholders Owning More Than 5% +------------------------------------------------------------------------------------------------------------- +Artesian Partners Limited Partnership 1,565,521 - 1,565,521 5.6% +1000 North Water Street #1770 +Milwaukee, WI 53202 +--------------------------------------------- --------------- --------------- --------------- --------------- +Name and Position of Beneficial Owner +Directors and Executive Officers +------------------------------------------------------------------------------------------------------------- +Barbara M. Baumann, Director Nominee - - - - +--------------------------------------------- --------------- --------------- --------------- --------------- +Larry W. Bickle, Director 25,200 18,914 44,114 < .1% +--------------------------------------------- --------------- --------------- --------------- --------------- +David C. Dudley, Director (2) 177,842 23,238 201,080 .7% +--------------------------------------------- --------------- --------------- --------------- --------------- +William J. Gardiner, Director 3,600 6,518 10,118 < .1% +--------------------------------------------- --------------- --------------- --------------- --------------- +Jack Hunt, Director 3,600 6,518 10,118 < .1% +--------------------------------------------- --------------- --------------- --------------- --------------- +Arend J. Sandbulte, Director (3) 21,166 18,914 40,080 .1% +--------------------------------------------- --------------- --------------- --------------- --------------- +John M. Seidl, Director 5,600 21,126 26,726 .1% +--------------------------------------------- --------------- --------------- --------------- --------------- +Robert L. Nance, Director (4) 341,069 28,318 369,387 1.3% +--------------------------------------------- --------------- --------------- --------------- --------------- +Thomas E. Congdon, Chairman and Director (5) 171,815 50,733 222,548 .8% +--------------------------------------------- --------------- --------------- --------------- --------------- +Mark A. Hellerstein, President, Chief 33,710 68,959 102,669 .4% +Executive Officer and Director +--------------------------------------------- --------------- --------------- --------------- --------------- +Ronald D. Boone, Executive Vice President, 10,565 75,578 86,143 .3% +Chief Operating Officer and Director +--------------------------------------------- --------------- --------------- --------------- --------------- +Richard C. Norris, Vice President - Finance, 18,717 42,857 61,574 .2% +Secretary and Treasurer +--------------------------------------------- --------------- --------------- --------------- --------------- +Milam Randolph Pharo, Vice President - Land 1,696 33,509 35,205 .1% +and Legal +--------------------------------------------- --------------- --------------- --------------- --------------- +Douglas W. York, Vice President - 4,573 24,570 29,143 .1% +Acquisitions and Engineering +--------------------------------------------- --------------- --------------- --------------- --------------- +All executive officers and directors as a 882,438 448,126 1,330,564 4.8% +group (15 persons including those named +above) +--------------------------------------------- --------------- --------------- --------------- --------------- +7 +(1) According to SEC rules, beneficial ownership includes shares as to which +the individual or entity has voting power or investment power and any +shares which the individual has the right to acquire within 60 days of +April 5, 2002 through the exercise of any stock option or other right. +(2) Includes 134,232 shares which represents 10.4% of the total number of +shares of common stock owned by Greenhouse Associates LLC, in which Mr. +Dudley and his minor children are members, and 6,000 shares held by his +spouse. +(3) Includes 800 shares held of record by the spouse of Arend J. Sandbulte as +to which he may be deemed to be the beneficial owner. +(4) Includes 2,000 shares held of record by Ronan, Inc., a corporation +controlled by Robert L. Nance, and 69,100 shares held of record by the +spouse of Mr. Nance. +(5) Includes 24,410 shares held of record by the spouse of Thomas E. Congdon +as to which he may be deemed to be the beneficial owner. Thomas E. +Congdon and members of his extended family own approximately 18 percent +of the outstanding common stock of the Company. While no formal or +informal arrangements exist, these extended family members may be +inclined to act in concert with Mr. Congdon on matters related to control +of the Company or the approval of a significant transaction. +AUDIT COMMITTEE REPORT +The audit committee of the board is responsible for providing +independent, objective oversight of the Company's accounting functions and +internal controls. The audit committee is composed of three directors, each of +whom is independent as defined by the Nasdaq listing standards. The audit +committee operates under a written charter approved by the board of directors. A +copy of the charter is attached to this Proxy Statement as Annex B. +Management is responsible for the Company's internal controls and +financial reporting process. The independent accountants are responsible for +performing an independent audit of the Company's consolidated financial +statements in accordance with generally accepted auditing standards and issuing +a report thereon. The audit committee's responsibility is to monitor and oversee +these processes. +In connection with these responsibilities, the audit committee met with +management and the independent accountants to review and discuss the December +31, 2001 financial statements. The audit committee, also discussed with the +independent accountants the matters required by Statement on Auditing Standards +No. 61, Communication with audit committees. +The audit committee also received written disclosures from the +independent accountants required by Independence Standards Board Standard No. 1, +Independence Discussions with Audit Committees, and the audit committee +discussed with the independent accountants that firm's independence. The Company +paid the following fees to the independent accountants for the audit of the +consolidated financial statements and for other services provided in the year +ended December 31, 2001. +Audit Related Fees..........................$ 90,000 +Financial Information Systems Design and +Implementation Fees....................... - +All Other Fees.............................. 19,095 +------- +Total Fees..................................$109,095 +Fees for services other than the annual audit were primarily related to +the audit and review of St. Mary's benefit plans. The audit committee has +concluded that the provision of these non-audit services is compatible with +maintaining the accountants' independence. +Based upon the audit committee's discussions with management and the +independent accountants, and the audit committee's review of the representations +of management and the independent accountants, the audit committee recommended +that the board of directors include the audited consolidated financial +8 +statements in the Company's Annual Report on Form 10-K for the year ended +December 31, 2001 filed with the SEC. +THE AUDIT COMMITTEE +John M. Seidl, Chairman +Larry W. Bickle +Arend J. Sandbulte +April 5, 2002 +EXECUTIVE COMPENSATION +In addition to salaries, the Company has granted stock options to +executive management and selected other personnel. These individuals also +participate with other members of management in a net profits interest bonus +plan and with selected other employees in the prior stock appreciation rights +("SARs") plan. All employees are eligible to participate in the Company's cash +bonus plan. See the "Report of the Compensation Committee on Executive +Compensation" beginning on page 11 of this proxy statement. +The following table sets forth the annual and long term compensation +received during each of the Company's last three years by the Chief Executive +Officer of the Company and by the four other highest compensated executive +officers of the Company during 2001. +SUMMARY COMPENSATION TABLE +------------------------------------------------------------------------------------------------------------ +Long-Term +Annual Compensation Compensation +Awards +----------------------------------- -------------- +Other annual All other +Name and Compensation Options/ compensation +principal position Year Salary($) Bonus ($) (1) SARs (#) ($) (2) +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +Mark A. Hellerstein 2001 $291,667 $ - $798,586 21,766 $13,939 +President and Chief 2000 277,333 80,427 133,741 24,791 20,613 +Executive Officer 1999 263,667 131,835 181,752 26,874 19,444 +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +Ronald D. Boone 2001 233,667 - 670,028 17,486 10,550 +Executive Vice President 2000 222,000 64,380 120,446 19,833 15,424 +and Chief Operating Officer 1999 211,000 105,500 154,606 21,520 14,506 +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +Richard C. Norris 2001 135,500 - 252,799 5,146 8,718 +Vice President - Finance, 2000 129,833 28,600 48,627 11,412 8,290 +Secretary and Treasurer 1999 122,208 51,300 52,143 12,694 7,682 +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +Milam Randolph Pharo 2001 139,993 5,000 174,219 5,350 7,375 +Vice President - Land and 2000 133,167 35,000 9,690 11,754 7,371 +Legal 1999 127,000 47,625 31,250 12,990 7,017 +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +Douglas W. York 2001 145,000 - 151,706 11,436 7,469 +Vice President -Acquisitions 2000 134,667 52,000 6,598 11,968 7,380 +and Engineering 1999 120,083 60,042 66,000 13,090 7,555 +-------------------------------- --------- ----------- ----------- ----------- -------------- -------------- +------------ +(1) Amounts consist of payments under the Net Profits Interest Bonus Plan. +Amounts paid for 2001 were higher due to payouts from six new net profit +pools granted in prior years, including the pool reflecting the significant +acquisitions in 1999. See "Report of the Compensation Committee on +Executive Compensation" for a description of this plan. +9 +(2) Amounts consist of the Company's contribution to the 401(k) Savings Plan, +holiday bonus and other miscellaneous cash payments. +Stock options granted to the Company's five highest compensated executive +officers during 2001 are set forth in the following two tables. +2001 OPTION GRANTS +--------------------------------------------------------------------------------------------------------------------- +Individual Grants +--------------------------------------------------------------------------------------- +Potential realizable value +Percent of at assumed annual rates of +total stock price appreciation +options granted for option term +Number of to employees Exercise price Expiration ----------------------------- +NAME Options Granted in 2001 per share date 5% 10% +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +Mark A. Hellerstein 10,883 (1) 3.0% $15.93 09/30/11 $109,029 $ 276,301 +10,883 (2) 3.0% $21.19 12/31/11 145,030 367,534 +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +Ronald D. Boone 8,743 (1) 2.4% $15.93 09/30/11 87,590 221,970 +8,743 (2) 2.4% $21.19 12/31/11 116,512 295,263 +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +Richard C. Norris 2,573 (1) .70% $15.93 09/30/11 25,777 65,324 +2,573 (2) .70% $21.19 12/31/11 34,289 86,894 +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +Milam Randolph Pharo 2,675 (1) .70% $15.93 09/30/11 26,799 67,914 +2,675 (2) .70% $21.19 12/31/11 35,648 90,339 +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +Douglas W. York 5,718 (1) 1.6% $15.93 09/30/11 57,285 145,170 +5,718 (2) 1.6% $21.19 12/31/11 76,200 193,105 +--------------------- ----------------- ----------------- ---------------- ------------ -------------- -------------- +------------ +(1) Stock options granted effective September 30, 2001 pursuant to the +Company's Stock Option Plan as described on page 11 of this proxy +statement. +(2) Stock options granted effective December 31, 2001 pursuant to the +Company's Stock Option Plan as described on page 11 of this proxy +statement. +AGGREGATED OPTION/SAR EXERCISES IN 2001 AND +DECEMBER 31, 2001 OPTION/SAR VALUE +------------------------------------------------------------------------------------------------------------------ +Number of Value of unexercised +unexercised options/SARs in-the-money +held at options/SARs at +Shares December 31, 2001 December 31, 2001 (2) +acquired Value ------------------------------- ------------------------------- +Name on exercise realized (1) Exercisable Unexercisable Exercisable Unexercisable +--------------------- --------------- ------------ --------------- --------------- --------------- --------------- +Mark A. Hellerstein 45,079 $479,199 66,239 48,939 $ 497,256 $ 151,973 +--------------------- --------------- ------------ --------------- --------------- ------------------------------- +Ronald D. Boone - 45,290 73,393 28,413 621,539 81,920 +--------------------- --------------- ------------ --------------- --------------- ------------------------------- +Richard C. Norris - 27,043 42,214 12,740 319,014 38,131 +--------------------- --------------- ------------ --------------- --------------- ------------------------------- +Milam Randolph Pharo - 25,312 32,841 13,139 266,809 39,188 +--------------------- --------------- ------------ --------------- --------------- ------------------------------- +Douglas W. York - - 23,141 17,835 146,095 51,412 +--------------------- --------------- ------------ --------------- --------------- ------------------------------- +-------------- +(1) Amounts include final payments in satisfaction of the remaining rights +under the discontinued SAR plan, pursuant to the terms of such plan. +(2) On December 31, 2001, the last reported sales price of St. Mary common +stock as quoted on the Nasdaq National Market System was $21.19. +10 +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +The compensation committee of the board of directors administers St. Mary's +executive compensation programs. After consideration of the compensation +committee's recommendations, the full board of directors reviews and approves +the salaries of all elected officers, including those of the executive officers +named in the Summary Compensation Table on page 9. The compensation committee is +responsible for all other elements of executive compensation, including cash +bonuses, stock options, and the Net Profits Interest Bonus Plan. The +compensation committee is also responsible for approving the salaries of all +officers, reviewing salary policies for all employees and approving the amount +and distribution of payments made under the Cash Bonus Plan. In addition, the +compensation committee reviews the performance of the Company's pension and +401(k) plans with the trustees of the plans. +The goals of the Company's integrated executive compensation programs +include the following: +o Attract and retain talented management personnel. +o Encourage management to obtain superior returns for St. Mary's +stockholders. +o Promote preservation of the Company's capital base. +Salaries +In order to emphasize performance-based incentive compensation, base +salaries are targeted to be slightly below the median salary for the industry. +The compensation committee, with the assistance of external consultants, +determines the salary ranges for various positions based on survey data from the +Company's industry peer group. The compensation committee then reviews +management's recommendations for executive salaries and the performance +summaries on which they are based. The compensation committee makes final salary +recommendations to the full board based on experience, sustained performance, +and comparison to peers inside and outside the Company. +Incentive Compensation +St. Mary has established three incentive compensation plans, which have the +potential to increase annual compensation if the economic performance of the +Company and its employees so warrants. These plans have certain specific +objectives. +1. The Net Profits Interest Bonus Plan is designed to reward the personal +contributions made by various management personnel to St. Mary's financial +success. Plan participants share in the net profits after payout to St. Mary +derived from all oil and gas activity for a calendar year in proportion to their +relative weighted salaries during the year. Recognizing that the primary +incentive for profitable acquisitions and operations needs to be provided to the +most senior of the executive officers, the salaries of the president, the +executive vice president and other vice presidents as deemed appropriate by the +compensation committee are weighted at 100% and the salaries of all other +participants are weighted at two-thirds of actual base salary or less. +11 +2. The Stock Option Plan is intended to reward executive management of St. +Mary for long-term increases in the value of St. Mary's stock. The Stock Option +Plan focuses on appreciation of the market price of St. Mary's stock up to a +ten-year period and is designed to encourage management's concern for long-term +appreciation of the stockholders' interest. As presently implemented by the +board, generally if the average stock appreciation during this period is 15% per +year, then the persons granted stock options at the beginning of the period +will, at the end of five years, have the opportunity to receive an amount equal +to 100% of their base salary at the time the stock option was granted. In +addition, an Incentive Stock Option Plan ("ISO Plan") has been established as a +companion option plan with the Stock Option Plan. The ISO Plan is an alternative +to the above-described Stock Option Plan for an equal number of shares for those +employees designated by the board of directors to be granted stock options, with +such employees electing at the time of grant whether the options to be granted +will be either: a.) non-tax qualified options granted under the above-described +Stock Option Plan, or b.) incentive stock options granted under the ISO Plan. +3. St. Mary also has established a Cash Bonus Plan. Each year the board of +directors evaluates the overall performance of the Company for the year and with +the assistance of the compensation committee determines the total cash bonus +available to be allocated to employees. The proportional participation of each +designee is a function of his or her performance during the year. +Compensation of the Chief Executive Officer +The compensation of Mark A. Hellerstein, President and Chief Executive +Officer, consisted of the same components and criteria as other executive +officers, including base salary, cash bonus, net profits interest bonus and +stock options. His base salary is reviewed annually by the committee and is +targeted to be slightly below the median salary for comparable companies in the +industry with a greater emphasis on incentive compensation tied to Company +performance. Mr. Hellerstein's base salary in 2001 increased $5,000 or 2% over +2000. His total cash and net profits interest bonuses increased by approximately +$584,000 in 2001 compared with 2000 as a result of the payout of six new net +profit pools granted in prior years. Mr. Hellerstein was not granted any bonus +under the cash bonus plan for 2001 since St. Mary fell short on some of its +corporate goals. Total reserves grew by 9% and St. Mary replaced 166% of its +2001 production, both measures below targeted levels. In addition the net asset +value per share declined in 2001. To further tie compensation to stock price +appreciation, Mr. Hellerstein and several other key executives were granted +stock options in 2001 using two times the formula as that used for all other +employees. +Conclusion +St. Mary's executive compensation is linked to individual and corporate +performance and stock price appreciation. Base salaries are set below the median +for the industry so that incentivized compensation can have its intended effect. +The compensation committee plans both to continue the policy of linking +executive compensation to individual and corporate performance and returns to +stockholders and to provide a cash bonus incentive to key employees which will +provide performance motivation independent of the ups and downs of the oil and +gas industry's business cycle. +Arend J. Sandbulte, Chairman +Larry W. Bickle +William J. Gardiner +April 5, 2002 +12 +RETIREMENT PLANS +Pension Plan +The Company's Pension Plan is a qualified, non-contributory defined benefit +plan which is available to substantially all employees. This plan was amended in +1994 to conform with the changes required by the Tax Reform Act of 1986 and to +reduce the plan formula. The Company also has a supplemental pension plan for +certain executive officers to provide for benefits in excess of Internal Revenue +Code limits. +The qualified plan provides a benefit after 25 years of service equal to +35% of final average compensation, subject to Internal Revenue Code limits. +Final average compensation is the average of the highest 3 consecutive years of +the 10 years preceding termination of employment. For each named executive +officer, the level of compensation used to determine benefits payable under the +qualified pension plan is that officer's average of the base salaries (excluding +bonus) shown in the Summary Compensation Table. +The supplemental plan provides executives hired before 1995, after +completing 15 years of service and reaching age 65, a benefit equal to 40% of +final average compensation plus 37% of final average compensation integrated +with the social security wage base without regard to compensation limitations +provided under the qualified plan, less the benefit provided by the qualified +plan. For executives hired after 1994, the supplemental benefit is calculated +using the formula for the qualified plan without the limitation imposed by +Section 415 of the Internal Revenue Code, less the benefit provided by the +qualified plan. +The following table shows the estimated maximum annual benefits payable +upon retirement at age 65 as a straight life annuity to participants in the +pension plans for the indicated levels of average annual compensation and years +of service. +------------------------ -------------------------- -------------------------- +Estimated annual pension Estimated annual pension +benefits for executives benefits for executives +Base Salary hired before 1995 with > hired after 1994 with > +Remuneration 15 years of service 25 years of service +------------------------ -------------------------- -------------------------- +$100,000 $ 63,680 $ 35,000 +------------------------ -------------------------- -------------------------- +150,000 102,180 52,500 +------------------------ -------------------------- -------------------------- +200,000 140,680 70,000 +------------------------ -------------------------- -------------------------- +250,000 179,180 87,500 +------------------------ ------------------------- -------------------------- +300,000 217,680 105,000 +------------------------ -------------------------- -------------------------- +350,000 256,180 122,500 +------------------------ -------------------------- -------------------------- +As of December 31, 2001, the named executive officers have the following +years of credited service: +Mark A. Hellerstein 10 +Ronald D. Boone 11 +Richard C. Norris 19 +Milam Randolph Pharo 6 +Douglas W. York 5 +13 +401(k) Plan +The Company's 401(k) Profit Sharing Plan is a defined contribution pension +plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) +Plan allows eligible employees to contribute up to nine percent of their income +on a pre-tax basis through contributions to the 401(k) Plan. The Company matches +each employee's contributions up to six percent of the employee's pre-tax +income. Company contributions vest over an employee's first five years of +employment. +PERFORMANCE GRAPH +The following performance graph compares the cumulative total stockholder +return on St. Mary's common stock for the period December 31, 1996 to December +31, 2001 with the cumulative total return of the Standard Industrial +Classification Code for Crude Petroleum and Natural Gas and the Standard & +Poor's 500 Stock Index. The SIC Code for Crude Petroleum and Natural Gas is +1311. The identities of the companies included in the index will be provided +upon request. +[GRAPH APPEARS HERE] +CUMULATIVE TOTAL RETURN* +THE COMPANY, S&P 500 AND SIC CODE INDEX +12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 +-------- -------- -------- -------- -------- -------- +ST. MARY LAND & EXPLORATION COMPANY 100.00 141.63 75.49 101.91 275.97 176.39 +SIC CODE INDEX 100.00 101.36 81.19 99.18 125.99 115.60 +S&P 500 INDEX 100.00 133.36 171.47 207.56 188.66 166.24 +Assumes $100 invested on December 31, 1996 in St. Mary Land & Exploration +Company, SIC Code Index for Crude Petroleum and Natural Gas and S&P 500 +Stock Index. +*Total return assumes reinvestment of dividends. +14 +EMPLOYMENT AGREEMENTS AND TERMINATION OF +EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS +On September 1, 1991, St. Mary entered into an employment agreement with +Mark A. Hellerstein. His current salary is $295,000 per year. Compensation is +reviewed annually. Mr. Hellerstein participates in St. Mary's benefit plans and +is entitled to bonuses and incentive compensation as determined by the board of +directors. The agreement is terminable at any time upon 30 days' notice by +either party. Upon termination of the agreement by St. Mary for any reason +whatsoever (other than death, disability or misconduct by Mr. Hellerstein), St. +Mary is obligated to continue to pay his compensation, including insurance +benefits, for a period of one year. +St. Mary has established a change in control executive severance policy and +entered into change of control severance agreements where officers of St. Mary, +including the officers named in the Summary Compensation Table, will receive +severance payments in the event a change in control of the Company results in +the voluntary or involuntary termination of their employment. The severance +payments equal two and one-half years annual base salary depending on the length +of time employment continues after the change in control. In addition, all +insurance and fringe benefits will be provided for a period of one year. +A change in control is defined as (i) an acquisition of more than fifty +percent of the common stock or assets of the Company in a reorganization, merger +or consolidation of the Company or (ii) a change in more than fifty percent of +the composition of the board of directors of the Company other than as a result +of the election of new members of the board of directors by a vote of the +incumbent members of the board of directors or by stockholders of the Company +pursuant to the recommendation of the incumbent members of the board of +directors. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. +Mary and certain of its officers and directors during the last fiscal year. Some +of these transactions will continue in effect and may result in conflicts of +interest between St. Mary and these individuals. Although these persons may owe +fiduciary duties to St. Mary and its stockholders, we cannot assure you that +conflicts of interest will always be resolved in favor of St. Mary. +As a result of their prior employment with another company with which St. +Mary engaged in a number of transactions, Ronald D. Boone, the Executive Vice +President and Chief Operating Officer and a director of St. Mary, and two other +vice presidents of St. Mary own working interests and royalty interests in many +of the Company's properties which were earned as part of the prior employer's +benefit programs. Those persons have no royalty participation in any new St. +Mary properties. +Mr. Boone also owns 50% of Princeton Resources Ltd. and has a 33% interest +in Baron Oil Corporation, entities which manage oil and gas working and royalty +interests which he acquired as a result of his prior employment. Although Mr. +Boone does not manage these corporations, he may participate in any investment +decisions made by them. The board of directors has approved Mr. Boone's +involvement in Princeton Resources and Baron Oil. +15 +St. Mary's by-laws provide that no director may pursue a business or +investment opportunity for himself if he has obtained knowledge of such +opportunity through his affiliation with the Company, provided that St. Mary is +interested in pursuing such opportunity and is financially or otherwise able to +pursue the opportunity. Moreover, no officer or employee of St. Mary may pursue +for his own account an oil and gas opportunity unless (a) with respect to an +officer of St. Mary, the interest has been approved by the board of directors +and (b) with respect to a non-officer of St. Mary, such interest of the employee +has been approved by a senior officer of St. Mary with full knowledge of such +opportunity. These restrictions do not apply to the acquisition of less than one +percent of the publicly traded stock of another company as long as St. Mary is +not at that time engaged in any present or pending transaction with the other +company. +OTHER MATTERS TO BE VOTED ON +Proposal to Amend the Certificate of Incorporation to Authorize the Issuance of +-------------------------------------------------------------------------------- +up to a Total of 5,000,000 Shares of Preferred Stock +---------------------------------------------------- +St. Mary's certificate of incorporation currently authorizes St. Mary to +issue up to a total of 100,000,000 shares of common stock. There were 27,808,151 +shares of common stock outstanding as of March 31, 2002. +On March 21, 2002, the board of directors approved an amendment to the +certificate of incorporation, subject to approval by the stockholders, to +authorize the issuance of up to a total of 5,000,000 shares of preferred stock +with such powers, preferences, rights and limitations as the board of directors +may designate from time to time. The full text of the amendment is contained in +the proposed Certificate of Amendment attached to this proxy statement as Annex +A, and the following description is qualified in its entirety by reference +thereto. +While St. Mary has no present intention of issuing shares of preferred +stock, the board of directors believes that having shares of preferred stock +authorized for issuance under the certificate of incorporation will provide +additional financial flexibility from the possible future issuances of preferred +stock for use in property acquisitions or for use in raising additional capital. +Any future issuances will remain subject to separate stockholder approval to the +extent required under Delaware corporate law and/or the Nasdaq National Market +listing standards. +Although future issuances of preferred stock will be dilutive to existing +stockholders with respect to their proportionate ownership of St. Mary, any +issuances for cash will be made for fair value, and any issuances for property +acquisitions will also be made for fair value. +Description of the Preferred Stock +The amendment to the certificate of incorporation will authorize the board +of directors from time to time to divide the preferred stock into series and to +designate for each series its respective rights and preferences, including any +of the following: +o the rate of dividends and whether dividends are cumulative or +have a preference over the common stock in right of payment; +o the terms and conditions upon which shares may be redeemed and +the redemption price; +16 +o sinking fund provisions for the redemption of shares; +o the amount payable in respect of each share upon a voluntary or +involuntary liquidation of St. May; +o the terms and conditions upon which shares may be converted +into other securities of St. Mary, including common stock; +o limitations and restrictions on payment of dividends or other +distributions on, or redemptions of, other classes of stock of St. +Mary junior to such series, including the common stock; +o conditions and restrictions on the creation of indebtedness or +the issuance of other senior classes of stock; +o voting rights; and +o the number of shares contained in such series. +Issuances of preferred stock could be made without further action of the +stockholders, unless such action were required by applicable law or the rules of +the Nasdaq National Market System or any other stock exchange on which St. +Mary's securities may then be listed or traded. Depending on the rights and +preferences designated for any particular series, issuances of preferred stock +could have the effect of diluting stockholders' equity, earnings per share and +voting rights attributable to the common stock. +Anti-Takeover Effects of the Proposed Amendment +Although the board of directors has no current intention of doing so, St. +Mary could issue a series of preferred stock that could, depending on the terms +of such series, impede the completion of a merger, tender offer or other +takeover attempt. The board of directors will make any determination to issue +shares of preferred stock based on its judgment at the time as to the best +interests of St. Mary and its stockholders. The board of directors, in so +acting, could issue preferred stock having terms that could discourage an +acquisition attempt by which an acquiror may be able to change the composition +of the board of directors, including a tender offer or other transaction that +some, or a majority, of St. Mary's stockholders might believe to be in their +best interests or in which stockholders might receive a premium for their stock +over the then current market price of such stock. The board of directors is not +aware of any current proposal or effort to acquire control of St. Mary. +While the proposed amendment may have anti-takeover effects, the board of +directors believes that the financial flexibility provided by the amendment +outweighs any disadvantages. To the extent that the proposed amendment may have +anti-takeover effects, the amendment may encourage persons seeking to acquire +St. Mary to negotiate directly with the board of directors, enabling the board +of directors to consider any proposed acquisition in a manner that best serves +the interests of the stockholders. +Since the board of directors believes that the proposed amendment to the +certificate of incorporation to authorize the issuance of up to a total of +5,000,000 shares of preferred stock with such powers, preferences, rights and +limitations as the board of directors may designate from time to time will +17 +provide St. Mary with additional financial flexibility, the board of directors +recommends that stockholders vote "For" approval of the amendment to the +certificate of incorporation. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive officers and persons +holding more than 10% of St. Mary common stock must report their initial +ownership of the common stock and any changes in that ownership in reports which +must be filed with the SEC and St. Mary. The SEC has designated specific +deadlines for these reports and St. Mary must identify in this proxy statement +those persons who did not file these reports when due. +Based solely on a review of reports filed with the Company, all directors +and executive officers timely filed all reports regarding transactions in the +Company's securities required to be filed for 2001 by Section 16(a) under the +Securities Exchange Act of 1934. +INDEPENDENT ACCOUNTANTS +Arthur Andersen LLP has served as St. Mary's independent accountants since +1997, and the representitives of Arthur Andersen LLP who have worked on the St. +Mary audit engagement have significant oil and gas accounting expertise and +experience. However, due to the widely reported recent developments concerning +Arthur Andersen LLP, the board of directors has not yet selected the independent +public accountants to audit the financial statements of St. Mary for its 2002 +fiscal year. As part of its process for selecting the independant public +accountants for 2002, the audit committee and the board of directors will +closely monitor the current developments concerning Arthur Andersen LLP. +To the knowledge of management, neither Arthur Andersen LLP nor any of its +members has any direct or material indirect financial interest in St. Mary nor +any connection with St. Mary in any capacity other than as independent public +accountants. A representative of Arthur Andersen LLP is expected to be present +at the annual meeting and will have an opportunity to make a statement if he +desires to do so and to respond to appropriate questions. +FUTURE STOCKHOLDER PROPOSALS +St. Mary must receive any St. Mary stockholder proposal for the annual +meeting of stockholders in 2003 before November 1, 2002 for the proposal to be +included in the St. Mary proxy statement and form of proxy for that meeting. St. +Mary's by-laws require that advance written notice in proper form of stockholder +proposals for matters to be brought before an annual stockholders meeting be +received by the Secretary of St. Mary not less than 75 days nor more than 105 +days before the first anniversary date of the immediately preceding annual +stockholders meeting. Accordingly, notice of stockholder proposals for the 2003 +annual meeting must be received by St. Mary between February 6, 2003 and March +8, 2003. +18 +OTHER MATTERS +Management does not know of any other matters to be brought before the +annual meeting of stockholders. If any other matters not mentioned in this proxy +statement are properly brought before the meeting, the individuals named in the +enclosed proxy intend to use their discretionary voting authority under the +proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +/s/ RICHARD C. NORRIS +Richard C. Norris +Secretary +April 12, 2002 +19 +ANNEX A ANNEX A +CERTIFICATE OF AMENDMENT +OF +RESTATED CERTIFICATE OF INCORPORATION +St. Mary Land & Exploration Company, a corporation organized and +existing under and by virtue of the General Corporation Law of the State of +Delaware (the "Corporation"), DOES HEREBY CERTIFY: +1. That at a meeting of the Board of Directors of the Corporation, a +resolution was duly adopted setting forth a proposed amendment to the +Certificate of Incorporation of the Corporation, as restated and amended, +declaring such amendment to be advisable and calling for a vote of the +stockholders of the Corporation on such amendment at the annual meeting of the +stockholders of the Corporation on May 22, 2002. The resolution setting forth +the proposed amendment is as follows: +RESOLVED, that Article Fourth of the Certificate of +Incorporation of the Corporation, as restated and amended, +shall be amended in its entirety to read as follows: +FOURTH: The total number of shares of all classes of capital +stock which the Corporation shall have authority to issue is 105,000,000 shares, +consisting of (a) 5,000,000 shares of Preferred Stock, $.01 par value per share +(the "Preferred Stock"), and (b) 100,000,000 shares of Common Stock, $.01 par +value per share (the "Common Stock"). +The designations and the powers, preferences and rights, and the +qualifications, limitations or restrictions of the shares of each class of stock +that the Corporation shall have authority to issue are as follows: +PREFERRED STOCK +i. Issuance. The Preferred Stock may be issued from time to time in +-------- +one or more series of any number of shares, provided that the aggregate number +of shares issued and not canceled of any and all such series shall not exceed +5,000,000 shares. +ii. Authority of the Board of Directors to Authorize Series. Authority +------------------------------------------------------- +is hereby vested in the Board of Directors to authorize the issuance from time +to time of one or more series of Preferred Stock, and in connection with the +creation of such series to fix by resolution or resolutions providing for the +issuance of shares thereof the designations, powers, preferences and relative, +participating, optional or other special rights, and the qualifications, +limitations or restrictions thereof, of such series in respect of the matters +set forth as follows: +(1) The maximum number of shares to constitute such series and +the distinctive designation thereof and the stated value thereof if +different than the par value thereof; +20 +(2) The dividend rate, if any, on the shares of such series, +the conditions and dates upon which such dividends shall be payable, +the preference or relation which such dividends shall bear to the +dividends payable on any other class or classes or on any other series +of capital stock, and whether such dividends shall be cumulative or +non-cumulative; +(3) Whether the shares of such series shall be subject to +redemption by the Corporation, and, if made subject to redemption, the +times, prices and other terms and conditions of such redemption; +(4) Whether or not the shares of such series shall be subject +to the operation of a retirement or sinking fund, and, if so, the +extent to and manner in which any such retirement or sinking fund shall +be applied to the purchase or redemption of the shares of such series +for retirement or to other corporate purposes and the terms and +provisions relative to the operation thereof; +(5) The rights of the holders of shares of such series upon +the liquidation, dissolution or winding up of the Corporation; +(6) Whether or not the shares of such series shall be +convertible into, or exchangeable for, shares of stock of any other +class or classes, or of any other series of the same class, and if so +convertible or exchangeable, the price or prices or the rate or rates +of conversion or exchange and the method, if any, of adjusting the same +and any other terms or conditions of conversion or exchange; +(7) The limitations and restrictions, if any, to be effective +while any shares of such series are outstanding upon the payment of +dividends or the making of other distributions on, and upon the +purchase, redemption or other acquisition by the Corporation of, the +Common Stock or any other class or classes of stock of the Corporation +ranking junior to the shares of such series either as to dividends or +upon liquidation, dissolution or winding up; +(8) The conditions or restrictions, if any, upon the creation +of indebtedness of the Corporation or upon the issuance of any +additional stock (including additional shares of such series or of any +other series or of any other class) ranking on a parity with or prior +to the shares of such series either as to dividends or upon +liquidation, dissolution or winding up; +(9) Whether the shares of such series shall have voting +rights, in addition to any voting rights provided by law, and, if so, +the terms of such voting rights; and +(10) Any other powers, preferences and relative, +participating, optional or other special rights and any qualifications, +limitations or restrictions thereof as shall not be inconsistent with +this Article Fourth. +iii. Shares of Each Series Identical. All shares of any one series of +------------------------------- +Preferred Stock shall be identical with each other in all respects, except that +shares of any one series issued at different times may differ as to the dates +from which dividends, if any, thereon shall be cumulative. All series shall rank +21 +equally and be identical in all respects, except as permitted by the provisions +of this Article Fourth. +COMMON STOCK +All shares of Common Stock shall be identical and shall entitle the +holders thereof to the same rights and privileges. +i. Dividends. Subject to the provisions of law and the rights of the +--------- +Preferred Stock then outstanding having a preference as to dividends over the +Common Stock, dividends may be paid on the Common Stock at such times and in +such amounts as the Board of Directors shall determine. When and as dividends +are declared upon the Common Stock, whether payable in cash, in property or in +shares of stock of the Corporation, the holders of Common Stock shall be +entitled to share equally in such dividends. +ii. Voting Rights. Each holder of Common Stock shall be entitled to +------------- +one vote per share held. +iii. Preferred Stock. The Common Stock is subject to all the powers, +--------------- +rights, privileges, preferences and priorities of the Preferred Stock as are +stated and expressed herein and as shall be stated and expressed in any +resolution or resolutions of the Board of Directors pursuant to the authority +expressly granted to and vested in it by the provisions of this Article Fourth. +iv. Liquidation. In the event of any liquidation, dissolution or +----------- +winding up of the Corporation, whether voluntary or involuntary, after payment +shall have been made to holders of Preferred Stock of any preferential amounts +to which they shall respectively be entitled as stated and expressed in any +resolution or resolutions of the Board of Directors pursuant to the authority +expressly granted to and vested in it by the provisions of this Article Fourth, +the holders of Common Stock shall be entitled to share ratably according to the +number of shares of Common Stock held by them in all remaining assets of the +Corporation available for distribution to its stockholders. +22 +ANNEX B +ANNEX B +St. Mary Land & Exploration Company +Charter of the Audit Committee of the Board of Directors +I. Audit Committee Purpose +The Audit Committee is appointed by the board of directors to assist +the board in fulfilling its oversight responsibilities. The Audit +Committee's primary duties and responsibilities, as delegated by the +board of directors, are to: +o Monitor the integrity of the Company's financial reporting process +and systems of internal controls regarding finance, accounting, +and legal and regulatory compliance. The Audit Committee will +recommend to the board of directors when corrective action is +necessary. +o Monitor the independence and performance of the Company's +independent auditors. +o Provide an avenue of communication among the independent auditors, +management, and the board of directors. +o Report regularly to the board of directors. +The Audit Committee has the authority to conduct any investigation +appropriate to fulfill its responsibilities, and it has direct access +to the independent auditors as well as anyone in the organization. The +Audit Committee has the authority to retain, at the Company's expense, +special legal, accounting, or other consultants or experts it deems +necessary to advise the Committee in the performance of its duties. +II. Audit Committee Composition and Meetings +Audit Committee members shall meet the independence and financial +literacy requirements of the Nasdaq National Market listing standards. +The Audit Committee shall be comprised of at least three directors as +determined by the board, each of whom shall be an independent +nonexecutive director without any relationship which, in the opinion of +the board, would interfere with the exercise of his or her independent +judgment in carrying out the responsibilities of a director. All +members of the Committee shall have a basic understanding of finance +and accounting and be able to read and understand fundamental financial +statements, and at least one member of the Committee shall have +experience or background in finance or accounting which results in that +member's financial sophistication. +Audit Committee members shall be appointed by the board. If an audit +committee Chair is not designated or present, the members of the +Committee may designate a Chair by majority vote of the Committee +membership. +The Committee shall meet at least four times annually, or more +frequently as circumstances dictate. The Audit Committee Chair shall +approve an agenda in advance of each meeting. As circumstances dictate +but at least twice annually, the Committee should meet privately in +executive session with management, the independent auditors, and as a +committee to discuss any matters that the Committee or any of these +groups believe should be discussed. In addition, the Committee should +communicate with management and the independent auditors quarterly to +review the Company's financial statements and significant findings +based upon the auditors' review procedures. +23 +III. Audit Committee Responsibilities and Duties +Review Procedures +----------------- +1. Review and reassess the adequacy of this Charter at least +annually. Submit the Charter to the board of directors for +approval and include the document in the proxy statement for the +election of directors at least once every three years in +accordance with SEC regulations. +2. Review the Company's annual audited financial statements prior to +filing with the SEC. Review should include discussion with +management and independent auditors of significant issues +regarding accounting principles, practices, and judgments. +3. In consultation with management and the independent auditors, +consider the integrity of the Company's financial reporting +processes and internal accounting controls. Discuss significant +financial risk exposures and the steps management has taken to +monitor, control, and report such exposures. Review significant +findings prepared by the independent auditors, including the +status of previous recommendations, together with management's +responses. +4. Review with financial management and the independent auditors the +Company's quarterly financial results prior to the release of +earnings. Discuss any significant changes to the Company's +accounting principles and any items required to be communicated by +the independent auditors to the Committee in accordance with +Statement of Auditing Standards ("SAS") No. 61, Communication with +Audit Committees, as amended (see item 9). +Independent Auditors +-------------------- +5. The independent auditors are accountable to the Audit Committee +and the board of directors. The Audit Committee shall review and +evaluate the independence and performance of the auditors and +annually recommend to the board of directors the appointment of +the independent auditors or approve any replacement of auditors +when circumstances warrant. +6. Approve the fees and other significant compensation to be paid to +the independent auditors. Review and approve requests for +significant management consulting engagements to be performed by +the independent auditors' firm and be advised of any other +significant study undertaken at the request of management that is +beyond the scope of the audit engagement letter. +7. On at least an annual basis, the Committee should review and +discuss with the independent auditors the auditors' independence +and all significant services performed for and relationships they +have with the Company that could bear on the auditors' +independence, and ensure that the Committee has received from the +auditors the formal written statement delineating all +relationships between the auditor and the Company and the letter +confirming that in the auditors' professional judgment they are +independent of the Company, as required by Independence Standards +Board Standard No. 1, Independence Discussions with Audit +Committees. The Committee shall take, or recommend that the board +of directors take, appropriate action to oversee the independence +of the auditors. +8. Review the independent auditors' engagement letter a nd audit plan +- discuss scope, staffing, locations, reliance upon management, +and general audit approach. +9. Prior to releasing year-end earnings, discuss the results of the +audit with the independent auditors. Discuss the matters required +to be communicated by auditors to audit committees in accordance +with SAS No. 61. +10. Consider the independent auditors' judgments about the quality and +appropriateness of the Company's accounting principles as applied +in its financial reporting. +24 +Legal Compliance +---------------- +11. On at least an annual basis, review with the Company's general +counsel any legal matters that could have a significant impact on +the Company's financial statements, the Company's compliance with +applicable laws and regulations, and inquiries received from +regulators or governmental agencies. +Other Audit Committee Responsibilities +-------------------------------------- +12. Based on the review and discussion of the audited financial +statements with management and the discussion with the independent +auditors of the matters required to be discussed by SAS No. 61 and +the independent auditors' independence, recommend to the board of +directors whether the audited financial statements should be +included in the Company's Annual R eport on Form 10-K for filing +with the SEC. Prepare the report required by SEC rules to be +included in the Company's annual proxy statement. +13. Perform any other activities consistent with this Charter, the +Company's by-laws, and governing law, as the Committee or the +Board deems necessary or appropriate. +14. Maintain minutes of meetings and periodically report to the board +of directors on significant results of the foregoing activities. +While the Audit Committee has the responsibilities and powers set forth +in this Charter, it is not the duty of the Audit Committee to plan or +conduct audits or to determine that the Company's financial statements +are complete and accurate and are in accordance with generally accepted +accounting principles. That is the responsibility of management and the +independent auditors. Nor is it the duty of the Audit Committee to +conduct investigations, or to ensure compliance with laws and +regulations. +25 +PROXY ST. MARY LAND & EXPLORATION COMPANY PROXY +1776 Lincoln Street, Suite 1100 +Denver, Colorado 80203 +This Proxy is Solicited on Behalf of the Board of Directors +For the Annual Meeting of Stockholders on May 22, 2002 +The undersigned hereby appoints Mark A. Hellerstein and Richard C. Norris, +or either of them, each with the power to appoint his substitute, as proxies for +the undersigned to vote all shares of St. Mary Land & Exploration Company +common stock which the undersigned is entitled to vote at the Annual Meeting of +Stockholders to be held on May 22, 2002, and at any reconvened meeting after any +adjournment thereof, as directed on the matters referred to below and at their +discretion on any other matters that may properly be presented at the meeting. +ITEM 1 ITEM 2 +ELECTION OF DIRECTORS.  FOR all nominees listed AMENDMENT TO CERTIFICATE OF  FOR +Management has nominated the (except as marked to the contrary below) INCORPORATION TO AUTHORIZE +following nine persons to stand THE ISSUANCE OF UP TO A TOTAL  AGAINST +for election as directors. The  WITHHOLD authority to vote for OF 5,000,000 SHARES OF PREFERRED +St. Mary board of directors all nominees listed STOCK.  ABSTAIN +recommends a vote "For" all of +the nominees. As of the date of INSTRUCTIONS: Mark only one box. The proposal to amend St. Mary's +the accompanying proxy statement To withold authority to vote for any certificate of incorporation to +no one has been nominated to individual nominee, write that authorize the issuance of up to +serve as director other than the nominee's name in the following space: a total of 5,000,000 shares of +nominees by management. preferred stock with such powers, +-------------------------------------- preferences, rights and +01 Larry W. Bickle limitations as the board of +02 Barbara M. Baumann directors may designate from +03 Ronald D. Boone time to time. +04 Thomas E. Congdon +05 William J. Gardiner +06 Mark A. Hellerstein +07 Robert L. Nance +08 Arend J. Sandbulte +09 John M. Seidl +This proxy when properly executed will be voted in the manner directed by +the undersigned stockholder. +If this proxy is properly executed but no voting direction is given, this +proxy will be voted "FOR" all director nominees listed on this proxy and the +amendment to the certificate of incorporation to authorize the issuance of up to +a total of 5,000,000 shares of preferred stock. +This proxy also confers discretionary authority to the proxies to vote on +any other matters that may properly be presented at the meeting. As of the date +of the accompanying proxy statement, St. Mary management did not know of any +other matters to be presented at the meeting. If any other matters are properly +presented at the meeting, this proxy will be voted in accordance with the +recommendations of St. Mary management. +Please sign exactly as your name appears +below. When shares are held by joint +tenants, both should sign. When signing as +attorney, executor, administrator, trustee +or guardian, please give full title as such. +If a corporation, please sign in full +corporate name by the president or other +authorized officer. If a partnership or +limited liability company, please sign in +such name by an authorized person. Please +complete, date and sign this proxy card and +return it promptly in the accompanying +envelope. +Dated: , 2002 +-------------------- +-------------------------------- +Signature +-------------------------------- +Signature (if held jointly) +Your telephone or Internet vote authorizes the named proxies in the same manner +as if you marked, signed and dated your proxy card and returned it in the +envelope provided. The telephone and Internet voting procedures are designed to +ensure that proxies are handled properly under Delaware law by authenticating +votes cast by use of a PIN and allowing you to confirm that your instructions +have been properly recorded. +TO VOTE USING THE TELEPHONE: Call toll free 1-800-816-8908 from a touch tone +telephone. There is NO CHARGE for this call. Enter your 14 digit CONTROL NUMBER +and 5 digit PIN NUMBER located at the bottom of this proxy and then listen for +voting instructions. +INTERNET VOTING INSTRUCTIONS: Go the the following website +www.computershare.com/us/proxy - Enter your 14 digit CONTROL NUMBER and 5 digit +------------------------------ +PIN NUMBER located at the bottom of this proxy and then follow the voting +instructions on the screen. If you vote by telephone or the internet, please DO +NOT mail back this proxy card. +---------------- ----------------- +CONTROL NUMBER PIN NUMBER +---------------- ----------------- \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-02-000014/proxy_rpt.txt b/raw/proxies/0000893538/0000893538-02-000014/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b1bb4da22163c98391aa4d45d68ab4c65827cd35 --- /dev/null +++ b/raw/proxies/0000893538/0000893538-02-000014/proxy_rpt.txt @@ -0,0 +1,34 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. +Mary and certain of its officers and directors during the last fiscal year. Some +of these transactions will continue in effect and may result in conflicts of +interest between St. Mary and these individuals. Although these persons may owe +fiduciary duties to St. Mary and its stockholders, we cannot assure you that +conflicts of interest will always be resolved in favor of St. Mary. +As a result of their prior employment with another company with which St. +Mary engaged in a number of transactions, Ronald D. Boone, the Executive Vice +President and Chief Operating Officer and a director of St. Mary, and two other +vice presidents of St. Mary own working interests and royalty interests in many +of the Company's properties which were earned as part of the prior employer's +benefit programs. Those persons have no royalty participation in any new St. +Mary properties. +Mr. Boone also owns 50% of Princeton Resources Ltd. and has a 33% interest +in Baron Oil Corporation, entities which manage oil and gas working and royalty +interests which he acquired as a result of his prior employment. Although Mr. +Boone does not manage these corporations, he may participate in any investment +decisions made by them. The board of directors has approved Mr. Boone's +involvement in Princeton Resources and Baron Oil. +15 +St. Mary's by-laws provide that no director may pursue a business or +investment opportunity for himself if he has obtained knowledge of such +opportunity through his affiliation with the Company, provided that St. Mary is +interested in pursuing such opportunity and is financially or otherwise able to +pursue the opportunity. Moreover, no officer or employee of St. Mary may pursue +for his own account an oil and gas opportunity unless (a) with respect to an +officer of St. Mary, the interest has been approved by the board of directors +and (b) with respect to a non-officer of St. Mary, such interest of the employee +has been approved by a senior officer of St. Mary with full knowledge of such +opportunity. These restrictions do not apply to the acquisition of less than one +percent of the publicly traded stock of another company as long as St. Mary is +not at that time engaged in any present or pending transaction with the other +company. \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-03-000013/proxy.txt b/raw/proxies/0000893538/0000893538-03-000013/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1feab5040f7198c8bc8347eea14bd37e88d46913 --- /dev/null +++ b/raw/proxies/0000893538/0000893538-03-000013/proxy.txt @@ -0,0 +1,1888 @@ +DEF 14A +1 +asci040403_proxy.htm +2003 PROXY STATEMENT +Form 14A Proxy +1776 LINCOLN STREET, SUITE 700 +DENVER, COLORADO 80203 +303/861-8140 +FAX 303/861-0934 +April 4, 2003 +Securities and Exchange Commission +450 Fifth Street, N.W. +Washington, D.C. 20549 +RE: St. Mary Land & Exploration Company +File No. 001-31539 +Ladies and Gentlemen: +Transmitted herewith is St. Mary Land & Exploration Company's Proxy +Statement submitted on Schedule 14A. The Company intends to send the Proxy +Statement to its Shareholders' on or about April 7, 2003. +Very truly yours, +/s/ RICHARD C. NORRIS +Richard C. Norris +Vice President - Finance, +Secretary and Treasurer +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act of +1934 +Filed by the Registrant [ X ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted +by Rule 14a-6(e)(2)) +[ X ] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or +Section 240.14a-12 +ST. MARY LAND & EXPLORATION COMPANY +--------------------------------------- +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement if other than the Registrant) +Payment of Filing Fee (check the appropriate box): +[ X ] No fee required. +[ ] Fee computed on table below per Exchange Act Rules +14a-6(i)(4) and 0-11. +1) Title of each class of securities to which transaction applies: +------------------------------------------------------- +2) Aggregate number of securities to which transaction applies: +------------------------------------------------------- +3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +------------------------------------------------------- +4) Proposed maximum aggregate value of transaction: +------------------------------------------------------- +5) Total fee paid: +------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for +which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form +or Schedule and the date of its filing. +1) Amount Previously Paid: +------------------------------------------------------- +2) Form, Schedule or Registration Statement Number: +------------------------------------------------------- +3) Filing party: +------------------------------------------------------- +4) Date filed: +------------------------------------------------------- +1776 LINCOLN STREET, SUITE 700 +DENVER, COLORADO 80203-1080 +303/861-8140 +FAX 303/861-0934 +April 4, 2003 +Dear Stockholder: +You are cordially invited to attend the 2003 annual meeting of +stockholders, which will be held in the Forum Room of Wells Fargo Bank, 1740 +Broadway Street, Denver, Colorado on Wednesday, May 21, 2003 at 3:00 p.m. local +time. +At the meeting you and the other stockholders will vote on the election +of eight directors, approval of an amendment to the Stock Option Plans to +increase the authorized number of shares that can be issued under the plans by +1,300,000 to a total of 5,600,000 and approval of a Non-Employee Director Stock +Compensation Plan for the issuance of up to 30,000 shares to non-employee +directors as compensation over an anticipated period of up to five years. You +will also have the opportunity to hear reports on St. Mary's operations and to +ask questions of general interest. You can find other detailed information about +the meeting in the accompanying proxy statement, and can find detailed +information about St. Mary in the enclosed annual report. +Please complete and sign the enclosed proxy card and return it promptly +in the accompanying envelope, or use the telephone or Internet voting systems +described on the proxy card. This will ensure that your shares are represented +at the meeting even if you cannot attend. +Thank you for your cooperation in returning your proxy card or voting +by telephone or the Internet as promptly as possible. We hope to see many of you +at our meeting in Denver. +Very truly yours, +/s/ MARK A. HELLERSTEIN +----------------------- +Mark A. Hellerstein +Chairman +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +----------------------------------------------------------------- +Notice of Annual Meeting of Stockholders +----------------------------------------------------------------- +May 21, 2003 +To All Stockholders: +The 2003 annual meeting of the stockholders of St. Mary Land & +Exploration Company will be held in the Forum Room of the Wells Fargo Bank, 1740 +Broadway Street, Denver, Colorado on Wednesday, May 21, 2003 at 3:00 p.m. local +time. The purposes of the meeting are: +1. To elect eight directors to serve during the next year, +2. To vote on an amendment to the Stock Option Plans to increase +the number of authorized shares that can be issued under the +plans by 1,300,000 to a total of 5,600,000, +3. To vote on approval of a Non-Employee Director Stock +Compensation Plan for the issuance of up to 30,000 shares to +non-employee directors as compensation over an anticipated +period of up to five years, and +4. To transact any other business which may properly come before +the meeting. +Only stockholders of record at the close of business on March 31, 2003 may +vote at this meeting. +Please sign, date and return the accompanying proxy card in the enclosed +envelope as soon as possible, or use the telephone or Internet voting systems +described on the proxy card. Any stockholder may revoke their proxy at any time +before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +/s/ RICHARD C. NORRIS +----------------------------- +Richard C. Norris +Secretary +Denver, Colorado +April 4, 2003 +Proxy Statement Table of Contents +Page +---- +General.................................................................... 1 +Purpose of the Annual Meeting.............................................. 1 +Who Can Vote............................................................... 1 +How to Vote................................................................ 2 +Revoking a Proxy........................................................... 2 +Quorum and Voting Requirements............................................. 2 +Payment of Proxy Solicitation Costs........................................ 3 +Election of Directors...................................................... 3 +Nominees for Election as Directors......................................... 4 +Board and Committee Meetings............................................... 5 +Director Compensation...................................................... 6 +Security Ownership of Certain Beneficial Owners and Management............. 7 +Audit Committee Report..................................................... 8 +Executive Compensation..................................................... 10 +Summary Compensation Table................................................. 10 +2002 Option Grants......................................................... 11 +Aggregated Option Exercises in 2002........................................ 12 +Report of the Compensation Committee on Executive Compensation............. 12 +Retirement Plans........................................................... 15 +Performance Graph.......................................................... 17 +Employment Agreements and Termination of Employment and Change-in-Control +Arrangements............................................................ 18 +Certain Relationships and Related Transactions............................. 18 +Other Matters to be Voted On............................................... 19 +Section 16(a) Beneficial Ownership Reporting Compliance.................... 26 +Independent Accountants.................................................... 27 +Future Stockholder Proposals............................................... 28 +Other Matters.............................................................. 28 +Annex A: St. Mary Charter of the Audit Committee........................... 29 +Annex B: Non-Employee Director Stock Compensation Plan..................... 35 +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +(303) 861-8140 +Proxy Statement +------------------------ +General +This proxy statement contains information about the 2003 annual meeting of +stockholders of St. Mary Land & Exploration Company to be held in the Forum +Room of the Wells Fargo Bank, 1740 Broadway Street, Denver, Colorado on +Wednesday, May 21, 2003 at 3:00 p.m. local time. The St. Mary board of directors +is using this proxy statement to solicit proxies for use at the annual meeting. +In this proxy statement "St. Mary" and "the Company" both refer to St. Mary Land +& Exploration Company. This proxy statement and the enclosed proxy card are +being mailed to you on or about April 7, 2003. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +o the election of directors as outlined in the accompanying notice of +meeting, +o approval of an amendment to the stock option plans to increase the +total authorized number of shares of common stock which may be issued +under the plans by 1,300,000 shares to a total of 5,600,000 shares, +o approval of a Non-Employee Director Stock Compensation Plan for the +issuance of up to a total of 30,000 shares of common stock to +non-employee directors as part of their annual or other compensation +over an anticipated period of up to five years, and +o any other business that properly comes before the meeting. +As of the date of this proxy statement, the Company is not aware of any +business to come before the meeting other than the items noted above. +Who Can Vote +Only stockholders of record at the close of business on the record date of +March 31, 2003 are entitled to receive notice of the annual meeting and to vote +the shares of St. Mary common stock they held on that date. As of March 31, +2003, there were 31,438,657 shares of St. Mary common stock issued and +outstanding. Holders of St. Mary common stock are entitled to one vote per share +and are not allowed to cumulate votes in the election of directors. The enclosed +proxy card shows the number of shares that you are entitled to vote. +1 +How to Vote +If your shares of St. Mary common stock are held by a broker, bank or other +nominee (in "street name"), you will receive information from them on how to +instruct them to vote your shares. +If you hold shares of St. Mary common stock in your own name (as a +"stockholder of record"), you may give instructions on how your shares are to be +voted by marking, signing, dating and returning the enclosed proxy card in the +accompanying postage-paid envelope, or following the telephone or Internet +voting procedures described on the proxy card. The telephone and Internet voting +procedures are designed to ensure that proxies are handled properly under +Delaware law by authenticating votes cast by use of a personal identification +number and allowing stockholders to confirm that their instructions have been +properly recorded. If you vote by telephone or the Internet, you do not have to +mail in your proxy card. +A proxy, when properly completed and not revoked, will be voted in +accordance with its instructions. If no instructions are given on a properly +executed and unrevoked proxy card, the proxy will be voted FOR management's +slate of directors, the amendment to the Stock Option Plans and the Non-Employee +Director Stock Compensation Plan. +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +o submitting a new proxy with a later date either signed and +returned by mail or transmitted using the telephone or Internet +voting procedures before the meeting, +o by voting in person at the meeting, or +o by filing a written revocation with St. Mary's corporate +secretary. +Your attendance at the annual meeting will not automatically revoke your +proxy. +Quorum and Voting Requirements +A quorum of stockholders is necessary to hold a valid meeting. A quorum +will exist if stockholders of one-third of the outstanding shares of common +stock are present at the meeting in person or by proxy. Abstentions and broker +"non-votes" count as present for establishing a quorum. A broker non-vote occurs +on a matter when a broker is not permitted to vote on that matter without +instruction from the beneficial owner of the shares and no instruction is given. +Shares held by St. Mary in its treasury are not entitled to vote and do not +count toward a quorum. If a quorum is not present, the meeting may be adjourned +until a quorum is obtained. +If a quorum is present, the affirmative vote of a majority of shares +represented in person or by proxy will be required to elect the directors, amend +the stock option plans, approve the Non-Employee Director Stock Compensation +Plan and to decide any other matter which may properly be submitted to a vote at +the meeting. In addition proposals two and three require that the total votes +cast represent 50% of all shares entitled to vote. Accordingly, any shares +2 +present but not voted, including abstentions and broker non-votes, will have the +same effect as shares voted against approval. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. The solicitation will be +made by mail. In addition to mailing proxy solicitation material, St. Mary +officers, directors and employees may also solicit proxies in person, by +telephone, or by other electronic means of communication. St. Mary will ask +banks, brokers, other institutions, nominees, and fiduciaries to forward the +proxy material to their principals and to obtain authority to execute proxies. +St. Mary will reimburse them for expenses. +ELECTION OF DIRECTORS +All directors of the Company are elected annually. At this meeting, eight +directors are to be elected to serve for one year or until their successors are +elected and qualified. The Company's nominees for these directorships are +identified below, all of whom are currently serving in that capacity. Robert L. +Nance, age 66 and an executive officer of St. Mary, is also a current director +who has decided not to stand for re-election to the board of directors. +The board of directors has a Nominating and Corporate Governance committee +that selects the director nominees. This Committee performed its nominating +committee functions at its meeting on March 27, 2003. They will consider +suggestions by stockholders of possible future nominees. Such suggestions should +be delivered on or before November 1 in any year before the next annual meeting. +In addition, St. Mary's by-laws permit stockholders to nominate directors for +election at an annual meeting, provided that advance written notice of the +nomination containing the information required under the by-laws is received by +the Secretary of St. Mary not less than 75 days nor more than 105 days before +the first anniversary date of the immediately preceding annual meeting. +Accordingly, proper notice of a stockholder nomination for election as director +at the 2004 annual meeting must be received by St. Mary between February 6, 2004 +and March 8, 2004. +The proxies will be voted in favor of the nominees unless a contrary +specification is made in the proxy. All nominees have consented to serve as +directors of the Company if elected. However, if any nominee is unable to serve +or for good cause will not serve as a director, the persons named in the proxy +intend to vote in their discretion for a substitute who will be designated by +the board of directors. +The board of directors recommends voting "For" electing the nominees. +3 +NOMINEES FOR ELECTION AS DIRECTORS +Biographical information, including principal occupation and business +experience during the last five years, of each nominee for director is set forth +below. Unless otherwise stated the principal occupation of each nominee has been +the same for the past five years. +Director +Age Since +------------------------------------------------------------- ------ ----------- +Barbara M. Baumann is Executive Vice President of Associated 47 2002 +Energy Managers LLC, an investment manager and general +partner of a private equity energy fund specializing in oil +and gas investments for institutional investors. She has held +that position since 2001. From 1983 to 2001, Ms. Baumann was +employed by BP Amoco and held a variety of financial and +operational management positions, including Chief Financial +Officer of an environmental remediation subsidiary and most +recently as the Commercial Operations Manager of the Western +Business Unit. +------------------------------------------------------------- ------ ----------- +Larry W. Bickle is Managing Director of Haddington Ventures, 57 1995 +L.L.C., a private equity fund that invests in midstream +energy companies and assets. He has held that position since +June 1997. From 1984 to 1997, Mr. Bickle was Chairman of the +Board and Chief Executive Officer of TPC Corporation +(formerly Tejas Power Corporation), a gas storage, +transportation and marketing company that he founded. Mr. +Bickle is also a director of UniSource Energy Corporation, +the parent company for Tucson Electric Power Company. +------------------------------------------------------------- ------ ----------- +Ronald D. Boone is Executive Vice President and Chief 55 1996 +Operating Officer of St. Mary. He has served St. Mary as +Executive Vice President since 1990 and as Chief Operating +Officer since 1992. +------------------------------------------------------------- ------ ----------- +Thomas E. Congdon retired as Chairman of the Board of St. 76 1966 +Mary in September 2002. He served St. Mary as an officer for +more than 36 years, including service as President from 1966 +to 1992, Chief Executive Officer from 1992 to 1995 and +Chairman of the Board from 1992 to September 2002. Mr. +Congdon is also a director, officer or general partner of a +number of family corporations and partnerships which produce +iron ore and agricultural products, manage marketable +securities and own and operate developed real estate. +------------------------------------------------------------- ------ ----------- +William J. Gardiner is Vice President and Chief Financial 49 1999 +Officer of King Ranch, Inc., a privately-held ranching and +agricultural company that owns the historic 825,000 acre +"King Ranch" in South Texas. He has held that position since +1996. Before joining King Ranch in 1996, Mr. Gardiner served +as Executive Vice President and Chief Financial Officer of +CRSS, Inc., an independent power producer. He was employed by +CRSS for approximately 20 years. Mr. Gardiner was initially +appointed as a director of St. Mary in connection with St. +Mary's acquisition of King Ranch Energy, Inc. in 1999. +------------------------------------------------------------- ------ ----------- +Mark A. Hellerstein is Chairman of the Board, President and 50 1992 +Chief Executive Officer of St. Mary. He has served St. Mary +as President since 1992, Chief Executive Officer since 1995, +and was appointed Chairman of the Board in September 2002. +From 1995 to 1998, Mr. Hellerstein also served as Chairman of +the Board of Summo Minerals Corporation (now known as +Constellation Copper Corporation), a copper mining company in +which St. Mary held an interest. +------------------------------------------------------------- ------ ----------- +4 +------------------------------------------------------------- ------ ----------- +Arend J. Sandbulte is a former Chairman of the Board, 69 1989 +President and Chief Executive Officer, and Chief Financial +Officer of ALLETE, Inc. (formerly Minnesota Power, Inc.), a +diversified services company with core operations in energy +services (including electric utility services) and automotive +services. Mr. Sandbulte was employed with ALLETE from 1964 to +1996, and served as a director of ALLETE from 1983 to 2002. +------------------------------------------------------------- ------ ----------- +John M. Seidl is Chief Program Officer, Environment, of the 64 1994 +Gordon and Betty Moore Foundation, a private grant-making +foundation which seeks and funds education, scientific +research, environmental and San Francisco Bay Area projects. +He has held that position since June 2001. Mr. Seidl is also +Chairman of Language Line Services, a privately-held provider +of over-the-phone language interpretation and document +translation services. He has held that position since +September 1999. From 1994 to 1999, Mr. Seidl was Chairman of +the Board, President and Chief Executive Officer of CellNet +Data Systems, Inc., a provider of wireless data networks for +automated reading of utility meters. In 2000 CellNet Data +Systems filed a voluntary petition under Chapter 11 of the +U.S. Bankruptcy Code as part of an acquisition of its assets. +From 1999 to 2002, Mr. Seidl was also a director of Iomega +Corporation. +------------------------------------------------------------- ------ ----------- +BOARD AND COMMITTEE MEETINGS +The full board of directors met six times during 2002. No director attended +less than 75% of the board and committee meetings held during the director's +tenure on the board and its committees. +The board has an audit committee, nominating and corporate governance +committee, compensation committee and an executive committee. The following +table sets forth the members of each committee and the number of meetings held +in 2002: +----------------------- ------- --------------------- -------------- ----------- +Name Audit Nominating and Corp Compensation Executive +Governance +----------------------- ------- --------------------- -------------- ----------- +Barbara M. Baumann X X X +----------------------- ------- --------------------- -------------- ----------- +Larry W. Bickle X X X +----------------------- ------- --------------------- -------------- ----------- +Ronald D. Boone +----------------------- ------- --------------------- -------------- ----------- +Thomas E. Congdon X +----------------------- ------- --------------------- -------------- ----------- +William J. Gardiner X X X* X +----------------------- ------- --------------------- -------------- ----------- +Mark A. Hellerstein X +----------------------- ------- --------------------- -------------- ----------- +Arend J. Sandbulte X* X X X +----------------------- ------- --------------------- -------------- ----------- +John M. Seidl X X* +----------------------- ------- --------------------- -------------- ----------- +No. of Meetings in 2002 12 1 5 4 +----------------------- ------- --------------------- -------------- ----------- +* Chairperson +The audit committee assists the board in fulfilling its oversight +responsibilities for financial reporting by the Company. The audit committee is +solely responsible for the engagement and discharge of independent auditors and +reviews the quarterly financial results. The committee reviews with independent +5 +auditors the audit plan and the results of the audit, reviews the independence +of the auditors, considers the range of audit fees, reviews the scope and +adequacy of St. Mary's system of internal accounting controls, and reviews the +Company's risk management policies. The audit committee is composed of five +directors, each of whom is independent as defined by the NYSE listing standards. +See the "Audit Committee Report" contained in this proxy statement. +The nominating and corporate governance committee was established in +November 2002 and its primary function is to nominate the directors to be +elected and to oversee all corporate governance policies of the board of +directors. The committee is made up of all independent directors and meets +before each regular board meeting. +The compensation committee's primary function is to oversee the +administration of the Company's employee benefit plans and to establish the +Company's compensation policies. The compensation committee recommends to the +board the compensation arrangements for senior management and directors, +adoption of compensation plans in which officers and directors are eligible to +participate, and the granting of stock options or other benefits under +compensation plans. Each compensation committee member is an independent +director. See the "Report of Compensation Committee on Executive Compensation" +contained in this proxy statement. +The executive committee has the authority to act on behalf of the board of +directors and the Company with respect to matters as to which it has been +authorized to act by the board of directors, provided that such matters are not +in conflict with the certificate of incorporation or by-laws of the Company or +applicable laws, regulations or rules and listing standards of the New York +Stock Exchange. +There are no arrangements or understandings between any director and any +other person pursuant to which that director was or is to be elected. +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on +the board of directors or any committee. Each non-employee director receives +1,200 shares of St. Mary common stock per year for serving as a director and is +paid $750 for each meeting attended. Non-employee directors serving on a +committee are paid $600 for each committee meeting attended and $375 for +telephonic meetings. Directors are reimbursed for expenses incurred in attending +board and committee meetings. +Members of the board of directors also participate in the Company's Stock +Option Plan. Non-employee directors currently receive a total number of options +each year equal to the average number of options granted to the two most senior +employees of the Company, exclusive of any extraordinary grants which are for +purposes other than normal annual compensation, divided by six. These options +have an exercise price equal to the fair market value of St. Mary common stock +on the date of grant and vest over a three-year period in the same manner as for +employee participants, except that the options of a director who retires after +five years of service shall become fully vested upon retirement. For 2002, each +non-employee director was granted under this arrangement an option to purchase +6,542 shares of St. Mary common stock at an exercise price of $25.00 per share. +6 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table shows beneficial ownership of shares of St. Mary common +stock as of March 19, 2003 by all beneficial owners as known by the Company, of +more than 5% of the outstanding shares of St. Mary common stock and by each +director and each of the executive officers named in the Summary Compensation +Table, and all directors, director nominees and executive officers as a group. +------------------------------------------ ----------------- ---------------- -------------- -------------- +Shares +beneficially Options Total shares Percent +owned excluding exercisable beneficially beneficially +Name and Address of Beneficial Owner options within 60 days owned (1) owned +------------------------------------------ ----------------- ---------------- -------------- -------------- +Stockholders Owning More Than 5% +------------------------------------------ ----------------- ---------------- -------------- -------------- +Flying J Oil & Gas Inc. and Big West 3,380,818 - 3,380,000 (2) 10.8% +Oil & Gas Inc. +333 West Center Street +Salt Lake City, UT 84504 +------------------------------------------ ----------------- ---------------- -------------- -------------- +Harris Associates Inc. 1,595,000 - 1,595,000 (3) 5.2% +Two North LaSalle Street, Suite 500 +Chicago, IL 60602 +------------------------------------------ ----------------- ---------------- -------------- -------------- +Name and Position of Beneficial Owner +Directors and Executive Officers +------------------------------------------ ----------------- ---------------- -------------- -------------- +Barbara M. Baumann, Director 2,000 3,308 5,308 < .1% +------------------------------------------ ----------------- ---------------- -------------- -------------- +Larry W. Bickle, Director 26,400 24,161 50,561 .2% +------------------------------------------ ----------------- ---------------- -------------- -------------- +Thomas E. Congdon, Director (4) 107,707 48,719 156,426 .5% +------------------------------------------ ----------------- ---------------- -------------- -------------- +William J. Gardiner, Director 4,800 11,765 16,565 .1% +------------------------------------------ ----------------- ---------------- -------------- -------------- +Arend J. Sandbulte, Director (5) 22,366 24,161 46,527 .2% +------------------------------------------ ----------------- ---------------- -------------- -------------- +John M. Seidl, Director 4,800 20,257 25,057 .1% +------------------------------------------ ----------------- ---------------- -------------- -------------- +Mark A. Hellerstein, Chairman, President, 34,781 139,634 174,415 .6% +Chief Executive Officer and Director +------------------------------------------ ----------------- ---------------- -------------- -------------- +Ronald D. Boone, Executive Vice President, 13,721 105,357 119,078 .4% +Chief Operating Officer and Director +------------------------------------------ ----------------- ---------------- -------------- -------------- +Robert L. Nance, Senior Vice President (6) 341,607 50,071 391,678 1.3% +and Director +------------------------------------------ ----------------- ---------------- -------------- -------------- +Milam Randolph Pharo, Vice President - 2,000 44,249 46,249 .2% +Land and Legal +------------------------------------------ ----------------- ---------------- -------------- -------------- +Douglas W. York, Vice President - 4,994 40,772 45,766 .2% +Acquisitions and Engineering +------------------------------------------ ----------------- ---------------- -------------- -------------- +All executive officers and directors as a 648,023 609,623 1,255,646 4.0% +group (15 persons including those +named above) +------------------------------------------ ----------------- ---------------- -------------- -------------- +7 +(1) According to SEC rules, beneficial ownership includes shares as to which +the individual or entity has voting power or investment power and any +shares which the individual has the right to acquire within 60 days of +March 19, 2003 through the exercise of any stock option or other right. +(2) Pursuant to a Purchase and Sale Agreement dated as of December 13, 2002 +among Flying J Oil & Gas Inc., Big West Oil & Gas Inc., NPC Inc. +("NPC") and St. Mary, as amended by an Addendum thereto dated January 29, +2003, on January 29, 2003 St. Mary issued to Flying J Oil & Gas Inc. +and Big West Oil & Gas Inc. a total of 3,380,818 restricted shares of +St. Mary common stock in exchange for the transfer by Flying J Oil & +Gas Inc. and Big West Oil & Gas Inc. to NPC, a wholly owned second tier +subsidiary of St. Mary, of certain oil and gas properties and related +assets. Of the 3,380,818 shares of St. Mary common stock issued by St. Mary +to Flying J Oil & Gas Inc. and Big West Oil & Gas Inc., 1,690,409 +shares were issued to Flying J Oil & Gas Inc. and 1,690,409 shares were +issued to Big West Oil & Gas Inc. Pursuant to a Standstill Agreement +dated as of January 29, 2003 among St. Mary, Flying J Oil & Gas Inc. +and Big West Oil & Gas Inc., Flying J Oil & Gas Inc. and Big West +Oil & Gas Inc. must vote their shares of St. Mary common stock in favor +of the nominees of the St. Mary board of directors for election as +directors and the St. Mary board's proposals with respect to any meeting of +St. Mary stockholders during the period of 30 months after January 29, +2003. Big West Oil & Gas Inc. is a wholly owned subsidiary of Flying J +Oil & Gas Inc., which is a wholly owned subsidiary of Flying J Inc. St. +Mary understands that Flying J Corp. holds a controlling shareholder +interest in Flying J Inc. and that Flying J Corp. is wholly owned by +Osborne Jay Call (recently deceased). Accordingly, it is St. Mary's +understanding that there is shared voting and dispositive power with +respect to the total of 3,380,818 shares held of record by Flying J Oil +& Gas Inc. and Big West Oil & Gas Inc. +(3) According to a Statement on Schedule 13G filed by Harris Associates L.P. +and Harris Associates Inc. on February 14, 2003, by reason of advisory and +other relationships with persons who own shares of St. Mary common stock, +Harris Associates L.P. and Harris Associates Inc. as the general partner of +Harris Associates L.P. may be deemed to be the beneficial owners of a total +of 1,595,000 shares, with shared voting power as to all of such shares, +shared dispositive power as to 1,501,000 shares, and sole dispositive power +as to 94,000 shares. +(4) Includes 12,009 shares held of record by the spouse of Thomas E. Congdon as +to which he may be deemed to be the beneficial owner. Thomas E. Congdon and +members of his extended family own approximately 16 percent of the +outstanding common stock of the Company. While no formal arrangements +exist, these extended family members may be inclined to act in concert with +Mr. Congdon on matters related to control of the Company or the approval of +a significant transaction. +(5) Includes 800 shares held of record by the spouse of Arend J. Sandbulte as +to which he may be deemed to be the beneficial owner. +(6) Includes 2,000 shares held of record by Ronan, Inc., a corporation +controlled by Robert L. Nance, and 69,100 shares held of record by the +spouse of Mr. Nance. +AUDIT COMMITTEE REPORT +The audit committee is appointed by the board of directors to assist the +board in fulfilling its oversight responsibilities with respect to (1) the +integrity of the Company's financial statements and financial reporting process +and systems of internal controls regarding finance, accounting and compliance +with legal and regulatory requirements, (2) the qualifications, independence and +performance of the Company's independent accountants, (3) the performance of the +Company's internal audit function and (4) other matters as set forth in the +charter of the audit committee approved by the board of directors and attached +to this proxy statement as Annex A. +Management is responsible for the Company's financial statements and the +financial reporting process, including the systems of internal controls and +disclosure controls and procedures. The independent accountants are responsible +for performing an independent audit of the Company's financial statements in +accordance with generally accepted auditing standards and issuing a report +thereon. The audit committee's responsibility is to monitor and oversee these +processes. +8 +In connection with these responsibilities, the audit committee reviewed and +discussed the audited consolidated financial statements of the Company for the +year ended December 31, 2002 with management and the independent accountants. +The audit committee also discussed with the independent accountants the matters +required to be discussed by Statement on Auditing Standards No. 61, +Communication with Audit Committees. In addition, the audit committee received +the written disclosures and the letter from the independent accountants required +by Independence Standards Board Standard No. 1, Independence Discussions with +Audit Committees, and the audit committee discussed with the independent +accountants that firm's independence. +Based on the reviews and discussions referred to above, the audit committee +recommended to the board of directors that the audited consolidated financial +statements of the Company be included in the Company's Annual Report on Form +10-K for the year ended December 31, 2002 for filing with the SEC. +THE AUDIT COMMITTEE +Arend J. Sandbulte, Chairman +Barbara M. Baumann +Larry W. Bickle +William J. Gardiner +John M. Seidl +March 31, 2003 +9 +EXECUTIVE COMPENSATION +In addition to salaries, the Company has granted stock options to executive +management and selected other personnel. These individuals also participate with +other members of management in a net profits interest bonus plan. All employees +are eligible to participate in the Company's cash bonus plan. See the "Report of +the Compensation Committee on Executive Compensation" beginning on page 12 of +this proxy statement. +The following table sets forth the annual and long term compensation +received during each of the Company's last three years by the Chief Executive +Officer of the Company and by the four other highest compensated executive +officers of the Company during 2002. +SUMMARY COMPENSATION TABLE +--------------------------------------------------------------------------------------------------------------- +Long-Term +Compensation +Annual Compensation Awards +---------------------------------------- ------------ +Other Annual All other +Name and Compensation Options compensation +principal position Year Salary($) Bonus ($) (1) (#) ($) (2) +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +Mark A. Hellerstein 2002 $ 330,000 $52,800 $ 724,243 294,394 $ 22,913 +President and Chief 2001 291,667 - 798,586 21,766 13,939 +Executive Officer 2000 277,333 80,427 133,741 24,791 20,613 +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +Ronald D. Boone 2002 259,167 41,467 606,780 135,016 17,475 +Executive Vice President 2001 233,667 - 670,028 17,486 10,550 +and Chief Operating Officer 2000 222,000 64,380 120,446 19,833 15,424 +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +Robert L. Nance 2002 206,500 49,560 64,535 28,533 11,546 +Senior Vice President 2001 201,865 - 36,199 15,052 10,850 +Director/President - Nance 2000 193,333 75,400 16,158 17,012 10,850 +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +Douglas W. York 2002 161,667 40,000 128,299 22,591 9,588 +Vice President-Acquisitions 2001 145,000 - 151,706 11,436 7,469 +and Engineering 2000 134,667 52,000 6,598 11,968 7,380 +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +Milam Randolph Pharo 2002 147,333 30,000 159,792 10,193 7,690 +Vice President - Land and 2001 139,993 5,000 174,219 5,350 7,375 +Legal 2000 133,167 35,000 9,690 11,754 7,371 +------------------------------- -------- ------------- --------- ---------------- ------------ ---------------- +------------ +(1) Amounts consist of payments under the Net Profits Interest Plan. Amounts +paid for 2002 and 2001 were higher due to payouts from six new net profit +pools granted in prior years, including the pool with the significant +acquisitions in 1999. See "Report of the Compensation Committee on +Executive Compensation" for a description of this plan. +(2) Amounts consist of the Company's contribution to the 401(k) Savings Plan, +holiday bonus and other miscellaneous cash payments. +10 +Stock options granted to the Company's five highest compensated executive +officers during 2002 are set forth in the following two tables. The Company +began a quarterly grant system beginning at the end of 2001. +2002 OPTION GRANTS +------------------------------------------------------------------------------------------------------------------------ +Individual Grants +----------------------------------------------------------------------------------------- +Potential realizable value +Percent of at assumed annual rates of +total options stock price appreciation +granted Exercise for option term +Number of to employees price Expiration ------------------------------ +NAME Options Granted in 2002 per share date 5% 10% +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +Mark A. Hellerstein 10,882(1) 1.02% $21.71 3/31/12 $148,575 $376,519 +250,000(2) 23.52% $23.16 6/01/12 3,641,300 9,227,769 +10,882(3) 1.02% $24.06 6/30/12 164,658 417,275 +11,315(4) 1.06% $23.90 9/30/12 170,071 430,993 +11,315(5) 1.06% $25.00 12/31/12 177,899 450,830 +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +Ronald D. Boone 8,743(1) .82% $21.71 3/31/12 119,371 302,509 +100,000(2) 9.41% $23.16 6/01/12 1,456,520 3,691,108 +8,743(3) .82% $24.06 6/30/12 132,292 335,254 +8,765(4) .82% $23.90 9/30/12 131,743 333,863 +8,765(5) .82% $25.00 12/31/12 137,807 349,229 +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +Robert L. Nance 7,525(1) .71% $21.71 3/31/12 102,741 260,366 +7,525(3) .71% $24.06 6/30/12 113,862 288,549 +6,741(4) .63% $23.90 9/30/12 101,321 256,768 +6,742(5) .63% $25.00 12/31/12 106,000 268,625 +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +Douglas W. York 5,718(1) .54% $21.71 3/31/12 78,070 197,844 +5,718(3) .54% $24.06 6/30/12 86,520 219,259 +5,578(4) .52% $23.90 9/30/12 83,841 212,469 +5,577(5) .52% $25.00 12/31/12 87,684 222,208 +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +Milam Randolph Pharo 2,674(1) .25% $21.71 3/31/12 36,509 92,521 +2,674(3) .25% $24.06 6/30/12 40,461 102,536 +2,422(4) .23% $23.90 9/30/12 36,404 92,255 +2,423(5) .23% $25.00 12/31/12 38,095 96,541 +---------------------- ------------------- ----------------- ------------- -------------- -------------- --------------- +------------ +(1) Stock options granted effective March 31, 2002 pursuant to the Company's +Stock Option Plan as described on page 13 of this proxy statement. +(2) Stock options granted effective June 1, 2002 as extraordinary long term +incentive pursuant to the Company's Stock Option Plan as described on page +13 of this proxy statement. See the "Report of Compensation Committee on +Executive Compensation contained in this proxy. +(3) Stock options granted effective June 30, 2002 pursuant to the Company's +Stock Option Plan as described on page 13 of this proxy statement. +(4) Stock options granted effective September 30, 2002 pursuant to the +Company's Stock Option Plan as described on page 13 of this proxy +statement. +(5) Stock options granted effective December 31, 2002 pursuant to the +Company's Board of Resolution as described on page 13 of this proxy +statement . +11 +AGGREGATED OPTION/SAR EXERCISES IN 2002 AND +DECEMBER 31, 2002 OPTION/SAR VALUE +------------------------------------------------------------------------------------------------------------ +Number of Value of unexercised +unexercised options in-the-money +held at options at +Shares December 31, 2002 December 31, 2002 (1) +acquired Value ----------------------------- ------------------------------- +Name on exercise Realized Exercisable Unexercisable Exercisable Unexercisable +--------------------- ------------- ---------- ------------- --------------- ------------- ----------------- +Mark A. Hellerstein 139,634 269,938 $995,636 $516,444 +--------------------- ------------- ---------- ------------- --------------- ------------------------------- +Ronald D. Boone 5,870 $80,360 105,357 125,595 921,626 247,636 +--------------------- ------------- ---------- ------------- --------------- ------------------------------- +Robert L. Nance 50,071 29,418 304,746 69,947 +--------------------- ------------- ---------- ------------- --------------- ------------------------------- +Douglas W. York 40,772 22,795 284,830 53,520 +--------------------- ------------- ---------- ------------- --------------- ------------------------------- +Milam Randolph Pharo 44,249 11,924 425,485 24,888 +--------------------- ------------- ---------- ------------- --------------- ------------------------------- +-------------- +(1) On December 31, 2002, the last reported sales price of St. Mary common +stock as quoted on the New York Stock Exchange (NYSE) was $25.00. +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +The compensation committee of the board of directors has responsibility for +reviewing, evaluating and recommending to the board of directors the director +and officer compensation plans, policies and programs and for recommending to +the board the specific compensation arrangements for executive officers and +directors. After consideration of the compensation committee's recommendations, +the full board of directors reviews and approves the compensation of all elected +officers, including the executive officers named in the Summary Compensation +Table on page 10, and also determines the compensation for the board itself. +The compensation committee oversees the administration of the Company's +executive compensation programs including programs for cash bonuses, stock +options and the Net Profits Interest Bonus Plan. The compensation committee +annually evaluates the chief executive officer's performance in light of goals +and objectives previously established and recommends to the board of directors +the chief executive officer's compensation based on such evaluation. The +compensation committee also reviews the performance of the Company's pension and +401(k) plans with the trustees of those plans and in addition the compensation +committee approves the grants of stock options made to all employees under the +Company's stock option plans. +12 +The goals of the Company's integrated management compensation programs +include the following: +o To attract and retain talented management personnel; +o To encourage management to obtain superior returns for St. Mary's +stockholders; and +o To promote preservation and growth of the Company's income +producing assets. +Salaries +In order to emphasize performance-based incentive compensation, base +salaries of executive officers are targeted not to exceed the median salaries of +similar officers in industry companies having a financial position and +performance comparable to that of the Company. The compensation committee, with +the assistance and information from external consultants, determines the salary +ranges for various positions based on survey data from the Company's industry +peer group. The compensation committee then reviews management's recommendations +for executive officer salaries and the performance summaries on which they are +based. The compensation committee makes final salary recommendations to the full +board of directors based on officer experience, sustained performance and +comparisons to peers both inside and outside the Company. +Incentive Compensation +The Company has established three incentive compensation plans, which have +the potential to substantially increase annual compensation if the economic +performance of the Company and its employees so warrants. These plans have +certain specific objectives. +1. The Company has established a Cash Bonus Plan. Each year the board of +directors evaluates the overall performance of the Company for the year as well +as of the Company's individual regions and with the assistance of the +compensation committee determines the total cash bonus available to be allocated +to employees. The participation of each designee in the total allocated is a +function of overall, regional and individual performance during the year. +2. The Stock Option Plan is intended to reward executive officers of the +Company for long-term increases in the value of the Company's stock. The Stock +Option Plan focuses on appreciation of the market price of the Company's stock +over a period of up to ten years and is designed to encourage management's +concern for long-term appreciation of the stockholders' interests. As presently +implemented by the board of directors, if the average stock appreciation during +this period is 15% per year, then the persons granted stock options at the +beginning of the period generally will, at the end of five years, have the +opportunity to realize an amount of appreciation through exercise of their stock +options approximately equal to 100% of their base salary at the time the stock +options were granted. In addition, an Incentive Stock Option Plan ("ISO Plan") +has been established as a companion option plan with the Stock Option Plan. The +13 +ISO Plan is an alternative to the Stock Option Plan for those employees +designated by the board of directors to be granted stock options, with such +employees electing at the time of grant whether the options granted will be +either an equal number of: (a) non-tax qualified options granted under the +above-described Stock Option Plan or (b) incentive stock options granted under +the ISO Plan. +3. The Net Profits Interest Bonus Plan is designed to reward the +contributions made by various management personnel to the Company's financial +success. Plan participants share in the net profits, after payout to the Company +of its related capital expenditures, derived from all oil and gas activity for a +calendar year based on a portion of their relative weighted salaries paid during +the year as well as on subjective performance criteria. Recognizing that the +primary incentive for profitable operations and acquisitions needs to be +provided to the most senior of the executive officers, the salaries of the +president, the executive vice-president and other vice-presidents as deemed +appropriate by the compensation committee are weighted at 100% and the salaries +of all other participants are weighted at two-thirds of actual base salary or +less. Payout with respect to a net profits pool established for a year will +generally not occur until a later year at which time payments to participants +with respect to such earlier year pool will commence but will not bear a direct +relationship to the Company's performance during such later year. +The committee's goal is that, over time, the combined amounts of +compensation received by Company executives from the stock option plan and the +Net Profits Interest Bonus Plan will approximate the value of stock options and +other long-term incentives received by executives at peer companies in the oil +and gas industry with similar financial position and performance to that of the +Company. +Compensation of the Chief Executive Officer +The compensation of Mark A. Hellerstein, chairman of the board of +directors, president and chief executive officer, consists of the same +components and criteria as other executive officers, including base salary, cash +bonus, stock options and net profits interest bonus. His base salary is reviewed +annually by the compensation committee and is targeted to approximate the median +salaries of chief executive officers of industry companies having a financial +position and performance comparable to that of the Company, with a greater +emphasis on incentive compensation tied to the Company's performance. Mr. +Hellerstein's base salary in 2002 increased $38,333 or 13% over 2001. His total +cash and net profits interest bonuses decreased by approximately $21,500 in 2002 +compared with 2001 primarily as a result of the normal decline in net cash flow +from net profit pools granted in prior years as well as changes in oil and gas +prices and expenses. Mr. Hellerstein was granted a $52,800 bonus under the cash +bonus plan for 2002 since the Company met its corporate goals. In that respect +total reserves grew by 28% and the Company replaced 305% of its 2002 production, +both measures being above targeted levels. In addition the price adjusted net +asset value per share grew 13% in 2002. To further tie compensation to stock +price appreciation, Mr. Hellerstein and several other key executives were +granted stock options in 2002 using two times the formula as that used for all +other employees. +14 +During 2002 the compensation committee and the board of directors engaged +in an in-depth special review and analysis of the long-term performance and +compensation of Mr. Hellerstein and of Ronald D. Boone, the Company's executive +vice president and chief operating officer. This review and analysis included +the key events of the Company and the principal accomplishments of such persons +over ten years along with the total return over that period to Company +shareholders all of which were determined by the compensation committee and the +board to be favorable. The Company's performance in the above respects was +compared to that of similar industry companies which comparison was also +determined to be favorable. Finally, the compensation committee and the board +compared the cash and stock compensation of Messrs. Hellerstein and Boone to +that of the persons holding the same positions in the comparable industry +companies. Based on the foregoing the base salaries of Messrs. Hellerstein and +Boone were increased. Also, based on the foregoing, Messrs. Hellerstein and +Boone received substantial extraordinary stock options consisting of an option +to purchase 250,000 shares for Mr. Hellerstein and an option to purchase 100,000 +shares for Mr. Boone both exercisable at $23.16 per share which was the market +price of the Company's stock at the time of grant. The maximum term of the +options is ten years. The options vest on a slower schedule than other Company +options in order to incentivize the long-term retention of Messrs. Hellerstein +and Boone, with fifty percent of the options not becoming exercisable until the +fourth and fifth anniversaries of the option grants (25 percent becoming +exercisable on each of those anniversaries). +Conclusion +St. Mary's executive compensation is linked to individual and corporate +performance and stock price appreciation. Compensation is set in comparison to +similar industry companies. The compensation committee plans both to continue +the policy of linking executive officer compensation to individual and corporate +performance and returns to stockholders and to provide a cash bonus incentive to +key employees which will provide performance motivation partially independent of +the fluctuations in the oil and gas industry's business cycle. +William J. Gardiner, Chairman +Barbara M. Baumann +Larry W. Bickle +Arend J. Sandbulte +March 31, 2003 +RETIREMENT PLANS +Pension Plan +The Company's Pension Plan is a qualified, non-contributory defined benefit +plan which is available to substantially all employees. This plan was amended in +15 +1994 to conform with the changes required by the Tax Reform Act of 1986 and to +reduce the plan formula. The Company also has a supplemental pension plan for +certain executive officers to provide for benefits in excess of Internal Revenue +Code limits. +The qualified plan provides a benefit after 25 years of service equal to +35% of final average compensation, subject to Internal Revenue Code limits. +Final average compensation is the average of the highest 3 consecutive years of +the 10 years preceding termination of employment. For each named executive +officer, the level of compensation used to determine benefits payable under the +qualified pension plan is that officer's average of the base salaries (excluding +bonus) shown in the Summary Compensation Table. +The supplemental plan provides executives hired before 1995, after +completing 15 years of service and reaching age 65, a benefit equal to 40% of +final average compensation plus 37% of final average compensation integrated +with the social security wage base without regard to compensation limitations +provided under the qualified plan, less the benefit provided by the qualified +plan. For executives hired after 1994, the supplemental benefit is calculated +using the formula for the qualified plan without the limitation imposed by +Section 415 of the Internal Revenue Code, less the benefit provided by the +qualified plan. +The following table shows the estimated maximum annual benefits payable +upon retirement at age 65 as a straight life annuity to participants in the +pension plans for the indicated levels of average annual compensation and years +of service. +---------------------- ---------------------------------- ---------------------------------- +Estimated annual pension Estimated annual pension +benefits for executives benefits for executives +hired before 1995 with > hired after 1994 with > +Remuneration 15 years of service 25 years of service +---------------------- ---------------------------------- ---------------------------------- +$100,000 $ 62,570 $ 35,000 +---------------------- ---------------------------------- ---------------------------------- +150,000 101,070 52,500 +---------------------- ---------------------------------- ---------------------------------- +200,000 139,570 70,000 +---------------------- ---------------------------------- ---------------------------------- +250,000 178,070 87,500 +---------------------- ---------------------------------- ---------------------------------- +300,000 216,570 105,000 +---------------------- ---------------------------------- ---------------------------------- +350,000 255,070 122,500 +---------------------- ---------------------------------- ---------------------------------- +As of December 31, 2002, the named executive officers have the following years +of credited service: +Mark A. Hellerstein 11 +Ronald D. Boone 12 +Robert L. Nance 4 +Douglas W. York 6 +Milam Randolph Pharo 7 +16 +401(k) Plan +The Company's 401(k) Profit Sharing Plan is a defined contribution pension +plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) +Plan allows eligible employees to contribute up to nine percent of their income +on a pre-tax basis through contributions to the 401(k) Plan. The Company matches +each employee's contributions up to six percent of the employee's pre-tax +income. Company contributions vest over an employee's first five years of +employment. +PERFORMANCE GRAPH +The following performance graph compares the cumulative total stockholder +return on St. Mary's common stock for the period December 31, 1997 to December +31, 2002 with the cumulative total return of the Standard Industrial +Classification Code for Crude Petroleum and Natural Gas and the Standard & +Poor's 500 Stock Index. The SIC Code for Crude Petroleum and Natural Gas is +1311. The identities of the companies included in the index will be provided +upon request. +[GRAPH APPEARS HERE] +CUMULATIVE TOTAL RETURN* +THE COMPANY, S&P 500 AND SIC CODE INDEX +12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 +-------- -------- -------- -------- -------- -------- +ST. MARY LAND & EXPLORATION COMPANY 100.00 53.30 71.95 194.86 124.55 147.54 +SIC CODE INDEX 100.00 80.10 97.85 124.30 114.05 121.59 +S&P 500 INDEX 100.00 128.58 155.64 141.46 124.65 97.10 +Assumes $100 invested on December 31, 1997 in St. Mary Land & Exploration +Company, SIC Code Index for Crude Petroleum and Natural Gas and S&P 500 +Stock Index. +*Total return assumes reinvestment of dividends. +17 +EMPLOYMENT AGREEMENTS AND TERMINATION OF +EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS +On September 1, 1991, St. Mary entered into an employment agreement with +Mark A. Hellerstein. His current salary is $355,000 per year. Compensation is +reviewed annually. Mr. Hellerstein participates in St. Mary's benefit plans and +is entitled to bonuses and incentive compensation as determined by the board of +directors. The agreement is terminable at any time upon 30 days' notice by +either party. Upon termination of the agreement by St. Mary for any reason +whatsoever (other than death, disability or misconduct by Mr. Hellerstein), St. +Mary is obligated to continue to pay his compensation, including insurance +benefits, for a period of one year. +St. Mary has established a change in control executive severance policy and +entered into change of control severance agreements whereby certain officers of +St. Mary, including the officers named in the Summary Compensation Table, are +entitled to receive severance payments in the event that their employment is +terminated within two and one-half years after a change in control of the +Company (a) without "cause" by the Company or (b) for "good reason" by the +officer (e.g. an adverse change in the officer's status after a change in +control), each as defined in the agreements. The severance payments would equal +up to two and one-half years annual base salary, depending on the length of time +employment continues after the change in control provided that in no event would +the severance payments equal less than one year's annual base salary. In +addition, all insurance and fringe benefits will be provided for a period of one +year. +A change in control is defined to include (i) an acquisition of more than +fifty percent of the common stock or assets of the Company in a reorganization, +merger or consolidation of the Company or (ii) a change in more than fifty +percent of the composition of the board of directors of the Company other than +as a result of the election of new members of the board of directors by a vote +of the incumbent members of the board of directors or by stockholders of the +Company pursuant to the recommendation of the incumbent members of the board of +directors. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. +Mary and certain of its officers and directors during the last fiscal year. Some +of these transactions will continue in effect and may result in conflicts of +interest between St. Mary and these individuals. Although these persons owe +fiduciary duties to St. Mary and its stockholders, we cannot assure you that +conflicts of interest will always be resolved in favor of St. Mary. +As a result of their prior employment with another company with which St. +Mary engaged in a number of transactions, Ronald D. Boone, the Executive Vice +President and Chief Operating Officer and a director of St. Mary, and two other +vice presidents of St. Mary own royalty interests in many of St. Mary's +properties, which were earned as part of the prior employer's employee benefit +18 +programs. One vice president also owns certain working interests through +participation in acquisitions made by his former employer. Those persons have no +royalty participation in any new St. Mary properties. +Mr. Boone also owns 25% of Princeton Energy LLC, which owns the oil and gas +working interests that he acquired as a result of his prior employment. Although +Mr. Boone does not manage this entity, he may participate in any investment +decisions made by them. +In July 2000, St. Mary made an interest-free loan of $200,000 to Robert T. +Hanley at the time he was appointed Vice President - Business Development of St. +Mary. The loan was made to enable Mr. Hanley to purchase a residence in Denver, +Colorado in connection with St. Mary's relocation of Mr. Hanley to Denver from +Billings, Montana, where housing costs are substantially lower. Mr. Hanley was +previously Chief Financial Officer of Nance Petroleum Corporation, a wholly +owned subsidiary that St. Mary acquired in June 1999, which has its principal +offices in Billings. This loan was repaid in October 2002. +St. Mary's by-laws provide that no director may pursue a business or +investment opportunity for himself if he has obtained knowledge of such +opportunity through his affiliation with the Company. Moreover, no officer or +employee of St. Mary may pursue for his own account an oil and gas opportunity +irrespective of the source of his knowledge of the opportunity unless (a) with +respect to an officer of St. Mary, the interest has been approved by the board +of directors and (b) with respect to a non-officer of St. Mary, such interest of +the employee has been approved by a senior officer of St. Mary with full +knowledge of such opportunity. These restrictions do not apply to the +acquisition of less than one percent of the publicly traded stock of another +company. +OTHER MATTERS TO BE VOTED ON +Amendment to the Stock Option Plans +----------------------------------- +St. Mary's stockholders are being asked to approve an amendment to St. +Mary's stock option plans which will increase the total number of shares of +common stock that may be issued under the stock option plans by 1,300,000 to +5,600,000. +The stock option plans currently cover a total of 4,300,000 shares of +common stock and have approximately 248,515 remaining shares available for new +option grants. The number of shares subject to options generally granted during +a one-year period is 750,000. On March 27, 2003, the board of directors approved +an amendment to the stock option plans increasing the number of shares +authorized to be issued under the stock option plans to 5,600,000. The primary +purpose of the amendment is to ensure that St. Mary will have a sufficient +reserve of common stock available for the stock option plans. +The board of directors believes that the availability of stock options is +important to St. Mary and enhances stockholder value by increasing St. Mary's +ability to attract, retain and motivate key employees of the Company through +19 +providing them with the means of acquiring an interest in St. Mary. St. Mary +intends to issue additional options under the amended stock option plans over an +extended uncertain period of time and it is anticipated that the additional +stock options will be issued both to present and to future key employees of St. +Mary. +The following is a summary of the principal features of the stock option +plans, as amended. Copies of the stock option plans will be furnished by St. +Mary to any stockholder upon written request to the corporate secretary. +The stock option plans consist of two separate but companion option plans: +1. The Stock Option Plan adopted by the board of directors effective +November 21, 1996 to replace the 1992 SAR Plan, and +2. The ISO Plan adopted by the board of directors effective March +27, 1997. +The Stock Option Plan +A select group of employees, consultants and members of the board of +directors of the Company or of any subsidiary of the Company are eligible to +participate in the stock option plans. As of December 31, 2002, 111 persons had +been designated by the board of directors to participate in the stock option +plans for this year. +The total number of shares of common stock which may be issued under the +stock option plan is 5,600,000, after giving effect to the proposed amendment. +However, to the extent that options are issued under the ISO Plan, the shares of +common stock that may be issued under the stock option plan are reduced. At the +discretion of the board of directors the stock option plan may be administered +by a committee of two or more non-employee Directors appointed by the board. +Optionees under the stock option plan shall be selected at the discretion of the +board or such committee from among those eligible participants who, in the +opinion of the board or such committee, are or were in a position to contribute +materially to St. Mary's continued growth and development and to its long-term +success. Subject to the provisions of the Stock Option Plan, the board or such +committee shall have complete discretion in determining the terms and conditions +and number of options granted under the Stock Option Plan. +Options granted under the Stock Option Plan are exercisable at the market +price of St. Mary's common stock on the date of grant, are to have a term not to +exceed ten years and may be exercised to the extent vested. Options under the +Plan will fully vest (i) just prior to the completion of an acquisition of the +Company or (ii) upon termination of the optionee's employment with the Company +due to death, disability or normal retirement. Unexercised options will +terminate (i) upon completion of an acquisition of St. Mary or (ii) upon +termination of the optionee's employment with St. Mary for cause. Nothing +20 +contained in the Stock Option Plan shall be construed to give any employee or +consultant any right to continued employment or association with St. Mary. +Each option under the Stock Option Plan must be evidenced by a written +option agreement that specifies the exercise price, the duration of the option, +the number of shares of stock to which the option applies, and such vesting or +exercisability restrictions and other terms and conditions which the board or +committee may impose. +The principle federal income tax consequences of the issuance and exercise +of options under the Stock Option Plan are, in general, as follows: +1. Options issued under the Stock Option Plan are not intended to qualify +as "incentive stock options" under the Internal Revenue Code. +2. Upon the issuance of an option under the Stock Option Plan, the optionee +will have no taxable income and St. Mary will have no tax deduction. +3. Upon exercise of an option under the Stock Option Plan, the optionee +will realize ordinary taxable income in an amount equal to the excess of the +fair market value of the underlying shares of common stock at the time the +option is exercised over the exercise price of the option for such shares. +4. The amount of income recognized by the optionee will be deductible by +St. Mary as compensation in the year in which ordinary income is recognized by +the optionee by reason of exercise of options under the Stock Option Plan. +5. An optionee's basis for the shares of common stock acquired pursuant to +the exercise of options under the Stock Option Plan will be the option exercise +price plus any amount recognized as ordinary income by reason of the exercise of +the options. +6. Upon the sale of the common stock acquired pursuant to the exercise of +options under the Stock Option Plan, capital gain or loss will be realized by +the optionee in the amount by which the sales price is greater or less than the +basis of such stock. Such gain or loss will be long-term or short-term depending +on whether the shares were held for more than one year after the option was +exercised. +The ISO Plan +The ISO Plan is a companion option plan with the Stock Option Plan. It is +intended that the ISO Plan will be an alternative to the Stock Option Plan for +those employees designated by the board of directors to be granted stock +options, with such employees electing at the time of grant whether the options +to be granted shall be options granted under the Stock Option Plan or incentive +stock options granted under the ISO Plan. All employees of the Company or any +subsidiary of the Company are eligible to participate in the ISO Plan. +21 +The total number of shares of common stock which may be issued under the +ISO Plan is 5,600,000, after giving effect to the proposed amendment. However, +to the extent that options are issued under the Stock Option Plan, the shares of +common stock that may be issued under the ISO Plan are reduced. At the +discretion of the board of directors the ISO Plan may be administered by a +committee of two or more non-employee directors appointed by the board. +Optionees under the ISO Plan shall be selected at the discretion of the board or +such committee from among those eligible participants who, in the opinion of the +board or such committee, are in a position to contribute materially to St. +Mary's continued growth and development and to its long-term success. Subject to +the provisions of the ISO Plan, the board or such committee shall have complete +discretion in determining the terms and conditions and number of options granted +under the ISO Plan. +It is intended that options granted under the ISO Plan will constitute +"incentive stock options" under the Internal Revenue Code and thus the ISO Plan +provides that options granted thereunder are to be (i) exercisable at the market +price of St. Mary's common stock on the date the options are granted, (ii) +nontransferable by the optionee, and (iii) terminated if not exercised within 3 +months of an optionee's termination of employment with St. Mary. Further, +options granted under the ISO Plan will have a term of no more than ten years +(and a term of no more then five years with respect to any option granted to a +ten percent or more shareholder). Options under the ISO Plan will fully vest (i) +just prior to the completion of an acquisition of the Company or (ii) upon +termination of the optionee's employment with the Company due to death, +disability or normal retirement. Unexercised options will terminate (i) upon +completion of an acquisition of the Company or (ii) upon termination of the +optionee's employment with the Company for cause. Nothing contained in the ISO +Plan shall be construed to give any employee any right to continued employment +with the Company. +Unless earlier terminated by the board of directors, the ISO Plan shall +terminate on the date ten years subsequent to the date of the adoption of the +ISO Plan by the board, after which date no options may be granted under the ISO +Plan. The board of directors may at any time terminate the ISO Plan and from +time to time may amend or modify the ISO Plan, provided, however that no such +action of the board, without approval of the shareholders, may: (i) increase the +total amount of common stock which may be purchased through options granted +under the ISO Plan; or (ii) change the class of employees eligible to receive +options under the ISO Plan. +Each option under the ISO Plan must be evidenced by a written option +agreement that specifies the exercise price, the duration of the option, the +number of shares of stock to which the option applies, and such vesting or +exercisability restrictions and other terms and conditions which the board or +committee may impose. +The principle federal income tax consequences of the issuance and exercise +of options under the ISO Plan are, in general, as follows: +22 +1. Options issued under the ISO Plan are intended to qualify as "incentive +stock options" under the Internal Revenue Code. +2. Upon the issuance of an option under the ISO Plan, the optionee will +have no taxable income and St. Mary will have no tax deduction. +3. The tax consequences upon exercise of the option and later disposition +of the shares of common stock acquired thereby depend upon whether the optionee +satisfies the holding period rule whereby the optionee must hold the shares for +more than one year after exercise and two years after the date of issuance of +the option. +4. If the optionee satisfies the holding period rule, the optionee will not +realize income upon exercise of the option (although the excess of the fair +market value of the shares on the date of exercise over the option price must be +included as an adjustment in computing alternative minimum taxable income) and +St. Mary will not be allowed an income tax deduction at any time. The difference +between the option price and the amount realized upon disposition of the shares +by the optionee will constitute a long-term capital gain or loss, as the case +may be. +5. If the optionee fails to observe the holding period rule, the portion of +any gain realized upon such disqualifying disposition of the shares which does +not exceed the excess of the fair market value at the date of exercise over the +option price will be treated as ordinary income to the optionee, the balance of +any gain or any loss will be treated as capital gain or loss (long-term or +short-term depending on whether the shares were held for more than one year +after the option was exercised) and St. Mary will be entitled to a deduction +equal to the amount of ordinary income upon which the optionee is taxed. +Since the board of directors believes that the proposed increase in the +number of shares authorized for issuance under the stock option plans will +attract, retain and motivate key employees and enhance stockholder value, the +board of directors recommends that stockholders vote FOR approval of the +amendment to the stock option plans to increase the number of authorized shares +available for issuance under the stock option plans by 1,300,000 to 5,600,000. +Approval of Non-Employee Director Stock Compensation Plan +--------------------------------------------------------- +St. Mary's stockholders are being asked to approve a Non-Employee Director +Stock Compensation Plan to authorize the issuance of up to a total of 30,000 +shares of St. Mary common stock to non-employee directors as part of their +annual or other compensation over an anticipated period of up to five years. +On March 27, 2003, the board of directors approved the plan in order to +submit the plan for stockholder approval in accordance with current and proposed +listing standards of the New York Stock Exchange, on which St. Mary common stock +began trading on November 20, 2002. The purpose of the plan is to enhance +23 +stockholder value by attracting, retaining and further motivating non-employee +directors and to encourage and enable such directors to acquire a proprietary +interest in St. Mary by issuing shares of St. Mary common stock to non-employee +directors as compensation for serving as members of the board of directors and +board committees. +Each non-employee director currently receives 1,200 shares of St. Mary +common stock per year for serving as a director, along with $750 in cash for +each meeting attended in person, $600 in cash for each committee meeting +attended in person and $375 in cash for telephonic meetings. There are currently +six non-employee directors. St. Mary expects to continue issuing approximately +1,200 shares of St. Mary common stock per year to non-employee directors under +the plan, subject to stockholder approval of the plan and overall levels of +director compensation at comparable companies. +The following is a summary of the principal features of the plan, a copy of +which is attached hereto as Annex B. In addition, St. Mary will furnish a copy +of the plan to any stockholder upon written request to the corporate secretary. +All members of the board of directors who are not employees of St. Mary or +any subsidiary of St. Mary are eligible to participate in the plan and be issued +shares of St. Mary common stock under the plan. There are currently six +non-employee directors of St. Mary. +The total number of shares authorized for issuance under the plan is +30,000, subject to corresponding adjustment in the event of a stock dividend, +split or similar change in capitalization. Shares may be issued to non-employee +directors in such amounts and at such times as determined by the board of +directors as annual or other compensation to non-employee directors for serving +as members of the board of directors and any board committees. The board will +have complete discretion in determining the term and conditions and number of +shares to be issued to non-employee directors under the plan, provided that the +number of shares issued under the plan to a non-employee director shall in the +good faith and judgment of the board (a) represent reasonable compensation for +the services and responsibilities of such director and (b) be generally +consistent with the past practices of St. Mary with respect to compensation of +non-employee directors, as adjusted to reflect changes in applicable +circumstances. +The shares of stock issued under the plan will not be registered under the +Securities Act of 1933 and therefore will be restricted securities. Accordingly, +non-employee directors will not be able to sell shares issued under the plan +until they have held the shares for a period of one year. +Unless terminated earlier by the board of directors, the plan will +terminate upon the expiration of five years after the date of the adoption of +the plan by the board, after which date no shares may be issued under the plan. +The board of directors may at any time terminate the plan and from time to time +may amend or modify the plan, provided that no such action of the board, without +approval of the stockholders, may: (i) increase the total number of shares of +common stock which may be issued under the plan, or (ii) effect any change for +24 +which stockholder approval is required by law or regulation governing St. Mary +or by any applicable listing standards of a national securities exchange. +The principle federal income tax consequences of the issuance of shares of +St. Mary common stock under the plan are, in general, as follows: +1. Upon receipt of shares of St. Mary common stock under the plan, the +non-employee director will recognize ordinary taxable income in an amount equal +to the fair market value of the shares of common stock at the time of receipt. +2. The amount of income recognized by the non-employee director will be +deductible by St. Mary as compensation expense in the year in which ordinary +income is recognized by the non-employee director. +3. A recipient's basis for the shares of common stock received under the +plan will be the amount recognized as ordinary income upon receipt of the +shares. +4. Upon the sale of the common stock issued under the plan, capital gain or +loss will be recognized by the recipient in the amount by which the sales price +is greater or less than the basis of such stock. Such gain or loss will be +long-term since as restricted securities the shares must be held for more than +one year. +Since the board of directors believes that the proposed Non-Employee +Director Stock Compensation Plan will attract, retain and further motivate +non-employee directors and enhance stockholder value, the board of directors +recommends that stockholders vote FOR approval of the Non-Employee Director +Stock Compensation Plan. +Equity Compensation Plans. St. Mary has a stock option plan, an incentive +stock option plan and an employee stock purchase plan under which options and +shares of St. Mary common stock are authorized for grant or issuance as +compensation to eligible employees, consultants and members of the board of +directors. Each of these plans has been approved by our stockholders. The +following table is a summary of the shares of common stock authorized for +issuance under our equity compensation plans as of December 31, 2002: +25 +( c ) +( a ) Number of securities +Number of securities ( b ) remaining available for +to be issued upon Weighted-average future issuance under +exercise of exercise price of equity compensation plans +outstanding options, outstanding options, (excluding securities +Plan Category warrants and rights warrants and rights reflected in column (a)) +------------------------------------- ----------------------- ----------------------- --------------------------- +Equity compensation plans approved +by security holders 3,061,566 $21.34 1,118,588(1) +Equity compensation plans not +approved by security holders - - - +----------------------- ----------------------- --------------------------- +Total 3,061,566 $21.34 1,118,588 +======================= ======================= =========================== +-------------- +(1) Includes 870,073 shares which are authorized for issuance under our +employee stock purchase plan. +Other than the election of directors, the amendment to the stock option +plans and the approval of the Directors Stock Compensation Plan, the Company is +aware of no other matters to be submitted to a vote of the stockholders at the +annual meeting. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive officers and persons +holding more than 10% of St. Mary common stock must report their initial +ownership of the common stock and any changes in that ownership in reports which +must be filed with the SEC and St. Mary. The SEC has designated specific +deadlines for these reports and St. Mary must identify in this proxy statement +those persons who did not file these reports when due. +Based solely on a review of reports filed with the Company, all directors +and executive officers timely filed all reports regarding transactions in the +Company's securities required to be filed for 2002 by Section 16(a) under the +Securities Exchange Act of 1934, except for Mark Hellerstein for 47 shares and +Garry Wilkening for 2 shares as a result of shares purchased by their broker to +reinvest dividends received from St. Mary. +26 +INDEPENDENT ACCOUNTANTS +As previously reported in St. Mary's Current Report on Form 8-K filed with +the SEC on May 30, 2002, on May 23, 2002, St. Mary Land & Exploration +Company ("St. Mary") dismissed Arthur Andersen LLP ("Andersen") as St. Mary's +independent accountants. The St. Mary audit committee and board of directors +approved this dismissal. +Andersen's reports on St. Mary's financial statements for the last two +fiscal years did not contain an adverse opinion or a disclaimer of opinion, and +were not qualified or modified as to uncertainty or audit scope. In addition, +there were no modifications as to accounting principles except that the audit +report of Andersen for the fiscal year ended December 31, 2001 contained an +explanatory paragraph with respect to the change in the method of accounting for +derivative instruments effective January 1, 2001 as required by the Financial +Accounting Standards Board. +During the two most recent fiscal years and the interim period from January +1, 2002 to the date of the dismissal of Andersen on May 23, 2002, there were no +disagreements between St. Mary and Andersen on any matter of accounting +principles or practices, financial statement disclosure, or auditing scope or +procedure, which if not resolved to the satisfaction of Andersen would have +caused them to make reference to the subject matter thereof in connection with +their reports. +As previously reported in St. Mary's Current Report on Form 8-K filed with +the SEC on June 3, 2002, St. Mary engaged Deloitte & Touche LLP as St. +Mary's new independent accountants on June 3, 2002. The St. Mary audit committee +and board of directors approved this new engagement. +To the knowledge of management, neither Deloitte & Touche LLP nor any +of its members has any direct or material indirect financial interest in St. +Mary nor any connection with St. Mary in any capacity other than as independent +public accountants. A representative of Deloitte & Touche LLP is expected to +be present at the annual meeting and will have an opportunity to make a +statement if he desires to do so and to respond to appropriate questions. +The Company paid the following fees to the independent accountants for the +audit of the consolidated financial statements and for other services provided +in the year ended December 31, 2002. +Audit Fees........................................ $118,906 +Audit Related Fees................................ 53,767 +Tax Fees.......................................... 7,500 +All Other Fees.................................... 0 +-------- +Total Fees........................................ $180,173 +27 +Audit related fees were primarily related to the audit and review of St. +Mary's benefit plans. The audit committee has concluded that the provision of +these non-audit services is compatible with maintaining the accountants' +independence. The audit committee now approves any non-audit services provided +by the independent accountants. +FUTURE STOCKHOLDER PROPOSALS +St. Mary must receive any St. Mary stockholder proposal for the annual +meeting of stockholders in 2004 before November 1, 2003 for the proposal to be +included in the St. Mary proxy statement and form of proxy for that meeting. St. +Mary's by-laws require that advance written notice in proper form of stockholder +proposals for matters to be brought before an annual stockholders meeting be +received by the Secretary of St. Mary not less than 75 days nor more than 105 +days before the first anniversary date of the immediately preceding annual +stockholders meeting. Accordingly, notice of stockholder proposals for the 2004 +annual meeting must be received by St. Mary between February 6, 2004 and March +8, 2004. +OTHER MATTERS +Management does not know of any other matters to be brought before the +annual meeting of stockholders. If any other matters not mentioned in this proxy +statement are properly brought before the meeting, the individuals named in the +enclosed proxy intend to use their discretionary voting authority under the +proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +/s/ RICHARD C. NORRIS +---------------------------- +Richard C. Norris +Secretary +April 4, 2003 +28 +ANNEX A +ST. MARY LAND & EXPLORATION COMPANY +CHARTER OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +As Amended by the Board of Directors on January 23, 2003 +I. Audit Committee Purpose +The Audit Committee is appointed by the Board of Directors to assist +the Board in fulfilling its oversight responsibilities with respect to: +o The integrity of the Company's financial statements and financial +reporting process and systems of internal controls regarding +finance, accounting and compliance with legal and regulatory +requirements. +o The qualifications, independence and performance of the Company's +independent auditors. +o The performance of the Company's internal audit function. +o The Company's financial risk assessment and risk management +policies. +o The Company's compliance with legal and regulatory requirements +relating to the above matters. +o Establishing and maintaining an avenue of communication among the +independent auditors, individuals performing the finance, +accounting, financial reporting and internal audit functions, +management and the Board of Directors. +II. Audit Committee Authority +The Audit Committee has the authority to conduct any investigation and +to take any other action appropriate to fulfill its responsibilities, and it +shall have direct access to the independent auditors as well as to any person in +the Company. The Audit Committee has the authority to retain, at the Company's +expense, special independent legal, accounting and other advisers and experts it +deems necessary to advise and assist the Committee in the performance of its +responsibilities. The Company shall provide appropriate funding, as determined +by the Audit Committee, for the payment of compensation to the independent +auditors employed by the Company and any other persons retained by the Audit +Committee. +29 +III. Audit Committee Composition and Meetings +The Audit Committee members shall meet the independence requirements of +applicable laws and regulations and the rules of the New York Stock Exchange, +and shall meet the financial literacy requirements of the New York Stock +Exchange. The Audit Committee shall be comprised of at least three Directors +appointed by the Board, each of whom shall be an independent nonexecutive +Director without any relationship or activity which, in the opinion of the +Board, would interfere with the exercise of his or her independent judgment in +carrying out the responsibilities of a member of the Committee. All members of +the Committee shall have a basic understanding of finance and be able to read +and understand fundamental financial statements, and at least one member of the +Committee shall have accounting or related financial management expertise and +experience as required by the rules of the New York Stock Exchange. +The Audit Committee members, including its Chair, shall be appointed by +the Board. If an Audit Committee Chair is not designated or present, the members +of the Committee may designate a Chair by majority vote of the Committee +members. Members of the Audit Committee may be removed by action by a majority +of the independent Directors of the Board. +The Committee shall meet at least four times annually, pursuant to an +annual calendar of scheduled meetings with planned agenda items to be prepared +and distributed each year to the members of the Committee, and more frequently +as circumstances dictate. The Audit Committee Chair shall prepare an agenda in +advance of each meeting. As circumstances dictate but at least twice annually +the Committee shall meet privately in executive sessions with management, the +senior internal audit executive and with the independent auditors to discuss any +matters that the Committee or any of these groups believe should be discussed. +IV. Audit Committee Responsibilities and Duties +Review Procedures +----------------- +1. Review and reassess the adequacy of this Charter at least +annually. Submit amendments of the Charter to the Board of +Directors for approval and include the Charter in the proxy +statement for the election of Directors at least once every +three years in accordance with applicable regulations. +2. Review and discuss the Company's annual audited financial +statements, including "Management's Discussion and Analysis of +Financial Condition and Results of Operations," prior to their +final completion and filing with the Securities and Exchange +Commission ("SEC"). Review procedures should include +discussions with financial management and the independent +auditors of significant issues regarding accounting +principles, practices and judgments. +3. Review and discuss with financial management and the +independent auditors the Company's quarterly financial +statements, including "Management's Discussion and Analysis of +Financial Condition and Results of Operations," prior to final +completion and release of earnings. Discuss any significant +30 +changes to the Company's accounting principles, practices and +judgments and any items required to be communicated by the +independent auditors to the Committee in accordance with +Statement of Auditing Standards ("SAS") No. 61, Communication +with Audit Committees, as amended. +4. Review and discuss with financial management and, to the +extent necessary, the independent auditors earnings press +releases and financial information and earnings guidance +provided to analysts. +5. Review and discuss with financial management significant +findings of the independent auditors and the internal +auditors, including the status of previous recommendations, +together with management's responses thereto. +6. In consultation with financial management, the independent +auditors and internal auditors, review and discuss the +integrity of the Company's procedures for financial reporting +and internal system of audit and financial and accounting +controls, including review and approve an annual report of +financial management on the foregoing. +7. Review and discuss with management the Company's risk +assessment and risk management guidelines and policies with +respect to the Company's significant financial risk exposures, +and the steps management has taken as well as the specific +guidelines and policies which have been established to +monitor, control, mitigate and report such exposures. Such +review and discussion shall cover the Company's hedging +arrangements and insurance coverage as appropriate. +Independent Auditors +-------------------- +8. The Audit Committee shall be directly and solely responsible +for the appointment, compensation and oversight of the work of +the independent auditors employed by the Company for the +purpose of issuing an audit report and related work, and such +auditors shall have a reporting relationship directly with the +Audit Committee. The independent auditors shall be accountable +to the Audit Committee and the Board of Directors. The Audit +Committee, in conjunction with the Company's financial +management and internal control personnel, shall review and +evaluate the independence and performance of the independent +auditors. +9. The Audit Committee shall approve the fees and any other +significant compensation to be paid to the independent +auditors. The Audit Committee shall approve in advance any +non-audit services to be performed by the auditors, which +non-audit services shall be permissible under law and not +impair the independence of the auditors. Such pre-approval +requirement shall be waived only if the non-audit services +meet a de minimis exception allowed by law. +10. The Audit Committee shall take appropriate action to oversee +the independence of the auditors. On at least an annual basis, +the Committee shall review and discuss with the independent +31 +auditors the auditors' independence and all significant +services performed for and relationships they have with the +Company that could bear on the auditors' independence. The +Committee shall annually receive from the independent auditors +a formal written statement delineating all relationships +between the auditors and the Company and a letter confirming +that in the auditors' professional judgment they are +independent of the Company, as required by Independence +Standards Board Standard No. 1, Independence Discussions with +Audit Committees. +11. Review and approve the independent auditors' engagement letter +and audit plan and with respect to the audit discuss with the +auditors their scope, staffing, locations, reliance upon +management and internal audit, and the general audit approach. +12. Review and discuss with the independent auditors the Company's +financial reporting and accounting standards and principles, +significant changes in such standards or principles or in +their application and the key accounting decisions affecting +the Company's financial statements, including alternatives to +and the rationale for the decisions made. Review and discuss +with the independent auditors any other audit problems +encountered and management's response thereto. +13. Review and discuss at least annually a report from the +independent auditors on the auditing firm's internal +quality-control procedures, any material issues raised within +the preceding five years by the auditors' internal +quality-control reviews, by peer reviews of the auditors or by +any governmental or other inquiry or investigation relating to +any audit conducted by the auditors. The Committee shall also +review and discuss steps taken by the auditors to address any +issues in any of the foregoing reviews. +14. Establish policies with respect to the Company's hiring of +employees and former employees of the independent auditors. +15. Terminate and replace the independent auditors when determined +appropriate solely by the Audit Committee. +Internal Auditors +----------------- +16. The internal auditors shall be responsible to senior +management, but have a reporting relationship directly with +the Audit Committee with respect to internal audit matters. +Changes in the senior internal audit executive shall be +subject to Audit Committee approval. The Audit Committee, in +conjunction with the Company's financial management, shall +review and evaluate the performance of the internal audit +function. +32 +17. Review and approve the internal audit plan, scope, staffing, +procedures, locations and general internal audit approach. +18. Review and discuss the organizational structure of the +internal audit function and the qualifications of internal +audit personnel, as needed. +19. Review and discuss the appointment, performance and +replacement of the senior internal audit executive. +Legal Compliance +---------------- +20. On at least an annual basis, review with the Company's general +counsel any legal matters that could have a significant impact +on the Company's financial statements, the Company's +compliance with applicable laws and regulations and any +inquiries with respect thereto received from regulators or +governmental agencies. +Other Audit Committee Responsibilities +-------------------------------------- +21. Based on the review and discussion of the audited financial +statements with management and with the independent auditors +of the matters required to be discussed by SAS No. 61 and the +independent auditors' independence, recommend to the Board of +Directors that the audited financial statements be included in +the Company's Annual Report on Form 10-K for filing with the +SEC. +22. Review and discuss with management and the Company's +independent engineers the annual evaluation of the Company's +oil and gas reserves. +23. Review and discuss with financial management and the +independent auditors any off-balance sheet transactions. +24. Review and approve all related party transactions of the +Company. +25. Establish procedures for the receipt, retention and treatment +of any complaints received from any person regarding +accounting, internal accounting controls or auditing matters +of the Company. +26. Review and discuss with management certificates provided by +management with respect to financial reports filed by the +Company with the SEC and the processes utilized therefor. +27. Prepare the Audit Committee Report required by SEC rules to be +included in the Company's annual proxy statement. +28. Cause all required corrective actions to be taken with respect +to the matters and activities described in this Charter. +33 +29. Perform any other activities consistent with this Charter, the +Company's By-Laws or governing laws and regulations as the +Committee or the Board deems necessary or appropriate. +30. Maintain minutes of meetings and regularly report to the Board +of Directors on significant results of the activities +described in this Charter. +31. Present to the Board of Directors annually an evaluation of +the performance of the Audit Committee. +While the Audit Committee has the responsibilities and powers set forth +in this Charter, it is not the duty of the Audit Committee to plan or conduct +audits or to determine that the Company's financial statements are complete and +accurate and are in accordance with generally accepted accounting principles. +That is the responsibility of management and the independent auditors. It is +also not the duty of the Audit Committee to conduct all investigations, other +than those contemplated by this Charter, or to ensure compliance with all laws +and regulations. +This Charter shall be amended as appropriate to comply with all +applicable requirements of laws and regulations of the SEC and the New York +Stock Exchange. +34 +ANNEX B +ST. MARY LAND & EXPLORATION COMPANY +NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN +ARTICLE I +ESTABLISHMENT AND PURPOSE +------------------------- +1.1 Establishment. St. Mary Land & Exploration Company, a Delaware +------------- +corporation (the "Company"), hereby establishes a stock compensation plan for +non-employee members of the Board of Directors of the Company (the "Board"), +which plan shall be known as the ST. MARY LAND & EXPLORATION COMPANY +NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN (the "Plan"). +1.2 Purpose. The purpose of the Plan is to enhance stockholder value by +------- +attracting, retaining and further motivating non-employee Directors and to +encourage and enable such Directors to acquire a proprietary interest in the +Company by issuing shares of the Company's common stock, $.01 par value per +share (the "Stock"), to such Directors as compensation for serving as members of +the Board and the committees thereof. +ARTICLE II +ELIGIBILITY AND PARTICIPATION +----------------------------- +All members of the Board who are not employees of the Company or any +subsidiary of the Company are eligible to participate in the Plan and be issued +shares of Stock under the Plan. +ARTICLE III +ADMINISTRATION +-------------- +The Board shall be responsible for administering the Plan. The Board is +authorized to (i) interpret the Plan, (ii) prescribe and revise rules and +regulations relating to the Plan, (iii) provide for conditions and assurances +deemed necessary or advisable to protect the interests of the Company with +respect to the Plan and (iv) make all other determinations necessary or +advisable for the administration of the Plan. Determinations, interpretations or +other actions made or taken by the Board with respect to the Plan and shares of +Stock issued under the Plan shall be final, binding and conclusive for all +purposes and upon all persons. No member of the Board shall be liable for any +action or determination made in good faith with respect to the Plan or any +shares of Stock issued under the Plan. +35 +ARTICLE IV +SHARES OF STOCK AVAILABLE UNDER THE PLAN +---------------------------------------- +4.1 Total Number. The total number of shares of Stock hereby made +------------ +available and reserved for issuance under the Plan is 30,000 shares, which +number shall be subject to adjustment as provided in Section 4.2. +4.2 Adjustment in Capitalization. In the event of any change in the +---------------------------- +outstanding shares of Stock of the Company by reason of a stock dividend or +split, recapitalization, reclassification, or other similar change or adjustment +in capitalization, the total number of shares of Stock set forth in Section 4.1 +shall be correspondingly adjusted by the Board. +ARTICLE V +ISSUANCE OF STOCK +----------------- +5.1 Issuance of Stock. Subject to Section 4.1, shares of Stock may be +----------------- +issued to non-employee Directors in such amounts and at such times as determined +by the Board as annual or other compensation to non-employee Directors for +serving as members of the Board and the committees thereof. The Board shall have +complete discretion in determining the terms and conditions and number of shares +of Stock issued to non-employee Directors under the Plan. Notwithstanding the +foregoing, the number of shares of Stock issued under the Plan to a non-employee +Director shall, in the good faith judgment of the Board, (a) represent +reasonable compensation for the services and responsibilities of such Director, +(b) be generally consistent with the past practices of the Company with respect +to compensation of the non-employee Directors, as adjusted to reflect changes in +applicable circumstances. Shares of Stock issued under the Plan may be +previously unissued shares of Stock or previously issued shares of Stock held by +the Company as treasury shares. +5.2 Restricted Securities. The shares of Stock issued under the Plan +--------------------- +shall not be registered under the Securities Act of 1933, as amended (the +"Securities Act"), and shall be "restricted securities" as that term is defined +in Rule 144 under the Securities Act. Accordingly, the shares of Stock will be +subject to restrictions on transferability and sale and may not be offered for +sale, sold or otherwise transferred except pursuant to an effective registration +statement under the Securities Act or pursuant to an exemption from registration +under the Securities Act, the availability of which is to be established to the +satisfaction of the Company. Certificates for shares of Stock issued under the +Plan shall bear a restrictive legend consistent with the foregoing. +ARTICLE VI +AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN +---------------------------------------------------- +The Board may at any time terminate and from time to time may amend or +modify the Plan. Unless terminated earlier by the Board, the Plan shall +terminate upon the expiration of five years after the date of the adoption of +the Plan. Any amendment or modification of the Plan by the Board may be +accomplished without approval of the stockholders of the Company, except if such +amendment or modification would increase the total number of shares of Stock +36 +available under the Plan or otherwise require stockholder approval under any law +or regulation governing the Company or under any applicable listing standards of +national securities exchanges. +ARTICLE VII +TAX WITHHOLDING +--------------- +Whenever shares of Stock are to be issued under the Plan, the Company +shall have the right to require the recipient of the shares of Stock to remit to +the Company an amount sufficient to satisfy federal, state, and local +withholding tax requirements, if any. +ARTICLE VIII +REQUIREMENTS OF LAW +------------------- +8.1 Requirements of Law. The issuance of shares of Stock under the Plan +------------------- +shall be subject to all applicable laws, rules, and regulations, and to such +approvals or authorizations by any governmental agencies or national securities +exchanges as may be required. +8.2 Governing Law. The Plan shall be construed in accordance with and +------------- +governed by the laws of the State of Colorado. +This ST. MARY LAND & EXPLORATION COMPANY NON-EMPLOYEE DIRECTOR STOCK +COMPENSATION PLAN was adopted by the Board of Directors of St. Mary Land & +Exploration Company on March 27, 2003, to be effective upon adoption. +ST. MARY LAND & EXPLORATION COMPANY +By: /s/ Mark A. Hellerstein +---------------------------------- +Mark A. Hellerstein +Chairman of the Board of Directors, +President and Chief Executive Officer +37 +PROXY ST. MARY LAND & EXPLORATION COMPANY PROXY +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This Proxy is Solicited on Behalf of the Board of Directors For the +Annual Meeting of Stockholders on May 21, 2003 +The undersigned hereby appoints Mark A. Hellerstein and Richard C. Norris, +or either of them, each with the power to appoint his substitute, as proxies for +the undersigned to vote all shares of St. Mary Land & Exploration Company +common stock which the undersigned is entitled to vote at the Annual Meeting of +Stockholders to be held on May 21, 2003, and at any reconvened meeting after any +adjournment thereof, as directed on the matters referred to below and at their +discretion on any other matters that may properly be presented at the meeting. +ITEM 1 ITEM 2 +ELECTION OF DIRECTORS 0 FOR all nominees listed AMENDMENTS TO STOCK OPTION 0 FOR +Management has nominated (except as marked to the PLANS TO INCREASE THE +the following eight contrary) TOTAL AVAILABLE SHARES. 0 AGAINST +persons to stand for +election as directors. 0 WITHHOLD authority to vote 0 ABSTAIN +The St. Mary board of for all nominees listed +directors recommends a +vote "FOR" all of the Instructions: Mark only one The proposal by St. Mary to +nominees. As of the date box. To withhold authority amend St. Mary's Stock Option +of the accompanying proxy to vote for any individual Plans to increase the total +statement no one has been nominee, write that nominee's number of shares of common +nominated to serve as name in the following space: stock which may be issued +director other than the under the plans by 1,300,000 +nominees by the board of ---------------------------- shares to a total of +directors. 5,600,000 shares. The St. +Mary board of directors +recommends a vote "FOR" +this proposal. +01 Barbara M. Baumann ITEM 3 +02 Larry W. Bickle APPROVAL OF A NON-EMPLOYEE 0 FOR +03 Ronald D. Boone DIRECTOR STOCK COMPENSATION +04 Thomas E. Congdon PLAN 0 AGAINST +05 William J. Gardiner +06 Mark A. Hellerstein 0 ABSTAIN +07 Arend J. Sandbulte The proposal by St. Mary to +08 John M. Seidl approve a Non-Employee Director +Stock Compensation Plan for +the issuance of up to a total +of 30,000 shares of St. +Mary common stock to +non-employee directors as +part of their annual or +other compensation over an +anticipated period of up to +five years. The St. Mary +board of directors +recommends a vote "FOR" this +proposal. +This proxy when properly executed will be voted in the manner directed by +the undersigned stockholder. If this proxy is properly executed but no voting +direction is given, this proxy will be voted "For" all director nominees listed +on this proxy, the amendment to the Stock Option Plans to increase the +authorized shares and to approve the Non-Employee Director Stock Compensation +Plan. +This proxy also confers discretionary authority to the proxies to vote on +any other matters that may properly be presented at the meeting. As of the date +of the accompanying proxy statement, St. Mary management did not know of any +other matters to be presented at the meeting. If any other matters are properly +presented at the meeting, this proxy will be voted in accordance with the +recommendations of St. Mary management. +Please sign exactly as your name +appears below. When shares are +held by joint tenants, both should +sign. When signing as attorney, +executor, administrator, trustee +or guardian, please five full +title as such. If a corporation, +please sign in full corporate name +by the president or other +authorized officer. If a +partnership or limited liability +company, please sign in such name +by an authorized person. Please +complete, date and sign this proxy +card and return it promptly in the +accompanying envelope. +Dated: , 2003 +---------------------- +---------------------------------- +Signature +---------------------------------- +Signature if held jointly +Your telephone or Internet vote authorizes the named proxies in the same manner +as if you marked, signed and dated your proxy card and returned it in the +envelope provided. The telephone and Internet voting procedures are designed to +ensure that proxies are handled properly under Delaware law by authenticating +votes cast by use of a PIN and allowing you to confirm that your instructions +have been properly recorded. +TO VOTE USING THE TELEPHONE: Call toll free 1-800-816-8908 from a touch tone +telephone. There is NO CHARGE for this call. Enter your 14 digit CONTROL NUMBER +and 5 digit PIN NUMBER located at the bottom of this proxy and then listen for +voting instructions. +INTERNET VOTING INSTRUCTIONS: Go to the following web site +www.computershare.com/us/proxy - Enter your 14 digit CONTROL NUMBER and 5 digit +PIN NUMBER located at the bottom of this proxy and then follow the voting +instructions on the screen. If you vote by telephone or the internet, please DO +NOT mail back this proxy card. +-------------- -------------- +CONTROL NUMBER PIN NUMBER +-------------- -------------- \ No newline at end of file diff --git a/raw/proxies/0000893538/0000893538-03-000013/proxy_rpt.txt b/raw/proxies/0000893538/0000893538-03-000013/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2e3a37cf100f06e712d318069a6d2c9c6a124dce --- /dev/null +++ b/raw/proxies/0000893538/0000893538-03-000013/proxy_rpt.txt @@ -0,0 +1,39 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. +Mary and certain of its officers and directors during the last fiscal year. Some +of these transactions will continue in effect and may result in conflicts of +interest between St. Mary and these individuals. Although these persons owe +fiduciary duties to St. Mary and its stockholders, we cannot assure you that +conflicts of interest will always be resolved in favor of St. Mary. +As a result of their prior employment with another company with which St. +Mary engaged in a number of transactions, Ronald D. Boone, the Executive Vice +President and Chief Operating Officer and a director of St. Mary, and two other +vice presidents of St. Mary own royalty interests in many of St. Mary's +properties, which were earned as part of the prior employer's employee benefit +18 +programs. One vice president also owns certain working interests through +participation in acquisitions made by his former employer. Those persons have no +royalty participation in any new St. Mary properties. +Mr. Boone also owns 25% of Princeton Energy LLC, which owns the oil and gas +working interests that he acquired as a result of his prior employment. Although +Mr. Boone does not manage this entity, he may participate in any investment +decisions made by them. +In July 2000, St. Mary made an interest-free loan of $200,000 to Robert T. +Hanley at the time he was appointed Vice President - Business Development of St. +Mary. The loan was made to enable Mr. Hanley to purchase a residence in Denver, +Colorado in connection with St. Mary's relocation of Mr. Hanley to Denver from +Billings, Montana, where housing costs are substantially lower. Mr. Hanley was +previously Chief Financial Officer of Nance Petroleum Corporation, a wholly +owned subsidiary that St. Mary acquired in June 1999, which has its principal +offices in Billings. This loan was repaid in October 2002. +St. Mary's by-laws provide that no director may pursue a business or +investment opportunity for himself if he has obtained knowledge of such +opportunity through his affiliation with the Company. Moreover, no officer or +employee of St. Mary may pursue for his own account an oil and gas opportunity +irrespective of the source of his knowledge of the opportunity unless (a) with +respect to an officer of St. Mary, the interest has been approved by the board +of directors and (b) with respect to a non-officer of St. Mary, such interest of +the employee has been approved by a senior officer of St. Mary with full +knowledge of such opportunity. These restrictions do not apply to the +acquisition of less than one percent of the publicly traded stock of another +company. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-05-010887/proxy.txt b/raw/proxies/0000893538/0001047469-05-010887/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..2217339cfa276f4124bbe9aa08766a443a895488 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-05-010887/proxy.txt @@ -0,0 +1,1551 @@ +DEF 14A +1 +a2156222zdef14a.htm +DEF 14A +Use these links to rapidly review the document +Proxy Statement Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. 1) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +St. Mary Land & Exploration Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +April 8, +2005 +Dear +Stockholder: +You +are cordially invited to attend the 2005 annual meeting of stockholders, which will be held in the Forum Room of Wells Fargo Bank, 1740 Broadway, Denver, Colorado on +Wednesday, May 25, 2005 at 3:00 p.m. local time. +At +the meeting you and the other stockholders will vote on the election of seven directors and approve an amendment to the certificate of incorporation to increase the number of +authorized shares of common stock from 100,000,000 to 200,000,000. You will also have the opportunity to hear reports on St. Mary's operations and to ask questions of general interest. You can find +other more specific information about the meeting in the accompanying proxy statement, and can find detailed information about St. Mary in the enclosed annual report or at our website www.stmaryland.com . +Please +complete and sign the enclosed proxy card and return it promptly in the accompanying envelope, or use the telephone or Internet voting systems described on the proxy card. This +will ensure that your shares are represented at the meeting even if you cannot attend. +Thank +you for your cooperation in returning your proxy card, or voting by telephone or the Internet as promptly as possible. We hope to see many of you at our meeting in Denver. +Very truly yours, +Mark A. Hellerstein +Chairman, CEO & President +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +Notice of Annual Stockholders' Meeting +May 25, 2005 +To All Stockholders: +The +2005 annual meeting of the stockholders of St. Mary Land & Exploration Company will be held in the Forum Room of the Wells Fargo Bank, 1740 Broadway, Denver, Colorado +on Wednesday, May 25, 2005 at 3:00 p.m. local time. The purposes of the meeting are: +1. To +elect seven directors to serve during the next year; +2. To +approve an amendment to the certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000. This action is necessary +following the stock split that occurred for stockholders of record on March 21, 2005, to ensure there are sufficient shares available for general corporate purposes; and +3. To +transact any other business which may properly come before the meeting. +Only +stockholders of record at the close of business on April 8, 2005 may vote at this meeting. +Please sign, date and return the accompanying proxy card in the enclosed envelope as soon as possible, or use the telephone or Internet voting systems described +on the proxy card. Any stockholder may revoke their proxy at any time before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +David W. Honeyfield +V.P.—Finance, Secretary & Treasurer +Denver, +Colorado, +April 8, 2005. +Proxy Statement Table of Contents +General +Purpose of the Annual Meeting +Who Can Vote +How to Vote +Revoking a Proxy +Voting Requirements +Quorum +Payment of Proxy Solicitation Costs +Election of Directors +Nominees for Election as Directors +Stock Split +Corporate Governance +Board of Directors +Selection of Directors +Presiding Director at the Non-Management Directors' Executive Session +Communication with the Directors of the Company +Board and Committee Meetings +Director Compensation +Security Ownership of Certain Beneficial Owners and Management +Executive Compensation +Summary Compensation Table +2004 Stock Option Grants +Aggregated Stock Option Exercises in 2004 and December 31, 2004 Stock Option Value +Report of the Compensation Committee on Executive Compensation +Retirement Plans +Equity Compensation Plans +Employment Agreements and Termination of Employment and Change-in-Control Arrangements +Performance Graph +Certain Relationships and Related Transactions +Other Matters to be Voted On +Section 16(a) Beneficial Ownership Reporting Compliance +Report of the Audit Committee +Independent Accountants +Audit Committee Pre-Approval Policy and Procedures +Future Stockholder Proposals +Other Matters +Annex A: St. Mary Charter of the Audit Committee +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +(303) 861-8140 +Proxy Statement +General +This proxy statement contains information about the 2005 annual meeting of stockholders of St. Mary Land & Exploration Company to be held in the Forum +Room of the Wells Fargo Bank, 1740 Broadway, Denver, Colorado on Wednesday, May 25, 2005, at 3:00 p.m. local time. The St. Mary Board of Directors is using this proxy statement to +solicit proxies for use at the annual meeting. In this proxy statement, "St. Mary", "the Company", we, or us refer to St. Mary Land & Exploration Company. This proxy statement and the enclosed +proxy card are being mailed to you on or about April 22, 2005. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +• the +election of the seven directors as outlined in the accompanying notice of meeting; +• approval +of an amendment to the certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000; and +• any +other business that properly comes before the meeting. +As +of the date of this proxy statement, the Company is not aware of any business to come before the meeting other than the items noted above. +Who Can Vote +Only stockholders of record at the close of business on the record date of April 8, 2005, are entitled to receive notice of the annual meeting and to vote +the shares of St. Mary common stock they held on that date. As of April 8, 2005, there were 57,239,058 shares of St. Mary common stock issued and outstanding, net of 500,000 treasury shares. +Holders of St. Mary common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. The enclosed proxy card shows the number of shares that you are +entitled to vote. +How to Vote +If your shares of St. Mary common stock are held by a broker, bank or other nominee (in "street name"), you will receive information from them on how to instruct +them to vote your shares. +If +you hold shares of St. Mary common stock in your own name (as a "stockholder of record"), you may give instructions on how your shares are to be voted by marking, signing, dating and +returning the enclosed proxy card in the accompanying postage-paid envelope or following the telephone or Internet voting procedures described on the proxy card. The telephone and Internet +voting procedures are designed to ensure that proxies are handled properly under Delaware law by authenticating votes cast by use of a personal identification number and allowing stockholders to +confirm that their instructions have been properly recorded. If you vote by telephone or the Internet, you do not have to mail in your proxy card. +1 +If +you hold shares in both street name and as a stockholder of record, you must vote +separately for each set of shares. +A +proxy, when properly completed and not revoked, will be voted in accordance with its instructions. If no voting instructions on a particular matter are given on a properly executed and +unrevoked proxy card, the shares represented by the proxy will be voted on that particular matter as follows: +• FOR +the election as directors of the seven nominees named in this proxy statement under the caption "Nominees for Election as Directors," and +• FOR +approval of an amendment to the certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000. +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +• submitting +a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet voting procedures before the meeting; +• by +voting in person at the meeting; or +• by +filing a written revocation with St. Mary's corporate secretary. +Your +attendance at the annual meeting will not automatically revoke your proxy. +Voting Requirements +Election of Directors— The St. Mary Bylaws provide that the election of directors shall be decided by +the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Any shares present but not voted for approval, including withheld votes and +broker non-votes, will have the same effect as if the shares were voted against approval. +Amendment to the Certificate of Incorporation to Increase the Number of Authorized Shares of Common Stock from 100,000,000 to +200,000,000 —In order to ensure there are a sufficient number of shares of common stock authorized, the Board of Directors has authorized an increase in the number +of shares to 200,000,000 due to the stock split that occurred for shareholders of record on March 21, 2005. The affirmative vote of a majority of shares entitled to vote at the meeting will be +required to amend the certificate of incorporation to increase the authorized shares of common stock. Any shares present but not voted, including abstentions and broker non-votes +(described in "Quorum" below), will have the same effect as shares voted against approval. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders of one-third of the outstanding shares of common +stock are present at the meeting in person or by proxy. Abstentions and broker "non-votes" count as present for establishing a quorum. A broker non-vote occurs on a matter when +a broker is not permitted to vote on that matter without instruction from the beneficial owner of the shares and no instruction is given. Shares held by St. Mary in its treasury are not entitled to +vote and do not count +toward a quorum. If a quorum is not present, the meeting may be adjourned until a quorum is obtained. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. The solicitation will be made by mail. In addition to mailing proxy solicitation material, St. Mary officers, +directors and employees may also solicit proxies in +2 +person, +by telephone, or by other electronic means of communication. St. Mary will ask banks, brokers, other institutions, nominees and fiduciaries to forward the proxy material to their principals +and obtain authority to execute proxies. St. Mary will reimburse them for reasonable expenses. St. Mary has also retained The Altman Group, Inc. to assist in the solicitation of proxies for an +estimated fee of $9,000 plus reimbursement of reasonable expenses. +ELECTION OF DIRECTORS +All directors of the Company are elected annually. At this meeting, seven directors are to be elected to serve for one year or until their successors are elected +and qualified. The Company's nominees for these directorships are identified below; all are currently serving in that capacity. Ronald D. Boone will serve out his current term as director, however, he +is not a nominee for re-election. +The +Board of Directors has a Nominating and Corporate Governance Committee that selects the director nominees. This Committee performed its evaluation and nominating committee functions +during 2004 and early 2005. The Committee selects each nominee based on the nominee's skills, achievements and experience, with the objective as set forth in the Company's Corporate Governance +Guidelines that the Board as a whole should have broad and relevant experience in high policymaking levels in business and a commitment to representing the long-term interests of the +stockholders. The Committee believes that each nominee should have experience in positions of responsibility and leadership, an understanding of the Company's business environment and a reputation for +integrity. +The +Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is to recommend a group that will effectively contribute to the +long-term success of the Company and represent stockholder interests. In determining whether to recommend a director +for re-election, the Committee also considers the director's past attendance at meetings and participation in and contributions to the activities of the Board. +When +seeking candidates for director, the Committee solicits suggestions from incumbent directors, management, stockholders and others. The Committee has authority under its charter to +retain a search firm for this purpose. If the Committee believes a candidate would be a valuable addition to the Board of Directors, it recommends his or her candidacy to the full Board of Directors. +The +Committee will consider suggestions by stockholders of possible future nominees. No such suggestions were received during 2004 from a beneficial owner of more than 5% of St. Mary's +stock. Stockholder suggestions should be delivered on or before November 1 in any year before the next annual meeting. In addition, St. Mary's Bylaws permit stockholders to nominate directors +for election at an annual meeting, provided that advance written notice of the nomination containing the information required under the Bylaws is received by the Secretary of St. Mary not less than +75 days nor more than 105 days before the first anniversary date of the immediately preceding annual meeting. Accordingly, proper notice of a stockholder nomination for election as +director at the 2006 annual meeting must be received by St. Mary between February 9, 2006 and March 11, 2006. +The +proxies will be voted in favor of the nominees unless a contrary specification is made in the proxy. All nominees have consented to serve as directors of the Company if elected. +However, if any nominee is unable to serve or for good cause will not serve as a director, the persons named in the proxy intend to vote in their discretion for a substitute who will be designated by +the Board of Directors. +The Board of Directors recommends voting "FOR" electing the nominees. +3 +NOMINEES FOR ELECTION AS DIRECTORS +Biographical information as of April 5, 2005, including principal occupation and business experience during the last five years, of each nominee for +director is set forth below. Unless otherwise stated the principal occupation of each nominee has been the same for the past five years. +Director +Age +Since +Barbara M. Baumann is President of Cross Creek Energy Corporation which provides consulting services for oil and gas exploration and production companies. Ms. Baumann has held that +position since July 2003. From 2001 to July 2003, Ms. Baumann was Executive Vice President of Associated Energy Managers LLC, an investment manager and general partner of a private equity energy fund specializing in oil and gas +investments for institutional investors. From 1983 to 2001, Ms. Baumann was employed by BP Amoco and held a variety of financial and operational management positions, including Chief Financial Officer of an environmental remediation subsidiary, +Vice President of the San Juan Business Unit and most recently as the Commercial Operations Manager of the Western Business Unit. +49 +2002 +Larry W. Bickle is Managing Director of Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Mr. Bickle has held that +position since June 1997. From 1984 to 1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (NYSE:TPC) (formerly Tejas Power Corporation), a gas storage, transportation and marketing company that he +founded. Mr. Bickle is also a Director of UniSource Energy Corporation (NYSE:UNS), the parent company for Tucson Electric Power Company. +59 +1995 +Thomas E. Congdon retired as Chairman of the Board of St. Mary in September 2002. Mr. Congdon served St. Mary as an officer for more than 36 years, including +service as President and Chief Executive Officer from 1966 to 1995 and Chairman of the Board from 1992 to September 2002. Mr. Congdon is also a director, officer or general partner of a number of family corporations and partnerships that +produce iron ore and agricultural products, manage marketable securities and conduct metals exploration. +78 +1966 +William J. Gardiner is Vice President and Chief Financial Officer of King Ranch, Inc., a privately held ranching and agricultural company that owns the historic 825,000 acre +"King Ranch" in South Texas. Mr. Gardiner has held that position since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice President and Chief Financial Officer of CRSS, Inc., an independent power producer. +Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director of St. Mary in connection with St. Mary's acquisition of King Ranch Energy, Inc. in 1999. +51 +1999 +Mark A. Hellerstein is Chairman of the Board, President and Chief Executive Officer of St. Mary. Mr. Hellerstein has served St. Mary as President since 1992, Chief +Executive Officer since 1995, and was appointed Chairman of the Board in September 2002. +52 +1992 +4 +John M. Seidl resigned on December 31, 2004 as Chief Program Officer, Environment, of the Gordon and Betty Moore Foundation, a private grant-making foundation, which seeks +and funds education, scientific research, environmental and San Francisco Bay Area projects. Mr. Seidl held that position since June 2001. From 1994 to 1999, Mr. Seidl was Chairman of the Board, President and Chief Executive Officer of +CellNet Data Systems, Inc., a provider of wireless data networks for automated reading of utility meters. In 2000, CellNet Data Systems filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code as part of an acquisition of its +assets. From 1999 to 2002, Mr. Seidl was also a director of Iomega Corporation. Mr. Seidl's business career from 1978-1992 was in energy or energy related businesses. +66 +1994 +William D. Sullivan was with Anadarko Petroleum Corporation from 1981 to 2003. Mr. Sullivan resigned from Anadarko in August 2003 as Executive Vice President, Exploration +and Production a position held since August 2001. Mr. Sullivan served as V.P., Operations—International, Gulf of Mexico, and Alaska in 2001, V.P.—International Operations from 1998 to 2000 and V.P.—Algeria from 1995 to +1998. +48 +N/A +STOCK SPLIT +On March 10, 2005, the Company announced that the Board of Directors approved a 2-for-1 stock split, to be effected in the form of +a stock dividend. As a result, stockholders of record as of March 21, 2005 have been issued one additional share of St. Mary common stock for each share owned as of that date. The Board of +Directors also approved maintaining the regular semi-annual dividend rate of $0.05 per share of common stock, which on a post-split basis would effectively double the current +regular semi-annual dividend. +All share and per share amounts in this proxy have been presented on a post-split basis. +CORPORATE GOVERNANCE +Board of Directors +The Board is comprised of a majority of independent directors. The independent directors are Barbara M. Baumann, Larry W. Bickle, William J. Gardiner, John M. +Seidl and William D. Sullivan. In its conclusions as to the independence of these directors, the Board considered past employment, remuneration, and any relationship with the Company. In making its +determination as to the independence of the members of the Board of Directors, the Board considered the independence tests described in Section 303A.02 of the Corporate Governance Standards of +the New York Stock Exchange's Listed Company Manual. +The +Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are each comprised solely of independent directors. The written charters for all +three independent committees can be found on the Company's website at www.stmaryland.com together with the Company's Corporate Governance Guidelines, +Code of Business Conduct and Ethics and Executive Committee Charter. The charter of the Audit Committee is attached to this Proxy as Exhibit A. The committee charters, the Corporate Governance +Guidelines and the Code of Business Conduct and Ethics will be furnished in print to any stockholder who requests them. +Selection of Directors +The Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee shall be responsible for identifying and recommending Directors +for nomination by the Board for election as members of the Board. Stockholders may nominate persons for election to the +5 +Board +in accordance with the Company's Bylaws. The Board will evaluate each potential nominee individually and in the context of the Board as a whole. In determining whether to recommend a Director +for re-election, the Nominating and Corporate Governance Committee also considers the Director's past attendance at meetings and participation in and contributions to the activities of the +Board. +Presiding Director at the Non-Management Directors' Executive Sessions +The Nominating and Corporate Governance Committee is comprised solely of independent directors. All non-management directors meet in executive session +immediately before each regularly scheduled meeting of the Board of Directors. Mr. Seidl, as chairman of the Nominating and Corporate Governance Committee, presided at these executive sessions. +Communication with the Directors of the Company +The Board of Directors welcomes questions or comments about the Company and its operations. Those interested may contact the Board of Directors as a whole, +non-management directors or any one or more specified individual directors by sending a letter to the intended recipients' attention in care of St. Mary Land & Exploration Company, +Corporate Secretary, 1776 Lincoln Street, Suite 700, Denver, CO 80203. All such communications other than commercial advertisements will be forwarded to the appropriate director or directors +for review. +BOARD AND COMMITTEE MEETINGS +The full Board of Directors met six times during 2004. All directors attended 100 percent of the Board meetings and committee meetings held during the +directors' tenure on the Board and its committees. +It +is the Company's policy that each director is expected to attend the Annual Meeting of Stockholders. Each director attended the 2004 Annual Meeting of Stockholders. +The +Board has an Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee and an Executive Committee. As noted previously, the Audit Committee, the +Nominating and Corporate Governance Committee and the Compensation Committee are each comprised solely of independent directors. +Each +of the committees and the entire Board evaluated its performance over 2004. The performance evaluations were supervised by the Nominating and Corporate Governance Committee and +discussed by the full Board. +The +following table sets forth the members of each committee, as of December 31, 2004, and the number of meetings held in 2004. +Name of Director +Audit +Committee +Nominating +and Corporate +Governance Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X +X +* +Larry W. Bickle +X +X +Ronald D. Boone +X +Thomas E. Congdon +X +William J. Gardiner +X +* +X +Mark A. Hellerstein +X +* +John M. Seidl +X +X +* +William D. Sullivan +X +X +Number of Meetings in 2004 +10 +4 +6 +3 +* Chairperson +6 +The +Audit Committee assists the Board in fulfilling its oversight responsibilities for financial reporting by the Company. Audit Committee members are prohibited from serving on more +than three audit committees of public companies. We do not have any Audit Committee members that serve on any other company's audit committee. The Audit Committee is solely responsible for the +engagement and discharge of independent auditors and reviews the quarterly and annual financial results. The committee reviews the audit plan and the results of the audit with the independent auditors +and reviews the independence of the auditors, the range of audit fees, the scope and adequacy of St. Mary's system of internal accounting controls, and the Company's risk management policies. The +Audit Committee is currently composed of three directors, each of whom is independent as defined by the NYSE listing standards. See the Audit Committee Report contained in this proxy statement. +The +Board of Directors has determined that each of the current Audit Committee members is an audit committee financial expert as the term is defined by SEC rules. +The +Nominating and Corporate Governance Committee's primary function is to nominate the individuals to be elected to the Board of Directors and to oversee all corporate governance +policies of the Board of Directors. +The +Compensation Committee's primary function is to oversee the administration of the Company's employee benefit plans and to establish the Company's compensation policies. The +Compensation Committee recommends to the Board the compensation arrangements for senior management and directors, adoption of compensation plans in which officers and directors are eligible to +participate, and the granting of equity based compensation or other benefits under compensation plans. See the "Report of the Compensation Committee on Executive Compensation" contained in this proxy +statement. +The +Executive Committee has the authority to act on behalf of the Board of Directors and the Company with respect to matters as to which it has been authorized to act by the Board of +Directors, provided that such matters are not in conflict with the certificate of incorporation or Bylaws of the +Company or applicable laws, regulations or rules or the listing standards of the New York Stock Exchange. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on the Board of Directors or any committee. For service over the past year, each +non-employee director received 2,400 shares of St. Mary common stock in 2004 for serving as a director and was paid $750 for each meeting attended. Non-employee directors +serving on a committee were paid $600 for each committee meeting attended and $375 for telephonic meetings. Directors are reimbursed for expenses incurred in attending Board and committee meetings. +Members +of the Board of Directors also participated in the Company's Stock Option Plan. In 2004, non-employee directors received a total number of options based on a formula. +The formula considered the average salary of the CEO and COO of peer companies of St. Mary. The resultant average salary number was applied to the formula for granting options in order to determine +the total number of options available to the non-employee directors. This resulting number of options was divided by six to determine the number of grants each non-employee +director received. These options have an exercise price equal to the fair market value of St. Mary common stock on the date of grant and vest over a three-year period, except that the +options of a director who retires after five years of service shall become fully vested upon retirement. For 2004, each non-employee director was granted, under this arrangement, an +option to purchase 9,772 shares of St. Mary common stock at an exercise price of $20.87 per share. +7 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock —The following table shows beneficial ownership of shares of St. Mary common stock as +known by the Company as of February 15, 2005, by all beneficial owners of more than 5% of the outstanding shares of St. Mary common stock, by each director, director nominee and by each of the +executive officers named in the Summary Compensation Table, and all directors, director nominees and executive officers as a group: +Name and Address of Beneficial Owner +Shares +beneficially +owned excluding +options +Options +exercisable +within 60 days +of 2/20/2004 +Total shares +beneficially owned(1) +Percent +beneficially +owned +Stockholders Owning More Than 5% +Neuberger Berman, Inc. +605 Third Avenue +New York City, NY 10158-3698 +3,409,800 +— +3,409,800 +(2) +6.0 +% +Artisan Partners Limited Partnership +875 East Wisconsin Avenue, Suite 800 +Milwaukee, WI 53202 +2,956,642 +— +2,956,642 +(3) +5.2 +% +Harris Associates L.P. +Two North LaSalle Street, Suite 500 +Chicago, IL 60602-3790 +2,918,000 +— +2,918,000 +(4) +5.1 +% +Name and Position of Beneficial Owner Directors and Executive Officers +Barbara M. Baumann, Director +7,400 +28,004 +35,404 +0.1 +% +Larry W. Bickle, Director +64,008 +63,764 +127,772 +0.2 +% +Ronald D. Boone, Director +19,804 +266,162 +285,966 +0.5 +% +Thomas E. Congdon, Director +(5)171,514 +74,700 +246,214 +0.4 +% +William J. Gardiner, Director +13,000 +46,780 +59,780 +0.1 +% +John M. Seidl, Director +13,000 +63,764 +76,764 +0.1 +% +William D. Sullivan, Director +6,400 +2,442 +8,842 +<0.1 +% +Mark A. Hellerstein, Chairman, +President, Chief Executive Officer and Director +(6)88,108 +525,568 +613,676 +1.1 +% +Douglas W. York, Executive Vice President +and Chief Operating Officer +12,496 +181,788 +194,284 +0.3 +% +Robert L. Nance, Senior Vice President +(7)684,998 +184,526 +869,524 +1.5 +% +Jerry R. Schuyler, Senior Vice President +and Regional Manager +— +20,000 +20,000 +<0.1 +% +Kevin E. Willson, Senior Vice President—Mid +Continent Drilling and Production +10,674 +92,800 +103,474 +0.2 +% +All executive officers and directors as a group +(16 persons including those named above) +1,236,352 +1,762,334 +2,998,686 +5.2 +% +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any shares which the individual has the +right to acquire within 60 days of February 15, 2005, through the exercise of any stock option or other right. +(2) According +to a Statement on Schedule 13G filed by Neuberger Berman, Inc. and Neuberger Berman, LLC on February 14, 2005, by reason of advisory and other +relationships with persons who own shares of St. Mary common stock Neuberger Berman, Inc. and Neuberger Berman, LLC may be deemed to be the beneficial owners of a total of 3,409,800 shares, +with sole voting power +8 +as +to 2,800 shares, with shared voting power as to 2,653,400 shares, and shared dispositive power as to all shares. +(3) According +to a Statement on Schedule 13G filed by Artisan Partners Limited Partnership on January 26, 2005, by reason of advisory and other relationships with persons +who own shares of St. Mary common stock, Artisan Partners Limited Partnership may be deemed to be the beneficial owners of a total of 2,956,642 shares, with shared voting and dispositive powers as to +all of such shares. +(4) According +to a Statement on Schedule 13G filed by Harris Associates L.P. and Harris Associates Inc. on February 9, 2005, by reason of advisory and other +relationships with persons who own shares of St. Mary common stock, Harris Associates L.P. and Harris Associates Inc. as the general partner of Harris Associates L.P. may be deemed to be the +beneficial owners of a total of 2,918,000 shares, with shared voting power as to all of such shares, shared dispositive power as to 2,900,000 shares, and sole dispositive power as to 18,000 shares. +(5) Includes +18,206 shares held of record by the spouse of Thomas E. Congdon as to which he may be deemed the beneficial owner. Thomas E. Congdon and members of his extended family own +greater than 10 percent of the outstanding common stock of the Company. While no formal arrangements exist, these extended family members may be inclined to act in concert with +Mr. Congdon on matters related to control of the Company or the approval of a significant transaction. +(6) Includes +3,400 shares held by Mr. Hellerstein's mother. Mr. Hellerstein may be deemed to have shared investment power with respect to such shares. Mr. Hellerstein +has disclaimed any beneficial ownership of such shares. +(7) Includes +4,000 shares held of record by Ronan, Inc., a corporation controlled by Robert L. Nance, and 138,200 shares held by the spouse of Mr. Nance. +Restricted Stock Units— The Restricted Stock Plan was approved by the stockholders in May 2004. Grants under this plan +are performance-based and are intended to replace grants of stock options under the option plans. Grants under this plan have been in the form of restricted stock units. Restricted stock units +represent rights to shares of stock to be delivered upon settlement, subject to risk of forfeiture and cancellation. The restricted stock unit awards are automatically exchanged for common shares +after three years following their issuance. The restricted stock units do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other +distributions paid in cash on our common stock. The restricted stock unit awards vest 25% upon issuance and 25% on each of the next 3 anniversary dates. +The +initial grant under this plan was made on June 30, 2004, whereby eligible executive officers and key employees were issued restricted stock units. On March 15, 2005, +another issuance of restricted stock units was made under the Restricted Stock Plan. This issuance was reflective of the Company's performance over 2004. +9 +The +following table shows the number of restricted stock units owned by each of the executive officers named in the Summary Compensation Table set forth under the caption "Executive +Compensation," and all executive officers as a group as of the date of the filing of this proxy: +June 30, 2004 +Issuance +March 15, 2005 +Issuance +Mark A. Hellerstein +29,456 +7,900 +Douglas W. York +16,940 +8,498 +Robert L. Nance +19,636 +10,410 +Jerry R. Schuyler +— +8,358 +Kevin E. Willson +16,420 +1,516 +All executive officers, including those named above +103,654 +43,006 +EXECUTIVE COMPENSATION +In addition to salaries, the Company has granted stock options to executive management and selected other personnel. These individuals also participate with other +members of management in a net profits interest bonus plan. All eligible employees may participate in the Company's performance based cash bonus plan and restricted stock plan. See the Report of the +Compensation Committee on Executive Compensation contained in this proxy statement. +The +following table sets forth the annual and long-term compensation received during each of the Company's last three years by the Chief Executive Officer and by the +four other highest compensated executive officers of the Company during 2004. +10 +SUMMARY COMPENSATION TABLE +Annual Compensation +Long Term Compensation Awards +Name and Principal Position +Year +Salary +Bonus +Other Annual +Compensation +(1) +Restricted +Stock +Awards(3) +Securities +Underlying +Options/SAP's +All Other +Compensation +(2) +Mark A. Hellerstein +President and Chief Executive Officer +2004 +2003 +2002 +$ +371,833 +359,000 +330,000 +$ +37,183 +179,500 +52,800 +$ +1,385,704 +1,640,948 +724,243 +$ +720,578 +— +— +— +85,716 +588,788 +$ +12,650 +25,631 +22,913 +Douglas W. York +Executive Vice President and Chief Operating Officer +2004 +2003 +2002 +248,333 +206,458 +161,667 +40,000 +103,229 +40,000 +229,840 +329,714 +128,299 +512,281 +— +— +37,500 +161,818 +45,182 +9,063 +8,438 +9,588 +Robert T. Nance +Senior Vice President +2004 +2003 +2002 +221,733 +214,033 +206,500 +49,000 +107,017 +49,560 +81,158 +92,585 +64,535 +607,659 +— +— +— +51,106 +57,066 +13,350 +12,154 +11,546 +Jerry R. Schuyler +Senior Vice President and Regional Manager(4) +2004 +2003 +2002 +187,333 +15,417 +— +39,340 +7,708 +— +— +— +— +206,861 +— +— +— +— +— +10,848 +1,275 +— +Kevin R. Willson +Senior Vice President— +Mid-Continent Drilling and Production +2004 +2003 +2002 +178,333 +169,333 +162,000 +7,133 +76,200 +54,000 +326,326 +432,264 +180,272 +330,208 +— +— +— +40,564 +44,772 +11,050 +10,510 +9,799 +(1) Amounts +consist of payments under the Net Profits Interest Bonus Plan. See Report of the Compensation Committee on Executive Compensation for a description of this plan. +(2) Amounts +consist of the Company's contribution to the 401(k) Savings Plan, holiday bonus and other miscellaneous cash payments. +(3) Represents +awards of restricted stock units issued in 2004, and restricted stock units issued in 2005 related to 2004 performance. +(4) Mr. Schuyler +was hired in December 2003. +Stock +options granted to the Company's Chief Executive Officer and four highest compensated executive officers are set forth in the following two tables. All such stock options were +granted pursuant to the Company's stock option plans described in this proxy statement. In May 2004, the Board of Directors amended the stock option plans to prohibit any repricing of +outstanding options that would reduce the exercise price without stockholder approval. The issuance of stock options has been replaced by the issuance of restricted stock under a performance based +plan. +11 +2004 STOCK OPTION GRANTS +Individual Grants +Potential realizable value at assumed annual rates of stock price appreciation for option term +Percent of +total +options granted +to employees +in 2004 +Name +Number of +options granted +Exercise price +per share +Expiration +date +5% +10% +Mark A. Hellerstein +— +— +N/A +N/A +$ +— +$ +— +Douglas W. York +37,500 +(1) +100 +% +$ +33.43 +3/31/2014 +394,199 +998,978 +Robert L. Nance +— +— +N/A +N/A +— +— +Jerry R. Schuyler +— +— +N/A +N/A +— +— +Kevin L. Willson +— +— +N/A +N/A +— +— +(1) Stock +option granted effective March 15, 2004. This award was deemed a special award at the time of Mr. York's promotion to Executive Vice President. +AGGREGATED STOCK OPTION EXERCISES IN 2004 AND +DECEMBER 31, 2004 STOCK OPTION VALUE +Number of +unexercised options +held at +December 31, 2004 +Value of unexercised +in-the-money +options at +December 31, 2004(1) +Name +Shares +Acquired +on exercise +Value +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Mark A. Hellerstein +— +$ +— +525,564 +367,868 +$ +3,313,402 +$ +3,347,779 +Douglas W. York +— +— +178,038 +148,414 +1,665,788 +1,007,350 +Robert L. Nance +— +— +184,526 +25,558 +1,784,094 +195,880 +Jerry R. Schuyler +— +— +20,000 +20,000 +159,400 +159,400 +Kevin E. Willson +29,736 +243,403 +92,800 +20,288 +688,140 +158,330 +(1) On +December 31, 2004, the last reported sales price of St. Mary common stock as quoted on the New York Stock Exchange (NYSE) was $20.87. +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors has responsibility for reviewing, evaluating and recommending to the Board of Directors the director and +officer compensation plans, policies and programs and for recommending to the Board the specific compensation arrangements for executive officers and directors. After consideration of the Compensation +Committee's recommendations, the full Board of Directors reviews and approves the compensation of all elected officers, including the executive officers named in the Summary Compensation Table +presented in this proxy, and also determines the compensation for the Board itself. +The +Compensation Committee oversees the administration of the Company's executive compensation programs including programs for cash bonuses, stock compensation and the Net Profits +Interest Bonus Plan. The Compensation Committee annually evaluates the chief executive officer's performance in light of goals and objectives previously established and recommends to the Board of +Directors the chief executive officer's compensation based on such evaluation. The Compensation Committee also reviews the performance of the Company's pension and 401(k) plans with the +Investment Review Committee. The Investment Review Committee is comprised of selected senior +12 +management +personnel. A representative from this committee meets with the Compensation Committee annually to discuss the results of the review performed with the plan trustees. +The +goals of the Company's integrated management compensation programs include the following: +• To +attract and retain talented management personnel; +• To +encourage management to obtain superior returns for St. Mary's stockholders; +• To +promote preservation and growth of the Company's income producing assets; and +• To +encourage ownership of shares of St. Mary common stock. +Salaries +In order to emphasize performance-based incentive compensation, base salaries of executive officers are targeted not to exceed the median salaries of similar +officers in industry companies having a financial position and performance comparable to that of the Company. With the assistance and information from external consultants and based on survey data +from the Company's industry peer group, the Compensation Committee determines the salary ranges for various positions. The Compensation Committee then reviews management's recommendations for +executive officer salaries +and the performance summaries on which they are based. The Compensation Committee makes final salary recommendations to the full Board of Directors based on officer experience, sustained performance +and comparisons to peers both inside and outside the Company. +Incentive Compensation +The Company has established three incentive compensation plans. These have the potential to substantially increase annual compensation if the economic performance +of the Company and the performance of the affected employees so warrants. These plans have certain specific objectives. +1. The +Company has established a Cash Bonus Plan. Each year the Board of Directors evaluates the overall performance of the Company for the year as well as of the Company's +individual regions, and with the assistance of the Compensation Committee, determines the total cash bonus available to be allocated to employees. The participation of each designee in the total +allocated bonus is a function of overall, region and individual performance during the year. +2. The +Restricted Stock Plan is intended to reward executive officers and key employees of the Company for long-term increases in the value of the Company's +stock. The Company utilizes restricted stock unit awards as the stock-based incentive component of compensation. The annual grant of restricted stock unit awards is performance based and is based on +the same basic formula as the Cash Bonus Plan. This formula only provides for a grant if the Company's measured performance for the preceding period exceeds certain defined criteria. +3. The +Net Profits Interest Bonus Plan is designed to reward the contributions made by various personnel to the Company's financial success. Plan participants share in the +net profits derived from all oil and gas activity for a calendar year, after payout to the Company of 100% of related costs and expenses. Specifically, after the Company has received cash flows +returning 100% of all costs and expenses associated with a designated pool for a particular year, 10% of the future cash flow from those properties is distributed among the pool participants. This +cash flow is distributed based on a portion of each participant's relative weighted salary, as well as on subjective individual performance criteria. After the Company has recovered 200% of the total +costs and expenses for the pool, including prior distributions under the plan at the 10% level, 20% of the future net cash flow is distributed among pool participants based on the criteria outlined +above. Acknowledging that senior management has the primary accountability for profitable operations and investments, the salaries of the president, the executive vice-president and +certain other vice-presidents as deemed appropriate by the +13 +Compensation +Committee are weighted at 100% and the salaries of all other participants are weighted at two-thirds of actual base salary or less as well as on subjective individual and +regional performance criteria. Payout with respect to a net profits pool established for a year will generally not occur until several years later, at which time payments to participants with +respect to such early year pools commence. Because these payments are based on the performance of previous capital investments, they may not bear a direct relationship to the Company's performance in +the actual year payouts are made. Payouts under the plan have begun as soon as two years from the end of the year in which the initial capital was spent, but typically begin approximately four +to six years, following the year in which the initial capital investments take place. The amounts due and payable under the Net Profits Interest Bonus Plan are recognized as compensation +expense in the period the net cash flows from oil and gas properties are earned by the Company. This treatment provides for a consistent matching of cash expense with net cash flows from the oil and +gas properties in each respective pool of the Net Profits Interest Bonus Plan. +The +committee's goal is that, over time, the combined amounts of compensation received by Company executives from the stock compensation plans and the Net Profits Interest Bonus Plan +will approximate the value of stock-based compensation and other long-term incentives received by executives at peer companies in the oil and gas industry with similar financial position +and performance to that of the Company. +Compensation of the Chief Executive Officer +The compensation of Mark A. Hellerstein, chairman of the Board of Directors, president and chief executive officer, consists of the same components and criteria +as other executive officers, including base salary, cash bonus, restricted stock units and net profits interest bonus. His base salary is reviewed annually by the Compensation Committee and is +targeted to approximate the median salary of the chief executive officers of industry companies having a financial position and performance comparable to that of the Company. A greater emphasis of +Mr. Hellerstein's compensation is placed on an incentive +pay tied to the Company's performance. Mr. Hellerstein's base salary in 2004 increased $12,833 or 3.6% over 2003. His total cash and net profits interest bonuses earned decreased by +approximately $398,000 in 2004 compared with $1.8 million in 2003. This decrease is primarily because of the decreased cash bonus award and the decreased payout under the Net Profit Interests +Bonus Plans as compared to prior years, resulting from natural declines in production. Because the Company met it corporate goals, Mr. Hellerstein was granted a $37,183 bonus under the +cash bonus plan and 7,900 restricted stock units related to performance for 2004. Mr. Hellerstein was also granted 29,456 restricted stock units on June 30, 2004. This award was the +initial grant of restricted stock from the Restricted Stock Plan. Awards under this plan replaced awards under the Company's stock option plans. The Company's total reserves increased to 659 Bcfe from +594 Bcfe a year earlier through both drilling and acquisition growth. Production, however, decreased by 2% from 2003 to 2004. These items coupled with controlled cost increases and exceptionally +strong commodity prices resulted in the Company achieving a reasonable increase in its net asset value per share. +A +significant portion of Mr. Hellerstein's compensation is at risk. The annual cash bonus calculation contemplates payment percentages ranging from zero to 50% of base +compensation and is determined based on the change in net asset value of the Company over the year. Additionally, a substantial portion of Mr. Hellerstein's total compensation is derived from +payments made under the Net Profits Interest Bonus Plan. The plan is designed to align the interest of the stockholders with those of management in order to provide an incentive to management to +deliver long-term value to the stockholders. Payouts under the plan begin only after the Company has recovered 100% of its capital investment, lease operating costs and production taxes. +As a result, the amount invested in the properties, the performance of the properties, management's ability to control costs and the impact of commodity prices all have a direct impact on payouts +under the plan. Payouts under the plan begin as +14 +soon +as two years, but typically begin approximately four to six years, following the initial capital investment. +Periodically, +the Compensation Committee and the Board of Directors use an independent compensation consultant to compare St. Mary's executive compensation package to that of comparable +peer companies in the oil and gas industry. The last such review conducted was in 2003, at which time the Company's compensation system was considered appropriate relative to its peer competitors, +adjusted for the size and performance of St. Mary. +Conclusion +St. Mary's executive compensation is linked to individual and corporate performance and stock price appreciation. Compensation is set in comparison to similar +industry companies. The Compensation Committee intends to continue the policy of linking executive compensation to individual and corporate +performance, as well as to stockholder returns. The Committee also contends that there is merit in providing cash bonus incentives to key employees in a manner that is partially independent of the +fluctuations in the business cycles of the oil and gas industry. +Barbara M. Baumann, Chairman +Larry W. Bickle +William D. Sullivan +April 8, +2005 +RETIREMENT PLANS +Pension Plan +The Company's Pension Plan is a qualified, non-contributory defined benefit plan which is available to substantially all employees. This plan was +amended in 1994 to conform to the changes required by the Tax Reform Act of 1986 and to reduce the plan formula. The Company also has a supplemental pension plan for certain executive officers to +provide for benefits in excess of Internal Revenue Code limits. +The +qualified plan provides a benefit after 25 years of service equal to 35% of final average compensation, subject to Internal Revenue Code limits. Final average compensation is +the average of the highest three consecutive years of the 10 years preceding termination of employment. For each named executive officer, the level of compensation used to determine +benefits payable under the qualified pension plan is that officer's average of the base salaries (excluding bonus) shown in the Summary Compensation Table. +The +supplemental plan provides executives hired before 1995, after completing 15 years of service and reaching age 65, a benefit equal to 40% of final average compensation plus +37% of final average compensation integrated with the social security wage base without regard to compensation limitations provided under the qualified plan, less the benefit provided by the qualified +plan. For executives hired after 1994, the supplemental benefit is calculated using the formula for the qualified plan without the limitation imposed by Section 415 of the Internal Revenue +Code, less the benefit provided by the qualified plan. +15 +The following table shows the estimated maximum annual benefits payable upon retirement at age 65 as a straight life annuity to participants in the pension plans for the indicated levels +of average annual compensation and years of service. +Remuneration +Estimated annual pension +benefits for executives +hired before 1995 with > +15 years of service +Estimated annual pension +benefits for executives +hired after 1994 with > +25 years of service +$ +100,000 +$ +60,350 +$ +35,000 +150,000 +98,850 +52,500 +200,000 +137,350 +70,000 +250,000 +175,850 +87,500 +300,000 +214,350 +105,000 +350,000 +252,850 +122,500 +400,000 +291,350 +140,000 +As +of December 31, 2004, the named executive officers have the following years of credited service: +Mark A. Hellerstein +13 +Douglas W. York +8 +Robert L. Nance +6 +Jerry R. Schuyler +1 +Kevin E. Willson +9 +401(k) Plan +The Company's 401(k) Profit Sharing Plan is a defined contribution pension plan subject to the Employee Retirement Income Security Act of 1974. The +401(k) Plan allows eligible employees to contribute up to 60 percent of their income on a pre-tax basis through contributions to the 401(k) Plan. Contributions are +limited to amounts determined by Internal Revenue Code regulations. The Company matches each employee's contributions up to six percent of the employee's pre-tax income. Company +contributions vest over an employee's first five years of employment. +EQUITY COMPENSATION PLANS +St. Mary has a Restricted Stock Plan, Stock Option Plan, an Incentive Stock Option Plan, an Employee Stock Purchase Plan and a Non-Employee Director +Stock Compensation Plan under which options and shares of St. Mary common stock are authorized for grant or issuance as compensation to eligible employees, consultants and members of the Board of +Directors. Each of these plans has been approved by our stockholders. There are no equity compensation plans that are not approved by stockholders. In May 2003, the stock option plans were +amended by the Board of Directors to prohibit any repricing of outstanding stock options to reduce the exercise price without stockholder approval. +16 +The +following table is a summary of the shares of common stock authorized for issuance under our equity compensation plans as of December 31, 2004. +Plan Category +Number of +securities to be +issued upon +exercise of +outstanding +options, warrants +and rights +Weighted- +average exercise +price of +outstanding +options, +warrants and +rights +Number of securities +remaining available +for future issuance +under equity +compensation plans +(excluding securities reflected +in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by stockholders— +Stock Option Plans +5,705,350 +$ +12.06 +(1 +) +Restricted Stock Plans +455,662 +— +1,224,060 +Employee Stock Purchase Plan +— +— +1,683,838 +Non-Employee Director Stock Compensation Plan +— +— +34,800 +Total +6,107,012 +$ +11.16 +2,942,698 +(1) The +number of securities remaining available for future issuance under the Stock Option Plans and the Restricted Stock Plan are an aggregate number of shares in the amount of +1,224,060. There is only one pool of shares available for issuance under these three plans. +EMPLOYMENT AGREEMENTS AND TERMINATION OF +EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS +On September 1, 1991, St. Mary entered into an employment agreement with Mark A. Hellerstein. His current salary is $386,460 per year. Compensation is +reviewed annually. Mr. Hellerstein participates in St. Mary's benefit plans and is entitled to bonuses and incentive compensation as determined by the Board of Directors. The agreement is +terminable at any time upon 30 days' notice by either party. Upon termination of the agreement by St. Mary for any reason whatsoever (other than death, disability or misconduct by +Mr. Hellerstein), St. Mary is obligated to continue to pay his compensation, including insurance benefits, for a period of one year. +St. +Mary has established a change in control executive severance policy and entered into change of control severance agreements whereby certain officers of St. Mary, including the +officers named in the Summary Compensation Table, are entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a +change in control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an adverse change in the officer's status after a change in control), +each as defined in the agreements. The severance payments equal up to two and one-half years annual base salary, depending on the length of time employment continues after the +change in control provided that in no event would the severance payments equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of +one year. +A +change in control is defined to include (i) an acquisition of more than fifty percent of the common stock or assets of the Company in a reorganization, merger or consolidation +of the Company or (ii) a change in more than fifty percent of the composition of the Board of Directors of the Company other than as a result of the election of new members of the Board of +Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of Directors. +17 +PERFORMANCE GRAPH +The following performance graph compares the cumulative total stockholder return* on St. Mary's common stock for the period December 31, 1999 to +December 31, 2004 with the cumulative total return of the Dow Jones U.S. Exploration and Production Broad Index, and the Standard & Poor's 500 Stock Index. The identities of the +companies included in the index will be provided upon request. +COMPARE 5-YEAR CUMULATIVE TOTAL RETURN +AMONG ST. MARY LAND & EXPLORATION COMPANY, +DJ U.S. EXPLORATION & PRODUCTION AND S&P 500 INDEX +Assumes +$100 invested on December 31, 1999, in St. Mary Land & Exploration Company, Dow Jones US Exploration & Production, and the Standard & Poor's 500 Stock Index. +*Total +return assumes reinvestment of dividends. +December 31, +1999 +2000 +2001 +2002 +2003 +2004 +St. Mary Land & Exploration Company +$ +100.0 +$ +270.8 +$ +173.1 +$ +205.0 +$ +234.6 +$ +344.6 +Dow Jones US Exploration & Production +100.0 +159.8 +146.6 +149.8 +196.3 +278.6 +Standard & Poor's 500 Index +100.0 +90.9 +80.1 +62.4 +80.3 +89.0 +Total +return data provided by CoreData Financial Information, Inc. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. Mary and certain of its officers and directors during the last fiscal year. Some of +these transactions will continue in effect and may result in conflicts of interest between St. Mary and these individuals. Although these persons owe +18 +fiduciary +duties to St. Mary and its stockholders, we cannot assure you that conflicts of interest will always be resolved in favor of St. Mary. +As +a result of their prior employment with another company with which St. Mary engaged in a number of transactions, Ronald D. Boone, a director of St. Mary, and two vice presidents of +St. Mary own royalty interests in certain of St. Mary's properties, which were earned as part of the prior employer's employee benefit programs. One vice president also owns certain working interests +through participation in acquisitions made by his former employer. Those persons have no royalty participation or working interest in any new St. Mary properties. +Mr. Boone +also owns 25% of Princeton Energy LLC, which owns the oil and gas working interests that he acquired as a result of his prior employment. Although Mr. Boone does +not manage this entity, he may participate in any investment decisions made by them. +St. +Mary's Bylaws provide that no director, officer or employee may pursue for his or her own account a business or investment opportunity if he or she has obtained knowledge of such +opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas opportunity as to which his or her +knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the officer's pursuit of the opportunity has +been approved by the Board of Directors and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been approved by a senior officer of St. +Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. +OTHER MATTERS TO BE VOTED ON +Amendment to Certificate of Incorporation to Increase the Total Number of Authorized Shares of Common stock +The Company's certificate of incorporation currently authorizes the Company to issue up to 100,000,000 shares of common stock. There were 57,239,058 shares of +common stock outstanding, net of 500,000 treasury shares as of April 8, 2005. In addition, the Company has reserved out of its authorized but unissued shares approximately 16,925,497 shares of +common stock for possible future issuances under the Company's restricted stock plan, stock options plans, employees stock purchase plan, directors stock compensation plan and conversion rights +attributable to the 5.75% Senior Convertible Notes due in 2022. The Company has also reserved additional shares of authorized but unissued common stock in connection with its shareholder rights plan +adopted in July 1999. +On +March 8, 2005, the Board of Directors approved an amendment to the Company's certificate of incorporation to increase the number of authorized shares of common stock to +200,000,000 shares, subject to approval by the stockholders. This proposed doubling of the number of authorized shares of common stock in the certificate of incorporation is primarily a result of and +an intended consequence of the two shares-for-one share stock split effected in the form of a stock dividend declared for stockholders of record as of March 21, 2005. +Prior to approval of an amendment to the Company's certificate of incorporation, the Company has sufficient authorized shares to effect the stock split. While the Company has no present intention of +issuing shares of common stock except as contemplated by the restricted stock plan, the stock options plans, the employee stock purchase plan, and/or the directors' stock compensation plan, the Board +of Directors believe that having additional shares authorized for issuance under the certificate of incorporation will provide additional financial flexibility for possible future issuances of common +stock for the acquisition of oil and gas properties or to raise cash through an equity issuance. Although the Company continuously evaluates opportunities and proposals in the marketplace for the +acquisition of oil and gas properties and related financing transactions, the Company has no current plans, proposals or arrangements, written or otherwise, to +19 +engage +in any business or investment opportunity which would involve the issuance of shares of the Company's common stock in a transaction in which the Company's stockholders would not have an +opportunity to vote upon the transaction. Any future issuances will remain subject to separate stockholder approval if required under Delaware corporate law and/or the New York Stock Exchange listing +standards. +Although +future issuances of common stock will be dilutive to existing stockholders with respect to their proportionate ownership of St. Mary, the Company expects that an issuance for +cash would be made at fair value, subject to terms of issuance made for cash under the restricted stock plan, stock option plans and employee stock purchase plans. Any issuances for property +acquisitions would be made under circumstances where the Company believes that it would be accretive to net asset value per share. There are no preemptive rights associated with the authorized shares +of common stock. +The Board of Directors recommends voting "FOR" the amendment to Certificate of Incorporation to increase the total number of authorized shares of common stock to +200,000,000 shares. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive officers and persons holding more than 10% of St. Mary common stock must report their initial ownership of the +common stock and any changes in that ownership in reports which must be filed with the SEC and St. Mary. The SEC has designated specific deadlines for these reports, and St. Mary must identify in this +proxy statement those persons who did not file these reports when due. +Based +solely on a review of reports filed with the Company, all directors, executive officers and 10% owners timely filed all reports regarding transactions in the Company's securities +required to be filed for 2004 by Section 16(a) under the Securities Exchange Act of 1934. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with respect to (1) the +integrity of the Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting and compliance with legal and regulatory requirements, +(2) the qualifications, independence and performance of the Company's independent accountants, (3) the performance of the Company's internal audit function and (4) other matters +as set forth in the charter of the Audit Committee approved by the Board of Directors and attached to this proxy statement as Annex A. +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. +The independent accountants are responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and issuing a report +thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements of the Company for the year ended December 31, +2004, with management and the independent accountants. The Audit Committee also discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards +No. 61, Communication with Audit Committees. In addition, the Audit Committee received the written disclosures and the letter from the independent accountants required by Independence Standards +Board Standard No. 1, Independence Discussions with Audit Committees, and the Audit Committee discussed with the independent accountants that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company be +included in +20 +the +Company's Annual Report on Form 10-K for the year ended December 31, 2004, for filing with the SEC. +THE AUDIT COMMITTEE +William J. Gardiner, Chairman +Barbara M. Baumann +John M. Seidl +April 8, +2005 +INDEPENDENT ACCOUNTANTS +To the knowledge of management, neither Deloitte & Touche LLP nor any of its members has any direct or material indirect financial interest in St. Mary nor +any connection with St. Mary in any capacity other than as independent public accountants. A representative of Deloitte & Touche LLP is expected to be present at the annual meeting and will +have an opportunity to make a statement if he desires to do so and to respond to appropriate questions. +The +Company paid the following fees to the independent accountants for the audit of the consolidated financial statements and for other services provided in the years ended +December 31, 2004 and 2003. All services and fees including tax service fees were pre-approved by the Audit Committee. +2004 +2003 +Audit Fees +$ +443,042 +$ +130,000 +Audit Related Fees +47,000 +27,130 +Tax Fees +14,266 +26,757 +All Other Fees, including financial systems Design and implementation +— +— +Total Fees +$ +504,308 +$ +183,887 +The +significant increase in audit and audit-related fees over 2003 was due to approximately $305,000 of cost associated with Deloitte's audit of internal controls as required under the +Sarbanes Oxley Act of 2002. Audit related fees were primarily related to the audit and review of St. Mary's employee benefit plans. The tax fees include basic compliance services and assistance with +technical research. The Audit Committee has concluded that the provision of these non-audit services is compatible with maintaining the accountants' independence. +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the independent +accountants, and shall approve in advance any non-audit services to be performed by the independent accountants. Such pre-approval requirement +for non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's +policy that, prior to the engagement of the independent accountants, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the independent +accountants (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (i) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent accountants during the next annual audit cycle, which schedule is detailed as to the particular services to +be performed by the independent +21 +accountants; +(ii) actual amounts paid to the independent accountants are monitored by financial management of the Company and reported to the Audit Committee; (iii) any services proposed +to be provided by the independent accountants and the related fees that have not been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in +advance of any work performed; and, (iv) incremental fees for previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the +Audit Committee. +FUTURE STOCKHOLDER PROPOSALS +St. Mary must receive any St. Mary stockholder proposal for the annual meeting of stockholders in 2006 before November 1, 2005, for the proposal to be +included in the St. Mary proxy statement and form of proxy for that meeting. St. Mary's Bylaws require that advance written notice in proper form of stockholder proposals for matters to be brought +before an annual stockholders meeting be received by the Secretary of St. Mary not less than 75 days nor more than 105 days before the first anniversary date of the immediately preceding +annual stockholders meeting. Accordingly, notice of stockholder proposals for the 2006 annual meeting must be received by St. Mary between February 9, 2006, and March 11, 2006. +OTHER MATTERS +Management does not know of any matters other than the election of directors and approval of the amendment to the Certificate of Incorporation to increase the +number of authorized shares of common stock, to be brought before the annual meeting of stockholders. If any other matters not mentioned in this proxy statement are properly brought before the +meeting, the individuals named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +David W. Honeyfield +V.P.—Finance, Secretary & Treasurer +April 8, +2005 +22 +APPENDIX A +ST. MARY LAND & EXPLORATION COMPANY +CHARTER OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +As Amended by the Board of Directors on November 18, 2004 +I. Audit Committee Purpose +The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with respect to: +• The +integrity of the Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting and compliance with legal +and regulatory requirements. +• The +qualifications, independence and performance of the Company's independent auditors. +• The +performance of the Company's internal audit function. +• The +Company's financial risk assessment and risk management policies. +• The +Company's compliance with legal and regulatory requirements relating to the above matters. +• Establishing +and maintaining an avenue of communication among the independent auditors, individuals performing the finance, accounting, financial reporting and internal +audit functions, management and the Board of Directors. +The +Audit Committee shall prepare an Audit Committee Report as required by the Securities and Exchange Commission ("SEC") to be included in the Company's annual proxy statement. +II. Audit Committee Authority +The Audit Committee has the authority to conduct any investigation and to take any other action appropriate to fulfill its responsibilities, and it shall have +direct access to the independent auditors as well as to any person in the Company. The Audit Committee has the authority to retain, at the Company's expense, special independent legal, accounting and +other advisers and experts it deems necessary to advise and assist the Committee in the performance of its responsibilities. The Company shall provide for appropriate funding, as determined by the +Audit Committee, for the payment of compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest +services for the Company, compensation to any advisers retained by the Audit Committee, and ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out +its duties. +III. Audit Committee Composition and Meetings +The Audit Committee members shall meet the independence requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934, +Rule 10A-3(b)(1) of the SEC, the rules of the New York Stock Exchange and other applicable laws, rules and regulations. Each member of the Audit Committee shall also meet the +financial literacy requirements of the New York Stock Exchange. The Audit Committee shall be comprised of at least three Directors appointed by the Board, each of whom shall be an independent +nonexecutive Director without any relationship or activity which, in the opinion of the Board, would interfere with the exercise of his or her independent judgment in carrying out the responsibilities +of a member of the Committee. All members of the Committee shall have a basic understanding of finance and be able to read and understand fundamental financial statements, and at +23 +least +one member of the Committee shall have accounting or related financial management expertise and experience as required by the rules of the New York Stock Exchange and shall qualify as an "audit +committee financial expert" as defined under the rules of the SEC. No member of the Audit Committee shall simultaneously serve on the audit committees of more than two other public companies. +The +Audit Committee members, including its Chair, shall be appointed by the Board. If an Audit Committee Chair is not designated or present, the members of the Committee may designate a +Chair by majority vote of the Committee members. Members of the Audit Committee may be removed by action by a majority of the independent Directors of the Board. +The +Committee shall meet at least four times annually, pursuant to an annual calendar of scheduled meetings with planned agenda items to be prepared and distributed each year to the +members of the Committee, and more frequently as circumstances dictate. The Audit Committee Chair shall prepare an agenda in advance of each meeting. As circumstances dictate but at least twice +annually the Committee shall meet privately in separate executive sessions with management, the senior internal audit executive and with the independent auditors to discuss any matters that the +Committee or any of these groups believe should be discussed. +IV. Audit Committee Responsibilities and Duties +Review Procedures +1. Review +and reassess the adequacy of this Charter at least annually. Submit amendments of the Charter to the Board of Directors for approval and include the Charter in the proxy +statement for the election of Directors at least once every three years in accordance with applicable regulations. +2. Review +and discuss the Company's annual audited financial statements, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," prior to their +final completion and filing with the SEC. Review procedures should include discussions with financial management and the independent auditors of significant issues regarding accounting principles, +practices and judgments. +3. Review +and discuss with financial management and the independent auditors the Company's quarterly financial statements, including "Management's Discussion and Analysis of Financial +Condition and Results of Operations," prior to final completion and release of earnings. Discuss any significant changes to the Company's accounting principles, practices and judgments and any items +required to be communicated by the independent auditors to the Committee in accordance with Statement on Auditing Standards ("SAS") No. 61, Communication with Audit +Committees , as amended. +4. Review +and discuss with financial management and, to the extent necessary, the independent auditors earnings press releases and the type and presentation of information to be furnished +in earnings press releases, including any pro forma or non-GAAP information, and financial information and earnings guidance provided to analysts and rating agencies. +5. Review +and discuss with financial management significant findings of the independent auditors and the internal auditors, including the status of previous recommendations, together with +management's responses thereto. +6. In +consultation with financial management, the independent auditors and internal auditors, review and discuss the integrity of the Company's procedures for financial reporting and +internal system of audit and financial and accounting controls, including review and approve an annual report of financial management on the foregoing. +24 +7. Review +and discuss with management the Company's risk assessment and risk management guidelines and policies with respect to the Company's significant financial risk exposures, and the +steps management has taken as well as the specific guidelines and policies which have been established to monitor, control, mitigate and report such exposures. Such review and discussion shall cover +the Company's hedging arrangements and insurance coverage as appropriate. +Independent Auditors +8. The +Audit Committee shall be directly and solely responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged by +the Company (including resolution of any disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other +audit, review or attest services for the Company, and each such registered public accounting firm shall have a reporting relationship directly with the Audit Committee. The independent auditors shall +be accountable to the Audit Committee and the Board of Directors. The Audit Committee, in conjunction with the Company's financial management and internal control personnel, shall review and evaluate +the qualifications, independence and performance of the independent auditors. Such review and evaluation shall include a review and evaluation of the lead partner of the independent auditor, and the +Audit Committee shall monitor the regular rotation of the lead audit partner as required by law and shall periodically consider whether, in order to ensure continuing auditor independence, there +should be regular rotation of the audit firm itself. The Audit Committee shall present its conclusions with respect to the independent auditor to the Board. +9. The +Audit Committee shall approve the fees and any other significant compensation to be paid to the independent auditors. The Audit Committee shall approve in advance any +non-audit services to be performed by the auditors, which non-audit services shall be permissible under law and not impair the independence of the auditors. Such +pre-approval requirement shall be waived only if the non-audit services meet a de minimis exception allowed by law. +10. The +Audit Committee shall take appropriate action to oversee the independence of the auditors. On at least an annual basis, the Committee shall review and discuss with the independent +auditors the auditors' independence and all significant services performed for and all relationships they have with the Company that could bear on the auditors' independence. The Committee shall +annually receive from the independent auditors a formal written statement delineating all relationships between the auditors and the Company and a letter confirming that in the auditors' professional +judgment they are independent of the Company, as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. +11. Review +and approve the independent auditors' engagement letter and audit plan and with respect to the audit discuss with the auditors their scope, staffing, locations, reliance upon +management and internal audit, and the general audit approach. +12. Review +and discuss with the independent auditors (a) significant issues regarding the Company's financial reporting, accounting standards and principles and financial statement +presentations, including any significant changes in the Company's selection or application of accounting standards or principles, (b) the key accounting analyses and decisions affecting the +Company's financial statements, including all critical accounting policies and practices to be used, and any analyses prepared by the independent auditors or management setting forth significant +financial reporting issues and judgments made in connection with the preparation +25 +of +the financial statements and the rationale for the decisions made, (c) all alternative disclosures and treatments within GAAP for policies and practices related to material items that have +been discussed with management, including the effects on the financial statements and other ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the +independent auditors, (d) any significant issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of any material control deficiencies, +(e) the effect of regulatory and accounting initiatives and (f) any audit problems or difficulties encountered and management's response thereto, including any difficulties the auditor +encountered in the course of their audit work with respect to any restrictions on the scope of the independent auditor's activities or on access to requested information, and any significant +disagreements with management. In addition, the Audit Committee shall review with the auditor any other material written communications between the auditor and management, such as any management +letter or schedule of any accounting adjustments that were noted or proposed by the auditor but were not made (due to immateriality or otherwise), and any communications between the audit team and the +audit firm's national office with respect to auditing or accounting issues presented by the engagement. +13. Review +and discuss at least annually a report from the independent auditors on the auditing firm's internal quality-control procedures, any material issues raised within the preceding +five years by the auditors' internal quality-control reviews, by peer reviews of the auditors or by any governmental, professional or other inquiry or investigation relating to any audit +conducted by the auditors. The Committee shall also review and discuss steps taken by the auditors to address any such issues in any of the foregoing reviews, inquiries or investigations. +14. Establish +policies with respect to the Company's hiring of employees or former employees of the independent auditors. +15. Terminate +and replace the independent auditors when determined appropriate solely by the Audit Committee. +Internal Auditors +16. The +internal auditors shall be responsible to senior management, but have a reporting relationship directly with the Audit Committee with respect to internal audit matters. Changes in +the senior internal audit executive shall be subject to Audit Committee approval. The Audit Committee, in conjunction with the Company's financial management, shall review and evaluate the performance +of the internal audit function, which function shall provide management and the Audit Committee with ongoing assessments of the Company's risk management processes and system of internal control. +17. Review +and approve the internal audit plan, scope, responsibilities, budget, staffing, procedures, locations and general internal audit approach. +18. Review +and discuss the organizational structure of the internal audit function and the qualifications of internal audit personnel, as needed. +19. Review +and discuss the appointment, performance and replacement of the senior internal audit executive. +Legal Compliance +20. On +at least an annual basis, review with the Company's general counsel any legal matters that could have a significant impact on the Company's financial statements, the Company's +26 +compliance +with applicable laws and regulations and any inquiries with respect thereto received from regulators or governmental agencies. +Other Audit Committee Responsibilities +21. Based +on the review and discussion of the audited financial statements with management and with the independent auditors, and on the discussion with the independent auditors of the +matters required to be discussed by SAS No. 61 and the independent auditors' independence, recommend to the Board of Directors that the audited financial statements be included in the Company's +Annual Report on Form 10-K for filing with the SEC. +22. Review +and discuss with management and the Company's independent engineers the annual evaluation of the Company's oil and gas reserves. +23. Review +and discuss with financial management and the independent auditors any off-balance sheet transactions, and the effect of any off-balance sheet +structures on the financial statements of the Company. +24. Review +and approve all related party transactions of the Company. +25. Establish +procedures for the receipt, retention and treatment of any complaints received by the Company regarding accounting, internal accounting controls or auditing matters of the +Company, and the confidential, anonymous submission by employees of the Company of any concerns regarding accounting or auditing matters. +26. Review +and discuss with management certifications provided by management with respect to financial reports filed by the Company with the SEC and the processes utilized therefor. +27. Prepare +the Audit Committee Report required by SEC rules to be included in the Company's annual proxy statement. +28. Cause +all required corrective actions to be taken with respect to the matters and activities described in this Charter. +29. Perform +any other activities consistent with this Charter, the Company's Bylaws or governing laws and regulations as the Committee or the Board deems necessary or appropriate. +30. Maintain +minutes of meetings and regularly report to the Board of Directors on significant results of the activities described in this Charter. +31. Present +to the Board of Directors annually an evaluation of the performance of the Audit Committee. +While +the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the +Company's financial statements are complete and accurate and are in accordance with GAAP. That is the responsibility of management and the independent auditors. It is also not the duty of the Audit +Committee to conduct all investigations, other than those contemplated by this Charter, or to ensure compliance with all laws and regulations. +This +Charter shall be amended as appropriate to comply with all applicable requirements of laws and regulations of the SEC and the New York Stock Exchange. +27 +[ ] +Mark this box with an X if you have made changes to your name or address details above. +Annual Meeting Proxy Card +A Election of Directors PLEASE REFER TO THE REVERSE SIDE FOR INTERNET AND TELEPHONE +VOTING INSTRUCTIONS. +The St. Mary Land & Exploration Board of Directors recommends a vote "FOR" the listed nominees. +1. The Nominating and Corporate Governance Committee of the Board of Directors has nominated the following seven persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been +nominated to serve as director other than the nominees listed below. +01 - Barbara M. Baumann, 02 - Larry W. Bickle +03 - Thomas E. Congdon, +04 - William J. Gardiner, 05 - Mark A. Hellerstein +06 - John M. Seidl, 07 - William D. Sullivan +[ ] For all nominees listed +[ ] Withhold authority to vote for all nominees listed +[ ] For All Except: To withhold authority to vote for any individual nominee, write that nominee's name in the following space: +B Approval of Amendment to the Certificate of Incorporation +The St. Mary Land & Exploration Board of Directors recommends a vote "FOR" this proposal. +2. The proposal to approve an amendment of the certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000. +For +[ ] +Against +[ ] +Abstain +[ ] +C Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed. +NOTE: +Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint holders must sign. When signing as attorney, trustee, executor, administrator, guardian or corporate officer, +please provide your FULL title. +Signature 1 - Please keep signature within the box +Signature 2 - Please keep signature within the box +Date (mm/dd/yyyy) +Proxy—St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This Proxy is Solicited on Behalf of the Board of Directors For the Annual Meeting of Stockholders on May 25, 2005 +The undersigned hereby appoints Mark A. Hellerstein and David W. Honeyfield, or either of them, each with the power to appoint his substitute, as proxies for the undersigned to +vote all shares of St. Mary Land & Exploration Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 25, 2005, and at any reconvened +meeting after any adjournment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting. +This +proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted +"For" all director nominees listed on this proxy and the approval of the amendment to the certificate of incorporation. +This +proxy also confers discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting. As of the date of the accompanying proxy statement, St. Mary +management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, this proxy will be voted in accordance with the recommendations +of St. Mary management. +Internet and Telephone Voting Instructions +You can vote by telephone OR Internet! Available 24 hours a day 7 days a week! +Your +telephone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and dated your proxy card and returned it in the envelope provided. The telephone and Internet +voting procedures are designed to ensure that proxies are handled properly under Delaware law by authenticating votes cast by use of a PIN and allowing you to confirm that your instructions have been +properly recorded. +To vote using the Telephone (within U.S. and Canada) +To vote using the Internet +• Call toll free 1-866-516-0981 in the United States or Canada any time on a touch tone telephone. There is NO CHARGE to you for the call. +• Go to the following web site: +WWW.COMPUTERSHARE.COM/US/PROXY +• Follow the simple instructions provided by the recorded message. +• Enter the information requested on your computer screen and follow the simple instructions. +If you vote by telephone or the Internet, please DO NOT mail back this proxy card. +Proxies submitted by telephone or the Internet must be received by 5:30 p.m., Central Time on May 24, 2005. +THANK YOU FOR VOTING \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-05-010887/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-05-010887/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..90ec2edcb79ac58e6202bc080bf485fcdd834a37 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-05-010887/proxy_rpt.txt @@ -0,0 +1,19 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of transactions entered into between St. Mary and certain of its officers and directors during the last fiscal year. Some of +these transactions will continue in effect and may result in conflicts of interest between St. Mary and these individuals. Although these persons owe +18 +fiduciary +duties to St. Mary and its stockholders, we cannot assure you that conflicts of interest will always be resolved in favor of St. Mary. +As +a result of their prior employment with another company with which St. Mary engaged in a number of transactions, Ronald D. Boone, a director of St. Mary, and two vice presidents of +St. Mary own royalty interests in certain of St. Mary's properties, which were earned as part of the prior employer's employee benefit programs. One vice president also owns certain working interests +through participation in acquisitions made by his former employer. Those persons have no royalty participation or working interest in any new St. Mary properties. +Mr. Boone +also owns 25% of Princeton Energy LLC, which owns the oil and gas working interests that he acquired as a result of his prior employment. Although Mr. Boone does +not manage this entity, he may participate in any investment decisions made by them. +St. +Mary's Bylaws provide that no director, officer or employee may pursue for his or her own account a business or investment opportunity if he or she has obtained knowledge of such +opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas opportunity as to which his or her +knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the officer's pursuit of the opportunity has +been approved by the Board of Directors and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been approved by a senior officer of St. +Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-06-004592/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-06-004592/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e3fbe44da968650c5f17155bb8958c1a0aef78a1 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-06-004592/proxy_rpt.txt @@ -0,0 +1,16 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of a related transaction between St. Mary and one of its officers during the last fiscal year. Some of the aspects of this +transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. Although the person owes a fiduciary duty to St. Mary and its stockholders, we cannot +assure you that conflicts of interest will always be resolved in favor of St. Mary. +As +a result of his employment with another company prior to 1995, with which St. Mary engaged in a number of transactions, Kevin E. Willson, an executive officer of St. Mary during 2005 +and the first quarter of 2006, owns royalty interests in a number of our properties, which were earned as part of the prior employer's employee benefit programs. +St. +Mary's Bylaws provide that no director, officer, or employee may pursue for his or her own account a business or investment opportunity if he or she has obtained knowledge of such +opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas opportunity as to which his or her +knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the officer's pursuit of the opportunity has +been approved by the Board of Directors and (b) with respect to a nonofficer of St. Mary, the employee's pursuit of the opportunity has been approved by a senior officer of St. Mary with full +knowledge of such opportunity. These +26 +restrictions +do not apply to the acquisition of less than one percent of the publicly traded stock of another company. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-08-004190/proxy.txt b/raw/proxies/0000893538/0001047469-08-004190/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..aaac544d411d8a1397f9647a38436f29fb6158c6 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-08-004190/proxy.txt @@ -0,0 +1,4499 @@ +DEF 14A +1 +a2184325zdef14a.htm +DEF 14A +Use these links to rapidly review the document +Proxy Statement Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +St. Mary Land & Exploration Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +March 28, +2008 +Dear +Stockholder: +You +are cordially invited to attend the 2008 annual meeting of stockholders, which is scheduled to be held in the Chelsea Room located at Millenium Hilton, 55 Church Street, New York, +NY, on Wednesday, May 21, 2008, at 3:00 p.m. local time. +At +the meeting, you and the other stockholders will vote on: +• The +election of eight directors; +• The +approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan to increase the number of shares available for issuance under this plan, to +specifically provide for and describe the general terms of awards of performance shares and performance units, and to modify the change of control provisions of prospective equity awards to require a +"double-trigger" of both a change of control event and a termination or substantial change in employment in order for vesting to accelerate; +• The +approval of the Cash Bonus Plan by stockholders to ensure that incentive compensation paid under this plan can be eligible for the "performance-based compensation" +exemption from the limits on tax deductibility imposed by Section 162(m) of the Internal Revenue Code; and +• The +ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm. +You +will also have the opportunity to hear reports on St. Mary's operations and to ask questions of general interest. You can find other, more specific information about the +meeting in the accompanying proxy statement, and you can find detailed information about St. Mary in our 2007 annual report, which is available on our website www.stmaryland.com . +Pursuant +to new Securities and Exchange Commission rules, we may now provide you with access to our proxy materials over the Internet. As a result, we are mailing to most of our +stockholders a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a paper copy of this proxy statement and our 2007 annual report. The Notice contains instructions on how to +access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this proxy statement, our 2007 annual report, and a +form of proxy card. We may also choose to mail printed proxy materials to one or more stockholders. +You +may vote your shares by using the telephone or internet voting systems described on the proxy card. If you received a printed copy of a proxy card by mail, you may submit your proxy +card by completing and signing the proxy card and returning it promptly. This will ensure that your shares are represented at the meeting even if you cannot attend. +Thank +you for your cooperation by voting by telephone or the Internet, or returning your proxy card, as promptly as possible. We hope to see many of you at our meeting in New York. +Very truly yours, +Anthony J. Best +CEO & President +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +Notice of Annual Stockholders' Meeting +on May 21, 2008 +To All Stockholders: +The +2008 annual meeting of the stockholders of St. Mary Land & Exploration Company is scheduled to be held in the Chelsea Room located at Millenium Hilton, 55 Church +Street, New York, NY, on Wednesday, May 21, 2008, at 3:00 p.m. local time. The purpose of the meeting is: +1. To +elect eight directors to serve during the next year; +2. To +approve the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan to increase the number of shares available for issuance under this plan, to specifically provide +for and describe the general terms of awards of performance shares and performance units, and to modify the change of control provisions of prospective equity awards to require a "double-trigger" of +both a change of control event and termination or substantial change in employment in order for vesting to accelerate; +3. To +approve the Cash Bonus Plan by stockholders to ensure that incentive compensation paid under this plan can be eligible for the "performance-based compensation" exemption from the +limits on tax deductibility imposed by Section 162(m) of the Internal Revenue Code; +4. To +ratify the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm; and +5. To +transact any other business which may properly come before the meeting. +Only +stockholders of record at the close of business on March 24, 2008, may vote at this meeting. +Please vote by using the telephone or internet voting systems described on the proxy card or, if this proxy statement and a proxy card were mailed to you, please +sign, date, and return the proxy card in the enclosed envelope as soon as possible. Any stockholder may revoke its proxy at any time before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +Karin M. Writer +Assistant Secretary +Denver, Colorado +March 28, 2008 +Proxy Statement Table of Contents +Page +General +1 +Purpose of the Annual Meeting +1 +Information About the Notice of Internet Availability of Proxy Materials +1 +Who Can Vote +2 +How to Vote +2 +Revoking a Proxy +3 +Voting Requirements +3 +Quorum +3 +Payment of Proxy Solicitation Costs +3 +Election of Directors +4 +Nominees for Election as Directors +5 +Other Matters to be Voted On +7 +Corporate Governance +25 +Board of Directors +25 +Presiding Director at the Nonmanagement Directors' Executive Sessions +25 +Communication with the Directors of the Company +25 +Board and Committee Meetings +25 +Director Compensation +27 +Other Reportable Items Related to Payments Made by the Company Associated with Service of a Director +29 +Compensation Discussion and Analysis +29 +Executive Compensation and Summary Compensation Table +44 +Summary Compensation Table for 2006 and 2007 +44 +Grants of Plan-Based Awards in 2007 +45 +Outstanding Equity Awards at 2007 Fiscal Year-End +47 +Nonqualified Deferred Compensation +48 +Option Exercises and Stock Vested +48 +Retirement Plans +50 +Pension Plan +50 +2007 Pension Benefits +50 +Equity Compensation Plans +50 +Employment Agreements and Termination of Employment +51 +Change of Control Arrangements +52 +Security Ownership of Certain Beneficial Owners and Management +55 +Compensation Committee Report +57 +Certain Relationships and Related Transactions +57 +Section 16(a) Beneficial Ownership Reporting Compliance +58 +Report of the Audit Committee +58 +Independent Accountants +59 +Audit Committee Preapproval Policy and Procedures +59 +Future Stockholder Proposals +60 +Other Matters +60 +Annex A—2006 Equity Incentive Compensation Plan, as amended and restated as of March 28, 2008 +A-1 +Annex B—Cash Bonus Plan, as amended as of March 28, 2008 +B-1 +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +(303) 861-8140 +Proxy Statement +General +This proxy statement contains information about the 2008 annual meeting of stockholders of St. Mary Land & Exploration Company scheduled to be held +in the Chelsea Room located at Millenium Hilton, 55 Church Street, New York, NY, on Wednesday, May 21, 2008, at 3:00 p.m. local time. The St. Mary Board of Directors is using this +proxy statement to solicit proxies for use at the annual meeting. In this proxy statement, "St. Mary", "the Company", we, and us refer to St. Mary Land & Exploration Company +inclusive of its subsidiaries. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +• The +election of the eight directors as outlined in the accompanying notice of meeting; +• The +approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan to increase the number of shares available for issuance under this plan, to +specifically provide for and describe the general terms of awards of performance shares and performance units, and to modify the change of control provisions of prospective equity awards to require a +"double-trigger" of both a change of control event and a termination or substantial change in employment in order for vesting to accelerate; +• The +approval of the Cash Bonus Plan by stockholders to ensure that incentive compensation paid under this plan can be eligible for the "performance-based compensation" +exemption from the limits on tax deductibility imposed by Section 162(m) of the Internal Revenue Code; +• The +ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm; and +• To +transact any other business which may properly come before the meeting. +As +of the date of this proxy statement, the Company is not aware of any business to come before the meeting other than the items noted above. +Information About the Notice of Internet Availability of Proxy Materials +The proxy materials, including this proxy statement, a proxy card or voting instruction card, and the Company's 2007 annual report, are being distributed and made +available on or about April 7, 2008. In accordance with rules and regulations recently adopted by the Securities and Exchange Commission, the Company has elected to furnish our proxy materials +to our stockholders on the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be mailed to the Company's stockholders on or about April 7, 2008. Stockholders +will have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of the proxy materials be sent to them by following the instructions in the Notice. +The Notice will also provide instructions on how to vote your shares. The Company may also elect to mail printed proxy materials to one or more stockholders. +The +Notice will also provide instructions on how to inform the Company to send future proxy materials to you electronically by email or in printed form by mail. If you choose to receive +future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy +materials by email or +1 +printed +form by mail will remain in effect until you terminate it. Choosing to receive future proxy materials by email will reduce the Company's printing and mailing costs. +IMPORTANT +NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21, 2008: The proxy statement and 2007 Form 10-K/A +of the Company are available at http://ww3.ics.adp.com/streetlink/SM. +Who Can Vote +Only stockholders of record at the close of business on the record date of March 24, 2008, are entitled to receive notice of the annual meeting and to vote +the shares of St. Mary common stock they held on that date. As of March 24, 2008, there were 61,291,979 shares of St. Mary common stock issued and outstanding, net of 3,145,312 +shares held in treasury by the Company. Holders of St. Mary common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +How to Vote +If your shares of St. Mary common stock are held by a broker, bank, or other nominee (in "street name"), you will receive information from them on how to +instruct them to vote your shares. +If +you hold shares of St. Mary common stock in your own name (as a "stockholder of record"), you may give instructions on how your shares are to be voted by following the +telephone or internet voting procedures described on the proxy card, or, if you received a printed copy of the proxy materials, by marking, signing, dating, and returning the enclosed proxy card in +the accompanying postage paid envelope. The telephone and internet voting procedures are designed to ensure that proxies are handled properly under Delaware law. Votes cast in either of these two +manners are authenticated by use of a personal identification number and allow stockholders to confirm that their instructions have been properly recorded. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +A +proxy, when properly completed and not revoked, will be voted in accordance with its instructions. If no voting instructions on a particular matter are given on a properly submitted +and unrevoked proxy, the shares represented by the proxy will be voted on that particular matter as follows: +• FOR +the election as directors of the eight nominees named in this proxy statement under the caption "Nominees for Election as Directors"; +• FOR +the Approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan to increase the number of shares available for issuance under this plan, to +more fully describe the terms of awards of performance shares and performance units, and to modify the change of control provisions of prospective equity awards to require a "double trigger" of both a +change of control event and a termination or substantial change in employment in order for vesting to accelerate; +• FOR +the approval of the Cash Bonus Plan by stockholders to ensure that incentive compensation paid under this plan can be eligible for the "performance-based compensation" +exemption from the limits on tax deductibility imposed by Section 162(m) of the Internal Revenue Code; and +• FOR +the ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm. +2 +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +• submitting +a new proxy with a later date either signed and returned by mail or transmitted using the telephone or internet voting procedures before the meeting; +• by +voting in person at the meeting; or +• by +filing a written revocation with St. Mary's Secretary. +Your +attendance at the annual meeting will not automatically revoke your proxy. +Voting Requirements +Election of Directors— The St. Mary By-Laws provide that the election of directors +shall be decided by the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Any shares present but not voted for approval, including +withheld votes and broker non-votes, will have the same effect as if the shares were voted against approval. +Approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan— Under New York Stock Exchange rules +and regulations promulgated under Section 162(m) of the Internal Revenue Code, the approval of the amendment and restatement of the 2006 Equity Incentive Compensation Plan and the increase in +the number of shares available for issuance under this plan requires the affirmative vote of a majority of the votes cast on the Amended and Restated 2006 Equity Incentive Compensation Plan and the +New York Stock Exchange Rules require that the total votes cast represent over 50 percent of all shares entitled to vote. Abstentions and +broker nonvotes will have the effect of votes against approval of the Amended and Restated 2006 Equity Incentive Compensation Plan. +Approval of Cash Bonus Plan— Under regulations promulgated under Section 162(m) of the Internal Revenue Code, the +approval of the Cash Bonus Plan requires the affirmative vote of a majority of the votes cast on the Cash Bonus Plan. Abstentions and broker nonvotes will have the effect of votes against approval of +the Cash Bonus Plan. +Ratification of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm— This +ratification shall be decided by the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Any shares present but not voted for approval, +including withheld votes and broker nonvotes, will have the same effect as if the shares were voted against approval. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders of one-third of the outstanding shares of common +stock are present at the meeting in person or by proxy. Abstentions and broker nonvotes count as present for establishing a quorum. A broker nonvote occurs on a matter when a broker is not permitted +to vote on that matter without instruction from the beneficial owner of the shares and no instruction is given. Shares held by St. Mary in its treasury are not entitled to vote and do not count +toward a quorum. If a quorum is not present, the meeting may be adjourned until a quorum is obtained. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. St. Mary has retained The Altman Group, Inc. to assist in the solicitation of proxies for +an estimated fee of $8,000 plus reimbursement of reasonable expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition, +St. Mary officers, directors, and employees may also solicit proxies in person, by telephone, or by other electronic means of communication. St. Mary will ask banks, brokers, other +3 +institutions, +nominees, and fiduciaries to forward the proxy material to their principals and obtain authority to execute proxies. +ELECTION OF DIRECTORS +All directors of the Company are elected annually. At this meeting, eight directors are to be elected to serve for one year or until their successors are elected +and qualified. The Company's nominees for these directorships are identified below; all are currently serving in that capacity. +The +Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee of the Board of Directors shall be responsible for identifying and recommending +directors for nomination by the Board for election as members of the Board. This committee performed its evaluation and nominating committee functions during 2007 and early 2008. The committee selects +each nominee based on the nominee's skills, achievements, and experience. As set forth in the Company's Corporate Governance Guidelines, the Board as a whole should have broad and relevant experience +in high level business policymaking and a commitment to representing the long-term interests of the stockholders. The committee believes that each nominee should have experience in +positions of responsibility and leadership, an understanding of the Company's business environment, and a reputation for integrity. +The +committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is to recommend a group that will effectively contribute to the +long-term success of the Company and represent stockholder interests. In determining whether to recommend a director for reelection, the committee also considers the director's past +attendance at meetings and participation in and contributions to the activities of the Board. +When +seeking candidates for a new director, the committee solicits suggestions from incumbent directors, management, stockholders, and others. The committee has authority under its +charter to retain a search firm for this purpose. If the committee believes a candidate would be a valuable addition to the Board of Directors, it recommends his or her candidacy to the full Board of +Directors. +The +committee will consider suggestions by stockholders of possible future nominees. Stockholders may nominate persons for election to the Board in accordance with the Company's +By-Laws. No such suggestions were received during 2007. Stockholder suggestions should be delivered on or before November 1 in any year before the next annual meeting. In addition, +St. Mary's By-Laws permit stockholders to nominate directors for election at an annual meeting, provided that advance written notice of the nomination containing the information +required under the By-Laws is received by the Secretary of St. Mary not less than 75 days or more than 105 days before the first anniversary date of the immediately +preceding annual meeting. Accordingly, proper notice of a stockholder nomination for election as director for the 2009 annual meeting must be received by St. Mary between February 6, +2009, and March 7, 2009. +The +proxies will be voted in favor of the nominees unless a contrary specification is made in the proxy. All nominees have consented to serve as directors of the Company if elected. +However, if any nominee is unable to serve or for good cause will not serve as a director, the persons named in the proxy intend to vote in their discretion for a substitute who will be designated by +the Board of Directors. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" electing the nominees. +4 +NOMINEES FOR ELECTION AS DIRECTORS +Biographical information as of February 15, 2008, including principal occupation and business experience during the last five years, of each nominee for +director is set forth below. Unless otherwise stated the principal occupation of each nominee has been the same for the past five years. +Age +Director +Since +Barbara M. Baumann is President of Cross Creek Energy Corporation, which provides consulting services for oil and gas exploration and production companies. Ms. Baumann has held +that position since July 2003. From 2001 to July 2003, Ms. Baumann was Executive Vice President of Associated Energy Managers LLC, an investment manager and general partner of a private equity energy fund specializing in oil and gas +investments for institutional investors. From 1983 to 2001, Ms. Baumann was employed by BP Amoco and held a variety of financial and operational management positions, including Chief Financial Officer of an environmental remediation subsidiary, +Vice President of the San Juan Business Unit, and the Commercial Operations Manager of the Western Business Unit. Ms. Baumann is also a director of UniSource Energy Corporation, the parent company for Tucson Electric Power Company (NYSE: +UNS). +52 +2002 +Anthony J. Best is President and Chief Executive Officer of St. Mary. Mr. Best joined St. Mary in June 2006 as President and Chief Operating Officer. In December +2006, Mr. Best relinquished his position as Chief Operating Officer when Javan D. Ottoson was elected to that office. On February 23, 2007, Mr. Best was elected Chief Executive Officer of St. Mary when Mark Hellerstein retired +from that position. Mr. Best was appointed to the Board, concurrent with his appointment as Chief Executive Officer. From November 2005 to June 2006, Mr. Best was developing a business plan and attempting to raise capital for a start-up +exploration and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., a subsidiary of Unocal, where he managed all of Unocal's onshore U.S. assets. From 2000 to 2002, +Mr. Best had an oil and gas consulting practice working with various energy firms. From 1979 to 2000, Mr. Best was with ARCO in a variety of positions, including a period as President—ARCO Permian, President—ARCO Latin America, +Field Manager for Prudhoe Bay, and VP—External Affairs for ARCO Alaska. +58 +2007 +Larry W. Bickle is a retired private equity investor. Prior to April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in +midstream energy companies and assets. Dr. Bickle held that position since June 2005. Prior to that, Dr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Dr. Bickle was Chairman of the Board and +Chief Executive Officer of TPC Corporation (formerly Tejas Power Corporation), a NYSE listed gas storage, transportation, and marketing company that he founded. Dr. Bickle is also a director of UniSource Energy Corporation, the parent company +for Tucson Electric Power Company (NYSE: UNS). He also serves as Non-Executive Chairman of Quantum Natural Gas Storage, LLC. +62 +1995 +5 +William J. Gardiner is Vice President and Chief Financial Officer of King Ranch, Inc., a privately held ranching and agricultural company that owns the historic 825,000 +acre "King Ranch" in south Texas. Mr. Gardiner has held that position since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice President and Chief Financial Officer of CRSS, Inc., a NYSE listed independent +power producer. Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director of St. Mary in connection with St. Mary's acquisition of King Ranch Energy, Inc. in +1999. +53 +1999 +Mark A. Hellerstein is Chairman of the Board of St. Mary. Mr. Hellerstein served St. Mary as President from 1992 to June 2006, served as Chief Executive Officer +from 1995 to February 2007, and was appointed Chairman of the Board in September 2002. Mr. Hellerstein has become a non-employee member of the Board following his resignation as Chief Executive Officer on February 23, 2007, and his +termination as an employee on June 30, 2007. Mr. Hellerstein served on the Board of Transocean Inc. from December 2006 to November 2007. Mr. Hellerstein has been retired from June 2007 to the present. +55 +1992 +Julio M. Quintana is the President, Chief Executive Officer, and a director of TESCO Corporation, a company that supplies oilfield drilling technology, oilfield services, and +equipment. Mr. Quintana joined the St. Mary Board on July 7, 2006. Prior to his appointment to his current position at TESCO Corporation in September 2005, he had served as Executive Vice President and Chief Operating Officer at TESCO +since September 2004. From 1999 to 2004, Mr. Quintana was employed at Schlumberger as the VP—Integrated Project Management in 2003 and 2004 and was the VP—Exploitation for North and South America in 2002 and 2003 and the +VP—Marketing for North and South America in 2002 and 2001. Mr. Quintana began his career at Unocal Corporation where he spent 20 years working in various engineering and leadership roles. +48 +2006 +John M. Seidl is Chairman of the Board of EnviroFuels, LLC, a privately held corporation that develops, manufactures, and markets technology that intends to improve the +performance and efficiency of internal combustion engines, boilers, and other engine designs. Mr. Seidl has held that position since January 2006 and prior to January 2006, he had served as Vice Chairman of EnviroFuels' advisory board since July +2004. From June 2001 through December 2004, Mr. Seidl was Chief Program Officer, Environment, of the Gordon and Betty Moore Foundation, a private grant making foundation, which seeks and funds higher education, scientific research, environmental, +and San Francisco Bay Area projects. From September 1999 through June 2004, Mr. Seidl was Chairman of Language Line Services, a privately held provider of over the phone language interpretation and document translation services. +Mr. Seidl's business career from 1978-1992 was in energy or energy related businesses. +69 +1994 +6 +William D. Sullivan has been retired since August 2003 with the exception of a brief amount of time, from June 15, 2005, to August 5, 2005, when Mr. Sullivan +served as President and Chief Executive Officer of Leor Energy LP. Mr. Sullivan has been serving as a director since February 2007 of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP, a +natural gas limited partnership that was listed on NASDAQ in February 2007. Additionally, since March 2006, Mr. Sullivan has been serving as a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP, +an oil and natural gas limited partnership that was listed on NASDAQ in January 2007. Mr. Sullivan has served as a director of Tetra Technologies, Inc. since August 2007. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 +to August 2003. From August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as VP, Operations—International, Gulf of Mexico and Alaska in 2001, +VP—International Operations from 1998 to 2000, and VP—Algeria from 1995 to 1998. +51 +2004 +OTHER MATTERS TO BE VOTED ON +Approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan +Overview +Subject to stockholder approval, the Board of Directors of St. Mary approved an amendment and restatement of the 2006 Equity Incentive Compensation Plan +(as amended and restated, the "Amended 2006 Plan") on March 28, 2008. The Amended 2006 Plan provides for the issuance of restricted stock, restricted stock units, nonqualified stock options, +incentive stock options, stock appreciation rights, performance shares, performance units and stock based awards to key employees, consultants, and members of the Board of Directors of St. Mary +or any affiliate of St. Mary as equity based incentive compensation under the Amended 2006 Plan. The purpose of the Amended 2006 Plan is to promote the success and enhance the value of +St. Mary by linking the personal interests of the participants to those of St. Mary's stockholders and by providing participants with an incentive for outstanding performance. The +Amended 2006 Plan is further intended to provide flexibility to St. Mary in its ability to attract, motivate, and retain the services of participants upon whose judgment, interest, and special +effort the success of St. Mary is substantially dependent. +St. Mary's +stockholders are being asked to approve the Amended 2006 Plan, which amends the 2006 Equity Incentive Compensation Plan (the "2006 Plan"), in the following ways, which +are each described in further detail below: +• To +increase the total number of shares authorized for issuance under the 2006 Plan from 2,000,000 shares (subject to adjustment as described below) to 3,500,000 shares +(subject to adjustment as described below) under the Amended 2006 Plan; +• To +specifically provide for the issuance of performance shares and performance units to participants under the Amended 2006 Plan and provide the general terms and conditions +thereof in the Amended 2006 Plan; and +• To +provide that, for all awards granted on or after May 21, 2008, in order for a participant to obtain an acceleration of vesting and payment of awards in the case of +a change of control event, there must be both a change of control as well as a termination or substantial change in the participant's employment with St. Mary as a result of the change of +control. +If +the stockholders do not approve the Amended 2006 Plan, the Compensation Committee will consider other alternatives for compensation. +7 +General Information regarding the 2006 Plan +The 2006 Plan was originally adopted by St. Mary's Board of Directors on March 23, 2006, and was approved by St. Mary's stockholders on +May 17, 2006. Awards granted under the 2006 Plan prior to its amendment and restatement will continue to be subject to the terms and conditions as set forth in the agreements evidencing such +awards as well as the terms of the 2006 Plan prior to its amendment and restatement. +The +2006 Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock +Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the St. Mary Land & Exploration Company Non-Employee Director Stock Compensation +Plan (collectively, the "Predecessor Plans"), and no further grants have been made under the Predecessor Plans from and after the effective date of the 2006 Plan of May 17, 2006. +The +2006 Plan provides that (i) any shares of common stock issued in connection with a stock option or stock appreciation right shall be counted against the limit as one share of +common stock for every one share of common stock issued and (ii) any shares of common stock issued in connection with an award other than a stock option or stock appreciation right shall be +counted against the limit as two shares of common stock for every one share of common stock issued. These fungible share counting provisions will remain in effect under the Amended 2006 Plan. +The +2006 Plan currently covers a total of 3,069,621 shares of common stock, including shares of common stock under the Predecessor Plans that have been transferred into the 2006 Plan. As +of March 24, 2008, there were 2,443,897 remaining shares of common stock available for grant under the 2006 Plan. On March 24, 2008, the closing price of St. Mary's common stock +as reported on the New York Stock Exchange was $34.79 per share. +Key Amendments to the 2006 Plan +Increase in Share Authorization under the Amended 2006 Plan +As of March 24, 2008, the total number of shares authorized for grant under the 2006 Plan prior to its amendment and restatement was 2,443,897 shares of +St. Mary's common stock. +As +of March 24, 2008, the Company had 61,291,979 shares of common stock outstanding, net of treasury shares. On that date, the Company had 2,363,512 stock options outstanding +under the 2006 Plan at a weighted average exercise price of $12.624 per share and a weighted average remaining term of 4.2 years. The Company also had 265,792 full value awards outstanding on +that date in the form of restricted stock unit awards. +Grants +of equity compensation over the past three years have been for incentive compensation awards, director compensation, hire-on awards and other compensation related +awards. The grants of incentive equity awards under the plan are made following the end of the fiscal reporting year, for example, awards made in February 2008 related to the 2007 annual performance +period. During 2007, 2006, and 2005 there were 248, 201, and 173 persons that received awards, respectively. The table below presents the shares issued from the 2006 Plan on this accrual based manner. +AWARDS UNDER THE 2006 PLAN PRIOR TO AMENDMENT +2007 +2006 +2005 +Incentive Awards Issued for the Performance Period +161,244 +(1) +78,657 +(2) +484,351 +(3) +Director Share Awards +32,504 +29,827 +13,926 +Hiring and Retention Equity Awards +23,977 +28,500 +0 +8 +(1) Represents +the award made on February 28, 2008, related to the 2007 performance period. +(2) Represents +the award made on the February 28, 2007, related to the 2006 performance period. +(3) Represents +the award made on the February 28, 2006, related to the 2005 performance period. +Based +on the timing of these awards and the manner in which the fungible share counting provisions under the 2006 Plan function, this represents a reduction in the shares available for +grant of 1,207,695 shares over the last three years. Up until May 2006, the equity awards operated under the Predecessor Plans; subsequent to that date the terms of the 2006 Plan governed the equity +awards. +The +Company is requesting an increase in the shares available to grant under the Amended 2006 Plan because the Compensation Committee and the Board have approved the termination of the +Net Profits Interest Bonus Plan ("NPP") on a prospective basis. As a result, the incentive equity compensation will be a larger component of the total compensation package going forward and there is +an expectation that full share awards in the form of Performance Share Awards ("PSA") will be the exclusive form of equity grants for employee incentive compensation. There will still be grants made +in the form of restricted shares for director grants. This results because there will be no future awards made under the NPP, which was a cash based plan. As a result, the 2007 NPP pool is the final +NPP pool to be awarded. Historically the NPP has appropriately incentivised and rewarded employees at St. Mary. However, over time the somewhat unique nature of the plan, the complexity of the +program, and the delay in any realized value during payout, has made it less attractive than other equity plans to newly recruited and highly marketable employees. Therefore, commencing in 2008 and as +disclosed previously, the NPP will be replaced with a performance share plan that utilizes PSAs. +PSA +plans are more common among our peers and provide for target awards that are earned over a three year performance period. We believe this new plan will provide a more visible, more +marketable, and more widely understood long-term incentive criteria. The target awards, while made at the beginning of the performance measurement period, will have a back end loaded time +vesting schedule and a total return ("TSR") measurement after the conclusion of the three year measurement period. At the conclusion of the three year measurement period, the TSR will be measured +first for St. Mary's compound return over the three year measurement period, then will be modified depending on the results of the TSR performance against an appropriate +pre-established performance index consisting of similar companies. Depending on the results of the TSR measurements, the actual award made to participants will be between zero and two +times the target award based on pre-established criteria. There is no market or performance condition that results in an early payout determination, other than a change of control. This +plan and the associated cash bonus plan will be widely utilized within the organization as a consistent plan for our employees and executives, ensuring that all eligible personnel are measured against +the same performance conditions. St. Mary anticipates that in 2008 a similar number of persons will be designated to participate in and be eligible to receive awards under the Amended 2006 +Plan, although the number of shares of common stock that underlie such awards will depend on St. Mary's performance results. +Since +the awards under the performance share plan are considered to be full share awards, the Company is seeking an increase in the authorized number of shares available for grant. The +fact that the performance condition associated with the target awards have a potential two times multiplier, providing certain pre-established criteria are met, requires that the shares +available for grant contemplate the achievement of this scenario to ensure sufficient shares are available to meet the terms of the original target awards. As an example, if an employee is granted a +target award of 100 shares, this will count as 200 shares against the Amended 2006 Plan, and because of the potential to earn up to two times the target number of shares in the event that the +Company's performance warrants, a total of 200 shares could be awarded, which would count as 400 shares against the Plan. The result is that if there are 2,443,897 million shares available for +grant under the Amended 2006 Plan, it will result in approximately one-half that number of shares actually being issued as new shares. +9 +Under +the Amended 2006 Plan, the total number of shares authorized for grant, as of March 24, 2008, including shares of common stock transferred from under the Predecessor Plans, +is 2,443,897. Accordingly, if the Amended 2006 Plan is approved by the stockholders, a total of 3,943,897 shares will be available under the Amended 2006 Plan to be used for future awards. This +reflects a 1,500,000 share increase in the number of shares authorized under the 2006 Plan. St. Mary's Board of Directors believes that this share increase is appropriate based on the fact that +no future participation pools will be established under the NPP effective January 1, 2008, and that St. Mary intends to grant PSAs on an annual basis beginning July 1, 2008, with +a zero to two times share performance multiplier thereafter. This results in the awards more closely aligning employee interest with those of our stockholders, particularly since employees could +potentially not receive any shares from an award if St. Mary's performance criteria are not met. +The +Amended 2006 Plan provides that, from and after May 21, 2008, the following shares shall not become available again for issuance under the Amended 2006 Plan: (i) shares +tendered as full or partial payment to St. Mary of an option price upon exercise of any options granted under the Amended 2006 Plan, (ii) shares reserved for issuance upon grants of +stock appreciation rights, to the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the stock appreciation rights, and (iii) shares withheld by +St. Mary to satisfy a participant's tax withholding obligations with respect to any award granted under the Amended 2006 Plan. This modification of the share counting provisions in the Amended +2006 Plan to eliminate share recycling on a prospective basis was a factor in the Board of Director's determination that a 1,500,000 share increase in the number of shares authorized for grant under +the Amended 2006 Plan is appropriate and in the best interest of St. Mary. +The +increase in the authorized shares submitted for stockholder approval is intended to ensure that St. Mary has a sufficient number of shares of common stock available under the +Amended 2006 Plan to continue issuing incentive compensation awards in the form of the currently planned PSAs for the next year. +Issuance of Performance Shares and Performance Units +The Amended 2006 Plan includes new provisions that specifically provide for the issuance of performance shares and performance units to participants in the +Amended 2006 Plan and provide general terms and conditions for performance shares and performance units. The original 2006 Equity Incentive Stock Compensation plan clearly provided for such awards +under Article IX, however, we have deemed it in the best interests of our stockholders to expand the descriptive language associated specifically with performance share awards. +The +economic value of the performance shares and performance units will be determined at the time they are payable based on the extent to which certain performance criteria during a +certain performance period have been achieved. Performance shares and performance units are intended to qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue +Code. +The +addition of explicit language describing performance shares and performance units to the Amended 2006 Plan coincides with the previously discussed decision by St. Mary's Board +of Directors in December of 2007 to restructure St. Mary's incentive compensation programs. St. Mary has discontinued establishing participation pools under the NPP effective as of +January 1, 2008, and intends to discontinue making any future grants of RSUs under the 2006 Plan effective as of July 1, 2008. For a description of the NPP, please see "COMPENSATION +DISCUSSION AND ANALYSIS— The Specific Elements of Compensation and How We Administer Them. " +St. Mary +intends to replace the NPP and grants of RSUs under the 2006 Plan with grants of PSAs under the Amended 2006 Plan in accordance with St. Mary's long term incentive +program. All employees that are currently eligible to receive RSUs or to participate in the NPP will be eligible to receive PSAs, including the named executive officers. In addition, newly-recruited +employees may +10 +receive +PSAs as a sign-on bonus. Individual PSAs may vary depending on the circumstances in accordance with award agreements between St. Mary and each PSA recipient. PSAs will also +be used for a small discretionary pool to recognize certain select employees that are not participants in St. Mary's long term incentive program. +St. Mary +currently plans for all PSAs under the Amended 2006 Plan to be made annually on July 1 st of each year (each, a "PSA Year"). It is expected +that the first PSA Year will begin on July 1, 2008. For each PSA Year, St. Mary's Board of Directors will establish an initial total pool value that is to be distributed to eligible +participants and a grant date of the PSAs, based on recommendations from St. Mary's Compensation Committee. In determining the initial total pool value, St. Mary will consider, among +other factors, the fair value transfer of St. Mary's long term incentive compensation system compared to peer companies. Fair value transfer is defined as the percentage of a company's market +capitalization that is potentially transferred to employees annually in the form of stock based awards and other forms of ownership in a company. After the total pool value for a PSA Year has been +determined, the pool value will be converted into PSAs by dividing the total pool value by the average closing price per share of St. Mary common stock for a period of 20 trading days before +the grant date. It is currently planned that the performance period between the initial grant date of PSAs and the vesting of shares of St. Mary's common stock will be three years. For each PSA +Year in which awards are granted on July 1, the performance period for measuring St. Mary's performance will begin on July 1 of that year and end on June 30 of the third +year following the grant date. The performance share allocation will be performed and awards of current PSA Year awards and settlement of previously awarded PSAs will occur shortly after the +measurement period is concluded. +There +will be two determinations of the number of shares of common stock that will actually be issued to employees. The first is a time vesting element and the second is a performance +measure, which is measured only after the completion of the measurement period. +St. Mary +currently plans to have PSAs vest over a three year period, with 1/7 th vesting on the first anniversary of the grant date, +2/7 th vesting on the second anniversary of the grant date, and 4/7 th vesting on the third anniversary of the grant date. At the end of the +three-year performance period, the final multiplier for the PSA Year will be determined and applied to each participant's vested PSA. The vested PSA will then be settled in shares of +St. Mary's common stock and such shares will not be subject to any holding restrictions after settlement. If a participant terminates employment at any time during the vesting period, such +participant will forfeit the remaining unvested performance shares awarded, excluding certain circumstances involving retirement, death, disability or a change of control that includes a termination +or substantial change in such participant's employment with St. Mary, all as described in the Amended 2006 Plan and such participant's award agreement. Participants will be allowed to net share +settle for the payment of income taxes associated with the settlement of the award. +To +the extent vested, the number of shares of St. Mary's common stock issued will vary from zero to two times the initial number of PSAs awarded, depending on St. Mary's +business performance during the three-year performance period. St. Mary's Board of Directors anticipates that a key metric for measuring St. Mary's performance in connection +with determining the value of PSAs will be based on the absolute measure of St. Mary's TSR and the relative measure of St. Mary's TSR against the TSR of St. Mary's peer companies. +The Compensation Committee will create, review and approve annually, a performance share multiplier matrix for each PSA Year, which describes the relationship between St. Mary's TSR and its TSR +compared to peer companies and includes the final share multiplier for each PSA Year. St. Mary intends to use indices for determining the peer group to be used in comparing the TSR of +St. Mary to its peers, which indices are currently contemplated to be the equal weight total return of the companies that comprise the S&P Small-Cap 600 E&P Index and the S&P +Mid-Cap 400 E&P Index. The approved indices for the TSR comparison for a given PSA Year will remain constant for the entire three-year performance period. +11 +St. Mary's Board of Directors believes that the issuance of performance shares to participants under the Amended 2006 Plan will be in the best interest of St. Mary and will +further encourage employees' interests to align with the long term interests of St. Mary's stockholders. +Amendment to Change of Control Provisions +The Amended 2006 Plan provides that, for awards granted on or after May 21, 2008 and prior to a change of control event, an acceleration of vesting and +payment of any awards granted to a participant due to a change of control event will only occur in the event that a change of control occurs and a participant's employment with St. Mary is +terminated without cause (as defined in the participant's award agreement) or the participant terminates his or her employment with St. Mary for good reason (as defined in the participant's +award agreement) within 30 months of the change of control event. In the event that these change of control provisions in the Amended 2006 Plan would result in an award designed to qualify as +"performance-based compensation" under Section 162(m) of the Internal Revenue Code to not so qualify, St. Mary's Compensation Committee has the discretion to adopt for such award such +provisions that will satisfy the requirements of Section 162(m) of the Internal Revenue Code. St. Mary's Board of Directors believes that the adoption of this "double trigger" mechanism +in the case of change of control events for the acceleration of vesting and payment of awards granted on or after May 21, 2008 under the Amended 2006 Plan is in the best interest of +St. Mary and its stockholders and is in accordance with current market trends and best practices. For awards granted under the 2006 Plan prior to May 21, 2008, the acceleration of +vesting and payment of awards may occur solely upon the occurrence of a change of control event and the terms of such awards will not change as a result of the adoption of the Amended 2006 Plan. +Stockholder Approval of Amended 2006 Plan +Under applicable New York Stock Exchange rules, St. Mary must obtain stockholder approval of the Amended 2006 Plan. In addition, stockholder approval of +the Amended 2006 Plan is necessary to allow St. Mary to ensure that compensation paid under the Amended 2006 Plan can be eligible for the "performance-based compensation" exemption from the +limits on tax deductibility imposed by Section 162(m) of the Internal Revenue Code and to permit St. Mary to issue incentive stock options in accordance with Section 422 of the +Internal Revenue Code. +Summary of the Amended 2006 Plan +The following is a summary of the principal features of the Amended 2006 Plan, a copy of which is attached to this proxy statement as Annex A. The manner +in which we expect the plan will operate is described above. This section describes the more broad underlying provisions of the plan. In addition, St. Mary will furnish a copy of the Amended +2006 Plan to any stockholder upon written request to St. Mary's Secretary. +Administration +The Compensation Committee of the Board of Directors of St. Mary, or any other duly authorized committee of the Board of Directors appointed by the Board +of Directors, is responsible for administering the Amended 2006 Plan. The Committee that administers the Amended 2006 Plan, referred to as the Committee, shall be comprised of two or more members of +the Board of Directors of St. Mary, and each member of the Committee shall be a "non-employee director" as such term is defined in Rule 16b-3(b)(3) promulgated +under the Securities Exchange Act of 1934, as amended, an "outside director" within the meaning of the regulations promulgated under Section 162(m) of the Internal Revenue Code and an +"independent director" for purposes of the rules and regulations of the New York Stock Exchange, or such other principal securities market on which the shares are traded. Subject to the provisions of +the Amended 2006 Plan, the Committee shall have complete discretion in +12 +determining +the nature, terms, conditions, and amounts of awards granted under the Amended 2006 Plan. In making such determinations, the Committee may take into account the nature of services rendered +by such employees, consultants, and members of the Board of Directors, their present and potential contributions to St. Mary, and such other factors as the Committee in its discretion shall +deem relevant. +Eligibility and Participation +All current employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of St. Mary are eligible to participate in +the Amended 2006 Plan and be granted awards under the Amended 2006 Plan. Subject to the provisions of the Amended 2006 Plan, the Committee may from time to time, in its sole discretion, select from +among eligible employees, consultants, and members of the Board of Directors of St. Mary and of any affiliate of St. Mary those to whom awards shall be +granted under the Amended 2006 Plan and shall determine in its discretion the nature, terms, conditions, and amount of each award. +Duration +The Amended 2006 Plan shall remain in effect, subject to the right of the Committee or the Board of Directors to amend or terminate the Amended 2006 Plan at any +time, until the earlier of the tenth anniversary of the effective date of the 2006 Plan, which occurred on May 17, 2006, or when all shares of common stock subject to the Amended 2006 Plan have +been purchased or acquired according to the Amended 2006 Plan's provisions. Any previously granted awards under the Amended 2006 Plan that remain outstanding as of the date of expiration or other +termination of the Amended 2006 Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with their respective terms. +Restricted Stock and Restricted Stock Unit Awards +Restricted Stock Awards. Restricted stock may be issued for services rendered with any or no additional purchase price as shall be determined by the Committee in +its discretion and may be subject to certain restrictions and to a risk of forfeiture as set forth in the award agreement. A participant to whom shares of restricted stock are granted shall, upon +issuance of a stock certificate for the shares issued, have all of the rights of ownership with respect to the shares subject to such restricted stock award, including the right to vote the same and +receive any dividends paid thereon; subject however, to the terms, conditions, and restrictions contained in the Amended 2006 Plan and in the applicable award agreement. +Restricted +Stock Unit Awards. Each restricted stock unit awarded shall represent a right for one share of common stock to be delivered upon settlement of the award, which right shall be +subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Amended 2006 Plan and the award agreement. A restricted stock unit award agreement may provide +for cancellation of restricted stock units upon termination of the participant's employment or other relationship with St. Mary or nonperformance of specified performance goals or measures +established by the Committee. A restricted stock unit award agreement may also provide for vesting periods that require the passage of time and/or the occurrence of events in order for the restricted +stock units to vest and become no longer subject to cancellation. Restricted stock units shall not be credited with dividend equivalents unless specifically provided for in the applicable award +agreement, and then only upon such terms and conditions as set forth in such award agreement. The Committee, in its discretion, is free to specify terms and conditions other than those described +above. +Settlement +of a restricted stock unit award shall be made in accordance with the terms and conditions of the applicable award agreement. A restricted stock unit award agreement may +provide +13 +that +settlement may be made solely through the issuance of shares of common stock or at the mutual election of the participant and St. Mary, in a combination of shares of common stock and cash. +Upon the settlement of a restricted stock unit award, St. Mary shall deliver to the participant a certificate for the number of shares of common stock issued to the participant in settlement of +the award. +Stock Options +Subject to the terms and provisions of the Amended 2006 Plan, incentive and nonqualified stock options may be granted to participants in such number, upon such +terms, and at such times as shall be determined by the Committee. Notwithstanding the foregoing, no incentive stock options may be granted more than ten years after March 23, 2006. Each stock +option granted to a participant shall expire at such time as the Committee shall determine at the time of grant; provided however, no stock option shall be exercisable later than the tenth anniversary +date of its grant. Stock options granted under the Amended 2006 Plan shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions as the +Committee shall in each instance approve, which need not be the same for each grant or for each participant. +The +stock option price for each grant of a stock option shall be determined by the Committee and shall be specified in the award agreement. The stock option price may include a stock +option price based on 100 percent of the fair market value of the shares of common stock on the date of grant, a stock option price that is set at a premium to the fair market value of the +shares of common stock on the date of grant, or a stock option price that is indexed to the fair market value of the shares of common stock on the date of grant, with the index determined by the +Committee in its discretion. The stock option price for each grant of a stock option, whether issued as an ISO or an NSO, shall be not less than 100 percent of the fair market value of the +underlying shares of common stock on the date of grant. Dividend equivalents are not permitted for stock options. +Stock Appreciation Rights +Subject to the terms and conditions of the Amended 2006 Plan, stock appreciation rights, or SARs, may be granted to participants at any time and from time to time +and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant freestanding SARs, tandem SARs, or any combination of these forms of SARs. The grant price for +each grant of a freestanding SAR shall be determined by the Committee and shall be specified in the award agreement. The SAR +grant price may include a grant price based on 100 percent of the fair market value of the underlying share on the date of grant or a grant price that is set at a premium to the fair market +value of the underlying share on the date of grant. The SAR grant price shall not be less than the fair market value of the underlying share on the date of grant. The grant price of the tandem SARs +shall be equal to the option price of the related option. A tandem SAR means a SAR that the Committee specifies is granted in connection with a related stock option pursuant to the Amended 2006 Plan, +the exercise of which shall require forfeiture of the right to purchase a share of common stock under the related stock option (and when a share of common stock is purchased under the stock option, +the tandem SAR shall similarly be cancelled) or a SAR that is granted in tandem with a stock option but the exercise of such option does not cancel the SAR, but rather results in the exercise of the +related SAR. Regardless of whether a stock option is granted coincident with a SAR, a SAR is not a tandem SAR unless so specified by the Committee at time of grant. Dividend equivalents are not +permitted for SARs. +Performance Shares and Performance Units +Subject to the terms and conditions of the Amended 2006 Plan, performance shares and performance units may be granted at any time and from time to time as shall +be determined by the Committee in its discretion. Each performance share and performance unit shall have an initial value established by the Committee at the time of the grant. The Committee shall in +its discretion set +14 +performance +criteria for a performance period that shall not be shorter than 12 months, which, depending on the extent to which the performance criteria are met, will determine, in the manner +established by the Committee and set forth in the applicable award agreement, the value and/or amount of each performance share or performance unit that will be paid to a participant. +Subject +to the Amended 2006 Plan and the applicable award agreement, after the applicable performance period has ended, the holder of performance shares or performance units shall be +entitled to receive, to the extent that the performance shares or performance units have vested, if applicable, a payout of the value or amount of performance shares or performance units, determined +as a function of the extent to which the corresponding performance criteria have been achieved. The Committee in its discretion may require a participant to hold the shares or other property received +pursuant to such an award for a specified period of time. Payment of earned performance shares and performance units shall be made in accordance with the terms and conditions of the applicable award +agreement. A performance share or performance unit award agreement may provide that payment may be made, to the extent that the performance share or performance unit has vested and the performance +criteria are met, solely through the issuance of shares earned upon the expiration of the applicable performance period. The participant may elect to satisfy the participant's tax withholding +obligation with respect to the award by having St. Mary withhold shares or other property or by the participant surrendering shares or other property to the Company with a fair market value on +or near the tax withholding date equal to the tax withholding obligation. +Dividends +and other distributions declared by St. Mary's Board of Directors and paid with respect to outstanding shares shall only be paid with respect to performance share and +performance unit awards for shares that have been issued by St. Mary in payment of such awards to the extent that the awards have vested and upon the expiration of the applicable performance +periods for the awards. Performance shares and performance units shall not be credited with dividend equivalents unless specifically provided for in the applicable award agreement, and then only upon +such terms and conditions as set forth in such award agreement. +Stock Based Awards +Subject to the terms and provisions of the Amended 2006 Plan, the Committee, at any time and from time and time, may grant other types of equity based or equity +related awards not otherwise described by the terms of the Amended 2006 Plan (including the grant or offer for sale of unrestricted shares of common stock) in such amounts and subject to such terms +and conditions including, but not limited to, being subject to performance criteria or in satisfaction of such obligations. Such awards may entail the transfer of actual shares of common stock to +participants or payment in cash or otherwise of amounts based on the value of shares of common stock. +Performance Measures +Notwithstanding any other terms of the Amended 2006 Plan, the vesting, monetization, or value (as determined by the Committee) of each award other than a stock +option or SAR that, at the time of grant, the Committee intends to be performance based compensation to a covered employee shall be determined by the attainment of one or more performance goals as +determined by the Committee in conformity with Section 162(m) of the Internal Revenue Code. The Committee shall specify in writing, by resolution or otherwise, the participants eligible to +receive such an award (which may be expressed in terms of a class of individuals) and the performance goal(s) applicable to such awards within ninety (90) days after the commencement of the +period to which the performance goal(s) relate(s) or such earlier time as required to comply with Section 162(m) of the Internal Revenue Code. No such award shall be payable unless the +Committee certifies in writing, by resolution or otherwise, that the performance goal(s) applicable to the award were satisfied. In no case may the Committee increase the value of an award of +performance based compensation above the maximum value determined under +15 +the +performance formula by the attainment of the applicable performance goal(s), but the Committee retains the discretion to reduce the value below such maximum. A general description of performance +measures on which performance goals will be based is contained in the Amended 2006 Plan document attached to this proxy statement as Annex A. +Tax Matters +The following is a brief summary of advice received from counsel to St. Mary regarding the principle United States federal income tax consequences of +benefits under the Amended 2006 Plan under present laws and regulations: +Incentive +Stock Options. The grant of an incentive stock option will not result in any immediate tax consequences to St. Mary or the optionee. An optionee will not recognize +taxable income, and St. Mary will not be entitled to any deduction upon the timely exercise of an incentive stock option, but the excess of the fair market value of the shares of common stock +acquired over the stock option price will be an item of tax preference for purposes of the alternative minimum tax. If the optionee does not dispose of the shares of common stock acquired within one +year after their receipt (and within two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares of common stock will be treated as long term capital +gain or loss. Capital losses of individuals are deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize +ordinary taxable income in an amount equal to the lesser of (i) the excess of the fair market value of the shares of common stock on the date of exercise over the option price, or +(ii) if the disposition is a taxable sale or exchange, the amount of any gain recognized. Upon such a disqualifying disposition, St. Mary will be entitled to a deduction in the same +amount and at the same time as the optionee recognizes such ordinary taxable income. +Nonqualified +Stock Options. The grant of a nonqualified stock option will not result in any immediate tax consequences to St. Mary or the optionee. Upon the exercise of a +nonqualified stock option, the optionee will recognize ordinary taxable income, and St. Mary will be entitled to a deduction, equal to the difference between the stock option price and the fair +market value of the shares of common stock acquired at the time of exercise. +Stock +Appreciation Rights. The grant of either a tandem SAR or a freestanding SAR will not result in any immediate tax consequences to St. Mary or the grantee. Upon the exercise +of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares of common stock received will constitute ordinary taxable income to the +grantee. St. Mary will be entitled to a deduction in the same amount and at the same time. +Restricted +Stock. A grantee normally will not recognize taxable income upon an award of restricted stock, and St. Mary will not be entitled to a deduction, until the termination +of the restrictions. Upon such termination, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock at that time, plus the amount +of any dividends and interest thereon to which the grantee then becomes entitled. However, a grantee may elect to recognize ordinary taxable income in the year the restricted stock is awarded in an +amount equal to its fair market value at that time, determined without regard to the restrictions. St. Mary will be entitled to a +deduction in the same amount and at the same time as the grantee recognizes income, subject to the limitations of Section 162(m) of the Internal Revenue Code. +Restricted +Stock Units. The grant of a restricted stock unit will not result in any immediate tax consequences to St. Mary or the grantee. Upon payment of a restricted stock unit, +the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at that time. St. Mary will be entitled to a +deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the Internal Revenue Code. +16 +Performance +Shares and Performance Units. The grant of a performance share or performance unit will not result in any immediate tax consequences to St. Mary or the grantee. Upon +payment of a performance share or performance unit, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at +that time. St. Mary will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the Internal Revenue Code. +Payouts +of Performance Compensation Awards. The designation of an award of restricted stock, restricted stock units, performance shares, or performance units as a performance +compensation award will not change the tax treatment described above to an employee who receives such an award or grant. Such a designation will, however, enable such award or grant to qualify as +performance based compensation not subject to the $1 million limitation on deductible compensation under Section 162(m) of the Internal Revenue Code. Applicable taxes required by law +will be withheld from all amounts paid in satisfaction of an award. The amount of the withholding will generally be determined with reference to the closing price of the shares of common stock as +reported on the New York Stock Exchange on the date of determination. +Golden +Parachute Tax and Section 280G of the Internal Revenue Code. If an award is accelerated as a result of either (i) a change of control of St. Mary for awards +granted prior to May 21, 2008 or (ii) a change of control of St. Mary and a termination of a participant's employment with St. Mary either by St. Mary without cause +or by the participant for good reason within 30 months of the change of control for awards granted on or after May 21, 2008, all or a portion of the value of the award at that time may +be a "parachute payment" under Section 280G of the Internal Revenue Code for certain employees and other individuals who perform services for St. Mary. Section 280G generally +provides that if parachute payments equal or exceed three times an award holder's average W-2 compensation for the five tax years preceding the year of the change of control, +St. Mary will not be permitted to claim its deduction with respect to any "excess parachute payments" made to the individual. An "excess parachute payment" generally is the portion of a +parachute payment that exceeds such individual's historical average compensation. Section 280G of the Internal Revenue Code generally applies to employees or other individuals who perform +services for St. Mary if within the 12 month period +preceding the change of control the individual is an officer of St. Mary, a stockholder owning more than one percent of the stock of St. Mary, or a member of the group consisting of the +lesser of the highest paid one percent of the employees of St. Mary or the highest paid 250 employees of St. Mary. A recipient of an excess parachute payment is subject to a +20 percent excise tax on such excess parachute payment under Section 4999 of the Internal Revenue Code. +The +discussion set forth above is intended only as a summary and does not purport to be a complete enunciation or analysis of all potential tax consequences relevant to recipients of +awards under the Amended 2006 Plan. We have not undertaken to discuss the tax treatment of awards under the Amended 2006 Plan in connection with a merger, consolidation, or similar transaction. Such +treatment will depend on the terms of the transaction and the method of dealing with the awards in connection therewith. +Change of Control +Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject to the provisions of the Amended 2006 Plan or as otherwise +provided in the award agreement, for awards granted prior to May 21, 2008, in the event of a change of control, unless otherwise specifically prohibited under law or by the rules and +regulations of a national securities exchange: +• Any +period of restriction and other restrictions imposed on restricted stock or restricted stock units shall lapse, and restricted stock units shall be immediately payable; +• Any +and all stock options and SARs granted shall become immediately exercisable; +17 +• The +target payout opportunities attainable under all outstanding awards of performance based restricted stock and performance based restricted stock units, performance +shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the change of control, and +• The +vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the change of control, and shall be paid out to participants +within 30 days following the effective date of the change of control; and +• Awards +denominated in cash shall be paid to participants in cash within 30 days following the effective date of the change of control. +• Upon +a change of control, unless otherwise specifically provided in a written agreement entered into between the participant and St. Mary or an affiliate of +St. Mary, the Committee shall immediately vest and pay out all other stock based awards as determined by the Committee; and +• The +Committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a change of control, and the value of such awards, as +determined by the Committee in accordance with the terms of the Amended 2006 Plan and the award agreement, be paid out in cash in an amount based on the change of control price within a reasonable +time subsequent to the change of control; provided, however, that no such payment shall be made on account of an incentive stock option using a value higher than the fair market value on the date of +settlement. +Accelerated +Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to the provisions of the Amended 2006 Plan or as otherwise provided in the award +agreement, for awards granted on or after May 21, 2008 and prior to change of control, in the event a change of control occurs and a participant's employment with the Company is terminated +without cause or the participant terminates his or her employment with the St. Mary for good reason within 30 months of the change of control (a "Change of Control Termination"), unless +otherwise specifically prohibited under law or by the rules and regulations of a national securities exchange: +• Any +period of restriction and other restrictions imposed on restricted stock or restricted stock units shall lapse, and restricted stock units shall be immediately payable; +• Any +and all stock options and SARs granted shall become immediately exercisable; +• The +target payout opportunities attainable under all outstanding awards of performance based restricted stock and performance based restricted stock units, performance +shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on measured performance as of the +effective date of the change of control, and +• The +vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to +participants within 30 days following the effective date of the Change of Control Termination, and +• Awards +denominated in cash shall be paid to participants in cash within 30 days following the effective date of the Change of Control Termination; +• Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the participant and St. Mary or an affiliate +of St. Mary, the Committee shall immediately vest and pay out all other stock based awards as determined by the Committee; and +18 +• The +Committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a Change of Control Termination, and the value of such awards, +as determined by the Committee in accordance with the terms of the Amended 2006 Plan and the award agreement, be paid out in cash in an amount determined by the Committee in accordance with the terms +of the Amended 2006 Plan and the award agreement, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on account of an +incentive stock option using a value higher than the fair market value on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a change of control and Change of Control Termination do not occur, would result in an award to a covered employee +designed to qualify as performance based compensation and not so qualify, the Committee shall have the discretion to adopt for such awards provisions as shall satisfy the requirements of +Section 162(m) of the Internal Revenue Code. +Alternate +Awards. Subject to certain conditions set forth in the Amended 2006 Plan, no cancellation, acceleration of vesting, lapsing of restrictions, payment of an award, cash +settlement, or other payment shall occur with respect to any award if the Committee reasonably determines in good faith prior to the occurrence of a change of control, that such award shall be +honored, assumed, or new rights substituted therefore by any successor, all as described in the Amended 2006 Plan. +Amendment, Modification, Suspension, and Termination +The Committee or Board of Directors of St. Mary may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Amended 2006 Plan +in whole or in part; provided however, that: +• Except +in connection with a corporate transaction involving St. Mary (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, +recapitalization, reorganization, merger, consolidation, split up, spin off, combination, or exchange of shares), the terms of outstanding awards may not be amended to reduce the option price of +outstanding options or the grant price of outstanding SARs or cancel outstanding options or SARs in exchange for cash, other awards or options or SARs with an option price or grant price that is less +than the option price or grant price of the original options or SARs without stockholder approval. +• No +amendment or modification which would increase the total number of shares of common stock available for issuance under the Amended 2006 Plan or the total number of shares +available for incentive stock options under the Amended 2006 Plan shall be effective unless approved by the stockholders of St. Mary. +• To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment shall be effective unless approved by the +stockholders of St. Mary in accordance with applicable law, regulation, or securities exchange or market requirement. +Adjustment of Awards +The Committee may make appropriate proportionate adjustments or substitutions in the terms and conditions of, and the criteria included in, awards in recognition +of unusual or nonrecurring events affecting St. Mary or the financial statements of St. Mary or of changes in applicable laws, regulations, or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Amended +2006 Plan. +19 +Adjustments shall be made automatically, without the necessity of Committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a stock +split effected by means of a stock dividend and in the case of any other dividend paid in shares of common stock. Adjustments shall be made in the discretion of the Committee with respect to other +corporate events or transactions. +Securities Registration +St. Mary plans to register under the Securities Act of 1933, as amended, the issuance of shares of common stock under the Amended 2006 Plan. Accordingly, +participants will be able to sell shares issued under the Amended 2006 Plan once any vesting and holding periods are satisfied, subject to other requirements of the Securities Act of 1933, as amended. +New Plan Benefits Table +St. Mary cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our executive officers, +employees or directors under the Amended 2006 Plan. Such awards will be subject to limits as set forth in Section 4.1 of the Amended 2006 Plan document attached to this proxy statement as +Annex A. +The +following table sets forth information with respect to awards granted in 2008 related to 2007 under the 2006 Plan to each of St. Mary's named executive officers, current +executive officers as a group, and all employees and consultants (excluding named executive officers and current executive officers) as a group as well as restricted stock granted in 2007 to current +directors who are not executive officers as a group related to the service period from May 16, 2007, through May 21, 2008. +20 +2006 Equity Incentive Compensation Plan +Name and Position +Market Value of +Shares or Units +Number of +Restricted +Stock Units +Issued +Number of Shares +of Restricted +Stock Issued +Anthony J. Best +President, Chief Executive Officer and Director +$ +313,164 +4,526 +3,750 +Robert L. Nance, +former Senior Vice President(1) +$ +105,838 +2,797 +0 +David W. Honeyfield(2) +former Senior Vice President—Chief Financial Officer and Secretary +$ +139,478 +3,686 +0 +Milam Randolph Pharo +Vice President—Land and Legal and Assistant Secretary +$ +47,149 +1,246 +0 +Garry A. Wilkening, +Vice President—Human Resources and Administration +$ +47,149 +1,246 +0 +Mark A. Hellerstein, +Chairman and former Chief Executive Officer(3) +$ +235,062 +0 +6,212 +Current Executive Officers as a Group (20 persons) +$ +1,641,500 +33,418 +9,962 +Current Non-Executive Directors as a Group (seven persons) +$ +1,229,951 +0 +32,504 +All Employees and Consultants (excluding named executive officers and Current Executive Officers) as a Group (251 persons) +$ +4,836,936 +127,826 +0 +(1) Mr. Nance +retired from his position as Senior Vice President effective December 31, 2007. +(2) Mr. Honeyfield +resigned from his position as Senior Vice President—Chief Financial Officer and Secretary of St. Mary effective March 21, 2008. +(3) Mr. Hellerstein +retired from his position as Chief Executive Officer effective February 23, 2007. These awards relate solely to Mr. Hellerstein's service as a +non-employee director. +Disclosure with Respect to Equity Compensation Plans +For a table providing information as of December 31, 2007, concerning equity awards granted under St. Mary's 2006 Plan and Employee Stock Purchase +Plan, please see the "Equity Compensation Plans" section of this proxy statement. +Recommendation of the Board of Directors +Since the Board of Directors believes that the Amended 2006 Plan will attract, retain, and further motivate employees, consultants, and directors and enhance +stockholder value, St. Mary's Board of Directors recommends voting "FOR" the approval of the Amended 2006 Plan. +21 +Approval of the Cash Bonus Plan +Overview +The Cash Bonus Plan was initially established by the Company in January 1992, and currently provides that key employees who are designated by the Compensation +Committee of the Board of Directors to participate in the plan may be paid cash bonuses for a particular calendar year of up to two hundred percent of their base salaries for the year. The plan was +amended by the Board of Directors on March 28, 2008, primarily for the purpose of adding provisions to allow the Compensation Committee to design bonus compensation under the plan to qualify as +compensation that is not subject to the limitations on income tax deductibility under Section 162(m) of the Internal Revenue Code and to increase the cap on bonuses from fifty percent to two +hundred percent of base salaries for the year. Section 162(m) imposes a $1 million limitation, subject to certain exceptions, on a public company's income tax deductibility in any tax +year with respect to compensation paid to any employee who is a chief executive officer or one of the other four highest paid executive officers of the company on the last day of that tax year. This +limitation does not apply to certain "performance-based" compensation +paid under a stockholder approved plan that meets the requirements of Section 162(m) and the regulations thereunder. Accordingly, the Company is seeking stockholder approval of the Cash Bonus +Plan to ensure that compensation paid under the plan can be eligible for the "performance based compensation" exemption from the limits on tax deductibility imposed by Section 162(m). +If +the stockholders do not approve the plan, the Compensation Committee will likely consider continuing to provide such compensation using performance goals similar to the goals +currently used under the plan, but such compensation may not be fully deductible for income tax purposes. +Summary of the Plan +The following is a summary of the principal features of the Cash Bonus Plan, a copy of which is attached to this proxy statement as Annex B. In addition, +the Company will furnish a copy of the plan to any stockholder upon written request to the Company's Corporate Secretary. +Administration +The plan is administered by the Compensation Committee, and all matters with respect to interpretation and application of the plan are to be conclusively +determined by the Committee. For a discussion of how the Compensation Committee administers the plan in connection with the Company's overall compensation objectives and framework, see the +"Compensation Discussion and Analysis" section of this proxy statement. +Eligibility and Participation +The plan provides that, on or before March 15 of each year, the Compensation Committee will designate the key employees, if any, of the Company (and of any +of the Company's majority owned subsidiaries) who are eligible to participate in the plan with respect to the prior calendar year. The employees eligible to be designated to participate in the plan +for a particular year are all key employees of the Company and its majority owned subsidiaries. Approximately 417 key employees were designated to participate in the plan for 2007. +Payments +No participant may receive a bonus under the plan with respect to a calendar year in excess of two hundred percent of his or her base salary received for such +year. Unless the Committee determines that a bonus under the plan to an employee covered by Section 162(m) is not designed to qualify as +22 +performance +compensation under Section 162(m), the maximum aggregate amount paid as a bonus under the plan to any one covered employee in any one calendar year cannot exceed $2 million. +Payments +under the plan are made in full to each participant at the time such payment is first determined, provided that the participant is employed by the Company or a qualifying +subsidiary at that time. The timing of payments under the plan must comply in all respects with the provisions of Section 409A of the Internal Revenue Code and the regulations thereunder. +Amendment and Termination +The plan may be terminated or modified prospectively at any time and in any manner by the Board of Directors. +Performance Measures +Notwithstanding any other terms of the plan, the payability (as determined by the Committee) of a bonus under the plan that the Committee intends to be +performance based compensation to a covered employee must be determined by the attainment of one or more performance goals as determined by the Committee in conformity with Section 162(m). The +Committee must specify in writing, by resolution or otherwise, the participants eligible to receive such a bonus (which may be expressed in terms of a class of individuals) and the performance goal(s) +applicable to such bonus within ninety days after the commencement of the period to which the performance goal(s) relate(s) or such earlier time as required to comply with Section 162(m). No +such bonus will be payable unless the Committee certifies in writing, by resolution or otherwise, that the performance goal(s) applicable to the bonus were satisfied. In no case may the Committee +increase the value of a bonus intended to qualify as performance based compensation above the maximum value determined under the performance formula by the attainment of the applicable performance +goal(s), but the Committee retains the +discretion to reduce the value below such maximum. A general description of the performance measures on which performance goals will be based is contained in the Cash Bonus Plan document attached to +this proxy statement as Annex B. +New Plan Benefits Table +The amounts of annual bonus payments which may be made under the plan in the future to the Company's executive officers and employees are not currently +determinable, but are subject to the limits described above under "Payments." +The +following table sets forth information with respect to payments under the Cash Bonus Plan for 2007 to each of the Company's named executive officers, current executive officers as a +group, and all +23 +employees +(excluding named executive officers and current executive officers) as a group. Directors who are not employees or officers of the Company are not eligible to participate in the plan. +Name and Position +Amount +Anthony J. Best +President and Chief Executive Officer +$ +41,748 +Robert L. Nance +Former Senior Vice President and President and Chief Executive Officer of Nance Petroleum Corporation(1) +$ +25,803 +David W. Honeyfield +Former Senior Vice President—Chief Financial Officer and Secretary(2) +$ +34,000 +Milam Randolph Pharo +Vice President—Land and Legal and Assistant Secretary +$ +23,000 +Garry A. Wilkening +Vice President—Human Resources and Administration +$ +23,000 +Mark A. Hellerstein +Former President and Chief Executive Officer(3) +— +Current Executive Officers as a Group (11 persons) +$ +279,248 +All Employees (excluding named executive officers and Current Executive Officers) as a Group (406 persons) +$ +3,267,707 +(1) Mr. Nance +retired as an officer of the Company effective December 31, 2007. +(2) Mr. Honeyfield +resigned from his position as Senior Vice President—Chief Financial Officer and Secretary of the Company effective March 21, 2008. +(3) Mr. Hellerstein +retired as Chief Executive Officer of the Company on February 23, 2007. +Recommendation of the Board of Directors +Since the Board of Directors believes that the Cash Bonus Plan helps to attract, retain, and further motivate employees and enhance stockholder value, and that it +is desirable to ensure that compensation paid under the plan can be eligible for the "performance based compensation" exemption from the limits on tax deductibility imposed by Section 162(m) of +the Internal Revenue Code, the Board of Directors recommends voting "FOR" approval of the Cash Bonus Plan. +Ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered Public Accounting Firm. +St. Mary's stockholders are being asked to ratify the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's +Independent Registered Public Accounting Firm. Deloitte has served as the Company's Independent Registered Public Accounting Firm since 2001 and the Audit Committee believes it will engage Deloitte to +perform an audit again as of and for the year ended December 31, 2008. +The +Audit Committee is responsible for selecting the Company's independent auditors for the fiscal year ending December 31, 2008. Stockholder approval is not required to appoint +Deloitte & Touche, LLP as the Company's independent auditors for fiscal year 2008. Notwithstanding, the Board of Directors believes that submitting the appointment of Deloitte & +Touche, LLP to the stockholders +24 +for +ratification is good corporate governance. The Audit Committee is solely responsible for selecting the Company's independent auditors. If the stockholders do not ratify this appointment, the Audit +Committee will review its future selection of independent auditors. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" the ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's +Independent Registered Public Accounting Firm. +CORPORATE GOVERNANCE +Board of Directors +The Board is comprised of a majority of independent directors. The Board has determined that the following directors are independent and do not have any material +relationship with the Company other than as a director and stockholder of the Company: Barbara M. Baumann, Larry W. Bickle, William J. Gardiner, Julio M. Quintana, John M. Seidl, and William D. +Sullivan. In its conclusions as to the independence of these directors, the Board considered past employment, remuneration, and any relationship with the Company. In making its determination as to the +independence of the members of the Board of Directors, the Board considered the independence tests described in Section 303A.02 of the Corporate Governance Standards of the New York Stock +Exchange's Listed Company Manual. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee are each comprised solely of independent directors. The written charters for all +three independent committees are available on the Company's website at www.stmaryland.com. Also available on the website are the Company's Corporate +Governance Guidelines, Code of Business Conduct and Ethics, and Executive Committee Charter. The committee charters, the Corporate Governance Guidelines, and the Code of Business Conduct and Ethics, +that applies to all employees, officers, and members of the Board of Directors of the Company, will be furnished in print to any stockholder who requests them. +Presiding Director at the Nonmanagement Directors' Executive Sessions +All independent directors meet in executive session immediately before each regularly scheduled meeting of the Board of Directors or as deemed necessary. +Mr. Seidl has presided at these executive sessions. +Communication with the Directors of the Company +The Board of Directors welcomes questions or comments about the Company and its operations. Those interested may contact the Board of Directors as a whole, +nonmanagement directors, or any one or more specified individual directors by sending a letter to the intended recipients' attention in care of St. Mary Land & Exploration Company, +Corporate Secretary, 1776 Lincoln Street, Suite 700, Denver, CO 80203. All such communications other than commercial advertisements will be forwarded to the appropriate director or directors +for review. +BOARD AND COMMITTEE MEETINGS +The full Board of Directors met 17 times during 2007. Each director participated in at least 15 of the Board meetings and at least 82 percent of the +committee meetings held during the director's tenure on the Board and its committees. +It +is the Company's policy that each director is expected to attend the Annual Meeting of Stockholders. Each director attended the 2007 Annual Meeting of Stockholders. +25 +The +Board has an Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee, and an Executive Committee. The Audit Committee, the Nominating and Corporate +Governance Committee, and the Compensation Committee are each comprised solely of independent directors. +Each +of the committees and the entire Board separately evaluated their respective performance for the year 2007. The performance evaluation process was supervised by and reviewed by the +Nominating and Corporate Governance Committee and discussed amongst and approved by the full Board. +The +following table sets forth the members of each committee, as of December 31, 2007, and the number of meetings held in 2007. +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann(1) +X +X +* +X +Larry W. Bickle +X +X +Anthony J. Best +X +William J. Gardiner +X +* +X +Mark A. Hellerstein +X +* +Julio M. Quintana +X +John M. Seidl +X +X +* +William D. Sullivan +X +X +Number of Meetings in 2007 +11 +3 +10 +— +* Chairperson +(1) Barbara +M. Baumann was a member of the Audit Committee throughout 2007 and up until March 20, 2008, at which time committee assignments were realigned to consider time +commitments and workload of the directors. +The +Audit Committee assists the Board in fulfilling its oversight responsibilities for financial reporting by the Company. Audit Committee members are prohibited from serving on more +than three audit committees of public companies. Barbara M. Baumann is the chair of the audit committee of Unisource Energy Corporation and is the only Audit Committee member that serves on another +company's audit committee. The Audit Committee is solely responsible for the engagement and discharge of independent auditors and reviews the quarterly and annual financial results. The committee +reviews the audit plan and the results of the audit with the independent auditors and reviews the independence of the auditors, the range of audit fees, the scope and adequacy of St. Mary's +system of internal accounting controls, and the Company's risk management policies. The Audit Committee also has oversight responsibility for the internal audit function of the Company. The Audit +Committee is currently composed of three directors, each of whom is independent as defined by the New York Stock Exchange listing standards. Ms. Baumann was an Audit Committee member throughout +2007. See the Audit Committee Report contained in this proxy statement. +While +each of the Audit Committee members are considered financially literate, the Board of Directors has determined that three of the four members of the current Audit Committee that +served up through March 20, 2008, Barbara M. Baumann, William J. Gardiner, and John M. Seidl, are financial experts as the term is defined by the Securities and Exchange Commission ("SEC"). +Subsequent to March 20, 2008, Mr. Gardiner and Mr. Seidl will be considered the Audit Committee financial experts. +26 +The +Nominating and Corporate Governance Committee's primary function is to nominate the individuals to be elected to the Board of Directors and to oversee all corporate governance +policies of the Board of Directors. +The +Compensation Committee's primary function is to oversee the administration of the Company's employee benefit plans and to establish the Company's compensation policies. The +Compensation Committee recommends to the Board the compensation arrangements for senior management and directors, adoption of compensation plans in which officers and directors are eligible to +participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" describes these responsibilities and the manner in +which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board of Directors and the Company with respect to matters as to which it has been authorized to act by the Board of +Directors, provided that such matters are not in conflict with the Certificate of Incorporation or By-Laws of the Company or applicable laws, regulations, or rules or the listing standards +of the New York Stock Exchange. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on the Board of Directors or any committee. +The +fiscal service period for directors is the period from one annual meeting to the next. For the last fiscal year the period was from May 16, 2007, through May 21, 2008. +For this period, target base compensation for each member of the Board of Directors was set at $160,000 annually, plus committee and attendance fees. Primary director compensation is in the form of +stock grants. +The +stock compensation for non-employee directors is as follows: +• Restricted +stock with a market value on the date of director election of $160,000, which resulted in a grant of restricted stock to each non-employee director +elected by the stockholders on May 16, 2007, of 4,382 shares of St. Mary common stock. These shares were issued under St. Mary's 2006 Equity Incentive Compensation Plan. The +shares are earned over the director's annual service period and carry a one year holding period restriction following the expiration of the earning period. The compensation expense recorded in the +Company's financial statements is the fair value of the restricted share grant as calculated under the valuation provisions required by Statement of Financial Standard +No. 123(R)—"Share Based Payment". +The +cash component of the director compensation for non-employee directors is as follows: +• Payment +of $750 for each Board meeting attended. +• Payment +of $600 for each committee meeting attended in person and $375 for each telephonic committee meeting. +• Reimbursement +for expenses incurred in attending Board and committee meetings. +The +committee chairs receive the following cash payments in recognition of the additional workload of their respective committee assignments. These amounts are paid concurrent with the +beginning of the annual service period. +• Audit +Committee—$15,000 +• Compensation +Committee—$5,000 +27 +• Nominating +and Corporate Governance Committee—$5,000 +Mr. Hellerstein +became the non-executive Chairman of the Board concurrent with his retirement as Chief Executive Officer on February 23, 2007, and the +Compensation Committee decided that, in view of this new role and transition opportunities with the new President and Chief Executive Officer, compensation for such additional work load would be +appropriate. The Committee then obtained information from an outside compensation consultant, Frederic W. Cook & Co. ("FW Cook & Co."), as to amounts of incremental +compensation for such services paid by other companies under similar role transition circumstances. After considering this information and following discussion, the Compensation Committee concluded +that a fee of $100,000 for the 2007-2008 director service period was appropriate for this transitional year. The payment made for the service period from May 2007 to May 2008, which was +prorated beginning with the expiration of Mr. Hellerstein's employment agreement on June 30, 2007, was paid in the form of restricted stock and was supplemental to the basic +non-employee director compensation. The Board will decide prospectively if any supplemental remuneration should be paid to the non-executive Chairman. +The +directors are eligible to participate in the St. Mary Land & Exploration Company health, pharmacy, dental, and vision insurance programs. Directors are charged a +premium that is equal to the COBRA rates associated with the Company's plan. The ability to participate in this plan is considered non-compensatory. +The +following table sets forth the annual and long-term compensation received during 2007 by the non-employee directors of St. Mary. The amounts presented +represent the fair value of compensation expense that has been recorded by the Company. The stock based component of the compensation has been recorded based on the valuation provisions required by +the Statement of Financial Standard No. 123(R)—"Share Based Payment". Cash based compensation is recorded based on the monetary amount paid to the individual director. +2007 DIRECTOR COMPENSATION +Name +Fees Earned +or Paid in +Cash +($) +Stock +Awards(1)(2) +($) +Option +Awards(3) +($) +Non-Equity +Incentive Plan +Compensation +($) +Change In +Pension Value +and Non-Qualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Barbara M. Baumann +$ +25,550 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +170,514 +Larry W. Bickle +$ +17,850 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +162,814 +William J. Gardiner +$ +33,000 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +177,964 +Mark A. Hellerstein +$ +6,000 +$ +207,033 +$ +— +$ +— +$ +— +$ +— +$ +213,033 +Julio M. Quintana +$ +17,250 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +162,214 +John M. Seidl +$ +23,075 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +168,039 +William D. Sullivan +$ +17,100 +$ +144,964 +$ +— +$ +— +$ +— +$ +— +$ +162,064 +(1) Each +of the non-employee directors was issued 4,382 restricted shares of St. Mary common stock in conjunction with such director's election to the Board on +May 15, 2007. These awards are for the period from May 16, 2007, through May 21, 2008. The restricted shares vest over the annual service period for the Board and carry an +additional one year restriction beyond the date of vesting. The general methodology used for determining the fair value of these awards is described in Note 7 of the Notes to Consolidated +Financial Statements included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2007. Specifically, the Company assumed a risk free rate of +4.5 percent, a volatility factor of the expected market price of the Company's common stock of 32 percent, and an expected life of the award of one year beyond the time the award was +earned. +(2) As +of December 31, 2007, Ms. Baumann, Mr. Bickle, Mr. Gardiner, Mr. Seidl, and Mr. Sullivan each held 8,728 shares of restricted stock that +had been issued to them over their years of service. As of December 31, +28 +2007, +Mr. Quintana held 8,133 shares of restricted stock that had been issued to him over his years of service. As of December 31, 2007, Mr. Hellerstein held 6,212 shares of +restricted stock that had been issued to him for his service as a director. Dividends are paid on these issued and outstanding shares. Additionally, each of the non-employee directors, +except for Mr. Hellerstein and Mr. Quintana, held 3,139 restricted stock units, which are not credited with dividend equivalents and which do not pay or accrue dividends until such time +as the underlying shares are issued in settlement of the restricted stock units. Mr. Hellerstein held 18,891 such restricted stock units that were earned while an employee of the Company, and +Mr. Quintana did not hold any restricted stock units. +(3) For +the year ended December 31, 2007, no stock options have been issued to directors nor have any stock options been issued to the directors since December 2004. As of +December 31, 2007, the non-employee directors held the following number of stock options: Ms. Baumann—47,666, Mr. Bickle—48,566, +Mr. Gardiner—63,172, Mr. Seidl—9,772, and Mr. Sullivan—9,772. All such options are fully vested. Mr. Hellerstein and Mr. Quintana +do not hold any outstanding stock options. The options described above are cumulative unexercised options granted to the directors over their years of service to the Company. +OTHER REPORTABLE ITEMS RELATED TO PAYMENTS MADE BY THE +COMPANY ASSOCIATED WITH SERVICE OF A DIRECTOR +There are no other reportable items related to payments made by the Company associated with service of a director. +COMPENSATION DISCUSSION AND ANALYSIS +Authority and framework for the Compensation Committee. +Executive compensation at St. Mary Land & Exploration Company is determined by the Compensation Committee (the "Committee") of the Board of +Directors. The Committee is comprised of three independent directors and operates under the framework of a formal charter. This charter is available for review on the St. Mary website. The +members of the Committee are appointed by the Board of Directors for the purposes of: +• Overseeing +the administration of the Company's employee compensation and benefit plans; +• Establishing +the Company's compensation policies; +• Assisting +the Board in discharging its responsibilities relating to compensation of the Company's executives; +• Reviewing +and approving the Company's general compensation strategy and objectives; +• Reviewing +the performance and compensation of the Chief Executive Officer on an annual basis; +• Reviewing +and approving recommendations for base compensation for the executive officers of the Company; +• Reviewing +and approving the individual benefits that are earned each year for the cash bonus and stock compensation plans, as well as the participation levels in the NPP; +• Reviewing +the performance of the Company's pension and 401(k) plans; +• Reviewing +and making recommendations to the Board with respect to the compensation of directors, including director and committee fees, cash retainers, and equity based +compensation; and +• Producing +a Compensation Committee Report as required by the SEC to be included in the Company's annual proxy statement and annual report on Form 10-K/A +filed with the SEC. +The +Committee has authority to retain, at the Company's expense, consultants, advisors, and counsel as deemed appropriate in its sole discretion, in order to fulfill its responsibilities +and duties. +29 +The +Committee has sole authority to retain and terminate any compensation consultant to be used in the evaluation of director, chief executive officer or senior executive compensation and has the sole +authority to approve the consultant's fees and other retention terms. The Committee also has the authority to obtain advice and assistance from internal or external legal, accounting or other advisors +as it deems necessary. +Objectives of the Company's Compensation Programs. +The Company uses compensation programs to attract, retain, and motivate talented management and staff personnel at a reasonable cost. The Committee believes it +has structured the compensation plans to encourage management to obtain superior returns for St. Mary's stockholders and to promote the preservation and growth of the Company's income-producing +assets. The majority of the value in the executive compensation plan design is incentive-based and driven by metrics tied to net asset value growth. +The +compensation program is designed to reward behavior that achieves these objectives and that ultimately increases stockholder value on a per share basis. The programs are believed to +align management's interests with the long-term interests of stockholders. Although the structure of the incentive compensation program will change for 2008, the overall design objectives +to the Company's compensation systems will remain the same, but in the opinion of the Compensation Committee and senior management, will be more visibly tied to key performance measures and more +closely aligned with the long-term interest of stockholders. Commencing in 2008, the changes will include short term elements that are more closely aligned with achievement of the annual +business plan, focusing on cash flow generation, investment performance against an approved budget, reserve growth, and a long term element aligned with TSR, modified for peer company performance. The +changes to the program are described below in a manner that provides readers' context for the change, however it should be noted that the information presented for 2006 and 2007 are based on the plan +design and awards in place during those periods. +The +Committee maintains the ability to use business judgment and appropriate discretion in the application of the criteria for structuring, evaluating, and setting executive +compensation. Although there are defined criteria in place, the Committee evaluates the results of the annual incentive compensation performance metrics against other business factors with the intent +of making appropriate compensation decisions that are reflective of the overall business environment and contribution of the executive. In essence, the defined criteria are used as objective +measurement tools, relative to which subjective consideration can be applied. +We +intend for our compensation plans to provide a level of compensation to an individual executive that is competitive with compensation provided by companies performing at a level +similar to St. Mary. Periodically, the Compensation Committee utilizes the services of third party compensation consultants to assess the overall executive compensation program. During 2007, +the Compensation Committee retained FW Cook & Co. to formally review the Company's executive compensation program. Details of this review are described in more detail below. As part of +compensation reviews, the Committee compares St. Mary's compensation against survey data provided by a reputable third party salary survey that is specific to the oil and gas industry. +Additionally, the Committee evaluates data from a select group of peer companies, as listed below. These peer companies are intended to be representative of companies of comparable size and +performance in our industry sub-segment. The selection of the peer group is important, and the ability to measure the resulting return to stockholders is an integral part of the peer group +selection criteria, as is the fact that this peer group is in large part the competition base for recruiting and retaining qualified management and employees. We believe that total executive +compensation should reflect the relative performance of the Company as compared to its peer group. +30 +An Overview of Our Scorecard for Determining Certain Bonus Awards +The Company's compensation elements of salary, cash bonus, and benefits are designed to reward the effort and results that the employee has delivered in the +current year. The longer-term component of equity compensation is designed to align employees' interests with those of our stockholders while creating a longer-term commitment +to the Company by the employee through equity vesting and restriction periods. There is consideration of employee retention built into the vesting provisions of the equity component of compensation. +The longer term equity incentive plan for executives has been in the form of a RSU program. Under this plan, most participants receive RSUs equal to two times the cash incentive bonus amount. The +Chief Executive Officer, Executive Vice President and Senior Vice Presidents receive RSUs equal to four times the cash incentive bonus amount, as described below. Finally, the NPP incentive program, +described below, is designed to provide a benefit to employees only after the Company has been repaid for its initial and ongoing investment, therefore providing an incentive to employees to make +prudent decisions that generate a return to the Company in a timely manner. The value of the NPP was originally designed to be approximately equal to the equity component of compensation, which has +the result of balancing a long-term program with a portion of long-term cash compensation and a portion of equity compensation. As described in our +Form 10-K/A and Form 8-K filings, the 2007 NPP pool is the last pool that will be enacted by the Company, as the NPP will be replaced on a prospective basis by a +performance share plan in 2008. +The +amount of the cash bonus and RSU incentive components of our compensation system are primarily derived from metrics based on the change in the value of our underlying oil and gas +assets and the results of investment decisions made during the year. We use a "scorecard" to make determinations of cash bonus and RSU awards, thereby grounding the inherent and appropriate +qualitative judgment of management and the Compensation Committee in how the value of our stockholder's assets changed during the measurement period against which the compensation is related. The +scorecard measures the performance of the Company and each individual region for a given year in three ways: +• Changes +in the net asset value of the Company (the "NAV"); +• Growth +in proved developed reserves; and +• Growth +in production. +The +cornerstone of the scorecard is the change in net asset value calculation. To determine the change in net asset value, we measure the impact of the change in net asset value of +proved developed and proved developed non-producing assets, net of capital expenditures and cash flows, from the beginning of the year to the end of the year. By including only these two +reserve categories, the scorecard measures the results of the annual capital investment program executed in the current year, and largely eliminate potential value dependent upon execution in a future +period and the more uncertain forecasts of future events. The scorecard mitigates, although not entirely, the effect of commodity price changes by using the same forward price deck at the beginning of +the period and the end of the period. Thus, oil and gas reserves that were in place at the beginning of the year and are not produced in the period are valued at the same commodity price at the end of +the measurement period. New reserve additions are measured using the year end forward price deck. This methodology does not entirely isolate the scorecard from commodity price changes because the +reserves that are produced and sold during the measurement period are credited to the scorecard based on realized prices as compared to the price deck in place as of the beginning of the measurement +period. The difference between the beginning of the year prices and the actual realized prices result in increases or decreases for the associated cash flow element of the net asset value calculation. +Realized cash flows generated by the Company in any given year are also components of the scorecard, including the effect of revenues, production taxes, the impact against operating costs as well as +overhead related costs that are driven by commodity prices such as payment under the NPP. All cost elements of the scorecard are +31 +measured +using the end of the year estimates. That being said, commodity price changes can be a significant factor in the net asset value metric if the realized cash flow of proved developed reserves +that are produced in the current year is different from the cash flow projections established for those properties at the beginning of the year. This measured difference for realized results relates +only to the current year's production, not the remaining future value of the underlying properties. The portions of the scorecard calculation in which price does not have any impact, except to the +extent of price driven cost items, are: +• The +remaining unproduced proved developed oil and gas reserves at the end of the year for those properties that were owned at the beginning of the year, and +• The +value generated from capital deployed in the current year. +Thus +in years when prices rise above the price in effect at the beginning of the year, the scorecard result is enhanced, and the converse is also true. We believe this is appropriate and partially +aligns employee compensation with what our stockholders realize. +Specifically +in 2007, the scorecard results were enhanced for the impact of commodity prices for the element related to operating income. This was particularly impacted by higher crude +oil prices although some benefit for natural gas prices was also realized. The impact of price increases was tempered by increased severance costs, ad valorem costs and lease operating costs driven by +the overall higher commodity price environment, and by a significant increase in finding and development cost on drilling projects, reflecting higher costs for goods and services, resulting in a lower +than expected investment performance. +In +2006, the realized prices for crude oil were virtually the same as the pricing used at the beginning of the year, while natural gas prices were lower year over year. The effect of the +decreased realized prices as compared to the budget prices for natural gas had a negative impact on the scorecard and decreased the measured result for assessing cash bonuses and RSUs, yet it was +representative of the value compression that our stockholders experienced. +Since +a large component of the value of an incentive award to an individual is determined based upon the estimate of the proved developed oil and gas reserves, the Company may have to +consider the impact of the revision of estimates to such oil and gas reserve determinations. Periodically, there are revisions of estimates that result from unexpected performance of the underlying +asset. In years where a revision is deemed to have been significant, the Company and the Compensation Committee will consider whether the revision would have had a significant impact on the scorecard +result for the prior period. If such a determination is made, the Committee may retroactively adjust the prior year compensation. To date, prior year compensation has not been clawed back from +recipients nor have additional amounts been paid to the recipients; rather the current year payout amounts have been adjusted. From year to year, the impact of typical revisions is factored into the +current period scorecard calculation. This approach recognizes that reservoir engineering is an inexact science and that well performance will be better understood with the passage of time. No such +adjustments were made in 2006 or 2007. +The Specific Elements of Compensation and How We Administer Them +The elements of executive compensation are as follows: +• Base +Salary—Base salary is intended to provide a foundation of compensation that recognizes the level of responsibility and authority of each individual +executive. In the determination of base salary and total compensation, the Company targets base salary and total compensation at approximately the 50th percentile of survey and peer group data +selected. The Company targets the 50th percentile for base salary because management and the Compensation Committee members believe that it enables the Company to attract and retain talented +executives and, when +32 +combined +with the incentive compensation programs, give such executives the opportunity to earn greater total compensation based on the achievement of the Company's goals and objectives. The base +salary is the driver of the other components of incentive compensation program. Generally, the Chief Executive Officer makes recommendations to the Committee for the executive management team, +excluding himself. The Committee then reviews these recommendations together with the reasons underlying the recommendations. In making base salary and total compensation decisions, the Committee also +takes into consideration published survey data and publicly available data from an industry peer group. Salaries for 2007 and 2006 respectively were determined at the end of the 2006 and 2005, +respectively. The Company utilized data from Effective Compensation Incorporated's ("ECI") 2006 and 2005 Oil and Gas E&P Industry Compensation Surveys together with peer group data that included the +following companies based on publicly available salary information: Cabot Oil and Gas Corporation, Denbury Resources, Inc., Energen Corporation, Forest Oil Corporation, Penn Virginia +Corporation, Plains Resources, Inc. and, Pogo Producing Company. Western Gas Resources and Unit Corporation were also considered in the peer group for the determination of 2007 base salaries. +These peer companies are U.S. publicly traded companies in the oil and gas exploration and production industry with similar market capitalization and total stockholder return performance to our own +over three and five year periods, and who compete against us for talented employees. The selection of the peer companies involves subjective determinations by the Compensation Committee to account for +similarity or differences in areas of operations. Although not an element of this report, we believe it is important to point out that, for 2008 base salary recommendation, our peer group data +included Cabot Oil and Gas Corporation, Cimarex Energy Co., Comstock Resources, Inc., Denbury Resources, Inc., Encore Acquisition Company, Forest Oil Corporation, Newfield +Exploration Company, Penn Virginia Corporation, Petrohawk Energy Corporation, Quicksilver Resources Inc., Range Resources Corporation, Swift Energy Company, Unit Corporation, and Whiting +Petroleum Corporation. In determining executive salaries, the Committee compares salaries of peer executives with similar responsibilities, along with the data described above. The 2008 base salary +analysis also included the salary survey information described above, along with recommendations of FW Cook & Co. +• Incentive +Compensation—Through 2007, the Company has operated under three incentive compensation plans, each with the potential to substantially increase annual +compensation of an executive officer, provided that the economic performance of the Company met certain targets, and that individual performance of the executive aligned with expectations. These +incentive plans have certain specific objectives that are to be met in order for the plans to provide meaningful benefits to the executives. The incentive plans are designed to provide a level of +compensation to the individual executive that is comparable to executives at the peer companies. +The +Compensation Committee's decisions regarding the approval of cash bonus pools and the associated pool of equity incentive awards is based on analysis and information provided by management, +including the results of the scorecard, and other subjective determinations considered by management and the Committee. The percentages recommended, contemplated, and subsequently approved result in a +pool of dollars and equity value that are available to be distributed to the executives and employees. These amounts are then distributed based on the results of the Company as a whole, the regional +performance for those executives in regional positions, and each individual's performance during the year, as well as other qualitative factors. Described below are further specifics of each aspect of +the Company's incentive plan: +• Cash Bonus Plan. Each year the Compensation Committee evaluates the overall performance of the Company using the +metrics described above. The first step of this +33 +analysis +is grounded in the results of the scorecard, with a pre-established threshold and graduated scale that measures the bonuses and RSUs available for payment as follows: +Increase in Scorecard NAV +Cash Bonus +Percentage Pool +Equity Award +Percentage Pool +Atttributable to +Senior Executives +less than 10.0% +— +— +— +10.0% +10.0 +% +20.0 +% +40.0 +% +12.5% +15.0 +% +30.0 +% +60.0 +% +15.0% +20.0 +% +40.0 +% +80.0 +% +17.5% +27.5 +% +55.0 +% +110.0 +% +20.0% +35.0 +% +70.0 +% +140.0 +% +22.5% +42.5 +% +85.0 +% +170.0 +% +25.0% +50.0 +% +100.0 +% +200.0 +% +As +shown, executive officers and many of our employees are eligible to earn up to a maximum of 50 percent of their base salary compensation in the form of an incentive cash bonus in a given +year. The target for a midpoint award would result from a scorecard NAV increase of just over 16 percent. Additional consideration is given to reserve replacement and production growth in +determining the percentage used for cash bonus. These two additional components are used as subjective guides to consider adjustments to the derived percentage growth in net asset value and do not +have a specific weighting in the determination of cash bonus percentage. The Committee may also use subjective consideration in order to develop compensation that appropriately rewards employees for +other achievements during the year and to ensure that the compensation structure will attract and retain our qualified and performing employees during the current competitive environment for +energy-related talent. +The +overall Company increase in NAV for 2007 resulted in a ten percent increase to NAV which translates into a ten percent incentive cash bonus pool for corporate employees. Included in the scorecard +result for 2007 was the benefit of scorecard NAV resulting from the divestiture of non-core oil and gas properties that were marketed and under contract for sale in 2007, although the +actual closing occurred in January 2008. Also included in the subjective consideration of the Committee was the further development of the Company's resource plays, the entry into a new basin in South +Texas, the repurchase of stock at accretive pricing, the successful transition of a new management team, and the highly competitive environment in the exploration and production segment for personnel. +After considering these factors the Compensation Committee concluded that the ten percent incentive cash bonus was appropriative for the overall Company performance. The regional components of the +scorecard resulted in several regions that did not achieve the minimum ten percent threshold of scorecard NAV growth. In those situations, management and the Compensation Committee believed that a +minimum ten percent cash bonus was appropriate considering all the factors, including subjective performance and retention as described above. The resulting percentages utilized for approved cash +bonuses resulted in a total cash bonus pool approved for all employees of the Company of $3.6 million and an equity bonus pool of $6.1 million. +For +2006, the Company generated an eight percent growth in NAV and accordingly an eight percent cash bonus was determined to be appropriate. As noted above, the eight percent NAV growth was less than +the minimum threshold. Management recommended that the Compensation Committee consider the positive contributions of the approximately $123 million in stock repurchases and the hedges for a +commensurate amount of production that were executed in the second quarter of the year, the groundwork that had occurred in the ArkLaTex region positioning it for growth, and the $247.6 million +acquisition of +34 +properties +in the Sweetie Peck Field that resulted in an expansion into a new resource play in the Permian Basin. These factors were positive accomplishments by the Company that occurred during 2006, +that were expected to have a positive impact on stockholder value, but were not pre-established targets for compensation purposes. The Committee reviewed the recommendation and after +consideration of the subjective factors described above, determined that a modest corporate bonus of eight percent in 2006 was appropriate. +Over +the last five years, the cash bonus percentages for the corporate component of the cash bonus program have averaged 26 percent of base salary. Actual average corporate percentages of cash +bonuses have been 10, 8, 50, 10, and 50 percent for the last successive five years. Specifically for 2007 and 2006 cash bonuses, the Compensation Committee determined that the ten percent and +eight percent cash bonus would be the basis for the amounts to be paid to those executive officers based in Denver, since this amount was the overall corporate performance result. Executive officers +that are in regional offices have 40 percent of their cash bonus determined by the overall corporate performance and 60 percent based on the scorecard result for their individual region. +In 2007 and 2006, Mr. Nance was the only named executive officer to be employed in a regional office; accordingly 60 percent of his bonus was based on the regional scorecard. +For +2006, the percentages described above were used for the Chief Executive Officer and the Chief Operating Officer, as well as for the Denver-based executive officers. The cash bonus percentage for +regional office executive officers has varied slightly from these amounts, based primarily on the results of each individual region. For example, in 2007 the amounts paid to the named executive +officers was based on the specific corporate or regional role the individuals supported together with subjective performance adjustments made by the Chief Executive Officer related to officer bonuses. +Individual performance of the executive officers is considered by the CEO and the Compensation Committee. There are no specific goals or targets against which such subjective measures are applied. +This subjectivity resulted in a higher than ten percent bonus award for Mr. Honeyfield, Mr. Pharo, and Mr. Wilkening in 2007. This increased incentive cash bonus amount was also +utilized for a multiplier applied to the equity based component of incentive compensation awarded as described in the Plan description below. +• Restricted Stock Plan. The Restricted Stock Plan is intended to reward executive officers and key employees of +the Company for long-term increases in the value of the Company's stock. The Company utilizes RSU awards as the stock-based incentive component of compensation. The annual grant of RSU +awards is performance-based and uses the same criteria formula as the Cash Bonus Plan which is the change in scorecard net asset value. However, the amount +of stock compensation is twice the amount of the cash bonus under the Cash Bonus Plan for eligible employees and up to four times the amount of the cash bonus under the Cash Bonus Plan for the Chief +Executive Officer, Executive Vice President, and Senior Vice Presidents. The equity component of incentive compensation is determined in a formulaic manner using a multiplier of two or four times, +depending on the officer's level, and is applied against the cash bonus award. The reason further adjustments have not been made to this calculation is that the cash bonus amount payable has already +taken into account overall scorecard and individual performance considerations; therefore no further adjustment is considered necessary in the equity incentive payment element. +The +reason for selecting an equity component of compensation for the executives of St. Mary is that the Compensation Committee and senior management believe it aligns the interests of +St. Mary management with those of our stockholders, inasmuch as the management team makes decisions with a focus on increasing the value of each share of St. Mary common stock. +Therefore, having St. Mary management personnel as owners of +35 +St. Mary +common stock through the issuance of RSUs or the issuance of shares serves to align these interests. The RSUs are granted with a holding period and a vesting schedule over the ensuing +three years from the date of issuance. These features are designed to promote the ownership of St. Mary common stock by executives and to motivate decision making that continues to increase the +value of St. Mary common stock. The vesting period also helps to retain key employees. +The +Board has established an equity ownership requirement for the Chief Executive Officer of two times base salary and one times base salary for all other executive officers of the Company. Equity +holdings may include the value of vested and unvested RSUs for purposes of these calculations. New executive officers are provided time to accumulate their stock ownership position; however, until an +executive has the required equity holdings in St. Mary, sales of the Company's equity by the officer may not occur unless such sales are approved by the Chief Executive Officer. Similarly, +until the Chief Executive Officer holds St. Mary equity equal to or greater than two times his base salary, he may not sell shares unless such sales are approved by the Board. +With +the hiring of Anthony J. Best as President and Chief Operating Officer in June 2006, the Committee authorized an equity grant in addition to the base equity compensation plan that consisted of an +initial equity grant of 20,000 shares that were immediately vested, to be followed by future issuances of 1,250 shares in the first quarter of each of 2007, 2008, 2009, and 2010. In addition, +Mr. Best's employment agreement provides the ability to earn 2,500 and 1,250 additional shares in each of the same periods if the resulting net asset value calculation results in an increase of +ten percent and fifteen percent, respectively. The grant of equity to Mr. Best was a special award, designed to ensure the successful hiring of an individual believed to be qualified to lead +St. Mary in future years; to immediately align Mr. Best's interests with the stockholders; and to put meaningful amounts of future compensation at risk for incentive purposes. +Mr. Best earned 2,500 of these additional performance shares for the 2007 period. No performance awards were earned related to 2006 performance. Grants under this provision of Mr. Best's +employment agreement have been listed in the bonus column of the Summary Compensation Table. +The +value of the equity compensation program and the value of the NPP were initially designed to provide a benefit to the executive on a long term average basis that reflects essentially equal value +from each of these two elements of compensation. +• Net Profits Interest Bonus Plan. The NPP is designed to reward the contributions made by executive officers and +key employees to the Company's long-term financial success. Plan participants share in the net profits derived from all oil and gas activity from a specific pool of properties. Each +calendar year results in a separate pool, whereby 100 percent of the properties that are completed, plugged and abandoned, or acquired by the Company in a given year are included in that year's +pool. The cash flows attributed to the pools are tracked and the pools are evaluated for payout. Payout is defined as the point in time when 100 percent of related costs and expenses, including +all drilling, land, geologic, geophysical, acquisition, and operating costs and expenses associated with a designated pool are recovered by the associated revenues and proceeds from the properties in +the specific pool. The pools also reflect the effects from the Company's commodity hedging program. After payout has been achieved for a given pool, ten percent of the future net cash flows from the +properties in that particular pool are distributed among the pool participants. After the Company has recovered 200 percent of the total costs and expenses for a given pool, including prior +distributions under the plan at the ten percent level, 20 percent of the future net cash flow is distributed among pool participants. +36 +The +distributable proceeds are paid to individuals based on their participation percentage in the particular pool in which they have an interest. Individual participation in a pool is determined at +the date of creation of the pool. The participation in a pool is determined based on a combination of each participant's relative weighted salary, performance of the region, and the relative capital +attributed to the region in which an individual works. The pool years related to 2006 and 2007 are subject to vesting provisions whereby one-third of an individual's participation vests +upon selection to the pool, and one-third vests on each of the next two anniversary dates of the respective pool. Also with the 2007 and 2006 pool years, there is a cap on cumulative pool +payouts of 300 percent of that individual's base salary paid during the year to which the pool relates. Partial interest participants' benefits are prorated proportionately from the +300 percent amount referred to above. In the event there are distributable proceeds beyond the 300 percent limitation or an individual does not fully vest in their interest, the excess +benefits remain with the Company and are not allocated to the remaining plan participants. All pool years prior to and including 2005 are fully vested and there is no limit on the amount of benefit +that may be paid from a particular pool. The use of the NPP has been discontinued prospectively and the 2007 pool was the last pool under this program. +Consistent +with the reasoning for the amount of the equity bonus component of compensation for selected individuals, the NPP was designed to reflect that senior management is primarily responsible for +the profitable operations and investments of the Company. Accordingly, the relative weighted salaries of the President and Chief Executive Officer, as well as the Executive Vice President and Chief +Operating Officer, are 100 percent of their actual base salaries. The relative weighted salaries of all other executive officers are two-thirds of actual base salaries. This benefit +is intended to +drive the behavior of those individuals that are thought to have a direct impact on the investment decision-making processes attributed to the oil and gas assets of the Company. Including executive +management, the 2007 and 2006 pools had 102 and 85 designated participants, respectively. Eligibility for participation in the NPP is typically limited to the levels of CEO, President, Executive Vice +President, Senior Vice Presidents, Vice Presidents, selected administrative professionals, and technical professionals including but not limited to engineers, geologists, and geoscientists. While +individuals in these job classifications are eligible to participate based on overall corporate performance, regional performance, and individual performance, their individual participation +percentages were subject to adjustment. Participation is not guaranteed. These determinations are made by the Compensation Committee based on recommendations from the CEO, who formulates his +recommendation based on input from regional managers and other senior level executives. The CEO, President, Executive Vice President, and Senior Vice Presidents have historically been awarded a +participation percentage for each pool year in which they have been eligible. +Payout +status for an individual pool has typically occurred in four to six years; however, certain pools have reached payout status in as soon as two years. Certain pools, which have been in existence +for more than ten years, have not achieved payout. Commodity pricing and operating costs have significant impacts on the timing of payout and the magnitude of payments once a pool is in payout status. +Just +as with the vesting schedule in the RSU Plan, the vesting component of the 2006 and 2007 pools is designed as a retention tool for the Company. Since achieving payout status is dependent upon the +performance of the capital investments and operating cost levels for a specific pool and since the timing of payout varies, payment of distributable proceeds does not bear a direct relationship to the +performance of the Company as a whole or the individual performance of the executive in the actual year payments are made. The precise +37 +amount +of compensation that will become payable under the NPP is not determinable upon grant, rather it will vary depending on the profitability of the underlying oil and gas properties and the +attainment of vesting for an individual. However, the participation percentage that an individual has assigned to them under a particular year's NPP pool is fixed for each individual pool year. The +determination of the participation percentage considers individual performance in the year the percentage is awarded. Other than reductions in an individual's participation attributed to forfeitures +of unvested amounts, the percentages assigned to an individual are fixed. Any forfeited participation percentages revert to the Company and are not reallocated to other participants. That being said, +the payments from the NPP reward the long-term decisions that were made in prior years after the Company has been repaid for the capital and costs of the associated investments. +The +NPP was also designed to create tension between growth and economics. Growth without strong economics creates minimal value for participants as does limited activity with excellent economics. +Because poor investments directly diminish the value of the pool, there is an incentive for capital to flow to the best performing projects within the Company. The NPP also was believed to help to +drive the hiring of the right people who can contribute enough value so as to not dilute the value of the pool to other participants. Because key employees have a financial interest in the performance +of the oil and gas properties, not only are they motivated to make good investment decisions and execute them properly, but they are also motivated to maximize the value of the oil and gas properties +throughout +the life of those properties. All vested benefits granted under this plan will survive the decision to move towards a different incentive compensation structure. +Historically +the NPP has appropriately incentivised and rewarded employees at St. Mary. Over time the somewhat unique nature of the plan, the complexity of the program, and the delay in any +realized value during payout, has made it less attractive to newly recruited and highly marketable employees. Therefore, commencing in 2008 and as disclosed previously, the NPP will be replaced on a +prospective basis with a performance share plan which utilizes PSAs. PSA plans are more common among our peers and provide for target awards that are earned over a three year performance period, which +we believe will provide a more visible, more marketable, and more widely understood long-term incentive criteria. The target awards, while made at the beginning of the performance +measurement period will have a back end loaded time vesting schedule and a TSR measurement after the conclusion of the three year measurement period. At the conclusion of the three year measurement +period, the TSR will be measured first for St. Mary's compound return over the three year measurement period, then will be modified depending on the results of the TSR performance against an +appropriate pre-established performance index consisting of similar companies. Depending on the results of the TSR measurements, the actual award will be between zero and two times the +target award based on pre-established criteria. There is no market or performance condition that results in an early payout determination, other than a change of control. This plan and the +associated cash bonus plan will be widely utilized within the organization as a consistent plan for our employees and executives, ensuring that all eligible personnel are measured against the same +performance conditions. +• Pension +and 401(k)—Our executives participate in the qualified, non-contributory defined benefit plan and a 401(k) program on the same basis as all +of our employees. A supplemental pension plan exists whereby additional benefits are provided to executive level employees in order to provide for benefits in excess of Internal Revenue Code limits on +the qualified plan. The supplemental plan is an unfunded non-qualified plan. We believe that these plans are necessary to remain competitive in the hiring and retention of qualified +personnel. Included in this proxy is a description of the manner in which the pension plans function, together with the +38 +years +of service credit and value of plan assets for each of the disclosed individuals. See "Pension Benefits". +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to Internal Revenue Code limits. Final average compensation is +the average of the highest three consecutive years of the ten years preceding termination of employment. For each named executive officer, the level of compensation used to determine benefits payable +under the qualified pension plan is that officer's average of base salaries, excluding bonuses. +The +supplemental plan provides executives hired before 1995 that complete 15 years of service and reach the age 65 a benefit equal to 40 percent of final average compensation plus +37 percent of final average compensation integrated with the social security wage base without regard to compensation limitations provided under the qualified plan, less the benefit provided by +the qualified plan. For executives hired after 1994, the supplemental benefit is calculated using the formula for the qualified plan without the limitation imposed by Section 415 of the +Internal Revenue Code, less the benefit provided by the qualified plan. +The +Company's 401(k) Profit Sharing Plan is a defined contribution pension plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) Plan allows eligible employees to contribute +up to 60 percent of their income on a pretax basis through contributions to the 401(k) Plan. Contributions are limited to amounts determined by Internal Revenue Code regulations. The Company +matches each employee's contributions up to six percent of the employee's pretax income. Company contributions vest over an employee's first five years of employment. +• Sign-on +Bonuses—In addition to the ongoing elements, the Committee and senior management have the discretionary ability to pay sign-on +bonuses in the form of cash or RSUs to executive officers as well as other employees. The Company utilizes these bonuses in order to attract personnel believed to be valuable to the Company. The +hiring of employees, particularly the hiring of executives, is highly competitive. In order to attract and retain skilled employees, we believe that this tool is important to the building and +retention of a strong qualified workforce. Based on the aforementioned changes to the long-term incentive plans, PSAs will be utilized for the equity component of sign-on +bonuses in the future. +• Health +and Welfare Benefits—The executive officers of the Company are eligible to participate in the St. Mary health, pharmacy, dental, and vision +insurance programs on the same basis as the broad employee group. These plans are intended to provide benefits that support the well being and overall health of executives and employees. +• Group +Term Life, Supplemental Life Insurance, Supplemental Disability, and Other Benefits—our executives are provided group term insurance as well as +supplemental term insurance up to two times their base salary with a maximum coverage of $500,000. Additionally, executive officers are eligible to have individual disability income contracts beyond +the group disability maximum benefit. The supplemental group term and disability insurance are intended to provide additional coverage for those individuals whose salary exceeds the limits for the +group term policy. Allowing supplemental coverage provides executives with coverage that is a commensurate percentage of their base salary, consistent with all employees. +• Change +of Control Benefits—St. Mary has established a change of control executive severance policy. The change of control agreements require first that a +qualifying change of control event has occurred and secondly that the executive has been terminated or that certain other conditions are met, as summarized below. The Company has entered into change +of control severance agreements whereby executive officers are entitled to receive severance payments in +39 +the +event that their employment is terminated within two and one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good +reason" by the officer (e.g. an adverse change in the officer's status after a change of control), each as defined in the agreements. The term "good reason" incorporates the concept of a change +in the employee's status, authority, position, offices, titles, duties or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change +of control event or any time thereafter. The term good reason also contemplates a reduction in the employee's salary and benefits over this same time frame, or the requirement of an employee to +relocate the base of employment outside a 25-mile radius from the employee's current location. The severance payments equal up to two and one-half years annual base salary, +depending on the length of time employment continues after the change of control provided that in no event would the severance payments equal less than one year's annual base salary. In addition, all +insurance and fringe benefits will be provided for a period of one year after termination. The Company has determined that benefits under this plan are subject to an optimization calculation; however, +that does not include a so-called gross-up calculation for income tax. +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or consolidation of the +Company or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members of the Board of +Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of Directors. +Particularly +in view of the propensity of mergers, acquisitions and consolidations in our industry, the Company believes that the change of control severance agreements promote stability and +continuity among the named executive officers, especially if the situation arises where the Company is actively being considered as an acquisition target. Such agreements are customary for executives +in our industry and are offered by companies who compete with us for executive talent. The double trigger feature of the Company's agreements, that is, a change of control must occur and the officer +must experience an involuntary termination within two and one-half years after the change of control, provides a sufficient level of protection for the officer as well as a retention +incentive benefiting the Company and its stockholders without creating an unreasonable impediment to a potential acquirer of the Company. The maximum two and one-half year post change of +control severance payment period, and the minimum one year severance payment and insurance coverage period under the Company's agreements for its named executive officers, are comparable to payment +levels and periods offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance protection during a reasonable period of +time to allow the executive to obtain comparable employment. +The +post-termination payments that may be made under the Company's employment contracts are described below under the caption "Employment Agreement and Termination of Employment." The +energy industry's history of executive employment terminations during cyclical downturns or strategic shifts in the industry or by particular companies have contributed to a widespread heightened +concern for long-term job stability by many executives in our industry. In response to this concern, arrangements that provide compensation guarantees in the event of an executive's +termination without cause, death or incapacity have become common practice. The post-termination payment provisions in the Company's employment agreement for Mr. Best were an +important factor in our ability to recruit Mr. Best to join the Company as President and Chief Operating Officer in 2006. We believe that the two year period for post-employment +compensation and insurance protection is appropriate to allow Mr. Best +40 +adequate +time to obtain comparable employment in the event of a termination, and is comparable to the terms offered by other companies in our industry who compete with us for executive talent. +• Employment +Contracts—Mr. Best is the only executive that has been provided with an employment agreement. The Compensation Committee believes that the +terms of this agreement are commercially reasonable and aided in the hiring and continuing retention of Mr. Best. +• Employee +Stock Purchase Plan—The purpose of the employee stock purchase plan ("ESPP") is to encourage eligible employees to purchase and hold shares of our +common stock. The plan cycle consists of two periods annually with plan periods for the six months ending June 30, and December 31, of each year. The ESPP allows employees to contribute +up 15 percent of their base compensation to purchase common stock at a discount of 15 percent of the lower of the beginning or ending period's stock price. The maximum amount an employee +can contribute to the plan is $25,000 per year, pursuant to Internal Revenue Code restrictions. +Prior Use of Stock Options in Compensation +Although we have outstanding stock options, we stopped granting new stock options to employees after December 2003 and to directors after December 2004. The stock +option program was replaced with the Restricted Stock Program beginning in 2004 following stockholder approval in May of that year. +In +the process of granting stock options, we have never back-dated any stock option grants. In all cases, stock options were granted at the market price as of the date the +options were +issued. The Compensation Committee approved the grant of the options with the express requirement that the price be determined as of the date of the grant in all cases. Our usual process of granting +stock options over the ten years prior to discontinuing the stock option program changed from annual grants to quarterly grants at the end of the 2000. From 1994 until December 31, 2000, stock +option grants were made annually at year-end. Beginning in September 2001, stock option grants were made each quarter-end until December 2003. Upon instituting the quarterly +grants, the number of shares underlying the grants was reduced to approximately one-fourth of the annual grants. Since these grants were made at consistent times based on the occurrence of +calendar periods, no backdating occurred nor was there manipulation in terms of when the grants were made to employees. +Aside +from these regularly scheduled grants, the Company had a history of issuing stock options to newly hired employees or to certain newly promoted employees. There was also a +one-time special grant to two senior officers arising out of a study commissioned by the Compensation Committee. Such grants were made contemporaneous with the respective event and/or the +approval of the Compensation Committee. One other unusual grant was made during the transition from the use of stock options to the Restricted Stock Program. The penultimate grant of stock options to +employees occurred in October 2003, which was essentially a deferral of the September 2003 grant. The delay from September 2003 was a result of pending Compensation Committee approval of the +transition methodology to the Restricted Stock Program equity award at its next regularly scheduled committee meeting. +Named Executive Officer Compensation +Our Company's achievements in 2007 and 2006 reflect the leadership and efforts of our senior management team under the direction of Anthony J. Best, who joined +the Company as President and Chief Operating Officer in June 2006 and became Chief Executive Officer on February 23, 2007, and Mark A. Hellerstein, our former President and Chief Executive +Officer, who retired as Chief Executive Officer on February 23, 2007. Each named executive officer has significant responsibilities for their functional area as well as overall responsibility +for working towards achievement of the Company's objectives and achievement of Company goals. +41 +Based +on the Compensation Committee's review of the Company's overall performance as well as the individual performance of our named executive officers, the Compensation Committee +determined the following compensation for our named executive officers for 2007: +Mr. Best. Mr. Best, an executive with 29 years of experience in the oil and gas industry, joined our +Company in June 2006 as President and Chief Operating Officer. He worked with Mr. Hellerstein during the last half of 2006 to develop and implement a succession plan for the position of Chief +Executive Officer and, on February 23, 2007, Mr. Best succeeded Mr. Hellerstein as our Chief Executive Officer. Mr. Best's compensation consists of the same components and +criteria as other executive officers, including base salary, cash bonus, restricted stock units, and net profits interest bonus plan participation. His base salary will be reviewed annually by the +Compensation Committee. Since Mr. Best began his employment with our Company under the understanding that he would be appointed as our Chief Executive Officer within one year of his starting +date, his base salary was targeted to approach the median salary of the chief executive officers of industry companies having a financial position, capital budget, and performance comparable to that +of the Company. From his starting date in June of 2006 through the end of the year, Mr. Best received a pro-rated salary of $208,807, reflecting an initial annual base salary of +$375,000. Mr. Best's compensation was adjusted to an annual salary of $425,000 commencing with his appointment to CEO. Mr. Best's total base compensation for 2007 was $417,483. +For +2007, Mr. Best received a cash bonus award of $41,748 and a normal RSU bonus award valued at $171,264. Each of these awards was based on the ten percent bonus determination +approved by the Compensation Committee. In addition for 2007, Mr. Best earned 1,250 of restricted shares under the time vesting element of his employment agreement and 2,500 restricted shares +under the performance terms of his employment agreement based on results of the Company's NAV growth as calculated by the scorecard. In 2006 Mr. Best received total bonus payments of $794,305 +and a RSU award with a value of $62,225. Similar to the other named executive officers based in Denver (except those who resigned in 2006), Mr. Best received (i) a pro-rated +eight percent cash bonus, which amounted to $16,705 and reflected his pro-rated base salary attributed to his partial year of employment with the Company in 2006, and (ii) an RSU +award of approximately four times the amount of his eight percent cash bonus, which had a value of $62,225. The remaining $777,600 of Mr. Best's bonus was comprised of a $50,000 employment +agreement cash signing bonus and a special stock award under his employment agreement of 20,000 shares of our common stock, which had a monetary value of $727,600. Mr. Best's hiring bonus in +2006 was agreed to by the Compensation Committees of the Company and Mr. Best in his employment agreement dated May 1, 2006. Mr. Best's total bonus payments for 2006 were +substantially larger than that of our other named executive officers as a direct result of his hiring bonuses. The view of the Compensation Committee was that such a payment was necessary to attract a +talented executive with significant experience in the oil and gas industry to serve as our new Chief Executive Officer upon Mr. Hellerstein's retirement. +Mr. Nance. In 2007 and 2006, Robert L. Nance served as a Senior Vice President of our Company, the Regional Manager of +our Rocky Mountain region, as well as the President and Chief Executive Officer of Nance Petroleum Corporation, one of our wholly-owned subsidiaries. Mr. Nance retired as an officer of the +Company at the conclusion of 2007. Mr. Nance earned a base salary of $258,029 and $240,000 in 2007 and 2006, respectively. Mr. Nance also earned a ten and six percent cash bonus and an +RSU award of $105,838 and $53,655, approximately four times the amount of his ten percent and six percent cash bonus in 2007 and 2006, respectively. As a result of the Compensation Committee's +adjustment of bonuses based on regional operating performance factors, Mr. Nance received a smaller cash bonus and RSU award than the Denver based named executive officers because he received +the bonus applicable to the Rocky Mountain region. A large portion of Mr. Nance's compensation resulted from his participation in the NPP, which reflects his participation in St. Mary +NPP pools beginning in 2000. Mr. Nance received net profits interest bonus payments of $921,574 and $707,621 in 2007 and 2006, respectively. +42 +Mr. Honeyfield. In 2007 and 2006, David W. Honeyfield served as Vice President—Chief Financial Officer, +Treasurer and Secretary of our Company. He was promoted to Senior Vice President—Chief Financial Officer effective March 1, 2007. Mr. Honeyfield earned a base salary of +$240,028 and $203,000 for 2007 and 2006, respectively. Mr. Honeyfield's 2007 cash and equity bonus was primarily based on the ten percent scorecard result for Denver based named executive +officers. Mr. Honeyfield was awarded an additional four percent award for a total cash bonus payment of $34,000 related to 2007 based on the subjective determination of individual performance, +as determined by the Chief Executive Officer. Accordingly, Mr. Honeyfield received for 2007 and 2006 respectively (i) a 14 percent and eight percent cash bonus, and (ii) an +RSU award of approximately four times the amount of his 14 percent and eight percent cash bonus. As a result of his participation in NPP pools beginning in 2003, Mr. Honeyfield also +earned a net profits interest bonus payments of $158,462 and $64,989 in 2007 and 2006, respectively. Mr. Honeyfield has been included in the class of named executive officers who participate in +the RSUs at a four times level since the time of his appointment as Chief Financial Officer in May 2005. +Mr. Pharo. In 2007 and 2006, Milam Randolph Pharo served as Vice-President—Land and Legal and +Assistant Secretary. Mr. Pharo earned a base salary of $190,772 and $175,000 for 2007 and 2006, respectively Mr. Pharo's 2007 cash and equity bonus was primarily based on the ten percent +scorecard result for Denver based named executive officers. Mr. Pharo was awarded an additional two percent award for a total cash bonus payment for $23,000 related to 2007 based on the +subjective determination of individual performance, as determined by the Chief Executive Officer. For 2006, Mr. Pharo received an eight percent cash bonus. These calculations resulted in the +receipt of a cash bonus of $23,000 and $14,000, in 2007 and 2006, respectively. Our Company's RSU grant framework generally provides that Vice Presidents receive two times the amount of their cash +bonus as value in RSUs. Consequently, for 2007 and 2006, as a member of senior management, Mr. Pharo was granted $47,149 and $26,071 in RSUs under our Restricted Stock Plan. As a result of his +participation in NPP pools beginning in 1996, Mr. Pharo also earned net profits interest bonus payments of $1,024,444 and $855,829, for 2007 and 2006, respectively. +Mr. Wilkening. In 2007 and 2006, Garry A. Wilkening served as Vice-President—Administration. +On December 1, 2007, Mr. Wilkening was appointed to the role of Vice President—Human Resources and Administration. Mr. Wilkening earned a base salary of $180,021 and +$155,000 for 2007 and 2006, respectively. Mr. Wilkening's 2007 cash and equity bonus was primarily based on the ten percent scorecard result for Denver based named executive officers. +Mr. Wilkening was awarded an additional three percent award for a total cash bonus payment for $23,000 related to 2007, based on the subjective determination of individual performance, as +determined by the Chief Executive Officer. For 2006, Mr. Wilkening received an eight percent cash bonus. These calculations resulted in the receipt of a cash bonus of $23,000 and $12,400, in +2007 and 2006, respectively. Our Company's RSU grant framework generally provides that Vice Presidents receive two times the amount of their cash bonus as value in RSUs. Consequently, for +2007 and 2006, as a member of senior management, Mr. Wilkening was granted $47,149 and $23,082 in RSUs under our Restricted Stock Plan. As a result of his participation in NPP pools beginning +in 1994, Mr. Wilkening also earned net profits interest bonus payments of $875,486 and $736,167, for 2007 and 2006, respectively. +Mr. Hellerstein. No incentive payments were made to Mr. Hellerstein in 2008 related to 2007, as an employee or +since his retirement other than payments to him that represented vested benefits under the NPP beginning with pools dating back to 1991. The accompanying compensation tables portray the total +compensation to Mr. Hellerstein through the termination of his employment subject to his retirement and expiry of his employment agreement on June 30, 2007. Payments made to +Mr. Hellerstein from his participation in the NPP were approximately $3.9 and $3.4 million in 2007 and 2006, respectively. Payments to Mr. Hellerstein under the NPP were +materially larger than those of the other named executive officers as a result of his being a participant during his 16 year tenure with the +43 +Company +in more pools that have reached payout status than the other executive officers and having been compensated at higher comparative levels over the years, thereby making his participation +percentage in such pools larger than other executive officers. +EXECUTIVE COMPENSATION AND SUMMARY COMPENSATION TABLE +The Summary Compensation table sets forth the annual and long term compensation received during each of the Company's last two years by the Chief Executive +Officer, the Chief Financial Officer, and by the three other highest compensated executive officers of the Company that were employed as of December 31, 2007. This table also includes +Mr. Hellerstein, who served as Chief Executive Officer during 2007 until he retired effective February 23, 2007. +In +addition to salaries, the Company has granted RSUs for the 2007 and 2006 annual periods to executive management and selected other personnel. These individuals also participate with +other members of management in the NPP. All eligible employees participate in the Company's performance based cash bonus plan and 2006 Equity Incentive Compensation Plan as described more fully in the +Compensation Discussion and Analysis. +SUMMARY COMPENSATION TABLE FOR 2006 AND 2007 +Name and Principal Position +Year +Salary +($) +Bonus +($) +Stock +Awards +($)(3)(4) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($)(1) +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +($)(5) +All Other +Compensation +($)(2) +Total +($) +Anthony J. Best +Chief Executive Officer and President (principal executive officer)(6) +2007 +2006 +$ +$ +417,483 +208,807 +$ +$ +41,748 +794,305 +$ +$ +265,864 +62,225 +$ +$ +— +— +$ +$ +— +— +$ +$ +67,094 +— +$ +$ +18,215 +83,213 +$ +$ +810,404 +1,148,550 +Robert L. Nance +Former Senior Vice President(7) +2007 +2006 +$ +$ +258,029 +240,000 +$ +$ +25,803 +14,400 +$ +$ +105,838 +53,655 +$ +$ +— +— +$ +$ +921,574 +707,621 +$ +$ +30,940 +34,245 +$ +$ +21,242 +18,766 +$ +$ +1,363,425 +1,068,687 +David W. Honeyfield +Former Senior Vice President—Chief Financial Officer and Secretary (principal financial officer)(8) +2007 +2006 +$ +$ +240,028 +203,000 +$ +$ +34,000 +16,240 +$ +$ +139,478 +60,497 +$ +$ +— +— +$ +$ +158,462 +64,989 +$ +$ +10,533 +9,373 +$ +$ +15,180 +19,711 +$ +$ +597,681 +373,810 +Milam Randolph Pharo +Vice President—Land and Legal, and Assistant Secretary +2007 +2006 +$ +$ +190,772 +175,000 +$ +$ +23,000 +14,000 +$ +$ +47,149 +26,071 +$ +$ +— +— +$ +$ +1,024,444 +855,829 +$ +$ +28,049 +22,986 +$ +$ +13,782 +13,917 +$ +$ +1,327,196 +1,107,803 +Garry A. Wilkening +Vice President-Human Resources & Administration +2007 +2006 +$ +$ +180,021 +155,000 +$ +$ +23,000 +12,400 +$ +$ +47,149 +23,082 +$ +$ +— +— +$ +$ +875,486 +736,167 +$ +$ +91,234 +61,399 +$ +$ +13,574 +13,205 +$ +$ +1,230,463 +1,001,253 +Mark A. Hellerstein +Former President and Chief Executive Officer(6) +2007 +2006 +$ +$ +212,524 +403,000 +$ +$ +— +32,240 +$ +$ +— +120,093 +$ +$ +— +— +$ +$ +3,885,668 +3,361,399 +$ +$ +208,587 +125,692 +$ +$ +31,962 +17,892 +(9) +$ +$ +4,338,741 +4,060,316 +(1) Totals +consist of amounts earned under the NPP. See the Compensation Discussion and Analysis in this proxy statement for a description of this plan. +44 +(2) Amounts +consist of the Company's contribution to the 401(k) Profit Sharing Plan, holiday bonus, group term life premiums, supplemental life insurance premiums, supplemental disability +income premiums and health club dues. +(3) The +awards in this column represent the RSUs issued in 2008 and 2007 related to the 2007 and 2006 performance periods, respectively. +(4) The +assumptions made in the valuation of these amounts are described in Note 7 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on +Form 10-K/A for the fiscal year ended December 31, 2007. +(5) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each of the named executive officer's combined benefits under St. Mary's +qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in the Company's financial statements. No named executive +officer received preferential or above-market earnings on deferred compensation. See detailed discussion of pension benefits on page 21 and Note 9 to the Consolidated Financial +Statements included in our Form 10-K/A for the year ended December 31, 2007, for a discussion of the relevant assumptions. +(6) Mr. Hellerstein +retired as Chief Executive Officer of St. Mary Land & Exploration Company on February 23, 2007, and has been succeeded by Mr. Best +effective the same day. Mr. Best was President and Chief Operating Officer of St. Mary Land & Exploration Company as of December 31, 2006. +(7) Mr. Nance +was an executive officer during 2007. Mr. Nance retired as an officer of St. Mary Land & Exploration Company effective on the last day of 2007 +and terminated employment in the first quarter of 2008. +(8) Mr. Honeyfield +relinquished his position as Treasurer to Matthew J. Purchase effective December 1, 2007. Mr. Honeyfield resigned as Senior Vice President-Chief +Financial Officer and Secretary effective March 21, 2008. +(9) Amount +includes $13,438 in office lease costs and $2,420 in parking space rental. +The +dollar value of the RSUs listed in the Summary Compensation Table is calculated based on the closing price of the Company's common stock on the +effective date of the grants for the fiscal 2007 and 2006 grants, which was $37.84 and $36.01 per share, respectively. The following table lists the number of RSUs held by each individual and the +market value of the total holdings of the RSUs of St. Mary Land & Exploration Company for the named executive officers as of the end of fiscal year 2007. The total includes the grants +made on February 28, 2008, for the fiscal 2007 period. The value shown is based on the closing market price of $38.61 on December 31, 2007, as reported by the New York Stock Exchange. +Named Executive Officer +Number of +Restricted Stock +Units Issued +Market Value as of +12/31/07 +Anthony J. Best +10,004 +$ +386,254 +Robert L. Nance +29,134 +$ +1,124,864 +David W. Honeyfield +18,573 +$ +717,104 +Milam Randolph Pharo +8,922 +$ +344,478 +Garry A. Wilkening +7,496 +$ +289,421 +Mark A. Hellerstein +18,891 +$ +729,382 +GRANTS OF PLAN-BASED AWARDS IN 2007 +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units(1) +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Exercise +or Base +Price of +Option +Awards +($/Sh) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum(3) +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Anthony J. Best +12/31/07 +— +(2 +) +$ +1,252,449 +(3) +— +— +— +8,276 +— +— +Robert L. Nance +12/31/07 +— +(2 +) +$ +774,087 +(3) +— +— +— +2,797 +— +— +David W. Honeyfield +12/31/07 +— +(2 +) +$ +720,084 +(3) +— +— +— +3,686 +— +— +Milam Randolph Pharo +12/31/07 +— +(2 +) +$ +572,316 +(3) +— +— +— +1,246 +— +— +Garry A. Wilkening +12/31/07 +— +(2 +) +$ +540,063 +(3) +— +— +— +1,246 +— +— +Mark A. Hellerstein(4) +12/31/07 +— +(2 +) +$ +— +(3) +— +— +— +— +— +— +(1) This +amount represents RSUs granted under the Company's Restricted Stock Plan. The RSUs are granted with a holding period and in the past have vested one quarter upon award and the +reminder in one-third amounts over the succeeding +45 +three +year anniversary dates. On December 17, 2007, the Compensation Committee approved the elimination of the restriction period for the RSUs and the issuance of the underlying shares aligning +with the vesting provisions of the awards. The RSUs are subject to forfeiture to the Company on termination of employment prior to vesting. The RSUs are not eligible for dividends and are not credited +with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock. +(2) The +amount of net profits interest payable to participants for the 2007 NPP is initially ten percent of net cash flows after recovery of the Company's initial investment from the 2007 +pool. This amount is calculated after recovery by the Company from wells of one hundred percent of all costs incurred, including but not limited to drilling, completions, operations, land, geological, +and geophysical costs but excluding interest, and such net profits interest shall increase to an aggregate of twenty percent from and after such time as the Company has recovered two hundred percent +of all such costs including the initial ten percent distribution. The target payout is not reasonably determinable as payout determinations are subject to such variables as commodity price, timing of +cash flows, operating costs and other unforeseen risks associated with the production of hydrocarbons. +(3) The +maximum amount a participant may receive under the 2007 NPP pool is limited to 300 percent of the participant's 2007 salary. The salary used in the calculation of the +limitation is the same as used to calculate the participant's interest in the Pool year. +(4) Mr. Hellerstein +was not eligible to receive an award under the 2007 NPP pool since he was not employed as of December 31, 2007 as a result of his voluntary termination +of employment in June 2007. +46 +The following table displays outstanding equity awards for named executive officers as of December 31, 2007. +OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock that +Have Not +Vested +($) +Equity +Incentive +Plan Awards: +Number of +Unearned +Shares, +Units or +Other Rights +That Have +Not Vested +(#) +Equity +Incentive +Plan Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +($) +Anthony J. Best +— +— +$ +— +— +1,296 +— +(1) +$ +50,039 +— +3,750 +11,250 +(4) +(5) +$ +$ +144,788 +434,363 +Robert L. Nance +37,784 +15,052 +15,052 +15,050 +15,050 +13,482 +13,484 +13,482 +13,480 +12,072 +12,072 +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +$ +$ +$ +$ +6.19 +7.97 +10.60 +10.86 +12.03 +11.95 +12.50 +12.53 +13.65 +13.39 +14.25 +12/31/09 +9/30/11 +12/31/11 +3/31/12 +6/30/12 +9/30/12 +12/31/12 +3/31/13 +6/30/13 +10/22/13 +12/31/13 +1,117 +7,218 +2,602 +— +— +— +— +— +— +— +— +(1) +(2) +(3) +$ +$ +$ +43,127 +278,687 +100,463 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +David W. Honeyfield +12,000 +1,054 +1,054 +7,500 +— +— +(6) +$ +$ +$ +12.88 +13.39 +14.25 +5/16/13 +10/22/13 +12/31/13 +1,260 +5,769 +417 +— +(1) +(2) +(3) +$ +$ +$ +48,649 +222,741 +16,100 +— +— +— +— +— +— +— +— +— +Milam Randolph Pharo +23,508 +5,350 +5,350 +5,348 +5,348 +4,844 +4,846 +4,844 +4,844 +4,382 +4,382 +— +— +— +— +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +$ +$ +$ +$ +16.66 +7.97 +10.60 +10.86 +12.03 +11.95 +12.50 +12.53 +13.65 +13.39 +14.25 +12/31/10 +9/30/11 +12/31/11 +3/31/12 +6/30/12 +9/30/12 +12/31/12 +3/31/13 +6/30/13 +10/22/13 +12/31/13 +543 +2,621 +427 +— +— +— +— +— +— +— +— +(1) +(2) +(3) +$ +$ +$ +20,965 +101,197 +16,486 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Garry A. Wilkening +19,320 +3,926 +3,928 +3,926 +3,926 +3,528 +3,528 +— +— +— +— +— +— +— +$ +$ +$ +$ +$ +$ +$ +16.66 +11.95 +12.50 +12.53 +13.65 +13.39 +14.25 +12/31/10 +9/30/12 +12/31/12 +3/31/13 +6/30/13 +10/22/13 +12/31/13 +480 +2,114 +345 +— +— +— +— +(1) +(2) +(3) +$ +$ +$ +18,533 +81,622 +13,320 +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +— +Mark A. Hellerstein +— +— +$ +— +— +— +— +— +— +(1) These +Restricted Stock Units will vest in four equal installments on the following dates: February 28, 2007, 2008, 2009, and 2010 +47 +(2) These +Restricted Stock Units vest in four equal installments on the following dates: February 28, 2006, 2007, 2008, and 2009. +(3) These +Restricted Stock Units vest in four equal installments on the following dates: March 15, 2005, 2006, 2007, and 2008. +(4) Mr. Best +may earn 1,250 shares in each of the first quarters of 2007, 2008, 2009, and 2010 if he is employed by the issuer at the time. +(5) Mr. Best +may earn additional 2,500 or 3,750 shares with each of the share grants referenced in footnote 4 if certain net asset value growth percentages of 10 or fifteen +percent are met. +(6) These +options become exercisable on May 16, 2008. +NONQUALIFIED DEFERRED COMPENSATION +The Company does not maintain a non-qualified deferred compensation program. Accordingly, there are no such amounts to disclose. +OPTION EXERCISES AND STOCK VESTED +Stock options exercised by the named executive officers during 2007 and the values realized upon such option exercises are set forth in the following table. All +such stock options were granted pursuant to the Company's stock option plans described in this proxy statement. In May 2003, the Board of Directors amended the stock option plans to prohibit any +repricing of outstanding options that would reduce the exercise price without stockholder approval. In 2004, the issuance of stock options was replaced by the issuance of RSUs under a +performance-based plan, and the number of RSUs held by the named executive officers that vested during 2007 and the computed aggregate value realized upon such vesting are also set forth in the +following table. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting(1) +(#) +Value Realized +on Vesting(2) +($) +Anthony J. Best +— +— +1,682 +$ +60,569 +(3) +Robert L. Nance +34,024 +$ +723,638 +11,494 +$ +413,379 +(4) +David W. Honeyfield +— +— +4,694 +$ +169,061 +(5) +Milam Randolph Pharo +— +— +3,502 +$ +126,495 +(6) +Garry A. Wilkening +2,843 +$ +102,691 +(7) +Mark A. Hellerstein +135,114 +$ +3,550,740 +16,239 +$ +586,592 +(8) +(1) Represents +the number of shares underlying RSUs which became vested during 2007. Each RSU represents a right for one share of the Company's common stock to be issued and delivered +upon settlement of the RSU pursuant to the terms of the award agreement. The Company's RSU awards generally vest 25 percent immediately upon grant and 25 percent on each of the next +three anniversary dates of the grant. From 2004 to 2007, the RSU award agreements generally provided that the vested portion of the award would be settled in full by the issuance and delivery of the +vested shares on the third anniversary date of the award. During 2007, substantially all of the award agreements for RSUs granted subsequent to 2005 were amended to generally provide that the vested +portions of such awards would be settled by the issuance and delivery of the vested shares on the corresponding vesting date, and in connection with such amendments the previously vested and unsettled +portions of affected RSU awards were settled on February 28, 2008. +(2) The +value realized on vesting of the RSUs is computed by multiplying the number of RSUs that vested on the vesting date by the per share closing market price of the underlying shares +on the +48 +vesting +date, or, if the vesting date was not a normal market trading date, then on the last normal market trading date which preceded the vesting date. The per share closing market prices utilized +for this computation were $36.01 on the vesting date of February 28, 2007 for 2006 RSU awards, $34.66 on the vesting date of March 15, 2007 for 2005 RSU awards, and $36.62 on +June 29, 2007 (for the vesting date of June 30, 2007 for 2004 RSU awards). +(3) Of +this amount, $15,556 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 432 shares on February 28, 2008, which had a value at that time of $16,347 based on the per +share closing market price of $37.84 on February 28, 2008. +(4) Of +this amount, $233,612 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 3,982 shares on February 28, 2008, which had a value at that time of $150,679 based on the +per share closing market price of $37.84 on February 28, 2008 and through the issuance of 2,603 shares on March 17, 2008, which had a value at that time of $92,849 based on the per share +closing market price of $35.67 on March 14, 2008. +(5) Of +this amount, $133,466 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 3,305 shares on February 28, 2008, which had a value at that time of $125,061 based on the +per share closing market price of $37.84 on February 28, 2008 and through the issuance of 417 shares on March 17, 2008, which had a value at that time of $14,874 based on the per share +closing market price of $35.67 on March 14, 2008. +(6) Of +this amount, $68,525 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 1,491 shares on February 28, 2008, which had a value at that time of $56,419 based on the per +share closing market price of $37.84 on February 28, 2008 and through the issuance of 428 shares on March 17, 2008, which had a value at that time of $15,267 based on the per share +closing market price of $35.67 on March 14, 2008. +(7) Of +this amount, $55,818 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 1,218 shares on February 28, 2008, which had a value at that time of $46,089 based on the per +share closing market price of $37.84 on February 28, 2008 and through the issuance of 345 shares on March 17, 2008, which had a value at that time of $12,306 based on the per share +closing market price of $35.67 on March 14, 2008. +(8) Of +this amount, $316,923 was not settled through the issuance of shares during 2007 due to the applicable terms of the underlying RSU award agreements as briefly described in footnote +(1) above. Such amount was settled pursuant to the terms of the RSUs through the issuance of 6,900 shares on February 28, 2008, which had a value at that time of $261,096 based on the +per share closing market price of $37.84 on February 28, 2008 and through the issuance of 1,975 shares on March 17, 2008, which had a value at that time of $70,448 based on the per share +closing market price of $35.67 on March 14, 2008. +49 +RETIREMENT PLANS +Pension Plan +The Company's Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all employees. This plan was amended in 1994 +to conform to the changes required by the Tax Reform Act of 1986 and to reduce the plan formula. The Company also has a supplemental pension plan for certain executive officers to provide for benefits +in excess of Internal Revenue Code limits. +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to Internal Revenue Code limits. Final average +compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each named executive officer, the level of compensation used to determine +benefits payable under the qualified pension plan is that officer's average of the base salaries (excluding bonus) shown in the Summary Compensation Table. +The +supplemental plan provides executives hired before 1995, after completing 15 years of service and reaching age 65, a benefit equal to 40 percent of final average +compensation plus 37 percent of final average compensation integrated with the social security wage base without regard to compensation limitations provided under the qualified plan, less the +benefit provided by the qualified plan. For executives hired after 1994, the supplemental benefit is calculated using the formula for the qualified plan without the limitation imposed by +Section 415 of the Internal Revenue Code, less the benefit provided by the qualified plan. +The +following table represents the value of the named executive officers' pension benefits. +2007 PENSION BENEFITS +Name +Plan Name +Number of +Years Credited +Service +(#) +Present Value +of Accumulated +Benefit +($) +Payment +During Last +Fiscal Year +($) +Anthony J. Best +Qualified Pension Plan +Non-Qualified SERP Pension Plan +2 +2 +46,471 +20,623 +— +— +Robert L. Nance +Qualified Pension Plan +Non-Qualified SERP Pension Plan +9 +9 +262,633 +29,261 +— +— +David W. Honeyfield +Qualified Pension Plan +Non-Qualified SERP Pension Plan +5 +5 +34,690 +851 +— +— +Milam Randolph Pharo +Qualified Pension Plan +Non-Qualified SERP Pension Plan +12 +12 +192,845 +— +— +— +Garry A. Wilkening +Qualified Pension Plan +Non-Qualified SERP Pension Plan +15 +15 +235,626 +203,337 +— +— +Mark A. Hellerstein +Qualified Pension Plan +Non-Qualified SERP Pension Plan +16 +16 +— +378,930 +347,642 +541,903 +EQUITY COMPENSATION PLANS +St. Mary has a 2006 Equity Incentive Compensation Plan and an Employee Stock Purchase Plan under which options and shares of St. Mary common stock +are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board of Directors. Our stockholders have approved each of these plans. +50 +The +following table is a summary of the shares of common stock authorized for issuance under our existing equity compensation plans as of December 31, 2007. +(a) +(b) +(c) +Plan Category +Number of securities to be +issued upon exercise of +outstanding options, +warrants, and rights +Weighted-average exercise +price of outstanding options, +warrants, and rights +Number of securities remaining +available for future issuance +under equity compensation plans +(excluding securities reflected in +column (a)) +2006 Equity Incentive Compensation Plan +Stock Options and Incentive Stock Options +2,385,500 +$ +12.62 +— +(1) +Restricted Stock Plan +684,264 +N/A +2,560,224 +(1) +Employee Stock Purchase Plan +— +— +1,599,811 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +3,069,764 +$ +12.62 +4,160,035 +(1) In +May 2006, the stockholders approved the 2006 Plan to authorize the issuance of restricted stock, RSUs, non-qualified stock options, incentive stock options, stock +appreciation rights, and stock-based awards to key employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of St. Mary. The 2006 Plan serves as the +successor to the Predecessor Plans. All grants of equity are now made out of the 2006 Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor +Plan immediately prior to the effective date of the 2006 Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances.) As of +March 17, 2008, the shares available for grant were 2,435,521. +(2) Under +the ESPP, eligible employees may purchase shares of the Company's common stock through payroll deductions of up to 15 percent of their eligible compensation. The purchase +price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the purchase period, and shares issued under the ESPP are restricted for a period +of 18 months from the date issued. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code. +EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT +St. Mary and Anthony J. Best entered into an employment agreement dated May 1, 2006. When his employment commenced, Mr. Best received a RSU +award of 20,000 shares, which vested immediately and was not subject to forfeiture, and a $50,000 cash bonus. Over the next four years of the agreement, Mr. Best may earn additional restricted +shares in varying amounts, earning in the first quarter of each year 1,250 shares if he is employed by St. Mary at that time, and an additional 2,500 shares if the net asset value growth from +the prior year exceeds ten percent, with a further 1,250 shares if such growth exceeds fifteen percent. If he remains employed by the Company for the four year term of the agreement and meets or +exceeds all targets in this compensation arrangement, the Company will award Mr. Best with a maximum of 20,000 restricted shares. Mr. Best participates in the fringe benefits and other +benefit plans and practices of St. Mary in the same manner and to the same comparable extent as other senior executives of St. Mary. Mr. Best earned 1,250 shares in both March +2007 and 2008 associated with the service component of his award. Mr. Best earned 2,500 shares under the performance element of his employment agreement based on the results for 2007; however, +he did not earn the performance based component of his employment agreement based on the results for 2006 for a potential additional 3,750 shares as the net asset value growth of the Company did not +exceed ten percent in 2006. +51 +The Company's employment agreement with Mr. Best provides that in the event that Mr. Best's employment is terminated by the Company for any reason other than (i) the +death or incapacitation of Mr. Best or (ii) the performance of his duties for the Company with gross negligence, gross incompetence, fraud or dishonesty, as determined by the Board of +Directors, the Company must continue the salary of Mr. Best at its rate at the time of such termination for a period of two years thereafter, together with a continuation for two years of the +insurance benefits in effect for him at the time of such termination. +Based +on Mr. Best's current annual salary and level of insurance benefits in effect as of December 31, 2007, the total amount of payments that would be made to +Mr. Best for a period of two years after such termination would be $850,000, and the estimated value of insurance benefits to be continued over such period would be approximately $36,000. +The +Company's employment agreement with Mr. Best also provides that in the event that the employment of Mr. Best is terminated under circumstances such that the terms of +the Company's change of control executive severance agreement for Mr. Best would apply, and to the extent that severance pay or benefits, each considered separately, to be received by +Mr. Best pursuant to the terms of the change of control executive severance agreement would exceed the severance pay or benefits, each considered separately, pursuant to the terms of +Mr. Best's employment agreement, Mr. Best shall receive such excess severance pay or benefits under the change of control executive severance agreement pursuant to the terms thereof. The +Company's change of control executive severance agreements are discussed below. Mr. Best's employment agreement provides for a severance payment of a minimum of two years salary together with a +continuation for two years of the insurance benefits in effect for him in the event of such termination. +Through +June 30, 2007, Mr. Hellerstein and St. Mary operated under an employment agreement. The agreement was originally entered into on September 1, 1991, +and it was amended on December 16, 2005. The amended agreement provides for a specific term ending June 30, 2007 and certain compensation arrangements in the event that there is a +termination of employment prior to that date. There are no legacy provision outstanding related to that employment agreement. +CHANGE OF CONTROL ARRANGEMENTS +St. Mary has established a change of control executive severance policy and entered into change of control severance agreements whereby certain officers of +St. Mary, including the officers named in the Summary Compensation Table, are entitled to receive severance payments in the event that their employment is terminated within two and +one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an adverse change in the +officer's status after a change of control), each as defined in the agreements. The severance payments equal up to two and one-half years annual base salary, depending on the length of +time employment continues after the change of control provided that in no event would the severance payments equal less than one year's annual base salary. In addition, all insurance and fringe +benefits will be provided for a period of one year. +Based +on the respective annual base salaries and benefit levels of the named executive officers as of December 31, 2007, under the change of control executive severance agreements +the total maximum severance payments for two and one-half years, the total minimum severance payments for one year, +52 +and +the estimated value of continued benefits for one year after severance for each of the named executive officers who were employed by the Company as of December 31, 2007, would be as +follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated Value +of Benefits for +One Year(1) +Anthony J. Best(2) +$ +1,062,500 +$ +850,000 +$ +36,000 +Robert L. Nance(3) +645,000 +258,000 +$ +18,000 +David W. Honeyfield(4) +600,000 +240,000 +$ +18,000 +Milam Randolph Pharo +476,875 +190,750 +$ +18,000 +Garry A. Wilkening +450,000 +180,000 +$ +18,000 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any such benefits pursuant to a subsequent +employer's benefit plans. +(2) The +employment agreement between the Company and Mr. Best provides that in the event of a change of control of the Company and a termination of Mr. Best's employment, +the Company must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years thereafter, and, to the extent that +severance pay or benefits to be received by Mr. Best under the terms of the change of control executive severance agreement between the Company and Mr. Best would exceed the severance +pay or benefits under his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive severance agreement. +(3) Mr. Nance +retired as an officer of St. Mary Land & Exploration Company as of December 31, 2007. +(4) Mr. Honeyfield +resigned from his position of Senior Vice President—Chief Financial Officer and Secretary of St. Mary effective March 21, 2008. +Under +the change of control executive severance agreements, the severance payments are to be made in such base salary installment amounts and pursuant to such base salary installment +payment schedule as was in effect immediately prior to the change of control, and the Company or its successor is obligated to make the payments. +The +Company has also established a change of control severance policy and entered into change of control severance agreements whereby selected employees of St. Mary that are of a +sufficient employment grade, are entitled to receive severance payments in the event that their employment is terminated within one year after a change of control of the Company (a) without +"cause" by the Company or (b) for "good reason" by the employee (e.g. an adverse change in the officer's status after a change of control), each as defined in the agreements. The +severance payments equal up to two and one half years annual base salary, depending on the length of time employment continues after the change of control provided that in no event would the severance +payments equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of one year. +St. Mary +has established a severance termination plan for all of its other employees that would activate if a change of control event occurs. The amount of benefit is dependent on +the number of years of service with the Company and the employees' compensation level at the time of termination. +53 +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or +consolidation of the Company, or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members +of the Board of Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of +Directors. +54 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock— The following table shows beneficial ownership of shares of St. Mary common stock +as known by the Company as of March 17, 2008, by all beneficial owners of more than five percent of the outstanding shares of St. Mary common stock as of March 17, 2008, by each +director, director nominee, and executive officer named in the Summary Compensation Table, and all directors, director nominees, and executive officers as a group. RSUs are not included in this table +as no actual shares have been issued associated with the RSU rights. A supplemental separate table has been included later in this section describing the number of RSUs owned by the individuals +described above. +Name of Beneficial Owner +Shares +beneficially +owned +excluding +options +Options +exercisable +within 60 days +of 3/17/2008 +Total shares +beneficially +owned(1) +Percent +beneficially +owned +Name and Address of Stockholders Owning More Than 5% +Wellington Management Company, LLP +75 State Street +Boston, MA 02109 +6,551,738 +— +6,551,738 +(2) +10.4 +%(2) +Name and Position of Directors and Named Executive Officers +Barbara M. Baumann, Director +20,804 +47,666 +68,470 +0.1 +% +Larry W. Bickle, Director +75,912 +48,566 +124,478 +0.2 +% +William J. Gardiner, Director +26,404 +63,172 +89,576 +0.1 +% +Mark A. Hellerstein, Chairman and Director +127,419 +— +127,419 +0.2 +% +Julio M. Quintana, Director +8,133 +(3) +— +8,133 +<0.1 +% +John M. Seidl, Director +15,804 +9,772 +25,576 +<0.1 +% +William D. Sullivan, Director +19,804 +9,772 +29,576 +<0.1 +% +Anthony J. Best, Chief Executive Officer, President, and Director +23,079 +— +23,079 +<0.1 +% +Robert L. Nance, Former Senior Vice President +741,982 +(4) +176,060 +918,042 +1.5 +% +David W. Honeyfield, Former Senior Vice President-Chief Financial Officer, and Secretary +13,303 +21,608 +34,911 +0.1 +% +Milam Randolph Pharo, Vice President-Land and Legal, and Assistant Secretary +27,175 +73,046 +100,221 +0.2 +% +Garry A. Wilkening, Vice President-Human Resources and Administration +9,541 +42,082 +51,623 +0.1 +% +All executive officers and directors as a group (20 persons including those named above) +1,147,733 +616,556 +1,764,289 +2.9 +% +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any shares which the individual has the +right to acquire within 60 days of a date reasonably selected by the Company, through the exercise of any stock option or other right. The Company selected March 17, 2008, as the +determination date. +(2) According +to a Statement on Schedule 13G/A filed by Wellington Management, LLP on March 10, 2008, by reason of advisory and other relationships with persons who +own shares of St. Mary common stock, Wellington Management, LLP may be deemed to be the beneficial owners of a total of 6,551,738 shares, with shared voting power as to 5,682,838 shares, +shared dispositive power as to 6,537,938 shares, and sole voting or dispositive power as to zero shares. The percentage beneficially owned in the above table is the percentage beneficially owned set +forth in the filed Schedule 13G/A based only on the Company's outstanding shares. The percentage beneficially owned changes to 10.6 percent when the calculation includes the aggregate +number of shares that +55 +stockholders +have a right to acquire within 60 days of March 17, 2008, through the exercise of any stock option or right. +(3) Mr. Quintana +maintains a margin securities account at a brokerage firm, and the positions held in such margin account, which may from time to time include shares of +St. Mary common stock, are pledged as collateral security for the repayment of debit balances, if any, in the account. As of March 17, 2008, Mr. Quintana held 8,133 shares of +St. Mary common stock in such account. +(4) Includes +4,000 shares held of record by Ronan, Inc., a corporation controlled by Robert L. Nance, 126,700 shares held by the spouse of Mr. Nance, 85,209 shares held of +record by Robert L. Nance TTEE for Robert S. Nance Financial Mgt. Trust, and 20,093 shares owned by Robert L. Nance and Penni W. Nance JT TEN. +Restricted Stock Units— RSUs represent rights to shares of stock to be delivered upon settlement, subject to risk of forfeiture +and cancellation. In the past the RSU awards are automatically exchanged for common shares after three years following their issuance. On December 17, 2007, the Compensation Committee approved +the elimination of the restriction period for the RSUs and the issuance of the underlying shares aligning with the vesting provisions of the awards. The RSUs do not have voting rights, nor are they +entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our common stock. The RSU awards vest 25 percent upon issuance and 25 percent on +each of the following three anniversary dates. +The +Company began issuing RSUs in June 2004. The initial grant under the Restricted Stock Plan was made on June 30, 2004, whereby eligible executive officers and key employees +were issued RSUs. This grant was the first grant under this program following approval of the Restricted Stock Plan by the stockholders of the Company. RSU grants were made annually under the +Restricted Stock Plan in 2004 and 2005. Since May 17, 2006, RSU grants have been made under St. Mary's 2006 Equity Incentive Compensation Plan subject to the performance criteria of the +Company. These grants are made in the quarter following the year-end. +The +following table shows the number of RSUs owned by each of the directors, the executive officers named in the Summary Compensation Table set forth under the caption "Executive +Compensation and Summary Compensation Table," and all directors and executive officers as a group as of March 17, 2008. +Total +Restricted +Stock Units +Total Vested +Restricted +Stock Units +Barbara M. Baumann +784 +0 +Larry W. Bickle +784 +0 +William J. Gardiner +784 +0 +Mark A. Hellerstein +0 +0 +Julio M. Quintana +0 +0 +John M. Seidl +784 +0 +William D. Sullivan +784 +0 +Anthony J. Best +4,258 +0 +Robert L. Nance(1) +6,450 +0 +David W. Honeyfield +6,488 +0 +Milam Randolph Pharo +2,606 +0 +Garry A. Wilkening +2,311 +0 +All executive officers and directors as a group (20) persons including those named above +56,710 +0 +(1) The +table reflects the RSUs that have vested to Mr. Nance upon his retirement. +56 +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on the review and discussions, the +Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's Proxy Statement to be filed with the SEC. +Barbara M. Baumann, Chairman +Larry W. Bickle +William D. Sullivan +March 19, 2008 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policy on Transactions with Related Persons +The Company has adopted a written policy and procedures for the Audit Committee's review of any transaction, arrangement or relationship (including any +indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements or relationships in which (i) the Company is a participant, (ii) the aggregate amount involved +will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this policy, a "related person" means +(i) any of our directors, executive officers or nominees for director, (ii) any stockholder that beneficially owns more than 5% of the Company's outstanding shares of common stock, and +(iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, the +best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, St. Mary's By-Laws provide that no director, officer or employee may pursue for his or her own account a business or investment opportunity if he or she +has obtained knowledge of such opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas +opportunity as to which his or her knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the +officer's pursuit of the opportunity has been approved by the Board of Directors and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity +has been approved by a senior officer of St. Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded +stock of another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its officers during the last fiscal year. Some of the aspects of this +transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will always be resolved in favor +of St. Mary. +57 +As +a result of interests acquired prior to any association with St. Mary, Robert L. Nance, an executive officer of St. Mary during 2007 who retired as an executive officer +of St. Mary as of December 31, 2007, either personally or through Ronan, Inc., an entity in which he is a majority stockholder, owns working and overriding royalty interests in +approximately 14 of the Company's oil and gas wells. Total revenues earned from these specific oil and gas properties by Mr. Nance and Ronan, Inc. in 2007, 2006, and 2005 are +approximately $154,000, $206,000, and $238,000, respectively. The Audit Committee has reviewed this relationship and deemed this not to be in conflict with the Company's Policy and Procedures with +Respect to Related Person Transactions, since the ownership was acquired prior to any relationship with St. Mary and because the amounts involved are not deemed significant to St. Mary +as a whole. +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive officers, and persons holding more than ten percent of St. Mary common stock must report their initial +ownership of the common stock and any changes in that ownership in reports that must be filed with the SEC and St. Mary. The SEC has designated specific deadlines for these reports and +St. Mary must identify in this proxy statement those persons who did not file these reports when due. +Based +solely on a review of reports filed with the Company, all directors, executive officers, and ten percent owners timely filed all reports regarding transactions in the Company's +securities required to be filed for 2007 by Section 16(a) under the Securities Exchange Act of 1934 with the following exception. A Form 4 with respect to the issuance of restricted +stock units of the Company to Paul M. Veatch, a Senior Vice President and Regional Manager of the Company, was not filed on or before June 14, 2007, as required, but the issuance was reported +in a Form 4 filed on August 13, 2007. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with respect to (1) the +integrity of the Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements, +(2) the qualifications, independence, and performance of the Company's independent accountants, (3) the performance of the Company's internal audit function, and (4) other matters +as set forth in the charter of the Audit Committee approved by the Board of Directors. +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. +The independent accountants are responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and issuing a report +thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent accountants the audited consolidated financial statements of the +Company for the year ended December 31, 2007. The Audit Committee also discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards +No. 61, Communication with Audit Committees. In addition, the Audit Committee received the written disclosures and the letter from the independent accountants required by Independence Standards +Board Standard No. 1, Independence Discussions with Audit Committees, and the Audit Committee discussed with the independent accountants that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company be +included in +58 +the +Company's Annual Report on Form 10-K/A for the year ended December 31, 2007, that was filed with the SEC. +THE AUDIT COMMITTEE +William J. Gardiner, Chairman +Barbara M. Baumann +Julio M. Quintana +John M. Seidl +March 19, 2008 +INDEPENDENT ACCOUNTANTS +To the knowledge of management, neither Deloitte & Touche, LLP nor any of its members has any direct or material indirect financial interest in +St. Mary nor any connection with St. Mary in any capacity other than as independent public accountants. A representative of Deloitte & Touche, LLP is expected to be present +at the annual meeting and will have an opportunity to make a statement if he desires to do so and to respond to appropriate questions. +The +Company paid the following fees to the independent accountants for the audit of the consolidated financial statements and for other services provided in the years ended +December 31, 2007 and 2006. All services and fees including tax service fees were preapproved by the Audit Committee. +2007 +2006 +Audit Fees(1) +$ +549,900 +$ +507,257 +Audit Related Fee +— +— +Tax Fees +8,500 +8,500 +All Other Fees, including financial systems design and implementation +— +— +Total Fees +$ +558,400 +$ +515,757 +(1) Includes +reviews of registration statements and related consents and comfort letters. +The +tax fees include basic compliance services and assistance with technical research. The Audit Committee has concluded that the provision of these nonaudit services is compatible with +maintaining the accountants' independence. +AUDIT COMMITTEE PREAPPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to be paid to the independent +accountants, and shall approve in advance any non-audit services to be performed by the independent accountants. Such pre-approval requirement for non-audit +services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's policy that, prior to the engagement of the +independent accountants, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the independent accountants (including +the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (i) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services +and estimated fees for proposed audit and non-audit services to be provided by the independent accountants during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent accountants; (ii) actual amounts paid to the independent accountants are monitored by financial +59 +management +of the Company and reported to the Audit Committee; (iii) any services proposed to be provided by the independent accountants and the related fees that have not been +pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and, (iv) incremental fees for +previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +FUTURE STOCKHOLDER PROPOSALS +St. Mary must receive any St. Mary stockholder proposal for the annual meeting of stockholders in 2009 before December 8, 2008, for the +proposal to be included in the St. Mary proxy statement and form of proxy for that meeting. For stockholder proposals submitted outside of the proposal rules of Rule 14a-8 of +the Securities Exchange Act of 1934, as amended, St. Mary's By-Laws require that advance written notice in proper form of stockholder proposals for matters to be brought before an +annual stockholders meeting be received by the Secretary of St. Mary not less than 75 days or more than 105 days before the first anniversary date of the immediately preceding +annual stockholders meeting. Accordingly, notice of stockholder proposals for the 2009 annual meeting must be received by St. Mary between February 6, 2009, and March 7, 2009. +OTHER MATTERS +Management does not know of any matters other than the election of directors, the approval of the amendment and restatement of the2006 Equity Incentive +Compensation Plan, the approval of the Cash Bonus Plan, and the ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as the Company's Independent Registered +Public Accounting Firm, to be brought before the annual meeting of stockholders. If any other matters not mentioned in this proxy statement are properly brought before the meeting, the individuals +named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +C. Mark Brannum +Senior Legal Counsel and Secretary +March 28, 2008 +60 +ANNEX A +ST. MARY LAND & EXPLORATION COMPANY +2006 EQUITY INCENTIVE COMPENSATION PLAN +As +Amended and Restated as of March 28, 2008 +ARTICLE I +ESTABLISHMENT, PURPOSE AND DURATION +1.1 Establishment. St. Mary Land & Exploration Company, a Delaware corporation (the "Company"), +has established an equity incentive compensation plan known as the 2006 Equity Incentive Compensation Plan (the "Plan"). The Plan permits the grant of Restricted Stock, Restricted Stock Units, +Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Performance Shares, Performance Units and Stock Based Awards. The Plan became effective upon its approval by the +Company's stockholders on May 17, 2006 (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof. +1.2 Purpose. The purpose of the Plan is to promote the success and enhance the value of the Company by linking +the personal interests of the Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide +flexibility to the Company in its ability to attract, motivate, and retain the services of Participants upon whose judgment, interest, and special effort the success of the Company is substantially +dependent. +1.3 Duration. The Plan commenced as of the Effective Date, as set forth in Section 1.1 hereof, and shall +remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to Article XIV hereof, until the earlier of (i) the tenth +anniversary of the Effective Date, or (ii) when all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. Any previously granted Awards under this Plan +which remain outstanding as of the date of expiration or other termination of the Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with +their respective terms. +1.4 Successor Plan. This Plan shall serve as the successor to the St. Mary Land & Exploration +Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the +St. Mary Land & Exploration Company Non-Employee Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants or awards shall be made under +the Predecessor Plans from and after the Effective Date of this Plan. Each outstanding grant or award under a Predecessor Plan immediately prior to the Effective Date of this Plan shall continue to be +governed solely by the terms and conditions of the applicable Predecessor Plan and the instruments evidencing such grant or award, and, except as otherwise expressly provided herein or by the +Committee, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such outstanding grants or awards under the Predecessor Plans. Any Shares reserved for +issuance under the Predecessor Plans in excess of the number of Shares as to which grants or awards have been made thereunder shall be transferred into this Plan upon the Effective Date and shall +become available for Awards under this Plan. Any Shares related to grants or awards made under the Predecessor Plans that after the Effective Date may lapse, expire, terminate, or are cancelled, are +settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to pay the option price, or are used to satisfy any tax withholding requirements shall be deemed to be +available for issuance or reissuance under Section 4.1 of this Plan; provided, however, that any Shares that from and after May 21, 2008 are tendered (either by actual delivery or +attestation) to pay the option price or are used to satisfy any tax withholding requirements shall not be deemed available for issuance or reissuance under Section 4.1 of this Plan. +A-1 +ARTICLE II +DEFINITIONS AND CONSTRUCTION +2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below, +unless the context clearly requires otherwise, and when such meaning is intended the term shall be capitalized. +(a) " Affiliate " shall have the meaning given to such term in Rule 12b-2 under the Exchange Act, with +reference to the Company, and shall also include any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least +50 percent of the total combined voting power of such corporation or of the capital interest or profits interest of such partnership or other entity. +(b) " Award " means, individually or collectively, a grant or award under this Plan of Restricted Stock, Restricted Stock +Units, NQSOs, ISOs, SARs, Performance Shares, Performance Units or Stock Based Awards, in each case subject to the terms of this Plan. +(c) " Award Agreement " means either (i) a written agreement entered into by the Company and a Participant setting forth +the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such Award. All +Award Agreements shall be deemed to incorporate the provisions of the Plan. An Award Agreement need not be identical to other Award Agreements either in form or substance. +(d) " Board " or " Board of Directors " means the Board of Directors of the +Company. +(e) " Change of Control " shall mean any of the following events: +(i) (A) +The acquisition by any individual or entity (a "Person") or Persons acting as a group of beneficial ownership (within the meaning of Rule 13d-3 +promulgated under the Exchange Act) of more than 50 percent of either (1) the then value of the outstanding shares of common stock of the Company, or (2) the combined voting power +of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. +(B) For +purposes of paragraph (A), Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the +same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, +purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase +or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and +not with respect to the ownership interest in the other corporation. For purposes of determining stock ownership, see (e)(iv) below. +(ii) A +majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the members +of the Board prior to the date of the appointment or election; or +(iii) (A) +Any one Person, or more than one Person acting as a group (as determined in (e)(iii)(C) below), acquires (or has acquired during the 12 month period ending +on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50 percent of the total gross fair +market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or +A-2 +the +value of the assets being disposed of, determined without regard to any liabilities associated with such assets. +(B) A +transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to— +(1) A +stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; +(2) An +entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; +(3) A +Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the +outstanding stock of the Company; or +(4) An +entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in (e)(iii)(B)(3). For purposes +of this paragraph (e)(iii)(B) and except as otherwise provided, a Person's status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which +the Company has no ownership interest before the transaction, but which is a majority owned subsidiary of the Company after the transaction, is not treated as a change in the ownership of the assets +of the Company. +(C) Persons +will not be considered to be acting as a group for purposes of this paragraph (e)(iii) solely because they purchase assets of the Company at the same +time. However, Persons will be considered to +be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business transaction with the Company. If a Person, +including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar transaction, such shareholder is considered to be +acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the +ownership interest in the other corporation. +(D) For +purposes of determining stock ownership, see (e)(iv) below. +(iv) For +purposes of determining whether there has been a Change of Control, Section 318(a) of the Code applies to determine stock ownership. Stock underlying a +vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). +For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by §§1.83-3(b) and +(j) of the income tax regulations promulgated by the Internal Revenue Service), the stock underlying the option is not treated as owned by the individual who holds the option. +(f) " Change of Control Price " means the highest per share price for Shares offered in conjunction with any transaction +resulting in a Change of Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change of Control occurring solely +by reason of a change in the composition of the Board, the highest Fair Market Value of the Shares on any of the 30 trading days immediately preceding the date on which a Change of Control occurs. +(g) " Change of Control Termination " has the meaning set forth in Section 13.2 hereof. +(h) " Code " means the Internal Revenue Code of 1986, as amended. +A-3 +(i) " Committee " means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the +Board appointed by the Board to administer the Plan. The Committee shall be comprised of two or more directors, and each member of the Committee shall be a Non-Employee Director, an +"outside director" within the meaning of the regulations under Section 162(m) of the Code, and an "independent director" for purposes of the rules and +regulations of the New York Stock Exchange ("NYSE") (or such other principal securities market on which the Shares are traded). +(j) " Company " means St. Mary Land & Exploration Company, a Delaware corporation, and any successor thereto as +provided in Article XVII hereof. +(k) " Covered Employee " means an Employee who is, or who the Committee expects to become, a "covered employee" within the +meaning of Section 162(m) of the Code. +(l) " Director " means any individual who is a member of the Board of Directors of the Company. +(m) " Dividend Equivalent " means a right with respect to an Award to receive cash, Shares or other property equal in value and +form to dividends declared by the Board and paid with respect to outstanding Shares. Dividend Equivalents shall not apply to Options or Stock Appreciation Rights, and shall not apply to any other type +of Award unless specifically provided for in the Award Agreement, and if specifically provided for in the Award Agreement shall be subject to such terms and conditions set forth in the Award Agreement +as the Committee shall determine. +(n) " Employee " means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or +an Affiliate shall not be considered Employees under this Plan. +(o) " Exchange Act " means the Securities Exchange Act of 1934, as amended. +(p) " Fair Market Value " or " FMV " means a value or price that is based on the +opening, closing, actual, high, low or average selling prices per Share on the NYSE or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next +succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of FMV may differ depending on whether FMV is in reference to the grant, +exercise, vesting, settlement or payout of an Award. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. +(q) " Fiscal Year " means the year commencing on January 1 and ending on December 31, or such other fiscal year +period as approved by the Board. +(r) " Freestanding SAR " means a SAR that is not a Tandem SAR, as described in Article VIII herein. +(s) " Grant Price " means the price against which the amount payable is determined upon exercise of a SAR. +(t) " Incentive Stock Option " or " ISO " means an Option to purchase Shares +granted under Article VII herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision. +(u) " Non-Employee Director " means a Director who meets the definition of a "Non-Employee Director" +set forth in Rule 16b-3(b)(3) under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. +(v) " Nonqualified Stock Option " or " NQSO " means an Option to purchase Shares +granted under Article VII herein, which is not intended to be an Incentive Stock Option or which otherwise does not meet the requirements for an ISO. +A-4 +(w) " Option " means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the +form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan. +(x) " Option Price " means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by +the Committee. +(y) " Participant " means a participant holding an outstanding Award granted under the Plan. +(z) " Performance Based Compensation " means compensation under an Award that is granted in order to provide remuneration +solely on account of the attainment of one or more Performance Goals under circumstances that satisfy the requirements of Section 162(m) of the Code. +(aa) " Performance Goal " means a performance criterion selected by the Committee for a particular Award for +purposes of Article XI based on one or more Performance Measures. +(bb) " Performance Measures " mean measures as described in Article XI, the attainment of one or more of +which shall, as determined by the Committee, determine the vesting, monetization, or value of an Award to a Covered Employee that is designated to qualify as Performance Based Compensation. +(cc) " Performance Period " means the period of time, which shall not be shorter than 12 months, during +which the assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award of Performance Shares or Performance Units. +(dd) " Performance Share " means an Award granted under Article IX herein, denominated in Shares, the +value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved. +(ee) " Performance Unit " means an Award granted under Article IX herein, denominated in units, which may +be valued by reference to a designated amount of property other than Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance +criteria have been achieved. +(ff) " Plan " means this 2006 Equity Incentive Compensation Plan, as it may be amended from time to time. +(gg) " Restricted Stock " means an Award under Article VI of Shares that may be subject to certain +restrictions and to a risk of forfeiture as set forth in the Award Agreement. +(hh) " Restricted Stock Unit " means an Award under Article VI that is valued by reference to a Share, +which value may be paid by delivery of Shares or cash or a combination thereof upon settlement of the Award, subject to the specific terms and conditions of the Award as set forth in the Award +Agreement. +(ii) " Securities Act " means the Securities Act of 1933, as amended. +(jj) " Shares " means shares of common stock of the Company, $0.01 par value per share. +(kk) " Stock Appreciation Right " or " SAR " means the conditional +right to receive the difference between the FMV of a Share on the date of exercise over the Grant Price, pursuant to the terms of Article VIII herein. +(ll) " Stock Based Award " means an equity based or equity related Award granted pursuant to the terms of +Article X herein. +(mm) " Tandem SAR " means a SAR that the Committee specifies pursuant to Article VIII herein is granted in +connection with a related Option, the exercise of which SAR shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is +A-5 +purchased +under the Option, the Tandem SAR shall similarly be cancelled), or a SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results +in the exercise of the related SAR. Regardless of whether an Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so specified by the Committee at the time of grant. +2.2 Construction. Captions and titles contained herein are for convenience of reference only and shall not +affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, any definition of any term herein in the singular also shall include the plural. +ARTICLE III +ADMINISTRATION +3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, +consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and the Company's officers and Directors shall be entitled to rely upon the +advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, +the Company, and all other interested parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the +Plan. +3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to +(i) interpret the terms and the intent of the Plan, any Award and any Award Agreement or other agreement ancillary to or in connection with the Plan, (ii) determine eligibility for +Awards and select those who will become Participants in the Plan, (iii) adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper, +(iv) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company with respect to the Plan and (v) make all other determinations necessary +or advisable for the administration of the Plan. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award +terms and conditions and, subject to Article XIV, adopting modifications, amendments or subplans to the Plan or any Award Agreement. Subject to the terms and provisions of the Plan, the +Committee shall have complete discretion in determining the nature, terms, conditions and amount of each Award. In making such determinations, the Committee may take into account the nature of +services rendered by the recipient of the Award, such person's present and potential contributions to the Company and such other factors as the Committee in its discretion shall deem relevant. +3.3 Delegation. The Committee may delegate to one or more of its members any of the Committee's administrative +duties or powers as it may deem advisable; provided, however, that any such delegation shall not be inconsistent with the provisions of Rule 16b-3 under the Exchange Act or +Section 162(m) of the Code as to actions to be taken by the Committee in connection therewith. +ARTICLE IV +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +4.1 Total Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2 herein, +the total number of Shares hereby made available and reserved for issuance to Participants pursuant to Awards granted under the Plan shall be 3,500,000, plus any remaining Shares available for +issuance under the Predecessor Plans as set forth in Section 1.4 (with such total number of Shares, including such adjustment and remaining Shares, to be referred to as the "Total Share +Authorization"). Any Shares issued in connection with an Option or SAR shall be counted against the Total Share Authorization limit as one Share for every one Share issued. Any shares issued in +connection with an Award other than an Option or SAR shall be counted against the Total Share Authorization limit as two shares of every one share issued. The maximum aggregate number of Shares +A-6 +that +may be issued through Nonqualified Stock Options shall be equal to the Total Share Authorization. The maximum aggregate number of Shares that may be issued through Incentive Stock Options shall +be 3,500,000. +Any +Awards that are not settled in Shares shall not be counted against the Total Share Authorization limit. Any Shares related to Awards (or after the Effective Date, awards granted or +issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such Shares, (ii) are settled in cash either in lieu +of Shares or otherwise, or (iii) are exchanged with the Committee's approval for Awards not involving Shares, shall be available again for issuance under the Plan. In addition, if the Option +Price of any Option granted under the Plan or the tax withholding requirement with respect to any Award granted under the Plan is satisfied by tendering Shares to the Company (by either actual +delivery or by attestation), or if a SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of +Shares available for issuance under the Plan; provided, however, that from and after May 21, 2008, Shares tendered as full or partial payment to the Company of the +Option Price upon exercise of Options granted under this Plan, Shares reserved for issuance upon grant of SARs, to the extent the number of reserved Shares exceeds the number of Shares actually issued +upon exercise of the SARs, and Shares withheld by, or otherwise remitted to, the Company to satisfy a Participant's tax withholding obligations with respect to any Award granted under this Plan, shall +not become available again for issuance under this Plan. The maximum number of Shares available for issuance under the Plan shall be reduced to reflect any dividends or Dividend Equivalents that are +reinvested into additional Shares under this Plan or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Stock Based Awards. The Shares available +for issuance under the Plan may be authorized and unissued Shares or treasury Shares. Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to qualify as +Performance Based Compensation, the following limits ("Award Limits") shall apply to grants of Awards to Covered Employees under the Plan: +(a) Restricted Stock/Restricted Units. The maximum aggregate number of Shares that may be granted in the form of +Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one Participant shall be 100,000. +(b) Options and SARS. The maximum aggregate number of Shares that may be granted in the form of Options or SARs +in any one Fiscal Year to any one Participant shall be 200,000. +(c) Performance Shares/Performance Units. The maximum aggregate Award of Performance Shares or Performance Units +that a Participant may receive in any one Fiscal Year shall be 200,000 Shares, and the maximum value of Performance Units that a Participant may receive with respect to Awards in any one Fiscal Year +shall be a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +(d) Stock Based Awards. The maximum aggregate grant with respect to Stock Based Awards in any one Fiscal Year to +any one Participant shall be 200,000. +4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not +limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary or +special dividend, stock split, reverse stock split, split up, spin off, other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or +other like change in capital structure or distribution (other than normal cash dividends) to the stockholders of the Company, or any similar corporate event or transaction, the Committee, in order to +prevent dilution or enlargement of Participants' rights under the Plan, shall make or provide for appropriate proportionate substitutions or adjustments, as applicable, to the number and kind of +Shares that may be issued under the Plan, the number and kind of Shares subject to outstanding Awards, the +A-7 +Option +Price or Grant Price applicable to outstanding Awards, the application and computation of any Dividend Equivalents that may be provided for in Award Agreements, the Award Limits, the limit on +issuing Awards other than Options granted with an Option Price equal to at least the FMV of a Share on the date of grant or Stock Appreciation Rights with a Grant Price equal to at least the FMV of a +Share on the date of grant, and any other value determinations applicable to outstanding Awards or to this Plan. Such adjustments shall be made automatically, without the necessity of Committee +action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a stock split effected by means of a stock dividend, and in the case of any other dividend paid +in Shares, and shall be made in the discretion of the Committee with respect to other corporate events or transactions. The Committee, in its sole discretion, may also make other appropriate +adjustments in the terms of any Awards under the Plan to reflect, or related to, such changes or distributions and may modify any other terms of outstanding Awards, including modifications of +performance criteria and changes in the length of Performance Periods, as are equitably necessary to prevent dilution or enlargement of Participant's rights under the Plan that otherwise would result +from such corporate event or transaction. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan. Subject to the +provisions of Article XIII and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance, +assumption, substitution or conversion of Awards under this Plan in connection with any such corporate event or transaction upon such terms and conditions as it may deem appropriate. In addition, the +Committee may amend the Plan, or adopt supplements to the Plan, in such manner as it deems appropriate to provide for such issuance, assumption, substitution or conversion as provided in the previous +sentence. +ARTICLE V +ELIGIBILITY AND PARTICIPATION +5.1 Eligibility. All Employees, consultants who are natural persons, and members of the Board of the Company and +of any Affiliate of the Company shall be eligible to participate in the Plan and be granted Awards under the Plan. +5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, in its +sole discretion, select from among persons eligible to participate in the Plan those to whom Awards shall be granted under the Plan, and shall determine in its discretion the nature, terms, +conditions, and amount of each Award. +ARTICLE VI +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +6.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, in its discretion may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and upon such terms as the Committee +shall determine. +(a) Restricted Stock. +(i) Nature of Restricted Stock. Restricted Stock may be issued for services rendered with any or no additional +purchase price as shall be determined by the Committee in its discretion, and may be subject to certain restrictions and to a risk of forfeiture as set forth in the Award Agreement. A Participant to +whom Shares of Restricted Stock are issued shall have all of the rights of ownership with respect to the Shares subject to such Restricted Stock Award, including the right to vote the same and receive +any dividends paid thereon; subject, however, to the terms, conditions and restrictions contained in this Plan and in the applicable Award Agreement. +A-8 +(ii) Forfeiture and Vesting. A Restricted Stock Award Agreement may provide for forfeiture of the Restricted +Stock upon termination of the Participant's employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted +Stock Award Agreement may also provide for (i) vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock to vest and become no longer +subject to forfeiture and (ii) holding periods during which the Restricted Stock may not be sold or otherwise transferred. +(iii) Certificates and Settlement. Upon an Award of Restricted Stock, the Company shall deliver to the +Participant a certificate evidencing the Shares subject to the Award, and such certificate shall be imprinted with an appropriate legend referring to or setting forth the applicable restrictions to +which such Shares are subject. After the Shares are no longer subject to such restrictions, the Company shall, in accordance with the terms and conditions of the Award Agreement and upon the request +of the Participant and the surrender by the Participant of the original certificate, settle the completed Restricted Stock Award by providing the Participant with a new certificate for the Shares with +such legend removed. +(b) Restricted Stock Units. +(i) Nature of Restricted Stock Units; Accounts. Each Restricted Stock Unit awarded shall represent a right for +one Share to be delivered upon settlement of the Award, which right shall be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Plan and the Award +Agreement. The Company shall establish and maintain a Participant account to record Restricted Stock Units and transactions and events affecting such units. Restricted Stock Units and other items +reflected in the account will represent only bookkeeping entries by the Company to evidence unfunded obligations of the Company. +(ii) Deferral Period and Settlement Date. Restricted Stock Units (if not previously cancelled or forfeited) +shall be settled on the date or dates set forth in the Award Agreement. In addition, unless otherwise determined by the Committee, if the Committee reasonably determines that any settlement of +Restricted Stock Units would result in payment of compensation to a Participant which is not deductible by the Company under Section 162(m) of the Code, such settlement shall be deferred, +subject to compliance with Section 409A of the Code as referred to in Article XX herein, to the extent necessary to avoid payment of such nondeductible compensation, with such deferral +continuing only until such date as settlement can be effected without loss of deductibility by the Company under Section 162(m) of the Code. +(iii) Cancellation and Vesting. A Restricted Stock Unit Award Agreement may provide for cancellation of the +Restricted Stock Units upon termination of the Participant's employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the +Committee. A Restricted Stock Unit Award Agreement may also provide for vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock Units to +vest and become no longer subject to cancellation. +(iv) Dividend Equivalents. Restricted Stock Units shall not be credited with Dividend Equivalents unless +specifically provided for in the Award Agreement, and then only upon such terms and conditions as set forth in the Award Agreement. +(v) Settlement and Certificates. Settlement of a Restricted Stock Unit Award shall be made in accordance with +the terms and conditions of the applicable Award Agreement. A Restricted Stock Unit Award Agreement may provide that settlement may be made (A) solely through the issuance of Shares or +(B) at the mutual election of the Participant and the +A-9 +Company, +in a combination of Shares and cash. Upon the settlement of a Restricted Stock Unit Award, the Company shall deliver to the Participant a certificate for the number of Shares issued to the +Participant in settlement of the Award. +6.2 Restricted Stock and Restricted Stock Unit Award Agreements. Each Restricted Stock and Restricted Stock Unit +Award shall be evidenced by an Award Agreement which shall set forth the terms and conditions of such Award, including the number of Shares to which the Award relates, the date or dates upon which +such Award shall vest and the circumstances (including termination of employment or failure to satisfy one or more restrictive covenants or other ongoing obligations) under which the Award shall not +vest, the time and manner of settlement of the Award, such transfer restrictions which the Committee may impose, and any other terms or conditions which the Committee may impose. +(a) If +not otherwise specified by the Committee, the following terms and conditions shall apply to Restricted Stock and Restricted Stock Units awarded under +the Plan: +(i) Vesting. An Award of Restricted Stock or Restricted Stock Units shall vest pursuant to a vesting schedule as +determined by the Committee, which vesting schedule may provide that (A) an Award held by a Participant who retires from employment with the Company after having both reached the age of sixty +and completed twelve years of service with the Company shall continue to vest in accordance with the vesting schedule set forth in the applicable Award Agreement notwithstanding the termination of the +Participant's employment with the Company, provided that prior to full vesting of the Award such Participant does not after such retirement become employed on a full time basis by a competitor of the +Company prior to reaching age sixty-five, and (B) an Award held by a +Non-Employee Director of the Company who resigns from the Board after completing at least five years of service to the Company as a Non-Employee Director shall become fully +vested. +(ii) Termination. An outstanding Award of Restricted Stock that has not vested or an outstanding Award of +Restricted Stock Units that has not been settled shall be cancelled upon the Company's termination of the employment of the Participant for cause. +(iii) Acceleration. An outstanding Award of Restricted Stock or Restricted Stock Units shall become fully vested +and settled irrespective of its other provisions upon termination of the Participant's employment with the Company or Affiliate because of death, disability or normal retirement upon reaching the age +of sixty-five. +(iv) Transferability. An outstanding Award of Restricted Stock or Restricted Stock Units that has not vested and +been settled or is otherwise restricted by the terms of the Award Agreement as to transferability shall not be transferable by the Participant, and the Participant shall not be permitted to sell, +transfer, pledge or otherwise encumber such Award or the Shares issuable in settlement thereof, other than (A) to the person or persons to whom the Participant's rights under such Award pass by +will or the laws of descent and distribution, (B) to the spouse or the descendants of the Participant or to trusts for such persons to whom or which the Participant may transfer such Award, +(C) to the legal representative of any of the foregoing, or (D) pursuant to a qualified domestic relations order as defined under Section 414(p) of the Code or similar order or +agreement relating to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant. If an Award is transferred to +any person to whom a transfer of the Award is permitted, the transferee shall remain subject to all of the vesting conditions to which the Award is subject. Any such transfer shall be made only in +compliance with the Securities Act and the requirements therefor as set forth by the Company. +A-10 +(b) The +Committee shall be free to specify terms and conditions other than and in addition to those set forth above, in its discretion. +ARTICLE VII +STOCK OPTIONS +7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants in +such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee in its discretion. ISOs may be granted only to Employees of the Company or a parent or +subsidiary corporation of the Company within the meaning of Section 424 of the Code, and no ISOs may be granted more than 10 years after the adoption of the Plan by the Board. +7.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option +Price, the duration of the Option, the number of Shares to which the Option relates, the conditions upon which an Option shall become vested and exercisable, and any other terms and conditions as the +Committee shall determine. The Award Agreement shall also specify whether the Option is intended to be an ISO or a NQSO. +7.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the +Committee and shall be specified in the Award Agreement. The Option Price for an Option, whether issued as an ISO or an NSO, shall be not less than 100 percent of the FMV of the underlying +Shares on the date of grant; provided, however, that the Option Price for an ISO granted to a person who at the time of grant owns (or is deemed to own pursuant to Section 424(d) of the Code) +stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any of its Affiliates (a "Significant Stockholder") shall be not less than +110 percent of the Fair Market Value of the underlying Shares as of the date of grant. +7.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided however, that no Option shall be exercisable later than the tenth anniversary date of its grant, and provided further that no ISO granted to a Significant +Stockholder shall be exercisable after the expiration of five years from the date of grant. +7.5 Exercise of Options. Options shall be exercisable at such times and on the occurrence of such events, and be +subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the +delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified by or acceptable to the Committee, or by complying with any alternative procedures which may +be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, and accompanied by full payment for the Shares. Upon exercise of any Option, the +Option Price shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having +an aggregate FMV at the time of exercise equal to the total Option Price; (c) by a combination of (a) and (b); or (d) by any other method approved or accepted by the Committee in +its sole discretion and subject to such rules and regulations as the Committee may establish. Subject to Section 7.6 and any governing rules or regulations, as soon as practicable after receipt +of a notification of exercise and full payment for the Shares, the Company shall cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount +based upon the number of Shares purchased under the Option(s). +7.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired +pursuant to the exercise of an Option granted under the Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant +A-11 +to +exercise for a specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed and/or traded. +7.7 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the +Participant shall have the right to exercise the Option following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be +determined in the sole discretion of the Committee, need not be uniform among all Options granted under the Plan, and may reflect distinctions based on the reasons for termination. +7.8 Nontransferability of Options. +(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned or +otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In addition, all ISOs granted to a Participant under the Plan shall be exercisable during such +Participant's lifetime only by such Participant. +(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a NQSO granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +(c) Notification of Disqualifying Disposition. The Participant to whom an ISO is granted shall notify the +Company upon the disposition of Shares issued pursuant to the exercise of an ISO or Shares received as a dividend on ISO stock. The Company shall use such information to determine whether a +disqualifying disposition as described in Section 421(b) of the Code has occurred. +7.9 $100,000 Annual ISO Limitation. To the extent that the aggregate Fair Market Value of Shares (determined as +of the time the ISOs with respect to such Shares are granted) with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under this Plan and all other +plans of the Company and any Affiliate) exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions shall be applied by taking ISOs into account in the order in which they were +granted. +ARTICLE VIII +STOCK APPRECIATION RIGHTS +8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any +time and from time to time and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of +SARs. The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price may include a Grant Price based +on 100 percent of the FMV of the underlying Share on the date of grant or a Grant Price that is set at a premium to the FMV of the underlying Share on the date of grant. The SAR Grant Price +shall not be less than FMV of the underlying Share on the date of grant. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option. +8.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, +the term of the SAR, and any such other provisions as the Committee shall determine. +A-12 +8.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee in its sole +discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary date of its grant. +8.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions that +the Committee in its sole discretion imposes. +8.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related +Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then +exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the +expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100 percent of the difference between the Option Price of the +underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject +to the ISO exceeds the Option Price of the ISO. +8.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from +the Company in an amount representing the difference between the FMV of the underlying Share on the date of exercise over the Grant Price. At the discretion of the Committee, the payment upon SAR +exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some +combination thereof, or in any other form approved by the Committee in its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later +determination in the Award Agreement for the grant of the SAR. +8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to exercise the SAR following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the sole +discretion of the Committee, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +8.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a SAR granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +8.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may +impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring +the Participant to hold the Shares received upon exercise of a SAR for a specified period of time. +ARTICLE IX +PERFORMANCE SHARES AND PERFORMANCE UNITS +9.1 Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and upon such terms as the Committee shall determine. +A-13 +9.2 Value of Performance Shares and Performance Units. Each Performance Share and Performance Unit shall have an +initial value that is established by the Committee at the time of grant. The Committee shall in its discretion set performance criteria for a Performance Period which, depending on the extent to which +the performance criteria are met, will determine, in the manner established by the Committee and set forth in the Award Agreement, the value and/or amount of each Performance Share or Performance Unit +that will be paid to the Participant. +9.3 Earnings of Performance Shares and Performance Units. Subject to the terms of this Plan and the applicable +Award Agreement, after the applicable Performance Period has ended, the holder of Performance Shares and/or Performance Units shall be entitled to receive, to the extent that the Performance Shares or +Performance Units have vested, if applicable, a payout of the value and/or amount of Performance Shares and/or Performance Units, determined as a function of the extent to which the corresponding +performance criteria have been achieved. The Committee may in its discretion require the Participant to hold the Shares or other property received pursuant to such Award for a specified period of +time. +9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares +and Performance Units shall be made in accordance with the terms and conditions of the applicable Award Agreement. A Performance Share or Performance Unit Award Agreement may provide that payment may +be made, to the extent that the Performance Share or Performance Unit has vested and the performance criteria are met, solely through the issuance of Shares earned upon the expiration of the +applicable Performance Period, and that the Participant may elect to satisfy the Participant's tax withholding obligation with respect to the Award by having the Company withhold Shares or other +property or by the Participant surrendering Shares or other property to the Company with a FMV on or near the tax withholding date equal to the tax withholding obligation. Upon the payment in the form +of Shares of a Performance Share or Performance Unit Award, the Company shall deliver to the Participant a certificate for the number of Shares issued to the Participant in payment of the Award. +9.5 Dividends and Other Distributions. Dividends and other distributions declared by the Board and paid with +respect to outstanding Shares shall only be paid with respect to Performance Share and Performance Unit Awards for Shares that have been issued by the Company in payment of such Awards to the extent +that the Awards have vested and upon the expiration of the applicable Performance Periods for the Awards. Performance Shares and Performance Units shall not be credited with Dividend Equivalents +unless specifically provided for in the Award Agreement, and then only upon such terms and conditions as set forth in the Award Agreement. +9.6 Vesting and Termination of Employment. Each Award Agreement shall set forth the extent to which the Award +shall vest, which may be pursuant to a vesting schedule as determined by the Committee, and the extent to which the Participant shall have the right to retain Performance Shares and/or Performance +Units following the termination of the Participant's employment or other relationship with the Company or an Affiliate. Such provisions shall be determined in the sole discretion of the Committee, +need not be uniform among all Performance Shares and Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +9.7 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a +Participant's Award Agreement at the time of grant or thereafter by the Committee, Performance Shares and Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated, other than by will or by the laws of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the +Committee, a Participant's rights with respect to Performance Shares and Performance Units shall inure during such Participant's lifetime only to such Participant. +A-14 +ARTICLE X +STOCK BASED AWARDS +10.1 Stock Based Awards. Subject to the terms and conditions of the Plan, the Committee, at any time and from +time to time, may grant other types of equity based or equity related Awards not described by the other terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amounts +and subject to such terms and conditions, including, but not limited to, conditions based on the satisfaction of performance criteria or the satisfaction of such obligations as the Committee shall +determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. +10.2 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to receive Stock Based Awards following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the +sole discretion of the Committee, need not be uniform among all Stock Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +10.3 Nontransferability of Stock Based Awards. Except as otherwise provided in a Participant's Award Agreement +at the time of grant or thereafter by the Committee, Stock Based Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of +descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, a Participant's rights with respect to Stock +Based Awards shall inure during such Participant's lifetime only to such Participant. +ARTICLE XI +PERFORMANCE MEASURES +Notwithstanding any other terms of this Plan, the vesting, payability or value (as determined by the Committee) of each Award other than an Option or SAR that, at +the time of grant, the Committee intends to be Performance Based Compensation to a Covered Employee, shall be determined by the attainment of one or more Performance Goals as determined by the +Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to receive such an Award (which may be +expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within 90 days after the commencement of the period to which the Performance Goal(s) +relate(s), or such earlier time as required to comply with Section 162(m) of the Code. No such Award shall be payable unless the Committee certifies in writing, by resolution or otherwise, that +the Performance Goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value of an Award of Performance Based Compensation above the maximum value determined under +the performance formula by the attainment of the applicable Performance Goal(s), but the Committee retains the discretion to reduce the value below such maximum. +Unless +and until the Committee proposes for stockholder vote and the stockholders approve a change in the general Performance Measures set forth in this Article XI, the +Performance Goal(s) upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the following Performance +Measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +A-15 +(c) Share price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or +capital); and +(h) Increases +in, or levels of, operating and/or nonoperating expenses. +Any +Performance Measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or Affiliates of the Company or any combination thereof, as +the Committee may deem appropriate, and any Performance Measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of Performance Goal(s). +The +Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the +relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations +affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 +and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's Annual Report on Form 10-K for the +applicable year; and (f) significant acquisitions or divestitures. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets +the requirements of Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing Performance Measures without obtaining stockholder approval of +such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to +grant Awards to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code. +ARTICLE XII +RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE +12.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of +the Company or an Affiliate to terminate any Participant's employment, consulting or other service relationship with the Company or an Affiliate at any time, nor confer upon any Participant any right +to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate. Neither an Award nor any benefits arising under this Plan shall constitute part of an +employment or service contract between a Participant and the Company or an Affiliate, and, accordingly, subject to the terms of this Plan, this Plan may be terminated, amended or modified at any time +in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments or otherwise, except as provided in this Plan. +For +purposes of the Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be +deemed a +A-16 +termination +of employment. The Committee may provide in a Participant's Award Agreement or otherwise the conditions under which a transfer of employment to an entity that is spun off from the Company +or an Affiliate shall not be deemed a termination of employment for purposes of an Award. +12.2 Participation. No Employee or other person eligible to participate in the Plan shall have the right to be +selected to receive an Award. No person selected to receive an Award shall have the right to be selected to receive a future Award or, if selected to receive a future Award, the right to receive such +future Award on terms and conditions identical or in proportion in any way to any prior Award. +12.3 Rights as a Stockholder. A Participant shall have none of the rights of a stockholder with respect to +Shares covered by any Award until the Participant becomes the record holder of such Shares. +ARTICLE XIII +CHANGE OF CONTROL +13.1 Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject to the +provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted prior to May 21, 2008, in the event of a Change of Control, unless otherwise specifically +prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control, and shall be paid out to Participants within +30 days following the effective date of the Change of Control; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control; +(d) Upon +a Change of Control, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, the +Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control, and that the value of such +Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount based on the Change of Control Price within a +reasonable time subsequent to the Change of Control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the FMV of the underlying Shares on the date +of settlement. +13.2 Accelerated Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to +the provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted on or after May 21, 2008 and prior to a Change of Control, in the event that a Change +of Control occurs and a Participant's employment with the Company is subsequently terminated without Cause (as defined in such Participant's Award Agreement) or the Participant terminates his or her +A-17 +employment +with the Company for Good Reason (as defined in such Participant's Award Agreement) within 30 months of the Change of Control (a "Change of Control Termination"), unless otherwise +specifically prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to such +Participant within 30 days following the effective date of the Change of Control Termination; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control Termination; +(d) Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, +the Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control Termination, and that the value +of such Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount determined by the Committee, in accordance with +the terms of the Plan and the Award Agreements, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on account of an ISO +using a value higher than the FMV of the underlying Shares on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a Change of Control and a Change of Control Termination do not occur, would result in an Award to a Covered Employee +designed to qualify as Performance Based Compensation to not so qualify, the Committee shall have the discretion to adopt for such Award such provisions as shall satisfy the requirements of +Section 162(m) of the Code. +13.3 Alternative Awards. Notwithstanding Sections 13.1 and 13.2, no cancellation, acceleration of +vesting, lapsing of restrictions, payment of an Award, cash settlement, or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the +occurrence of a Change of Control, that such Award shall be honored or assumed, or new rights substituted therefor (with such honored, assumed or substituted Award hereinafter referred to as an +"Alternative Award") by any successor to the Company or an Affiliate as described in Article XVII; provided, however, that any such Alternative Award must: +(a) Be +based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within 60 days after the +Change of Control; +(b) Provide +such Participant with rights and entitlements substantially equivalent to or more favorable than the rights, terms, and conditions applicable under such Award, +including, but not +A-18 +limited +to, an identical or more favorable exercise or vesting schedule and identical or more favorable timing and methods of payment; and +(c) Have +substantially equivalent economic value to such Award (determined at the time of the Change of Control). +ARTICLE XIV +AMENDMENT AND TERMINATION OF THE PLAN +14.1 Amendment, Modification, Suspension, and Termination. The Committee or the Board may, at any time and from +time to time, alter, amend, modify, suspend or terminate the Plan in whole or in part; provided, however, that: +(a) Consistent +with the provisions of Section 4.2 and except in connection with a corporate transaction involving the Company (including, without limitation, any +stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the +terms of outstanding Awards may not be amended to reduce the Option Price of outstanding Options or the Grant Price of outstanding SARs or cancel outstanding Options or SARs in exchange for cash, +other Awards or Options or SARs with an Option Price or Grant Price that is less than the Option Price or Grant Price of the original Options or SARs without stockholder approval. +(b) No +amendment or modification which would increase the total number of Shares available for issuance under the Plan or the total number of shares available for ISOs under +the Plan shall be effective unless approved by the stockholders of the Company. +(c) To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment or modification shall be effective unless +approved by the stockholders of the Company in accordance with the applicable law, regulation, or securities exchange or market requirement. +14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make +adjustments in the terms and conditions of, and the criteria provided in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in +Section 4.2 hereof) affecting the Company or the financial statements of the Company, or in recognition of changes in applicable laws, regulations or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Awards +and the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants under the Plan. To the extent such adjustments affect +Awards to Covered Employees intended to be Performance Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +14.3 No Impairment of Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary, no +amendment, modification, suspension or termination of the Plan shall in any manner adversely affect in any material way any outstanding Award previously granted under the Plan without the written +consent of the Participant holding such Award. +ARTICLE XV +SECURITIES REGISTRATION +15.1 Securities Registration. In the event that the Company shall deem it necessary or desirable to register +under the Securities Act, or any other applicable statute, any Awards or any Shares with respect to which an Award may be or shall have been granted, or to qualify any such Awards or Shares under the +Securities Act or any other statute, then the affected Participants shall cooperate with the +A-19 +Company +and take such action as is necessary to permit registration or qualification of such Awards or Shares. +15.2 Representations. Unless the Company determines that the following representation is unnecessary, each +person receiving an Award under the Plan may be required by the Company, as a condition to the issuance of Shares pursuant to the Award, to make a representation in writing that (i) he or she +is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the Securities +Act, and (ii) before any transfer in connection with the resale of such Shares, an exemption from registration of such transaction under the Securities Act shall be established to the +satisfaction of the Company. The Company may also require that the certificates representing such Shares contain restrictive legends reflecting the foregoing. +ARTICLE XVI +TAX WITHHOLDING +In connection with Awards granted under the Plan, the Company and any Affiliate shall have the power and the right to deduct or withhold, or require a Participant +to remit to the Company or any Affiliate, amounts sufficient to satisfy any federal, state and local withholding tax requirements with respect to any taxable event as a result of the Plan and Awards +granted under the Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant making other arrangements, in either +case on such conditions as the Committee specifies. The Company may in its discretion make loans to Participants of funds sufficient to satisfy any such withholding tax requirements, provided that any +such loan shall comply with all applicable laws, rules and regulations and no such loan shall be made to a Director or executive officer +of the Company in violation of Section 13(k) of the Exchange Act, as adopted pursuant to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any Affiliate shall have the right +to require that any recipient or permitted transferee of an Award under the Plan who is not an Employee shall be responsible for the payment of all amounts required to satisfy all federal, state, and +local withholding taxes applicable to such persons with respect to such Award. +ARTICLE XVII +SUCCESSORS +Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder, shall be binding on any successor to the Company or +Affiliate, respectively, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or +assets of the Company or Affiliate, as applicable. +ARTICLE XVIII +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee, or an officer or employee who assists in +administering the Plan, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in +connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under +the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in any such action, suit or +proceeding against him or her, provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on +his or her own behalf. The foregoing right of +A-20 +indemnification +shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's certificate of incorporation or bylaws, as a matter of law or +otherwise, or any power that the Company or an Affiliate may have to indemnify them or hold them harmless. +ARTICLE XIX +GENERAL PROVISIONS +19.1 Forfeiture Events. Without limiting in any way the generality of the Committee's power to specify any terms +and conditions of an Award consistent with law, the Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to +reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events +may include, but not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and Affiliate +policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection or other agreements that may apply to the Participant, or other conduct by the +Participant that is detrimental to the business or reputation of the Company or Affiliates. +19.2 Legend. The certificates for Shares issued under the Plan may include any legend that the Committee deems +appropriate to reflect any restrictions on transfer of such Shares. +19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares +issued under the Plan prior to: +(a) Obtaining +any approvals from governmental agencies that the Company determines are necessary or advisable; and +(b) Completion +of any registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental body that the Company +determines to be necessary or advisable, and the listing or approval for trading of such Shares on any applicable securities exchange or market. +19.4 Uncertificated Shares. Where the Plan provides for the issuance of stock certificates to evidence the +issuance or transfer of Shares, such Shares may be evidenced on an uncertificated basis to the extent not prohibited by applicable law or stock exchange rules. +19.5 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments that +the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to +create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative or any other person. Awards shall be general +unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company, the Award shall be a general unsecured obligation of the Affiliate and not an +obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured +general creditor of the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or +separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set +forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974. +19.6 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award +Agreement. In the event that any fractional Shares would otherwise result from the application of the terms of an Award, the Company shall instead pay cash in lieu of fractional Shares on such basis +as the Committee may determine in its discretion. +A-21 +19.7 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the +Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program +or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant's rights under any such other plan, policy, program or arrangement. +19.8 No Constraint on Corporate Action. Nothing in this Plan shall be construed to (i) limit, impair or +otherwise affect the Company's or an Affiliate's right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or +dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) limit the right or power of the Company or an Affiliate to take any action which such entity deems to be +necessary or appropriate. +19.9 Severability. In the event that any provision of the Plan shall be held to be illegal or invalid for any +reason, the illegality or invalidity thereof shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been +included. +19.10 Requirements of Law. The granting of Awards and the issuance of Shares pursuant to an Award shall be +subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges or markets as may be required. The Company or an Affiliate shall +receive the consideration required by law for the issuance of Awards under the Plan. The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, +which authority is necessary for the lawful issuance and sale of any Shares hereunder, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as +to which such requisite authority shall not have been obtained. +19.11 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and +governed by the laws of the State of Colorado, excluding any conflicts or choice of law +principles which might otherwise result in construction or interpretation of the Plan or an Award Agreement under the substantive law of another jurisdiction. +ARTICLE XX +SECTION 409A OF THE CODE +This Plan is intended in all respects to comply with the provisions of Section 409A of the Code and the Company shall interpret and administer the Plan in +a manner consistent with Section 409A of the Code. In accordance with Prop. Reg. §1.409A-3(h)(2)(vi) (or any subsequent corresponding provision of law), should there be +a final determination that this Plan fails to meet the requirements of Section 409A and the regulations thereunder with respect to any Participant, the Company may distribute to the Participant +an amount not to exceed the amount required to be included in income as a result of the failure to comply with the requirements of Section 409A and the regulations. +Notwithstanding +any other provision of this Plan to the contrary, in the event that any compensation pursuant to the other provisions of this Plan would result in the imposition on a +Participant of any additional taxes or interest pursuant to the provisions of Section 409A of the Code and any temporary or final Treasury Regulations or Internal Revenue Service guidance +thereunder, the timing of the payment or settlement of such compensation shall be appropriately and equitably adjusted, together with any appropriate and equitable adjustments to reflect the time +value of money, in order that such Participant may receive substantially the same economic benefits as provided under this Plan and in compliance with Section 409A of the Code and without the +imposition on such Participant of any additional taxes or interest thereunder. +[Remainder +of page intentionally left blank] +A-22 +This +2006 Equity Incentive Compensation Plan, as amended and restated, was adopted by the Board of Directors of St. Mary Land & Exploration Company on March 28, +2008. +ST. MARY LAND & EXPLORATION COMPANY +By: +/s/ ANTHONY J. BEST Anthony J. Best +President and Chief Executive Officer +A-23 +ANNEX B +ST. MARY LAND & EXPLORATION COMPANY +CASH BONUS PLAN +As +Amended on March 28, 2008 +The +Cash Bonus Plan (the "Plan") of St. Mary Land & Exploration Company, a Delaware corporation (the "Company"), shall function as follows: +1. On +or before March 15 of each year the Compensation Committee of the Board of Directors of the Company (the "Committee"), each member of which shall be an "outside +director" within the meaning of the regulations under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), shall designate the key employees, if any, of the Company +(and of any of the Company's majority owned subsidiaries) who are eligible to participate in the Plan with respect to the prior calendar year. +2. No +participant shall receive a bonus under the Plan with respect to a calendar year in excess of two hundred percent of his or her base salary received for such year. +Unless and until the Committee determines that a bonus under the Plan to an employee who is, or who the Committee expects to become, a "covered employee" within the meaning of Section 162(m) of +the Code (a "Covered Employee"), shall not be designed to qualify as compensation solely on account of the attainment of one or more performance goals under circumstances that satisfy the requirements +of Section 162(m) of the Code ("Performance Based Compensation"), the maximum aggregate amount paid as a bonus under the Plan to any one Covered Employee in any one calendar year shall not +exceed $2,000,000. +3. Payments +under the Plan shall be made in full to each participant at the time such payment is first determined, provided that the participant is employed by the Company +or a qualifying subsidiary at that time. The timing of payments under the Plan shall comply in all respects with the provisions of Section 409A of the Code and the regulations thereunder. +4. Payments +under the Plan shall not be deemed to constitute compensation of any nature for purposes of any other compensation, retirement or other benefit plan of the +Company. To the extent that any such other plan contains provisions contrary to the foregoing sentence, such other plan shall be deemed to be amended to conform to the foregoing sentence. +5. All +matters with respect to the interpretation and application of the Plan shall be conclusively determined by the Committee. +6. The +Plan may be terminated or modified prospectively at any time by the Board of Directors. Nothing contained in the Plan shall constitute a contract, express or implied, +or any other type of obligation with respect to the employment or the continued employment by the Company of any person. +7. Notwithstanding +any other terms of the Plan, the payability (as determined by the Committee) of a bonus under the Plan that the Committee intends to be Performance Based +Compensation to a Covered Employee, shall be determined by the attainment of one or more performance goals as determined by the Committee in conformity with Section 162(m) of the Code. The +Committee shall specify in writing, by resolution or otherwise, the participants eligible to receive such a bonus (which may be expressed in terms of a class of individuals) and the performance +goal(s) applicable to such bonus within 90 days after the commencement of the period to which the performance goal(s) relate(s), or such earlier time as required to comply with +Section 162(m) of the Code. No such bonus shall be payable unless the Committee certifies in writing, by resolution or otherwise, that the performance goal(s) applicable to the bonus were +satisfied. In no case may the Committee increase the value of a +B-1 +bonus +intended to qualify as Performance Based Compensation above the maximum value determined under the performance formula by the attainment of the applicable performance goal(s), but the Committee +retains the discretion to reduce the value below such maximum. +Unless +and until the Committee proposes for stockholder vote and the stockholders approve a change in the general performance measures set forth herein, the performance goal(s) upon +which the payment of a bonus to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the following performance measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +(c) Share +price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity, or +capital); and +(h) Increases +in, or levels of, operating and/or nonoperating expenses. +Any +performance measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or subsidiaries of the Company or any combination thereof, as +the Committee may deem appropriate, and any performance measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. +The +Committee may provide that any evaluation of attainment of a performance goal may include or exclude any of the following events that occurs during the relevant period: +(a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations affecting reported +results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in +management's discussion and analysis of financial condition and results of operations appearing in the Company's Annual Report on Form 10-K for the applicable year; and +(f) significant acquisitions or divestitures. To the extent such inclusions or exclusions affect bonuses to Covered Employees, they shall be prescribed in a form that meets the requirements of +Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing performance measures without obtaining stockholder approval of +such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to make +bonus payments to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such payments without satisfying the requirements of Section 162(m) of the +Code. +B-2 +* +* * * * +This +Cash Bonus Plan, as amended, was adopted by the Board of Directors of St. Mary Land & Exploration Company on March 28, 2008. +ST. MARY LAND & EXPLORATION COMPANY +By: +/s/ ANTHONY J. BEST Anthony J. Best +President and Chief Executive Officer +B-3 +C123456789 +000004 +000000000.000000 ext +000000000.000000 ext +MR A SAMPLE +000000000.000000 ext +000000000.000000 ext +DESIGNATION (IF ANY) +000000000.000000 ext +000000000.000000 ext +ADD 1 +ADD 2 +ADD 3 +ADD 4 +ADD 5 +ADD 6 +Electronic Voting Instructions +You can vote by Internet or telephone! +Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. +VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be received by 12:00 a.m., Central Time, on May 21, 2008. +[ICON] +Vote by Internet +• +Log on to the Internet and go to www.investorvote.com/SM +• +Follow the steps outlined on the secured website. +[ICON] +Vote by telephone +• +Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the +call. +• +Follow the instructions provided by the recorded message. +Using +a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the +designated areas. ý +Annual Meeting Proxy Card +123456 +C0123456789 +12345 +\/ IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN +THE ENCLOSED ENVELOPE. \/ +A Proposals—The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 - 4. +1. +The Nominating and Corporate Governance Committee of the Board of Directors has nominated the below eight persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been +nominated to serve as director other than the nominees listed below. +01—Barbara M. Baumann +02—Anthony J. Best +03—Larry W. Bickle +04—William J. Gardiner +05—Mark A. Hellerstein +06—Julio M. Quintana +07—John M. Seidl +08—William D. Sullivan +o +Mark here to vote FOR +all nominees +o +Mark here to WITHHOLD +vote from all nominees +o +For All EXCEPT —To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +For +Against +Abstain +2. +The proposal to approve the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan. +o +o +o +For +Against +Abstain +3. +The proposal to approve the Cash Bonus Plan. +o +o +o +For +Against +Abstain +4. +The proposal to ratify the appointment of Deloitte & Touche, LLP by the Audit Committee as the Company's independent registered public accounting firm. +o +o +o +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS +CARD. +C 1234567890 J NT +1 U P X 0 1 7 5 1 4 1 +MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND +\/ IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN +THE ENCLOSED ENVELOPE. \/ +Proxy—St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This proxy is solicited on Behalf of the Board of Directors For the Annual Meeting of Stockholders on May 21, 2008. +The +undersigned hereby appoints Anthony J. Best and C. Mark Brannum, or either of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares +of St. Mary Land & Exploration Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 21, 2008, and at any +reconvened meeting after any adjustment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting. +This +proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted +"For" all director nominees listed on this proxy, the approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan, the approval of the Cash Bonus Plan, and the +ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as St. Mary Land & Exploration Company's independent public accounting firm. +This +proxy also confirms discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting. As of the date of the accompanying proxy statement, +St. Mary Land & Exploration Company's management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, this proxy +will be voted in accordance with the recommendations of St. Mary Land & Exploration Company's management. +B Non-Voting Items +Change of Address —Please print new address below. +C Authorized Signatures—This section must be completed for your vote to be counted.—Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or +custodian, please give full title. +Date (mm/dd/yyyy)—Please print date below. +Signature 1—Please keep signature within the box. +Signature 2—Please keep signature within the box. +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS +CARD. +Using +a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the +designated areas. ý +Annual Meeting Proxy Card +\/ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. \/ +A Proposals—The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 - 4. +1. +The Nominating and Corporate Governance Committee of the Board of Directors has nominated the below eight persons to stand for election as directors. As of the date of the accompanying proxy statement, no one has been +nominated to serve as director other than the nominees listed below. +01—Barbara M. Baumann +02—Anthony J. Best +03—Larry W. Bickle +04—William J. Gardiner +05—Mark A. Hellerstein +06—Julio M. Quintana +07—John M. Seidl +08—William D. Sullivan +o +Mark here to vote FOR +all nominees +o +Mark here to WITHHOLD +vote from all nominees +o +For All EXCEPT —To withhold authority to vote for any nominee(s), write the name(s) of such nominee(s) below. +For +Against +Abstain +2. +The proposal to approve the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan. +o +o +o +For +Against +Abstain +3. +The proposal to approve the Cash Bonus Plan. +o +o +o +For +Against +Abstain +4. +The proposal to ratify the appointment of Deloitte & Touche, LLP by the Audit Committee as the Company's independent registered public accounting firm. +o +o +o +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS +CARD. +1 U P X 0 1 7 5 1 4 2 +\/ PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. \/ +Proxy—St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This proxy is solicited on Behalf of the Board of Directors For the Annual Meeting of Stockholders on May 21, 2008. +The +undersigned hereby appoints Anthony J. Best and C. Mark Brannum, or either of them, each with the power to appoint his substitute, as proxies for the undersigned to vote all shares +of St. Mary Land & Exploration Company common stock which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 21, 2008, and at any +reconvened meeting after any adjustment thereof, as directed on the matters referred to on the reverse side and at their discretion on any other matters that may properly be presented at the meeting. +This +proxy when properly executed will be voted in the manner directed by the undersigned stockholder. If this proxy is properly executed but no voting direction is given, this proxy will be voted +"For" all director nominees listed on this proxy, the approval of the Amendment and Restatement of the 2006 Equity Incentive Compensation Plan, the approval of the Cash Bonus Plan, and the +ratification of the appointment by the Audit Committee of Deloitte & Touche, LLP as St. Mary Land & Exploration Company's independent public accounting firm. +This +proxy also confirms discretionary authority to the proxies to vote on any other matters that may properly be presented at the meeting. As of the date of the accompanying proxy statement, +St. Mary Land & Exploration Company's management did not know of any other matters to be presented at the meeting. If any other matters are properly presented at the meeting, this proxy +will be voted in accordance with the recommendations of St. Mary Land & Exploration Company's management. +B Authorized Signatures—This section must be completed for your vote to be counted.—Date and Sign Below +Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or +custodian, please give full title. +Date (mm/dd/yyyy)—Please print date below. +Signature 1—Please keep signature within the box. +Signature 2—Please keep signature within the box. +IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - B ON BOTH SIDES OF THIS +CARD. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-08-004190/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-08-004190/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..6e7d57a291f2d4c893246d691bbf7f060b9b26e3 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-08-004190/proxy_rpt.txt @@ -0,0 +1,33 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policy on Transactions with Related Persons +The Company has adopted a written policy and procedures for the Audit Committee's review of any transaction, arrangement or relationship (including any +indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements or relationships in which (i) the Company is a participant, (ii) the aggregate amount involved +will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this policy, a "related person" means +(i) any of our directors, executive officers or nominees for director, (ii) any stockholder that beneficially owns more than 5% of the Company's outstanding shares of common stock, and +(iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, the +best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, St. Mary's By-Laws provide that no director, officer or employee may pursue for his or her own account a business or investment opportunity if he or she +has obtained knowledge of such opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas +opportunity as to which his or her knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the +officer's pursuit of the opportunity has been approved by the Board of Directors and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity +has been approved by a senior officer of St. Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded +stock of another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its officers during the last fiscal year. Some of the aspects of this +transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will always be resolved in favor +of St. Mary. +57 +As +a result of interests acquired prior to any association with St. Mary, Robert L. Nance, an executive officer of St. Mary during 2007 who retired as an executive officer +of St. Mary as of December 31, 2007, either personally or through Ronan, Inc., an entity in which he is a majority stockholder, owns working and overriding royalty interests in +approximately 14 of the Company's oil and gas wells. Total revenues earned from these specific oil and gas properties by Mr. Nance and Ronan, Inc. in 2007, 2006, and 2005 are +approximately $154,000, $206,000, and $238,000, respectively. The Audit Committee has reviewed this relationship and deemed this not to be in conflict with the Company's Policy and Procedures with +Respect to Related Person Transactions, since the ownership was acquired prior to any relationship with St. Mary and because the amounts involved are not deemed significant to St. Mary +as a whole. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-09-003833/proxy.txt b/raw/proxies/0000893538/0001047469-09-003833/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b56c48cabbd99737a2d1818bd6513e048445976c --- /dev/null +++ b/raw/proxies/0000893538/0001047469-09-003833/proxy.txt @@ -0,0 +1,5053 @@ +DEF 14A +1 +a2192082zdef14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +St. Mary Land & Exploration Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +March 27, 2009 +Dear +Stockholder: +You +are cordially invited to attend the 2009 annual meeting of stockholders, which is scheduled to be held in the Forum Conference Room of Wells Fargo Bank located at 1740 Broadway in +Denver, Colorado, on Wednesday, May 20, 2009, at 3:00 p.m. local time. +At +the meeting, you and the other stockholders will vote on: +• The election as directors of the seven persons named in the attached proxy statement; +• The approval of the 2009 Amendments to the 2006 Equity Incentive Compensation Plan to increase the number of shares +available for issuance under this plan and revise the fungible ratio to 1.43:1; and +• The ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm. +You +will also have the opportunity to hear reports on St. Mary's operations and to ask questions of general interest. You can find other, more specific information about the +meeting in the accompanying proxy statement, and you can find detailed information about St. Mary in our 2008 Annual Report, which is available on our website www.stmaryland.com . +Pursuant +to Securities and Exchange Commission rules, we may now provide you with access to our proxy materials over the Internet. As a result, we are mailing to most of our stockholders +a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a paper copy of this proxy statement and our 2008 Annual Report. The Notice contains instructions on how to access those +documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including this proxy statement, our 2008 Annual Report, and a form of proxy +card. We may also choose to mail printed proxy materials to one or more stockholders. +You +may vote your shares by using the telephone or internet voting systems described on the Notice or the proxy card. If you received a printed copy of a proxy card by mail, you may +submit your proxy card by completing and signing the proxy card and returning it promptly. This will ensure that your shares are represented at the meeting even if you cannot attend. +Thank +you for your cooperation by voting by telephone or the Internet, or returning your proxy card, as promptly as possible. We hope to see many of you at our meeting in Denver. +Very +truly yours, +Anthony +J. Best +CEO & President +Table of Contents +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +NOTICE OF ANNUAL STOCKHOLDERS' MEETING +on May 20, 2009 +To +All Stockholders: +The +2009 annual meeting of the stockholders of St. Mary Land & Exploration Company is scheduled to be held in the Forum Conference Room of Wells Fargo Bank located at 1740 +Broadway in Denver, +Colorado, on Wednesday, May 20, 2009, at 3:00 p.m. local time. The purpose of the meeting is: +1. To +elect as directors the seven persons named in the attached proxy statement to serve during the next year; +2. To +approve the 2009 Amendments to the 2006 Equity Incentive Compensation Plan, to increase the number of shares available for issuance under this plan and +revise the fungible ratio to 1.43:1; +3. To +ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's independent registered public accounting firm; and +4. To +transact any other business which may properly come before the meeting. +Only +stockholders of record at the close of business on March 23, 2009, may vote at this meeting. +Please vote by using the telephone or internet voting systems described on the Notice of Internet Availability of Proxy Materials or the proxy card or, if this +proxy statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Any stockholder may revoke its +proxy at any time before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +Karin M. Writer +Assistant Secretary +Denver, Colorado +March 27, 2009 +Table of Contents +Proxy Statement Table of Contents +Page +General +1 +Purpose of the Annual Meeting +1 +Information About the Notice of Internet Availability of Proxy +Materials +1 +Stockholders Sharing the Same Address +2 +Who Can Vote +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements +3 +Payment of Proxy Solicitation Costs +3 +Election of Directors +4 +Nominees for Election as Directors +5 +Other Matters to be Voted On +7 +Approval of Amendments to 2006 Equity Incentive Compensation Plan +7 +Corporate Governance +22 +Board of Directors +22 +Presiding Director at the Nonmanagement Directors' Executive +Sessions +23 +Communication with the Directors of the Company +23 +Board and Committee Meetings +23 +Director Compensation +25 +Other Reportable Items Related to Payments Made by the Company Associated with +Service of a Director +27 +Compensation Discussion and Analysis +27 +Executive Compensation and Summary Compensation Table +40 +Summary Compensation Table for 2006, 2007, and 2008 +40 +Grants of Plan Based Awards in 2008 +42 +Outstanding Equity Awards at 2008 Fiscal Year-End +43 +Nonqualified Deferred Compensation +44 +Option Exercises and Stock Vested +44 +Retirement Plans +45 +Pension Plan +45 +2008 Pension Benefits Table +45 +Equity Compensation Plans +46 +Employment Agreements and Termination of Employment +48 +Change of Control Arrangements +49 +Security Ownership of Certain Beneficial Owners and Management +51 +Compensation Committee Report +53 +Certain Relationships and Related Transactions +54 +Section 16(a) Beneficial Ownership Reporting Compliance +55 +Report of the Audit Committee +55 +Independent Accountants +56 +Audit Committee Preapproval Policy and Procedures +56 +Future Stockholder Proposals +57 +Other Matters +57 +Annex A—Equity Incentive Compensation Plan, as amended and restated as of +March 26, 2009 +A-1 +Table of Contents +St. Mary Land & Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +(303) 861-8140 +PROXY STATEMENT +General +This proxy statement contains information about the 2009 annual meeting of stockholders of St. Mary Land & Exploration +Company scheduled to be held in the Forum Conference Room of Wells Fargo Bank located at 1740 Broadway in Denver, Colorado, on Wednesday, May 20, 2009, at 3:00 p.m. local time. The +St. Mary Board of Directors is using this proxy statement to solicit proxies for use at the annual meeting. In this proxy statement, "St. Mary", "the Company", we, and us refer to +St. Mary Land & Exploration Company inclusive of its subsidiaries. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +• The election as directors of the seven persons named in this proxy statement to serve during the next year; +• The approval of the 2009 Amendments to the 2006 Equity Incentive Compensation Plan to increase the number of shares +available for issuance under this plan and revise the fungible ratio to 1.43:1; +• The ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm; and +• To transact any other business that may properly come before the meeting. +As +of the date of this proxy statement, the Company is not aware of any business to come before the meeting other than the items noted above. +Information about the Notice of Internet Availability of Proxy Materials +The proxy materials, including this proxy statement, a proxy card or voting instruction card, and the Company's 2008 Annual Report, are +being distributed and made available on or about April 7, 2009. In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (the "SEC"), the Company is +furnishing our proxy materials to our stockholders on the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be mailed to the Company's stockholders on or about +April 7, 2009. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request that the Company send them a printed set of the proxy materials +by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The Company may also elect to mail printed proxy materials to one or more +stockholders. +The +Notice will also provide instructions on how to inform the Company to send future proxy materials to you electronically by email or in printed form by mail. If you choose to receive +future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy +materials by email or printed form by mail will remain in effect until you terminate it. Choosing to receive future proxy materials by email will reduce the Company's printing and mailing costs. +1 +Table of Contents +IMPORTANT +NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 20, 2009: The proxy statement and 2008 +Form 10-K of the Company are available at http://materials.proxyvote.com/792228. +Stockholders Sharing the Same Address +The Company has adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have +the same address and last name and who do not participate in the electronic delivery of proxy materials will receive only one copy of our Notice and, as applicable, any additional proxy materials that +are delivered until such time as one or more of these stockholders notifies the Company that they want to receive separate copies. This procedure reduces our printing costs and postage fees. +Stockholders who participate in householding will continue to have access to and utilize separate proxy voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice, annual report or proxy statement, please submit a +request to St. Mary's Corporate Secretary at 1776 Lincoln Street, Suite 700, Denver, CO 80203 or call (303) 861-8140, and we will promptly send you what you have +requested. You can also contact the Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the +future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their banks, brokers, or other holders of record. +Who Can Vote +Only stockholders of record at the close of business on the record date of March 23, 2009, are entitled to receive notice of the +annual meeting and to vote shares of St. Mary common stock held on that date. As of March 23, 2009, there were 62,390,975 shares of St. Mary common stock issued and outstanding, +net of 176,987 shares held in treasury by the Company. Holders of St. Mary common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +How to Vote +If your shares of St. Mary common stock are held by a broker, bank, or other nominee (in "street name"), you will receive +information from them on how to instruct them to vote your shares. +If +you hold shares of St. Mary common stock in your own name (as a "stockholder of record"), you may give instructions on how your shares are to be voted by following the +telephone or internet voting procedures described on the proxy card, or, if you received a printed copy of the proxy materials, by marking, signing, dating, and returning the enclosed proxy card in +the accompanying postage paid envelope. The telephone and internet voting procedures are designed to ensure that proxies are handled properly under Delaware law. Votes cast in either of these two +manners are authenticated by use of a personal identification number and allow stockholders to confirm that their instructions have been properly recorded. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +A +proxy, when properly completed and not revoked, will be voted in accordance with its instructions. If no voting instructions on a particular matter are given on a properly submitted +and unrevoked proxy, the shares represented by the proxy will be voted on that particular matter as follows: +• FOR the election as directors of the seven nominees named in this proxy statement under the caption "Nominees for Election +as Directors"; +2 +Table of Contents +• FOR the approval of the 2009 Amendments to the Equity Plan, as hereinafter defined, to increase the number of shares +available for issuance under this plan and revise the fungible ratio to 1.43:1; and +• FOR the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm. +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or internet +voting procedures before the meeting; +• by voting in person at the meeting; or +• by filing a written revocation with St. Mary's Secretary (the "Secretary"). +Your +attendance at the annual meeting will not automatically revoke your proxy. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one third of the outstanding +shares of common stock are present at the meeting in person or by proxy. Abstentions and broker non-votes count as present for establishing a quorum. A broker non-vote occurs +on a matter when a broker is not permitted to vote on that matter without instruction from the beneficial owner of the shares and no instruction is given. Shares held by St. Mary in its +treasury are not entitled to vote and do not count toward a quorum. If a quorum is not present, the meeting may be adjourned until a quorum is obtained. +Voting Requirements +Election of Directors —St. Mary's By-Laws (the "By-Laws") provide that the election of directors shall be decided by the +vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Any shares present but not voted for approval, including withheld votes and broker +non-votes, will have the same effect as if the shares were voted against approval. +Approval of the 2009 Amendments to the Equity Plan, as hereinafter defined —Under New York Stock Exchange ("NYSE") rules and regulations promulgated +under Section 162(m) of the Internal Revenue Code ("IRC"), the approval of the 2009 Amendments to the Equity Plan, as hereinafter defined, that will increase the number of shares available for +issuance under this plan and modify the fungible ratio for stock issued under this plan requires the affirmative vote of a majority of the votes cast on this plan, and the NYSE rules require that the +total votes cast represent over 50 percent of all shares entitled to vote. Abstentions and broker non-votes will have the effect of votes against approval of this plan. +Ratification of Deloitte & Touche LLP as the Company's Independent Registered Public Accounting Firm —This ratification shall be decided +by the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Any shares present but not voted for approval, including withheld votes and +broker non-votes, will have the same effect as if the shares were voted against approval. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. St. Mary has retained The Altman Group, Inc. to assist in the +solicitation of proxies for an estimated fee of $9,000 plus reimbursement of reasonable +3 +Table of Contents +expenses. +The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In addition, St. Mary officers, directors, and employees may also solicit +proxies in person, by telephone, or by other electronic means of communication. St. Mary will ask banks, brokers, other institutions, nominees, and fiduciaries to forward the proxy material to +their principals and obtain authority to execute proxies. +ELECTION OF DIRECTORS +All directors of the Company are elected annually. At this meeting, seven directors are to be elected to serve for one year or until +their successors are elected and qualified. The Company's nominees for these directorships are identified below; all are currently serving in that capacity. +The +Company's Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee ("NCG Committee") of the Board of Directors shall be responsible for +identifying and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee performed its evaluation and nominating functions during 2008 and early 2009. +The NCG Committee selects each nominee based on the nominee's skills, achievements, and experience. As set forth in the Corporate Governance Guidelines, the Board as a whole should have broad and +relevant experience in high level business policymaking and a commitment to representing the long term interests of the stockholders. The NCG Committee believes that each nominee should have +experience in positions of responsibility and leadership, an understanding of the Company's business environment, and a reputation for integrity. +The +NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is to recommend individuals and a group that will effectively +contribute to the long term success of the Company and represent stockholder interests. In determining whether to recommend a director for reelection, the NCG Committee also considers the director's +past attendance at meetings and participation in and contributions to the Board activities. +When +seeking new director candidates, the NCG Committee solicits suggestions from incumbent directors, management, stockholders, and others. The NCG Committee has authority under its +charter to retain a search firm for this purpose. If the NCG Committee believes a candidate would be a valuable addition to the Board of Directors, it recommends his or her candidacy to the Board of +Directors. +The +NCG Committee will consider suggestions by stockholders of possible future nominees. No such suggestions were received during 2008. Stockholders may nominate persons for election to +the Board in accordance with the By-Laws. Stockholder suggestions should be delivered on or before November 1 st in any year before the next annual meeting. In +addition, the By-Laws permit stockholders to nominate directors for election at an annual meeting, provided that advance written notice of the nomination containing the information +required under the By-Laws is received by the Secretary not less than 75 days or more than 105 days before the first anniversary date of the immediately preceding annual +meeting. Accordingly, proper notice of a stockholder nomination for director for the 2010 annual meeting must be received by St. Mary between February 4, 2010, and March 6, 2010. +No stockholder nominations were received regarding the 2009 annual meeting. +The +proxies will be voted in favor of the nominees unless a contrary specification is made in the proxy. All nominees have consented to serve as directors of the Company if elected. +However, if any nominee is unable to serve or for good cause will not serve as a director, the directors intend to vote in their discretion for a substitute who will be designated by the Board of +Directors. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" electing the nominees. +4 +Table of Contents +NOMINEES FOR ELECTION AS DIRECTORS +Biographical information as of February 15, 2009, including principal occupation and business experience during the last five +years, of each nominee for director is set forth below. +Age +Director +Since +Barbara M. Baumann is President of Cross Creek Energy Corporation, which provides consulting services for energy +related companies. Ms. Baumann has held that position since July 2003. From 2001 to July 2003, Ms. Baumann was Executive Vice President of Associated Energy Managers LLC, an investment manager and general partner of a private equity +energy fund specializing in oil and gas investments for institutional investors. From 1983 to 2001, Ms. Baumann was employed by BP Amoco and held a variety of financial and operational management positions, including Chief Financial Officer of +an environmental remediation subsidiary, Vice President of the San Juan Business Unit, and the Commercial Operations Manager of the Western Business Unit. Ms. Baumann is also a director of UniSource Energy Corporation (NYSE: UNS), the parent +company for Tucson Electric Power Company. +53 +2002 +Anthony J. Best is President and Chief Executive Officer of St. Mary. Mr. Best joined +St. Mary in June 2006 as President and Chief Operating Officer. In December 2006, Mr. Best relinquished his position as Chief Operating Officer when Javan D. Ottoson was elected to that office. On February 23, 2007, Mr. Best was +elected Chief Executive Officer of St. Mary when Mark Hellerstein retired from that position. Mr. Best was appointed to the Board concurrent with his appointment as Chief Executive Officer. From November 2005 to June 2006, Mr. Best was +developing a business plan and attempting to raise capital for a start-up exploration and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., an independent oil and +natural gas exploration and production company that was a subsidiary of Unocal, where he managed all of Unocal's onshore U.S. assets. From 2000 to 2002, Mr. Best had an oil and gas consulting practice working with various energy firms. From 1979 +to 2000, Mr. Best was with ARCO in a variety of positions, including serving as President—ARCO Permian, President—ARCO Latin America, Field Manager for Prudhoe Bay, and VP—External Affairs for ARCO Alaska. +59 +2007 +Larry W. Bickle is a retired private equity investor. From June 2005 through April 2007, he was +Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Dr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, +Dr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (formerly Tejas Power Corporation), a NYSE-listed gas storage, transportation, and marketing company that he founded. Dr. Bickle is also a director of +UniSource Energy Corporation (NYSE: UNS), the parent company for Tucson Electric Power Company. He also serves as Non-Executive Chairman and is a member of the Board of Managers of Quantum Natural Gas Storage, LLC. +63 +1995 +William J. Gardiner is Vice President and Chief Financial Officer of King Ranch, Inc., a +privately held ranching and agricultural company that owns the historic 825,000 acre "King Ranch" in south Texas. Mr. Gardiner has held that position since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice +President and Chief Financial Officer of CRSS, Inc., a NYSE-listed independent power producer. Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director of St. Mary in +connection with St. Mary's acquisition of King Ranch Energy, Inc. in 1999. +54 +1999 +5 +Table of Contents +Age +Director +Since +Julio M. Quintana is the President, Chief Executive Officer, and a director of TESCO Corporation, a company that +supplies oilfield drilling technology, oilfield services, and equipment. Mr. Quintana joined the St. Mary Board on July 7, 2006. Prior to his appointment to his current position at TESCO Corporation in September 2005, he had served as +Executive Vice President and Chief Operating Officer at TESCO since September 2004. From 1999 to 2004, Mr. Quintana was employed at Schlumberger Limited, a global oilfield services company, as the VP—Integrated Project Management from 1999 +to 2000, as the VP—Marketing for North and South America from 2001 to 2003, and as the VP—Exploitation for North and South America from 2003 to 2004. Mr. Quintana began his career at Unocal Corporation where he spent 20 years +working in various engineering and leadership roles. +49 +2006 +John M. Seidl is Chairman of the Board and Chief Executive Officer of EnviroFuels, LLC, a +privately held corporation that develops, manufactures, and markets technology that improves the performance and efficiency of internal combustion engines, boilers, and other engine designs. Mr. Seidl has held the Chairman position since January +2006 and the Chief Executive Officer position since October 2008. From July 2004 to January 2006, he served as Vice Chairman of EnviroFuels' advisory board. From June 2001 through December 2004, Mr. Seidl was Chief Program Officer, Environment, +of the Gordon and Betty Moore Foundation, a private grant making foundation which seeks and funds higher education, scientific research, environmental, and San Francisco Bay Area projects. From September 1999 through June 2004, Mr. Seidl was +Chairman of Language Line Services, a privately held provider of over the phone language interpretation and document translation services. Mr. Seidl's business career from 1978-1992 was in energy or energy related businesses. +70 +1994 +William D. Sullivan has been retired since August 2003 with the exception of a brief amount of +time, from June 15, 2005, to August 5, 2005, when Mr. Sullivan served as President and Chief Executive Officer of Leor Energy LP, a privately held exploration and production company. Since February 2007, Mr. Sullivan has been +serving as a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP, a natural gas limited partnership that was listed on NASDAQ in February 2007. Additionally, since March 2006, +Mr. Sullivan has been serving as a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP, an oil and natural gas limited partnership that was listed on NASDAQ in January 2007. Mr. Sullivan +has served as a director of Tetra Technologies, Inc. since August 2007. Mr. Sullivan worked for Anadarko Petroleum Corporation, an independent oil and natural gas exploration and production company, from 1981 to August 2003. From August +2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as VP, Operations—International, Gulf of Mexico and Alaska in 2001, VP—International +Operations from 1998 to 2000, and VP—Algeria from 1995 to 1998. +52 +2004 +6 +Table of Contents +OTHER MATTERS TO BE VOTED ON +Approval of Amendments to the 2006 Equity Incentive Compensation Plan +Overview +Subject to stockholder approval, on March 26, 2009, St. Mary's Board of Directors approved amendments to the 2006 Equity +Incentive Compensation Plan, which as part of these amendments has been renamed the Equity Incentive Compensation Plan (the "Equity Plan"). These amendments (the "2009 Amendments"), which are further +explained below, are primarily to: +• Increase the stated total number of shares of the Company's common stock authorized for issuance under the Equity Plan +from 3,500,000 shares to 6,000,000 shares. +• Change the fungible share counting provisions of the Equity Plan to provide that "full share awards" under the Equity +Plan, which are awards other than stock options or stock appreciation rights, made after May 20, 2009, will be counted against the total share authorization limit as 1.43 shares for every one +share issued. +The +Equity Plan provides for the issuance of restricted stock, restricted stock units ("RSUs"), nonqualified stock options ("NSOs"), incentive stock options ("ISOs"), stock appreciation +rights ("SARs"), performance shares, performance units and stock based awards to key employees, consultants, and members of St. Mary's Board of Directors or any affiliate of St. Mary as +equity based incentive compensation under the Equity Plan. The purpose of the Equity Plan is to promote the success and enhance the value of St. Mary by linking the personal interests of the +participants to those of St. Mary's stockholders and by providing participants with an incentive for outstanding performance. The Equity Plan is further intended to provide flexibility to +St. Mary in its ability to attract, motivate, and retain the services of participants upon whose judgment, interest, and special effort the success of St. Mary is substantially +dependent. A copy of the Equity Plan, as amended and restated, is attached to this proxy statement as Annex A. +If +the stockholders do not approve the 2009 amendments, the Compensation Committee will consider other alternatives for compensation. +General Background of the Equity Plan +The Equity Plan was originally adopted by St. Mary's Board of Directors on March 23, 2006, and approved by +St. Mary's stockholders on May 17, 2006. The Equity Plan was subsequently amended and restated on March 28, 2008, and was approved by St. Mary's stockholders on +May 21, 2008. Included in the amendments approved by the stockholders on May 21, 2008 was an increase in the stated total number of shares of common stock authorized for issuance under +the Equity Plan from 2,000,000 shares to 3,500,000 shares. +The +Equity Plan serves as the successor equity incentive plan to the Company's prior Stock Option Plan, Incentive Stock Option Plan, Restricted Stock Plan, and Non-Employee +Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants have been made under the Predecessor Plans from and after the original effective date of the Equity Plan +on May 17, 2006. +The +Equity Plan currently authorizes the issuance of a total of 3,500,000 shares of common stock, including remaining shares of common stock under the Predecessor Plans that have been +transferred into the Equity Plan in accordance with its terms, and without taking into account the additional shares under the 2009 Amendments. As of March 23, 2009, there were 1,593,468 +remaining shares of common stock available for grant under the Equity Plan. +7 +Table of Contents +As +of March 23, 2009, the Company had 62,390,975 shares of common stock outstanding, net of treasury shares. On that date, the Company had 1,494,208 stock options outstanding +under the Equity Plan at a weighted average exercise price of $12.71 per share and a weighted average remaining term of 3.5 years. The Company also had 738,725 full value awards outstanding on +that date in the form of RSUs and performance share awards ("PSAs"). On March 23, 2009, the closing price of St. Mary's common stock as reported on the NYSE was $15.08 per share. +Summary of 2009 Amendments +Increase in Share Authorization +Under the 2009 Amendments, if approved by the stockholders, the stated total number of shares of the Company's common stock authorized +for issuance to participants pursuant to awards granted under the Plan will be 6,000,000 shares. The Equity Plan currently authorizes 3,500,000 shares of which 1,593,468 remain available for grant. +Additional previously authorized and remaining shares under the Predecessor Plans will also remain available for issuance as provided in the Equity Plan document. +Change in Share Counting Provisions for Full Share Awards +The Equity Plan originally provided that (i) any shares of common stock issued in connection with a stock option or SAR will be +counted against the total share authorization limit as one share of common stock for every one share of common stock issued, and (ii) any shares of common stock issued in connection with an +award other than a stock option or SAR will be counted against the limit as two shares of common stock for every one share of common stock issued. Under the 2009 Amendments, if approved by the +stockholders, clause (ii) of this provision will be changed so that each share of common stock issued in connection with an award after May 20, 2009, other than a stock option or SAR +will be counted against the limit at a 1.43:1 ratio. +Reasons for 2009 Amendments +Grants of equity compensation for 2005, 2006, and 2007 were for incentive compensation awards, non-employee director +compensation, hire-on awards and other compensation related awards. Some of these grants of incentive equity awards under the Equity Plan were made following the end of these fiscal +reporting years, for example, awards made in February 2008 related to the 2007 annual performance period. During 2007, 2006, and 2005 there were 248, 201, and 173 persons that received awards, +respectively. The table below presents the awards granted under the Equity Plan on this accrual based manner. As explained in more detail below, last year the Company replaced its use of RSUs as the +primary form of equity based incentive with the use of PSAs under the Company's new Long Term Incentive Program ("LTIP"), which also replaced the Company's prior use of new compensation pools under +the cash based Net Profits Interest Bonus Plan (the "NPP"). As discussed in more detail under the "LTIP/PSA Framework" caption below, the 2008 PSA awards agreements provide that no actual shares of +common stock will be issued in settlement of those PSAs until after the end of a three year performance period in August 2011. Thus, in order to transition from the use of RSUs to PSAs, the Company +made a +transitional grant of 265,373 RSUs on June 30, 2008 (the "Transitional RSUs"). The Transitional RSUs have a vesting and settlement schedule of one third on each of December 15, 2008, +2009, and 2010. +8 +Table of Contents +EQUITY AWARD LEVELS PRIOR TO THE LTIP +2008 +2007 +2006 +2005 +Incentive Awards Issued for the Performance Period +0 +161,244 +(1) +78,657 +(2) +484,351 +(3) +Non-Employee Director Share Awards +23,113 +32,504 +29,827 +13,926 +Hiring and Retention Equity Awards +22,286 +23,977 +28,500 +0 +Transitional RSUs +265,373 +0 +0 +0 +(1) Represents +awards made on February 28, 2008, related to the 2007 performance period. +(2) Represents +awards made on February 28, 2007, related to the 2006 performance period. +(3) Represents +awards made on February 28, 2006, related to the 2005 performance period. +Based +on the timing of these awards and the manner in which the fungible share counting provisions under the Equity Plan have functioned, this represents a reduction in the shares +available for grant of 2,359,985 shares over the years 2005, 2006, 2007, and 2008. Until May 2006, equity awards were governed by the Predecessor Plans. Subsequent to that date, the terms of the +Equity Plan have governed the grant of equity awards. +Beginning +in 2007, the Company replaced its use of new compensation pools under the NPP, a significant cash-based compensation plan, and RSUs with the LTIP, which utilizes +PSAs. Historically, the NPP had incentivised and rewarded employees at St. Mary. However, the complexity of the program and the uncertain timing of payout, made it less attractive than more +traditional equity plans to newly recruited and highly marketable employees. As a result, the Compensation Committee and the Board approved the termination of the NPP on a prospective basis in +December 2007, and the 2007 NPP pool was the final NPP pool to be awarded. +PSA +plans are common among our peers and provide for target awards that are earned over a performance period. Currently, the LTIP utilizes a three year performance period. We believe the +LTIP is a more transparent, more marketable, and more widely understood long term incentive compensation program. This results in the awards closely aligning employee interest with those of our +stockholders, particularly since employees could potentially not receive any shares from an award if St. Mary's performance criteria are not met. The target awards, while made at the beginning +of the performance measurement period, have a back-end weighted time vesting schedule and a total shareholder return ("TSR") measurement after the conclusion of the three year measurement +period. At the conclusion of the three year measurement period, St. Mary's compounded TSR will be measured for the three year measurement period and then compared to the results of the compound +TSR performance of a pre-established performance index consisting of similar companies. Depending on the results of the TSR measurements, the actual award made to participants will be +between zero and two times the target award based on pre-established criteria. There is no market or performance condition that results in an early payout determination, other than a +change of control. The LTIP and the associated cash bonus plan are widely utilized within the organization as a consistent plan for our employees and executives, ensuring that all eligible personnel +are measured against the same performance conditions. In 2008, 285 persons were designated to participate in the LTIP and were granted a total of 465,751 PSAs under the Equity Plan, although the +actual number of shares of common stock that may ultimately be issued in settlement of those PSAs after the end of the three year performance period will depend on the compound returns of +St. Mary and its peer indices. St. Mary anticipates using a similar framework in 2009 under the Equity Plan. +The +Company is seeking an increase in the number of shares available for issuance under the Equity Plan because the LTIP is replacing the Company's use of the NPP and RSUs with the use +of PSAs. The Company's previous use of the NPP, together with the issuance of RSUs, as its primary long term incentive compensation program required the issuance of fewer shares of Company stock +because +9 +Table of Contents +the +NPP was a cash based incentive plan. Since no new compensation pools will be created under the NPP, equity has become the only component of the Company's long term incentive compensation framework +going forward and accordingly it is anticipated that larger number of shares will be required. +Additionally, +the Company is seeking an increase in the authorized number of shares available for issuance because the PSAs under the LTIP are considered to be full share awards. Even +though no actual shares will be issued in settlement of the PSAs unless the underlying performance criteria are +met, the fact that under certain performance conditions the target awards have a potential two times multiplier requires that the Company contemplate the achievement of this scenario and ensure the +availability of sufficient shares to meet the terms of the original target awards. Further, depending upon the year of the PSA grant, under the Equity Plan's fungible share counting provisions such +PSA could count either two times or 1.43 times against the total share authorization limit under the plan. As an example, if an employee is granted a target PSA of 100 shares, this will count as 200 +shares against the total share limit if the PSA grant is on or before May 20, 2009, or will count as 143 shares against the limit if the PSA grant is after May 20, 2009. Because there is +the potential under the PSA framework to earn up to two times the target number of shares in the event that the Company's performance warrants, a total of 200 shares could be issued, which would count +as 400 or 386 shares, respectively, against the share limit under the plan. The result is that more shares must be available for grant under the Equity Plan than the number of shares actually being +issued as new shares pursuant to full value PSA awards. +Prior +to the 2009 Amendments, the total number of remaining shares of common stock authorized for grant under the Equity Plan as of March 23, 2009, which represents shares not +subject to prior awards and includes shares transferred from under the Predecessor Plans, is 1,593,468. Accordingly, if the 2009 Amendments are approved by the stockholders, a total of 4,093,468 +shares will be available under the Equity Plan to be used for future awards. This reflects a 2,500,000 share increase in the number of shares authorized under the Equity Plan. St. Mary's Board +of Directors believes that this share increase is appropriate based on the fact that no future compensation pools will be established under the NPP, and that St. Mary intends to grant PSAs on +an annual basis. +The +Equity Plan provides that, from and after May 21, 2008, the following shares will not become available again for issuance under the Equity Plan: (i) shares tendered as +full or partial payment to St. Mary of an option price upon exercise of any options granted under the Equity Plan, (ii) shares reserved for issuance upon grants of SARs, to the extent +the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs, and (iii) shares withheld by St. Mary to satisfy a participant's tax withholding +obligations with respect to any award granted under the Equity Plan. This modification of the share counting provisions resulting from amendments to the Equity Plan in 2008 to eliminate share +recycling on a prospective basis was a factor in the Board of Director's determination that a 2,500,000 share increase in the number of shares authorized for grant under the Equity Plan is appropriate +and in the best interests of St. Mary. +The +increase in the authorized shares submitted for stockholder approval is intended to ensure that St. Mary has a sufficient number of shares of common stock available under the +Equity Plan to continue issuing incentive compensation awards in the form of the currently planned PSAs for the next year. +LTIP/PSA Framework +As discussed above, St. Mary has replaced the creation of NPP pools and grants of RSUs under the Equity Plan with grants of PSAs +under the Equity Plan in accordance with St. Mary's new LTIP. All employees that were eligible to receive RSUs or to participate in the NPP on the date of issuance are eligible to receive PSAs, +including the named executive officers. Individual PSAs may vary depending on the circumstances, and are governed by award agreements between St. Mary and each PSA recipient +10 +Table of Contents +and +the terms and conditions of the Equity Plan. PSAs are also used for a small discretionary pool to recognize certain select employees that are not participants in St. Mary's LTIP. For a +further discussion, please see "COMPENSATION DISCUSSION AND ANALYSIS— The Specific Elements of Compensation and How We Administer Them. " +All +annual PSA grants under the LTIP are currently planned to be made with respect to LTIP plan performance years beginning on July 1 st of each LTIP plan year +(each, a "PSA Year"). The first PSA Year began on July 1, 2008. For the 2008 PSA Year, St. Mary's Board of Directors established an initial total pool value to be distributed to eligible +participants and a grant date of August 1, 2008 for the PSAs, based on recommendations from the Compensation Committee. In determining the initial total pool value, St. Mary considered, +among other factors, the fair value transfer ("FVT") of St. Mary's long term incentive compensation system compared to peer companies. FVT is defined as the percentage of a company's market +capitalization that is potentially transferred to employees annually in the form of stock based awards and other forms of ownership in a company. After the total pool value for the PSA Year was +determined, the pool value was converted into PSAs by dividing the total pool value by the average closing price per share of St. Mary common stock for a period of 20 trading days before the +grant date. For each PSA Year in which awards are granted, the performance period for measuring St. Mary's performance will begin on July 1 of that year and end on June 30 of the +third year following the grant date. The performance share allocation will be performed and awards of current PSA Year awards and settlement of previously awarded PSAs will occur shortly after the +measurement period is concluded. +Under +the LTIP, there will be two determinations that will affect the number of shares of common stock that will actually be issued to employees in settlement of the PSAs. The first is a +time vesting element and the second is a performance measure, which is measured only after the completion of the measurement period. +PSAs +under the LTIP currently vest over a three year period, with 1/7 th vesting on the first anniversary of the grant date, 2/7 th vesting on the +second anniversary of the grant date, and 4/7 th vesting on the third anniversary of the grant date. After the end of the three year performance period, the final multiplier for +the respective PSA Year will be determined and applied to each participant's vested PSAs. The +vested PSAs will then be settled in shares of St. Mary's common stock, and such shares will not be subject to any holding restrictions after settlement. If a participant terminates employment +at any time during the vesting period, such participant will forfeit the remaining unvested performance shares awarded, except under certain circumstances involving retirement, death, disability, or a +change of control that includes a termination or substantial change in such participant's employment with St. Mary, all as described in the Equity Plan and such participant's award agreement. +Participants may be allowed to net share settle for the payment of income taxes associated with the settlement of the award. +To +the extent vested, the number of shares of St. Mary's common stock issued will vary from zero to two times the initial number of PSAs awarded, depending on St. Mary's +business performance during the three year performance period. A key metric for measuring St. Mary's performance in connection with determining the value of PSAs will be based on the absolute +measure of St. Mary's TSR and the relative measure of St. Mary's TSR against the TSR of pre-selected peer companies. The Compensation Committee will create, review, and +approve annually, a performance share multiplier matrix for each PSA Year, which describes the relationship between St. Mary's TSR and its TSR compared to peer companies and includes the final +share multiplier for each PSA Year. +For +the comparison of St. Mary's TSR with its peer companies with respect to PSAs granted for the 2008 PSA Year, St. Mary is using a custom index consisting of the +constituents of the Oil & Gas Exploration & Production GIC Sub-Industry Group in the S&P SmallCap 600 Index and the S&P MidCap 400 Index, excluding St. Mary. The +custom index is equal weighted, and is adjusted to include +11 +Table of Contents +the +dividend payments of the constituents of the custom index. The custom index is rebalanced on a quarterly basis, and is also rebalanced whenever there are additions and deletions to the S&P +SmallCap 600 and the S&P MidCap 400 indices. Currently, the constituent companies in this custom index are: Petroquest Energy Inc., Stone Energy Corporation, Mariner Energy Inc., +Quicksilver Resources Inc., Swift Energy Company, Denbury Resources Inc., Forest Oil Corp., Encore Acquisition Company, Newfield Exploration Company, Cimarex Energy Company, Petroleum +Development Company, Plains Exploration & Production Company, and Penn Virginia Corporation. +St. Mary's +Board of Directors believes that grants of PSAs pursuant to the LTIP under the Equity Plan are in the best interests of St. Mary and will further encourage +employees' interests to align with the long term interests of St. Mary's stockholders. +Reasons for Stockholder Approval of 2009 Amendments +Under applicable NYSE rules, St. Mary must obtain stockholder approval of the 2009 Amendments to the Equity Plan. In addition, +stockholder approval of the 2009 Amendments is necessary to allow St. Mary to ensure that compensation paid under the Equity Plan can be eligible for the "performance based compensation" +exemption from the limits on tax deductibility imposed by Section 162(m) of the IRC and to permit St. Mary to issue ISOs in accordance with Section 422 of the IRC. +Summary of the Equity Plan +The following is a summary of the principal features of the Equity Plan, which reflects the 2009 Amendments. The summary is qualified +in its entirety by reference to the complete text of the Equity Plan document, as amended and restated, a copy of which is attached to this proxy statement as Annex A. In addition, +St. Mary will furnish a copy of the Equity Plan document to any stockholder upon written request to the Secretary. The manner in which we expect the plan will operate is described above. The +following summary describes the more broad underlying provisions of the plan. +Types of Awards +The Equity Plan permits the grant of restricted stock, RSUs, NSOs, ISOs, SARs, performance shares, performance units, and stock based +awards. +Administration +The Compensation Committee of the Board of Directors of St. Mary, or any other duly authorized committee of the Board of +Directors appointed by the Board of Directors, is responsible for administering the Equity Plan. The committee that administers the Equity Plan, referred to as the committee, shall be comprised of two +or more members of the Board of Directors of St. Mary, and each member of the committee shall be a "non-employee director" as such term is defined in +Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of +1934, as amended, an "outside director" within the meaning of the regulations promulgated under Section 162(m) of the IRC and an "independent director" for purposes of the rules and regulations +of the NYSE. Subject to the provisions of the Equity Plan, the committee shall have complete discretion in determining the nature, terms, conditions, and amounts of awards granted under the Equity +Plan. In making such determinations, the committee may take into account the nature of services rendered by such employees, consultants, and members of the Board of Directors, their present and +potential contributions to St. Mary, and such other factors as the committee in its discretion shall deem relevant. +12 +Table of Contents +Shares Subject to the Equity Plan and Maximum Awards +Subject to adjustment as described below, after the approval of the 2009 Amendments the total number of shares of the Company's common +stock made available and reserved for issuance will be increased from 3,500,000 shares to 6,000,000 shares, plus any remaining shares available for issuance under the Predecessor Plans as provided in +the Equity Plan document. Any shares issued in connection with an option or SAR will be counted against the total share authorization limit as one share for every one share issued. Any shares issued +in connection with an award other than an option or SAR will be counted against the total share authorization limit as 1.43 shares for every one share issued. The maximum total number of shares that +may be issued through NSOs is equal to the total share authorization. The maximum total number of shares that may be issued through ISOs is 3,500,000. +Any +awards that are not settled in shares will not be counted against the total share authorization limit. Any shares related to awards (or after May 17, 2006, awards granted or +issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, (ii) are settled in cash either in lieu +of shares or otherwise, or (iii) are exchanged with the committee's approval for awards not involving shares, will be available again for issuance under the Plan. Unless and until the committee +determines that an award is not designed to qualify as +performance based compensation under Section 162(m) of the IRC, the following limits apply to grants of awards to covered employees under Section 162(m): +• Restricted Stock/RSUs. The maximum total number of shares +that may be granted in the form of restricted stock/RSUs in any one fiscal year to any one Participant is 100,000. +• Options and SARS. The maximum total number of shares that +may be granted in the form of options or SARs in any one fiscal year to any one participant is 200,000. +• Performance Shares/Performance Units. The maximum total +award of performance shares or performance units that a participant may receive in any one fiscal year is 200,000 shares, and the maximum value of performance units that a participant may receive with +respect to awards in any one fiscal year is a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +• Stock Based Awards. The maximum total grant with respect +to stock based awards in any one fiscal year to any one participant is 200,000. +The +Equity Plan provides for appropriate adjustments to the number of shares available for awards in the event of a merger, consolidation, reorganization, recapitalization, separation, +stock dividend, extraordinary or special dividend, stock split, reverse stock split, or similar event or transaction involving the Company. +Eligibility and Participation +All current employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of St. Mary are +eligible to participate in the Equity Plan and be granted awards under the Equity Plan. Subject to the provisions of the Equity Plan, the committee may from time to time, in its sole discretion, +select from among eligible employees, consultants, and +members of the Board of Directors of St. Mary and of any affiliate of St. Mary those to whom awards shall be granted under the Equity Plan and shall determine in its discretion the +nature, terms, conditions, and amount of each award. +Duration +Subject to the right of the committee or the Board of Directors to amend or terminate the Equity Plan at any time, the Equity Plan +shall remain in effect, until the earlier of the tenth anniversary of the +13 +Table of Contents +effective +date of the Equity Plan, which occurred on May 17, 2006, or when all shares of common stock subject to the Equity Plan have been purchased or acquired according to the Equity Plan's +provisions. Any previously granted awards under the Equity Plan that remain outstanding as of the date of expiration or other termination of the Equity Plan shall not be affected by such expiration or +other termination and shall continue in effect in accordance with their respective terms. +Restricted Stock and RSU Awards +Restricted Stock Awards. Restricted stock may be issued for services rendered with any or no additional purchase price as shall be +determined by the committee in its discretion and may be subject to certain restrictions and to a risk of forfeiture as set forth in the award agreement. A participant to whom shares of restricted +stock are granted shall, upon issuance of a stock certificate for the shares issued, have all of the rights of ownership with respect to the shares subject to such restricted stock award, including +the right to vote the same and receive any dividends paid thereon; subject however, to the terms, conditions, and restrictions contained in the Equity Plan and in the applicable award agreement. +Restricted +Stock Unit Awards. Each RSU awarded shall represent a right for one share of common stock to be delivered upon settlement of the award, which right shall be subject to a risk +of forfeiture and cancellation and to the other terms and conditions set forth in the Equity Plan and the award agreement. An RSU award agreement may provide for cancellation of RSUs upon termination +of the participant's employment or other relationship with St. Mary or nonperformance of specified performance goals or measures established by the committee. An RSU award agreement may also +provide for vesting periods that require the passage of time and/or the occurrence of events in order for the RSUs to vest and become no longer subject to cancellation. RSUs shall not be credited with +dividend equivalents unless specifically provided for in the applicable award agreement, and then only +upon such terms and conditions as set forth in such award agreement. The committee, in its discretion, is free to specify terms and conditions other than those described above. +Settlement +of a RSU award shall be made in accordance with the terms and conditions of the applicable award agreement. A RSU award agreement may provide that settlement may be made +solely through the issuance of shares of common stock or at the mutual election of the participant and St. Mary, in a combination of shares of common stock and cash. Upon the settlement of a +RSU award, St. Mary shall deliver to the participant a certificate for the number of shares of common stock issued to the participant in settlement of the award. +Stock Options +Subject to the terms and provisions of the Equity Plan, ISOs and NSOs may be granted to participants in such number, upon such terms, +and at such times as shall be determined by the committee. Notwithstanding the foregoing, no ISOs may be granted more than ten years after March 23, 2006. Each stock option granted to a +participant shall expire at such time as the committee shall determine at the time of grant; provided however, no stock option shall be exercisable later than the tenth anniversary date of its grant. +Stock options granted under the Equity Plan shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions as the committee shall in each +instance approve, which need not be the same for each grant or for each participant. +The +stock option price for each grant of a stock option shall be determined by the committee and shall be specified in the award agreement. The stock option price may include a stock +option price based on 100 percent of the fair market value of the shares of common stock on the date of grant, a stock option price that is set at a premium to the fair market value of the +shares of common stock on the date of grant, or a stock option price that is indexed to the fair market value of the shares of +14 +Table of Contents +common +stock on the date of grant, with the index determined by the committee in its discretion. The stock option price for each stock option grant, whether issued as an ISO or an NSO, shall be not +less than 100 percent of the fair market value of the underlying shares of common stock on the date of grant. Dividend equivalents are not permitted for stock options. +SARs +Subject to the terms and conditions of the Equity Plan, SARs may be granted to participants at any time and from time to time and upon +such terms as shall be determined by the committee in its discretion. The committee may grant freestanding SARs, tandem SARs, or any combination of these forms of SARs. The grant price for each grant +of a freestanding SAR shall be determined by the committee and shall be specified in the award agreement. The SAR grant price may include a grant price based on 100 percent of the fair market +value of the underlying share on the date of grant or a grant price that is set at a premium to the fair market value of the underlying share on the date of grant. The SAR grant price shall not be +less than the fair market value of the underlying share on the date of grant. The grant price of the tandem SARs shall be equal to the option price of the related option. A tandem SAR means a SAR that +the committee specifies is granted in connection with a related stock option pursuant to the Equity Plan, the exercise of which shall require forfeiture of the right to purchase a share of common +stock under the related stock option (and when a share of common stock is purchased under the stock option, the tandem SAR shall similarly be cancelled) or a SAR that is granted in tandem with a stock +option but the exercise of such option does not cancel the SAR, but rather results in the exercise of the related SAR. Regardless of whether a stock option is granted coincident with a SAR, a SAR is +not a tandem SAR unless so specified by the committee at time of grant. Dividend equivalents are not permitted for SARs. +Performance Shares and Performance Units +Subject to the terms and conditions of the Equity Plan, performance shares and performance units may be granted at any time and from +time to time as shall be determined by the committee in its discretion. Each performance share and performance unit shall have an initial value established by the committee at the time of the grant. +The committee shall in its discretion set performance criteria for a performance period that shall not be shorter than 12 months, which, depending on the extent to which the performance +criteria are met, will determine, in the manner established by the committee and set forth in the applicable award agreement, the value and/or amount of each performance share or performance unit that +will be paid to a participant. +Subject +to the Equity Plan and the applicable award agreement, after the applicable performance period has ended, the holder of performance shares or performance units shall be entitled +to receive, to the extent that the performance shares or performance units have vested, if applicable, a payout of the value or amount of performance shares or performance units, determined as a +function of the extent to which the corresponding performance criteria have been achieved. The committee in its discretion may require a participant to hold the shares or other property received +pursuant to such an award for a specified period of time. Payment of earned performance shares and performance units shall be made in accordance with the terms and conditions of the applicable award +agreement. A performance share or performance unit award agreement may provide that payment may be made, to the extent that the performance share or performance unit has vested and the performance +criteria are met, solely through the issuance of shares earned upon the expiration of the applicable performance +period. The participant may elect to satisfy the participant's tax withholding obligation with respect to the award by having St. Mary withhold shares or other property or by the participant +surrendering shares or other property to the Company with a fair market value on or near the tax withholding date equal to the tax withholding obligation. +15 +Table of Contents +Dividends +and other distributions declared by St. Mary's Board of Directors and paid with respect to outstanding shares shall only be paid with respect to performance share and +performance unit awards for shares that have been issued by St. Mary in payment of such awards to the extent that the awards have vested and upon the expiration of the applicable performance +periods for the awards. Performance shares and performance units shall not be credited with dividend equivalents unless specifically provided for in the applicable award agreement and then only upon +such terms and conditions as set forth in such award agreement. +Stock Based Awards +Subject to the terms and provisions of the Equity Plan, the committee, at any time and from time and time, may grant other types of +equity based or equity related awards not otherwise described by the terms of the Equity Plan (including the grant or offer for sale of unrestricted shares of common stock) in such amounts and subject +to such terms and conditions including, but not limited to, being subject to performance criteria or in satisfaction of such obligations. Such awards may entail the transfer of actual shares of common +stock to participants or payment in cash or otherwise of amounts based on the value of shares of common stock. +Performance Measures +Notwithstanding any other terms of the Equity Plan, the vesting, monetization, or value (as determined by the committee) of each award +other than a stock option or SAR that, at the time of grant, the committee intends to be performance based compensation to a covered employee shall be determined by the attainment of one or more +performance goals as determined by the committee in conformity with Section 162(m) of the IRC. The committee shall specify in writing, by resolution or otherwise, the participants eligible to +receive such an award (which may be expressed in terms of a class of individuals) and the performance goal(s) applicable to such awards within ninety (90) days after the commencement of the +period to which the performance goal(s) +relate(s) or such earlier time as required to comply with Section 162(m) of the IRC. No such award shall be payable unless the committee certifies in writing, by resolution or otherwise, that +the performance goal(s) applicable to the award were satisfied. In no case may the committee increase the value of an award of performance based compensation above the maximum value determined under +the performance formula by the attainment of the applicable performance goal(s), but the committee retains the discretion to reduce the value below such maximum. A general description of performance +measures on which performance goals will be based is contained in the Equity Plan document attached to this proxy statement as Annex A. +Tax Matters +The following is a brief summary of advice received from counsel to St. Mary regarding the principle United States federal +income tax consequences of benefits under the Equity Plan under present laws and regulations: +ISOs. The grant of an ISO will not result in any immediate tax consequences to St. Mary or the optionee. An optionee will not +recognize +taxable income and St. Mary will not be entitled to any deduction upon the timely exercise of an ISO, but the excess of the fair market value of the shares of common stock acquired over the +stock option price will be an item of tax preference for purposes of the alternative minimum tax. If the optionee does not dispose of the shares of common stock acquired within one year after their +receipt (and within two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares of common stock will be treated as long term capital gain or loss. +Capital losses of individuals are deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize ordinary taxable +income in an amount equal to the lesser of (i) the excess of the fair market value of the shares +16 +Table of Contents +of +common stock on the date of exercise over the option price, or (ii) if the disposition is a taxable sale or exchange, the amount of any gain recognized. Upon such a disqualifying +disposition, St. Mary will be entitled to a deduction in the same amount and at the same time as the optionee recognizes such ordinary taxable income. +NSOs. The grant of a NSO will not result in any immediate tax consequences to St. Mary or the optionee. Upon the exercise of a NSO, +the +optionee will recognize ordinary taxable income, and St. Mary will be entitled to a deduction, equal to the difference between the stock option price and the fair market value of the shares of +common stock acquired at the time of exercise. +SARs. The grant of either a tandem SAR or a freestanding SAR will not result in any immediate tax consequences to St. Mary or the +grantee. +Upon the exercise of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares of common stock received will constitute ordinary taxable +income to the grantee. St. Mary will be entitled to a deduction in the same amount and at the same time. +Restricted Stock. A grantee normally will not recognize taxable income upon an award of restricted stock, and St. Mary will not be +entitled to +a deduction, until the termination of the restrictions. Upon such termination, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common +stock at that time, plus the amount of any dividends and interest thereon to which the grantee then becomes entitled. However, a grantee may elect to recognize ordinary taxable income in the year the +restricted stock is awarded in an amount equal to its fair market value at that time, determined without regard to the restrictions. St. Mary will be entitled to a deduction in the same amount +and at the same time as the grantee recognizes income, subject to the limitations of Section 162(m) of the IRC. +RSUs. The grant of an RSU will not result in any immediate tax consequences to St. Mary or the grantee. Upon payment of a RSU, the +grantee +will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at that time. St. Mary will be entitled to a deduction in the +same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Performance Shares and Performance Units. The grant of a performance share or performance unit will not result in any immediate tax +consequences to +St. Mary or the grantee. Upon payment of a performance share or performance unit, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of +common stock or cash received at that time. St. Mary will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Payouts of Performance Compensation Awards. The designation of an award of restricted stock, RSUs, performance shares, or performance +units as a +performance compensation award will not change the tax treatment described above to an employee who receives such an award or grant. Such a designation will, however, enable such award or grant to +qualify as performance based compensation not subject to the $1 million limitation on deductible compensation under Section 162(m) of the IRC. Applicable taxes +required by law will be withheld from all amounts paid in satisfaction of an award. The amount of the withholding will generally be determined with reference to the closing price of the shares of +common stock as reported on the NYSE on the date of determination. +Golden Parachute Tax and Section 280G of the IRC. If an award is accelerated as a result of either (i) a change of control of +St. Mary for awards granted prior to May 21, 2008, or (ii) a change of control of St. Mary and a termination of a participant's employment with St. Mary either by +St. Mary without cause or by the participant for good reason within 30 months of the change of control for awards granted on or after May 21, 2008, all or a portion of the value +of the award at that time may be +17 +Table of Contents +a +"parachute payment" under Section 280G of the IRC for certain employees and other individuals who perform services for St. Mary. Section 280G generally provides that if +parachute payments equal or exceed three times an award holder's average W-2 compensation for the five tax years preceding the year of the change of control, St. Mary will not be +permitted to claim its deduction with respect to any "excess parachute payments" made to the individual. An "excess parachute payment" generally is the portion of a parachute payment that exceeds such +individual's historical average compensation. Section 280G of the IRC generally applies to employees or other individuals who perform services for St. Mary if within the 12 month +period preceding the change of control the individual is an officer of St. Mary, a stockholder owning more than one percent of the stock of St. Mary, or a member of the group consisting +of the lesser of the highest paid one percent of the employees of St. Mary or the highest paid 250 employees of St. Mary. A recipient of an excess parachute payment is subject to a +20 percent excise tax on such excess parachute payment under Section 4999 of the IRC. +The +discussion set forth above is intended only as a summary and does not purport to be a complete enunciation or analysis of all potential tax consequences relevant to recipients of +awards under the Equity Plan. We have not undertaken to discuss the tax treatment of awards under the Equity Plan in connection with a merger, consolidation, or similar transaction. Such treatment +will depend on the terms of the transaction and the method of dealing with the awards in connection therewith. +Change of Control +Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject to the provisions of the Equity Plan +or as otherwise provided in the award agreement, for awards granted prior to May 21, 2008, in the event of a change of control, unless otherwise specifically prohibited under law or by the +rules and regulations of a national securities exchange: +• Any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be +immediately payable; +• Any and all stock options and SARs granted shall become immediately exercisable; +• The target payout opportunities attainable under all outstanding awards of performance based restricted stock and +performance based RSUs, performance shares, and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on +targeted performance being attained as of the effective date of the change of control, and +• The vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the +change of control, and shall be paid out to participants within 30 days following the effective date of the change of control; and +• Awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of the +change of control. +• Upon a change of control, unless otherwise specifically provided in a written agreement entered into between the +participant and St. Mary or an affiliate of St. Mary, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• The committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a change of +control, and the value of such awards, as determined by the committee in accordance with the terms of the Equity Plan and the award agreement, be paid out in cash in an amount based on the change of +control price within a reasonable time subsequent to the change of control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the fair market value +on the date of settlement. +18 +Table of Contents +Accelerated +Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to the provisions of the Equity Plan or as otherwise provided in the award +agreement, for awards granted on or after May 21, 2008, and prior to change of control, in the event a change of control occurs and a participant's employment with the Company is terminated +without cause or the participant terminates his or her employment for good reason within 30 months of the change of control (a "Change of Control Termination"), unless otherwise specifically +prohibited under law or by the rules and regulations of a national securities exchange: +• Any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be +immediately payable; +• Any and all stock options and SARs granted shall become immediately exercisable; +• The target payout opportunities attainable under all outstanding awards of performance based restricted stock and +performance based RSUs, performance shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on +measured performance as of the effective date of the change of control, and +• The vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the +Change of Control Termination and shall be paid out to participants within 30 days following the effective date of the Change of Control Termination, and +• Awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of the +Change of Control Termination; +• Upon a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between +the participant and St. Mary or an affiliate of St. Mary, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• The committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a Change of +Control Termination, and the value of such awards, as determined by the committee in accordance with the terms of the Equity Plan and the award agreement, be paid out in cash in an amount determined +by the committee in accordance with the terms of the Equity Plan and the award agreement, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such +payment shall be made on account of an ISO using a value higher than the fair market value on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a change of control and a Change of Control Termination do not occur, would result in an award to a covered employee +designed to qualify as performance based compensation to not so qualify, the committee shall have the discretion to adopt for such award such provisions as shall satisfy the requirements of +Section 162(m) of the IRC. +Alternate Awards. Subject to certain conditions set forth in the Equity Plan, no cancellation, acceleration of vesting, lapsing of +restrictions, +payment of an award, cash settlement, or other payment shall occur with respect to any award if the committee reasonably determines in good faith prior to the occurrence of a change of control, that +such award shall be honored, assumed, or new rights substituted therefore by any successor, all as described in the Equity Plan. +19 +Table of Contents +Amendment, Modification, Suspension, and Termination +The committee or Board of Directors of St. Mary may, at any time and from time to time, alter, amend, modify, suspend, or +terminate the Equity Plan in whole or in part; provided however, that: +• Except in connection with a corporate transaction involving St. Mary (including, without limitation, any stock +dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split up, spin off, combination, or exchange of shares), the terms of outstanding awards +may not be amended to reduce the option price of outstanding options or the grant price of outstanding SARs or cancel outstanding options or SARs in exchange for cash, other awards or options or SARs +with an option price or grant price that is less than the option price or grant price of the original options or SARs without stockholder approval. +• No amendment or modification that would increase the total number of shares of common stock available for issuance under +the Equity Plan or the total number of shares available for ISOs under the Equity Plan shall be effective unless approved by the stockholders of St. Mary. +• To the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment +shall be effective unless approved by the stockholders of St. Mary in accordance with applicable law, regulation, or securities exchange or market requirement. +Adjustment of Awards +The committee may make appropriate proportionate adjustments or substitutions in the terms and conditions of, and the criteria included +in, awards in recognition of unusual or nonrecurring events affecting St. Mary or the financial statements of St. Mary or of changes in applicable laws, regulations, or accounting +principles, whenever the committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made +available under the Equity Plan. +Adjustments +shall be made automatically, without the necessity of committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a stock +split affected by means of a stock dividend and in the case of any other dividend paid in shares of common stock. Adjustments shall be made in the discretion of the committee with respect to other +corporate events or transactions. +Securities Registration +St. Mary has registered under the Securities Act of 1933 the issuance of previously authorized shares of common stock under the +Equity Plan, and plans to register the issuance of the additional shares under the 2009 Amendments if approved by the stockholders. Accordingly, participants will be able to sell shares issued under +the Equity Plan once any vesting and holding periods are satisfied, subject to other requirements of the Securities Act of 1933. +New Plan Benefits Table +St. Mary cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our +executive officers, employees or directors under the Equity Plan. Such awards will be subject to limits as set forth in Section 4.1 of the Equity Plan document attached to this proxy statement +as Annex A. +20 +Table of Contents +The following table sets forth information as of December 31, 2008, with respect to awards granted in 2008 related to 2008 and subsequent performance under +the Equity Plan to each of St. Mary's named executive officers, executive officers as a group, and all employees and consultants (excluding named executive officers and executive officers) as a +group as well as stock granted in 2008 to non-executive directors as a group related to the service period from May 21, 2008, through May 20, 2009. +Equity Incentive Compensation Plan +Name and Position +Market +Value of +Shares or +Units +Number of +Restricted +Stock +Units +Issued +Number of +Performance +Share +Awards +Issued +Number of +Shares +of Stock +Issued +Anthony J. Best +$ +2,027,711 +15,528 +23,359 +1,250 +President, Chief Executive Officer and Director +A. Wade Pursell +$ +600,005 +15,496 +— +— +Executive Vice President and Chief Financial Officer(1) +Mark T. Solomon +$ +283,524 +2,124 +3,392 +— +Controller and Former Acting Principal Financial Officer(2) +David W. Honeyfield +$ +— +— +— +— +former Senior Vice President—Chief Financial Officer and Secretary(3) +Milam Randolph Pharo +$ +437,180 +3,376 +5,079 +— +Senior Vice President and General Counsel +Garry A. Wilkening, +$ +— +— +— +— +Former Vice President—Human Resources and Administration(4) +Paul M. Veatch, +$ +516,776 +3,629 +6,546 +— +Vice President—Senior Vice President and Regional Manager +David J. Whitcomb, +$ +317,510 +2,401 +3,765 +— +Vice President—Marketing +Executive Officers as a Group, as of December 31, 2008 (14 persons) +$ +7,813,964 +69,556 +85,886 +1,250 +Non-Executive Directors as a Group, as of December 31, 2008 (eight persons) +$ +1,016,909 +— +— +23,113 +All Employees and Consultants (excluding named executive officers and other executive officers) as a Group, as of December 31, 2008 (268 persons) +$ +30,035,252 +211,313 +379,865 +— +(1) Mr. Pursell +was appointed as Executive Vice President and Chief Financial Officer effective September 8, 2008. +(2) Mr. Solomon +served as Acting Principal Financial Officer from April 30, 2008 to September 8, 2008. +(3) Mr. Honeyfield +resigned from his position as Senior Vice President—Chief Financial Officer and Secretary of St. Mary effective +March 21, 2008. +(4) Mr. Wilkening +resigned from his position as Vice President—Human Resources and Administration effective July 1, 2008. +21 +Table of Contents +Disclosure with Respect to Equity Compensation Plans +For a table providing information as of December 31, 2008, concerning equity awards granted under St. Mary's Equity Plan +and Employee Stock Purchase Plan ("ESPP"), please see the "Equity Compensation Plans" section of this proxy statement. +Recommendation of the Board of Directors +Since the Board of Directors believes that the 2009 Amendments to the Equity Plan will help attract, retain, and further motivate +employees, consultants, and directors and enhance stockholder value, the Board of Directors recommends voting "FOR" the approval of the 2009 Amendments to the Equity Plan. +Ratification of the Appointment by the Audit Committee of Deloitte & Touche LLP as the Company's Independent Registered Public Accounting Firm for 2009 +St. Mary's stockholders are being asked to ratify the appointment by the Audit Committee of Deloitte & Touche LLP +as the Company's independent registered public accounting firm for 2009. Deloitte & Touche has served as the Company's independent registered public accounting firm since 2001, and the Audit +Committee plans to engage Deloitte & Touche to perform the audit of St. Mary's financial statements as of and for the year ending December 31, 2009. +The +Audit Committee is solely responsible for selecting the Company's independent auditors. Although stockholder ratification of the appointment of Deloitte & Touche is not +required by law or the Company's organizational documents, the Board of Directors has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view +of the critical role played by independent registered public accounting firms in maintaining the integrity of financial controls and reporting. If the stockholders do not ratify the appointment of +Deloitte & Touche, the Audit Committee will consider whether to engage another independent registered public accounting firm. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" the ratification of the appointment by the Audit Committee of Deloitte & Touche +as the Company's independent registered public accounting firm for 2009. +CORPORATE GOVERNANCE +Board of Directors +The Board of Directors is comprised of a majority of independent directors. The Board of Directors has determined that the following +directors are independent and do not have any material relationship with the Company other than as a director and stockholder of the Company: Barbara M. Baumann, Larry W. Bickle, William J. Gardiner, +Julio M. Quintana, John M. Seidl, and William D. Sullivan. In its conclusions as to the independence of these directors, the Board of Directors considered past employment, remuneration, and any +relationship with the Company. In making its determination as to the independence of its members, the Board considered the independence tests described in Section 303A.02 of the Corporate +Governance Standards of the NYSE's Listed Company Manual. In making its determination as to the independence of Barbara M. Baumann, the Board considered the following relationship in addition to those +described above: (1) Ms. Baumann is the wife of Frederick Baumann, a partner in the law firm of Rothgerber Johnson & Lyons LLP ("RJ&L"); (2) RJ&L +provides legal services to St. Mary on a limited basis; (3) these services pertain to real estate matters, primarily in the area of office leases; (4) Mr. Baumann does not +provide any of such services; and +22 +Table of Contents +(5) in +2008, the fees billed by RJ&L to St. Mary were approximately $23,000 . The Board has determined that Ms. Baumann's relationship to RJ&L does not impair her independence. +The +Audit Committee, the Compensation Committee, and the NCG Committee are each comprised solely of independent directors. The written charters for all three independent committees are +available on the Company's website at www.stmaryland.com. Also available on the website are the Company's Corporate Governance Guidelines, Code of +Business Conduct and Ethics, and Executive Committee Charter. The committee charters, the Corporate Governance Guidelines, and the Code of Business Conduct and Ethics, which applies to all employees, +officers, and members of the Board of Directors of the Company, will be furnished in print to any stockholder who requests them. +Presiding Director at the Nonmanagement Directors' Executive Sessions +All independent directors meet in executive session immediately before each regularly scheduled meeting of the Board of Directors or as +deemed necessary. Mr. Seidl has presided at these executive sessions. +Communication with the Directors of the Company +The Board of Directors welcomes questions or comments about the Company and its operations. Those interested may contact the Board of +Directors as a whole, non-management directors, or any one or more specified individual directors by sending a letter to the intended recipients' attention in care of St. Mary +Land & Exploration Company, Corporate Secretary, 1776 Lincoln Street, Suite 700, Denver, CO 80203. All such communications other than commercial advertisements will be forwarded to the +appropriate director or directors for review. +BOARD AND COMMITTEE MEETINGS +The full Board of Directors met 11 times during 2008. Each director participated in at least ten of the Board meetings and at least +89 percent of the committee meetings held during the director's tenure on the Board and its committees with the exception of the NCG Committee meetings. The NCG Committee met two times during +2008. Mr. Seidl recused himself from one meeting to avoid a conflict of interest, and Mr. Sullivan was not able to attend one of the meetings. +It +is the Company's policy that each director is expected to attend the Annual Meeting of Stockholders. Each director attended the 2008 Annual Meeting of Stockholders. +The +Board has an Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee, and an Executive Committee. The Audit Committee, the Nominating and Corporate +Governance Committee, and the Compensation Committee are each comprised solely of independent directors. +Each +of the committees and the entire Board separately evaluated their respective performance for the year 2008. The performance evaluation process was supervised by and reviewed by the +NCG Committee and discussed amongst and approved by the full Board. +23 +Table of Contents +The +following table sets forth the members of each committee, as of December 31, 2008, and the number of meetings held in 2008. +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X* +X +Larry W. Bickle +X +X +Anthony J. Best +X +William J. Gardiner +X* +X +Mark A. Hellerstein +X* +Julio M. Quintana +X +John M. Seidl +X +X* +William D. Sullivan +X +X +Number of Meetings in 2008 +9 +2 +7 +2 +* Chairperson +The +Audit Committee assists the Board in fulfilling its oversight responsibilities for the Company's financial reporting by the Company. Audit Committee members are prohibited from +serving on more than three audit committees of public companies. The Audit Committee is solely responsible for the engagement and discharge of independent auditors and reviews the quarterly and annual +financial results. The Audit Committee reviews the audit plan and the results of the audit with the independent auditors and reviews the independence of the auditors, the range of audit fees, the +scope and adequacy of St. Mary's system of internal accounting controls, and the Company's risk management policies. The Audit Committee also has oversight responsibility for the internal audit +function of the Company. The Audit Committee is currently composed of three directors, each of whom is independent as defined by the NYSE listing standards. See the Audit Committee Report contained in +this proxy statement. While all of the Audit Committee members are considered financially literate, the Board of Directors has determined that two of the three members of the current Audit Committee, +William J. Gardiner and John M. Seidl, are audit committee financial experts as the term is defined by the SEC. +The +NCG Committee's primary function is to nominate the individuals to be elected to the Board of Directors and to oversee all corporate governance policies of the Board of Directors. +For additional information on the functions performed by the NCG Committee, see the "Election of Directors" section of this proxy statement. +The +Compensation Committee's primary function is to oversee the administration of the Company's employee benefit plans and to establish the Company's compensation policies. The +Compensation Committee recommends to the Board the compensation arrangements for senior management and directors, adoption of compensation plans in which officers and directors are eligible to +participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" describes these responsibilities and the manner in +which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board of Directors and the Company with respect to matters as to which it has been authorized to act by the Board of +Directors, provided that such matters are not in conflict with the Certificate of Incorporation or By-Laws of the Company or applicable laws, regulations, or rules or the listing standards +of the NYSE. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +24 +Table of Contents +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on the Board of Directors or any committee. +The +fiscal service period for directors is the period from one annual meeting to the next. For the last fiscal year the period was from May 22, 2008, through May 20, 2009. +For this period, target base compensation for each member of the Board of Directors was set at $160,000 annually, plus committee and attendance fees. Primary director compensation is in the form of +stock grants. +The +stock compensation for non-employee directors is as follows: +• Stock with a market value on the date of director election of $160,000, which resulted in a grant to each +non-employee director elected by the stockholders on May 21, 2008, of 3,134 shares of St. Mary common stock. These shares were issued under the Equity Plan. The shares are +generally considered to be earned over the director's annual service period. However, shares issued to a director who thereafter resigns from the Board before completing the annual service period but +after completing at least five years of service to the Company are treated as fully vested. All shares carry a transfer restriction imposed by St. Mary which expires two years after the date of +issuance of the shares. The compensation expense recorded in the Company's financial statements is the fair value of the share grant as calculated under the valuation provisions required by Statement +of Financial Accounting Standards No. 123(R)—"Share Based Payment" ("SFAS No. 123(R)"). +The +cash component of the director compensation for non-employee directors is as follows: +• Payment of $750 for each Board meeting attended. +• Payment of $600 for each committee meeting attended in person and $375 for each telephonic committee meeting. +• Reimbursement for expenses incurred in attending Board and committee meetings. +The +committee chairs receive the following cash payments in recognition of the additional workload of their respective committee assignments. These amounts are paid concurrent with the +beginning of the annual service period. +• Audit Committee—$15,000 +• Compensation Committee—$10,000 +• Nominating and Corporate Governance Committee—$5,000 +Mr. Hellerstein +was paid a retainer for his service as Non-Executive Chairman of the Board of $60,000 for the 2008-2009 director service period. The +retainer was paid in the form of stock on May 21, 2008, which resulted in a grant of 1,175 shares of St. Mary common stock. The retainer was supplemental to his basic +non-employee director compensation. +The +directors are eligible to participate in St. Mary's health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with the Company's plan. The ability to participate in this plan is considered non-compensatory. +The +following table sets forth the annual and long term compensation received during 2008 by the non-employee directors of St. Mary. The amounts presented represent +the fair value of compensation expense that has been recorded by the Company in 2008. The stock based component of the compensation has been recorded based on the valuation provisions required by SFAS +No. 123(R). Cash based compensation is recorded based on the monetary amount paid to the individual director. +25 +Table of Contents +2008 DIRECTOR COMPENSATION +Name +Fees Earned +or Paid in +Cash +($) +Stock +Awards(1)(2)(3) +($) +Option +Awards(4) +($) +Non-Equity +Incentive Plan +Compensation +($) +Change In +Pension Value +and Non-Qualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($) +Total +($) +Barbara M. Baumann +$ +24,325 +$ +135,032 +$ +— +$ +— +$ +— +$ +— +$ +159,357 +Larry W. Bickle +$ +12,975 +$ +135,032 +$ +— +$ +— +$ +— +$ +— +$ +148,007 +William J. Gardiner +$ +28,500 +$ +135,032 +$ +— +$ +— +$ +— +$ +— +$ +163,532 +Mark A. Hellerstein(5) +$ +9,600 +$ +215,504 +$ +— +$ +— +$ +— +$ +— +$ +225,104 +Julio M. Quintana +$ +12,525 +$ +142,656 +$ +— +$ +— +$ +— +$ +— +$ +155,181 +John M. Seidl +$ +17,750 +$ +135,032 +$ +— +$ +— +$ +— +$ +— +$ +152,782 +William D. Sullivan +$ +12,225 +$ +142,656 +$ +— +$ +— +$ +— +$ +— +$ +154,881 +(1) Each +of the non-employee directors was issued 3,134 shares of St. Mary common stock upon such director's election to the Board on +May 21, 2008. Mr. Hellerstein was issued an additional 1,175 shares of St. Mary common stock on May 21, 2008, for serving as the Non-Executive Chairman of the +Board. These stock awards are for the period from May 22, 2008, through May 20, 2009. The shares are generally considered to be earned over the director's annual service period and fully +vested on May 20, 2009. The shares also carry a transfer restriction imposed by St. Mary which expires two years after the date of issuance of the shares. The value of the stock awards +represents the amount of compensation expense recognized in the Company's financial statements for 2008, based on the fair value of the stock awards. A discussion of the assumptions made in +determining the fair value of these awards under SFAS No. 123(R) may be found in Note 1 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on +Form 10-K for the fiscal year ended December 31, 2008. A director's stock awards become fully vested upon resignation if the director has served as a member of the Board for +at least five years prior to the date of resignation. Under SFAS No. 123(R), a stock award is considered vested for expense attribution purposes when a director's retention of the award is no +longer contingent on providing subsequent service. Consequently, St. Mary recognizes full compensation expense on the grant date for awards granted to directors with at least five years of +Board service. For directors with less than five years of Board service, St. Mary recognizes compensation expense spread over the period from the grant date until the earlier of the +five-year Board service date or the completion of the annual service period to which the award relates. In 2008, all of the non-employee directors, except +Messrs. Quintana and Sullivan, had at least five years of Board service. +(2) The +grant date fair value of each share expensed during fiscal 2008 is set forth in the following table and is computed in accordance with SFAS +No. 123(R), based on the closing stock price on the grant date. There were no forfeitures by the directors during fiscal 2008. +Grant Date +Shares +Value +Directors Who Received +5/22/08 +3,134 +$ +135,032 +Baumann, Bickle, Gardiner, Seidl +5/22/08 +4,309 +$ +194,237 +Hellerstein +5/22/08 +3,134 +$ +141,272 +Quintana, Sullivan +5/16/07 +4,382 +$ +144,964 +Baumann, Bickle, Gardiner, Seidl, Quintana, and Sullivan +7/02/07 +6,212 +$ +207,033 +Hellerstein +(3) As +of December 31, 2008, the non-employee directors held the following number of stock awards (which consist of unvested stock and RSUs): +Ms. Baumann—3,918, Mr. Bickle—3,918, Mr. Gardiner—3,918, Mr. Hellerstein—4,309, Mr. Quintana—3,134, +Mr. Seidl—3,918, and Mr. Sullivan—3,918. RSUs are not credited with dividend equivalents and do not pay or accrue dividends until such time as the underlying +shares are issued. +(4) For +the year ended December 31, 2008, no stock options have been issued to directors nor have any stock options been issued to the directors since +December 2004. As of December 31, 2008, the non-employee directors held the following number of stock options: Ms. Baumann—47,666, +Mr. Bickle—48,566, Mr. Gardiner—47,670 and Mr. Sullivan—9,772. All such options are exercisable. Mr. Hellerstein, Mr. Quintana, +and Mr. Seidl do not hold any outstanding stock options. The options described above are cumulative unexercised options granted to the directors over their years of service to the Company. +(5) Mr. Hellerstein's +total does not include $6,172,098 paid to him in 2008 for vested participation interests under the NPP as a result of his prior +service as an executive officer of the Company before his retirement as Chief Executive Officer on February 23, 2007. For additional information about the NPP payments to +Mr. Hellerstein, see "Certain Relationships and Related Transactions." It also does not include $6,719 and $1,100 in office lease costs and parking space rental, respectively, paid by the +Company for Mr. Hellerstein's use during the transition period following his retirement. Payment of these office lease and parking expenses ceased on May 31, 2008. +26 +Table of Contents +OTHER REPORTABLE ITEMS RELATED TO PAYMENTS MADE BY THE +COMPANY ASSOCIATED WITH SERVICE OF A DIRECTOR +There are no other reportable items related to payments made by the Company associated with service of a director. +COMPENSATION DISCUSSION AND ANALYSIS +Authority and framework for the Compensation Committee. +Executive compensation at St. Mary is determined by the Compensation Committee of the Board of Directors. The Compensation +Committee is comprised of three independent directors and operates under the framework of a formal charter. This charter is available for review on the St. Mary website. Members of the +Compensation Committee are appointed by the Board of Directors for, among other things, the purposes of: +• Overseeing the administration of the Company's employee compensation and benefit plans; +• Establishing the Company's compensation policies; +• Reviewing and approving the Company's general compensation strategy and objectives; +• Annually reviewing the performance and compensation of the Chief Executive Officer; +• Reviewing and approving recommendations to the Board for base compensation for the executive officers of the Company; and +• Reviewing and approving recommendations for employee's annual cash bonus and stock compensation awards. +The +Compensation Committee has authority to retain, at the Company's expense, consultants, advisors, and counsel as deemed appropriate in its sole discretion, to fulfill its +responsibilities and duties. The Compensation Committee has sole authority to retain and terminate any compensation consultant to be +used in the evaluation of chief executive officer or senior executive compensation and has the sole authority to approve the consultant's fees and other retention terms for such services. The +Compensation Committee also has the authority to obtain advice and assistance from internal or external legal, accounting, or other advisors as it deems necessary. +Objectives of the Company's Compensation Programs. +The Company designs its compensation programs with the objectives of attracting, retaining, and motivating talented management and +staff personnel at a reasonable cost and in a manner that aligns employee performance incentives with the long-term interests of stockholders. The Compensation Committee believes it has +structured the compensation plans to encourage management to obtain superior returns for St. Mary's stockholders and to promote the preservation and growth of the Company's income-producing oil +and natural gas assets. The majority of the value in the executive compensation plan design is incentive based and is driven by metrics that contribute to net asset value per share growth, which the +Compensation Committee believes relates directly to stockholder returns. +St. Mary's +compensation framework is designed to take into consideration certain performance factors, and based upon these factors, reward behavior that achieves the Company's +objectives stated above and that ultimately increases share value. These individual performance factors for executive officers include: +• The executive's contributions to the development and execution of the Company's business plan and strategies; +• The performance of the executive's department or region; +27 +Table of Contents +• Operational performance with respect to production, reserves, operating and finding costs, drilling results, +environmental, health and safety, as well as asset and resource play acquisitions; +• Financial performance with respect to cash flows, net income, cost of capital, general and administrative expenses; +• Stock price performance; +• Level of responsibility; and +• Leadership ability, demonstrated commitment to the organization, motivational skills, attitude, and work ethic. +In +designing the compensation framework, the Compensation Committee endeavored to align management's interests with the long-term interests of stockholders. While the +Company's incentive compensation framework changed for 2008, its overall objectives remained the same. The key performance measures for the short term incentive plan (the "STIP") are cash flow, +investment performance, and reserve growth. For the LTIP the key performance measures are absolute compound TSR as well as the Company's relative performance versus the compound TSR of an index of +peers. The Compensation Committee maintains the ability to use business judgment and appropriate discretion in the application of the criteria for structuring, evaluating, and setting executive +compensation. Although there are established criteria in place, the Compensation Committee evaluates the results of the annual incentive compensation performance metrics against other business factors +with the intent of making appropriate compensation decisions that are reflective of the overall business environment and contributions of the executive. In essence, the established criteria are used +as objective measurement tools, to which subjective consideration is applied. +We +intend for our compensation plans to provide a level of compensation to an individual executive that is competitive with compensation provided by exploration and production companies +performing at a level similar to St. Mary. Periodically, the Compensation Committee uses the services of third party compensation consultants to assess the overall executive compensation +program. During 2007, the Compensation Committee retained Frederic W. Cook & Co. to formally review the Company's executive compensation program, and the Company used these reviews in +its evaluation and development of the 2008 compensation program. During 2008, the Compensation Committee periodically consulted with Frederic W. Cook & Co. regarding design features of +the STIP and LTIP, peer comparison for executive pay and various other compensation issues. As part of executive compensation reviews, the +Compensation Committee compares St. Mary's compensation against survey data provided by a reputable third party, Effective Compensation, Incorporated's ("ECI") 2008 Oil & Gas Exploration +and Production ("E&P") Industry Compensation Survey. Additionally, the Compensation Committee evaluates data from a select group of peer companies, as listed below. These peer companies are intended +to represent companies of comparable size and performance in our industry sub-segment. The selection of the peer group is important, and the ability to measure the resulting return to +stockholders is an integral part of the peer group selection criteria, as is the fact that this peer group is in large part the competition base for recruiting and retaining qualified management and +other employees. We believe that total executive compensation should reflect the relative performance of the Company as compared to its peer group. +28 +Table of Contents +The Specific Elements of Compensation and How We Administer Them +The chart below lists each element of St. Mary's compensation program, its objective and key features: +Compensation +Element +Objective +Key Features +Base Salary +Provide a fixed level of cash compensation determined by performance against established annual goals +Targets 50 th percentile of survey and peer group for employees meeting all performance expectations +STIP +Provide a cash award based upon annual regional performance, and annual Company financial performance as well as +individual performance +Potential cash-based compensation with ultimate award dependent upon Company's annual performance in key +metrics +LTIP +Align management interests with those of stockholders, encourage retention, and reward long term company +performance +Potential equity-based compensation with ultimate award dependent upon Company's long term performance in total share +return and performance relative to a peer group +BENEFITS +Attract and retain highly qualified employees +Complete offerings of health, welfare, and defined plans +The +following is a more detailed analysis of the elements of St. Mary's executive compensation system: +• Base Salary—Base salary is intended to provide a foundation of executive compensation that recognizes the +level of responsibility and authority of each individual executive and compensates for day to day performance. When determining executive base salary and executive total compensation, the Company +targets base salary and total compensation at approximately the 50th percentile of survey and peer group data. The Company targets the 50th percentile for base salary because management +and the Compensation Committee believe that this target enables the Company to attract and retain talented executives. Combined with our incentive compensation programs, St. Mary offers +executives the opportunity to earn greater total compensation than that of our comparably performing peers when the Company's goals and objectives are achieved. Base salary is the foundation for the +other elements of our incentive compensation programs. Generally, the Chief Executive Officer makes recommendations to the Compensation Committee for the executive management team, excluding himself. +The Compensation Committee then reviews these recommendations together with the reasons underlying the recommendations. Base salaries for 2008 and 2007 were determined at the end of 2007 and 2006, +respectively. The Company used data from ECI's 2007 and 2006 Oil and Gas E&P Industry Compensation Surveys together with peer group data based on publicly available salary information that included +the following companies: Cabot Oil and Gas Corporation, Cimarex Energy Co., Comstock Resources, Inc., Denbury Resources, Inc., Encore Acquisition Company, +Forest Oil Corporation, Newfield Exploration Company, Penn Virginia Corporation, Petrohawk Energy Corporation, Quicksilver Resources Inc., Range Resources Corporation, Swift Energy Company, +Unit Corporation, and Whiting Petroleum Corporation. These peer companies were selected because they are U.S. publicly traded companies in the oil and gas exploration and +29 +Table of Contents +production +industry with similar market capitalization and total stockholder return performance to our own over three and five year periods and who compete against us for talented employees. The +selection +of the peer companies involves subjective analysis by the Compensation Committee to account for similarities and differences in areas of operations. In determining executive salaries, the Compensation +Committee compares salaries of peer executives with similar responsibilities, along with the data described above. The 2008 base salary analysis included the salary survey information described above, +along with recommendations of Frederic W. Cook & Co. In 2008, the following named executive officers received the following salary adjustments effective upon the following dates: +Name +Effective Date +Salary +Milam Randolph Pharo +January 1, 2008 +$ +214,000 +August 11, 2008 +$ +230,000 +David J. Whitcomb +January 1, 2008 +$ +164,000 +August 11, 2008 +$ +172,500 +Mark T. Solomon +January 1, 2008 +$ +145,000 +December 28, 2008 +$ +151,525 +In +previous years, the Compensation Committee reviewed executive base salary at the end of the calendar year and made adjustments for the upcoming year's executive base salary at that time. In 2008, +the Compensation Committee determined that it would be beneficial to change the schedule for review and adjustment of executive base salaries so that the review process occurred during March and +adjustments became effective April 1 st , placing executives on an April 1 st to March 31 st compensation year. This new +timeline permits the Compensation Committee to review the performance results from the prior year, including reserves, in its analysis of executive base salary adjustment. In the transition year, +2009, the Compensation Committee set executive salaries in March 2009 effective December 28, 2008. These salary adjustments will reflect a 2009 pay date, and the percentage increases for the +named executive officers are as follows: Anthony J. Best—8.0 percent; A. Wade Pursell—2.0 percent: Milam Randolph Pharo—4.0 percent; Paul M. +Veatch—3.59 percent; and Dave J. Whitcomb—4.64 percent. +• Incentive Compensation—For 2008, the Company established a new incentive compensation framework that included +an STIP and an LTIP. The new framework is intended to retain the Company's key compensation objective of rewarding performance that increases net asset value per share while measuring such performance +through more visible metrics. +Described +below are further specifics of the Company's STIP and LTIP programs: +• STIP. Beginning in 2008, the Company established the STIP, +which is designed to reward executives for their achievement of targets in the annual business plan, focusing primarily on cash flow generation, investment performance against an approved capital +expenditures budget, and reserve growth. Payments under the STIP are in the form of annual cash bonuses under the Company's Cash Bonus Plan, which was approved by the stockholders in May 2008. +The +Compensation Committee's decisions regarding the approval of annual cash bonus pools for the STIP are based on analysis and information provided by management, including the results of the +Company's internal scorecard, and other subjective determinations considered by management and the Compensation Committee. The percentages recommended, considered, and subsequently approved result in +a pool of dollars available to be distributed to the executives and other employees. These amounts are +30 +Table of Contents +then +distributed based on the results of the Company as a whole, the regional performance for those executives in regional positions, and each individual's performance during the year, as well as +other qualitative factors. St. Mary previously used for both its cash bonus program and its prior RSU program an internal corporate "scorecard" that measured performance of the Company and each +individual region for a given year in three ways: (i) changes in net asset value of the Company; (ii) growth in proved developed reserves; and (iii) growth in production. In 2008, +the LTIP replaced the NPP and the RSU programs. A revised scorecard is now used solely for the STIP. As more fully discussed below, the 2008 scorecard uses annual targets selected by management and +the Compensation Committee that are more visibly tied to key performance measures that contribute to net asset value. The following is the scorecard established for 2008 measuring the achievement of +corporate targets, along with actual results and discussion of the metrics: +Metric +Target +2008 +Actual +Result +Multiplier +Factor +Weighting +Net Factor +Cash Flow ($ in millions) +$ +729.3 +$ +809.1 +1.44 +30 +% +0.43 +Investment efficiency +1.33 +0.95 +0 +35 +% +0 +Growth: +—Drill bit PD reserve adds (Bcfe) +194.4 +186.8 +0.92 +21 +% +0.19 +—Reserve replacement % +176.4 +% +(39 +)% +0 +14 +% +0 +Discretionary adjustments: +0.62 +—Safety +0 +—Inventory Build +(10 +)% +Final Multiplier Factor +0.56 +Cash +Flow—The cash flow target represents the net cash flow assumed to be generated from the execution of the 2008 business plan. During the year this target is adjusted for acquisitions, +divestitures, and approved changes in capital spending. The cash flow target approximates GAAP cash flow from operations without working capital adjustments. In 2008 actual results exceeded the target +primarily as a result of higher commodity prices as well as total production exceeding the target, but partially offset by higher lease operating costs than expected. +Investment +Efficiency—This target is defined as total "value" created divided by capital dollars invested. The target amount was based on the 2008 capital expenditures budget. The target +value was the PV15 value (i.e., present value using a 15 percent discount rate) of the projected cash flows for the projects to be completed in 2008 based on budgeted commodity prices +divided by the projected 2008 investment. The actual results reflect all capital investments for the Company in 2008 (i.e., drilling, acquisitions, and leasehold). The PV15 value of the +projected cash flows was calculated using average strip commodity prices during 2008, adjusting for price differentials in the field. This amount was reduced in 2008 to reflect certain leasehold +impairments. The Company's investment efficiency was below target due to higher than budgeted costs and below budget well performance. +Growth—This +section of the scorecard is divided in two parts. The first part is the results for proved developed reserve additions during the year. The target amount represents total +reserves budgeted for 2008 to be generated from drilling activities. The actual results reflect only reserves added as reflected in the Company's year-end reserve report. These results +were reduced in 2008 to reflect certain performance related reserve write downs. The second part of the growth section of the scorecard is overall reserve replacement. This figure, which excludes +divestitures, is calculated as an all-in number (i.e., includes all price and performance revisions). Due primarily to the significant price and performance revisions at the end of +2008, the Company fell well below this targeted level. +31 +Table of Contents +Discretionary +Factors—In addition to quantitative metrics, the scorecard has two discretionary factors, with each having the potential to swing the total bonus up to 20 percent +positively or negatively. The first factor for 2008 was based on a review of environmental, health, and safety performance for the Company. As the overall incident rates in 2008 were in line with +expectations, no adjustment for this factor was reflected. The second factor relates to inventory build (or decline), based on proved undeveloped reserves ("PUDs") changes. Due to the performance +revisions in PUDs during 2008, a 10 percent negative adjustment to the total bonus was reflected. The metrics for making the performance evaluations were established in advance, but the +Compensation Committee retains discretion to make adjustments if the circumstances merit. The Committee also maintains discretion to use business judgment in evaluating, setting, and awarding +executive compensation. Although there are defined metrics in place, the Compensation Committee evaluates the results of the STIP metrics against other business factors with the intent of making +appropriate compensation decisions that are reflective of the overall business environment and contribution of the executive. In essence, the defined metrics are used as objective measurement tools, +relative to which subjective consideration can be applied. In 2008 the Compensation Committee reduced the STIP for the Chief Executive Officer by ten percent to reflect the substantial performance +revision on reserves associated with the 2006 and 2007 South Texas acquisitions. +Application +of the Multiplier Factor—As shown in the table above, the 2008 results generated a final multiplier factor of 0.56 at the corporate level (see discussion below for regional and +individual performance adjustments). All full-time employees of the Company participated in the STIP, but the "cash bonus at target" is different for various employees. Most employees have +a "cash bonus at target" percentage of 12.5 percent or 25 percent. This percentage is +applied to their base salary adjusted for the multiplier factor generated from the scorecard results. The results of the scorecard can generate a factor from 0 to 2.0. As discussed above, the final +multiplier factor for 2008 was 0.56. Therefore, an employee with a 25 percent cash bonus at target received a bonus equaling 14 percent of their base salary (depending on their +individual performance) and seven percent for those with a 12.5 percent bonus at target. For employees at the vice president level and above, the cash bonus at target percentage ranges from +30 percent to 80 percent. The final multiplier for 2008 resulted in an overall blended bonus percentage of 14 percent for 25 percent cash bonus eligible corporate +employees; this compares to ten percent and eight percent for the same corporate employees in 2007 and 2006, respectively. +Regional +Application and Individual Performance—The 2008 scorecard table above reflects the results for employees at the corporate level of the Company (including the CEO, COO and CFO). +For employees at the Company's five regions, the metrics are applied to their applicable region's performance. Those results are then blended 60 percent regional/40 percent corporate +performance for their final multiplier factor. In addition, once the final calculations are completed and approved by the Compensation Committee, managers throughout the organization have discretion +to increase or decrease individual bonus amounts to reflect individual performance during the year, working within the total allocated bonus amount for their respective group. The following chart +provides the blended bonus percentage for the Company's five regions: +Mid Continent +27.00 +% +ArkLaTex +14.75 +% +Rockies +10.75 +% +Gulf Coast +14.25 +% +Permian +19.00 +% +32 +Table of Contents +• LTIP. The LTIP, which began in 2008, is intended to reward +executive officers and key employees of the Company for long-term growth in the net asset value of the Company. Prior to 2008, St. Mary used the NPP together with an RSU program as +the Company's long-term incentive program for its executives and key employees. The NPP, which was the primary long-term incentive compensation program, was a cash based +compensation plan. Historically the NPP had appropriately incentivized and rewarded employees at St. Mary. However, over time the somewhat unique nature of the plan, the complexity of the +program, and the delay and uncertainty in any realization of value made the NPP less attractive than long term incentive plans to newly recruited and highly marketable executives. Furthermore, PSA +plans, like the LTIP, are more common among St. Mary's peers and provide for target awards that are earned over a three year performance period. Management and the Compensation Committee +believe that the LTIP provides a more transparent, more marketable, and more widely understood long-term incentive criteria. However, replacing the cash based NPP significantly increased +the equity element of the compensation framework. +The +LTIP uses PSAs as the stock-based incentive component of compensation, and all Company employees above a certain grade classification are eligible for participation in the LTIP. The LTIP's total +pool value for 2008 was determined by the Board of Directors upon a recommendation of the +Compensation Committee in March 2008. In its determination of the total pool value for 2008, the Compensation Committee considered various factors including the FVT of St. Mary's long term +incentive compensation system compared to peer companies. After the total pool value for the 2008 LTIP was determined, the total pool value was converted to PSAs by dividing the total pool value by +the average closing price per share of St. Mary common stock for the period of 20 trading days before July 1, 2008, and then the base PSA grant amount for each participant was determined +as a percentage of base salary approved by the Compensation Committee. This LTIP program and process is intended to approximate the 50 th percentile of the peer group's +long-term incentive compensation. +The +number of shares ultimately issued is determined after the end of a three year performance period pursuant to a payout matrix provided below based on a combination of the Company's cumulative TSR +for the performance period and the relative measure of the Company's TSR compared with a peer group of companies. That peer group (the "TSR Peer Group") was developed utilizing a custom index +consisting of the constituents of the Oil & Gas Exploration and Production GIC Sub-Industry Group in the S&P SmallCap 600 Index and the S&P MidCap 400 Index, excluding +St. Mary. The TSR Peer Group for the performance period included Petroquest Energy Inc., Petroleum Development Corporation, Encore Acquisition Company, Cimarex +Energy Company, Forest Oil Corporation, Penn Virginia Corporation, Plains Exploration & Production Company, Mariner Energy Inc., Quicksilver Resources Inc., Swift Energy Company, +Stone Energy Corporation, Newfield Exploration Company, and Denbury Resources Inc. Target percentages range from 50 percent to 250 percent of base salary. +The number of PSAs awarded was determined on July 1, 2008, by multiplying the employee's applicable target percentage by their base salary and then dividing by the average closing price of the +Company's stock over the preceding 20 trading days. The result was a total of 465,751 PSAs awarded to 285 employees. The 2008 PSAs have a three year vesting schedule with +1/7 th vesting the first year, 2/7 th the second year, and the remaining 4/7 th the third year. The actual number of shares to be issued in +settlement of the PSAs is determined by the Company's stock price performance during the three year performance period, and the ultimate number of shares of common stock awarded to the employees after +three years can range from 0 to 200 percent of the initial PSAs granted +33 +Table of Contents +depending +on the compound TSR of the Company's common stock and as compared to the compound TSR Peer Group, as follows: +PAYOUT +MATRIX—2008 +Simple Matrix—Add result in Column A and Column B +TOTAL CANNOT BE GREATER THAN 2.0 OR LESS THAN ZERO +Column A +Absolute St. Mary TSR +Column B +St. Mary TSR vs. Peer Index +Ann. TSR +EARNED +MULTIPLIER +%Point +Deviation +From Peers +MULTIPLIER +MODIFIER +0% +-10% +(0.50 +) +1% +0.050 +-8% +(0.40 +) +2% +0.100 +-6% +(0.30 +) +3% +0.150 +-4% +(0.20 +) +4% +0.200 +-2% +0 +5% +0.275 += Index TSR +0.20 +6% +0.350 ++2% +0.30 +7% +0.425 ++4% +0.40 +8% +0.500 ++6% +0.5 +9% +0.575 ++8% +0.60 +10% +0.650 +11% +0.725 +12% +0.800 +13% +0.875 +14% +0.950 +15% +1.025 +16% +1.100 +17% +1.200 +18% +1.300 +19% +1.400 +20% +1.500 +21% +1.600 +22% +1.700 +23% +1.800 +24% +1.900 +25% +2.000 +As +an example, if an executive officer had a target percentage of 200 percent of base salary with annual base salary of $250,000, and if St. Mary's share price averaged $50 per share +upon grant, the executive received 10,000 PSAs ($250,000 × 200 percent /$50). At the end of three years if St. Mary's TSR increased 15 percent compounded +annually but underperformed against the peer index by four percentage points, the result would be a total multiplier of 0.825 (1.025-0.20). The multiplier would then be applied to the +10,000 PSAs previously granted, resulting in the issuance of 8,250 shares awarded to the executive officer at the end of the three year period, provided that the executive was still employed by the +Company. +• Transitional RSU Grant. In light of the fact that the +previous long term incentive plan, the NPP and the RSU plan, terminated at year-end 2007, and the new LTIP did not commence until July 1, 2008, the Compensation Committee authorized +transitional RSU grants of a total of 265,373 shares on July 1, 2008. +34 +Table of Contents +• Net Profits Interest Bonus Plan (NPP). The NPP was +designed to reward the contributions made by executive officers and key employees to the Company's long term financial success. Plan participants shared in the net profits derived from all oil and gas +activity from a specific pool of properties. Each calendar year resulted in a separate pool, whereby 100 percent of the properties that were completed, plugged and abandoned, or acquired by the +Company in a given year were included in that year's pool. The cash flows attributed to the pools were tracked, and the pools were evaluated for payout. Payout is defined as the point in time when +100 percent of related costs and expenses, including all drilling, land, geologic, geophysical, acquisition, and operating costs and expenses associated with a designated pool are recovered by +the associated revenues and proceeds from the properties in the specific pool. The pools also reflect the effects from the Company's commodity hedging program. After payout has been achieved for a +given pool, ten percent of the future net cash flows from the properties in that particular pool are distributed among the pool participants. After the Company has recovered 200 percent of the +total costs and expenses for a given pool, including prior distributions under the plan at the ten percent level, 20 percent of the future net cash flow is distributed among pool participants. +The +distributable proceeds are paid to individuals based on their participation percentage in the particular pool in which they have an interest. Individual participation in a pool is determined at +the date of creation of the pool. The participation in a pool is determined based on a combination of each participant's relative weighted salary, performance of the region, and the relative capital +attributed to the region in which an individual works. The pool years related to 2006 and 2007 are subject to vesting provisions whereby one-third of an individual's participation vests +upon selection to the pool, and one-third vests on each of the next two anniversary dates of the respective pool. Also with the 2007 and 2006 pool years, there is a cap on cumulative pool +payouts of 300 percent of that individual's base salary paid during the year to which the pool relates. Partial interest participants' benefits are prorated proportionately from the +300 percent amount referred to above. In the event there are distributable proceeds beyond the 300 percent limitation or an individual does not fully vest in their interest, the excess +benefits remain with the Company and are not allocated to the remaining plan participants. All pool years prior to and including 2005 are fully vested and there is no limit on the amount of benefit +that may be paid from a particular pool. Once vested, the participant receives the distributable proceeds regardless of employment status with the Company. Due to the complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout status was reached, which made the NPP less attractive to newly recruited and highly marketable employees, the use of the +NPP was discontinued in 2007 on a prospective basis with respect to the establishment of new pools, and the 2007 pool was the last pool under the NPP. However, material payments will continue to be +made under the NPP for pool years prior to 2008 for as long as the year's pool remains in payout status. +• Pension and 401(k)—Our executives participate in the Company's qualified, non-contributory defined +benefit pension plan and a 401(k) plan on the same basis as all of our employees. A supplemental pension plan exists whereby additional benefits are provided to certain executive level employees in +order to provide for benefits in excess of IRC limits on the qualified plan. The supplemental plan is an unfunded non-qualified plan. We believe that these plans are necessary to remain +competitive in the hiring and retention of qualified personnel. Included in this proxy statement is a description of the manner in which the pension plans function, together with the years of service +credit and value of plan assets for each of the named executive officers. See "Retirement Plans". +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to IRC limits. Final average compensation is the average of the +highest three consecutive years of the ten years preceding termination of employment. For each +35 +Table of Contents +named +executive officer, the level of compensation used to determine benefits payable under the qualified pension plan is that officer's average of base salaries, excluding bonuses. +The +supplemental plan provides executives hired before 1995 that complete 15 years of service and reach age 65 a benefit equal to 40 percent of final average compensation plus +37 percent of final average compensation integrated with the social security wage base without regard to compensation limitations provided under the qualified plan, less the benefit provided by +the qualified plan. For executives hired after 1994, the supplemental benefit is calculated using the formula for the qualified plan without the limitation imposed by Section 415 of the IRC, +less the benefit provided by the qualified plan. +The +Company's 401(k) Profit Sharing Plan is a defined contribution pension plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) Plan allows eligible employees to contribute +up to 60 percent of their income on a pretax basis through contributions to the 401(k) Plan. Contributions are limited to amounts determined by IRC regulations. The Company matches each +employee's contributions up to six percent of the employee's pretax income. Company contributions vest over an employee's first five years of employment. +• Sign-on Bonuses—In addition to the above ongoing elements of the Company's compensation framework, +the Compensation Committee and senior management have the discretion to pay sign-on bonuses in the form of cash or RSUs to executive officers as well as other employees. The Company uses +these bonuses in order to attract personnel believed to be valuable to the Company. The hiring of employees, particularly the hiring of executives, is highly competitive. In order to attract and +retain skilled employees, we believe that this tool is important to the building and retention of a strong qualified workforce. Based on the aforementioned changes to the long-term +incentive plans. +• Health and Welfare Benefits—The executive officers of the Company are eligible to participate in the +St. Mary's various medical and dental programs on the same basis as the broad employee group. These plans are intended to provide benefits that support the well being and overall health of +executives and employees. +• Group Term Life, Supplemental Life Insurance, Supplemental Disability, and Other Benefits—Our executives are +provided group term life insurance as well as supplemental term life insurance up to two times their base salary with a maximum coverage of $500,000. Additionally, executive officers are eligible to +have individual disability income contracts beyond the group disability maximum benefit paid for by the Company. The supplemental group term and disability insurance are intended to provide additional +coverage for those individuals whose salary exceeds the limits for the group term policy. Allowing supplemental coverage provides executives with coverage that is a commensurate percentage of their +base salary, consistent with all employees. +• Change of Control Severance Benefits—St. Mary has established a change of control executive severance +policy. The related change of control agreements have a "double trigger" mechanism whereby they require first that a qualifying change of control event has occurred and second that the executive has +been terminated or that certain other conditions are met, as summarized below. Executive officers are entitled to receive severance payments in the event that their employment is terminated within two +and one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an adverse change in the +officer's status after a change of control), each as defined in the agreements. The term "good reason" incorporates the concept of a change in the employee's status, authority, position, offices, +titles, duties or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or any time thereafter. The term "good +reason" also contemplates a reduction in the employee's salary +36 +Table of Contents +and +benefits over this same time frame, or the requirement of an employee to relocate the base of employment outside a 25 mile radius from the employee's current location. The severance payments equal +up to two and one-half years annual base salary, depending on the length of time employment continues after the change of control, provided that in no event would the severance payments +equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of one year after termination. The Company has determined that benefits +under this plan are subject to an optimization calculation; however, that does not include a so-called "gross-up" calculation to make the executive whole for income taxes on +the benefits. +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or consolidation of the +Company or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members of the Board of +Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of Directors. +Particularly +in view of the propensity of mergers, acquisitions, and consolidations in our industry, the Company believes that the change of control severance agreements promote stability and +continuity among the named executive officers, especially if the situation arises where the Company is actively being considered as an acquisition target. Such agreements are customary for executives +in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for the officer as well as a retention +incentive benefiting the Company and its stockholders without creating an unreasonable impediment to a potential acquirer of the Company. The maximum two and one-half year post change of +control severance payment period, and the minimum one year severance payment and insurance coverage period under the Company's agreements for its named executive officers, are comparable to payment +levels and periods offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance protection during a reasonable period of +time to allow the executive to obtain comparable employment. +The +post-termination payments that may be made under the Company's written term employment agreements are described below under the caption "Employment Agreement and Termination of +Employment." The energy industry's history of executive employment terminations during cyclical downturns or strategic shifts in the industry or by particular companies have contributed to a +widespread heightened concern for long-term job stability by many executives in our industry. In response to this concern, arrangements that provide compensation assurances in the event of +an executive's termination without cause, death or incapacity have become common practice. The post-termination payment provisions in the Company's employment agreement for Mr. Best +were an important factor in our ability to recruit Mr. Best to join the Company as President and Chief Operating Officer in 2006. We believe that the two year period for +post-employment compensation and insurance protection is appropriate to allow Mr. Best adequate time to obtain comparable employment in the event of a termination, and is comparable +to the terms offered by other companies in our industry who compete with us for executive talent. +• Employment Agreement—Mr. Best is the only executive that has been provided with a written employment +agreement providing for an employment term. The employment of all other executives remains "at will" subject to and in accordance with the terms and conditions of written offers. +37 +Table of Contents +• Employee Stock Purchase Plan ("ESPP")—The purpose of the ESPP is to encourage eligible employees to purchase +and hold shares of our common stock. The plan cycle consists of two periods annually, with plan periods for the six months ending June 30 and December 31 of each year. The ESPP allows +employees to purchase our common stock through payroll deductions of up to 15 percent of their base compensation. The purchase price of the stock is 85 percent of the lower of the fair +market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. The common stock +purchased under the ESPP is subject to a holding period of 18 months from the date the shares are purchased at the end of the applicable six-month period. +Prior Use of Stock Options in Compensation +Although we have outstanding stock options, we discontinued granting new stock options to employees after December 2003 and to +directors after December 2004. The stock option program was replaced with the RSU program beginning in 2004. +Executive Equity Ownership Requirements +To further ensure that senior management's interests are aligned with the interests of stockholders with respect to long term growth of +stockholder value, the Compensation Committee has established and the Board has approved equity ownership guidelines for the Chief Executive Officer of five (5) times base salary, and three +(3) times base salary for the Chief Operating Officer and Chief Financial Officer. All vice president level officers are expected to own equity in the Company equal to one (1) times +their salary. Equity holdings may include the value of vested and unvested RSUs for purposes of these calculations. New executive officers are provided time to accumulate their stock ownership +position and are not required to go into the open market to acquire equity. However, until an executive subject to the guidelines has the acquired equity holdings in St. Mary meeting the +guidelines, an executive subject to the guidelines may not sell the Company's equity, unless such sales are approved by the Compensation Committee for the CEO, COO or CFO and by the Chief Executive +Officer for all other subject executive officers. +Other Named Executive Officers Compensation +The named executive officers and all other executives participate in the same executive compensation framework; however, there are +certain distinguishing characteristics as between certain levels of executives with respect to the STIP as well as certain differences in compensation as between certain individual named executive +officers. For executives at the vice president level, the STIP "cash bonus at target" percentage is 30 percent to 80 percent. The "cash bonus at target" for executives under the level of +vice president is 25 percent. The following are differences in individual compensation for 2008. +As +part of the employment agreement with Chief Executive Officer, Anthony J. Best, in June 2006, the Compensation Committee authorized an equity grant in addition to the base equity +compensation plan that consisted of an initial equity grant of 20,000 shares that were immediately vested, to be followed by future issuances of 1,250 shares in the first quarter of each of 2007, +2008, 2009, and 2010, provided that Mr. Best remains employed by the Company on the vesting dates. In addition, Mr. Best's employment agreement provides the ability to earn 2,500 and +1,250 additional shares in each of the same periods if the resulting net asset value calculation results in an increase of ten percent and fifteen percent, respectively. The grant of equity to +Mr. Best was a special award, designed to ensure the successful hiring of an individual believed to be qualified to lead St. Mary in future years, to immediately align Mr. Best's +interests with the stockholders, and to put meaningful amounts of future compensation at risk for incentive purposes. Mr. Best earned 1,250 under his employment agreement for the 2008 period. +For the 2007 period, Mr. Best earned 1,250 under his employment agreement and +38 +Table of Contents +an +additional 2,500 performance shares. Grants under this provision of Mr. Best's employment agreement have been listed in the bonus column of the Summary Compensation Table. +As +part of his offer package of employment in 2008, A. Wade Pursell, Executive Vice-President and Chief Financial Officer received a signing bonus of $50,000, of which +$25,000 was paid with Mr. Pursell's first paycheck, and $25,000 that will be paid with the paycheck following Mr. Pursell's six month anniversary. Mr. Pursell also received an RSU +award of $600,000 on his hire date. The RSUs vest one half on December 15, 2009 and one half on December 15, 2010 provided that Mr. Pursell remains employed by St. Mary on +the vesting dates. The RSUs will also fully vest upon a change of control or the elimination of Mr. Pursell's position other than for cause within the first 24 months of employment. +Certain +executives participate in NPP pools that contribute significantly to their yearly compensation; however, not all executives participate in NPP pools, and certain executives that +do participate do not receive compensation because the NPP pools in which they participate have not reached payout. The following are the named executive officers that are current employees; +participate in NPP pools, and +the amounts they received in 2008: (i) Milam Randolph Pharo, $1,501,768; (ii) Paul M. Veatch, $445,108; and (iii) David J. Whitcomb, $585,349. +Regulatory Requirements +Section 162(m) of the IRC imposes a $1 million limitation, subject to certain exceptions, on a public company's income +tax deductibility in any tax year with respect to compensation paid to any employee who is either the principal executive officer of the company as of the close of the tax year or whose total +compensation for the tax year is required to be reported to stockholders under the Securities Exchange Act of 1934 for being among the three highest compensated officers (other than the principal +executive officer or principal financial officer). This limitation does not apply to certain "performance-based" compensation paid under a stockholder approved plan that meets the requirements of +Section 162(m) and related IRS regulations. The Company's Cash Bonus Plan and 2006 Equity Plan have been approved by the stockholders and are designed so that compensation paid under those +plans can be eligible for the "performance-based" compensation exemption from the limits on tax deductibility imposed by Section 162(m). For 2008, the Company believes that executive +compensation in the approximate amount of $850,000 paid to Milam Randolph Pharo was not tax deductible under Section 162(m). As a result, the Company paid $315,000 in tax that it would not have +otherwise paid except for the Section 162(m) limitation. Such non-deductible compensation was primarily the result of payments made under the NPP. +The +Compensation Committee believes that it is in the best interests of the Company to generally maximize the tax deductibility of compensation paid to its executive officers. However, +to maintain flexibility in compensating executive officers in a manner designed to promote various corporate objectives, the Compensation Committee reserves the right to award compensation which may +not be fully deductible under Section 162(m) if the Compensation Committee concludes that such compensation is in the Company's best interests in providing incentives to attract, motivate, and +retain key executives. +The +Compensation Committee also considers other financial implications when developing and implementing the Company's compensation programs, including accounting costs, cash flow impact, +and potential share dilution. +39 +Table of Contents +EXECUTIVE COMPENSATION AND SUMMARY COMPENSATION TABLE +The Summary Compensation table sets forth the annual and long term compensation received during each of the Company's last three years +by (i) the Chief Executive Officer, (ii) the Chief Financial Officer, (iii) the three other highest compensated executive officers of the Company that were employed as of +December 31, 2008, (iv) Mr. David W. Honeyfield, who served as Chief Financial Officer during part of 2008; (v) Mr. Mark T. Solomon, who served as +Acting Principal Financial Officer during part of 2008; and (vi) Mr. Garry A. Wilkening, who would have been one of the three most highly compensated executive officers other than +the Chief Executive Officer and Chief Financial Officer, but for the fact that he resigned from his position at St. Mary during 2008 (the "Named Executive Officers"). +In +addition to salaries, the Company has granted RSUs for the 2007 and 2006 annual periods and the first six months of 2008 to executive management and selected other personnel. On +July 1, 2008, the Company granted PSAs to executive management and other selected personnel to replace the issuance of RSUs. Some of these individuals also participate with other members of +management in the NPP. All eligible employees participate in the Company's STIP and LTIP as described more fully in the Compensation Discussion and Analysis. +SUMMARY COMPENSATION TABLE FOR 2006, 2007, AND 2008 +Name and Principal Position +Year +Salary +($) +Bonus +($)(1) +Stock +Awards +($)(2) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($)(3) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings +($)(4) +All Other +Compensation +($)(5) +Total +($) +Anthony J. Best +2008 +$ +473,173 +$ +190,800 +$ +566,868 +$ +— +$ +— +$ +49,879 +$ +16,303 +$ +1,297,024 +Chief Executive Officer and +2007 +$ +417,483 +$ +41,748 +$ +181,536 +$ +— +$ +67,094 +$ +18,215 +$ +726,076 +President (principal executive +2006 +$ +208,807 +$ +794,305 +$ +70,269 +$ +— +$ +— +$ +— +$ +83,213 +$ +1,156,593 +officer) +$ +— +A. Wade Pursell +2008 +$ +92,308 +$ +56,100 +$ +115,171 +$ +— +$ +— +$ +— +$ +38,060 +$ +301,640 +Executive Vice President and +Chief Financial Officer +(principal financial officer) +David W. Honeyfield +2008 +$ +107,615 +$ +— +$ +(6,329 +) +$ +— +$ +268,581 +$ +1,423 +$ +6,571 +$ +377,861 +Former Senior Vice +2007 +$ +240,028 +$ +34,000 +$ +173,170 +$ +— +$ +158,462 +$ +10,533 +$ +15,180 +$ +631,373 +President—Chief Financial +Officer and Secretary +(principal financial officer)(6) +2006 +$ +203,000 +$ +16,240 +$ +160,536 +$ +— +$ +64,989 +$ +9,373 +$ +19,711 +$ +473,849 +Mark T. Solomon +2008 +$ +144,442 +$ +26,222 +$ +103,133 +$ +— +$ +— +$ +4,574 +$ +9,089 +$ +287,460 +Controller and Former Acting +Principal Financial Officer(7) +Milam Randolph Pharo +2008 +$ +219,331 +$ +61,000 +$ +171,325 +$ +— +$ +1,501,768 +$ +31,912 +$ +12,819 +$ +1,998,154 +Senior Vice President and +2007 +$ +190,772 +$ +23,000 +$ +92,301 +$ +— +$ +1,024,444 +$ +28,049 +$ +13,782 +$ +1,372,348 +General Counsel +2006 +$ +175,000 +$ +14,000 +$ +96,404 +$ +— +$ +855,829 +$ +22,986 +$ +13,917 +$ +1,178,135 +Garry A. Wilkening +2008 +$ +95,731 +$ +— +$ +(1,811 +) +$ +— +$ +1,283,132 +$ +93,925 +$ +28,335 +$ +1,499,311 +Former Vice President— +2007 +$ +180,021 +$ +23,000 +$ +76,025 +$ +— +$ +875,486 +$ +91,234 +$ +13,574 +$ +1,259,340 +Human Resources & +Administration(8) +2006 +$ +155,000 +$ +12,400 +$ +78,747 +$ +— +$ +736,167 +$ +61,399 +$ +13,205 +$ +1,056,917 +Paul M. Veatch +2008 +$ +229,115 +$ +123,722 +$ +257,462 +$ +— +$ +445,108 +$ +9,465 +$ +14,481 +$ +1,079,354 +Senior Vice President and +Regional Manager +David J. Whitcomb +2008 +$ +166,638 +$ +27,995 +$ +119,657 +$ +— +$ +585,349 +$ +10,865 +$ +8,649 +$ +919,154 +Vice President—Marketing +(1) The +amounts in the column represent the bonuses paid in 2009, 2008, and 2007 but earned during the 2008, 2007 and 2006 performance periods, respectively. +40 +Table of Contents +(2) The +awards in this column represent the aggregate amount recognized for financial statement reporting purposes with respect to the RSUs and PSAs granted to +the Named Executive Officers for fiscal 2008, disregarding the estimate of forfeitures related to service-based vesting conditions, but otherwise computed in accordance with the SFAS +No. 123 (R) based on the assumptions set forth in note 7 to the Company's consolidated financial statements as filed with the SEC on Form 10-K. +Mr. Honeyfield forfeited unvested shares of restricted stock when he resigned effective March 21, 2008. In accordance with SFAS No. 123(R), +we reversed compensation expense relating to the forfeited shares that had been recognized for financial statement +reporting purposes in 2007 and 2006. As a result, the amount reported in this column for 2008 for Mr. Honeyfield is negative. Mr. Wilkening forfeited unvested shares of restricted stock +when he resigned effective July 1, 2008. In accordance with SFAS No. 123(R), we reversed compensation expense relating to the forfeited shares that had been recognized for financial +statement reporting purposes in 2007 and 2006. As a result, the amount reported in this column for 2008 for Mr. Wilkening is negative. The stock awards valued for 2006 and 2007 have been +restated to reflect the respective compensation expense recognized for financial statement reporting purposes in accordance with SFAS No. 123(R). +(3) Totals +consist of amounts earned under the NPP. See the Compensation Discussion and Analysis in this proxy +statement for a description of the NPP. +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each of the Named Executive Officer's combined benefits +under St. Mary's qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in the Company's financial statements. +No Named Executive Officer received preferential or above market earnings on deferred compensation. See detailed discussion of pension benefits on page 72 and Note 8 to the Consolidated +Financial Statements included in our Form 10-K for the year ended December 31, 2008, for a discussion of the relevant assumptions. +(5) Amounts +consist of the Company's contribution to the 401(k) Profit Sharing Plan, holiday bonus, group term life premiums, supplemental life insurance +premiums, supplemental disability income premiums, and any accrued vacation time due to the employee at the time of termination. +(6) Mr. Honeyfield +resigned as Senior Vice President—Chief Financial Officer and Secretary effective March 21, 2008. +(7) Mr. Solomon +was appointed Acting Principal Financial Officer on April 30, 2008, and relinquished this position to A. Wade Pursell who +was appointed Executive Vice President and Chief Financial Officer effective September 8, 2008. On October 4, 2008, Mr. Solomon received a special $6,000 bonus in connection with +his services during the Chief Financial Officer transition period. This bonus is included in the total bonus amount disclosed for Mr. Solomon in the bonus column. +(8) Mr. Wilkening +resigned as Vice President—Human Resources & Administration effective July 1, 2008. +The following table lists the number of RSUs held by each individual and the market value of the total holdings of the RSUs of St. Mary for +the Named Executive Officers as of the end of fiscal year 2008. The value shown is based on the closing market price of $20.31 on December 31, 2008, as reported by the NYSE. +Named Executive Officer +Number of +Unvested +Restricted Stock +Units Issued +Market Value +as of 12/31/08 +Anthony J. Best +17,110 +$ +347,504 +A. Wade Pursell +15,496 +$ +314,724 +David W. Honeyfield +— +$ +— +Mark T. Solomon +2,888 +$ +58,655 +Milam Randolph Pharo +4,856 +$ +98,625 +Garry A. Wilkening +— +$ +— +Paul M. Veatch +10,830 +$ +219,957 +David J. Whitcomb +3,484 +$ +70,760 +41 +Table of Contents +GRANTS OF PLAN-BASED AWARDS IN 2008 +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units +(#) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards +Estimated Future Payouts +Under Equity Incentive +Plan Awards +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#)(4) +Maximum +(#)(4) +Anthony J. Best +2/28/08 +$ +— +$ +— +$ +— +— +— +— +4,526 +(3) +— +— +$ +171,264 +2/28/08 +$ +— +$ +— +$ +— +— +— +— +3,750 +(5) +— +— +$ +136,425 +6/30/08 +$ +— +$ +— +$ +— +— +— +— +15,528 +(1) +— +— +$ +1,003,730 +7/1/08 +$ +— +$ +— +$ +— +— +23,359 +46,718 +— +— +— +$ +618,546 +A. Wade Pursell +9/8/08 +$ +— +$ +— +$ +— +— +— +— +15,496 +(2) +— +— +$ +600,005 +David W. Honeyfield +2/28/08 +$ +— +$ +— +$ +— +— +— +— +3,686 +(3) +— +— +$ +139,478 +Mark T. Solomon +2/28/08 +$ +— +$ +— +$ +— +— +— +— +758 +(3) +— +— +$ +28,683 +6/30/08 +$ +— +$ +— +$ +— +— +— +— +2,124 +(1) +— +— +$ +137,295 +7/1/08 +$ +— +$ +— +$ +— +— +3,392 +6,784 +— +— +— +$ +89,820 +Milam Randolph Pharo +2/28/08 +$ +— +$ +— +$ +— +— +— +— +1,246 +(3) +— +— +$ +47,149 +6/30/08 +$ +— +$ +— +$ +— +— +— +— +3,376 +(1) +— +— +$ +218,225 +7/1/08 +$ +— +$ +— +$ +— +— +5,079 +10,158 +— +— +— +$ +134,492 +Garry A. Wilkening +2/28/08 +$ +— +$ +— +$ +— +— +— +— +1,246 +(3) +— +— +$ +47,149 +Paul M. Veatch +2/28/08 +$ +— +$ +— +$ +— +— +— +— +5,750 +(3) +— +— +$ +217,580 +6/30/08 +$ +— +$ +— +$ +— +— +— +— +3,629 +(1) +— +— +$ +234,579 +7/1/08 +$ +— +$ +— +$ +— +— +6,546 +13,092 +— +— +— +$ +173,338 +David J. Whitcomb +2/28/08 +$ +— +$ +— +$ +— +— +— +— +1,084 +(3) +— +— +$ +41,019 +6/30/08 +$ +— +$ +— +$ +— +— +— +— +2,401 +(1) +— +— +$ +155,201 +7/1/08 +$ +— +$ +— +$ +— +— +3,765 +7,530 +— +— +— +$ +99,697 +(1) This +amount represents the Transitional RSUs granted under the Equity Plan. The RSUs vest one third on December 15, 2008, and the reminder in one +half amounts over the succeeding two years on December 15 th . The RSUs are subject to forfeiture upon termination of employment prior to vesting. The RSUs are not eligible for +dividends and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the +settlement date. +(2) This +amount represents one time hiring RSUs granted under the Equity Plan. The RSUs vest one half on December 15, 2009, and one half on +December 15, 2010. The RSUs are subject to forfeiture upon termination of employment prior to vesting. The RSUs are not eligible for dividends and are not credited with dividend equivalents. +The holder of these RSUs has no rights as a stockholder of common stock until such time as the RSUs are settled for shares of common stock on the settlement date. +(3) This +amount represents RSUs granted under the Company's Equity Plan. The RSUs were granted in 2008 but earned in the 2007 performance period. The RSUs vest +one fourth on February 28, 2008, and the remainder in one third amounts over the succeeding three years on February 28 th The RSUs are subject to forfeiture upon termination +of employment prior to vesting. The RSUs are not eligible for dividends and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time +as the RSUs are settled for shares of common stock on the settlement date. +(4) This +amount represents PSAs granted under the Equity Plan. PSAs represent the right to receive, upon settlement of the PSAs after the completion of a three +year performance period ending June 30, 2011, a number of shares of the Company's common stock that may be from zero to two times the number of PSAs granted on the award date, depending on the +extent to which certain performance criteria during a certain performance period have been achieved and the extent to which the PSAs have vested. The performance criteria for the PSAs are based on a +combination of the Company's cumulative TSR for the performance periods and the relative measure of the Company's TSR compared with the cumulative TSR of certain peer companies for the performance +period. The PSAs will vest 1/7 th on August 1, 2009, 2/7 ths on August 1, 2010, and 4/7 ths on August 1, 2011. +(5) This +amount represents immediately vesting RSUs granted under the Equity Plan. The RSUs were awarded pursuant to Mr. Best's employment agreement. +42 +Table of Contents +The following table displays outstanding equity awards for Named Executive Officers as of December 31, 2008. +OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR-END +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Equity +Incentive +Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock that +Have Not +Vested +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +($) +Anthony J. Best +— +— +— +$ +— +— +864 +(2) +$ +17,548 +— +$ +— +— +— +— +$ +— +— +3,394 +(1) +$ +68,932 +— +$ +— +— +— +— +$ +— +— +10,352 +(4) +$ +210,249 +— +$ +— +— +— +— +$ +— +— +— +$ +— +2,500 +(5) +$ +50,755 +— +— +— +$ +— +— +— +$ +— +3,750 +(6) +$ +76,163 +— +— +— +$ +— +— +— +$ +— +23,359 +(9) +$ +474,421 +A. Wade Pursell +— +— +— +$ +— +— +15,496 +(7) +$ +314,724 +— +$ +— +David W. Honeyfield +— +— +— +$ +— +— +— +$ +— +— +$ +— +Mark T. Solomon +2,550 +— +— +$ +13.65 +06/30/13 +688 +(3) +$ +13,973 +— +$ +— +2,274 +— +— +$ +14.25 +12/31/13 +216 +(2) +$ +4,387 +— +$ +— +2,174 +— +— +$ +12.53 +03/31/13 +568 +(1) +$ +11,536 +— +$ +— +2,174 +— +— +$ +12.50 +12/31/12 +1,416 +(4) +$ +28,759 +— +$ +— +358 +— +— +$ +13.39 +10/22/13 +— +$ +— +3,392 +(9) +$ +68,892 +6,000 +— +— +$ +16.66 +12/31/10 +— +$ +— +— +$ +— +1,916 +— +— +$ +12.66 +09/30/13 +— +$ +— +— +$ +— +Milam Randolph Pharo +— +— +— +$ +— +— +1,310 +(3) +$ +26,606 +— +$ +— +— +— +— +$ +— +— +362 +(2) +$ +7,352 +— +$ +— +— +— +— +$ +— +— +934 +(1) +$ +18,970 +— +$ +— +— +— +— +$ +— +— +2,250 +(4) +$ +45,698 +— +$ +— +— +— +— +$ +— +— +— +$ +— +5,079 +(9) +$ +103,154 +Garry A. Wilkening +— +— +— +$ +— +— +— +$ +— +— +$ +— +Paul M. Veatch +3,380 +— +— +$ +13.65 +06/30/13 +1,114 +(3) +$ +22,625 +— +$ +— +522 +— +— +$ +13.39 +10/22/13 +585 +(2) +$ +11,881 +— +$ +— +3,380 +— +— +$ +14.25 +12/31/13 +2,400 +(8) +$ +48,744 +— +$ +— +2,786 +— +— +$ +12.66 +09/30/13 +4,312 +(1) +$ +87,577 +— +$ +— +— +— +— +$ +— +— +2,419 +(4) +$ +49,130 +— +$ +— +— +— +— +$ +— +— +— +$ +— +6,546 +(9) +$ +132,949 +David J. Whitcomb +1,516 +— +— +$ +11.95 +09/30/12 +823 +(3) +$ +16,715 +— +$ +— +3,030 +— +— +$ +13.65 +06/30/13 +248 +(2) +$ +5,037 +— +$ +— +846 +— +— +$ +7.97 +09/30/11 +813 +(1) +$ +16,512 +— +$ +— +2,728 +— +— +$ +14.25 +12/31/13 +1,600 +(4) +$ +32,496 +— +$ +— +844 +— +— +$ +10.60 +12/31/11 +— +$ +— +3,765 +(9) +$ +76,467 +3,030 +— +— +$ +12.53 +03/31/13 +— +$ +— +— +$ +— +430 +— +— +$ +13.39 +10/22/13 +— +$ +— +— +$ +— +3,374 +— +— +$ +12.03 +06/30/12 +— +$ +— +— +$ +— +3,032 +— +— +$ +12.50 +12/31/12 +— +$ +— +— +$ +— +2,298 +— +— +$ +12.66 +09/30/13 +— +$ +— +— +$ +— +844 +— +— +$ +10.86 +03/31/12 +— +$ +— +— +$ +— +(1) These +RSUs vest in four equal installments on the following dates: February 29, 2008, February 28, 2009, February 28, 2010, and +February 28, 2011. +(2) These +RSUs vest in four equal installments on the following dates: February 28, 2007, February 29, 2008, February 28, 2009, and +February 28, 2010. +(3) These +RSUs vest in four equal installments on the following dates: February 28, 2006, February 28, 2007, February 29, 2008, and +February 28, 2009. +(4) These +RSUs vest in three equal installments on the following dates: December 15, 2008, December 15, 2009, and December 15, 2010. +(5) Pursuant +to his employment agreement, Mr. Best earned 1,250 shares in each of the first quarters of 2007 and 2008, and will earn 1,250 shares in each +of the first quarters of 2009 and 2010, if he is employed by the Company at the time. +(6) Mr. Best +may earn an additional 2,500 to 3,750 shares with each of the share grants referenced in footnote 5 if certain net asset value growth +percentages are met. +43 +Table of Contents +(7) These +RSUs vest in two equal installments on the following dates: December 15, 2009, and December 15, 2010. +(8) These +RSUs vest in three installments on the following dates: 600 shares on January 1, 2008, 900 shares on January 1, 2009, and 1,500 shares +on January 1, 2010. +(9) These +PSAs will vest 1/7 th on August 1, 2009, 2/7 ths on August 1, 2010, and 4/7 ths on +August 1, 2011. PSAs represent the right to receive, upon settlement of the PSAs after the completion of a three year performance period ending June 30, 2011, a number of shares of the +Company's common stock that will range from zero to two times the number of PSAs granted on the award date, depending on the extent to which the Company's performance criteria have been achieved. +NONQUALIFIED DEFERRED COMPENSATION +Although the NPP may be considered a non-qualified deferred compensation plan since amounts are paid under the NPP from the +net profits, if any, from oil and gas activity from designated pools of properties in years after the participants have earned such net profits interests, the Company does not maintain a +non-qualified deferred compensation plan whereby specific determinable compensation amounts or balances are deferred. The NPP is described on page 35 of this proxy statement and NPP +compensation amounts for the Named Executive Officers are reflected in the Summary Compensation Table. +2008 OPTION EXERCISES AND STOCK VESTED +Stock options exercised by the Named Executive Officers during 2008 and the values realized upon such option exercises are set forth in +the following table. All such stock options were granted pursuant to the Company's stock option plans described in this proxy statement. In May 2003, the Board of Directors amended the stock option +plans to prohibit any repricing of outstanding options that would reduce the exercise price without stockholder approval. In 2004, the issuance of stock options was replaced by the issuance of RSUs +under a performance based plan, and the number of RSUs held by the Named Executive Officers that vested during 2008 and the computed aggregate value realized upon such vesting are also set forth in +the following table. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting(1) +(#) +Value Realized +on Vesting(2) +($) +Anthony J. Best +— +$ +— +10,490 +$ +304,964 +A. Wade Pursell +— +$ +— +— +$ +— +David W. Honeyfield +21,608 +$ +907,790 +4,644 +$ +174,824 +Mark T. Solomon +— +$ +— +1,960 +$ +61,010 +Milam Randolph Pharo +73,046 +$ +2,672,689 +3,357 +$ +106,093 +Garry A. Wilkening +42,082 +$ +1,813,019 +1,874 +$ +70,164 +Paul M. Veatch +3,124 +$ +119,377 +4,993 +167,162 +David J. Whitcomb +— +$ +— +2,285 +71,656 +(1) Represents +the number of shares underlying RSUs that became vested during 2008. Each RSU represents a right for one share of the Company's common stock to +be issued and delivered upon settlement of the RSU pursuant to the terms of the award agreement. The Company's RSU awards generally vest 25 percent immediately upon grant and 25 percent +on each of the grant's next three anniversary dates. +(2) The +value realized on vesting of the RSUs is computed by multiplying the number of RSUs that vested on the vesting date by the per share closing market +price of the underlying shares on the vesting date, or, if the vesting date was not a normal market trading date, then on the last normal market trading date which preceded the vesting date. The per +share closing market prices utilized for this computation were $37.84 on the vesting date of February 28, 2008, for 2007 RSU awards; $35.67 on the vesting date of March 14, 2008, for +2005 RSU awards; and $20.07 on December 15, 2008, for the 2008 Transitional RSUs awards. +44 +Table of Contents +RETIREMENT PLANS +Pension Plan +The Company's Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all employees. +This plan was amended in 1994 to conform to the changes required by the Tax Reform Act of 1986 and to reduce the plan formula. The Company also has a supplemental pension plan for certain executive +officers to provide for benefits in excess of IRC limits. +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to IRC limits. Final average compensation is the +average of the highest three consecutive years of the ten years preceding termination of employment. For each Named Executive Officer, the level of compensation used to determine benefits payable +under the qualified pension plan is that officer's average of the base salaries (excluding bonus) shown in the Summary Compensation Table. +The +supplemental plan provides executives hired before 1995, after completing 15 years of service and reaching age 65, a benefit equal to 40 percent of final average +compensation plus 37 percent of final average compensation integrated with the social security wage base without regard to compensation limitations provided under the qualified plan, less the +benefit provided by the qualified plan. For executives hired after 1994, the supplemental benefit is calculated using the formula for the qualified plan without the limitation imposed by +Section 415 of the IRC, less the benefit provided by the qualified plan. +The +following table represents the value of the Named Executive Officers' pension benefits as of December 31, 2008. +2008 PENSION BENEFITS +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Anthony J. Best +Qualified Pension Plan +3 +$ +70,623 +$ +— +Non-Qualified SERP Pension Plan +3 +$ +46,350 +$ +— +A. Wade Pursell +Qualified Pension Plan +— +$ +— +$ +— +Non-Qualified SERP Pension Plan +— +$ +— +$ +— +David W. Honeyfield +Qualified Pension Plan +5 +$ +— +$ +36,078 +Non-Qualified SERP Pension Plan +5 +$ +— +$ +886 +Mark T. Solomon +Qualified Pension Plan +12 +$ +31,441 +$ +— +Non-Qualified SERP Pension Plan +12 +$ +— +$ +— +Milam Randolph Pharo +Qualified Pension Plan +13 +$ +224,757 +$ +— +Non-Qualified SERP Pension Plan +13 +$ +— +$ +— +Garry A. Wilkening +Qualified Pension Plan +16 +$ +— +$ +286,047 +Non-Qualified SERP Pension Plan +16 +$ +145,647 +$ +101,194 +Paul M. Veatch +Qualified Pension Plan +8 +$ +52,478 +$ +— +Non-Qualified SERP Pension Plan +8 +$ +— +$ +— +David J. Whitcomb +Qualified Pension Plan +14 +$ +72,670 +$ +— +Non-Qualified SERP Pension Plan +14 +$ +— +$ +— +45 +Table of Contents +EQUITY COMPENSATION PLANS +Under the Equity Plan and ESPP, options and shares of St. Mary common stock are authorized for grant or issuance as compensation +to eligible employees, consultants, and members of the Board of Directors. Our stockholders have approved each of these plans. +The +following table is a summary of the shares of common stock authorized for issuance under our existing equity compensation plans as of December 31, 2008. +Plan Category +(a) +Number of securities +to be issued upon +exercise of +outstanding +options, warrants, +and rights +(b) +Weighted-average +exercise price +of outstanding +options, warrants, +and rights +(c) +Number of securities +remaining available +for future issuance +under equity +compensation +plans (excluding +securities +reflected in +column (a)) +Equity compensation plans approved by security holders: +Equity Plan +Stock Options and Incentive Stock Options(1) +1,509,710 +$ +12.69 +— +Restricted Stock(1) +409,388 +— +— +Performance share awards(1)(3) +464,333 +$ +26.48 +1,529,140 +(1) +Employee Stock Purchase Plan(2) +— +— +1,554,583 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +2,383,431 +$ +15.93 +3,083,723 +(1) In +May 2006, the stockholders approved the Equity Plan to authorize the issuance of restricted stock, RSUs, NSOs, ISOs, SARs, and stock based awards to +executives, key employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of St. Mary. The Equity Plan serves as the successor to the Predecessor Plans. +All equity grants are now made out of the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor Plan immediately prior to the +effective date of the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. As of March 23, 2009, the shares available +for grant were 1,593,468. In late 2007, St. Mary transitioned to PSA grants as the primary form of long term equity incentive compensation for eligible employees in place of RSU grants. +(2) Under +the ESPP, eligible employees may purchase shares of the Company's common stock through payroll deductions of up to 15 percent of their eligible +compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the purchase period, and shares issued under the ESPP +are restricted for a period of 18 months from the date issued. The ESPP is intended to qualify under Section 423 of the IRC. +(3) The +performance share awards represent the right to receive, upon settlement of the PSAs after the completion of a three-year performance +measurement period, a number of shares of our common stock that may be from zero to two times the number of PSAs granted, depending on the extent to which the underlying performance criteria have been +achieved and the extent to which the PSAs have vested. The performance criteria for the PSAs are based on a combination of the Company's cumulative TSR for the performance period and the relative +measure of the Company's TSR compared with the cumulative TSR of certain peer companies for the performance period. +46 +Table of Contents +The +currently outstanding PSAs were granted on August 1, 2008, and utilize a three-year performance measurement period which began on July 1, 2008. On July 1, 2008, +the market value per share of our common stock was $62.51, and on the date of grant the market value per share of our common stock was $43.00. The PSAs do not have an exercise price associated with +them, but rather the $26.48 price shown in the above table represents the grant per share fair value as of December 31, 2008 calculated pursuant to SFAS No. 123(R), which is presented in +order to provide additional information regarding the potential dilutive effect of the PSAs as of December 31, 2008 in view of the share price level at the beginning of the performance period +which will be utilized to compute the TSR measurements for determination of the number of shares to be issued upon settlement of the PSAs after completion of the three-year performance +measurement period. +47 +Table of Contents +EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT +St. Mary and Anthony J. Best entered into an employment agreement dated May 1, 2006. When his employment commenced, +Mr. Best received an RSU award of 20,000 shares, which vested immediately and was not subject to forfeiture, and a $50,000 cash bonus. Over the next four years of the agreement, Mr. Best +may earn additional restricted shares in varying amounts, earning in the first quarter of each year 1,250 shares if he is employed by St. Mary at that time, and an additional 2,500 shares if +the net asset value growth from the prior year exceeds ten percent, with a further 1,250 shares if such growth exceeds fifteen percent. If he remains employed by the Company for the four year term of +the agreement and meets or exceeds all targets in this compensation arrangement, the Company will award Mr. Best with a maximum of 20,000 restricted shares. Mr. Best participates in the +fringe benefits and other benefit plans and practices of St. Mary in the same manner and to the same comparable extent as other senior executives of St. Mary. Mr. Best earned +1,250 shares in March 2007, February 2008, and February 2009 associated with the service component of his award. Mr. Best earned 2,500 shares under the performance element of his employment +agreement based on the results for 2007; however, he did not earn the performance based component of his employment agreement based on the results for 2008 or 2006 for a potential additional 3,750 +shares in each year as the net asset value growth of the Company did not exceed ten percent in 2006 or 2008. +The +Company's employment agreement with Mr. Best provides that in the event that Mr. Best's employment is terminated by the Company for any reason other than (i) the +death or incapacitation of Mr. Best or (ii) the performance of his duties for the Company with gross negligence, gross incompetence, fraud, or dishonesty, as determined by the Board of +Directors, the Company must continue the salary of Mr. Best at its rate at the time of such termination for a period of two years thereafter, together with a continuation for two years of the +insurance benefits in effect for him at the time of such termination. +Based +on Mr. Best's current annual salary and level of insurance benefits in effect as of December 31, 2008, the total amount of payments that would be made to +Mr. Best for a period of two years after such termination would be $950,000, and the estimated value of insurance benefits to be continued over such period would be approximately $36,000. +The +Company's employment agreement with Mr. Best also provides that in the event that Mr. Best's employment is terminated under circumstances such that the terms of the +Company's change of control +executive severance agreement for Mr. Best would apply, and to the extent that severance pay or benefits, each considered separately, to be received by Mr. Best pursuant to the terms of +the change of control executive severance agreement would exceed the severance pay or benefits, each considered separately, pursuant to the terms of Mr. Best's employment agreement, +Mr. Best shall receive such excess severance pay or benefits under the change of control executive severance agreement pursuant to the terms thereof. The Company's change of control executive +severance agreements are discussed below. Mr. Best's employment agreement provides for a severance payment of a minimum of two years' salary together with a continuation for two years of the +insurance benefits in effect for him in the event of such termination. +48 +Table of Contents +CHANGE OF CONTROL ARRANGEMENTS +St. Mary has established a change of control executive severance policy and entered into change of control severance agreements +whereby certain officers of St. Mary, including the Named Executive Officers in the Summary Compensation Table, are entitled to receive severance payments in the event that their employment is +terminated within two and one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an +adverse change in the officer's status after a change of control), each as defined in the agreements. The severance payments equal up to two and one-half years annual base salary, +depending on the length of time employment continues after the change of control provided that in no event would the severance payments equal less than one year's annual base salary. In addition, all +insurance and fringe benefits will be provided for a period of one year. +Based +on the respective annual base salaries and benefit levels of the Named Executive Officers as of December 31, 2008, under the change of control executive severance agreements +the total maximum severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year after +severance for each of the Named Executive Officers who were employed by the Company as of December 31, 2008, would be as follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated +Value of +Benefits for +One Year(1) +Anthony J. Best(2) +$ +1,187,500 +$ +950,000 +$ +18,000 +A. Wade Pursell +$ +750,000 +$ +300,000 +$ +18,000 +David W. Honeyfield(3) +$ +— +$ +— +$ +— +Mark T. Solomon(4) +$ +151,525 +$ +151,525 +$ +18,000 +Milam Randolph Pharo +$ +575,000 +$ +230,000 +$ +18,000 +Garry A. Wilkening(5) +$ +— +$ +— +$ +— +Paul M. Veatch +$ +575,000 +$ +230,000 +$ +18,000 +David J. Whitcomb +$ +431,250 +$ +172,500 +$ +18,000 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any such benefits +pursuant to a subsequent employer's benefit plans. +(2) The +employment agreement between the Company and Mr. Best provides that in the event of a change of control of the Company and a termination of +Mr. Best's employment, the Company must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years +thereafter, and, to the extent that severance pay or benefits to be received by Mr. Best under the terms of the change of control executive severance agreement between the Company and +Mr. Best would exceed the severance pay or benefits under his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive +severance agreement. +(3) Mr. Honeyfield +resigned from his position of Senior Vice President—Chief Financial Officer and Secretary of St. Mary effective +March 21, 2008. +(4) Mr. Solomon +was appointed Acting Principal Financial Officer on April 30, 2008, and relinquished this position to A. Wade Pursell who was +appointed Executive Vice President and Chief Financial Officer effective September 8, 2008. +(5) Mr. Wilkening +resigned from his position of Vice President—Human Resources & Administration effective July 1, 2008. +49 +Table of Contents +Under +the change of control executive severance agreements, the severance payments are to be made in such base salary installment amounts and pursuant to such base salary installment +payment schedule as were in effect immediately prior to the change of control, and the Company or its successor is obligated to make the payments. +The +Company has also established a change of control severance policy and entered into change of control severance agreements whereby selected employees of St. Mary that are of a +sufficient employment grade, are entitled to receive severance payments in the event that their employment is terminated within one year after a change of control of the Company (a) without +"cause" by the Company or (b) for "good reason" by the employee (e.g. an adverse change in the officer's status after a change of control), each as defined in the agreements. The +severance payments equal up to two and one half years annual base salary, depending on the length of time employment continues after the change of control provided that in no event would the severance +payments equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of one year. +St. Mary +has established a severance termination plan for all of its other employees that activate if a change of control event occurs. The amount of benefit is dependent on the +number of years of service with the Company and the employee's compensation level at the time of termination. +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or +consolidation of the Company, or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members +of the Board of Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of +Directors. +50 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock —The following table shows beneficial ownership of shares of St. Mary common stock as known by the Company as of March 16, +2009, by all beneficial owners of more than five percent of the outstanding shares of St. Mary common stock as of March 16, 2009, by each director, director nominee, and Named Executive +Officers, and all directors and executive officers as a group. RSUs and PSAs are not included in this table as no actual shares have been issued associated with the RSU or PSA rights. A supplemental +separate table has been included later in this section describing the number of RSUs and PSAs owned by the individuals described above. +Name of Beneficial Owner +Shares +beneficially +owned +excluding +options +Options +exercisable +within 60 days +of 3/16/2009 +Total shares +beneficially +owned(1) +Percent +beneficially +owned +Name and Address of Stockholders Owning More Than 5% +Wellington Management Company, LLP +75 State Street +Boston, MA 02109 +4,363,486 +— +4,363,486 +(2) +7.02 +%(2) +Third Avenue Management LLC +622 Third Avenue, 32 nd Floor +New York, NY 10017 +4,085,867 +— +4,085,867 +(3) +6.57 +%(3) +Barclays Global Investors, NA. +400 Howard Street +San Francisco, CA 94105 +3,752,413 +3,752,413 +(4) +6.03 +%(4) +Name and Position of Directors, Director Nominees and Named Executive Officers +Barbara M. Baumann, Director +17,322 +47,666 +64,988 +0.1 +% +Larry W. Bickle, Director +79,830 +48,566 +128,396 +0.2 +% +William J. Gardiner, Director +30,322 +47,670 +77,992 +0.1 +% +Mark A. Hellerstein, Chairman and Director +72,555 +— +72,555 +0.1 +% +Julio M. Quintana, Director +11,267 +(5) +— +11,267 +(5) +<0.1 +% +John M. Seidl, Director +10,367 +— +10,367 +<0.1 +% +William D. Sullivan, Director +33,722 +9,772 +43,494 +0.1 +% +Anthony J. Best, Chief Executive Officer, President, and Director +39,216 +— +39,216 +0.1 +% +A. Wade Pursell, Executive Vice President and Chief Financial Officer +5,000 +— +5,000 +<0.1 +% +David W. Honeyfield, Former Senior Vice President—Chief Financial Officer, and Secretary +3,722 +— +3,722 +<0.1 +% +Mark T. Solomon, Controller and Former Acting Principal Financial Officer +5,554 +17,446 +23,000 +<0.1 +% +Milam Randolph Pharo, Senior Vice President and General Counsel +30,578 +— +30,578 +<0.1 +% +Garry A. Wilkening, Former Vice President—Human Resources and Administration +4,393 +— +4,393 +<0.1 +% +Paul M. Veatch, Senior Vice President and Regional Manager +8,611 +9,996 +18,607 +<0.1 +% +David J. Whitcomb, Vice President—Marketing +11,397 +21,972 +33,369 +0.1 +% +All executive officers and directors as a group (23 persons including those named above) +412,388 +257,138 +669,526 +1.2 +% +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any shares which +the individual has the right to acquire within 60 days of a date reasonably selected by the Company, through the exercise of any stock option or other right. The Company selected +March 16, 2009, as the determination date. +51 +Table of Contents +(2) According +to a Statement on Schedule 13G filed by Wellington Management Company, LLP ("Wellington") on February 17, 2009, by reason of +advisory and other relationships with persons who own shares of St. Mary common stock, Wellington may be deemed to be the beneficial owner of a total of 4,363,486 shares, with shared voting +power as to 3,339,995 shares, shared dispositive power as to 4,346,586 shares, and sole voting or dispositive power as to zero shares. The percentage beneficially owned in the above table is the +percentage beneficially owned set forth in the filed Schedule 13G based only on the Company's outstanding shares. The percentage beneficially owned changes to 7.0 percent when the +calculation includes the aggregate number of shares that stockholders have a right to acquire within 60 days of March 16, 2009, through the exercise of any stock option or right. +(3) According +to a Statement on Schedule 13G filed by Third Avenue Management LLC ("Third Avenue") on February 13, 2009, by reason of +advisory and other relationships with persons who own shares of St. Mary common stock, Third Avenue Management LLC may be deemed to be the beneficial owner of a total of 4,085,867 +shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, and sole voting or dispositive power as to 4,085,867 shares. The percentage beneficially owned in the +above table is the percentage beneficially owned set forth in the filed Schedule 13G based only on the Company's outstanding shares. The percentage beneficially owned changes to +6.5 percent when the calculation includes the aggregate number of shares that stockholders have a right to acquire within 60 days of March 16, 2009, through the exercise of any +stock option or right. +(4) According +to a Statement on Schedule 13G filed on February 5, 2009, Barclays Global Investors, NA., Barclays Global Fund Advisors, Barclays +Global Investors, Ltd., Barclays Global Investors Japan Limited, Barclays Global Investors Canada Limited, Barclays Global Investors Australia Limited, and Barclays Global Investors +(Deutschland) AG, in the aggregate may be deemed to be the beneficial owners of a total of 3,752,413 shares, with shared voting power as to zero shares, shared dispositive power as to zero shares, +sole voting power as to 2,615,754 shares, and sole dispositive power as to 3,752,413 shares. The percentage beneficially owned in the above table is the percentage beneficially owned set forth in the +filed Schedule 13G based only on the Company's outstanding shares. The percentage beneficially owned changes to 6.0 percent when the calculation includes the aggregate number of shares +that stockholders have a right to acquire within 60 days of March 16, 2009, through the exercise of any stock option or right. +(5) Mr. Quintana +maintains a margin securities account at a brokerage firm, and the positions held in such margin account, which may from time to time +include shares of St. Mary common stock, are pledged as collateral security for the repayment of debit balances, if any, in the account. As of March 16, 2009, Mr. Quintana held +11,267 shares of St. Mary common stock in such account. +Restricted Stock Units and Performance Share Awards —RSUs represent rights to shares of stock to be delivered upon settlement, subject to risk of +forfeiture and cancellation. The RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our common stock. +The RSU awards vest 25 percent upon issuance and 25 percent on each of the following three anniversary dates. The Transitional RSUs vest one third upon issuance and one third on each of +the following two anniversary dates. +The +Company began issuing RSUs in June 2004. The initial grant under the Restricted Stock Plan was made on June 30, 2004, whereby eligible executive officers and key employees +were issued RSUs. This grant was the first grant under this program following approval of the Restricted Stock Plan by the stockholders of the Company. RSU grants were made annually under the +Restricted Stock Plan in 2004 and 2005. Since May 17, 2006, RSU grants have been made under the Equity Plan subject to the performance criteria of the Company. These grants were made in the +quarter following the year-end with the exception of the grant of Transitional RSUs on June 30, 2008. +PSAs +represent the right to receive, upon settlement of the PSAs after the completion of a three year performance period, a number of shares of the Company's common stock that may be +from zero to two times the number of PSAs granted on the award date, depending on the extent to which the Company's performance criteria have been achieved and the extent to which the PSAs have +vested. The +52 +Table of Contents +PSAs +do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our common stock. +The +Company began granting PSAs on August 1, 2008, under the Equity Plan to eligible executive officers and key employees. +The +following table shows the number of RSUs and PSAs owned by each of the directors, the executive officers named in the Summary Compensation Table set forth under the caption +"Executive Compensation and Summary Compensation Table," and all directors and executive officers as a group as of March 16, 2009. The PSAs listed below represent the right to receive, upon +settlement of the PSAs after the completion of a three year performance period ending June 30, 2011, a number of shares of the Company's common stock that may be from zero to two times the +number of PSAs granted on the award date, depending on the extent to which certain performance criteria during a certain performance period have been achieved and the extent to which the PSAs have +vested. +Total +Restricted +Stock Units +Total Vested +Restricted +Stock Units +Total +Performance +Share Awards +Total Vested +Performance +Share Awards +Barbara M. Baumann +— +— +— +— +Larry W. Bickle +— +— +— +— +William J. Gardiner +— +— +— +— +Mark A. Hellerstein +— +— +— +— +Julio M. Quintana +— +— +— +— +John M. Seidl +— +— +— +— +William D. Sullivan +— +— +— +— +Anthony J. Best +14,296 +— +23,359 +— +A. Wade Pursell +15,496 +— +— +— +David W. Honeyfield +— +— +— +— +Mark T. Solomon +1,902 +— +3,392 +— +Milam Randolph Pharo +3,053 +— +5,079 +— +Garry A. Wilkening +— +— +— +— +Paul M. Veatch +7,085 +— +6,546 +— +David J. Whitcomb +2,266 +— +3,765 +— +All executive officers and directors as a group (23) persons including those named above +73,080 +— +85,886 +— +COMPENSATION COMMITTEE REPORT +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on the review +and discussions, the Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's proxy statement to be filed with the SEC. +Barbara +M. Baumann, Chairman +Larry W. Bickle +William D. Sullivan +March 26, +2008 +53 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policy on Transactions with Related Persons +The Company has adopted a written policy and procedures for the Audit Committee's review of any transaction, arrangement, or +relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (i) the Company is a participant, +(ii) the aggregate amount involved will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this +policy, a "related person" means (i) any of our directors, executive officers or nominees for director, (ii) any stockholder that beneficially owns more than five percent of the +Company's outstanding shares of common stock, and (iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good +faith are in, or are not inconsistent with, the best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, the By-Laws provide that no director, officer, or employee may pursue for his or her own account a business or investment opportunity if he or she has obtained +knowledge of such opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas opportunity +as to which his or her knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the officer's +pursuit of the opportunity has been approved by the Board of Directors, and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been +approved by a senior officer of St. Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of +another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its directors during the last fiscal year. +Some of the aspects of this transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will +always be resolved in favor of St. Mary. +Mr. Hellerstein, +who currently serves as Chairman of the Board of Directors of St. Mary and is retiring from the Board of Directors effective at the annual meeting on +May 20, 2009, is a participant in the NPP as a result of his prior service to the Company as an executive officer, including service as President from 1992 to June 2006 and Chief Executive +Officer from 1995 to February 2007. As a result of Mr. Hellerstein's vested participation interests in the NPP arising from his prior service, the Company made NPP payments to +Mr. Hellerstein during 2008 in the total amount of $6,172,098. The Audit Committee has reviewed this relationship and determined that it is not in conflict with the Company's Policies and +Procedures with Respect to Related Person Transactions, since Mr. Hellerstein's NPP participation interests were awarded to him while he was an employee of St. Mary in order to provide +for future incentive bonus compensation for his services as an executive officer. For a description of the NPP, please see the section entitled "Net Profits Interest Bonus Plan (NPP)" in the +"Compensation Discussion and Analysis" section of this proxy statement. +54 +Table of Contents +SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive officers, and persons holding more than ten percent of St. Mary common stock +must report their initial ownership of the common stock and any changes in that ownership in reports that must be filed with the SEC and St. Mary. The SEC has designated specific deadlines for +these reports and St. Mary must identify in this proxy statement those persons who did not file these reports when due. +Based +solely on a review of reports filed with the Company, all directors, executive officers, and ten percent owners timely filed all reports regarding transactions in the Company's +securities required to be filed for 2008 by Section 16(a) under the Securities Exchange Act of 1934. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with +respect to (1) the integrity of the Company's +financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements, (2) the +qualifications, independence, and performance of the Company's independent accountants, (3) the performance of the Company's internal audit function, and (4) other matters as set forth +in the charter of the Audit Committee approved by the Board of Directors. +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. +The independent accountants are responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and issuing a report +thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent accountants the audited consolidated financial statements of the +Company for the year ended December 31, 2008. The Audit Committee also discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards +No. 61, Communication with Audit Committees. In addition, the Audit Committee received the written disclosures and the letter from the independent accountants required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and the Audit Committee discussed +with the independent accountants that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company be +included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, that was filed with the SEC. +THE +AUDIT COMMITTEE +William J. Gardiner, Chairman +Julio M. Quintana +John M. Seidl +March 26, +2009 +55 +Table of Contents +INDEPENDENT ACCOUNTANTS +To the knowledge of management, neither Deloitte & Touche LLP nor any of its members has any direct or material indirect +financial interest in St. Mary or any connection with St. Mary in any capacity other than as independent public accountants. A representative of Deloitte & Touche LLP is +expected to be present at the annual meeting and will have an opportunity to make a statement if he desires to do so and to respond to appropriate questions. +The +Company paid the following fees to the independent accountants for the audit of the consolidated financial statements and for other services provided in the years ended +December 31, 2008, and 2007. All services and fees including tax service fees were pre-approved by the Audit Committee. +2008 +2007 +Audit Fees(1) +$ +504,250 +$ +549,900 +Audit Related Fee(2) +$ +2,227 +— +Tax Fees(3) +$ +10,140 +$ +8,500 +All Other Fees +— +— +Total Fees +$ +516,617 +$ +558,400 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +out of pocket expenses related to travel to Audit Committee and stockholder meetings. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee has concluded that the provision of the non-audit services, such as tax services, is compatible with maintaining the accountants' independence. +AUDIT COMMITTEE PREAPPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to +be paid to the independent accountants, and shall approve in advance any non-audit services to be performed by the independent accountants. Such pre-approval requirement for +non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's policy that, prior to the +engagement of the independent accountants, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the independent +accountants (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (i) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services +and estimated fees for proposed audit and non-audit services to be provided by the independent accountants during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent accountants; (ii) actual amounts paid to the independent accountants are monitored by financial management of the Company and reported to +the Audit Committee; (iii) any services proposed to be provided by the independent accountants and the related fees that have not been pre-approved during the annual review by the +Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and, (iv) incremental fees for previously approved services that are expected to exceed +the previously approved fee estimate must also be pre-approved by the Audit Committee. +56 +Table of Contents +FUTURE STOCKHOLDER PROPOSALS +St. Mary must receive any St. Mary stockholder proposal for the annual meeting of stockholders in 2010 by +December 8, 2009, for the proposal to be included in the St. Mary proxy statement and form of proxy for that meeting. For stockholder proposals submitted outside of the proposal rules of +Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the By-Laws require that advance written notice in proper form of stockholder proposals for matters to be +brought before an annual stockholders meeting be received by the Secretary not less than 75 days or more than 105 days before the first anniversary date of the immediately preceding +annual stockholders meeting. Accordingly, notice of stockholder proposals for the 2010 annual meeting must be received by St. Mary between February 4, 2010, and March 6, 2010. +OTHER MATTERS +Management does not know of any matters other than the election of directors, the approval of the 2009 Amendments to the Equity Plan, +and the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's independent registered public accounting firm, to be brought before the annual +meeting of stockholders. If any other matters not mentioned in this proxy statement are properly brought before the meeting, the individuals named in the enclosed proxy intend to use their +discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +C. Mark Brannum +Senior Legal Counsel and Secretary +March 27, +2009 +57 +Table of Contents +ST. MARY LAND & EXPLORATION COMPANY +EQUITY INCENTIVE COMPENSATION PLAN +As +Amended and Restated as of March 26, 2009 +ARTICLE I +ESTABLISHMENT, PURPOSE AND DURATION +1.1 Establishment. St. Mary Land & Exploration Company, a Delaware corporation (the "Company"), +has established an equity incentive compensation plan formerly known as the 2006 Equity Incentive Compensation Plan (the "Plan"). The Plan is hereby renamed and shall be known henceforth as the Equity +Incentive Compensation Plan. The Plan permits the grant of Restricted Stock, Restricted Stock Units, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Performance Shares, +Performance Units and Stock Based Awards. The Plan became effective upon its approval by the Company's stockholders on May 17, 2006 (the "Effective Date") and shall remain in effect as provided +in Section 1.3 hereof. +1.2 Purpose. The purpose of the Plan is to promote the success and enhance the value of the Company by linking +the personal interests of the Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide +flexibility to the Company in its ability to attract, motivate, and retain the services of Participants upon whose judgment, interest, and special effort the success of the Company is substantially +dependent. +1.3 Duration. The Plan commenced as of the Effective Date, as set forth in Section 1.1 hereof, and shall +remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to Article XIV hereof, until the earlier of (i) the tenth +anniversary of the Effective Date, or (ii) when all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. Any previously granted Awards under this Plan +which remain outstanding as of the date of expiration or other termination of the Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with +their respective terms. +1.4 Successor Plan. This Plan shall serve as the successor to the St. Mary Land & Exploration +Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the +St. Mary Land & Exploration Company Non-Employee Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants or awards shall be made under +the Predecessor Plans from and after the Effective Date of this Plan. Each outstanding grant or award under a Predecessor Plan immediately prior to the Effective Date of this Plan shall continue to be +governed solely by the terms and conditions of the applicable Predecessor Plan and the instruments evidencing such grant or award, and, except as otherwise expressly provided herein or by the +Committee, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such outstanding grants or awards under the Predecessor Plans. Any Shares reserved for +issuance under the Predecessor Plans in excess of the number of Shares as to which grants or awards have been made thereunder shall be transferred into this Plan upon the Effective Date and shall +become available for Awards under this Plan. Any +Shares related to grants or awards made under the Predecessor Plans that after the Effective Date may lapse, expire, terminate, or are cancelled, are settled in cash in lieu of common stock, are +tendered (either by actual delivery or attestation) to pay the option price, or are used to satisfy any tax withholding requirements shall be deemed to be available for issuance or reissuance under +Section 4.1 of this Plan; provided, however, that any Shares that from and after May 21, 2008 are tendered (either by actual delivery or attestation) to pay the option price or are used +to satisfy any tax withholding requirements shall not be deemed available for issuance or reissuance under Section 4.1 of this Plan. +A-1 +Table of Contents +ARTICLE II +DEFINITIONS AND CONSTRUCTION +2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below, +unless the context clearly requires otherwise, and when such meaning is intended the term shall be capitalized. +(a) " Affiliate " shall have the meaning given to such term in Rule 12b-2 under the Exchange Act, with +reference to the Company, and shall also include any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least +50 percent of the total combined voting power of such corporation or of the capital interest or profits interest of such partnership or other entity. +(b) " Award " means, individually or collectively, a grant or award under this Plan of Restricted Stock, Restricted Stock +Units, NQSOs, ISOs, SARs, Performance Shares, Performance Units or Stock Based Awards, in each case subject to the terms of this Plan. +(c) " Award Agreement " means either (i) a written agreement entered into by the Company and a Participant setting forth +the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such Award. All +Award Agreements shall be deemed to incorporate the provisions of the Plan. An Award Agreement need not be identical to other Award Agreements either in form or substance. +(d) " Board " or " Board of Directors " means the Board of Directors of the +Company. +(e) " Change of Control " shall mean any of the following events: +(i) (A) +The acquisition by any individual or entity (a "Person") or Persons acting as a group of beneficial ownership (within the meaning of Rule 13d-3 +promulgated under the Exchange Act) of more than 50 percent of either (1) the then value of the outstanding shares of common stock of the Company, or (2) the combined voting power +of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. +(B) For +purposes of paragraph (A), Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the +same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, +purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase +or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and +not with respect to the ownership interest in the other corporation. For purposes of determining stock ownership, see (e)(iv) below. +(ii) A +majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the members +of the Board prior to the date of the appointment or election; or +(iii) (A) +Any one Person, or more than one Person acting as a group (as determined in (e)(iii)(C) below), acquires (or has acquired during the 12 month period ending +on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50 percent of the total gross fair +market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the +value of the assets being disposed of, determined without regard to any liabilities associated with such assets. +A-2 +Table of Contents +(B) A +transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to— +(1) A +stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; +(2) An +entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; +(3) A +Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the +outstanding stock of the Company; or +(4) An +entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in (e)(iii)(B)(3). For purposes +of this paragraph (e)(iii)(B) and except as otherwise provided, a Person's status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which +the Company has no ownership interest before the transaction, but which is a majority owned subsidiary of the Company after the transaction, is not treated as a change in the ownership of the assets +of the Company. +(C) Persons +will not be considered to be acting as a group for purposes of this paragraph (e)(iii) solely because they purchase assets of the Company at the same +time. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business +transaction with the Company. If a Person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar +transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving +rise to the change and not with respect to the ownership interest in the other corporation. +(D) For +purposes of determining stock ownership, see (e)(iv) below. +(iv) For +purposes of determining whether there has been a Change of Control, Section 318(a) of the Code applies to determine stock ownership. Stock underlying a +vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). +For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by §§1.83-3(b) and +(j) of the income tax regulations promulgated by the Internal Revenue Service), the stock underlying the option is not treated as owned by the individual who holds the option. +(f) " Change of Control Price " means the highest per share price for Shares offered in conjunction with any transaction +resulting in a Change of Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change of Control occurring solely +by reason of a change in the composition of the Board, the highest Fair Market Value of the Shares on any of the 30 trading days immediately preceding the date on which a Change of Control occurs. +(g) " Change of Control Termination " has the meaning set forth in Section 13.2 hereof. +(h) " Code " means the Internal Revenue Code of 1986, as amended. +(i) " Committee " means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the +Board appointed by the Board to administer the Plan. The +A-3 +Table of Contents +Committee +shall be comprised of two or more directors, and each member of the Committee shall be a Non-Employee Director, an "outside director" within the meaning of the regulations under +Section 162(m) of the Code, and an "independent director" for purposes of the rules and regulations of the New York Stock Exchange ("NYSE") (or such other principal securities market on which +the Shares are traded). +(j) " Company " means St. Mary Land & Exploration Company, a Delaware corporation, and any successor thereto as +provided in Article XVII hereof. +(k) " Covered Employee " means an Employee who is, or who the Committee expects to become, a "covered employee" within the +meaning of Section 162(m) of the Code. +(l) " Director " means any individual who is a member of the Board of Directors of the Company. +(m) " Dividend Equivalent " means a right with respect to an Award to receive cash, Shares or other property equal in value and +form to dividends declared by the Board and paid with respect to outstanding Shares. Dividend Equivalents shall not apply to Options or Stock Appreciation Rights, and shall not apply to any other type +of Award unless specifically provided for in the Award Agreement, and if specifically provided for in the Award Agreement shall be subject to such terms and conditions set forth in the Award Agreement +as the Committee shall determine. +(n) " Employee " means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or +an Affiliate shall not be considered Employees under this Plan. +(o) " Exchange Act " means the Securities Exchange Act of 1934, as amended. +(p) " Fair Market Value " or " FMV " means a value or price that is based on the +opening, closing, actual, high, low or average selling prices per Share on the NYSE or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next +succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of FMV may differ depending on whether FMV is in reference to the grant, +exercise, vesting, settlement or payout of an Award. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. +(q) " Fiscal Year " means the year commencing on January 1 and ending on December 31, or such other fiscal year +period as approved by the Board. +(r) " Freestanding SAR " means a SAR that is not a Tandem SAR, as described in Article VIII herein. +(s) " Grant Price " means the price against which the amount payable is determined upon exercise of a SAR. +(t) " Incentive Stock Option " or " ISO " means an Option to purchase Shares +granted under Article VII herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision. +(u) " Non-Employee Director " means a Director who meets the definition of a "Non-Employee Director" +set forth in Rule 16b-3(b)(3) under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. +(v) " Nonqualified Stock Option " or " NQSO " means an Option to purchase Shares +granted under Article VII herein, which is not intended to be an Incentive Stock Option or which otherwise does not meet the requirements for an ISO. +(w) " Option " means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the +form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan. +A-4 +Table of Contents +(x) " Option Price " means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by +the Committee. +(y) " Participant " means a participant holding an outstanding Award granted under the Plan. +(z) " Performance Based Compensation " means compensation under an Award that is granted in order to provide remuneration +solely on account of the attainment of one or more Performance Goals under circumstances that satisfy the requirements of Section 162(m) of the Code. +(aa) " Performance Goal " means a performance criterion selected by the Committee for a particular Award for purposes of +Article XI based on one or more Performance Measures. +(bb) " Performance Measures " mean measures as described in Article XI, the attainment of one or more of which shall, as +determined by the Committee, determine the vesting, monetization, or value of an Award to a Covered Employee that is designated to qualify as Performance Based Compensation. +(cc) " Performance Period " means the period of time, which shall not be shorter than 12 months, during which the +assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award of Performance Shares or Performance Units. +(dd) " Performance Share " means an Award granted under Article IX herein, denominated in Shares, the value of which at +the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved. +(ee) " Performance Unit " means an Award granted under Article IX herein, denominated in units, which may be valued by +reference to a designated amount of property other than Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have +been achieved. +(ff) " Plan " means this Equity Incentive Compensation Plan, as it may be amended from time to time. +(gg) " Restricted Stock " means an Award under Article VI of Shares that may be subject to certain restrictions and to a +risk of forfeiture as set forth in the Award Agreement. +(hh) " Restricted Stock Unit " means an Award under Article VI that is valued by reference to a Share, which value may +be paid by delivery of Shares or cash or a combination thereof upon settlement of the Award, subject to the specific terms and conditions of the Award as set forth in the Award Agreement. +(ii) " Securities Act " means the Securities Act of 1933, as amended. +(jj) " Shares " means shares of common stock of the Company, $0.01 par value per share. +(kk) " Stock Appreciation Right " or " SAR " means the conditional right to +receive the difference between the FMV of a Share on the date of exercise over the Grant Price, pursuant to the terms of Article VIII herein. +(ll) " Stock Based Award " means an equity based or equity related Award granted pursuant to the terms of Article X +herein. +(mm) " Tandem SAR " means a SAR that the Committee specifies pursuant to Article VIII herein is granted in connection +with a related Option, the exercise of which SAR shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR +shall similarly be cancelled), or a SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related SAR. +Regardless of whether an Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so specified by the Committee at the time of grant. +A-5 +Table of Contents +2.2 Construction. Captions and titles contained herein are for convenience of reference only and shall not +affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, any definition of any term herein in the singular also shall include the plural. +ARTICLE III +ADMINISTRATION +3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, +consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and the Company's officers and Directors shall be entitled to rely upon the +advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, +the Company, and all other interested parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the +Plan. +3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to +(i) interpret the terms and the intent of the Plan, any Award and any Award Agreement or other agreement ancillary to or in connection with the Plan, (ii) determine eligibility for +Awards and select those who will become Participants in the Plan, (iii) adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper, +(iv) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company with respect to the Plan and (v) make all other determinations necessary +or advisable for the administration of the Plan. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to +Article XIV, adopting modifications, amendments or subplans to the Plan or any Award Agreement. Subject to the terms and provisions of the Plan, the Committee shall have complete discretion in +determining the nature, terms, conditions and amount of each Award. In making such determinations, the Committee may take into account the nature of services rendered by the recipient of the Award, +such person's present and potential contributions to the Company and such other factors as the Committee in its discretion shall deem relevant. +3.3 Delegation. The Committee may delegate to one or more of its members any of the Committee's administrative +duties or powers as it may deem advisable; provided, however, that any such delegation +shall not be inconsistent with the provisions of Rule 16b-3 under the Exchange Act or Section 162(m) of the Code as to actions to be taken by the Committee in connection +therewith. +ARTICLE IV +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +4.1 Total Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2 herein, +the total number of Shares hereby made available and reserved for issuance to Participants pursuant to Awards granted under the Plan shall be 6,000,000, plus any remaining Shares available for +issuance under the Predecessor Plans as set forth in Section 1.4 (with such total number of Shares, including such adjustment and remaining Shares, to be referred to as the "Total Share +Authorization"). Any Shares issued in connection with an Option or SAR shall be counted against the Total Share Authorization limit as one Share for every one Share issued. Any Shares issued pursuant +to Awards granted on or before May 20, 2009 in connection with an Award other than an Option or SAR shall be counted against the Total Share Authorization limit as two Shares for every one +Share issued. Any Shares issued pursuant to Awards granted after May 20, 2009 in connection with an Award other than an Option or SAR shall be counted against the Total Share Authorization +limit as 1.43 Shares for every one Share issued. The maximum aggregate number of Shares that may be issued through Nonqualified Stock Options shall be equal to the Total Share Authorization. The +maximum aggregate number of Shares that may be issued through Incentive Stock Options shall be 6,000,000. +A-6 +Table of Contents +Any Awards that are not settled in Shares shall not be counted against the Total Share Authorization limit. Any Shares related to Awards (or after the Effective +Date, awards granted or issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such Shares, (ii) are settled +in cash either in lieu of Shares or otherwise, or (iii) are exchanged with the Committee's approval for Awards not involving Shares, shall be available again for issuance under the Plan. In +addition, if the Option Price of any Option granted under the Plan or the tax withholding requirement with respect to any Award granted under the Plan is satisfied by tendering Shares to the Company +(by either actual delivery or by attestation), or if a SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the +maximum number of Shares available for issuance under the Plan; provided, however, that from and after May 21, 2008, Shares tendered as full or partial payment to the Company of the Option +Price upon exercise of Options granted under this Plan, Shares reserved for issuance upon grant of SARs, to the extent the number of reserved Shares exceeds the number of Shares actually issued upon +exercise of the SARs, and Shares withheld by, or otherwise remitted to, the Company to satisfy a Participant's tax withholding obligations with respect to any Award granted under this Plan, shall not +become available again for issuance under this Plan. The maximum number of Shares available for issuance under the Plan shall be reduced to reflect any dividends or Dividend Equivalents that are +reinvested into additional Shares under this Plan or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Stock Based Awards. The Shares available +for issuance under the Plan may be authorized and unissued Shares or treasury Shares. Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to qualify as +Performance Based Compensation, the following limits ("Award Limits") shall apply to grants of Awards to Covered Employees under the Plan: +(a) Restricted Stock/Restricted Units. The maximum aggregate number of Shares that may be granted in the form of +Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one Participant shall be 100,000. +(b) Options and SARS. The maximum aggregate number of Shares that may be granted in the form of Options or SARs +in any one Fiscal Year to any one Participant shall be 200,000. +(c) Performance Shares/Performance Units. The maximum aggregate Award of Performance Shares or Performance Units +that a Participant may receive in any one Fiscal Year shall be 200,000 Shares, and the maximum value of Performance Units that a Participant may receive with respect to Awards in any one Fiscal Year +shall be a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +(d) Stock Based Awards. The maximum aggregate grant with respect to Stock Based Awards in any one Fiscal Year to +any one Participant shall be 200,000. +4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not +limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary or +special dividend, stock split, reverse stock split, split up, spin off, other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or +other like change in capital structure or distribution (other than normal cash dividends) to the stockholders of the Company, or any similar corporate event or transaction, the Committee, in order to +prevent dilution or enlargement of Participants' rights under the Plan, shall make or provide for appropriate proportionate substitutions or adjustments, as applicable, to the number and kind of +Shares that may be issued under the Plan, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the application and computation +of any Dividend Equivalents that may be provided for in Award Agreements, the Award Limits, the limit on issuing Awards other than Options granted with an Option Price equal to at least the FMV of a +Share +A-7 +Table of Contents +on +the date of grant or Stock Appreciation Rights with a Grant Price equal to at least the FMV of a Share on the date of grant, and any other value determinations applicable to outstanding Awards or +to this Plan. Such adjustments shall be made automatically, without the necessity of Committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a +stock split effected by means of a stock dividend, and in the case of any other dividend paid in Shares, and shall be made in the discretion of the Committee with respect to other corporate events or +transactions. The Committee, in its sole discretion, may also make other appropriate adjustments in the terms of any Awards under the Plan to reflect, or related to, such changes or distributions and +may modify any other terms of outstanding Awards, including modifications of performance criteria and changes in the length of Performance Periods, as are equitably necessary to prevent dilution or +enlargement of Participant's rights under the Plan that otherwise would result from such corporate event or transaction. The determination of the Committee as to the foregoing adjustments, if any, +shall be conclusive and binding +on Participants under the Plan. Subject to the provisions of Article XIII and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available +hereunder, the Committee may authorize the issuance, assumption, substitution or conversion of Awards under this Plan in connection with any such corporate event or transaction upon such terms and +conditions as it may deem appropriate. In addition, the Committee may amend the Plan, or adopt supplements to the Plan, in such manner as it deems appropriate to provide for such issuance, assumption, +substitution or conversion as provided in the previous sentence. +ARTICLE V +ELIGIBILITY AND PARTICIPATION +5.1 Eligibility. All Employees, consultants who are natural persons, and members of the Board of the Company and +of any Affiliate of the Company shall be eligible to participate in the Plan and be granted Awards under the Plan. +5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, in its +sole discretion, select from among persons eligible to participate in the Plan those to whom Awards shall be granted under the Plan, and shall determine in its discretion the nature, terms, +conditions, and amount of each Award. +ARTICLE VI +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +6.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, in its discretion may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and upon such terms as the Committee +shall determine. +(a) Restricted Stock. +(i) Nature +of Restricted Stock. Restricted Stock may be issued for services rendered with any or no additional purchase price as shall be determined by the +Committee in its discretion, and may be subject to certain restrictions and to a risk of forfeiture as set forth in the Award Agreement. A Participant to whom Shares of Restricted Stock are issued +shall have all of the rights of ownership with respect to the Shares subject to such Restricted Stock Award, including the right to vote the same and receive any dividends paid thereon; subject, +however, to the terms, conditions and restrictions contained in this Plan and in the applicable Award Agreement. +(ii) Forfeiture +and Vesting. A Restricted Stock Award Agreement may provide for forfeiture of the Restricted Stock upon termination of the Participant's +employment or other relationship with the Company or nonperformance of specified performance goals or measures +A-8 +Table of Contents +established +by the Committee. A Restricted Stock Award Agreement may also provide for (i) vesting periods which require the passage of time and/or the occurrence of events in order for the +Restricted Stock to vest and become no longer subject to forfeiture and (ii) holding periods during which the Restricted Stock may not be sold or otherwise transferred. +(iii) Certificates +and Settlement. Upon an Award of Restricted Stock, the Company shall deliver to the Participant a certificate evidencing the Shares subject +to the Award, and such certificate shall be imprinted with an appropriate legend referring to or setting forth the applicable restrictions to which such Shares are subject. After the Shares are no +longer subject to such restrictions, the Company shall, in accordance with the terms and conditions of the Award Agreement and upon the request of the Participant and the surrender by the Participant +of the original certificate, settle the completed Restricted Stock Award by providing the Participant with a new certificate for the Shares with such legend removed. +(b) Restricted Stock Units. +(i) Nature +of Restricted Stock Units; Accounts. Each Restricted Stock Unit awarded shall represent a right for one Share to be delivered upon settlement of the +Award, which right shall be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Plan and the Award Agreement. The Company shall establish and +maintain a Participant account to record Restricted Stock Units and transactions and events affecting such units. Restricted Stock Units and other items reflected in the account will represent only +bookkeeping entries by the Company to evidence unfunded obligations of the Company. +(ii) Deferral +Period and Settlement Date. Restricted Stock Units (if not previously cancelled or forfeited) shall be settled on the date or dates set forth in +the Award Agreement. In addition, unless otherwise determined by the Committee, if the Committee reasonably determines that any settlement of Restricted Stock Units would result in payment of +compensation to a Participant which is not +deductible by the Company under Section 162(m) of the Code, such settlement shall be deferred, subject to compliance with Section 409A of the Code as referred to in Article XX +herein, to the extent necessary to avoid payment of such nondeductible compensation, with such deferral continuing only until such date as settlement can be effected without loss of deductibility by +the Company under Section 162(m) of the Code. +(iii) Cancellation +and Vesting. A Restricted Stock Unit Award Agreement may provide for cancellation of the Restricted Stock Units upon termination of the +Participant's employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Unit Award Agreement may +also provide for vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock Units to vest and become no longer subject to cancellation. +(iv) Dividend +Equivalents. Restricted Stock Units shall not be credited with Dividend Equivalents unless specifically provided for in the Award Agreement, and +then only upon such terms and conditions as set forth in the Award Agreement. +(v) Settlement +and Certificates. Settlement of a Restricted Stock Unit Award shall be made in accordance with the terms and conditions of the applicable Award +Agreement. A Restricted Stock Unit Award Agreement may provide that settlement may be made (A) solely through the issuance of Shares or (B) at the mutual election of the Participant and +the Company, in a combination of Shares and cash. Upon the settlement of a Restricted Stock +A-9 +Table of Contents +Unit +Award, the Company shall deliver to the Participant a certificate for the number of Shares issued to the Participant in settlement of the Award. +6.2 Restricted Stock and Restricted Stock Unit Award Agreements. Each Restricted Stock and Restricted Stock Unit +Award shall be evidenced by an Award Agreement which shall set forth the terms and conditions of such Award, including the number of Shares to which the Award relates, the date or dates upon which +such Award shall vest and the circumstances (including termination of employment or failure to satisfy one or more restrictive covenants or other ongoing obligations) under which the Award shall not +vest, the time and manner of settlement of the Award, such transfer restrictions which the Committee may impose, and any other terms or conditions which the Committee may impose. +(a) If +not otherwise specified by the Committee, the following terms and conditions shall apply to Restricted Stock and Restricted Stock Units awarded under the Plan: +(i) Vesting. An +Award of Restricted Stock or Restricted Stock Units shall vest pursuant to a vesting schedule as determined by the Committee, which vesting +schedule may provide that (A) an Award held by a Participant who retires from employment with the Company after having both reached the age of sixty and completed twelve years of service with +the Company shall continue to vest in accordance with the vesting schedule set forth in the applicable Award Agreement notwithstanding the termination of the Participant's employment with the Company, +provided that prior to full vesting of the Award such Participant does not after such retirement become employed on a full time basis by a competitor of the Company prior to reaching age +sixty-five, and (B) an Award held by a Non-Employee Director of the Company who resigns from the Board after completing at least five years of service to the Company as +a Non-Employee Director shall become fully vested. +(ii) Termination. An +outstanding Award of Restricted Stock that has not vested or an outstanding Award of Restricted Stock Units that has not been settled shall +be cancelled upon the Company's termination of the employment of the Participant for cause. +(iii) Acceleration. An +outstanding Award of Restricted Stock or Restricted Stock Units shall become fully vested and settled irrespective of its other +provisions upon termination of the Participant's employment with the Company or Affiliate because of death, disability or normal retirement upon reaching the age of sixty-five. +(iv) Transferability. An +outstanding Award of Restricted Stock or Restricted Stock Units that has not vested and been settled or is otherwise restricted by the +terms of the Award Agreement as to transferability shall not be transferable by the Participant, and the Participant shall not be permitted to sell, transfer, pledge or otherwise encumber such Award +or the Shares issuable in settlement thereof, other than (A) to the person or persons to whom the Participant's rights under such Award pass by will or the laws of descent and distribution, +(B) to the spouse or the descendants of the Participant or to trusts for such persons to whom or which the Participant may transfer such Award, (C) to the legal representative of any of +the foregoing, or (D) pursuant to a qualified domestic relations order as defined under Section 414(p) of the Code or similar order or agreement relating to the provision of child +support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant. If an Award is transferred to any person to whom a transfer of the Award +is permitted, the transferee shall remain subject to all of the vesting conditions to which the Award is subject. Any such transfer shall be made only in compliance with the Securities Act and the +requirements therefor as set forth by the Company. +(b) The +Committee shall be free to specify terms and conditions other than and in addition to those set forth above, in its discretion. +A-10 +Table of Contents +ARTICLE VII +STOCK OPTIONS +7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants in +such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee in its discretion. ISOs may be granted only to Employees of the Company or a parent or +subsidiary corporation of the Company within the meaning of Section 424 of the Code, and no ISOs may be granted more than 10 years after the adoption of the Plan by the Board. +7.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option +Price, the duration of the Option, the number of Shares to which the Option relates, the conditions upon which an Option shall become vested and exercisable, and any other terms and conditions as the +Committee shall determine. The Award Agreement shall also specify whether the Option is intended to be an ISO or a NQSO. +7.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the +Committee and shall be specified in the Award Agreement. The Option Price for an Option, whether issued as an ISO or an NQSO, shall be not less than 100 percent of the FMV of the underlying +Shares on the date of grant; provided, however, that the Option Price for an ISO granted to a person who at the time of grant owns (or is deemed to own pursuant to Section 424(d) of the Code) +stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any of its Affiliates (a "Significant Stockholder") shall be not less than +110 percent of the Fair Market Value of the underlying Shares as of the date of grant. +7.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided however, that no Option shall be exercisable later than the tenth anniversary date of its grant, and provided further that no ISO granted to a Significant +Stockholder shall be exercisable after the expiration of five years from the date of grant. +7.5 Exercise of Options. Options shall be exercisable at such times and on the occurrence of such events, and be +subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options shall be exercised by the +delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified by or acceptable to the Committee, or by complying with any alternative procedures which may +be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, and accompanied by full payment for the Shares. Upon exercise of any Option, the +Option Price shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having +an aggregate +FMV at the time of exercise equal to the total Option Price; (c) by a combination of (a) and (b); or (d) by any other method approved or accepted by the Committee in its sole +discretion and subject to such rules and regulations as the Committee may establish. Subject to Section 7.6 and any governing rules or regulations, as soon as practicable after receipt of a +notification of exercise and full payment for the Shares, the Company shall cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount based +upon the number of Shares purchased under the Option(s). +7.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired +pursuant to the exercise of an Option granted under the Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant to exercise for a +specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed and/or traded. +A-11 +Table of Contents +7.7 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the +Participant shall have the right to exercise the Option following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be +determined in the sole discretion of the Committee, need not be uniform among all Options granted under the Plan, and may reflect distinctions based on the reasons for termination. +7.8 Nontransferability of Options. +(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned or +otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In addition, all ISOs granted to a Participant under the Plan shall be exercisable during such +Participant's lifetime only by such Participant. +(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a NQSO granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +(c) Notification of Disqualifying Disposition. The Participant to whom an ISO is granted shall notify the +Company upon the disposition of Shares issued pursuant to the exercise of an ISO or Shares received as a dividend on ISO stock. The Company shall use such information to determine whether a +disqualifying disposition as described in Section 421(b) of the Code has occurred. +7.9 $100,000 Annual ISO Limitation. To the extent that the aggregate Fair Market Value of Shares (determined as +of the time the ISOs with respect to such Shares are granted) with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under this Plan and all other +plans of the Company and any Affiliate) exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions shall be applied by taking ISOs into account in the order in which they were +granted. +ARTICLE VIII +STOCK APPRECIATION RIGHTS +8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any +time and from time to time and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of +SARs. The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price may include a Grant Price based +on 100 percent of the FMV of the underlying Share on the date of grant or a Grant Price that is set at a premium to the FMV of the underlying Share on the date of grant. The SAR Grant Price +shall not be less than FMV of the underlying Share on the date of grant. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option. +8.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, +the term of the SAR, and any such other provisions as the Committee shall determine. +8.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee in its sole +discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary date of its grant. +A-12 +Table of Contents +8.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions that +the Committee in its sole discretion imposes. +8.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related +Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then +exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the +expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100 percent of the difference between the Option Price of the +underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject +to the ISO exceeds the Option Price of the ISO. +8.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from +the Company in an amount representing the difference between the FMV of the underlying Share on the date of exercise over the Grant Price. At the discretion of the Committee, the payment upon SAR +exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some +combination thereof, or in any other form approved by the Committee in its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later +determination in the Award Agreement for the grant of the SAR. +8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to exercise the SAR following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the sole +discretion of the Committee, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +8.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a SAR granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +8.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may +impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring +the Participant to hold the Shares received upon exercise of a SAR for a specified period of time. +ARTICLE IX +PERFORMANCE SHARES AND PERFORMANCE UNITS +9.1 Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and upon such terms as the Committee shall determine. +9.2 Value of Performance Shares and Performance Units. Each Performance Share and Performance Unit shall have an +initial value that is established by the Committee at the time of grant. The Committee shall in its discretion set performance criteria for a Performance Period which, depending on the extent to which +the performance criteria are met, will determine, in the manner +A-13 +Table of Contents +established +by the Committee and set forth in the Award Agreement, the value and/or amount of each Performance Share or Performance Unit that will be paid to the Participant. +9.3 Earnings of Performance Shares and Performance Units. Subject to the terms of this Plan and the applicable +Award Agreement, after the applicable Performance Period has ended, the holder of Performance Shares and/or Performance Units shall be entitled to receive, to the extent that the Performance Shares or +Performance Units have vested, if applicable, a payout of the value and/or amount of Performance Shares and/or Performance Units, determined as a function of the extent to which the corresponding +performance criteria have been achieved. The Committee may in its discretion require the Participant to hold the Shares or other property received pursuant to such Award for a specified period of +time. +9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares +and Performance Units shall be made in accordance with the terms and conditions of the applicable Award Agreement. A Performance Share or Performance Unit Award Agreement may provide that payment may +be made, to the extent that the Performance Share or Performance Unit has vested and the performance criteria are met, solely through the issuance of Shares earned upon the expiration of the +applicable Performance Period, and that the Participant may elect to satisfy the Participant's tax withholding obligation with respect to the Award by having the Company withhold Shares or other +property or by the Participant surrendering Shares or other property to the Company with a FMV on or near the tax withholding date equal to the tax withholding obligation. Upon the payment in the form +of Shares of a Performance Share or Performance Unit Award, the Company shall deliver to the Participant a certificate for the number of Shares issued to the Participant in payment of the Award. +9.5 Dividends and Other Distributions. Dividends and other distributions declared by the Board and paid with +respect to outstanding Shares shall only be paid with respect to Performance Share and Performance Unit Awards for Shares that have been issued by the Company in payment of such Awards to the extent +that the Awards have vested and upon the expiration of the applicable Performance Periods for the Awards. Performance Shares and Performance Units shall not be credited with Dividend Equivalents +unless specifically provided for in the Award Agreement, and then only upon such terms and conditions as set forth in the Award Agreement. +9.6 Vesting and Termination of Employment. Each Award Agreement shall set forth the extent to which the Award +shall vest, which may be pursuant to a vesting schedule as determined by the Committee, and the extent to which the Participant shall have the right to retain Performance Shares and/or Performance +Units following the termination of the Participant's employment or other relationship with the Company or an Affiliate. Such provisions shall be determined in the sole discretion of the Committee, +need not be uniform among all Performance Shares and Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +9.7 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a +Participant's Award Agreement at the time of grant or thereafter by the Committee, Performance Shares and Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated, other than by will or by the laws of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the +Committee, a Participant's rights with respect to Performance Shares and Performance Units shall inure during such Participant's lifetime only to such Participant. +A-14 +Table of Contents +ARTICLE X +STOCK BASED AWARDS +10.1 Stock Based Awards. Subject to the terms and conditions of the Plan, the Committee, at any time and from +time to time, may grant other types of equity based or equity related Awards not described by the other terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amounts +and subject to such terms and conditions, including, but not limited to, conditions based on the satisfaction of performance criteria or the satisfaction of such obligations as the Committee shall +determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares. +10.2 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to receive Stock Based Awards following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the +sole discretion of the Committee, need not be uniform among all Stock Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +10.3 Nontransferability of Stock Based Awards. Except as otherwise provided in a Participant's Award Agreement +at the time of grant or thereafter by the Committee, Stock Based Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of +descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, a Participant's rights with respect to Stock +Based Awards shall inure during such Participant's lifetime only to such Participant. +ARTICLE XI +PERFORMANCE MEASURES +Notwithstanding any other terms of this Plan, the vesting, payability or value (as determined by the Committee) of each Award other +than an Option or SAR that, at the time of grant, the Committee intends to be Performance Based Compensation to a Covered Employee, shall be determined by the attainment of one or more Performance +Goals as determined by the Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by resolution or otherwise, the Participants eligible to receive such +an Award (which may be expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within 90 days after the commencement of the period to which the +Performance Goal(s) relate(s), or such earlier time as required to comply with Section 162(m) of the Code. No such Award shall be payable unless the Committee certifies in writing, by +resolution or otherwise, that the Performance Goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value of an Award of Performance Based Compensation above the +maximum value determined under the performance formula by the attainment of the applicable Performance Goal(s), but the Committee retains the discretion to reduce the value below such maximum. +Unless +and until the Committee proposes for stockholder vote and the stockholders approve a change in the general Performance Measures set forth in this Article XI, the +Performance Goal(s) upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the following Performance +Measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +A-15 +Table of Contents +(c) Share +price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or +capital); and +(h) Increases +in, or levels of, operating and/or nonoperating expenses. +Any +Performance Measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or Affiliates of the Company or any combination thereof, as +the Committee may deem appropriate, and any Performance Measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of Performance Goal(s). +The +Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the +relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations +affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 +and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's Annual Report on Form 10-K for the applicable year; and +(f) significant acquisitions or divestitures. To the extent such inclusions or exclusions +affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing Performance Measures without obtaining stockholder approval of +such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to +grant Awards to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code. +ARTICLE XII +RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE +12.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of +the Company or an Affiliate to terminate any Participant's employment, consulting or other service relationship with the Company or an Affiliate at any time, nor confer upon any Participant any right +to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate. Neither an Award nor any benefits arising under this Plan shall constitute part of an +employment or service contract between a Participant and the Company or an Affiliate, and, accordingly, subject to the terms of this Plan, this Plan may be terminated, amended or modified at any time +in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments or otherwise, except as provided in this Plan. +For +purposes of the Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be +deemed a +A-16 +Table of Contents +termination +of employment. The Committee may provide in a Participant's Award Agreement or otherwise the conditions under which a transfer of employment to an entity that is spun off from the Company +or an Affiliate shall not be deemed a termination of employment for purposes of an Award. +12.2 Participation. No Employee or other person eligible to participate in the Plan shall have the right to be +selected to receive an Award. No person selected to receive an Award shall have the right to be selected to receive a future Award or, if selected to receive a future Award, the right to receive such +future Award on terms and conditions identical or in proportion in any way to any prior Award. +12.3 Rights as a Stockholder. A Participant shall have none of the rights of a stockholder with respect to +Shares covered by any Award until the Participant becomes the record holder of such Shares. +ARTICLE XIII +CHANGE OF CONTROL +13.1 Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject to the +provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted prior to May 21, 2008, in the event of a Change of Control, unless otherwise specifically +prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control, and shall be paid out to Participants within +30 days following the effective date of the Change of Control; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control; +(d) Upon +a Change of Control, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, the +Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control, and that the value of such +Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount based on the Change of Control Price within a +reasonable time subsequent to the Change of Control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the FMV of the underlying Shares on the date +of settlement. +13.2 Accelerated Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. Subject to +the provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted on or after May 21, 2008 and prior to a Change of Control, in the event that a Change +of Control occurs and a Participant's employment with the Company is subsequently terminated without Cause (as defined in such Participant's Award Agreement) or the Participant terminates his or her +A-17 +Table of Contents +employment +with the Company for Good Reason (as defined in such Participant's Award Agreement) within 30 months of the Change of Control (a "Change of Control Termination"), unless otherwise +specifically prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded, with respect to such Awards granted to such Participant: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on measured performance as of the +effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to such +Participant within 30 days following the effective date of the Change of Control Termination; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control Termination; +(d) Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, +the Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control Termination, and that the value +of such Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount determined by the Committee, in accordance with +the terms of the Plan and the Award Agreements, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on account of an ISO +using a value higher than the FMV of the underlying Shares on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a Change of Control and a Change of Control Termination do not occur, would result in an Award to a Covered Employee +designed to qualify as Performance Based Compensation to not so qualify, the Committee shall have the discretion to adopt for such Award such provisions as shall satisfy the requirements of +Section 162(m) of the Code. +13.3 Alternative Awards. Notwithstanding Sections 13.1 and 13.2, no cancellation, acceleration of +vesting, lapsing of restrictions, payment of an Award, cash settlement, or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the +occurrence of a Change of Control, that such Award shall be honored or assumed, or new rights substituted therefor (with such honored, assumed or substituted Award hereinafter referred to as an +"Alternative Award") by any successor to the Company or an Affiliate as described in Article XVII; provided, however, that any such Alternative Award must: +(a) Be +based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within 60 days after the +Change of Control; +(b) Provide +such Participant with rights and entitlements substantially equivalent to or more favorable than the rights, terms, and conditions applicable under such Award, +including, but not +A-18 +Table of Contents +limited +to, an identical or more favorable exercise or vesting schedule and identical or more favorable timing and methods of payment; and +(c) Have +substantially equivalent economic value to such Award (determined at the time of the Change of Control). +ARTICLE XIV +AMENDMENT AND TERMINATION OF THE PLAN +14.1 Amendment, Modification, Suspension, and Termination. The Committee or the Board may, at any time and from +time to time, alter, amend, modify, suspend or terminate the Plan in whole or in part; provided, however, that: +(a) Consistent +with the provisions of Section 4.2 and except in connection with a corporate transaction involving the Company (including, without limitation, any +stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the +terms of outstanding Awards may not be amended to reduce the Option Price of outstanding Options or the Grant Price of outstanding SARs or cancel outstanding Options or SARs in exchange for cash, +other Awards or Options or SARs with an Option Price or Grant Price that is less than the Option Price or Grant Price of the original Options or SARs without stockholder approval. +(b) No +amendment or modification which would increase the total number of Shares available for issuance under the Plan or the total number of shares available for ISOs under +the Plan shall be effective unless approved by the stockholders of the Company. +(c) To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment or modification shall be effective unless +approved by the stockholders of the Company in accordance with the applicable law, regulation, or securities exchange or market requirement. +14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make +adjustments in the terms and conditions of, and the criteria provided in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in +Section 4.2 hereof) affecting the Company or the financial statements of the Company, or in recognition of changes in applicable laws, regulations or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Awards +and the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants under the Plan. To the extent such adjustments affect +Awards to Covered Employees +intended to be Performance Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +14.3 No Impairment of Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary, no +amendment, modification, suspension or termination of the Plan shall in any manner adversely affect in any material way any outstanding Award previously granted under the Plan without the written +consent of the Participant holding such Award. +ARTICLE XV +SECURITIES REGISTRATION +15.1 Securities Registration. In the event that the Company shall deem it necessary or desirable to register +under the Securities Act, or any other applicable statute, any Awards or any Shares with respect to which an Award may be or shall have been granted, or to qualify any such Awards or Shares under the +Securities Act or any other statute, then the affected Participants shall cooperate with the +A-19 +Table of Contents +Company +and take such action as is necessary to permit registration or qualification of such Awards or Shares. +15.2 Representations. Unless the Company determines that the following representation is unnecessary, each +person receiving an Award under the Plan may be required by the Company, as a condition to the issuance of Shares pursuant to the Award, to make a representation in writing that (i) he or she +is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the Securities +Act, and (ii) before any transfer in connection with the resale of such Shares, an exemption from registration of such transaction under the Securities Act shall be established to the +satisfaction of the Company. The Company may also require that the certificates representing such Shares contain restrictive legends reflecting the foregoing. +ARTICLE XVI +TAX WITHHOLDING +In connection with Awards granted under the Plan, the Company and any Affiliate shall have the power and the right to deduct or +withhold, or require a Participant to remit to the Company or any Affiliate, amounts sufficient to satisfy any federal, state and local withholding tax requirements with respect to any taxable event +as a result of the Plan and Awards granted under the Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant +making other arrangements, in either case on such conditions as the Committee specifies. The Company may in its discretion make loans to Participants of funds sufficient to satisfy any such +withholding tax requirements, provided that any such loan shall comply with all applicable laws, rules and regulations and no such loan shall be made to a Director or executive officer of the Company +in violation of Section 13(k) of the Exchange Act, as adopted pursuant to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any Affiliate shall have the right to require +that any recipient or permitted transferee of an Award under the Plan who is not an Employee shall be responsible for the payment of all amounts required to satisfy all federal, state, and local +withholding taxes applicable to such persons with respect to such Award. +ARTICLE XVII +SUCCESSORS +Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder, shall be binding on any +successor to the Company or Affiliate, respectively, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially +all of the business and/or assets of the Company or Affiliate, as applicable. +ARTICLE XVIII +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee, or an officer or employee +who assists in administering the Plan, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by +him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure +to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in any such +action, suit or proceeding against him or her, provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle +and defend it on his or her own behalf. The foregoing right of +A-20 +Table of Contents +indemnification +shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's certificate of incorporation or bylaws, as a matter of law or +otherwise, or any power that the Company or an Affiliate may have to indemnify them or hold them harmless. +ARTICLE XIX +GENERAL PROVISIONS +19.1 Forfeiture Events. Without limiting in any way the generality of the Committee's power to specify any terms +and conditions of an Award consistent with law, the Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to +reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events +may include, but not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and Affiliate +policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection or other agreements that may apply to the Participant, or other conduct by the +Participant that is detrimental to the business or reputation of the Company or Affiliates. +19.2 Legend. The certificates for Shares issued under the Plan may include any legend that the Committee deems +appropriate to reflect any restrictions on transfer of such Shares. +19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares +issued under the Plan prior to: +(a) Obtaining +any approvals from governmental agencies that the Company determines are necessary or advisable; and +(b) Completion +of any registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental body that the Company +determines to be necessary or advisable, and the listing or approval for trading of such Shares on any applicable securities exchange or market. +19.4 Uncertificated Shares. Where the Plan provides for the issuance of stock certificates to evidence the +issuance or transfer of Shares, such Shares may be evidenced on an uncertificated basis to the extent not prohibited by applicable law or stock exchange rules. +19.5 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments that +the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to +create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative or any other person. Awards shall be general +unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company, the Award shall be a general unsecured obligation of the Affiliate and not an +obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured +general creditor of the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or +separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the +Employee Retirement Income Security Act of 1974. +19.6 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award +Agreement. In the event that any fractional Shares would otherwise result from the application of the terms of an Award, the Company shall instead pay cash in lieu of fractional Shares on such basis +as the Committee may determine in its discretion. +A-21 +Table of Contents +19.7 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the +Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program +or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant's rights under any such other plan, policy, program or arrangement. +19.8 No Constraint on Corporate Action. Nothing in this Plan shall be construed to (i) limit, impair or +otherwise affect the Company's or an Affiliate's right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or +dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) limit the right or power of the Company or an Affiliate to take any action which such entity deems to be +necessary or appropriate. +19.9 Severability. In the event that any provision of the Plan shall be held to be illegal or invalid for any +reason, the illegality or invalidity thereof shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been +included. +19.10 Requirements of Law. The granting of Awards and the issuance of Shares pursuant to an Award shall be +subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges or markets as may be required. The Company or an Affiliate shall +receive the consideration required by law for the issuance of Awards under the Plan. The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, +which authority is necessary for the lawful issuance and sale of any Shares hereunder, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as +to which such requisite authority shall not have been obtained. +19.11 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and +governed by the laws of the State of Colorado, excluding any conflicts or choice of law principles which might otherwise result in construction or interpretation of the Plan or an Award Agreement +under the substantive law of another jurisdiction. +ARTICLE XX +SECTION 409A OF THE CODE +This Plan is intended in all respects to comply with the provisions of Section 409A of the Code and the Company shall interpret +and administer the Plan in a manner consistent with Section 409A of the Code. In accordance with Prop. Reg. §1.409A-3(h)(2)(vi) (or any subsequent corresponding +provision of law), should there be a final determination that this Plan fails to meet the requirements of Section 409A and the regulations thereunder with respect to any Participant, the +Company may distribute to the Participant an amount not to exceed the amount required to be included in income as a result of the failure to comply with the requirements of Section 409A and the +regulations. +Notwithstanding +any other provision of this Plan to the contrary, in the event that any compensation pursuant to the other provisions of this Plan would result in the imposition on a +Participant of any additional taxes or interest pursuant to the provisions of Section 409A of the Code and any temporary or final Treasury Regulations or Internal Revenue Service guidance +thereunder, the timing of the payment or settlement of such compensation shall be appropriately and equitably adjusted, together with any appropriate and equitable adjustments to reflect the time +value of money, in order that such Participant may receive substantially the same economic benefits as provided under this Plan and in compliance with Section 409A of the Code and without the +imposition on such Participant of any additional taxes or interest thereunder. +[Remainder +of page intentionally left blank] +A-22 +Table of Contents +This +Equity Incentive Compensation Plan, as amended and restated, was adopted by the Board of Directors of St. Mary Land & Exploration Company on March 26, 2009. +ST. MARY LAND & EXPLORATION COMPANY +By: +/s/ ANTHONY J. BEST +Anthony J. Best +President and Chief Executive Officer +A-23 + +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000004 MR A +SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 123456 +C0123456789 12345 NNNNNNN 0 2 1 5 9 6 1 MR A SAMPLE (THIS AREA IS SET UP TO +ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE +AND C 1234567890 J N T C123456789 Using a black ink pen, mark your votes with +an X as shown in this example. Please do not write outside the designated +areas. X 0119XB 1 U PX + Annual Meeting Proxy Card + A Proposals — The Board +of Directors recommends a vote FOR all the nominees listed and FOR Proposals +2 - 3. Mark here to WITHHOLD vote from all nominees Mark here to vote FOR all +nominees For All EXCEPT - To withhold authority to vote for any nominee(s), +write the name(s) of such nominee(s) below. For Against Abstain 1. The +Nominating and Corporate Governance Committee of the Board of Directors has +nominated the below seven persons to stand for election as directors. As of +the date of the accompanying proxy statement, no one has been nominated to +serve as director other than the nominees listed below. 01 - Barbara M. Baumann +02 - Anthony J. Best 03 - Larry W. Bickle 04 - William J. Gardiner 05 - Julio +M. Quintana 06 - John M. Seidl 07 - William D. Sullivan 2. The proposal to +approve the 2009 Amendments to the Equity Incentive Compensation Plan. For +Against Abstain 3. The proposal to ratify the appointment of Deloitte & +Touche LLP by the Audit Committee as the Company’s independent registered +public accounting firm for 2009. Authorized Signatures — This section must be +completed for your vote to be counted. — Date and Sign Below C Please sign +exactly as name(s) appears hereon. Joint owners should each sign. When +signing as attorney, executor, administrator, corporate officer, trustee, +guardian, or custodian, please give full title. Signature 1 — Please keep +signature within the box. Signature 2 — Please keep signature within the box. +Date (mm/dd/yyyy) — Please print date below. B Non-Voting Items Change of +Address — Please print new address below. [1] IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE +BOTTOM PORTION IN THE ENCLOSED ENVELOPE. [1] Electronic Voting Instructions You +can vote by Internet or telephone! Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the two voting methods outlined +below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE +BAR. Proxies submitted by the Internet or telephone must be received by 1:00 +a.m., Central Time, on May 20, 2009. Vote by Internet • Log on to the +Internet and go to www.investorvote.com/SM • Follow the steps outlined on the +secured website. Vote by telephone • Call toll free 1-800-652-VOTE (8683) +within the United States, Canada & Puerto Rico any time on a touch tone +telephone. There is NO CHARGE to you for the call. • Follow the instructions +provided by the recorded message. +Proxy — St. +Mary Land & Exploration Company 1776 Lincoln Street, Suite 700 Denver, +Colorado 80203 This proxy is solicited on Behalf of the Board of Directors +For the Annual Meeting of Stockholders on May 20, 2009. The undersigned +hereby appoints Anthony J. Best and C. Mark Brannum, or either of them, each +with the power to appoint his substitute, as proxies for the undersigned to +vote all shares of St. Mary Land & Exploration Company common stock which +the undersigned is entitled to vote at the Annual Meeting of Stockholders to +be held on May 20, 2009, and at any reconvened meeting after any adjustment +thereof, as directed on the matters referred to on the reverse side and at +their discretion on any other matters that may properly be presented at the +meeting. This proxy when properly executed will be voted in the manner +directed by the undersigned stockholder. If this proxy is properly executed +but no voting direction is given, this proxy will be voted “For” all director +nominees listed on this proxy, the approval of the 2009 Amendments to the +Equity Incentive Compensation Plan, and the ratification of the appointment +by the Audit Committee of Deloitte & Touche LLP as St. Mary Land & +Exploration Company’s independent public accounting firm for 2009. This proxy +also confers discretionary authority to the proxies to vote on any other +matters that may properly be presented at the meeting. As of the date of the +accompanying proxy statement, St. Mary Land & Exploration Company’s +management did not know of any other matters to be presented at the meeting. +If any other matters are properly presented at the meeting, this proxy will +be voted in accordance with the recommendations of St. Mary Land & +Exploration Company’s management. [1] IF YOU HAVE +NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH +AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. [1] \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-09-003833/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-09-003833/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..14e0e4c867ef819e073a53b4ff1eb49b7d463e34 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-09-003833/proxy_rpt.txt @@ -0,0 +1,35 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policy on Transactions with Related Persons +The Company has adopted a written policy and procedures for the Audit Committee's review of any transaction, arrangement, or +relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (i) the Company is a participant, +(ii) the aggregate amount involved will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this +policy, a "related person" means (i) any of our directors, executive officers or nominees for director, (ii) any stockholder that beneficially owns more than five percent of the +Company's outstanding shares of common stock, and (iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good +faith are in, or are not inconsistent with, the best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, the By-Laws provide that no director, officer, or employee may pursue for his or her own account a business or investment opportunity if he or she has obtained +knowledge of such opportunity through his or her affiliation with the Company. In addition, no officer or employee of St. Mary may pursue for his or her own account an oil and gas opportunity +as to which his or her knowledge of the opportunity was not obtained through his or her affiliation with the Company unless (a) with respect to an officer of St. Mary, the officer's +pursuit of the opportunity has been approved by the Board of Directors, and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been +approved by a senior officer of St. Mary with full knowledge of such opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of +another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its directors during the last fiscal year. +Some of the aspects of this transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will +always be resolved in favor of St. Mary. +Mr. Hellerstein, +who currently serves as Chairman of the Board of Directors of St. Mary and is retiring from the Board of Directors effective at the annual meeting on +May 20, 2009, is a participant in the NPP as a result of his prior service to the Company as an executive officer, including service as President from 1992 to June 2006 and Chief Executive +Officer from 1995 to February 2007. As a result of Mr. Hellerstein's vested participation interests in the NPP arising from his prior service, the Company made NPP payments to +Mr. Hellerstein during 2008 in the total amount of $6,172,098. The Audit Committee has reviewed this relationship and determined that it is not in conflict with the Company's Policies and +Procedures with Respect to Related Person Transactions, since Mr. Hellerstein's NPP participation interests were awarded to him while he was an employee of St. Mary in order to provide +for future incentive bonus compensation for his services as an executive officer. For a description of the NPP, please see the section entitled "Net Profits Interest Bonus Plan (NPP)" in the +"Compensation Discussion and Analysis" section of this proxy statement. +54 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-10-003614/proxy.txt b/raw/proxies/0000893538/0001047469-10-003614/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1b4f0402537a0b580f7b75171943142d0f5c1590 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-10-003614/proxy.txt @@ -0,0 +1,5019 @@ +DEF 14A +1 +a2197846zdef14a.htm +DEF 14A +Use these links to rapidly review the document +Proxy Statement Table of Contents +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +St. Mary Land & Exploration Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 240.0-11 and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +April 2, 2010 +Dear +Stockholder: +You +are cordially invited to attend the 2010 annual meeting of stockholders of St. Mary Land & Exploration Company (the "Company or "St. Mary"), which is scheduled +to be held in the J.D. Hershner Room of Wells Fargo Bank located at 1700 Lincoln Street in Denver, Colorado, on Wednesday, May 26, 2010, at 3:30 p.m. local time. +At +the meeting, you and the other stockholders will vote on: +• The election as directors of the seven persons named in the attached proxy statement; +• The approval of an amendment to the Equity Incentive Compensation Plan to increase the stated total number of shares +authorized for issuance under this plan from 6,000,000 shares to 7,600,000 shares; +• The approval of an amendment to the Certificate of Incorporation to change the name of the Company to "SM Energy Company"; +and +• The ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm for 2010. +You +will also have the opportunity to hear reports on St. Mary's operations and to ask questions of general interest. You can find other, more specific information about the +meeting in the accompanying proxy statement, and you can find detailed information about St. Mary in our 2009 Annual Report, which is available on our website, www.stmaryland.com . +Pursuant +to U.S. Securities and Exchange Commission rules, we may provide you with access to our proxy materials over the Internet. As a result, many beneficial owners of our stock will +be receiving from an intermediary a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a paper copy of the accompanying proxy statement and our 2009 Annual Report. The Notice +contains instructions on how to access those documents over the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including the accompanying proxy +statement, our 2009 Annual Report, and a form of proxy card. We will mail printed proxy materials to all stockholders of record. +You +may vote your shares by using the telephone or Internet voting systems described on the Notice or the proxy card. If you received a printed copy of a proxy card by mail, you may +submit your proxy card by completing and signing the proxy card and returning it promptly. This will ensure that your shares are represented at the meeting even if you cannot attend. +If +you have any questions concerning the annual meeting or the proposals and you are the stockholder of record of your shares, please contact our Investor Relations Department at +(303) 861-8140. If your shares are held by a bank, broker, or other nominee (that is, in "street name"), please contact the bank, broker, or other nominee for questions concerning +the annual meeting or the proposals. If you are the stockholder of record of your shares and have questions regarding your stock ownership, please contact our transfer agent, Computershare Trust +Company, Inc., by telephone at (303) 262-0600. +Thank +you for your cooperation by voting by telephone or the Internet, or returning your proxy card, as promptly as possible. We hope to see many of you at our meeting in Denver. +Very +truly yours, +Anthony +J. Best +CEO & President +Table of Contents +St. Mary Land & Exploration Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL STOCKHOLDERS' MEETING +on May 26, 2010 +To +All Stockholders: +The +2010 annual meeting of the stockholders of St. Mary Land & Exploration Company (the "Company or "St. Mary") is scheduled to be held in the J.D. Hershner Room of +Wells Fargo Bank located at 1700 +Lincoln Street in Denver, Colorado, on Wednesday, May 26, 2010, at 3:30 p.m. local time. The purpose of the meeting is: +1. To +elect as directors the seven persons named in the attached proxy statement to serve during the next year; +2. To +approve an amendment to the Equity Incentive Compensation Plan to increase the stated total number of shares authorized for issuance under this plan from +6,000,000 shares to 7,600,000 shares; +3. To +approve an amendment to the Certificate of Incorporation to change the name of the Company to "SM Energy Company"; +4. To +ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's independent registered public accounting firm for +2010; and +5. To +transact any other business that may properly come before the meeting. +Only +stockholders of record at the close of business on March 29, 2010 may vote at this meeting. +Please vote by using the telephone or Internet voting systems described on the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached proxy statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Any stockholder may +revoke their proxy at any time before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +Karin M. Writer +Assistant Secretary +Denver, Colorado +April 2, 2010 +Table of Contents +Proxy Statement Table of Contents +Page +General +1 +Purpose of the Annual Meeting +1 +Information About the Notice of Internet Availability of Proxy +Materials +1 +Other Available Information +2 +Stockholders Sharing the Same Address +2 +Who Can Vote +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements +3 +Payment of Proxy Solicitation Costs +4 +Structure of the Board of Directors +5 +Proposal 1—Election of Directors +7 +Corporate Governance +11 +Board of Directors +11 +Board Leadership Structure +12 +Presiding Director at the Non-Management Directors' Executive +Sessions +12 +Communication with the Directors of the Company +12 +Board and Committee Meetings +13 +Risk Oversight +14 +Certain Relationships and Related Transactions +16 +Security Ownership of Certain Beneficial Owners and Management +17 +Executive Compensation +19 +Compensation Discussion and Analysis +19 +Compensation Committee Report +36 +Executive Compensation Tables +37 +Summary Compensation Table for 2007, 2008, and 2009 +37 +Grants of Plan Based-Awards in 2009 +38 +Outstanding Equity Awards at 2009 Fiscal Year-End +39 +Nonqualified Deferred Compensation +40 +2009 Option Exercises and Stock Vested +40 +Retirement Plans +41 +Pension Benefits +41 +Equity Compensation Plans +41 +Employment Agreements and Termination of Employment +43 +Change of Control Arrangements +44 +Director Compensation +46 +2009 Director Compensation +47 +Other Reportable Items Related to Payments Made by the Company Associated with +Service of a Director +48 +Proposal 2—Approval of Amendment to Equity Incentive Compensation Plan +48 +Proposal 3—Approval of Amendment to the Certificate of Incorporation to +Change the Name of the Company to "SM Energy Company" +61 +Proposal 4—Ratification of the Appointment by the Audit Committee of +Deloitte & Touche LLP as the Company's Independent Registered Public Accounting Firm for 2010 +63 +Report of the Audit Committee +63 +Independent Accountants +64 +Audit Committee Preapproval Policy and Procedures +64 +Other Information +65 +Section 16(a) Beneficial Ownership Reporting Compliance +65 +Future Stockholder Proposals +65 +Other Matters +65 +Annex A—Equity Incentive Compensation Plan, as amended and restated as of April 1, +2010 +A-1 +Table of Contents +St. Mary Land & Exploration Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +(303) 861-8140 +PROXY STATEMENT +General +This proxy statement contains information about the 2010 annual meeting of stockholders of St. Mary Land & Exploration +Company scheduled to be held in the J.D. Hershner Room of Wells Fargo Bank located at 1700 Broadway in Denver, Colorado, on Wednesday, May 26, 2010, at 3:30 p.m. local time. The +St. Mary Board of Directors is using this proxy statement to solicit proxies for use at the annual meeting. In this proxy statement, the terms "St. Mary," "the Company," "we," and "us" +refer to St. Mary Land & Exploration Company inclusive of its subsidiaries. +Purpose of the Annual Meeting +At the Company's annual meeting, stockholders will vote on: +• The election as directors of the seven persons named in this proxy statement to serve during the next year; +• The approval of an amendment to the Equity Incentive Compensation Plan (the "Equity Plan") to increase the stated total +number of shares authorized for issuance under this plan from 6,000,000 shares to 7,600,000 shares; +• The approval of an amendment to the Certificate of Incorporation to change the name of the Company to "SM Energy Company"; +• The ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm for 2010; and +• To transact any other business that may properly come before the meeting. +As +of the date of this proxy statement, the Company is not aware of any business to come before the meeting other than the items noted above. +Information about the Notice of Internet Availability of Proxy Materials +The proxy materials, including this proxy statement, a proxy card or voting instruction card, and the Company's 2009 Annual Report, are +being distributed and made available on or about April 16, 2010. In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission (the "SEC"), the Company +is furnishing our proxy materials to many beneficial owners of our stock on the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be mailed by intermediaries on or +about April 16, 2010, to beneficial owners of our stock. Stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request that the +Company send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The Company will mail printed +proxy materials to all stockholders of record. +The +Notice will also provide instructions on how to inform the Company to send future proxy materials to you electronically by email or in printed form by mail. If you choose to receive +future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy +materials by email or in +1 +Table of Contents +printed +form by mail will remain in effect until you terminate it. Choosing to receive future proxy materials by email will reduce the Company's printing and mailing costs. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 26, 2010: The proxy +statement and 2009 Form 10-K of the Company are available at https://materials.proxyvote.com/792228. +Other Available Information +This proxy statement and the Company's 2009 Annual Report on Form 10-K are also available at the Company's website +at www.stmaryland.com , in the Investor Relations—SEC Filings section. In addition, the Company makes available through the Corporate +Governance section of its website the Company's Corporate Governance Guidelines, Code of Business Conduct and Ethics, which applies to all employees, officers, and members of the Board of Directors, +and the Charters for the Audit Committee, Compensation Committee, Executive Committee, and Nominating and Corporate Governance Committee. These documents will be furnished in print to any stockholder +who requests them. Information on the Company's website is not incorporated by reference into this proxy statement and should not be considered part of this document. +Stockholders Sharing the Same Address +The Company has adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have +the same address and last name will receive only one copy of our proxy materials that are delivered until such time as one or more of these stockholders notifies the Company that they want to receive +separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and utilize separate proxy voting +instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our annual report or proxy statement, please submit a request +to St. Mary's Corporate Secretary at 1775 Sherman Street, Suite 1200, Denver, CO 80203 or call (303) 861-8140, and we will promptly send you what you have requested. +You can also contact the Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the future, or +if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their banks, brokers, or other holders of record. +Who Can Vote +Only stockholders of record at the close of business on the record date of March 29, 2010, are entitled to receive notice +of the annual meeting and to vote shares of St. Mary common stock held on that date. As of March 29, 2010, there were 62,823,003 shares of St. Mary common stock issued and +outstanding, net of 126,893 shares held in treasury by the Company. Holders of St. Mary common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of +directors. +How to Vote +If your shares of St. Mary common stock are held by a broker, bank, or other nominee (in "street name"), you will receive +information from them on how to instruct them to vote your shares. +If +you hold shares of St. Mary common stock in your own name (as a "stockholder of record"), you may give instructions on how your shares are to be voted by following the +telephone or Internet voting procedures described on the proxy card, or by marking, signing, dating, and returning the enclosed proxy card in the accompanying postage paid envelope. The telephone and +Internet voting +2 +Table of Contents +procedures +are designed to ensure that proxies are handled properly under Delaware law. Votes cast in either of these two manners are authenticated by use of a personal identification number and allow +stockholders to confirm that their instructions have been properly recorded. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +A +proxy, when properly completed and not revoked, will be voted in accordance with its instructions. If no voting instructions on a particular matter are given on a properly submitted +and unrevoked proxy, +the shares represented by the proxy will be voted on that particular matter as follows: +• FOR the election as directors of the seven nominees named in this proxy statement under the caption "Proposal +1—Election as Directors"; +• FOR the approval of an amendment to the Equity Plan to increase the stated total number of shares authorized for issuance +under this plan from 6,000,000 shares to 7,600,000 shares; +• FOR the approval of an amendment to the Certificate of Incorporation to change the name of the Company to "SM Energy +Company"; and +• FOR the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's +independent registered public accounting firm for 2010. +Revoking a Proxy +You may revoke a proxy before the vote is taken at the meeting by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet +voting procedures before the meeting; +• by voting in person at the meeting; or +• by filing a written revocation with St. Mary's Secretary (the "Secretary"). +Your +attendance at the annual meeting will not automatically revoke your proxy. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one third of the outstanding +shares of common stock are present at the meeting in person or by proxy. Abstentions and broker non-votes (as described below under "Voting Requirements") count as present for establishing +a quorum. Shares held by St. Mary in its treasury are not entitled to vote and do not count toward a quorum. If a quorum is not present, the meeting may be adjourned until a quorum is obtained. +Voting Requirements +Voting Requirements for Each Proposal +Election of Directors —St. Mary's By-Laws (the "By-Laws") +provide that the election of directors shall be decided by the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. In order for a +director nominee to be elected, the number of votes cast "For" the nominee must exceed the number of votes cast "Against" such nominee. Proxies marked as "Abstain" will be counted in determining the +total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. +Approval of Amendment to the Equity Plan —Under New York Stock Exchange ("NYSE") rules and regulations promulgated under Section 162(m) of the +Internal Revenue Code ("IRC"), the approval of +3 +Table of Contents +the +amendment to the Equity Plan to increase the number of shares authorized for issuance under this plan requires the affirmative vote of a majority of the votes cast on the amendment, and the NYSE +rules require that the total votes cast represent over 50 percent of all shares entitled to vote. Abstentions will have the effect of votes against approval of the amendment. +Approval of the Amendment to the Certificate of Incorporation to Change the Name of the Company to "SM Energy Company" —Under the Delaware General +Corporation Law, approval of an amendment to the certificate of incorporation requires the affirmative vote of the holders of a majority of the total number of shares of common stock outstanding as of +the record date and entitled to vote at the meeting. Proxies marked as "Abstain" will have the same effect as a vote "Against" the proposal. +Ratification of Appointment of Deloitte & Touche LLP as the Company's Independent Registered Public Accounting Firm for 2010 —This +proposal shall be decided by the vote of the holders of a majority of the shares present in person or by proxy at the meeting and entitled to vote. Proxies marked as "Abstain" will be counted in +determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +Effect of Broker Non-Votes +Under NYSE rules, if your shares are held in "street name" and you do not indicate how you wish to vote, your +broker, banker, or other nominee is only permitted to exercise +its discretion to vote your shares on certain "routine" matters. Due to a recent amendment to the NYSE rules, your broker, banker, or other nominee may no longer vote your shares with respect to the +election of directors without specific instructions from you as to how to vote, because the election of directors is no longer considered to be a "routine" matter. Under the NYSE rules, Proposal +1—Election of Directors and Proposal 2—Approval of the Amendment to the Equity Plan, are not "routine" matters, whereas Proposal 4—Ratification of the Appointment +of Deloitte & Touche LLP is a "routine" matter. The NYSE may consider Proposal 3—Approval of Amendment to the Certificate of Incorporation to be a "non-routine" +matter. If you do not direct your broker, banker, or other nominee how to vote for a non-routine matter, such as for the election of directors, your broker may not exercise discretion and +may not vote your shares. This is called a "broker non-vote." For voting requirement purposes for Proposal 1 and Proposal 2, broker non-votes are considered to be shares +represented by proxy at the annual meeting but are not considered to be shares "entitled to vote" at the annual meeting. As such, a broker non-vote will not be counted as a vote "For" or +"Against" a director in Proposal 1 or "For" or "Against" the approval of the Amendment to the Equity Plan in Proposal 2 and, therefore, will have no effect on the outcome on the vote on Proposal 1 or +Proposal 2. Since Proposal 3—Approval of Amendment to the Certificate of Incorporation requires the affirmative vote of the holders of a majority of the total number of shares of common +stock outstanding as of the record date and entitled to vote at the meeting, any broker non-vote with respect to that proposal will have the same effect as a vote "Against" that +proposal. +Payment of Proxy Solicitation Costs +St. Mary will pay all costs of soliciting proxies. St. Mary has retained The Altman Group, Inc. to assist in the +solicitation of proxies for an estimated fee of $9,000 plus reimbursement of reasonable expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the +Internet. In addition, St. Mary officers, directors, and employees may also solicit proxies in person, by telephone, or by other electronic means of communication. St. Mary will ask +banks, brokers, other institutions, nominees, and fiduciaries to forward proxy materials to their principals and obtain authority to execute proxies. +4 +Table of Contents +STRUCTURE OF THE BOARD OF DIRECTORS +All directors of the Company are elected annually. At the annual meeting, seven directors are to be elected to serve for one year or +until their successors are elected and qualified. The Company's nominees for these directorships are identified below; each currently serves as a director. +The +Company's Corporate Governance Guidelines provide that the Nominating and Corporate Governance Committee ("NCG Committee") of the Board of Directors shall be responsible for +identifying and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee performed its evaluation and nominating functions during 2009 and early 2010. +The NCG Committee selects each nominee based on the nominee's skills, achievements, and experience. As set forth in the director qualification standards included in the Company's Corporate Governance +Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in high level business policymaking and a commitment to represent the long term +interests of the Company's stockholders. These standards also provide that each director should have experience in positions of responsibility and leadership, an understanding of the Company's +business environment, and a reputation for integrity. In addition, the Corporate Governance Guidelines provide that a director who retires or experiences a significant change in his or her +professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested by the NCG Committee, be prepared to offer his +or her resignation from the Board, and the NCG Committee and the Board may review the continued appropriateness of Board membership under the circumstances. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to the long term success of the Company and represent interests of stockholders. In determining whether to recommend a director +for reelection, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee solicits suggestions from incumbent directors, management, stockholders, and others. The NCG Committee has authority under its +charter to retain a search firm for this purpose. If the NCG Committee believes a candidate would be a valuable addition to the Board of Directors, it recommends his or her candidacy to the Board of +Directors. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board of +Directors should reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to the Company, skills, backgrounds, perspectives, gender, race, ethnicity, and +national origin. +In considering diversity in identifying director nominees, the NCG Committee considers the Board of Directors as a whole, without specific representative directors, with the overall objective of +identifying a group of directors that reflects diversity, can work in a collaborative and effective manner, and that can best contribute to the long-term success of the Company. The NCG +Committee believes that the current Board members and director nominees reflect the Company's commitment to diversity. Out of a total of seven directors, the Company currently has one female director +and one Hispanic director, each of whom has served on the Board for several years. +The +NCG Committee will consider suggestions by stockholders of possible future nominees. No such suggestions were received during 2009. Stockholders may nominate persons for election to +the Board in accordance with the By-Laws. Stockholder suggestions should be delivered on or before November 1 st in any year before the next annual meeting. In +addition, the By-Laws permit stockholders to nominate directors for election at an annual meeting, provided that advance written notice of the nomination containing the information +required under the By-Laws is received by the Secretary not less +5 +Table of Contents +than +75 days or more than 105 days before the first anniversary date of the immediately preceding annual meeting. Accordingly, proper notice of a stockholder nomination for director for +the 2011 annual meeting must be received by St. Mary between February 10, 2011, and March 14, 2011. No stockholder nominations were received regarding the 2010 +annual meeting. +The +proxies will be voted in favor of the nominees unless a contrary specification is made in the proxy. All nominees have consented to serve as directors of the Company if elected. +However, if any nominee is unable to serve or for good cause will not serve as a director, the directors intend to vote in their discretion for a substitute who will be designated by the Board of +Directors. +6 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Set forth below is certain biographical information as of February 15, 2010, for each nominee for election as director, +including his or her principal occupation, business experience, and public company directorships held during the last five years. +As +discussed above, the NCG Committee utilizes the framework of the Company's Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and +believes that each nominee should have experience in positions of responsibility and leadership and an understanding of the Company's oil and natural gas exploration and production environment. The +overall objective is to identify a group of directors that can best contribute to the Company's long-term success. All of the nominees discussed below are seasoned leaders who bring to the +Board a vast array of oil and gas industry, public company, private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards +set forth in the Corporate Governance Guidelines. Among other attributes, they possess a breadth of varied skills and experience in leadership, oil and gas businesses, finance and accounting, risk +management, operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public +policy—qualities that led the NCG Committee and the Board to conclude that they should serve as the Company's directors at this time, in light of the Company's business and structure, +overall industry environment, and the Company's long-term strategy. These specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each +nominee's biographical information below. In addition, the nominees, whose experiences cover various aspects of the oil and gas industry, represent diverse backgrounds, skill sets, and viewpoints, +with a blend of historical and newer perspectives on the Company, and have a demonstrated ability to work collaboratively with candid discussion. +Age +Director +Since +Barbara M. Baumann is President of Cross Creek Energy Corporation, which provides consulting services for +oil and gas exploration and production companies. Ms. Baumann has held that position since July 2003. From 2000 to July 2003, Ms. Baumann was Executive Vice President of Associated Energy Managers LLC, an investment manager and general +partner of a private equity energy fund specializing in oil and gas investments for institutional investors. From 1981 to 1999, Ms. Baumann was with BP Amoco, a major oil and gas company, and held a variety of financial and operational +management positions, including Chief Financial Officer of an environmental remediation subsidiary, Vice President of the San Juan Business Unit, and the Commercial Operations Manager of the Western Business Unit. Ms. Baumann is also a director +of UniSource Energy Corporation (NYSE: UNS), the parent company for Tucson Electric Power Company, a regulated electric utility which provides electric service to the community of Tucson, Arizona. +54 +2002 +Ms. Baumann brings to the Board over 25 years experience in the oil and gas exploration and +production industry, including strong and broad strategic planning, economic evaluation, operational, natural gas marketing, and human resources management skills and experience, which are important to the oversight of the Company's financial, +operational, and compensation management functions. She also has significant financial management and accounting management experience, which is important to the oversight of the Company's financial reporting and financial risk management functions. +Ms. Baumann's service on another public company board of directors provides a strong corporate governance background. +Anthony J. Best is President and Chief Executive Officer of St. Mary. Mr. Best +joined St. Mary in June 2006 as President and Chief Operating Officer. In December 2006, +60 +2007 +7 +Table of Contents +Age +Director +Since +Mr. Best relinquished his position as Chief Operating Officer when Javan D. Ottoson joined the Company and was elected to that office. In +February 2007, Mr. Best was elected Chief Executive Officer of St. Mary and was appointed to the Board of Directors. From November 2005 to June 2006, Mr. Best was developing a business plan and attempting to raise capital for a +start-up exploration and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., an independent oil and natural gas exploration and production company that was a subsidiary +of Unocal Corporation, a major oil and gas company, where he managed all of Unocal's onshore U.S. assets. From 2000 to 2002, Mr. Best had an oil and gas consulting practice working with various energy firms. From 1979 to 2000, Mr. Best was +with ARCO in a variety of positions, including serving as President—ARCO Permian, President—ARCO Latin America, Field Manager for Prudhoe Bay, and Vice President—External Affairs for ARCO Alaska. +Mr. Best brings to the Board over 30 years of strong and broad experience in the oil and gas +exploration and production industry, and as the Company's Chief Executive Officer, a deep understanding of the Company's business and operations, and its long-term strategic issues. +Larry W. Bickle is a retired private equity investor with extensive experience in various +energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Dr. Bickle was Managing +Director of Haddington from June 1997 to 2005. From 1984 to 1997, Dr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (formerly Tejas Power Corporation), a NYSE-listed gas storage, transportation, and marketing +company that he founded. Dr. Bickle is also a director of UniSource Energy Corporation (NYSE: UNS), the parent company for Tucson Electric Power Company. He also serves as Non-Executive Chairman and is a member of the Board of Managers of +Quantum Natural Gas Storage, LLC. +64 +1995 +Dr. Bickle brings to the Board over 25 years experience in various aspects of the oil and +gas exploration and production industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Dr. Bickle +also brings specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operations, and extensive experience with both state and +federal regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which is important to the oversight of the Company's financial reporting and financial risk +management functions. Dr. Bickle's service on another public company board of directors provides a strong corporate governance background. +William J. Gardiner is Vice President and Chief Financial Officer of King Ranch, Inc., +a privately held ranching and agricultural company that owns the historic 825,000 acre "King Ranch" in south Texas. Mr. Gardiner has held that position since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice +President and Chief Financial Officer of CRSS, Inc., a NYSE-listed architectural engineering and independent power producing firm. Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed +as a director of St. Mary in connection with St. Mary's acquisition of King Ranch Energy, Inc. in 1999. +55 +1999 +8 +Table of Contents +Age +Director +Since +Mr. Gardiner brings to the Board strong financial management and accounting oversight skills and experiences, a +significant amount of which was obtained through his work in energy related businesses for over 20 years. These skills and experiences are important to the oversight of the Company's financial reporting and financial and operational risk +management functions. +Julio M. Quintana is the President, Chief Executive Officer, and a director of TESCO +Corporation (NASDAQ: TESO), which designs, manufactures, and delivers technology based solutions for the upstream energy industry, including oilfield drilling technology, services, and equipment. Prior to the appointment to his current position at +TESCO Corporation in September 2005, Mr. Quintana served as Executive Vice President and Chief Operating Officer at TESCO beginning in September 2004. From 1999 to 2004, Mr. Quintana was employed at Schlumberger Limited, a global oilfield +services company, as the Vice President and General Manager—Integrated Project Management from 1999 to 2000, as the Vice President—Marketing for North and South America from 2001 to 2003, and as the Vice President—Exploitation for +North and South America from 2003 to 2004. Mr. Quintana began his career at Unocal Corporation, where he spent 20 years working in various engineering and leadership roles. +50 +2006 +Mr. Quintana brings to the Board over 25 years experience in various aspects of the oil +and gas exploration and production industry, including strong experience in upstream operations, up to date understanding of drilling and asset management technologies, and broad human resources management skills and experience, which are important +to the oversight of the Company's compensation management functions. +John M. Seidl has been involved in energy and natural resource businesses since 1978, and +is currently Chairman of the Board and Chief Executive Officer of EnviroFuels, LLC, a privately held corporation that develops, manufactures, and markets technology that improves the performance and efficiency of internal combustion engines, +boilers, and other engine designs. Mr. Seidl has held the Chairman position since January 2006 and the Chief Executive Officer position since October 2008. From July 2004 to January 2006, he served as Vice Chairman of EnviroFuels' advisory +board. From June 2001 through December 2004, Mr. Seidl was Chief Program Officer, Environment, of the Gordon and Betty Moore Foundation, a private grant making foundation which seeks and funds higher education, scientific research, environmental, +and San Francisco Bay Area projects. From September 1999 through June 2004, Mr. Seidl was Chairman of Language Line Services, a privately held provider of over the phone language interpretation and document translation services. From 1994 to +1999, Mr. Seidl was Chairman of the Board, President and Chief Executive Officer of CellNet Data Systems, Inc., which was then a publicly traded provider of wireless data networks for automated reading of utility meters. In 2000, CellNet +Data Systems filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code as part of an acquisition of its assets. Mr. Seidl's business career from 1977-1992 was in energy, energy related or natural resource businesses, and +included leadership positions with Natomas Company, then a publicly traded international oil and gas company, MAXXAM Inc., a publicly traded company which held various forest product and real estate investment subsidiaries along with Kaiser +Aluminum Corporation. Prior to that he taught at the Stanford University Business School and served as Deputy Assistant Secretary for Program Systems in the U.S. Department of Health, Education and Welfare, and as Deputy Assistant Secretary in the +U.S. Department of the Interior. +71 +1994 +9 +Table of Contents +Age +Director +Since +Mr. Seidl brings to the Board over 30 years experience in various energy and natural resources businesses, +and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading numerous companies and his experience in government. Mr. Seidl has +served as Chief Executive Officer and Chief Operating Officer for separate New York Stock Exchange companies and Chief Executive Officer for a NASDAQ company. He also has significant financial management and accounting oversight experience, which is +important to the oversight of the Company's financial reporting and financial risk management functions. +William D. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum +Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan has been retired since August 2003, with the exception of a brief amount of time, from June 15, 2005, to +August 5, 2005, when he served as President and Chief Executive Officer of Leor Energy LP, a privately held exploration and production company. Since March 2006, Mr. Sullivan has been serving as a director of Legacy +Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing oil and natural gas properties. Since February 2007, Mr. Sullivan +has been serving as a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, compressing, treating, +processing, and selling natural gas and fractionating and selling natural gas liquids and NGL products. Since August 2007, Mr. Sullivan has served as a director of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services and +production company with an integrated calcium chloride and brominated products manufacturing operation that supplies feedstocks to energy and other markets. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From +August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice +President—International Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. +53 +2004 +Mr. Sullivan brings to the Board over 30 years of strong and broad experience in the oil +and gas industry, with particular expertise in the exploration and production side of the industry. His experience as an exploration and production senior executive enables him to contribute significant independent insights on the Company's business +and operations, and the economic environment and long-term strategic issues that the Company faces. In addition, his human resources management skills and experience are important to the oversight of the Company's compensation management functions, +and his service on other public company boards of directors provide a strong corporate governance background. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" electing all of the nominees. +10 +Table of Contents +CORPORATE GOVERNANCE +Board of Directors +The Board of Directors is comprised of a majority of independent directors. The Board of Directors has determined that the following +directors are independent and do not have any material relationship with the Company other than as a director and stockholder of the Company: Ms. Baumann, Dr. Bickle, +Mr. Gardiner, Mr. Quintana, Mr. Seidl, and Mr. Sullivan. In its conclusions as to the independence of these directors, the Board of Directors considered past employment, +remuneration, and any relationship with the Company. In making its determination as to the independence of its members, the Board considered the independence tests described in Section 303A.02 +of the Corporate Governance Standards of the NYSE's Listed Company Manual. +In +making its determination as to the independence of Ms. Baumann, the Board considered the following transactional relationship: Ms. Baumann is the wife of Frederick +J. Baumann, a partner in the law firm of Rothgerber Johnson & Lyons LLP ("RJ&L"), which has provided legal services to the Company on a limited basis with respect +to certain real estate transaction matters primarily involving office leases. Mr. Baumann does not provide any of those services. In 2009, the fees billed by RJ&L to St. Mary were +approximately $9,222. The Board also considered the following factors in connection with this transactional relationship: RJ&L is a relatively large law firm in Denver, Colorado, where the Company's +principal corporate offices are leased, and has over 45 partners and 70 attorneys. RJ&L has a significant local real estate practice, and the Company specifically retained a real estate +partner at RJ&L with extensive expertise and experience in the particular office leasing issues that the Company faced. Mr. Baumann is a commercial litigator, not a member of +RJ&L's real estate department and had absolutely no involvement in the providing of legal services to the Company or the retention of the RJ&L real estate partner by the Company. The +particular partner providing those services has represented the Company in real estate matters for over ten years, beginning when he was a partner at another firm. In addition, Ms. Baumann had +absolutely no input or involvement in the Company's retention of RJ&L, apart from seeking advance analysis and confirmation that the relationship would not be considered material and would not impair +her independence. Further, in 2009 RJ&L drafted a proposed draft lease agreement, and the Company does not consider the legal services provided by RJ&L to be advisory services involving access to +sensitive Company information or to strategic decision-making. In view of the factors considered above, the Board has determined that Ms. Baumann's relationship to RJ&L does not impair her +independence. In addition, in order to avoid even the appearance of potential independence issues in connection with this transactional relationship, the Company has determined to limit the amount of +legal services from RJ&L in 2010 and future years to no more than $10,000 per year. +In +making its determination as to the independence of Mr. Quintana, the Board considered the following transactional relationship: The Company has entered into an agreement with +TESCO Corporation, for which Mr. Quintana serves as an employee and executive officer, whereby TESCO may provide certain oilfield drilling technology services to the Company. The Company did +not pay TESCO any amounts in 2009, and as of this date, did not incur any debt to TESCO in 2010. +The +Audit Committee, the Compensation Committee, and the NCG Committee are each comprised solely of independent directors. As indicated above, the written charters for all three +committees are available in the corporate governance section of the Company's website at www.stmaryland. com, along with the Company's Corporate +Governance Guidelines, Code of Business Conduct and Ethics, which applies to all employees, officers, and members of the Board of Directors, and the Executive Committee charter. These documents will +be furnished in print to any stockholder who requests them. +11 +Table of Contents +Board Leadership Structure +In February 2007, the Board restructured its board leadership to separate the roles of Chief Executive Officer and Chairman of the +Board. Until his retirement from serving as Chief Executive Officer in February 2007, Mr. Hellerstein had served both as Chief Executive Officer and Chairman of the Board since 2002. +From February 2007 until May 2009, Mr. Hellerstein continued to serve as Chairman of the Board while Mr. Best served as President and Chief Executive Officer of the +Company. Upon Mr. Hellerstein's retirement from the Board in May 2009, the Board evaluated its leadership structure and determined to appoint Mr. Sullivan, an independent director +with over five years experience serving on the Board, experience serving on several other public company boards, and over 30 years of experience working with oil and gas exploration and +production companies, as Chairman of the Board. +The +Board believes that this board leadership structure is best for the Company and our stockholders. The Chairman is responsible for providing leadership to the Board; facilitating +communications among the directors; setting the board meeting agenda in consultation with the Chief Executive Officer; presiding at board meetings, Executive Committee meetings, and executive sessions +of the Board; and serving as a liaison between our management and directors on a regular basis. +The +Company's Corporate Governance Guidelines allow the Board to choose whether to keep the roles of Chief Executive Officer and Chairman of the Board separate or whether to have one +person serve in both capacities. As part of our annual board self-evaluation process, the Board evaluates our leadership structure to ensure that the Board continues to believe that it +provides the optimal structure for our Company and stockholders at that time. While recognizing that different board leadership structures can be appropriate at different times and under different +circumstances, the Board has determined that our current leadership structure, with Mr. Best serving as Chief Executive Officer, Mr. Sullivan serving as Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director position. Mr. Seidl currently serves in that capacity. The lead +independent director is responsible for presiding at executive sessions of non-management directors. +Our +Board has six independent members and only one non-independent member, the Chief Executive Officer. A number of our independent Board members are currently serving or +have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As discussed above, the +Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, qualifications, +attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director nominee's +biographical information above. The +number of independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their respective Board committees, and the overall leadership of the +Board by the independent Chairman benefits our Company and our stockholders. +Presiding Director at the Non-Management Directors' Executive Sessions +All independent directors meet in executive session immediately before or after each regularly scheduled meeting of the Board of +Directors or as deemed necessary. Mr. Seidl has presided at these executive sessions. +Communication with the Directors of the Company +The Board of Directors welcomes questions or comments about the Company and its operations. Those interested may contact the Board of +Directors as a whole, non-management directors, or any +12 +Table of Contents +one +or more specified individual directors by sending a letter to the intended recipients' attention in care of St. Mary Land & Exploration Company, Secretary, 1775 Sherman +Street, Suite 1200, Denver, CO 80203. All such communications other than commercial advertisements will be forwarded to the appropriate director or directors for review. +Board and Committee Meetings +The full Board of Directors met nine times during 2009. Each incumbent director participated in at least eight of the Board meetings +and all of the committee meetings held during the director's tenure on the Board in 2009. It is the Company's policy that each director is expected to attend the Annual Meeting of Stockholders. Each +director attended the 2009 Annual Meeting of Stockholders. +The +Board has an Audit Committee, Nominating and Corporate Governance Committee, Compensation Committee, and an Executive Committee. Each of the committees and the entire Board +separately evaluated their respective performance for the year 2009 and completed written evaluations. The performance evaluation process was supervised by and reviewed by the NCG Committee and +discussed amongst and approved by the full Board. +The +following table sets forth the members of each committee, as of December 31, 2009, and the number of meetings held in 2009. +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X +* +X +Larry W. Bickle +X +X +Anthony J. Best +X +William J. Gardiner +X +* +X +Julio M. Quintana +X +John M. Seidl +X +X +* +William D. Sullivan +X +X +X +* +Number of Meetings in 2009 +7 +2 +8 +0 +* Chairperson +The +Audit Committee assists the Board in fulfilling its oversight responsibilities of the Company's financial reporting process. Audit Committee members are prohibited from serving on +more than three audit committees of public companies. The Audit Committee is solely responsible for the engagement and discharge of independent auditors and reviews the quarterly and annual financial +results. The Audit Committee reviews the audit plan and the results of the audit with the independent auditors and reviews the independence of the auditors, the range of audit fees, the scope and +adequacy of St. Mary's system of internal accounting controls, and the Company's financial risk management policies. The Audit Committee also has oversight responsibility for the internal audit +function of the Company. The Audit Committee is currently composed of three directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" +contained in this proxy statement. While all of the Audit Committee members are considered financially literate, the Board of Directors has determined that two of the three members of the current +Audit Committee, Mr. Gardiner and Mr. Seidl, are audit committee financial experts as the term is defined by the SEC. +The +NCG Committee's primary function is to nominate the individuals to be elected to the Board of Directors and to oversee all corporate governance policies of the Board of Directors. +For additional information on the functions performed by the NCG Committee, see the "Structure of the Board of Directors" section of this proxy statement. +13 +Table of Contents +The +Compensation Committee's primary function is to oversee the administration of the Company's employee benefit plans and to establish the Company's compensation policies. The +Compensation Committee approves and/or recommends to the Board the compensation arrangements for senior management and directors, adoption of compensation plans in which officers and directors are +eligible to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this proxy statement describes +these responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board of Directors and the Company with respect to matters as to which it has been authorized to act by the Board of +Directors, provided that such matters are not in conflict with the Certificate of Incorporation or By-Laws of the Company or applicable laws, regulations, or rules or the listing standards +of the NYSE. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board of Directors oversees the Company's risk management processes, with particular focus on the most significant risks the +Company faces, the Company's management is responsible for day-to-day risk management. The Company believes this division of responsibilities is the most effective approach for +addressing the risks facing the Company, and that the current Board leadership structure, with Mr. Sullivan serving as the independent Chairman of the Board, supports this approach and is the +optimal structure for the Company at this time. +In +connection with the Company's annual business strategy planning process, management identifies the significant risks or implications facing the Company relating to the Company's +successful execution of its business strategy. The Board of Directors reviews and discusses these risks or implications with management along with the Company's risk assessment, risk management +guidelines, and policies and plans for mitigating risk as part of the Company's annual strategy session. As part of this process, the Board of Directors provides feedback to management. +In +conjunction with the annual business plan process, management completes and updates an enterprise risk management document (the "ERM Document") utilizing the Committee of Sponsoring +Organizations of the Treadway Commission Enterprise Risk Management framework and incorporating the information gathered during the strategy session discussions. Risk prevention or mitigation steps +are documented for the more material risks identified based upon projected likelihood and impact of the occurrence of the particular risk. The final ERM Document becomes part of the Business Plan for +that particular year. +The +Company also maintains a Financial Risk Management Committee made up of the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Treasurer and the Vice +President—Engineering and Evaluation. On a quarterly basis, the Financial Risk Management Committee meets separately and, together with management, conducts an update of the Enterprise +Risk Management process. Minutes of these meetings are recorded, and the results of these meetings are reported to the Board at its quarterly meetings. +The +Audit Committee provides significant assistance to the Board of Directors in the oversight of the Company's financial risk management processes. As part of this framework, the Audit +Committee reviews and discusses with management the Company's risk assessment and risk management guidelines and policies with respect to the Company's significant financial risk exposures, and the +steps management has taken as well as the specific guidelines and policies which have been established to monitor, control, mitigate, and report those exposures. These reviews and discussions cover +the Company's oil and natural gas commodity price hedging arrangements, interest rate risk management, +14 +Table of Contents +and +insurance coverage, as appropriate. In addition, the Company's internal auditors, who report directly to the Audit Committee with respect to internal audit matters, provide the Audit Committee and +management with ongoing assessments of the Company's risk management processes. The Audit Committee also has oversight responsibility for the integrity of the Company's financial statements and +financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. In addition, the Compensation Committee periodically +reviews the most significant risks for the Company to ensure that compensation programs do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report +regularly to the full Board of Directors on their respective risk management oversight activities. +15 +Table of Contents +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +The Company has adopted written policies and procedures for the Audit Committee's review of any transaction, arrangement, or +relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (i) the Company is a participant, +(ii) the aggregate amount involved will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this +policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than five percent of the +Company's outstanding shares of common stock, and (iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good +faith are in, or are not inconsistent with, the best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, the Company's By-Laws provide that a director, officer, or employee of the Company may not pursue for his or her own account a business or investment opportunity +that he or she learned about through his or her affiliation with the Company. The By-Laws also provide that an officer or employee of St. Mary may not pursue for his or her own +account an oil and gas opportunity that he or she independently learned about unless (a) with respect to an officer of St. Mary, the officer's pursuit of the opportunity has been +approved by the Board of Directors, and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been approved by a senior officer of +St. Mary with full knowledge of that opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its directors during the last fiscal year. +Some of the aspects of this transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will +always be resolved in favor of St. Mary. +Mr. Hellerstein, +who retired from the Board of Directors of St. Mary as of May 20, 2009, is a participant in the Net Profits Interest Bonus +Plan ("NPP") as a result of his prior service to the Company as an executive officer, including service as President from 1992 to June 2006 and Chief Executive Officer from 1995 to +February 2007. As a result of Mr. Hellerstein's vested participation interests in the NPP arising from his prior service, the Company made NPP payments to Mr. Hellerstein during +2009 in the total amount of $2,364,053. The Audit Committee has reviewed this relationship and determined that it is not in conflict with the Company's Policies and Procedures with Respect to Related +Person Transactions, since Mr. Hellerstein's NPP participation interests were awarded to him while he was an employee of St. Mary in order to provide for future incentive bonus +compensation for his services as an executive officer. For a description of the NPP, please see the section entitled "Net Profits Interest Bonus Plan (NPP)" in the "Compensation Discussion and +Analysis" section of this proxy statement. +16 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of St. Mary common stock as known by the Company as of +March 15, 2010, by all beneficial owners of more than five percent of the outstanding shares of St. Mary common stock as of March 15, 2010, by each director, +director nominee, and named executive officers, and all directors and executive officers as a group. Restricted stock units and performance share awards are not included in this table as no actual +shares have been issued associated with the restricted stock units or performance share awards rights. A supplemental separate table has been included later in this section describing the number of +restricted stock units and performance share awards owned by the individuals described above. +Name of Beneficial Owner +Shares +beneficially +owned +excluding +options +Options +exercisable +within 60 days +of 3/15/2010 +Total shares +beneficially +owned(1) +Percent +beneficially +owned +Name and Address of Stockholders Owning More Than 5% +BlackRock, Inc. +40 East 52 nd Street +New York, NY 10022 +4,527,627 +— +4,527,627 +(2) +7.2 +%(2) +EARNEST Partners, LLC +1180 Peachtree Street NE, +Suite 2300 +Atlanta, GA 30309 +3,690,492 +— +3,690,492 +(3) +5.9 +%(3) +Name and Position of Directors, Director Nominees and Named Executive Officers +Barbara M. Baumann, Director +25,180 +47,666 +72,846 +* +Larry W. Bickle, Director +87,688 +48,566 +136,254 +* +William J. Gardiner, Director +38,180 +47,670 +85,850 +* +Julio M. Quintana, Director +19,125 +(4) +— +19,125 +(5) +* +John M. Seidl, Director +18,225 +— +18,225 +* +William D. Sullivan, Director +44,526 +9,772 +54,298 +* +Anthony J. Best, Chief Executive Officer, President, and Director +46,735 +— +46,735 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +13,626 +— +13,626 +* +Javan D. Ottoson, Executive Vice President and Chief Operating Officer +13,032 +— +13,032 +* +Milam Randolph Pharo, Senior Vice President and General Counsel +33,271 +— +33,271 +* +Paul M. Veatch, Senior Vice President and Regional Manager +12,685 +9,996 +22,681 +* +All executive officers and directors as a group (20 persons including those named above) +427,690 +248,455 +676,145 +1.1 +% +* Less +than 1% +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any shares that +the individual has the right to acquire +17 +Table of Contents +within +60 days of a date reasonably selected by the Company, through the exercise of any stock option or other right. The Company selected March 15, 2010, as the determination +date. +(2) According +to a Statement on Schedule 13G filed by BlackRock, Inc. ("BlackRock") on January 29, 2010, by reason of advisory and +other relationships with persons who own shares of St. Mary common stock, BlackRock may be deemed to be the beneficial owner of a total of 4,527,627 shares, with shared voting power as +to zero shares, shared dispositive power as to zero shares, and sole voting or dispositive power as to 4,527,627 shares. +(3) According +to a Statement on Schedule 13G filed by EARNEST Partners, LLC ("EARNEST") on February 10, 2010, by reason of advisory +and other relationships with persons who own shares of St. Mary common stock, EARNEST may be deemed to be the beneficial owner of a total of 3,690,492 shares, with shared voting power as +to 683,105 shares, shared dispositive power as to zero shares, and sole voting of 1,512,912 shares and sole dispositive power as to 3,690,492 shares. +(4) Mr. Quintana +maintains a margin securities account at a brokerage firm, and the positions held in such margin account, which may from time to time +include shares of St. Mary common stock, may be pledged as collateral security for the repayment of debit balances, if any, in the account. As of March 15, 2010, +Mr. Quintana held 19,125 shares of St. Mary common stock in such account and none of these shares were pledged as collateral. +Restricted Stock Units and Performance Share Awards +Restricted Stock Units ("RSUs") represent rights to shares of stock to be delivered upon settlement, subject to risk of forfeiture and +cancellation. The RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our common stock. The RSU awards +vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +The +Company began issuing RSUs in June 2004. The initial grant under the Restricted Stock Plan was made on June 30, 2004, whereby eligible executive officers and key +employees were issued RSUs. This grant was the first grant under this program following approval of the Restricted Stock Plan by the Company's stockholders. RSU grants were made annually under the +Restricted Stock Plan in 2004 and 2005. In 2006 and 2007, RSU grants were made under the Equity Plan subject to the performance criteria of the Company. These grants were made in the quarter following +the year-end. In June 2008, the Company issued certain transitional RSUs and on August 1, 2009, as part of the Company's Long Term Incentive Plan, the Company issued a +percentage of the awards under this Plan as RSUs. Neither the transitional RSUs or LTIP RSU awards were subject to performance criteria. The Company has also issued RSUs to Mr. Best under the +terms of his employment contract. +Performance +Share Awards ("PSAs') represent the right to receive, upon settlement of the PSAs after the completion of a three year performance period, a number of shares of the Company's +common stock that may be from zero to two times the number of PSAs granted on the award date, depending on the extent to which the Company's performance criteria have been achieved and the extent to +which the PSAs have vested. The PSAs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our +common stock. +The +Company began granting PSAs on August 1, 2008, under the Equity Plan to eligible executive officers and key employees. +The +following table shows the number of RSUs and PSAs owned by each of the directors, the executive officers named in the Summary Compensation Table set forth under the caption "Summary +Compensation Table," and all directors and executive officers as a group as of March 15, 2010. The PSAs listed below represent the right to receive, upon settlement of the PSAs after the +completion of +18 +Table of Contents +the +three year performance periods ending June 30, 2011, and June 30, 2012, a number of shares of the Company's common stock that may be from zero to two times the number +of PSAs granted on the award date, depending on the extent to which certain performance criteria during a certain performance period have been achieved and the extent to which the PSAs have vested. +Total +Restricted +Stock Units +Total Vested +Restricted +Stock Units +Total +Performance +Share Awards +Total Vested +Performance +Share Awards(1) +Barbara M. Baumann +— +— +— +— +Larry W. Bickle +— +— +— +— +William J. Gardiner +— +— +— +— +Julio M. Quintana +— +— +— +— +John M. Seidl +— +— +— +— +William D. Sullivan +— +— +— +— +Anthony J. Best +23,807 +— +75,859 +3,337 +A. Wade Pursell +17,248 +— +28,500 +— +Javan D. Ottoson +15,056 +— +46,570 +1,832 +Milam Randolph Pharo +5,061 +— +15,954 +726 +Paul M. Veatch +8,146 +— +23,046 +936 +All executive officers and directors as a group (20) persons including those named above +112,439 +— +325,173 +12,276 +(1) PSAs +granted on August 1, 2008, vested 1/7th on August 1, 2009. The amount shown reflects 1/7 th of +target shares. The actual number of shares of the Company's common stock released at the end of the performance period may be from zero to two times the number of PSAs granted, depending on the extent +to which the Company's performance criteria have been achieved. +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +Introduction +St. Mary's leadership and culture encourage long-term stockholder value creation, not short-term +stockholder value maximization. We evaluate performance along both quantitative and qualitative factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we +believe to be a balanced mix of base salary, annual incentives paid in cash, and long-term incentives paid in stock. Our base salary provides a level of income that does not vary with +Company performance. We balance incentives tied to short-term annual performance with incentives tied to our multi-year performance. In this way, our executives are motivated +to consider the impact of decisions over the short, intermediate, and long terms. The 2009 "scorecard" for our annual cash incentives measures cash +flow, capital efficiency, and growth. The specific measures on the scorecard are those we believe are the key drivers of long-term stockholder value creation. In addition, the program is +not completely formulaic; the Compensation Committee has the discretion to adjust earned bonuses based on the "quality" of the results as well as individual performance and behaviors, and has used +that discretion to reduce calculated bonuses in the recent past. +We +have not utilized stock options for several years. Although we have outstanding stock options, we discontinued granting new stock options to employees after December 2003 and +to directors after December 2004. Long-term incentive programs that overemphasize stock options could contribute to executive risk-taking, and focus on +short-term share price increases, especially if stock options fall "underwater" (i.e., the option exercise price is above the current share price). Underwater options could +encourage executives to take risks to increase share price; in such case options have upside +19 +Table of Contents +opportunity, +but no downside risk. If the share price increases above the exercise price, the options will have value, but if the share price decreases, the executives have not lost anything. Our +current long-term incentive plan (the "LTIP") uses "full-value" shares, which we believe are more aligned with the interest of stockholders and appropriately balance risk and +reward, because they have both upside potential and downside risk. +We +do not have rich severance packages that mitigate consequences of poor performance. With the exception of our Chief Executive Officer, Mr. Best, we typically do not provide +severance benefits in the event of termination without cause not related to a change of control. Mr. Best's severance benefits in the event of a termination without cause are modest compared to +current industry practice. Additionally, our executive officers are subject to stock ownership guidelines based on a multiple of base salary. These stock ownership guidelines align the interests of +management with long-term stockholder interests. +Objectives of Executive Compensation Program +Our overall executive compensation program is designed to promote superior returns for our stockholders through the preservation and +growth of the Company's income-producing oil and natural gas assets. The objectives of our executive compensation program are to: +1. Provide +competitive total compensation opportunities that allow us to attract, retain, and motivate talented management. +Our +pay philosophy is to target overall compensation opportunities at levels competitive with equivalent positions at companies with which we compete for talent. In general, this desired competitive +position corresponds to the median of a relevant industry peer group (see "Compensation Determination Process" for further detail). Actual compensation earned by a particular individual may be above +or below the target level based on Company and individual performance measured against prescribed metrics of the incentive compensation programs. +2. Link +compensation earned to the achievement of our short-and long-term financial and strategic objectives. +We +believe that the proportion of total compensation that is performance-based, and therefore "at risk," should increase with an individual's level of responsibility. St. Mary's compensation +system is designed to provide the appropriate level of balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. +To this end, our short-term incentive plan (the "STIP") rewards annual operating performance in terms of cash flow, investment performance, and reserve growth (see "Elements of +Compensation—Short-Term Incentive Plan"). Our LTIP rewards total stockholder return, both on an absolute basis and relative to an index of oil and gas E&P companies (see +"Elements of Compensation—Long-Term Incentive Plan"). +3. Align +performance incentives with the long-term interests of our stockholders. +Alignment +of long term interests between stockholders and management is achieved by paying a substantial portion of total compensation in the form of equity-based incentives and through stock +ownership guidelines that encourage executives to have a meaningful ownership stake over their tenure. In addition, realized compensation under our LTIP is aligned with absolute and relative returns +realized by our stockholders. +4. Ensure +programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs (e.g., salary increases, bonus opportunities, aggregate equity compensation grants, +etc.), the Compensation Committee evaluates numerous relevant considerations +20 +Table of Contents +including +the aggregate economic costs of such compensation, the expected accounting treatment, potential stockholder dilution, and the impact on our financial results. The Compensation Committee +strives for development of programs that are affordable and designed in the most financially efficient manner possible. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the Internal Revenue Code ("IRC"), compensation in excess of +$1.0 million per year paid to certain of the named executive officers is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as +defined in Section 162(m). Our STIP and LTIP are administered so that compensation awarded and paid to our named executive officers are "performance-based" under Section 162(m)'s +definition and therefore fully tax-deductible; however, the Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility +requirements. +5. Uphold +high standards of good corporate governance and evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. +("F. W. Cook"), stays abreast of current and developing corporate governance standards with respect to executive compensation and may make changes to our programs, as it deems +appropriate, to reflect best practices. +Compensation Determination Process +Responsibilities of the Compensation Committee +Executive compensation at St. Mary is determined by the Compensation Committee of the Board of Directors and the Board of +Directors as provided below. The Compensation Committee is comprised of three independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are +appointed by the Board of Directors for, among other things, the purposes of: +• Overseeing the administration of the Company's employee compensation and benefit plans; +• Establishing the Company's compensation policies; +• Reviewing and approving the Company's general compensation strategy and objectives; +• Annually reviewing the performance and determining the compensation of the Chief Executive Officer; +• Reviewing and approving recommendations to the Board for base compensation for the executive officers of the Company other +than the Chief Executive Officer; and +• Reviewing and approving recommendations for STIP and LTIP awards. +Independent Compensation Consultants +Since 2007, the Compensation Committee has engaged F. W. Cook as its independent executive compensation consultant. +F. W. Cook reports directly to the Compensation Committee and the Compensation Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems +necessary. A principal of F. W. Cook attends meetings of the Compensation Committee, as requested, and communicates with the Chair of the Compensation Committee between meetings. The +services F. W. Cook provides include advising the Compensation Committee on the principal aspects of St. Mary's executive compensation programs and evolving best practices, +providing market information and analysis regarding the competitiveness of St. Mary's executive compensation opportunities, and +21 +Table of Contents +aggregate +equity compensation practices of St. Mary's peers. To facilitate the delivery of these services to the Compensation Committee, F. W. Cook interfaces with +St. Mary's management, in particular the Vice President—Human Resources. F. W. Cook does not provide directly or indirectly through affiliates, any +non-executive compensation services, such as pension consulting or human resource outsourcing, to St. Mary or any other clients. F. W. Cook has agreed to advise the +Compensation Committee Chair if any potential conflicts of interest arise that could cause F. W. Cook's independence and loyalty to be questioned and not to undertake any project for +St. Mary management, except at the request of the Compensation Committee Chair and as agent for the Compensation Committee. In 2009, F. W. Cook did not provide any services to +St. Mary other than those requested by the Compensation Committee Chair and related to F. W. Cook's engagement as the independent consultant to the Compensation Committee. +Role of management in determination process +With the oversight of the Chief Executive Officer and Vice President—Human Resources, the management team provides +recommendations to the Compensation Committee on matters of compensation philosophy and plan design. The Chief Executive Officer provides recommendations for pay levels for executives other than +himself based on competitive market data, internal fairness between executives, past performances, and future potential. The Human Resources department supports management and the Compensation +Committee by providing information on historical compensation levels, analyzing third-party survey data, and interfacing with F. W. Cook. While members of the management team attend +Compensation Committee meetings, they are not present for executive sessions. The Compensation Committee and the Board, as required under the Compensation Committee's charter, make all final decisions +with respect to compensation of our executive officers. +Comparative Peer Group +One of the objectives of our executive compensation is to ensure that the total compensation opportunities for our executive officers +are competitive with the companies against which we compete for business, investment dollars, and executive talent. In fiscal 2009, compensation comparisons were made to the following companies: +Berry Petroleum Company +Newfield Exploration Company +Bill Barrett Corporation +Penn Virginia Corporation +Cabot Oil & Gas Corporation +Petrohawk Energy Corporation +Cimarex Energy Company +Quicksilver Resources Inc. +Comstock Resources Incorporated +Range Resources Corporation +Denbury Resources Incorporated +Stone Energy Corporation +EXCO Resources, Incorporated +Swift Energy Company +Encore Acquisition Company +Unit Corporation +Forest Oil Corporation +Whiting Petroleum Corporation +This +peer group includes all of the fourteen companies included in the 2008 peer group, plus four additional companies: Berry Petroleum Company, Bill Barrett Corporation, EXCO Resources, +Incorporated, and Stone Energy Corporation. St. Mary ranks at approximately the median of the peer group in terms of size measures such as annual revenues, enterprise value, and number of +employees. +In +May 2009, F. W. Cook conducted an analysis of pay levels of the executive officers named in proxy statements of the peer group companies versus corresponding positions +at St. Mary. Findings +22 +Table of Contents +from +this analysis indicated that base salaries for St. Mary's executives were at the 25 th percentile of the peer group, and target total direct compensation (base salary +plus bonus plus long-term incentive compensation) was significantly below the 25 th percentile of the peer group. This analysis excluded amounts paid in connection with +the Company's historical but discontinued NPP. +F. W. Cook's +May 2009 analysis also examined company-wide practices with regard to equity compensation, using three measures to evaluate the value and number of +St. Mary shares being granted to its employees. St. Mary shares of common stock attributable to grants outstanding plus shares of common stock available for future grant as a percentage +of total shares of common outstanding (the "overhang") and three-year average annual share usage as a percentage of weighted average shares of common stock outstanding ("run rate") were +between the 25 th percentile and median of the peer group. However, the three-year average of St. Mary's aggregate long-term incentive grant value as +a percentage of market capitalization ("fair value transfer" or "FVT") was at the 75 th percentile of the peer group. +In +October 2009, the Compensation Committee asked F. W. Cook to review the comparative peer framework and provide suggestions for changes for use in future comparisons. In +addition to standard size measures such as revenues, assets, number of employees, and enterprise value, F. W. Cook reviewed industry-specific criteria such as annual production volume, +fiscal year-end reserves, total costs incurred in oil and gas activities, and the magnitude of each company's offshore and non-U.S.-based operations. Based on this review, the +Compensation Committee approved the addition of three companies (Concho Resources Inc., Continental Resources, Inc., and Ultra Petroleum Corp.) to the peer group, and the exclusion of +five companies (Comstock Resources, Inc., Newfield Exploration Co., Range Resources Corporation, Stone Energy Corporation, and Unit Petroleum Co.). +Elements of Compensation +The principal components of St. Mary's executive compensation program and the purpose of each component are summarized in the +following table. The Company's executive compensation program is +23 +Table of Contents +made +up of the same components as the compensation program for other employees. The only material difference is the target pay levels. +Compensation Element +Description +Purpose +Base Salary +Fixed cash compensation, targeted at 50 th percentile of survey and peer group for employees meeting all performance expectations +Provide an appropriate level of cash compensation necessary to attract and retain employees; recognizes skills, competencies, experience, and individual contribution +STIP +Annual cash incentive opportunity with ultimate award dependent upon Company's annual performance in key metrics +Drive and incentivize superior annual performance at Company, regional, and individual levels +LTIP +Equity-based compensation opportunity with ultimate award dependent upon Company's long term performance in total shareholder return and performance relative to a peer group +Drive stockholder value creation, align management interests with those of stockholders, encourage retention, and reward long term Company performance +Employee Stock Purchase Plan (ESPP) +Enables employees to purchase and hold shares of St. Mary common stock at a 15% discount of the fair market price at the beginning or end of the offering period +Facilitate share ownership among employees for the purposes of aligning employees' interests with those of stockholders +Qualified Retirement Plans +Includes qualified defined benefit pension plan and 401(k) plan +Attract and retain employees, encourage retention, support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Pension Plan +Continues benefits under qualified plan formula that are not allowed due to IRC limits on the qualified plan +Attract and retain employees, encourage retention, support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +Medical, dental, life, and disability insurance +Attract and retain highly qualified employees, support the overall health and well being of executives and employees +Target Competitive Positioning +St. Mary's pay philosophy is for each executive's target compensation opportunity to approximate market medians in total +compensation and across individual compensation elements. Actual pay may be higher or lower than target, based on performance results and changes in our share price. +24 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2009 target total direct compensation mix for the Chief Executive Officer and other named executive officers. +As the charts illustrate 76 percent and 72 percent of total target compensation for our Chief Executive Officer and named executives officers, respectively, is attributable to the +performance-based LTIP and STIP, and thus is "at risk." +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of +each individual executive and compensates for day to day performance. Based on competitive market data, individual performance and potential, internal equity considerations, and input from the Chief +Executive Officer (for executives other than himself), the Compensation Committee approved the following salary adjustments, on March 25, 2009, effective December 28, 2008, +for the named executive officers: +Name +Prior Salary +New Salary +% Change +Best +$ +475,000 +$ +513,000 +8.0 +% +Ottoson +$ +315,000 +$ +345,000 +9.5 +% +Pursell +$ +300,000 +$ +306,000 +2.0 +% +Pharo +$ +230,000 +$ +239,200 +4.0 +% +Veatch +$ +230,000 +$ +238,250 +3.6 +% +Mr. Best's +and Mr. Ottoson's significantly higher salary adjustments, relative to those of other named executive officers, largely reflect the fact that their base pay +levels were further below the median salaries paid to equivalent positions at companies with which we compete for talent. +Short-Term Incentive Plan +The STIP is designed to reward executives for their achievement of performance objectives tied to our annual business plan, focusing +primarily on cash flow generation, investment performance against an approved capital expenditures budget, and reserve growth. Payments under the STIP are in the form of annual cash bonuses under the +Company's Cash Bonus Plan, which was approved by the stockholders in May 2008. +The +Compensation Committee's decisions regarding the approval of annual cash bonus pools for the 2009 STIP were based on analysis and information provided by management, including the +results of the Company's internal "scorecard," and other subjective determinations considered by management and the Compensation Committee. The percentages recommended, considered, and subsequently +approved resulted in a pool of dollars available to be distributed to the executives and other employees. These amounts were then distributed based on the results of the Company as a whole, the +regional performance for those executives in regional positions, and each individual's performance during the year, as well as other qualitative factors. +25 +Table of Contents +As +more fully discussed below, the 2009 scorecard used annual targets recommended by management and approved by the Compensation Committee for key performance measures that contributed +to increases in the Company's net asset value. The following table summarizes the 2009 scorecard measures, weightings, and targets, along with corporate actual results. Following the table is a +discussion and analysis of each measure: +Metric +Target +2009 +Actual +Result +Multiplier +Factor +(of target) +Weighting +Corporate +Net Factor +Cash Flow ($ in millions) +$ +348.7 +$ +466.6 +2 +30 +% +2.00 +Investment Efficiency (capital value ratio) +0.90 +0.66 +0 +35 +% +0.00 +Corporate Growth +—Drill bit PD Reserve Addtns. (Bcfe) +78,108 +30,146 +0 +21 +% +0.00 +—Reserve Replacement % +125 +% +15 +% +0 +14 +% +0.00 +0.60 +Discretionary Factors +N/A +—Safety and Environmental +0.05 +—Inventory Build +0.00 +—Other +0.05 +Final Multiplier Factor +0.70 +The +STIP incorporates a minimum threshold and maximum result for each key performance measure. If the Company's performance does not meet the minimum threshold for a particular +performance measure, no payment for that portion of the STIP will be provided. If the target performance measure is achieved, the target bonus times that performance measure's weighting will be +multiplied by one and if the maximum performance measure is achieved, the target bonus times that performance measure's weighting will be multiplied by two. +Cash +Flow—The cash flow target represents the net cash flow initially estimated to be generated from the execution of the 2009 business plan. During the year this target was +adjusted for acquisitions, divestitures, and approved changes in capital spending. The cash flow target approximates GAAP cash flow from operations without working capital adjustments. The original +cash flow target for 2009 was $349.9 million but after adjustments $348.7 million became the final target. In 2009 the Company's cash flow exceeded the target due to a combination of +higher than budgeted production volumes and lower than budgeted lease operating expenses, workover expenses, transportation expense, and cash general and administrative expenses. In addition, net +realized commodity prices were slightly better than budgeted. As a result, the cash flow portion of the scorecard resulted in a 2x multiplier. +Investment +Efficiency—This metric is defined as total "value" created divided by capital dollars invested. The investment efficiency target was 0.90 and was based on the 2009 +capital expenditures budget. The target value was the PV15 value (i.e., present value using a 15 percent discount rate) of the projected cash flows for the projects to be completed in +2009 based on budgeted commodity prices divided by the projected 2009 investment. The actual results reflect all capital investments for the Company in 2009 (i.e., drilling, acquisitions, and +leasehold). The PV15 value of the projected cash flows was calculated using average strip commodity prices during 2009, adjusting for price differentials in the field. After reducing the value for +year-end leasehold impairments, the actual project value ratio was reduced to 0.66 thus resulting in a negative 26 percent value add and a zero multiplier. +Corporate +Growth—This section of the scorecard is divided in two parts. The first part is the results for proved developed reserve additions during the year. The target +amount represents total proved developed reserves budgeted for 2009 to be generated from drilling activities. The actual results reflect only the proved developed reserves added as reflected in the +Company's year-end reserve report. +26 +Table of Contents +The +Company exceeded its target for new developed reserves of 78,108 MMCFE by adding 83,034 MMCFE to our reserves; however, the impact of performance revisions resulted in a 52,888 MMCFE +reduction. The second part of the corporate growth section of the scorecard is overall proved reserve replacement (which includes proved undeveloped reserves). This calculation, which excludes +divestitures, includes all price and performance revisions. Due primarily to the significant price and performance revisions at the end of 2009, the Company fell well below the threshold for both +metrics and, as a result, no bonus resulted for this metric. +Discretionary +Factors—In addition to quantitative metrics, the 2009 scorecard had two discretionary factors, each with the potential to adjust the total bonus up or down by +10 percent. The metrics for making the performance evaluations were established in advance, but the Compensation Committee retained discretion to make adjustments if the circumstances merited. +A negative or positive result on these items would result in a 0.05 discount or premium to the bonus multiplier. Strongly negative or positive results would result in a 0.10 discount or premium. The +first factor for 2009 was based on a review of environmental, health, and safety performance for the Company. Except for the ArkLaTex Region, each region and Corporate demonstrated improved results +from an environmental, health, and safety perspective. This resulted in a 0.05 adjustment to the multiplier for each of these regions and the Corporate group. The ArkLaTex's results were neutral and +no adjustment was made. The second factor related to inventory build (or decline), based on proved undeveloped reserves ("PUDs") changes. In each of the regions, other than the Rockies region and Gulf +Coast region, changes to PUDs were down. This result was largely due to price and resulted in a neutral result and no adjustment. In the Rockies Region, PUDs increased by 16 BCFE and in the Gulf Coast +region, PUDs were up 21.5 BCFE. This resulted in a positive result for each of these regions and a 0.05 adjustment. Finally, management recommended that the Compensation Committee consider and +recognize the substantial work done by the Corporate groups and the Rockies region as it related to the accomplishment of major divestiture objectives for the year. Each of the Corporate group and the +Rockies region received a 0.05 increase to the multiplier based upon the consideration of this "other" factor. +Application +of the Multiplier Factor—All full-time employees of the Company participate in the STIP, but the target bonus is different for various employees. Most +employees have a "cash bonus at target" percentage of 12.5 percent or 25 percent. For employees at the vice president level and above, the target cash bonus ranges from 30 percent +to 80 percent of base salary. The results of the scorecard can generate a factor from 0 to 2.0, which is multiplied by each participant's target bonus to determine actual bonuses. As shown in +the table above, the 2009 results generated a final multiplier factor of 0.7 at the corporate level. The following table illustrates the calculation of STIP awards for each of the named executive +officers: +Actual STIP +Current +Salary +Target STIP +(% Sal) +Corporate +Multiplier +Regional +Multiplier +Individual +Adjustment +Overall +Multiplier +Executive +(% Sal.) +$ +Best +$ +513,000 +80 +% +0.7 +0.7 +56 +% +$ +287,280 +Ottoson +$ +345,000 +70 +% +0.7 +0.7 +49 +% +$ +169,050 +Pursell +$ +306,000 +60 +% +0.7 +0.7 +42 +% +$ +128,520 +Pharo +$ +239,200 +50 +% +0.7 +0.7 +35 +% +$ +83,720 +Veatch +$ +238,250 +50 +% +0.7 +0.6 +0.64 +* +32 +% +$ +76,240 +* The +final multiplier for the Mid-Continent region is determined by weighting the regional performance at 60 percent and corporate +performance at 40 percent. +Regional +Performance—The 2009 scorecard table above reflects the results for employees at the corporate level of the Company (including the Chief Executive Officer, Chief +Operating Officer, Chief Financial Officer, and General Counsel). For employees at the Company's five regions, regional +27 +Table of Contents +performance +using cash flow and qualitative measures was also evaluated. (In prior years, regional performance using the investment efficiency and growth measures was also included. However, for 2009, +investment efficiency and growth were measured solely at the corporate level, due primarily to the uncertainty of capital allocations across the regions at the time the scorecard was approved by the +Compensation Committee). Regional performance was weighted 60 percent and corporate performance was weighted 40 percent for regional employees to determine their final multiplier factor. +The following chart provides the final regional multiplier for the Company's five regions: +Mid Continent +0.64 +ArkLaTex +0.28 +Rockies +0.73 +Gulf Coast +0.70 +Permian +0.67 +Individual +Performance—In addition, once the final calculations were completed and approved by the Compensation Committee, managers throughout the organization had discretion +to increase or decrease individual bonus amounts to reflect individual performance during the year, working within the total allocated bonus amount for their respective group. Individual performance +factors considered for executive officers included: +• The executive's contributions to the development and execution of the Company's business plan and strategies; +• The performance of the executive's department or region; +• The executive's level of responsibility; and +• The executive's leadership ability, demonstrated commitment to the organization, motivational skills, attitude, and work +ethic. +Changes +made to STIP design for 2010 +In +late 2009, we reviewed the performance measures and weightings used to determine 2009 annual cash bonuses. As part of the review, we analyzed the +performance metrics used in short-term incentive plans at St. Mary's peer companies and discussed which measures would be most appropriate for St. Mary in 2010. Based on the +review, the Compensation Committee chose to revise some aspects of the STIP for 2010. +The +first change was to create a threshold level of cash flow that must be achieved for any STIP payment to be made to any executive officer. If the minimum level of cash flow is +achieved, cash bonuses will be fully funded for executive officers. The Compensation Committee will then use other performance metrics to determine actual bonus payments to executive officers by +reducing (but not increasing) the amounts funded through the achievement of the cash flow goal. Using this construct, bonus payments to our executive officers under the STIP are intended to be +"performance-based" as defined under Section 162(m) of the IRC, and therefore fully deductible for federal income tax purposes. +The +second change was to adjust the performance metrics used to determine actual STIP payments to more closely align the STIP to St. Mary's 2010 business plan. The 2010 STIP will +measure performance in the following five subjective areas (many of which were components of the "scorecard" used in 2009): +• Production volume +• Proved developed reserves +• Finding and development costs +28 +Table of Contents +• Cash flow +• Net income +Additionally, +the Compensation Committee will assess performance in the following qualitative areas: +• Environmental, health, and safety goals +• Exploration objectives +The +five subjective performance measures, initially weighted equally, will each have threshold, target, and maximum goals against which year-end actual results will be +evaluated. At the end of the year, the Compensation Committee will assess the Company's actual performance results against the quantitative and qualitative objectives, as well as key events and +transactions/initiatives completed during the year, giving due regard to relevant economic and industry conditions. The Compensation Committee will also review individual performance achievements in +exercising its discretion and judgment in determining actual bonuses to the executive officers. +The +primary difference between the scorecard used in 2009 and the proposed performance measures to be used in 2010 is that the 2009 scorecard was more "formulaic" and provided less +ability for the Compensation Committee to evaluate qualitative factors and exercise some discretion in determining earned bonus amounts. As part of the third change to the STIP framework, the +Compensation Committee can determine earned amounts not only by the extent to which management achieves the performance goals but also by how management +achieves the goals. Because quantitative goals must be determined at the beginning of the year, use of Compensation Committee judgment and discretion protects the plan from having an illogical outcome +if circumstances change during the year such that the formulaic goals overwhelm "common sense." +The +fourth change was to revise the target bonuses as percentages of base salary for the Company's officers, including the named executive officers, and the range of earnings opportunity +to better approximate those used by St. Mary's peers. Specifically, target STIP payouts for 2010 will be as follows: +2009 Target Bonus Level, +% of base salary +2010 Target Bonus Level, +% of base salary +Chief Executive Officer & President +80 +% +100 +% +Executive Vice President & Chief Operating Officer +70 +% +90 +% +Executive Vice President & Chief Financial Officer +60 +% +80 +% +Senior Vice President and Regional Manager +50 +% +70 +% +Senior Vice President and General Counsel +50 +% +70 +% +Vice President—Regional Manager +40 +% +50 +% +Vice President—Business Development and Land +40 +% +50 +% +Vice President—Engineering and Evaluation +30 +% +40 +% +Vice President—Marketing +30 +% +40 +% +Vice President—Human Resources +30 +% +40 +% +Vice President—Geosciences and Exploration +30 +% +40 +% +29 +Table of Contents +Long-Term Incentive Plan +The LTIP, which began in 2008, is an equity program that utilizes performance share awards or PSAs and restricted stock units or RSUs +to reward executive officers and key employees of the Company for long-term growth in the net asset value of the Company, as reflected in St. Mary's absolute and relative cumulative +total shareholder return ("TSR"). St. Mary employees at the senior professional level and above are eligible to participate in the LTIP. +Under +the 2009-2012 LTIP, participants were each awarded a target number of share awards on August 1, 2009, for the performance measurement period beginning +July 1, 2009, and ending June 30, 2012. Seventy-five percent of the share awards were granted as PSAs, and 25 percent were granted as RSUs under the +stockholder-approved Equity Plan. The actual number of PSAs earned at the end of the three-year performance period can range from 0 percent to 200 percent of the target +number of PSAs, depending on St. Mary's absolute and relative TSR. RSUs vest based on continued service over the three-year period. TSR is measured on a compound annualized basis, +and relative TSR is compared to the TSR of an equal weighted index of peer companies (the "TSR Peer Group"). The TSR peer group was constructed using the constituents of the Oil & Gas +Exploration and Production GIC Sub-Industry Group in the S&P +SmallCap 600 and S&P MidCap 400 Indices, excluding St. Mary. For the 2009-2012 performance period, the index constituents of the TSR Peer Group include: Petroquest +Energy Inc., Petroleum Development Corporation, Encore Acquisition Company, Cimarex Energy Company, Forest Oil Corporation, Penn Virginia Corporation, Plains Exploration & Production +Company, Mariner Energy Inc., Quicksilver Resources Inc., Swift Energy Company, Stone Energy Corporation, Newfield Exploration Company, and Denbury Resources Incorporated. On +March 10, 2010, Encore Acquisition Company was acquired by Denbury Resources Incorporated and is no longer included in the TRS Peer Group. This TSR Peer Group is a custom index developed +for St. Mary by Standard & Poor's Financial Services LLC. +30 +Table of Contents +The +performance matrix for the 2009-2012 performance period is shown below: +2009 PAYOUT MATRIX +Simple Matrix—Add result in Column A and Column B +TOTAL CANNOT BE GREATER THAN 2.0 OR LESS THAN ZERO +Column A +Column B +Absolute St. Mary TSR +St. Mary TSR vs Peer Index +Ann. TSR +EARNED MULTIPLIER +% Point Deviation From Peers +MULTIPLIER MODIFIER +0% +— +-10% +(0.80 +) +1% +0.050 +-8% +(0.60 +) +2% +0.100 +-6% +(0.40 +) +3% +0.150 +-4% +(0.20 +) +4% +0.200 +-2% +— +5% +0.275 +0% (Index TSR) +0.20 +6% +0.350 ++2% +0.40 +7% +0.425 ++4% +0.60 +8% +0.500 ++6% +0.80 +9% +0.575 ++8% +1.00 +10% +0.650 +11% +0.725 +12% +0.800 +13% +0.875 +14% +0.950 +15% +1.025 +16% +1.100 +17% +1.200 +18% +1.300 +19% +1.400 +20% +1.500 +21% +1.600 +22% +1.700 +23% +1.800 +24% +1.900 +25% +2.000 +As +an example, if an executive officer had a target number of share units of 16,000, 4,000 would be RSUs and 12,000 would be target PSAs. At the end of three years, if St. Mary's +TSR increased 15 percent compounded annually but underperformed against the peer index by four percentage points, the result would be a total multiplier of 0.825 (1.025-0.20). The +multiplier would then be applied to the 12,000 PSAs previously granted, resulting in the issuance of 9,900 shares to the executive officer at the end of the three year period in settlement of the +PSAs, plus 4,000 shares issued in settlement of the RSUs, provided that the executive was still employed by the Company. +The +total number of PSAs and RSUs awarded and individual allocations to participants were approved by the Compensation Committee on July 23, 2009. A total of 966,837 PSAs +were granted to 307 employees on August 1, 2009. In its determination of the total pool value for 2009, the Compensation Committee considered various factors including historical fair +value transfer or "FVT" (percentage of market capitalization transferred to employees annually in the form of stock based awards and other forms of ownership in the Company) of St. Mary's long +term incentive compensation +31 +Table of Contents +system +compared to peer companies, input from F. W. Cook on expected trends in FVT for 2009, and shares available in the Equity Plan. The 2009 PSAs and RSUs have a three year vesting schedule with +1/7 th vesting the first year, 2/7 th the second year, and the remaining 4/7 th the third year. +Why +We Implemented the LTIP +Prior +to 2008, St. Mary used the NPP, described in more detail below, together with an RSU program as the Company's long-term incentive +program for its executives and key employees. The NPP, which was the primary long-term incentive compensation program, was a cash-based compensation plan. Historically the NPP +had appropriately incentivized and rewarded employees at St. Mary. However, over time the somewhat unique nature of the plan, the complexity of the program, and the delay and uncertainty in any +realization of value made the NPP less attractive than more conventional long term incentive plans to newly recruited and highly marketable executives. Furthermore, PSA and RSU programs are more +common among St. Mary's peers. Management and the Compensation Committee believe that the LTIP is more transparent, more marketable, and more widely understood than the NPP. +Changes +to 2009-2012 LTIP design from 2008-2011 LTIP design +Three +changes from the 2008-2011 design were made to the design of our 2009-2012 LTIP: +First, +in 2008, 100 percent of the awards were granted as PSAs. At the time the 2008 PSAs were granted, St. Mary's stock price had been trading near all-time +highs, due in large part to record high commodity prices. By the end of 2008, commodity prices had fallen sharply, as had our stock price. Based on St. Mary's performance after the first year +of the 2008-2011 performance cycle, it appeared unlikely that any shares would be earned under the 2008-2011 LTIP, eliminating the retention element in the grant. To provide a +stronger retention component to the LTIP in our highly competitive industry, the Compensation Committee +decided to provide 25 percent of the equity awards in the form of time-vesting RSUs for the 2009-2012 LTIP. +Second, +the Compensation Committee reduced the aggregate grant date fair value in determining the 2009-2012 target award opportunities, and as part of that process the +Compensation Committee considered the share constraints of the Equity Plan, the significant decline in our share price due primarily to commodity price levels, and the Compensation Committee's desire +to provide competitive levels of long-term incentive compensation. The Compensation Committee decided to reduce the aggregate grant date fair value by approximately 50 percent of +the decline in our share price from 2008 to 2009. Also, the payout matrix for the 2009-2012 LTIP was changed from the payout matrix used for the 2008-2011 LTIP to be more +weighted toward higher TSR. As a result, the 2009-2012 LTIP target awards have a lower aggregate grant date fair value but a higher number of target shares than the 2008-2011 +LTIP target awards. +Finally, +more challenging performance goals were set for the PSA component. The payout matrix for the PSA component of the 2009-2012 LTIP was changed from the payout matrix +used for the 2008-2011 LTIP to be more weighted toward higher TSR. +Net Profits Interest Bonus Plan (NPP) +Prior to 2008, the long-term incentive components of our overall executive compensation program consisted of the NPP and +annual grants of RSUs. The NPP was designed to reward the contributions made by executive officers and key employees to the Company's long term financial success. Under the NPP, participants shared in +the net profits derived from all oil and gas activity from a specific pool of properties. +32 +Table of Contents +Once +vested, the participant receives the distributable proceeds regardless of employment status with the Company. Due to the complex nature of the NPP and the delay and uncertainty in +realization of compensation value until pool payout status was reached, which made the NPP less attractive to newly recruited and highly marketable employees, the use of the NPP was discontinued in +2007 on a prospective basis with respect to the establishment of new pools, and the 2007 pool was the last pool under the NPP. However, material payments will continue to be made under the NPP for +pool years prior to 2008 for as long as the year's pool remains in payout status. +Certain +executives participate in NPP pools that contribute significantly to their yearly realized compensation; however, not all executives participate in NPP pools, and certain +executives that do participate have not received compensation because the NPP pools in which they participate have not reached payout status. The following are the named executive officers that +participate in NPP pools, and the amounts they received in 2009. +Pharo +$ +602,943 +Veatch +$ +192,221 +Retirement Programs—Pension and 401(k) Plans +Our executives participate in the Company's qualified, non-contributory defined benefit pension plan and a 401(k) plan on +the same basis as all of our employees. A supplemental executive retirement plan (the "SERP") provides additional benefits to certain executive level employees in order to provide for benefits in +excess of IRC limits on the qualified plan. The SERP is an unfunded non-qualified plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, and +to support our succession planning objectives with a goal towards providing sufficiency of retirement replacement income. +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to IRC limits. Final average compensation is the +average of the highest three consecutive years of the ten years preceding termination of employment. For each named executive officer, the level of compensation used to determine benefits payable +under the qualified pension plan is that officer's average of base salaries, excluding bonuses. +The +Company's 401(k) Profit Sharing Plan is a defined contribution plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) Plan allows eligible employees to +contribute up to 60 percent of their income on a pretax basis through contributions to the 401(k) Plan. Contributions are limited to amounts determined by IRC regulations. The Company matches +each employee's contributions up to six percent of the employee's pretax income. Company contributions vest over an employee's first five years of employment. +Benefits & Perquisites +The executive officers of the Company are eligible to participate in St. Mary's various medical and dental programs on the same +basis as all other employees. These plans are intended to provide benefits that support the well being and overall health of executives and employees. +Our +executives are provided with group term life insurance of $50,000 as well as supplemental life insurance up to $450,000 for a maximum of $500,000. Additionally, executive officers +are provided disability insurance through a combination of our group disability plans and individual supplemental disability to provide appropriate benefits beyond the group disability salary +replacement cap. +33 +Table of Contents +Employee Stock Purchase Plan ("ESPP") +The purpose of the ESPP is to encourage eligible employees to purchase and hold shares of our common stock. The plan cycle consists of +two periods annually, with plan periods for the six months ending June 30 and December 31 of each year. The ESPP allows employees to purchase our common stock through payroll deductions +of up to 15 percent of their base compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock at the beginning or ending of the period. +The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. Shares purchased under the ESPP prior to January 1, 2010 are subject to a +holding period of 18 months from the date the shares are purchased at the end of the applicable six-month period. In September 2009, the Board amended the ESPP to reduce the holding +period to six months, effective for all offerings beginning on or after January 1, 2010. In December 2009, the Board amended the ESPP to limit the number of shares that an employee could +purchase in a six-month period to 2,500. +Other Executive Compensation Matters +Employment +Agreements +Mr. Best +is the only executive that has a written employment agreement. Mr. Best's employment agreement became effective +May 1, 2006, and continues in effect unless either party gives 30-days prior written notice. +Pursuant +to the employment agreement, Mr. Best received upon the commencement of his employment in June 2006 an award of 20,000 shares, which vested immediately, a $50,000 cash +bonus, and the opportunity to earn an additional 20,000 RSUs over the next four years. Of the additional 20,000 RSUs, 5,000 RSUs vest in four equal annual installments beginning the first quarter of +2007, subject to continued employment; 10,000 RSUs vest in four equal annual installments if net asset value growth exceeds 10 percent, and 5,000 RSUs vest in four equal annual installments if +net asset value growth exceeds 15 percent. Mr. Best earned 1,250 shares in each of March 2007, February 2008, February 2009, and February 2010 associated with the service component of +the award. Under the performance element of the RSUs, Mr. Best earned 2,500 shares based on the results for 2007, but he did not earn any shares based on the results for 2006, 2008, and 2009, +as the net asset value growth of the Company did not exceed 10 percent. +The +Company's employment agreement with Mr. Best also provides severance benefits under certain termination scenarios. See "Employment Agreements and Termination of Employment." +The energy industry's history of executive employment terminations during cyclical downturns or strategic shifts in the industry or by particular companies have contributed to a widespread heightened +concern for long-term job stability by many executives in our industry. In response to this concern, arrangements that provide compensation assurances in the event of an executive's +termination without cause, death, or incapacity have become common practice, especially when recruiting executives from outside the Company. The post-termination payment provisions in the +Company's employment agreement for Mr. Best were an important factor in our ability to recruit Mr. Best to join the Company as President and Chief Operating Officer in 2006. We believe +that the two year period for post-employment compensation and insurance protection is appropriate to allow Mr. Best adequate time to obtain comparable employment in the event of a +termination, and is comparable to the terms offered by other companies in our industry who compete with us for executive talent. +The +employment of all other executives remains "at will" subject to and in accordance with the terms and conditions of written offers. +34 +Table of Contents +Change +of Control Severance Benefits +Change +of control severance protection is provided to executives at the level of Vice President and above through change of control severance agreements. These +agreements have a "double trigger" mechanism whereby they require first that a qualifying change of control event has occurred and second that the executive has been terminated or that certain other +conditions are met, as summarized below, before severance benefits will be provided. Executive officers are entitled to receive severance payments in the event that their employment is terminated +within two and one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an adverse +change in the officer's status after a change of control), each as defined in the agreements. The term "good reason" incorporates the concept of a change in the employee's status, authority, position, +offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or any time thereafter. The +term "good reason" also contemplates a reduction in the employee's salary and benefits over this same time frame, or the requirement of an employee to relocate the base of employment outside a 25 mile +radius from the employee's current location. Severance payments equal up to two and one-half years annual base salary, depending on the length of time employment continues after the change +of control, provided that in no event would the severance payments equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of one +year after termination. In the event the executive is subject to excise taxes under Section 4999 of the IRC, severance benefits may be reduced to avoid excise taxes, if doing so would increase +the net after tax benefits to the executives. No excise tax "gross-up" payments are provided. +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or +consolidation of the Company or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members of +the Board of Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of Directors. +Particularly +in view of the propensity of mergers, acquisitions, and consolidations in our industry, the Company believes that the change of control severance agreements promote +stability and continuity among the named executive officers, allowing them to remain neutral in the face of a transaction that would benefit stockholders, but would result in their involuntary +termination. Such agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level +of protection for the officer as +well as a retention incentive benefiting the Company and its stockholders without creating an unreasonable impediment to a potential acquirer of the Company. The maximum two and one-half +year post change of control severance payment period, and the minimum one year severance payment and insurance coverage period under the Company's agreements for its named executive officers, are +comparable to payment levels and periods offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance protection during a +reasonable period of time to allow the executive to obtain comparable employment. +New +Hire/Sign-On Bonuses +The +hiring of employees, particularly the hiring of executives, is highly competitive. In order to attract and retain skilled employees, St. Mary may +provide sign-on incentives. We believe that this tool is important to the building and retention of a strong qualified workforce. +No +sign on bonuses were awarded for executives in 2009. +35 +Table of Contents +Stock +Ownership Guidelines +To +further align senior management's interests with the interests of stockholders with respect to long term growth of stockholder value, the Compensation +Committee has established and the Board has approved equity ownership guidelines for executives as follows: +Chief Executive Officer +5 times base salary +Chief Operating Officer & Chief Financial Officer +3 times base salary +Vice Presidents +1 times base salary +Equity +holdings may include the value of vested and unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements +of equity awards for purposes of paying tax withholding obligations, an executive may not sell equity, unless approved by the Compensation Committee for the Chief Executive Officer, Chief Operating +Officer, or Chief Financial Officer and by the Chief Executive Officer for all other executive officers. +Timing +of Equity Grants +Grants +under the LTIP are made on August 1 of each year. The Compensation Committee approves these grants at a meeting in July of each year. The +Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates for newly hired executives for equity or other benefits lost upon termination of their +previous employment or to induce them to join St. Mary. +Trading +Policy +Effective +December 11, 2009, the Board approved an amendment to the Company's Securities Trading Policy to clarify the Company's policy regarding +margin accounts and pledges of St. Mary stock. The amended policy permits officers to hold St. Mary stock in margin accounts or pledge St. Mary stock, but only if they demonstrate +that the stock is not at financial risk of foreclosure. All such transactions must also be approved by the Company's legal department. +Compensation Committee Report +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on the review +and discussions, the +Compensation Committee recommends to the Board of Directors that the Compensation Discussion and Analysis be included in the Company's proxy statement to be filed with the SEC. +Barbara M. Baumann, Chairman +Julio M. Quintana +William D. Sullivan +March 31, 2010 +36 +Table of Contents +Executive Compensation Tables +Summary Compensation Table for 2007, 2008, and 2009 +The Summary Compensation table sets forth the annual and long term compensation received during each of the Company's last three years +by (i) the Chief Executive Officer, (ii) the Chief Financial Officer, (iii) the three other highest compensated executive officers of the Company that were employed as of +December 31, 2009, the named executive officers. +In +addition to salaries, the table reflects RSUs granted for the 2007 annual period, the January 1, 2008, to June 30, 2008, period, and the +July 1, 2008, to June 30, 2009, period to executive management and +selected other personnel. The table also reflects PSAs granted to executive management and other selected personnel on July 1, 2008, and July 1, 2009. In the +Non-Equity Incentive Plan Compensation column, the table provides for payments made to certain individuals who participate in the Company's discontinued NPP. Eligible employees participate +in the Company's STIP and LTIP as described more fully in the "Compensation Discussion and Analysis" +Name and Principal Position +Year +Salary +($) +Bonus +($)(1) +Stock +Awards +($)(2) +Option +Awards +($) +Non-Equity +Incentive Plan +Compensation +($)(3) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings +($)(4) +All Other +Compensation +($)(5) +Total +($) +Anthony J. Best +2009 +$ +513,000 +$ +287,280 +$ +2,286,268 +$ +— +$ +— +$ +100,606 +$ +34,416 +$ +3,221,570 +Chief Executive Officer and +2008 +$ +473,173 +$ +190,800 +$ +1,888,110 +$ +— +$ +— +$ +49,879 +$ +16,303 +$ +2,618,265 +President (principal executive +2007 +$ +417,483 +$ +41,748 +$ +62,225 +$ +— +$ +— +$ +67,094 +$ +18,215 +$ +606,765 +officer) +A. Wade Pursell(6) +2009 +$ +306,000 +$ +153,520 +$ +1,241,117 +$ +— +$ +— +$ +14,395 +$ +32,165 +$ +1,747,197 +Executive Vice President and +2008 +$ +92,308 +$ +56,100 +$ +600,005 +$ +— +$ +— +$ +— +$ +38,060 +$ +786,473 +Chief Financial Officer +(principal financial officer) +Javan D. Ottoson +2009 +$ +345,000 +$ +169,050 +$ +1,469,744 +$ +— +$ +— +$ +29,041 +$ +41,045 +$ +2,053,880 +Executive Vice President and +Chief Operating Officer +Milam Randolph Pharo +2009 +$ +239,200 +$ +83,720 +$ +473,584 +$ +— +$ +602,943 +$ +72,703 +$ +43,286 +$ +1,515,436 +Senior Vice President and +2008 +$ +219,331 +$ +61,000 +$ +399,859 +$ +— +$ +1,501,768 +$ +31,912 +$ +12,819 +$ +2,226,689 +General Counsel +2007 +$ +190,772 +$ +23,000 +$ +26,071 +$ +— +$ +1,024,444 +$ +28,049 +$ +13,782 +$ +1,306,118 +Paul M. Veatch +2009 +$ +238,250 +$ +76,240 +$ +718,541 +$ +— +$ +192,221 +$ +22,653 +$ +44,110 +$ +1,292,015 +Senior Vice President and +2008 +$ +229,115 +$ +123,722 +$ +625,488 +$ +— +$ +445,108 +$ +9,465 +$ +14,481 +$ +1,447,379 +Regional Manager +(1) The +amounts in the column represent the bonuses paid in 2010, 2009, and 2008 but earned during 2009, 2008, and 2007 performance periods, respectively. +Mr. Pursell received a $25,000 retention bonus in 2008 and 2009. +(2) The +amounts in this column represent the aggregate grant date fair values of PSA and RSU awards computed in accordance with Financial Accounting Standards +Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated forfeitures related to service-based vesting +conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to Consolidated Financial Statements included in the +Company's 2009 Annual Report on Form 10-K. Amounts for 2007 and 2008 have been restated from amounts shown in prior proxy statements to reflect the aggregate grant date fair values, +as required by new SEC rules effective February 28, 2010. PSA awards are subject to market-based performance conditions relating to the Company's total shareholder return and relative +shareholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSA awards reflected in this column are based on the estimate as of +the grant date of the probable outcome of these performance conditions, and those grant date fair values for Best, Ottoson, Pursell, Pharo, and Veatch respectively are $1,868,543, $1,201,206, +$1,014,352, $387,055, and $587,256. Assuming that the highest level of performance conditions will be achieved, the grant date fair values of those awards as computed in accordance with FASB ASC Topic +718 for Best, Ottoson, Pursell, Pharo, and Veatch respectively are $2,506,350, $1,611,225, $1,360,590, $519,173, and $787,710. +(3) Totals +consist of amounts paid and accrued under the NPP. +37 +Table of Contents +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each of the named executive officer's combined benefits +under St. Mary's qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in the Company's financial statements. +No named executive officer received preferential or above market earnings on deferred compensation. +(5) Amounts +consist of the company's contribution to the 401(k) Profit Sharing Plan, holiday bonus, group term life premiums, supplemental life insurance +premiums, supplemental disability insurance premiums, and any accrued vacation time due the employee at the time of termination. +(6) Mr. Pursell +joined the Company on September 8, 2008. +The following table lists the number of RSUs held by each individual and the market value of the total holdings of the RSUs for the named +executive officers as of the end of fiscal year 2009. The value shown is based on the closing market price of $34.24 on December 31, 2009, as reported by the NYSE. +Named Executive Officer +Number of +Unvested +Restricted Stock +Units Issued +Market Value +as of 12/31/09 +Anthony J. Best +25,370 +$ +868,669 +A. Wade Pursell +17,248 +$ +590,572 +Javan D. Ottoson +16,164 +$ +553,455 +Milam Randolph Pharo +5,553 +$ +190,135 +Paul M. Veatch +11,375 +$ +389,480 +Grants of Plan-Based Awards in 2009 +All Other +Stock +Awards: +Number of +Shares of +Stock or +Units +(#)(1) +All Other +Option +Awards: +Number of +Securities +Underlying +Options +(#) +Estimated Future Payouts +Under Non-Equity Incentive +Plan Awards +Estimated Future Payouts +Under Equity Incentive +Plan Awards +Exercise +or Base +Price of +Option +Awards +($/Sh) +Grant +Date Fair +Value of +Stock and +Option +Awards +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#)(2) +Maximum +(#)(2) +Anthony J. Best +8/1/09 +$ +— +$ +— +$ +— +— +— +— +17,500 +— +— +$ +417,725 +8/1/09 +$ +— +$ +— +$ +— +— +52,500 +105,000 +— +— +— +$ +1,868,543 +A. Wade Pursell +8/1/09 +$ +— +$ +— +$ +— +— +— +— +9,500 +— +— +$ +226,765 +8/1/09 +28,500 +57,000 +$ +1,014,352 +Javan D. Ottoson +8/1/09 +$ +— +$ +— +$ +— +— +— +— +11,250 +— +— +$ +268,538 +8/1/09 +33,750 +67,500 +$ +1,201,206 +Milam Randolph Pharo +8/1/09 +$ +— +$ +— +$ +— +— +— +— +3,625 +— +— +$ +86,529 +8/1/09 +$ +— +$ +— +$ +— +— +10,875 +21,750 +— +— +— +$ +387,055 +Paul M. Veatch +8/1/09 +$ +— +$ +— +$ +— +— +— +— +5,500 +— +— +$ +131,285 +8/1/09 +$ +— +$ +— +$ +— +— +16,500 +33,000 +— +— +— +$ +587,256 +(1) This +amount represents RSUs granted under the Company's Equity Plan. The RSUs are granted with a holding period and vest 1/7th on +August 1, 2010, 2/7ths on August 1, 2011, and 4/7ths on August 1, 2012. The RSUs are subject to forfeiture to the Company on termination of employment prior +to vesting. The RSUs are not eligible for dividends and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are +settled for shares of common stock on the settlement date. +(2) This +amount represents PSAs granted under the Company's Equity Plan. PSAs represent the right to receive, upon settlement of the PSAs after the completion +of a three-year performance period ending June 30, 2012, a number of shares of the Company's common stock that may be from zero to two times the number of PSAs granted on the +award date, depending on the extent to which the Company's performance criteria have been achieved and the extent to which the PSAs have vested. The performance criteria for the PSAs are based on a +combination of the Company's TSR for the performance periods and the relative measure of the Company's TSR compared with the cumulative TSR of an index comprised of certain peer companies for the +performance period. The PSAs will vest 1/7th on August 1, 2010, 2/7ths on August 1, 2011, and 4/7ths on August 1, 2012. +38 +Table of Contents +The following table displays outstanding equity awards for named executive officers as of December 31, 2009. +Outstanding Equity Awards at 2009 Fiscal Year-End +Stock Awards +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +($) +Option Awards +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +(#) +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Equity +Incentive +Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock that +Have Not +Vested +($) +Anthony J. Best +— +— +— +$ +— +— +432 +(2) +$ +14,792 +— +$ +— +— +— +— +$ +— +— +2,262 +(1) +$ +77,451 +— +$ +— +— +— +— +$ +— +— +5,176 +(3) +$ +177,226 +— +$ +— +— +— +— +$ +— +— +— +$ +— +— +$ +— +23,359 +(8) +$ +799,812 +— +— +— +$ +— +— +17,500 +(9) +$ +599,200 +— +$ +— +— +— +— +$ +— +— +— +$ +— +52,500 +(9) +$ +1,797,600 +— +— +— +$ +— +— +— +$ +— +1,250 +(4) +$ +42,800 +— +— +— +$ +— +— +— +$ +— +3,750 +(5) +$ +128,400 +A. Wade Pursell +— +— +— +$ +— +— +7,748 +(6) +$ +265,292 +— +$ +— +— +— +— +$ +— +— +9,500 +(9) +$ +325,280 +— +$ +— +— +$ +— +28,500 +(9) +$ +975,840 +Javan D. Ottoson +— +— +— +$ +— +— +24 +(2) +$ +822 +— +$ +— +— +— +— +$ +— +— +2,168 +(1) +$ +74,232 +— +$ +— +— +— +— +$ +— +— +2,722 +(3) +$ +93,201 +— +$ +— +— +— +— +$ +— +— +— +$ +— +12,820 +(8) +$ +438,957 +— +— +— +$ +— +— +11,250 +(9) +$ +385,200 +— +$ +— +— +— +— +$ +— +— +— +$ +— +33,750 +(9) +$ +1,155,600 +Milam Randolph Pharo +— +— +— +$ +— +— +181 +(2) +$ +6,197 +— +$ +— +— +— +— +$ +— +— +622 +(1) +$ +21,297 +— +$ +— +— +— +— +$ +— +— +1,125 +(3) +$ +38,520 +— +$ +— +— +— +— +$ +— +— +— +$ +— +5,079 +(8) +$ +173,905 +— +— +— +$ +— +— +3,625 +(9) +$ +124,120 +— +$ +— +— +— +— +$ +— +— +— +$ +— +10,875 +(9) +$ +372,360 +Paul M. Veatch +3,380 +— +— +$ +13.65 +06/30/13 +— +$ +— +— +$ +— +522 +— +— +$ +13.39 +10/22/13 +292 +(2) +$ +9,998 +— +$ +— +3,308 +— +— +$ +14.25 +12/31/13 +1,500 +(7) +$ +51,360 +— +$ +— +2,786 +— +— +$ +12.66 +09/30/13 +2,874 +(1) +$ +98,406 +— +$ +— +— +— +— +$ +— +— +1,209 +(3) +$ +41,396 +— +$ +— +— +— +— +$ +— +— +— +$ +— +6,546 +(8) +$ +224,135 +— +— +— +$ +— +— +5,500 +(9) +$ +188,320 +— +$ +— +— +— +— +$ +— +— +— +$ +— +16,500 +(9) +$ +564,960 +(1) These +RSUs vest in four equal installments on the following dates: February 28, 2008, 2009, 2010, and 2011. +(2) These +RSUs vest in four equal installments on the following dates: February 28, 2007, 2008, 2009, and 2010. +(3) These +RSUs vest in three equal installments on the following dates: December 15, 2008, December 15, 2009, and +December 15, 2010. +(4) Mr. Best +earned 1,250 shares in each of the first quarters of 2007, 2008, and 2009. +(5) Mr. Best +may earn an additional 2,500 to 3,750 shares with each of the share grants referenced in footnote 4 if certain net asset value growth +percentages are met. +39 +Table of Contents +(6) These +RSUs vest in two equal installments on the following dates: December 15, 2009, and December 15, 2010. +(7) These +RSUs vest in three installments on the following dates: 600 shares on January 1, 2008, 900 shares on January 1, 2009, and +1,500 shares on January 1, 2010. +(8) These +PSAs vest 1/7th on August 1, 2009, 2/7ths on August 1, 2010, and 4/7ths on August 1, 2011. +(9) These +RSUs and PSAs vest 1/7th on August 1, 2010, 2/7ths on August 1, 2011, and 4/7ths on August 1, 2012. +Nonqualified Deferred Compensation +Although the NPP may be considered a non-qualified deferred compensation plan since amounts are paid under the NPP from the +net profits, if any, from oil and gas activity from designated pools of properties in years after the participants have earned such net profits interests, the Company does not maintain a +non-qualified deferred compensation plan whereby specific determinable compensation amounts or balances are deferred. The NPP is described in the Compensation Discussion and Analysis, and +NPP compensation amounts for the named executive officers are reflected in the Summary Compensation Table. +2009 Option Exercises and Stock Vested +Stock options exercised by the named executive officers during 2009 and the values realized upon such option exercises are set forth in +the following table. All such stock options were granted pursuant to the Company's stock option plans described in this proxy statement. In May 2003, the Board of Directors amended the stock option +plans to prohibit any repricing of outstanding options that would reduce the exercise price without stockholder approval. In 2004, the issuance of stock options was replaced by the issuance of RSUs +under a performance based plan, and the number of RSUs held by the named executive officers that vested during 2009 and the computed aggregate value realized upon such vesting are also set forth in +the following table. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting(1) +(#) +Value Realized +on Vesting(2) +($) +Anthony J. Best +— +$ +— +11,327 +$ +221,237 +A. Wade Pursell +— +$ +— +7,748 +$ +273,969 +Javan D. Ottoson +— +$ +— +5,662 +$ +111,297 +Milam Randolph Pharo +— +$ +— +3,654 +$ +64,265 +Paul M. Veatch +— +$ +— +5,891 +$ +99,700 +(1) Represents +the number of shares underlying RSUs that became vested during 2009. Each RSU represents a right for one share of the Company's common stock to +be issued and delivered upon settlement of the RSU pursuant to the terms of the award agreement. +(2) The +value realized on vesting of the RSUs is computed by multiplying the number of RSUs that vested on the vesting date by the per share closing market +price of the underlying shares on the vesting date, or, if the vesting date was not a normal market trading date, then on the last normal market trading date which preceded the vesting date. The per +share closing market prices utilized for this computation were $13.58 on the vesting date of February 28, 2009, for the 2007 and 2008 RSU awards; and $35.36 on +December 15, 2009, for the June 30, 2008, RSU awards. +40 +Table of Contents +Retirement Plans +Pension Benefits +The Company's Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all employees. In +addition, the Company sponsors a supplemental pension plan, or "SERP", to provide an equivalent benefit on earnings above the qualified plans IRC limits (the 2009 limit was $245,000 in annual base +salary income for certain executive officers with senior management hierarchy title of at least Vice President). +The +qualified plan provides a benefit after 25 years of service equal to 35 percent of final average compensation, subject to IRC limits. Final average compensation is the +average of the highest three consecutive years of the ten years preceding termination of employment. For each named executive officer, the level of compensation used to determine benefits payable +under the qualified pension plan is that officer's average of the base salaries (excluding bonus) shown in the Summary Compensation Table. +The +following table represents the value of the named executive officers' pension benefits as of December 31, 2009. +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Anthony J. Best +Qualified Pension Plan +4 +$ +108,506 +$ +— +Non-Qualified SERP Pension Plan +4 +$ +109,073 +$ +— +A. Wade Pursell +Qualified Pension Plan +1 +$ +11,525 +$ +— +Non-Qualified SERP Pension Plan +1 +$ +2,870 +$ +— +Javan D. Ottoson +Qualified Pension Plan +3 +$ +48,747 +$ +— +Non-Qualified SERP Pension Plan +3 +$ +16,629 +$ +— +Milam Randolph Pharo(1) +Qualified Pension Plan +14 +$ +297,460 +$ +— +Non-Qualified SERP Pension Plan +14 +$ +— +$ +— +Paul M. Veatch +Qualified Pension Plan +9 +$ +75,131 +$ +— +Non-Qualified SERP Pension Plan +9 +$ +— +$ +— +(1) Mr. Pharo +is eligible for early retirement under the Qualified Pension Plan but he is not yet eligible for early retirement with respect to the +Non-Qualified SERP Pension Plan or for continued vesting of RSUs and PSAs. Mr. Pharo became eligible for the Qualified Pension Plan early retirement on the first day of the month +that he reached the age of 55 and completed ten years of credited service. Mr. Pharo's annual early retirement benefit under the Qualified Pension Plan would equal 35 percent of his +final compensation multiplied by a fraction, the numerator of which is his years of credited service and the denominator of which is 25. +Equity Compensation Plans +Under the Equity Plan and ESPP, options and shares of St. Mary common stock are authorized for grant or issuance as compensation +to eligible employees, consultants, and members of the Board of Directors. Our stockholders have approved each of these plans. +41 +Table of Contents +The +following table is a summary of the shares of common stock authorized for issuance under our existing equity compensation plans as of December 31, 2009. +Plan category +(a) +Number of +securities to +be issued +upon +exercise of +outstanding +options, +warrants, +and rights +(b) +Weighted-average +exercise price of +outstanding +options, warrants, +and rights +(c) +Number of +securities +remaining +available for +future +issuance under +equity +compensation +plans +(excluding +securities +reflected in +column (a)) +Equity compensation plans approved by security holders: +Equity Plan +Stock options and incentive stock options(1) +1,274,920 +$ +13.31 +— +Restricted stock(1) +408,356 +— +— +Performance share awards(1)(3) +1,145,871 +$ +32.52 +1,771,009 +Total for Equity Plan +2,829,147 +$ +22.40 +1,771,009 +Employee Stock Purchase Plan(2) +— +— +1,468,275 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +2,829,147 +$ +22.40 +3,239,284 +(1) In +May 2006 the stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified stock +options, incentive stock options, stock appreciation rights, and stock-based awards to key employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of +St. Mary. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive +Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the St. Mary Land & Exploration Company Non-Employee Director Stock +Compensation Plan (collectively referred to as the "Predecessor Plans"). All grants of equity are now made out of the Equity Plan, and no further grants will be made under the Predecessor Plans. Each +outstanding award under a Predecessor Plan immediately prior to the effective date of the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such +grants or issuances. Our Board of Directors approved amendments to the Equity Plan on March 26, 2008, and the amended plan was approved by stockholders at our annual stockholders' +meeting May 21, 2008. Our Board of Directors approved additional amendments to the Equity Plan on March 26, 2009, and the amendments were approved by stockholders at our +annual stockholders' meeting on May 20, 2009. Awards granted in 2009, 2008, and 2007 under the Equity Plan were 1,016,931; 932,767; and 135,138, respectively. +(2) Under +the ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to 15 percent of their eligible +compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six month offering period, and shares issued under +the ESPP through December 31, 2009, are restricted for a period of 18 months from the date issued. Effective January 1, 2010, shares issued under the ESPP will be +restricted for a period six months from the date issued. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code. Shares issued under the ESPP totaled 86,308, 45,228, and +29,534 in 2009, 2008, and 2007, respectively. +42 +Table of Contents +(3) The +PSAs represent the right to receive, upon settlement of the PSAs after the completion of a three-year performance measurement period, a +number of shares of our common stock that may be from zero to two times the number of PSAs granted, depending on the extent to which the underlying performance criteria have been achieved and the +extent to which the PSAs have vested. The performance criteria for the PSAs are based on a combination of our TSR for the performance period and the relative measure of our TSR compared with the TSR a +48 index comprised of certain peer companies for the performance period. The current outstanding PSAs were granted on August 1, 2009, and 2008, and utilize a three-year +performance measurement period which began on July 1, 2009, and 2008, respectively. On July 1, 2009, the market value per share of our common stock was $21.15, and on the +date of grant the market value per share of our common stock was $23.87. On July 1, 2008, the market value per share of our common stock was $62.51, and on the date of grant the market +value per share of our common stock was $43.11. The PSAs do not have an exercise price associated with them, but rather the $32.52 price shown in the above table represents the weighted-average per +share fair value as of December 31, 2009, calculated pursuant to ASC Topic 718, which is presented in order to provide additional information regarding the potential dilutive effect of +the PSAs as of December 31, 2009, in view of the share price level at the beginning of the performance period which will be utilized to compute the TSR measurements for determination of +the number of shares to be issued upon settlement of the PSAs after completion of the three-year performance measurement period. +Employment Agreements and Termination of Employment +St. Mary and Mr. Best entered into an employment agreement dated May 1, 2006. When his employment +commenced, Mr. Best received an RSU award of 20,000 shares, which vested immediately and was not subject to forfeiture, and a $50,000 cash bonus. Over the first four years of the agreement, +Mr. Best was able to earn additional restricted shares in varying amounts, +earning in the first quarter of each year 1,250 shares if he was employed by St. Mary at that time, and an additional 2,500 shares if the net asset value growth from the prior year exceeded ten +percent, with a further 1,250 shares if such growth exceeded fifteen percent. Since he remained employed by the Company for the four year term of the equity compensation component of the employment +agreement and if he had met or exceeded all targets in this compensation arrangement, the Company would have awarded Mr. Best with a maximum of 20,000 restricted shares. Mr. Best earned +1,250 shares in March 2007, February 2008, and February 2009, associated with the service component of his award. Mr. Best earned 2,500 shares under the performance element of his employment +agreement based on the results for 2007; however, he did not earn the performance based component of his employment agreement based on the results for 2009, 2008, or 2006. Mr. Best participates +in the fringe benefits and other benefit plans and practices of St. Mary in the same manner and to the same comparable extent as other senior executives of St. Mary. +The +Company's employment agreement with Mr. Best provides that in the event that Mr. Best's employment is terminated by the Company for any reason other than (i) the +death or incapacitation of Mr. Best or (ii) the performance of his duties for the Company with gross negligence, gross incompetence, fraud, or dishonesty, as determined by the Board of +Directors, the Company must continue the salary of Mr. Best at its rate at the time of such termination for a period of two years thereafter, together with a continuation for two years of the +insurance benefits in effect for him at the time of such termination. +Based +on Mr. Best's current annual salary and level of insurance benefits in effect as of December 31, 2009, the total amount of payments that would be made to +Mr. Best for a period of two years after such termination would be $1,026,000, and the estimated value of insurance benefits to be continued over such period would be approximately $62,534. +43 +Table of Contents +The +Company's employment agreement with Mr. Best also provides that in the event that Mr. Best's employment is terminated under circumstances such that the terms of the +Company's change of control executive severance agreement for Mr. Best would apply, and to the extent that severance pay or benefits, each considered separately, to be received by +Mr. Best pursuant to the terms of the change of control executive severance agreement would exceed the severance pay or benefits, each considered separately, pursuant to the terms of +Mr. Best's employment agreement, Mr. Best shall receive such excess severance pay or benefits under the change of control executive severance agreement pursuant to the terms thereof. The +Company's change of control executive severance agreements are discussed below. Mr. Best's employment agreement provides for a severance payment of a minimum of two years' salary together with +a continuation for two years of the insurance benefits in effect for him in the event of such termination. +Change of Control Arrangements +St. Mary has established a change of control executive severance policy and entered into change of control severance agreements +whereby certain officers of St. Mary, including the named executive officers in the Summary Compensation Table, are entitled to receive severance payments in the event that their employment is +terminated within two and one-half years after a change of control of the Company (a) without "cause" by the Company or (b) for "good reason" by the officer (e.g. an +adverse change in the officer's status after a change of control), each as defined in the change of control severance agreements. The severance payments equal up to two and one-half years +annual base salary, depending on the length of time employment continues after the change of control, provided that in no event would the severance payments equal less than one year's annual base +salary. In addition, all insurance and fringe benefits will be provided for a period of one year. +Based +on the respective annual base salaries and benefit levels of the named executive officers as of December 31, 2009, under the change of control executive severance +agreements, the total maximum severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year +after severance for each of the named executive officers who were employed by the Company as of December 31, 2009, would be as follows: +Name +Maximum Severance Payments +Minimum Severance Payments +Estimated Value of Benefits for One Year(1) +Anthony J. Best(2) +$ +1,282,500 +$ +1,026,000 +$ +31,267 +A. Wade Pursell +$ +765,000 +$ +306,000 +$ +24,525 +Javan D. Ottoson +$ +862,500 +$ +345,000 +$ +22,844 +Milam Randolph Pharo +$ +598,000 +$ +239,200 +$ +22,439 +Paul M. Veatch +$ +595,625 +$ +238,250 +$ +27,819 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any such benefits +pursuant to a subsequent employer's benefit plans. +(2) The +employment agreement between the Company and Mr. Best provides that in the event of a change of control of the Company and a termination of +Mr. Best's employment, the Company must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years +thereafter, and, to the extent that severance pay or benefits to be received by Mr. Best under the terms of the change in control executive severance agreement between the Company and +Mr. Best would exceed the severance pay or benefits under his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive +severance agreement. +44 +Table of Contents +Under +the change of control executive severance agreements, the severance payments are to be made in such base salary installment amounts and pursuant to such base salary installment +payment schedule as were in effect immediately prior to the change of control, and the Company or its successor is obligated to make the payments. +The +Company has also established a change of control severance policy and entered into change of control severance agreements whereby selected employees of St. Mary that are of a +sufficient employment grade are entitled to receive severance payments in the event that their employment is terminated within one year after a change of control of the Company (a) without +"cause" by the Company or (b) for "good reason" by the employee (e.g. an adverse change in the officer's status after a change of control), each as defined in the change of control +severance agreements. The severance payments equal up to two and one half years annual base salary, depending on the length of time employment continues after the change of control, provided that in +no event would the severance payments equal less than one year's annual base salary. In addition, all insurance and fringe benefits will be provided for a period of one year. +St. Mary +has established a severance termination plan for all of its other employees that activates if a change of control event occurs. The amount of benefit is dependent on the +number of years of service with the Company and the employee's compensation level at the time of termination. +A +change of control is defined to include (i) an acquisition of more than 50 percent of the common stock or assets of the Company in a reorganization, merger, or +consolidation of the Company, or (ii) a change in more than 50 percent of the composition of the Board of Directors of the Company other than as a result of the election of new members +of the Board of Directors by a vote of the incumbent members of the Board of Directors or by stockholders of the Company pursuant to the recommendation of the incumbent members of the Board of +Directors. +45 +Table of Contents +DIRECTOR COMPENSATION +Employee directors do not receive additional compensation for serving on the Board of Directors or any committee. +The +fiscal service period for directors is the period from one annual meeting to the next. For the last fiscal year the period was from May 20, 2009, through +May 26, 2010. For this period, target base compensation for each director was set at $160,000 annually, plus committee and attendance fees. Director compensation is primarily paid in the +form of stock grants. +The +stock compensation for non-employee directors is as follows: +• Stock with a market value on May 21, 2009, of $160,000, resulted in a grant to each non-employee +director elected by the stockholders on May 20, 2009, of 7,858 shares of St. Mary common stock. These shares were issued under the Equity Plan. The shares are generally considered +to be earned over the director's annual service period. However, shares issued to a director who thereafter resigns from the Board before completing the annual service period but after completing at +least five years of service to the Company are treated as fully vested. All shares carry a transfer restriction imposed by St. Mary which expires two years after the date of issuance of the +shares. The compensation expense recorded in the Company's financial statements is the fair value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +The +cash component of the director compensation for non-employee directors is as follows: +• Payment of $750 for each Board meeting attended. +• Payment of $600 for each committee meeting attended in person and $375 for each telephonic committee meeting. +• Reimbursement for expenses incurred in attending Board and committee meetings. +The +committee chairs receive the following cash payments in recognition of the additional workload of their respective committee assignments. These amounts are paid concurrent with the +beginning of the annual service period. +• Audit Committee—$15,000 +• Compensation Committee—$10,000 +• Nominating and Corporate Governance Committee—$5,000 +Mr. Sullivan +was paid a retainer for his service as Non-Executive Chairman of the Board of $60,000 for the 2009-2010 director service period. The retainer +was paid in the form of stock on May 21, 2009, which resulted in a grant of 2,946 shares of St. Mary common stock. The retainer was supplemental to his basic +non-employee director compensation. +Non-employee +directors may participate in the Company's employee matching charitable gift program involving contributions to charitable organizations that are exempt from +federal income tax. Under this program, for every dollar that an employee or non-employee Director contributes to an eligible charitable organization, the Company makes matching +contributions of additional funds. Ms. Baumann, Dr. Bickle, Mr. Gardiner, Mr. Seidl, and Mr. Sullivan participated in this program during 2009, and the Company +matched a total of $15,450 in non-employee director contributions for 2009 under this program. +The +directors are eligible to participate in St. Mary's health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with the Company's plan. The ability to participate in this plan is considered non-compensatory. +46 +Table of Contents +The +Compensation Committee has established, and the Board has approved, equity ownership guidelines for the non-employee directors of three times their annual stock-based +retainer. Equity holdings may include the value of vested and unvested RSUs for purposes of these calculations. New directors are provided time to accumulate their stock ownership position and are not +required to go into the open market to acquire shares. +The +following table sets forth the annual and long term compensation received during 2009 by the non-employee directors of St. Mary. The stock based component of the +compensation reflects the grant date fair value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +2009 Director Compensation +Name +Fees Earned +or Paid in +Cash +($) +Stock +Awards(1)(2)(3) +($) +Option +Awards(4) +($) +Non-Equity +Incentive Plan +Compensation +($) +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +($) +All Other +Compensation +($)(6) +Total +($) +Barbara M. Baumann +$ +17,575 +$ +159,989 +$ +— +$ +— +$ +— +$ +10,000 +$ +187,564 +Larry W. Bickle +$ +7,050 +$ +159,989 +$ +— +$ +— +$ +— +$ +2,500 +$ +169,539 +William J. Gardiner +$ +22,050 +$ +159,989 +$ +— +$ +— +$ +— +$ +250 +$ +182,289 +Mark A. Hellerstein(5) +$ +1,500 +$ +— +$ +— +$ +— +$ +— +$ +— +$ +1,500 +Julio M. Quintana +$ +7,425 +$ +159,989 +$ +— +$ +— +$ +— +$ +— +$ +167,414 +John M. Seidl +$ +13,400 +$ +159,989 +$ +— +$ +— +$ +— +$ +200 +$ +173,589 +William D. Sullivan +$ +7,575 +$ +219,969 +$ +— +$ +— +$ +— +$ +2,500 +$ +230,044 +(1) Each +of the non-employee directors was issued 7,858 shares of St. Mary common stock upon such director's election to the Board on +May 21, 2009. Mr. Sullivan was issued an additional 2,946 shares of St. Mary common stock on May 21, 2009, for serving as the Non-Executive +Chairman of the Board. These stock awards are for the period from May 20, 2009, through May 26, 2010. The shares are generally considered to be earned over the director's +annual service period and fully vested on May 26, 2010. The shares also carry a transfer restriction imposed by St. Mary which expires two years after the date of issuance of the +shares. The value of the stock awards represents the grant date fair value. +(2) The +grant date fair value of each share issued to non-employee directors is set forth in the following table and is computed in accordance with +FASB ASC Topic 718, based on the closing stock price on the grant date. There were no forfeitures by the directors during fiscal 2009. +Grant Date +Shares +Value +Directors Who Received +5/21/2009 +7,858 +$ +159,989 +Baumann, Bickle, Gardiner, Seidl, Quintana +5/21/2009 +10,804 +$ +219,969 +Sullivan +5/22/08 +3,134 +$ +159,991 +Baumann, Bickle, Gardiner, Seidl, Quintana, Sullivan +5/22/08 +4,309 +$ +219,974 +Hellerstein +5/16/07 +4,382 +$ +159,987 +Baumann, Bickle, Gardiner, Seidl, Quintana, and Sullivan +7/02/07 +6,212 +$ +227,483 +Hellerstein +(3) As +of December 31, 2009, the non-employee directors held the following number of stock awards (which consists of unvested stock): +Ms. Baumann—7,858, Dr. Bickle—7,858, Mr. Gardiner—7,858, Mr. Quintana—7,858, Mr. Seidl—7,858, and +Mr. Sullivan—10,804. +(4) For +the year ended December 31, 2009, no stock options have been issued to directors nor have any stock options been issued to the directors +since December 2004. As of December 31, 2009, the non-employee +47 +Table of Contents +directors +held the following number of stock options: Ms. Baumann—47,666, Dr. Bickle—48,566, Mr. Gardiner—47,670 and +Mr. Sullivan—9,772. All such options are exercisable. Mr. Hellerstein, Mr. Quintana, and Mr. Seidl do not hold any outstanding stock options. The options +described above are cumulative unexercised options granted to the directors over their years of service to the Company. +(5) Mr. Hellerstein +retired from the Board in May 2009. Mr. Hellerstein's total does not include $2,364,053 paid to him in 2009 for vested +participation interests under the NPP as a result of his prior service as an executive officer of the Company before his retirement as Chief Executive Officer on February 23, 2007. For +additional information about the NPP payments to Mr. Hellerstein, see "Certain Relationships and Related Transactions." +(6) The +amounts in this column represent matching charitable contributions made on the behalf of Ms. Baumann, Dr. Bickle, Mr. Gardiner, +Mr. Seidl, and Mr. Sullivan for the year 2009 under the employee matching charitable gift program. +Other Reportable Items Related to Payments Made by the Company Associated with Service of a Director +There are no other reportable items related to payments made by the Company associated with service of a director. +PROPOSAL 2—APPROVAL OF AMENDMENT TO THE EQUITY PLAN +Overview +Subject to stockholder approval, on April 1, 2010, the Board of Directors approved an amendment to the Equity Plan to +increase the stated total number of shares of the Company's common stock authorized for issuance to participants pursuant to awards granted under the Equity Plan from 6,000,000 shares to 7,600,000 +shares. +The +Equity Plan provides for the issuance of restricted stock, restricted stock units, nonqualified stock options ("NSOs"), incentive stock options ("ISOs"), stock appreciation rights +("SARs"), performance shares, performance units, and stock based awards to key employees, consultants, and members of St. Mary's Board of Directors or any affiliate of St. Mary as equity +based incentive compensation under the Equity Plan. The purpose of the Equity Plan is to promote the success and enhance the value of St. Mary by linking the personal interests of the +participants to those of St. Mary's stockholders and by providing participants with an incentive for outstanding performance. The Equity Plan is further intended to provide flexibility to +St. Mary in its ability to attract, motivate, and retain the services of participants upon whose judgment, interest, and special effort the success of St. Mary is substantially +dependent. A copy of the Equity Plan, as amended and restated, is attached to this proxy statement as Annex A. +If +the stockholders do not approve the amendment, the Compensation Committee will consider other alternatives for compensation. +General Background of the Equity Plan +The Equity Plan was originally adopted by the Board on March 23, 2006, as the "2006 Equity Incentive Compensation Plan," +and approved by St. Mary's stockholders on May 17, 2006. The Equity Plan was subsequently amended and restated on March 28, 2008, and was approved by +St. Mary's stockholders on May 21, 2008. Included in the amendments approved by the stockholders on May 21, 2008 was an increase in the stated total number of shares +of common stock authorized for issuance under the Equity Plan from 2,000,000 shares to 3,500,000 shares. Under the amendments approved by the stockholders in 2009, the stated total number of shares of +common stock authorized for issuance to participants pursuant to awards granted under the Plan was increased from 3,500,000 to 6,000,000 shares and was renamed the "Equity Incentive Compensation +Plan." Additionally, the Equity +48 +Table of Contents +Plan +was changed so that each share of common stock issued in connection with an award after May 20, 2009, other than a stock option or SAR, will be counted against the share limit at a +1.43:1 ratio. +The +Equity Plan serves as the successor equity incentive plan to the Company's prior Stock Option Plan, Incentive Stock Option Plan, Restricted Stock Plan, and Non-Employee +Director Stock Compensation Plan (collectively, the "Predecessor Plans"), which were previously approved by the stockholders, and no further grants have been made under the Predecessor Plans from and +after the original effective date of the Equity Plan on May 17, 2006. The Equity Plan currently authorizes the issuance of a total of 6,000,000 shares of common stock, plus remaining +unused shares of common stock from the Predecessor Plans that have been transferred into the Equity Plan in accordance with its terms, and without taking into account the additional shares under the +proposed amendment. +As +of March 29, 2010, the Company had 62,823,003 shares of common stock outstanding, net of treasury shares. On that date, the Company had 1,257,604 stock options +outstanding from the Predecessor Plans at a weighted average exercise price of $13.30 per share and a weighted average remaining term of 2.73 years. The Company also had 1,460,488 full value +awards outstanding on that date in the form of RSUs and PSAs. On March 29, 2010, the closing price of St. Mary's common stock as reported on the NYSE was $34.44 per share. +Structure of LTIP +Beginning in 2007, the Company replaced its use of new compensation pools under the NPP, a significant cash-based +compensation plan, and RSUs with the LTIP. Historically, the NPP had incented and rewarded St. Mary employees. However, the complexity of the program and the uncertain timing of payout, made it +less attractive than more traditional equity plans to newly recruited and highly marketable employees. As a result, the Compensation Committee and the Board approved the termination of the NPP on a +prospective basis in December 2007, and the 2007 NPP pool was the final NPP pool to be awarded. +In +2008 the LTIP utilized only PSAs. In 2009, 25 percent of the LTIP grant was awarded in RSUs and the remaining 75 percent was awarded in PSAs. An LTIP performance year +begins on July 1 st and ends on June 30 th of the following year (each a "LTIP Year"). LTIP grants with respect to a particular LTIP performance +year are made on August 1 st of each LTIP Year. For example, the 2009 LTIP Year began on July 1, 2009, and the grants for 2009 were made on +August 1, 2009. +Each +LTIP year, the Board establishes an initial total pool value to be distributed to eligible participants on the grant date for the LTIP awards, based on recommendations from the +Compensation Committee. In determining the initial total pool value, St. Mary considers, among other factors, the FVT of St. Mary's long term incentive compensation system compared to +peer companies. FVT is defined as the percentage of a company's market capitalization that is potentially transferred to employees annually in the form of stock based awards and other forms of +ownership in a company. After the total pool value for the LTIP Year is determined, the pool value is converted into PSAs and RSUs at their applicable percentage by dividing the total pool value by +the average closing price per share of St. Mary common stock for a period of 20 trading days before the grant date. The RSU portion of the LTIP award is granted on +August 1 st of the LTIP Year. +With +respect to the PSAs, the target awards are made at the beginning of the performance measurement period and have a back-end weighted time vesting schedule and a TSR +measurement after the conclusion of the three year measurement period. At the conclusion of the three year measurement period, St. Mary's compounded TSR will be measured for the three year +measurement period and then compared to the results of the compound TSR performance of a pre-established performance index consisting of similar companies. Depending on the results of the +TSR measurements, the actual award made to participants will be between zero and two times the target +49 +Table of Contents +award +based on pre-established criteria. Other than a change of control, there are no market or performance conditions that results in an early payout determination. +With +respect to PSAs to the extent vested, the number of shares of St. Mary's common stock issued will vary from zero to two times the initial number of PSAs awarded, depending on +St. Mary's business performance during the three year performance period. A key metric for measuring St. Mary's performance in connection with determining the value of PSAs will be based +on the absolute measure of St. Mary's TSR and the relative measure of St. Mary's TSR against the TSR of pre-selected peer companies. The Compensation Committee will create, +review, and approve annually, a performance share multiplier matrix for each PSA Year, which describes the relationship between St. Mary's TSR and its TSR compared to peer companies and +includes the final share multiplier for each PSA Year. +For +the comparison of St. Mary's TSR with its peer companies with respect to PSAs granted for the 2009 PSA Year, St. Mary is using a custom index consisting of the +constituents of the Oil & Gas Exploration & Production GIC Sub-Industry Group in the S&P SmallCap 600 Index and the S&P MidCap 400 Index, excluding St. Mary. The +custom index is equal weighted, and is adjusted to include the dividend payments of the constituents of the custom index. The custom index is rebalanced on a quarterly basis, and is also rebalanced +whenever there are additions and deletions to the S&P SmallCap 600 and the S&P MidCap 400 indices. Currently, the constituent companies in this custom index are: Bill Barrett Corporation, Comstock +Resources, Incorporated, Petroquest Energy Inc., Stone Energy Corporation, Mariner Energy Inc., Quicksilver Resources Inc., Swift Energy Company, Forest Oil Corporation, Newfield +Exploration Company, Cimarex Energy Company, Petroleum Development Company, Plains Exploration & Production Company, and Penn Virginia Corporation. +Both +RSUs and PSAs under the LTIP currently vest over a three year period, with 1/7 th vesting on the first anniversary of the grant date, +2/7 th vesting on the second anniversary of the grant date, and 4/7 th vesting on the third anniversary of the grant date. RSUs are issued as shares of common +stock and are not subject to any additional trading restriction once vested. After the end of the three year performance period, the final multiplier for the respective LTIP Year will be determined +and applied to each participant's vested PSAs. The vested PSAs will then be settled in shares of St. Mary's common stock, and such shares will not be subject to any holding restrictions after +settlement. If a participant terminates employment at any time during the vesting period, such participant will forfeit the remaining unvested performance shares awarded, except under certain +circumstances involving retirement, death, disability, or a change of control that includes a termination or substantial change in such participant's employment with St. Mary, all as described +in the Equity Plan and such participant's award agreement. Participants may be allowed to net share settle for the payment of income taxes associated with the settlement of the award. +In +2009, 307 persons were designated to participate in the LTIP and were granted a total of 725,092 PSAs under the Equity Plan, although the actual number of shares of common stock that +may ultimately be issued in settlement of those PSAs after the end of the three year performance period will depend on the compound returns of St. Mary and its peer indices. +Reasons for Amendment +The Company is seeking an increase in the number of shares available for issuance under the Equity Plan because the LTIP, even after +changing 25 percent of the share awards from PSAs to RSUs and reducing the aggregate grant value by approximately 50 percent of the decline in the share price between 2008 and 2009, +requires the issuance of a greater number of shares than did the Company's previous long term incentive plans. The Company's previous use of the NPP, together with the issuance of RSUs, as its primary +long term incentive compensation program, required the issuance of fewer shares of Company stock because the NPP was a cash based incentive plan. +50 +Table of Contents +Additionally, +the Company is seeking an increase in the authorized number of shares available for issuance because the issuance of PSAs under the LTIP requires the Company to reserve a +greater number of shares each year. Even though no actual shares will be issued in settlement of the PSAs unless the underlying performance criteria are met, the fact that under certain performance +conditions the target awards have a potential two times multiplier requires that the Company contemplate the achievement of this scenario and ensure the availability of sufficient shares to meet the +terms of the original target awards. Further, PSAs and RSUs are considered full share awards. Thus, depending upon the year of the LTIP grant, under the Equity Plan's fungible share counting +provisions PSAs or RSUs could count either two times or 1.43 times against the total share authorization limit under the plan. As an example, if an employee is granted a target PSA of 100 shares, this +will count as 200 shares against the total share limit if the PSA grant is on or before May 20, 2009, or will count as 143 shares against the limit if the PSA grant is after +May 20, 2009. Because there is the potential under the PSA framework to earn up to two times the target number of shares in the event that the Company's performance warrants, a total of +200 shares could be issued, which would count as 400 or 386 shares, depending on the grant year, against the share limit under the plan. The result is that more shares must be available for grant +under the Equity Plan than the number of shares actually being issued as new shares pursuant to full value PSA awards. +Prior +to the proposed amendment, the total number of remaining shares of common stock authorized for grant under the Equity Plan as of March 29, 2010, which represents +shares not subject to prior awards and includes shares transferred from under the Predecessor Plans, is 1,902,716. Accordingly, if the proposed amendment is approved by the stockholders, a total of +3,502,716 shares will be available under the Equity Plan to be used for future awards. This reflects a 1,600,000 share increase in the number of shares authorized under the Equity Plan. +St. Mary's Board of Directors believes that this share increase is appropriate based on the fact that no future compensation pools will be established under the NPP and that St. Mary +intends to grant PSAs on an annual basis. +The +Equity Plan provides that, from and after May 21, 2008, the following shares will not become available again for issuance under the Equity Plan: (i) shares +tendered as full or partial payment to St. Mary of an option price upon exercise of any options granted under the Equity Plan, (ii) shares reserved for issuance upon grants of SARs, to +the extent the number of reserved shares exceeds the number of shares actually issued upon exercise of the SARs, and (iii) shares withheld by St. Mary to satisfy a participant's tax +withholding obligations with respect to any award granted under the Equity Plan. This modification of the share counting provisions resulting from amendments to the Equity Plan in 2008 to eliminate +share recycling on a prospective basis was a factor in the Board of Director's determination that a 1,600,000 share increase in the number of shares authorized for grant under the Equity Plan is +appropriate and in the best interests of St. Mary. +The +increase in the authorized shares submitted for stockholder approval is intended to ensure that St. Mary has a sufficient number of shares of common stock available under the +Equity Plan to continue issuing incentive compensation awards in the form of the currently planned PSAs for the next year. +St. Mary's +Board of Directors believes that grants of PSAs and RSUs pursuant to the LTIP under the Equity Plan are in the best interests of St. Mary and will further +encourage employees' interests to align with the long term interests of St. Mary's stockholders. +Reasons for Stockholder Approval of Amendment +Under applicable NYSE rules, St. Mary must obtain stockholder approval of the amendment to the Equity Plan. In addition, +stockholder approval of the amendment is necessary to allow St. Mary to ensure that compensation paid under the Equity Plan can be eligible for the "performance based +51 +Table of Contents +compensation" +exemption from the limits on tax deductibility imposed by Section 162(m) of the IRC and to permit St. Mary to issue ISOs in accordance with Section 422 of the IRC. +Summary of the Equity Plan +The following is a summary of the principal features of the Equity Plan, which reflects the proposed amendment. The summary is +qualified in its entirety by reference to the complete text of the Equity Plan document, as amended and restated, a copy of which is attached to this proxy statement as Annex A. In addition, +St. Mary will furnish a copy of the Equity Plan document to any stockholder upon written request to the Secretary. The manner in which we expect the plan will operate is described above. The +following summary describes the more broad underlying provisions of the plan. +Types of Awards +The Equity Plan permits the grant of restricted stock, RSUs, NSOs, ISOs, SARs, performance shares, performance units, and stock based +awards. +Administration +The Compensation Committee of the Board of Directors of St. Mary, or any other duly authorized committee of the Board of +Directors appointed by the Board of Directors, is responsible for administering the Equity Plan. The committee that administers the Equity Plan, referred to as the committee, shall be comprised of two +or more members of the Board of Directors of St. Mary, and each member of the committee shall be a "non-employee director" as such term is defined in +Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, an "outside director" within the meaning of the regulations promulgated +under Section 162(m) of the IRC and an "independent director" for purposes of the rules and regulations of the NYSE. Subject to the provisions of the Equity Plan, the committee shall have +complete discretion in determining the nature, terms, conditions, and amounts of awards granted under the Equity Plan. In making such determinations, the committee may take into account the nature of +services rendered by such employees, consultants, and members of the Board of Directors, their present and potential contributions to St. Mary, and such other factors as the committee in its +discretion shall deem relevant. +Shares Subject to the Equity Plan and Maximum Awards +Subject to adjustment as described below, after the approval of the amendment the total number of shares of the Company's common stock +made available and reserved for issuance will be increased from 6,000,000 shares to 7,600,000 shares, plus any remaining shares available for issuance under the Predecessor Plans as provided in the +Equity Plan document. Any shares issued in connection with an option or SAR will be counted against the total share authorization limit as one share for every one share issued. Any shares issued +pursuant to awards granted on or before May 20, 2009 in connection with an award other than an option or SAR will be counted against the total share authorization limit as two shares for +every one share issued. Any shares issued pursuant to awards granted after May 20, 2009 in connection with an award other than an option or SAR will be counted against the total share +authorization limit as 1.43 shares for every one share issued. The maximum total number of shares that may be issued through NSOs is equal to the total share authorization. The maximum total number of +shares that may be issued through ISOs is 7,600,000. +Any +awards that are not settled in shares will not be counted against the total share authorization limit. Any shares related to awards (or after May 17, 2006, awards +granted or issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, (ii) are settled in cash +either in lieu of shares or otherwise, or (iii) are exchanged with the committee's approval for awards not involving shares, will be available again for +52 +Table of Contents +issuance +under the Plan. Unless and until the committee determines that an award is not designed to qualify as performance based compensation under Section 162(m) of the IRC, the following +limits apply to grants of awards to covered employees under Section 162(m): +• Restricted Stock/RSUs. The maximum total number of shares +that may be granted in the form of restricted stock/RSUs in any one fiscal year to any one Participant is 100,000. +• Options and SARS. The maximum total number of shares that +may be granted in the form of options or SARs in any one fiscal year to any one participant is 200,000. +• Performance Shares/Performance Units. The maximum total +award of performance shares or performance units that a participant may receive in any one fiscal year is 200,000 shares, and the maximum value of performance units that a participant may receive with +respect to awards in any one fiscal year is a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +• Stock Based Awards. The maximum total grant with respect +to stock based awards in any one fiscal year to any one participant is 200,000. +The +Equity Plan provides for appropriate adjustments to the number of shares available for awards in the event of a merger, consolidation, reorganization, recapitalization, separation, +stock dividend, extraordinary or special dividend, stock split, reverse stock split, or similar event or transaction involving the Company. +Eligibility and Participation +All current employees, consultants, and members of the Board of Directors of St. Mary or any affiliate of St. Mary are +eligible to participate in the Equity Plan and be granted awards under the Equity Plan. Subject to the provisions of the Equity Plan, the committee may from time to time, in its sole discretion, +select from among eligible employees, consultants, and members of the Board of Directors of St. Mary and of any affiliate of St. Mary those to whom awards shall be granted under the +Equity Plan and shall determine in its discretion the nature, terms, conditions, and amount of each award. +Duration +Subject to the right of the committee or the Board of Directors to amend or terminate the Equity Plan at any time, the Equity Plan +shall remain in effect, until the earlier of the tenth anniversary of the effective date of the Equity Plan, which occurred on May 17, 2006, or when all shares of common stock subject to +the Equity Plan have been purchased or acquired according to the Equity Plan's provisions. Any previously granted awards under the Equity Plan that remain outstanding as of the date of expiration or +other termination of the Equity Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with their respective terms. +Restricted Stock and RSU Awards +Restricted Stock Awards. Restricted stock may be issued for services rendered with any or no additional purchase price as shall be +determined by the committee in its discretion and may be subject to certain restrictions and to a risk of forfeiture as set forth in the award agreement. A participant to whom shares of restricted +stock are granted shall, upon issuance of a stock certificate for the shares issued, have all of the rights of ownership with respect to the shares subject to such restricted stock award, including +the right to vote the same and receive any dividends paid thereon; subject however, to the terms, conditions, and restrictions contained in the Equity Plan and in the applicable award agreement. +53 +Table of Contents +Restricted Stock Unit Awards +Each RSU awarded shall represent a right for one share of common stock to be delivered upon settlement of the award, which right shall +be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Equity Plan and the award agreement. An RSU award agreement may provide for cancellation of +RSUs upon termination of the participant's employment or other relationship with St. Mary or nonperformance of specified performance goals or measures established by the committee. An RSU award +agreement may also provide for vesting periods that require the passage of time and/or the occurrence of events in order for the RSUs to vest and become no longer subject to cancellation. RSUs shall +not be credited with dividend equivalents unless specifically provided for in the applicable award agreement, and then only upon such terms and conditions as set forth in such award agreement. The +committee, in its discretion, is free to specify terms and conditions other than those described above. +Settlement +of a RSU award shall be made in accordance with the terms and conditions of the applicable award agreement. A RSU award agreement may provide that settlement may be made +solely through the issuance of shares of common stock or at the mutual election of the participant and St. Mary, in a combination of shares of common stock and cash. Upon the settlement of a +RSU award, St. Mary shall deliver to the participant the number of shares of common stock issued to the participant in settlement of the award, which shares may be delivered in +book-entry or certificated form. +Stock Options +Subject to the terms and provisions of the Equity Plan, ISOs and NSOs may be granted to participants in such number, upon such terms, +and at such times as shall be determined by the committee. Notwithstanding the foregoing, no ISOs may be granted more than ten years after March 23, 2006. Each stock option granted to a +participant shall expire at such time as the committee shall determine at the time of grant; provided however, no stock option shall be exercisable later than the tenth anniversary date of its grant. +Stock options granted under the Equity Plan shall be exercisable at such times and on the occurrence of such events, and be subject to such restrictions and conditions as the committee shall in each +instance approve, which need not be the same for each grant or for each participant. +The +stock option price for each grant of a stock option shall be determined by the committee and shall be specified in the award agreement. The stock option price may include a stock +option price based on 100 percent of the fair market value of the shares of common stock on the date of grant, a stock option price that is set at a premium to the fair market value of the +shares of common stock on the date of grant, or a stock option price that is indexed to the fair market value of the shares of common stock on the date of grant, with the index determined by the +committee in its discretion. The stock option price for each stock option grant, whether issued as an ISO or an NSO, shall be not less than 100 percent of the fair market value of the +underlying shares of common stock on the date of grant. Dividend equivalents are not permitted for stock options. +SARs +Subject to the terms and conditions of the Equity Plan, SARs may be granted to participants at any time and from time to time and upon +such terms as shall be determined by the committee in its discretion. The committee may grant freestanding SARs, tandem SARs, or any combination of these forms of SARs. The grant price for each grant +of a freestanding SAR shall be determined by the committee and shall be specified in the award agreement. The SAR grant price may include a grant price based on 100 percent of the fair market +value of the underlying share on the date of grant or a grant price that is set at a premium to the fair market value of the underlying share on the date of +54 +Table of Contents +grant. +The SAR grant price shall not be less than the fair market value of the underlying share on the date of grant. The grant price of the tandem SARs shall be equal to the option price of the +related option. A tandem SAR means a SAR that the committee specifies is granted in connection with a related stock option pursuant to the Equity Plan, the exercise of which shall require forfeiture +of the +right to purchase a share of common stock under the related stock option (and when a share of common stock is purchased under the stock option, the tandem SAR shall similarly be cancelled) or a SAR +that is granted in tandem with a stock option but the exercise of such option does not cancel the SAR, but rather results in the exercise of the related SAR. Regardless of whether a stock option is +granted coincident with a SAR, a SAR is not a tandem SAR unless so specified by the committee at time of grant. Dividend equivalents are not permitted for SARs. +Performance Shares and Performance Units +Subject to the terms and conditions of the Equity Plan, performance shares and performance units may be granted at any time and from +time to time as shall be determined by the committee in its discretion. Each performance share and performance unit shall have an initial value established by the committee at the time of the grant. +The committee shall in its discretion set performance criteria for a performance period that shall not be shorter than 12 months, which, depending on the extent to which the performance +criteria are met, will determine, in the manner established by the committee and set forth in the applicable award agreement, the value and/or amount of each performance share or performance unit that +will be paid to a participant. +Subject +to the Equity Plan and the applicable award agreement, after the applicable performance period has ended, the holder of performance shares or performance units shall be entitled +to receive, to the extent that the performance shares or performance units have vested, if applicable, a payout of the value or amount of performance shares or performance units, determined as a +function of the extent to which the corresponding performance criteria have been achieved. The committee in its discretion may require a participant to hold the shares or other property received +pursuant to such an award for a specified period of time. Payment of earned performance shares and performance units shall be made in accordance with the terms and conditions of the applicable award +agreement. A performance share or performance unit award agreement may provide that payment may be made, to the extent that the performance share or performance unit has vested and the performance +criteria are met, solely through the issuance of shares earned upon the expiration of the applicable performance period. The participant may elect to satisfy the participant's tax withholding +obligation with respect to the award by having St. Mary withhold shares or other property or by the participant surrendering shares or other property to the Company with a fair market value on +or near the tax withholding date equal to the tax withholding obligation. +Dividends +and other distributions declared by St. Mary's Board of Directors and paid with respect to outstanding shares shall only be paid with respect to performance share and +performance unit awards for shares that have been issued by St. Mary in payment of such awards to the extent that the awards have vested and upon the expiration of the applicable performance +periods for the awards. Performance shares and performance units shall not be credited with dividend equivalents unless specifically provided for in the applicable award agreement and then only upon +such terms and conditions as set forth in such award agreement. +55 +Table of Contents +Stock Based Awards +Subject to the terms and provisions of the Equity Plan, the committee, at any time and from time and time, may grant other types of +equity based or equity related awards not otherwise described by the terms of the Equity Plan (including the grant or offer for sale of unrestricted shares of common stock) in such amounts and subject +to such terms and conditions including, but not limited to, being subject to performance criteria or in satisfaction of such obligations. Such awards may entail the transfer of actual shares of common +stock to participants or payment in cash or otherwise of amounts based on the value of shares of common stock. +Performance Measures +Notwithstanding any other terms of the Equity Plan, the vesting, monetization, or value (as determined by the committee) of each award +other than a stock option or SAR that, at the time of grant, the committee intends to be performance based compensation to a +covered employee shall be determined by the attainment of one or more performance goals as determined by the committee in conformity with Section 162(m) of the IRC. The committee shall specify +in writing, by resolution or otherwise, the participants eligible to receive such an award (which may be expressed in terms of a class of individuals) and the performance goal(s) applicable to such +awards within ninety (90) days after the commencement of the period to which the performance goal(s) relate(s) or such earlier time as required to comply with Section 162(m) of the IRC. +No such award shall be payable unless the committee certifies in writing, by resolution or otherwise, that the performance goal(s) applicable to the award were satisfied. In no case may the committee +increase the value of an award of performance based compensation above the maximum value determined under the performance formula by the attainment of the applicable performance goal(s), but the +committee retains the discretion to reduce the value below such maximum. A general description of performance measures on which performance goals will be based is contained in the Equity Plan document +attached to this proxy statement as Annex A. +Tax Matters +The following is a brief summary of advice received from counsel to St. Mary regarding the principle United States federal +income tax consequences of benefits under the Equity Plan under present laws and regulations: +ISOs. The grant of an ISO will not result in any immediate tax consequences to St. Mary or the optionee. An optionee will +not recognize +taxable income and St. Mary will not be entitled to any deduction upon the timely exercise of an ISO, but the excess of the fair market value of the shares of common stock acquired over the +stock option price will be an item of tax preference for purposes of the alternative minimum tax. If the optionee does not dispose of the shares of common stock acquired within one year after their +receipt (and within two years after the option was granted), gain or loss recognized on the subsequent disposition of the shares of common stock will be treated as long term capital gain or loss. +Capital losses of individuals are deductible only against capital gains and a limited amount of ordinary income. In the event of an earlier disposition, the optionee will recognize ordinary taxable +income in an amount equal to the lesser of (i) the excess of the fair market value of the shares of common stock on the date of exercise over the option price, or (ii) if the disposition +is a taxable sale or exchange, the amount of any gain recognized. Upon such a disqualifying disposition, St. Mary will be entitled to a deduction in the same amount and at the same time as the +optionee recognizes such ordinary taxable income. +NSOs. The grant of a NSO will not result in any immediate tax consequences to St. Mary or the optionee. Upon the exercise of +a NSO, the +optionee will recognize ordinary taxable income, and +56 +Table of Contents +St. Mary +will be entitled to a deduction, equal to the difference between the stock option price and the fair market value of the shares of common stock acquired at the time of exercise. +SARs. The grant of either a tandem SAR or a freestanding SAR will not result in any immediate tax consequences to St. Mary +or the grantee. +Upon the exercise of either a tandem SAR or a freestanding SAR, any cash received and the fair market value on the exercise date of any shares of common stock received will constitute ordinary taxable +income to the grantee. St. Mary will be entitled to a deduction in the same amount and at the same time. +Restricted Stock. A grantee normally will not recognize taxable income upon an award of restricted stock, and St. Mary will +not be entitled to +a deduction, until the termination of the restrictions. Upon such termination, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common +stock at that time, plus the amount of any dividends and interest thereon to which the grantee then becomes entitled. However, a grantee may elect to recognize ordinary taxable income in the year the +restricted stock is awarded in an amount equal to its fair market value at that time, determined without regard to the restrictions. St. Mary will be entitled to a deduction in the same amount +and at the same time as the grantee recognizes income, subject to the limitations of Section 162(m) of the IRC. +RSUs. The grant of an RSU will not result in any immediate tax consequences to St. Mary or the grantee. Upon payment of a +RSU, the grantee +will recognize ordinary taxable income in an amount equal to the fair market value of the shares of common stock or cash received at that time. St. Mary will be entitled to a deduction in the +same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Performance Shares and Performance Units. The grant of a performance share or performance unit will not result in any immediate +tax consequences to +St. Mary or the grantee. Upon payment of a performance share or performance unit, the grantee will recognize ordinary taxable income in an amount equal to the fair market value of the shares of +common stock or cash received at that time. +St. Mary will be entitled to a deduction in the same amount and at the same time, subject to the limitations of Section 162(m) of the IRC. +Payouts of Performance Compensation Awards. The designation of an award of restricted stock, RSUs, performance shares, or +performance units as a +performance compensation award will not change the tax treatment described above to an employee who receives such an award or grant. Such a designation will, however, enable such award or grant to +qualify as performance based compensation not subject to the $1 million limitation on deductible compensation under Section 162(m) of the IRC. Applicable taxes required by law will be +withheld from all amounts paid in satisfaction of an award. The amount of the withholding will generally be determined with reference to the closing price of the shares of common stock as reported on +the NYSE on the date of determination. +Golden Parachute Tax and Section 280G of the IRC. If an award is accelerated as a result of either (i) a change of +control of +St. Mary for awards granted prior to May 21, 2008, or (ii) a change of control of St. Mary and a termination of a participant's employment with St. Mary +either by St. Mary without cause or by the participant for good reason within 30 months of the change of control for awards granted on or after May 21, 2008, all or a +portion of the value of the award at that time may be a "parachute payment" under Section 280G of the IRC for certain employees and other individuals who perform services for St. Mary. +Section 280G generally provides that if parachute payments equal or exceed three times an award holder's average W-2 compensation for the five tax years preceding the year of the +change of control, St. Mary will not be permitted to claim its deduction with respect to any "excess parachute payments" made to the individual. An "excess parachute payment" generally is the +portion of a parachute payment that exceeds such individual's historical average compensation. Section 280G of the IRC generally applies to employees or other individuals who perform services +for +57 +Table of Contents +St. Mary +if within the 12 month period preceding the change of control the individual is an officer of St. Mary, a stockholder owning more than one percent of the stock of +St. Mary, or a member of the group consisting of the lesser of the highest paid one percent of the employees of St. Mary or the highest paid 250 employees of St. Mary. A recipient +of an excess parachute payment is subject to a 20 percent excise tax on such excess parachute payment under Section 4999 of the IRC. +The +discussion set forth above is intended only as a summary and does not purport to be a complete enunciation or analysis of all potential tax consequences relevant to recipients of +awards under the Equity Plan. We have not undertaken to discuss the tax treatment of awards under the Equity Plan in connection with a merger, consolidation, or similar transaction. Such treatment +will depend on the terms of the transaction and the method of dealing with the awards in connection therewith. +Change of Control +Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. +Subject +to the provisions of the Equity Plan or as otherwise provided in the award agreement, for awards granted prior to May 21, 2008, in the event of a change of control, +unless otherwise specifically prohibited under law or by the rules and regulations of a national securities exchange: +• Any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be +immediately payable; +• Any and all stock options and SARs granted shall become immediately exercisable; +• The target payout opportunities attainable under all outstanding awards of performance based restricted stock and +performance based RSUs, performance shares, and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on +targeted performance being attained as of the effective date of the change of control, and +• The vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the +change of control, and shall be paid out to participants within 30 days following the effective date of the change of control; and +• Awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of the +change of control. +• Upon a change of control, unless otherwise specifically provided in a written agreement entered into between the +participant and St. Mary or an affiliate of St. Mary, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• The committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a change of +control, and the value of such awards, as determined by the committee in accordance with the terms of the Equity Plan and the award agreement, be paid out in cash in an amount based on the change of +control price within a reasonable time subsequent to the change of control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the fair market value +on the date of settlement. +Accelerated Vesting and Payment Applicable to Awards Granted on or after May 21, 2008. +Subject +to the provisions of the Equity Plan or as otherwise provided in the award agreement, for awards granted on or after May 21, 2008, and prior to change of control, +in the event a change of control occurs and a participant's employment with the Company is terminated without cause or the participant terminates his or her employment for good reason within thirty +(30) months of the change +58 +Table of Contents +of +control (a "Change of Control Termination"), unless otherwise specifically prohibited under law or by the rules and regulations of a national securities exchange: +• Any period of restriction and other restrictions imposed on restricted stock or RSUs shall lapse, and RSUs shall be +immediately payable; +• Any and all stock options and SARs granted shall become immediately exercisable; +• The target payout opportunities attainable under all outstanding awards of performance based restricted stock and +performance based RSUs, performance shares and performance units (including but not limited to awards intended to be performance based compensation) shall be deemed to have been fully earned based on +measured performance as of the effective date of the change of control, and +• The vesting of all awards denominated in shares of common stock shall be accelerated as of the effective date of the +Change of Control Termination and shall be paid out to participants within 30 days following the effective date of the Change of Control Termination, and +• Awards denominated in cash shall be paid to participants in cash within 30 days following the effective date of the +Change of Control Termination; +• Upon a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between +the participant and St. Mary or an affiliate of St. Mary, the committee shall immediately vest and pay out all other stock based awards as determined by the committee; and +• The committee shall have the ability to unilaterally determine that all outstanding awards are cancelled upon a Change of +Control Termination, and the value of such awards, as determined by the committee in accordance with the terms of the Equity Plan and the award agreement, be paid out in cash in an amount determined +by the committee in accordance with the terms of the Equity Plan and the award agreement, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such +payment shall be made on account of an ISO using a value higher than the fair market value on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a change of control and a Change of Control Termination do not occur, would result in an award to a covered employee +designed to qualify as performance based compensation to not so qualify, the committee shall have the discretion to adopt for such award such provisions as shall satisfy the requirements of +Section 162(m) of the IRC. +Alternate Awards +Subject to certain conditions set forth in the Equity Plan, no cancellation, acceleration of vesting, lapsing of restrictions, payment +of an award, cash settlement, or other payment shall occur with respect to any award if the committee reasonably determines in good faith prior to the occurrence of a change of control, that such +award shall be honored, assumed, or new rights substituted therefore by any successor, all as described in the Equity Plan. +Amendment, Modification, Suspension, and Termination +The committee or Board of Directors of St. Mary may, at any time and from time to time, alter, amend, modify, suspend, or +terminate the Equity Plan in whole or in part; provided however, that: +• Except in connection with a corporate transaction involving St. Mary (including, without limitation, any stock +dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split up, spin off, combination, or exchange of shares), the +59 +Table of Contents +terms +of outstanding awards may not be amended to reduce the option price of outstanding options or the grant price of outstanding SARs or cancel outstanding options or SARs in exchange for cash, +other awards or options or SARs with an option price or grant price that is less than the option price or grant price of the original options or SARs without stockholder approval. +• No amendment or modification that would increase the total number of shares of common stock available for issuance under +the Equity Plan or the total number of shares available for ISOs under the Equity Plan shall be effective unless approved by the stockholders of St. Mary. +• To the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment +shall be effective unless approved by the stockholders of St. Mary in accordance with applicable law, regulation, or securities exchange or market requirement. +Adjustment of Awards +The committee may make appropriate proportionate adjustments or substitutions in the terms and conditions of, and the criteria included +in, awards in recognition of unusual or nonrecurring events affecting St. Mary or the financial statements of St. Mary or of changes in applicable laws, regulations, or accounting +principles, whenever the committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made +available under the Equity Plan. +Adjustments +shall be made automatically, without the necessity of committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a stock +split affected by means of a stock dividend and in the case of any other dividend paid in shares of common stock. Adjustments shall be made in the discretion of the committee with respect to other +corporate events or transactions. +Securities Registration +St. Mary has registered under the Securities Act of 1933, as amended (the "Securities Act") the issuance of previously +authorized shares of common stock under the Equity Plan, and plans to register the issuance of the additional shares under the 2009 Amendments if approved by the stockholders. Accordingly, +participants will be able to sell shares issued under the Equity Plan once any vesting and holding periods are satisfied, subject to other requirements of the Securities Act. +New Plan Benefits Table +St. Mary cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to our +executive officers, employees or directors +under the Equity Plan. Such awards will be subject to limits as set forth in Section 4.1 of the Equity Plan document attached to this proxy statement as Annex A. +The +following table sets forth the awards granted in 2009 for PSA/RSU performance from 2009 to 2012 under the Equity Plan to each of St. Mary's named executive officers, executive +officers as a group, and all employees and consultants (excluding named executive officers and executive officers) as a group as well as stock granted in 2009 to non-executive directors as +a group related to the service period from May 20, 2009, through May 26, 2010. +60 +Table of Contents +Equity Incentive Compensation Plan +Name and Position +August 1, 2009 Grant +8/1/09 +Market Value of Shares or Units +Number of Restricted Stock Units Issued +Number of Performance Share Awards Issued +Number of Shares of Stock Issued +Anthony J. Best +70,000 +$ +1,670,900 +17,500 +52,500 +1,250 +President, Chief Executive Officer and Director +A. Wade Pursell +38,000 +$ +907,060 +9,500 +28,500 +— +Executive Vice President and Chief Financial Officer +Javan D. Ottoson +45,000 +$ +1,074,150 +11,250 +33,750 +— +Executive Vice President and Chief Operating Officer +Milam Randolph Pharo +14,500 +$ +346,115 +3,625 +10,875 +— +Senior Vice President and General Counsel +Paul M. Veatch +22,000 +$ +525,140 +5,500 +16,500 +— +Vice President—Senior Vice President and Regional Manager +Executive Officers as a Group, as of December 31, 2009 (14 persons) +319,050 +$ +7,615,724 +79,763 +239,287 +1,250 +Non-Executive Directors as a Group, as of December 31, 2009 (six persons) +— +$ +547,635 +— +— +50,094 +All Employees and Consultants (excluding named executive officers and other executive officers) as a Group, as of December 31, 2009 (293 +persons) +647,787 +$ +15,462,676 +161,982 +485,805 +— +Disclosure with Respect to Equity Compensation Plans +For a table providing information as of December 31, 2009, concerning equity awards granted under St. Mary's ESPP, +please see the "Equity Compensation Plans" section of this proxy statement. +Recommendation of the Board of Directors +Since the Board of Directors believes that the amendment to the Equity Plan to increase the stated total number of shares authorized +for issuance under the plan from 6,000,000 shares to 7,600,000 shares will help attract, retain, and further motivate employees, consultants, and directors and enhance stockholder value, the Board of +Directors recommends voting "FOR" the approval of the amendment to the Equity Plan. +PROPOSAL 3—APPROVAL OF AMENDMENT TO THE CERTIFICATE OF +INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO +"SM ENERGY COMPANY" +On April 1, 2010, the Board of Directors adopted a resolution approving an amendment to Article First of the Company's +Restated Certificate of Incorporation to change the name of the Company from "St. Mary Land & Exploration Company" to "SM Energy Company" and recommending that the name change amendment +be submitted to the Company's stockholders for approval. The Board of Directors +61 +Table of Contents +believes +that the name change is in the best interests of the Company and recommends the approval of the name change amendment by the Company's stockholders. +Reasons for the name change +The name change is intended to reflect the transformation that we have experienced in recent years from a company focused on the +exploitation of its portfolio of oil and natural gas properties that began with our historical namesake fee land properties in St. Mary Parish, Louisiana and was grown through niche +acquisitions, to a company focused on the exploration for and development of significant onshore resource plays in North America. The Board of Directors believes that the name "SM Energy Company" +reflects the broader focus of the Company and its forward-looking approach to building its asset base in a manner that allows for more predictable and meaningful growth, and will further promote the +awareness of the Company's focus in the minds of industry participants, stockholders, and the investment community. In addition, the new name would distinguish the Company from the many other +organizations and entities that utilize "St. Mary" in their name. +Effects of the name change +If the name change amendment is approved by the stockholders, the name change will become effective when a Certificate of Amendment to +the Restated Certificate of Incorporation is filed with the Secretary of State of the State of Delaware. The Certificate of Amendment would specify that Article First of the Company's Restated +Certificate of Incorporation shall be amended to read as follows: +FIRST: +The name of this Corporation is SM Energy Company. +If +the name change amendment is approved by the stockholders and becomes effective, the rights of stockholders holding certificated shares under currently outstanding stock certificates +and the number of shares represented by those certificates will remain unchanged. The name change will not affect the validity or transferability of any currently outstanding stock certificates that +bear the name "St. Mary Land & Exploration Company", nor will it be necessary for stockholders with certificated shares to surrender or exchange any stock certificates they currently +hold as a result of the name change. Uncertificated shares currently held in direct registration accounts and any new stock certificates that are issued after the name change becomes effective will +bear the name "SM Energy Company". +The +Company's common stock is currently listed for trading on the New York Stock Exchange under the symbol "SM". If the name change amendment is approved, the Company's common stock +would +continue to be listed on the NYSE, and the Company expects that its common stock will continue to be traded under the current "SM" symbol. A new CUSIP number is expected to be assigned to the common +stock following the name change. +If +the name change amendment is not approved by the stockholders, the proposed amendment to the Company's Restated Certificate of Incorporation will not be made and the Company's name +and ticker symbol for trading of its common stock on the NYSE will remain unchanged. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" approval of the amendment to the certificate of incorporation to change the name of the +Company to "SM Energy Company". +62 +Table of Contents +PROPOSAL 4—RATIFICATION OF THE APPOINTMENT BY THE AUDIT COMMITTEE OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2010 +St. Mary's stockholders are being asked to ratify the appointment by the Audit Committee of Deloitte & Touche LLP +as the Company's independent registered public accounting firm for 2010. Deloitte & Touche has served as the Company's independent registered public accounting firm since 2001, and the Audit +Committee plans to engage Deloitte & Touche to perform the audit of St. Mary's financial statements as of and for the year ending December 31, 2010. +The +Audit Committee is solely responsible for selecting the Company's independent auditors. Although stockholder ratification of the appointment of Deloitte & Touche is not +required by law or the Company's organizational documents, the Board of Directors has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view +of the critical role played by independent registered public accounting firms in maintaining the integrity of financial controls and +reporting. If the stockholders do not ratify the appointment of Deloitte & Touche, the Audit Committee will consider whether to engage another independent registered public accounting firm. +Recommendation of the Board of Directors +The Board of Directors recommends voting "FOR" the ratification of the appointment by the Audit Committee of Deloitte & Touche +as the Company's independent registered public accounting firm for 2010. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities with +respect to (1) the integrity of the Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, and compliance with legal and +regulatory requirements, (2) the qualifications, independence, and performance of the Company's independent accountants, (3) the performance of the Company's internal audit function, and +(4) other matters as set forth in the charter of the Audit Committee approved by the Board of Directors. +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. +The independent accountants are responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and issuing a report +thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent accountants the audited consolidated financial statements of the +Company for the year ended December 31, 2009. The Audit Committee also discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards +No. 61, Communication with Audit Committees. In addition, the Audit Committee received the written disclosures and the letter from the independent accountants required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and the Audit Committee discussed +with the independent accountants that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company be +included in +63 +Table of Contents +the +Company's Annual Report on Form 10-K for the year ended December 31, 2009, that was filed with the SEC. +THE AUDIT COMMITTEE +William J. Gardiner, Chairman +Larry W. Bickle +John M. Seidl +March 31, 2010 +INDEPENDENT ACCOUNTANTS +To the knowledge of management, neither Deloitte & Touche LLP nor any of its members has any direct or material indirect +financial interest in St. Mary or any connection with St. Mary in any capacity other than as independent public accountants. A representative of Deloitte & Touche LLP is +expected to be present at the annual meeting and will have an opportunity to make a statement if he desires to do so and to respond to appropriate questions. +The +Company paid the following fees to the independent accountants for the audit of the consolidated financial statements and for other services provided in the years ended +December 31, 2009, and 2008. All services and fees including tax service fees were pre-approved by the Audit Committee. +2009 +2008 +Audit Fees(1) +$ +515,000 +$ +504,250 +Audit Related Fee(2) +$ +250 +$ +2,227 +Tax Fees(3) +$ +10,514 +$ +10,140 +All Other Fees +— +— +Total Fees +$ +525,764 +$ +516,617 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +out of pocket expenses related to travel to Audit Committee and stockholder meetings. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee has concluded that the provision of the non-audit services, such as tax services, is compatible with maintaining the accountants' independence. +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to +be paid to the independent accountants, and shall approve in advance any non-audit services to be performed by the independent accountants. Such pre-approval requirement for +non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. Accordingly, it is the Audit Committee's policy that, prior to the +engagement of the independent accountants, the Audit Committee shall review and pre-approve all audit and permissible non-audit services to be provided by the independent +accountants (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (i) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services +and estimated fees for proposed audit and non-audit services to be provided by the independent accountants during the next annual +64 +Table of Contents +audit +cycle, which schedule is detailed as to the particular services to be performed by the independent accountants; (ii) actual amounts paid to the independent accountants are monitored by +financial management of the Company and reported to the Audit Committee; (iii) any services proposed to be provided by the independent accountants and the related fees that have not been +pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and, (iv) incremental fees for +previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +OTHER INFORMATION +Section 16(a) Beneficial Ownership Reporting Compliance +Under U.S. securities laws, directors, executive officers, and persons beneficially holding more than ten percent of St. Mary +common stock must report their initial ownership of the common stock and any changes in that ownership in reports that must be filed with the SEC and St. Mary. The SEC has designated specific +deadlines for these reports and St. Mary must identify in this proxy statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to the Company, all directors, executive officers, and ten percent owners of St. Mary timely filed all reports regarding transactions +in the Company's securities required to be filed for 2009 by Section 16(a) under the Exchange Act. +Future Stockholder Proposals +St. Mary must receive any St. Mary stockholder proposal for the annual meeting of stockholders in 2011 by +December 15, 2010, for the proposal to be included in the St. Mary proxy statement and form of proxy for that meeting. For stockholder proposals submitted outside of the proposal +rules of Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the By-Laws require that advance written notice in proper form of stockholder proposals for +matters to be brought before an annual stockholders meeting be received by the Secretary not less than 75 days or more than 105 days before the first anniversary date of the immediately +preceding annual stockholders meeting. Accordingly, notice of stockholder proposals for the 2011 annual meeting must be received by St. Mary between February 10, 2011, and +March 14, 2011. +Other Matters +Management does not know of any matters other than the election of directors, the approval of the amendment to the Equity Plan, the +approval of the amendment to the Certificate of Incorporation, and the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the Company's independent +registered public accounting firm, to be brought before the annual meeting of stockholders. If any other matters not mentioned in this proxy statement are properly brought before the meeting, the +individuals named in the enclosed proxy intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors +C. Mark Brannum +Senior Legal Counsel and Secretary +April 2, 2010 +65 +Table of Contents +ANNEX A +ST. MARY LAND & EXPLORATION COMPANY +EQUITY INCENTIVE COMPENSATION PLAN +As Amended and Restated as of April 1, 2010 +ARTICLE I +ESTABLISHMENT, PURPOSE AND DURATION +1.1 Establishment. St. Mary Land & Exploration Company, a Delaware corporation (the "Company"), +has established an equity incentive compensation plan formerly known as the 2006 Equity Incentive Compensation Plan (the "Plan"). On March 26, 2009, the Plan was renamed as the Equity +Incentive Compensation Plan. The Plan permits the grant of Restricted Stock, Restricted Stock Units, Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Performance Shares, +Performance Units and Stock Based Awards. The Plan became effective upon its approval by the Company's stockholders on May 17, 2006 (the "Effective Date") and shall remain in effect as +provided in Section 1.3 hereof. +1.2 Purpose. The purpose of the Plan is to promote the success and enhance the value of the Company by linking +the personal interests of the Participants to those of the Company's stockholders, and by providing Participants with an incentive for outstanding performance. The Plan is further intended to provide +flexibility to the Company in its ability to attract, motivate, and retain the services of Participants upon whose judgment, interest, and special effort the success of the Company is substantially +dependent. +1.3 Duration. The Plan commenced as of the Effective Date, as set forth in Section 1.1 hereof, and shall +remain in effect, subject to the right of the Committee or the Board to amend or terminate the Plan at any time pursuant to Article XIV hereof, until the earlier of (i) the tenth +anniversary of the Effective Date, or (ii) when all Shares subject to the Plan have been purchased or acquired according to the Plan's provisions. Any previously granted Awards under this Plan +which remain outstanding as of the date of expiration or other termination of the Plan shall not be affected by such expiration or other termination and shall continue in effect in accordance with +their respective terms. +1.4 Successor Plan. This Plan shall serve as the successor to the St. Mary Land & Exploration +Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the St. Mary Land & Exploration Company Restricted Stock Plan, and the +St. Mary Land & Exploration Company Non-Employee Director Stock Compensation Plan (collectively, the "Predecessor Plans"), and no further grants or awards shall be made under +the Predecessor Plans from and after the Effective Date of this Plan. Each outstanding grant or award under a Predecessor Plan immediately prior to the Effective Date of this Plan shall continue to be +governed solely by the terms and conditions of the applicable Predecessor Plan and the instruments evidencing such grant or award, and, except as otherwise expressly provided herein or by the +Committee, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such outstanding grants or awards under the Predecessor Plans. Any Shares reserved for +issuance under the Predecessor Plans in excess of the number of Shares as to which grants or awards have been made thereunder shall be transferred into this Plan upon the Effective Date and shall +become available for Awards under this Plan. Any Shares related to grants or awards made under the Predecessor Plans that after the Effective Date may lapse, expire, terminate, or are cancelled, are +settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to pay the option price, or are used to satisfy any tax withholding requirements shall be deemed to be +available for issuance or reissuance under Section 4.1 of this Plan; provided, however, that any Shares that from and after May 21, 2008 are tendered (either by actual delivery or +attestation) to pay the option price or are used to satisfy any tax withholding requirements shall not be deemed available for issuance or reissuance under Section 4.1 of this Plan. +A-1 +Table of Contents +ARTICLE II +DEFINITIONS AND CONSTRUCTION +2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below, +unless the context clearly requires otherwise, and when such meaning is intended the term shall be capitalized. +(a) " Affiliate " shall have the meaning given to such term in Rule 12b-2 under the Exchange Act, with +reference to the Company, and shall also include any corporation, partnership, joint venture, limited liability company or other entity in which the Company owns, directly or indirectly, at least +50 percent of the total combined voting power of such corporation or of the capital interest or profits interest of such partnership or other entity. +(b) " Award " means, individually or collectively, a grant or award under this Plan of Restricted Stock, Restricted Stock +Units, NQSOs, ISOs, SARs, Performance Shares, Performance Units or Stock Based Awards, in each case subject to the terms of this Plan. +(c) " Award Agreement " means either (i) a written agreement entered into by the Company and a Participant setting forth +the terms and provisions applicable to Awards granted under this Plan; or (ii) a written statement issued by the Company to a Participant describing the terms and provisions of such Award. All +Award Agreements shall be deemed to incorporate the provisions of the Plan. An Award Agreement need not be identical to other Award Agreements either in form or substance. +(d) " Board " or " Board of Directors " means the Board of Directors of the +Company. +(e) " Change of Control " shall mean any of the following events: +(i) (A) +The acquisition by any individual or entity (a "Person") or Persons acting as a group of beneficial ownership (within the meaning of Rule 13d-3 +promulgated under the Exchange Act) of more than 50 percent of either (1) the then value of the outstanding shares of common stock of the Company, or (2) the combined voting power +of the then outstanding voting securities of the Company entitled to vote generally in the election of directors. +(B) For +purposes of paragraph (A), Persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the +same time, or as a result of the same public offering. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, +purchase or acquisition of stock, or similar business transaction with the Company. If a Person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase +or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and +not with respect to the ownership interest in the other corporation. For purposes of determining stock ownership, see (e)(iv) below. +(ii) A +majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the members +of the Board prior to the date of the appointment or election; or +(iii) (A) +Any one Person, or more than one Person acting as a group (as determined in (e)(iii)(C) below), acquires (or has acquired during the 12 month period ending +on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50 percent of the total gross fair +market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market +value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. +A-2 +Table of Contents +(B) A +transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to— +(1) A +stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; +(2) An +entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; +(3) A +Person, or more than one Person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the +outstanding stock of the Company; or +(4) An +entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a Person described in (e)(iii)(B)(3). For purposes +of this paragraph (e)(iii)(B) and except as otherwise provided, a Person's status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which +the Company has no ownership interest before the transaction, but which is a majority owned subsidiary of the Company after the transaction, is not treated as a change in the ownership of the assets +of the Company. +(C) Persons +will not be considered to be acting as a group for purposes of this paragraph (e)(iii) solely because they purchase assets of the Company at the same +time. However, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of assets, or similar business +transaction with the Company. If a Person, including an entity shareholder, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar +transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only to the extent of the ownership in that corporation prior to the transaction giving +rise to the change and not with respect to the ownership interest in the other corporation. +(D) For +purposes of determining stock ownership, see (e)(iv) below. +(iv) For +purposes of determining whether there has been a Change of Control, Section 318(a) of the Code applies to determine stock ownership. Stock underlying a +vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). +For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by §§1.83-3(b) and +(j) of the income tax regulations promulgated by the Internal Revenue Service), the stock underlying the option is not treated as owned by the individual who holds the option. +(f) " Change of Control Price " means the highest per share price for Shares offered in conjunction with any transaction +resulting in a Change of Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) or, in the case of a Change of Control occurring solely +by reason of a change in the composition of the Board, the highest Fair Market Value of the Shares on any of the 30 trading days immediately preceding the date on which a Change of Control occurs. +(g) " Change of Control Termination " has the meaning set forth in Section 13.2 hereof. +(h) " Code " means the Internal Revenue Code of 1986, as amended. +(i) " Committee " means the Compensation Committee of the Board of Directors, or any other duly authorized committee of the +Board appointed by the Board to administer the Plan. +A-3 +Table of Contents +The Committee +shall be comprised of two or more directors, and each member of the Committee shall be a Non-Employee Director, an "outside director" within the meaning of the +regulations under Section 162(m) of the Code, and an "independent director" for purposes of the rules and regulations of the New York Stock Exchange ("NYSE") (or such other principal securities +market on which the Shares are traded). +(j) " Company " means St. Mary Land & Exploration Company, a Delaware corporation, and any successor thereto as +provided in Article XVII hereof. +(k) " Covered Employee " means an Employee who is, or who the Committee expects to become, a "covered employee" within the +meaning of Section 162(m) of the Code. +(l) " Director " means any individual who is a member of the Board of Directors of the Company. +(m) " Dividend Equivalent " means a right with respect to an Award to receive cash, Shares or other property equal in value and +form to dividends declared by the Board and paid with respect to outstanding Shares. Dividend Equivalents shall not apply to Options or Stock Appreciation Rights, and shall not apply to any other type +of Award unless specifically provided for in the Award Agreement, and if specifically provided for in the Award Agreement shall be subject to such terms and conditions set forth in the Award Agreement +as the Committee shall determine. +(n) " Employee " means any employee of the Company or an Affiliate. Directors who are not otherwise employed by the Company or +an Affiliate shall not be considered Employees under this Plan. +(o) " Exchange Act " means the Securities Exchange Act of 1934, as amended. +(p) " Fair Market Value " or " FMV " means a value or price that is based on the +opening, closing, actual, high, low or average selling prices per Share on the NYSE or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next +succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition(s) of FMV may differ depending on whether FMV is in reference to the grant, +exercise, vesting, settlement or payout of an Award. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria. +(q) " Fiscal Year " means the year commencing on January 1 and ending on December 31, or such other fiscal year +period as approved by the Board. +(r) " Freestanding SAR " means a SAR that is not a Tandem SAR, as described in Article VIII herein. +(s) " Grant Price " means the price against which the amount payable is determined upon exercise of a SAR. +(t) " Incentive Stock Option " or " ISO " means an Option to purchase Shares +granted under Article VII herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision. +(u) " Non-Employee Director " means a Director who meets the definition of a "Non-Employee Director" +set forth in Rule 16b-3(b)(3) under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. +(v) " Nonqualified Stock Option " or " NQSO " means an Option to purchase Shares +granted under Article VII herein, which is not intended to be an Incentive Stock Option or which otherwise does not meet the requirements for an ISO. +(w) " Option " means the conditional right to purchase Shares at a stated Option Price for a specified period of time in the +form of an Incentive Stock Option or a Nonqualified Stock Option subject to the terms of this Plan. +A-4 +Table of Contents +(x) " Option Price " means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by +the Committee. +(y) " Participant " means a participant holding an outstanding Award granted under the Plan. +(z) " Performance Based Compensation " means compensation under an Award that is granted in order to provide remuneration +solely on account of the attainment of one or more Performance Goals under circumstances that satisfy the requirements of Section 162(m) of the Code. +(aa) " Performance Goal " means a performance criterion selected by the Committee for a particular Award for purposes of +Article XI based on one or more Performance Measures. +(bb) " Performance Measures " mean measures as described in Article XI, the attainment of one or more of which shall, as +determined by the Committee, determine the vesting, monetization, or value of an Award to a Covered Employee that is designated to qualify as Performance Based Compensation. +(cc) " Performance Period " means the period of time, which shall not be shorter than 12 months, during which the +assigned performance criteria must be met in order to determine the degree of payout and/or vesting with respect to an Award of Performance Shares or Performance Units. +(dd) " Performance Share " means an Award granted under Article IX herein, denominated in Shares, the value of which at +the time it is payable is determined as a function of the extent to which corresponding performance criteria have been achieved. +(ee) " Performance Unit " means an Award granted under Article IX herein, denominated in units, which may be valued by +reference to a designated amount of property other than Shares, the value of which at the time it is payable is determined as a function of the extent to which corresponding performance criteria have +been achieved. +(ff) " Plan " means this Equity Incentive Compensation Plan, as it may be amended from time to time. +(gg) " Restricted Stock " means an Award under Article VI of Shares that may be subject to certain restrictions and to a +risk of forfeiture as set forth in the Award Agreement. +(hh) " Restricted Stock Unit " means an Award under Article VI that is valued by reference to a Share, which value may +be paid by delivery of Shares or cash or a combination thereof upon settlement of the Award, subject to the specific terms and conditions of the Award as set forth in the Award Agreement. +(ii) " Securities Act " means the Securities Act of 1933, as amended. +(jj) " Shares " means shares of common stock of the Company, $0.01 par value per share. +(kk) " Stock Appreciation Right " or " SAR " means the conditional right to +receive the difference between the FMV of a Share on the date of exercise over the Grant Price, pursuant to the terms of Article VIII herein. +(ll) " Stock Based Award " means an equity based or equity related Award granted pursuant to the terms of Article X +herein. +(mm) " Tandem SAR " means a SAR that the Committee specifies pursuant to Article VIII herein is granted in connection +with a related Option, the exercise of which SAR shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR +shall similarly be cancelled), or a SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related SAR. +Regardless of whether an Option is granted coincident with a SAR, a SAR is not a Tandem SAR unless so specified by the Committee at the time of grant. +A-5 +Table of Contents +2.2 Construction. Captions and titles contained herein are for convenience of reference only and shall not +affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, any definition of any term herein in the singular also shall include the plural. +ARTICLE III +ADMINISTRATION +3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, +consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and the Company's officers and Directors shall be entitled to rely upon the +advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, +the Company, and all other interested parties. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the +Plan. +3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to +(i) interpret the terms and the intent of the Plan, any Award and any Award Agreement or other agreement ancillary to or in connection with the Plan, (ii) determine eligibility for +Awards and select those who will become Participants in the Plan, (iii) adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper, +(iv) provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company with respect to the Plan and (v) make all other determinations necessary +or advisable for the administration of the Plan. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to +Article XIV, adopting modifications, amendments or subplans to the Plan or any Award Agreement. Subject to the terms and provisions of the Plan, the Committee +shall have complete discretion in determining the nature, terms, conditions and amount of each Award. In making such determinations, the Committee may take into account the nature of services rendered +by the recipient of the Award, such person's present and potential contributions to the Company and such other factors as the Committee in its discretion shall deem relevant. +3.3 Delegation. The Committee may delegate to one or more of its members any of the Committee's administrative +duties or powers as it may deem advisable; provided, however, that any such delegation shall not be inconsistent with the provisions of Rule 16b-3 under the Exchange Act or +Section 162(m) of the Code as to actions to be taken by the Committee in connection therewith. +ARTICLE IV +SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS +4.1 Total Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2 herein, +the total number of Shares hereby made available and reserved for issuance to Participants pursuant to Awards granted under the Plan shall be 7,600,000, plus any remaining Shares available for +issuance under the Predecessor Plans as set forth in Section 1.4 (with such total number of Shares, including such adjustment and remaining Shares, to be referred to as the "Total Share +Authorization"). Any Shares issued in connection with an Option or SAR shall be counted against the Total Share Authorization limit as one Share for every one Share issued. Any Shares issued pursuant +to Awards granted on or before May 20, 2009 in connection with an Award other than an Option or SAR shall be counted against the Total Share Authorization limit as two Shares for every +one Share issued. Any Shares issued pursuant to Awards granted after May 20, 2009 in connection with an Award other than an Option or SAR shall be counted against the Total Share +Authorization limit as 1.43 Shares for every one Share issued. The maximum aggregate number of Shares that may be issued through Nonqualified Stock Options shall be equal to the Total Share +Authorization. The maximum aggregate number of Shares that may be issued through Incentive Stock Options shall be 7,600,000. +A-6 +Table of Contents +Any +Awards that are not settled in Shares shall not be counted against the Total Share Authorization limit. Any Shares related to Awards (or after the Effective Date, awards granted or +issued under the Predecessor Plans) which (i) terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such Shares, (ii) are settled in cash either in lieu +of Shares or otherwise, or (iii) are exchanged with the Committee's approval for Awards not involving Shares, shall be available again for issuance under the Plan. In addition, if the Option +Price of any Option granted under the Plan or the +tax withholding requirement with respect to any Award granted under the Plan is satisfied by tendering Shares to the Company (by either actual delivery or by attestation), or if a SAR is exercised, +only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for issuance under the Plan; provided, +however, that from and after May 21, 2008, Shares tendered as full or partial payment to the Company of the Option Price upon exercise of Options granted under this Plan, Shares reserved +for issuance upon grant of SARs, to the extent the number of reserved Shares exceeds the number of Shares actually issued upon exercise of the SARs, and Shares withheld by, or otherwise remitted to, +the Company to satisfy a Participant's tax withholding obligations with respect to any Award granted under this Plan, shall not become available again for issuance under this Plan. The maximum number +of Shares available for issuance under the Plan shall be reduced to reflect any dividends or Dividend Equivalents that are reinvested into additional Shares under this Plan or credited as additional +Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units or Stock Based Awards. The Shares available for issuance under the Plan may be authorized and unissued Shares or +treasury Shares. Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to qualify as Performance Based Compensation, the following limits ("Award Limits") +shall apply to grants of Awards to Covered Employees under the Plan: +(a) Restricted Stock/Restricted Units. The maximum aggregate number of Shares that may be granted in the form of +Restricted Stock/Restricted Stock Units in any one Fiscal Year to any one Participant shall be 100,000. +(b) Options and SARS. The maximum aggregate number of Shares that may be granted in the form of Options or SARs +in any one Fiscal Year to any one Participant shall be 200,000. +(c) Performance Shares/Performance Units. The maximum aggregate Award of Performance Shares or Performance Units +that a Participant may receive in any one Fiscal Year shall be 200,000 Shares, and the maximum value of Performance Units that a Participant may receive with respect to Awards in any one Fiscal Year +shall be a value of $5,000,000 determined as of the date of vesting or payout, as applicable. +(d) Stock Based Awards. The maximum aggregate grant with respect to Stock Based Awards in any one Fiscal Year to +any one Participant shall be 200,000. +4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not +limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, extraordinary or +special dividend, stock split, reverse stock split, split up, spin off, other distribution of stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or +other like change in capital structure or distribution (other than normal cash dividends) to the stockholders of the Company, or any similar corporate event or transaction, the Committee, in order to +prevent dilution or enlargement of Participants' rights under the Plan, shall make or provide for appropriate proportionate substitutions or adjustments, as applicable, to the number and kind of +Shares that may be issued under the Plan, the number and kind of Shares subject to outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the application and computation +of any Dividend Equivalents that may be provided for in Award Agreements, the Award Limits, the limit on issuing Awards other than Options granted with an Option Price equal to at least the FMV of a +Share +A-7 +Table of Contents +on +the date of grant or Stock Appreciation Rights with a Grant Price equal to at least the FMV of a Share on the date of grant, and any other value determinations applicable to outstanding Awards or +to this Plan. Such adjustments shall be made automatically, without the necessity of Committee action, on the customary and appropriate arithmetical basis, in the case of any stock split, including a +stock split effected by means of a stock dividend, and in the case of any other dividend paid in Shares, and shall be made in the discretion of the Committee with respect to other corporate events or +transactions. The Committee, in its sole discretion, may also make other appropriate adjustments in the terms of any Awards under the Plan to reflect, or related to, such changes or distributions and +may modify any other terms of outstanding Awards, including modifications of performance criteria and changes in the length of Performance Periods, as are equitably necessary to prevent dilution or +enlargement of Participant's rights under the Plan that otherwise would result from such corporate event or transaction. The determination of the Committee as to the foregoing adjustments, if any, +shall be conclusive and binding on Participants under the Plan. Subject to the provisions of Article XIII and any applicable law or regulatory requirement, without affecting the number of +Shares reserved or available hereunder, the Committee may authorize the issuance, assumption, substitution or conversion of Awards under this Plan in connection with any such corporate event or +transaction upon such terms and conditions as it may deem appropriate. In addition, the Committee may amend the Plan, or adopt supplements to the Plan, in such manner as it deems appropriate to +provide for such issuance, assumption, substitution or conversion as provided in the previous sentence. +ARTICLE V +ELIGIBILITY AND PARTICIPATION +5.1 Eligibility. All Employees, consultants who are natural persons, and members of the Board of the Company and +of any Affiliate of the Company shall be eligible to participate in the Plan and be granted Awards under the Plan. +5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, in its +sole discretion, select from among persons eligible to participate in the Plan those to whom Awards shall be granted under the Plan, and shall determine in its discretion the nature, terms, +conditions, and amount of each Award. +ARTICLE VI +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +6.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, in its discretion may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts and upon such terms as the Committee +shall determine. +(a) Restricted Stock. +(i) Nature +of Restricted Stock. Restricted Stock may be issued for services rendered with any or no additional purchase price as shall be determined by the +Committee in its discretion, and may be subject to certain restrictions and to a risk of forfeiture as set forth in the Award Agreement. A Participant to whom Shares of Restricted Stock are issued +shall have all of the rights of ownership with respect to the Shares subject to such Restricted Stock Award, including the right to vote the same and receive any dividends paid thereon; subject, +however, to the terms, conditions and restrictions contained in this Plan and in the applicable Award Agreement. +(ii) Forfeiture +and Vesting. A Restricted Stock Award Agreement may provide for forfeiture of the Restricted Stock upon termination of the Participant's +employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Award Agreement may also provide for +(i) vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock to vest and become no longer subject to forfeiture and +(ii) holding periods during which the Restricted Stock may not be sold or otherwise transferred. +A-8 +Table of Contents +(iii) Delivery +of Shares and Settlement. Upon an Award of Restricted Stock, the Company shall deliver to the Participant the Shares subject to the Award (which +Shares may be delivered in book-entry or certificated form), and such Shares shall be evidenced with an appropriate legend referring to or setting forth the applicable restrictions to +which such Shares are subject (by means of appropriate stop-transfer orders on Shares credited to book-entry accounts or by means of appropriate legends on Shares that have +been certificated). After the Shares are no longer subject to such restrictions, the Company shall, in accordance with the terms and conditions of the Award Agreement and upon the request of the +Participant and the surrender by the Participant of any certificated Shares, settle the completed Restricted Stock Award by providing the Participant with Shares with such restrictions removed. +(b) Restricted Stock Units. +(i) Nature +of Restricted Stock Units; Accounts. Each Restricted Stock Unit awarded shall represent a right for one Share to be delivered upon settlement of the +Award, which right shall be subject to a risk of forfeiture and cancellation and to the other terms and conditions set forth in the Plan and the Award Agreement. The Company shall establish and +maintain a Participant account to record Restricted Stock Units and transactions and events affecting such units. Restricted Stock Units and other items reflected in the account will represent only +bookkeeping entries by the Company to evidence unfunded obligations of the Company. +(ii) Deferral +Period and Settlement Date. Restricted Stock Units (if not previously cancelled or forfeited) shall be settled on the date or dates set forth in +the Award Agreement. In addition, unless otherwise determined by the Committee, if the Committee reasonably determines that any settlement of Restricted Stock Units would result in payment of +compensation to a Participant which is not deductible by the Company under Section 162(m) of the Code, such settlement shall be deferred, subject to compliance with Section 409A of the +Code as referred to in Article XX herein, to the extent necessary to avoid payment of such nondeductible compensation, with such deferral continuing only until such date as settlement can be +effected without loss of deductibility by the Company under Section 162(m) of the Code. +(iii) Cancellation +and Vesting. A Restricted Stock Unit Award Agreement may provide for cancellation of the Restricted Stock Units upon termination of the +Participant's employment or other relationship with the Company or nonperformance of specified performance goals or measures established by the Committee. A Restricted Stock Unit Award Agreement may +also provide for vesting periods which require the passage of time and/or the occurrence of events in order for the Restricted Stock Units to vest and become no longer subject to cancellation. +(iv) Dividend +Equivalents. Restricted Stock Units shall not be credited with Dividend Equivalents unless specifically provided for in the Award Agreement, and +then only upon such terms and conditions as set forth in the Award Agreement. +(v) Settlement +and Delivery of Shares. Settlement of a Restricted Stock Unit Award shall be made in accordance with the terms and conditions of the applicable +Award Agreement. A Restricted Stock Unit Award Agreement may provide that settlement may be made (A) solely through the issuance of Shares or (B) at the mutual election of the +Participant and the Company, in a combination of Shares and cash. Upon the settlement of a Restricted Stock Unit Award, the Company shall deliver to the Participant the number of Shares issued to the +Participant in settlement of the Award (which Shares may be delivered in book-entry or certificated form). +A-9 +Table of Contents +6.2 Restricted Stock and Restricted Stock Unit Award Agreements. Each Restricted Stock +and Restricted Stock Unit Award shall be evidenced by an Award Agreement which shall set forth the terms and conditions of such Award, including the number of Shares to which the Award relates, the +date or dates upon which such Award shall vest and the circumstances (including termination of employment or failure to satisfy one or more restrictive covenants or other ongoing obligations) under +which the Award shall not vest, the time and manner of settlement of the Award, such transfer restrictions which the Committee may impose, and any other terms or conditions which the Committee may +impose. +(a) If +not otherwise specified by the Committee, the following terms and conditions shall apply to Restricted Stock and Restricted Stock Units awarded under the Plan: +(i) Vesting. An +Award of Restricted Stock or Restricted Stock Units shall vest pursuant to a vesting schedule as determined by the Committee, +which vesting schedule may provide that (A) an Award held by a Participant who retires from employment with the Company after having both reached the age of sixty and completed twelve years of +service with the Company shall continue to vest in accordance with the vesting schedule set forth in the applicable Award Agreement notwithstanding the termination of the Participant's employment with +the Company, provided that prior to full vesting of the Award such Participant does not after such retirement become employed on a full time basis by a competitor of the Company prior to reaching age +sixty-five, and (B) an Award held by a Non-Employee Director of the Company who resigns from the Board after completing at least five years of service to the Company as +a Non-Employee Director shall become fully vested. +(ii) Termination. An +outstanding Award of Restricted Stock that has not vested or an outstanding Award of Restricted Stock Units that has not been settled shall +be cancelled upon the Company's termination of the employment of the Participant for cause. +(iii) Acceleration. An +outstanding Award of Restricted Stock or Restricted Stock Units shall become fully vested and settled irrespective of its other +provisions upon termination of the Participant's employment with the Company or Affiliate because of death, disability or normal retirement upon reaching the age of sixty-five. +(iv) Transferability. An +outstanding Award of Restricted Stock or Restricted Stock Units that has not vested and been settled or is otherwise restricted by the +terms of the Award Agreement as to transferability shall not be transferable by the Participant, and the Participant shall not be permitted to sell, transfer, pledge or otherwise encumber such Award +or the Shares issuable in settlement thereof, other than (A) to the person or persons to whom the Participant's rights under such Award pass by will or the laws of descent and distribution, +(B) to the spouse or the descendants of the Participant or to trusts for such persons to whom or which the Participant may transfer such Award, (C) to the legal representative of any of +the foregoing, or (D) pursuant to a qualified domestic relations order as defined under Section 414(p) of the Code or similar order or agreement relating to the provision of child +support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant. If an Award is transferred to any person to whom a transfer of the Award +is permitted, the transferee shall remain subject to all of the vesting conditions to which the Award is subject. Any such transfer shall be made only in compliance with the Securities Act and the +requirements therefor as set forth by the Company. +(b) The +Committee shall be free to specify terms and conditions other than and in addition to those set forth above, in its discretion. +A-10 +Table of Contents +ARTICLE VII +STOCK OPTIONS +7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants in +such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee in its discretion. ISOs may be granted only to Employees of the Company or a parent or +subsidiary corporation of the Company within the meaning of Section 424 of the Code, and no ISOs may be granted more than 10 years after the adoption of the Plan by the Board. +7.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option +Price, the duration of the Option, the number of Shares to which the Option relates, the conditions upon which an Option shall become vested and exercisable, and any other terms and conditions as the +Committee shall determine. The Award Agreement shall also specify whether the Option is intended to be an ISO or a NQSO. +7.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the +Committee and shall be specified in the Award Agreement. The Option Price for an Option, whether issued as an ISO or an NQSO, shall be not less than 100 percent of the FMV of the underlying +Shares on the date of grant; provided, however, that the Option Price for an ISO granted to a person who at the time of grant owns (or is deemed to own pursuant to Section 424(d) of the Code) +stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or of any of its Affiliates (a "Significant Stockholder") shall be not less than +110 percent of the Fair Market Value of the underlying Shares as of the date of grant. +7.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall +determine at the time of grant; provided however, that no Option shall be exercisable later than the tenth anniversary date of its grant, and provided further that no ISO granted to a Significant +Stockholder shall be exercisable after the expiration of five years from the date of grant. +7.5 Exercise of Options. Options shall be exercisable at such times and on the occurrence of such events, and be +subject to such restrictions and conditions as the Committee shall in each instance approve, +which need not be the same for each grant or for each Participant. Options shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form +specified by or acceptable to the Committee, or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the +Option is to be exercised, and accompanied by full payment for the Shares. Upon exercise of any Option, the Option Price shall be payable to the Company in full either: (a) in cash or its +equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate FMV at the time of exercise equal to the total Option Price; (c) by +a combination of (a) and (b); or (d) by any other method approved or accepted by the Committee in its sole discretion and subject to such rules and regulations as the Committee may +establish. Subject to Section 7.6 and any governing rules or regulations, as soon as practicable after receipt of a notification of exercise and full payment for the Shares, the Company shall +cause to be delivered to the Participant Share certificates or evidence of book entry Shares in an appropriate amount based upon the number of Shares purchased under the Option(s). +7.6 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired +pursuant to the exercise of an Option granted under the Plan as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant to exercise for a +specified period of time, or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed and/or traded. +A-11 +Table of Contents +7.7 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the +Participant shall have the right to exercise the Option following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be +determined in the sole discretion of the Committee, need not be uniform among all Options granted under the Plan, and may reflect distinctions based on the reasons for termination. +7.8 Nontransferability of Options. +(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned or +otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In addition, all ISOs granted to a Participant under the Plan shall be exercisable during such +Participant's lifetime only by such Participant. +(b) Nonqualified Stock Options. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a NQSO granted under the Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws +of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all NQSOs granted to a Participant under +the Plan shall be exercisable during such Participant's lifetime only by such Participant. +(c) Notification of Disqualifying Disposition. The Participant to whom an ISO is granted shall notify the +Company upon the disposition of Shares issued pursuant to the exercise of an ISO or Shares received as a dividend on ISO stock. The Company shall use such information to determine whether a +disqualifying disposition as described in Section 421(b) of the Code has occurred. +7.9 $100,000 Annual ISO Limitation. To the extent that the aggregate Fair Market Value of Shares (determined as +of the time the ISOs with respect to such Shares are granted) with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under this Plan and all other +plans of the Company and any Affiliate) exceeds $100,000, such ISOs shall be treated as NQSOs. The foregoing provisions shall be applied by taking ISOs into account in the order in which they were +granted. +ARTICLE VIII +STOCK APPRECIATION RIGHTS +8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any +time and from time to time and upon such terms as shall be determined by the Committee in its discretion. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of +SARs. The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price may include a Grant Price based +on 100 percent of the FMV of the underlying Share on the date of grant or a Grant Price that is set at a premium to the FMV of the underlying Share on the date of grant. The SAR Grant Price +shall not be less than FMV of the underlying Share on the date of grant. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option. +8.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, +the term of the SAR, and any such other provisions as the Committee shall determine. +8.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee in its sole +discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth anniversary date of its grant. +A-12 +Table of Contents +8.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever +terms and conditions that the Committee in its sole discretion imposes. +8.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related +Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then +exercisable. Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the +expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100 percent of the difference between the Option Price of the +underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject +to the ISO exceeds the Option Price of the ISO. +8.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from +the Company in an amount representing the difference between the FMV of the underlying Share on the date of exercise over the Grant Price. At the discretion of the Committee, the payment upon SAR +exercise may be in cash, Shares of equivalent value (based on the FMV on the date of exercise of the SAR, as defined in the Award Agreement or otherwise defined by the Committee thereafter), in some +combination thereof, or in any other form approved by the Committee in its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later +determination in the Award Agreement for the grant of the SAR. +8.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to exercise the SAR following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the sole +discretion of the Committee, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +8.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement at the time of +grant or thereafter by the Committee, a SAR granted under the Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent +and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, all SARs granted to a Participant under the Plan +shall be exercisable during such Participant's lifetime only by such Participant. +8.9 Other Restrictions. Without limiting the generality of any other provision of this Plan, the Committee may +impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring +the Participant to hold the Shares received upon exercise of a SAR for a specified period of time. +ARTICLE IX +PERFORMANCE SHARES AND PERFORMANCE UNITS +9.1 Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the +Committee, at any time and from time to time, may grant Performance Shares and/or Performance Units to Participants in such amounts and upon such terms as the Committee shall determine. +9.2 Value of Performance Shares and Performance Units. Each Performance Share and Performance Unit shall have an +initial value that is established by the Committee at the time of grant. The Committee shall in its discretion set performance criteria for a Performance Period which, depending on the extent to which +the performance criteria are met, will determine, in the manner +A-13 +Table of Contents +established +by the Committee and set forth in the Award Agreement, the value and/or amount of each Performance Share or Performance Unit that will be paid to the Participant. +9.3 Earnings of Performance Shares and Performance Units. Subject to the terms of this Plan and the applicable +Award Agreement, after the applicable Performance Period has ended, the holder of Performance Shares and/or Performance Units shall be entitled to receive, to the extent that the Performance Shares or +Performance Units have vested, if applicable, a payout of the value and/or amount of Performance Shares and/or Performance Units, determined as a function of the extent to which the corresponding +performance criteria have been achieved. The Committee may in its discretion require the Participant to hold the Shares or other property received pursuant to such Award for a specified period of +time. +9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares +and Performance Units shall be made in accordance with the terms and conditions of the applicable Award Agreement. A Performance Share or Performance Unit Award Agreement may provide that payment may +be made, to the extent that the Performance Share or Performance Unit has vested and the performance criteria are met, solely through the issuance of Shares earned upon the expiration of the +applicable Performance Period, and that the Participant may elect to satisfy the Participant's tax withholding obligation with respect to the Award by having the Company withhold Shares or other +property or by the Participant surrendering Shares or other property to the Company with a FMV on or near the tax withholding date equal to the tax withholding obligation. Upon the payment in the form +of Shares of a Performance Share or Performance Unit Award, the Company shall deliver to the Participant the number of Shares issued to the Participant in payment of the Award (which Shares may be +delivered in book-entry or certificated form). +9.5 Dividends and Other Distributions. Dividends and other distributions declared by the Board and paid with +respect to outstanding Shares shall only be paid with respect to Performance Share and Performance Unit Awards for Shares that have been issued by the Company in payment of such Awards to the extent +that the Awards have vested and upon the expiration of the applicable Performance Periods for the Awards. Performance Shares and Performance Units shall not be credited with Dividend Equivalents +unless specifically provided for in the Award Agreement, and then only upon such terms and conditions as set forth in the Award Agreement. +9.6 Vesting and Termination of Employment. Each Award Agreement shall set forth the extent to which the Award +shall vest, which may be pursuant to a vesting schedule as determined by the Committee, and the extent to which the Participant shall have the right to retain Performance Shares and/or Performance +Units following the termination of the Participant's employment or other relationship with the Company or an Affiliate. Such provisions shall be determined in the sole discretion of the Committee, +need not be uniform among all Performance Shares and Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +9.7 Nontransferability of Performance Shares and Performance Units. Except as otherwise provided in a +Participant's Award Agreement at the time of grant or thereafter by the Committee, Performance Shares and Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or +hypothecated, other than by will or by the laws of descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the +Committee, a Participant's rights with respect to Performance Shares and Performance Units shall inure during such Participant's lifetime only to such Participant. +ARTICLE X +STOCK BASED AWARDS +10.1 Stock Based Awards. Subject to the terms and conditions of the Plan, the Committee, at any time and from +time to time, may grant other types of equity based or equity related Awards not +A-14 +Table of Contents +described +by the other terms of the Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions, including, but not limited to, +conditions based on the satisfaction of performance criteria or the satisfaction of such obligations as the Committee shall determine. Such Awards may involve the transfer of actual Shares to +Participants, or payment in cash or otherwise of amounts based on the value of Shares. +10.2 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall +have the right to receive Stock Based Awards following the termination of the Participant's employment or other relationship with the Company or Affiliates. Such provisions shall be determined in the +sole discretion of the Committee, need not be uniform among all Stock Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination. +10.3 Nontransferability of Stock Based Awards. Except as otherwise provided in a Participant's Award Agreement +at the time of grant or thereafter by the Committee, Stock Based Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of +descent and distribution. In addition, except as otherwise provided in a Participant's Award Agreement at the time of grant or thereafter by the Committee, a Participant's rights with respect to Stock +Based Awards shall inure during such Participant's lifetime only to such Participant. +ARTICLE XI +PERFORMANCE MEASURES +Notwithstanding any other terms of this Plan, the vesting, payability or value (as determined by the Committee) of each Award other +than an Option or SAR that, at the time of grant, the Committee intends to be Performance Based Compensation to a Covered Employee, shall +be determined by the attainment of one or more Performance Goals as determined by the Committee in conformity with Section 162(m) of the Code. The Committee shall specify in writing, by +resolution or otherwise, the Participants eligible to receive such an Award (which may be expressed in terms of a class of individuals) and the Performance Goal(s) applicable to such Awards within +90 days after the commencement of the period to which the Performance Goal(s) relate(s), or such earlier time as required to comply with Section 162(m) of the Code. No such Award shall +be payable unless the Committee certifies in writing, by resolution or otherwise, that the Performance Goal(s) applicable to the Award were satisfied. In no case may the Committee increase the value +of an Award of Performance Based Compensation above the maximum value determined under the performance formula by the attainment of the applicable Performance Goal(s), but the Committee retains the +discretion to reduce the value below such maximum. +Unless +and until the Committee proposes for stockholder vote and the stockholders approve a change in the general Performance Measures set forth in this Article XI, the +Performance Goal(s) upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance Based Compensation shall be limited to the following Performance +Measures: +(a) Increases +in, or levels of, net asset value; net asset value per share; pretax earnings; earnings before interest and taxes; earnings before interest, taxes, +depreciation and amortization; net income and/or earnings per share; +(b) Return +on equity, return on assets or net assets, return on capital (including return on total capital or return on invested capital); +(c) Share +price or stockholder return performance (including, but not limited to, growth measures and total stockholder return, which may be measured in absolute terms +and/or in comparison to a group of peer companies or an index); +(d) Oil +and gas reserve replacement, reserve growth and finding and development cost targets; +A-15 +Table of Contents +(e) Oil +and gas production targets; +(f) Performance +of investments in oil and gas properties; +(g) Cash +flow measures (including, but not limited to, cash flows from operating activities, discretionary cash flows, and cash flow return on investment, assets, equity or +capital); and +(h) Increases +in, or levels of, operating and/or nonoperating expenses. +Any +Performance Measure(s) may be used to measure the performance of the Company as a whole and/or any one or more regional operations and/or Affiliates of the Company or any combination thereof, as +the Committee may deem appropriate, and any Performance Measure(s) may be used in comparison to the performance of a group of peer companies, or a published or special index that the Committee, in its +sole discretion, deems appropriate. The Committee shall also have the authority to provide in Award Agreements for accelerated vesting of an Award based on the achievement of Performance Goal(s). +The +Committee may provide in any Award Agreement that any evaluation of attainment of a Performance Goal may include or exclude any of the following events that occurs during the +relevant period: (a) asset write downs; (b) litigation judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or regulations +affecting reported results; (d) any reorganization or restructuring transactions; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 +and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's Annual Report on Form 10-K for the applicable year; and +(f) significant acquisitions or divestitures. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of +Section 162(m) of the Code for deductibility. +In +the event that applicable tax and/or securities laws change to permit discretion by the Committee to alter the governing Performance Measures without obtaining stockholder approval of +such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval. In addition, in the event that the Committee determines that it is advisable to +grant Awards to Covered Employees that shall not qualify as Performance Based Compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code. +ARTICLE XII +RIGHTS OF PERSONS ELIGIBLE TO PARTICIPATE +12.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of +the Company or an Affiliate to terminate any Participant's employment, consulting or other service relationship with the Company or an Affiliate at any time, nor confer upon any Participant any right +to continue in the capacity in which he or she is employed or otherwise serves the Company or an Affiliate. Neither an Award nor any benefits arising under this Plan shall constitute part of an +employment or service contract between a Participant and the Company or an Affiliate, and, accordingly, subject to the terms of this Plan, this Plan may be terminated, amended or modified at any time +in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company or an Affiliate for severance payments or otherwise, except as provided in this Plan. +For +purposes of the Plan, unless otherwise provided by the Committee, transfer of employment of a Participant between the Company and an Affiliate or among Affiliates, shall not be +deemed a termination of employment. The Committee may provide in a Participant's Award Agreement or otherwise the conditions under which a transfer of employment to an entity that is spun off from the +Company or an Affiliate shall not be deemed a termination of employment for purposes of an Award. +A-16 +Table of Contents +12.2 Participation. No Employee or other person eligible to participate in the Plan shall have the right to be +selected to receive an Award. No person selected to receive an Award shall have the right to be selected to receive a future Award or, if selected to receive a future Award, the right to receive such +future Award on terms and conditions identical or in proportion in any way to any prior Award. +12.3 Rights as a Stockholder. A Participant shall have none of the rights of a stockholder with respect to +Shares covered by any Award until the Participant becomes the record holder of such Shares. +ARTICLE XIII +CHANGE OF CONTROL +13.1 Accelerated Vesting and Payment Applicable to Awards Granted prior to May 21, 2008. Subject +to the provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted prior to May 21, 2008, in the event of a Change of Control, unless otherwise +specifically prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on targeted performance being attained +as of the effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control, and shall be paid out to Participants within +30 days following the effective date of the Change of Control; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control; +(d) Upon +a Change of Control, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, the +Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control, and that the value of such +Awards, as determined by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount based on the Change of Control Price within a +reasonable time subsequent to the Change of Control; provided, however, that no such payment shall be made on account of an ISO using a value higher than the FMV of the underlying Shares on the date +of settlement. +13.2 Accelerated Vesting and Payment Applicable to Awards Granted on or after +May 21, 2008. Subject to the provisions of Section 13.3 or as otherwise provided in the Award Agreement, for Awards granted on or after +May 21, 2008 and prior to a Change of Control, in the event that a Change of Control occurs and a Participant's employment with the Company is subsequently terminated without Cause (as +defined in such Participant's Award Agreement) or the Participant terminates his or her employment with the Company for Good Reason (as defined in such Participant's Award Agreement) within +30 months of the Change of Control (a "Change of Control Termination"), unless otherwise +A-17 +Table of Contents +specifically +prohibited by law or the rules and regulations of a national securities exchange on which Shares are listed or traded, with respect to such Awards granted to such Participant: +(a) Any +vesting period requirements and other restrictions imposed on Restricted Stock or Restricted Stock Units shall lapse, and Restricted Stock Units shall be immediately +payable; +(b) Any +and all Options and SARs granted hereunder shall become immediately exercisable; +(c) The +target payout opportunities attainable under all outstanding Awards of performance based Restricted Stock and performance based Restricted Stock Units, Performance +Shares and Performance Units (including but not limited to Awards intended to be Performance Based Compensation) shall be deemed to have been fully earned based on measured performance as of the +effective date of the Change of Control, and: +(i) The +vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change of Control Termination, and shall be paid out to such +Participant within 30 days following the effective date of the Change of Control Termination; and +(ii) Awards +denominated in cash shall be paid to Participants in cash within 30 days following the effective date of the Change of Control Termination; +(d) Upon +a Change of Control Termination, unless otherwise specifically provided in a written agreement entered into between the Participant and the Company or an Affiliate, +the Committee shall immediately cause all other Stock Based Awards to vest and be paid out as determined by the Committee; and +(e) The +Committee shall have the discretion to unilaterally determine that all outstanding Awards shall be cancelled upon a Change of Control Termination, and that the value +of such Awards, as determined +by the Committee in accordance with the terms of the Plan and the Award Agreements, shall be paid out in cash in an amount determined by the Committee, in accordance with the terms of the Plan and the +Award Agreements, within a reasonable time subsequent to the Change of Control Termination; provided, however, that no such payment shall be made on account of an ISO using a value higher than the FMV +of the underlying Shares on the date of settlement. +In +the event that the existence of the foregoing provisions, even if a Change of Control and a Change of Control Termination do not occur, would result in an Award to a Covered Employee +designed to qualify as Performance Based Compensation to not so qualify, the Committee shall have the discretion to adopt for such Award such provisions as shall satisfy the requirements of +Section 162(m) of the Code. +13.3 Alternative Awards. Notwithstanding Sections 13.1 and 13.2, no cancellation, acceleration of +vesting, lapsing of restrictions, payment of an Award, cash settlement, or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the +occurrence of a Change of Control, that such Award shall be honored or assumed, or new rights substituted therefor (with such honored, assumed or substituted Award hereinafter referred to as an +"Alternative Award") by any successor to the Company or an Affiliate as described in Article XVII; provided, however, that any such Alternative Award must: +(a) Be +based on stock which is traded on an established U.S. securities market, or that the Committee reasonably believes will be so traded within 60 days after the +Change of Control; +(b) Provide +such Participant with rights and entitlements substantially equivalent to or more favorable than the rights, terms, and conditions applicable under such Award, +including, but not limited to, an identical or more favorable exercise or vesting schedule and identical or more favorable timing and methods of payment; and +A-18 +Table of Contents +(c) Have +substantially equivalent economic value to such Award (determined at the time of the Change of Control). +ARTICLE XIV +AMENDMENT AND TERMINATION OF THE PLAN +14.1 Amendment, Modification, Suspension, and Termination. The Committee or the Board may, at any time and from +time to time, alter, amend, modify, suspend or terminate the Plan in whole or in part; provided, however, that: +(a) Consistent +with the provisions of Section 4.2 and except in connection with a corporate transaction involving the Company (including, without limitation, any +stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the +terms of outstanding Awards may not be amended to reduce the Option Price of outstanding Options or the Grant Price of outstanding SARs or cancel outstanding Options or SARs in exchange for cash, +other Awards or Options or SARs with an Option Price or Grant Price that is less than the Option Price or Grant Price of the original Options or SARs without stockholder approval. +(b) No +amendment or modification which would increase the total number of Shares available for issuance under the Plan or the total number of shares available for ISOs under +the Plan shall be effective unless approved by the stockholders of the Company. +(c) To +the extent necessary under any applicable law, regulation, or securities exchange or market requirement, no amendment or modification shall be effective unless +approved by the stockholders of the Company in accordance with the applicable law, regulation, or securities exchange or market requirement. +14.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make +adjustments in the terms and conditions of, and the criteria provided in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in +Section 4.2 hereof) affecting the Company or the financial statements of the Company, or in recognition of changes in applicable laws, regulations or accounting principles, whenever the +Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Awards +and the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants under the Plan. To the extent such adjustments affect +Awards to Covered Employees intended to be Performance Based Compensation, they shall be prescribed in a form that meets the requirements of Section 162(m) of the Code for deductibility. +14.3 No Impairment of Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary, no +amendment, modification, suspension or termination of the Plan shall in any manner adversely affect in any material way any outstanding Award previously granted under the Plan without the written +consent of the Participant holding such Award. +ARTICLE XV +SECURITIES REGISTRATION +15.1 Securities Registration. In the event that the Company shall deem it necessary or desirable to register +under the Securities Act, or any other applicable statute, any Awards or any Shares with respect to which an Award may be or shall have been granted, or to qualify any such Awards or Shares under the +Securities Act or any other statute, then the affected Participants shall cooperate with the Company and take such action as is necessary to permit registration or qualification of such Awards or +Shares. +A-19 +Table of Contents +15.2 Representations. Unless the Company determines that the following representation is unnecessary, each +person receiving an Award under the Plan may be required by the Company, as a condition to the issuance of Shares pursuant to the Award, to make a representation in writing that (i) he or she +is acquiring such Shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof within the meaning of the Securities +Act, and (ii) before any transfer in connection with the resale of such Shares, an exemption from registration of such transaction under the Securities Act shall be established to the +satisfaction of the Company. The Company may also require that any certificates or book-entry accounts for such Shares contain restrictive legends or stop-transfer orders +reflecting the foregoing. +ARTICLE XVI +TAX WITHHOLDING +In connection with Awards granted under the Plan, the Company and any Affiliate shall have the power and the right to deduct or +withhold, or require a Participant to remit to +the Company or any Affiliate, amounts sufficient to satisfy any federal, state and local withholding tax requirements with respect to any taxable event as a result of the Plan and Awards granted under +the Plan. The Committee may provide for Participants to satisfy withholding requirements by having the Company withhold Shares or the Participant making other arrangements, in either case on such +conditions as the Committee specifies. The Company may in its discretion make loans to Participants of funds sufficient to satisfy any such withholding tax requirements, provided that any such loan +shall comply with all applicable laws, rules and regulations and no such loan shall be made to a Director or executive officer of the Company in violation of Section 13(k) of the Exchange Act, +as adopted pursuant to Section 402 of the Sarbanes-Oxley Act of 2002. The Company and any Affiliate shall have the right to require that any recipient or permitted transferee of an Award under +the Plan who is not an Employee shall be responsible for the payment of all amounts required to satisfy all federal, state, and local withholding taxes applicable to such persons with respect to such +Award. +ARTICLE XVII +SUCCESSORS +Any obligations of the Company or an Affiliate under the Plan with respect to Awards granted hereunder, shall be binding on any +successor to the Company or Affiliate, respectively, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially +all of the business and/or assets of the Company or Affiliate, as applicable. +ARTICLE XVIII +INDEMNIFICATION +To the extent permitted by law, each person who is or shall have been a member of the Board or the Committee, or an officer or employee +who assists in administering the Plan, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by +him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure +to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of judgment in any such +action, suit or proceeding against him or her, provided that he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle +and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may +A-20 +Table of Contents +be +entitled under the Company's certificate of incorporation or bylaws, as a matter of law or otherwise, or any power that the Company or an Affiliate may have to indemnify them or hold them harmless. +ARTICLE XIX +GENERAL PROVISIONS +19.1 Forfeiture Events. Without limiting in any way the generality of the Committee's power to specify any terms +and conditions of an Award consistent with law, the Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to +reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events +may include, but not be limited to, failure to accept the terms of the Award Agreement, termination of employment under certain or all circumstances, violation of material Company and Affiliate +policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection or other agreements that may apply to the Participant, or other conduct by the +Participant that is detrimental to the business or reputation of the Company or Affiliates. +19.2 Evidence of Restrictions. The certificates or book-entry accounts for Shares issued under the +Plan may include or be subject to any legend or stop-transfer order that the Committee deems appropriate to reflect any restrictions on transfer of such Shares. +19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares +issued under the Plan prior to: +(a) Obtaining +any approvals from governmental agencies that the Company determines are necessary or advisable; and +(b) Completion +of any registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental body that the Company +determines to be necessary or advisable, and the listing or approval for trading of such Shares on any applicable securities exchange or market. +19.4 Uncertificated Shares. Where the Plan provides for the issuance of stock certificates to evidence the +issuance or transfer of Shares, such Shares may be evidenced on an uncertificated basis to the extent not prohibited by applicable law or stock exchange rules. +19.5 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments that +the Company or an Affiliate may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to +create a trust of any kind, or a fiduciary relationship between the Company or an Affiliate and any Participant, beneficiary, legal representative or any other person. Awards shall be general +unsecured obligations of the Company, except that if an Affiliate executes an Award Agreement instead of the Company, the Award shall be a general unsecured obligation of the Affiliate and not an +obligation of the Company. To the extent that any individual acquires a right to receive payments from the Company or an Affiliate, such right shall be no greater than the right of an unsecured +general creditor of the Company or Affiliate, as applicable. All payments to be made hereunder shall be paid from the general funds of the Company or Affiliate, as applicable, and no special or +separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the +Employee Retirement Income Security Act of 1974. +19.6 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award +Agreement. In the event that any fractional Shares would otherwise result from the application of the terms of an Award, the Company shall instead pay cash in lieu of fractional Shares on such basis +as the Committee may determine in its discretion. +A-21 +Table of Contents +19.7 Other Compensation and Benefit Plans. Nothing in this Plan shall be construed to limit the right of the +Company or an Affiliate to establish other compensation or benefit plans, programs, policies or arrangements. Except as may be otherwise specifically stated in any other benefit plan, policy, program +or arrangement, no Award shall be treated as compensation for purposes of calculating a Participant's rights under any such other plan, policy, program or arrangement. +19.8 No Constraint on Corporate Action. Nothing in this Plan shall be construed to (i) limit, impair or +otherwise affect the Company's or an Affiliate's right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or +dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) limit the right or power of the Company or an Affiliate to take any action which such entity deems to be +necessary or appropriate. +19.9 Severability. In the event that any provision of the Plan shall be held to be illegal or invalid for any +reason, the illegality or invalidity thereof shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been +included. +19.10 Requirements of Law. The granting of Awards and the issuance of Shares pursuant to an Award shall be +subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or securities exchanges or markets as may be required. The Company or an Affiliate shall +receive the consideration required by law for the issuance of Awards under the Plan. The inability of the Company or an Affiliate to obtain authority from any regulatory body having jurisdiction, +which authority is necessary for the lawful issuance and sale of any Shares hereunder, shall relieve the Company or Affiliate of any liability in respect of the failure to issue or sell such Shares as +to which such requisite authority shall not have been obtained. +19.11 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and +governed by the laws of the State of Colorado, excluding any conflicts or choice of law principles which might otherwise result in construction or interpretation of the Plan or an Award Agreement +under the substantive law of another jurisdiction. +ARTICLE XX +SECTION 409A OF THE CODE +This Plan is intended in all respects to comply with the provisions of Section 409A of the Code and the Company shall interpret +and administer the Plan in a manner consistent with Section 409A of the Code. In accordance with Prop. Reg. §1.409A-3(h)(2)(vi) (or any subsequent corresponding +provision of law), should there be a final determination that this Plan fails to meet the requirements of Section 409A and the regulations thereunder with respect to any Participant, the +Company may distribute to the Participant an amount not to exceed the amount required to be included in income as a result of the failure to comply with the requirements of Section 409A and the +regulations. +Notwithstanding +any other provision of this Plan to the contrary, in the event that any compensation pursuant to the other provisions of this Plan would result in the imposition on a +Participant of any additional taxes or interest pursuant to the provisions of Section 409A of the Code and any temporary or final Treasury Regulations or Internal Revenue Service guidance +thereunder, the timing of the payment or settlement of such compensation shall be appropriately and equitably adjusted, together with any appropriate and equitable adjustments to reflect the time +value of money, in order that such Participant may receive substantially the same economic benefits as provided under this Plan and in compliance with Section 409A of the Code and without the +imposition on such Participant of any additional taxes or interest thereunder. +[Remainder +of page intentionally left blank] +A-22 +Table of Contents +This Equity Incentive Compensation Plan, as amended and restated, was adopted by the Board of Directors of St. Mary Land & Exploration Company on +April 1, 2010. +ST. MARY LAND & EXPLORATION COMPANY +By: +/s/ ANTHONY J. BEST +Anthony J. Best +President and Chief Executive Officer +A-23 +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 016AOB 1 U PX + + A Proposals — The +Board of Directors recommends a vote FOR all the nominees listed and FOR +Proposals 2 - 4. For Against Abstain 1. The Nominating and Corporate +Governance Committee of the Board of Directors has nominated the below seven +persons to stand for election as directors. As of the date of the +accompanying proxy statement, no one has been nominated to serve as director +other than the nominees listed below. 2. The proposal to approve an amendment +to the Equity Incentive Compensation Plan to increase the stated total number +of shares authorized for issuance under this plan. For Against Abstain 3. The +proposal to approve an amendment to the certificate of incorporation to +change the name of the company to “SM Energy Company.” Authorized Signatures +— This section must be completed for your vote to be counted. — Date and Sign +Below C Please sign exactly as name(s) appears hereon. Joint owners should +each sign. When signing as attorney, executor, administrator, corporate +officer, trustee, guardian, or custodian, please give full title. Signature 1 +— Please keep signature within the box. Signature 2 — Please keep signature +within the box. Date (mm/dd/yyyy) — Please print date below. B Non-Voting +Items Change of Address — Please print new address below. Annual Meeting +Proxy Card 01 - Barbara M. Baumann 04 - William J. Gardiner 07 - William D. +Sullivan 02 - Anthony J. Best 05 - Julio M. Quintana 03 - Larry W. Bickle 06 +- John M. Seidl For Against Abstain For Against Abstain For Against Abstain +4. The proposal to ratify the appointment by the Audit Committee of Deloitte +& Touche LLP as the Company’s independent registered public accounting +firm for 2010. 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000004 MR A +SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 0 2 4 4 5 0 1 +MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE +AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A +SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND C 1234567890 J N T C123456789 1234 +5678 9012 345 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. Electronic Voting Instructions You can vote by Internet or +telephone! Available 24 hours a day, 7 days a week! Instead of mailing your +proxy, you may choose one of the two voting methods outlined below to vote +your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies +submitted by the Internet or telephone must be received by 1:00 a.m., Central +Time, on May 26, 2010. Vote by Internet • Log on to the Internet and go to +www.investorvote.com/SMLE • Follow the steps outlined on the secured website. +Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US +territories & Canada any time on a touch tone telephone. There is NO +CHARGE to you for the call. • Follow the instructions provided by the +recorded message. +Proxy — St. +Mary Land & Exploration Company 1775 Sherman Street, Suite 1200 Denver, +Colorado 80203 This proxy is solicited on Behalf of the Board of Directors +For the Annual Meeting of Stockholders on May 26, 2010. The undersigned +hereby appoints Anthony J. Best and C. Mark Brannum, or either of them, each +with the power to appoint his substitute, as proxies for the undersigned to +vote all shares of St. Mary Land & Exploration Company common stock which +the undersigned is entitled to vote at the Annual Meeting of Stockholders to +be held on May 26, 2010, and at any reconvened meeting after any adjornment +thereof, as directed on the matters referred to on the reverse side and at +their discretion on any other matters that may properly be presented at the +meeting. This proxy when properly executed will be voted in the manner +directed by the undersigned stockholder. If this proxy is properly executed but +no voting direction is given, this proxy will be voted “For” all director +nominees listed on this proxy, the approval of an amendment to the Equity +Incentive Compensation Plan to increase the stated total number of shares +authorized for issuance under this plan, the approval of the amendment to the +certificate of incorporation to change the name of the Company to “SM Energy +Company,” and the ratification of the appointment by the Audit Committee of +Deloitte & Touche LLP as the Company’s independent registered public +accounting firm for 2010. This proxy also confers discretionary authority to +the proxies to vote on any other matters that may properly be presented at +the meeting. As of the date of the accompanying proxy statement, St. Mary +Land & Exploration Company’s management did not know of any other matters +to be presented at the meeting. If any other matters are properly presented +at the meeting, this proxy will be voted in accordance with the +recommendations of St. Mary Land & Exploration Company’s management. +Electronic Delivery of Future Proxy Materials If you would like to reduce the +costs incurred by us in mailing proxy materials, you can consent to receiving +all future proxy statements, proxy cards and annual reports electronically +via e-mail or the Internet. To sign up for electronic delivery, please follow +the instructions on the front of this card to vote using the Internet and, +when prompted, indicate that you agree to receive or access proxy materials electronically +in future years. IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. + +0 2 4 4 5 0 2 Using a black ink pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. X 016APA 1 U +PX + PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION +IN THE ENCLOSED ENVELOPE. + A Proposals — The Board of Directors recommends a +vote FOR all the nominees listed and FOR Proposals 2 - 4. For Against Abstain +1. The Nominating and Corporate Governance Committee of the Board of +Directors has nominated the below seven persons to stand for election as +directors. As of the date of the accompanying proxy statement, no one has +been nominated to serve as director other than the nominees listed below. For +Against Abstain Authorized Signatures — This section must be completed for your +vote to be counted. — Date and Sign Below B Please sign exactly as name(s) +appears hereon. Joint owners should each sign. When signing as attorney, +executor, administrator, corporate officer, trustee, guardian, or custodian, +please give full title. Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. Date (mm/dd/yyyy) — +Please print date below. Annual Meeting Proxy Card 01 - Barbara M. Baumann 04 +- William J. Gardiner 07 - William D. Sullivan 02 - Anthony J. Best 05 - +Julio M. Quintana 03 - Larry W. Bickle 06 - John M. Seidl For Against Abstain +For Against Abstain For Against Abstain 4. The proposal to ratify the +appointment by the Audit Committee of Deloitte & Touche LLP as the +Company’s independent registered public accounting firm for 2010. 2. The +proposal to approve an amendment to the Equity Incentive Compensation Plan to +increase the stated total number of shares authorized for issuance under this +plan. 3. The proposal to approve an amendment to the certificate of +incorporation to change the name of the company to “SM Energy Company.” +PLEASE FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. Proxy — St. Mary Land & Exploration Company 1775 Sherman +Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on Behalf +of the Board of Directors For the Annual Meeting of Stockholders on May 26, +2010. The undersigned hereby appoints Anthony J. Best and C. Mark Brannum, or +either of them, each with the power to appoint his substitute, as proxies for +the undersigned to vote all shares of St. Mary Land & Exploration Company +common stock which the undersigned is entitled to vote at the Annual Meeting +of Stockholders to be held on May 26, 2010, and at any reconvened meeting +after any adjornment thereof, as directed on the matters referred to on the +reverse side and at their discretion on any other matters that may properly +be presented at the meeting. This proxy when properly executed will be voted +in the manner directed by the undersigned stockholder. If this proxy is +properly executed but no voting direction is given, this proxy will be voted +“For” all director nominees listed on this proxy, the approval of an +amendment to the Equity Incentive Compensation Plan to increase the stated +total number of shares authorized for issuance under this plan, the approval +of the amendment to the certificate of incorporation to change the name of +the Company to “SM Energy Company,” and the ratification of the appointment +by the Audit Committee of Deloitte & Touche LLP as the Company’s +independent registered public accounting firm for 2010. This proxy also +confers discretionary authority to the proxies to vote on any other matters +that may properly be presented at the meeting. As of the date of the +accompanying proxy statement, St. Mary Land & Exploration Company’s +management did not know of any other matters to be presented at the meeting. +If any other matters are properly presented at the meeting, this proxy will +be voted in accordance with the recommendations of St. Mary Land & +Exploration Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-10-003614/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-10-003614/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ad394ba5a59f4bc35f9621c44850f107369d1aef --- /dev/null +++ b/raw/proxies/0000893538/0001047469-10-003614/proxy_rpt.txt @@ -0,0 +1,34 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +The Company has adopted written policies and procedures for the Audit Committee's review of any transaction, arrangement, or +relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (i) the Company is a participant, +(ii) the aggregate amount involved will or may be expected to exceed $120,000, and (iii) a related person has or will have a direct or indirect material interest. For purposes of this +policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more than five percent of the +Company's outstanding shares of common stock, and (iii) any immediate family member of the foregoing. The Audit Committee approves or ratifies only those transactions that it determines in good +faith are in, or are not inconsistent with, the best interests of the Company and its stockholders. +In +determining whether to approve or ratify a transaction, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, the benefits to the +Company, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the related +person's interest in the transaction. The policy also provides for the delegation of its authority to the Chairman of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +see that they are in compliance with the policy and remain appropriate. +In +addition, the Company's By-Laws provide that a director, officer, or employee of the Company may not pursue for his or her own account a business or investment opportunity +that he or she learned about through his or her affiliation with the Company. The By-Laws also provide that an officer or employee of St. Mary may not pursue for his or her own +account an oil and gas opportunity that he or she independently learned about unless (a) with respect to an officer of St. Mary, the officer's pursuit of the opportunity has been +approved by the Board of Directors, and (b) with respect to a non-officer of St. Mary, the employee's pursuit of the opportunity has been approved by a senior officer of +St. Mary with full knowledge of that opportunity. These restrictions do not apply to the acquisition of less than one percent of the publicly traded stock of another company. +Related Person Transactions +Set forth below is a description of a related transaction between St. Mary and one of its directors during the last fiscal year. +Some of the aspects of this transaction will continue in effect and may result in conflicts of interest between St. Mary and the individual. We cannot assure you that conflicts of interest will +always be resolved in favor of St. Mary. +Mr. Hellerstein, +who retired from the Board of Directors of St. Mary as of May 20, 2009, is a participant in the Net Profits Interest Bonus +Plan ("NPP") as a result of his prior service to the Company as an executive officer, including service as President from 1992 to June 2006 and Chief Executive Officer from 1995 to +February 2007. As a result of Mr. Hellerstein's vested participation interests in the NPP arising from his prior service, the Company made NPP payments to Mr. Hellerstein during +2009 in the total amount of $2,364,053. The Audit Committee has reviewed this relationship and determined that it is not in conflict with the Company's Policies and Procedures with Respect to Related +Person Transactions, since Mr. Hellerstein's NPP participation interests were awarded to him while he was an employee of St. Mary in order to provide for future incentive bonus +compensation for his services as an executive officer. For a description of the NPP, please see the section entitled "Net Profits Interest Bonus Plan (NPP)" in the "Compensation Discussion and +Analysis" section of this proxy statement. +16 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-12-004259/proxy.txt b/raw/proxies/0000893538/0001047469-12-004259/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0424df9479c6772b5089c630a14b43357b885819 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-12-004259/proxy.txt @@ -0,0 +1,3614 @@ +DEF 14A +1 +a2208750zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +April 13, 2012 +Dear +Stockholder: +You +are cordially invited to attend the 2012 Annual Meeting of Stockholders of SM Energy Company, which is to be held in the J.D. Hershner Room of Wells Fargo Bank located at 1700 +Lincoln Street, Denver, Colorado, on Wednesday, May 23, 2012, at 3:30 p.m. local time. +At +the Annual Meeting, you and the other stockholders of record on March 26, 2012, will vote on: +• the election of eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Deloitte & Touche LLP as our independent +registered public accounting firm for 2012; and +• an advisory vote to approve the compensation of our named executive officers. +You +will also have the opportunity to hear reports on our operations and to ask questions of general interest. You can find other, more specific, information about the Annual Meeting in +the accompanying Proxy Statement. You can find detailed information about our company in our 2011 Annual Report to Stockholders, which consists of our Annual Report on Form 10-K for +the fiscal year ended December 31, 2011, and is available on our website, www.sm-energy.com. +Pursuant +to United States Securities and Exchange Commission rules, we may provide you with access to our proxy materials via the Internet. As a result, many beneficial owners of our +stock will be receiving a Notice of Internet Availability of Proxy Materials (the "Notice") instead of a paper copy of the accompanying Proxy Statement and our 2011 Annual Report to Stockholders. The +Notice contains instructions on how to access those documents via the Internet. The Notice also contains instructions on how to request a paper copy of our proxy materials, including the accompanying +Proxy Statement, our 2011 Annual Report to Stockholders, and a form of proxy card. We will mail printed proxy materials to all stockholders of record. +You +may vote your shares by using the telephone or Internet voting systems described on the Notice or the proxy card. If you receive a printed copy of a proxy card by mail, you may +submit your proxy card by completing and signing the proxy card and returning it promptly. This will ensure that your shares are represented at the Annual Meeting even if you cannot attend. +If +you have any questions concerning the Annual Meeting or the above proposals and you are the stockholder of record of your shares, please contact our Corporate Secretary at +(303) 861-8140. If your shares are held by a bank, broker, or other nominee, rather than in your own name (that is, in "street name"), please contact your bank, broker, or other +nominee for questions concerning the Annual Meeting or the above proposals. If you are the stockholder of record of your shares and have questions regarding your stock ownership, please contact our +transfer agent, Computershare Trust Company, Inc., by telephone at (303) 262-0600. +We +hope to see many of you at our Annual Meeting in Denver. +Very truly yours, +Anthony J. Best +Chief Executive Officer and President +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +WEDNESDAY, MAY 23, 2012 +To All Stockholders: +The +2012 Annual Meeting of Stockholders of SM Energy Company is to be held in the J.D. Hershner Room of Wells Fargo Bank located at 1700 Lincoln Street, Denver, Colorado, on +Wednesday, May 23, 2012, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2012; +3. hold +an advisory vote to approve the compensation of our named executive officers; and +4. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on March 26, 2012, may vote at the Annual Meeting. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. +By Order of the Board of Directors, +David W. Copeland +Senior Vice President, General Counsel and Corporate Secretary +Denver, +Colorado +April 13, 2012 +Table of Contents +TABLE OF CONTENTS +Page +General +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +1 +Differences Between Stockholders of Record and Street Name +Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +4 +Other Available Information +4 +Stockholders Sharing the Same Address +4 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +6 +Communications with the Board +7 +Board and Committee Meetings +7 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +11 +Policies and Procedures on Transactions with Related Persons +11 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +13 +Section 16(a) Beneficial Ownership Reporting Compliance +15 +Executive Compensation +16 +Compensation Discussion and Analysis +16 +Compensation Committee Report +32 +Executive Compensation Tables +33 +Equity Compensation Plans +38 +Potential Payments Upon Termination or Change of Control +39 +Director Compensation +41 +Compensation Committee Interlocks and Insider Participation +43 +Proposal 1—Election of Directors +43 +Proposal 2—Ratification of the Appointment of Deloitte & +Touche LLP as our Independent Registered Public Accounting Firm for 2012 +48 +Proposal 3—Advisory Vote on Executive Compensation +49 +Report of the Audit Committee +51 +Independent Registered Public Accounting Firm +52 +Audit Committee Preapproval Policy and Procedures +52 +Stockholder Proposals for the 2013 Annual Meeting of +Stockholders +53 +2011 Annual Report +53 +Other Matters +54 +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +(303) 861-8140 +PROXY STATEMENT +GENERAL +Background +This Proxy Statement contains information about the 2012 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company to +be held in the J.D. Hershner Room of Wells Fargo Bank located at 1700 Lincoln Street, Denver, Colorado, on Wednesday, May 23, 2012, at 3:30 p.m. local time. Our Board of Directors +("Board") is using this Proxy Statement to solicit proxies for use at the Annual Meeting. In this Proxy Statement, the terms "we," "us," and "our" refer to SM Energy Company, inclusive of its +subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our 2011 Annual Report to Stockholders, which consists of our Annual Report on +Form 10-K for the fiscal year ended December 31, 2011 ("2011 Annual Report"), are being distributed and made available on or about April 13, 2012. In accordance with +rules and regulations adopted by the U.S. Securities and Exchange Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of +Internet Availability of Proxy Materials (the "Notice") will be mailed by intermediaries on or about April 13, 2012, to beneficial owners of our stock. Stockholders will have the ability to +access the proxy materials on a website referred to in the Notice or request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also +provide instructions on how to vote your shares. The proxy materials are being mailed to all stockholders of record on or about April 13, 2012. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of eight individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Deloitte & Touche LLP as our independent +registered public accounting firm for 2012; +• an advisory vote to approve the compensation of our named executive officers; and +• the transaction of such other business that may properly come before the Annual Meeting or any adjournment(s) or +postponement(s) thereof. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the first three items noted above. +Who Can Vote +Only stockholders of record at the close of business on the record date, March 26, 2012, are entitled to receive notice of the +Annual Meeting and to vote shares of our common stock held on that date. As of March 26, 2012, there were 64,149,203 shares of our common stock issued and outstanding, +1 +Table of Contents +net +of 81,067 shares held in treasury. Holders of our common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee rather than directly in their own name (that is, in "street +name"). As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered +directly in your name with our transfer agent, Computershare Trust Company, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you +have the right to grant your voting proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a +brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee +how to vote and are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a +signed proxy from the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the Internet, by telephone or by mailing +a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card you must, sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified, the proxies will be voted as +follows: +• FOR the election of the eight nominees named in this Proxy Statement under the caption "Proposal 1—Election of +Directors"; +• FOR the ratification of the appointment by our Audit Committee of Deloitte & Touche LLP as our independent +registered public accounting firm for 2012; +• FOR the advisory approval of the compensation of our named executive officers; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the +Annual Meeting. +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other nominee and you have not elected to +receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed voting instruction card provided by the bank, broker +or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. If Internet or telephone voting is unavailable from your +bank, broker or other nominee, please complete and return the enclosed voting instruction card in the prepaid and addressed envelope provided. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +2 +Table of Contents +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is exercised +by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet +voting procedures before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke +any previously submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, +which are located at 1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our +outstanding shares of common stock are present at the Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a +quorum. Shares held by us as treasury shares are not entitled to vote and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote +your shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for it has discretionary authority under the +rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from +you. When a bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your +shares, and the bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a "broker non-vote" results. Although any broker non-vote +would be counted as present at the meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ) and Proposal 3 ( Advisory Vote on Executive Compensation ), +and your shares will be considered "broker non-votes" with respect to these proposals. If your shares are held in street name and you do not give voting instructions, the record holder +will nevertheless be entitled to vote your shares with respect to Proposal 2 ( Ratification of Appointment of Deloitte & +Touche LLP as our Independent Registered Public Accounting Firm for 2012 ) in the discretion of the record holder. +3 +Table of Contents +• Proposal 1 ( Election of Directors ): Our Restated By-Laws (our +"By-Laws") provide that the election of directors shall be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled +to vote. In order for a director nominee to be elected, the number of votes cast "For" the nominee must exceed the number of votes cast "Against" such nominee. Abstentions will be counted in +determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes will have no effect on +the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Deloitte & Touche LLP as Our Independent +Registered Public Accounting Firm for 2012 ): Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the +fiscal year ending December 31, 2012, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. +Abstentions will be counted in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this +proposal requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining +the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the +vote on this proposal. While this vote is required by law, it will neither be binding on us or the Board, nor will it create or imply any change in the fiduciary duties of, or impose any additional +fiduciary duty on, us or the Board. However, the Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors LLC to assist in the solicitation of proxies for +an estimated fee of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via +the Internet. In addition, our officers, directors, and employees may also solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and +employees will not be additionally compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse +brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in +forwarding solicitation material to such beneficial owners. +Other Available Information +We make available through the Corporate Governance section of our website the following documents: our Corporate Governance Guidelines; +our Code of Business Conduct and Ethics (the "Code"); and the charters for the Audit, Compensation, Executive, and Nominating and Corporate Governance Committees of our Board. These documents will be +furnished in print to any stockholder upon request. Information on our website is not incorporated by reference into this Proxy Statement and should not be considered part of this document. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same +address and last name will receive only one copy of our Notice of Internet Availability, 2011 Annual Report, and Proxy Statement until such time as one or +4 +Table of Contents +more +of these stockholders notifies us that they want to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue +to have access to and may utilize separate proxy voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2011 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will promptly +send you what you have requested. You can also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to +receive a single copy in the future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other +nominee. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 23, 2012 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2012 Annual Meeting of Stockholders, and the 2011 Annual Report to Stockholders, which includes the Annual +Report on Form 10-K for the fiscal year ended December 31, 2011, are available at http:// www.proxyease.com/sm-energy/2012 +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its +committees, our Corporate Governance Guidelines and the Code. These documents provide the framework for our corporate governance. A complete copy of the current version of each of these documents is +available on our website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate +Secretary. The Board regularly reviews corporate governance developments and modifies our governance documents as appropriate. +The +Code, which applies to all directors, employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or +persons performing similar functions, requires that any exception to or waiver for an executive officer or director be made only by the Board and disclosed as required by law, SEC rules and +regulations, and NYSE rules. Changes to, or waivers from, the Code for any of our executive officers or directors will be disclosed on our website at www.sm-energy.com within two business days after +such change or waiver. To date, our Board has neither received any requests for, nor +granted, waivers of the Code for any of our executive officers or directors. +Board and Committee Independence +The Board is comprised of a majority of independent directors. The Board has determined that Barbara M. Baumann, Larry W. Bickle, +Stephen R. Brand, William J. Gardiner, Julio M. Quintana, John M. Seidl and William D. Sullivan are independent and do not have any material relationship with us other than as a director and +stockholder. In its review of the independence of these directors, the Board considered past employment, remuneration, and any other relationship with us. In making its determination as to the +independence of its members, the Board considered the independence tests described in Section 303A.02 of the Corporate Governance Standards of the NYSE's Listed Company Manual. +In +making its determination as to Mr. Quintana's independence, the Board considered our relationship with Tesco Corporation ("TESCO"), which is discussed in more detail in the +"Related Person Transactions" section below. In 2006, we entered into an agreement with TESCO for which Mr. Quintana serves as an employee, executive officer, and director. Under our agreement, +TESCO provides certain drilling and casing technology services to us. In 2011, we paid TESCO $1,029,665, which represented less than 1% of TESCO's total reported 2011 revenues of +$513.0 million, and as of March 31, 2012, we had paid TESCO $172,495 for services in 2012. Mr. Quintana had no input or involvement in our selection of TESCO for these services, +and our selection was based on TESCO's industry-recognized ability to supply specific high quality tools and services for drilling and casing needs, which are particularly well suited for certain of +our operations. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +Board Leadership Structure +Since February 2007, our Board's leadership structure has separated the roles of Chief Executive Officer and Chairman of the Board. +Mr. Sullivan, an independent director with over eight years' experience serving on the Board, experience serving on several other public company boards, and over 30 years of experience +working with oil and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board, and Anthony J. Best serves as our Chief Executive Officer. +6 +Table of Contents +Our +Board believes that this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; facilitating +communications among the directors; setting the Board meeting agenda in consultation with the Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and serving as a +liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of our Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our Board evaluates our leadership structure to determine whether our Board continues to believe that it provides +the optimal structure for us and our stockholders at that time. While recognizing that different board leadership structures can be appropriate at different times and under different circumstances, +our Board has determined that our current leadership structure is preferable, with Mr. Best serving as our Chief Executive Officer, and Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director position, which is Mr. Bickle, who assumed such role on +January 1, 2012, upon our Board's appointment of him as Chair of its NCG Committee. The lead independent director is responsible for presiding at executive sessions of +non-management directors, which typically meet immediately before or after each regularly scheduled meeting of the Board or as deemed necessary. In the lead independent director's absence, +the Chairman of the Board serves as lead independent director. +The +Board has seven independent members and only one non-independent member, our Chief Executive Officer. A number of our independent Board members are currently serving or +have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As discussed above, our +Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, qualifications, +attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director nominee's +biographical information below. The number of independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their respective Board committees, +and the overall leadership of the Board by the Chairman of the Board benefits us and our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company and its operations. Interested parties and stockholders may contact the +Board as a whole, non-management directors, or any one or more specified individual directors by sending a letter to the intended recipients' attention in care of SM Energy Company, +Corporate Secretary, 1775 Sherman Street, Suite 1200, Denver, CO 80203. All such communications will be forwarded to the Chair of the NCG Committee, who shall facilitate the review of such +communications. +Board and Committee Meetings +Our Board met 11 times during 2011. Each incumbent director participated in at least 90% of the Board meetings and 100% of his or her +appointed committee meetings held during the director's tenure on the Board in 2011. It is our policy that each director is expected to attend the annual meeting of our stockholders, and each director +attended the 2011 Annual Meeting of Stockholders. +Our +Board has an Audit Committee, a Nominating and Corporate Governance Committee, a Compensation Committee, and an Executive Committee. Our Board and each of its committees, other than +our Executive Committee, which did not meet during 2011, separately evaluated their respective +7 +Table of Contents +performance +for 2011 and completed written evaluations. The performance evaluation process was directed by the NCG Committee and the evaluations were discussed and accepted by the Board. +The +following table identifies the members of each committee, as of December 31, 2011, and sets forth the number of meetings held in 2011: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X +* +X +Anthony J. Best +X +Larry W. Bickle +X +X +Stephen R. Brand +X +X +William J. Gardiner +X +* +X +Julio M. Quintana +X +John M. Seidl +X +X +* +William D. Sullivan +X +X +X +* +Number of meetings held in 2011 +7 +2 +9 +0 +* Chair +As +a result of the NCG Committee's annual review of the membership of each committee of the Board, the NCG Committee recommended certain changes to the membership of the Audit +Committee, the Compensation Committee and the NCG Committee. The Board approved and adopted these changes, effective as of January 1, 2012. +The +following table sets forth the membership of each committee, as of January 1, 2012: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X +* +X +Anthony J. Best +X +Larry W. Bickle +X +X +* +Stephen R. Brand +X +X +William J. Gardiner +X +* +X +Julio M. Quintana +X +X +John M. Seidl +X +William D. Sullivan +X +* +* Chair +The +Audit Committee assists the Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Audit Committee members are prohibited +from serving on more than three audit committees of public companies. The Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm +and reviews our quarterly and annual financial results. The Audit Committee reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of the +auditors, the range of audit fees, the scope and adequacy of our system of internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight +responsibility for our internal audit functions and any related party transactions. The Audit Committee is currently composed of three +directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy Statement. While all of the Audit Committee members +8 +Table of Contents +are +considered financially literate, the Board has determined that one of the three members of the current Audit Committee, Mr. Gardiner, is an audit committee financial expert as the term is +defined by the SEC. As described above, Mr. Gardiner is also independent. +The +NCG Committee's primary function is to nominate individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of all +committees of the Board, and to oversee all of our corporate governance functions. For additional information on the functions performed by the NCG Committee, see "Director Nominations and +Qualifications" below. +The +Compensation Committee's primary function is to oversee the administration of our employee benefit plans and to establish and administer our compensation policies. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements for our senior management and directors, adoption of compensation plans in which our officers and directors are eligible +to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy Statement describes these +responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are not +in conflict with our Certificate of Incorporation, our By-Laws or applicable laws, regulations, or rules or the listing standards of the NYSE. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is +responsible for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current +Board leadership structure, with Mr. Sullivan serving as our Chairman of the Board and Mr. Best serving as our Chief Executive Officer, supports this approach by facilitating +communication between management and the Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more +efficiently facilitates communication of the views of the independent directors, and contributes to effective corporate governance. +We +maintain an Enterprise Risk Management Committee comprised of our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, General Counsel, Vice +President—Human Resources, and Treasurer. The committee meets quarterly to update our enterprise risk management profile (the "ERM Document"), utilizing the Committee of Sponsoring +Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during business strategy sessions. Risk prevention or mitigation steps are +documented for the material risks identified based upon projected likelihood and impact of any occurrence of the particular risk. The ERM Document is reviewed with our Board annually. +We +also maintain a Financial Risk Management Committee comprised of our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Treasurer and Vice +President—Engineering and Evaluation. The committee meets quarterly and more frequently, as necessary, to discuss our interest rate and commodity hedging activities and, as appropriate, to +approve additional hedges. Minutes of these meetings are recorded, and the activities of the Committee are regularly reported to the Audit Committee. +9 +Table of Contents +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the specific guidelines and +policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include a review of our oil and natural gas commodity price hedging +arrangements, interest rate risk management, and insurance coverage, as appropriate. In addition, our internal auditors, who +report directly to the Audit Committee with respect to internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes. The Audit Committee +also has oversight responsibility for the integrity of our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with +legal and regulatory requirements. In addition, the Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage excessive risk-taking. The +Audit Committee and Compensation Committee report regularly to the full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying +and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee performed its evaluation and nominating functions during 2011 and early 2012. The NCG +Committee selects a nominee based on the nominee's skills, achievements, and experience. As set forth in the director qualification standards included in our Corporate Governance Guidelines and +reflected in the discussion below, the Board as a whole should have broad and relevant experience in high-level business policymaking and a commitment to represent the +long-term interests of our stockholders. These standards also provide that each director should have experience in positions of responsibility and leadership, an understanding of our +business environment, and a reputation for integrity. In addition, the Corporate Governance Guidelines provide that a director who retires or experiences a significant change in his or her +professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested by the NCG Committee, be prepared to offer his +or her resignation from the Board. Upon tender of a resignation, the NCG Committee and the Board may review the continued appropriateness of Board membership under the circumstances. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a +director for reelection, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee considers suggestions from incumbent directors, management, stockholders, and others. The NCG Committee screens all potential +candidates in the same manner regardless of the source of the recommendation. The NCG Committee has authority under its charter to retain a search firm for this purpose. If the NCG Committee believes +a candidate would be a valuable addition to the Board, it recommends his or her candidacy to the Board. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity in identifying director nominees, the NCG Committee considers the Board as a whole, without reference to specific representative directors, with the overall objective of +establishing a group of directors that +10 +Table of Contents +reflects +diversity, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that the current Board members +and director nominees reflect our commitment to diversity. Out of a total of eight directors, we currently have one female director and one Hispanic director, each of whom has served on the Board for +several years. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4(g) of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose +behalf the proposal is made, if any), the name and address of the stockholder and specific information concerning such stockholder's interests in our securities. In addition, the notice must include +the recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and the proposed nominee and a written questionnaire +completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for copies should be directed to our Corporate Secretary. +For additional information about stockholder nominations, including nominations for the 2012 Annual Meeting of Stockholders, see "Stockholder Proposals for the 2012 Annual Meeting of Stockholders." No +stockholder director nominations were received in connection with the Annual Meeting. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +We have adopted a Related Person Transactions Policy (the "Related Person Policy"), which sets forth the policies and procedures for +the Audit Committee's review of any transaction, arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or +relationships in which (a) we are a participant, (b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have +a direct or indirect material interest. For purposes of the Related Person Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, +(ii) any stockholder that beneficially owns more than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee +approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, +the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the +related person's interest in the transaction. The policy also provides for the delegation of Audit Committee authority to the Chair of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +ensure that they are in compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he +or she learned about through his or her affiliation with us. Our By-Laws also provide that our officers or employees may not pursue for his or her own account an oil and gas opportunity +that he or she independently learned about unless (a) with respect to an officer, the officer's pursuit of the opportunity has been approved by the Board, and (b) with respect to a +non-officer, the employee's pursuit of the opportunity has been approved by one of our senior officers with full knowledge of that opportunity. These restrictions do not apply to the +acquisition of less than 1% of the publicly traded stock of another company. +11 +Table of Contents +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders, including but not limited to, +situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources or when we provide products or services +to related persons on an arm's length basis on terms comparable to those provided to unrelated third parties or on terms comparable to those provided to employees generally. Set forth below is a +description of all transactions between our company and related persons since the beginning of January 1, 2011: +Mr. Quintana +is the President, Chief Executive Officer, and a director of TESCO, which designs, manufactures, and delivers technology based solutions for the upstream energy industry, including +oilfield drilling and completion technology, services, and equipment. We have an agreement with TESCO for its provision of services to us in connection with our drilling and completion operations. +This agreement continues until canceled by either us or TESCO on 30 days advance written notice. Pursuant to this agreement, we are obligated to pay TESCO only for services actually performed +or equipment delivered, as the case may be. This agreement does not require us to make any other payments to TESCO. Mr. Quintana does not have any direct or indirect interest in the +transaction, other than as a result of serving as an executive officer and director of TESCO. Prior to 2010, the services provided by TESCO and the amounts we paid did not exceed the threshold amount +for review under our Related Person Policy. In 2010, we paid TESCO $346,683 for any services rendered. In 2011, we paid TESCO $1,029,665 for services rendered. As of March 31, 2012, we had paid +TESCO $172,495 for services rendered during 2012. In accordance with our Related Persons Transaction Policy, based upon these amounts, the Audit Committee reviewed the relationship between us and +TESCO and determined that the relationship is in our best interests and the best interests of our stockholders. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known by us as of March 15, 2012, by all +beneficial owners of more than 5% of the outstanding shares of our common stock as of March 15, 2012, by each director, director nominee, and named executive officer, and all directors and +executive officers as a group. Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted stock +units and performance share units. A supplemental table has been included later in this section describing the number of restricted stock units and performance share units owned by the individuals +described below. +Name of Beneficial Owner +Shares +beneficially +owned, +excluding +options +Options +exercisable +within 60 days +of 3/15/2012 +Total shares +beneficially +owned (1) +Percent +beneficially +owned (2) +Name and Address of Stockholders Owning More Than 5% +BlackRock, Inc. (3) +6,132,358 +— +6,132,358 +9.6 +% +40 East 52 nd Street +New York, NY 10022 +Goldman Sachs Asset Management (4) +3,818,930 +— +3,818,930 +6.0 +% +200 West Street +New York, NY 10282 +T. Rowe Price Associates, Inc. (5) +3,664,270 +— +3,664,270 +5.7 +% +100 East Pratt Street +Baltimore, MD 21202 +Name and Position of Directors, Director Nominees and Named Executive Officers +Barbara M. Baumann, Director +32,148 +34,586 +66,734 +* +Larry W. Bickle, Director +105,286 +34,586 +139,872 +* +Stephen R. Brand, Director +2,784 +— +2,784 +* +William J. Gardiner, Director +45,148 +21,200 +66,348 +* +Julio M. Quintana, Director +26,093 +— +26,093 +* +John M. Seidl, Director +8,370 +— +8,370 +* +William D. Sullivan, Director +49,551 +— +49,551 +* +Anthony J. Best, Chief Executive Officer, President and Director +71,961 +— +71,961 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +17,630 +— +17,630 +* +Javan D. Ottoson, Executive Vice President and Chief Operating Officer +24,858 +— +24,858 +* +David W. Copeland, Senior Vice President, General Counsel and Corporate Secretary +26,093 +— +26,093 +* +Paul M. Veatch, Senior Vice President and Regional Manager +— +— +— +* +All executive officers and directors as a group (18 persons, including those named above) +474,948 +99,512 +574,460 +* +* Less +than 1%. +13 +Table of Contents +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and any +shares that the individual has the right to acquire within 60 days of a date reasonably selected by us, through the exercise of any stock option or other right. We selected March 15, +2012, as the determination date. +(2) Based +on an aggregate of 64,148,874 shares of common stock outstanding as of March 15, 2012. +(3) According +to a Statement on Schedule 13G filed by BlackRock, Inc. ("BlackRock") on February 8, 2012, by reason of +advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 6,132,358 shares, with shared voting power as to zero +shares, shared dispositive power as to zero shares, and sole voting power as to 6,132,358 shares and sole dispositive power as to 6,132,358 shares. +(4) According +to a Statement on Schedule 13G filed by Goldman Sachs Asset Management ("Goldman") on February 10, 2012, by reason of +advisory and other relationships with persons who own shares of our common stock, Goldman may be deemed to be the beneficial owner of a total of 3,818,930 shares, with shared voting power as to +3,818,930 shares, shared dispositive power as to 3,818,930 shares, and sole voting power as to zero shares and sole dispositive power as to zero shares. +(5) According +to a Statement on Schedule 13G filed by T. Rowe Price Associates, Inc. ("T. Rowe") on February 13, 2012, by +reason of advisory and other relationships with persons who own shares of our common stock, T. Rowe may be deemed to be the beneficial owner of a total of 3,664,270 shares, with shared voting power as +to zero shares, shared dispositive power as to zero shares, and sole voting power as to 828,970 shares and sole dispositive power as to 3,664,270 shares. +Restricted Stock Units and Performance Share Units +Restricted Stock Units ("RSUs") represent the right to receive shares of stock to be delivered upon settlement, subject to risk of +forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash +dividends and other distributions paid in cash on our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +We +began issuing RSUs on June 30, 2004, to eligible officers and key employees following the approval of our Restricted Stock Plan by our stockholders. Grants of RSUs were made +annually under the Restricted Stock Plan in 2004 and 2005. In 2006 and 2007, RSU grants were made under our stockholder approved Equity Incentive Compensation Plan (the "Equity Plan"), subject to our +performance criteria. These grants were made in the first quarter immediately following each year-end. In June 2008, we issued certain transitional RSUs in connection with the cessation of +the Net Profits Interest Bonus Plan ("NPP"), and on August 1, 2009, as part of our Long Term Incentive Plan ("LTIP") under the Equity Plan, we issued a percentage of that year's awards as RSUs. +In both 2010 and 2011, we also issued RSUs as part of our LTIP awards. Neither the transitional RSUs nor the LTIP RSU awards were subject to performance criteria. We have also issued RSUs to +Mr. Best under the terms of his employment contract. +Performance +Share Units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of +our common stock that may be from zero to two times the number of PSUs granted on the award date, depending on the extent to which we have achieved our performance goals and the extent to which the +PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends or other distributions paid in cash on our common stock. +We +began granting PSUs under the Equity Plan to eligible officers and key employees on August 1, 2008. +14 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 15, 2012. The PSUs listed below represent the right to receive, upon settlement of the PSUs after the completion of the three-year performance periods ending June 30, +2012, June 30, 2013, and June 30, 2014, a number of shares of our common stock that may vary from zero to two times the number of PSUs indicated, which were granted on the respective +award dates, depending on the extent to which we have achieved certain performance goals during a certain performance period and the extent to which the PSUs have vested. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Barbara M. Baumann +— +— +— +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +William J. Gardiner +— +— +— +Julio M. Quintana +— +— +— +John M. Seidl +— +— +— +William D. Sullivan +— +— +— +Anthony J. Best +30,508 +119,920 +27,735 +A. Wade Pursell +13,257 +54,600 +14,530 +Javan D. Ottoson +15,049 +65,793 +17,283 +David W. Copeland +7,139 +3,957 +— +Paul M. Veatch +6,686 +28,385 +8,178 +All executive officers and directors as a group (18 persons, including those named above) +100,336 +373,400 +95,456 +(1) PSUs +granted on August 1, 2009, vested one-seventh on August 1, 2010 and two-sevenths on +August 1, 2011. PSUs granted on July 1, 2010, vested one-seventh on July 1, 2011. The amounts shown reflect the vested portion of the PSUs owned by each director, +named executive officer and all directors and executive officers as a group. The actual number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary +from zero to two times the number of PSUs indicated, depending on the extent to which we have achieved our performance goals. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of our common stock +must report their initial ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has designated specific +deadlines for these reports and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2011 under Section 16(a) under the Exchange Act, except that Mr. Pursell inadvertently failed to timely report +one transaction involving a charitable gift of 267 shares of our common stock. A Form 4 reporting Mr. Pursell's gift was filed after the error was discovered. +15 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the compensation programs for our Chief Executive Officer, Chief Financial Officer and each of our three other +most highly compensated executive officers employed at the end of the 2011 fiscal year, who we collectively refer to in this "Executive Compensation" section as our "NEOs" or "Named Executive +Officers." Our NEOs for fiscal 2011 are: +• Anthony J. Best, Chief Executive Officer and President; +• A. Wade Pursell, Executive Vice President and Chief Financial Officer; +• Javan D. Ottoson, Executive Vice President and Chief Operating Officer; +• David W. Copeland, Senior Vice President, General Counsel and Corporate Secretary; and +• Paul M. Veatch, Senior Vice President and Regional Manager. +Executive Summary +Our leadership and culture encourage long-term stockholder value creation, not short-term stockholder value +maximization. We evaluate performance using both quantitative and qualitative factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced +mix of base salary, annual cash incentives through our Short Term Incentive Plan ("STIP"), and long-term equity incentives through our LTIP. Our base salary program provides a level of +income that does not vary with our performance. We balance incentives tied to short-term annual performance with incentives tied to our multi-year performance. In this way, our +executives are motivated to consider the impact of decisions over the short, intermediate, and long term. The performance metrics used in our annual STIP include those we believe are the key drivers +of long-term stockholder value creation: production volume; proved developed reserve additions; finding and development costs; cash flow; net income; environmental, health, and safety +goals; and exploration success and inventory growth. In addition, the program is not completely formulaic because the Compensation Committee has the discretion to adjust bonuses based on the "quality" +of the results as well as individual performance and behavior, and has used that discretion to adjust calculated bonuses in the past. +In +2011, our strong financial and operational performance significantly advanced our goal of long-term stockholder value creation. We exceeded our STIP annual targets with +respect to four out of five quantitative metrics: +• we achieved 117% of our target production volume, with 169.7 BCFE +produced — a new Company record; +• we added 372.4 BCFE to our proved developed reserves (as adjusted for performance revisions and our transition to +reporting our production on a three-stream basis), or 148% of our 251.7 BCFE target — a new Company record; +• we exceeded our cash flow target by $195.7 million, with total cash flow of $865.3 million, or 129% of our +$669.6 million target — a new Company record; and +• we limited our finding and development costs to $4.12 per MCFE, beating our target by 2%. +We +missed, by approximately 7%, our target with respect to our fifth quantitative metric, net income, primarily due to end-of-year impairments driven by low +natural gas prices, which broadly affected our industry. We viewed our performance with respect to our qualitative metric for exploration success and inventory growth as neutral, with substantial +increases in acreage acquired, but with fewer +16 +Table of Contents +exploration +tests than expected. Further, we did not achieve all of our goals for our qualitative metric pertaining to environmental, health and safety performance. +Our +strong overall performance influenced the Compensation Committee to pay actual 2011 bonuses for the NEOs substantially above their target bonus amounts. +Our +current LTIP uses a combination of service-vesting restricted stock units (RSUs) and performance-based share units (PSUs). We believe these types of long-term incentives +appropriately balance risk and reward, because such units have both upside potential and downside risk. The performance measures used in our LTIP balance our absolute total stockholder return, as well +as our total stockholder return relative to our peers, over the long-term. We have outstanding stock options, but we discontinued granting stock options to employees after December 2003 +and to directors after December 2004. We believe that long-term incentive programs that overemphasize stock options could contribute to both risk-taking and a disproportionate +focus on short-term share price increases, especially if stock options become "underwater" (i.e., the option exercise price is above the then current share price). Underwater +options could arguably encourage executives to take risks in attempts to increase share price; in such cases, options have upside opportunity, but no downside risk. +Our +executive compensation program incorporates the following: +• The majority of our executive compensation is variable and linked to meeting our short-term and +long-term financial and strategic goals and to creation of long-term stockholder value. +• Executives receive a significant portion of their compensation in the form of equity and are subject to meaningful stock +ownership guidelines to further align their interests with those of our long-term stockholders. +• The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by the Compensation +Committee's compensation consultant, to ensure they are designed appropriately and do not encourage excessive risk taking. +We +do not have severance packages that mitigate consequences of poor performance. With the exception of our Chief Executive Officer, Mr. Best, we typically do not provide +severance benefits in the event of termination without cause not related to a change of control. Mr. Best receives severance benefits only in the event of a termination without cause and such +benefits are reasonable compared to current industry practice. All executive severance benefits related to a change of control require a "double-trigger," meaning they require first that a qualifying +change of control event has occurred, and +second that the executive has been involuntarily or constructively terminated. We do not provide golden parachute excise tax "gross-ups." +With +the exception of a supplemental executive retirement plan (the "SERP"), which is intended to provide benefits similar to those received by all employees but with respect to income +above the Internal Revenue Code ("IRC") limit, the benefits provided to the NEOs are the same as those provided to all employees. Supplemental executive benefits, including disability and life +insurance, were discontinued in July 2010. +Stockholder Advisory Voting on Compensation +On May 25, 2011, we held our 2011 Annual Meeting of Stockholders. At that meeting, our stockholders were provided the +opportunity to cast non-binding advisory votes on (a) the compensation of our NEOs, and (b) the frequency with which our stockholders should be provided the opportunity to +vote on the compensation of our NEOs in the future. Over 99% of votes cast by stockholders at the meeting were voted to approve the compensation of our NEOs, following the recommendation of our Board, +and approximately 67% of votes cast were voted in favor of a one-year frequency for future advisory votes on compensation. Consistent with these results, our Compensation Committee applied +a +17 +Table of Contents +similar +compensation philosophy when setting 2012 executive compensation and our Board determined to conduct annual advisory votes on compensation in the future. +Objectives of Executive Compensation Program +Our overall executive compensation program is designed to promote superior returns for our stockholders through the preservation, +development and growth of our oil, natural gas and natural gas liquid assets. The objectives of our executive compensation program are to: +1. Provide +competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented management. +Our +pay philosophy is to target overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, our compensation +program corresponds to the median of our industry peer group (see "Compensation Determination Process" for further detail). Actual compensation earned by a particular individual may be above or below +the target level based on company and individual performance measured against the established metrics of our incentive compensation programs. +2. Link +compensation earned to the achievement of our short-term and long-term financial and strategic objectives. +We +believe that the proportion of total compensation that is performance-based, and therefore "at risk," should increase with an individual's level of responsibility. Our compensation system is +designed to provide the appropriate level of balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this +end, our STIP rewards annual operating and financial performance in terms of quantitative measures of cash flow, net income, production volume, proved reserve growth, finding and development costs, +and discretionary qualitative measures of environmental, health, and safety and exploration success and inventory growth (see "Elements of Compensation—Short-Term Incentive +Plan"). Our LTIP rewards total stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies (see "Elements of +Compensation—Long-Term Incentive Plan"). +3. Align +performance incentives with the long-term interests of our stockholders. +Alignment +of long-term interests between stockholders and management is achieved by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that encourage executives to have a meaningful ownership stake over their tenure. In addition, the metrics used for our STIP include those we believe drive +long-term value creation, while realized compensation under our LTIP is aligned with absolute and relative returns realized by our stockholders. +4. Ensure +programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs (e.g., salary increases, bonus payments, and equity compensation grants), our +Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation, expected accounting treatment, potential stockholder dilution, and the impact on +our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most financially efficient manner possible, and that satisfy our +other objectives. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the IRC, compensation in excess of $1.0 million per +18 +Table of Contents +year +paid to certain of our NEOs is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as defined in Section 162(m). Our STIP and +LTIP are administered so that compensation awarded and paid to our NEOs is intended to be "performance-based" under Section 162(m) and therefore fully tax-deductible; however, the +Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility requirements. +5. Uphold +high standards of good corporate governance and strive to achieve evolving best practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. +("F. W. Cook"), stays abreast of current and developing corporate governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it +deems appropriate, to reflect best practices and/or new legislation. +Compensation Determination Process +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and our Compensation Committee, as discussed below. The Compensation Committee is +comprised of three independent directors and operates under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the purposes +of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; +• reviewing the performance and approving the compensation of our Chief Executive Officer; +• reviewing and approving the base salary compensation for our executive officers other than our Chief Executive Officer; +and +• reviewing and approving the STIP and LTIP awards to our executive officers. +In +2011, the Compensation Committee met nine times to review and administer the matters noted above and other related matters. +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company +Manual, the members of the Compensation Committee are independent. +Independent Compensation Consultants +Since 2007, the Compensation Committee has engaged F. W. Cook as its independent executive compensation consultant. F. W. Cook reports +directly to the Compensation Committee and the Compensation Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems necessary. A principal of F. W. Cook attends +Compensation Committee meetings, as requested, and communicates with the Compensation Committee between meetings. The services F. W. Cook provides include advising the Compensation Committee on the +design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis +19 +Table of Contents +regarding +the competitiveness of our executive compensation opportunities, compensation risk assessments and equity compensation practices of our peers. To facilitate the delivery of these services to +the Compensation Committee, F. W. Cook interfaces with our management, in particular the Vice President—Human Resources. F. W. Cook does not provide directly, or indirectly through +affiliates, any non-executive compensation services, such as pension consulting or human resource outsourcing, to us or any other clients. The total consulting fees we pay to F. W. Cook +are less than 1% of the total annual revenues of F. W. Cook, and F. W. Cook consultants working with us are prohibited from owning any of our shares of common stock directly, although such shares may +be +owned within mutual funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known personal relationship with any of our officers, directors, stockholders or employees +that would present a potential conflict to their independence. F. W. Cook has agreed to advise the Compensation Committee if any potential conflict of interest arises that could cause F. W. Cook's +independence to be questioned and not to undertake any project for our management, except at the request of the Compensation Committee and as agent for the Compensation Committee. In 2011, F. W. Cook +did not provide any services to us other than those requested by the Compensation Committee and related to F. W. Cook's engagement as the independent consultant to the Compensation Committee. +Compensation Risk Assessment +Each year, the Compensation Committee performs a compensation risk assessment. In 2010 and again in 2011, the Compensation Committee +has determined that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on us. The Compensation Committee conducts +an annual review and evaluation of our compensation policies and practices for all employees to determine whether and to what extent, if any, our policies and practices of compensating our employees +could result in risk taking incentives, and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us. In its +most recent review and evaluation, the Compensation Committee considered a compensation risk assessment performed by F.W. Cook, in addition to its annual review of our compensation policies and +practices. F.W. Cook and the Compensation Committee determined that our compensation policies and practices do not encourage behaviors that would create a material risk to us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and Vice President—Human Resources, management provides recommendations +to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than himself based on +competitive market data, internal fairness between executives, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee by providing +information on historical compensation levels, employee evaluations, analyzing comparative industry data, and interfacing with F. W. Cook. While members of the management team attend Compensation +Committee meetings, they are not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective compensation. The +Compensation Committee and the Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our +executive officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for selection of +20 +Table of Contents +peer +companies include standard measures such as revenues, assets, number of employees, and enterprise value, as well as several industry-specific criteria such as annual production volume, fiscal +year-end reserves, total costs incurred in oil and gas activities, and the magnitude of each company's offshore and non-U.S.-based operations. Based upon these criteria, F. W. +Cook, with input from the Compensation Committee, develops a peer group for us that includes the 15-20 companies that best fit the established selection criteria, without reviewing +individual company salary data, and excludes companies from a peer group for a prior year that no longer satisfies one or more of F.W. Cook's selection criteria. The peer group used for 2011 +compensation comparisons was approved in July 2010 and consisted of the following companies: +Berry Petroleum Company +Forest Oil Corporation +Bill Barrett Corporation +Penn Virginia Corporation +Cabot Oil & Gas Corporation +Quicksilver Resources Inc. +Cimarex Energy Company +Range Resources Corporation +Comstock Resources, Inc. +Stone Energy Corporation +Concho Resources Inc. +Swift Energy Company +Continental Resources, Inc. +Ultra Petroleum Corp. +Denbury Resources Incorporated +Whiting Petroleum Corporation +EXCO Resources, Incorporated +This +peer group includes fourteen of the companies included in our 2010 peer group, plus three additional companies: Comstock Resources, Inc., Range Resources Corporation, and +Stone Energy Corporation. Companies in the 2010 peer group excluded from the 2011 peer group were: Encore Acquisition Company and Petrohawk Energy Corporation. +In +May 2011, F.W. Cook conducted an analysis of competitive pay levels for the executive officers named in the most recently filed proxy statements of the peer group companies versus +corresponding positions at our company. Competitive data generally reflected actual amounts paid for 2010 performance, although some information was available on 2011 target compensation levels. +Findings from this analysis indicated that base salaries for our NEOs generally approximated the median of the peer group. Target annual cash compensation (base salary plus target annual bonus) was +near the 25 th percentile for Messrs. Best, Ottoson, and Pursell, and between the 25 th percentile and median for other named executives. Target total +direct compensation (base salary, plus target bonus, plus long-term incentive compensation) was near the 25 th percentile for Mr. Best and approximated the peer +group median for the other NEOs. This analysis excluded amounts paid in connection with our NPP because those amounts are earned compensation from prior years' grants. +Elements of Compensation +The principal components of our executive compensation program and the purpose of each component are summarized in the following table. +Our executive compensation program is comprised +21 +Table of Contents +of +the same components as the compensation program for other employees. The only material differences are the target pay levels and the proportion of each component. +Compensation Element +Description +Purpose +Base Salary +Fixed cash compensation, targeted at 50 th percentile of survey and peer group data for employees meeting all performance expectations +Provide an appropriate level of cash compensation necessary to attract and retain employees; and recognize skills, competencies, experience, and individual contributions +STIP +Annual cash incentive opportunity with ultimate award dependent upon our annual performance in key metrics +Drive and incentivize superior annual performance at company, regional, and individual levels +LTIP +Equity-based compensation opportunity with ultimate award dependent upon our long-term performance in total stockholder return on +an absolute basis and relative to a peer group +Drive stockholder value creation; align management interests with those of stockholders, encourage retention; and reward +long-term company performance +Employee Stock Purchase Plan +Enables employees to purchase and hold shares of our common stock at a 15% discount of the fair market value at the beginning or +end of the offering period +Facilitate share ownership among employees for the purposes of aligning employees' interests with those of +stockholders +Qualified Retirement Plans +Includes qualified defined benefit pension plan and 401(k) plan with company match +Attract and retain employees; encourage retention; and support succession planning objectives by ensuring sufficiency of +retirement replacement income +Supplemental Retirement Plan +Provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($245,000 for +2011) +Attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of +retirement replacement income +Benefits and Perquisites +Medical, dental, life, wellness, and disability insurance +Attract and retain highly qualified employees; and support the overall health and wellbeing of all employees +22 +Table of Contents +Target Competitive Positioning +Our pay philosophy is for each executive's target compensation opportunity to approximate market medians in total compensation and +across individual compensation elements. Actual pay and award value may be higher or lower than target, based on performance results and changes in our performance, including our share price. +Total Direct Compensation Mix +The charts below show the 2011 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts +illustrate, 88% and 79% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied +to performance (i.e., "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of +each individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data, individual performance and potential, internal +equity considerations, and input from the Chief Executive Officer (for executives other than himself), the Compensation Committee approved the following salary adjustments on March 31, 2011, +effective April 3, 2011, for the NEOs: +Name +2010 Salary +2011 Salary +% +Change +2011 +Salary % ++/- +2010 +Peer +Group +Median +Best +$ +550,000 +$ +580,000 +5.45 +% +-6 +% +Ottoson +$ +366,000 +$ +385,000 +5.19 +% +-6 +% +Pursell +$ +325,000 +$ +338,000 +4.00 +% +0 +% +Copeland +— +$ +310,000 +— +4 +% +Veatch +$ +250,000 +$ +260,000 +4.00 +% +-9 +% +The +salary increases approved in 2011 were based on the Compensation Committee's decision that our executive officers' individual performances, corporate performance, industry inflation, +and the competitive aspects of the oil and gas industry justified the increases with individual adjustments +23 +Table of Contents +determined +with reference to respective comparative industry data by position and our goal of paying at or near the median. +Short-Term Incentive Plan +The STIP is designed to reward executives for their achievement of our annual business plan measured by certain performance objectives. +These performance objectives are reviewed each year by management and the Compensation Committee, and after the approval of these objectives, are published as annual goals. These goals may be adjusted +from time to time during the year due to significant changes in our business in the discretion of the Compensation Committee. For example, due to the transition in 2011 from reporting our production +on a two-stream basis (oil and gas) to reporting our production on a three-stream basis (oil, gas and natural gas liquids), the Compensation Committee adjusted the goals for production +volume, proved developed reserves and finding and development costs. Payments under the STIP are in the form of annual cash bonuses under our Cash Bonus Plan, which was approved by our stockholders in +May 2008. +Each +STIP participant is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming +all of our performance goals are achieved at the "target" level. Actual bonuses may range from 0 to 2 times the target level based on the Compensation Committee's assessment of our performance and +that of each of our executive officers. Target bonuses for 2011 as percentages of base salary for the NEOs were the same as in 2010 and were as follows: +2011 Target +Bonus Level, +% of base +salary +Maximum +% of base +salary +Chief Executive Officer and President +100 +% +200 +% +Executive Vice President and Chief Operating Officer +90 +% +180 +% +Executive Vice President and Chief Financial Officer +80 +% +160 +% +Senior Vice President and General Counsel +70 +% +140 +% +Senior Vice President and Regional Manager +70 +% +140 +% +In +order for the STIP bonus pool to be funded for executive officers, the 2011 STIP required that our 2011 cash flow, as described below, exceed a threshold level of $350 million. +If our cash flow had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Our actual cash flow was $865 million, resulting in full +initial funding of the STIP bonus pool for executive officers. The Compensation Committee then examined our performance under five quantitative and two qualitative metrics to determine actual bonus +payments to executive officers by reducing (but not increasing) the amounts funded through achievement of the cash flow threshold. Using this construct, bonus payments to our executive officers under +the STIP are intended to be +"performance-based," as defined under Section 162(m) of the IRC, and therefore fully deductible for federal income tax purposes. The Compensation Committee evaluated our performance in the +24 +Table of Contents +following +five quantitative areas with respect to the annual cash bonus awards for our executive officers: +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (BCFE) (1) +134.0 +145.6 +160.2 +169.7 +117 +% +Proved Developed Reserve Additions (BCFE) (2) +213.9 +251.7 +289.5 +372.4 +148 +% +Finding and Development Costs ($ per MCFE) (3) +$ +4.82 +$ +4.19 +$ +3.56 +$ +4.12 +98 +% +Cash Flow ($ in millions) +$ +535.7 +$ +669.6 +$ +837.0 +$ +865.3 +129 +% +Net Income ($ in millions) +$ +174.5 +$ +232.6 +$ +290.8 +$ +215.4 +93 +% +(1) Adjusted +for the transition to reporting our production on a three-stream basis. +(2) Adjusted +for engineering revisions to proved developed reserves due to asset performance, and the transition to reporting our production on a +three-stream basis. +(3) Based +on proved developed reserve additions, as adjusted for engineering revisions due to asset performance and the transition to reporting +our production on a three-stream basis (excluding land costs). As noted below, our actual finding and development cost beat our target by 2%. +Production +Volume—The production volume target represents the volume of oil and gas estimated by our 2011 business plan to be produced and sold during 2011. This measure is +important because proceeds from the sale of production volumes generate essentially all of our revenue. In 2011, our production volume exceeded the target by 17% and all five of our regions also +exceeded their production targets for the year. +Proved +Developed Reserve Additions—The proved developed reserve additions target represents the proved developed reserves estimated to be added by our capital program during +2011. This measure is important because proved developed reserves are the primary source of future +production and cash flow for us and, as such, relate directly to the value of our company. In 2011, we generated 48% more proved developed reserve additions than our target amount or +year-to-year growth in our actual performance under this metric of 70%. +Finding +and Development Costs—Finding and development costs are a measure of the efficiency of our capital program in adding value. The finding and development costs target +represents the estimated cost of proved developed reserve additions on a $/MCFE basis, as projected by our 2011 business plan. In 2011, our finding and development costs were lower than our target by +slightly less than 2%. +Cash +Flow—Our cash flow target is calculated based on our GAAP net income, as adjusted for miscellaneous gains and losses; depreciation, depletion and amortization; +impairment and abandonment expense; exploration expense; deferred taxes; change in NPP liability; stock compensation expense; non-cash interest expense and unrealized derivative losses. +This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a key factor in shareholder value creation. In +2011, our cash flow exceeded the 2011 business plan target by 29% due to higher than projected production volumes and lower than projected operating costs. +Net +Income—The GAAP net income target represents the amount of GAAP net income initially expected to be generated based on achieving projected 2011 business plan results. Net +income is the end result of adjusting the operating cash flow of our company for all non-cash costs and non-recurring events. This measure is important because the rate at +which non-cash costs are incurred is related to investment efficiency over time, and non-recurring events can be materially positive or negative relative to expectations. In +2011, our net income was less than our target by approximately 7%, primarily due to impairments driven by end-of-year gas prices, which broadly affected our industry. +25 +Table of Contents +Additionally, +the Compensation Committee assessed our performance in the following qualitative areas: +• environmental, health, and safety (EHS) +Our +EHS performance, based on statistical industry measurements, improved in some aspects during 2011; however, we experienced some significant safety challenges in our operational activities where +dramatic ramp-up in drilling and completion activity have strained the capabilities of our drilling and completion contractors. As a result, the Compensation Committee exercised its +discretion with respect to this qualitative measure in 2011 and reduced the cash bonuses for our NEOs that it would have otherwise approved on the basis of the other quantitative and qualitative +measures. +• exploration success and inventory growth +The +Compensation Committee viewed our performance with respect to our qualitative metric for exploration success and inventory growth as neutral, with substantial increases in acreage acquired, but +with fewer exploration tests than expected. Accordingly, the Compensation Committee gave no credit, either positively or negatively, for this qualitative measure in 2011. +Other +key events and transactions/initiatives that occurred during the year that impacted the Compensation Committee's bonus decisions were our success in (a) issuing an aggregate +of $700 million in high-yield bonds on very favorable terms in our debut and a subsequent offering; (b) entering into a new amended and restated, five-year +revolving credit facility; and (c) consummating approximately $1 billion in asset divestitures, including our highly favorable $680 million carry agreement with Mitsui E&P +Texas LP. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by how management +achieved the goals. Each quantitative factor is not equally weighted and the Compensation Committee considers each quantitative and +qualitative factor individually and collectively. Because quantitative goals must be determined at the beginning of the year, use of Compensation Committee judgment and discretion protects the STIP +from having an illogical outcome if circumstances change during the year such that the formulaic goals no longer comport with "common sense." +The +Compensation Committee considered all of the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Executive +Salary Paid +in 2011 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Best +$ +571,923 +100 +% +161 +% +$ +921,281 +Ottoson +$ +379,885 +90 +% +144 +% +$ +545,514 +Pursell +$ +334,500 +80 +% +130 +% +$ +434,830 +Copeland +$ +304,039 +70 +% +114 +% +$ +345,887 +Veatch +$ +257,308 +70 +% +110 +% +$ +282,639 +Long-Term Incentive Plan +The LTIP, which we implemented in the current form in 2008, is an equity compensation program that utilizes performance share units, or +PSUs, and restricted stock units, or RSUs, to reward our executive officers and key employees for long-term growth in our net asset value, as reflected in our absolute and relative +cumulative total stockholder return, which includes the effects of dividends ("TSR"). Our employees at the senior professional level and above are eligible to participate in the LTIP. Awards of PSUs +and RSUs are issued pursuant to our stockholder-approved Equity Plan. +26 +Table of Contents +Under +our LTIP, participants were each awarded a target number of share units during the third quarter of 2011, for the performance measurement period beginning July 1, 2011, and +ending June 30, 2014. Under the Equity Plan, 75% of the share units were granted as PSUs and 25% were granted as RSUs. RSUs are settled in common shares at the time of vesting, and PSUs are +settled in common shares, depending on the extent to which we have satisfied the performance criteria, at the end of the three-year performance period. The actual number of shares of our +common stock issued to settle PSUs at the end of the three-year performance period can range from 0% to 200% of the number of PSUs, depending on our absolute and relative TSR. TSR is +measured on a compound annualized basis, and relative TSR is compared to the TSR of an equal weighted index of peer companies (the "TSR Peer Group"). The TSR Peer Group was constructed using the +constituents of the Oil & Gas Exploration and Production Global Industry Classification System Sub-Industry Group in the S&P SmallCap 600 and S&P MidCap 400 Indices, excluding our +company. For the 2011-2014 performance period, the index constituents of the TSR Peer Group as of December 31, 2011, include: Bill Barrett Corporation, Petroquest +Energy Inc., Petroleum Development Corporation, Cimarex Energy Company, Comstock Resources, Inc., Contango Oil & Gas Company, Forest Oil Corporation, Gulfport Energy Corporation, +Penn Virginia Corporation, Plains Exploration & Production Company, Quicksilver Resources Inc., Swift Energy Company, GeoResources, Inc., Northern Oil and Gas, Inc., +Energen Corporation, Approach Resources, Inc., and Stone Energy Corporation. This TSR Peer Group is a custom index developed by Standard & Poor's Financial Services LLC for our +company. The peer group participants may change, and change is independent of any action by us. +27 +Table of Contents +The performance matrix for the 2011-2014 performance period is shown below: +2011 PAYOUT MATRIX +(Earned multiplier equals sum of Column A and Column B; subject to maximum multiplier of 2.0 and minimum multiplier of 0.0) +Column A +Column B +Absolute TSR +TSR vs. Peer Index +Ann. TSR +EARNED +MULTIPLIER +% Point Deviation From Peers +MULTIPLIER +MODIFIER +0% +— +-10% +(0.80 +) +1% +0.050 +-8% +(0.60 +) +2% +0.100 +-6% +(0.40 +) +3% +0.150 +-4% +(0.20 +) +4% +0.200 +-2% +— +5% +0.275 +0% (Index TSR) +0.20 +6% +0.350 ++2% +0.40 +7% +0.425 ++4% +0.60 +8% +0.500 ++6% +0.80 +9% +0.575 ++8% +1.00 +10% +0.650 +11% +0.725 +12% +0.800 +13% +0.875 +14% +0.950 +15% +1.025 +16% +1.100 +17% +1.200 +18% +1.300 +19% +1.400 +20% +1.500 +21% +1.600 +22% +1.700 +23% +1.800 +24% +1.900 +25% +2.000 +As +an example, if an NEO had a target number of 16,000 share units, 4,000 would be RSUs and 12,000 would be PSUs. At the end of three years, if our absolute TSR was 15% compounded +annually but our relative TSR underperformed against the peer index by four percentage points, the result would be a total multiplier of 0.825 (1.025-0.20). The multiplier would then be +applied to the 12,000 PSUs previously awarded, resulting in the issuance of 9,900 shares of our common stock to the executive officer at the end of the three-year period in settlement of +the PSUs (i.e., 12,000 × 0.825). In addition, during the three-year performance period, we would issue 4,000 shares of our common stock in settlement of +the RSUs upon vesting, provided that the executive was still employed by us on each vesting date. +The +total number of PSUs and RSUs awarded and individual allocations to participants were approved by the Compensation Committee during the third quarter of 2011. A total of 356,947 PSUs +and RSUs were granted to 367 employees during the third quarter of 2011. In its determination of the total pool value for 2011, the Compensation Committee considered various factors including +historical fair value transfer ("FVT," or the percentage of market capitalization transferred to employees annually +28 +Table of Contents +in +the form of stock based awards and other forms of ownership in our company) of our long term incentive compensation system compared to peer companies, input from F. W. Cook on expected trends in +FVT for 2011, and shares available in the Equity Plan. The 2011 PSUs and RSUs have a three-year vesting schedule, with one-seventh vesting on the first anniversary of the award +date, two-sevenths vesting on the second anniversary of the award date, and the remaining four-sevenths vesting on the third anniversary of the award date. We settle the RSUs +with shares of our common stock as they vest. If an employee is terminated, voluntarily or involuntarily, prior to the third anniversary of the award date, he/she will retain all shares of common +stock previously issued by us to settle the RSUs as they vest, but will forfeit all unvested RSUs. No settlement of vested PSUs occurs until the three-year performance period is concluded. +However, if an employee is terminated, voluntarily or involuntarily, he/she retains vested PSUs, which would be settled at the end of the three-year performance period. All PSUs granted +are also subject to a cap in value per unit calculated based on an absolute TSR of 50% for each year and an assumed multiplier of 2.0. +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. +The NPP was designed to reward the contributions made by our executive officers and key employees to our long-term financial success. Under the NPP, participants shared in the net profits +derived from the investment made in all oil and gas activity from a specific pool of our properties in a given year after the capital costs associated with spending program were recouped. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. +Certain +of our executives participate in NPP pools that contribute significantly to their yearly realized compensation; however, due to attrition, not all executives participate in NPP +pools, and certain executives that do participate have not received compensation because the NPP pools in which they participate have not reached payout status. Mr. Veatch is the only NEO that +received NPP payments during 2011, with $309,131 paid to him. Two other NEOs participate in certain NPP pools, but currently receive no compensation since such pools have not reached payout status. +Retirement Programs—Pension and 401(k) Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified +Pension Plan") and a 401(k) plan on the same basis as all of our employees. The SERP is intended to restore the benefits that would otherwise accrue to certain executive-level employees in the absence +of IRC limits on the Qualified Pension Plan. The SERP is an unfunded non-qualified plan. We provide these plans to remain competitive in the hiring and retention of qualified personnel, +and to support our succession planning objectives with a goal of providing retirement replacement income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final average compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation +used to determine benefits payable under the Qualified Pension Plan and the SERP is that officer's average base salary, excluding bonuses. +29 +Table of Contents +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the 401(k) plan, subject to annual limits to amounts determined by IRC regulations ($16,500 for +2011). We match each employee's contributions in cash on a dollar for dollar basis, up to 6% of the employee's pretax income. Company contributions vest over an employee's first five years of +employment. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis +as all other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with +all employees, group term life insurance up to 2.5 times their respective base salaries up to $1,000,000. We also provide financial planning services to our NEOs, upon their election. +Employee Stock Purchase Plan +The purpose of the Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees to purchase shares of our +common stock at a discount to the market price. The plan cycle consists of two periods annually, with plan periods for the six months ending June 30 and December 31 of each year. The +ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is 85% of the lower of the fair market value of +the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. In December 2009, the Board amended +the ESPP to limit the number of shares that an employee could purchase in a six-month period to 2,500 shares to comply with final Internal Revenue Service regulations that require a fixed +cap for the number of shares that could be purchased during a plan period. +Other Executive Compensation Matters +Employment Agreements +Mr. Best is the only executive that has a written employment agreement. Mr. Best's employment agreement became effective +May 1, 2006, and continues in effect until either party gives 30-days' prior written notice. +Pursuant +to his employment agreement, Mr. Best received upon the commencement of his employment in June 2006 an award of 20,000 shares of restricted stock, a $50,000 cash bonus, +and the opportunity to earn 20,000 RSUs over the next four years. Of the 20,000 RSUs, 5,000 RSUs vested in four equal annual installments beginning the first quarter of 2007, based on continued +employment; 10,000 RSUs vested in four equal annual installments if annual net asset value growth exceeded 10%, and 5,000 RSUs vested in four equal annual installments if annual net asset value growth +exceeded 15%. Mr. Best earned 1,250 RSUs in each of March 2007, February 2008, February 2009, and February 2010 associated with the service component of the award. Under the performance element +of the award, Mr. Best earned 2,500 RSUs based on the results for 2007, but he did not earn any RSUs based on the results for 2006, 2008, and 2009, as our net asset value growth did not exceed +10%. +Our +employment agreement with Mr. Best provides severance benefits under certain termination scenarios. See "Potential Payments upon Termination or Change of Control." The energy +industry's history of executive employment terminations during cyclical downturns or strategic shifts in the industry or by particular companies have contributed to a widespread, heightened concern +for long-term job stability by executives. In response to this concern, arrangements that provide +30 +Table of Contents +compensation +assurances in the event of an executive's termination without cause, death, or incapacity have become common practice, especially when recruiting executives to join a new company. The +post-termination payment provisions in our employment agreement with Mr. Best were an important factor in our ability to recruit Mr. Best to join us as President and Chief +Operating Officer in 2006. We believe that the two-year period for post-employment compensation and insurance protection is appropriate to allow Mr. Best adequate time +to obtain comparable employment in the event of a termination, and is reasonable in view of the terms offered by other companies in our industry who compete with us for executive talent. +The +employment of all other executives remains "at will" subject to and in accordance with the terms and conditions of written offers. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above through change of control +executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of control event has occurred and second that the executive has been +terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. See "Potential Payments upon Termination or Change of +Control— Change of Control Arrangements " for more information about these agreements and potential payments in the event of a termination of +employment following a change in control. +Internal Revenue Code Section 409A +The Compensation Committee and the Board strive to ensure that all programs comply with IRC Section 409A. The Compensation +Committee will review any future changes to our deferred non-qualified compensation arrangements to ensure compliance with Section 409A. +Stock Ownership Guidelines +To further align senior management's interests with the interests of stockholders with respect to long-term growth of +stockholder value, our Compensation Committee has established and the Board has approved equity ownership guidelines for executives as follows: +Chief Executive Officer +5 times annual base salary +Chief Operating Officer and Chief Financial Officer +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of vested and unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of +equity awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to him by us, unless approved by the Compensation Committee for the Chief Executive Officer, +Chief Operating Officer, or Chief Financial Officer and by the Chief Executive Officer for all other executive officers. +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to the Equity Plan are made during the third quarter of each year. The +Compensation Committee generally approves these grants at a meeting each July. The Compensation Committee has in the past, and may in the future, make limited grants of equity on other dates for newly +hired executives as part of compensation packages designed to recruit such persons. +31 +Table of Contents +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of +trading in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address +trading by officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be +highest, and generally prohibits our officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance from our legal department. Our +policy also prohibits officers, employees +and directors from (a) entering into transactions that "hedge" the value of our stock, (b) holding our securities in margin accounts, (c) pledging our securities to secure +indebtedness, and (d) buying or selling options or derivatives with respect to our securities. +Compensation Committee Report +The Compensation Committee of SM Energy Company has reviewed and discussed the disclosures contained under "Compensation Discussion and +Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the disclosures set forth under the +heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on Form 10-K for the fiscal +year ended December 31, 2011. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Barbara +M. Baumann, Chair +Stephen R. Brand +John M. Seidl +32 +Table of Contents +Executive Compensation Tables +Summary Compensation Table for 2009, 2010, and 2011 +The following Summary Compensation table sets forth the annual and long-term compensation received during each of our last +three years by the NEOs. +In +addition to base salaries and cash bonuses, the following table reflects RSUs and PSUs granted in 2009, 2010, and 2011 to our NEOs. Eligible NEOs participate in our STIP and LTIP, as +described more fully in the "Compensation Discussion and Analysis" section of this Proxy Statement. +Name and Principal Position +Year +Salary +Bonus (1) +Stock +Awards (2) +Option +Awards +Non-Equity +Incentive +Plan +Compensation (3) +Change In +Pension +Value and +Non- +Qualified +Deferred +Compensation +Earnings (4) +All Other +Compensation (5) +Total +Anthony J. Best +2011 +$ +571,923 +$ +921,281 +$ +3,699,746 +$ +— +$ +— +$ +122,446 +$ +28,330 +$ +5,343,726 +Chief Executive Officer and +2010 +$ +540,039 +$ +918,066 +$ +2,398,049 +$ +— +$ +— +$ +106,079 +$ +26,284 +$ +3,988,517 +President (principal executive +2009 +$ +513,000 +$ +287,280 +$ +2,286,268 +$ +— +$ +— +$ +100,606 +$ +34,416 +$ +3,221,570 +officer) +A. Wade Pursell +2011 +$ +334,500 +$ +434,830 +$ +1,189,066 +$ +— +$ +— +$ +29,876 +$ +34,845 +$ +2,023,117 +Executive Vice President and +2010 +$ +319,885 +$ +447,838 +$ +1,060,706 +$ +— +$ +— +$ +21,780 +$ +90,504 +$ +1,940,713 +Chief Financial Officer +2009 +$ +306,000 +$ +153,520 +$ +1,241,117 +$ +— +$ +— +$ +14,395 +$ +32,165 +$ +1,747,197 +(principal financial officer) +Javan D. Ottoson +2011 +$ +379,885 +$ +545,514 +$ +1,479,922 +$ +— +$ +— +$ +57,672 +$ +40,373 +$ +2,503,366 +Executive Vice President and +2010 +$ +360,346 +$ +583,761 +$ +1,291,292 +$ +— +$ +— +$ +45,209 +$ +40,939 +$ +2,321,547 +Chief Operating Officer +2009 +$ +345,000 +$ +169,050 +$ +1,469,744 +$ +— +$ +— +$ +29,041 +$ +41,045 +$ +2,053,880 +David W. Copeland +2011 +$ +304,039 +$ +345,887 +$ +875,745 +$ +— +$ +— +$ +— +$ +47,984 +$ +1,573,655 +Senior Vice President, +General Counsel and +Corporate Secretary +Paul M. Veatch +2011 +$ +257,308 +$ +282,639 +$ +496,832 +$ +— +$ +309,131 +$ +37,806 +$ +56,158 +$ +1,439,874 +Senior Vice President and +2010 +$ +246,836 +$ +292,500 +$ +507,301 +$ +— +$ +510,825 +$ +33,522 +$ +45,238 +$ +1,636,222 +Regional Manager +2009 +$ +238,250 +$ +76,240 +$ +718,541 +$ +— +$ +192,221 +$ +22,653 +$ +44,110 +$ +1,292,015 +(1) The +amounts in the column represent the bonuses paid in 2012, 2011, and 2010 but earned during 2011, 2010 and 2009 performance periods, +respectively, under the STIP. Mr. Pursell received a $25,000 retention bonus in 2009. +(2) The +amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial +Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated forfeitures related to +service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to Consolidated Financial +Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. PSU awards are subject to market-based performance conditions relating to +our total stockholder return and relative stockholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSU awards reflected in +this column are based on the estimate as of the grant date of the probable outcome of these performance conditions. The grant date fair values for the 2011 PSU awards for Messrs. Best, Ottoson, +Pursell, Copeland, and Veatch respectively are $2,941,379, $1,176,590, $945,382, $378,210, and $395,032. If instead we assume that the highest level of performance conditions will be achieved, the +grant date fair values of the 2011 PSU awards as computed in accordance with FASB ASC Topic 718 for Messrs. Best, Ottoson, Pursell, Copeland, and Veatch respectively are $4,544,089, $1,817,695, +$1,460,505, $584,291, and $610,279. The grant date fair values for the 2010 PSU awards for Messrs. Best, Ottoson, Pursell, and Veatch respectively are $1,918,418, $1,033,023, $848,541, and +$405,817. If instead we assume that the highest level of performance conditions will be achieved, the grant date fair values of the 2010 PSU awards as computed in accordance with FASB ASC Topic 718 +for Messrs. Best, Ottoson, Pursell, and Veatch respectively are $2,942,674, $1,584,560, $1,301,583, and $622,486. The grant date fair values for the 2009 PSU awards for Best, Ottoson, Pursell, +and Veatch respectively are $1,868,543, $1,201,206, $1,014,352, and $587,256. If instead we assume that the highest level of performance conditions will be achieved, the grant date fair values of the +2009 PSU awards as computed in accordance with FASB ASC Topic 718 for Best, Ottoson, Pursell, and Veatch respectively are $2,506,350, $1,611,225, $1,360,590, and $787,710. +(3) Totals +consist of amounts paid and accrued under the NPP for 2011, 2010, and 2009. +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our +qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or +above market earnings on deferred compensation. +33 +Table of Contents +(5) Amounts +consist of our contributions to the 401(k) plan, holiday bonus, life insurance premiums, financial consulting services, disability +insurance premiums and any accrued vacation time due the employee at the time of termination, as well as a relocation payment of $55,899 made to Mr. Pursell in 2010. +Grants of Plan-Based Awards in 2011 +Pursuant to our LTIP, and in accordance with the Equity Plan, we granted PSUs and RSUs to our NEOs on July 1, 2011 and +September 6, 2011. The Compensation Committee approved these grants on July 1, 2011 and September 6, 2011, respectively. These grants are summarized in the table below. +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (2) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option Awards +Grant +Date +Name +Threshold +Target (1) +Maximum (1) +Anthony J. Best +7/1/11 +— +— +— +8,825 +$ +651,461 +9/6/11 +— +30,774 +61,548 +— +$ +2,941,379 +9/6/11 +— +— +— +1,448 +$ +106,906 +A. Wade Pursell +7/1/11 +— +— +— +2,836 +$ +209,354 +9/6/11 +— +9,891 +19,782 +— +$ +945,382 +9/6/11 +— +— +— +465 +$ +34,331 +Javan D. Ottoson +7/1/11 +— +— +— +3,530 +$ +260,584 +9/6/11 +12,310 +24,620 +— +$ +1,176,590 +9/6/11 +— +— +— +579 +$ +42,748 +David W. Copeland (3) +1/1/11 +— +— +— +6,788 +$ +400,017 +7/1/11 +— +— +— +1,135 +$ +83,786 +9/6/11 +— +3,957 +7,914 +— +$ +378,210 +9/6/11 +— +— +— +186 +$ +13,732 +Paul M. Veatch +7/1/11 +— +— +— +1,185 +$ +87,477 +9/6/11 +— +4,133 +8,266 +— +$ +395,032 +9/6/11 +— +— +— +194 +$ +14,323 +(1) This +amount represents PSUs granted under our Equity Plan. PSUs represent the right to receive, upon settlement of the PSUs after the +completion of a three-year performance period ending June 30, 2014, a number of shares of our common stock that may be from zero to two times the number of PSUs granted on the award +date, depending on the extent to which we have achieved our performance goals and the extent to which the PSUs have vested. The performance goals for the PSUs are based on a combination of our TSR for +the performance periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer companies for the performance period. The PSUs will vest +one-seventh on July 1, 2012, two-sevenths on July 1, 2013, and four-sevenths on July 1, 2014. The PSUs are not eligible for dividends and are +not credited with dividend equivalents. Holders of PSUs have no rights as stockholders of common stock until such time as the PSUs are settled for shares of common stock on the settlement date. +(2) This +amount represents RSUs granted under our Equity Plan. The RSUs are subject to a holding period and vest one-seventh on +July 1, 2012, two-sevenths on July 1, 2013, and four-sevenths on July 1, 2014. The RSUs are subject to forfeiture to us upon termination of employment +prior to vesting. The RSUs are not eligible for dividends and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are +settled for shares of common stock on the vesting date. +(3) Mr. Copeland's +January 1, 2011 grant of RSUs coincided with his commencement of employment. The RSUs are subject to a holding +period and vest one-seventh on July 1, 2011, two-sevenths on July 1, 2012, and four-sevenths on July 1, 2013. +34 +Table of Contents +Outstanding Equity Awards at 2011 Fiscal Year-End +The following table shows outstanding equity awards to each of our NEOs as of December 31, 2011: +Option Awards +Stock Awards +Equity +Incentive +Plan +Awards: +Equity +Incentive +Plan +Awards: +Name +Number of +Securities +Underlying +Unexercised +Options +Exercisable +Number of +Securities +Underlying +Unexercised +Options +Unexercisable +Equity +Incentive +Plan +Awards: +Number of +Securities +Underlying +Unexercised +Unearned +Options +Option +Exercise +Price +Option +Expiration +Date +Number of +Shares or +Units of +Stock That +Have Not +Vested +Market +Value of +Shares or +Units of +Stock that +Have Not +Vested (1) +Number +of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That Have +Not +Vested (1) +Anthony J. Best +— +— +— +$ +— +— +9,999 +(2) +$ +730,927 +— +$ +— +— +— +— +$ +— +— +— +$ +— +52,500 +(3) +$ +3,837,750 +— +— +— +$ +— +— +10,236 +(4) +$ +748,252 +— +$ +— +— +— +— +$ +— +— +— +$ +— +36,646 +(5) +$ +2,678,823 +— +— +— +$ +— +— +10,273 +(6) +$ +750,956 +— +$ +— +— +— +— +$ +— +— +— +$ +— +30,774 +(7) +$ +2,249,579 +A. Wade Pursell +— +— +— +$ +— +— +5,428 +(2) +$ +396,787 +— +$ +— +— +— +— +$ +— +— +— +$ +— +28,500 +(3) +$ +2,083,350 +— +— +— +$ +— +— +4,528 +(4) +$ +330,997 +— +$ +— +— +— +— +$ +— +— +— +$ +— +16,209 +(5) +$ +1,184,878 +— +— +— +$ +— +— +3,301 +(6) +$ +241,303 +— +$ +— +— +— +— +$ +— +— +— +$ +— +9,891 +(7) +$ +723,032 +Javan D. Ottoson +— +— +— +$ +— +— +6,428 +(2) +$ +469,887 +— +$ +— +— +— +— +$ +— +— +— +$ +— +33,750 +(3) +$ +2,467,125 +— +— +— +$ +— +— +5,512 +(4) +$ +402,927 +— +$ +— +— +— +— +$ +— +— +— +$ +— +19,733 +(5) +$ +1,442,482 +— +— +— +$ +— +— +4,109 +(6) +$ +300,368 +— +$ +— +— +— +— +$ +— +— +— +$ +— +12,310 +(7) +$ +899,861 +David W. Copeland +— +— +— +$ +— +— +5,818 +(4) +$ +425,296 +— +$ +— +— +— +— +$ +— +— +1,321 +(6) +$ +96,565 +— +$ +— +— +— +— +$ +— +— +— +$ +— +3,957 +(7) +$ +289,257 +Paul M. Veatch +— +— +— +$ +— +— +3,142 +(2) +$ +229,680 +— +$ +— +— +— +— +$ +— +— +— +$ +— +16,500 +(3) +$ +1,206,150 +— +— +— +$ +— +— +2,165 +(4) +$ +158,262 +— +$ +— +— +— +— +$ +— +— +— +$ +— +7,752 +(5) +$ +566,671 +— +— +— +$ +— +— +1,379 +(6) +$ +100,805 +— +$ +— +— +— +— +$ +— +— +— +$ +— +4,133 +(7) +$ +302,122 +(1) The +market value of shares, units or other rights that have not vested is calculated using the closing price of $73.10 of our common stock on +December 30, 2011. +(2) These +RSUs vest one-seventh on August 1, 2010, two-sevenths on August 1, 2011, and +four-sevenths on August 1, 2012. +(3) These +PSUs vest one-seventh on August 1, 2010, two-sevenths on August 1, 2011, and +four-sevenths on August 1, 2012. The PSUs are subject to a three-year performance period ending June 30, 2012. The award is reported at target of one share of our +common stock per PSU as cumulative performance to date as of the last completed fiscal year exceeds threshold. Because these PSUs are not settled until the end of the applicable three-year +period, these PSUs include the number of PSUs that have yet to be settled rather than the number of unvested PSUs. +(4) These +RSUs vest one-seventh on July 1, 2011, two-sevenths on July 1, 2012, and +four-sevenths on July 1, 2013. +(5) These +PSUs vest one-seventh on July 1, 2011, two-sevenths on July 1, 2012, and +four-sevenths on July 1, 2013. The PSUs are subject to a three-year performance period ending June 30, 2013. The award is reported at target of one share of our +common stock per PSU as cumulative performance to date as of the last completed fiscal year exceeds threshold. Because these PSUs are not settled until the end of the applicable three-year +period, these PSUs include the number of PSUs that have yet to be settled rather than the number of unvested PSUs. +35 +Table of Contents +(6) These +RSUs vest one-seventh on July 1, 2012, two-sevenths on July 1, 2013, and +four-sevenths on July 1, 2014. +(7) These +PSUs vest one-seventh on July 1, 2012, two-sevenths on July 1, 2013, and +four-sevenths on July 1, 2014. The PSUs are subject to a three-year performance period ending June 30, 2013. The award is reported at target of one share of our +common stock per PSU as cumulative performance to date as of the last completed fiscal year exceeds threshold. Because these PSUs are not settled until the end of the applicable three-year +period, these PSUs include the number of PSUs that have yet to be settled rather than the number of unvested PSUs. +2011 Option Exercises and Stock Vested +The following table provides information concerning the exercise of stock options and the vesting and settlement of RSUs and PSUs on an +aggregated basis during calendar year 2011 for each NEO. All such stock options were granted under our Predecessor Plans described in this Proxy Statement. In May 2003, the Board amended the stock +option plans to prohibit any repricing of outstanding options that would reduce the exercise price without stockholder approval. In 2004, our use of stock options was replaced by the use of RSUs under +a performance based plan. We implemented the LTIP in its current form in 2008, and pursuant to that program we now grant PSUs and RSUs. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +Value Realized +on Exercise (1) +Number of Shares +Acquired on Vesting (2) +Value Realized +on Vesting (3) +Anthony J. Best +— +$ +— +26,527 +$ +1,997,915 +A. Wade Pursell +— +$ +— +3,469 +$ +260,804 +Javan D. Ottoson +— +$ +— +15,474 +$ +1,164,267 +David W. Copeland +— +$ +— +970 +$ +71,605 +Paul M. Veatch +9,996 +$ +588,474 +8,608 +$ +645,350 +(1) This +column represents the difference between the market price of the underlying shares of common stock on the date of exercise and the +exercise price of the exercised options. +(2) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2011. As discussed +above, each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement +of the PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from zero to two times, depending on the extent to which we have +achieved our performance goals. This table does not include any vested, outstanding PSUs, because all outstanding PSUs are subject to the applicable three-year performance period, and thus +have not been settled. +(3) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon +the vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the vesting and/or settlement date, or, if the vesting and/or settlement date +was not a normal market trading date, then on the last normal market trading date which preceded the vesting/settlement date. The per share closing market prices utilized for this computation were +$72.47 on the vesting and settlement date of February 28, 2011 for the last vesting tranche of the 2008 RSU awards; $73.82 on the vesting and settlement date of July 1, 2011 for the +first vesting tranche of the July 1, 2010 RSU awards; and $75.56 on the vesting and settlement date of August 1, 2011 for the second vesting tranche of the August 1, 2009 RSU +awards and for the full settlement of the earned August 1, 2008 PSU awards. +36 +Table of Contents +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all employees. In +addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC limits (the 2011 limit was $245,000) for certain executive officers with a senior management +hierarchy title of at least Vice President. The SERP is an unfunded, non-qualified plan. +The +following table represents the value of each of the NEOs' pension benefits as of December 31, 2011: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Anthony J. Best +Qualified Pension Plan +6 +$ +200,571 +$ +— +Non-Qualified SERP Pension Plan +6 +$ +245,533 +$ +— +A. Wade Pursell +Qualified Pension Plan +3 +$ +49,711 +$ +— +Non-Qualified SERP Pension Plan +3 +$ +16,340 +$ +— +Javan D. Ottoson +Qualified Pension Plan +5 +$ +112,323 +$ +— +Non-Qualified SERP Pension Plan +5 +$ +55,934 +$ +— +David W. Copeland (1) +Qualified Pension Plan +— +$ +— +$ +— +Non-Qualified SERP Pension Plan +— +$ +— +$ +— +Paul M. Veatch +Qualified Pension Plan +11 +$ +143,460 +$ +— +Non-Qualified SERP Pension Plan +11 +$ +2,999 +$ +— +(1) As +of December 31, 2011, Mr. Copeland was not a plan participant. +Our +Qualified Pension Plan in combination with the SERP for certain executives provide a benefit after 25 years of credited service to us equal to 35% of final average +compensation. Final average compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that officer's average base salary, excluding bonuses. We provide these plans to remain competitive in the hiring and +retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement income. As of December 31, 2011, no NEO was eligible for +early retirement under the Qualified Pension Plan, and no NEO was eligible for early retirement (having reached the age of 55 and provided at least 10 years of service to us) under the SERP. +Nonqualified Deferred Compensation +Although the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from +net profits, if any, from oil and gas activity from designated pools of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific +determinable compensation amounts or balances are deferred. The NPP is described in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts for the NEOs are reflected in the +Summary Compensation Table above. +Our +SERP is a nonqualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the +accumulated benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section below. In addition, annual increases in the actuarial value of benefits +under the SERP for each NEO are included in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +37 +Table of Contents +Equity Compensation Plans +Under the ESPP, shares of our common stock and under the Equity Plan, options, restricted stock, RSUs, PSUs, stock appreciation rights, +and stock-based awards are authorized for grant or issuance as compensation to eligible employees, consultants, and members of the Board. Our stockholders have approved each of these plans. The +following table is a summary of the shares of common stock authorized for issuance under our existing equity compensation plans as of December 31, 2011: +(c) +(a) +(b) +Number of securities +remaining available for +future issuance under equity +compensation plans +(excluding securities reflected +in column (a)) +Plan category +Number of securities +to be issued upon +exercise of +outstanding options, +warrants, and rights +Weighted-average +exercise price of +outstanding options, +warrants, and +rights +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +508,214 +$ +13.86 +Restricted stock (1)(3) +308,877 +N/A +Performance share awards (1)(3)(4) +1,232,225 +N/A +Total for Equity Incentive Compensation Plan +2,049,316 +$ +13.86 +2,708,822 +Employee Stock Purchase Plan (2) +— +— +1,373,969 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +2,049,316 +$ +13.86 +4,082,791 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, RSUs, non-qualified stock +options, incentive stock options, stock appreciation rights, performance shares, PSUs, and stock-based awards to key employees, consultants, and members of the Board or any affiliate of SM Energy. The +Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock Option Plan, the +SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan (collectively referred to as the "Predecessor Plans"). All grants of equity +are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor Plan immediately prior to the effective date of the +Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. Our Board approved amendments to the Equity Plan in 2009 and 2010 and +each amended plan was approved by stockholders at the respective annual stockholders' meetings. The awards granted in 2011, 2010, and 2009 under the Equity Plan were 386,802, 540,774, and 1,016,931, +respectively. +(2) Under +the ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to 15 percent of their +eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six-month offering period, +and shares issued under the ESPP as of December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code. Shares +issued under the ESPP totaled 41,358, 52,948, and 86,308 in 2011, 2010, and 2009, respectively. +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in order +to provide additional information regarding the +38 +Table of Contents +potential +dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $44.33 and $52.38, respectively. +(4) The +number of PSUs vested assumes a one multiplier. The final number of shares issued may vary depending on the ending three-year +multiplier, and will range from zero to two times this number. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +We entered into an employment agreement with Mr. Best dated May 1, 2006. When his employment commenced, Mr. Best +received an award of 20,000 shares of restricted stock, which vested immediately and was not subject to forfeiture, and a $50,000 cash bonus. Over the first four years of the agreement, +Mr. Best was able to earn RSUs in varying amounts, earning in the first quarter of each year 1,250 RSUs if he was employed by us at that time, and an additional 2,500 RSUs if the net asset +value growth from the prior year exceeded 10%, with a further 1,250 RSUs if such growth exceeded 15%. Mr. Best earned 1,250 RSUs in March 2007, February 2008, February 2009 and February 2010, +associated with the service component of his award. Mr. Best earned 2,500 RSUs under the performance element of his employment agreement based on the results for 2007; however, he did not earn +the performance based component of his employment agreement based on the results for 2009, 2008, or 2006. Mr. Best participates in the fringe benefits and other benefit plans and practices of +ours in the same manner and to the same comparable extent as our other senior executives. +Our +employment agreement with Mr. Best provides that in the event that we terminate Mr. Best's employment for any reason other than (a) the death or incapacity of +Mr. Best or (b) his gross negligence, gross incompetence, fraud, or dishonesty, as determined by the Board, we must continue Mr. Best's base salary at its rate at the time of such +termination for a period of two years thereafter, together with a continuation for two years of the insurance benefits in effect for him at the time of such termination. +Based +on Mr. Best's annual salary and level of insurance benefits in effect as of December 31, 2011, the total amount of cash payments that would have been made to +Mr. Best for a period of two years after a termination on December 31, 2011, would have been $1,160,000, and the estimated value of insurance benefits to be paid over such period would +have been approximately $43,660. +Our +employment agreement with Mr. Best also provides that in the event that Mr. Best's employment is terminated under circumstances such that the terms of our change of +control executive severance agreement for Mr. Best would apply, and to the extent that severance pay or benefits, each considered separately, to be received by Mr. Best pursuant to the +terms of the change of control executive severance agreement would exceed the severance pay or benefits, each considered separately, pursuant to the terms of Mr. Best's employment agreement, +Mr. Best shall receive such excess severance pay or benefits under the change of control executive severance agreement pursuant to the terms thereof. Our change of control executive severance +agreements are discussed below. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of Vice President and above through change of control +executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of control event has occurred and second that the executive has been +terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive officers are entitled to receive severance payments in the event that +their employment is terminated within two and one-half years after a change of control of our company (a) without "cause" by our company or (b) for "good reason" by the +officer, each as defined in the agreements. The term "good reason" incorporates the concept of a +39 +Table of Contents +change +in the executive's status, authority, position, offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding +a change of control event or within two and one-half years thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time +frame, or the requirement that an executive relocate his base of employment outside a 25 mile radius from the executive's location at that time. Severance payments equal to a maximum of two and +one-half times annual base salary, depending on the length of time of employment after the change of control, provided that in no event would the severance payments equal less than one +times annual base salary. In addition, all insurance and benefits will be provided for a period of one year after termination. In the event the executive is subject to golden parachute excise taxes +under Section 4999 of the IRC, severance benefits may be reduced to avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax +"gross-up" payments are provided. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention +incentive benefiting our company and its stockholders without creating an unreasonable impediment to a potential acquirer of our company. The maximum two and one-half times base salary +post-change of control severance benefit, and the minimum one times base salary benefit and insurance coverage period under our agreements for its executives, are comparable to payment +levels and periods offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits protection during a +reasonable period of time to allow the executive to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2011, under the change of control executive severance agreements, the total maximum +severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year after severance for each of the +NEOs who were employed by us as of December 31, 2011, would be as follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated +Value of +Benefits for +One Year (1) +Anthony J. Best (2) +$ +1,450,000 +$ +1,160,000 +$ +21,830 +A. Wade Pursell +$ +845,000 +$ +338,000 +$ +20,121 +Javan D. Ottoson +$ +962,500 +$ +385,000 +$ +21,283 +David W. Copeland +$ +775,000 +$ +310,000 +$ +20,121 +Paul M. Veatch +$ +650,000 +$ +260,000 +$ +20,672 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any +such benefits pursuant to a subsequent employer's benefit plans. The maximum period for receipt of benefits under the change of control executive severance agreements is one year for all NEOs with the +exception of Mr. Best as described in footnote (2) below. +40 +Table of Contents +(2) Our +employment agreement with Mr. Best provides that in the event of our change of control and a termination of Mr. Best's +employment, we must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years thereafter, and, to the extent that +severance pay or benefits to be received by Mr. Best under the terms of our change in control executive severance agreement with Mr. Best would exceed the severance pay or benefits under +his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive severance agreement. +Under +our change of control executive severance agreements with our executives, the severance payments are to be made in such base salary installment amounts and pursuant to such base +salary installment payment schedule as were in effect immediately prior to the change of control, and our company or its successor is obligated to make such payments. We also have change in control +arrangements with a majority of our non-executive employees. +DIRECTOR COMPENSATION +General +Mr. Best, our Chief Executive Officer and only employee director, does not receive additional compensation for serving on the +Board or any committee of the Board. +The +annual service period for our directors is the period from one stockholders' annual meeting to the next. The current fiscal service period is the period from May 25, 2011, +through May 23, 2012. Director compensation is primarily paid in the form of stock grants. +The +annual compensation for each non-employee directors is as follows: +• A $55,000 retainer (in lieu of Board and committee meeting attendance fees) payable at the individual director's option, +either entirely in cash or shares of our common stock. Ms. Baumann, Mr. Bickle, Mr. Gardiner and Mr. Quintana each elected to have their 2011 retainers paid in shares of +our common stock, which resulted in a grant on May 26, 2011, of 823 shares of our common stock to each under the Equity Plan. +• A grant having a value of $160,000 of shares of our common stock—resulting in a grant on May 26, 2011, +to each non-employee director of 2,395 shares of our common stock issued under the Equity Plan. These shares and any shares issued pursuant to any retainer are earned over the director's +annual service period. However, shares issued to a director who thereafter resigns from the Board before completing the annual service period, but after having completed at least five years of service +as a Board member, are treated as fully earned. All shares issued to a director for compensation may not be transferred until two years after the date of issuance. The related compensation expense we +record is the fair value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +• Reimbursement for expenses incurred in attending Board and committee meetings and director education programs. +Chairs +of the following committees are paid the indicated cash retainers at the beginning of the annual director service period in recognition of the additional workload of their +respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +41 +Table of Contents +Mr. Sullivan was paid a retainer for his service as non-executive Chairman of the Board of $75,000 for the 2011-2012 annual service +period. The retainer was paid in the form of stock on May 26, 2011, which resulted in a grant of 1,122 shares of our common stock. The retainer was in addition to his basic +non-employee director compensation. +Non-employee +directors may participate in our matching charitable gift program, maintained for current and former employees to encourage financial support for charitable +organizations that are exempt from federal income taxation. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a +percentage of the average of the prior three years' total income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Ms. Baumann, +Mr. Seidl, and Mr. Sullivan participated in this program during 2011, and we matched a total of $19,200 in non-employee director contributions for 2011 under this program. We +may suspend, change, revoke or terminate the program at any time. +Our +directors are eligible to participate in our health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates associated with +our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for the non-employee directors of three times their annual stock-based retainer. Equity holdings +include the value of vested and unvested RSUs for purposes of these calculations. New directors are allowed time to meet this guideline and are not required to acquire shares in the open market for +this purpose. +The +following table sets forth the annual and long-term compensation paid during 2011 to our non-employee directors. The stock based component of the compensation +reflects the grant date fair value. Cash based compensation is recorded based on the payments to the individual director. +2011 Director Compensation +Name +Fees Earned +or Paid in +Cash +Stock +Awards (2)(3)(4) +Option +Awards (5) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (6) +Total +Barbara M. Baumann +$ +15,000 +$ +214,962 +— +— +— +$ +10,000 +$ +239,962 +Larry W. Bickle +— +$ +214,962 +— +— +— +— +$ +214,962 +Stephen R. Brand (1) +$ +59,452 +$ +188,457 +— +— +— +— +$ +247,909 +William J. Gardiner +$ +20,000 +$ +214,962 +— +— +— +— +$ +234,962 +Julio M. Quintana +— +$ +214,962 +— +— +— +— +$ +214,962 +John M. Seidl +$ +65,000 +$ +159,986 +— +— +— +$ +5,200 +$ +230,186 +William D. Sullivan +$ +55,000 +$ +234,936 +— +— +— +$ +4,000 +$ +293,936 +(1) Mr. Brand +was issued 389 shares of our common stock upon his election to the Board on March 21, 2011. This stock award was for +the period from March 21, 2011, through May 23, 2011, and is considered to be earned over the director's pro-rated annual service period and fully vested on May 23, +2011. The shares also may not be transferred until May 26, 2012. The value of the stock awards represents the grant date fair value. +(2) Each +of our non-employee directors was issued 2,395 shares of our common stock on May 26, 2011, after such director's +election to the Board on May 25, 2011. Mr. Sullivan was issued an additional 1,122 shares of our common stock on May 26, 2011, for serving as the non-executive +Chairman of the Board. Ms. Baumann, Mr. Bickle, Mr. Gardiner, and Mr. Quintana elected to receive an additional 823 shares of our common stock on May 26, 2011, in +lieu of their $55,000 annual cash retainers. These stock awards are for the annual service period from May 25, 2011, through May 23, 2012. The shares are considered to be earned over the +director's annual service period and fully vested May 25, 2012. The shares also may not be transferred until two years after the date of issuance of the shares. The value of the stock awards +represents the grant date fair value. +42 +Table of Contents +(3) The +grant date fair value of each share issued to non-employee directors over their past three years of service to us is set forth +in the following table and is computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. There were no forfeitures by directors during fiscal 2011. +Grant Date +Shares +Value +Grantee +5/26/2011 +2,395 +$ +159,986 +Brand, Seidl +5/26/2011 +3,218 +$ +214,962 +Baumann, Bickle, Gardiner, and Quintana +5/26/2011 +3,517 +$ +234,936 +Sullivan +3/21/2011 +389 +$ +28,471 +Brand +5/27/2010 +3,750 +$ +159,975 +Baumann, Bickle, Gardiner, Seidl, and Quintana +5/27/2010 +5,508 +$ +234,971 +Sullivan +5/21/2009 +7,858 +$ +159,989 +Baumann, Bickle, Gardiner, Seidl, and Quintana +5/21/2009 +10,804 +$ +219,969 +Sullivan +(4) As +of December 31, 2011, our non-employee directors held the following number of shares of restricted stock: +Ms. Baumann—3,218, Mr. Bickle—3,218, Mr. Brand—2,395, Mr. Gardiner—3,218, Mr. Quintana—3,218, +Mr. Seidl—2,395 and Mr. Sullivan—3,517. +(5) For +the year ended December 31, 2011, no stock options were issued to directors, nor have any stock options been issued to the +directors since December 2004. As of December 31, 2011, the non-employee directors held the following number of stock options: Ms. Baumann—47,666, +Mr. Bickle—34,586 and Mr. Gardiner—34,586. All such options are vested and exercisable. Mr. Brand, Mr. Quintana, Mr. Seidl and +Mr. Sullivan do not hold any outstanding stock options. The options described above are cumulative unexercised options granted to the directors over their years of service to us. +(6) The +amounts in this column represent matching charitable contributions made on the behalf of Ms. Baumann, Mr. Seidl, and +Mr. Sullivan for the year 2011 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +Ms. Baumann, Mr. Brand, Mr. Quintana and Mr. Sullivan served on our Compensation Committee during fiscal +year 2011. None of the directors who served on the +Compensation Committee during fiscal year 2011 has ever served as one of our officers or employees. During fiscal year 2011, there were no Compensation Committee interlocks. +PROPOSAL 1—ELECTION OF DIRECTORS +Our directors are elected annually. At the Annual Meeting, eight directors are to be elected to serve for one year or until their +successors are elected and qualified. Based on the recommendations of the NCG Committee, the Board has nominated the following individuals for re-election as directors to serve until the +2013 Annual Meeting of Stockholders and until their successors have been elected and qualified, or until their earlier resignation or removal: +Barbara +M. Baumann +Anthony J. Best +Larry W. Bickle +Stephen R. Brand +William J. Gardiner +Julio M. Quintana +John M. Seidl +William D. Sullivan +Each +nominee is currently a director, and all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy +Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any +43 +Table of Contents +of +the nominees will be unable to serve, if such a situation arises prior to the Annual Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +Set +forth below is certain biographical information, as of the filing date of this Proxy Statement, for each nominee for election as director, including his or her principal occupation, +business experience, and public company directorships held during the last five years. There are no family relationships among any of our directors or executive officers. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of our oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas +industry, public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in the Corporate Governance +Guidelines. Among other attributes, each possesses a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, operations management, +strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that led the NCG Committee +and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our long-term +strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, whose +experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +44 +Table of Contents +Age +Director +Since +Barbara M. Baumann . Ms. Baumann joined our Board in 2002. Ms. Baumann is President of Cross Creek Energy +Corporation, a direct investor in and consultant to energy-related companies. Ms. Baumann has held that position since July 2003. From 2000 to July 2003, Ms. Baumann was Executive Vice President of Associated Energy Managers LLC, an +investment manager and general partner of a private equity energy fund. From 1981 to 1999, Ms. Baumann worked for Amoco in a variety of positions, including serving as Vice President of the Company's San Juan Basin Business Unit. +Ms. Baumann is also a director of UniSource Energy Corporation (NYSE: UNS), the parent company for Tucson Electric Power Company and CVR Energy (NYSE: CVI), a petroleum refiner and the general partner of CVR Partners, a fertilizer manufacturer. +Ms. Baumann is also an independent trustee of the Putnam Mutual Funds. Ms. Baumann brings to the Board over 25 years of experience in the oil and gas exploration and production industry, including broad strategic planning, economic +evaluation, operational, natural gas marketing, and human resources management skills and experience, which are important to the oversight of our financial, operational, and compensation management functions. She also has significant financial +management and accounting management experience, which is important in our oversight of our financial reporting and financial risk management functions. Ms. Baumann's service on other public company boards enhances her strong corporate +governance background, and her position as an independent trustee of a large family of mutual funds provides important insights into stockholder concerns. +56 +2002 +Anthony J. Best . Mr. Best joined the Company in June 2006 as President and Chief Operating Officer. In December +2006, Mr. Best relinquished his position as Chief Operating Officer when Javan D. Ottoson was elected to that office. Mr. Best was elected Chief Executive Officer and a director of the Company in February 2007. From November 2005 to June +2006, Mr. Best was developing a business plan and securing capital commitments for a new exploration and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., an +independent oil and natural gas exploration and production company that was a subsidiary of Unocal, where he managed all of Unocal's onshore United States assets. From 2000 to 2002, Mr. Best had an oil and gas consulting practice, working with +various energy firms. From 1979 to 2000, Mr. Best was with ARCO in a variety of positions, including serving as President—ARCO Latin America, President—ARCO Permian, Field Manager for Prudhoe Bay and VP—External Affairs for ARCO +Alaska. Mr. Best brings to the Board over 30 years of broad experience in the oil and gas exploration and production industry, and as our Chief Executive Officer, a deep understanding of our business, operations, and long-term strategic +issues and goals. +62 +2007 +45 +Table of Contents +Age +Director +Since +Larry W. Bickle . Mr. Bickle joined our Board in 1995. Mr. Bickle is a retired private equity investor with +extensive experience in various energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, +Mr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer of TPC Corporation (formerly Tejas Power Corporation), a NYSE-listed gas storage, +transportation, and marketing company that he founded. Mr. Bickle is also a director of UniSource Energy Corporation (NYSE: UNS), the parent company for Tucson Electric Power Company. He also serves as Non-Executive Chairman and is a member of +the Board of Managers of Quantum Natural Gas Storage, LLC. Mr. Bickle brings to the Board over 25 years of experience in various aspects of the oil and gas exploration and production industry and provides the Board with significant +strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading TPC Corporation. Mr. Bickle also brings specific knowledge of natural gas transportation infrastructure +including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operations, and extensive experience with both state and federal regulators related to natural gas production and transportation. He +also has significant financial management and accounting oversight experience, which is important to oversight of our financial reporting and financial risk management functions. Mr. Bickle's service on other public company boards enhances his +strong corporate governance background. +66 +1995 +Stephen R. Brand . Mr. Brand joined our Board in 2011. Mr. Brand is currently Senior Executive Advisor of +Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. He is also Senior Advisor to Clean Range Ventures, which is a cleantech venture capital firm targeting +transformative opportunities in the areas of virtual utilities, resource management, advanced transportation, and low carbon energy. Mr. Brand is also a director of BPZ Resources, Inc. (NYSE: BPZ), a company that focuses on exploration, +development and production of oil and natural gas in Peru and Ecuador. At the end of 2010, Mr. Brand retired as Senior Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his +appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in October 2007, Mr. Brand served as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Mr. Brand started his career in +1976 as a geologist with Phillips Petroleum Company and thereafter served in various roles of increasing responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. +Mr. Brand has over 35 years of experience in the energy industry, including extensive experience in the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" +stream technologies. He also has valuable human resources management skills and experiences, which are relevant in the oversight of our operational and compensation management functions. +62 +2011 +46 +Table of Contents +Age +Director +Since +William J. Gardiner . Mr. Gardiner joined our Board in 1999. Mr. Gardiner is Senior Vice President and Chief +Financial Officer of King Ranch, Inc., a privately held ranching and agricultural company that owns the historic 825,000 acre "King Ranch" in south Texas. Mr. Gardiner has been an executive officer and Chief Financial Officer of King Ranch, +Inc. since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice President and Chief Financial Officer of CRSS, Inc., a NYSE-listed architectural engineering and independent power producing firm. +Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director at the time of our acquisition of King Ranch Energy, Inc. in 1999. Mr. Gardiner brings to the Board strong +financial management and accounting oversight skills and experiences, a significant amount of which was obtained through his work in energy related businesses for over 25 years. These skills and experiences are important in the oversight of our +financial reporting and financial and operational risk management functions, and serve as a basis for Mr. Gardiner's designation as an audit committee financial expert. +58 +1999 +Julio M. Quintana . Mr. Quintana joined our Board in 2006. Mr. Quintana is the President, Chief Executive +Officer, and a director of TESCO Corporation (NASDAQ: TESO), which designs, manufactures, and delivers technology based solutions for the upstream oil and natural gas industry, including oilfield drilling technology, services, and equipment. Prior to +the appointment to his current position at TESCO Corporation in September 2005, Mr. Quintana served as Executive Vice President and Chief Operating Officer at TESCO beginning in September 2004. Prior to his tenure at TESCO, Mr. Quintana +worked for five years in various executive roles for Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly 20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial +roles. Mr. Quintana brings to the Board over 30 years of experience in various aspects of the oil and gas exploration and production industry, including strong experience in upstream operations, a deep understanding of drilling and asset +management technologies, and broad human resources management skills and experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Quintana's service on another +public company board enhances his strong corporate governance background. +52 +2006 +John M. Seidl . Mr. Seidl joined our Board in 1994. Mr. Seidl has been involved in energy and natural resource +businesses since 1978, and is currently Chairman of the Board of EnviroFuels, LLC, a privately held corporation that develops, manufactures, and markets technology that improves the performance and efficiency of internal combustion engines, +boilers, and other engine designs. Mr. Seidl has held the Chairman position since January 2006 and held the Chief Executive Officer position from October 2008 until May 2010. From July 2004 to January 2006, he served as Vice Chairman of +EnviroFuels' advisory board. Mr. Seidl brings to the Board over 30 years of experience in various energy and natural resources businesses, and provides the Board with significant strategic planning, operations management, public company +corporate governance, and public policy insights from his experience leading numerous companies and in government. He also has significant financial management and accounting oversight experience, which is important in the oversight of our financial +reporting, financial risk management and compensation management functions. +73 +1994 +47 +Table of Contents +Age +Director +Since +William D. Sullivan . Mr. Sullivan joined our Board of Directors in 2004. Mr. Sullivan is a retired oil and gas +executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan retired from Anadarko in August 2003. Since March 2006, Mr. Sullivan has +been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the acquisition and development of producing oil and natural gas properties. Since February +2007, Mr. Sullivan has been a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP (NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, +compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. Since August 2007, Mr. Sullivan has been a director of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas +services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of Compressco Partners GP, Inc., which is the general partner of Compressco Partners, L.P. (NASDAQ: GSJK), a publicly traded +limited partnership providing wellhead compression-based production enhancement services. Compressco Partners GP, Inc. is a majority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation +from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was Executive Vice President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, +and Alaska in 2001, Vice President—International Operations from 1998 to 2000, Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. Mr. Sullivan brings to the Board over +30 years of strong and broad experience in the oil and gas industry, with particular expertise in the exploration and production side of the industry. His experience as an exploration and production senior executive enables him to contribute +significant independent insights on our business and operations, and the economic environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in the oversight of our +compensation management functions, and his service on other public company boards of directors provides a strong corporate governance background. +55 +2004 +Recommendation of the Board +The Board recommends voting "FOR" the election of all of the nominees listed above. +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS +OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2012 +Our stockholders are being asked to ratify the appointment by the Audit Committee of Deloitte & Touche LLP as our +independent registered public accounting firm for 2012. Deloitte & Touche has served as our independent registered public accounting firm since 2001, and the Audit Committee plans to engage +Deloitte & Touche to perform the audit of our financial statements as of and for the year ending December 31, 2012. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of Deloitte & Touche is not required by law +or our organizational documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by +independent registered public accounting firms in maintaining the integrity of financial controls and reporting. If the stockholders do not ratify the appointment of Deloitte & Touche, the +Audit Committee will consider +48 +Table of Contents +whether +to engage another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public +accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders. +A +representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so and +to respond to appropriate questions. +Recommendation of the Board +The Board recommends voting "FOR" Proposal 2. +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named executive +officers, as disclosed in this Proxy Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the Board or the +Compensation Committee, or require the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the +outcome of the vote when considering future executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed +in this Proxy Statement, we will consider our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" hereof, our executive compensation programs are designed to provide a competitive level of +compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance +stockholder value. In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named +executive officers is allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby +"at-risk"). In addition, as an executive officer's responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed +"at-risk" increases in relation to base salary. Furthermore, our named executive officers' targeted and actual total direct compensation (base salary plus target bonus plus +long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more in under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the key +drivers of long-term stockholder value creation. Our LTIP also attempts to achieve this goal by rewarding performance based upon absolute "total stockholder return" as well as total +stockholder return compared to peers. We believe that we have achieved our goal for at least the last three years. +In +light of these reasons, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2012 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the +"Compensation Discussion and Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +49 +Table of Contents +As +you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which more thoroughly discusses how our compensation policies and +procedures are designed to implement our compensation philosophy. The Compensation Committee and the Board believe that these policies and procedures are effective in implementing our compensation +philosophy and in achieving our goals and significantly align the interests of our management with those of our stockholders. +The +Board has adopted a policy providing for annual advisory votes on executive compensation. Unless the Board modifies this policy, the next advisory vote on compensation following this +vote will be held at our 2013 Annual Meeting of Stockholders. +Recommendation of the Board +The Board recommends voting "FOR" Proposal 3. +50 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its oversight +responsibilities with respect to (a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, accounting, +and compliance with legal and regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, (c) the +performance of SM Energy Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Deloitte & Touche LLP, the independent registered public accounting firm, is responsible for performing an independent audit of SM Energy Company's financial statements in +accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial statements of SM Energy Company for the year ended December 31, 2011. The Audit Committee also discussed with the independent registered public accounting firm the matters required to +be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board in Rule 3200T. In addition, the +Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight +Board regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered +public accounting firm that firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be included +in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2011. +Respectfully +submitted by the Audit Committee of the Board of Directors, +William +J. Gardiner, Chair +Larry W. Bickle +Julio M. Quintana +51 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +To the knowledge of management, neither Deloitte & Touche LLP nor any of its members has any direct or material indirect +financial interest in our company or any connection with our company in any capacity other than as our independent registered public accounting firm. +We +paid the following fees to Deloitte & Touche LLP for the audit of the consolidated financial statements and for other services provided in the years ended +December 31, 2011, and 2010. All services and fees, including tax service fees, were pre-approved by the Audit Committee. +2011 +2010 +Audit Fees (1) +$ +908,850 +$ +564,728 +Audit Related Fee (2) +— +— +Tax Fees (3) +10,000 +17,750 +All Other Fees +— +— +Total Fees +$ +918,850 +$ +582,478 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +out-of-pocket expenses related to travel to Audit Committee and stockholder meetings. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee has concluded that the provision of the non-audit services, such as tax services, is compatible with maintaining Deloitte & Touche LLP's +independence. +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant compensation to +be paid to the independent registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. Such +pre-approval requirement for non-audit services may be waived only if the non-audit services meet a de minimis +exception allowed by law. Accordingly, it is the Audit Committee's policy that, prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and +pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm (including the related fees and other terms of such +services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services +and estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is +detailed as to the particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the independent registered public accounting firm are +monitored by financial management of our company and reported to the Audit Committee; (c) any services proposed to be provided by the independent registered public accounting firm and the +related fees that have not been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in advance of any work performed; and +(d) incremental fees for previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit Committee. +52 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2013 ANNUAL MEETING OF STOCKHOLDERS +Pursuant to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion in our proxy +materials and for presentation at the 2013 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be +eligible for inclusion in our proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 15, 2012. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to +the Board or a proposal of business to be properly brought before the 2013 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or +otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A +stockholder making a nomination for election to the Board or a proposal of business for the 2013 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than +the close of business on the 105 th day prior to the first anniversary of the date of the 2012 Annual Meeting nor later than the close of business on the +75 th day prior to the first anniversary of the 2012 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be +considered at the 2013 Annual Meeting of Stockholders, it should be properly submitted to our Corporate Secretary no earlier than February 7, 2013 and no later than March 9, 2013. If the +date of our 2012 Annual Meeting of Stockholders changes by more than 20 days before or after May 25, 2012, then stockholder nominations and proposals must be received not earlier than +the close of business on the 105 th day prior to the date of the 2013 Annual Meeting of Stockholders and not later than the close of business on the later of the +75 th day prior to the date of the 2013 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2013 Annual Meeting of Stockholders is less than +85 days prior to the date of the meeting, the 10th day following the day on which public announcement of the date of the 2013 Annual Meeting of Stockholders is first made by us. For +additional information about stockholder nominations and proposals, see "Corporate Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly +presented by a stockholder at the 2013 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the +proxy statement discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 28, +2013, and the stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 28, 2013, and the matter nonetheless +is permitted to be presented at the 2013 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter +in the proxy statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements +described above and other applicable requirements. +2011 ANNUAL REPORT +Our Annual Report is being made available to stockholders concurrently with this Proxy Statement and does not form part of the proxy +solicitation material. +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, with the SEC. It is available free of charge at the SEC's web site at www.sec.gov . Upon written request by a +stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial +statements and financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, +which is limited to our expenses in furnishing the +53 +Table of Contents +requested +exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +OTHER MATTERS +Management does not know of any matters other than the election of directors, the ratification of the appointment by the Audit +Committee of Deloitte & Touche LLP as our independent registered public accounting firm for 2012 and the advisory vote to approve the compensation of our named executive officers to be +brought before the Annual Meeting. If any other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy intend to use +their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +By Order of the Board of Directors, +David W. Copeland +Senior Vice President, General Counsel +and Corporate Secretary +April 13, +2012 +54 +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 01GAQB 1 U PX + . + A Proposals — The +Board of Directors recommends a vote FOR all the nominees listed and FOR +Proposals 2 and 3. For Against Abstain 1. The Nominating and Corporate +Governance Committee of the Board of Directors has nominated the below eight +persons to stand for election as directors. As of the date of the +accompanying proxy statement, no one has been nominated to serve as director +other than the nominees listed below. 2. The proposal to ratify the +appointment by the Audit Committee of Deloitte & Touche LLP as our +independent registered public accounting firm for 2012. For Against Abstain +3. To approve, on a non-binding advisory basis, the compensation of our +Company’s named executive officers, as disclosed in the accompanying Proxy +Statement. Authorized Signatures — This section must be completed for your +vote to be counted. — Date and Sign Below C Please sign exactly as name(s) +appears hereon. Joint owners should each sign. When signing as attorney, +executor, administrator, corporate officer, trustee, guardian, or custodian, +please give full title. Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. Date (mm/dd/yyyy) — +Please print date below. Annual Meeting Proxy Card 01 - Barbara M. Baumann 04 +- Stephen R. Brand 07 - John M. Seidl 02 - Anthony J. Best 05 - William J. +Gardiner 03 - Larry W. Bickle 06 - Julio M. Quintana For Against Abstain For +Against Abstain 08 - William D. Sullivan For Against Abstain IMPORTANT ANNUAL +MEETING INFORMATION B Non-Voting Items Change of Address — Please print new +address below. 1 3 5 3 8 3 1 MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE +AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND C +1234567890 J N T 1234 5678 9012 345 000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000004 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD +3 ADD 4 ADD 5 ADD 6 ENDORSEMENT_LINE______________ SACKPACK_____________ +C123456789 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. Electronic Voting Instructions You can vote by Internet or +telephone! Available 24 hours a day, 7 days a week! Instead of mailing your +proxy, you may choose one of the two voting methods outlined below to vote +your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies +submitted by the Internet or telephone must be received by 1:00 a.m., MST on +May 23, 2012. Vote by Internet • Go to www.investorvote.com/SM • Or scan the +QR code with your smartphone • Follow the steps outlined on the secure +website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the +USA, US territories & Canada on a touch tone telephone • Follow the +instructions provided by the recorded message +Proxy — SM +Energy Company 1775 Sherman Street, Suite 1200 Denver, Colorado 80203 This +proxy is solicited on Behalf of the Board of Directors For the Annual Meeting +of Stockholders on May 23, 2012. The undersigned hereby appoints A. Wade +Pursell, David W. Copeland, and Brent A. Collins, or any of them, each with +the power to appoint his substitute, as proxies for the undersigned to vote +all shares of SM Energy Company common stock which the undersigned is +entitled to vote at the Annual Meeting of Stockholders to be held on May 23, +2012, and at any reconvened meeting after any adjournment thereof, as +directed on the matters referred to on the reverse side and at their +discretion on any other matters that may properly be presented at the +meeting. This proxy when properly executed will be voted in the manner +directed by the undersigned stockholder. If this proxy is properly executed +but no voting direction is given, this proxy will be voted “FOR” all director +nominees in Proposal 1 and “FOR” Proposals 2 and 3. This proxy also confers +discretionary authority to the proxies to vote on any other matters that may +properly be presented at the meeting. As of the date of the accompanying +proxy statement, SM Energy Company’s management did not know of any other +matters to be presented at the meeting. If any other matters are properly +presented at the meeting, this proxy will be voted in accordance with the +recommendations of SM Energy Company’s management. Electronic Delivery of +Future Proxy Materials If you would like to reduce the costs incurred by us +in mailing proxy materials, you can consent to receiving all future proxy +statements, proxy cards and annual reports electronically via e-mail or the +Internet. To sign up for electronic delivery, please follow the instructions +on the front of this card to vote using the Internet and, when prompted, +indicate that you agree to receive or access proxy materials electronically +in future years. Important Notice Regarding the Availability of Proxy +Materials for the Annual Meeting of Stockholders to be held May 23, 2012. The +Proxy Statement and our 2011 Annual Report on Form 10-K are available at: +http://www.proxyease.com/sm-energy/2012. IF YOU HAVE NOT VOTED VIA THE +INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE +BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 01GARB 1 U PX + PLEASE FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. + +A Proposals — The Board of Directors recommends a vote FOR all the nominees +listed and FOR Proposals 2 and 3. Authorized Signatures — This section must +be completed for your vote to be counted. — Date and Sign Below B Please sign +exactly as name(s) appears hereon. Joint owners should each sign. When +signing as attorney, executor, administrator, corporate officer, trustee, +guardian, or custodian, please give full title. Signature 1 — Please keep +signature within the box. Signature 2 — Please keep signature within the box. +Date (mm/dd/yyyy) — Please print date below. Annual Meeting Proxy Card +IMPORTANT ANNUAL MEETING INFORMATION For Against Abstain 1. The Nominating +and Corporate Governance Committee of the Board of Directors has nominated +the below eight persons to stand for election as directors. As of the date of +the accompanying proxy statement, no one has been nominated to serve as +director other than the nominees listed below. 2. The proposal to ratify the +appointment by the Audit Committee of Deloitte & Touche LLP as our +independent registered public accounting firm for 2012. For Against Abstain +3. To approve, on a non-binding advisory basis, the compensation of our +Company’s named executive officers, as disclosed in the accompanying Proxy +Statement. 01 - Barbara M. Baumann 04 - Stephen R. Brand 07 - John M. Seidl +02 - Anthony J. Best 05 - William J. Gardiner 03 - Larry W. Bickle 06 - Julio +M. Quintana For Against Abstain For Against Abstain 08 - William D. Sullivan +For Against Abstain 1 3 5 3 8 3 2 +PLEASE FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. Important Notice Regarding the Availability of Proxy Materials for +the Annual Meeting of Stockholders to be held May 23, 2012. The Proxy +Statement and our 2011 Annual Report on Form 10-K are available at: +http://www.proxyease.com/sm-energy/2012. Proxy — SM Energy Company 1775 +Sherman Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on +Behalf of the Board of Directors For the Annual Meeting of Stockholders on +May 23, 2012. The undersigned hereby appoints A. Wade Pursell, David W. +Copeland, and Brent A. Collins, or any of them, each with the power to +appoint his substitute, as proxies for the undersigned to vote all shares of +SM Energy Company common stock which the undersigned is entitled to vote at +the Annual Meeting of Stockholders to be held on May 23, 2012, and at any +reconvened meeting after any adjournment thereof, as directed on the matters +referred to on the reverse side and at their discretion on any other matters +that may properly be presented at the meeting. This proxy when properly +executed will be voted in the manner directed by the undersigned stockholder. +If this proxy is properly executed but no voting direction is given, this +proxy will be voted “FOR” all director nominees in Proposal 1 and “FOR” +Proposals 2 and 3. This proxy also confers discretionary authority to the +proxies to vote on any other matters that may properly be presented at the +meeting. As of the date of the accompanying proxy statement, SM Energy +Company’s management did not know of any other matters to be presented at the +meeting. If any other matters are properly presented at the meeting, this +proxy will be voted in accordance with the recommendations of SM Energy +Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-12-004259/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-12-004259/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..1c36304e2d939b7c97bcce961208589d71f52430 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-12-004259/proxy_rpt.txt @@ -0,0 +1,40 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +We have adopted a Related Person Transactions Policy (the "Related Person Policy"), which sets forth the policies and procedures for +the Audit Committee's review of any transaction, arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or +relationships in which (a) we are a participant, (b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have +a direct or indirect material interest. For purposes of the Related Person Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, +(ii) any stockholder that beneficially owns more than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee +approves or ratifies only those transactions that it determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among others, +the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent of the +related person's interest in the transaction. The policy also provides for the delegation of Audit Committee authority to the Chair of the Audit Committee for any related person transaction requiring +pre-approval or ratification between meetings of the Audit Committee. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to +ensure that they are in compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he +or she learned about through his or her affiliation with us. Our By-Laws also provide that our officers or employees may not pursue for his or her own account an oil and gas opportunity +that he or she independently learned about unless (a) with respect to an officer, the officer's pursuit of the opportunity has been approved by the Board, and (b) with respect to a +non-officer, the employee's pursuit of the opportunity has been approved by one of our senior officers with full knowledge of that opportunity. These restrictions do not apply to the +acquisition of less than 1% of the publicly traded stock of another company. +11 +Table of Contents +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders, including but not limited to, +situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources or when we provide products or services +to related persons on an arm's length basis on terms comparable to those provided to unrelated third parties or on terms comparable to those provided to employees generally. Set forth below is a +description of all transactions between our company and related persons since the beginning of January 1, 2011: +Mr. Quintana +is the President, Chief Executive Officer, and a director of TESCO, which designs, manufactures, and delivers technology based solutions for the upstream energy industry, including +oilfield drilling and completion technology, services, and equipment. We have an agreement with TESCO for its provision of services to us in connection with our drilling and completion operations. +This agreement continues until canceled by either us or TESCO on 30 days advance written notice. Pursuant to this agreement, we are obligated to pay TESCO only for services actually performed +or equipment delivered, as the case may be. This agreement does not require us to make any other payments to TESCO. Mr. Quintana does not have any direct or indirect interest in the +transaction, other than as a result of serving as an executive officer and director of TESCO. Prior to 2010, the services provided by TESCO and the amounts we paid did not exceed the threshold amount +for review under our Related Person Policy. In 2010, we paid TESCO $346,683 for any services rendered. In 2011, we paid TESCO $1,029,665 for services rendered. As of March 31, 2012, we had paid +TESCO $172,495 for services rendered during 2012. In accordance with our Related Persons Transaction Policy, based upon these amounts, the Audit Committee reviewed the relationship between us and +TESCO and determined that the relationship is in our best interests and the best interests of our stockholders. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-14-003625/proxy.txt b/raw/proxies/0000893538/0001047469-14-003625/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0eb36cf0bdd99c2b25bd8fef65fc8c8cde759f95 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-14-003625/proxy.txt @@ -0,0 +1,3503 @@ +DEF 14A +1 +a2219503zdef14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +SM Energy Company +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD +TUESDAY, MAY 20, 2014 +To All Stockholders: +The +2014 Annual Meeting of Stockholders of SM Energy Company is to be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, on Tuesday, +May 20, 2014, at 3:30 p.m. local time. The purposes of the Annual Meeting are to: +1. elect +eight individuals to our Board of Directors, to serve until the next annual meeting of our stockholders; +2. ratify +the appointment by our Audit Committee of Ernst & Young LLP, as our independent registered public accounting firm for 2014; +3. hold +an advisory vote to approve the compensation of our named executive officers; and +4. transact +such other business that may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof. +Only +stockholders of record at the close of business on March 21, 2014, may vote at the Annual Meeting. +Only +stockholders of record, holders of our shares of common stock in street name and our guests will be permitted to attend the 2014 Annual Meeting. If you are a stockholder of record, +you will need to bring with you to the meeting either the Notice of Internet Availability of Proxy Materials or any proxy card that is sent to you. Otherwise, you will be admitted only upon other +verification of record ownership at the site. If you own shares held in street name, you will need to bring the Notice of Internet Availability of Proxy Materials, any voting instruction form that is +sent to you, or your most recent brokerage statement or a letter from your bank, broker, or other record holder indicating that you beneficially owned shares of our common stock on March 21, +2014. We can use that to verify your beneficial ownership of our common stock and admit you to the meeting. If you intend to vote at the meeting, you also will need to bring to the meeting a legal +proxy from your bank, broker, or other holder of record that authorizes you to vote the shares that the record holder holds for you in its name. +Please vote by using the telephone or Internet voting systems described in the Notice of Internet Availability of Proxy Materials or the proxy card or, if the +attached Proxy Statement and a proxy card were mailed to you, please sign, date, and return the proxy card in the enclosed envelope as soon as possible. Thank you for your support for the +recommendations of our Board of Directors. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel and Corporate Secretary +Denver, +Colorado +April 9, 2014 +Table of Contents +TABLE OF CONTENTS +Page +General +1 +Background +1 +Purposes of the Annual Meeting +1 +Who Can Vote +2 +Differences Between Stockholders of Record and Street Name Holders +2 +How to Vote +2 +Revoking a Proxy +3 +Quorum +3 +Voting Requirements; Vote Treatment +3 +Payment of Proxy Solicitation Costs +4 +Other Available Information +5 +Stockholders Sharing the Same Address +5 +Corporate Governance +6 +General +6 +Board and Committee Independence +6 +Board Leadership Structure +7 +Communications with the Board +7 +Board and Committee Meetings +8 +Risk Oversight +9 +Director Nominations and Qualifications +10 +Certain Relationships and Related Transactions +11 +Policies and Procedures on Transactions with Related Persons +11 +Related Person Transactions +12 +Security Ownership of Certain Beneficial Owners and Management +13 +Section 16(a) Beneficial Ownership Reporting Compliance +15 +Information About Executive Officers +16 +Executive Compensation +20 +Compensation Discussion and Analysis +20 +Compensation Committee Report +37 +Executive Compensation Tables +38 +Potential Payments Upon Termination or Change of Control +42 +Equity Compensation Plans +45 +Director Compensation +47 +Compensation Committee Interlocks and Insider Participation +49 +Proposal 1—Election of Directors +50 +Proposal 2—Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2014 +55 +Proposal 3—Advisory Vote on Executive Compensation +56 +Report of the Audit Committee +57 +Independent Registered Public Accounting Firm +58 +Audit Committee Preapproval Policy and Procedures +59 +Stockholder Proposals for the 2015 Annual Meeting of Stockholders +59 +2013 Annual Report +60 +Other Matters +61 +Table of Contents +SM Energy Company +1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 +(303) 861-8140 +PROXY STATEMENT +GENERAL +Background +This Proxy Statement contains information about the 2014 Annual Meeting of Stockholders (the "Annual Meeting") of SM Energy Company to +be held in the J.D. Hershner Room of Wells Fargo Bank, located at 1700 Lincoln Street, Denver, Colorado, on Tuesday, May 20, 2014, at 3:30 p.m. local time. Our Board of Directors +("Board") is using this Proxy Statement to solicit proxies for use at the Annual Meeting and at any adjournment(s) or postponement(s) thereof. In this Proxy Statement, the terms "we," "us," and "our" +refer to SM Energy Company, inclusive of its subsidiaries. +The +proxy materials, including this Proxy Statement, a proxy card or voting instruction card, and our Annual Report on Form 10-K for the fiscal year ended December 31, +2013 ("2013 Annual Report"), are being distributed and made available on or about April 10, 2014. In accordance with rules and regulations adopted by the United States Securities and Exchange +Commission (the "SEC"), we are furnishing our proxy materials to many beneficial owners of our stock via the Internet. A Notice of Internet Availability of Proxy Materials (the "Notice") will be +mailed by intermediaries on or about April 10, 2014, to beneficial owners of our common stock. Stockholders will have the ability to access the proxy materials on a website referred to in the +Notice or may request that we send them a printed set of the proxy materials by following the instructions in the Notice. The Notice will also provide instructions on how to vote your shares. The +proxy materials are being mailed to all stockholders of record, as of close of business on March 21, 2014, on or about April 10, 2014. +Purposes of the Annual Meeting +As stated in the accompanying Notice of Annual Meeting of Stockholders, at the Annual Meeting, our stockholders will be asked to vote +on: +• the election of eight individuals to our Board, to serve until the next annual meeting of our stockholders; +• the ratification of the appointment by our Audit Committee of Ernst & Young LLP, as our independent +registered public accounting firm for 2014; and +• an advisory vote to approve the compensation of our named executive officers. +Each +proposal is described in more detail in this Proxy Statement. +As +of the date of this Proxy Statement, we are not aware of any business to come before the Annual Meeting other than the three items noted above. +1 +Table of Contents +Who Can Vote +Only stockholders of record at the close of business on the record date, March 21, 2014, are entitled to receive notice of the +Annual Meeting and to vote shares of our common stock held on that date. As of March 21, 2014, there were 67,056,441 shares of our common stock issued and outstanding, net of 22,412 shares held +in treasury. Holders of our common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors. +Differences Between Stockholders of Record and Street Name Holders +Most stockholders hold their shares through a bank, broker or other nominee (that is, in "street name") rather than directly in their +own name. As summarized below, there are some distinctions between shares held of record and those owned in street name. +• Stockholder of Record. If your shares are registered +directly in your name with our transfer agent, Computershare, Inc., you are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right +to grant your voting proxy directly or to vote in person at the Annual Meeting. +• Street Name Stockholder. If your shares are held in a +brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street name." As the beneficial owner, you have the right to direct your broker or nominee +how to vote and are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a +signed proxy from the record holder giving you the right to vote the shares. +How to Vote +Stockholder of Record. Stockholders whose shares are registered in their own name may vote via the +Internet, by telephone or by mailing a completed +proxy card. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, you must sign, date and return the enclosed proxy card +in the enclosed prepaid and addressed envelope, and your +shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified, the proxies will be voted as follows: +• FOR the election of the eight nominees named in this Proxy Statement under the caption "Proposal 1—Election of +Directors"; +• FOR the ratification of the appointment by our Audit Committee of Ernst & Young LLP as our independent +registered public accounting firm for 2014; +• FOR the advisory approval of the compensation of our named executive officers; and +• in the discretion of the proxy holders named on the proxy card as to any other matter that may properly come before the +Annual Meeting, or any adjournment(s) or postponement(s) thereof. +Street Name Stockholder. If your shares are registered in the name of a bank, broker or other +nominee and you have not elected to receive your proxy +materials electronically, you may nevertheless be eligible to vote your shares via the Internet or by telephone rather than by mailing a completed +2 +Table of Contents +voting +instruction card provided by your bank, broker or other nominee. Please check the voting instruction card provided by your bank, broker or other nominee for availability and instructions. +If +you hold shares in BOTH street name and as a stockholder of record, YOU MUST VOTE +SEPARATELY for each set of shares. +Revoking a Proxy +If you are a stockholder of record, you can revoke your proxy at any time before it is exercised +by: +• submitting a new proxy with a later date either signed and returned by mail or transmitted using the telephone or Internet +voting procedures before the Annual Meeting; +• voting in person at the Annual Meeting; however, attending the Annual Meeting without completing a ballot will not revoke +any previously submitted proxy; or +• filing a written revocation before the Annual Meeting with our Corporate Secretary at our principal executive offices, +which are located at 1775 Sherman Street, Suite 1200, Denver, CO 80203. +If +you are a street name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or other nominee in accordance with your +nominee's procedures. +Quorum +A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if stockholders holding one-third of our +outstanding shares of common stock are present at the Annual Meeting in person or by proxy. Abstentions and broker non-votes (as described below) count as present for establishing a quorum. Shares +held by us as treasury shares are not entitled to vote +and do not count toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned until a quorum is obtained. +Voting Requirements; Vote Treatment +If you hold your shares in "street name," you will receive instructions from your bank, broker or other nominee describing how to vote +your shares. If you do not instruct your bank, broker or other nominee how to vote your shares, it may vote your shares as it decides as to each matter for which it has discretionary authority under +the rules of the New York Stock Exchange ("NYSE"). +There +are also non-discretionary matters for which banks, brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. When a +bank, broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the bank, broker or other nominee should vote your shares, and the +bank, broker or other nominee indicates it does not have authority to vote such shares on its proxy, a "broker non-vote" results. Although any broker non-vote would be counted as present at the +meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. +3 +Table of Contents +Abstentions +occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which stockholders are voting. +If +your shares are held in street name and you do not give voting instructions, pursuant to Rule 452 of the NYSE, the record holder will not be permitted to vote your shares with +respect to Proposal 1 ( Election of Directors ) and Proposal 3 ( Advisory Vote on Executive Compensation ); +and your shares will be considered "broker non-votes" with respect to these proposals; but will nevertheless be entitled to vote your shares with respect to Proposal 2 +( Ratification of Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 2014 ) in the discretion of the +record holder. +• Proposal 1 ( Election of Directors ): Our Amended and Restated By-Laws (our +"By-Laws") provide that the election of directors will be decided by the vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. +Abstentions will be counted in determining the total number of shares "entitled to vote" on the election of directors and will have the same effect as a vote "Against" a director. Broker non-votes +will have no effect on the outcome of the vote for directors. +• Proposal 2 ( Ratification of Appointment of Ernst & Young LLP as Our Independent +Registered Public Accounting Firm for 2014 ): Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the +fiscal year ending December 31, 2014, requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. +Abstentions will be counted in determining the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. +• Proposal 3 ( Advisory Vote on Executive Compensation ): Approval of this +proposal requires the affirmative vote of the holders of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote. Abstentions will be counted in determining +the total number of shares "entitled to vote" on this proposal and will have the same effect as a vote "Against" the proposal. Broker non-votes will have no effect on the outcome of the vote on this +proposal. While this vote is required by law, it will not be binding, nor will it create or imply any change in the fiduciary duties of, nor impose any additional fiduciary duty on, us or the Board. +However, the Compensation Committee of our Board will take into account the outcome of the vote when considering future executive compensation decisions. +Payment of Proxy Solicitation Costs +We will pay all costs of soliciting proxies. We have retained Alliance Advisors, LLC to assist in the solicitation of proxies +for total fees of $8,500, plus reimbursement of reasonable out-of-pocket expenses. The solicitation may be made personally or by mail, facsimile, telephone, messenger, or via the Internet. In +addition, our officers, directors, and employees may solicit proxies in person, by telephone, or by other electronic means of communication. Such directors, officers and employees will not be +additionally compensated but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We may reimburse brokerage firms, custodians, nominees, fiduciaries +and other persons representing beneficial owners of our common stock for their reasonable out-of-pocket expenses in forwarding solicitation material to such beneficial owners. +4 +Table of Contents +Other Available Information +We make available through the Corporate Governance section of our website the following documents: our Corporate Governance +Guidelines; our Financial Code of Ethics (the "Financial Code"); our Code of Business Conduct and Conflict of Interest Policy (the "Code"); and the Charters of the Audit, Compensation, Executive, and +Nominating and Corporate Governance Committees of our Board. These documents will be furnished in print to any stockholder upon request. Information on our website is not incorporated by reference +into this Proxy Statement and should not be considered part of this document. +Stockholders Sharing the Same Address +We have adopted a procedure approved by the SEC called "householding." Under this procedure, stockholders of record who have the same +address and last name will receive only one copy of our Notice of Internet Availability, 2013 Annual Report, and Proxy Statement until such time as one or more of these stockholders notify us that +they want to receive separate copies. This procedure reduces our printing costs and postage fees. Stockholders who participate in householding will continue to have access to and may utilize separate +proxy voting instructions. +If +you receive a single set of proxy materials as a result of householding and you would like to receive a separate copy of our Notice of Internet Availability, 2013 Annual Report or +Proxy Statement, please submit a request to our Corporate Secretary, at 1775 Sherman Street, Suite 1200, Denver, Colorado 80203 or call (303) 861-8140, and we will promptly send such to +you. You may also contact our Corporate Secretary at the address and phone number above if you receive multiple copies of our proxy materials and you would prefer to receive a single copy in the +future, or if you would like to opt out of householding for future mailings. Beneficial owners can request information about householding from their bank, broker, or other nominee. +IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF +PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 20, 2014 +The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2014 Annual Meeting of Stockholders, and the Form 10-K for the fiscal +year ended December 31, 2013, are available at http://viewproxy.com/sm-energy/2014/. +5 +Table of Contents +CORPORATE GOVERNANCE +General +We are committed to sound corporate governance principles. To evidence this commitment, the Board has adopted charters for its +committees, our Corporate Governance Guidelines, the Financial Code and the Code. These documents provide the framework for our corporate governance. A complete copy of these documents is available on +our website at www.sm-energy.com or in print, free of charge, to any stockholder who requests it by contacting our Corporate Secretary. The Board +regularly reviews corporate governance developments and modifies our governance documents as appropriate. +The +Financial Code, which applies to our principal executive officer, principal financial officer and principal accounting officer or controller, as well as persons performing similar +functions and other officers and employees identified by our Chief Financial Officer, requires that any exception to or waiver for an executive officer subject to the Financial Code be made only by +the Audit Committee of the Board and disclosed as required by law, SEC rules and regulations, and NYSE rules. Changes to, or waivers from, the Financial Code for any of our executive officers subject +to the Financial Code will be disclosed on our website at www.sm-energy.com within two business days after such change or waiver. To date, the Audit +Committee of our Board has not granted waivers of the Financial Code for any of our executive officers subject to the Financial Code. +Board and Committee Independence +The Board is comprised of a majority of independent directors, two of which, Stephen R. Brand and Loren M. Leiker, +joined the Board in the last four years. The Board has determined that Barbara M. Baumann, Larry W. Bickle, Stephen R. Brand, William J. Gardiner, Loren M. Leiker, +Julio M. Quintana, John M. Seidl and William D. Sullivan are independent and do not have any material relationship with us other than as a director and stockholder. In its review +of the independence of these directors, the Board considered past employment, remuneration, and any other relationship with us. In making its determination as to the independence of its members, the +Board considered the independence tests described in Section 303A.02 of the Corporate Governance Standards of the NYSE's Listed Company Manual. +In +making its determination as to Mr. Quintana's independence, the Board considered our relationship with Tesco Corporation ("Tesco"), which is discussed in more detail in the +"Related Person Transactions" section below. In 2006, we entered into an agreement with Tesco, for which Mr. Quintana serves as an employee, executive officer, and director, based on Tesco's +industry-recognized ability to supply specific high quality equipment and services for drilling and casing needs, which are particularly well suited for certain of our operations. Under our agreement, +Tesco from time to time upon our request, provides equipment or services to us. In 2013, we paid Tesco $758,327, which represented less than 1% of Tesco's total reported 2013 revenues of +$525.3 million, and, as of March 31, 2014, we had paid Tesco $165,493 for equipment and services in 2014. Mr. Quintana had no input in our selection of Tesco for any equipment or +services, or the terms of our agreement with Tesco. Decisions to use Tesco are made by technical professionals supervising the relevant regional activity, based on their assessment of Tesco's products +and services and related costs in comparison to other providers. The amount we paid Tesco during 2013 for equipment and services represented approximately 5% of the total amount we paid to all service +providers (including Tesco) for similar equipment and services during 2013. +The +Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee ("NCG Committee") of our Board are each comprised solely of independent directors +under the applicable requirements of the NYSE and SEC. +6 +Table of Contents +Board Leadership Structure +Since February 2007, our Board's leadership structure has separated the roles of Chief Executive Officer and Chairman of the Board. +Mr. Sullivan, an independent director serving on our Board since 2004, who has experience serving on several other public company boards and over 31 years of experience working with oil +and gas exploration and production companies, including as an executive officer, serves as our Chairman of the Board. Mr. Sullivan does not serve on any committee of our Board, other than the +Executive Committee, which meets infrequently, and did not take action on any matter in 2013. Anthony J. Best serves as our Chief Executive Officer. +Our +Board believes that, at this time, this leadership structure is optimal for us and our stockholders. The Chairman of the Board is responsible for providing leadership to the Board; +facilitating communications among the directors; setting the Board meeting agenda in consultation with the Chief Executive Officer; presiding at Board meetings and Executive Committee meetings; and +serving as a liaison between our management and directors. +Our +Corporate Governance Guidelines allow our Board to choose whether to keep the roles of Chief Executive Officer and Chairman of our Board separate or whether to permit one person to +serve in both capacities. As part of its annual self-evaluation process, our NCG Committee evaluates our leadership structure and makes recommendations to the Board. While recognizing that different +board leadership structures may be appropriate at different times and under different circumstances, based on the recommendation of the NCG Committee, our Board has determined that our current +leadership structure is preferable, with Mr. Best serving as our Chief Executive Officer, and Mr. Sullivan serving as our Chairman of the Board. +In +addition to having an independent Chairman of the Board, the Board has a separate lead independent director. Dr. Bickle assumed that role on January 1, 2012, upon his +appointment as Chair of the NCG Committee. The lead independent director is responsible for presiding at executive sessions of non-management directors. In the lead independent director's absence, the +Chairman of the Board serves as lead independent director. +As +of the filing date of this Proxy Statement, the Board has eight independent members and only one non-independent member, our Chief Executive Officer. A number of our independent +Board members +are currently serving or have served as members of senior management of other companies in the oil and gas industry and are currently serving or have served as directors of other public companies. As +discussed above, our Board has three committees comprised solely of independent directors, and each has a different independent director serving as chair of the committee. The specific experiences, +qualifications, attributes, and skills of each independent director, which enable him or her to effectively serve on his or her respective Board committees, are briefly described in each director +nominee's biographical information below. We believe that the number of independent and experienced directors that make up our Board, the specific experiences and skills that they bring to their +respective Board committees, and the overall leadership of the Board by the Chairman of the Board are beneficial to our stockholders. +Communications with the Board +The Board welcomes questions or comments about our company. Interested parties and stockholders may contact the Board as a whole, only +the non-management directors, or any one or more specified individual directors, by sending a letter to the intended recipients' attention in care of SM Energy Company, Corporate Secretary, 1775 +Sherman Street, Suite 1200, Denver, CO 80203. All +7 +Table of Contents +such +communications will be provided to the Chair of the NCG Committee, who will facilitate the review of such communications. +Board and Committee Meetings +Our Board met ten times during 2013, and our non-management directors met five times in 2013. Our non-management directors routinely +meet in executive session immediately before or after each regularly scheduled meeting of the Board or as otherwise deemed necessary. Each incumbent director participated in at least 90% of the Board +meetings and in at least 88% of his or her appointed committee meetings held during the director's tenure on the Board in 2013. It is our policy that each director is expected to attend the annual +meeting of our stockholders, and each director then serving on the Board attended the 2013 Annual Meeting of Stockholders. +The +following table identifies the members of each committee, as of December 31, 2013, and sets forth the number of meetings held in 2013: +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. Baumann +X* +X +Anthony J. Best +X +Larry W. Bickle +X +X* +Stephen R. Brand +X +X +William J. Gardiner +X* +X +Loren M. Leiker +X +X +Julio M. Quintana +X +X +John M. Seidl +X +William D. Sullivan +X* +Number of meetings held in 2013 +8 +2 +9 +0 +* Chair +The +Audit Committee assists the Board in fulfilling its oversight responsibilities over our financial reporting and internal control processes. Pursuant to the Audit Committee charter, +members are prohibited from serving on more than three audit committees of public companies (one of which is us), and no Audit Committee member currently serves on more than two such committees. The +Audit Committee is solely responsible for the engagement and discharge of our independent registered public accounting firm and reviews our quarterly and annual financial results. The Audit Committee +reviews the audit plan and the results of the audit with our independent auditors and reviews the independence of our auditors, the range of audit fees, the scope and adequacy of our system of +internal accounting controls, and our financial risk management policies. The Audit Committee also has oversight responsibility for our internal audit functions and any related party transactions. The +Audit Committee is currently composed of four directors, each of whom is independent as defined by the NYSE listing standards. See the "Report of the Audit Committee" contained in this Proxy +Statement. While all of the Audit Committee members are considered financially literate, the Board has determined that two members of the current Audit Committee, Dr. Bickle and +Mr. Gardiner, are audit committee financial experts as the term is defined by the SEC. As noted above, Dr. Bickle and Mr. Gardiner are also independent. +The +NCG Committee's primary functions are to recommend individuals to be elected to the Board, to evaluate and plan for management succession, to review the structure and composition of +all +8 +Table of Contents +committees +of the Board, and to oversee all of our corporate governance functions, including the Board and committee self-evaluation process. For additional information on the functions performed by +the NCG Committee, see "Director Nominations and Qualifications" below. +The +Compensation Committee's primary function is to establish and administer our compensation policies and oversee the administration of our employee benefit plans. The Compensation +Committee approves and/or recommends to the Board the compensation arrangements for our senior management and directors, adoption of compensation plans in which our officers and directors are eligible +to participate, and the granting of equity based compensation or other benefits under compensation plans. The "Compensation Discussion and Analysis" section of this Proxy Statement describes these +responsibilities and the manner in which they are discharged. +The +Executive Committee has the authority to act on behalf of the Board with respect to matters as to which it has been authorized to act by the Board, provided that such matters are +not in conflict with +our Certificate of Incorporation, our By-Laws, applicable laws, regulations, or rules or the listing standards of the NYSE. +Our +Board and each of its committees separately evaluated their performance during 2013, and the Audit Committee, Compensation Committee and NCG Committee each completed written +evaluations. The Executive Committee did not complete a written evaluation due to its unique, limited purpose and infrequent meeting schedule. This performance evaluation process was directed by the +NCG Committee and the evaluations were discussed and accepted by the Board. +There +are no arrangements or understandings between any director and any other person pursuant to which that director was or is to be elected. +Risk Oversight +While the Board oversees our risk management processes, with particular focus on the most significant risks we face, management is +responsible for day-to-day risk management. We believe this division of responsibilities is the most effective approach for addressing the risks we face, and that the current Board leadership +structure, with Mr. Sullivan serving as our Chairman of the Board and Mr. Best serving as our Chief Executive Officer, supports this approach by facilitating communication between +management and the Board regarding risk management issues. We also believe that this design places the Board in a better position to evaluate the performance of management, more efficiently +facilitates communication of the views of the independent directors, and contributes to effective corporate governance. +We +have an Enterprise Risk Management Committee comprised of our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, General Counsel, Senior Vice +President—Human Resources, and Treasurer. The committee meets quarterly to update our enterprise risk management process and plan (the "ERM Plan"), utilizing the Committee of Sponsoring +Organizations of the Treadway Commission Enterprise Risk Management framework, and incorporating information gathered during our business strategy sessions. Minutes of these meetings are kept, and the +activities of the committee are regularly reported to the Audit Committee and the Board. Risk prevention or mitigation steps are documented for the material risks identified based upon projected +likelihood and impact of any occurrence of the particular risk. The ERM Plan is reviewed with our Board annually. +We +also have a Financial Risk Management Committee comprised of our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Senior Vice +President—Portfolio Development and Technical Services, Treasurer and Vice President—Engineering, Evaluation and +9 +Table of Contents +A&D. +The committee meets quarterly and more frequently, as necessary, to discuss our interest rate and commodity hedging activities and, as appropriate, to approve additional hedges. Minutes of these +meetings are kept, and the activities of the committee are regularly reported to the Audit Committee. +The +Audit Committee provides significant assistance to the Board in the oversight of our financial risk management processes. The Audit Committee reviews and discusses with management +our risk assessment and risk management guidelines and policies with respect to our significant financial risk exposures, and the steps management has taken, as well as the specific guidelines and +policies that have been established, to monitor, control, mitigate, and report those exposures. These reviews and discussions include a review of our oil, natural gas and natural gas liquids commodity +price hedging arrangements, interest rate risk management, and insurance coverage, as appropriate. In addition, our internal auditors, who report directly to the Audit Committee with respect to +internal audit matters, provide the Audit Committee and management with ongoing assessments of our risk management processes. The Audit Committee also has oversight responsibility for the integrity of +our financial statements and financial reporting processes and systems of internal controls regarding finance, accounting, and compliance with legal and regulatory requirements. In addition, the +Compensation Committee periodically reviews our compensation programs to ensure that they do not encourage excessive risk-taking. The Audit Committee and Compensation Committee report regularly to the +full Board on their respective risk management oversight activities. +Director Nominations and Qualifications +Our Corporate Governance Guidelines and the Charter of the NCG Committee provide that the NCG Committee is responsible for identifying +and recommending directors for nomination by the Board for election as members of the Board. The NCG Committee selects a nominee based on the nominee's skills, achievements, and experience. As set +forth in the director qualification standards included in our Corporate Governance Guidelines and reflected in the discussion below, the Board as a whole should have broad and relevant experience in +high-level business policymaking and a commitment to represent the long-term interests of our stockholders. These standards also provide that each director should have experience in positions of +responsibility and leadership, an understanding of our business environment, and a reputation for integrity. In addition, our Corporate Governance Guidelines provide that a director who retires or +experiences a significant change in his or her professional or business responsibilities, including a change in his or her principal occupation, position or business affiliation, should, if requested +by the NCG Committee, be prepared to offer his or her resignation from the Board. Upon tender of a resignation, the NCG Committee and the Board may review the continued appropriateness of Board +membership under the circumstances. In accordance with our Corporate Governance Guidelines, each director has signed and +delivered to the Board a resignation letter that is contingent upon (i) his or her failure to receive, in accordance with our By-Laws, the affirmative vote of the holders of a majority of the +shares of capital stock in an election of directors at the 2014 Annual Meeting of Stockholders; and (ii) acceptance of his or her resignation by the Board in accordance with the policies and +procedures adopted by the Board for such purpose. +Under +the framework of the Corporate Governance Guidelines, the NCG Committee evaluates each potential nominee individually and in the context of the Board as a whole. The objective is +to recommend individuals and a group that will effectively contribute to our long-term success and represent the interests of all of our stockholders. In determining whether to recommend a director +for re-election, the NCG Committee also considers the director's past attendance at meetings and participation in and contributions to Board activities. +When +seeking new director candidates, the NCG Committee considers suggestions from incumbent directors, management, stockholders, and others. The NCG Committee screens all potential +10 +Table of Contents +candidates +in the same manner regardless of the source of the recommendation. The NCG Committee has authority under its charter to retain a search firm for this purpose, but did not retain such a firm +during 2012 when Mr. Leiker joined our Board, due to his specific abilities, widely known reputation in our industry and long tenure with his prior employer, a recognized leader in our +industry. As discussed further below, on January 10, 2014, Ms. Baumann notified the Board that she did not intend to stand for reelection at the 2014 Annual Meeting. As a result, the NCG +Committee is evaluating potential director candidates, and has retained a search firm to assist it in identifying a candidate that it believes will best represent our stockholders' interests. If the +NCG Committee believes a candidate would be a valuable addition to the Board, it recommends his or her candidacy to the Board. +Although +the NCG Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the NCG Committee believes that the Board should +reflect diversity in its broadest sense, including persons diverse in professional experiences relevant to us, skills, backgrounds, perspectives, gender, race, ethnicity, and national origin. In +considering diversity in identifying director nominees, the NCG Committee considers the Board as a whole, without reference to specific representative directors, with the overall objective of +establishing a group of directors that reflects diversity, that can work in a collaborative and effective manner, and that can best contribute to our long-term success. The NCG Committee believes that +current Board members and director nominees reflect our commitment to diversity. Following the 2014 Annual Meeting, out of a total of eight directors, we will have one Hispanic director who has served +on the Board since 2006. +As +noted above, the NCG Committee will consider stockholder recommendations for candidates for the Board. All stockholder recommendations must comply with the notice requirements +contained in Section 4(g) of our By-Laws, which requires, among other things, detailed information concerning the stockholder making the proposal (and the beneficial owner on whose behalf the +proposal is made, if any), the name and address of the stockholder and specific information concerning such stockholder's interests in our securities. In addition, the notice must include the +recommended candidate's name, biographical data, qualifications, details regarding any material monetary agreements between the stockholder and the proposed nominee and a written questionnaire +completed by the proposed nominee. We will furnish copies of our By-Laws to any person who requests them without charge. Requests for copies should be directed to our Corporate Secretary. For +additional information about stockholder nominations, including nominations for the 2015 Annual Meeting of Stockholders, see "Stockholder Proposals for the 2015 Annual Meeting of Stockholders." No +stockholder director nominations were received in connection with the Annual Meeting. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +11 +Table of Contents +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. The only transaction between our company and a related person since January 1, 2013, is our relationship with Tesco, +which was referenced above. Mr. Quintana is the President, Chief Executive Officer, and a director of Tesco, which designs, manufactures, and delivers technology based solutions for the +upstream energy industry, including oilfield drilling and completion technology, services, and equipment. We have an agreement with Tesco for its provision of equipment and services to us in +connection with our drilling and completion operations. This agreement continues until canceled by either us or Tesco on 30 days advance written notice. Pursuant to this agreement, we are +obligated to pay Tesco only for services actually performed or equipment provided, as the case may be, as requested by us from time to time. This agreement does not require us to make any other +payments to Tesco, nor does it obligate us to use Tesco for any services or equipment. Mr. Quintana does not have any direct or indirect interest in the transaction, other than as a result of +serving as an executive officer and director of Tesco. Mr. Quintana had no input in our selection of Tesco for equipment and services or the terms of our agreement with Tesco. Decisions to use +Tesco are made by technical professionals supervising the relevant regional activity, based on their assessment of Tesco's equipment and services and related costs in comparison to other providers. In +2013, we paid Tesco $758,327. The amount we paid Tesco during 2013 for equipment and services represented approximately 5% of the total amount paid by us to all service providers (including Tesco) for +similar equipment and services during 2013. As of March 31, 2014, we had paid Tesco $165,493 for equipment and services rendered during 2014. In accordance with our Related Person Transactions +Policy, the Audit Committee reviewed the relationship +between us and Tesco and determined that the relationship is in our best interests and the best interests of our stockholders. +12 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common Stock +The following table shows beneficial ownership of shares of our common stock as known to us as of March 14, 2014, by all +beneficial owners of more than 5% of the outstanding shares of our common stock as of March 14, 2014, by each director, director nominee, and named executive officer, and all directors and +executive officers as a group. Restricted stock units and performance share units are not included in this table as no actual shares have been issued with respect to our outstanding restricted stock +units and performance share units. A supplemental table has been +included later in this section describing the number of restricted stock units and performance share units owned by the individuals described below. +Name of Beneficial Owner +Shares +beneficially +owned, +excluding +options +Options +exercisable +within 60 days +of 3/14/2014 +Total shares +beneficially +owned (1) +Percent +beneficially +owned (2) +Name and Address of Stockholders Owning More Than 5% +T. Rowe Price Associates, Inc. (3) +8,796,357 +— +8,796,357 +13.1% +100 East Pratt Street +Baltimore, MD 21202 +BlackRock, Inc. (4) +5,354,431 +— +5,354,431 +8.0% +40 East 52 nd Street +New York, NY 10022 +Vanguard Group, Inc. (5) +3,853,728 +— +3,853,728 +5.7% +100 Vanguard Blvd. +Malvern, PA 19355 +Name and Position of Directors, Director Nominees and Named Executive Officers +Barbara M. Baumann, Director +39,674 +9,772 +49,446 +* +Larry W. Bickle, Director +130,934 +9,772 +140,706 +* +Stephen R. Brand, Director +8,207 +— +8,207 +* +William J. Gardiner, Director +52,674 +9,772 +62,446 +* +Loren M. Leiker, Director +7,636 +— +7,636 +* +Julio M. Quintana, Director +14,361 +— +14,361 +* +John M. Seidl, Director +7,007 +— +7,007 +* +William D. Sullivan, Director +38,270 +— +38,270 +* +Anthony J. Best, Chief Executive Officer and Director +186,769 +— +186,769 +* +Javan D. Ottoson, President and Chief Operating Officer +94,362 +— +94,362 +* +A. Wade Pursell, Executive Vice President and Chief Financial Officer +65,320 +— +65,320 +* +David W. Copeland, Executive Vice President, General Counsel and Corporate Secretary +46,069 +— +46,069 +* +Herbert S. Vogel, Senior Vice President—Portfolio Development and Technical Services +3,118 +— +3,118 +* +All executive officers and directors as a group (21 persons, including those named above) +969,615 +29,316 +998,931 +1.5% +* Less +than 1%. +(1) According +to SEC rules, beneficial ownership includes shares as to which the individual or entity has voting power or investment power and +any shares that the individual has the right to acquire within 60 days of a date reasonably selected by us, through the exercise of any stock option or other right. We selected March 14, +2014, as the determination date. +(2) Based +on an aggregate of 67,056,441 shares of common stock outstanding as of March 14, 2014. +13 +Table of Contents +(3) According +to a Statement on Schedule 13G/A filed by T. Rowe Price Associates, Inc. ("T. Rowe") on February 11, 2014, by +reason of advisory and other relationships with persons who own shares of our common stock, T. Rowe may be deemed to be the beneficial owner of a total of 8,796,357 shares, with shared voting power as +to zero shares, shared dispositive power as to zero shares, and sole voting power as to 2,032,450 shares and sole dispositive power as to 8,796,357 shares. +(4) According +to a Statement on Schedule 13G/A filed by BlackRock, Inc. ("BlackRock") on January 30, 2014, by reason of +advisory and other relationships with persons who own shares of our common stock, BlackRock may be deemed to be the beneficial owner of a total of 5,354,431 shares, with shared voting power as to zero +shares, shared dispositive power as to zero shares, and sole voting power as to 4,931,468 shares and sole dispositive power as to 5,354,431 shares. +(5) According +to a Statement on Schedule 13G filed by Vanguard Group, Inc. ("Vanguard") on February 11, 2014, by reason of +advisory and other relationships with persons who own shares of our common stock, Vanguard may be deemed to be the beneficial owner of a total of 3,853,728 shares, with shared voting power as to zero +shares, shared dispositive power as to 37,577 shares, and sole voting power as to 42,377 shares and sole dispositive power as to 3,816,151 shares. +Restricted Stock Units and Performance Share Units +Restricted stock units ("RSUs") represent the right to receive shares of our common stock to be delivered upon settlement, subject to +risk of forfeiture and cancellation. The holders of RSUs do not have voting rights, nor are they entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on +our common stock. The RSU awards vest pursuant to dates established by their corresponding Restricted Stock Unit Award Agreements. +Performance +share units ("PSUs") represent the right to receive, upon settlement of the PSUs after the completion of a three-year performance period, a number of shares of our common +stock that may be from zero to two hundred percent of the number of PSUs granted on the award date, depending on +the extent to which we have achieved our performance goals and the extent to which the PSUs have vested. The holders of PSUs do not have voting rights, nor are they entitled to receive cash payments +equal to any cash dividends or other distributions paid in cash on our common stock. +14 +Table of Contents +The +following table shows the number of RSUs and PSUs owned by each of the directors, our named executive officers and all directors and executive officers as a group, as of +March 14, 2014. +Total +Restricted +Stock Units +Total +Performance +Share Units +Total Vested +Performance +Share Units (1) +Barbara M. Baumann +— +— +— +Larry W. Bickle +— +— +— +Stephen R. Brand +— +— +— +William J. Gardiner +— +— +— +Loren M. Leiker +— +— +— +Julio M. Quintana +— +— +— +John M. Seidl +— +— +— +William D. Sullivan +— +— +— +Anthony J. Best +33,170 +124,545 +30,021 +Javan D. Ottoson +25,281 +56,447 +12,970 +A. Wade Pursell +12,133 +45,021 +10,491 +David W. Copeland +5,122 +18,910 +4,340 +Herbert S. Vogel +4,493 +12,484 +2,212 +All Executive Officers and Directors as a group (21 persons, including those named above) +105,989 +354,136 +83,259 +(1) PSUs +granted on July 1, 2011, vested one-seventh on July 1, 2012 and two-sevenths on July 1, 2013. PSUs granted on +July 1, 2012, vested one-third on July 1, 2013. The amounts shown reflect the vested portion of the PSUs owned by each director, named executive officer and all directors and executive +officers as a group. The actual number of shares of our common stock issued to settle the PSUs at the end of the performance period may vary from zero to two hundred percent of the number of PSUs +indicated, depending on the extent to which we have achieved our performance goals. +SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE +Under United States securities laws, directors, executive officers, and persons beneficially holding more than 10% of +our common stock must report their initial ownership of our common stock and any subsequent changes in that ownership in reports that must be filed with the SEC and provided to us. The SEC has +designated specific deadlines for these reports and we must identify in this Proxy Statement those persons who did not file these reports when due. +Based +solely on a review of reports furnished to us, and written representations from our officers and directors, all directors, executive officers, and 10% owners timely filed all +reports regarding transactions in our securities required to be filed for 2013 under Section 16(a) under the Exchange Act. +15 +Table of Contents +INFORMATION ABOUT EXECUTIVE OFFICERS +The following table sets forth the names, ages and positions of SM Energy's executive officers. The age of each +executive officer is as of March 14, 2014. +Name +Age +Position +Anthony J. Best +64 +Chief Executive Officer and Director +Javan D. Ottoson +55 +President and Chief Operating Officer +A. Wade Pursell +49 +Executive Vice President and Chief Financial Officer +David W. Copeland +57 +Executive Vice President, General Counsel and Corporate Secretary +Herbert S. Vogel +53 +Senior Vice President—Portfolio Development and Technical Services +Gregory T. Leyendecker +56 +Senior Vice President and Regional Manager +Mark D. Mueller +49 +Senior Vice President and Regional Manager +Lehman E. Newton, III +58 +Senior Vice President and Regional Manager +Kenneth J. Knott +49 +Vice President—Land and Assistant Secretary +Mary Ellen Lutey +42 +Vice President and Regional Manager +Mark T. Solomon +45 +Vice President—Controller and Assistant Secretary +David J. Whitcomb +51 +Vice President—Marketing +Dennis A. Zubieta +47 +Vice President—Engineering, Evaluation and A&D +Anthony J. Best. Mr. Best joined the Company in June 2006 as President and Chief Operating +Officer. Mr. Best was elected Chief +Executive Officer and a director of the Company in February 2007. Mr. Best relinquished his position as President when the Board appointed Mr. Ottoson to that office in October 2012. +Mr. Best is also a director of Newpark Resources, Inc. (NYSE: NR), a company that is a worldwide provider of drilling fluids, temporary worksites and access roads for oilfield and other +commercial markets, and environmental waste treatment solutions. From November 2005 to June 2006, Mr. Best was developing a business plan and securing capital commitments for a new exploration +and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., an independent oil and natural gas exploration and +production company that was a subsidiary of Unocal, where he managed all of Unocal's onshore United States assets. From 2000 to 2002, Mr. Best had an oil and gas consulting practice, working +with various energy firms. From 1979 to 2000, Mr. Best was with ARCO in a variety of positions, including serving as President—ARCO Latin America, President—ARCO +Permian, Field Manager for Prudhoe Bay and VP—External Affairs for ARCO Alaska. Mr. Best has over 35 years of experience in the energy industry. +Javan D. Ottoson. Mr. Ottoson joined the Company in December 2006 as Executive Vice +President and Chief Operating Officer. +Mr. Ottoson was appointed as President of the Company in October 2012. Mr. Ottoson has been in the energy industry for over 32 years. From April 2006 until he joined the +Company in December 2006, Mr. Ottoson was Senior Vice President—Drilling and Engineering at Energy Partners, Ltd., an independent oil and natural gas exploration and +production company, where his responsibilities included overseeing all aspects of its drilling and engineering functions. Mr. Ottoson managed Permian Basin assets for Pure +Resources, Inc., a Unocal subsidiary, and its successor owner, Chevron, from July 2003 to April 2006. From April 2000 to July 2003, Mr. Ottoson owned and operated a +homebuilding company in Colorado and ran his family farm. Prior to 2000, Mr. Ottoson worked for ARCO in management and operational roles, including serving as President of +ARCO China, Commercial Director of ARCO United Kingdom, and Vice President of Operations and Development, ARCO Permian. +A. Wade Pursell. Mr. Pursell joined the Company in September 2008 as Executive Vice +President and Chief Financial Officer. +Mr. Pursell was Executive Vice President and Chief Financial Officer for Helix Energy Solutions Group, Inc., a global provider of life-of-field services and +16 +Table of Contents +development +solutions to offshore energy producers and an oil and gas producer, from February 2007 to September 2008. From October 2000 to February 2007, he was Senior Vice President and Chief +Financial Officer of Helix. He joined Helix in May 1997, as Vice President—Finance and Chief Accounting Officer. From 1988 through May 1997, Mr. Pursell was with +Arthur Andersen LLP, serving as an Experienced Manager specializing in the offshore services industry. +David W. Copeland. Mr. Copeland joined the Company in January 2011 as Senior Vice +President and General Counsel. He was appointed as +the Company's Corporate Secretary in July 2011 and its Executive Vice President in May 2013. Mr. Copeland has over 31 years of experience in the legal profession, including +over 22 years as internal counsel for various energy companies. Prior to joining the Company, he co-founded Concho Resources Inc., in Midland, Texas, where he served as its Vice +President, General Counsel and Secretary from April 2004 through November 2009, and then as its Senior Counsel through December 2010. From August 1997 through +March 2004, Mr. Copeland served as an executive officer and general counsel of two energy companies he co-founded in Midland, Texas. Mr. Copeland started his career in 1982 with +the Stubbeman, McRae, Sealy, Laughlin & Browder law firm in Midland, Texas. +Herbert S. Vogel. Mr. Vogel joined the Company in March 2012 as Senior Vice +President—Portfolio Development and Technical +Services, and is responsible for Corporate Exploration, Engineering, Land, Marketing and EHS activities. Mr. Vogel has over 29 years of experience in the oil and gas business. He joined +the Company after his retirement from BP, where he most recently served as the President of BP Energy Co. and Regional Business Unit Leader of North American Gas & Power. His previous +roles included COO—NGL, Power & Financial Products in Houston, Managing Director Gas Europe & Africa in London, and Sr. VP of the Tangguh LNG Project in Indonesia. +Mr. Vogel started his career as a reservoir engineer with ARCO Alaska, Inc., and progressed through a series of positions of increasing responsibility in engineering, operations +management, new ventures development, and business unit management at ARCO and BP. +Gregory T. Leyendecker. Mr. Leyendecker was appointed Senior Vice President and Regional +Manager in May 2010. From July 2007 to May 2010, he +served as Vice President and Regional Manager. Mr. Leyendecker joined the Company in December 2006 as Operations Manager for the South Texas & Gulf Coast region in Houston, Texas. +Mr. Leyendecker has over 33 years of experience in the energy industry, and held various positions with Unocal Corporation, an independent oil and natural gas exploration and production +company, from 1980 until its acquisition in 2005. During his career with Unocal, he was the Asset Manager for Unocal Gulf Region USA from 2003 to June 2004 and Production and Reservoir Engineering +Technology Manager for Unocal from June 2004 to August 2005. He was appointed Drilling and Workover Manager for the San Joaquin Valley business unit of Chevron, as successor-by-merger of Unocal +Corporation, in Bakersfield, California in August 2005, and held this position until January 2006. Immediately prior to joining the Company, Mr. Leyendecker was Vice President of Drilling +Management Services from February 2006 to November 2006 for Enventure Global Technology, a provider of solid expandable tubular technology. +Mark D. Mueller. Mr. Mueller joined the Company in September 2007 as Senior Vice President. +Mr. Mueller was appointed as the Regional +Manager of the Rocky Mountain region effective January 1, 2008. Mr. Mueller has been in the energy industry for over 27 years. From September 2006 to September 2007, he was Vice +President and General Manager at Samson Exploration Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, in Calgary, Canada, where his +responsibilities included fiscal performance, reserves, and all operational functions of the company. From April 2005 until its sale in August 2006, Mr. Mueller was Vice President and General +Manager for Samson Canada Ltd., an oil and gas exploration and production company that was a subsidiary of Samson Investment Company, where he was responsible for all business units and the +eventual sale of the company. Mr. Mueller joined Samson Canada Ltd. as +17 +Table of Contents +Project +Manager in May 2003 to build a new basin-centered gas business unit and was Vice President from December 2003 to August 2006. Prior to joining Samson, Mr. Mueller was West Central +Alberta Engineering Manager for Northrock Resources Ltd., a Canadian oil and gas company that was a wholly-owned subsidiary of Unocal Corporation, in Calgary, Canada. From 1986 to 2003, +Mr. Mueller held positions of increasing responsibility in engineering and management for Unocal throughout North America and Southeast Asia. +Lehman E. Newton, III. Mr. Newton joined the Company in December 2006 as General Manager for +the Midland, Texas office, was appointed Vice +President and Regional Manager of the Permian region in +June 2007, and was appointed Senior Vice President and Regional Manager in May 2010. Mr. Newton has over 35 years of experience in the energy industry. From November 2005 to November +2006, Mr. Newton served as Project Manager for one of Chevron's largest Lower 48 projects. Mr. Newton joined Pure Resources in February 2003 as the Business Development Manager and +worked in that capacity until October 2005. Mr. Newton was a founding partner in Westwin Energy, an independent Permian Basin exploration and production company, from June 2000 to January 2003. +Prior to that, Mr. Newton spent 21 years with ARCO in various engineering, operations and management roles, including as Asset Manager, ARCO's East Texas operations, Vice President, +Business Development, ARCO Permian, and Vice President of Operations and Development, ARCO Permian. +Kenneth J. Knott. Mr. Knott was appointed Vice President—Land and Assistant Secretary in +October 2012, and is responsible for all +of the Company's regional and administrative land functions. Mr. Knott was appointed Vice President of Business Development & Land and Assistant Secretary in August 2008. +Mr. Knott joined SM Energy in November 2000 as Senior Landman for the Gulf Coast region in Lafayette, Louisiana, and later assumed the position of Gulf Coast Regional Land Manager when the +office was moved to Houston in March 2004. +Mary Ellen Lutey. Ms. Lutey was appointed Vice President and Regional Manager of the +Mid-Continent region in December 2012. She joined SM +Energy in June 2008 as North Rockies Asset Manager, where she managed the Company's activities in the Williston Basin. Prior to joining SM Energy, Ms. Lutey held various technical and +managerial positions in several regions of the United States and Canada. She was a Senior Reservoir Engineer with Chesapeake Energy Corporation from September 2007 until June 2008, where she was +responsible for the resource development of the Fayetteville Shale in Arkansas. Ms. Lutey was a Team Lead for Engineering and Geoscience, with ConocoPhillips Canada from April 2006 until +September 2007, where she was responsible for the technical and business performance of two multi-discipline groups in Western Canada. From July 2005 until April 2006, she was a Team +Lead for Engineering and Geoscience, with Burlington Resources Canada where she managed the growth and development of resource plays in Western Canada. From 1994 until 2005, Ms. Lutey held +various engineering and leadership positions of increasing responsibility for Burlington Resources. Ms. Lutey has over 22 years of experience in the energy industry. +Mark T. Solomon. Mr. Solomon was appointed Vice President—Controller and Assistant +Secretary of the Company in May 2011. He was +appointed Controller of the Company in January 2007. Mr. Solomon served as the Company's Acting Principal Financial Officer from April 2008 to September 2008, which was during the period of +time that the Company's Chief Financial Officer position was vacant. Mr. Solomon joined the Company in 1996. He served as Financial Reporting Manager from February 1999 to September 2002, +Assistant Vice President—Financial Reporting from September 2002 to May 2006 and Assistant Vice President—Assistant Controller from May 2006 to January 2007. Prior to joining +the Company, Mr. Solomon was an auditor with Ernst & Young. Mr. Solomon has over 17 years of experience in the energy industry. +David J. Whitcomb. Mr. Whitcomb was appointed Vice President—Marketing in August 2008. +Mr. Whitcomb joined SM Energy in +November 1994 as Gas Contract Analyst and was named Assistant +18 +Table of Contents +Vice +President of Gas Marketing in October 1995. In March 2007, his responsibilities were expanded to include oil marketing, at which time his title was changed to Assistant Vice President and +Director of Marketing. +Dennis A. Zubieta. Mr. Zubieta was appointed Vice President—Engineering, Evaluation and +A&D in October 2012. He was appointed +Vice President—Engineering and Evaluation of the Company in August 2008. Mr. Zubieta joined the Company in June 2000 as Corporate A&D Engineer, assumed the role of Reservoir +Engineer in February 2003, and was appointed Reservoir Engineering Manager in August 2005. Mr. Zubieta was employed by Burlington Resources from June 1988 to May 2000 in various operations and +reservoir engineering capacities. Mr. Zubieta has over 26 years of experience in the energy industry. +19 +Table of Contents +EXECUTIVE COMPENSATION +Compensation Discussion and Analysis +This section describes the objectives and elements of the compensation programs for our Chief Executive Officer, Chief Financial +Officer and each of our three other most highly compensated executive officers employed at the end of the 2013 fiscal year, whom we collectively refer to in this "Executive Compensation" section as +our "NEOs" or "Named Executive Officers." Our NEOs for fiscal 2013 are: +• Anthony J. Best, Chief Executive Officer +• Javan D. Ottoson, President and Chief Operating Officer +• A. Wade Pursell, Executive Vice President and Chief Financial Officer +• David W. Copeland, Executive Vice President, General Counsel and Corporate Secretary +• Herbert S. Vogel, Senior Vice President—Portfolio Development and Technical Services +Executive Summary +Our leadership and culture encourage long-term stockholder value creation. We evaluate performance using both quantitative and +qualitative factors and review not only "what" is achieved, but also "how" it is achieved. We provide what we believe to be a balanced mix of base salary, annual cash incentives through our Short-Term +Incentive Plan ("STIP"), and long-term equity incentives through our Long-Term Incentive Plan ("LTIP"). We balance incentives tied to short-term annual performance with incentives tied to our +multi-year performance. In this way, our executives are motivated to consider the impact of decisions over the short, intermediate, and long term. The performance metrics used in our annual STIP +include those we believe are the key drivers of long-term stockholder value creation: production volume; proved developed reserve additions; finding and development costs; cash flow; net income; +environmental, health, and safety goals; and exploration success and inventory growth. The program is not completely formulaic because the Compensation Committee has the discretion to adjust bonuses +based on the "quality" of the results as well as individual performance and behavior, and has used that discretion to adjust calculated bonuses in the past. Our LTIP rewards total stockholder return, +both on an absolute basis and relative to an index of peer exploration and production companies. +Business Highlights +In 2013, we had a record year. Our production of 48.3 million barrels of oil equivalent ("MMBOE") exceeded our target, set a +new production record for our company, and represented 32.3% growth in production from 2012. We also exceeded our proved developed reserve additions target—68.6 MMBOE—by 41.7%, +adding 97.2 MMBOE to our proved developed reserves. Our financial performance in 2013 matched our strong operational results. We exceeded our cash flow target of $1,237.6 million by 19.4%, with +a record cash flow for our company of $1,477.3 million. Our strong cash flow and continued efforts to reduce costs led to net income of $170.9 million, which exceeded our target by +166.6%. Our finding and development costs also beat our target by 24.1%, which represented a reduction of 28.4% over 2012. Our performance with respect to our qualitative STIP factors was also very +positive. Our strong exploration success and inventory growth performance was largely driven by our achievements in East Texas and the Powder River Basin of Wyoming. We also +20 +Table of Contents +achieved +top-quartile performance for many of the environmental, health, and safety metrics that we believe are important to operating our business in a way to maximize the safety of our employees and +minimize our impact on the environment. +Compensation Program Highlights +Our performance in 2013 is exemplary of the excellence we strive to achieve. We beat our targets in all five quantitative areas and +performed well with respect to our qualitative metrics. These results influenced our Compensation Committee to pay actual 2013 bonuses for the NEOs that were at or above two times the applicable STIP +target percentage. We believe that this result indicates that our STIP is appropriately designed to link compensation earned to the achievement of our financial and strategic objectives. See the +"Short-Term Incentive Plan" section below for additional discussion. +Our +LTIP uses a combination of service-vesting RSUs and performance-based PSUs. We believe these types of long-term incentives appropriately balance risk and reward, because such units +have both upside potential and downside risk. The performance measures used in our LTIP reward total +stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies. +Our +executive compensation program incorporates the following: +• The majority of our executive compensation is variable and linked to meeting our short-term and long-term financial and +strategic goals and to creation of long-term stockholder value. +• Executives receive a significant portion of their compensation in the form of equity and are subject to meaningful stock +ownership guidelines to further align their interests with those of our long-term stockholders. +• The Compensation Committee annually reviews an analysis of our incentive compensation plans prepared by the Compensation +Committee's independent compensation consultant to ensure they are designed appropriately and do not encourage excessive risk taking, while taking into account market changes and peer group +comparisons. +Governance Highlights +With the exception of our Chief Executive Officer, Mr. Best, we typically do not provide severance benefits in the event of +termination without cause not related to a change of control. Under his employment agreement, Mr. Best receives severance benefits only in the event of a termination without cause, and based +upon advice from Frederic W. Cook & Co., Inc. ("F. W. Cook"), we believe that such benefits are consistent with current industry practice. All executive benefits under the change +of control executive severance agreements with our other NEOs and under all equity-based awards grants on or after May 21, 2008, that are related to a change of control require a +"double-trigger," meaning they require first that a qualifying change of control event has occurred, and second that the executive has been involuntarily or constructively terminated. We do not +provide excise tax "gross-ups" for severance agreements. +With +the exception of a supplemental executive retirement plan (the "SERP"), which is intended to provide benefits similar to those received by all employees but with respect to income +above the Internal Revenue Code ("IRC") limit, and a non-qualified deferred compensation plan, the retirement +benefits provided to the NEOs are the same as those provided to all employees. We discontinued supplemental executive benefits, including disability and life insurance, in July 2010. +21 +Table of Contents +Other +practices that further align management's interests with those of our stockholders include meaningful stock ownership requirements for our executives and our securities trading +policy that prohibits officers, employees and directors from entering into transactions that "hedge" the value of our stock, holding our securities in margin accounts, pledging our securities to +secure indebtedness, and buying or selling options or derivatives with respect to our securities. +Stockholder Advisory Vote on Compensation +At our 2013 Annual Meeting of Stockholders, our stockholders were provided the opportunity to cast a non-binding advisory vote on the +compensation of our NEOs. Over 98% of votes cast approved the compensation of our NEOs. Because the vote was advisory, the result was not binding on the Compensation Committee. However, the +Compensation Committee believes that this overwhelming approval of the compensation of our NEOs by our stockholders indicates that our stockholders believe that our compensation philosophy and our +executive compensation policies are effective and are aligned with stockholders' interests. The Compensation Committee took into account the outcome of the vote and other factors, as more fully +discussed herein, in reviewing our executive compensation policies in 2013 and in determining that no significant changes to our executive compensation programs and policies were necessary in 2013. +Objectives of Executive Compensation Program +Our overall executive compensation program is designed to promote superior returns for our stockholders through the exploration for +and development and growth of our oil, natural gas and natural gas liquid assets. The objectives of our executive compensation program are to: +1. Provide competitive total compensation opportunities that allow us to attract, retain, compensate, and motivate talented +management. +Our +pay philosophy is to target overall compensation opportunities at levels competitive with equivalent positions at companies with which we may compete for talent. In general, based on analysis +performed by the Compensation Committee's independent compensation consultant, F. W. Cook, we target total direct compensation for our NEOs around the median of our industry peer group (see +"Compensation Determination Process" for further detail). Actual compensation earned by a particular individual may be above or below the target level based on company and individual performance +measured against the established metrics of our incentive compensation programs. +2. Link compensation earned to the achievement of our short-term and long-term financial and strategic +objectives. +We +believe that the proportion of total compensation that is performance-based, and therefore "at risk," should increase with an individual's level of responsibility. Our compensation system is +intended to provide the appropriate balance between fixed and variable compensation, cash and equity compensation, and short-term and long-term incentives. To this end, our STIP rewards annual +operating and financial performance based upon quantitative measures of cash flow, net income, production volume, proved developed reserve growth, finding and development costs, and discretionary +qualitative measures of environmental, health, and safety and exploration success and inventory growth (see "Elements of Compensation—Short-Term Incentive Plan"). Our LTIP rewards total +stockholder return, both on an absolute basis and relative to an index of peer exploration and production companies (see "Elements of Compensation—Long-Term Incentive Plan"). +22 +Table of Contents +3. Align performance incentives with the long-term interests of our stockholders. +We +believe that we achieve alignment of long-term interests between stockholders and management by paying a substantial portion of total compensation in the form of equity-based incentives and through +stock ownership guidelines that ensure executives have a meaningful ownership stake during their tenure. In addition, the metrics used for our STIP include those we believe drive long-term value +creation, while realized compensation under our LTIP is aligned with absolute and relative returns realized by our stockholders. +4. Ensure programs are cost-effective and financially efficient. +As +part of the process of approving new programs, changes to existing programs, and awards under our programs (e.g., salary increases, bonus payments, and equity compensation grants), the +Compensation Committee evaluates numerous relevant considerations, including the financial impact of such compensation, expected accounting treatment, potential stockholder dilution, and the impact on +our financial results. The Compensation Committee strives for the development of programs that are affordable, that are designed in the most financially efficient manner possible, and that satisfy our +other objectives. +In +addition, we make reasonable efforts to maximize the tax deductibility of all elements of compensation. Under Section 162(m) of the IRC, compensation in excess of $1.0 million per +year paid to certain of our NEOs is not tax deductible unless certain requirements are met, including that the compensation is "performance-based" as defined in Section 162(m). The Compensation +Committee administers our STIP and LTIP so that compensation awarded and paid to our NEOs is intended to be "performance-based" under Section 162(m) and therefore fully tax-deductible; however, +the Compensation Committee reserves the right to provide compensation that does not meet Section 162(m) deductibility requirements, and it is possible that Section 162(m) may disallow +compensation deductions that would otherwise be available to us. +5. Uphold high standards of good corporate governance and strive to achieve evolving best +practices. +The +Compensation Committee, with the assistance of management and the Compensation Committee's independent compensation consultant, F. W. Cook, stays abreast of current and developing corporate +governance standards and industry trends with respect to executive compensation and makes changes to our programs, as it deems appropriate, to reflect best practices and/or new legislation. +Compensation Determination Process +Responsibilities of the Compensation Committee +Our executive compensation is determined by our Board and the Compensation Committee, as discussed below. The Compensation Committee +is comprised of three independent directors and +23 +Table of Contents +operates +under the framework of a formal charter. Members of the Compensation Committee are appointed by the Board for, among other things, the purposes +of: +• overseeing the administration of our employee compensation and benefit plans; +• reviewing and approving our general compensation strategy and objectives; +• reviewing and recommending to the Board for its approval our compensation plans, policies and programs; and +• reviewing the performance and approving the compensation for our executive officers, including our Chief Executive +Officer. +In +2013, the Compensation Committee met nine times to administer the matters noted above and other related matters. +Independence of the Compensation Committee +Based upon the independence tests set forth in Section 303A.02 of the Corporate Governance Standards of the NYSE Listed Company +Manual, the Board has determined that the members of the Compensation Committee are independent. +Independent Compensation Consultant +Since 2007, the Compensation Committee has engaged F. W. Cook as its independent executive compensation consultant. F. W. Cook reports +directly to the Compensation Committee and the Compensation Committee may replace F. W. Cook or hire additional consultants or other advisors as it deems necessary. A principal of F. W. Cook attends +Compensation Committee meetings, as requested, and communicates with the Compensation Committee between meetings. The services F. W. Cook provides, based upon direction from the Compensation +Committee, include advising the Compensation Committee on the design of our executive compensation programs and the evolving best practices related thereto, providing market information and analysis +regarding the competitiveness of our executive compensation opportunities, conducting compensation risk assessments and providing analysis concerning the equity compensation practices of our peers. To +facilitate the delivery of these services to the Compensation Committee, F. W. Cook interfaces with our management, in particular our Senior Vice President—Human Resources. F. W. Cook does +not provide directly, or indirectly through affiliates, any non-executive compensation services, such as pension consulting or human resource outsourcing, to us. The total consulting fees we pay to F. +W. Cook are less than 1% of the total annual revenues of F. W. Cook, and F. W. Cook and the F. W. Cook consultants working with us are prohibited from owning any of our shares of common stock +directly, although such shares may be owned within mutual funds. In addition, no officer, director, stockholder or employee of F. W. Cook has any known personal relationship with any of our officers, +directors, stockholders or employees that would present a potential conflict to their independence. After consideration of disclosures and representations made by F. W. Cook concerning the foregoing, +the Compensation Committee determined in 2013 that F. W. Cook's work did not raise any potential conflicts of interest. F. W. Cook has agreed to advise the Compensation Committee if any potential +conflict of interest arises that could cause F. W. Cook's independence to be questioned and not to undertake any project for our management, except at the request of the Compensation Committee and as +agent for the Compensation Committee. In 2013, F. W. Cook did not provide any services to us other than those requested by the Compensation Committee and related to F. W. Cook's engagement as the +independent consultant to the Compensation Committee. +24 +Table of Contents +Compensation Risk Assessment +Each year, the Compensation Committee and F. W. Cook review and evaluate our compensation policies and practices for all employees to +assess to what extent, if any, these policies and practices could result in risk taking incentives, whether our compensation policies and practices mitigate such risk taking incentives by properly +aligning the interest of our employees with the interests of our stockholders and whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a +material adverse effect on us. In 2013 and 2014, the Compensation Committee determined that the risks arising from our compensation policies and practices for our employees are not reasonably likely +to have a material adverse effect on us. +Role of Management in Determination Process +Under the oversight of our Chief Executive Officer and Senior Vice President—Human Resources, management provides +recommendations to the Compensation Committee on matters of compensation philosophy and plan design. Our Chief Executive Officer provides recommendations for pay levels for executives other than +himself based on competitive market data, internal fairness among executives, past performance, and future potential. Our Human Resources department supports management and the Compensation Committee +by providing information on historical compensation levels, employee evaluations and its analysis of comparative industry data, and by interfacing with F. W. Cook. While members of the management team +attend Compensation Committee meetings, they are not generally present during executive sessions, and individual members of the management team are never present during discussions of their respective +compensation. The Compensation Committee and the Board, as required under the Compensation Committee's charter, make all final decisions with respect to compensation of our executive officers. +Comparative Peer Group +One of the objectives of our executive compensation program is to ensure that total compensation opportunities provided to our +executive officers are competitive with the companies against which we compete for business opportunities, investment dollars, and executive talent. Criteria for the selection of peer companies with +our General Industry Classification Standard Industry Code include standard measures such as revenue, assets, number of employees, and enterprise value, as well as several industry-specific criteria +such as annual production volume, fiscal year-end reserves, total costs incurred in oil and gas activities, and the magnitude of each company's offshore and non-U.S.-based operations. +F. W. Cook identifies peer companies that are within 50% – 200% of our company for at least four of these criteria and that have corporate structures similar to ours. +The Compensation Committee, with input from F. W. Cook, selects a peer group that includes the 15-20 companies that best fit the selection criteria, excluding those companies from the +peer group from the previous year that no longer satisfy the selection criteria. The peer group used for 2013 compensation comparisons was approved in March 2013 and consisted of the following +companies: +Bill Barrett Corporation +EXCO Resources, Incorporated +Cabot Oil & Gas Corporation +Forest Oil Corporation +Cimarex Energy Company +Laredo Petroleum Holdings, Inc. +Comstock Resources, Inc. +Newfield Exploration Company +Concho Resources Inc. +QEP Resources, Inc. +Continental Resources, Inc. +Range Resources Corporation +Denbury Resources Incorporated +Ultra Petroleum Corp. +Energen Resources Corporation +Whiting Petroleum Corporation +25 +Table of Contents +At +the time the Compensation Committee approved the peer group, we ranked within 10% of peer group median in annual revenues, market capitalization, and enterprise value; we ranked +between the 25 th percentile and peer group median in total assets, number of employees, and fiscal year-end reserves; and we ranked between peer group median and the +75 th percentile in prior year annual production and total costs incurred in oil and gas activities. +This +peer group includes thirteen of the companies included in our 2012 peer group, plus three additional companies: Laredo Petroleum Holdings, Inc., Newfield Exploration +Company, and QEP Resources, Inc. Companies in the 2012 peer group excluded from the 2013 peer group were: Berry Petroleum Company, Plains Exploration & Production Company, Quicksilver +Resources Inc. and Stone Energy Corporation. +In +May 2013, F. W. Cook conducted an analysis of competitive pay levels for the executive officers named in the most recently filed proxy statements of the peer group companies versus +corresponding positions at our company. For certain NEO positions, F. W. Cook also supplemented this analysis with data from relevant third party, independent compensation surveys focused on the +exploration and production industry (the Energy 27 Group and Effective Compensation, Inc. surveys). Competitive data generally reflected actual amounts paid for 2012 performance, although some +information was available on 2013 target compensation levels. Findings from this analysis indicated that base salaries and target annual cash compensation (base salary plus target annual bonus) for +our NEOs were between the 25 th percentile and median of the peer group, other than for Mr. Best, whose base salary and target +annual cash compensation were below the 25 th percentile of the peer group. Target total direct compensation (base salary plus target bonus plus long-term incentive compensation) +was between the 25 th percentile and median for all of the NEOs. +After +reviewing this comparative compensation data, the Compensation Committee elected to adjust the base salary for each of our NEOs to at or near the median level. As a result of this +adjustment, 2013 target annual cash compensation was at the median for Mr. Best and Mr. Vogel, and was between the 25 th percentile and median for the other NEOs, and +target total direct compensation was between the 25 th percentile and median for all NEOs. +Tally Sheets +To enhance the analytical data the Compensation Committee uses to evaluate the compensation of our CEO, President, and CFO and to +provide the Compensation Committee with a consolidated view of the aggregate value of all material elements of compensation for those executives, our Human Resources department provides the +Compensation Committee and F. W. Cook with a tally sheet summary of all of the compensation and benefit arrangements for each of those executives, including severance arrangements and all benefits +provided in connection with termination of employment. The tally sheets show the amount the executive would receive under various foreseeable circumstances +( e.g. , termination with or without cause; resignation; and retirement or termination in connection with change in control). +The +Compensation Committee does not assign a specific weighting to the tally sheets in its overall decision-making process concerning compensation, but rather uses the information +provided to gain additional perspective and as a reference. +Elements of Compensation +The principal components of our executive compensation program and the purpose of each component are summarized in the following +table. With the exception of the SERP and the +26 +Table of Contents +non-qualified +deferred compensation plan, our executive compensation program is comprised of the same components as the compensation program for other employees. The only material differences are the +target pay levels and the proportion of each component in the total pay mix. +Compensation Element +Description +Purpose +Base Salary +based on individual experience and expertise, and targeted at median of peer group +attract and retain qualified employees; and recognize skills, competencies, experience, and individual contributions +STIP +annual cash incentive opportunity dependent upon annual performance in key metrics +drive and incentivize superior annual performance +LTIP +equity-based compensation opportunity dependent upon our long-term total stockholder return performance +drive stockholder value creation; align management interests with stockholders; encourage retention; and reward long-term company performance +Employee Stock Purchase Plan +employees, including our executives, may purchase shares of our common stock at a 15% discount to the fair market value, subject to certain limits +facilitate share ownership among employees; and align employees' interests with those of stockholders +Qualified Retirement Plans +includes qualified defined benefit pension plan and 401(k) plan with company match +attract and retain employees; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Supplemental Retirement Plan +provides benefits under qualified pension plan formula on earnings above the IRC limits for the qualified plan ($255,000 for 2013) +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Non-qualified Deferred Compensation Plan +provides tax planning opportunities for our executives, and enables our executives to receive the full benefit of matching contributions in excess of IRC limits applicable to 401(k) plans +attract and retain executives; encourage retention; and support succession planning objectives by ensuring sufficiency of retirement replacement income +Benefits and Perquisites +medical, dental, life, wellness, financial advisory services for executives and disability insurance +attract and retain highly qualified employees; and support the overall health and well-being of all employees +Target Competitive Positioning +Our pay philosophy is for each executive's target compensation opportunity to approximate market medians in total compensation and +across individual compensation elements. Actual pay and award value may be higher or lower than target, based on company and individual performance results and changes in our performance, including +our share price. As noted above, based on the Compensation Committee's and F. W. Cook's most recent competitive review in May 2013, the Compensation Committee determined that actual pay opportunities +for our NEOs fell short of the desired median competitive level. As a result, during 2013, the Committee made mid-year base salary adjustments for each NEO. +27 +Table of Contents +Total Direct Compensation Mix +The charts below show the 2013 target total direct compensation mix for our Chief Executive Officer and other NEOs. As the charts +illustrate, 84% and 77% of total target compensation for our Chief Executive Officer and other NEOs, respectively, is attributable to the performance-based STIP and LTIP, and thus is variable and tied +to performance ( i.e. , "at risk"). +CEO +Other NEOs +Base Salary +Base salary is intended to provide a foundation of executive compensation that recognizes the level of responsibility and authority of +each individual executive and compensates for the individual executive's day to day contributions to our success. Based on competitive market data, individual performance and potential, internal +equity considerations, and input from the Chief Executive Officer (for executives other than himself), the Compensation Committee initially approved the 2013 salaries on March 28, 2013, +effective April 1, 2013, for the NEOs. After receiving and reviewing the competitive pay analysis conducted by F.W. Cook in May 2013, the Compensation Committee increased 2013 base +salaries for the NEOs to at or near the median level for each position, which are reflected in the following table: +Name +2012 Salary +2013 Salary +Best +$ +650,000 +$ +800,000 +Ottoson +$ +430,000 +$ +473,000 +Pursell +$ +360,000 +$ +419,000 +Copeland +$ +328,600 +$ +376,000 +Vogel +$ +310,000 +$ +349,000 +The +salary increases approved in 2013 were based on the Compensation Committee's decision that our executive officers' individual performances, corporate performance, industry +inflation, and the competitive aspects of the oil and gas industry justified the increases with individual adjustments determined with reference to respective comparative industry data by position and +our goal of target compensation approximating the median of our comparative peer group. +Short-Term Incentive Plan +The STIP is designed to reward our NEOs for achievement of our annual business plan measured by certain annual operational performance +objectives. These performance objectives are reviewed each year by management and the Compensation Committee, and after the +approval of these objectives, are published as annual goals. At the discretion of the Compensation Committee, these goals may be adjusted from time to time during the year due to significant changes +in our business; +28 +Table of Contents +however, +no adjustments were made during 2013. Payments under the STIP are in the form of annual cash bonuses under our Cash Bonus Plan, which was last approved by our stockholders in May 2013. +Each +NEO is assigned a target bonus as a percentage of base salary, based on the pay level that the Compensation Committee deems to be competitive and appropriate assuming all of our +performance goals are achieved at the "target" level. Actual bonuses may range from zero to two times a participant's base salary based on the Compensation Committee's assessment of our performance +and that of each of our NEOs. Target bonuses for 2013 as percentages of base salary for the NEOs were the same as in 2012, and were as follows: +Name +2013 Target +Bonus Level, +% of base +salary +Best +100 +% +Ottoson +90 +% +Pursell +80 +% +Copeland +70 +% +Vogel +70 +% +2013 Performance +In order for the STIP bonus pool to be funded for our NEOs, the 2013 STIP required that our 2013 cash flow, as described below, exceed +a threshold level of $600 million. If our cash flow had not exceeded the threshold level, no STIP bonus would be paid regardless of the results of any other metric. Our actual 2013 cash flow +was $1.5 billion, resulting in full initial funding of the STIP bonus pool for our NEOs. The Compensation Committee then examined our performance under five quantitative and two qualitative +metrics to determine actual bonus payments to our NEOs by reducing (but not increasing) the amounts funded through achievement of the cash flow threshold. Using this construct, bonus payments to our +NEOs under the STIP are intended to be "performance-based," as defined under Section 162(m), and therefore fully deductible for federal income tax purposes. The Compensation Committee evaluated +our performance in the following five quantitative areas with respect to the annual cash bonus awards for our NEOs: +Minimum +Target +Maximum +Actual +% of +Target +Production Volume (MMBOE) +36.9 +43.4 +50.0 +48.3 +111.3% +Proved Developed Reserve Additions (MMBOE) (1) +58.3 +68.6 +78.9 +97.2 +141.7% +Finding and Development Costs ($ per BOE) (2) +$ +23.09 +$ +20.08 +$ +17.07 +$ +15.25 +75.9% +Cash Flow ($ in millions) +$ +990.1 +$ +1,237.6 +$ +1,547.0 +$ +1,477.3 +119.4% +Net Income ($ in millions) +$ +48.1 +$ +64.1 +$ +80.1 +$ +170.9 +266.6% +(1) Adjusted +for engineering revisions to proved developed reserves due to asset performance. +(2) Based +on proved developed reserve additions, as adjusted for engineering revisions due to asset performance (excluding land costs). As noted +below, our actual finding and development cost out-performed our target by 24.1%. +Production Volume —The production volume target represents the volume of oil, gas and NGLs estimated in our 2013 +business plan to be produced and sold +during 2013. This measure is important because proceeds from the sale of production generate essentially all of our revenue. In 2013, we exceeded our corporate production volume target by 11.3%, and +all of our four regions exceeded their individual targets. +29 +Table of Contents +Proved Developed Reserve Additions —The proved developed reserve additions target represents the proved developed +reserves estimated to be added from +projects funded under our capital program during 2013. This measure is important because proved developed reserves are the primary source of future production and cash flow for us and, as such, relate +directly to the value of our company. In 2013, we generated 41.7% more proved developed reserve additions than our target amount, and exceeded the maximum value for this metric by 23.2%. +Finding and Development Costs —Finding and development costs are a measure of the efficiency of our capital program in +adding value. The finding and +development costs target represents the estimated cost of proved developed reserve additions on a dollar per barrel of oil equivalent ("BOE") basis, as projected under our 2013 business plan. In 2013, +our finding and development costs out-performed our target by 24.1% and exceeded the maximum value for this metric by 10.7%, largely as a result of strong reserve growth paired with capital +expenditures that slightly exceeded our budget. +Cash Flow —Our cash flow target is calculated based on our GAAP net income, as adjusted for miscellaneous gains and +losses; depreciation, depletion +and amortization; impairment and abandonment expense; exploration expense; all taxes; changes in Net Profits Interest Bonus Plan ("NPP") liability; stock compensation expense; interest expense and +unrealized derivative gains/losses. +This measure is important because our cash flow is the primary source of funding for our ongoing capital program and working capital needs, as well as a key factor in stockholder value creation. In +2013, our cash flow exceeded our 2013 business plan target by 19.4%, primarily due to strong production growth and higher realized prices. +Net Income —The GAAP net income target represents the amount of GAAP net income initially expected to be generated +based on achieving projected 2013 +business plan results. This measure is important because the rate at which non-cash costs are incurred is related to investment efficiency over time, and non-recurring events can be materially +positive or negative relative to expectations. In 2013, our net income exceeded our target by 166.6%, due primarily to higher than expected revenues and lower than expected depletion, depreciation, +amortization, and asset retirement obligation liability accretion expense. +Additionally, +the Compensation Committee assessed our 2013 performance in the following qualitative areas: +• environmental, health, and safety (EHS) +Our +EHS performance, based on statistical industry measurements, improved in most respects during 2013, resulting in top-quartile performance in many areas of statistical measurement that we track. As +a result, the Compensation Committee gave positive credit for this qualitative measure in 2013. +• exploration success and inventory growth +Our +performance with respect to our qualitative metric for exploration success and inventory growth was positive, with substantial increases in acreage acquired and greater number of exploration tests +than expected. Accordingly, the Compensation Committee gave positive credit for this qualitative measure in 2013. +The +Compensation Committee determines amounts earned under the STIP not only by the extent to which management achieved the quantitative and qualitative performance goals, but also by +evaluating how management achieved those goals. Each quantitative factor is not equally weighted and the Compensation Committee considers each quantitative and qualitative factor individually and +collectively. Because quantitative goals must be determined at the beginning of the year, the Compensation Committee's exercise of judgment and discretion protects the STIP from having an +30 +Table of Contents +illogical +outcome if circumstances change during the year such that the formulaic goals no longer comport with reasonable outcomes. +The +Compensation Committee considered all of the above-mentioned factors and used its judgment and discretion to determine the following actual bonuses for the NEOs: +Actual STIP +Name +Salary Paid +in 2013 +Target STIP +(% of Base +Salary) +% of Base +Salary +Amount +Best +$ +744,231 +100 +% +200 +% +$ +1,488,462 +Ottoson +$ +459,423 +90 +% +182 +% +$ +835,000 +Pursell +$ +398,654 +80 +% +160 +% +$ +637,846 +Copeland +$ +359,239 +70 +% +140 +% +$ +502,834 +Vogel +$ +335,423 +70 +% +147 +% +$ +493,072 +Three-Year Performance +While our operational performance metrics have remained unchanged for at least the last three years, the Compensation Committee has +established increasingly challenging annual operational performance goals intended to generate competitive returns and advance our goal of long-term growth in stockholder value. Our most recent +three-year operational performance with respect to these goals is illustrated below: +Due +to fluctuations each year in Net Income, historical performance charts for this metric are not meaningful and therefore not included. +31 +Table of Contents +Long-Term Incentive Plan +Our LTIP, which we implemented in its current form in 2008, is an equity compensation program that utilizes performance share units, +or PSUs, and restricted stock units, or RSUs, to compensate our NEOs and other key employees for long-term growth in our net asset value, as reflected in our absolute and relative cumulative total +stockholder return ("TSR"), which includes the effects of dividends. Awards of PSUs and RSUs are issued pursuant to our Equity Incentive Compensation Plan (the "Equity Plan"). +Under +our LTIP, participants were each awarded RSUs and PSUs during the third quarter of 2013, for the performance measurement period beginning July 1, 2013, and ending +June 30, 2016. The ratio of PSUs to RSUs in an LTIP participant's grant varies based upon each participant's position. Our NEOs receive 75% of their award in the form of PSUs, with the balance +in the form of RSUs. RSUs are settled in shares of our common stock at the time of vesting, and PSUs are settled in shares of our common stock, depending on the extent to which we have satisfied the +performance criteria, at the end of the three-year performance period. The actual number of shares of our common stock issued to settle PSUs at the end of the three-year performance period can range +from 0% to 200% of the number of PSUs, depending on our absolute and relative TSR. TSR is measured on a compound +annualized basis, and relative TSR is compared to the TSR of an equal weighted index of peer companies (the "TSR Peer Group"), in both cases using the average closing prices for the 20 days +prior to the start and end of the performance period. The TSR Peer Group consists of companies from our comparative peer group, as recommended by F. W. Cook and selected by the Compensation Committee +based upon the criteria discussed above, with any adjustments to that list of companies as deemed necessary or appropriate by the Compensation Committee in its discretion. As of July 1, 2013, +for the 2013-2016 performance period, the constituents of the TSR Peer Group included the same companies shown under " Comparative Peer Group " above. +At +any time during the three-year performance period, the Compensation Committee may elect to modify the TSR Peer Group if significant changes occur relating to any member of the TSR +Peer Group. As of the date of this Proxy Statement, the Compensation Committee has not modified the TSR Peer Group for the 2013-2016 performance period. +The +number of shares of our common stock issued to settle PSUs at the end of the 2013-2016 performance period will equal the number of PSUs multiplied by the "Earned Percentage." The +earned percentage is the sum of the Absolute TSR Score and the TSR vs. Peer Index Score, as outlined in the payout matrix below, subject to a maximum of 200% and a minimum of 0%: +Absolute TSR +TSR vs. Peer Index +Annualized +TSR +Earned +Percentage* +% Point +Difference +from Index +Earned +Percentage* +£ 0% +0% +£ -10% +-80% +4% +20% +0% +20% +16% +110% +³ 8% +100% +³ 25% +200% +*Earned percentage is linearly interpolated for performance between points. +The +PSUs and RSUs awarded and individual allocations to our NEOs were approved by the Compensation Committee during the second quarter of 2013. In its determination of the total pool +value for 2013, the Compensation Committee considered various factors, including historical fair value +32 +Table of Contents +transfer +(or the percentage of market capitalization transferred to employees annually in the form of stock based awards and other forms of ownership in our company, "FVT") under our long-term +incentive compensation system compared to our peer group companies, input from F. W. Cook on expected trends in FVT for the subject period, and shares available under our Equity Plan. The 2013 RSUs +have a three-year vesting schedule, with one-third vesting on the first three anniversaries of the award date. The 2013 PSUs vest on July 1, 2016. We settle the RSUs with shares of our common +stock as they vest. If an NEO is terminated, voluntarily or involuntarily, prior to the third anniversary of the award date, he/she will retain all shares of common stock previously issued by us to +settle the RSUs as they vest, but will forfeit all unvested RSUs. No settlement of vested PSUs occurs until the three-year performance period is concluded, and upon voluntary or involuntary +termination, an NEO would forfeit all unvested PSUs. All PSUs granted are also subject to a cap in value per unit calculated based on an absolute TSR of 50% for each year and an assumed earned +percentage of 200%. +At +the completion of the 2010-2013 performance period, we settled PSUs granted on July 1, 2010, using an earned percentage of 172.5%. We achieved this result based upon our +annualized absolute TSR for the performance period of 11%, which resulted in an earned percentage of 72.5%, while our TSR vs. Peer Index for the period exceeded 8%, which increased the earned +percentage by the maximum amount of 100%. The chart below illustrates the total return for our stockholders for the three-year period ending June 30, 2013, relative to the Peer Index for such +period. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in the Peer Index at the beginning of the three-year period reflected in the +chart below: +Comparison of Three-Year Return +2010-2013 +33 +Table of Contents +Timing of Equity Grants +Equity grants awarded as part of the LTIP and pursuant to our Equity Plan are generally made during the third quarter of each year. +The Compensation Committee generally approves these grants at its June meeting. The Compensation Committee or the Board has in the past, and may in the future, make limited grants of equity on other +dates for newly hired or other executives and other employees as part of compensation packages designed to recruit, retain or reward such persons. We did not make any special grants of equity to our +NEOs during 2013. +Net Profits Interest Bonus Plan +Prior to 2008, our long-term incentive program for executives and key employees consisted of the NPP and an RSU program. The NPP was +designed to reward the contributions made by our executives and other key employees to our long-term financial success. Under the NPP, participants shared in the net profits derived from our +investment in all oil and gas activity from a specific pool of properties in a given year after we recovered the capital costs associated with that pool. +Once +vested, the participant receives a share of the distributable proceeds, in the form of annual cash payments, regardless of employment with us. The complex nature of the NPP and the +delay and uncertainty in realization of compensation value until pool payout was reached made the NPP less attractive to newly recruited and highly marketable executives and employees. Accordingly, we +discontinued the NPP in 2007 on a prospective basis, and the 2007 pool was the last NPP pool created. We will continue to make payments under the NPP for pool years established prior to 2008 for as +long as a subject pool remains in payout status. Each of Mr. Best and Mr. Ottoson participate in two NPP pools and currently receive no compensation from these pools because they have +not reached payout status. +Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans +Our executives are eligible to participate in our qualified, non-contributory defined benefit pension plan (the "Qualified Pension +Plan") and a 401(k) plan on the same basis as all of our employees. The SERP is an unfunded, non-qualified plan that is intended to restore the benefits that would otherwise accrue to certain +executive-level employees in the absence of IRC limits on the Qualified Pension Plan. The non-qualified deferred compensation plan (the "NQDC") is intended to provide executives with tax planning +opportunities and the opportunity to receive the full benefit of matching contributions in excess of IRC limits applicable to our 401(k) plan. We provide these plans to remain competitive in the +hiring and retention of qualified personnel, and to support our succession planning objectives with a goal of providing retirement replacement income. +The +Qualified Pension Plan in combination with the SERP for certain executive-level employees provide a benefit after 25 years of credited service to us equal to 35% of final +average compensation. Final compensation is the average of the highest three consecutive years of the ten years preceding termination of employment. For each NEO, the level of compensation used to +determine benefits payable under the Qualified Pension Plan and the SERP is that executive's average base salary, excluding bonuses. +Our +401(k) plan is a defined contribution plan also intended to be qualified under the IRC and subject to the Employee Retirement Income Security Act of 1974. The 401(k) plan allows +eligible employees to contribute up to 60% of their income on a pretax basis through contributions to the 401(k) plan, subject to annual limits to amounts determined by IRC regulations ($17,500 for +2013). We match each employee's contributions in cash on a dollar for dollar basis, up to 6% of the employee's +34 +Table of Contents +base +salary and cash bonus. Company contributions vest over an employee's first five years of employment. +The +NQDC is designed to provide executives with the opportunity to defer a portion of base salary and cash bonuses paid pursuant to the Cash Bonus Plan. Each year, participating +employees may elect to defer (i) between 0% and 50% of their base salary, and (ii) between 0% and 100% of the cash bonus paid pursuant to the Cash Bonus Plan. The NQDC requires us to +make contributions for each eligible employee equal to 100% of the deferred amount for such employee, limited to 6% of such employee's +base salary and cash bonus. Each eligible employee's interest in the contributions we make will vest 40% after the second year of such employee's service to us, and 20% per year thereafter. A +participant's account will be distributed based upon the participant's payment election made at the time of deferral. A participant may elect to have distributions made in lump sum or in annual +installments ranging for a period from 1 - 10 years. +Benefits and Perquisites +The NEOs and all other executives are eligible to participate in our various competitive medical and dental programs on the same basis +as all other employees. These plans are intended to provide benefits that support the wellbeing and overall health of executives and employees. Our NEOs are also provided, at no cost, consistent with +all employees, group term life insurance up to 2.5 times their respective base salaries up to $1,500,000. We also provide financial planning services to our executives, including the NEOs, upon their +election. +Employee Stock Purchase Plan +The purpose of our Employee Stock Purchase Plan ("ESPP") is to provide an opportunity for eligible employees, including our NEOs, to +purchase shares of our common stock at a discount to the market price. The plan cycle consists of two periods each year, with plan periods for the six months ending June 30 and +December 31 of each year. The ESPP allows employees to purchase our common stock through payroll deductions of up to 15% of their base compensation. The purchase price of the stock is the lower +of 85% of the fair market value of the stock at the beginning or ending of the period. The maximum amount an employee can purchase through the plan is $25,000 per year, pursuant to IRC restrictions. +Other Executive Compensation Matters +Employment Agreements +Mr. Best is the only executive that has a written employment agreement. Mr. Best's employment agreement became effective +May 1, 2006, and continues in effect until either party gives 30-days' prior written notice. Mr. Best has earned and been awarded all cash and equity compensation due him under such +agreement, other than any compensation that he may receive in certain termination scenarios, as discussed below. +Our +employment agreement with Mr. Best provides severance benefits under certain termination scenarios. See "Potential Payments upon Termination or Change of Control." The energy +industry's history of executive employment terminations during cyclical downturns or strategic shifts in the industry or by particular companies contributed to a widespread, heightened concern for +long-term job stability by executives. In response to this concern, arrangements that provide compensation assurances in the event of an executive's termination without cause, death, or incapacity are +common practice, especially when recruiting executives to join a new company. The post-termination payment +35 +Table of Contents +provisions +in our employment agreement with Mr. Best were an important factor in our ability to recruit Mr. Best to join us as President and Chief Operating Officer in 2006. We believe +that the two-year period for post-employment compensation and insurance protection is appropriate to allow Mr. Best adequate time to obtain comparable employment in the event of a termination, +and is reasonable in view of the terms offered by other companies in our industry who compete with us for executive talent. +The +employment of all other executives remains "at will," subject to and in accordance with the terms and conditions of written offers of employment. +Change of Control Severance Benefits +Change of control severance protection is provided to executives at the level of vice president and above, including each of our NEOs, +and certain other key employees, through change of control executive severance agreements. See "Potential Payments upon Termination or Change of Control— Change of +Control Arrangements " for more information about +these agreements and potential payments in the event of a termination of employment following a change in control. No excise tax "gross up" payments are provided. +Clawback Policy +While our Board has elected not to adopt a formal clawback policy due to the uncertainties that exist in the absence of the expected +SEC rulemaking, our Equity Plan permits the clawback of awards consistent with the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 and other applicable law. We believe that our +compensation structure, together with our strong culture of business integrity and systems of internal control, make it unlikely that incentive compensation would be paid to any of our NEOs on the +basis of overstated results. +Stock Ownership Guidelines +To further align senior management's interests with the interests of our stockholders with respect to long-term growth of stockholder +value, the Compensation Committee has established and the Board has approved equity ownership guidelines for our executives as follows: +Chief Executive Officer +5 times annual base salary +President and Executive Vice Presidents +3 times annual base salary +Senior Vice Presidents and Vice Presidents +1 times annual base salary +Equity +holdings include the value of unvested RSUs for purposes of these calculations. Until an executive achieves the required ownership level, except for net settlements of equity +awards for purposes of paying tax withholding obligations, an executive may not sell equity awarded to such executive, unless approved by the Compensation Committee for the Chief Executive Officer, +President, or any Executive Vice President, and by the Chief Executive Officer for all other officers. As of March 21, 2014, all of our NEOs satisfy these guidelines, with Mr. Best +owning equity with a value of approximately 19.5 times his base salary, Mr. Ottoson owning equity with a value of approximately 17.9 times his base salary, Mr. Pursell owning equity with +a value of approximately 13.1 times his base salary, Mr. Copeland owning equity with a value of approximately 9.7 times his base salary, and Mr. Vogel owning equity with a value of +approximately 1.6 times his base salary. +36 +Table of Contents +Securities Trading Policy +We maintain a Securities Trading Policy, the overall goal of which is to inform our officers, employees and directors of the risks of +trading in public company securities at a time when they may be in possession of material, non-public information. In addition, our policy provides mechanisms to specifically address trading by +officers, certain other employees and directors during prescribed periods of time when the risk of being in possession of material, non-public information is perceived to be highest, and generally +prohibits our officers, certain other employees and directors from trading in any of our securities without obtaining pre-clearance. Our policy also prohibits officers, employees and directors from +(a) entering into transactions that "hedge" the value of our stock, (b) holding our securities in margin accounts, (c) pledging our securities to secure indebtedness, and +(d) buying or selling options or derivatives with respect to our securities. +Compensation Committee Report +The Compensation Committee of SM Energy Company has reviewed and discussed the disclosures contained under "Compensation Discussion +and Analysis" with management and its compensation consultant and, based on such review and discussions, the Committee recommended to the Board of Directors that the disclosures set forth under the +heading "Compensation Discussion and Analysis" be included in this Proxy Statement and incorporated by reference into SM Energy Company's Annual Report on Form 10-K for the fiscal year ended +December 31, 2013. +Respectfully +submitted by the Compensation Committee of the Board of Directors, +Barbara +M. Baumann +Stephen R. Brand +John M. Seidl +37 +Table of Contents +Executive Compensation Tables +Summary Compensation Table for 2011, 2012, and 2013 +This Summary Compensation table sets forth the annual and long-term compensation our NEOs received during each of the last three +years. In addition to salaries, the table reflects RSUs and PSUs granted in 2011, 2012, and 2013 and cash bonuses earned in 2011, 2012, and 2013. Eligible employees participate in our STIP and LTIP as +described more fully in the "Compensation Discussion and Analysis" and disclosed below. +Name and Principal Position +Year +Salary +Bonus (1) +Stock +Awards (2) +Non-Equity +Incentive +Plan +Compensation (3) +Change In +Pension +Value and +Non-Qualified +Deferred +Compensation +Earnings (4) +All Other +Compensation (5) +Total +Anthony J. Best +2013 +$ +744,231 +$ +— +$ +3,699,981 +$ +1,488,462 +$ +190,120 +$ +26,002 +$ +6,148,796 +Chief Executive Officer +2012 +$ +631,154 +$ +— +$ +3,499,983 +$ +560,000 +$ +144,834 +$ +49,445 +$ +4,885,416 +(principal executive officer) +2011 +$ +571,923 +$ +— +$ +3,699,746 +$ +921,281 +$ +122,446 +$ +28,330 +$ +5,343,726 +Javan D. Ottoson +2013 +$ +459,423 +$ +— +$ +1,800,031 +$ +835,000 +$ +50,150 +$ +27,030 +$ +3,171,634 +President and Chief +2012 +$ +417,885 +$ +— +$ +2,150,211 +$ +335,000 +$ +75,455 +$ +50,055 +$ +3,028,606 +Operating Officer +2011 +$ +379,885 +$ +— +$ +1,479,922 +$ +545,514 +$ +57,672 +$ +40,373 +$ +2,503,366 +A. Wade Pursell +2013 +$ +398,654 +$ +— +$ +1,399,983 +$ +637,846 +$ +21,892 +$ +15,373 +$ +2,473,748 +Executive Vice President +2012 +$ +354,077 +$ +— +$ +1,299,999 +$ +250,000 +$ +44,233 +$ +31,720 +$ +1,980,029 +and Chief Financial Officer +2011 +$ +334,500 +$ +— +$ +1,189,066 +$ +434,830 +$ +29,876 +$ +34,845 +$ +2,023,117 +(principal financial officer) +David W. Copeland +2013 +$ +359,239 +$ +— +$ +600,010 +$ +502,834 +$ +36,170 +$ +15,300 +$ +1,513,553 +Executive Vice President, +2012 +$ +323,592 +$ +— +$ +550,021 +$ +200,000 +$ +69,844 +$ +67,818 +$ +1,211,275 +General Counsel and +2011 +$ +304,039 +$ +— +$ +875,745 +$ +345,887 +$ +— +$ +47,984 +$ +1,573,655 +Corporate Secretary +Herbert S. Vogel +2013 +$ +335,423 +$ +— +$ +499,966 +$ +493,072 +$ +51,935 +$ +26,260 +$ +1,406,656 +Senior Vice President— +2012 +$ +244,423 +$ +250,000 +$ +660,011 +$ +155,697 +$ +— +$ +160,661 +$ +1,470,792 +Portfolio Development and +Technical Services +(1) Mr. Vogel +received a $250,000 Sign-on Bonus as part of his hiring. The bonus was paid in two equal increments in 2012. +(2) The +amounts in this column represent the aggregate grant date fair values of PSU and RSU awards computed in accordance with Financial +Accounting Standards Board Accounting Standards Codification Topic 718, "Compensation—Stock Compensation" ("FASB ASC Topic 718"), excluding the effect of estimated +forfeitures related to service-based vesting conditions. These grant date fair values have been determined based on the assumptions and methodologies discussed in Note 7 of the Notes to +Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. PSU awards are subject to market-based performance conditions +relating to our total stockholder return and relative stockholder return compared to a peer company index over a three-year performance period. The grant date fair values of PSU awards reflected in +this column are based on the estimate as of the grant date of the probable outcome of these performance conditions, and those grant date fair values for Messrs. Best, Ottoson, Pursell, +Copeland, and Vogel respectively are $2,774,969, $1,350,001, $1,050,000, $450,000, and $374,968. If instead we assume that the highest level of performance conditions will be achieved, the grant date +fair values of those awards as computed in accordance with FASB ASC Topic 718 for Messrs. Best, Ottoson, Pursell, Copeland, and Vogel respectively are $5,549,938, $2,700,002, $2,100,000, +$900,000, and $749,936. +(3) The +amounts in the column represent the bonuses paid in 2014, 2013, and 2012, but earned during 2013, 2012 and 2011 performance periods, +respectively, under the STIP. +(4) The +amounts shown in this column are attributable to the increase, if any, in the actuarial value of each NEO's combined benefits under our +qualified and non-qualified benefit plans determined using interest rate and mortality assumptions consistent with those used in our financial statements. No NEO received preferential or above market +earnings on deferred compensation. +(5) Amounts +consist of our respective contributions to our 401(k) Profit Sharing Plan, any payments for financial consulting services and any +anniversary gift card. In 2013, contributions to our 401(k) Profit Sharing Plan of $15,300 were provided to each of Messrs. Best, Ottoson, Pursell, Copeland and Vogel. In 2013, financial +consulting service +38 +Table of Contents +benefits +of $10,702, $11,730, and $10,960 were provided to Mr. Best, Mr. Ottoson and Mr. Vogel, respectively. In 2012, relocation benefits of $31,712, and $130,737 were paid to +Mr. Copeland and Mr. Vogel, respectively. +Grants of Plan-Based Awards in 2013 +Pursuant to our STIP, and in accordance with our Cash Bonus Plan, the Compensation Committee established the qualitative metrics for +our 2013 STIP on February 19, 2013. As discussed above, in 2014, we made the bonus payments associated with the 2013 STIP. In addition, pursuant to our LTIP and in accordance with our Equity +Plan, our Compensation Committee approved grants of RSUs and PSUs to our NEOs on June 20, 2013. We made these grants on July 1, 2013. These grants are summarized in the table below. +Estimated Possible +Payouts Under +Non-Equity Incentive +Plan Awards +All Other +Stock Awards: +Number of +Shares of +Stock or +Units (5) +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock and +Option +Awards (6) +Grant +Date +Name +Target (1) +Maximum (2) +Threshold +Target (3) +Maximum (4) +Anthony J. Best +2/19/13 +$ +744,231 +$ +1,488,462 +— +— +— +— +— +7/1/13 +— +— +— +— +— +15,422 +$ +925,012 +7/1/13 +— +— +— +43,271 +86,542 +— +$ +2,774,969 +Javan D. Ottoson +2/19/13 +$ +413,481 +$ +918,846 +— +— +— +— +— +7/1/13 +— +— +— +— +— +7,503 +$ +450,030 +7/1/13 +— +— +— +21,051 +42,102 +— +$ +1,350,001 +A. Wade Pursell +2/19/13 +$ +318,923 +$ +797,308 +— +— +— +— +— +7/1/13 +— +— +— +— +— +5,835 +$ +349,983 +7/1/13 +— +— +— +16,373 +32,746 +— +$ +1,050,000 +David W. Copeland +2/19/13 +$ +251,467 +$ +718,478 +— +— +— +— +— +7/1/13 +— +— +— +— +— +2,501 +$ +150,010 +7/1/13 +— +— +— +7,017 +14,034 +— +$ +450,000 +Herbert S. Vogel +2/19/13 +$ +234,796 +$ +670,846 +— +— +— +— +— +7/1/13 +— +— +— +— +— +2,084 +$ +124,998 +7/1/13 +— +— +— +5,847 +11,694 +— +$ +374,968 +(1) This +amount represents the salary amount actually paid to each of our NEOs in 2013, multiplied by the applicable STIP target percentage. +(2) This +amount represents the salary amount actually paid to each of our NEOs in 2013, multiplied by the maximum allowable bonus per individual +of two times actual salary paid in 2013, pursuant to our stockholder-approved Cash Bonus Plan. +(3) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the target performance level established by our Compensation Committee, resulting in an earned percentage of 100%. PSUs represent the right to receive, upon settlement of the PSUs after the +completion of a three-year performance period ending June 30, 2016, a number of shares of our common stock that may be from 0% to 200% of the number of PSUs granted on the award date, depending +on the extent to which our performance criteria have been achieved and the extent to which the PSUs have vested. The performance criteria for the PSUs are based on a combination of our TSR for the +performance periods and the relative measure of our TSR compared with the cumulative TSR of an index comprised of certain peer companies for the performance period. The PSUs will vest on +July 1, 2016. +(4) This +amount represents the number of shares of common stock to be issued upon settlement of PSUs granted under our Equity Plan, assuming we +achieve the maximum performance level established by our Compensation Committee, resulting in an earned percentage of 200%. +(5) This +amount represents RSUs granted under our Equity Plan. The RSUs vest one-third on July 1, 2014, one-third on July 1, 2015, +and one-third on July 1, 2016. Prior to vesting, the RSUs are subject to transfer restrictions and may be forfeited to us upon termination of employment. The RSUs are not eligible for dividends +and are not credited with dividend equivalents. Holders of RSUs have no rights as stockholders of common stock until such time as the RSUs are settled for shares of common stock on the settlement +date. +39 +Table of Contents +(6) The +grant date fair value of a PSU is calculated using a Geometric Brownian Motion Model, and the aggregate grant date fair value represented +in this column for PSUs is calculated based upon the number of PSUs granted. +Outstanding Equity Awards at 2013 Year-End +The following table shows outstanding equity awards for NEOs as of December 31, 2013: +Stock Awards +Equity Incentive Plan +Awards: +Equity Incentive Plan +Awards: +Name +Number of Shares or +Units of Stock That +Have Not Vested +Market Value of Shares +or Units of Stock that +Have Not Vested (1) +Number of Unearned +Shares, Units or Other +Rights That Have Not +Vested +Market or Payout Value +of Unearned Shares, +Units or Other Rights +That Have Not +Vested (1) +Anthony J. Best +5,869 +(2) +$ +487,773 +— +$ +— +— +$ +— +30,774 +(3) +$ +2,557,627 +11,879 +(4) +$ +987,264 +— +$ +— +— +$ +— +50,500 +(5) +$ +4,197,055 +15,422 +(6) +$ +1,281,722 +— +$ +— +— +$ +— +43,271 +(7) +$ +3,596,253 +Javan D. Ottoson +2,347 +(2) +$ +195,059 +— +$ +— +— +$ +— +12,310 +(3) +$ +1,023,084 +5,431 +(4) +$ +451,370 +— +$ +— +— +$ +— +23,086 +(5) +$ +1,918,677 +7,503 +(6) +$ +623,574 +— +$ +— +— +$ +— +21,051 +(7) +$ +1,749,549 +10,000 +(8) +$ +831,100 +— +$ +— +A. Wade Pursell +1,885 +(2) +$ +156,662 +— +$ +— +— +$ +— +9,891 +(3) +$ +822,041 +4,413 +(4) +$ +366,764 +— +$ +— +— +$ +— +18,757 +(5) +$ +1,558,894 +5,835 +(6) +$ +484,947 +— +$ +— +— +$ +— +16,373 +(7) +$ +1,360,760 +David W. Copeland +754 +(2) +$ +62,665 +— +$ +— +— +$ +— +3,957 +(3) +$ +328,866 +1,867 +(4) +$ +155,166 +— +$ +— +— +$ +— +7,936 +(5) +$ +659,561 +2,501 +(6) +$ +207,858 +— +$ +— +— +$ +— +7,017 +(7) +$ +583,183 +Herbert S. Vogel +847 +(9) +$ +70,394 +— +$ +— +1,562 +(4) +$ +129,818 +— +$ +— +— +$ +— +6,637 +(5) +$ +551,601 +2,084 +(6) +$ +173,201 +— +$ +— +— +$ +— +5,847 +(7) +$ +485,944 +(1) The +market value of RSUs and PSUs that have not vested is calculated using the closing price of $83.11 of our common stock on +December 31, 2013. The market value of PSUs is calculated based upon an earned percentage of 100%. +(2) These +RSUs vest 1/7th on July 1, 2012, 2/7ths on July 1, 2013, and 4/7ths on July 1, 2014. +(3) These +PSUs vest 1/7th on July 1, 2012, 2/7ths on July 1, 2013, and 4/7ths on July 1, 2014. The PSUs are subject +to a three-year performance period ending June 30, 2014. The award is reported at an earned percentage of 100%. Because these PSUs are not settled until the end of the applicable three-year +performance period, the PSUs shown in the table above include both vested and unvested PSUs. +(4) These +RSUs vest 1/3rd on July 1, 2013, 1/3rd on July 1, 2014, and 1/3rd on July 1, 2015. +(5) These +PSUs vest 1/3rd on July 1, 2013, 1/3rd on July 1, 2014, and 1/3rd on July 1, 2015. The PSUs +are subject to a three-year performance period ending June 30, 2015. The award is reported at an earned percentage of 100%. Because these PSUs are not settled until the end of the applicable +three-year performance period, the PSUs shown in the table above include both vested and unvested PSUs. +(6) These +RSUs vest 1/3rd on July 1, 2014, 1/3rd on July 1, 2015, and 1/3rd on July 1, 2016. +(7) These +PSUs vest on July 1, 2016. The PSUs are subject to a three-year performance period ending June 30, 2016. The award is +reported at an earned percentage of 100%. +(8) These +RSUs vest on October 3, 2015. These RSUs were granted in conjunction with Mr. Ottoson's promotion to President. +(9) These +RSUs vest 1/3rd on July 1, 2012, 1/3rd on July 1, 2013, and 1/3rd on July 1, 2014. +40 +Table of Contents +2013 Stock Vested +Stock Awards +Name +Number of Shares +Acquired on Vesting (1) +Value Realized +on Vesting (2) +Anthony J. Best +78,914 +$ +4,773,088 +Javan D. Ottoson +41,603 +$ +2,516,794 +A. Wade Pursell +34,128 +$ +2,064,614 +David W. Copeland +5,188 +$ +311,176 +Herbert S. Vogel +1,627 +$ +97,587 +(1) This +column represents the number of shares of common stock issued upon the vesting and settlement of RSUs and PSUs during 2013. As discussed +above, each RSU represents a right to receive one share of our common stock upon settlement pursuant to the terms of the award agreement, and each PSU represents the right to receive, upon settlement +of the PSU after the completion of a three-year performance period, a number of shares of our common stock that ranges from 0% to 200% of the number of PSUs, depending on the extent to which we have +achieved our performance goals. This table does not include any vested, outstanding PSUs, because all outstanding PSUs are currently subject to the applicable three-year performance period, and thus +have not been settled. +(2) The +value realized on vesting and settlement of the RSUs and PSUs is computed by multiplying the number of shares of common stock issued upon +the vesting and settlement of RSUs or settlement of PSUs by the per share closing market price of the underlying shares on the day prior to settlement date, or, if the day prior to the settlement date +was not a normal market trading date, then on the last normal market trading date which preceded the day prior to the settlement date. The per share closing market prices utilized for this computation +were $59.98 on June 28, 2013, for the vesting and settlement of the first vesting tranche of the 2012 RSU awards, the vesting and settlement of the second vesting tranche of the 2011 RSU awards +and the vesting and settlement of the third vesting tranche of the 2010 RSU awards, which were all settled on July 1, 2013; and $60.61 on July 1, 2013, for the vesting and settlement +date of July 2, 2013, for the full settlement of the July 1, 2010 PSU awards, which were settled at 172.5% of target. +Pension Benefits +Our Qualified Pension Plan is a qualified, noncontributory defined benefit plan, which is available to substantially all of our +employees who meet age and service requirements. In addition, we sponsor the SERP to provide an equivalent benefit on earnings above the qualified plans IRC limits (the 2013 limit was $255,000 in +annual base salary income for certain executive officers with a senior management hierarchy title of at least Vice President). +41 +Table of Contents +The +following table represents the value of the NEOs' pension benefits as of December 31, 2013: +Name +Plan Name +Number of +Years Credited +Service +Present Value +of Accumulated +Benefit +Payment +During Last +Fiscal Year +Anthony J. Best +Qualified Pension Plan +8 +$ +302,060 +$ +— +Non-Qualified SERP Pension Plan +8 +$ +478,998 +$ +— +Javan D. Ottoson +Qualified Pension Plan +7 +$ +173,264 +$ +— +Non-Qualified SERP Pension Plan +7 +$ +120,598 +$ +— +A. Wade Pursell +Qualified Pension Plan +5 +$ +89,578 +$ +— +Non-Qualified SERP Pension Plan +5 +$ +42,599 +$ +— +David W. Copeland +Qualified Pension Plan +3 +$ +80,132 +$ +— +Non-Qualified SERP Pension Plan +3 +$ +25,882 +$ +— +Herbert S. Vogel +Qualified Pension Plan +2 +$ +44,494 +$ +— +Non-Qualified SERP Pension Plan +2 +$ +7,440 +$ +— +Non-qualified Deferred Compensation +Although the NPP may be considered a non-qualified deferred compensation plan because amounts are paid under the NPP from net profits, +if any, from oil and gas activity from designated pools of properties in years after the participants have earned such net profits interests, the NPP is not a plan whereby specific determinable +compensation amounts or balances are deferred. The NPP is described in the "Compensation Discussion and Analysis" herein, and NPP compensation amounts would be reflected in the Summary Compensation +Table above; however, we did not pay any NPP Compensation to our NEOs during 2011, 2012 or 2013. +Our +SERP is a non-qualified deferred compensation plan. The SERP is a non-contributory plan, and additional information about the SERP, including the present value of the accumulated +benefits under the SERP for each NEO, is set forth in the "Retirement Plans—Pension Benefits" section above. In addition, annual increases in the actuarial value of benefits under the SERP +are included in the Change In Pension Value and Non-Qualified Deferred Compensation Earnings column of the Summary Compensation Table above. +On +January 17, 2014, we adopted the NQDC. Additional information concerning the NQDC is available in the "Compensation Discussion and +Analysis— Retirement Programs—Pension, 401(k) and Non-qualified Deferred Compensation Plans " section above. Our NEOs are able to +defer a portion of their base salary and cash bonuses beginning in 2014. +Potential Payments Upon Termination or Change of Control +Employment Agreements and Termination of Employment +Mr. Best is our only NEO with whom we have an employment agreement, which is dated May 1, 2006. Mr. Best has +earned and been awarded all cash and equity compensation due him under such agreement, other than any compensation that he may receive in certain termination scenarios, as discussed below. +Mr. Best +participates in the fringe benefits and other benefit plans and practices of ours in the same manner and to the same comparable extent as our other senior executives. +42 +Table of Contents +Our +employment agreement with Mr. Best provides that in the event that we terminate Mr. Best's employment for any reason other than (a) the death or incapacity of +Mr. Best or (b) his gross negligence, gross incompetence, fraud, or dishonesty, as determined by the Board, we must continue Mr. Best's base +salary at its rate at the time of such termination for a period of two years thereafter, together with a continuation for two years of the insurance benefits in effect for him at the time of such +termination. +Based +on Mr. Best's annual salary and level of insurance benefits in effect as of December 31, 2013, the total amount of cash payments that would have been made to +Mr. Best for a period of two years after a termination on December 31, 2013, would have been $1,600,000, and the estimated value of insurance benefits to be paid over such period would +have been approximately $39,000. +Our +employment agreement with Mr. Best also provides that in the event that Mr. Best's employment is terminated under circumstances such that the terms of our change of +control executive severance agreement for Mr. Best would apply, and to the extent that severance pay or benefits, each considered separately, to be received by Mr. Best pursuant to the +terms of the change of control executive severance agreement would exceed the severance pay or benefits, each considered separately, pursuant to the terms of Mr. Best's employment agreement, +Mr. Best shall receive such excess severance pay or benefits under the change of control executive severance agreement pursuant to the terms thereof. Our change of control executive severance +agreements are discussed below. +Change of Control Arrangements +Change of control severance protection is provided to executives at the level of Vice President and above, including each of our NEOs, +and to certain other key employees, through change of control executive severance agreements. These agreements have a "double trigger" mechanism, which requires first that a qualifying change of +control event has occurred, and second that the executive has been terminated or that certain other conditions are met, as summarized below, before severance benefits will be provided. Executive +officers are entitled to receive severance payments in the event that their employment is terminated within two and one-half years after a change of control of our company (a) without "cause" +by our company or (b) for "good reason" by the officer, each as defined in the agreements. The term "good reason" incorporates the concept of a change in the executive's status, authority, +position, offices, titles, duties, or responsibilities that are reasonably viewed as a diminution of duties at any time within the 90 days preceding a change of control event or within two and +one-half years thereafter. The term "good reason" also contemplates a reduction in the executive's base salary and benefits over this same time frame, or the requirement that an executive relocate his +base of employment outside a 25 mile radius from the executive's location at that time. Severance payments equal to a maximum of two and one-half times annual base salary, depending on the length of +time of employment after the change of control, provided that in no event would the severance payments equal less than one times annual base salary. In addition, all insurance and benefits will be +provided for a period of one year after termination. In the event the executive is subject to golden parachute excise taxes under Section 4999 of the IRC, severance benefits may be reduced to +avoid excise taxes, if doing so would increase the net after tax benefits to the executive. No excise tax "gross-up" payments are provided. +A +change of control is defined to include (a) an acquisition of more than 50% of the common stock or assets of our company in a reorganization, merger, or consolidation of our +company, or (b) a change in more than 50% of the composition of the Board, other than as a result of the election of new members of the Board by a vote of the incumbent members of the Board or +by our stockholders pursuant to the recommendation of the incumbent members of the Board. +43 +Table of Contents +Particularly +in view of the propensity for mergers, acquisitions, and consolidations in our industry, we believe that these change of control executive severance agreements promote +stability and continuity among our executives, allowing them to remain neutral in the face of a transaction that would benefit our stockholders, but would result in their involuntary termination. Such +agreements are customary for executives in our industry and are offered by companies who compete with us for executive talent. The double trigger feature provides a sufficient level of protection for +the executive as well as a retention incentive benefiting our company and our stockholders without creating an unreasonable impediment to a potential acquirer of our company. The maximum two and +one-half times base salary post-change of control severance benefit, and the minimum one times base salary benefit and insurance coverage period under these agreements for our executives, are +comparable to payment levels and periods offered under similar arrangements by other companies in our industry, and are designed to facilitate reasonable compensation and insurance and benefits +protection during a reasonable period of time to allow the executive to obtain comparable employment. +Based +on the respective annual base salaries and benefit levels of the NEOs as of December 31, 2013, under the change of control executive severance agreements, the total maximum +severance payments for two and one-half years, the total minimum severance payments for one year, and the estimated value of continued benefits for one year after severance for each of the NEOs who +were employed by us as of December 31, 2013, would be as follows: +Name +Maximum +Severance +Payments +Minimum +Severance +Payments +Estimated +Value of +Benefits for +One Year (1) +Anthony J. Best (2) +$ +2,000,000 +$ +1,600,000 +$ +19,469 +Javan D. Ottoson +$ +1,182,500 +$ +473,000 +$ +24,370 +A. Wade Pursell +$ +1,047,500 +$ +419,000 +$ +23,536 +David W. Copeland +$ +940,000 +$ +376,000 +$ +23,536 +Herbert S. Vogel +$ +872,500 +$ +349,000 +$ +23,536 +(1) The +change of control executive severance agreements provide that the benefits shall be limited to the extent that the executive obtains any +such benefits pursuant to a subsequent employer's benefit plans. The maximum period for receipt of benefits under the change of control executive severance agreements is one year for all NEOs with the +exception of Mr. Best as described in footnote 2. +(2) The +employment agreement between our company and Mr. Best provides that in the event of a change of control of our company and a +termination of Mr. Best's employment, we must pay minimum severance payments and insurance benefits to Mr. Best at the rate at the time of such termination for a period of two years +thereafter, and, to the extent that severance pay or benefits to be received by Mr. Best under the terms of the change in control executive severance agreement between our company and +Mr. Best would exceed the severance pay or benefits under his employment agreement, Mr. Best shall receive the excess severance pay and benefits under such change of control executive +severance agreement. +Under +our change of control executive severance agreements with our executives, the severance payments are to be made in such base salary installment amounts and pursuant to such base +salary installment payment schedule as were in effect immediately prior to the change of control, and our company or its successor is obligated to make such payments. We also have change in control +arrangements with a majority of our non-executive employees. +44 +Table of Contents +Equity Compensation Plans +Options and shares of our common stock are authorized for grant or issuance pursuant to our Equity Plan as compensation to eligible +employees, consultants, and members of the Board of Directors. Our stockholders have approved this plan. The following table is a summary of the shares of common stock authorized for issuance under +the equity compensation plans as of December 31, 2013: +(a) +(b) +(c) +Number of +securities to be +issued upon +exercise of +outstanding +options, +warrants, and +rights +Number of securities +remaining available for +future issuance under +equity compensation +plans (excluding +securities reflected in +column (a)) +Plan category +Weighted-average +exercise price of +outstanding +options, warrants, +and rights +Equity compensation plans approved by security holders: +Equity Incentive Compensation Plan +Stock options and incentive stock options (1) +39,088 +$ +20.87 +Restricted stock (1)(3) +580,431 +N/A +Performance share units (1)(3)(4) +807,406 +N/A +Total for Equity Incentive Compensation Plan +1,426,925 +$ +20.87 +3,813,900 +Employee Stock Purchase Plan (2) +— +— +1,230,057 +Equity compensation plans not approved by security holders +— +— +— +Total for all plans +1,426,925 +$ +20.87 +5,043,957 +(1) In +May 2006, our stockholders approved the Equity Plan to authorize the issuance of restricted stock, restricted stock units, non-qualified +stock options, incentive stock options, stock appreciation rights, performance shares, performance units, and stock-based awards to key employees, consultants, and members of our Board or any of our +affiliates. The Equity Plan serves as the successor to the St. Mary Land & Exploration Company Stock Option Plan, the St. Mary Land & Exploration Company Incentive Stock +Option Plan, the SM Energy Company Restricted Stock Plan, and the SM Energy Company Non-Employee Director Stock Compensation Plan (collectively referred to as the "Predecessor Plans"). All grants of +equity are now made under the Equity Plan, and no further grants will be made under the Predecessor Plans. Each outstanding award under a Predecessor Plan immediately prior to the effective date of +the Equity Plan continues to be governed solely by the terms and conditions of the instruments evidencing such grants or issuances. Our Board approved amendments to the Equity Plan in 2009, 2010 and +2013, and each amended plan was approved by our stockholders at the respective annual stockholders' meetings. The awards granted in 2013, 2012, and 2011 under the Equity Plan were 632,939, 724,671 and +386,802, respectively. +(2) Under +the SM Energy Company ESPP, eligible employees may purchase shares of our common stock through payroll deductions of up to +15 percent of their eligible compensation. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on the first or last day of the six-month +offering period, and shares issued under the ESPP as of December 31, 2011, have no minimum restriction period. The ESPP is intended to qualify under Section 423 of the Internal Revenue +Code. Shares issued under the ESPP totaled 77,427, 66,485 and 41,358 in 2013, 2012 and 2011, respectively. +45 +Table of Contents +(3) RSUs +and PSUs do not have exercise prices associated with them, but rather a weighted-average per share fair value which is presented in +order to provide additional information regarding the potential dilutive effect of the awards. The weighted-average grant date per share fair value for the outstanding RSUs and PSUs was $57.05 and +$67.74, respectively. +(4) The +number of awards vested assumes an earned percentage of 100%. The final number of shares issued may vary depending on the ending +three-year earned percentage, which ranges from 0% to 200%. +46 +Table of Contents +DIRECTOR COMPENSATION +General +The annual service period for our directors is the period from one stockholders' annual meeting to the next. In May 2013, +F. W. Cook conducted an analysis of compensation for members of the boards of directors of our peer companies versus the compensation for members of our Board. F. W. Cook's +analysis generally revealed that our director compensation was below the median of the peer group. Based on F. W. Cook's analysis, the Compensation Committee elected to recommend to our +Board a $15,000 increase in the cash retainer portion of the director compensation package for the current 2013-2014 service period. The Compensation Committee +recommended to our Board the director compensation package for the annual service period from May 22, 2013, through May 20, 2014, which our Board approved on May 22, 2013. +Director compensation is primarily paid in the form of stock grants. Mr. Best, our Chief Executive Officer and only employee director, does not receive additional compensation for serving on +the Board or any committee of the Board. +The +annual compensation for each non-employee director is as follows, plus reimbursement for expenses incurred in attending Board and committee meetings and director education +programs: +• Cash Retainer —A $70,000 retainer (in lieu of Board and +committee meeting attendance fees) payable at the individual director's option, either entirely in cash or shares of our common stock. Ms. Baumann, Dr. Bickle, Mr. Gardiner, +Mr. Leiker, Mr. Quintana and Mr. Sullivan each elected to have their 2013 retainers paid in shares of our common stock, which resulted in a grant on May 23, 2013, of 1,111 +shares of our common stock to each under our Equity Plan. In the event any director attends in excess of 30 Board and committee meetings in the aggregate during the period from May 22, 2013, +through May 20, 2014, such director shall receive $1,500 per meeting for each meeting in excess of 30. +• Equity Retainer —A grant of shares of our common stock with a +value of $160,000—resulting in a grant on May 23, 2013, to each non-employee director of 2,539 shares of our common stock issued under our Equity Plan. These shares and any shares +issued pursuant to any retainer are earned over the director's annual service period. However, shares issued to a director who thereafter resigns from the Board before completing the annual service +period, but after having completed at least five years of service as a Board member, are treated as fully earned. All shares issued to a director for compensation may not be transferred until two +years after the date of issuance. The related compensation expense we record is the fair value of the share grant as calculated under the valuation provisions required by FASB ASC Topic 718. +Chairs +of the following committees are paid the indicated cash retainers at the beginning of the annual director service period in recognition of the additional responsibilities of +their respective committee assignments: +• Audit Committee Chair—$20,000 +• Compensation Committee Chair—$15,000 +• NCG Committee Chair—$10,000 +Mr. Sullivan +was paid a retainer for his service as non-executive Chairman of the Board of $75,000 for the 2013-2014 annual service period. The retainer was paid in the form of +shares of our +47 +Table of Contents +common +stock on May 23, 2013, which resulted in a grant of 1,191 shares. The retainer was in addition to his basic non-employee director compensation. +We +maintain a matching charitable gift program to encourage financial support for charitable organizations that are exempt from federal income taxation in which employees and our +non-management directors may participate. Our annual charitable gifts budget, which includes this matching program, is determined prior to the commencement of each year as a percentage of the average +of our prior three years' income, before taxes and charitable contributions, and all annually budgeted funds are expended for charitable purposes. Ms. Baumann, Dr. Bickle, +Dr. Brand, Mr. Quintana, Mr. Seidl, and Mr. Sullivan participated in this program during 2013, and we matched a total of $71,005 in non-employee director contributions +under this program. We may suspend, change, revoke or terminate the program at any time. +Our +directors are eligible to participate in our company-wide health, pharmacy, dental, and vision insurance programs. Directors are charged a premium that is equal to the COBRA rates +associated with our plan. Participation in this plan is considered non-compensatory. +The +Compensation Committee has established equity ownership guidelines for non-employee directors of three times their annual equity retainer. Equity holdings include the value of +vested and unvested RSUs for purposes of these calculations. New directors are allowed time to meet this guideline and are not required to acquire shares in the open market for this purpose. +The +following table sets forth the annual and long-term compensation paid during 2013 to our non-employee directors. The stock based component of the compensation reflects the grant +date fair +value. Cash based compensation is recorded based on the monetary amount paid to the individual director. +2013 Director Compensation +Name +Fees Earned +or Paid in +Cash +Stock +Awards (1)(2)(3) +Option +Awards (4) +Non-Equity +Incentive +Plan +Compensation +Change In +Pension Value +and +Non-Qualified +Deferred +Compensation +Earnings +All Other +Compensation (5) +Total +Barbara M. Baumann +$ +15,000 +$ +230,023 +$ +— +$ +— +$ +— +$ +10,000 +$ +255,023 +Larry W. Bickle +$ +10,000 +$ +230,023 +$ +— +$ +— +$ +— +$ +5,000 +$ +245,023 +Stephen R. Brand +$ +70,000 +$ +160,008 +$ +— +$ +— +$ +— +$ +15,000 +$ +245,008 +William J. Gardiner +$ +20,000 +$ +230,023 +$ +— +$ +— +$ +— +$ +— +$ +250,023 +Loren M. Leiker +$ +— +$ +230,023 +$ +— +$ +— +$ +— +$ +— +$ +230,023 +Julio M. Quintana +$ +— +$ +230,023 +$ +— +$ +— +$ +— +$ +28,255 +$ +258,278 +John M. Seidl +$ +70,000 +$ +160,008 +$ +— +$ +— +$ +— +$ +8,750 +$ +238,758 +William D. Sullivan +$ +— +$ +305,080 +$ +— +$ +— +$ +— +$ +4,000 +$ +309,080 +(1) We +issued to each of our non-employee directors their equity retainer of 2,539 shares of our common stock on May 23, 2013, after such +director's election to the Board on May 22, 2013. We issued to Mr. Sullivan an additional 1,191 shares of our common stock on May 23, 2013, for serving as the Non-Executive +Chairman of the Board. Ms. Baumann, Dr. Bickle, Mr. Gardiner, Mr. Leiker, Mr. Quintana and Mr. Sullivan elected to receive an additional 1,111 shares of our +common stock on May 23, 2013, in lieu of their respective $70,000 annual cash retainers. These stock awards are for the annual service period from May 23, 2013 through May 20, +2014. The shares are considered to be earned over the director's annual service period and fully vested May 23, 2014. The shares also carry a transfer +48 +Table of Contents +restriction +imposed by us that expires two years after the date of issuance of the shares. The value of the stock awards represents the grant date fair value. +(2) The +grant date fair value of each share of our common stock issued to non-employee directors over their past three years of service to us is +set forth in the following table and is computed in accordance with FASB ASC Topic 718, based on the closing stock price on the grant date. There were no forfeitures by directors during fiscal 2013. +Grant Date +Shares +Value +Grantee +5/23/2013 +2,539 +$ +160,008 +Brand, Seidl +5/23/2013 +3,650 +$ +230,023 +Baumann, Bickle, Gardiner, Leiker and Quintana +5/23/2013 +4,841 +$ +305,080 +Sullivan +7/16/2012 +3,986 +$ +183,635 +Leiker +5/24/2012 +2,884 +$ +160,033 +Brand, Seidl +5/24/2012 +3,876 +$ +215,079 +Baumann, Bickle, Gardiner, and Quintana +5/24/2012 +5,228 +$ +290,102 +Sullivan +5/26/2011 +2,395 +$ +159,986 +Brand, Seidl +5/26/2011 +3,218 +$ +214,962 +Baumann, Bickle, Gardiner, and Quintana +5/26/2011 +3,517 +$ +234,936 +Sullivan +3/21/2011 +389 +$ +28,471 +Brand +(3) As +of December 31, 2013, our non-employee directors held the following number of shares of restricted stock, which were granted in +2013: Ms. Baumann—3,650, Dr. Bickle—3,650, Dr. Brand—2,539, Mr. Gardiner—3,650, Mr. Leiker—3,650, +Mr. Quintana—3,650, Mr. Seidl—2,539, Mr. Sullivan—4,841. +(4) For +the year ended December 31, 2013, no stock options were issued to directors, nor have any stock options been issued to the +directors since December 2004. As of December 31, 2013, the non-employee directors held the following number of stock options: Ms. Baumann—9,772, +Dr. Bickle—9,772, and Mr. Gardiner—9,772. Dr. Brand, Mr. Leiker, Mr. Quintana, Mr. Seidl and Mr. Sullivan do not hold any +outstanding stock options. The options described above are cumulative unexercised options granted to the directors over their years of service to us. +(5) The +amounts in this column represent matching charitable contributions made on the behalf of Ms. Baumann, Dr. Bickle, +Dr. Brand, Mr. Quintana, Mr. Seidl and Mr. Sullivan for the year 2013 under our matching charitable gift program. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +None of the directors who served on the Compensation Committee during fiscal year 2013 has ever served as one of our +officers or employees. During fiscal year 2013, there were no Compensation Committee interlocks. +49 +Table of Contents +PROPOSAL 1—ELECTION OF DIRECTORS +Our directors are elected annually. On January 10, 2014, Ms. Baumann notified our Board that she did not +intend to stand for reelection at the 2014 Annual Meeting of Stockholders. As a result, and based on the recommendations of the NCG Committee, the Board has nominated the following individuals +for re-election as directors to serve until the 2015 Annual Meeting of Stockholders and until their successors have been elected and qualified, or until their earlier resignation or removal: +Anthony J. Best +Loren M. Leiker +Larry W. Bickle +Julio M. Quintana +Stephen R. Brand +John M. Seidl +William J. Gardiner +William D. Sullivan +Each +nominee is currently a director and all nominees were previously elected to the Board by our stockholders. Each nominee has consented to being named as a nominee in this Proxy +Statement and has indicated a willingness to serve if elected. Although the Board does not contemplate that any of the nominees will be unable to serve, if such a situation arises prior to the Annual +Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. +Set +forth below is certain biographical information, as of the filing date of this Proxy Statement, for each nominee for election as director, including his principal occupation, +business experience, and public company directorships held during the last five years. There are no family relationships among any of our directors or executive officers. +As +discussed above, the NCG Committee utilizes the framework of our Corporate Governance Guidelines to select nominees based on their skills, achievements, and experience, and believes +that each nominee should have experience in positions of responsibility and leadership, and an understanding of our oil and natural gas exploration and production business. The overall objective is to +identify a group of directors that can best contribute to our long-term success. All of the nominees discussed below are seasoned leaders who bring to the Board a vast array of oil and gas industry, +public and private company, and other business experience, all at the senior executive officer level, and who meet the director qualification standards set forth in our Corporate Governance +Guidelines. Among other attributes, as a group, these nominees possess a wide breadth of varied skills and experience in leadership, the energy industry, finance and accounting, risk management, +operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that +led the NCG Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our +long-term strategy. The specific experiences, qualifications, attributes, and skills of each nominee are briefly described in each nominee's biographical information below. In addition, the nominees, +whose experiences cover various aspects of the energy industry, represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and newer perspectives on our company, and have a +demonstrated ability to work collaboratively with candid discussion. +50 +Table of Contents +Anthony J. Best +Director since 2007 +Age 64 +Mr. Best joined the Company in June 2006 as President and Chief Operating Officer. Mr. Best was elected Chief Executive Officer and a director of the Company in February 2007. Mr. Best +relinquished his position as President when the Board appointed Mr. Ottoson to that office in October 2012. Mr. Best is also a director of Newpark Resources, Inc. (NYSE: NR), a company that is a worldwide provider of drilling +fluids, temporary worksites and access roads for oilfield and other commercial markets, and environmental waste treatment solutions. From November 2005 to June 2006, Mr. Best was developing a business plan and securing capital +commitments for a new exploration and production entity. From 2003 to October 2005, Mr. Best was President and Chief Executive Officer of Pure Resources, Inc., an independent oil and natural gas exploration and production company that +was a subsidiary of Unocal, where he managed all of Unocal's onshore United States assets. From 2000 to 2002, Mr. Best had an oil and gas consulting practice, working with various energy firms. From 1979 to 2000, Mr. Best was with ARCO +in a variety of positions, including serving as President-ARCO Latin America, President—ARCO Permian, Field Manager for Prudhoe Bay and VP—External Affairs for ARCO Alaska. Mr. Best has over 35 years of experience in the energy +industry. +Larry W. Bickle +Director since 1995 +Age 68 +Dr. Bickle is a retired private equity investor with extensive experience in various energy related businesses. From June 2005 through April 2007, he was Executive in Residence for Haddington Ventures, +L.L.C., a private equity fund that invests in midstream energy companies and assets. Prior to that, Dr. Bickle was Managing Director of Haddington from June 1997 to 2005. From 1984 to 1997, Dr. Bickle was Chairman of the Board +and Chief Executive Officer of TPC Corporation (formerly Tejas Power Corporation), a NYSE-listed gas storage, transportation, and marketing company that he founded. Dr. Bickle is also a director of UNS Energy Corporation (NYSE: UNS), +the parent company for Tucson Electric Power Company. He also serves as Non-Executive Chairman and is a member of the Board of Managers of Quantum Natural Gas Storage, LLC. Dr. Bickle brings to the Board over 31 years of experience in +various aspects of the oil and gas exploration and production industry and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading +TPC Corporation. Dr. Bickle also brings specific knowledge of natural gas transportation infrastructure including pipelines, processing, treatment, and storage; experience running a large natural gas marketing and trading operation, and +extensive experience with both state and federal regulators related to natural gas production and transportation. He also has significant financial management and accounting oversight experience, which is important to the oversight of our financial +reporting and financial risk management functions, and serves as a basis for Dr. Bickle's designation as an audit committee financial expert. Dr. Bickle's service on other public company boards enhances his strong corporate governance +background. +51 +Table of Contents +Stephen R. Brand +Director since 2011 +Age 64 +Dr. Brand is currently Senior Executive Advisor of Welltec A/S, a privately held Danish corporation that develops and provides well technology and related services for the oil and gas industry. +Dr. Brand is also a director of BPZ Resources, Inc. (NYSE: BPZ), a company that focuses on exploration, development and production of oil and natural gas in Peru and Ecuador. At the end of 2010, Dr. Brand retired as Senior +Vice President, Technology (R&D) of ConocoPhillips (NYSE: COP), a multinational/integrated energy company. Prior to his appointment as Senior Vice President, Technology (R&D) of ConocoPhillips in October 2007, Dr. Brand served +as Vice President, Exploration and Business Development at ConocoPhillips, beginning in 2005. Dr. Brand started his career in 1976 as a geologist with Phillips Petroleum Company and thereafter served in various roles of increasing +responsibility with Phillips Petroleum and its successor, ConocoPhillips, including serving as President, Canada and President, Australasia. Dr. Brand has over 37 years of experience in the energy industry, including extensive experience in +the development of exploration and development programs and in strategic planning and research programs for upstream, downstream, and "new" stream technologies. He also has valuable human resources management and financial related skills and +experiences, which are relevant in the oversight of our operational and compensation management functions. +William J. Gardiner +Director since 1999 +Age 60 +Mr. Gardiner is Senior Vice President and Chief Financial Officer of King Ranch, Inc., a privately held ranching and agricultural company that owns the historic 825,000 acre "King Ranch" in south +Texas. Mr. Gardiner has been an executive officer and Chief Financial Officer of King Ranch, Inc. since 1996. Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice President and Chief Financial Officer of CRSS, +Inc., a NYSE-listed architectural engineering and independent power producing firm. Mr. Gardiner was employed by CRSS for approximately 20 years. Mr. Gardiner was initially appointed as a director at the time of our acquisition +of King Ranch Energy, Inc. in 1999. Mr. Gardiner brings to the Board strong financial management and accounting oversight skills and experiences, a significant amount of which was obtained through his work in energy related businesses +for over 27 years. These skills and experiences are important in the oversight of our financial reporting and financial and operational risk management functions, and serve as a basis for Mr. Gardiner's designation as an audit committee +financial expert. +52 +Table of Contents +Loren M. Leiker +Director since 2012 +Age 60 +Mr. Leiker was an executive with EOG Resources, Inc., until his retirement in September 2011. EOG is one of the largest independent oil and natural gas companies in the United States. Mr. Leiker +served EOG as Senior Executive Vice President of Exploration from February 2007 to September 2011. Prior to that appointment, he held a variety of executive officer positions with EOG and its predecessor, Enron Oil and Gas Company. +Mr. Leiker started his career in 1977 at Tenneco, Inc., where he held a variety of domestic and international technical and managerial roles until the sale of the company in 1989. Mr. Leiker has been a director of Midstates Petroleum +Company, Inc. (NYSE: MPO) since December 2011, and a director of Vermilion Energy Inc. (VET: Toronto) since December 2012. Mr. Leiker brings to the Board over 37 years of experience in various aspects of the oil and +gas exploration and production industry, including extensive experience in exploration activities similar to ours, a deep understanding of upstream operations and asset management technologies, and broad human resources management skills and +experience, which are important in the oversight of our financial reporting and financial and operational risk management functions. Mr. Leiker's service on other public company boards enhances his strong corporate governance +background. +Julio M. Quintana +Director since 2006 +Age 54 +Mr. Quintana is the President, Chief Executive Officer, and a director of Tesco Corporation (NASDAQ: TESO), which designs, manufactures, and delivers technology based solutions for the upstream oil and +natural gas industry, including oilfield drilling technology, services, and equipment. Prior to the appointment to his current position at Tesco Corporation in September 2005, Mr. Quintana served as Executive Vice President and Chief +Operating Officer at Tesco beginning in September 2004. Prior to his tenure at Tesco, Mr. Quintana worked for five years in various executive roles for Schlumberger Corporation. Prior to Schlumberger, Mr. Quintana worked for nearly +20 years for Unocal Corporation, an integrated E&P company, in various operational and managerial roles. Mr. Quintana brings to the Board over 33 years of experience in various aspects of the oil and gas exploration and production +industry, including strong experience in upstream operations, a deep understanding of drilling and asset management technologies, and broad human resources management skills and experience, which are important in the oversight of our financial +reporting and financial and operational risk management functions. Mr. Quintana's service on another public company board enhances his strong corporate governance background. +53 +Table of Contents +John M. Seidl +Director since 1994 +Age 75 +Mr. Seidl has been involved in energy and natural resource businesses since 1977, and is currently Chairman of the Board of EnviroFuels, LLC, a privately held corporation that develops, manufactures, and +markets technology that improves the performance and efficiency of internal combustion engines, boilers, and other engine designs. Mr. Seidl has held the Chairman position since January 2006 and held the Chief Executive Officer position +from October 2008 until May 2010. From July 2004 to January 2006, he served as Vice Chairman of EnviroFuels' advisory board. Mr. Seidl brings to the Board over 36 years of experience in various energy and natural +resources businesses, and provides the Board with significant strategic planning, operations management, public company corporate governance, and public policy insights from his experience leading numerous companies and in government. He also has +significant financial management and accounting oversight experience, which is important in the oversight of our financial reporting, financial risk management and compensation management functions. +William D. Sullivan +Director since 2004 +Age 57 +Mr. Sullivan is a retired oil and gas executive who was with Anadarko Petroleum Corporation, a large independent oil and natural gas exploration and production company, for over 20 years. Mr. Sullivan +retired from Anadarko in August 2003. Since March 2006, Mr. Sullivan has been a director of Legacy Reserves GP, LLC, which is the general partner of Legacy Reserves LP (NASDAQ: LGCY), a limited partnership focused on the +acquisition and development of producing oil and natural gas properties. Since February 2007, Mr. Sullivan has been a director of Targa Resources GP LLC, which is the general partner of Targa Resources Partners LP +(NYSE: NGLS), a midstream natural gas limited partnership engaged in the business of gathering, compressing, treating, processing, and selling natural gas, and fractionating and selling natural gas liquids and NGL products. Since +August 2007, Mr. Sullivan has been a director of Tetra Technologies, Inc. (NYSE: TTI), an oil and gas services company. Since June 2011, Mr. Sullivan has been a director and member of the audit committee of Compressco +Partners GP, Inc., which is the general partner of Compressco Partners, L.P. (NASDAQ: GSJK), a publicly traded limited partnership providing wellhead compression-based production enhancement services. Compressco Partners GP, +Inc. is a majority-owned subsidiary of Tetra Technologies, Inc. Mr. Sullivan was with Anadarko Petroleum Corporation from 1981 to August 2003. From August 2001 to August 2003, Mr. Sullivan was Executive Vice +President, Exploration and Production at Anadarko. Mr. Sullivan also served Anadarko as Vice President, Operations—International, Gulf of Mexico, and Alaska in 2001, Vice President—International Operations from 1998 to 2000, +Vice President—Algeria from 1995 to 1998, and Vice President—U.S. Onshore Operations from 1993 to 1995. Mr. Sullivan brings to the Board over 31 years of strong and broad experience in the oil and gas industry, with +particular expertise in the exploration and production side of the industry. His experience as an exploration and production senior executive enables him to contribute significant independent insights on our business and operations, and the economic +environment and long-term strategic issues that we face. In addition, his human resources management skills and experience are important in the oversight of our compensation management functions, and his service on other public company boards of +directors provides a strong corporate governance background. +Recommendation of the Board: The Board recommends voting " FOR " the +election of all the nominees listed above. +54 +Table of Contents +PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF +ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED +PUBLIC ACCOUNTING FIRM FOR 2014 +Our stockholders are being asked to ratify the appointment by the Audit Committee of Ernst & Young LLP +("EY") as our independent registered public accounting firm for 2014. EY has served as our independent registered public accounting firm since 2013, and the Audit Committee plans to engage EY to +perform the audit of our financial statements as of and for the year ending December 31, 2014. +The +Audit Committee is solely responsible for selecting our independent auditors. Although stockholder ratification of the appointment of EY is not required by law or our organizational +documents, the Board has determined that it is desirable to seek stockholder ratification as a matter of good corporate governance in view of the critical role played by independent registered public +accounting firms in maintaining the integrity of financial controls and reporting. If our stockholders do not ratify the appointment of EY, the Audit Committee will consider whether to engage another +independent registered public accounting firm, but will not be obligated to do so. Even if the selection +is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our +best interests and the best interests of our stockholders. +A +representative of EY is expected to be present at the Annual Meeting and will have an opportunity to make a statement and to respond to appropriate questions. +Recommendation of the Board: The Board recommends voting +" FOR " Proposal 2. +55 +Table of Contents +PROPOSAL 3—ADVISORY VOTE ON EXECUTIVE COMPENSATION +Our stockholders are entitled to cast an advisory vote at the Annual Meeting to approve the compensation of our named +executive officers, as disclosed in this Proxy Statement. As an advisory vote, this Proposal 3 is not binding on the Board or the Compensation Committee, will not overrule any decisions made by the +Board or the Compensation Committee, or require the Board or the Compensation Committee to take any action. Although the vote is non-binding, the Compensation Committee will take into account the +outcome of the vote when considering future executive compensation decisions. In particular, to the extent there is any significant vote against our named executive officers' compensation as disclosed +in this Proxy Statement, we will consider our stockholders' concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. +As +described in "Executive Compensation—Compensation Discussion and Analysis" section above, our executive compensation programs are designed to provide a competitive level +of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. +In order to align executive pay with both our financial performance and the creation of sustainable stockholder value, a significant portion of compensation paid to our named executive officers is +allocated to performance-based short-term and long-term incentive programs to make executive pay dependent on our performance (and thereby "at-risk"). In addition, as an executive officer's +responsibility and ability to affect our financial results increases, the portion of his or her total compensation deemed "at-risk" increases in relation to base salary. Furthermore, our named +executive officers' targeted total direct compensation (base salary plus target bonus plus long-term incentive compensation) is generally designed to approximate the median of our peer group. +As +discussed in more detail under "Executive Compensation—Compensation Discussion and Analysis" hereof, our STIP measures performance using metrics that we believe are the +key drivers of long-term stockholder value creation. Our LTIP also compensates performance based upon absolute "total stockholder return," as well as total stockholder return compared to our peers. We +believe that we have achieved our goal for at least the last three years. As you consider this Proposal 3, we urge you to read the "Compensation Discussion and Analysis" section hereof, which more +thoroughly discusses how our compensation policies and procedures are designed to reflect and implement our compensation philosophy. The Compensation Committee and the Board believe that these +policies and procedures are effective in implementing our compensation philosophy and in achieving our goals, and significantly align the interests of our management with those of our stockholders. +In +light of these circumstances, we are asking stockholders to vote "FOR" the following resolution: +"RESOLVED, +that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the named executive officers as disclosed in the Proxy +Statement for SM Energy Company's 2014 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including under the "Compensation +Discussion and Analysis" section, and in the Summary Compensation Table and the other related tables and disclosures in the Proxy Statement." +During +our 2011 Annual Meeting of Stockholders, our stockholders approved a non-binding, advisory proposal to hold annual advisory votes to approve our executive compensation. In +consideration of the results of this advisory vote, the Board has adopted a policy providing for annual advisory votes on executive compensation. Unless the Board modifies this policy, the next +advisory vote on compensation following this vote will be held at our 2015 Annual Meeting of Stockholders. +Recommendation of the Board: The Board recommends voting +" FOR " Proposal 3. +56 +Table of Contents +REPORT OF THE AUDIT COMMITTEE +The Audit Committee is appointed by the Board of Directors of SM Energy Company to assist the Board in fulfilling its +oversight responsibilities with respect to (a) the integrity of SM Energy Company's financial statements and financial reporting process and systems of internal controls regarding finance, +accounting, and compliance with legal and regulatory requirements, (b) the qualifications, independence, and performance of SM Energy Company's independent registered public accounting firm, +(c) the performance of SM Energy Company's internal audit function, and (d) other matters as set forth in the charter of the Audit Committee approved by the Board. +Management +is responsible for SM Energy Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and +procedures. Ernst & Young LLP, our independent registered public accounting firm for the year ended December 31, 2013, was responsible for performing an independent audit of SM +Energy Company's financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these +processes. +In +connection with these responsibilities, the Audit Committee reviewed and discussed with management and the independent registered public accounting firm the audited consolidated +financial +statements of SM Energy Company for the year ended December 31, 2013. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be +discussed by Auditing Standards No. 16, Communication with Audit Committees, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee received the written +disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent +registered public accounting firm's communications with the Audit Committee concerning independence, and the Audit Committee discussed with the independent registered public accounting firm that +firm's independence. +Based +on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements of SM Energy Company be included +in SM Energy Company's Annual Report on Form 10-K for the year ended December 31, 2013. +Respectfully +submitted by the Audit Committee of the Board of Directors, +William +J. Gardiner, Chair +Larry W. Bickle +Loren M. Leiker +Julio M. Quintana +57 +Table of Contents +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +On September 10, 2012, the Audit Committee approved the engagement of EY as the Company's independent +registered public accounting firm for the year ending December 31, 2013, replacing Deloitte & Touche LLP ("DT"). +To +the knowledge of management, neither EY, DT nor any of their respective members had any direct or material indirect financial interest in our company or any connection with our +company in any capacity other than as our independent registered public accounting firm for the years ended December 31, 2013, and 2012. +We +paid the following fees for the audit of the consolidated financial statements and for other services provided in the years ended December 31, 2013, and 2012. All services and +fees, including tax service fees, were pre-approved by the Audit Committee. +2013 +2012 +Audit Fees (1) +$ +847,555 +$ +799,635 +Audit Related Fees (2) +— +— +Tax Fees (3) +10,000 +12,000 +All Other Fees +— +— +Total Fees +$ +857,555 +$ +811,635 +(1) Includes +reviews of registration statements and related consents and comfort letters. +(2) Includes +out-of-pocket expenses related to travel to Audit Committee and stockholder meetings. +(3) Includes +basic compliance services and assistance with technical research. +The +Audit Committee concluded that the provision of the non-audit services, such as tax services, was compatible with maintaining EY and DT's independence. +The +reports of DT on our consolidated financial statements as of and for the year ended December 31, 2012, did not contain an adverse opinion or a disclaimer of opinion, and were +not qualified or modified as to uncertainty, audit scope or accounting principles. +During +the year ended December 31, 2012, there were no (a) disagreements with DT on any matter of accounting principles or practices, financial statement disclosure, or +auditing scope or procedure, which disagreements, if not resolved to DT's satisfaction, would have caused DT to make reference to the subject matter thereof in connection with its reports for such +years; or (b) reportable events, as described under Item 304(a)(1)(v) of Regulation S-K. +During +the year ended December 31, 2012, we did not consult with EY regarding any of the matters or events set forth in Item 304(a)(2)(i) or (ii) of +Regulation S-K. +58 +Table of Contents +AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the Audit Committee shall approve the fees and any other significant +compensation to be paid to the independent registered public accounting firm, and shall approve in advance any non-audit services to be performed by the independent registered public accounting firm. +Such pre-approval requirement for non-audit services may be waived only if the non-audit services meet a de minimis exception allowed by law. +Accordingly, it is the Audit Committee's policy that, prior to the engagement of the independent registered public accounting firm, the Audit Committee shall review and pre-approve all audit and +permissible non-audit services to be provided by the independent registered public accounting firm (including the related fees and other terms of such services). +In +connection with this policy, the following procedures are followed: (a) if applicable, each year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the independent registered public accounting firm during the next annual audit cycle, which schedule is detailed as to the +particular services to be performed by the independent registered public accounting firm; (b) actual amounts paid to the +independent registered public accounting firm are monitored by financial management of our company and reported to the Audit Committee; (c) any services proposed to be provided by the +independent registered public accounting firm and the related fees that have not been pre-approved during the annual review by the Audit Committee must be pre-approved by the Audit Committee in +advance of any work performed; and (d) incremental fees for previously approved services that are expected to exceed the previously approved fee estimate must also be pre-approved by the Audit +Committee. +STOCKHOLDER PROPOSALS FOR THE 2015 ANNUAL MEETING +OF STOCKHOLDERS +Pursuant to the various rules promulgated by the SEC, stockholders interested in submitting a proposal for inclusion +in our proxy materials and for presentation at the 2015 Annual Meeting of Stockholders may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be +eligible for inclusion in our proxy materials, stockholder proposals must be received by our Corporate Secretary no later than December 11, 2014. +In +addition to the requirements of Rule 14a-8, and as more specifically provided for in our By-Laws, in order for a nomination of persons for election to the Board or a proposal +of business to be properly brought before the 2015 Annual Meeting of Stockholders, it must be either specified in the notice of the meeting given by our Corporate Secretary or otherwise brought before +the meeting by or at the direction of the Board or by a stockholder entitled to vote and who complies with the notice procedures set forth in our By-Laws. A stockholder making a nomination for +election to the Board or a proposal of business for the 2015 Annual Meeting of Stockholders must deliver proper notice to our Corporate Secretary not earlier than the close of business on the +105 th day prior to the first anniversary of the date of the 2014 Annual Meeting nor later than the close of business on the 75 th day prior to the first +anniversary of the 2014 Annual Meeting. In other words, for a stockholder nomination for election to the Board or a proposal of business to be considered at the 2015 Annual Meeting of Stockholders, it +should be properly submitted to our Corporate Secretary no earlier than February 4, 2015, and no later than March 6, 2015. If the date of our 2014 Annual Meeting of Stockholders changes +by more than 20 days before or after May 20, 2014, then stockholder nominations and proposals must be received not earlier than the close of business on the +105 th day prior to the date of the 2015 Annual Meeting of Stockholders and not later than the close of business on the later of the 75 th day prior to the date +of the 2015 Annual Meeting of Stockholders or, if the first public +59 +Table of Contents +announcement +of the date of the 2015 Annual Meeting of Stockholders is less than 85 days prior to the date of the meeting, the 10th day following the day on which public announcement of +the date of the +2015 Annual Meeting of Stockholders is first made by us. For additional information about stockholder nominations and proposals, see "Corporate Governance—Director Nomination Process." +Under +Rule 14a-4(c) of the Exchange Act, the Board may exercise discretionary voting authority under proxies solicited by it with respect to any matter properly presented by a +stockholder at the 2015 Annual Meeting of Stockholders that the stockholder does not seek to have included in our proxy statement if (except as described in the following sentence) the proxy statement +discloses the nature of the matter and how the Board intends to exercise its discretion to vote on the matter, unless we are notified of the proposal on or before February 24, 2015, and the +stockholder satisfies the other requirements of Rule 14a-4(c)(2). If we first receive notice of the matter after February 24, 2015, and the matter nonetheless is permitted to be +presented at the 2015 Annual Meeting of Stockholders, the Board may exercise discretionary voting authority with respect to the matter without including any discussion of the matter in the proxy +statement for the meeting. We reserve the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with the requirements described above +and other applicable requirements. +2013 ANNUAL REPORT +Our Annual Report is being made available to our stockholders concurrently with this Proxy Statement and does not form +part of the proxy solicitation material. +We +filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, with the SEC. It is available free of charge at the SEC's web site at www.sec.gov . Upon written request by a +stockholder, we will mail, without charge, a copy of the Form 10-K, including the financial statements and +financial statement schedules, but excluding exhibits to the Form 10-K. Exhibits to the Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in +furnishing the requested exhibit. Such requests may be made by writing to our Corporate Secretary at the address specified above. +60 +Table of Contents +OTHER MATTERS +Management does not know of any matters to be brought before the Annual Meeting other than the election of directors, +the ratification of the appointment by the Audit Committee of Ernst & Young LLP as our independent registered public accounting firm for 2014, and the advisory vote to approve the +compensation of our named executive officers. If any other matters not mentioned in this Proxy Statement are properly brought before the Annual Meeting, the individuals named in the enclosed proxy +intend to use their discretionary voting authority under the proxy to vote the proxy in accordance with their best judgment on those matters. +As +a result of discussions with many of our stakeholders, including our stockholders, we have concluded that a traditional, glossy wrap for our Annual Report on Form 10-K no +longer meets the needs of the vast majority of our stakeholders. Due to easy access to the internet, our website, and a need for real-time information, providing printed materials months after the +information included in those materials has been made available electronically is not an efficient and effective communication tool for us or our stakeholders. We currently provide regular and timely +information on strategic, operational, and financial matters through press releases, slide presentations, conference webcasts, and SEC filings, all of which we routinely post to our website. +Please +watch for our new website at www.sm-energy.com, which will be launched in the near future, and will include much of this information, along with other general information about +our operations, community activities and stakeholder relations. Any remaining questions regarding our operations or financial position can be directed to our Investor Relations Department at +ir@sm-energy.com or our External Affairs Department at externalaffairs@sm-energy.com. +Whether +or not you intend to be present at the Annual Meeting, we urge you to submit your proxy promptly. +By Order of the Board of Directors, +David W. Copeland +Executive Vice President, General Counsel +and Corporate Secretary +April 9, 2014 +61 +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 01SRLD 1 U P X + . + A The Board of +Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 +and 3. For Against Abstain 1. The Board of Directors has nominated the below +eight persons to stand for election as directors. As of the date of the +accompanying proxy statement, no one has been nominated to serve as director +other than the nominees listed below. 2. The proposal to ratify the +appointment by the Audit Committee of Ernst & Young LLP as our +independent registered public accounting firm for 2014. For Against Abstain +3. To approve, on a non-binding advisory basis, the compensation philosophy, +policies and procedures, and the compensation of our Company’s named +executive officers, as disclosed in the accompanying Proxy Statement. Annual +Meeting Proxy Card 01 - Anthony J. Best 04 - William J. Gardiner 07 - John M. +Seidl 02 - Larry W. Bickle 05 - Loren M. Leiker 03 - Stephen R. Brand 06 - +Julio M. Quintana For Against Abstain For Against Abstain 08 - William D. +Sullivan For Against Abstain IMPORTANT ANNUAL MEETING INFORMATION Authorized +Signatures — This section must be completed for your vote to be counted. — Date +and Sign Below B Please sign exactly as name(s) appears hereon. Joint owners +should each sign. When signing as attorney, executor, administrator, +corporate officer, trustee, guardian, or custodian, please give full title. +Signature 1 — Please keep signature within the box. Signature 2 — Please keep +signature within the box. Date (mm/dd/yyyy) — Please print date below. +NNNNNNNNNNNN NNNNNNN 1 8 6 1 9 1 1 MR A SAMPLE (THIS AREA IS SET UP TO +ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE +AND NNNNNNNNN C 1234567890 J N T 1234 5678 9012 345 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext 000000000.000000 ext +000000000.000000 ext 000000000.000000 ext 000004 MR A SAMPLE DESIGNATION (IF +ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 ENDORSEMENT_LINE______________ +SACKPACK_____________ C123456789 MMMMMMMMMMMMMMM qIF YOU HAVE NOT VOTED VIA +THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE +BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q Electronic Voting Instructions You +can vote by Internet or telephone! Available 24 hours a day, 7 days a week! +Instead of mailing your proxy, you may choose one of the two voting methods +outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN +THE TITLE BAR. Proxies submitted by the Internet or telephone must be +received by 1:00 a.m., MST on May 20, 2014. Vote by Internet • Go to +www.investorvote.com/SM • Or scan the QR code with your smartphone • Follow +the steps outlined on the secure website Vote by telephone • Call toll free +1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch +tone telephone • Follow the instructions provided by the recorded message IF +VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A – C ON BOTH SIDES OF THIS CARD. +Admission Ticket +. Proxy — SM +Energy Company Electronic Delivery of Future Proxy Materials If you would +like to reduce the costs incurred by us in mailing proxy materials, you can +consent to receiving all future proxy statements, proxy cards and annual +reports electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions on the front of this card to vote +using the Internet and, when prompted, indicate that you agree to receive or +access proxy materials electronically in future years. Important Notice +Regarding the Availability of Proxy Materials for the Annual Meeting of +Stockholders to be held on May 20, 2014. The Proxy Statement and our 2013 +Annual Report on Form 10-K are available at: +http://www.viewproxy.com/sm-energy/2014/. 1775 Sherman Street, Suite 1200 +Denver, Colorado 80203 This proxy is solicited on behalf of the Board of +Directors for the Annual Meeting of Stockholders to be held on May 20, 2014. +The undersigned hereby appoints A. Wade Pursell, David W. Copeland, Brent A. +Collins, and James B. Lebeck, or any of them, each with the power to appoint +his substitute, as proxies for the undersigned to vote all shares of SM +Energy Company common stock which the undersigned is entitled to vote at the +Annual Meeting of Stockholders to be held on May 20, 2014, and at any +reconvened meeting after any adjournment thereof, as directed on the matters +referred to on the reverse side and at their discretion on any other matters +that may properly be presented at the meeting, including concerning any +adjournment of the meeting. This proxy when properly executed will be voted +in the manner directed by the undersigned stockholder. If this proxy is properly +executed but no voting direction is given, this proxy will be voted “FOR” all +director nominees in Proposal 1, and “FOR” Proposals 2 and 3. This proxy also +confers discretionary authority to the proxies to vote on any other matters +that may properly be presented at the meeting, including concerning any +adjournment of the meeting. As of the date of the accompanying proxy +statement, SM Energy Company’s management did not know of any other matters +to be presented at the meeting. If any other matters are properly presented +at the meeting, including concerning any adjournment of the meeting, this +proxy will be voted in accordance with the recommendations of SM Energy +Company’s management. C Non-Voting Items Change of Address — Please print new +address below. qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE.q IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A – C ON BOTH SIDES +OF THIS CARD. + + 2014 Annual Meeting Admission Ticket 2014 Annual Meeting of +SM Energy Company Stockholders May 20, 2014, at 3:30 p.m. Local Time J. D. +Hershner Room of Wells Fargo Bank 1700 Lincoln Street Denver, Colorado Upon +arrival, please present this admission ticket and photo identification at the +registration desk. Attending and Voting in Person at the Annual Meeting: You +should be prepared to present a valid form of photo identification, such as a +driver’s license, state-issued ID card or passport along with the admission +ticket portion of this proxy card. If you do not provide valid photo +identification and otherwise comply with the procedures outlined above, you +may not be admitted to the Annual Meeting. Directions to the Annual Meeting +can be obtained by contacting our Corporate Secretary at (303) 861-8140. +Using a black +ink pen, mark your votes with an X as shown in this example. Please do not +write outside the designated areas. X 01SRME 1 U P X + q PLEASE FOLD ALONG +THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q . + A The Board of Directors recommends a vote FOR all the +nominees listed and FOR Proposals 2 and 3. For Against Abstain 1. The Board +of Directors has nominated the below eight persons to stand for election as +directors. As of the date of the accompanying proxy statement, no one has +been nominated to serve as director other than the nominees listed below. 2. +The proposal to ratify the appointment by the Audit Committee of Ernst & +Young LLP as our independent registered public accounting firm for 2014. For +Against Abstain 3. To approve, on a non-binding advisory basis, the +compensation philosophy, policies and procedures, and the compensation of our +Company’s named executive officers, as disclosed in the accompanying Proxy +Statement. Annual Meeting Proxy Card 01 - Anthony J. Best 04 - William J. +Gardiner 07 - John M. Seidl 02 - Larry W. Bickle 05 - Loren M. Leiker 03 - +Stephen R. Brand 06 - Julio M. Quintana For Against Abstain For Against +Abstain 08 - William D. Sullivan For Against Abstain IMPORTANT ANNUAL MEETING +INFORMATION Authorized Signatures — This section must be completed for your +vote to be counted. — Date and Sign Below B Please sign exactly as name(s) +appears hereon. Joint owners should each sign. When signing as attorney, +executor, administrator, corporate officer, trustee, guardian, or custodian, +please give full title. Signature 1 — Please keep signature within the box. +Signature 2 — Please keep signature within the box. Date (mm/dd/yyyy) — +Please print date below. NNNNNNNNNNNN 1 8 6 1 9 1 2 NNNNNNNNN +q PLEASE FOLD +ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED +ENVELOPE. q . Electronic Delivery of Future Proxy Materials If you would like +to reduce the costs incurred by us in mailing proxy materials, you can +consent to receiving all future proxy statements, proxy cards and annual +reports electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions on the front of this card to vote +using the Internet and, when prompted, indicate that you agree to receive or +access proxy materials electronically in future years. Important Notice +Regarding the Availability of Proxy Materials for the Annual Meeting of +Stockholders to be held on May 20, 2014. The Proxy Statement and our 2013 Annual +Report on Form 10-K are available at: +http://www.viewproxy.com/sm-energy/2014/. Proxy — SM Energy Company 1775 +Sherman Street, Suite 1200 Denver, Colorado 80203 This proxy is solicited on +behalf of the Board of Directors for the Annual Meeting of Stockholders to be +held on May 20, 2014. The undersigned hereby appoints A. Wade Pursell, David +W. Copeland, Brent A. Collins, and James B. Lebeck, or any of them, each with +the power to appoint his substitute, as proxies for the undersigned to vote +all shares of SM Energy Company common stock which the undersigned is +entitled to vote at the Annual Meeting of Stockholders to be held on May 20, +2014, and at any reconvened meeting after any adjournment thereof, as +directed on the matters referred to on the reverse side and at their +discretion on any other matters that may properly be presented at the +meeting, including concerning any adjournment of the meeting. This proxy when +properly executed will be voted in the manner directed by the undersigned +stockholder. If this proxy is properly executed but no voting direction is +given, this proxy will be voted “FOR” all director nominees in Proposal 1, +and “FOR” Proposals 2 and 3. This proxy also confers discretionary authority +to the proxies to vote on any other matters that may properly be presented at +the meeting, including concerning any adjournment of the meeting. As of the +date of the accompanying proxy statement, SM Energy Company’s management did +not know of any other matters to be presented at the meeting. If any other +matters are properly presented at the meeting, including concerning any +adjournment of the meeting, this proxy will be voted in accordance with the +recommendations of SM Energy Company’s management. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001047469-14-003625/proxy_rpt.txt b/raw/proxies/0000893538/0001047469-14-003625/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..739eea79e70aa7b70c5dcb050f3064a7a837c9f0 --- /dev/null +++ b/raw/proxies/0000893538/0001047469-14-003625/proxy_rpt.txt @@ -0,0 +1,38 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Policies and Procedures on Transactions with Related Persons +Our Related Person Transactions Policy sets forth the policies and procedures for the Audit Committee's review of any transaction, +arrangement, or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements, or relationships in which (a) we are a participant, +(b) the aggregate amount involved will or may be expected to exceed $120,000 per annum, and (c) a related person has or will have a direct or indirect material interest. For purposes of +our Related Person Transactions Policy, a "related person" means (i) any of our directors, executive officers, or nominees for director, (ii) any stockholder that beneficially owns more +than 5% of our outstanding shares of common stock, and (iii) any immediate family member of any of the foregoing. The Audit Committee approves or ratifies only those transactions that it +determines in good faith are in, or are not inconsistent with, our best interests and the best interests of our stockholders. +11 +Table of Contents +In +determining whether to approve or ratify a transaction with a related person, the Audit Committee takes into account the factors it deems appropriate, which may include, among +others, the benefits to us, the availability of other sources for comparable products or services, the impact on a director's independence in the event the related person is a director, and the extent +of the related person's interest in the transaction. The Audit Committee reviews and assesses ongoing relationships with a related person on at least an annual basis to ensure that they are in +compliance with the policy and remain appropriate. +In +addition, our By-Laws provide that a director, officer, or employee of our company may not pursue for his or her own account a business or investment opportunity that he or she +learned about through his or her affiliation with us. These restrictions do not apply to the acquisition of less than 1% of the publicly traded stock of another company. +Related Person Transactions +We recognize that transactions with related persons may raise questions among stockholders regarding whether those transactions are +consistent with our best interests and the best interests of our stockholders. It is our policy to enter into or ratify such transactions only when the Board, acting through the Audit Committee or as +otherwise described herein, determines that the transaction in question is in, or is not inconsistent with, our best interests and the best interests of our stockholders. Such transactions include, +but are not limited to, situations where we may obtain products or services of a nature, quantity or quality, or on other terms, that are not readily available from alternate sources, or when we +obtain products or services from, or provide products or services to, related persons on an arm's length basis on terms comparable to those obtained from or provided to unrelated third parties or on +terms comparable to those obtained from or provided to employees generally. The only transaction between our company and a related person since January 1, 2013, is our relationship with Tesco, +which was referenced above. Mr. Quintana is the President, Chief Executive Officer, and a director of Tesco, which designs, manufactures, and delivers technology based solutions for the +upstream energy industry, including oilfield drilling and completion technology, services, and equipment. We have an agreement with Tesco for its provision of equipment and services to us in +connection with our drilling and completion operations. This agreement continues until canceled by either us or Tesco on 30 days advance written notice. Pursuant to this agreement, we are +obligated to pay Tesco only for services actually performed or equipment provided, as the case may be, as requested by us from time to time. This agreement does not require us to make any other +payments to Tesco, nor does it obligate us to use Tesco for any services or equipment. Mr. Quintana does not have any direct or indirect interest in the transaction, other than as a result of +serving as an executive officer and director of Tesco. Mr. Quintana had no input in our selection of Tesco for equipment and services or the terms of our agreement with Tesco. Decisions to use +Tesco are made by technical professionals supervising the relevant regional activity, based on their assessment of Tesco's equipment and services and related costs in comparison to other providers. In +2013, we paid Tesco $758,327. The amount we paid Tesco during 2013 for equipment and services represented approximately 5% of the total amount paid by us to all service providers (including Tesco) for +similar equipment and services during 2013. As of March 31, 2014, we had paid Tesco $165,493 for equipment and services rendered during 2014. In accordance with our Related Person Transactions +Policy, the Audit Committee reviewed the relationship +between us and Tesco and determined that the relationship is in our best interests and the best interests of our stockholders. +12 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0000893538/0001104659-07-027279/proxy.txt b/raw/proxies/0000893538/0001104659-07-027279/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1dce9f5bf6271c8204d1cd04e725b69fa35adfb0 --- /dev/null +++ b/raw/proxies/0000893538/0001104659-07-027279/proxy.txt @@ -0,0 +1,3430 @@ +DEF 14A +1 +a07-8330_1def14a.htm +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement +Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other +than the Registrant o +Check the appropriate +box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as +permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +St. Mary Land & Exploration Company +(Name of +Registrant as Specified In Its Charter) +(Name of Person(s) Filing +Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which +transaction applies: +(2) +Aggregate number of securities to which transaction +applies: +(3) +Per unit price or other underlying value of +transaction computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as +provided by Exchange Act Rule 0-11(a)(2) and identify the filing +for which the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule and the +date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +March 30, 2007 +Dear Stockholder: +You are cordially invited to attend the 2007 annual +meeting of stockholders, which will be held in the J. D. Hershner Room of +Wells Fargo Bank located at 1700 Lincoln Street in Denver, Colorado, on +Tuesday, May 15, 2007, at 3:00 p.m. local time. +At the meeting, you +and the other stockholders will vote on: +· The +election of eight directors; and +· The ratification of the appointment by the Audit Committee of +Deloitte & Touche, LLP as the Company’s Independent Registered Public +Accounting Firm. +You will also have the opportunity to hear reports on +St. Mary’s operations and to ask questions of general interest. You can find +other, more specific information about the meeting in the accompanying proxy +statement, and you can find detailed information about St. Mary in the enclosed +annual report or at our website www.stmaryland.com . +Please complete and sign the enclosed proxy card and +return it promptly in the accompanying envelope, or use the telephone or +internet voting systems described on the proxy card. This will ensure that your +shares are represented at the meeting even if you cannot attend. +Thank you for your cooperation by returning your proxy +card, or voting by telephone or the Internet as promptly as possible. We hope +to see many of you at our meeting in Denver. +Very truly yours, +Anthony J. Best +CEO & President +St. Mary Land & Exploration Company +1776 +Lincoln Street, Suite 700 +Denver, Colorado 80203 +Notice of Annual +Stockholders’ Meeting +on May 15, +2007 +To All Stockholders: +The 2007 annual +meeting of the stockholders of St. Mary Land & Exploration Company +will be held in the J. D. Hershner Room of Wells Fargo Bank at 1700 +Lincoln Street in Denver, Colorado, on Tuesday, May 15, 2007, at 3:00 p.m. +local time. The purpose of the meeting is: +1. To elect +eight directors to serve during the next year; +2. To ratify the appointment by the Audit +Committee of Deloitte & Touche, LLP as the Company’s Independent +Registered Public Accounting Firm; and +3. To transact any +other business which may properly come before the meeting. +Only stockholders of record at the close of business +on March 30, 2007, may vote at this meeting. +Please sign, date, and return the accompanying proxy +card in the enclosed envelope as soon as possible, or use the telephone or +internet voting systems described on the proxy card. Any stockholder may revoke its proxy at any time +before the vote is taken at the meeting. +By Order of the Board of Directors +St. Mary Land & Exploration Company +David W. Honeyfield +Senior VP—Chief Financial Officer, +Secretary & +Treasurer +Denver, +Colorado +March 30, 2007 +Proxy +Statement Table of Contents +Page +General +1 +Purpose of +the Annual Meeting +1 +Who Can Vote +1 +How to Vote +1 +Revoking a Proxy +2 +Voting Requirements +2 +Quorum +2 +Payment +of Proxy Solicitation Costs +2 +Election of +Directors +3 +Nominees +for Election as Directors +4 +Other Matters +to be Voted On +5 +Corporate +Governance +6 +Board of Directors +6 +Presiding +Director at the Nonmanagement Directors’ Executive Sessions +6 +Communication +with the Directors of the Company +6 +Board and +Committee Meetings +7 +Director +Compensation +8 +Other +Reportable Items Related to Payments Made by the Company Associated +with Service of a Director +9 +Compensation +Discussion and Analysis +9 +Executive +Compensation and Summary Compensation Table +17 +Summary +Compensation Table +18 +Grants of Plan +Based-Awards +19 +Outstanding +Equity Awards at Fiscal Year-End +20 +Nonqualified +Deferred Compensation +21 +Option +Exercises and Stock Vested +21 +Retirement Plans +22 +Pension Plan +22 +Pension Benefits +22 +Equity +Compensation Plans +22 +Employment +Agreements and Termination of Employment +23 +Change of +Control Arrangements +24 +Security +Ownership of Certain Beneficial Owners and Management +25 +Report +of the Compensation Committee +27 +Certain +Relationships and Related Transactions +27 +Section 16(a) Beneficial +Ownership Reporting Compliance +28 +Report of the +Audit Committee +28 +Independent +Accountants +29 +Audit +Committee Preapproval Policy and Procedures +30 +Future +Stockholder Proposals +30 +Other +Matters +30 +St. Mary Land & +Exploration Company +1776 +Lincoln Street, Suite 700 +Denver, Colorado 80203 +(303) 861-8140 +Proxy Statement +General +This proxy statement +contains information about the 2007 annual meeting of stockholders of St. Mary +Land & Exploration Company to be held in the J. D. Hershner Room of +Wells Fargo Bank at 1700 Lincoln Street in Denver, Colorado, on Tuesday, May 15, +2007, at 3:00 p.m. local time. The St. Mary Board of Directors is using +this proxy statement to solicit proxies for use at the annual meeting. In this +proxy statement, “St. Mary”, “the Company”, we, and us refer to St. Mary Land & +Exploration Company inclusive of its subsidiaries. This proxy statement and the +enclosed proxy card were mailed to you on or about April 12, 2007. +Purpose of the +Annual Meeting +At the Company’s +annual meeting, stockholders will vote on: +· the +election of the eight directors as outlined in the accompanying notice of +meeting; +· the ratification of the +appointment by the Audit Committee of Deloitte & Touche, LLP as the +Company’s Independent Registered Public Accounting Firm ; and +· to +transact any other business which may properly come before the meeting. +As of the date of this +proxy statement, the Company is not aware of any business to come before the +meeting other than the items noted above. +Who Can Vote +Only stockholders of +record at the close of business on the record date of March 30, 2007, are +entitled to receive notice of the annual meeting and to vote the shares of St. +Mary common stock they held on that date. As of March 30, 2007, there were +62,760,158 shares of St. Mary common stock issued and outstanding, net of +250,000 shares held in treasury by the Company. Holders of St. Mary common +stock are entitled to one vote per share and are not allowed to cumulate votes +in the election of directors. The enclosed proxy card shows the number of +shares that you are entitled to vote. +How to Vote +If your shares of St. Mary common stock are held by a +broker, bank, or other nominee (in “street name”), you will receive information +from them on how to instruct them to vote your shares. +If you hold shares of St. Mary common stock in your +own name (as a “stockholder of record”), you may give instructions on how your +shares are to be voted by marking, signing, dating, and returning the enclosed +proxy card in the accompanying postage paid envelope or by following the +telephone or internet voting procedures described on the proxy card. The +telephone and internet voting procedures are designed to ensure that proxies +are handled properly under Delaware law. Votes cast in either of these two +manners are authenticated by use of a personal identification number and allow +stockholders to confirm that their instructions have been properly recorded. If +you vote by telephone or the Internet, you do not have to mail in your proxy +card. +1 +If you hold shares in both +street name and as a stockholder of record, you must +vote separately for each set of shares. +A proxy, when +properly completed and not revoked, will be voted in accordance with its +instructions. If no voting instructions on a particular matter are given on a +properly executed and unrevoked proxy card, the shares represented by the proxy +will be voted on that particular matter as follows: +· FOR +the election as directors of the eight nominees named in this proxy statement +under the caption “Nominees for Election as Directors”; and +· FOR the ratification of the +appointment by the Audit Committee of Deloitte & Touche, LLP as the +Company’s Independent Registered Public Accounting Firm. +Revoking a Proxy +You may revoke a +proxy before the vote is taken at the meeting by: +· submitting +a new proxy with a later date either signed and returned by mail or transmitted +using the telephone or internet voting procedures before the meeting; +· by +voting in person at the meeting; or +· by +filing a written revocation with St. Mary’s Secretary. +Your attendance at the +annual meeting will not automatically revoke your proxy. +Voting Requirements +Election of Directors— The St. +Mary By-Laws provide that the election of directors shall be decided by the +vote of the holders of a majority of the shares present in person or by proxy +at the meeting and entitled to vote. Any shares present but not voted for +approval, including withheld votes and broker non-votes, will have the same +effect as if the shares were voted against approval. +Ratification +of Deloitte & Touche, LLP as the Company’s Independent Registered +Public Accounting Firm— This ratification shall be decided by +the vote of the holders of a majority of the shares present in person or by +proxy at the meeting and entitled to vote. Any shares present but not voted for +approval, including withheld votes and broker non-votes, will have the same +effect as if the shares were voted against approval. +Quorum +A quorum of stockholders +is necessary to hold a valid meeting. A quorum will exist if stockholders of +one-third of the outstanding shares of common stock are present at the meeting +in person or by proxy. Abstentions and broker non-votes count as present for +establishing a quorum. A broker non-vote occurs on a matter when a broker is +not permitted to vote on that matter without instruction from the beneficial +owner of the shares and no instruction is given. Shares held by St. Mary in its +treasury are not entitled to vote and do not count toward a quorum. If a quorum +is not present, the meeting may be adjourned until a quorum is obtained. +Payment of Proxy +Solicitation Costs +St. Mary will pay all +costs of soliciting proxies. The solicitation will be made by mail. In addition +to mailing proxy solicitation material, St. Mary officers, directors, and +employees may also solicit proxies in person, by telephone, or by other +electronic means of communication. St. Mary will ask banks, brokers, other +institutions, nominees, and fiduciaries to forward the proxy material to their +principals and obtain authority to execute proxies. St. Mary will reimburse +them for reasonable expenses. +2 +ELECTION OF +DIRECTORS +All directors of the Company are elected annually. At +this meeting, eight directors are to be elected to serve for one year or until +their successors are elected and qualified. The Company’s nominees for these +directorships are identified below; all are currently serving in that capacity. +The Corporate Governance Guidelines provide that the +Nominating and Corporate Governance Committee of the Board of Directors shall +be responsible for identifying and recommending directors for nomination by the +Board for election as members of the Board. This committee performed its +evaluation and nominating committee functions during 2006 and early 2007. The +committee selects each nominee based on the nominee’s skills, achievements, and +experience. As set forth in the Company’s Corporate Governance Guidelines, the +Board as a whole should have broad and relevant experience in high level +business policymaking and a commitment to representing the long term interests +of the stockholders. The committee believes that each nominee should have +experience in positions of responsibility and leadership, an understanding of +the Company’s business environment, and a reputation for integrity. +The committee evaluates each potential nominee +individually and in the context of the Board as a whole. The objective is to +recommend a group that will effectively contribute to the long-term success of +the Company and represent stockholder interests. In determining whether to +recommend a director for reelection, the committee also considers the director’s +past attendance at meetings and participation in and contributions to the +activities of the Board. +When seeking candidates for a new director, the +committee solicits suggestions from incumbent directors, management, +stockholders, and others. The committee has authority under its charter to +retain a search firm for this purpose. If the committee believes a candidate +would be a valuable addition to the Board of Directors, it recommends his or +her candidacy to the full Board of Directors. +The committee will +consider suggestions by stockholders of possible future nominees. Stockholders +may nominate persons for election to the Board in accordance with the Company’s +By-Laws. No such suggestions were received during 2006. Stockholder suggestions +should be delivered on or before November 1 in any year before the next +annual meeting. In addition, St. Mary’s By-Laws permit stockholders to nominate +directors for election at an annual meeting, provided that advance written +notice of the nomination containing the information required under the By-Laws +is received by the Secretary of St. Mary not less than 75 days nor more than +105 days before the first anniversary date of the immediately preceding annual +meeting. Accordingly, proper notice of a stockholder nomination for election as +director for the 2008 annual meeting must be received by St. Mary between January 31, +2008, and March 1, 2008. +The proxies will be voted in favor of the nominees +unless a contrary specification is made in the proxy. All nominees have +consented to serve as directors of the Company if elected. However, if any +nominee is unable to serve or for good cause will not serve as a director, the +persons named in the proxy intend to vote in their discretion for a substitute +who will be designated by the Board of Directors. +The Board of +Directors recommends voting “FOR” electing the nominees. +3 +NOMINEES FOR +ELECTION AS DIRECTORS +Biographical +information as of February 15, 2007, including principal occupation and +business experience during the last five years, of each nominee for director is +set forth below. Unless otherwise stated the principal occupation of each +nominee has been the same for the past five years. +Age +Director +Since +Barbara M. Baumann is President of Cross Creek +Energy Corporation, which provides consulting services for oil and gas +exploration and production companies. Ms. Baumann has held that position +since July 2003. From 2001 to July 2003, Ms. Baumann was +Executive Vice President of Associated Energy Managers LLC, an investment +manager and general partner of a private equity energy fund specializing in +oil and gas investments for institutional investors. From 1983 to 2001, +Ms. Baumann was employed by BP Amoco and held a variety of financial and +operational management positions, including Chief Financial Officer of an +environmental remediation subsidiary, Vice President of the San Juan Business +Unit, and the Commercial Operations Manager of the Western Business Unit. +Ms. Baumann is also a director of UniSource Energy Corporation, the +parent company for Tucson Electric Power Company. +51 +2002 +Anthony J. Best +is President and Chief Executive Officer of St. Mary. Mr. Best joined +St. Mary in June 2006 as President and Chief Operating Officer. In +December 2006, Mr. Best relinquished his position as Chief +Operating Officer when Javan D. Ottoson was elected to that office. On +February 23, 2007, Mr. Best was elected Chief Executive Officer of +St. Mary when Mark Hellerstein retired from that position. Mr. Best was +appointed to the Board, concurrent with his appointment as Chief Executive Officer. +From 2003 to October 2005, Mr. Best was President and Chief +Executive Officer of Pure Resources, Inc., a subsidiary of Unocal, where +he managed all of Unocal’s onshore U.S. assets. From 2000 to 2002, +Mr. Best had an oil and gas consulting practice working with various +energy firms. From 1979 to 2000, Mr. Best was with ARCO in a variety of +positions, including a period as President—ARCO Permian, President—ARCO Latin +America, Field Manager for Prudhoe Bay, and VP—External Affairs for ARCO +Alaska. +57 +2007 +Larry W. Bickle +is Executive in Residence for Haddington Ventures, L.L.C., a private equity +fund that invests in midstream energy companies and assets. Mr. Bickle +was Managing Director of Haddington from June 1997 to 2005. From 1984 to +1997, Mr. Bickle was Chairman of the Board and Chief Executive Officer +of TPC Corporation (formerly Tejas Power Corporation), a NYSE listed gas +storage, transportation, and marketing company that he founded. +Mr. Bickle is also a director of UniSource Energy Corporation, the +parent company for Tucson Electric Power Company +61 +1995 +William J. Gardiner is Vice President +and Chief Financial Officer of King Ranch, Inc., a privately held +ranching and agricultural company that owns the historic 825,000 acre “King +Ranch” in south Texas. Mr. Gardiner has held that position since 1996. +Before joining King Ranch in 1996, Mr. Gardiner served as Executive Vice +President and Chief Financial Officer of CRSS, Inc., a NYSE listed +independent power producer. Mr. Gardiner was employed by CRSS for +approximately 20 years. Mr. Gardiner was initially appointed as a +director of St. Mary in connection with St. Mary’s acquisition of King Ranch +Energy, Inc. in 1999. +52 +1999 +4 +Mark A. Hellerstein +is Chairman of the Board of St. Mary. Mr. Hellerstein served St. Mary +as President from 1992 to June 2006, served as Chief Executive Officer +from 1995 to February 2007, and was appointed Chairman of the Board in +September 2002. Mr. Hellerstein has become a non-employee member of +the Board concurrent with his resignation as Chief Executive Officer on +February 23, 2007. Mr. Hellerstein has served on the Board of +Transocean Inc. since December 2006. +54 +1992 +Julio M. Quintana is the +President and Chief Executive Officer of TESCO Corporation, a company that +supplies oilfield drilling technology, oilfield services and equipment. +Mr. Quintana joined the St. Mary Board on July 7, 2006. Prior to +his appointment to his current position at TESCO Corporation in +September 2005, he served as Executive Vice President and Chief +Operating Officer at TESCO. From 1999 to 2004, Mr. Quintana was employed +at Schlumberger as the VP—Integrated Project Management in 2003 and 2004 and +was the VP—Exploitation for North and South America in 2002 and 2003 and the +VP—Marketing for North and South America in 2002 and 2001. Mr. Quintana +began his career at Unocal Corporation where he spent 20 years working in +various engineering and leadership roles. +47 +2006 +John M. Seidl is Chairman of +the Board of EnviroFuels, LLC, a privately held corporation that develops, +manufactures, and markets technology that intends to improve the performance +and efficiency of internal combustion engines, boilers, and other engine +designs. Mr. Seidl has held that position since January 2006 and +prior to January 2006, he was Vice Chairman of EnviroFuels’ advisory +board. From June 2001 through December 2004, Mr. Seidl was +Chief Program Officer, Environment, of the Gordon and Betty Moore Foundation, +a private grant making foundation, which seeks and funds higher education, +scientific research, environmental, and San Francisco Bay Area projects. From +September 1999 through June 2004, Mr. Seidl was Chairman of +Language Line Services, a privately held provider of over the phone language +interpretation and document translation services. Mr. Seidl’s business +career from 1978-1992 was in energy or energy related businesses. +68 +1994 +William +D. Sullivan has been serving as a director of Targa +Resources Partners GP, LLC since February 2007, (Targa Resources +Partners LP was listed on NASAQ in February 2007). Additionally, +Mr. Sullivan has been serving as a director of Legacy Reserves GP, LLC +since March 2006 (Legacy Reserves LP was listed on the NASDAQ in +January 2007). For a brief amount of time, June 15, 2005, to +August 5, 2005, Mr. Sullivan served as President and Chief +Executive Officer of Leor Energy LP. Mr. Sullivan was with Anadarko +Petroleum Corporation from 1981 to August 2003. From August 2001 to +August 2003, Mr. Sullivan was Executive Vice President, Exploration +and Production at Anadarko. Mr. Sullivan also served Anadarko as VP, +Operations—International, Gulf of Mexico and Alaska in 2001, VP—International +Operations from 1998 to 2000, and VP—Algeria from 1995 to 1998. +50 +2004 +OTHER MATTERS TO BE +VOTED ON +Ratification of the appointment by the Audit Committee +of Deloitte & Touche, LLP as the Company’s Independent Registered +Public Accounting Firm. +St. Mary’s stockholders are being asked to ratify the +appointment by the Audit Committee of Deloitte & Touche, LLP as the +Company’s Independent Registered Public Accounting Firm. Deloitte has served as +the Company’s Independent Registered Public Accounting Firm since 2001 and the +Audit +5 +Committee believes it will +engage Deloitte to perform an audit again as of and for the year ended December 31, +2007. +The Audit Committee is responsible for selecting the +Company’s independent auditors for the fiscal year ending December 31, +2007. Stockholder approval is not required to appoint Deloitte & +Touche, LLP as the Company’s independent auditors for fiscal year 2007. Notwithstanding, +the Board of Directors believes that submitting the appointment of Deloitte & +Touche, LLP to the stockholders for ratification is good corporate governance. The +Audit Committee is solely responsible for selecting the Company’s independent +auditors. If the stockholders do not ratify this appointment, the Audit +Committee will review its future selection of independent auditors. +The Board of Directors recommends voting “FOR” the +ratification of the appointment by the Audit Committee of Deloitte & +Touche, LLP as the Company’s Independent Registered Public Accounting Firm. +CORPORATE +GOVERNANCE +Board of Directors +The Board is comprised of a majority of independent +directors. The Board has determined that the following directors are +independent and do not have any material relationship with the Company other +than as a director and stockholder of the Company: Barbara M. Baumann, Larry W. +Bickle, Thomas E. Congdon, William J. Gardiner, Julio M. Quintana, John M. +Seidl, and William D. Sullivan. Mr. Congdon will be serving out his +remaining term, however, he will not be standing for re-election. In its +conclusions as to the independence of these directors, the Board considered +past employment, remuneration, and any relationship with the Company. In making +its determination as to the independence of the members of the Board of +Directors, the Board considered the independence tests described in Section 303A.02 +of the Corporate Governance Standards of the New York Stock Exchange’s Listed +Company Manual. +The Audit Committee, the +Compensation Committee, and the Nominating and Corporate Governance Committee +are each comprised solely of independent directors. The written charters for +all three independent committees are available on the Company’s website at www.stmaryland.com. Also available on the website are the +Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, +and Executive Committee Charter. The committee charters, the Corporate +Governance Guidelines, and the Code of Business Conduct and Ethics, that +applies to all employees, officers, and members of the Board of Directors of +the Company, will be furnished in print to any stockholder who requests them. +Presiding Director +at the Nonmanagement Directors’ Executive Sessions +All independent directors +meet in executive session immediately before each regularly scheduled meeting +of the Board of Directors or as deemed necessary. Mr. Seidl has presided +at these executive sessions. +Communication with +the Directors of the Company +The Board of Directors +welcomes questions or comments about the Company and its operations. Those +interested may contact the Board of Directors as a whole, nonmanagement +directors, or any one or more specified individual directors by sending a +letter to the intended recipients’ attention in care of St. Mary Land & +Exploration Company, Corporate Secretary, 1776 Lincoln Street, Suite 700, +Denver, CO 80203. All such communications other than commercial +advertisements will be forwarded to the appropriate director or directors for +review. +6 +BOARD AND COMMITTEE +MEETINGS +The full Board of Directors met thirteen times during +2006. Each director participated in at least 85 percent of the Board meetings +and at least 90 percent of the committee meetings held during the director’s +tenure on the Board and its committees. +It is the Company’s policy that +each director is expected to attend the Annual Meeting of Stockholders. Each +director, who was a director at the time, attended the 2006 Annual Meeting of +Stockholders. +The Board has an Audit Committee, Nominating and +Corporate Governance Committee, Compensation Committee, and an Executive +Committee. The Audit Committee, the Nominating and Corporate Governance Committee, +and the Compensation Committee are each comprised solely of independent +directors. +Each of the committees and the entire Board separately +evaluated their respective performance for the year 2006. The performance +evaluation process was supervised and the evaluations were reviewed by the +Nominating and Corporate Governance Committee and discussed amongst the full +Board. +The +following table sets forth the members of each committee, as of December 31, +2006, and the number of meetings held in 2006. +Name of Director +Audit +Committee +Nominating +and Corporate +Governance +Committee +Compensation +Committee +Executive +Committee +Barbara M. +Baumann +X +X +* +X +Larry W. Bickle +X +X +Thomas E. Congdon +X +William J. Gardiner +X +* +X +Mark A. +Hellerstein +X +* +Julio M. Quintana +X +John M. Seidl +X +X +* +William D. +Sullivan +X +X +Number of Meetings in 2006 +10 +2 +6 +— +* Chairperson +The Audit Committee assists the Board in fulfilling +its oversight responsibilities for financial reporting by the Company. Audit +Committee members are prohibited from serving on more than three audit +committees of public companies. Barbara M. Baumann is a member of the audit +committee of Unisource Energy Corporation and is the only Audit Committee +member that serves on another company’s audit committee. The Audit Committee is +solely responsible for the engagement and discharge of independent auditors and +reviews the quarterly and annual financial results. The committee reviews the +audit plan and the results of the audit with the independent auditors and +reviews the independence of the auditors, the range of audit fees, the scope +and adequacy of St. Mary’s system of internal accounting controls, and the +Company’s risk management policies. The Audit Committee also has oversight +responsibility for the internal audit function of the Company. The Audit +Committee is currently composed of four directors, each of whom is independent +as defined by the New York Stock Exchange listing standards. See the Audit +Committee Report contained in this proxy statement. +While each of the Audit Committee members are +considered financially literate, the Board of Directors has determined that +three of the four members of the current Audit Committee, Barbara M. Baumann, +William J. Gardiner, and John M. Seidl, are financial experts as the term is +defined by the Securities and Exchange Commission (“SEC”). +7 +The Nominating and Corporate Governance Committee’s +primary function is to nominate the individuals to be elected to the Board of +Directors and to oversee all corporate governance policies of the Board of +Directors. +The Compensation Committee’s primary function is to +oversee the administration of the Company’s employee benefit plans and to +establish the Company’s compensation policies. The Compensation Committee +recommends to the Board the compensation arrangements for senior management and +directors, adoption of compensation plans in which officers and directors are +eligible to participate, and the granting of equity based compensation or other +benefits under compensation plans. The “Compensation Discussion and Analysis” +describes these responsibilities and the manner in which they are discharged. +The Executive Committee has the authority to act on +behalf of the Board of Directors and the Company with respect to matters as to +which it has been authorized to act by the Board of Directors, provided that +such matters are not in conflict with the Certificate of Incorporation or +By-Laws of the Company or applicable laws, regulations, or rules or the +listing standards of the New York Stock Exchange. +There are no arrangements +or understandings between any director and any other person pursuant to which +that director was or is to be elected. +DIRECTOR +COMPENSATION +Employee directors do not receive additional +compensation for serving on the Board of Directors or any committee. +The fiscal service period for directors is the period +from one annual meeting to the next. For the last fiscal year the period was +from May 17, 2006, through May 15, 2007. For this period, target base +compensation for each member of the Board of Directors has been set at $160,000 +annually, plus committee and attendance fees. Primary director compensation is +in the form of stock grants and is fully described below. +The stock +compensation for non-employee directors is as follows: +· The +payment of the primary compensation of the $160,000 is made in the form of +restricted stock which is issued upon election to the Board by the +stockholders. In determining the number of shares to be issued to the directors +to satisfy the $160,000 target amount, the Company uses the market value of the +stock on the date of election. This resulted in a grant of restricted stock to +each non-employee director elected by the stockholders on May 17, 2006, of +4,346 shares of St. Mary common stock. Mr. Quintana was issued 3,751 of +restricted shares upon his addition to the Board in July 2006. This amount +represents a prorated value for the proportional remaining service period. +These shares were issued from St. Mary’s 2006 Equity Incentive Compensation +Plan. The shares become fully earned over the annual service period and carry a +one-year holding period restriction following the expiration of the earning +period as imposed by the Company. The actual compensation expense that is +recorded in the Company’s financial statements is the fair value of the +restricted share grant as calculated under the valuation provisions required by +Statement of Financial Standard No. 123(R)—“Share Based Payment”. +The cash component +of the director compensation for non-employee directors is as follows: +· Payment +of $750 for each Board meeting attended. +· Payment +of $600 for each committee meeting attended in person and $375 for each +telephonic committee meeting. +· Reimbursement +for expenses incurred in attending Board and committee meetings. +8 +The committee chairs receive the following cash +payments in recognition of the additional workload of their respective +committee assignments. These amounts are paid concurrent with the beginning of +the annual service period. +Audit +Committee—$15,000 +Compensation +Committee—$5,000 +Nominating and Corporate Governance Committee—$5,000 +Mr. Hellerstein became the non-executive Chairman +of the Board concurrent with his retirement as Chief Executive Officer on February 23, +2007. The Compensation Committee, after consultation with an external +compensation consultant, has determined that Mr. Hellerstein will be paid an +additional $100,000 on an annual basis, beginning with the expiration of his +employment agreement on June 30, 2007. This payment will be in the form of +restricted stock and will be supplemental to the basic director compensation. +Finally, the directors are eligible to participate in +the St. Mary Land & Exploration Company health, pharmacy, dental, and vision +insurance programs. Directors are charged a premium that is equal to the +COBRA rates associated with the Company’s plan. The ability to participate in +this plan is considered non-compensatory. +The following table sets +forth the annual and long-term compensation received during 2006 by the non-employee +directors of St. Mary. The amounts presented represent the fair value of +compensation expense that has been recorded by the Company. The stock based +component of the compensation has been recorded based on the valuation +provisions required by the Statement of Financial Standard No. 123(R)— “Share Based Payment”. Cash based +compensation is recorded based on the monetary amount paid to the individual +director. +Change In +Pension Value +and Non- +Qualified +Fees Earned +Non-Equity +Deferred +or Paid in +Incentive Plan +Compensation +All Other +Cash +Stock Awards +Option Awards +Compensation +Earnings +Compensation +Total +Name +($) +($) +($) +($) +($) +($) +($) +Barbara M. Baumann +$ +20,675 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +159,422 +Larry W. Bickle +$ +13,575 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +152,322 +Thomas E. Congdon +$ +9,750 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +148,497 +William J. Gardiner +$ +29,625 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +168,372 +Julio M. Quintana +$ +5,325 +$ +126,515 +$ +— +$ +— +$ +— +$ +— +$ +131,840 +John M. Seidl +$ +21,425 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +160,172 +William D. +Sullivan +$ +12,375 +$ +138,747 +$ +— +$ +— +$ +— +$ +— +$ +151,122 +OTHER +REPORTABLE ITEMS RELATED TO PAYMENTS +MADE BY THE +COMPANY ASSOCIATED WITH SERVICE OF A DIRECTOR +There are no other +reportable items related to payments made by the Company associated with +service of a director. +COMPENSATION +DISCUSSION AND ANALYSIS +Authority and +framework for the Compensation Committee. +Executive +compensation at St. Mary Land & Exploration Company is determined by +the Compensation Committee (the “Committee”) of the Board of Directors. The +Committee is comprised of three independent directors and operates under the +framework of a formal charter. This charter is +9 +available for review on the St. Mary website. The +members of the Committee are appointed by the Board of Directors for the +purposes of: +· Overseeing +the administration of the Company’s employee compensation and benefit plans; +· Establishing +the Company’s compensation policies; +· Assisting +the Board in discharging its responsibilities relating to compensation of the +Company’s executives; +· Reviewing +and approving the Company’s general compensation strategy and objectives; +· Reviewing +the performance and compensation of the Chief Executive Officer on an annual +basis; +· Reviewing +and approving recommendations for base compensation for the executive officers +of the Company; +· Reviewing +and approving the individual benefits that are earned each year for the cash +bonus, stock compensation, and the participation levels in the Net Profits +Interest Bonus Plan (“NPP”); +· Reviewing +the performance of the Company’s pension and 401(k) plans; +· Reviewing +and making recommendations to the Board with respect to the compensation of +directors, including director and committee fees, cash retainers, and equity +based compensation; and +· Producing +a Compensation Committee Report as required by the SEC to be included in the +Company’s annual proxy statement and annual report on Form 10-K +filed with the SEC. +The Committee has +authority to retain, at the Company’s expense, consultants, advisors, and +counsel as deemed appropriate in its sole discretion, in order to fulfill its +responsibilities and duties. The Committee has sole authority to retain and +terminate any compensation consultant to be used in the evaluation of director, +chief executive officer or senior executive compensation and has the sole +authority to approve the consultant’s fees and other retention terms. The +Committee also has the authority to obtain advice and assistance from internal +or external legal, accounting or other advisors as it deems necessary. +Objectives of the Company’s Compensation Programs. +The Company uses compensation programs to attract, +retain, and motivate talented management personnel at a reasonable cost. The +Committee believes it has structured the compensation plans to encourage +management to obtain superior returns for St. Mary’s stockholders and to +promote the preservation and growth of the Company’s income-producing assets. The +majority of the value in the executive compensation plan design is +incentive-based and driven by metrics tied to net asset value growth. +The compensation program +is designed to reward behavior that achieves these objectives and that +ultimately increases stockholder value on a per share basis. The programs are +believed to align management’s interests with the long-term interests of +stockholders. +The Committee maintains +the ability to use business judgment and appropriate discretion in the +application of the criteria for structuring, evaluating, and setting executive +compensation. Although there are defined criteria in place, the Committee +evaluates the results of the programs against other business factors with the +design of making appropriate compensation decisions that are reflective of the +environment and contribution of the executive. +We intend for our +compensation plans to provide a level of compensation to an individual +executive that is competitive with compensation provided by companies +performing at a level similar to St. Mary. Periodically, the Compensation +Committee utilizes the services of third party compensation consultants to +assess the overall executive compensation program. As part of compensation +reviews, the Committee compares St. Mary’s compensation against survey data +provided by a reputable third party salary survey +10 +that is +specific to the oil and gas industry. Additionally, the Committee evaluates +data from peer company selections. These selections are intended to be +representative of companies of comparable size and performance in our industry +sub-segment. Clearly, the selection of the peer group is important, and the +ability to measure the resulting return to stockholders is an integral part of +the peer group selection criteria. We believe that total executive compensation +should reflect the relative performance of the Company as compared to its peer +group. +The following compensation elements consider both +current and long-term compensation. The current compensation elements of +salary, cash bonus, and benefits are designed to reward the effort and results +that the employee has delivered in the current year. The longer-term component +of the equity compensation is designed to ensure that employee interests are +aligned with the interests of our stockholders and that there is a longer-term +commitment to the Company as evidenced by the vesting and restriction periods. Simply +put, there is an element of retention that is built into the equity component +of compensation. Initially, the Company had designed a stock option plan in +which the number of options granted was calculated such that the value would be +equal to an employee’s base salary at the time of grant in the event the +stockholders’ realized a 15 percent compounded return on their stock over the +ensuing five years. This plan was replaced with the restricted stock unit +(“RSU”) program, which was scaled to approximate the actual historical value of +the stock option program based on the average cash incentive bonuses. Under +this plan, most participants receive RSUs equal to two times the cash incentive +bonus amount. The Chief Executive Officer, Executive Vice President and Senior +Vice Presidents receive RSUs equal to four times the cash incentive bonus +amount. Finally, the NPP incentive program is designed to provide a benefit to +employees only after the Company has been repaid for its initial and ongoing +investment, therefore providing an incentive to employees to make prudent +decisions that are intended to generate a return to the Company in a timely +manner. The value of the NPP was originally designed to be approximately equal +to the equity component of compensation, which has the result of balancing a +long-term program with a portion of long-term cash compensation and equity +value. +The cash bonus and RSU incentive components of our +compensation system are measured against the value of our underlying asset, our +oil and gas assets. Since a large component of the value of an incentive award +to an individual is determined based upon the estimate of the proved developed +oil and gas reserves, the Company may have to consider the impact of the +revision of estimates to such oil and gas reserve determinations. On occasion, +there are revisions of estimates that result from unexpected performance of the +underlying asset. In years where a revision is deemed to have been significant, +the Company and the Compensation Committee will evaluate if the effect of the +revision would have had a significant impact on the scorecard result for the +prior period. If such a determination is made, the Committee may retroactively +adjust the prior year compensation. To date, prior year compensation has not +been clawed back from recipients nor have additional amounts been paid to the +recipients; rather the current year payout amounts have been adjusted. From year +to year, the impact of typical revisions are factored into the current period +scorecard calculation. This approach recognizes that reservoir engineering is +an inexact science and that well performance can be better understood with the +passage of time. +The elements of +executive compensation are as follows. +· Base +salary—Base salary is intended to provide a foundation of compensation that +recognizes the level of responsibility and authority of each individual +executive. The base salary is the driver of the other components of incentive +compensation. Generally, the Chief +Executive Officer makes recommendations to the Committee for the executive +management team, excluding himself. The Committee then reviews these +recommendations together with the reasons underlying the recommendations. After +considering the recommendations from the Chief Executive Officer, the data from +the compensation survey, data from the Company’s industry peer group, as well +as any information provided by an external consultant, if utilized, the +Committee determines the salary range for various executive positions. The +Committee evaluates similar attributes in determining +11 +the compensation level of the Chief Executive Officer and is solely +responsible for determining this compensation. In the determination of base +salary, the Company targets base compensation at the mid-point of the survey +and peer group data selected. The mid-point is believed to be the appropriate +base salary because when combined with the incentive compensation programs, the +total compensation is believed to be the appropriate total compensation level +for the executives. +· Incentive +Compensation—The Company has established three incentive compensation plans, +each with the potential to substantially increase annual compensation of an +executive officer, provided that the economic performance of the Company meets +certain targets and the individual performance of the executive aligns with +expectations. These incentive plans have certain specific objectives that are +to be met in order for the plans to provide meaningful benefits to the +executives. The overall design of these incentive plans is to provide a level +of compensation to the individual executive that is competitive with companies +that are performing at a level similar to St. Mary. +The measured results of our determination criteria for +the cash bonus and equity bonus plans generate a pool of dollars and shares +that are available to be distributed to the executives. The resulting amounts +available for distribution incorporate the results of the Company as a whole, +the regional performance for those executives in regional positions, and the +individual’s performance within the year. +· Cash Bonus Plan . Each year the +Compensation Committee of the Board of Directors evaluates the overall +performance of the Company as well as the Company’s individual operating +regions. With input from management and after consideration of the performance +results for the year, the Committee determines the total cash bonus available +to be allocated to executive officers and key employees. Criteria considered in +measuring the performance of the Company for a given year include measured +changes in the net asset value of the Company as calculated internally, growth +in proved developed reserves and growth in production. This process is known +internally as our “scorecard.” To determine the increase in net asset value, we +measure the impact of the change in net asset value of proved developed and +proved developed non-producing assets, net of capital expenditures and cash +flows. By including these two reserve categories, the delivered results of a +capital investment decision form the basis for determining the bonus +percentages for a given year. In essence, the Company has not rewarded +employees for the delivery of potential value that is dependent upon execution +in a future period. In making the determination of the change in net asset +value, the measurement system is designed to be partially isolated from the +effects of commodity price. However, this isolation is not total since the +realized cashflows generated by the Company in any given year are also +components of the scorecard. +The Company uses an established threshold and +graduated scale that measures the results of the realized performance metrics. In +limited cases, subjective measures are considered where it is determined to be +appropriate. As the plan is currently administered, the Company must generate a +ten percent growth in net asset value in proved developed oil and gas reserves +in order for executive officers and key employees to be paid a cash bonus. An +executive officer and many of our employees are eligible to earn up to 50 +percent of their base compensation in the form of an incentive cash bonus in a +given year. Whether or not the Company meets the graduated scale metrics, +senior management and the Committee may exercise some degree of judgment as to +whether any cash or stock bonus is to be paid. For example in 2006, the Company +did not meet the ten percent threshold amount on the scorecard for net asset +value growth. However, management recommended that the Committee consider the +positive contributions of the stock repurchase program that was executed in the +second quarter of the year, the groundwork that had occurred in the ArkLaTex +region positioning it for growth, and +12 +the expansion into a new resource play in the Permian +Basin. The Committee reviewed the recommendation and agreed that a modest +corporate bonus of eight percent was appropriate. +Over the last five years, the cash bonus percentages +for the corporate component of the cash bonus program has averaged 27 percent +of base salary. Actual average corporate percentages of cash bonuses have been +8, 50, 10, 50, and 16 percent for the last successive five years. The +percentages described above were used for the Chief Executive Officer and the +Chief Operating Officer, as well as for the Denver based executive officers. The +cash bonus percentage for regional office executive officers has varied +slightly from these amounts, based primarily on the individual regional +results. +· Restricted Stock Plan. The Restricted +Stock Plan is intended to reward executive officers and key employees of the +Company for long-term increases in the value of the Company’s stock. The +Company utilizes RSU awards as the stock-based incentive component of +compensation. The annual grant of RSU awards is performance-based and uses the +same formula as the Cash Bonus Plan. However, the amount of stock compensation +is twice that of the Cash Bonus Plan for most employees and up to four times +the Cash Bonus Plan for the Chief Executive Officer, Executive Vice President, +and Senior Vice Presidents. For example, if the bonus measurement system +results in a 25 percent cash bonus, the value of RSUs to be granted would be +two times that amount for most members of senior management and four times that +amount for the Chief Executive Officer, Executive Vice President, and Senior +Vice Presidents. +The reason for selecting an equity component of +compensation for the executives of St. Mary is that it aligns the interests of +St. Mary management with those of our stockholders, insomuch that as the +management team makes decisions, these decisions are intended to increase the value +of each share of St. Mary common stock. Therefore, having St. Mary management +personnel as owners of St. Mary common stock through the issuance of RSUs or +the issuance of shares serves to align these interests. The RSUs are granted +with a holding period and a vesting schedule over the ensuing three years from +the date of issuance. These features are designed to promote the ownership of +St. Mary common stock by executives and to motivate decision making that +continues to increase the value of St. Mary common stock. A vesting period also +helps to retain key employees. +The Board has established an equity holding +requirement for all executive officers of the Company, except for the Chief +Executive Officer, of one times the base salary. The Board has targeted an +equity holding level for the Chief Executive Officer of two times base salary. Equity +holdings may include the value of vested and unvested RSUs for purposes of +these calculations. New executive officers are provided time to accumulate +their stock ownership position, however, they may not sell any Company stock +until they have accumulated the required amount. Until an executive has one +times base salary of equity holdings in St. Mary, sales of the Company’s equity +by the officer may not occur unless such sales are approved by the Chief +Executive Officer. Similarly, until the Chief Executive Officer has two times +base salary of equity holdings in St. Mary, sales of the Company’s equity +by the Chief Executive Officer may not occur unless such sales are approved by +the Board. +With the hiring of Anthony J. Best, the Committee +authorized an equity grant in addition to the base equity compensation plan +that consisted of an initial equity grant of 20,000 shares that were +immediately vested, to be followed by future issuance of 1,250 shares in the +first quarter of each of 2007, 2008, 2009, and 2010. In addition, Mr. Best’s +employment agreement provides the ability to earn 2,500 and 1,250 shares in +each of the same periods if the resulting net asset value calculation results +in an increase of ten percent and fifteen percent, respectively. The grant of +equity to Mr. Best was a special award, designed to ensure the successful +hiring of an individual believed to be qualified to lead St. Mary in future +years. +13 +The value of the equity +compensation program and the value of the NPP were initially designed to +provide a benefit to the executive on a long term average basis that reflects +essentially equal value from each of these two elements of compensation. +· Net Profits +Interest Bonus Plan . The NPP is designed to reward the +contributions made by executive officers and key employees to the Company’s +long-term financial success. Plan participants share in the net profits derived +from all oil and gas activity from a specific pool of properties. Each calendar +year results in a separate pool, whereby 100 percent of the properties that are +completed in a given year are included in that year’s pool. The cashflows attributed to the pools are +tracked and the pools are evaluated for payout. The concept of payout is +defined as the point in time when 100 percent of related costs and expenses, +including all drilling, land, geologic, and geophysical costs, acquisition, and +operating costs and expenses associated with a designated pool are recovered by +the associated revenues and proceeds from the properties in the specific pool. The +pools also carry the effects from the Company’s commodity hedging program. After +payout has been achieved for a given pool, ten percent of the future net cash +flows from the properties in that particular pool is distributed as +distributable proceeds among the pool participants. After the Company has +recovered 200 percent of the total costs and expenses for a given pool, +including prior distributions under the plan at the ten percent level, 20 +percent of the future net cash flow is distributed among pool participants. +The distributable proceeds +are paid to individuals based on their participation percentage in the +particular pool in which they have an interest. Individual participation in a +pool is determined at the date of creation of the pool. The participation in a +pool is determined based on a combination of each participant’s relative +weighted salary, performance of the region, and the capital intensity +attributed to the region in which an individual works. Pool years beginning +with the 2006 pool carry a vesting whereby one-third of an individual’s +participation vests upon selection to the pool, and one-third on each of the +next two anniversary dates of the respective pool. There is a cap on pool +payouts of 300 percent of that individual’s salary paid during the year to +which the pool relates. Partial interest participants’ benefits are prorated +proportionately from the 300 percent amount referred to above. In the event +there are distributable proceeds beyond the 300 percent limitation or an +individual does not fully vest in their interest, the excess benefits remain +the ownership of the Company and are not allocated to the remaining plan +participants. All pool years prior to and including 2005 are fully vested and +there is no limit on the amount of benefit that may be paid from a particular +pool. +Consistent with the +reasoning for the amount of the equity bonus component of compensation for +selected individuals, the NPP acknowledges that senior management is primarily +accountable for the profitable operations and investments of the Company. Accordingly, +the relative weighted salaries of the Chief +Executive Officer and President, and the Executive Vice President and Chief +Operating Officer, are 100 percent of their actual base salary and the relative +weighted salaries of all other executive +officers are two-thirds of actual base salary. This benefit is intended to +drive the behavior of those individuals that are thought to have a direct +impact on the investment decision-making processes attributed to the oil and +gas assets of the Company. Including executive management, t he 2006 pool +had 85 designated participants. +Payout status for an +individual pool has typically begun in four to six years; however, certain +pools have reached payout status in as soon as two years. Commodity pricing and +operating costs may have significant impacts on the timing of payout and the +magnitude of payments once a pool is in payout status. +Just as with the vesting +schedule in the Restricted Stock Plan, the vesting component of future pools +also serves as a retention tool for the Company. +14 +Since achieving payout +status is dependent upon on the performance of the capital investments for a +specific pool and since the timing of achieved payout varies, payment of +distributable proceeds does not bear a direct relationship to the performance +of the Company as a whole in the actual year payments are made. That being +said, the benefit is designed to reward the long-term decisions that were made +in prior years after the Company has been repaid for the capital and costs of +the associated investments. +The +NPP is also designed to create the proper tension between growth and economics. +Growth without strong economics creates minimal value for participants as does +limited activity with excellent economics. Because poor investments directly +diminish the value of the pool, there is an incentive for capital to flow to +the best performing projects within the Company. The NPP also helps to drive +the hiring of the right people that can contribute enough value so as to not +dilute the value of the pool to other participants. Because key employees have +a financial interest in the performance of the oil and gas properties, not only +are they motivated to make good investment decisions and execute them properly, +but they are also motivated to maximize the value of the oil and gas properties +throughout the life of those properties. +· Pension +and 401(k)—Our executives participate in the qualified, non-contributory +defined benefit plan and a 401(k) program on the same basis as all of our +employees. A supplemental pension plan exists whereby additional benefits are +provided to executive level employees in order to provide for benefits in +excess of Internal Revenue Code limits on the qualified plan. The supplemental +plan is an unfunded non-qualified plan. We believe that these plans are +necessary to remain competitive in the hiring and retention of qualified +personnel. Included in this proxy is a description of the manner in which the +pension plans function, together with the years of service credit and value of +plan assets for each of the disclosed individuals. See “Pension Benefits”. +The qualified plan +provides a benefit after 25 years of service equal to 35 percent of final +average compensation, subject to Internal Revenue Code limits. Final average +compensation is the average of the highest three consecutive years of the ten +years preceding termination of employment. For each named executive officer, +the level of compensation used to determine benefits payable under the +qualified pension plan is that officer’s average of base salaries, excluding +bonuses. +The supplemental plan +provides executives hired before 1995, after completing 15 years of service and +reaching age 65, a benefit equal to 40 percent of final average compensation +plus 37 percent of final average compensation integrated with the social +security wage base without regard to compensation limitations provided under +the qualified plan, less the benefit provided by the qualified plan. For +executives hired after 1994, the supplemental benefit is calculated using the +formula for the qualified plan without the limitation imposed by Section 415 +of the Internal Revenue Code, less the benefit provided by the qualified plan. +The +Company’s 401(k) Profit Sharing Plan is a defined contribution pension +plan subject to the Employee Retirement Income Security Act of 1974. The 401(k) Plan +allows eligible employees to contribute up to 60 percent of their income on a +pretax basis through contributions to the 401(k) Plan. Contributions are +limited to amounts determined by Internal Revenue Code regulations. The Company +matches each employee’s contributions up to six percent of the employee’s +pretax income. Company contributions vest over an employee’s first five years +of employment. +· Sign-on +Bonuses—In addition to the ongoing elements, the Committee and senior +management have the discretionary ability to pay sign-on bonuses in the form of +cash or stock to executive officers as well as other employees. The Company +utilizes these bonuses in order to attract personnel believed to be valuable to +the Company. The hiring of employees, particularly the hiring +15 +of executives, is highly +competitive. In order to attract and retain skilled employees, we believe that +this tool is important to the building and retention of a strong qualified +workforce. +· Health +and Welfare Benefits—The executive officers of the Company are eligible to +participate in the St. Mary health, pharmacy, dental, and vision insurance +programs on the same basis as the broad employee group. These plans are +intended to provide benefits that support the well being and overall health of +executives and employees. The directors are also eligible for health, pharmacy, +dental, and vision insurance programs at COBRA premiums. +· Group Term Life, Supplemental Life +Insurance, Supplemental Disability, and Other Benefits—Our executives are +provided group term insurance as well as supplemental term insurance up to two times +their base salary with a maximum coverage of $500,000. Additionally, executive +officers are eligible to have individual disability income contracts beyond the +group disability maximum benefit. The +supplemental group term and disability insurance are intended to provide +additional coverage for those individuals whose salary exceeds the limits for +the group term policy. Allowing supplemental coverage provides executives to +have coverage that is a commensurate percentage of their base salary consistent +with all employees +· Change +of Control Benefits—St. Mary has established a change of control executive +severance policy. The change of control agreements require first that a +qualifying change of control event has occurred and secondly that the executive +has been terminated or that certain other conditions are met, as summarized +below. The Company has entered into change of control severance agreements +whereby executive officers are entitled to receive severance payments in the +event that their employment is terminated within two and one-half years after a +change of control of the Company (a) without “cause” by the Company or (b) for +“good reason” by the officer (e.g. an adverse change in the officer’s status +after a change of control), each as defined in the agreements. The term “good +reason” incorporates the concept of a change in the employee’s status, +authority, position, offices, titles, duties or responsibilities that are +reasonably viewed as a diminution of duties at any time within the 90 days +preceding a change of control event or any time thereafter. The term good +reason also contemplates a reduction in the employee’s salary and benefits over +this same time frame, or the requirement of an employee to relocate the base of +employment outside a 25-mile radius from the employee’s current location. +The severance payments equal up to two and one-half years annual base salary, +depending on the length of time employment continues after the change of +control provided that in no event would the severance payments equal less than +one year’s annual base salary. In addition, all insurance and fringe benefits +will be provided for a period of one year after termination. The Company has +determined that benefits under this plan are subject to an optimization +calculation, however, does not include a so-called gross-up calculation for +income tax. +A +change of control is defined to include (i) an acquisition of more than 50 +percent of the common stock or assets of the Company in a reorganization, +merger, or consolidation of the Company or (ii) a change in more than 50 +percent of the composition of the Board of Directors of the Company other than +as a result of the election of new members of the Board of Directors by a vote +of the incumbent members of the Board of Directors or by stockholders of the +Company pursuant to the recommendation of the incumbent members of the Board of +Directors. +· Employment +Contracts—Both Mr. Hellerstein and Mr. Best have been provided with +employment agreements. The Compensation Committee of the Board of Directors +believes that the terms of such agreements are commercially reasonable and have +aided in the retention and hiring of each individual. +· Employee Stock Purchase +Plan—The purpose of the employee stock purchase plan (“ESPP”) is to encourage eligible +employees to purchase and hold shares of our common stock. The plan cycle +consists of two periods annually with plan periods for the six months ending June 30, +and +16 +December 31, +of each year. The ESPP allows employees to contribute up 15 percent of their +base compensation to purchase common stock at a discount of 15 percent of the +lower of the beginning or ending period’s stock price. The maximum amount an +employee can contribute to the plan is $25,000 per year, pursuant to Internal +Revenue Code restrictions. +Prior Use of Stock +Options in Compensation +Although we have outstanding stock options, we stopped +granting new stock options to employees after December 2003 and to +directors after December 2004. The stock option program was replaced with +the Restricted Stock Program beginning in 2004 following stockholder approval +in May of that year. +In the process of granting stock options, we have +never back-dated any stock option grants. In all cases, stock options were +granted at the market price as of the date the options were issued. The +Compensation Committee approved the grant of the options with the express +requirement that the price be determined as of the date of the grant in all +cases. Our usual process of granting stock options over the ten years prior to +discontinuing the stock option program changed from annual grants to quarterly +grants at the end of the 2000. From 1994 until December 31, 2000, stock +option grants were made annually at year-end. Beginning in September 2001, +stock option grants were made each quarter-end until December 2003. Upon +instituting the quarterly grants, the number of shares underlying the grants +was reduced to approximately one-fourth of the annual grants. Clearly, since +these grants were made at consistent times based on the occurrence of calendar +periods, no backdating occurred nor was there manipulation in terms of when the +grants were made to employees. +Aside from these regularly +scheduled grants, the Company had a history of issuing stock options to newly +hired employees or to certain newly promoted employees. There was also a +one-time special grant to two senior officers arising out of a study +commissioned by the Compensation +Committee. Such grants were made contemporaneous with the respective event +and/or the approval of the Compensation Committee. One other unusual grant was +made during the transition from the use of stock options to the Restricted +Stock Program. The penultimate grant of stock options to employees occurred in October 2003, +which was essentially a deferral of the September 2003 grant. The delay +from September 2003 was a result of pending Compensation Committee +approval of the transition methodology to the Restricted Stock Program equity +award at its next regularly scheduled committee meeting. +EXECUTIVE +COMPENSATION AND SUMMARY COMPENSATION TABLE +The Summary Compensation table sets forth the annual +and long term compensation received during the Company’s last year by the Chief +Executive Officer, the Chief Financial Officer, and by the three other highest +compensated executive officers of the Company that were employed as of December 31, +2006. This table also includes two individuals that are no longer employees of +St. Mary, however, the proxy disclosure rules require disclosure of up to two additional individuals +for whom disclosure would have been required but for the fact that they were no +longer serving as executive officers at the end of the last completed fiscal +year. +In addition to salaries, the Company has granted RSUs +for the 2006 annual period to executive management and selected other personnel. +These individuals also participate with other members of management in the NPP. +All eligible employees participate in the Company’s performance based cash +bonus plan and 2006 Equity Incentive Compensation Plan as described more fully +in the Compensation Discussion and Analysis. +17 +SUMMARY +COMPENSATION TABLE +Change In +Pension Value +and +Non-Qualified +Non-Equity +Deferred +Option +Incentive Plan +Compensation +All Other +Name and +Principal Position +Year +Salary +($) +Bonus +($) +Stock Awards +($)(3) +Awards +($) +Compensation +($)(1) +Earnings +($) +Compensation +($)(2) +Total +($) +Mark A. Hellerstein +2006 +$ +403,000 +$ +32,240 +$ +120,093 +$ +— +$ +3,361,399 +$ +125,692 +$ +17,892 +$ +4,060,316 +President and Chief Executive Officer +(principal executive officer)(4) +Anthony J. Best +2006 +$ +208,807 +$ +794,305 +$ +62,225 +$ +— +$ +— +$ +— +$ +83,213 +$ +1,148,550 +Chief +Executive Officer and President +(2, 4 & 7) +Robert L. Nance +2006 +$ +240,000 +$ +14,400 +$ +53,655 +$ +— +$ +707,621 +$ +34,245 +$ +18,766 +$ +1,068,687 +Senior Vice President and +President and Chief Executive Officer of Nance Petroleum Corporation +David W. Honeyfield +2006 +$ +203,000 +$ +16,240 +$ +60,497 +$ +— +$ +64,989 +$ +9,373 +$ +19,711 +$ +373,810 +Senior +Vice President—Chief +Financial Officer, Treasurer +and Secretary +(principal financial officer)(6) +Milam Randolph Pharo +2006 +$ +175,000 +$ +14,000 +$ +26,071 +$ +— +$ +855,829 +$ +22,986 +$ +13,917 +$ +1,107,803 +Vice President—Land and Legal, +and Assistant Secretary +Douglas W. York(5) +2006 +$ +244,039 +$ +— +$ +— +$ +— +$ +998,462 +$ +15,260 +$ +11,033 +$ +1,268,794 +Former +Executive Vice President +and Chief Operating Officer +Kevin E. Willson(5) +2006 +$ +153,750 +$ +— +$ +— +$ +— +$ +954,333 +$ +30,360 +$ +10,466 +$ +1,148,909 +Former Senior Vice President and +Regional Manager—Mid-Continent +(1) Totals consist of amounts earned under the NPP. See the +Compensation Discussion and Analysis in this proxy statement for a description +of this plan. +(2) Amounts consist of the Company’s contribution to the +401(k) Profit Sharing Plan, holiday bonus, group term life premiums, +supplemental life insurance premiums, supplemental disability income premiums and +health club dues. Also included in this column is $68,431 paid to Mr. Best +in conjunction with his move to Colorado commencing with his employment. +(3) The awards in the 2006 column represent the RSUs issued +in 2007 related to the 2006 performance period. +(4) Mr. Hellerstein retired as Chief Executive Officer +of St. Mary Land & Exploration Company on February 23, 2007, and +has been succeeded by Mr. Best effective the same day. Mr. Best was +President of St. Mary Land & Exploration Company as of December 31, +2006. +(5) Mr. York and Mr. Willson were executive officers +for a portion of 2006. Each individual terminated employment with St. Mary Land & +Exploration Company effective September 30, 2006. +(6) Mr. Honeyfield was promoted to Senior Vice +President effective March 1, 2007. +(7) Mr. Best’s bonus amount includes amounts in +connection with the recruiting process as described in the CD&A . +18 +The +dollar value of the RSUs listed in the Summary Compensation Table is calculated +based on the closing price of the Company’s common stock on the effective date +of the grants for the fiscal 2006 grants, which was $36.01 per share. The +following table lists the number of RSUs held by each individual and the market +value of the total holdings of the RSUs of St. Mary Land & Exploration +Company for the Named Executive Officers as of the end of fiscal year 2006. The +total includes the grants made on February 28, 2007 for the fiscal 2006 +period. The value shown is based on the closing market price of $36.84 on December 31, +2006, as reported by the New York Stock Exchange. +Named Executive Officer +Number of +Restricted Stock +Units Issued +Market Value as of +12/31/06 +Mark A. +Hellerstein +64,955 +$ +2,392,942 +Anthony J. Best +21,728 +$ +800,460 +Robert L. Nance +45,973 +$ +1,693,645 +David W. +Honeyfield +18,775 +$ +691,671 +Milam Randolph +Pharo +14,008 +$ +516,055 +Douglas W. York +10,506 +$ +387,041 +Kevin E. Willson +16,071 +$ +592,056 +GRANTS +OF PLAN-BASED AWARDS +All Other +All Other +Stock +Option +Awards: +Awards: +Exercise +Number of +Number of +or Base +Estimated Future Payouts Under +Estimated Future Payout Under +Shares of +Securities +Price of +Non-Equity Incentive Plan Awards +Equity Incentive Plan Awards +Stock or +Underlying +Option +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Units +(#) +Options +(#) +Awards +($/Sh) +Mark A. +Hellerstein +12/31/06 +— +— +(1) +$ +1,209,000 +(2) +— +— +— +3,335 +— +— +Anthony J. Best +12/31/06 +— +— +(1) +$ +626,420 +(2) +— +— +— +1,728 +— +— +6/12/06 +— +— +— +— +(3) +— +(3) +— +(3) +— +— +— +Robert L. Nance +12/31/06 +— +— +(1) +$ +720,000 +(2) +— +— +— +1,490 +— +— +David W. Honeyfield +12/31/06 +— +— +(1) +$ +609,000 +(2) +— +— +— +1,680 +— +— +Milam Randolph +Pharo +12/31/06 +— +— +(1) +$ +525,000 +(2) +— +— +— +724 +— +— +Douglas W. York +—(4) +— +— +— +— +— +— +— +— +— +Kevin E. Willson +—(4) +— +— +— +— +— +— +— +— +— +(1) The amount of net profits interest payable to +participants for the 2006 NPP is ten percent of net cash flows from the 2006 +pool. This amount is calculated after recovery by the Company from wells of one +hundred percent of all costs incurred, including but not limited to drilling, +completions, operations, land, geological, and geophysical costs but excluding +interest, and such net profits interest shall increase to an aggregate of +twenty percent from and after such time as the Company has recovered two +hundred percent of all such costs including the initial ten percent +distribution. +(2) The maximum amount a participant may receive under the +2006 NPP is limited to 300 percent of the participant’s 2006 salary. The salary +used in the calculation of the limitation is the same as used to calculate the +participant’s interest in the Pool year. +(3) Per Mr. Best’s Employment Agreement, upon +commencement of employment, Mr. Best received the opportunity to earn up +to 20,000 shares of St. Mary stock if certain net asset value growth +percentages are met. The base award of 5,000 shares contains only a service +condition that Mr. Best remains employed at St. Mary during the next four +years. However, the additional 15,000 shares contain a performance condition +that requires St. Mary to realize a defined increase in net asset value using +the Company scorecard. +(4) Neither Mr. York nor Mr. Willson were +eligible for any grants in 2006 because of their voluntary termination of +employment in September 2006. +19 +The following table +displays outstanding equity awards for listed individuals as of December 31, +2006. The impact of any earned but un-issued RSUs for the 2006 performance +period are not included as they were fully vested as of December 31, 2006. +OUTSTANDING +EQUITY AWARDS AT FISCAL YEAR-END +Option Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +Options +(#) +Exercisable +Number of +Securities +Underlying +Unexercised +Options +(#) +Unexercisable +Option +Exercise +Price +($) +Option +Expiration +Date +Number of +Shares or +Units of +Stock +That Have +Not +Vested +(#) +Market +Value of +Shares or +Units of +Stock that +Have Not +Vested +($) +Equity +Incentive +Plan +Awards: +Number of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +(#) +Equity +Incentive +Plan +Awards: +Market or +Payout +Value of +Unearned +Shares, +Units or +Other +Rights +That Have +Not Vested +($) +Mark A. +Hellerstein +5,057 +— +$ +13.39 +10/22/13 +— +— +— +— +— +125,000 +(1) +$ +11.58 +06/01/12 +— +— +— +— +5,057 +— +$ +14.25 +12/31/13 +— +— +— +— +3,335 +$ +122,861 +— +— +18,198 +$ +670,414 +— +— +3,950 +$ +145,518 +7,364 +$ +271,290 +— +— +Anthony J. Best +1,728 +$ +63,660 +— +— +— +— +5,000 +$ +184,200 +— +— +15,000 +$ +552,600 +Robert +L. Nance +34,024 +— +$ +16.66 +12/31/10 +— +— +— +— +13,484 +— +$ +12.50 +12/31/12 +— +— +— +— +15,052 +— +$ +10.60 +12/31/11 +— +— +— +— +15,052 +— +$ +7.97 +09/30/11 +— +— +— +— +12,072 +— +$ +14.25 +12/31/13 +— +— +— +— +37,784 +— +$ +6.19 +12/31/09 +— +— +— +— +13,482 +— +$ +11.95 +09/30/12 +— +— +— +— +13,482 +— +$ +12.53 +03/31/13 +— +— +— +— +13,480 +— +$ +13.65 +06/30/13 +— +— +— +— +15,050 +— +$ +12.03 +06/30/12 +— +— +— +— +12,072 +— +$ +13.39 +10/22/13 +— +— +— +— +15,050 +— +$ +10.86 +03/31/12 +— +— +— +— +1,490 +$ +54,892 +— +— +10,827 +$ +398,867 +— +— +4,909 +$ +180,848 +— +— +5,205 +$ +191,752 +— +— +David W. Honeyfield +4,500 +15,000 +(2) +$ +12.88 +05/16/13 +— +— +— +— +1,054 +— +$ +13.39 +10/22/13 +— +— +— +— +1,054 +— +$ +14.25 +12/31/13 +— +— +— +— +1,680 +$ +61,891 +— +— +8,654 +$ +318,813 +— +— +972 +$ +35,808 +— +— +834 +$ +30,725 +— +— +Milam +Randolph Pharo +5,350 +— +$ +7.97 +09/30/11 +— +— +— +— +23,508 +— +$ +16.66 +12/31/10 +— +— +— +— +4,846 +— +$ +12.50 +12/31/12 +— +— +— +— +4,844 +— +$ +11.95 +09/30/12 +— +— +— +— +4,844 +— +$ +13.65 +06/30/13 +— +— +— +— +4,382 +— +$ +13.39 +10/22/13 +— +— +— +— +5,348 +— +$ +12.03 +06/03/12 +— +— +— +— +5,350 +— +$ +10.60 +12/31/11 +— +— +— +— +4,844 +— +$ +12.53 +03/31/13 +— +— +— +— +4,382 +— +$ +14.25 +12/31/13 +— +— +— +— +5,348 +— +$ +10.86 +03/31/12 +— +— +— +— +724 +$ +26,672 +— +— +3,931 +$ +144,818 +— +— +1,583 +$ +58,318 +— +— +855 +$ +31,498 +— +— +Douglas W. York +— +— +— +— +— +— +— +— +Kevin E. +Willson +9,702 +— +$ +14.25 +12/31/13 +— +— +— +— +8,172 +— +$ +12.66 +09/30/13 +— +— +— +— +1,530 +— +$ +13.39 +10/22/13 +— +— +— +— +(1) These options become exercisable on June +30, 2007. +(2) These options become exercisable in two +equal installments on May 16, 2007 and 2008. +20 +NONQUALIFIED +DEFERRED COMPENSATION +The Company does not +maintain a non-qualified deferred compensation program. Accordingly, there are +no such amounts to disclose. +OPTION EXERCISES +AND STOCK VESTED +Stock +options exercised by the Company’s Chief Executive Officer, the Chief Financial +Officer and the three highest compensated executive officers and their stock +option values are set forth in the following table. All such stock options were +granted pursuant to the Company’s stock option plans described in this proxy +statement. In May 2003, the Board of Directors amended the stock option +plans to prohibit any repricing of outstanding options that would reduce the +exercise price without stockholder approval. The issuance of stock options has +been replaced by the issuance of restricted stock under a performance-based +plan, whereby RSUs have been utilized. +Option Awards +Stock Awards +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on Vesting +($) +Mark A. +Hellerstein +752,602 +$ +21,571,853 +15,405 +— +* +Anthony J. Best +— +— +20,000 +— +* +Robert L. Nance +— +— +11,121 +— +* +David W. +Honeyfield +— +— +4,274 +— +* +Milam Randolph +Pharo +— +— +3,321 +— +* +Douglas W. York +135,378 +$ +3,713,814 +5,207 +— +* +Kevin E. Willson +58,242 +$ +1,564,425 +7,482 +— +* +* There is no value as no shares are settled until the entire +award is vested. +21 +RETIREMENT PLANS +Pension Plan +The Company’s Pension Plan is a qualified, +noncontributory defined benefit plan, which is available to substantially all +employees. This plan was amended in 1994 to conform to the changes required by +the Tax Reform Act of 1986 and to reduce the plan formula. The Company also has +a supplemental pension plan for certain executive officers to provide for +benefits in excess of Internal Revenue Code limits. +The qualified plan provides a benefit after 25 years +of service equal to 35 percent of final average compensation, subject to +Internal Revenue Code limits. Final average compensation is the average of the +highest three consecutive years of the ten years preceding termination of +employment. For each named executive officer, the level of compensation used to +determine benefits payable under the qualified pension plan is that officer’s +average of the base salaries (excluding bonus) shown in the Summary +Compensation Table. +The supplemental plan provides executives hired before +1995, after completing 15 years of service and reaching age 65, a benefit equal +to 40 percent of final average compensation plus 37 percent of final average +compensation integrated with the social security wage base without regard to +compensation limitations provided under the qualified plan, less the benefit +provided by the qualified plan. For executives hired after 1994, the +supplemental benefit is calculated using the formula for the qualified plan +without the limitation imposed by Section 415 of the Internal Revenue +Code, less the benefit provided by the qualified plan. +The following table +represents the value of the Named Executive Officer pension benefits. +PENSION +BENEFITS +Name +Number of +Years Credited +Service +(#) +Qualified Plan- +Present Value +of Accumulated +Benefit +($) +Non-Qualified +SERP Plan- +Present Value +of Accumulated +Benefit +($) +Payment +During Last +Fiscal Year +($) +Mark A. +Hellerstein +15 +290,474 +769,414 +— +Anthony J. Best +— +— +— +— +Robert L. Nance +8 +239,571 +21,383 +— +David W. +Honeyfield +4 +25,009 +— +— +Milam Randolph +Pharo +11 +164,795 +— +— +Douglas W. York +10 +100,348 +18,282 +— +Kevin E. Willson +11 +— +— +160,035 +EQUITY COMPENSATION +PLANS +St. Mary has a 2006 Equity Incentive Compensation Plan +and an Employee Stock Purchase Plan under which options and shares of St. Mary +common stock are authorized for grant or issuance as compensation to eligible +employees, consultants, and members of the Board of Directors. Our stockholders +have approved each of these plans. +22 +The following table is a +summary of the shares of common stock authorized for issuance under our +existing equity compensation plans as of December 31, 2006. +(a) +(b) +(c) +Plan Category +Number of securities to be +issued upon exercise of +outstanding options, +warrants, and rights +Weighted-average exercise +price of outstanding options, +warrants, and rights +Number of securities remaining +available for future issuance +under equity compensation plans +(excluding securities reflected in +column (a)) +2006 Equity Incentive +Compensation Plan +Stock +Options and Incentive Stock Options +3,121,602 +$ +12.56 +— +(1) +Restricted Stock Plan +1,061,226 +N/A +2,699,468 +(1) +Employee Stock Purchase Plan +— +— +1,629,345 +(2) +Equity compensation plans not approved by security +holders +— +— +— +Total +4,182,828 +$ +12.56 +4,328,813 +(1) In May 2006, the stockholders approved the 2006 +Equity Incentive Compensation Plan to authorize the issuance of restricted +stock, RSUs, non-qualified stock options, incentive stock options, stock +appreciation rights, and stock-based awards to key employees, consultants, and +members of the Board of Directors of St. Mary or any affiliate of St. Mary. The +2006 Equity Plan serves as the successor to the St. Mary Land & +Exploration Company Stock Option Plan, the St. Mary Land & Exploration +Company Incentive Stock Option Plan, the St. Mary Land & Exploration +Company Restricted Stock Plan, and the St. Mary Land & Exploration +Company Non-Employee Director Stock Compensation Plan (collectively referred to +as the “Predecessor Plans”). All grants of equity are now made out of the 2006 +Equity Plan, and no further grants will be made under the Predecessor Plans. Each +outstanding award under a Predecessor Plan immediately prior to the effective +date of the 2006 Equity Plan continues to be governed solely by the terms and +conditions of the instruments evidencing such grants or issuances. +(2) Under the ESPP, eligible employees may +purchase shares of the Company’s common stock through payroll deductions of up +to 15 percent of their eligible compensation. The purchase price of the stock +is 85 percent of the lower of the fair market value of the stock on the first +or last day of the purchase period, and shares issued under the ESPP are +restricted for a period of 18 months from the date issued. The ESPP is intended +to qualify under Section 423 of the Internal Revenue Code. +EMPLOYMENT +AGREEMENTS AND TERMINATION OF EMPLOYMENT +On September 1, 1991, St. Mary entered into an +employment agreement with Mark A. Hellerstein. This agreement was amended +on December 16, 2005. The amended agreement provides for a specific term +ending June 30, 2007, and certain compensation arrangements in the event +that there is a termination of employment prior to that date. The agreement +also provides that in order to comply with Section 409A, any severance +payments made pursuant to the agreement will not commence until the expiration +of six months from the date of separation from service. Under the terms of the +agreement, if Mr. Hellerstein is terminated prior to the expiration date +of his contract, he will continue to receive the following benefits through the +expiration date: 1) his base salary at its then current rate at the time of +termination; 2) bonus and incentive compensation as well as additional vesting +under all benefit plans; and 3) participation by Mr. Hellerstein in the +fringe benefits and other benefit plans of the Company. Mr. Hellerstein +will be compensated at an annual rate of $425,000 through the end of his +contract term on June 30, 2007. +St. Mary and Anthony J. +Best entered into an employment agreement dated May 1, 2006. Under the +employment agreement, Mr. Best had a starting salary of $375,000. When his +employment commenced, Mr. Best received a RSU award of 20,000 shares, +which vested immediately and was not subject to forfeiture, and a $50,000 cash +bonus. Over the next four years, Mr. Best may earn additional restricted +shares in varying amounts, earning in the first quarter of each year 1,250 +shares if he is employed by +23 +St. Mary +at that time, and an additional 2,500 shares if the net asset value growth from +the prior year exceeds ten percent, with a further 1,250 shares if such growth +exceeds fifteen percent. If he remains employed by the Company for the next +four years and meets or exceeds all targets in this compensation arrangement, +the Company will award Mr. Best with a maximum of 20,000 restricted +shares. Mr. Best will participate in the fringe benefits and other benefit +plans and practices of St. Mary in the same manner and to the same comparable +extent as other senior executives of St. Mary, to be prorated for partial year(s) of +employment. Mr. Best earned 1,250 shares in March 2007 associated +with the service component of his award; however, he did not earn the +performance based component of his employment agreement for the additional +3,750 shares as the net asset value growth of the Company did not exceed ten +percent for 2006. +CHANGE OF CONTROL +ARRANGEMENTS +St. Mary has established a change of control executive +severance policy and entered into change of control severance agreements +whereby certain officers of St. Mary, including the officers named in the +Summary Compensation Table, are entitled to receive severance payments in the +event that their employment is terminated within two and one-half years after a +change of control of the Company (a) without “cause” by the Company or (b) for +“good reason” by the officer (e.g. an adverse change in the officer’s status +after a change of control), each as defined in the agreements. The severance +payments equal up to two and one-half years annual base salary, depending on +the length of time employment continues after the change of control provided +that in no event would the severance payments equal less than one year’s annual +base salary. In addition, all insurance and fringe benefits will be provided +for a period of one year. +The Company has also established a change of control +severance policy and entered into change of control severance agreements +whereby selected employees of St. Mary that are of a sufficient employment +grade, are entitled to receive severance payments in the event that their +employment is terminated within one year after a change of control of the +Company (a) without “cause” by the Company or (b) for “good reason” +by the employee (e.g. an adverse change in the officer’s status after a change +of control), each as defined in the agreements. The severance payments equal up +to two and one half years annual base salary, depending on the length of time +employment continues after the change of control provided that in no event +would the severance payments equal less than one year’s annual base salary. In +addition, all insurance and fringe benefits will be provided for a period of +one year. +St. Mary has established a severance termination plan +for all of its other employees that would activate if a change of control event +occurs. The amount of benefit is dependent on the number of years of service +with the Company and the employees’ compensation level at the time of +termination. +A change of control is +defined to include (i) an acquisition of more than 50 percent of the +common stock or assets of the Company in a reorganization, merger, or +consolidation of the Company or (ii) a change in more than 50 percent of +the composition of the Board of Directors of the Company other than as a result +of the election of new members of the Board of Directors by a vote of the +incumbent members of the Board of Directors or by stockholders of the Company +pursuant to the recommendation of the incumbent members of the Board of +Directors. +24 +SECURITY OWNERSHIP +OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +Common +Stock— The following table shows beneficial +ownership of shares of St. Mary common stock as known by the Company as of March 16, +2007, by all beneficial owners of more than five percent of the outstanding +shares of St. Mary common stock as of March 16, by each director, director +nominee, and executive officer named in the Summary Compensation Table, and all +directors, director nominees, and executive officers as a group. RSUs are not +included in this table as no actual shares have been issued associated with the +RSU rights. A supplemental separate table has been included later in this +section describing the number of RSUs owned by the individuals described above. +Name and Address of Beneficial Owner +Shares +beneficially +owned +excluding +options +Options +exercisable +within 60 days +of 3/16/2007 +Total shares +beneficially +owned(1) +Percent +beneficially +owned +Stockholders Owning More Than 5% +Neuberger Berman, LLC +605 Third Avenue +New York City, NY 10158-3698 +3,634,156 +— +3,634,156 +(2) +6.2 +%(2) +Harris Associates +L.P. +Two North LaSalle Street, Suite 500 Chicago, IL 60602-3790 +2,906,100 +— +2,906,100 +(3) +5.3 +%(3) +Name and Position of Beneficial Owner Directors and Executive +Officers +Barbara M. +Baumann, Director +14,607 +45,223 +59,830 +0.1 +% +Larry W. Bickle, Director +69,175 +46,123 +115,298 +0.2 +% +Thomas E. +Congdon, Director +33,113 +(4) +68,179 +101,292 +0.2 +% +William J. Gardiner, +Director +19,667 +60,729 +80,396 +0.1 +% +Mark A. +Hellerstein, Chairman and +Director +92,048 +10,114 +102,162 +0.2 +% +Julio M. Quintana, Director +3,751 +— +3,751 +<0.1 +% +John M. Seidl, +Director +9,067 +18,757 +27,824 +<0.1 +% +William D. Sullivan, +Director +13,067 +7,329 +20,396 +<0.1 +% +Anthony J. Best, +Chief Executive Officer, President, and Director +15,655 +— +15,655 +<0.1 +% +Robert L. Nance, Senior Vice +President +758,780 +(5) +210,084 +968,864 +1.5 +% +David W. +Honeyfield, Senior Vice President-Chief Financial Officer, Secretary, +and Treasurer +1,472 +6,608 +8,080 +<0.1 +% +Milam Randolph Pharo, Vice +President-Land and Legal, and Assistant Secretary +14,221 +73,046 +87,267 +0.1 +% +Douglas W. York +2,771 +— +2,771 +<0.1 +% +Kevin E. Willson +2,201 +19,404 +21,605 +<0.1 +% +All executive officers +and directors as a group (21) persons including those named above. +1,067,210 +872,412 +1,939,622 +3.0 +% +(1) According to SEC rules, +beneficial ownership includes shares as to which the individual or entity has +voting power or investment power and any shares which the individual has the +right to acquire within 60 days of a date reasonably selected by the Company, +through the exercise of any stock option or other right. The Company selected March 16, +2007, as the determination date. +25 +(2) According to a Statement +on Schedule 13G filed by Neuberger Berman, Inc., Neuberger Berman, LLC, +Neuberger Berman Management Inc., and Neuberger Berman Equity Funds on February 13, +2007, by reason of advisory and other relationships with persons who own shares +of St. Mary common stock, Neuberger Berman, Inc., Neuberger Berman, LLC, +Neuberger Berman Management Inc., and Neuberger Berman Equity Funds may be +deemed to be the beneficial owners of a total of 3,634,156 shares, with sole +voting power as to 60,566 shares, with shared voting power as to 2,937,700 +shares, and shared dispositive power as to all shares. The percentage +beneficially owned in the above table is the percentage beneficially owned set +forth in the filed Schedule 13G based only on the Company’s outstanding shares. +The percentage beneficially owned changes to 5.7 percent when the calculation +includes the aggregate number of shares that stockholders have a right to +acquire within 60 days of March 16, 2007, through the exercise of any +stock option or right. +(3) According to a Statement +on Schedule 13G filed by Harris Associates L.P. and Harris Associates +Investment Trust on February 14, 2007, by reason of advisory and other +relationships with persons who own shares of St. Mary common stock, Harris +Associates L.P. and Harris Associates Investment Trust may be deemed to be the +beneficial owners of a total of 2,906,100 shares, with shared voting power as +to all of such shares, shared dispositive power as to 2,900,000 shares, and +sole dispositive power as to 6,100 shares. The percentage beneficially owned in +the above table is the percentage beneficially owned set forth in the filed +Schedule 13G based only on the Company’s outstanding shares. The percentage +beneficially owned changes to 4.6 percent when the calculation includes the +aggregate number of shares that stockholders have a right to acquire within 60 +days of March 16, 2007, through the exercise of any stock option or right. +(4) Thomas E. Congdon and +members of his extended family are estimated to own between one and five +percent of the outstanding common stock of the Company. While no formal +arrangements exist, these extended family members may be inclined to act in +concert with Mr. Congdon on matters related to control of the Company or +the approval of a significant transaction. +(5) Includes 4,000 shares +held of record by Ronan, Inc., a corporation controlled by Robert L. +Nance, 132,700 shares held by the spouse of Mr. Nance, 84,987 shares held +of record by Robert L. Nance TTEE for Robert S. Nance Financial Mgt. Trust, and +20,093 shares owned by Robert L. Nance and Penni W. Nance JT TEN. +Restricted +Stock Units— RSUs represent rights to shares of +stock to be delivered upon settlement, subject to risk of forfeiture and +cancellation. The RSU awards are automatically exchanged for common shares +after three years following their issuance. The RSUs do not have voting rights, +nor are they entitled to receive cash payments equal to any cash dividends and +other distributions paid in cash on our common stock. The RSU awards vest 25 +percent upon issuance and 25 percent on each of the following three anniversary +dates. +The Company began issuing RSUs in June 2004. The +initial grant under the Restricted Stock Plan was made on June 30, 2004, +whereby eligible executive officers and key employees were issued RSUs. This +grant was the first grant under this program following approval of the +Restricted Stock Plan by the stockholders of the Company. Beginning with the +calendar year 2004, RSU grants were made annually under the Restricted Stock +Plan and since the beginning of calendar year 2006 are being made under St. Mary’s +2006 Equity Incentive Compensation Plan subject to the performance criteria of +the Company. These grants are made in the quarter following the year-end. +26 +The +following table shows the number of RSUs owned by each of the executive +officers named in the Summary Compensation Table set forth under the caption “Executive +Compensation,” and all directors and executive officers as a group as of March 16, +2007. +Total +Total +Vested +Restricted +Restricted +Stock Units +Stock Units +Barbara M. +Baumann +3,139 +1,570 +Larry W. Bickle +3,139 +1,570 +Thomas E. Congdon +3,139 +1,570 +William J. +Gardiner +3,139 +1,570 +Mark A. Hellerstein +64,955 +40,983 +Julio M. Quintana +— +— +John M. Seidl +3,139 +1,570 +William D. +Sullivan +3,139 +1,570 +Anthony J. Best +1,728 +432 +Robert L. Nance +45,973 +30,127 +David W. +Honeyfield +18,775 +10,357 +Milam Randolph +Pharo +14,008 +8,834 +Douglas W. +York(1) +10,506 +10,506 +Kevin E. +Willson(1) +16,071 +16,071 +All executive officers +and directors as a group (21) persons including those named above. +269,261 +172,196 +(1) The +table reflects the RSUs that have vested to Mr. York and Mr. Willson +prior to their respective terminations. Any unvested RSUs have been deleted +from the table. +REPORT OF THE +COMPENSATION COMMITTEE +The +Compensation Committee has reviewed and discussed the Compensation Discussion +and Analysis with management and based on the review and discussions, the +Compensation Committee recommends to the Board of Directors that the +Compensation Discussion and Analysis be included in the Company’s Proxy +Statement to be filed with the SEC. +Barbara M. Baumann, Chairman +Larry W. Bickle +William D. +Sullivan +March 30, +2007 +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS +Set forth below is a description of related +transactions between St. Mary and one of its officers and St. Mary and one +of its directors during the last fiscal year. Some of the aspects of these +transactions will continue in effect and may result in conflicts of interest +between St. Mary and the individuals. Although the persons owe a fiduciary duty +to St. Mary and its stockholders, we cannot assure you that conflicts of +interest will always be resolved in favor of St. Mary. +As a result of interests acquired prior to any +association with St. Mary, Robert L. Nance, an executive officer of St. Mary +during 2006, either personally or through Ronan, Inc.—an entity in which +he is a majority stockholder, owns working and overriding royalty interests in +approximately 14 of the Company’s oil and gas wells. Total revenues earned from +these specific oil and gas properties by Mr. Nance and Ronan in 2006, +2005, and 2004 are approximately $206,000, $238,000, and $166,000, respectively. +The +27 +Nominating and Corporate +Governance Committee has reviewed this relationship and deemed this not to be +in conflict with the Company’s Code of Ethics, since the ownership was acquired +prior to any relationship with St. Mary and because the amounts involved are +not deemed significant to St. Mary as a whole. +Julio M. Quintana, a director of St. Mary, is the +President and Chief Executive Officer of TESCO Corporation, a company that +supplies oilfield drilling technology, oilfield services and equipment. St. +Mary utilizes the services of TESCO Corporation and its subsidiary companies. +This business relationship has all been conducted on commercial terms at arms +length. During 2006, 2005, and 2004, St. Mary has made payments to TESCO +Corporation and its subsidiaries of approximately $1.2 million, $700,000, and +$700,000, respectively, in each period. +St. Mary’s By-Laws provide +that no director, officer or employee may pursue for his or her own account a +business or investment opportunity if he or she has obtained knowledge of such +opportunity through his or her affiliation with the Company. In addition, no +officer or employee of St. Mary may pursue for his or her own account an oil +and gas opportunity as to which his or her knowledge of the opportunity was not +obtained through his or her affiliation with the Company unless (a) with +respect to an officer of St. Mary, the officer’s pursuit of the opportunity has +been approved by the Board of Directors and (b) with respect to a +non-officer of St. Mary, the employee’s pursuit of the opportunity has been +approved by a senior officer of St. Mary with full knowledge of such +opportunity. These restrictions do not apply to the acquisition of less than +one percent of the publicly traded stock of another company. +SECTION 16(a) BENEFICIAL +OWNERSHIP REPORTING COMPLIANCE +Under U.S. securities laws, directors, executive +officers, and persons holding more than ten percent of St. Mary common stock +must report their initial ownership of the common stock and any changes in that +ownership in reports that must be filed with the SEC and St. Mary. The SEC has +designated specific deadlines for these reports and St. Mary must identify in +this proxy statement those persons who did not file these reports when due. +Based solely on a review +of reports filed with the Company, all directors, executive officers, and ten +percent owners timely filed all reports regarding transactions in the Company’s +securities required to be filed for 2006 by Section 16(a) under the +Securities Exchange Act of 1934 with the following exceptions. A Form 4 +with respect to the sale of stock by John M. Seidl, a director of the Company, +was not filed on or before May 12, 2006, as required, but the sale was +reported in a Form 4 filed on May 16, 2006. Additionally, a Form 4 +with respect to the acquisition of stock by Julio M. Quintana was not filed on +or before July 11, 2006, as required, but the acquisition was reported on +a Form 4 filed on July 14, 2006. +REPORT OF THE AUDIT +COMMITTEE +The Audit Committee is appointed by the Board of +Directors to assist the Board in fulfilling its oversight responsibilities with +respect to (1) the integrity of the Company’s financial statements and +financial reporting process and systems of internal controls regarding finance, +accounting, and compliance with legal and regulatory requirements, (2) the +qualifications, independence, and performance of the Company’s independent +accountants, (3) the performance of the Company’s internal audit function, +and (4) other matters as set forth in the charter of the Audit Committee +approved by the Board of Directors. +Management is responsible for the Company’s financial +statements and the financial reporting process, including the systems of +internal controls and disclosure controls and procedures. The independent +accountants are responsible for performing an independent audit of the Company’s +financial statements in accordance with generally accepted auditing standards +and issuing a report thereon. The Audit Committee’s responsibility is to +monitor and oversee these processes. +28 +In connection with these responsibilities, the Audit +Committee reviewed and discussed with management and the independent +accountants the audited consolidated financial statements of the Company for +the year ended December 31, 2006. The Audit Committee also discussed with +the independent accountants the matters required to be discussed by Statement +on Auditing Standards No. 61, Communication with Audit Committees. In +addition, the Audit Committee received the written disclosures and the letter +from the independent accountants required by Independence Standards Board +Standard No. 1, Independence Discussions with Audit Committees, and the +Audit Committee discussed with the independent accountants that firm’s +independence. +Based +on the reviews and discussions referred to above, the Audit Committee +recommended to the Board of Directors that the audited consolidated financial +statements of the Company be included in the Company’s Annual Report on Form 10-K/A +for the year ended December 31, 2006, that was filed with the SEC. +THE AUDIT +COMMITTEE +William J. +Gardiner, Chairman +Barbara M. +Baumann +Julio M. Quintana +John M. Seidl +March 30, +2007 +INDEPENDENT +ACCOUNTANTS +To the knowledge of management, neither Deloitte & +Touche, LLP nor any of its members has any direct or material indirect +financial interest in St. Mary nor any connection with St. Mary in any capacity +other than as independent public accountants. A representative of Deloitte & +Touche, LLP is expected to be present at the annual meeting and will have an +opportunity to make a statement if he desires to do so and to respond to +appropriate questions. +The +Company paid the following fees to the independent accountants for the audit of +the consolidated financial statements and for other services provided in the +years ended December 31, 2006 and 2005. All services and fees including +tax service fees were preapproved by the Audit Committee. +2006 +2005 +Audit Fees +$ +507,257 +$ +417,888 +Audit Related Fee +— +— +Tax Fees +8,500 +8,000 +All Other Fees, +including financial systems design and implementation +— +— +Total Fees +$ +515,757 +$ +425,888 +The tax fees include basic +compliance services and assistance with technical research. The Audit Committee +has concluded that the provision of these nonaudit services is compatible with +maintaining the accountants’ independence. +29 +AUDIT COMMITTEE +PREAPPROVAL POLICY AND PROCEDURES +The charter of the Audit Committee provides that the +Audit Committee shall approve the fees and any other significant compensation +to be paid to the independent accountants, and shall approve in advance any +non-audit services to be performed by the independent accountants. Such +pre-approval requirement for non-audit services may be waived only if the +non-audit services meet a de minimis exception allowed by law. Accordingly, it +is the Audit Committee’s policy that, prior to the engagement of the +independent accountants, the Audit Committee shall review and pre-approve all +audit and permissible non-audit services to be provided by the independent +accountants (including the related fees and other terms of such services). +In connection with this +policy, the following procedures are followed: (i) if applicable, each +year the Audit Committee reviews and pre-approves a schedule of services and +estimated fees for proposed audit and non-audit services to be provided by the +independent accountants during the next annual audit cycle, which schedule is +detailed as to the particular services to be performed by the independent +accountants; (ii) actual amounts paid to the independent accountants are +monitored by financial management of the Company and reported to the Audit +Committee; (iii) any services proposed to be provided by the independent +accountants and the related fees that have not been pre-approved during the +annual review by the Audit Committee must be pre-approved by the Audit +Committee in advance of any work performed; and, (iv) incremental fees for +previously approved services that are expected to exceed the previously +approved fee estimate must also be pre-approved by the Audit Committee. +FUTURE STOCKHOLDER +PROPOSALS +St. Mary must receive any +St. Mary stockholder proposal for the annual meeting of stockholders in 2008 +before November 1, 2007, for the proposal to be included in the St. Mary +proxy statement and form of proxy for that meeting. St. Mary’s By-Laws require +that advance written notice in proper form of stockholder proposals for matters +to be brought before an annual stockholders meeting be received by the +Secretary of St. Mary not less than 75 days nor more than 105 days before the +first anniversary date of the immediately preceding annual stockholders meeting. +Accordingly, notice of stockholder proposals for the 2008 annual meeting must +be received by St. Mary between January 31, 2008, and March 1, 2008. +OTHER MATTERS +Management does not know of any matters other than the +election of directors and the ratification of the appointment by the +Audit Committee of Deloitte & Touche, LLP as the Company’s Independent +Registered Public Accounting Firm , to be +brought before the annual meeting of stockholders. If any other matters not +mentioned in this proxy statement are properly brought before the meeting, the +individuals named in the enclosed proxy intend to use their discretionary +voting authority under the proxy to vote the proxy in accordance with their +best judgment on those matters. +By Order of the +Board of Directors +David W. +Honeyfield +Senior +VP—Chief Financial Officer, Secretary & +Treasurer +March 30, +2007 +30 +MR A SAMPLE +DESIGNATION (IF ANY) +ADD 1 +ADD 2 +ADD 3 +ADD 4 +ADD 5 +ADD 6 +000004 +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +000000000.000000 ext +Electronic Voting Instructions +You can vote by Internet or telephone! +Available 24 hours a day, 7 days a week! +Instead +of mailing your proxy, you may choose one of the two voting methods outlined +below to vote your proxy. +VALIDATION +DETAILS ARE LOCATED BELOW IN THE TITLE BAR. +Proxies submitted by the Internet or telephone must be +received by 5:30 p.m., Central Time, on May 14, 2007. +Vote by +Internet +• Log on to +the Internet and go to +www.investorvote.com +• Follow the steps outlined on the secured website. +Vote by +telephone +• Call toll free 1-800-652-VOTE (8683) within the United States, Canada & +Puerto Rico any time on a touch tone telephone. There is NO CHARGE to you for the call. +Using +a black ink pen, mark your votes +with an X as shown in this example. Please do +not write outside the designated areas. +• Follow the instructions provided by the recorded message. +Annual Meeting Proxy Card +C0123456789 +12345 +IF YOU HAVE NOT VOTED VIA +THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND +RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Proposals — The Board of Directors recommends a vote FOR all +the nominees listed and FOR Proposal 2. +1. The Nominating and Corporate Governance +Committee of the Board of Directors has nominated the below eight persons to +stand for election as directors. As of the date of the accompanying proxy +statement, no one has been nominated to serve as director other than the +nominees listed below. +01 - Barbara M. Baumann +Mark here to vote +FOR all nominees +Mark here to WITHHOLD +vote from all nominees +For All EXCEPT - +To withhold authority to vote for any +nominee(s), write the name(s) of such nominee(s) below. +02 - Anthony J. Best +03 - Larry W. Bickle +04 - William J. Gardiner +05 - Mark A. Hellerstein +06 - Julio M. Quintana +07 - John M. Seidl +08 - William D. Sullivan +For +Against +Abstain +2. The proposal to ratify the appointment by the Audit Committee of +Deloitte & Touche, LLP as the Company’s Independent Registered Public +Accounting Firm. +Non-Voting Items +Change of +Address — Please +print new address below. +Authorized Signatures — +This section must be completed for your vote to be counted. — Date and Sign +Below +NOTE: Please sign exactly +as name(s) appears hereon. Joint owners should each sign. When signing as +attorney, executor, administrator, corporate officer, trustee, guardian, or +custodian, please give full title. +Date (mm/dd/yyyy) — Please print +date below. +Signature 1 — Please keep signature +within the box. +Signature 2 — Please keep signature +within the box. +C 1234567890 +1 U P X +J N T +0 1 2 8 3 7 1 +MR A SAMPLE (THIS AREAIS +SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR ASAMPLE AND +MR ASAMPLE AND MR A SAMPLE AND MR ASAMPLE AND +MR ASAMPLE AND MR A SAMPLE AND MR ASAMPLE AND + +00OQ2C +IF YOU HAVE NOT VOTED +VIATHE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND +RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Proxy — St. Mary Land & +Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This proxy is solicited on Behalf +of the Board of Directors For the Annual Meeting of Stockholders on May 15, +2007. +The undersigned hereby +appoints Anthony J. Best and David W. Honeyfield, or either of them, each with +the power to appoint his substitute, as proxies for the undersigned to vote all +shares of St. Mary Land & Exploration Company common stock which the +undersigned is entitled to vote at the Annual Meeting of Stockholders to be +held on May 15, 2007, and at any +reconvened meeting after any adjustment thereof, as directed on the matters +referred to on the reverse side and at their discretion on any other matters +that may properly be presented at the meeting. +This proxy when properly +executed will be voted in the manner directed by the undersigned +stockholder. If this proxy is properly +executed but no voting direction is given, this proxy will be voted “For” all +director nominees listed on this proxy and the ratification of the appointment +by the Audit Committee of Deloitte & Touche, LLP as St. Mary Land & +Exploration Company’s Independent +This proxy also confirms +discretionary authority to the proxies to vote on any other matters that may +properly be presented at the meeting. As +of the date of the accompanying proxy statement, St. Mary Land & +Exploration Company’s management did not know of any other matters to be +presented at the meeting. If any other +matters are properly presented at the meeting, this proxy will be voted in +accordance with the recommendations of St. Mary Land & Exploration +Company’s management. +Please mark, date and sign on the reverse side. +Using a black ink +pen, mark your votes with an X as shown in +this example. Please do not write outside the designated areas. +x +Annual Meeting Proxy Card +PLEASE +FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE +ENCLOSED ENVELOPE. +A Proposals +— The Board of Directors recommends a vote FOR all the nominees listed +and FOR Proposal 2. +1. The Nominating and +Corporate Governance Committee of the Board of Directors has nominated the +below eight persons to stand for election as directors. As of the date of the accompanying proxy +statement, no one has been nominated to serve as director other than the +nominees listed below. +01 - Barbara M. Baumann +Mark here to vote +FOR all nominees +Mark here to WITHHOLD +vote from all nominees +For All EXCEPT - To withhold authority to vote for any +nominee(s), write the name(s) of such nominee(s) below. +02 - Anthony J. Best +03 - Larry W. Bickle +04 - William J. Gardiner +05 - Mark A. Hellerstein +06 - Julio M. Quintana +07 - John M. Seidl +08 - William D. Sullivan +For +Against +Abstain +2. The proposal to ratify the +appointment by the Audit Committee of Deloitte & Touche, LLP as the +Company’s +B Authorized Signatures — This +section must be completed for your vote to be counted. — Date and Sign Below +NOTE: Please sign exactly +as name(s) appears hereon. Joint owners should each sign. When signing as +attorney, executor, administrator, corporate officer, trustee, guardian, or +custodian, please give full title. +Date (mm/dd/yyyy) — Please print +date below. +Signature 1 — Please keep signature +within the box. +Signature 2 — Please keep signature +within the box. +C 1234567890 +1 U P X +J N T +0 1 2 8 3 7 2 +MR A SAMPLE (THIS AREAIS +SET UP TO ACCOMMODATE +140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND +MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + +00OQ2C +PLEASE FOLD ALONG THE +PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +Proxy — St. Mary Land & +Exploration Company +1776 Lincoln Street, Suite 700 +Denver, Colorado 80203 +This proxy is solicited on Behalf +of the Board of Directors For the Annual Meeting of Stockholders on May 15, +2007. +The undersigned hereby +appoints Anthony J. Best and David W. Honeyfield, or either of them, each with +the power to appoint his substitute, as proxies for the undersigned to vote all +shares of St. Mary Land & Exploration Company common stock which the +undersigned is entitled to vote at the Annual Meeting of Stockholders to be +held on May 15, 2007, and at any +reconvened meeting after any adjustment thereof, as directed on the matters +referred to on the reverse side and at their discretion on any other matters +that may properly be presented at the meeting. +This proxy when properly +executed will be voted in the manner directed by the undersigned +stockholder. If this proxy is properly +executed but no voting direction is given, this proxy will be voted “For” all +director nominees listed on this proxy and the ratification of the appointment +by the Audit Committee of Deloitte & Touche, LLP as St. Mary Land & +Exploration Company’s Independent Public Accounting Firm. +This proxy also confirms +discretionary authority to the proxies to vote on any other matters that may +properly be presented at the meeting. As +of the date of the accompanying proxy statement, St. Mary Land & +Exploration Company’s presented at the meeting. +If any other matters are properly presented at the meeting, this proxy +will be voted in accordance with the recommendations of St. Mary Land & +Exploration Company’s management. +Please mark, date and sign on the reverse side. \ No newline at end of file diff --git a/raw/proxies/0000893538/0001104659-07-027279/proxy_rpt.txt b/raw/proxies/0000893538/0001104659-07-027279/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0000950124-07-002064/proxy.txt b/raw/proxies/0000910521/0000950124-07-002064/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7701b8d25f98b95222f811cde017577c746af93d --- /dev/null +++ b/raw/proxies/0000910521/0000950124-07-002064/proxy.txt @@ -0,0 +1,3832 @@ +DEF 14A +1 +v28718def14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to +Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and +state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided +by Exchange Act Rule 0-11(a)(2) and identify the filing for which +the offsetting fee was paid previously. Identify the previous +filing by registration statement number, or the Form or Schedule +and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are +not required to respond unless the form displays a currently valid OMB control number. +Table of Contents +April 9, +2007 +Dear Stockholder: +We cordially invite you to attend our 2007 Annual Meeting of +Stockholders to be held at 1:30 p.m., local time, on +Wednesday, May 9, 2007 at Hotel Andalucia, 31 West +Carrillo Street, Santa Barbara, California 93101. +Enclosed are the Notice of Annual Meeting, Proxy Statement and a +Proxy Card relating to the Annual Meeting which we urge you to +read carefully. Also enclosed is the Company’s 2006 Annual +Report. +Please use this opportunity to take part in our affairs by +voting on the business to come before the Annual Meeting. If you +are a record holder of our common stock as of the close of +business on March 16, 2007, you are eligible to vote on +these matters, either by attending the Annual Meeting in person +or by Proxy. It is important that your shares be voted, whether +or not you plan to attend the Annual Meeting, to ensure the +presence of a quorum. Therefore, please complete, date, sign, +and return the accompanying Proxy Card in the enclosed +postage-paid envelope . Properly executed Proxy Cards +received by the Company prior to the Annual Meeting will be +voted in accordance with the instructions indicated on such +cards. Because mail delays occur frequently, it is important +that the enclosed Proxy Card be returned well in advance of the +Annual Meeting. Submitting the Proxy Card does NOT deprive you +of your right to attend the Annual Meeting and vote your shares +in person for the matters acted on at the Annual Meeting. +Sincerely, +Angel R. Martinez +President and Chief Executive Officer +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +GENERAL INFORMATION +PROPOSAL NO. 1 ELECTION OF DIRECTORS +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION COMMITTEE REPORT +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2006 +2006 OPTION EXERCISES AND STOCK VESTED +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 +PROPOSAL NO. 3 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +STOCKHOLDER PROPOSALS FOR THE 2008 ANNUAL MEETING +OTHER BUSINESS OF THE ANNUAL MEETING +COST OF SOLICITATION +ANNUAL REPORT ON FORM 10-K +Table of Contents +DECKERS +OUTDOOR CORPORATION +495-A +South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To Be Held May 9, +2007 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice is hereby given that the Annual Meeting of Stockholders +(the “Annual Meeting”) of Deckers Outdoor Corporation, +a Delaware corporation (the “Company”), will be held +at Hotel Andalucia, 31 West Carrillo Street, Santa Barbara, +California 93101, on Wednesday, May 9, 2007, beginning at +1:30 p.m., local time. The Annual Meeting will be held for +the following purposes: +1. Election of Directors. To elect eight +(8) directors of the Company to serve as directors until +the Annual Meeting of Stockholders to be held in 2008. +2. 2006 Equity Incentive Plan +Amendment. To approve an amendment to the +Company’s 2006 Equity Incentive Plan (the “2006 +Plan”) that will place additional restrictions on certain +types of equity-based awards and make certain other +administrative changes to the 2006 Plan. +3. Ratification of Appointment of Independent Registered +Public Accounting Firm. To ratify the selection +of KPMG LLP as the Company’s independent registered public +accounting firm for the year ending December 31, 2007. +4. Other Business. To consider and act +upon such other business as may properly come before the Annual +Meeting or any continuations, postponements or adjournments +thereof. +The Board of Directors has fixed the close of business on +March 16, 2007 as the record date (the “Record +Date”) for determining stockholders entitled to notice of +and to vote at the Annual Meeting and any continuations, +postponements or adjournments thereof. Only stockholders of +record at the close of business on the Record Date are entitled +to such notice and to vote, in person or by Proxy, at the Annual +Meeting. +The Proxy Statement that accompanies this Notice contains +additional information regarding the proposals to be considered +at the Annual Meeting, and stockholders are encouraged to read +it in its entirety. +The Board of Directors welcomes your personal attendance at the +Annual Meeting. However, whether or not you plan to attend, +please sign and return the enclosed proxy card, which you may +revoke at any time prior to it being exercised at the Annual +Meeting. A self-addressed, postage prepaid envelope is enclosed +for your convenience. Your proxy will not be used if you attend +the meeting and choose to vote in person. +BY ORDER OF THE BOARD OF DIRECTORS +Angel R. Martinez +President and Chief Executive Officer +Goleta, California +April 9, 2007 +EVERY STOCKHOLDER’S VOTE IS IMPORTANT. +PLEASE COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY +CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS +POSSIBLE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD +BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES +OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND +RETURNED. +Table of Contents +495-A +South Fairview Avenue +Goleta, California 93117 +ANNUAL +MEETING OF STOCKHOLDERS +To Be Held May 9, 2007 +PROXY +STATEMENT +GENERAL +INFORMATION +This Proxy Statement is furnished in connection with the +solicitation of Proxies by the Board of Directors of Deckers +Outdoor Corporation, a Delaware corporation (the +“Company” or “Deckers”), for use at the +Company’s Annual Meeting of Stockholders (the “Annual +Meeting”) to be held at 1:30 p.m., local time, on +May 9, 2007, at Hotel Andalucia, 31 West Carrillo +Street, Santa Barbara, California 93101, and any +continuations, postponements or adjournments thereof for the +purposes set forth in the accompanying Notice of Annual Meeting. +This Proxy Statement and the accompanying Proxy Card (the +“Proxy”) were first mailed to stockholders on or about +April 9, 2007. +Method of +Voting +Stockholders can vote by Proxy or by attending the Annual +Meeting and voting in person. A Proxy is enclosed. If you vote +by means of the Proxy, the Proxy must be completed, signed and +dated by you or your authorized representative. The completed +Proxy may be returned in the postage-paid envelope provided, or +you may vote by Proxy by internet or telephone as indicated on +the Proxy instructions. The internet and telephone voting +facilities will close at 11:59 p.m., Eastern Time, on +May 8, 2007. Stockholders who vote by internet or telephone +need not return a Proxy by mail. If you hold common stock in +“street name,” through a broker, bank or other +nominee, then your broker, bank or nominee, as the holder of the +shares, must vote those shares in accordance with your +instructions. Please refer to the instruction card they provide +for voting of your shares. +Angel R. Martinez and Zohar Ziv, the designated proxyholders +(the “Proxyholders”), are members of the +Company’s management. If a Proxy is properly signed, dated +and returned and is not revoked, the shares represented by that +Proxy will be voted by the Proxyholders at the Annual Meeting in +accordance with the stockholder’s instructions indicated on +the Proxy. If no instructions are indicated on the Proxy, then +the Proxyholders will vote the shares represented by that Proxy +“FOR” the nominees named herein for election as +directors, “FOR” the 2006 Equity Incentive Plan +Amendment, “FOR” ratification of the selection of KPMG +LLP as the Company’s independent registered public +accounting firm, and in accordance with the recommendations of +the Board of Directors upon such other business as may properly +come before such meeting or any and all continuations, +postponements or adjournments thereof. +Revocation +of Proxy +A stockholder giving a Proxy has the power to revoke it at any +time before it is exercised at the Annual Meeting either by +(i) giving written notice of revocation to the Secretary of +the Company, at the address of the Company’s executive +offices in Goleta, California, (ii) executing a subsequent +Proxy, or (iii) attending the Annual Meeting and voting in +person. If you have instructed your broker, bank or other +nominee to vote your shares, you must follow directions received +from your nominee to change those instructions. Please note that +if your shares are held of record by a broker, bank or other +nominee and you decide to attend and vote at the Annual Meeting, +your vote in person at the Annual Meeting will not be effective +unless you present a legal proxy, issued in your name from your +broker, bank or other nominee. Subject to any such revocation, +all shares represented by properly executed Proxies will be +voted in accordance with the specifications on the enclosed +Proxy. +Table of Contents +Record +Date +In accordance with the Company’s Bylaws, the Board of +Directors has fixed March 16, 2007 as the record date (the +“Record Date”) for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof. As of the close of +business on March 16, 2007, there were outstanding +12,606,028 shares of the Company’s common stock, par +value $0.01 per share (the “Common Stock”). +Voting +Rights +Vote Required. In order to conduct business at +the Annual Meeting, a quorum must be present. The presence at +the Annual Meeting, in person or represented by Proxy, of +holders of a majority of the shares of our Common Stock +outstanding as of the Record Date, will constitute a quorum at +the Annual Meeting. We will treat shares of Common Stock +represented by a properly signed and returned Proxy, including +abstentions and broker non-votes (as defined below), as present +at the Annual Meeting for the purposes of determining the +existence of a quorum. Each share of Common Stock issued and +outstanding on the Record Date is entitled to one vote on any +matter presented for consideration and action by the +stockholders at the Annual Meeting. The Company’s +Certificate of Incorporation does not authorize cumulative +voting in the election of directors. Directors will be elected +by a plurality of the votes of the shares of the Company’s +Common Stock present in person or represented by Proxy and +entitled to vote on the election of directors. The affirmative +vote of holders of a majority of the outstanding shares of our +Common Stock, present in person or represented by Proxy at the +Annual Meeting and entitled to vote (assuming that a quorum is +present), is required to approve Proposal No. 2 +regarding the amendment to the 2006 Equity Incentive Plan and +Proposal No. 3 regarding the ratification of the +selection of KPMG LLP as the Company’s independent +registered public accounting firm. +Abstentions. We will count a properly executed +Proxy marked ABSTAIN with respect to a particular proposal as +present for purposes of determining whether a quorum is present, +but the shares represented by that Proxy will not be voted at +the Annual Meeting with respect to such proposal. +Broker Non-Votes. If your shares are held by a +broker, bank or other nominee, they will vote your shares for +you if you provide instructions to them on how to vote. You +should follow the directions provided by your broker, bank or +other nominee regarding how to instruct them to vote your +shares. “Broker non-votes” are shares held by a +broker, bank or other nominee that are represented at the Annual +Meeting, but with respect to which the nominee is not instructed +by the beneficial owner of the shares to vote on the particular +proposal and for which the broker, bank or other nominee does +not have discretionary voting power on the proposal. Brokers +holding shares of record for beneficial owners generally are +entitled to exercise their discretion to vote on +Proposals No. 1 and No. 3, but not +Proposal No. 2 included in this Proxy Statement unless +they receive other instructions from their customers. Broker +non-votes will be counted for purposes of determining the +presence or absence of a quorum but will not be counted for +purposes of determining the number of shares represented and +voting with respect to a proposal. +Voting Shares in Person that are Held Through +Brokers. If your shares are held of record by +your broker, bank or another nominee and you wish to vote those +shares in person at the Annual Meeting, you must obtain from the +nominee holding your shares a properly executed legal Proxy +identifying you as a Deckers’ stockholder, authorizing you +to act on behalf of the nominee at the Annual Meeting and +identifying the number of shares with respect to which the +authorization is granted. +Procedures +for Stockholder Nominations +The Company’s Bylaws provide that a stockholder seeking to +nominate a candidate for election as director at an annual +meeting of stockholders must provide timely advance written +notice. To be timely, a stockholder’s notice generally must +be received at our principal executive office on or before the +date 90 days prior to the scheduled date of the annual +meeting or, if it is a later date, on or before the date seven +days after the Company first publishes notice of the annual +meeting. +Under our Bylaws, a stockholder’s notice of a proposed +nomination for director to be made at an annual meeting must +include the following information: +• +the name and address of the stockholder proposing to make the +nomination and of the person or persons to be nominated; +2 +Table of Contents +• +a representation that the holder is a stockholder entitled to +vote his or her shares at the annual meeting and intends to vote +his or her shares in person or by proxy for the person nominated +in the notice; +• +a description of all arrangements or understandings between the +stockholder(s) supporting the nomination and each nominee; +• +any other information concerning the proposed nominee(s) that +the Company would be required to include in the Proxy Statement +if the Board of Directors made the nomination; and +• +the consent of the nominee(s) to serve as director if elected. +The presiding officer of the Annual Meeting may refuse to +acknowledge the nomination of any person not made in compliance +with the foregoing procedure. Stockholder nominations submitted +in accordance with the requirements of the Bylaws will be +forwarded to the Corporate Governance and Nominating Committee. +Other +Business +If any other matters are promptly presented for consideration at +the Annual Meeting including, among other things, consideration +of a motion to adjourn the Annual Meeting to another time or +place in order to solicit additional Proxies in favor of one or +more of the proposals, the persons named as Proxyholders and +acting thereunder will have discretion to vote on these matters +according to their best judgment to the same extent as the +person delivering the Proxy would be entitled to vote. At the +date this Proxy Statement went to press, we did not anticipate +any other matter would be raised at the Annual Meeting. +PROPOSAL NO. 1 +ELECTION +OF DIRECTORS +The Company’s Bylaws state that the Board of Directors +shall consist of not less than one or more than nine members. +The specific number of Board members within this range is +established by the Board of Directors and is currently set at +nine. There are currently eight Board members and one vacancy. +The Company’s original Certificate of Incorporation +provided that the Board shall be classified into three classes +of directors, which classes serve staggered three-year terms. At +the 2006 Annual Meeting of Stockholders, the stockholders voted +to amend the Company’s Certificate of Incorporation to +authorize the annual election of directors so that all directors +will be elected annually beginning at the 2007 Annual Meeting of +Stockholders. +At the Annual Meeting, stockholders will be asked to elect eight +directors of the Company to serve until the Company’s next +annual meeting of stockholders to be held in 2008 and until his +or her successor is elected and qualified. The names and certain +information concerning the persons nominated by the Board of +Directors to become directors at the Annual Meeting are set +forth below. Aside from Tore Steen, each of the proposed +nominees currently serves as a member of the Board of Directors. +Mr. Steen’s nomination was brought before the +Corporate Governance and Nominating Committee who, after +evaluating Mr. Steen’s qualifications, recommended +such nomination to the Board of Directors. Daniel L. Terheggen, +one of our current directors and a member of the Compensation +Committee and Corporate Governance and Nominating Committee of +the Board, is not standing for re-election as director at the +Annual Meeting, and his term of office on the Board of Directors +will end effective upon the conclusion of the Annual Meeting. +Accordingly, if all nominees for director are elected, then +following the Annual Meeting the Board of Directors will consist +of eight members and one vacancy, and a majority of the Board of +Directors and all members of each of its standing committees +will continue to be “independent” under applicable +regulations as described below. +The election of directors shall be by the affirmative vote of +the holders of a plurality of the shares voting in person or by +Proxy at the Annual Meeting. The persons named as Proxyholders +in the enclosed Proxy will vote to elect all eight proposed +nominees named below unless contrary instructions are given in +the Proxy. Broker non-votes and proxies marked +“withheld” as to one or more of the nominees will +result in the respective nominees receiving fewer votes. +However, the number of votes otherwise received by the nominee +will not be reduced by such action. Proxies cannot be voted at +the Annual Meeting for a greater number of persons than the +number of nominees named below. +Although each of the persons named below has consented to serve +as a director if elected and the Board of Directors has no +reason to believe that any of the nominees named below will be +unable to serve as a director, if any +3 +Table of Contents +nominee withdraws or otherwise becomes unavailable to serve, the +persons named as Proxyholders in the enclosed Proxy will vote +for any substitute nominee designated by the Board of Directors. +None of the directors or nominees for director were selected +pursuant to any arrangement or understanding, other than with +the directors of the Company acting within their capacity as +such. There are no family relationships among any of the +directors, nominees for director or executive officers of the +Company. +Nominees +for Director +The names of the nominees for director and certain biographical +information about them are set forth below: +Director +Name +Age +Since +Principal Occupation +Douglas B. Otto +55 +1973 +Chairman of the Board of Directors +of the Company +Angel R. Martinez +51 +2005 +President and Chief Executive +Officer of the Company +Gene E. +Burleson (1)(2)(3) +66 +1993 +Chief Executive Officer and +Chairman of Echo Healthcare Acquisitions +Rex A. +Licklider (1)(2)(3) +64 +1993 +Chief Executive Officer and Vice +Chairman of The Sports Club Company +John M. +Gibbons (1)(2)(3) +58 +2000 +Independent Consultant +John G. +Perenchio (1)(3) +51 +2005 +Owner, Entrada Music LLC +Maureen +Conners (1)(3) +60 +2006 +President of Conners Consulting +Tore Steen +69 +— +President and Chief Executive +Officer of Coventry Group, Inc. +(1) +Member of the Compensation Committee +(2) +Member of the Audit Committee +(3) +Member of the Governance and Nominating Committee +Douglas B. Otto , age 55, co-founder of Deckers in +1973, has served as a director since the Company’s +inception and as Chairman of the Board since 1982. Mr. Otto +also served as an executive officer from the Company’s +inception until April 2005, including as Chief Executive Officer +from 1982 to April 2005, as President from January 2003 to April +2005, from March 1999 to February 2000 and from 1982 to May +1998, and as Chief Financial Officer from June 1990 to December +1992. +Angel R. Martinez , age 51, joined Deckers in April +2005 as President and Chief Executive Officer. In September +2005, he became a director of the Company. Previously, +Mr. Martinez was Chief Executive Officer and Vice Chairman +of Keen LLC, an outdoor footwear manufacturer, from January 2005 +to March 2005, after serving as President and Chief Executive +Officer from April 2003 to December 2004, and as an independent +consultant since June 2001. Prior thereto he served as Executive +Vice President and Chief Marketing Officer of Reebok +International Ltd. (NYSE: RBK) and as Chief Executive Officer +and President of The Rockport Company, a subsidiary of Reebok. +Mr. Martinez has been a member of the Board of Directors of +Tupperware Brands Corporation (NYSE: TUP) since 1998. +Gene E. Burleson , age 66, has served as a director +since September 1993. Mr. Burleson is the Chief Executive +Officer and Chairman of Echo Healthcare Acquisitions, which +became a public company in March, 2006. Mr. Burleson has +also served as a director of Prospect Medical Holdings, Inc +(AMEX: PZZ), a healthcare management services organization, +since August 2005. In addition, Mr. Burleson has served as +a director of Nesco Industries, Inc., a manufacturer of medical +products, since November 2005, and a director for SunLink Health +Systems, Inc. (AMEX: SSY), an operator of acute hospitals, since +October 2003. He served as Chairman of the Board of Alterra +Healthcare Corporation, an operator of assisted living +facilities, from January 2003 to December 2003 and was a member +of its board of directors from January 1995 to December 2003. He +served as Chairman of the Board of Mariner Healthcare, Inc., a +long-term healthcare provider, from January 1999 to May 2002. +4 +Table of Contents +Rex A. Licklider , age 64, has served as a director +since September 1993. Mr. Licklider has been director and +Vice Chairman of The Sports Club Company, a developer and +operator of health and fitness clubs, since May 1994. +Mr. Licklider has served as the Chief Executive Officer of +The Sports Club Company since March 2004 and as Co-Chief +Executive Officer of The Sports Club Company from February 2002 +to March 2004. From February 1992 to January 1993, +Mr. Licklider was Chairman of the Board of Resurgens +Communications Group, a long distance telecommunications +company, and from 1975 until February 1992, Mr. Licklider +was Chairman of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that +merged with Resurgens Communications Group in February 1992. +John M. Gibbons , age 58, has served as a director +since July 2000. Mr. Gibbons has been an independent +consultant since April 2004. From June 2000 to April 2004, +Mr. Gibbons was Vice Chairman of TMC Communications, Inc., +a long distance, data and Internet services provider, and was +its Chief Executive Officer from June 2001 to April 2003. From +June 2000 to June 2001, he was President of TMC Communications, +Inc. He has served as a director of National Technical Systems, +Inc. (NASDAQ: NTSC), a provider of integrated testing, +certification, quality registration, systems evaluation and +staffing services, since September 2003. +John G. Perenchio , age 51, has served as a director +since December 2005. Mr. Perenchio is the owner and +operator of Entrada Music LLC, a holding company with +controlling interests in Fearless Records LLC, a boutique rock +and punk music label; and Smartpunk, LLC, an internet music +retail store. From 1990 to 2004, Mr. Perenchio served as an +executive with Chartwell Partners, LLC, a family owned boutique +investment bank and holding company specializing in the +entertainment, media and real estate industries, where his +responsibilities included managing the company’s real +estate holdings. From 1992 to March 2007, Mr. Perenchio was +a director of Univision Communications Inc (NYSE: UVN), the +leading +Spanish-language +media company in the United States. +Maureen Conners , age 60, has served as a director +since September 2006. Ms. Conners is President of Conners +Consulting. Since 1992, Conners Consulting has worked with +companies such as Johnson & Johnson, Ralph Lauren +Footwear, Bausch and Lomb, Rockport, Polaroid, Monster.com, and +Western Union Money Zap, providing a range of services including +marketing and strategic planning, new product and new business +development, and global brand building. Ms. Conners has +held senior level marketing positions with several leading +consumer companies, including Senior Vice President of +Marketing, Girls Division at Mattel. Prior to that, +Ms. Conners served as Director of Marketing, Men’s +Jeans Division at Levi Strauss, and Group Marketing Manager at +Gillette. +Tore Steen , age 69, has been nominated for election +as a Director in March 2007. Mr. Steen has been the owner +and President/CEO of World Intelligent Network, LLC and of the +Coventry Group, Inc., management, consulting and holding +companies, since 1995. From March 1991 to March 1995, +Mr. Steen served as Chairman and CEO of Cascade General, +Inc. and as President and CEO/owner of H.C. Inc., both major +west coast ship repair companies. Mr. Steen was the +Executive Vice President, Finance for WTD Industries, Inc., a +NASDAQ forest products company, from January 1989 to December +1990. Previously, Mr. Steen had been involved at executive +and board levels of NYSE, NASDAQ and London Stock Exchange +companies. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 1 TO ELECT EACH OF THE +ABOVE NOMINEES FOR DIRECTOR. +CORPORATE +GOVERNANCE +Corporate +Governance Principles +Pursuant to Delaware law and the Company’s Bylaws, the +Company’s business, property and affairs are managed under +the direction of the Board of Directors. Thus, the Board of +Directors is the ultimate decision-making body of the Company +except with respect to those matters reserved to the +stockholders. +The Board of Directors selects the senior management team, which +is charged with the +day-to-day +operations of the Company’s business. Members of the Board +of Directors are kept informed of the Company’s business +through discussions with the Chief Executive Officer and other +senior officers, by reviewing materials requested by them or +otherwise provided to them and by participating in meetings of +the Board of Directors and its committees. Having selected the +senior management team, the Board of Directors acts as an +advisor and counselor to senior +5 +Table of Contents +management, monitors its performance and proposes or makes +changes to the senior management team when it deems necessary or +appropriate. +Director +Independence +The Board affirmatively determines the independence of each +director and nominee for election as a director in accordance +with guidelines it has adopted, which include all elements of +independence set forth in Marketplace +Rule 4200(a)(15) of the National Association of +Securities Dealers, Inc. (“NASD”) and applicable rules +of the Securities and Exchange Commission (“SEC”). +These guidelines help ensure that the Board and its committees +are independent from management and that the interests of the +Board and management align with the interests of the +stockholders. Based on these standards, the Board has determined +that each of the Company’s directors, other than +Mr. Otto and Mr. Martinez, is independent. The Board +has further determined that Mr. Steen, a current nominee +for director, is “independent” under the standards +described above. +Board of +Directors and Committee Meetings +The Board of Directors held seven meetings during the year ended +December 31, 2006. For the fiscal year ended +December 31, 2006, each of the directors attended at least +75% of the aggregate number of meetings of both the Board of +Directors and the committees on which he or she served, held +during the period for which he or she was a director or +committee member, respectively. +The Company has not adopted a formal policy on members of the +Board of Directors attendance at its annual meeting of +stockholders, although all members of the Board of Directors are +invited to attend. All members of the then Board of Directors +attended the Company’s 2006 Annual Meeting of Stockholders. +Committees +of the Board of Directors +The Board of Directors has three committees: an Audit Committee, +a Compensation Committee and a Corporate Governance and +Nominating Committee. The Board of Directors has determined that +each of the directors serving on each of these three committees +is “independent” as that term is defined under NASD +Marketplace Rule 4200(a)(15) and applicable rules of +the SEC. +Audit +Committee +The Board has a standing Audit Committee that (i) monitors +the integrity of the Company’s financial reporting process +and systems of internal controls regarding finance, accounting +and legal compliance; (ii) monitors the independence and +performance of the Company’s independent registered public +accounting firm, and (iii) provides an avenue of +communications among the independent registered public +accounting firm, the Company’s internal auditor, management +and the Board of Directors. The committee met eight times during +2006. At the date of this Proxy Statement, Mr. Gibbons was +Chairman of the Audit Committee and the committee was comprised +of Messrs. Burleson, Licklider and Gibbons. The Board has +determined that Mr. Gibbons qualifies as an “audit +committee financial expert” as defined under the rules of +the SEC. All of the members of the Audit Committee meet the +independence and experience requirements of the NASDAQ rules and +the independence requirements of the SEC. +Compensation +Committee +The Board’s Compensation Committee (i) reviews and +approves corporate goals and objectives relevant to compensation +of the executive officers, (ii) evaluates the performance +of the executive officers in light of those goals and +objectives, (iii) determines and approves the compensation +level of the executive officers based on this evaluation, and +(iv) makes recommendations to the Board with respect to +equity and non-equity incentive compensation plans. The +Compensation Committee also reviews and recommends to the Board +any new compensation or retirement plans and administers each of +the Company’s 1993 Employee Stock Incentive Plan (the +“1993 Plan”), the Company’s 2006 Equity Incentive +Plan (the “2006 Plan”) and the Company’s 1995 +Employee Stock Purchase Plan (the “1995 Plan”). The +committee met five times during 2006. At the date of this Proxy +Statement, Mr. Burleson was Chairman of the Compensation +Committee and the committee was comprised of +Messrs. Burleson, Licklider, Gibbons, Perenchio and +Terheggen and Ms. Conners. All of the members of the +6 +Table of Contents +Compensation Committee meet the independence requirements of the +NASDAQ rules and applicable SEC regulations. Beginning +January 1, 2006 the Board determined that +Mr. Terheggen is independent pursuant to these standards. +The Board made this determination after considering that the +Company does not make any payments directly to +Mr. Terheggen, no other owner of BHPC Global Licensing, +Inc. is personally affiliated with Mr. Terheggen, and the +payments made to BHPC Global Licensing, Inc. in 2006 amounted to +substantially less than the dollar amounts established by +applicable regulations. +Corporate +Governance and Nominating Committee +The Board’s Corporate Governance and Nominating Committee +(i) develops and recommends to the Board a set of corporate +governance principles applicable to the Company, +(ii) recommends the director nominees to be selected by the +Board for the next annual meeting of stockholders, +(iii) identifies individuals qualified to become Board +members, consistent with criteria approved by the Board and +(iv) oversees the evaluation of the Board and management. +The committee met four times during 2006. At the date of this +Proxy Statement, the Corporate Governance and Nominating +Committee was comprised of Messrs. Licklider, Burleson, +Gibbons, Perenchio and Terheggen as well as Ms. Conners, +and Mr. Licklider was the Chairman. All of the members of +the Corporate Governance and Nominating Committee meet the +independence requirements of the NASDAQ rules and applicable SEC +regulations, including Mr. Terheggen for the reasons set +forth above. +Nominating +Procedures and Criteria +Among its functions, the Corporate Governance and Nominating +Committee consider and approve nominees for election to the +Board of Directors. In addition to the candidates proposed by +the Board of Directors or identified by the committee, the +committee considers candidates for director suggested by +stockholders, provided such recommendations are made in +accordance with the procedures set forth in the Bylaws and +described above under “Procedures for Stockholder +Nominations.” Stockholder nominations that meet the +criteria outlined below will receive the same consideration that +the committee’s nominees receive. +Essential criteria for all candidates considered by the +Corporate Governance and Nominating Committee include the +following: integrity and ethical behavior, maturity, management +experience and expertise, independence and diversity of thought +and broad business or professional experience, with an +understanding of business and financial affairs, and the +complexities of business organizations. +In evaluating candidates for certain Board positions, the +committee evaluates additional criteria, including the +following: financial or accounting expertise; industry +expertise; accomplishment in designing, marketing, +manufacturing, distribution and licensing of footwear, apparel +and accessories; business and other experience relevant to +public companies of a size comparable to the Company; and +experience in investment banking, commercial lending or other +financing activities. +In selecting nominees for the Board of Directors, the committee +evaluates the general and specialized criteria set forth above, +identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous +performance if the candidate is a candidate for re-election, and +generally considers the candidate’s ability to contribute +to the success of the Company. +The Board of Directors’ nominees for director presented at +the Annual Meeting have been recommended by the Corporate +Governance and Nominating Committee, as well as the full Board +of Directors. +Stockholders did not propose any director candidates for +election at the Annual Meeting. +Communications +with Directors +You may communicate with the chair of our Audit Committee, +Corporate Governance and Nominating Committee, or Compensation +Committee, or with our independent directors as a group, by +writing to any such person or group c/o the Secretary of +the Company, at the Company’s offices at +495-A South +Fairview Avenue, Goleta, California 93117. +7 +Table of Contents +Communications are distributed to the Board of Directors, or to +any individual director, depending on the facts and +circumstances described in the communication. In that regard, +the Board of Directors has requested that certain items that are +unrelated to the duties and responsibilities of the Board of +Directors should be excluded, including the following: junk mail +and mass mailings; product complaints; product inquiries; new +product suggestions; resumes and other forms of job inquiries; +surveys; and business solicitations or advertisements. In +addition, material that is unduly hostile, threatening, illegal +or similarly unsuitable will not be distributed, with the +provision that any communication that is not distributed will be +made available to any independent director upon request. +Code of +Ethics +The Company has adopted a Code of Ethics to help its officers, +directors and other employees comply with the law and maintain +the highest standards of ethical conduct. The Code of Ethics +contains general guidelines for conducting the business of the +Company consistent with the highest standards of business +ethics, and is intended to qualify as a “code of +ethics” within the meaning of Section 406 of the +Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. +All of the Company’s officers, directors and employees must +carry out their duties in accordance with the policies set forth +in the Code of Ethics and with applicable laws and regulations. +The Code of Ethics appears as Exhibit 14.1 to our Annual +Report on +Form 10-K +for the fiscal year ended December 31, 2003. A copy of the +Code of Ethics is available free of charge by writing to the +Secretary of the Company at the Company’s executive offices +at 495-A +South Fairview Avenue, Goleta, California 93117. A free copy can +also be obtained from our corporate website at www.deckers.com. +Compensation +Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the +Compensation Committee consisted of Messrs. Burleson, +Licklider, Gibbons, Perenchio and Terheggen and +Ms. Conners, none of whom was an officer or employee of the +Company or any of its subsidiaries during fiscal year 2006 or is +a former officer or employee of the Company or any of its +subsidiaries. Mr. Terheggen is a 50% owner and Chief +Executive Officer of BHPC Global Licensing, Inc. +(“BHPC”). The Company paid BHPC an aggregate of +approximately $79,000 for agency fees related to licensing of +the Company’s products during 2006. The unpaid balance at +December 31, 2006 was approximately $56,000. +8 +Table of Contents +EXECUTIVE +OFFICERS +Each executive officer of the Company serves at the discretion +of the Board of Directors. Biographical information for the +executive officers of the Company who are not directors is set +forth below. There are no family relationships between any +executive officer and any other executive officer or director. +None of our executive officers were selected pursuant to any +arrangement or understanding, other than with the executive +officers of the Company acting within their capacity as such. +Name +Age +Position +Angel R. Martinez +51 +President, Chief Executive Officer +and Director +Zohar Ziv +54 +Chief Financial Officer, Executive +Vice President of Finance and Administration and Assistant +Secretary +Constance X. Rishwain +49 +President of the UGG and Simple +Divisions +Colin G. Clark +44 +Senior Vice President, +International +Patrick C. Devaney +52 +Senior Vice President of Global +Sourcing, Production and Development +Peter K. Worley +46 +President of the Teva Division +Janice M. Howell +57 +Vice President of Operations +John A. Kalinich +39 +Vice President of Consumer Direct +The biographical summary for Mr. Martinez is presented +earlier under the heading “Nominees for Director.” +Zohar Ziv , age 54, joined Deckers in March 2006 as +Chief Financial Officer, Executive Vice President Finance and +Administration and Assistant Secretary. Previously, from +February 2004 to December 2005, Mr. Ziv was Chief Financial +Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global +marketing services firm. Prior to that, Mr. Ziv was Chief +Financial Officer of Stravina Operating Company, LLC, a supplier +of personalized novelty items in North America, from June 2002 +to February 2004. Mr. Ziv has also served as Chief +Financial Officer of Joico Laboratories, Inc., a multi-national +manufacturer and marketer of hair products, from July 2001 to +June 2002. +Constance X. Rishwain , age 49, has been the +President of the UGG and Simple Divisions since December 2002 +after serving as Vice President, Brand Manager-UGG since April +1999 and Vice President, Brand Manager-Simple since January +2001. Previously, Ms. Rishwain held a variety of positions +since joining us in January 1995, including Vice President of +Domestic Sales for Teva, UGG and Simple from June 1999 to +December 1999, Vice President of Sales — Western +Division for Teva, UGG and Simple from December 1997 to June +1999 and Vice President Merchandising for Teva, UGG and Simple +from January 1995 to December 1997. Before joining us, +Ms. Rishwain held the position of Vice President of +Merchandising and Marketing for Impo International Shoe Company +from 1988 to 1994 and worked for Nine West Group Inc. from 1984 +to 1988 in several capacities. +Colin G. Clark , age 44, joined Deckers in September +2005 as Senior Vice President, International. Prior to joining +Deckers, from October 1991 to June 2004, Mr. Clark spent +nearly thirteen years at The Rockport Company, a subsidiary of +Reebok International Ltd., most recently serving as Vice +President and General Manager — International. From +1991 to 2001, Mr. Clark held various senior positions at +Rockport, including Vice President — Global Marketing, +Vice President — International, Director and General +Manager — United Kingdom, and Sales +Manager — United Kingdom. +Patrick C. Devaney , age 52, has been our Senior Vice +President of Global Sourcing, Production and Development since +March 2000 and served as our Vice President of Global Sourcing, +Production and Development from November 1997 to March 2000. +Prior to joining us, Mr. Devaney was employed by Mizuno USA +where he was Director of Global Footwear from February 1990 to +June 1997 and was a Global Product/ Marketing Manager for Reebok +International Ltd. from 1985 to December 1989. +Peter K. Worley , age 46, joined Deckers in March +2006 as President of the Company’s Teva brand. From October +2005 to March 2006, Mr. Worley served as Vice President of +U.S. Sales with K-Swiss, Inc. From May 1996 to October +2005, Mr. Worley was Vice President of Product Design and +Development with K-Swiss. From 1991 to 1996 and from 1986 to +1989, Mr. Worley held various managerial positions with +Reebok International Ltd. +9 +Table of Contents +Janice M. Howell , age 57, has been our Vice +President of Operations since January 2003, Director of +Operations from November 1999 to December 2002 and Director of +Human Resources and Administration from January 1992 to November +1999. Ms. Howell previously was employed at Wavefront +Technologies, Inc., a computer graphics company, as Director of +Human Resources and Administration from 1986 to 1991. +John A. Kalinich , age 39, has served as Vice +President of Consumer Direct since November 2002, when he joined +us in connection with our acquisition of the Teva Rights at that +time. Mr. Kalinich served as a director of the Company +being appointed by Mark Thatcher as provided in the agreement +between Mark Thatcher and us for our acquisition of the Teva +Rights, from November 2002 until May 2004. Mr. Kalinich +also served as Director of Corporate Licensing for the Company +from November 2002 to September 2004. Prior to joining us, +Mr. Kalinich was the Chief Operations Officer for Teva +Sport Sandals, Inc. from January 1995 to November 2002. +Previously, Mr. Kalinich was employed as an audit senior +associate by Coopers and Lybrand LLP from July 1991 to January +1995. Mr. Kalinich is a certified public accountant. +COMPENSATION +DISCUSSION AND ANALYSIS +The Compensation Committee (for purposes of this analysis, the +“Committee”) of the Board of Directors (the +“Board”) (i) reviews and approves corporate goals +and objectives relevant to compensation of the executive +officers, (ii) evaluates the performance of the executive +officers in light of those goals and objectives, +(iii) determines and approves the compensation level of the +executive officers based on this evaluation, and (iv) makes +recommendations to the Board with respect to cash incentive +compensation plans and equity incentive plans. The Committee +also reviews and recommends to the Board any new compensation or +retirement plans and administers the Company’s 1993 +Employee Stock Incentive Plan (the “1993 Plan”), the +2006 Equity Incentive Plan (the “2006 Plan”), and the +1995 Employee Stock Purchase Plan (the “1995 Plan”). +The committee met five times during 2006. At the date of this +Proxy Statement, Mr. Burleson was Chairman of the Committee +and the committee was comprised of Gene E. Burleson, Rex A. +Licklider, John M. Gibbons, Daniel L. Terheggen, John M. +Perenchio, and Maureen Conners. The Committee consists entirely +of directors who have never served as officers or employees of +the Company or any of its subsidiaries and whom meet the +independence requirements under the NASDAQ rules and applicable +SEC regulations. Beginning January 1, 2006 the Board +determined that Mr. Terheggen is independent pursuant to +these standards. The Board made this determination after +considering that the Company does not make any payments directly +to Mr. Terheggen, no other owner of BHPC Global Licensing, +Inc. is personally affiliated with Mr. Terheggen, and the +payments made to BHPC Global Licensing, Inc. in 2006 amounted to +substantially less than the dollar amounts established by +applicable regulations. +Throughout this Proxy Statement, the individuals who served +during fiscal 2006 as the Company’s Chief Executive Officer +(“CEO”), Chief Financial Officer (“CFO”), +and the other three most highly compensated executive officers +of the Company who were executive officers of the Company as of +December 31, 2006 and received compensation in excess of +$100,000 in such year are referred to as the “Named +Executive Officers.” +Compensation +Philosophy and Objectives +At the direction of the Board, the Compensation Committee +endeavors to ensure that the compensation programs for executive +officers of the Company and its subsidiaries are competitive and +consistent in order to attract and retain key executives +critical to the Company’s long-term success. The Committee +also must ensure that the compensation is attractive to key +executives with the proper background and experience required +for the future growth of the Company. The Committee believes +that the Company’s overall financial performance and +stockholder value should be the most important factors in +determining the total compensation of executive officers. At the +executive officer level, the Committee has a policy that a +significant proportion of potential total compensation should +consist of variable, performance-based components, such as +share-based awards and annual incentive plan compensation, which +can increase or decrease to reflect changes in corporate and +individual performance. These incentive compensation programs +are intended to reward individual performance that enhances +profitability and stockholder value. +The Committee takes into account various qualitative and +quantitative indicators of corporate and individual performance +in determining the level and composition of compensation for the +Named Executive Officers, as well +10 +Table of Contents +as other executive officers. The Committee considers such +corporate performance measures as net sales, gross margins, +operating expenses, diluted earnings per share and similar +quantitative measures. The Committee also appreciates the +importance of achievements that may be difficult to quantify, +and accordingly recognizes qualitative factors, such as +successful supervision of major corporate projects, demonstrated +leadership ability and contributions to industry and community +development. For 2006, the most important qualitative factors in +determining incentive compensation awards to the Named Executive +Officers were the Committee’s assessments of their +contributions to the Company’s and stockholders’ value +by establishing and implementing a strategy for long-term +success. +The Committee also evaluates the total compensation of the Named +Executive Officers and other executives in light of information +regarding the compensation practices and corporate financial +performance of similar companies in the Company’s industry. +The Committee targets a specific percentile range of the peer +company data in determining compensation for executive officers. +From time to time, the Committee also receives assessments and +advice regarding the Company’s compensation practices from +our independent compensation consultants, Frederic W. +Cook & Co., Inc. (“FWC”). +Role of +Executive Officers in Compensation Decisions +The CEO and CFO provide compensation and related data to the +Committee, and the CEO provides recommendations as well, +excluding his own compensation. The Committee uses the +information provided by the CEO, CFO, and FWC to make +compensation decisions for the Named Executive Officers as well +as other executive officers. The Committee, which includes all +independent members of the Board, approves base salaries and +annual non-equity incentives for the Named Executive Officers. +For all executive equity incentive plan awards, the Committee +reviews and approves the awards based on recommendations made by +executive management. The Committee can exercise its discretion +in modifying any recommended adjustments or awards to executives. +Setting +Executive Compensation +In making compensation decisions, the Committee compares each +element of total compensation against a peer group of +publicly-traded footwear and apparel companies (collectively, +the “Peer Group”). The Peer Group, which is reviewed +and updated at least annually by the Committee, consists of +companies against which the Committee believes the Company +competes for talent and for stockholder investment. The Peer +Group is composed of companies in related businesses of similar +size and market value and consists of the following +13 companies: +• Quiksilver, Inc. +• Rocky Brands, Inc. +• The Stride Rite +Corporation +• The Timberland Company +• Kenneth Cole +Productions, Inc. +• Skechers U.S.A., Inc. +• K2 Inc. +• Steven Madden, Ltd. +• LaCrosse Footwear, Inc. +• Columbia Sportswear +Company +• K•Swiss Inc. +• Iconix Brand Group, +Inc. +• Wolverine World Wide, +Inc. +For comparison purposes, Deckers’ annual revenues are at +the low end of the Peer Group. Because of the large variance in +size among the companies comprising the Peer Group, regression +analysis is used to adjust the compensation data for differences +in company revenues. The adjusted value is used as the basis of +comparison of compensation between Deckers and the companies in +the Peer Group. The Committee generally sets total cash +compensation (base salary plus annual incentive plan, as +described below) for the Named Executive Officers at the +75th percentile of compensation paid to similarly situated +executives of the Peer Group. This is required for the Company +to attract the appropriate executive personnel for future growth. +The Committee also looks at survey data from similarly-sized +general industry companies and reviews data provided by FWC as a +guideline to determine the appropriate level and mix of +compensation. There is no pre-established policy or target for +the allocation between either cash and non-cash or short-term +and long-term incentive compensation. +11 +Table of Contents +2006 +Executive Compensation Elements +For the fiscal year ended December 31, 2006, the principal +components of compensation for the Named Executive Officers were: +• +base salary, +• +annual non-equity incentive plan compensation, +• +performance-based long-term equity incentive +compensation, and +• +perquisites and other personal benefits +Base Salary. Salaries are reviewed +periodically and adjusted as warranted to reflect sustained +individual performance and comparable market salaries. The +Committee focuses primarily on total annual compensation, +including incentive awards and cash bonuses, rather than base +salary alone, as the appropriate measure of executive officer +performance and contribution. For this reason, the Committee +generally sets base salary at the +50 th percentile +of compensation paid to similarly situated executives of the +companies in the Peer Group. The following table summarizes +adjustments made, if any, to base salaries for the Named +Executive Officers during 2006 compared to 2005: +Named Executive Officer +Base Salary +Angel R. Martinez +Increased by approximately 45%, +effective January 1, 2006 +Zohar Ziv +Mr. Ziv began employment in March +2006 +Constance X. Rishwain +Increased by approximately 34%, +effective January 1, 2006 +Colin G. Clark +No increase, as Mr. Clark +began employment in September 2005 +Patrick C. Devaney +Increased by approximately 20%, +effective January 1, 2006 +Mr. Martinez’s salary was provided in his employment +contract at $400,000, or approximately a 16% increase over 2005, +effective January 1, 2006, which may be reviewed and +adjusted, as deemed appropriate. The Committee determined to +increase his salary above the contracted rate to $500,000, or +45% above his 2005 base salary, because of the Company’s +performance and growth and increased stockholder value under his +leadership. The Company consistently exceeded expectations +throughout 2006 in several key areas. +Mr. Ziv’s salary was provided in his employment +contract at $300,000, effective March 6, 2006, which may be +reviewed and adjusted, as deemed appropriate. +Ms. Rishwain’s salary was provided in her employment +contract at $225,000, effective January 1, 2006, which may +be reviewed and adjusted, as deemed appropriate. The Committee +determined to increase her salary over 2005 based on the UGG and +Simple brands’ performance and growth under her leadership. +These brands’ performance consistently exceeded +expectations throughout 2006. +Mr. Clark’s salary was provided in his employment +contract at $225,000, effective January 1, 2006, which may +be reviewed and adjusted, as deemed appropriate. As +Mr. Clark began employment with the Company effective +September 1, 2005, his salary remained unchanged in 2006 +versus 2005. +Mr. Devaney’s salary was provided in his employment +contract at $200,000, or approximately a 20% increase over 2005, +effective January 1, 2006, which may be reviewed and +adjusted, as deemed appropriate. The Committee determined to +increase his salary over 2005 based on the Company’s +performance and growth under his leadership. The Company’s +performance consistently exceeded expectations throughout 2006. +Annual Non-Equity Incentive Plan +Compensation. Each of the Named Executive +Officers receives cash incentive plan compensation comprised of +two components; one based on the overall financial performance +of the Company (the company profit portion) and the second based +upon the achievement of individualized goals that are +established for each executive, which we refer to as Management +by Objectives, or “MBO.” For 2006, the company profit +portion of each Named Executive Officer’s incentive +compensation was based entirely on the Company’s diluted +earnings per share (“EPS”) before impairment loss and +related tax effect. The Compensation Committee establishes +individual MBO goals for each officer at the beginning of each +year and such officers receive compensation for the subsequent +attainment of these goals as well as for the Company’s +achievement of financial performance goals. The annual +non-equity incentive plan target is a percentage of the +executive’s annual salary +12 +Table of Contents +based on the executive’s position and length of time with +the Company. The target amount for 2006 was between 67% and 100% +of base salary, with the potential to exceed the target and earn +up to 150% for the company profit and MBO portions. However, the +Committee can use its discretion in awarding amounts in excess +of the maximums if it chooses to do so. Individuals can also +earn a percentage less than 100%. The allocation of the 2006 +annual incentive plan and respective percentages and amounts +earned are as follows: +Target +Company +Percentage +Profit +MBO +Earned (%) +Earned ($) +Name +of Salary +Portion +Portion +Company +MBO +Company +MBO +Angel R. Martinez +100 +% +60 +% +40 +% +150 +% +200 +% +450,000 +400,000 +Zohar Ziv +67 +% +60 +% +40 +% +150 +% +150 +% +150,750 +100,500 +Constance X. Rishwain +100 +% +25 +% +75 +% +150 +% +200 +% +84,375 +337,500 +Colin G. Clark +100 +% +25 +% +75 +% +150 +% +100 +% +84,375 +168,750 +Patrick C. Devaney +67 +% +60 +% +40 +% +150 +% +150 +% +120,600 +80,400 +The Committee set the 2006 targets at a moderate growth rate +over the prior year for the company profit portion and at high +growth rates for the MBO portion for the Named Executive +Officers. The high growth rates were necessary to achieve a +moderate EPS growth, as we made significant investments over and +above our normal operating expenses. The Committee determined +that the planned increased investments would make the EPS target +more difficult to obtain. The target amounts and relative weight +of the company profit portion and MBO portion of executive +non-equity incentive plan compensation may be varied by the +Compensation Committee from year to year. +Company profit portion. Those executives that +are responsible for brands and have influence over brand +decisions are less heavily weighted on the company profit +portion, as opposed to those executives that cannot be directly +attributed to specific brands. The Company substantially +exceeded the diluted earnings per share target, thus earning the +maximum 150% of the company profit portion. +MBO portion. For 2006, MBOs were established +at the beginning of the year as follows for each Named Executive +Officer. +Mr. Martinez’s MBOs were based on sales, inventory, +and backlog. He exceeded all of these targets. The Committee +determined to award Mr. Martinez over the maximum because, +in addition, he repositioned the Company to achieve our +long-term growth goals, and under his leadership, stockholder +value was substantially increased. +Mr. Ziv’s bonus was pro-rated for ten months, as he +was hired in March 2006. His MBOs were based on operating +expenses, inventory, SEC filings, compliance with the +Sarbanes-Oxley Act of 2002, and return on capital. Mr. Ziv +earned the maximum amount over the target because he met or +exceeded each MBO. +Ms. Rishwain’s MBO were based on Simple and UGG brand +sales, inventory, contribution income, and backlog. She +significantly exceeded her targets in all areas, thus earning +over the maximum. +Mr. Clark’s MBOs were based on international sales, +contribution income, and backlog. While he did not meet the +sales and contribution income targets, he was still awarded the +target amount. This was because Mr. Clark improved +international sales and the Board felt that he made significant +progress on building the international infrastructure, +realigning the international distributors, and positioning the +international business to achieve our long-term growth goals. +Mr. Devaney’s MBOs were based on gross profit margins, +inventory, on-time deliveries from factories, and meeting +quality standards. He exceeded the goals in all areas, thus +earning the maximum. +The Committee assesses the attainment of the MBOs based on +business or other factors that may have affected the attainment +of those objectives, thus awarding this portion of incentive +compensation on measurable and also on a discretionary basis. In +order to retain key executives and incentivize them to reach our +growth goals, the Committee generally sets the annual incentive +plan compensation targets at the high end of target bonus +opportunity paid to similarly situated executives of the +companies in the Peer Group. The Committee targets the +executive’s +13 +Table of Contents +annual cash compensation (base plus bonus and non-equity +incentive plan compensation) at the +75 th percentile +of the Peer Group. +Performance-based Long-Term Equity Incentive +Compensation. The 1993 Plan was terminated for +new grants effective in May 2006, when the 2006 Plan was adopted +by the stockholders. These plans authorize the Committee to make +grants and awards of stock options, stock appreciation rights, +nonvested stock units (“NSUs”) and other stock-based +awards. In 2006, the Committee granted NSUs to the Named +Executive Officers, as well as other executives. In approving +2006 grants, the Committee considered industry comparisons and +competitive data as well as the responsibility levels of the +executives relative to one another. +To the extent readily determinable and as one of the factors in +its consideration of compensation matters, the Committee +considers the anticipated tax treatment to the Company and to +the executives of various payments and benefits. Some types of +compensation payments and their deductibility depend upon the +timing of an executive’s vesting of previously granted +awards. Further, interpretations of and changes in the tax laws +and other factors beyond the Committee’s control also +affect the deductibility of compensation. As explained below, +the Company has taken measures to ensure that equity +compensation is fully deductible by the Company. +Beginning in December 2004, the Board and the Committee +determined to cease issuing stock options to directors, officers +and employees of the Company and, rather, to issue NSUs or +shares of Common Stock to continue to align the interests of the +directors, officers and employees with those of the stockholders +at a lower cost than the previous stock option grants. This +policy will be reviewed by the Board and the Committee +periodically and may be changed in the future. As of +December 20, 2004, officers and key employees were eligible +to receive NSUs annually in an amount to be determined by the +Board or the Committee. The amount of NSUs granted is primarily +determined by the executive’s level within the organization +and the level of criticality of their position to the +organization. The vesting schedule of the NSUs granted in 2006 +is 25% on March 31, June 30, September 30, and +December 31 of the fourth year from the grant year and is +dependent on the achievement of a one year diluted EPS goal and +continued employment with the Company for a designated period. +The diluted EPS goal is the same as discussed above under Annual +Incentive Plan Compensation. This vesting schedule was +determined to encourage officers and key employees to remain +with the Company for the long-term, as well as to provide the +executives with the opportunity to sell shares in the same year +as when their tax consequences will occur. +In addition, the Committee evaluates aggregate equity awards +based on a Shareholder Value Transfer (“SVT”) rate. +SVT is the fair value of all equity awards granted during the +year as a percentage of company market capitalization value. The +Committee believes this measure is valuable because it allows +the Company to compare the annual cost of its equity program +versus peer companies. The Committee set the SVT rate in 2006 so +that it would be under 1%, which approximates the Peer Group +median. Other factors considered in share-based award grants +were total carried-interest for each executive, total potential +dilution, annual share usage, executive allocation of annual +equity pool, and the fair value of awards granted to each +individual. The Committee assessed where the Company’s +Named Executive Officers ranked in all these areas among the +Peer Group. +Perquisites and Other Personal Benefits. There +is no specific policy on perquisites and other personal benefits +awarded to the Named Executive Officers. The Company administers +a 401(k) defined contribution plan that substantially all +employees are eligible to participate in through tax-deferred +contributions. The Company matches 50% of an employee’s +contribution up to $1,200 per year. In order to attract the +appropriate candidates, the Committee may approve relocation +benefits, as deemed appropriate. In 2006, the only perquisites +and other personal benefits approved by the Committee for the +Named Executive Officers was relocation assistance, which was +awarded to those executives hired in 2006. +Employment Contracts and Severance +Arrangements. During 2006, each of the Named +Executive Officers was party to an employment agreement with the +Company. Those agreements establish the terms and conditions for +the employment relationship each executive has with the Company +and specifies compensation, executive benefits, severance +provisions, change in control provisions, and other conditions. +The Committee periodically reviews the competitiveness of its +severance and change in control arrangements when the employment +agreements with the Named Executive Officers near the end of +their stated terms. +14 +Table of Contents +Separation benefits described below provide benefits to ease a +Named Executive Officer’s transition due to an unexpected +employment termination by the Company due to on-going changes in +the Company’s employment needs. The Named Executive +Officers are eligible for the benefits and payments if their +employment terminates for various reasons or as a result of a +change in control of Deckers. Separation benefits include cash +payments and other benefits in an amount the Company believes is +appropriate, taking into account the time it is expected to take +a separated executive to find another job. Separation benefits +are intended to ease the consequences to the executive of an +unexpected termination of employment. The Company benefits by +requiring a general release, non-competition and +non-solicitation provisions in connection with the individual +separation agreements. +The Company considers it likely that it will take more time for +higher-level employees to find new employment commensurate with +their prior experience, and therefore senior management +generally are paid severance for a longer period. Additional +payments may be approved by the Committee in some circumstances +as a result of negotiation with executives, especially where the +Company desires particular post-separation terms regarding +non-disparagement, cooperation with litigation, non-competition +or non-solicitation. +The employment agreement for each executive specifically details +various provisions for benefits and cash payments in the event +of a separation. Generally, these agreements specify conditions +and benefits within the following categories: death, disability, +termination by the Company for cause; termination by the +executive without good reason; termination by the executive with +good reason and termination by the Company without cause. +The Company also has change in control provisions in the equity +compensation awards granted to the Named Executive Officers. In +general, these arrangements provide for benefits upon a +termination of the executive’s employment in connection +with a change in control, although a portion of the benefits are +triggered solely upon the occurrence of a change in control of +the Company. These arrangements are intended to preserve morale +and productivity and encourage retention in the face of the +disruptive impact of a change in control of the Company. In +addition, change in control benefits encourage the Named +Executive Officers to remain focused on the business and +interest of our stockholders when considering strategic +alternatives. Based on a competitive analysis of the change in +control arrangements maintained by the corporations in the +Company’s Peer Group, the Committee believes that these +benefits are customary among the Company’s Peer Group for +executives in similar positions as the Named Executive Officers. +Please refer to the discussion on page 19 under +“Potential Payments Upon Termination or Change of +Control” for a more detailed discussion of the severance +and change in control arrangements. +Tax and +Accounting Implications +Deductibility +of Executive Compensation +Under Section 162(m) of the Internal Revenue Code of 1986, +as amended (the “Code”), a public company generally +will not be entitled to a deduction for non-performance-based +compensation paid to certain executive officers to the extent +such compensation exceeds $1.0 million. Special rules apply +for “performance-based” compensation, including the +approval of the performance goals by the stockholders of the +Company. +The Company has not adopted any formal policy with respect to +Section 162(m) of the Code. However, the Committee +generally structures compensation to be deductible and considers +cost and value to the Company in making compensation decisions +that would result in non-deductibility. The Board has on +occasion made decisions resulting in non-deductible +compensation. The Committee and the Board believe that these +payments were appropriate and in the best interests of the +Company and its stockholders. +Accounting +for Stock-Based Compensation +Beginning on January 1, 2006, the Company began accounting +for share-based awards including its NSUs and stock options in +accordance with the requirements of Statement of Financial +Accounting Standards No. 123(R), “Share-Based +Payment.” +15 +Table of Contents +COMPENSATION +COMMITTEE REPORT +The Compensation Committee of the Board has reviewed and +discussed the Compensation Discussion and Analysis require by +Item 402(b) of +Regulation S-K +with management and, based on such review and discussions, the +Compensation Committee recommended to the Board that the +Compensation Discussion and Analysis be included in this Proxy +Statement. +THE COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Daniel L. Terheggen +John G. Perenchio +Maureen Conners +The Report of the Compensation Committee on Executive +Compensation shall not be deemed incorporated by reference by +any general statement incorporating by reference this Proxy +Statement into any filing under the Securities Act of 1933, as +amended, or under the Securities Exchange Act of 1934, as +amended, except to the extent that the Company specifically +incorporates this information by reference, and shall not +otherwise be deemed filed under such Acts. +SUMMARY +COMPENSATION TABLE +The following table sets forth, for the year ended +December 31, 2006, the reportable compensation paid or +awarded to the Named Executive Officers. +Non-Equity +Stock +Option +Incentive Plan +All Other +Salary +Awards +Awards +Compensation +Compensation +Name and Principal Position +Year +($) +($)(1) +($)(2) +($)(3) +($)(4) +Angel R. Martinez +Chief Executive Officer and President +2006 +$ +500,000 +$ +477,109 +$ +— +$ +850,000 +$ +— +Zohar Ziv +Chief Financial Officer and Executive Vice President of Finance +and Administration +2006 +248,110 +(5) +138,014 +— +251,250 +15,856 +(6) +Constance X. Rishwain +President of the Simple & Ugg Divisions +2006 +225,000 +70,250 +66,520 +421,875 +— +Colin G. Clark +Vice President of International Operations +2006 +225,000 +61,232 +— +253,125 +24,000 +Patrick C. Devaney +Senior Vice President and Vice President Global Sourcing, +Production and Development +2006 +200,000 +70,250 +61,880 +201,000 +— +(1) +The amounts in this column are calculated based on provisions of +FAS 123(R). See note 1(h) of the consolidated +financial statements of the Company’s Annual Report on +Form 10-K +for the year ended December 31, 2006 regarding assumptions +underlying valuation of equity awards. +(2) +The amounts in this column are calculated based on provisions of +FAS 123(R). See note 6 of the consolidated financial +statements of the Company’s Annual Report on +Form 10-K +for the year ended December 31, 2006 regarding assumptions +underlying valuation of equity awards. +(3) +The amounts in this column reflect the cash awards to the named +individuals under the Annual Incentive Plan, which is discussed +in further detail on page 12 under the heading “Annual +Non-Equity Incentive Plan Compensation.” +16 +Table of Contents +(4) +The amounts in this column reflect, for each respective +executive, a housing allowance for relocation paid by the +Company to the executives, except as noted in footnote +(6) below. +(5) +The amount of Mr. Ziv’s salary is prorated based on +his effective date of employment, which was March 6, 2006. +(6) +In addition to the item noted in footnote (4) above, the +amount shown in column (g) for Mr Ziv includes $1,200 +received as a matching contribution paid by the Company pursuant +to the 401(k) defined contribution plan, which is more fully +described on page 14 under the heading “Perquisites +and Other Personal Benefits.” +GRANTS OF +PLAN BASED AWARDS IN 2006 +The following table sets forth all grant of plan-based awards +made to the Named Executive Officers during the fiscal year +ended December 31, 2006. For further discussion regarding +the grants, see above under “— Compensation +Discussion and Analysis.” +Grant Date +Estimated Future Payouts Under +Estimated Future Payouts Under +Fair Value +Non-Equity Incentive Plan Awards +Equity Incentive Plan Awards(1) +of Stock +Grant +Threshold +Target +Maximum +Threshold +Target +Maximum +Awards +Name +Date +($) +($) +($) +(#) +(#) +(#) +($) +Angel R. Martinez +$ +75,000 +$ +500,000 +$ +750,000 +(2) +12/21/2006 +(3) +9,000 +12,000 +12,000 +698,400 +Zohar Ziv +25,125 +167,500 +251,250 +3/10/2006 +(4) +N/A +14,500 +N/A +514,750 +6/23/2006 +(5) +4,500 +6,000 +6,000 +223,200 +12/21/2006 +(3) +4,500 +6,000 +6,000 +349,200 +Constance X. Rishwain +14,063 +225,000 +337,500 +(2) +12/21/2006 +(3) +4,500 +6,000 +6,000 +349,200 +Colin G. Clark +14,063 +225,000 +337,500 +12/21/2006 +(3) +4,500 +6,000 +6,000 +349,200 +Patrick C. Devaney +20,100 +134,000 +201,000 +12/21/2006 +(3) +4,500 +6,000 +6,000 +349,200 +(1) +All grants are under the 2006 Plan except for +Mr. Ziv’s March 10, 2006 grant, which is under +the 1993 Plan. +(2) +The amounts shown here are the designated maximum plan awards; +however, in some cases, the actual amounts paid exceeded the +maximum amounts designated. Refer to page 13 for further +discussion on actual amounts paid to Named Executive Officers. +(3) +The number of NSUs awarded in the 2006 annual grant was based on +the executive’s respective level within the Company. The +target number was based on achievement of Company performance +measures for 2007. +(4) +This number of NSUs was granted as a sign-on bonus and was not +based on performance. These will automatically vest if a change +of control occurs. +(5) +The number of NSUs awarded, effectively the 2005 annual grant, +was based on the executive’s respective level within the +Company. The target number was based on achievement of Company +performance measures for 2006. +17 +Table of Contents +OUTSTANDING +EQUITY AWARDS AT 2006 FISCAL YEAR END +The following table sets forth equity awards of the Named +Executive Officers outstanding as of December 31, 2006. +Options Awards +Stock Awards +Number of +Market +Stock +Value of +Number of Securities +Option +Awards +Units of +Underlying Unexercised +Exercise +Option +That Have +Stock That +Options (1) (#) +Price +Expiration +Not Vested +Have Not +Name +Exercisable +Unexercisable +($) +Date(1)(2) +(#) +Vested ($)(3) +Angel R. Martinez +— +— +— +— +74,000 +(4) +$ +4,436,300 +Zohar Ziv +— +— +— +— +26,500 +(5) +1,588,675 +Constance X. Rishwain +4,000 +4,000 +$ +19.00 +12/5/2013 +15,180 +(6) +910,041 +Colin G. Clark +— +— +— +— +17,000 +(7) +1,019,150 +Patrick C. Devaney +8,000 +— +$ +4.30 +9/20/2012 +15,180 +(8) +910,041 +4,000 +4,000 +$ +19.00 +12/5/2013 +(1) +All options were granted on the date that is ten years before +their respective expiration dates set forth below. +(2) +Options vest in five equal installments starting with 20% on the +date of grant and 20% on each of the four anniversaries +thereafter. +(3) +The market value was based on the close price of the +Company’s Common Stock on December 31, 2006 of $59.95. +(4) +Consists of: (i) 50,000 nonvested stock units granted on +April 11, 2005, which shares vest in equal quarterly +installments starting in April 2008, (ii) 12,000 nonvested +stock units granted on December 2, 2005, which shares vest +in equal quarterly installments starting March 31, 2009, +and (iii) 12,000 nonvested stock units granted on +December 21, 2006, which shares vest in equal quarterly +installments starting March 31, 2010. +(5) +Consists of: (i) 14,500 nonvested stock units granted on +March 10, 2006, which shares vest in equal quarterly +installments starting on March 31, 2009, (ii) 6,000 +nonvested stock units granted on June 23, 2006, which +shares vest in equal quarterly installments starting on +March 31, 2009, and (iii) 6,000 nonvested stock units +granted on December 21, 2006, which shares vest in equal +quarterly installments starting on March 31, 2010. +(6) +Consists of: (i) 3,180 nonvested stock units granted on +December 20, 2004, which shares vest in equal quarterly +installments starting on March 31, 2008, (ii) 6,000 +nonvested stock units granted on December 2, 2005, which +shares vest in equal quarterly installments starting on +March 31, 2009, and (iii) 6,000 nonvested stock units +granted on December 21, 2006, which shares vest in equal +quarterly installments starting on March 31, 2010. +(7) +Consists of: (i) 5,000 nonvested stock units granted on +September 16, 2005, which shares vest in equal quarterly +installments starting on March 31, 2009, (ii) 6,000 +nonvested stock units granted on December 2, 2005, which +shares vest in equal quarterly installments starting on +March 31, 2009, and (iii) 6,000 nonvested stock units +granted on December 21, 2006, which shares vest in equal +quarterly installments starting on March 31, 2010. +(8) +Consists of: (i) 3,180 nonvested stock units granted on +December 20, 2004, which shares vest in equal quarterly +installments starting on March 31, 2008, (ii) 6,000 +nonvested stock units granted on December 2, 2005, which +shares vest in equal quarterly installments starting on +March 31, 2009, and (iii) 6,000 nonvested stock units +granted on December 21, 2006, which shares vest in equal +quarterly installments starting on March 31, 2010. +18 +Table of Contents +2006 +OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named +Executive Officers, regarding stock option exercises during +2006, including the number of shares acquired upon exercise and +the value realized, before payment of any applicable withholding +tax and broker commissions. None of the Named Executive Officers +acquired any shares of stock due to vesting of nonvested stock +units in 2006. +Option Awards +Stock Awards +Number of +Number of +Shares +Shares +Value +Acquired on +Value Realized +Acquired on +Realized +Exercise +on Exercise +Vesting +on Vesting +Name of Executive +(#) +($) +(#) +($) +Angel R. Martinez +— +$ +— +— +— +Zohar Ziv +— +— +— +— +Constance X. Rishwain +18,000 +627,813 +— +— +Colin G. Clark +— +— +— +— +Patrick C. Devaney +9,000 +164,000 +— +— +POTENTIAL +PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +As of December 31, 2006, the Company had entered into +employment agreements with each of the Named Executive Officers. +The information below describes certain compensation and +benefits that would have become payable or earned under these +existing contractual arrangements. +As used in the following paragraphs, (1) Cause means +(i) any willful breach of duty by the executive in the +course of their employment or continued violation of written +Company employment policies after written notice of such +violation, (ii) violation of the Company’s insider +trading policies, (iii) conviction of a felony or any crime +involving fraud, theft, embezzlement, dishonesty or moral +turpitude, (iv) engaging in activities which materially +defame the Company, engaging in conduct which is material +injurious to the Company or its affiliates, or any of their +respective customer or supplier relationships, financially or +otherwise, or (v) the executive’s gross negligence or +incapacity to perform duties, excluding total disability, +(2) Good Reason means the occurrence of a material breach +of the employment agreement by the Company, which breach is not +cured within 15 calendar days after written notice thereof is +received by the Company, or in the event of a Change of Control, +a reduction of total compensation, benefits, and perquisites, +relocation greater than 50 miles, or a material change in +position or duties, and (3) Change of Control means if +there is a merger, consolidation, sale of all or a major portion +of the assets of the Company (or a successor organization) or +similar transaction or circumstance where any person or group +(other than Douglas B. Otto) acquires or obtains the right to +acquire, in one or more transactions, beneficial ownership of +more than 50% of the outstanding shares of any class of voting +stock of the Company (or a successor organization). +Angel +R. Martinez, President and Chief Executive Officer +Effective April 11, 2005, the Company entered into an +employment agreement with Angel R. Martinez. +Mr. Martinez’s employment with the Company is “at +will,” but the term of his employment agreement ends +December 31, 2008. +If Mr. Martinez is terminated by the Company for Cause, or +Mr. Martinez terminates his employment, other than for Good +Reason, Mr. Martinez or his beneficiaries will be entitled +to payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +NSUs outstanding as of the termination date. If +Mr. Martinez is terminated due to his death or total +disability, in addition to those rights described in the first +sentence of this paragraph, Mr. Martinez will be entitled +to full acceleration of his initial grant of 50,000 NSUs. If +Mr. Martinez is terminated by the Company without Cause or +Mr. Martinez terminates his employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Mr. Martinez will be entitled to payment of +his base salary for one year following his termination, subject +19 +Table of Contents +to Mr. Martinez signing a release, and receipt of health +benefits for a period of one year following his termination or +his attainment of alternative employment that provides health +benefits, whichever is earlier. If Mr. Martinez is +terminated within two years of a Change of Control of the +Company without Cause or by Mr. Martinez for Good Reason, +in addition to those rights described in the first two sentences +of this paragraph, Mr. Martinez will be entitled to payment +of a pro-rata incentive bonus based on actual performance for +the year of termination, payment of two times his annual base +salary plus the greater of two times the targeted incentive +bonus immediately prior to the termination or two times the +average actual incentive bonus for the previous three years, +subject to Mr. Martinez signing a release, receipt of +health benefits for a period of two years following his +termination or his attainment of alternative employment that +provides health benefits, whichever is earlier, and full +acceleration of his initial grant of 50,000 NSUs. +Zohar +Ziv, Chief Financial Officer and Executive Vice President of +Finance and Administration +Effective March 6, 2006, the Company entered into an +employment agreement with Zohar Ziv. Mr. Ziv’s +employment with the Company is “at will,” but the term +of his employment agreement ends December 31, 2008. +If Mr. Ziv is terminated by the Company for Cause, or +Mr. Ziv terminates his employment, other than for Good +Reason, Mr. Ziv or his beneficiaries will be entitled to +payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +NSUs outstanding as of the termination date. If Mr. Ziv is +terminated due to his death or total disability, in addition to +those rights described in the first sentence of this paragraph, +Mr. Ziv shall be entitled to full acceleration of his +initial grant of 14,500 NSUs. If Mr. Ziv is terminated by +the Company without Cause or Mr. Ziv terminates his +employment for Good Reason, in addition to those rights +described in the first two sentences of this paragraph, +Mr. Ziv will be entitled to payment of his base salary for +one year following his termination, subject to Mr. Ziv +signing a release, and receipt of health benefits for a period +of one year following his termination or his attainment of +alternative employment that provides health benefits, whichever +is earlier. If Mr. Ziv is terminated within two years of a +Change of Control of the Company without Cause or by +Mr. Ziv for Good Reason, in addition to those rights +described in the first two sentences of this paragraph, +Mr. Ziv will be entitled to payment of a pro-rata incentive +bonus based on actual performance for the year of termination, +payment of two times his annual base salary plus the greater of +two times the targeted incentive bonus immediately prior to the +termination or two times the average actual incentive bonus for +the previous three years, subject to Mr. Ziv signing a +release, receipt of health benefits for a period of one year +following his termination or his attainment of alternative +employment that provides health benefits, whichever is earlier, +and full acceleration of his initial grant of 14,500 NSUs. +Constance +X. Rishwain, President of the UGG and Simple +Divisions +Effective January 1, 2006, the Company entered into an +employment agreement with Constance X. Rishwain. +Ms. Rishwain’s employment with the Company is “at +will,” but the term of her employment agreement ends +December 31, 2007. +If Ms. Rishwain is terminated by the Company for Cause or +Ms. Rishwain terminates her employment, other than for Good +Reason, Ms. Rishwain or her beneficiaries will be entitled +to payment of her accrued base salary, payment for her accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Ms. Rishwain is terminated by the Company due to her death +or total disability, in addition to those rights described in +the first sentence of this paragraph, Ms. Rishwain shall be +entitled to payment of any accrued but unpaid incentive bonus +for the current fiscal year based on actual performance. If +Ms. Rishwain is terminated by the Company without Cause or +Ms. Rishwain terminates her employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Ms. Rishwain will be entitled to payment of +her base salary for six months following her termination, +subject to Ms. Rishwain signing a release, and receipt of +health benefits for a period of six months following her +termination or her attainment of alternative employment that +provides health benefits, whichever is earlier. If +Ms. Rishwain is terminated within two +20 +Table of Contents +years of a Change of Control of the Company without Cause or by +Ms. Rishwain for Good Reason, in addition to those rights +described in the first two sentences of this paragraph, +Ms. Rishwain will be entitled to payment of a pro-rata +incentive bonus based on actual performance for the year of +termination, payment of one and one-half times her annual base +salary plus the greater of one and one-half times the targeted +incentive bonus immediately prior to the termination or two +times the average actual incentive bonus for the previous three +years, subject to Ms. Rishwain signing a release, receipt +of health benefits for a period of eighteen months following her +termination or her attainment of alternative employment that +provides health benefits, whichever is earlier. +Colin +G. Clark, Senior Vice President of International +Effective January 1, 2006, the Company entered into an +employment agreement with Colin G. Clark. Mr. Clark’s +employment with the Company is “at will,” but the term +of his employment agreement ends December 31, 2007. +If Mr. Clark is terminated by the Company for Cause or +Mr. Clark terminates his employment, other than for Good +Reason, Mr. Clark or his beneficiaries will be entitled to +payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Mr. Clark is terminated by the Company due to his death or +total disability, in addition to those rights described in the +first sentence of this paragraph, Mr. Clark shall be +entitled to payment of any accrued but unpaid incentive bonus +for the current fiscal year based on actual performance. If +Mr. Clark is terminated by the Company without Cause or +Mr. Clark terminates his employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Mr. Clark will be entitled to payment of +his base salary for six months following his termination, +subject to Mr. Clark signing a release, and receipt of +health benefits for a period of six months following his +termination or his attainment of alternative employment that +provides health benefits, whichever is earlier. If +Mr. Clark is terminated within two years of a Change of +Control of the Company without Cause or by Mr. Clark for +Good Reason, in addition to those rights described in the first +two sentences of this paragraph, Mr. Clark will be entitled +to payment of a pro-rata incentive bonus based on actual +performance for the year of termination, payment of one and +one-half times his annual base salary plus the greater of one +and one-half times the targeted incentive bonus immediately +prior to the termination or one and one-half times the average +actual incentive bonus for the previous three years, subject to +Mr. Clark signing a release, receipt of health benefits for +a period of eighteen months following his termination or his +attainment of alternative employment that provides health +benefits, whichever is earlier. +Patrick +C. Devaney, Senior Vice President of Global Sourcing, Production +and Development +Effective January 1, 2006, the Company entered into an +employment agreement with Patrick C. Devaney. +Mr. Devaney’s employment with the Company is “at +will,” but the term of his employment agreement ends +December 31, 2007. +If Mr. Devaney is terminated by the Company for Cause or +Mr. Devaney terminates his employment, other than for Good +Reason, Mr. Devaney or his beneficiaries will be entitled +to payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Mr. Devaney is terminated by the Company due to his death +or total disability, in addition to those rights described in +the first sentence of this paragraph, Mr. Devaney shall be +entitled to payment of any accrued but unpaid incentive bonus +for the current fiscal year based on actual performance. If +Mr. Devaney is terminated by the Company without Cause or +Mr. Devaney terminates his employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Mr. Devaney will be entitled to payment of +his base salary for six months following his termination, +subject to Mr. Devaney signing a release, and receipt of +health benefits for a period of six months following his +termination or his attainment of alternative employment that +provides health benefits, whichever is earlier. If +Mr. Devaney is terminated within two years of a Change of +Control of the Company without Cause or by Mr. Devaney for +Good Reason, in addition to +21 +Table of Contents +those rights described in the first two sentences of this +paragraph, Mr. Devaney will be entitled to payment of a +pro-rata incentive bonus based on actual performance for the +year of termination, payment of one and one-half times his +annual base salary plus the greater of one and one-half times +the targeted incentive bonus immediately prior to the +termination or two times the average actual incentive bonus for +the previous three years, subject to Mr. Devaney signing a +release, receipt of health benefits for a period of eighteen +months following his termination or his attainment of +alternative employment that provides health benefits, whichever +is earlier. +A summary of payments and benefits that would be provided by the +Company in addition to amounts accrued for unpaid base salary, +vacation pay, incentive bonus and reimbursable expenses, if the +termination or change of control had occurred on +December 31, 2006 (based on the closing price of Common +Stock on December 29, 2006 of $59.95), given the Named +Executive Officers’ compensation and service levels as of +such date is as follows: +Upon Termination: +Upon Change of +By the +Control and +Company +Termination by +Without Cause +the Company +or by +Without Cause or +Type of Compensation +Executive for +For Death or +by Executive for +Name +or Benefit +Good Reason +Disability +Good Reason +Angel R. Martinez +cash payments +$ +500,000 +$ +— +$ +2,000,000 +value of health benefits +16,000 +— +32,000 +value of NSUs +2,997,500 +2,997,500 +2,997,500 +value of excise tax gross-up +— +— +899,500 +3,513,500 +2,997,500 +5,929,000 +Zohar Ziv +cash payments +300,000 +— +935,000 +value of health benefits +16,000 +— +16,000 +value of NSUs +869,275 +— +869,275 +value of excise tax gross-up +— +— +300,855 +1,185,275 +— +2,121,130 +Constance X. Rishwain +cash payments +112,500 +— +1,169,500 +value of health benefits +8,000 +— +24,000 +value of excise tax gross-up +— +— +188,900 +120,500 +— +1,382,400 +Colin G. Clark +cash payments +112,500 +— +675,000 +value of health benefits +5,500 +— +16,500 +value of excise tax gross-up +— +— +90,000 +118,000 +— +781,500 +Patrick C. Devaney +cash payments +100,000 +— +648,000 +value of health benefits +5,500 +— +16,500 +value of excise tax gross-up +— +— +89,600 +105,500 +— +754,100 +No additional payments or benefits would be provided by the +Company if the termination occurred by the Company for Cause or +by the executive without Good Reason. +22 +Table of Contents +DIRECTOR +COMPENSATION +Directors who are not employees of the Company or its +subsidiaries (“Nonemployee Directors”) receive an +annual retainer of $20,000 in cash and 1,600 shares of +Common Stock per year, which awards are made at a rate of +400 shares per quarter. Additionally, Nonemployee Directors +receive $1,500 for each meeting of the Board and each committee +meeting that they attend plus reimbursement of any expenses they +may incur with respect to such meetings. The Audit Committee +Chairman receives an additional annual retainer fee of $12,000 +and the Committee Chairmen for the Compensation Committee and +the Corporate Governance and Nominating Committee each receive +an annual retainer fee of $4,000. Directors who are employees of +the Company or its subsidiaries serve as directors without +compensation. +Fees Earned +Stock Awards(1) +Total +Name +Year +($) +($) +($) +John M. Gibbons +2006 +$ +56,000 +$ +71,196 +(2) +$ +127,196 +Director +Gene E. Burleson +2006 +48,000 +71,196 +(2) +119,196 +Director +Rex A. Licklider +2006 +42,000 +71,196 +(2) +113,196 +Director +Daniel L. Terheggen(3) +2006 +38,000 +71,196 +(2) +109,196 +Director +John G. Perenchio +2006 +30,500 +71,196 +(2) +101,696 +Director +Maureen Conners +2006 +11,000 +23,804 +(4) +34,804 +Director +Douglas B. Otto(5) +2006 +N/A +N/A +N/A +Chairman of the Board +(1) +As of December 31, 2006, the amount of outstanding equity +held by each director was as follows: Mr. Gibbons had 2,000 +options that were vested and outstanding; Mr. Licklider had +6,000 options that were vested and outstanding; and +Mr. Otto had 380,000 options that were outstanding, 375,000 +of which were vested, and 4,240 nonvested stock units +outstanding. +(2) +Represents grants of 400 shares of Common Stock at a per +share price of $31.93 on January 31, 2006, 400 shares +of Common Stock at a per share price of $43.24 on May 5, +2006, 400 shares of Common Stock at a per share price of +$43.31 on July 28, 2006, and 400 shares of Common +Stock at a per share price of $59.51 on December 28, 2006. +(3) +Mr. Terheggen will resign his position as outside director +of the Company, effective as of the date of the Annual Meeting. +(4) +Represents a grant of 400 shares of Common Stock at a per +share price of $59.51 on December 28, 2006. +(5) +Mr. Otto received a salary of $52,000 as an employee of the +Company. He did not receive any compensation as a director in +2006. +23 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of the Record Date, certain +information concerning the shares of Common Stock beneficially +owned by (i) each person who is a Named Executive Officer +in the Summary Compensation Table; (ii) each director and +director nominee; (iii) all executive officers and +directors as a group (fifteen persons); and (iv) each +person known by the Company to be the beneficial owner of more +than 5% of our Common Stock (other than directors, executive +officers and depositaries). +Amount and Nature of +Name and Address of Beneficial Owner(1) +Beneficial Ownership(2),(3),(4) +Percent of Class(3) +Named Executive +Officers +Angel R. Martinez +9,900 +* +Zohar Ziv +1,000 +* +Constance X Rishwain +— +* +Colin G. Clark +— +* +Patrick C. Devaney +14,740 +* +Directors and Director +Nominees +Douglas B. Otto(5) +548,822 +4.2 +% +Angel R. Martinez +9,900 +* +Rex A. Licklider(6) +217,908 +1.7 +% +Gene E. Burleson +57,939 +* +John M. Gibbons(7) +14,029 +* +Daniel L. Terheggen +4,271 +* +John G. Perenchio +14,000 +* +Maureen Conners +800 +* +All directors and executive +officers +as a group (fifteen persons) +899,864 +6.9 +% +5% Stockholders +FMR Corp.(8) +1,884,300 +14.9 +% +Barclays Global Investors Japan +Limited(9) +730,378 +5.8 +% +* +Percentage of shares beneficially owned does not exceed 1% of +the class so owned. +(1) +The address of each beneficial owner is +495-A South +Fairview Avenue, Goleta, California 93117, unless otherwise +noted. +(2) +Unless otherwise noted, the Company believes that each +individual or entity named has sole investment and voting power +with respect to shares of Common Stock indicated as beneficially +owned by them, subject to community property laws, where +applicable. +(3) +Pursuant to +Rule 13d-3(d) +(1) of the Exchange Act, shares not outstanding which are +subject to options, warrants, rights or conversion privileges +exercisable on or before the date that is 60 days after the +Record Date are deemed outstanding for the purpose of +calculating the number and percentage owned by such person, but +not deemed outstanding for the purpose of calculating the +percentage owned by any other person listed. +(4) +Includes shares under stock options that are presently +exercisable or are exercisable within 60 days from the +Record Date for the following: Douglas B. Otto — +375,000; Patrick C. Devaney — 12,000; Rex A. +Licklider — 4,000; John M. Gibbons — 2,000; +and all directors and executive officers as a group — +399,700. +(5) +Includes (a) 94,672 shares held by the Douglas B. Otto +Trust as to which Mr. Otto has sole voting and investment +power and (b) 79,150 shares held by the Edgecliff +Foundation, a charitable foundation formed by Mr. Otto, of +which Mr. Otto is the Chairman of the Board of Directors. +(6) +Includes 213,908 shares held by the Licklider Living Trust +as to which Mr. Licklider has joint voting and investment +power. +24 +Table of Contents +(7) +Includes 12,029 shares held by the Gibbons Living Trust as +to which Mr. Gibbons has joint voting and investment power. +(8) +Includes 3,700 shares held by FMR Corp., as to which the +beneficial owners have sole voting power and +1,884,300 shares as to which the beneficial owners have +sole dispositive power. This information is based solely on a +Schedule 13G filed by the party on February 14, 2007 +whose business address is 82 Devonshire Street, Boston, MA 02109. +(9) +Includes 692,090 shares held by Barclays Global Investors +Japan Limited, as to which the beneficial owners have sole +voting power and 730,378 shares as to which the beneficial +owners have sole dispositive power. This information is based +solely on a Schedule 13G filed by the party on +January 9, 2007 whose business address is Ebisu Prime +Square Tower +8 th Floor, +1-1-39 Hiroo Shibuya-Ku, Tokyo +150-8402 +Japan. +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing +independent, objective oversight of the Company’s +accounting functions and internal controls. The Audit Committee +is currently composed of three directors, each of whom meets the +independence and experience requirements under the NASDAQ rules +and the independence requirements of the SEC. +Management is responsible for the preparation of the +Company’s financial statements and financial reporting +process including its system of internal controls. The +independent registered public accounting firm is responsible for +performing an independent audit of the Company’s +consolidated financial statements in accordance with the +standards of the Public Company Accounting Oversight Board +(United States) and expressing (i) an opinion on whether +the Company’s financial statements present fairly, in all +material respects, the Company’s financial position and +results of operations for the periods presented in conformity +with accounting principles generally accepted in the United +States and (ii) an opinion on whether management’s +assessment that the Company maintained effective internal +control over financial reporting as of December 31, 2006, +is fairly stated, in all material respects, based on criteria +established in Internal Control-Integrated Framework issued by +the Committee of Sponsoring Organizations of the Treadway +Commission. The Audit Committee’s responsibility is to +monitor and oversee these processes. The Board of Directors has +determined that John M. Gibbons, the Chairman of the Audit +Committee, is an audit committee financial expert and is +independent. +In connection with these responsibilities, the Audit Committee +met with management and the independent registered public +accounting firm to review and discuss the December 31, 2006 +consolidated financial statements and obtained from management +their representation that the Company’s financial +statements have been prepared in accordance with accounting +principles generally accepted in the United States. The Audit +Committee also discussed with the independent registered public +accounting firm the matters required by Statement on Auditing +Standards No. 61 (Communication with Audit Committees), +which includes, among other items, information regarding the +conduct of the audit of the Company’s consolidated +financial statements. The Audit Committee also received written +disclosures from KPMG LLP required by Independence Standards +Board Standard No. 1 (Independence Discussions with Audit +Committees), and the Audit Committee discussed with KPMG LLP +that firm’s independence from the Company and its +management. The Audit Committee has further considered the +compatibility of the services provided by KPMG LLP with that +firm’s independence. +The Audit Committee operates under a written charter, which was +adopted by the Board and is assessed annually for adequacy by +the Audit Committee. The Audit Committee held eight meetings +during fiscal 2006, including meetings with the independent +registered public accounting firm and the Company’s +internal auditor, both with and without management present. In +performing its functions, the Audit Committee acts only in an +oversight capacity. It is not the responsibility of the Audit +Committee to determine that the Company’s financial +statements are complete and accurate, are presented in +accordance with accounting principles generally accepted in the +United States or present fairly the results of operations of the +Company for the periods presented or that the Company maintains +appropriate internal controls. Nor is it the duty of the Audit +Committee to determine that the audit of the Company’s +financial statements has been carried out in accordance with the +standards of the Public Company Accounting Oversight Board +(United States) or that the Company’s registered public +accounting firm is independent. +25 +Table of Contents +Based upon the Audit Committee’s review and discussions +with management and the independent registered public accounting +firm, the Audit Committee recommended that the Board of +Directors include the audited consolidated financial statements +in the Company’s Annual Report on +Form 10-K +as of and for the year ended December 31, 2006, to be filed +with the SEC. +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +The Report of the Audit Committee shall not be deemed +incorporated by reference by any general statement incorporating +by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities +Exchange Act of 1934, as amended, except to the extent that the +Company specifically incorporates this information by reference, +and shall not otherwise be deemed filed under such Acts. +Certain +Relationships and Related Transactions +Transactions +with Directors +Daniel L. Terheggen, a member of the Company’s Board of +Directors, is a 50% owner and Chief Executive Officer of BHPC +Global Licensing, Inc. The Company paid BHPC Global Licensing, +Inc. an aggregate of approximately $79,000 for agency fees +related to licensing of the Company’s products during 2006 +and the unpaid balance at December 31, 2006 was $56,000. +Limitation +of Liability and Indemnification of Directors and +Officers +Our Certificate of Incorporation and Bylaws provide that we +shall indemnify directors and executive officers to the fullest +extent now or hereafter permitted by the Delaware General +Corporation Law (the “DGCL”). In addition, we entered +into Indemnification Agreements with our directors and executive +officers in which we agree to indemnify such persons to the +fullest extent now or hereafter permitted by the DGCL. +We have obtained a liability policy for our directors and +officers as permitted by the DGCL which extends to, among other +things, liability arising under the Securities Act of 1933, as +amended. +We maintain an insurance policy pursuant to which our directors +and officers are insured, within the limits and subject to the +limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or +proceedings, and liabilities which might be imposed as a result +of such claims, actions, suits or proceedings, that may be +brought against them by reason of their being or having been +directors or officers. +Section 16(A) +Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as +amended, requires the Company’s directors, executive +officers and persons who own more than 10% of the Common Stock +(collectively “Section 16 Persons”) to file +initial reports of ownership (Forms 3) and reports of +changes in ownership of Common Stock (Forms 4 and +Forms 5) with the SEC as well as the Company. +To the Company’s knowledge, based solely on a review of the +copies of such reports furnished to the Company and +representations from each Section 16 Person known to the +Company that no other reports were required, during the fiscal +year ended December 31, 2006, all Section 16(a) filing +requirements applicable to its Section 16 Persons were +complied with except that: +(i) Peter K. Worley filed a Form 4 on May 31, +2006, which reported a transaction that was due to be reported +on March 22, 2006; +(ii) John A. Kalinich filed a Form 4 on +December 15, 2006, which reported transactions that were +due to be reported on November 29, 2006; +26 +Table of Contents +(iii) Janice M. Howell filed a Form 4 on +November 16, 2006, which reported transactions that were +due to be reported on November 15, 2006; +(iv) Janice M. Howell filed a Form 4 on +December 8, 2006, which reported transactions that were due +to be reported on December 7, 2006; and +(v) Colin G. Clark, Patrick C. Devaney, Janice M. Howell, +John A. Kalinich, Angel R. Martinez, Constance X. Rishwain, +Peter K. Worley and Zohar Ziv each filed a Form 4 on +January 26, 2007, which reported a transaction that was due +to be reported on December 26, 2006. +PROPOSAL NO. 2 +AMENDMENT +TO THE 2006 EQUITY INCENTIVE PLAN +The stockholders are being asked to approve an amendment to the +2006 Equity Incentive Plan (the “2006 Plan”). The +Board of Directors adopted the 2006 Plan on March 27, 2006 +to replace the Deckers Outdoor Corporation 1993 Employee Stock +Incentive Plan, and the 2006 Plan was subsequently approved by +the stockholders at the 2006 Annual Meeting of Stockholders. As +of the Record Date, NSUs with respect to 82,950 shares were +outstanding under the 2006 Plan and 1,910,250 shares +remained available for future grants. +Reason +for the Proposal +The Board of Directors believes that the continued growth of the +Company depends, in large part, upon its ability to attract and +motivate key employees and directors, and that stock incentive +awards are an important means of attracting, retaining and +motivating talented personnel. The Board approved the 2006 Plan +because it believes that the best means for aligning the +interests of employees and stockholders is through equity +incentives and encouraging ownership in the Company by its +employees and directors. The Company is proposing to amend the +2006 Plan in the manner described below in order to further +align these interests and to make several administrative +improvements to the 2006 Plan that the Company believes are in +the best interests of its stockholders. +Summary +of Proposed Amendment to the 2006 Equity Incentive +Plan +The full text of the amendment to the 2006 Plan (the +“Amendment”) is attached to this Proxy Statement at +Appendix A, and the full text of the 2006 Plan is attached +as Appendix A to the proxy statement for our 2006 Annual +Meeting of Stockholders. The following discussion is qualified +in its entirety by reference to the Amendment and to the 2006 +Plan. The key provisions of the Amendment are as follows: +1. To require that awards under the 2006 Plan to our +non-employee directors be administered by an independent +committee of the Board of Directors. +2. To prohibit repricing of option awards made under the +2006 Plan. +3. To require a minimum restriction of one year in the case +of performance-based awards and of three years in the case of +tenure awards under the 2006 Plan. +4. To permit a term of greater than ten years for awards or +grants under the 2006 Plan, other than Incentive Stock Options. +5. To eliminate the discretionary authority of the +administrator of the 2006 Plan to adjust the number of shares or +price of an award or grant under the 2006 Plan in the event of a +change in the capitalization of the Company. +Description +of the 2006 Equity Incentive Plan as Proposed to be +Amended +A copy of the proposed Amendment to the 2006 Plan is attached to +this Proxy Statement as Appendix A, and a copy of the 2006 +Plan in its current unamended form is attached as +Appendix A to the proxy statement for our 2006 Annual +Meeting of Stockholders and is also available from the Company +upon request. The following description of +27 +Table of Contents +the 2006 Plan as proposed to be amended is a summary and is +qualified by reference to the complete text of the 2006 Plan and +the Amendment. +Background and Purpose. The primary purpose of +the 2006 Plan is to encourage ownership in our Company by key +personnel, whose long-term service is considered essential to +our continued progress, thereby linking these employees directly +to stockholder interests through increased stock ownership. +Eligible Participants. Awards may be granted +under the 2006 Plan to any of our employees, directors, or +consultants or those of our affiliates, except that an incentive +stock option may only be granted to a person who, at the time of +the grant, is an employee of us or a related corporation. As of +the Record Date, all employees and non-employee directors were +eligible to participate. +Number of Shares of Common Stock Available. A +total of 2,000,000 shares of our Common Stock are reserved +for issuance under the 2006 Plan. The maximum aggregate number +of shares that may be issued under the 2006 Plan through the +exercise of incentive stock options is 1,500,000. If an award is +cancelled, terminates, expires, or lapses for any reason without +having been fully exercised or vested, or is settled for less +than the full number of shares of Common Stock represented by +such award actually being issued, the unvested, cancelled, or +unissued shares of Common Stock generally are returned to the +available pool of shares reserved for issuance under the 2006 +Plan. Under the currently effective 2006 Plan, if we experience +a stock dividend, reorganization, or other change in our capital +structure, the administrator may, in its sole discretion, adjust +the number of shares available for issuance under the 2006 Plan +and any outstanding awards as appropriate to reflect the stock +dividend or other change. The share number limitations included +in the 2006 Plan are also adjusted appropriately upon such +event. If the Amendment is approved by the stockholders, the +administrator will continue to have the power to make such +adjustments but will no longer have sole discretion for making +such adjustments. +Administration of the 2006 Plan. The 2006 Plan +is administered by the Board or the Compensation Committee of +the Board. In the case of awards intended to qualify as +“performance-based-compensation” excludable from the +deduction limitation under Section 162(m) of the Code, the +2006 Plan requires that the committee administering the 2006 +Plan consist of two or more “outside directors” within +the meaning of Section 162(m). If the proposed Amendment is +approved by the stockholders, then the 2006 will further require +that any discretionary awards under the 2006 Plan to the +non-employee directors be administered by an independent +committee of the Board +The administrator has the authority to, among other things, +select the individuals to whom awards will be granted and to +determine the type of award to grant; determine the terms of the +awards, including the exercise price, the number of shares +subject to each award, the exercisability of the awards, and the +form of consideration payable upon exercise; to provide for a +right dividends or dividend equivalents; and to interpret the +2006 Plan and adopt rules and procedures relating to +administration of the 2006 Plan. Except to the extent prohibited +by any applicable law, the administrator may delegate to one or +more individuals the +day-to-day +administration of the 2006 Plan. +Award +Types +Options. A stock option is the right to +purchase shares of our Common Stock at a fixed exercise price +for a fixed period. An option under the 2006 Plan may be an +incentive stock option or a nonstatutory stock option. The +exercise price of an option granted under the 2006 Plan must be +at least equal to the fair market value of our Common Stock on +the date of grant. In addition, the exercise price for any +incentive stock option granted to any employee owning more than +10% of our Common Stock may not be less than 110% of the fair +market value of our Common Stock on the date of grant. +Unless the administrator determines to use another method, the +fair market value of our Common Stock on the date of grant will +be determined as the closing price for our Common Stock on the +date the option is granted (or if no sales are reported that +day, the last preceding day on which a sale occurred), using a +reporting source selected by the administrator. As of +April 4, 2007, the closing price on the NASDAQ Global +Select Market for our Common Stock was $71.31 per share. +The administrator determines the acceptable form of +consideration for exercising an option, including the method of +payment, either through the terms of the option agreement or at +the time of exercise of an option, provided that consideration +must have a value of not less than the par value of the shares +to be issued +28 +Table of Contents +and must be actually received before issuing any shares. The +2006 Plan permits payment in the form of cash, check or wire +transfer, other shares of Common Stock of the Company, cashless +exercises, any other form of consideration and method of payment +permitted by applicable laws, or any combination thereof. +An option granted under the 2006 Plan generally cannot be +exercised until it becomes vested. The administrator establishes +the vesting schedule of each option at the time of grant and the +option will expire at the times established by the +administrator. After termination of the optionee’s service, +he or she may exercise his or her option for the period stated +in the option agreement, to the extent the option is vested on +the date of termination. If termination is due to death or +disability, the option generally will remain exercisable for +twelve months following such termination. In all other cases, +the option generally will remain exercisable for three months. +However, an option may never be exercised later than the +expiration of its term. Under the currently effective 2006 Plan, +the term of any stock option may not exceed ten years, except +that with respect to any participant who owns 10% or more of the +voting power of all classes of our outstanding capital stock, +the term for incentive stock options must not exceed five years. +If the stockholders approve the Amendment, the 2006 Plan will +authorize the Compensation Committee to provide for awards or +grants under the 2006 Plan, other than incentive stock options, +with a term longer than ten years, notwithstanding the earlier +termination or expiration of the 2006 Plan. +Stock Awards. Stock awards are awards or +issuances of shares of our Common Stock that vest in accordance +with terms and conditions established by the administrator. +Stock awards include stock units, which are bookkeeping entries +representing an amount equivalent to the fair market value of a +share of Common Stock, payable in cash, property, or other +shares of stock. The administrator may determine the number of +shares to be granted, and impose whatever conditions to vesting +it determines to be appropriate, including performance criteria +and level of achievement versus the criteria that the +administrator determines. The criteria may be based on financial +performance, personal performance evaluations, and completion of +service by the participant. Unless the administrator determines +otherwise, shares that do not vest typically will be subject to +forfeiture or to our right of repurchase of the unvested portion +of such shares at the original price paid by the participant, +which we may exercise upon the voluntary or involuntary +termination of the awardee’s service with us for any +reason, including death or disability. +For stock awards intended to qualify as “performance-based +compensation” within the meaning of Section 162(m) of +the Code, the measures established by the administrator must be +qualifying performance criteria. Qualifying performance criteria +under the 2006 Plan include any of the following performance +criteria, individually or in combination: +• +Quarterly and annual earnings per share growth +• +Quarterly and annual sales levels +• +Quarterly and annual backlog and inventory levels +• +Quarterly and annual brand contribution +• +Achieving expense and shipping targets +• +Achieving targets for bad debt and collectibility measures +• +Any other similar criteria +Qualifying performance criteria may be applied either to the +Company as a whole or to a business unit, affiliate, or business +segment, individually or in any combination. Qualifying +performance criteria may be measured either annually or +cumulatively over a period of years, and may be measured on an +absolute basis or relative to a pre-established target, to +previous years’ results, or to a designated comparison +group, in each case as specified by the administrator in writing +in the award. If approved by the stockholders, the Amendment +will add a further requirement to the 2006 Plan that all +performance awards made under the 2006 Plan have a minimum one +year restriction and that all tenure based awards have a minimum +three year restriction. In addition, as proposed under the +Amendment, the administrator would not have discretion to waive +this additional proposed restriction, except in the case of +death or disability of the person issued the award, or in the +case of a change of control of the Company. +29 +Table of Contents +Stock Appreciation Rights. A stock +appreciation right is the right to receive the appreciation in +the fair market value of our Common Stock in an amount equal to +the difference between (a) the fair market value of a share +of our Common Stock on the date of exercise, and (b) the +exercise price. This amount will be paid, as determined by the +administrator, in shares of our Common Stock with equivalent +value, cash, or a combination of both. The exercise price must +be at least equal to the fair market value of our Common Stock +on the date of grant. Subject to these limitations, the +administrator determines the exercise price, term, vesting +schedule, and other terms and conditions of stock appreciation +rights; except that stock appreciation rights terminate under +the same rules that apply to stock options. +Cash Awards. Cash awards confer upon the +participant the opportunity to earn future cash payments tied to +the level of achievement with respect to one or more performance +criteria established by the administrator for a performance +period. The administrator will establish the performance +criteria and level of achievement versus these criteria, which +will determine the target and the minimum and maximum amount +payable under a cash award. The criteria may be based on +financial performance or personal performance evaluations, or +both. For cash awards intended to qualify as +“performance-based compensation” within the meaning of +Section 162(m) of the Code, the measures established by the +administrator must be specified in writing and the amount +payable as cash under such cash award is limited to +$2.0 million. +Other +Provisions of the 2006 Plan +Transferability of Awards. Unless the +administrator determines otherwise, the 2006 Plan does not +permit the transfer of awards other than by beneficiary +designation, will, or by the laws of descent or distribution, +and only the participant may exercise an award during his or her +lifetime. +Preemptive Rights. The 2006 Plan provides that +no shares will be issued thereunder in violation of any +preemptive rights held by any stockholder of the Company. +Adjustments upon Merger or Change in +Control. The 2006 Plan provides that in the event +of a merger with or into another corporation or our “change +in control,” including the sale of all or substantially all +of our assets, and certain other events, our Board or the +Committee may, in its discretion, provide for the assumption or +substitution of, or adjustment to, each outstanding award; +accelerate the vesting of options and stock appreciation rights, +and terminate any restrictions on stock awards or cash awards; +provide for the cancellation of awards in exchange for a cash +payment to the participant; or provide for the cancellation of +awards that have not been exercised or redeemed as of the +relevant event. +Amendment and Termination of the 2006 +Plan. The administrator has the authority to +amend, alter, or discontinue the 2006 Plan, subject to the +approval of the stockholders to the extent required by +applicable laws. No amendment may impair the rights of any +outstanding award without the agreement of the participant. +Certain +Federal Income Tax Information +The following is a general summary as of this date of the +federal income tax consequences to us and to +U.S. participants for awards granted under the 2006 Plan. +The federal tax laws may change and the federal, state, and +local tax consequences for any participant will depend upon his +or her individual circumstances. Tax consequences for any +particular individual may be different. +Tax +Effects for Participants +Incentive Stock Options. For federal income +tax purposes, an optionee does not recognize taxable income when +an incentive stock option is granted or upon its exercise. When +an incentive stock option is exercised, however, the difference +between the option exercise price and the fair market value of +the shares on the exercise date is an adjustment in computing +the holder’s alternative minimum taxable income and may be +subject to an alternative minimum tax, which is paid if such tax +exceeds the optionee’s regular tax for the year. +An optionee who disposes of shares acquired by exercise of an +incentive stock option more than two years after the option is +granted and one year after its exercise recognizes a long-term +capital gain or loss equal to the difference between the sale +price and the exercise price. If the holding periods are not met +and the sale price exceeds the +30 +Table of Contents +exercise price, the optionee generally will recognize ordinary +income (for which we must withhold the taxes) as of the exercise +date equal to the difference between the exercise price and the +lower of the sale price of the shares or their fair market value +on the exercise date. Any gain or loss recognized on such +premature sale of the shares in excess of the amount of ordinary +income is characterized as capital gain or loss. If the holding +periods are not met and the sale price is less than the +exercise price, the option will recognize a capital loss equal +to the difference between the exercise price and the sale price. +Nonstatutory Stock Options. A participant who +receives a nonstatutory stock option with an exercise price +equal to or greater than the fair market value of the stock on +the grant date generally will not realize taxable income on the +grant of such option, but will realize ordinary income when he +or she exercises the option, equal to the excess of the fair +market value of the shares on the date of exercise over the +option exercise price. Any additional gain or loss recognized +upon any later disposition of shares would be capital gain or +loss. Any taxable income recognized in connection with an option +exercise by an employee or former employee of the Company is +subject to tax withholding by us. +Stock Awards. A participant who receives a +stock award that is not subject to a “substantial risk of +forfeiture” will recognize ordinary income at the time of +grant equal to the difference between the fair market value of +the stock on the date of grant less the amount paid for the +stock, if any. A restricted stock award is subject to a +“substantial risk of forfeiture” within the meaning of +Section 83 of the Code to the extent the award will be +forfeited if the participant ceases to provide services to us. +Because of this substantial risk of forfeiture, a participant +who receives a stock award that is subject to a +“substantial risk of forfeiture” will not recognize +ordinary income at the time of grant, but will recognize +ordinary income on the date or dates when the stock is no longer +subject to a substantial risk of forfeiture, or when the stock +becomes transferable, if earlier. The participant’s +ordinary income is measured as the difference between the fair +market value of the stock on the date the stock is no longer +subject to a substantial risk of forfeiture less the amount paid +for the stock, if any. +The participant may accelerate his or her recognition of +ordinary income, if any, and begin his or her capital gains +holding period by timely filing (i.e., within thirty days of the +award) an election pursuant to Section 83(b) of the Code. +In such event, the ordinary income recognized, if any, is +measured as the difference between the fair market value of the +stock on the date of award less the amount paid for the stock, +if any, and the capital gain holding period commences on such +date. The ordinary income recognized by an employee or former +employee will be subject to tax withholding by us. If the stock +award consists of stock units, no taxable income is reportable +when stock units are granted to a participant or upon vesting. +Upon settlement, the participant will recognize ordinary income +in an amount equal to the value of the payment received pursuant +to the stock units. +Stock Appreciation Rights. No taxable income +is reportable when a stock appreciation right with an exercise +price equal to or greater than the fair market value of the +stock on the date of grant is granted to a participant or upon +vesting. Upon exercise, the participant will recognize ordinary +income in an amount equal to the fair market value of any shares +or cash received. If the participant receives shares upon +exercise, any additional gain or loss recognized upon any later +disposition of the shares would be capital gain or loss. +Cash Awards. Upon receipt of cash, the +recipient will have taxable ordinary income, in the year of +receipt, equal to the cash received. Any cash received by an +employee or former employee will be subject to tax withholding +by us. +Tax Effect for Us. Unless limited by +Section 162(m) or Section 280G of the Code, we +generally will be entitled to a tax deduction in connection with +an award under the 2006 Plan in an amount equal to the ordinary +income realized by a participant at the time the participant +recognizes such income (for example, upon the exercise of a +nonstatutory stock option). +Section 162(m) +Limits. Section 162(m) of the Code places a +limit of $1 million on the amount of compensation that we +may deduct in any one year with respect to the Chief Executive +Officer and each of the four other most highly paid executive +officers. Certain performance-based compensation is not subject +to the deduction limit. The 2006 Plan is qualified such that +awards under the Plan may constitute performance-based +compensation not subject to Section 162(m) of the Code. One +of the requirements for equity compensation plans is that there +must be a limit to the number of shares granted to any one +individual under the plan. Accordingly, the +31 +Table of Contents +2006 Plan provides that the maximum number of shares for which +awards may be made to any employee, in any calendar year, is +1,000,000, except that in connection with his or her initial +service, an awardee may be granted awards covering up to an +additional 1,000,000 shares. The maximum amount payable +pursuant to that portion of a cash award granted under the 2006 +Plan for any fiscal year to any employee that is intended to +satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code may not +exceed $2,000,000. +Section 409A. The American Jobs Creation +Act of 2004 contains deferred compensation provisions added as +Section 409A of the Code. These provisions make +compensation deferred under a nonqualified deferred compensation +plan taxable on a current basis (or, if later, when vested) and +subject to an additional 20% tax, unless certain requirements +are met. The 2006 Plan provides that it is the Company’s +intent that all awards granted under the 2006 Plan will not +cause an imposition of additional taxes provided by +Section 409A of the Code, and that the 2006 Plan should be +administered so that such taxes are not imposed. +Section 280G Limits. Section 280G of +the Code limits the amount of certain compensation payable upon +a change in control of the Company, so-called “parachute +payments.” If stock options or other awards vest upon a +change in control, or if other payments contingent upon such a +change in control are made, the vesting or payment may in whole +or in part result in a nondeductible parachute payment. In +addition, the recipient of the parachute payment would be +subject to a 20% excise tax that we would be required to +withhold in addition to federal income tax. The 2006 Plan +provides discretion to the Board to provide for the vesting of +awards upon a change in control. +Amendment +and Termination +The administrator may amend the 2006 Plan at any time or from +time to time or may terminate it, but any such amendment shall +be subject to the approval of the stockholders in the manner and +to the extent required by applicable law, rules, or regulations. +Nevertheless, no action by the administrator or the stockholders +may alter or impair any option or other type of award under the +2006 Plan, unless mutually agreed otherwise between the holder +of the award and the administrator. The 2006 Plan will continue +in effect for a term of ten years, unless terminated earlier in +accordance with the provisions of the 2006 Plan. +New Plan +Benefits +The future benefits or amounts that will be granted under the +2006 Plan are subject to the discretion of the Compensation +Committee and, therefore, are not determinable at this time. In +addition, the benefits and amounts that would have been received +by or allocated to directors, executive officers, directors and +our other employees for the last completed fiscal year if the +Amendment to the 2006 Plan had been in effect cannot be +determined. As disclosed above under the heading +“Compensation Discussion and Analysis — Director +Compensation,” each current Nonemployee Director of the +Company receives as part of his or her annual retainer, a +quarterly award under the 2006 Plan of 400 shares of our +Common Stock. +The table below reflects awards of nonvested stock units +(“NSUs”) and restricted stock awards granted under the +2006 Plan during the fiscal year ended December 31, 2006 to +the Named Executive Officers and the other persons and groups +shown in the table. +32 +Table of Contents +Nonvested Stock Units +Stock Awards +Dollar Value of +Number of +Dollar Value of +Number of +Name and Position +Awards(1) +Shares +Awards(1) +Shares +Named Executive +Officers +Angel R. Martinez +$ +719,400 +12,000 +$ +— +— +President and Chief Executive +Officer +Zohar Ziv +719,400 +12,000 +(2) +— +— +Chief Financial Officer, Executive +Vice +President of Finance and +Administration +and Assistant Secretary +Constance X. Rishwain +359,700 +6,000 +— +— +President of the UGG and Simple +Divisions +Colin G. Clark +359,700 +6,000 +— +— +Senior Vice President, +International +Patrick C. Devaney +359,700 +6,000 +— +— +Senior Vice President of Global +Sourcing +Production and Development +All Current Executive +Officers as a Group +3,357,200 +56,000 +— +— +All Non-Executive Directors +as a Group +263,780 +4,400 +All Non-Executive Employees +as a Group +1,615,653 +26,950 +— +— +(1) +Based on the closing price of $59.95 of the Company’s +Common Stock on December 31, 2006. +(2) +Consists of two grants: 6,000 NSUs on June 23, 2006 (based +on 2006 performance) and 6,000 NSUs on December 21, 2006 +(based on 2007 performance). +Vote +Required +Approval of the proposed amendment to the 2006 Equity Incentive +Plan described in this Proposal No. 2 and in +Appendix A attached to this Proxy Statement will require +the affirmative vote of the holders of a majority of the shares +of outstanding Common Stock present or represented at the Annual +Meeting and entitled to vote thereat. In determining whether the +proposal has been approved, abstentions will be counted as votes +against the proposal and broker non-votes will not be counted as +votes for or against the proposal or as votes present and voting +on the proposal. Proxies solicited by management for which no +specific direction is included will be voted FOR approval +of the amendment to the 2006 Equity Incentive Plan. +THE BOARD +OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 2 TO APPROVE THE +AMENDMENT TO THE +2006 EQUITY INCENTIVE PLAN. +33 +Table of Contents +PROPOSAL NO. 3 +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +For the 2006 fiscal year, KPMG LLP provided audit services, +which included examination of the Company’s annual +consolidated financial statements. The Audit Committee has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2007. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP +will attend the Annual Meeting to make any statements he or she +may desire and to respond to appropriate stockholder questions. +Although this appointment is not required to be submitted to a +vote of the stockholders, the Audit Committee believes it is +appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the +appointment of the independent registered public accounting firm +requires the affirmative vote of holders of a majority of the +outstanding shares of our Common Stock, present in person or +represented by Proxy at the Annual Meeting and entitled to vote. +If the stockholders do not ratify the appointment, the Board of +Directors and Audit Committee will consider the selection of +another independent registered public accounting firm. +THE BOARD +OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 3 TO RATIFY THE SELECTION +OF KPMG LLP AS THE +COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM. +Audit +Fees and All Other Fees +Audit +Fees +Fees for audit services totaled approximately $891,000 in 2006 +and $932,000 in 2005. The audit fees include fees associated +with the internal control attestation related to +Section 404 of the Sarbanes-Oxley Act with the remainder of +the fees associated with the annual audit, the reviews of the +Company’s quarterly reports on +Form 10-Q +and statutory audits required internationally. +Audit-Related +Fees +The Company was not billed for any audit-related fees in 2006 or +2005. +Tax +Fees +Fees for tax services, including tax compliance, tax advice and +tax planning for income taxes and customs matters, totaled +approximately $477,000 in 2006 and $123,000 in 2005. +KPMG LLP has advised the Company that neither the firm, nor any +member of the firm, has any financial interest, direct or +indirect, in any capacity in the Company or its subsidiaries. +All +Other Fees +The Company was not billed for any such fees in 2006 or 2005. +Audit +Committee Pre-Approval of Audit and Permissible Non-Audit +Services of Independent Registered Public Accounting +Firm +The Audit Committee administers the Company’s engagement of +KPMG LLP and pre-approves all audit and permissible non-audit +services on a +case-by-case +basis. In approving non-audit services, the Audit Committee +considers whether the engagement could compromise the +independence of KPMG LLP, and whether for reasons of efficiency +or convenience it is in the best interest of the Company to +engage its independent auditor to perform the services. The +Audit Committee has determined that performance by KPMG LLP of +the non-audit services listed above did not affect their +independence. +Prior to engagement, the Audit Committee pre-approves all +independent auditor services. During the year, circumstances may +arise when it may become necessary to engage the independent +auditor for additional services +34 +Table of Contents +not contemplated in the original pre-approval categories. In +those instances, the Audit Committee requires that those +services be submitted to the Audit Committee for specific +pre-approval before the Company can engage for them. +The Audit Committee may delegate pre-approval authority to one +or more of its members. The member to whom such authority is +delegated reports any pre-approval decisions to the Audit +Committee at its next scheduled meeting. +STOCKHOLDER +PROPOSALS FOR THE 2008 ANNUAL MEETING +The Company’s Bylaws provide that a stockholder seeking to +bring business before an annual meeting of stockholders, or to +nominate a candidate for election as director at an annual +meeting of stockholders, must provide timely advance written +notice. To be timely, a stockholder’s notice generally must +be received at our principal executive office on or before the +date 90 days prior to the scheduled date of the annual +meeting or, if it is a later date, on or before the date seven +days after the Company first publishes notice of the annual +meeting. +In addition, SEC rules provide that a stockholder wishing to +include a proposal in the proxy statement for the Company’s +2008 Annual Meeting must submit the proposal so that it is +received by the Company at its principal executive office, +attention Corporate Secretary, at +495-A South +Fairview Avenue, Goleta, California 93117 no later than +December 10, 2007. If the date of the 2008 Annual Meeting +is advanced or delayed more than 30 days from the date of +the Annual Meeting, stockholder proposals intended to be +included in the proxy statement for the 2008 Annual Meeting must +be received by us within a reasonable time before the Company +begins to print and mail the proxy statement for the 2008 Annual +Meeting. Upon any determination that the date of the 2008 Annual +Meeting will be advanced or delayed by more than 30 days +from the date of the Annual Meeting, the Company will disclose +the change in the earliest practicable Quarterly Report on +Form 10-Q. +SEC rules also govern a company’s ability to use +discretionary proxy authority with respect to stockholder +proposals that were not submitted to stockholders in time to be +included in the Proxy Statement. In the event a stockholder +proposal is not submitted to the Company on or before +February 27, 2008, the proxies solicited by the Board for +the 2008 Annual Meeting of stockholders will confer authority on +the Proxyholders to vote the shares in accordance with the +recommendation of the Board if the proposal is presented at the +2008 Annual Meeting of stockholders without any discussion of +the proposal in the proxy statement for such meeting. +Stockholder nominations for director for the 2008 Annual Meeting +must be submitted in accordance with the procedures described +above under the caption “Procedures for Stockholder +Nominations.” +OTHER +BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual +Meeting or any continuation, postponement or adjournment thereof +other than the election of directors, the ratification of the +selection of the Company’s independent registered public +accounting firm, and the approval of an amendment to the +Company’s 2006 Equity Incentive Plan. However, inasmuch as +matters of which management is not now aware may come before the +Annual Meeting or any continuation, postponement or adjournment +thereof, the Proxies confer discretionary authority with respect +to acting thereon, and the persons named in such Proxies intend +to vote, act and consent in accordance with their best judgment +with respect thereto, provided that, to the extent the Company +becomes aware a reasonable time before the Annual Meeting of any +matter to come before such meeting, the Company will provide an +opportunity to vote by Proxy directly on such matter. Upon +receipt of such Proxies in time for voting, the shares +represented thereby will be voted as indicated thereon and as +described in this Proxy Statement. +COST OF +SOLICITATION +The solicitation of Proxies is made on behalf of the Company and +all the expenses of soliciting Proxies from stockholders will be +borne by the Company. In addition to the solicitation of Proxies +by use of the mails, officers and regular employees may +communicate with stockholders personally or by mail, telephone, +telegram or otherwise for the purpose of soliciting such +Proxies, but in such event no additional compensation will be +paid to any such persons for such +35 +Table of Contents +solicitation. The Company will reimburse banks, brokers and +other nominees for their reasonable out-of-pocket expenses in +forwarding soliciting material to beneficial owners of shares +held of record by such persons. The total estimated cost of the +solicitation of Proxies is approximately $94,000. +ANNUAL +REPORT ON +FORM 10-K +A copy of the Company’s Annual Report on +Form 10-K +for the fiscal year ended December 31, 2006 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy +Statement, but it is not deemed to be a part of the Proxy +soliciting material. The +Form 10-K +contains consolidated financial statements of the Company and +its subsidiaries and the report thereon of KPMG LLP, the +Company’s independent registered public accounting firm. +The Company will provide a copy of the exhibits to its +Form 10-K +for the fiscal year ended December 31, 2006 upon the +written request of any beneficial owner of the Company’s +securities as of the Record Date and reimbursement of the +Company’s reasonable expenses. Such request should be +addressed to the Secretary of the Company at the Company’s +office at +495-A South +Fairview Avenue, Goleta, California 93117. +STOCKHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE +ENCLOSED PROXY AS SOON AS POSSIBLE AND RETURN IT IN THE ENVELOPE +PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE +UNITED STATES. +BY ORDER OF THE BOARD OF DIRECTORS +Angel R. Martinez +President and Chief Executive Officer +Goleta, California +April 9, 2007 +36 +Table of Contents +Appendix A +FIRST +AMENDMENT +TO +DECKERS +OUTDOOR CORPORATION +2006 +EQUITY INCENTIVE PLAN +THIS FIRST AMENDMENT TO DECKERS OUTDOOR CORPORATION 2006 EQUITY +INCENTIVE PLAN (the “ Amendment ”) is made and +entered into this 9th day of May, 2007. +WHEREAS: +A. The Board of Directors of DECKERS OUTDOOR CORPORATION +(the “ Company ”) adopted the “Deckers +Outdoor Corporation 2006 Equity Incentive Plan” (the +“ Plan ”), which was subsequently approved by the +Stockholders of the Company at a meeting of the Company’s +Stockholders on May 19, 2006; and +B. The Company has determined to amend the Plan in certain +respects subject to the subsequent approval of the amendment by +its Stockholders. +NOW, THEREFORE, in consideration of the foregoing, the Plan is +hereby amended, in part, as follows: +1. Section 4.1.1 of the Plan is hereby amended to read +as follows: +“4.1.1 Multiple Administrative +Bodies. The Plan shall be administered by +the Board or one or more Committees, including such delegates as +may be appointed under paragraph 4.1.4 of this +Section 4; provided, however, that discretionary awards to +non-employee Directors shall be administered by an Independent +Committee of the Board of Directors.” +2. Section 4.1 of the Plan is amended by adding a new +provision, new paragraph 4.1.6, which shall read as follows: +“4.1.6 Repricing. The Committee +is not granted the authority to reprice existing granted stock +options and such repricing is prohibited. +3. A new provision, subsection 4.2.19, is hereby added +to Section 4.2, which shall read as follows: +“4.2.19 Notwithstanding the foregoing, no award under +Section 11 of this Plan will be provided or issued without +a minimum one (1) year restriction on performance awards +and a minimum three (3) year restriction on tenure awards. +The Administrator may not waive this provision, except in the +case of the death, disability or retirement of the Participant, +or a Change in Control of the Company.” +4. Section 6 of the Plan is hereby amended to read as +follows: +“6. Effective Date and Term of the +Plan. The Plan shall become effective upon +its approval by the stockholders of the Company. It shall +continue in effect for a term of ten years from the date the +Plan is approved by the stockholders, unless terminated earlier +under Section 10 herein. Notwithstanding the foregoing +termination of the Plan, the Committee is authorized to provide +for awards or grants that extend beyond the ten year term, +except in the case of Incentive Stock Options.” +5. Section 15.1 of the Plan is hereby amended to read +as follows: +“15.1 Changes in Capitalization. With respect to +the Plan, (i) the number and kind of Shares covered by +each outstanding Award, and the number and kind of shares of +Common Stock that have been authorized for issuance under the +Plan but as to which no Awards have yet been granted or that +have been returned to the Plan upon cancellation or expiration +of an Award; (ii) the price per Share subject to each such +outstanding Award; and (iii) the Share limitations set +forth in Section 3 of the Plan, shall be appropriately +adjusted if any change is made in the Common Stock subject to +the Plan, or subject to any Award, without the receipt of +consideration by the Company through a stock split, reverse +stock split, +A-1 +Table of Contents +stock dividend, combination or reclassification of the Common +Stock, merger, consolidation, reorganization, recapitalization, +reincorporation, spin-off, dividend in property other than cash, +liquidating dividend, extraordinary dividends or distributions, +combination of shares, exchange of shares, change in corporate +structure or other transaction effected without receipt of +consideration by the Company, subject to any required action by +the stockholders of the Company; provided, however, that +conversion of any convertible securities of the Company shall +not be deemed to have been “effected without receipt of +consideration.” Such adjustment shall be made by the +Administrator. Except as expressly provided herein, no issuance +by the Company of shares of stock of any class, or securities +convertible into shares of stock of any class, shall affect, and +no adjustment by reason thereof shall be made with respect to, +the number or price of shares of Common Stock subject to an +Award.” +6. In all other respects, the Plan is hereby ratified, +confirmed and approved. +IN WITNESS WHEREOF, the Company, by its duly authorized officer, +has executed this Amendment as of the date hereinabove set +forth, at Santa Barbara, California. +DECKERS OUTDOOR CORPORATION +By: _ +_ +Name: +Title: +A-2 +Table of Contents +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation. +The undersigned hereby appoints Angel R. Martinez and Zohar Ziv, and each of them, as Proxyholders, +each with the power to appoint his substitute, and hereby authorizes each of them to represent and +to vote as designated below, all the shares of common stock of Deckers Outdoor Corporation held of +record by the undersigned on March 16, 2007, at the Annual Meeting of Stockholders to be held on +May 9, 2007 and any continuations, postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE. +Address Change/Comments (Mark the corresponding box on the reverse side) +5 FOLD AND DETACH HERE 5 +You can now access Deckers Outdoor Corporation accounts online. +Access to Deckers Outdoor Corporation shareholder/stockholder accounts is available online via +Investor ServiceDirect ® (ISD). +Mellon Investor Services LLC, Transfer Agent for Deckers Outdoor Corporation, now makes it easy and +convenient to get current information on shareholder accounts. +• +View account status +• +View payment history for dividends +• +View certificate history +• +Make address changes +• +View book-entry information +• +Obtain a duplicate 1099 tax form +• +Establish/change your PIN +Visit us on the web at http://www.melloninvestor.com +For +Technical Assistance Call 1-877-978-7778 between 9am-7pm +Monday-Friday Eastern Time +Investor ServiceDirect ® is a registered trademark of Mellon Investor Services LLC +Table of Contents +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSALS AND IN ACCORDANCE +WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS.THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS . +Mark Here +for Address +Change or +Comments +o +PLEASE SEE REVERSE SIDE +FOR +WITHHOLD AUTHORTY +to vote for the +nominees listed below +1. +ELECTION OF DIRECTORS: +o +o +Instruction: To withhold authority to vote for +a nominee listed below, strike a line through the +nominee’s name. +Nominees: +01 Douglas B. Otto +05 John M. Gibbons +02 Angel R. Martinez +06 John G. Perenchio +03 Gene E. Burleson +07 Maureen Conners +04 Rex A. Licklider +08 Tore Steen +FOR +AGAINST +ABSTAIN +2. +TO APPROVE THE AMENDMENT TO THE 2006 +EQUITY INCENTIVE PLAN. +o +o +o +FOR +AGAINST +ABSTAIN +3. +TO RATIFY THE SELECTION OF KPMG LLP AS THE COMPANY’S +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. +o +o +o +FOR +AGAINST +ABSTAIN +4. +In their discretion, the Proxyholders are authorized to +transact such other business as may properly come before the Annual +Meeting or any continuations, postponements or adjournments thereof. +o +o +o +The Board of Directors recommends a vote +“For” the election of each of the nominees, +“For” the approval to amend the 2006 Equity +Incentive Plan, and “For” ratification of the +selection of KPMG LLP as the Company’s +independent registered public accounting firm +for fiscal 2007. All proposals to be acted +upon are proposals of the Board of Directors. +If any other business is properly presented +at the Meeting, including, among other +things, consideration of a motion to adjourn +the meeting to another time or place in order +to solicit additional Proxies in favor of the +recommendations of the Board of Directors, +this Proxy shall be voted by the Proxyholders +in accordance with the recommendations of a +majority of the Board of Directors. At the +date the Proxy Statement went to press, we +did not anticipate any other matters would be +raised at the Annual Meeting. +PLEASE MARK, SIGN, DATE AND RETURN +THE PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +If you plan to attend the Annual Meeting, +please mark the WILL ATTEND box. +WILL +ATTEND +o +Signature +Signature +Dated +2007 +Please sign exactly as the name appears above. When shares are held by joint tenants, both +should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give +your full title as such. If the signer is a corporation, please sign in full corporate name by the +President or other authorized officer giving full title as such. If the signer is a partnership, +please sign in the partnership name by an authorized person. +5 FOLD AND DETACH HERE 5 +WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING. +BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. +Internet and telephone voting are available through 11:59 PM Eastern Time +the day prior to the Annual Meeting date. +Internet +or telephone voting authorizes the named Proxyholders to vote in the +same manner +as if marked, signed and returned on the proxy card. +INTERNET +http://www.proxyvoting.com/deck +Use the internet to vote the proxy. +Have the proxy card in hand +when accessing the web site. +OR +TELEPHONE +1-866-540-5760 +Use any touch-tone telephone +to vote the proxy. Have the proxy +card in hand when calling. +If voting by internet or by telephone, you do NOT need to mail back the proxy card. +To vote by mail, mark, sign and date the proxy card and return it in the enclosed postage-paid envelope. +Choose MLink SM for fast, easy and secure 24/7 online access to future proxy +materials, investment plan statements, tax documents and more. Simply log on to Investor +SeviceDirect ® at www.melloninvestor.com/isd where step-by-step instructions will prompt +you through enrollment. +You can view the Annual Report and Proxy Statement +on the +internet at: http://www.deckers.com \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950124-07-002064/proxy_rpt.txt b/raw/proxies/0000910521/0000950124-07-002064/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0000950129-05-003767/proxy.txt b/raw/proxies/0000910521/0000950129-05-003767/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1dd777bc1045541fc0c7b9c209a3d9d2d49ea1c6 --- /dev/null +++ b/raw/proxies/0000910521/0000950129-05-003767/proxy.txt @@ -0,0 +1,2104 @@ +DEF 14A +1 +v07346def14a.htm +DECKERS OUTDOOR CORPORATION +def14a +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +x +Definitive Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +DECKERS OUTDOOR CORPORATION +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +Fee not required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +DECKERS OUTDOOR CORPORATION +April 18, 2005 +Dear Stockholder: +We cordially invite you to attend our 2005 Annual Meeting of +Stockholders to be held at 9:00 a.m. on Friday, +May 20, 2005 at the offices of Sheppard, Mullin, Richter +and Hampton LLP, 800 Anacapa Street, Santa Barbara, +California 93101. Enclosed are the Notice of Annual Meeting, +Proxy Statement and a Proxy Card relating to the Annual Meeting +which we urge you to read carefully. Also enclosed is the +Company’s 2004 Annual Report to Stockholders on +Form 10-K. Whether or not you expect to attend the Annual +Meeting, please sign and date the enclosed Proxy Card and return +it as promptly as possible to ensure that your shares will be +voted. Properly executed Proxy Cards received by the Company +prior to the Annual Meeting will be voted in accordance with the +instructions indicated in such cards. Because mail delays occur +frequently, it is important that the enclosed Proxy Card be +returned well in advance of the meeting. +ON BEHALF OF YOUR +BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be held May 20, 2005 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of Stockholders +(the “Annual Meeting”) of Deckers Outdoor Corporation, +a Delaware corporation (the “Company”), will be held +at the offices of Sheppard, Mullin, Richter and Hampton LLP, 800 +Anacapa Street, Santa Barbara, California 93101, on Friday, +May 20, 2005, beginning at 9:00 a.m., local time. The +Annual Meeting will be held for the following purposes: +1. To elect two (2) directors of the Company to serve +as Class III directors until the Annual Meeting of +Stockholders to be held in 2008. +2. To ratify the selection of KPMG LLP as the +Company’s independent registered public accounting firm. +3. To transact such other business as may properly come +before the meeting or any postponements or adjournments thereof. +The Board of Directors has fixed March 25, 2005 as the +record date for the determination of stockholders entitled to +notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof, and only stockholders of +record at the close of business on that date are entitled to +such notice and to vote, in person or by proxy, at the Annual +Meeting. +A list of stockholders entitled to vote at the Annual Meeting +will be available at the offices of the Company for ten +(10) days prior to the Annual Meeting. +We hope that you will use this opportunity to take an active +part in the affairs of the Company by voting on the business to +come before the Annual Meeting either by executing and returning +the enclosed Proxy Card or by casting your vote in person at the +Annual Meeting. +The Proxy Statement that accompanies this Notice contains +additional information regarding the proposals to be considered +at the meeting, and stockholders are encouraged to read it in +its entirety. +As set forth in the accompanying Proxy Statement, proxies are +being solicited by and on behalf of the Board of Directors of +the Company. All proposals set forth above are proposals of the +Company. It is expected that these materials first will be +mailed to stockholders on or about April 18, 2005. +STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON ARE +REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY +AS POSSIBLE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR +CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD +BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR +ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board +Goleta, California +April 18, 2005 +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +To be Held May 20, 2005 +PROXY STATEMENT +This Proxy Statement is furnished in connection with the +solicitation of proxies by the Board of Directors of Deckers +Outdoor Corporation, a Delaware corporation (the +“Company”), for use at the Annual Meeting of +Stockholders (the “Annual Meeting”) to be held at +9:00 a.m., local time, on May 20, 2005, at the offices +of Sheppard, Mullin, Richter and Hampton LLP, 800 Anacapa +Street, Santa Barbara, California 93101, and any +continuations, postponements or adjournments thereof for the +purposes set forth in the accompanying Notice of Annual Meeting. +This Proxy Statement and the accompanying proxy card were first +mailed to stockholders on or about April 18, 2005. +Method of Voting +Stockholders can vote by proxy or by attending the Annual +Meeting and voting in person. A proxy card (the +“Proxy”) is enclosed. If you vote by means of the +Proxy, the Proxy must be completed, signed and dated by you or +your authorized representative. The completed Proxy may be +returned in the postage-paid envelope provided, or by facsimile +to the Inspector of Elections at (213) 553-9735. Douglas B. +Otto and M. Scott Ash, the designated proxyholders (the +“Proxyholders”), are members of the Company’s +management. If you hold Common Stock in “street name,” +you must either instruct your broker or nominee as to how to +vote such shares or obtain a proxy, executed in your favor by +your broker or nominee, to be able to vote at the Annual Meeting. +If a Proxy is properly signed, dated and returned and is not +revoked, the Proxy will be voted at the Annual Meeting in +accordance with the stockholder’s instructions indicated on +the Proxy. If no instructions are indicated on the Proxy, the +Proxy will be voted “FOR” the nominees named herein +for election as directors, “FOR” ratification of the +selection of KPMG LLP as the Company’s independent +registered public accounting firm, and in accordance with the +recommendations of the Board of Directors upon such other +business as may properly come before such meeting or any and all +continuations, postponements or adjournments thereof. +Record Date +March 25, 2005 has been fixed as the record date (the +“Record Date”) for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof. As of March 25, +2005, there were outstanding 12,313,258 shares of the +Company’s common stock, par value $.01 per share (the +“Common Stock”). A majority of the shares of Common +Stock entitled to vote, present in person or represented by +proxy, will constitute a quorum at the meeting. +Voting Rights +Each share of Common Stock issued and outstanding on the Record +Date is entitled to one vote on any matter presented for +consideration and action by the stockholders at the Annual +Meeting. With respect to all matters, other than the election of +the directors, the affirmative vote of a majority of shares of +the Company’s Common Stock present in person or represented +by proxy at the meeting and entitled to vote on the subject +matter will be the act of the stockholders. The Company’s +Certificate of Incorporation does not authorize cumulative +voting in the election of directors. Directors will be elected +by a plurality of the votes of the shares of the Company’s +Common Stock present in person or represented by proxy and +entitled to vote on the election of directors. An abstention on +any proposal submitted to the stockholders, other than the +election of directors, will be included in the number of votes +cast on that proposal and, accordingly, will have the effect of +a vote “AGAINST” the proposal. +1 +With respect to brokers who are members of a stock exchange, the +exchange rules generally require that when shares are registered +in street or nominee name, its member brokers must receive +specific instructions from the beneficial owners in order to +vote on certain proposals. However, the exchange rules do not +require specific instructions in order for a broker to vote on +the election of the Class III directors and on ratification +of the selection of the Company’s independent registered +public accounting firm. If a member broker indicates on the +proxy that such broker does not have discretionary authority as +to certain shares to vote on any proposal that does require +specific instructions, those shares will not be considered as +present and entitled to vote with respect to that proposal, and +accordingly will have the effect of reducing the number of +affirmative votes needed to approve the proposal. +Other Business +If any other matters are promptly presented for consideration at +the Annual Meeting including, among other things, consideration +of a motion to adjourn the meeting to another time or place in +order to solicit additional proxies in favor of the nominee of +the Board of Directors, the persons named as proxies and acting +thereunder will have discretion to vote on these matters +according to their best judgement to the same extent as the +person delivering the proxy would be entitled to vote. At the +date this Proxy Statement went to press, we did not anticipate +any other matter would be raised at the Annual Meeting. +Revocation of Proxy +A stockholder giving a proxy has the power to revoke it at any +time before it is exercised by giving written notice of +revocation to the Secretary of the Company, by executing a +subsequent proxy, or by attending the Annual Meeting and voting +in person. Subject to any such revocation, all shares +represented by properly executed proxies will be voted in +accordance with the specifications on the enclosed proxy card. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Bylaws state that the Board of Directors +shall consist of not less than one nor more than seven members. +The specific number of Board members within this range is +established by the Board of Directors and is currently set at +five. There are currently five Board members and no vacancies. +The Company’s Certificate of Incorporation provides that +the Board shall be classified into three classes of directors, +which classes serve staggered three-year terms. The Board +currently consists of two directors for both Class I and +Class III, and one Class II director. The current term +of the Class I directors expires at the Annual Meeting of +Stockholders to be held in 2006, the current term of the +Class II director expires at the 2007 Annual Meeting of +Stockholders, and the current term of the Class III +directors expires at the May 20, 2005 Annual Meeting of +Stockholders. The Board of Directors is proposing Douglas B. +Otto and Gene E. Burleson, who are now serving as Class III +directors, for re-election as Class III directors at the +Annual Meeting. Each of the Class III directors elected at +the Annual Meeting will serve until the Annual Meeting of +Stockholders to be held in 2008, until such director’s +successor has been duly elected and qualified or until such +director has otherwise ceased to serve as a director. Each +nominee has indicated his willingness to serve and, unless +otherwise instructed, the Proxyholders will vote the Proxies +received by them for the nominees of the Board. If any nominee +is unable or unwilling to serve as a director at the time of the +Annual Meeting or any adjournment or postponement thereof, the +Proxies will be voted for such other nominee(s) as shall be +designated by the current Board to fill any vacancy. The Company +has no reason to believe that any nominee will be unable or +unwilling to serve if elected as director. Voting shall take +place for the two Class III directors, and the two nominees +for election as Class III directors at the Annual Meeting +who receive the highest number of affirmative votes, will be +elected. The nominees have supplied the following background +information to the Company: +Director +Name +Age +Principal Occupation During the Last 5 Years of Experience +Since +Douglas B. Otto +53 +Co-founder of the Company in 1973, and an executive officer +since that time, Chairman of the Board since 1982, Chief +Executive Officer from 1982 through April 10, 2005 and +President from January 2003 to April 10, 2005, from March +1999 through February 2000 and from 1982 through May 1998. He +also served as Chief Financial Officer from June 1990 through +December 1992. +1982 +Gene E. Burleson +64 +Director of Prospect Medical Holdings, Inc., a healthcare +management services organization, since August 2004. Director of +Nesco Industries, Inc., a manufacturer of medical products, +since November 2004. Director for SunLink Health Systems, an +operator of acute hospitals, since October 2003. Chairman of the +Board of Alterra Healthcare Corporation, an operator of assisted +living facilities, from January 2003 to December 2003 and member +of its board of directors from January 1995 to December 2003. +Chairman of the Board of Mariner Healthcare, Inc., a long-term +healthcare provider, from January 1999 to May 2002. +Mr. Burleson has served as a Director of the Company since +1993. +1993 +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” THE ELECTION OF THE ABOVE NOMINEES. +None of the directors, nominees for director or executive +officers were selected pursuant to any arrangement or +understanding, other than with the directors and executive +officers of the Company acting within their capacity as such. +There are no family relationships among directors or executive +officers of the Company. +3 +MANAGEMENT +The directors and executive officers of the Company are set +forth below. The following table includes information with +respect to each director and executive officer of the Company. +Class of +Name +Age +Position +Director +Douglas B. Otto +53 +Chairman of the Board of Directors +III +Angel R. Martinez +49 +Chief Executive Officer and President +Constance X. Rishwain +47 +President of the UGG and Simple Divisions +Robert P. Orlando +52 +President of the Teva Division +M. Scott Ash +40 +Chief Financial Officer and Assistant Secretary +Patrick C. Devaney +50 +Senior Vice President of Global Sourcing, Production and +Development +Janice M. Howell +55 +Vice President of Operations +John A. Kalinich +37 +Vice President of Consumer Direct +Tracey A. Nelson +49 +Vice President of Corporate Licensing +Gene E. Burleson +64 +Director (1) +III +Rex A. Licklider +62 +Director (1) +II +John M. Gibbons +56 +Director (1) +I +Daniel L. Terheggen +54 +Director +I +(1) +The Board of Directors has determined that each of these +Directors is “independent” as that term is defined +under Rule 4200 (a) (15 ) of the Nasdaq Stock Market. +Douglas B. Otto , co-founder of Deckers in 1973, +has served as an executive officer and director since that time, +as Chairman of the Board since 1982, as Chief Executive Officer +from 1982 through April 10, 2005 and as President from +January 2003 through April 10, 2005, from March 1999 +through February 2000 and from 1982 through May 1998. He also +served as Chief Financial Officer from June 1990 through +December 1992. +Angel R. Martinez joined Deckers on April 11, +2005 as Chief Executive Officer and President. Previously, he +was Chief Executive Officer and Vice Chairman of Keen LLC, an +outdoor footwear manufacturer, from January 2005 to March 2005, +after serving as President and Chief Executive Officer from +April 2003 to December 2004, and as an independent consultant +since June 2001. Prior thereto he served as Executive Vice +President and Chief Marketing Officer of Reebok International +Ltd. (Reebok) and as Chief Executive Officer and President of +The Rockport Company, a subsidiary of Reebok. Mr. Martinez +has been a member of the Board of Directors of Tupperware +Corporation since 1998. +Constance X. Rishwain has been the President of +the UGG and Simple Divisions since December 2002 after serving +as Vice President, Brand Manager-Simple since January 2001, and +Vice President, Brand Manager-UGG since April 1999. Previously, +Ms. Rishwain held a variety of positions since joining us +in January 1995, including Vice President of Domestic Sales for +Teva, UGG and Simple from June 1999 to December 1999, Vice +President of Sales — Western Division for Teva, UGG +and Simple from December 1997 to June 1999 and Vice President +Merchandising for Teva, UGG and Simple from January 1995 to +December 1997. Before joining us, Ms. Rishwain held the +position of Vice President of Merchandising and Marketing for +Impo International Shoe Company from 1988 to 1994 and worked for +Nine West from 1984 to 1988 in several capacities. +Robert P. Orlando has been the President of the +Teva Division since December 2002 and was the Vice +President — Brand Manager of Teva from May 2000 until +December 2002. Previously, Mr. Orlando worked for +Adidas-Salomon North America where he was Vice President of +Footwear and Apparel from 1999 to 2000 and Business Unit Manager +from 1996 to 1999. He was President of Newport Outfitters, a +footwear manufacturer, from 1994 to 1996. +4 +M. Scott Ash has been our Chief Financial +Officer since January 1997 and our Assistant Secretary since +December 1999. He was our Controller from 1993 through 1996 and +was our Secretary from March 1999 to December 1999. Prior to +joining us, he was employed by Dole Food Company, Inc. from +August 1992 to January 1993 as Manager of Corporate Reporting. +Previously, he was a Senior Manager at KPMG LLP where he was +employed from September 1986 to August 1992. Mr. Ash is a +certified public accountant. +Patrick C. Devaney has been our Senior Vice +President of Global Sourcing, Production and Development since +March 2000 and served as our Vice President of Global Sourcing, +Production and Development from November 1997 to March 2000. +Prior to joining us, Mr. Devaney was employed by Mizuno USA +where he was Director of Global Footwear from February 1990 to +June 1997 and was a Global Product/ Marketing Manager for Reebok +International from 1985 to December 1989. +Janice M. Howell has been our Vice President of +Operations since December 2002, Director of Operations from +November 1999 to December 2002 and Director of Human Resources +and Administration from January 1992 to November 1999. +Ms. Howell previously was employed at Wavefront +Technologies, Inc., a computer graphics company, as Director of +Human Resources and Administration from 1986 to 1991. +John A. Kalinich has served as Vice President of +Consumer Direct since November 2002, when he joined us in +connection with our acquisition of the Teva Rights at that time. +Mr. Kalinich served as the director appointed by Mark +Thatcher as provided in the agreement between Mark Thatcher and +us for our acquisition of the Teva Rights, from November 2002 +until June 2004. He is responsible for the protection of our +worldwide intellectual property and the operation of the +Internet websites for Teva, UGG and Simple. He also served as +Director of Corporate Licensing for the Company from November +2002 to August 2004. Prior to joining us, Mr. Kalinich was +the Chief Operations Officer for Teva Sport Sandals, Inc. from +January 1995 to November 2002. Previously, Mr. Kalinich was +employed as an audit senior associate by Coopers & +Lybrand LLP from July 1991 to January 1995. Mr. Kalinich is +a certified public accountant. +Tracey A. Nelson joined Deckers as Vice President +of Corporate Licensing in August 2004. Ms. Nelson served as +Global Leader of Licensing at Fila/ Sports Brands International +from September 2003 to July 2004. She served as Vice President +of Marketing at Echo Design Group from May 2000 to August 2003. +She served as Vice President of Corporate Licensing at Nine West +Group from February 1996 to April 2000 and in various licensing +and marketing positions at Polo/ Ralph Lauren for the eight +years prior. +Gene E. Burleson has served as a director since +September 1993. Mr. Burleson has also served as a director +of Prospect Medical Holdings, Inc, a healthcare management +services organization, since August 2004. In addition, +Mr. Burleson has served as a director of Nesco Industries, +Inc., a manufacturer of medical products, since November 2004, +and a director for SunLink Health Systems, an operator of acute +hospitals, since October 2003. He served as Chairman of the +Board of Alterra Healthcare Corporation, an operator of assisted +living facilities, from January 2003 to December 2003 and was a +member of its board of directors from January 1995 to December +2003. He served as Chairman of the Board of Mariner Healthcare, +Inc., a long-term healthcare provider, from January 1999 to May +2002. +Rex A. Licklider has served as a director since +September 1993. He has been Co-Chief Executive Officer and a +director of The Sports Club Company, a publicly held developer +and operator of health and fitness clubs, since February 2000 +and Vice Chairman since 1994. From February 1992 to January +1993, Mr. Licklider was Chairman of the Board of Resurgens +Communications Group, a long distance telecommunications +company, and from 1975 until February 1992, Mr. Licklider +was Chairman of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that +merged with Resurgens Communications Group in February 1992. +John M. Gibbons has served as a director since +July 2000. From June 2000 until February 2004, Mr. Gibbons +was Vice Chairman of TMC Communications, Inc., a long distance, +data and Internet services provider, and was its Chief Executive +Officer from August 2001 until February 2004. From June 2000 to +August 2001 he was President of TMC Communications, Inc. He has +served as a director of National Technical Systems, Inc., a +provider of integrated testing, certification, quality +registration, systems evaluation and staffing services, since +September 2004. Mr. Gibbons was Vice Chairman of Assisted +Living Concepts, +5 +Inc., a national provider of assisted living services, from +March 2000 to December 2001. Previously, Mr. Gibbons was +employed by The Sports Club Company where he was Chief Executive +Officer and a director from July 1999 to February 2000 and was +President and Chief Operating Officer from July 1995 to July +1999. +Daniel L. Terheggen has served as a director since +September 2002. Mr. Terheggen was the co-founder and has +been the Chief Executive Officer of BHPC Global Licensing, Inc. +(“BHPC”), an international licensing and marketing +firm, since April 1990. Mr. Terheggen has also been the +owner of Consolidated Smart Systems, a provider of ancillary +services to the multi-housing market throughout California, +since June 1973. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Daniel L. Terheggen, a member of the Company’s Board of +Directors, is the owner and Chief Executive Officer of BHPC +Global Licensing, Inc. (“BHPC”). The Company paid BHPC +an aggregate of approximately $168,000 for agency fees related +to licensing of the Company’s products during 2004. +INFORMATION ABOUT THE BOARD OF DIRECTORS AND +COMMITTEES OF THE BOARD OF DIRECTORS +Committees of the Board +The Company has an Audit Committee, a Compensation Committee and +a Corporate Governance and Nominating Committee. Each member of +these committees is “independent” as defined under the +applicable rules of Nasdaq and the SEC, except as provided below. +Audit Committee — The Board has a standing +Audit Committee that (i) monitors the integrity of the +Company’s financial reporting process and systems of +internal controls regarding finance, accounting and legal +compliance; (ii) monitors the independence and performance +of the Company’s independent registered public accounting +firm, and (iii) provides an avenue of communications among +the independent registered public accounting firm, management +and the Board of Directors. The Committee met seven times during +2004. At the date of this Proxy Statement, Mr. Gibbons was +Chairman of the Audit Committee and the Committee was comprised +of Messrs. Burleson, Licklider and Gibbons. In February +2005, the Audit Committee recommended, and the Board adopted, a +revised charter for the Audit Committee, a copy of which is +attached as Appendix A to this Proxy Statement. The Board +has determined that Mr. Gibbons qualifies as an “audit +committee financial expert” as defined under the rules of +the SEC. +Compensation Committee — The Board’s +Compensation Committee (the “Compensation Committee”) +(i) reviews and approves corporate goals and objectives +relevant to compensation of the executive officers, +(ii) evaluates the performance of the executive officers in +light of those goals and objectives, (iii) determines and +approves the compensation level of the executive officers based +on this evaluation, and (iv) makes recommendations to the +Board with respect to incentive-compensation plans and +equity-based plans. The Compensation Committee also reviews and +recommends to the Board any new compensation or retirement plans +and administers the Company’s 1993 Employee Stock Incentive +Plan (the “1993 Plan”) and the Company’s 1995 +Employee Stock Purchase Plan (the “Stock Purchase +Plan”). The Committee met five times during 2004. At the +date of this Proxy Statement, Mr. Burleson was Chairman of +the Compensation Committee and the Committee was comprised of +Messrs. Burleson, Licklider, Gibbons, and Terheggen. +Mr. Terheggen is not “independent” as defined +under the applicable rules of Nasdaq. The Company paid BHPC +Global Licensing, Inc. an aggregate of approximately $168,000 +for agency fees related to licensing of the Company’s +products during 2004. Mr. Terheggen is the owner and Chief +Executive Officer of BHPC Global Licensing, Inc. However, in +accordance with Nasdaq Rule 4350(c)(3)(C), the Compensation +Committee is comprised of at least three members, and the Board +has determined that Mr. Terheggen’s membership on the +Compensation Committee is in the best interests of the Company +and its stockholders because of his valuable experience and +input. Mr. Terheggen will not serve as a +“non-independent” member of the Compensation Committee +for longer than two years. +6 +Corporate Governance and Nominating Committee — +The Board has a Corporate Governance and Nominating Committee +(the “Corporate Governance Committee”) whose purpose +is (i) develop and recommend to the Board a set of +corporate governance principles applicable to the Company, +(ii) recommend the director nominees to be selected by the +Board for the next annual meeting of stockholders, +(iii) identify individuals qualified to become Board +members, consistent with criteria approved by the Board and +(iv) oversee the evaluation of the Board and management. +The Committee met three times during 2004. At the date of this +Proxy Statement, Mr. Licklider was Chairman of the +Corporate Governance Committee and the Committee was comprised +of Messrs. Licklider, Burleson, Gibbons and Terheggen. For +the reasons discussed above, Mr. Terheggen is not +“independent” as defined under the applicable rules of +Nasdaq because of his relationship with BHPC Global Licensing, +Inc. However, in accordance with Nasdaq Rule 4350(c)(4)(C), +the Corporate Governance Committee is comprised of at least +three members, and the Board has determined that +Mr. Terheggen’s membership on the Corporate Governance +Committee is in the best interests of the Company and its +stockholders because of his valuable experience and input. +Mr. Terheggen will not serve as a +“non-independent” member of the Corporate Governance +Committee for longer than two years. In February 2005, the +Corporate Governance Committee recommended, and the Board +adopted, a revised charter for the Corporate Governance +Committee, a copy of which is attached as Appendix B to +this Proxy Statement. +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating +Committee considers and approves nominees for election to the +Board of Directors. In addition to the candidates proposed by +the Board of Directors or identified by the committee, the +committee considers candidates for director suggested by +stockholders, provided such recommendations are made in +accordance with the procedures set forth in the Bylaws and +described under “Stockholder Proposals and Director +Nominations for the 2006 Annual Meeting — Procedures +for Stockholder Nominations”. Stockholder nominations that +meet the criteria outlined below will receive the same +consideration that the committee’s nominees receive. +Essential criteria for all candidates considered by the +Corporate Governance and Nominating Committee include the +following: integrity and ethical behavior, maturity, management +experience and expertise, independence and diversity of thought +and broad business or professional experience, with an +understanding of business and financial affairs, and the +complexities of business organizations. +In evaluating candidates for certain Board positions, the +committee evaluates additional criteria, including the +following: financial or accounting expertise; industry +expertise; accomplishment in designing, marketing, +manufacturing, distribution and licensing of footwear, apparel +and accessories; business and other experience relevant to +public companies of a size comparable to the Company; and +experience in investment banking, commercial lending or other +financing activities. +In selecting nominees for the Board of Directors, the committee +evaluates the general and specialized criteria set forth above, +identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous +performance if the candidate is a candidate for re-election, and +generally considers the candidate’s ability to contribute +to the success of the Company. +The Board of Directors’ nominees for the Annual Meeting +have been recommended by the Corporate Governance and Nominating +Committee, as well as the full Board of Directors. +Stockholders did not propose any candidates for election at the +Meeting. +Communications with Directors +You may communicate with the chair of our Audit Committee, +Corporate Governance and Nominating Committee, or Compensation +Committee, or with our independent directors as a group, by +writing to any such person or group c/o the Secretary of +the Company, at the Company’s office at 495-A South +Fairview Avenue, Goleta, CA 93117. +7 +Communications are distributed to the Board of Directors, or to +any individual director, depending on the facts and +circumstances described in the communication. In that regard, +the Board of Directors has requested that certain items that are +unrelated to the duties and responsibilities of the Board of +Directors should be excluded, including the following: junk mail +and mass mailings; product complaints; product inquiries; new +product suggestions; resumes and other forms of job inquiries; +surveys; and business solicitations or advertisements. In +addition, material that is unduly hostile, threatening, illegal +or similarly unsuitable will not be distributed, with the +provision that any communication that is not distributed will be +made available to any independent director upon request. +Director Attendance +In 2004, the Company held five meetings of the Board of +Directors. During 2004, all of the directors attended at least +75% of the aggregate of the meetings of the Board and of the +committees of which they were members. +Director Compensation +Standard Compensation — Directors who are not +employees of the Company or its subsidiaries (“Nonemployee +Directors”) previously received an annual retainer for 2004 +paid as follows: (i) $11,000 in cash, or, at the option of +a Nonemployee Director, exercised ten days prior to the start of +each year, in Common Stock of the Company at a 20% discount off +the price of the shares at the closing price at the beginning of +the year; and (ii) 2,000 shares of the Common Stock of +the Company per year. Additionally, Nonemployee Directors +received $1,500 for each meeting of the Board and $1,000 for +each separately scheduled committee meeting that they attended +in 2004 plus reimbursement of any expenses they may incur with +respect to such meetings. +Beginning in 2005, Nonemployee Directors will receive an annual +retainer of $20,000 in cash and 1,600 shares of Common +Stock per year. Additionally, Nonemployee Directors will receive +$1,500 for each meeting of the Board and each committee meeting +that they attend plus reimbursement of any expenses they may +incur with respect to such meetings. The Audit Committee +Chairman receives an additional annual retainer fee of $12,000 +and the Committee Chairmen for the Compensation Committee and +the Corporate Governance and Nominating Committee each receive +an annual retainer fee of $4,000. Directors who are employees of +the Company or its subsidiaries serve as directors without +compensation. +Stock Options — In 2004, Nonemployee Directors +received additional compensation in the form of stock options +granted automatically under the 1993 Stock Incentive Plan. +Beginning in 2005, the Nonemployee Directors will no longer +receive additional compensation in the form of stock options. +8 +COMPENSATION OF EXECUTIVE OFFICERS +The following table sets forth for the years ended +December 31, 2004, 2003 and 2002, the reportable +compensation paid or awarded to the Chief Executive Officer and +to each of the four other most highly compensated executive +officers of the Company who were executive officers of the +Company at December 31, 2004 and received compensation in +excess of $100,000 in such year (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Annual Compensation +Compensation +Nonvested +Securities +Stock +Underlying +All Other +Name and principal position +Year +Salary +Bonus +Award(s)($) +Options (#) +Compensation +Douglas B. Otto +2004 +$ +345,000 +$ +1,476,000 +$ +376,000 +(1) +— +$ +— +Chief Executive Officer and +2003 +345,000 +813,000 +— +25,000 +— +President(2) +2002 +345,000 +388,000 +— +50,000 +— +Constance X. Rishwain +2004 +160,000 +822,000 +282,000 +(1) +— +— +President of the UGG and +2003 +160,000 +639,000 +— +20,000 +— +Simple Divisions +2002 +140,000 +103,000 +— +50,000 +— +M. Scott Ash +2004 +165,000 +413,000 +282,000 +(1) +— +— +Chief Financial Officer +2003 +146,000 +204,000 +— +20,000 +— +2002 +146,000 +82,000 +— +40,000 +— +Patrick C. Devaney +2004 +167,000 +356,000 +282,000 +(1) +— +— +Senior Vice President of +2003 +167,000 +228,000 +— +20,000 +— +Global Sourcing, Production and Development +2002 +167,000 +52,000 +— +40,000 +— +Janice M. Howell +2004 +125,000 +271,000 +188,000 +(1) +— +— +Vice President of Operations +2003 +110,000 +153,000 +— +12,500 +— +2002 +95,000 +38,000 +— +25,000 +— +(1) +Represents the grant of nonvested stock units under which the +executive has the right to receive shares of Common Stock, +subject to vesting and target performance. The nonvested stock +units were granted to the following executives: Douglas B. Otto +(8,000 shares), Constance X. Rishwain (6,000 shares), +M. Scott Ash (6,000 shares), Patrick C. Devaney +(6,000 shares) and Janice M. Howell (4,000 shares). +The stock awards vest 25% per quarter, beginning on +March 31, 2008. The value set forth above is based on the +closing price on December 31, 2004, which was $46.99. The +value of the nonvested stock units on the date of grant was: +Douglas B. Otto ($358,000), Constance X. Rishwain ($268,000), M. +Scott Ash ($268,000) Patrick C. Devaney ($268,000) and Janice M. +Howell ($179,000). The stock awards are not entitled to +dividends or dividend equivalents. +(2) +Effective April 11, 2005, Mr. Angel Martinez succeeded +Mr. Otto as Chief Executive Officer and President. +Mr. Otto continues to be an executive officer and Chairman +of the Board of Directors. +9 +Option Exercises and Holdings +None of the Named Executive Officers were granted any stock +options during 2004. +Aggregated Option Exercises in 2004 and +2004 Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options at +Shares +December 31, 2004 +December 31, 2004 +Acquired on +Value +Name +Exercise (#) +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas B. Otto +— +$ +— +325,000 +55,000 +$ +14,022,485 +$ +2,137,150 +Constance X. Rishwain +92,500 +2,124,400 +19,500 +38,000 +717,655 +1,449,160 +M. Scott Ash +110,000 +2,644,285 +52,000 +38,000 +2,031,780 +1,450,670 +Patrick C. Devaney +121,949 +3,108,293 +30,051 +38,000 +1,101,570 +1,450,670 +Janice M. Howell +35,243 +1,008,705 +12,157 +22,100 +447,725 +835,711 +Incentive Compensation Plans +The Company currently has two incentive compensation plans: +(i) The 1993 Stock Incentive Plan (the “1993 +Plan”) and (ii) the 1995 Employee Stock Purchase Plan +(the “1995 Plan”). The 1993 Plan provides for +3,000,000 shares of Common Stock that are reserved for +issuance to officers, directors, employees, and consultants of +the Company. Awards to 1993 Plan participants are not restricted +to any specified form and may include stock options, securities +convertible into or redeemable for stock, stock appreciation +rights, stock purchase warrants, or other rights to acquire +stock. The 1995 Plan is intended to qualify as an Employee Stock +Purchase Plan under Section 423 of the Internal Revenue +Code. Under the terms of the 1995 Plan, as amended, +300,000 shares of Common Stock are reserved for issuance to +employees who have been employed by the Company for at least six +months. The 1995 Plan provides for employees to purchase the +Company’s Common Stock at a discount below market value, as +defined by the 1995 Plan. +Equity Compensation Plan Information +The following table shows outstanding options, their +weighted-average exercise price and options remaining available +for issuance under the Company’s existing compensation +plans. +EQUITY COMPENSATION PLAN INFORMATION +Number of Securities +Number of +Remaining Available +Securities to be +Weighted-Average +For Future Issuance +Issued upon +Exercise Price of +Under Equity +Exercise of +Outstanding +Compensation Plans +Outstanding +Options, +(Excluding +Options, Warrants +Warrants and +Securities Reflected +Plan Category +and Rights (a) +Rights (b) +in Column (a)) (c) +Equity compensation plans approved by security holders +950,000 +(1) +$ +7.62 +333,000 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +950,000 +$ +7.62 +333,000 +(1) +Shares issuable pursuant to outstanding options (890,000) and +nonvested stock units (60,000) under the Company’s 1993 +Employee Stock Incentive Plan. +(2) +Represents shares of the Company’s Common Stock, which may +be issued pursuant to future awards under the Company’s +1993 Employee Stock Incentive Plan. +10 +Employment Agreements +Effective April 11, 2005, the terms of employment for +Douglas B. Otto were amended to reflect Mr. Otto’s +resignation from his role as Chief Executive Officer and +President. Mr. Otto will continue to be Chairman of the +Board and will continue to be an executive officer of the +Company through 2007. For 2005, Mr. Otto’s +compensation is pro-rated to include a base salary of +$345,000 per annum pro-rated for the period through +April 10, 2005 and $104,000 per annum pro-rated for +the period thereafter. His compensation also includes a target +incentive bonus of $103,500, based upon the achievement of +certain performance criteria. In the event that performance +targets are surpassed, the bonus earned can exceed the target +incentive bonus amount. If Mr. Otto’s employment +agreement is terminated for any reason, including termination +within two years of a Change in Control, the Company will pay +Mr. Otto severance in the amount of three times his annual +base salary in effect immediately prior to the time such +termination occurs, plus the greater of (x) three times the +targeted Incentive Bonus immediately prior to the time such +termination occurs or (y) three times the average actual +Incentive Bonus for the previous three years, whichever is +greater. +Effective January 1, 2004, the other Named Executive +Officers entered into separate employment agreements with the +Company, which will continue until December 31, 2005. The +agreements provide for base salaries in the amounts of $168,000, +$165,000, $167,000 and $125,000 for Constance X. Rishwain, M. +Scott Ash, Patrick C. Devaney and Janice M. Howell, +respectively, and target incentive bonuses in the amounts of +$59,000, $58,000, $50,000 and $38,000, respectively. In the +event that performance targets are surpassed, the bonus earned +can exceed the target incentive bonus amount. The agreements +also provide for severance payments to be made in the event of +termination, excluding “For Cause” as defined therein, +and including termination within two years of a Change in +Control by the Company without cause or by the Named Executive +Officers for good reason. The amount of severance pay ranges +from one-half to one and one-half times the respective +executive’s annual base salary plus, if there is a change +in control, the greater of (x) one and one-half times the +targeted Incentive Bonus immediately prior to the time such +termination occurs or (y) one and one-half times the +average actual Incentive Bonus for the previous three years, +whichever is greater. +Effective April 11, 2005, the Company entered into an +employment agreement with Angel R. Martinez. The agreement, +which expires December 31, 2008, provides that +Mr. Martinez will serve as the Company’s Chief +Executive Officer and President. For 2005, +Mr. Martinez’s compensation includes a base salary of +$345,000 per annum and a target incentive bonus of +$103,500, based upon the achievement of certain performance +criteria. In the event that performance targets are surpassed, +the bonus earned can exceed the target incentive bonus amount. +For 2005, the minimum incentive bonus is set at +$165,000 per annum. The base salary increases to $400,000 +for 2006 and may be reviewed prior to December 31, 2008, +with appropriate adjustments being made. Mr. Martinez is +also granted 50,000 unvested stock units as an incentive, which +will vest quarterly between the third and fourth anniversary of +employment. In the event that Mr. Martinez’s +employment is terminated by the Company without +“Cause”, or by the executive for “Good +Reason”, or in the event of death or disability, all +previously unvested stock units will automatically vest. The +agreement also provides for severance payments to be made in the +event of termination, excluding “For Cause” as defined +therein, and including termination within two years of a Change +in Control by the Company without cause or by the executive for +good reason. The amount of severance pay ranges from one to two +times the executive’s annual base salary plus, if there is +a change in control, the greater of (x) two times the +targeted incentive bonus immediately prior to the time such +termination occurs or (y) two times the average actual +incentive bonus for the previous three years, whichever is +greater. +CERTAIN TRANSACTIONS +In February 2002, we agreed to guarantee up to $1,000,000 of +principal for a home construction bank loan of Doug Otto for up +to three years, in order to avoid any need for Mr. Otto to +sell a portion of his Common Stock in our Company. During May +2004, Mr. Otto repaid the loan in full and no payments were +required to be made by the Company. After the passage of the +Sarbanes-Oxley Act in July 2002, we are precluded from making +such guarantees in the future. +11 +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee (the “Committee”) of the +Board of Directors consists entirely of directors who have never +served as officers or employees of the Company or any of its +subsidiaries. The Committee determines and administers the +compensation of the Company’s executive officers. Set forth +below are the principal factors underlying the Committee’s +philosophy used in setting compensation. +Compensation Philosophy — At the direction of +the Board of Directors, the Committee endeavors to ensure that +the compensation programs for executive officers of the Company +and its subsidiaries are competitive and consistent in order to +attract and retain key executives critical to the Company’s +long-term success. The Committee believes that the +Company’s overall financial performance should be an +important factor in the total compensation of executive +officers. At the executive officer level, the Committee has a +policy that a significant proportion of potential total +compensation should consist of variable, performance-based +components, such as stock options, stock awards and bonuses, +which can increase or decrease to reflect changes in corporate +and individual performance. These incentive compensation +programs are intended to reinforce management’s commitment +to enhancement of profitability and stockholder value. +The Committee takes into account various qualitative and +quantitative indicators of corporate and individual performance +in determining the level and composition of compensation for the +chief executive officer and other executive officers. The +Committee considers such corporate performance measures as net +sales, open orders, net income, earnings per share and similar +quantitative measures. The Committee also appreciates the +importance of achievements that may be difficult to quantify, +and accordingly recognizes qualitative factors, such as +successful supervision of major corporate projects, demonstrated +leadership ability and contributions to industry and community +development. For 2004, the most important qualitative factors in +determining incentive compensation awards to executive officers +were the Committee’s assessments of their contributions to +the Company’s sales, open orders, and earnings per share. +The Committee also evaluates the total compensation of the +Company’s chief executive officer and other executive +officers in light of information regarding the compensation +practices and corporate financial performance of similar +companies in the Company’s industry. However, the Committee +does not target a specific percentile range within the peer +group compensation structure in determining compensation for +executive officers. From time to time, the Committee also +receives assessments and advice regarding the Company’s +compensation practices from independent compensation consultants. +Relationship of Performance to Compensation — +Compensation that may be earned by the executive officers in any +fiscal year consists of base salary, cash bonus and stock-based +compensation. Salaries are reviewed periodically and adjusted as +warranted to reflect sustained individual performance. The +Committee focuses primarily on total annual compensation, +including incentive awards and cash bonuses, rather than base +salary alone, as the appropriate measure of executive officer +performance and contribution. +The executive officers receive incentive compensation awards +based on individual goals and milestones established for each +officer at the beginning of each year and other factors as +determined by the Committee. Such officers receive compensation +for the subsequent attainment of these goals. +The Company’s 1993 Stock Incentive Plan (the “1993 +Plan”) authorizes the Committee to make grants and awards +of stock options, stock appreciation rights, nonvested stock +units and other stock-based awards. The Committee grants such +compensation to executive officers, as well as other employees +and consultants of the Company and its subsidiaries below the +executive officer level, as it deems appropriate. +In approving grants and awards under the 1993 Plan, the +quantitative and qualitative factors and industry comparisons +outlined above will be considered. The number and type of awards +previously granted to and held by executive officers is reviewed +but is not an important factor in determining the size of +current grants. +To the extent readily determinable and as one of the factors in +its consideration of compensation matters, the Committee +considers the anticipated tax treatment to the Company and to +the executives of various payments and benefits. Some types of +compensation payments and their deductibility (e.g., the spread +of +12 +exercise of non-qualified options) depend upon the timing of an +executive’s vesting or exercise of previously granted +rights. Further, interpretations of and changes in the tax laws +and other factors beyond the Committee’s control also +affect the deductibility of compensation. +Beginning in December 2004, the Board of Directors and the +Compensation Committee of the Company have determined to cease +issuing stock options to directors, officers and employees of +the Company and, rather, to issue nonvested stock units under +the 1993 Plan to continue to align the interests of the +directors, officers and employees with those of the stockholders +at a lower cost than the previous stock option grants. As of +December 20, 2004, officers and key employees will be +eligible to receive nonvested stock units annually in an amount +to be determined by the Board of Directors or the Compensation +Committee. The vesting of the nonvested stock units will be as +set forth in each grant and be dependent on the achievement of +certain corporate milestones and continued employment with the +Company for a designated period. +Chief Executive Officer Compensation — Douglas +B. Otto entered into an employment agreement, effective January +1992, and subsequently extended through 2007. For 2004, his +employment agreement provided for an annual salary of $345,000, +based on an assessment and recommendation performed by an +independent compensation consultant. The amounts of +Mr. Otto’s bonuses are determined by the Compensation +Committee and are based upon a combination of factors, weighted +heavily toward the sales, open orders and operating results of +the Company. For 2004, Mr. Otto’s bonus was $1,476,000. +For 2004, the Committee based the majority of +Mr. Otto’s bonus on several criteria established at +the beginning of the year, which were focused primarily on the +Company’s ability to achieve targeted goals for sales, open +orders and earnings. In 2004, under the direction of +Mr. Otto, the Company exceeded the targeted goals for each +of these areas. In 2004, the Company had record sales of +$214.8 million and record operating income of +$42.5 million; increased diluted EPS by 173%; improved the +balance sheet by completing a follow-on stock offering which +raised approximately $35 million and repaying all of the +Company’s long-term debt; and experienced a 129% increase +in stock price for the year. +In December 2004 and in February 2005, the Committee established +the compensation of the Company’s Chief Executive Officer +and its other executive officers for fiscal year 2005. In each +case, the Committee’s decision was based upon the +principles and procedures outlined above. +Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code of 1986, +as amended (the “Code”), a public company generally +will not be entitled to a deduction for non-performance-based +compensation paid to certain executive officers to the extent +such compensation exceeds $1.0 million. Special rules apply +for “performance-based” compensation, including the +approval of the performance goals by the stockholders of the +Company. +The Company has not adopted any formal policy with respect to +Section 162(m) of the Internal Revenue Code of 1986. +However, the Compensation Committee generally structures +compensation to be deductible and considers cost and value to +the Company in making compensation decisions, which would result +in non-deductibility. The Board has on occasion made decisions +resulting in non-deductible compensation. The Company will not +be able to deduct any compensation in excess of $1,000,000 paid +to Douglas B. Otto in fiscal year 2004. The Compensation +Committee believes that these payments were appropriate and in +the best interests of the Company. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Daniel L. Terheggen +The Report of the Compensation Committee on Executive +Compensation shall not be deemed incorporated by reference by +any general statement incorporating by reference this proxy +statement into any filing under the Securities Act of 1933 or +under the Securities Exchange Act of 1934, except to the extent +that +13 +the Company specifically incorporates this information by +reference, and shall not otherwise be deemed filed under such +Acts. +Compensation Committee Interlocks and Insider +Participation +As of the date of this Proxy Statement, the members of the +Compensation Committee were Messrs. Burleson, Licklider, +Gibbons and Terheggen, none of whom was an officer or employee +of the Company or any of its subsidiaries during fiscal year +2004 or is a former officer or employee of the Company or any of +its subsidiaries. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing +independent, objective oversight of the Company’s +accounting functions and internal controls. The Audit Committee +is currently composed of three directors, each of whom meets the +independence and experience requirements of the Nasdaq Stock +Market and the independence requirements of the SEC. +Management is responsible for the preparation of the +Company’s financial statements and financial reporting +process including its system of internal controls. The +independent registered public accounting firm is responsible for +performing an independent audit of the Company’s +consolidated financial statements in accordance with the +standards of the Public Company Accounting Oversight Board +(United States) and expressing (i) an opinion on whether +the Company’s financial statements present fairly, in all +material respects, the Company’s financial position and +results of operations for the periods presented in conformity +with accounting principles generally accepted in the United +States and (ii) an opinion on whether management’s +assessment that the Company maintained effective internal +control over financial reporting as of December 31, 2004, +is fairly stated, in all material respects, based on criteria +established in Internal Control-Integrated Framework issued by +the Committee of Sponsoring Organizations of the Treadway +Commission. The Audit Committee’s responsibility is to +monitor and oversee these processes. The Board of Directors has +determined that John M. Gibbons, the Chairman of the Audit +Committee, is an audit committee financial expert and is +independent. +In connection with these responsibilities, the Audit Committee +met with management and the independent registered public +accounting firm to review and discuss the December 31, 2004 +consolidated financial statements and obtained from management +their representation that the Company’s financial +statements have been prepared in accordance with accounting +principles generally accepted in the United States. The Audit +Committee also discussed with the independent registered public +accounting firm the matters required by Statement on Auditing +Standards No. 61 (Communication with Audit Committees), +which includes, among other items, information regarding the +conduct of the audit of the Company’s consolidated +financial statements. The Audit Committee also received written +disclosures from KPMG LLP required by Independence Standards +Board Standard No. 1 (Independence Discussions with Audit +Committees), and the Audit Committee discussed with KPMG LLP +that firm’s independence from the Company and its +management. The Audit Committee has further considered the +compatibility of the services provided by KPMG LLP with that +firm’s independence. +The Audit Committee operates under a written charter, which was +adopted by the Board and is assessed annually for adequacy by +the Audit Committee. The Audit Committee held seven meetings +during fiscal 2004, including meetings with the independent +registered public accounting firm, both with and without +management present. In performing its functions, the Audit +Committee acts only in an oversight capacity. It is not the +responsibility of the Audit Committee to determine that the +Company’s financial statements are complete and accurate, +are presented in accordance with accounting principles generally +accepted in the United States or present fairly the results of +operations of the Company for the periods presented or that the +Company maintains appropriate internal controls. Nor is it the +duty of the Audit Committee to determine that the audit of the +Company’s financial statements has been carried out in +accordance with the standards of the Public Company Accounting +Oversight Board (United States) or that the Company’s +registered public accounting firm is independent. +14 +Based upon the Audit Committee’s review and discussions +with management and the independent registered public accounting +firm, the Audit Committee recommended that the Board of +Directors include the audited consolidated financial statements +in the Company’s Annual Report on Form 10-K as of and +for the year ended December 31, 2004, to be filed with the +Securities and Exchange Commission. +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +The Report of the Audit Committee shall not be deemed +incorporated by reference by any general statement incorporating +by reference this proxy statement into any filing under the +Securities Act of 1933 or under the Securities Exchange Act of +1934, except to the extent that the Company specifically +incorporates this information by reference, and shall not +otherwise be deemed filed under such Acts. +15 +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +Set forth below is a line graph comparing the percentage change +in the cumulative total stockholder return on the Company’s +Common Stock against the cumulative total return of the Nasdaq +Composite Index and a peer group index for the five-year period +commencing December 31, 1999 and ending December 31, +2004. The data represented below assumes $100 invested in each +of the Company’s Common Stock, the Nasdaq Composite Index +and the peer group index on December 31, 1999. The stock +performance graph shall not be deemed incorporated by reference +by any general statement incorporating by reference this proxy +statement into any filing under the Securities Act of 1933 or +under the Securities Exchange Act of 1934, except to the extent +that the Company specifically incorporates this information by +reference, and shall not otherwise be deemed filed under either +of such Acts. +Comparison of Total Return (Assuming Dividend +Reinvestment) +December 31, 1999 +December 31, 2000 +December 31, 2001 +December 31, 2002 +December 31, 2003 +December 31, 2004 +Deckers Outdoor Corporation +100.0 +200.0 +161.9 +127.2 +781.0 +1790.1 +Nasdaq Composite +100.0 +62.9 +50.1 +35.0 +52.6 +57.0 +Athletic Shoe Composite +100.0 +182.3 +141.7 +143.9 +216.0 +263.8 +* +Athletic Shoe Composite peer group index consisting of Saucony +Inc., K-Swiss, Nike Inc., Reebok International Ltd., Rocky +Shoes & Boots, Inc., The Stride Rite Corporation, The +Timberland Company, Wolverine World Wide Inc., and Kenneth Cole +Productions. In previous years, this peer group index also +included Fila Holding SPA, which has been excluded from the +index in all periods presented above, as its securities are no +longer publicly-traded. Vans Inc., which was previously in our +peer group index, was acquired by VF Corp in 2004 and has also +been excluded. +16 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following security ownership information is set forth, as of +March 31, 2005, with respect to certain persons or groups +known to the Company to be beneficial owners of more than 5% of +the Company’s outstanding Common Stock and with respect to +each director of the Company, each of the Named Executive +Officers, and all current directors, nominees and executive +officers as a group (twelve persons). Other than as set forth +below, the Company is not aware of any other person who may be +deemed to be a beneficial owner of more than 5% of the +Company’s Common Stock. +Name and Address of +Amount and Nature of +Beneficial Owner (1) +Beneficial Ownership(2),(3),(7) +Percent of Class(3) +Douglas B. Otto(4) +1,923,722 +15.2 +% +M. Scott Ash +17,000 +* +Constance X. Rishwain +— +* +Patrick C. Devaney +2,162 +* +Janice M. Howell +17,191 +* +Rex A. Licklider(5) +224,208 +1.8 +% +Gene E. Burleson +54,739 +* +John M. Gibbons(6) +13,829 +* +Daniel L. Terheggen +1,071 +* +All directors and executive officers as a group (twelve persons) +2,264,378 +17.8 +% +RS Investment Management Co LLC(8) +839,925 +6.8 +% +Gilder Gagnon Howe & Co LLC(9) +654,858 +5.3 +% +* +Percentage of shares beneficially owned does not exceed 1% of +the class so owned. +(1) +The address of each beneficial owner is 495-A South Fairview +Avenue, Goleta, California 93117, unless otherwise noted. +(2) +Unless otherwise noted, sole voting and dispositive power are +possessed with respect to all shares of Common Stock owned. +(3) +Shares of Common Stock subject to options exercisable within +60 days after the Record Date are treated as issued and +outstanding for the purpose of computing the percent of Common +Stock owned by the holder of the option, but not for computing +the percent of Common Stock owned by any other person. +(4) +Includes (a) 1,213,822 shares held by the Douglas B. +Otto Trust as to which Mr. Otto has sole voting and +investment power, (b) 138,750 shares held as trustee +for the Tiffany Jade Otto Trust, of which Mr. Otto has sole +voting and investment power, (c) 138,750 shares held +as trustee for the Ty Dylan Bard Otto Trust, of which +Mr. Otto has sole voting and investment power, +(d) 38,400 shares held by the Edgecliff Foundation, a +charitable foundation formed by Mr. Otto, of which +Mr. Otto is the Chairman of the Board of Directors and +(e) 59,000 shares held by Mr. Otto’s wife. +Mr. Otto disclaims ownership of the shares held by his wife. +(5) +Includes 218,208 shares held by the Licklider Living Trust +as to which Mr. Licklider has joint voting and investment +power. +(6) +Includes 11,829 shares held by the Gibbons Living Trust as +to which Mr. Gibbons has joint voting and investment power. +(7) +Includes shares under stock options that are presently +exercisable or are exercisable within 60 days for the +following: Douglas B. Otto — 335,000; M. Scott +Ash — 17,000; Janice Howell — 11,300; Rex A. +Licklider — 6,000; John M. Gibbons — 2,000; +and all directors and executive officers as a group — +381,300. +(8) +Includes 839,925 shares held by RS Investment Management +Co. LLC, RS Investment Management, L.P., and George R. Hecht as +to which the beneficial owners have shared voting and +dispositive power. +17 +This information is based solely on a Schedule 13G filed by +the parties on February 14, 2005 whose business address is +388 Market Street, Ste. 200, San Francisco, CA 94111. +(9) +Includes 11,947 shares held by Gilder, Gagnon, Howe and Co. +LLC as to which the members have sole voting power and +654,858 shares as to which the members have shared +dispositive power. This information is based solely on a +Schedule 13G filed by the members on February 14, +2005. The LLC’s address is 1775 Broadway, 26th Floor, New +York, NY 10019. +CODE OF ETHICS +The Company has adopted a Code of Ethics applicable to all +senior officers of the Company. The Code of Ethics appears as +Exhibit 14.1 to our Annual Report on Form 10-K for the +fiscal year ended December 31, 2004. A copy of the Code of +Ethics is available free of charge by writing to the Secretary +of the Company at the Company’s office at 495-A South +Fairview Avenue, Goleta, California 93117. +18 +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE +ACT OF 1934 +Section 16(a) of the Securities Exchange Act of 1934 (the +“Exchange Act”) requires the Company’s directors, +executive officers and persons who own more than 10% of the +Common Stock (collectively “Section 16 Persons”) +to file initial reports of ownership (Forms 3) and reports +of changes in ownership of Common Stock (Forms 4 and +Forms 5) with the Securities and Exchange Commission as +well as the Company. +To the Company’s knowledge, based solely on a review of the +copies of such reports furnished to the Company and +representations from each Section 16 Person known to the +Company that no other reports were required, during the fiscal +year ended December 31, 2004, all Section 16(a) filing +requirements applicable to its Section 16 Persons were +complied with except that: (i) Rex A. Licklider, Gene +E. Burleson, Daniel L. Terheggen and John M. Gibbons each filed +a Form 4 on February 6, 2004, which reported +transactions that were due to be reported on February 3, +2004; (ii) Rex A. Licklider, Daniel L. Terheggen and John +M. Gibbons each filed a Form 4 on November 1, 2004, +which reported transactions that were due to be reported on +October 20, 2004; (iii) Gene E. Burleson filed a +Form 4 on August 25, 2004 and December 6, 2004, +which reported transactions that were due to be reported on +August 19, 2004 and October 20, 2004, respectively; +(iv) Daniel L. Terheggen filed a Form 4 on +August 25, 2004, which reported transactions that were due +to be reported on August 19, 2004; and (v) Rex A. +Licklider filed a Form 4 on September 7, 2004, which +reported transactions that were due to be reported on +September 2, 2004. +19 +PROPOSAL NO. 2 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2004 fiscal year, KPMG LLP provided audit services, +which included examination of the Company’s annual +consolidated financial statements. The Audit Committee has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2005. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP +will attend the Annual Meeting to make any statements he or she +may desire and to respond to appropriate stockholder questions. +Although this appointment is not required to be submitted to a +vote of the stockholders, the Audit Committee believes it is +appropriate as a matter of policy to request that the +stockholders ratify the appointment. If the stockholders do not +ratify the appointment, which requires the affirmative vote of a +majority of the outstanding shares of the Common Stock present, +in person or by proxy, and entitled to vote at the Annual +Meeting, the Board of Directors will consider the selection of +another independent registered public accounting firm. +Ratification of the appointment of the independent registered +public accounting firm requires the affirmative vote of a +majority of the votes cast by the holders of the shares of +Common Stock voting in person or by proxy at the Annual Meeting +of Stockholders. If the stockholders should not ratify the +appointment of KPMG LLP, the Audit Committee will reconsider the +appointment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” THE RATIFICATION OF THE ELECTION OF KPMG LLP +AS THE +COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM. +Audit Fees and All Other Fees +Audit Fees +Fees for audit services totaled approximately $962,000 in 2004 +and $170,000 in 2003, including fees associated with the annual +audit, the reviews of the Company’s quarterly reports on +Form 10-Q, statutory audits required internationally, +assistance with and review of documents filed with the +Securities and Exchange Commission including services related to +the Company’s follow-on public stock offering of $117,000 +in 2004 and audit work associated with Section 404 of the +Sarbanes-Oxley Act internal controls provisions of $625,000 in +2004 as well. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2004 or +2003. +Tax Fees +Fees for tax services, including tax compliance, tax advice and +tax planning for income taxes and customs matters, totaled +approximately $255,000 in 2004 and $271,000 in 2003. +KPMG LLP has advised the Company that neither the firm, nor any +member of the firm, has any financial interest, direct or +indirect, in any capacity in the Company or its subsidiaries. +Audit Committee Pre-Approval of Audit and Permissible +Non-Audit Services of Independent Registered Public Accounting +Firm +The Audit Committee administers the Company’s engagement of +KPMG LLP and pre-approves all audit and permissible non-audit +services on a case-by-case basis. In approving non-audit +services, the Audit Committee considers whether the engagement +could compromise the independence of KPMG LLP, and whether for +reasons of efficiency or convenience it is in the best interest +of the Company to engage its +20 +independent auditor to perform the services. The Audit Committee +has determined that performance by KPMG LLP of the non-audit +services listed above did not affect their independence. +Prior to engagement, the Audit Committee pre-approves all +independent auditor services. During the year, circumstances may +arise when it may become necessary to engage the independent +auditor for additional services not contemplated in the original +pre-approval categories. In those instances, the Audit Committee +requires that those services be submitted to the committee for +specific pre-approval before the Company can engage for them. +The Audit Committee may delegate pre-approval authority to one +or more of its members. The member to whom such authority is +delegated reports any pre-approval decisions to the Audit +Committee at its next scheduled meeting. +STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS +FOR THE 2006 ANNUAL MEETING +The Company’s Bylaws provide that a stockholder seeking to +bring business before an annual meeting of stockholders, or to +nominate a candidate for election as director at an annual +meeting of stockholders, must provide timely advance written +notice. To be timely, a stockholder’s notice generally must +be received at our principal executive offices on or before the +date 90 days prior to the scheduled date of the annual +meeting or, if it is a later date, on or before the date seven +days after the Company first publishes notice of the annual +meeting. +In addition, SEC rules provide that a stockholder wishing to +include a proposal in the proxy statement for the Company’s +2006 annual meeting must submit the proposal so that it is +received by the Company at its principal executive office, +attention Corporate Secretary, at 495-A South Fairview +Avenue, Goleta, California 93117 no later than December 14, +2005. If the date of the 2006 annual meeting is advanced or +delayed more than 30 days from the date of the 2005 annual +meeting, stockholder proposals intended to be included in the +proxy statement for the 2006 annual meeting must be received by +us within a reasonable time before the Company begins to print +and mail the proxy statement for the 2006 annual meeting. Upon +any determination that the date of the 2006 annual meeting will +be advanced or delayed by more than 30 days from the date +of the 2005 annual meeting, the Company will disclose the change +in the earliest practicable Quarterly Report on Form 10-Q. +SEC rules also govern a company’s ability to use +discretionary proxy authority with respect to stockholder +proposals that were not submitted to stockholders in time to be +included in the proxy statement. In the event a stockholder +proposal is not submitted to the Company on or before +February 27, 2006, the proxies solicited by the Board for +the 2006 annual meeting of stockholders will confer authority on +the proxyholders to vote the shares in accordance with the +recommendation of the Board if the proposal is presented at the +2006 annual meeting of stockholders without any discussion of +the proposal in the proxy statement for such meeting. +Procedures for Stockholder Nominations +Under our Bylaws, a stockholder’s notice of a proposed +nomination for director to be made at an annual meeting must +include the following information: +• +the name and address of the stockholder proposing to make the +nomination and of the person or persons to be nominated; +• +a representation that the holder is a stockholder entitled to +vote his or her shares at the annual meeting and intends to vote +his or her shares in person or by proxy for the person nominated +in the notice; +• +a description of all arrangements or understandings between the +stockholder(s) supporting the nomination and each nominee; +• +any other information concerning the proposed nominee(s) that +the Company would be required to include in the proxy statement +if the Board of Directors made the nomination; +• +the consent of the nominee(s) to serve as director if elected. +21 +The presiding officer of the meeting may refuse to acknowledge +the nomination of any person not made in compliance with the +foregoing procedure. Stockholder nominations submitted in +accordance with the requirements of the Bylaws will be forwarded +to the Corporate Governance and Nominating Committee. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual +Meeting or any postponement or adjournment thereof other than +the election of directors and the ratification of the selection +of the Company’s independent registered public accounting +firm. However, inasmuch as matters of which management is not +now aware may come before the meeting or any postponement or +adjournment thereof, the Proxies confer discretionary authority +with respect to acting thereon, and the persons named in such +proxies intend to vote, act and consent in accordance with their +best judgment with respect thereto, provided that, to the extent +the Company becomes aware a reasonable time before the Annual +Meeting of any matter to come before such meeting, the Company +will provide an opportunity to vote by Proxy directly on such +matter. Upon receipt of such Proxies in time for voting, the +shares represented thereby will be voted as indicated thereon +and as described in this Proxy Statement. +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and +all the expenses of soliciting proxies from stockholders will be +borne by the Company. In addition to the solicitation of proxies +by use of the mails, officers and regular employees may +communicate with stockholders personally or by mail, telephone, +telegram or otherwise for the purpose of soliciting such +Proxies, but in such event no additional compensation will be +paid to any such persons for such solicitation. The Company will +reimburse banks, brokers and other nominees for their reasonable +out-of-pocket expenses in forwarding soliciting material to +beneficial owners of shares held of record by such persons. The +total estimated cost of the solicitation of Proxies is +approximately $20,000. +ANNUAL REPORT ON FORM 10-K +A copy of the Company’s Annual Report on Form 10-K for +the fiscal year ended December 31, 2004 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy +Statement, but it is not deemed to be a part of the proxy +soliciting material. The Form 10-K contains consolidated +financial statements of the Company and its subsidiaries and the +report thereon of KPMG LLP, the Company’s independent +registered public accounting firm. +The Company will provide a copy of the exhibits to its +Form 10-K for the fiscal year ended December 31, 2004 +upon the written request of any beneficial owner of the +Company’s securities as of the Record Date and +reimbursement of the Company’s reasonable expenses. Such +request should be addressed to the Secretary of the Company at +the Company’s office at 495-A South Fairview Avenue, +Goleta, California 93117. +STOCKHOLDERS ARE URGED IMMEDIATELY TO COMPLETE, DATE AND SIGN +THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED, TO +WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED +STATES. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board +Goleta, California +April 18, 2005 +22 +APPENDIX A +Deckers Outdoor Corporation +Charter +of the Audit Committee +of the Board of Directors +I. +Audit Committee Purpose +The Audit Committee is appointed by the Board of Directors to +assist the Board in fulfilling its oversight responsibilities. +The Audit Committee’s primary duties and responsibilities +are to: +• +Monitor the integrity of the Company’s financial reporting +process and systems of internal controls regarding finance, +accounting and legal compliance. +• +Monitor the independence and performance of the Company’s +independent auditors. +• +Provide an avenue of communication among the independent +auditors, management and the Board of Directors. +The Audit Committee has the authority to conduct investigations +appropriate to fulfilling its responsibilities, and it has +direct access to the independent auditors as well as personnel +of the Company. The Audit Committee has the authority to retain, +at the Company’s expense, special legal, accounting or +other consultants or experts it deems necessary to carry out its +duties and responsibilities. +II. +Audit Committee Composition and Meetings +Audit Committee members shall meet the requirements of the +Nasdaq Stock Exchange, including Nasdaq Marketplace +Rule 4350(d). The Audit Committee shall be comprised of +three or more directors as determined by the Board, each of whom +shall be independent nonexecutive directors. All members of the +Audit Committee shall have a basic understanding of finance and +accounting, as evidenced by their ability to read and understand +fundamental financial statements, and at least one member of the +Audit Committee shall have accounting or related financial +management expertise. Financial management expertise shall mean +past employment experience in finance or accounting, requisite +professional certification in accounting, or any other +comparable experience or background which results in the +individual’s financial sophistication, including being or +having been a chief executive officer, chief financial officer, +or other senior officer with financial oversight +responsibilities. +Audit Committee members shall be appointed by the Board. If an +Audit Committee Chair is not designated or present, the members +of the Audit Committee may designate a Chair by majority vote of +the Audit Committee membership. +The Audit Committee shall meet at least four times annually, or +more frequently as circumstances dictate. The Audit Committee +Chair shall prepare and/or approve an agenda in advance of each +meeting. The Audit Committee should meet privately in executive +session at least annually with management, the independent +auditors, and as a committee to discuss any matters that the +Audit Committee or each of these groups believe should be +discussed. In addition, the Audit Committee, through any of its +members, should communicate with management and the independent +auditors quarterly to review the Company’s financial +statements and significant findings based upon the +auditors’ limited review procedures. +III. +Audit Committee Responsibilities and Duties +Review Procedures +1. Review and reassess the adequacy of this Charter at +least annually. Submit the Charter to the Board of Directors for +approval and have the document published at least every three +(3) years in accordance with Securities and Exchange +Commission (“SEC”) regulations. +A-1 +2. Review the Company’s annual audited financial +statements prior to filing or distribution. Review should +include discussion with management and independent auditors of +significant issues regarding accounting principles, practices +and judgments. +3. In consultation with management and the independent +auditors, consider the integrity of the Company’s financial +reporting processes and controls. Discuss significant financial +risk exposures and the steps management has taken to monitor, +control and report such exposures. Review significant findings +prepared by the independent auditors together with +management’s responses. +4. Review with financial management and the independent +auditors the Company’s quarterly financial results prior to +the release of earnings and/or the Company’s quarterly +financial statements prior to filing or distribution. Discuss +any significant changes to the Company’s accounting +principles and any items the independent auditors are required +to communicate in accordance with SAS 61 (see +item 12). The Chair of the Audit Committee may represent +the entire Audit Committee for purposes of this review. +Independent Auditors +5. Have the authority and responsibility for the +appointment, compensation, retention and oversight of the work +of the independent auditor, or any other firm engaged by the +Company for the purpose of preparing or issuing an audit or +attestation report on financial information of the Company, +including resolution of disagreements between management and the +auditor regarding financial reporting. +6. Obtain from the independent auditor the report required +by Section 10A(b) of the Securities Exchange Act of 1934. +7. Obtain reports from management, the Company’s +senior internal auditing executive, if any, and the independent +auditor that the Company’s subsidiary/foreign affiliated +entities are in conformity with applicable legal requirements +and the Company’s code of conduct. +8. Review the independence and performance of the auditors +and annually recommend to the Board of Directors the appointment +of the independent auditors or approve any discharge of auditors +when circumstances warrant. +9. Approve the fees and other significant compensation to +be paid to the independent auditors. +10. Receive periodic reports from the independent auditor +regarding the auditor’s independence consistent with +Independence Standards Board Standard 1, discuss such +reports with the auditor, and if so determined by the Audit +Committee, take appropriate action to oversee the independence +of the auditor. +11. Review the independent auditors’ audit plan, and +discuss scope, staffing, locations, reliance upon management and +general audit approach. +12. Prior to releasing the year-end earnings, discuss the +results of the audit with the independent auditors. When +appropriate, discuss certain matters required to be communicated +to Audit Committees in accordance with AICPA SAS 61 and +Section 204 of the Sarbanes-Oxley Act of 2002. +13. Consider the independent auditors’ judgments about +the quality and appropriateness of the Company’s accounting +principles as applied in its financial reporting. +14. Pre-approve all audit and permitted non-audit services +to be performed by the independent auditor. +Legal Compliance +15. When deemed appropriate in the discretion of the Audit +Committee, or at least annually, review with the Company’s +counsel (1) any legal matters that could have a significant +impact on the organization’s financial statements, +(2) the Company’s compliance with applicable laws and +regulations, and (3) inquiries received from regulators or +governmental agencies. +A-2 +Other Audit Committee Responsibilities +16. Annually prepare a report to shareholders as required +by the SEC. The report should be included in the Company’s +annual proxy statement. +17. Perform any other activities consistent with this +Charter, the Company’s Bylaws and governing law, as the +Audit Committee or the Board deems necessary or appropriate. +18. Maintain minutes of meetings and periodically report to +the Board of Directors on significant results of the foregoing +activities. +19. Establish procedures, under confidential and anonymous +submissions, for the receipt, retention and treatment of +complaints regarding accounting, internal accounting control or +auditing matters. +A-3 +APPENDIX B +DECKERS OUTDOOR CORPORATION +CHARTER OF THE +CORPORATE GOVERNANCE AND +NOMINATING COMMITTEE +1. +PURPOSE +The purpose of the Corporate Governance and Nominating Committee +(the “Committee”) of Deckers Outdoor Corporation (the +“Company”) is to help to ensure that the Board of +Directors (the “Board”) is appropriately constituted +to meet its fiduciary obligations to the Company and its +shareholders, and that the Company has, and follows, appropriate +governance standards. To carry out this purpose, the Committee +shall: +(1) Develop and recommend to the Board a set of corporate +governance principles applicable to the Company. +(2) Recommend the director nominees to be selected by the +Board for the next annual meeting of shareholders. +(3) Identify individuals qualified to become Board members, +consistent with criteria approved by the Board. +(4) Oversee the evaluation of the Board and management. +2. +COMMITTEE MEMBERSHIP AND ORGANIZATION +The Committee shall be comprised of no fewer than three members +and shall have the composition as permitted by Nasdaq +Rule 4350(c)(3). The members of the Committee shall be +appointed and replaced by the Board. The Board shall appoint one +of the members as Chair. +3. +COMMITTEE RESPONSIBILITIES AND AUTHORITY +To carry out its purposes expressed in Paragraph 1 above, +the Committee shall have the following responsibilities and +authority. Delegation by the Board of responsibilities to the +Committee shall not preclude the Board from taking any action +permitted to be taken under governing law, rules or regulations +applicable to the Company. +(1) Evaluate the current composition, organization, size +and governance of the Board and its committees; determine future +requirements; make recommendations to the Board concerning the +appointment of directors to committees of the Board; and +recommend the selection of chairs of committees of the Board. +(2) Determine the desired qualifications, expertise and +characteristics for potential directors and conduct searches for +director candidates that have corresponding attributes. +Evaluate, propose and approve nominees for election to the +Board, and consider and evaluate shareholder nominees for +election to the Board. +(3) Oversee the Board’s performance evaluation +process, including conducting surveys of director observations, +suggestions and preferences. The Committee shall also evaluate +the participation of members of the Board in continuing +education activities. +(4) Form and delegate authority to subcommittees, or +delegate authority to members, when appropriate, provided that +such subcommittees will be composed exclusively of members of +this Committee and will operate pursuant to a published charter. +(5) Evaluate and recommend termination of service of +individual members of the Board as appropriate, in accordance +with the Board’s governance principles, for cause or for +other proper reasons. +B-1 +(6) Make regular written reports to the Board. +(7) Review and re-examine this Charter at least annually +and make recommendations to the Board with respect to any +proposed changes. +(8) Review annually the Company’s corporate governance +guidelines and make recommendations to the Board with respect to +any proposed changes . +(9) Annually report to the full Board regarding its own +performance against the responsibilities outlined in this +Charter and as otherwise established by the Board. +(10) Obtain advice, assistance, reports or opinions from +internal or external legal, accounting or other advisors. +(11) Retain and terminate any search firm to be used to +identify director candidates and approve the search firm’s +fees and other retention terms +4. +MEETING AND MINUTES +(1) The Committee will meet at least twice annually and +will also meet, as required, in response to the needs of the +Board and as necessary to fulfill its responsibilities. +(2) The Committee will maintain written minutes of its +meetings, which minutes will be filed with the minutes of the +meetings of the Board. +B-2 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation. +The undersigned hereby appoints Douglas B. Otto and M. Scott Ash, and each of them, as Proxies, each +with the power to appoint his substitute, and hereby authorizes each of them to represent and to +vote as designated below, all the shares of common stock of Deckers Outdoor Corporation held of +record by the undersigned on March 25, 2005, at the Annual Meeting of Stockholders to be held on +May 20, 2005 and any postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE. +Address Change/Comments (Mark the corresponding box on the reverse side) +5 FOLD AND DETACH HERE 5 +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE +PROPOSALS THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +Mark Here +for Address +Change or +Comments +o +PLEASE SEE REVERSE SIDE +FOR +WITHHOLD +AUTHORITY to vote +for the nominees +listed below +1. +ELECTION OF CLASS III DIRECTORS: +Instruction: To withhold authority +to vote for a nominee listed below, +strike a line through the +nominee’s name. +o +o +Nominees: +01 Douglas B. Otto +02 Gene E. Burleson +FOR +AGAINST +ABSTAIN +2. +TO RATIFY THE SELECTION OF KPMG LLP +AS THE COMPANY’S INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM. +o +o +o +WILL +ATTEND +If you plan to attend the Annual Meeting, +please mark the WILL ATTEND box +o +3. +In their discretion, the Proxies are authorized +to vote upon such other business as may properly +come before such meeting or any and all +postponements or adjournments thereof. +The Board of Directors recommends a vote “For” the +election of each of the nominees, and “For” +ratification of the selection of KPMG LLP as the +Company’s independent registered public accounting firm +for fiscal 2005. All proposals to be acted upon are +proposals of the Board of Directors. If any other +business is properly presented at the Meeting, +including, among other things, consideration of a +motion to adjourn the meeting to another time or place +in order to solicit additional proxies in favor of the +recommendations of the Board of Directors, this Proxy +shall be voted by the Proxyholders in accordance with +the recommendations of a majority of the Board of +Directors. At the date this Proxy Statement went to +press, we did not anticipate any other matters would be +raised at the Meeting. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD +PROMPTLY USING THE ENCLOSED ENVELOPE. +Signature +Signature +Dated +2005 +Please sign exactly as the name appears above. When shares are held by joint tenants, both +should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give +your full title as such. If a corporation, please sign in full corporate name by the President or +other authorized officer. If a partnership, please sign in the partnership name by an authorized +person. +5 FOLD AND DETACH HERE 5 \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950129-05-003767/proxy_rpt.txt b/raw/proxies/0000910521/0000950129-05-003767/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..cf796bea65748cd089d319ff8c7763c09f589dc0 --- /dev/null +++ b/raw/proxies/0000910521/0000950129-05-003767/proxy_rpt.txt @@ -0,0 +1,6 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Daniel L. Terheggen, a member of the Company’s Board of +Directors, is the owner and Chief Executive Officer of BHPC +Global Licensing, Inc. (“BHPC”). The Company paid BHPC +an aggregate of approximately $168,000 for agency fees related +to licensing of the Company’s products during 2004. \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950129-06-004208/proxy.txt b/raw/proxies/0000910521/0000950129-06-004208/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..4704943ed82f9aef682483059d41d1cd11499908 --- /dev/null +++ b/raw/proxies/0000910521/0000950129-06-004208/proxy.txt @@ -0,0 +1,4226 @@ +DEF 14A +1 +v19151ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant +x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +x +Definitive Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +Fee not required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +April 21, 2006 +Dear Stockholder: +We cordially invite you to attend our 2006 Annual Meeting of +Stockholders to be held at 9:00 a.m., local time, on +Friday, May 19, 2006 at Hotel Andalucia, 31 West +Carrillo Street, Santa Barbara, California 93101. +Enclosed are the Notice of Annual Meeting, Proxy Statement and a +Proxy Card relating to the Annual Meeting which we urge you to +read carefully. Also enclosed is the Company’s 2005 Annual +Report. +Please use this opportunity to take part in our affairs by +voting on the business to come before the Annual Meeting. If you +are a record holder of our common stock at the close of business +on March 27, 2006, you are eligible to vote on these +matters, either by attending the Annual Meeting in person or by +Proxy. It is important that your shares be voted, whether or not +you plan to attend the Annual Meeting, to ensure the presence of +a quorum. Therefore, please complete, date, sign, and return +the accompanying Proxy Card in the enclosed postage-paid +envelope. Properly executed Proxy Cards received by the +Company prior to the Annual Meeting will be voted in accordance +with the instructions indicated on such cards. Because mail +delays occur frequently, it is important that the enclosed Proxy +Card be returned well in advance of the Annual Meeting. +Submitting the Proxy Card does NOT deprive you of your right to +attend the Annual Meeting and vote your shares in person for the +matters acted on at the Annual Meeting. +Sincerely, +Angel R. Martinez +President and Chief Executive +Officer +TABLE OF CONTENTS +GENERAL INFORMATION +PROPOSAL NO. 1 +REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 3 2006 EQUITY INCENTIVE PLAN +PROPOSAL NO. 4 AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ANNUAL ELECTION OF DIRECTORS +STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING +COST OF SOLICITATION +ANNUAL REPORT ON FORM 10-K +DECKERS OUTDOOR CORPORATION 2006 EQUITY INCENTIVE PLAN +CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF DECKERS OUTDOOR CORPORATION +Table of Contents +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be held May 19, 2006 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of Stockholders +(the “Annual Meeting”) of Deckers Outdoor Corporation, +a Delaware corporation (the “Company”), will be held +at Hotel Andalucia, 31 West Carrillo Street, +Santa Barbara, California 93101, on Friday, May 19, +2006, beginning at 9:00 a.m., local time. The Annual +Meeting will be held for the following purposes: +1. Election of Directors. To elect three +(3) directors of the Company to serve as Class I +directors until the Annual Meeting of Stockholders to be held in +2009. +2. Ratification of Appointment of Independent +Registered Public Accounting Firm. To ratify the +selection of KPMG LLP as the Company’s independent +registered public accounting firm. +3. 2006 Equity Incentive Plan. To approve the +2006 Equity Incentive Plan. +4. Amendment to the Company’s Certificate of +Incorporation. To approve an amendment to the +Company’s Certificate of Incorporation to authorize the +annual election of directors. +5. Other Business. To transact such other +business as may properly come before the Annual Meeting or any +postponements or adjournments thereof. +The Board of Directors has fixed March 27, 2006 as the +Record Date for the determination of stockholders entitled to +notice of and to vote at the Annual Meeting and any +continuations, postponements or adjournments thereof, and only +stockholders of record at the close of business on that date are +entitled to such notice and to vote, in person or by Proxy, at +the Annual Meeting. +A list of stockholders entitled to vote at the Annual Meeting +will be available at the offices of the Company for 10 days +prior to the Annual Meeting. +We hope that you will use this opportunity to take an active +part in the affairs of the Company by voting on the business to +come before the Annual Meeting either by executing and returning +the enclosed Proxy Card or by casting your vote in person at the +Annual Meeting. +The Proxy Statement that accompanies this Notice contains +additional information regarding the proposals to be considered +at the Annual Meeting, and stockholders are encouraged to read +it in its entirety. +As set forth in the accompanying Proxy Statement, Proxies are +being solicited by and on behalf of the Board of Directors of +the Company. All proposals set forth above are proposals of the +Company. It is expected that these materials first will be +mailed to stockholders on or about April 21, 2006. +TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE +COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE +ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU DO ATTEND THE +ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES +IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME BEFORE ITS +EXERCISE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. +IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD BECAUSE HE OR +SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH +PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +Angel R. Martinez +President and Chief Executive +Officer +Goleta, California +April 21, 2006 +Table of Contents +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +To be Held May 19, 2006 +PROXY STATEMENT +GENERAL INFORMATION +This Proxy Statement is furnished in connection with the +solicitation of Proxies by the Board of Directors of Deckers +Outdoor Corporation, a Delaware corporation (the +“Company” or “Deckers”), for use at the +Annual Meeting of Stockholders (the “Annual Meeting”) +to be held at 9:00 a.m., local time, on May 19, 2006, +at Hotel Andalucia, 31 West Carrillo Street, +Santa Barbara, California 93101, and any continuations, +postponements or adjournments thereof for the purposes set forth +in the accompanying Notice of Annual Meeting. This Proxy +Statement and the accompanying Proxy Card (the +“Proxy”) were first mailed to stockholders on or about +April 21, 2006. +Method of Voting +Stockholders can vote by Proxy or by attending the Annual +Meeting and voting in person. A Proxy is enclosed. If you vote +by means of the Proxy, the Proxy must be completed, signed and +dated by you or your authorized representative. The completed +Proxy may be returned in the postage-paid envelope provided or +by facsimile to the Inspector of Elections at +(213) 553-9735. Angel R. Martinez and Zohar Ziv, the +designated proxyholders (the “Proxyholders”), are +members of the Company’s management. If you hold Common +Stock in “street name,” you must either instruct your +broker or nominee as to how to vote such shares or obtain a +Proxy, executed in your favor by your broker or nominee, to be +able to vote at the Annual Meeting. +If a Proxy is properly signed, dated and returned and is not +revoked, the Proxy will be voted at the Annual Meeting in +accordance with the stockholder’s instructions indicated on +the Proxy. If no instructions are indicated on the Proxy, the +Proxy will be voted “FOR” the nominees named herein +for election as directors, “FOR” ratification of the +selection of KPMG LLP as the Company’s independent +registered public accounting firm, “FOR” the 2006 +Equity Incentive Plan, “FOR” the amendment to the +Company’s Certificate of Incorporation to authorize the +annual election of directors, and in accordance with the +recommendations of the Board of Directors upon such other +business as may properly come before such meeting or any and all +continuations, postponements or adjournments thereof. +Revocation of Proxy +A stockholder giving a Proxy has the power to revoke it at any +time before it is exercised by giving written notice of +revocation to the Secretary of the Company, by executing a +subsequent Proxy, or by attending the Annual Meeting and voting +in person. If you have instructed your broker to vote your +shares, you must follow directions received from your broker to +change those instructions. Subject to any such revocation, all +shares represented by properly executed Proxies will be voted in +accordance with the specifications on the enclosed Proxy. +Record Date +March 27, 2006 has been fixed as the record date (the +“Record Date”) for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof. As of March 27, +2006, there were outstanding 12,483,066 shares of the +Company’s common stock, par value $.01 per share (the +“Common Stock”). +1 +Table of Contents +Voting Rights +Vote Required. In order to conduct business at the Annual +Meeting, a quorum must be present. A majority of the shares of +Common Stock entitled to vote, present in person or represented +by Proxy, will constitute a quorum at the Annual Meeting. We +will treat shares of Common Stock represented by a properly +signed and returned Proxy, including abstentions and broker +non-votes, as present at the Annual Meeting for the purposes of +determining the existence of a quorum. Each share of Common +Stock issued and outstanding on the Record Date is entitled to +one vote on any matter presented for consideration and action by +the stockholders at the Annual Meeting. The Company’s +Certificate of Incorporation does not authorize cumulative +voting in the election of directors. Directors will be elected +by a plurality of the votes of the shares of the Company’s +Common Stock present in person or represented by Proxy and +entitled to vote on the election of directors. The affirmative +vote of holders of a majority of the outstanding shares of our +Common Stock, present in person or represented by Proxy at the +Annual Meeting and entitled to vote (assuming that a quorum is +present), is required to approve Proposal No. 2 +regarding the ratification of the selection of KPMG LLP as the +Company’s independent registered public accounting firm and +Proposal No. 3 regarding the 2006 Equity Incentive +Plan. The affirmative vote of holders of a majority in voting +power of the outstanding shares of our Common Stock is required +to approve Proposal No. 4 regarding the amendment to +the Company’s Certificate of Incorporation to authorize the +annual election of directors. +Abstentions. We will count a properly executed Proxy +marked ABSTAIN with respect to a particular proposal as present +for purposes of determining whether a quorum is present, but the +shares represented by that Proxy will not be voted at the Annual +Meeting with respect to such proposal. Because approval of +Proposal No. 4 requires the affirmative vote of a +majority of the voting power of the shares outstanding, +abstentions on this proposal will have the same effect as a vote +“AGAINST” Proposal No 4. However, abstentions +will have no effect on the outcome of any other proposal, but +will reduce the number of votes required to approve those +proposals. +Broker Non-Votes. If your shares are held by your broker, +your broker will vote your shares for you if you provide +instructions to your broker on how to vote. You should follow +the directions provided by your broker regarding how to instruct +your broker to vote your shares. “Broker non-votes” +are shares held by a broker or other nominee that are +represented at the Annual Meeting, but with respect to which the +broker or nominee is not instructed by the beneficial owner of +the shares to vote on the particular proposal and the broker +does not have discretionary voting power on the proposal. Broker +non-votes will be counted for purposes of determining the +presence or absence of a quorum but will not be counted for +purposes of determining the number of shares represented and +voting with respect to a proposal. Failure to instruct your +broker on how to vote your shares on Proposal No. 4 +will have the effect of voting “AGAINST” +Proposal No. 4. Failure to instruct your broker on how +to vote your shares on any other proposal will have no effect on +the outcome of such proposals, assuming that a quorum is present +at the Annual Meeting, but will reduce the number of votes +required to approve those proposals. +Voting Shares in Person that are Held Through Brokers. If +your shares are held of record by your broker, bank or another +nominee and you wish to vote those shares in person at the +annual meeting, you must obtain from the nominee holding your +shares a properly executed legal Proxy identifying you as a +Deckers’ stockholder, authorizing you to act on behalf of +the nominee at the Annual Meeting and identifying the number of +shares with respect to which the authorization is granted. +Procedures for Stockholder Nominations +The Company’s Bylaws provide that a stockholder seeking to +nominate a candidate for election as director at an annual +meeting of stockholders must provide timely advance written +notice. To be timely, a stockholder’s notice generally must +be received at our principal executive office on or before the +date 90 days prior to the scheduled date of the annual +meeting or, if it is a later date, on or before the date seven +days after the Company first publishes notice of the annual +meeting. +2 +Table of Contents +Under our Bylaws, a stockholder’s notice of a proposed +nomination for director to be made at an annual meeting must +include the following information: +• +the name and address of the stockholder proposing to make the +nomination and of the person or persons to be nominated; +• +a representation that the holder is a stockholder entitled to +vote his or her shares at the annual meeting and intends to vote +his or her shares in person or by proxy for the person nominated +in the notice; +• +a description of all arrangements or understandings between the +stockholder(s) supporting the nomination and each nominee; +• +any other information concerning the proposed nominee(s) that +the Company would be required to include in the Proxy Statement +if the Board of Directors made the nomination; and +• +the consent of the nominee(s) to serve as director if elected. +The presiding officer of the Annual Meeting may refuse to +acknowledge the nomination of any person not made in compliance +with the foregoing procedure. Stockholder nominations submitted +in accordance with the requirements of the Bylaws will be +forwarded to the Corporate Governance and Nominating Committee. +Other Business +If any other matters are promptly presented for consideration at +the Annual Meeting including, among other things, consideration +of a motion to adjourn the Annual Meeting to another time or +place in order to solicit additional Proxies in favor of one or +more of the proposals, the persons named as Proxyholders and +acting thereunder will have discretion to vote on these matters +according to their best judgement to the same extent as the +person delivering the Proxy would be entitled to vote. At the +date this Proxy Statement went to press, we did not anticipate +any other matter would be raised at the Annual Meeting. +3 +Table of Contents +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Bylaws state that the Board of Directors +shall consist of not less than one or more than seven members. +The specific number of Board members within this range is +established by the Board of Directors and is currently set at +seven. There are currently seven Board members and no vacancies. +The Company’s Certificate of Incorporation provides that +the Board shall be classified into three classes of directors, +which classes serve staggered three-year terms. The Board +currently consists of three directors for Class I and two +directors for both Class II and Class III. The current +term of the Class II directors expires at the Annual +Meeting of Stockholders to be held in 2007, the current term of +the Class III directors expires at the 2008 Annual Meeting +of Stockholders, and the current term of the Class I +directors expires at the May 19, 2006 Annual Meeting of +Stockholders. The Board of Directors is proposing John M. +Gibbons, Daniel L. Terheggen and John G. Perenchio, who are now +serving as Class I directors, for re-election as +Class I directors at the Annual Meeting. The biographical +information regarding each of the nominees is listed below under +“Management.” Except as discussed in the next +sentence, each of the Class I directors elected at the +Annual Meeting will serve until the Annual Meeting of +Stockholders to be held in 2009, until such director’s +successor has been duly elected and qualified or until such +director has otherwise ceased to serve as a director. +Proposal No. 3 included in this Proxy Statement is to +amend the Company’s Certificate of Incorporation to +authorize the annual election of directors and if this proposal +is approved by the stockholders, all directors will be elected +annually beginning at the 2007 annual stockholder meeting. Each +nominee has indicated his willingness to serve and, unless +otherwise instructed, the Proxyholders will vote the Proxies +received by them for the nominees of the Board. If any nominee +is unable or unwilling to serve as a director at the time of the +Annual Meeting or any adjournment or postponement thereof, the +Proxies will be voted for such other nominee(s) as shall be +designated by the current Board to fill any vacancy. The Company +has no reason to believe that any nominee will be unable or +unwilling to serve if elected as director. Voting shall take +place for the three Class I directors, and the three +nominees for election as Class I directors at the Annual +Meeting who receive the highest number of affirmative votes, +will be elected. +None of the directors, nominees for director or executive +officers were selected pursuant to any arrangement or +understanding, other than with the directors and executive +officers of the Company acting within their capacity as such. +There are no family relationships among directors or executive +officers of the Company. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 1 TO ELECT THE ABOVE +NOMINEES. +4 +Table of Contents +MANAGEMENT +The directors and executive officers of the Company are set +forth below. The following table includes information with +respect to each director and executive officer of the Company. +Class of +Name +Age +Position +Director +Douglas B. Otto +54 +Chairman of the Board of Directors +III +Angel R. Martinez +50 +President, Chief Executive Officer and Director +II +Zohar Ziv +53 +Chief Financial Officer, Executive Vice President of Finance and +Administration and Assistant Secretary +Constance X. Rishwain +48 +President of the UGG and Simple Divisions +Patrick C. Devaney +51 +Senior Vice President of Global Sourcing, Production and +Development +Peter K. Worley +45 +President of the Teva Division +Colin G. Clark +43 +Senior Vice President, International +Janice M. Howell +56 +Vice President of Operations +John A. Kalinich +38 +Vice President of Consumer Direct +Gene E. Burleson +65 +Director (1) +III +Rex A. Licklider +63 +Director (1) +II +John M. Gibbons +57 +Director (1) +I +Daniel L. Terheggen +55 +Director (1) +I +John G. Perenchio +50 +Director (1) +I +(1) +The Board of Directors has determined that each of these +directors is “independent” as that term is defined +under the National Association of Securities Dealers, Inc. (the +“NASD”) Rule 4200(a)(15). +Douglas B. Otto , age 54, co-founder of +Deckers in 1973, has served as a director since the +Company’s inception and as Chairman of the Board since +1982. Mr. Otto has also served as an executive officer +since the Company’s inception to April 2005, including as +Chief Executive Officer from 1982 to April 2005, as President +from January 2003 to April 2005, from March 1999 to February +2000 and from 1982 to May 1998, and as Chief Financial Officer +from June 1990 to December 1992. +Angel R. Martinez , age 50, joined Deckers in +April 2005 as President and Chief Executive Officer. In +September 2005, he became a director of the Company. Previously, +Mr. Martinez was Chief Executive Officer and Vice Chairman +of Keen LLC, an outdoor footwear manufacturer, from January 2005 +to March 2005, after serving as President and Chief Executive +Officer from April 2003 to December 2004, and as an independent +consultant since June 2001. Prior thereto he served as Executive +Vice President and Chief Marketing Officer of Reebok +International Ltd. (NYSE: RBK) and as Chief Executive Officer +and President of The Rockport Company, a subsidiary of Reebok. +Mr. Martinez has been a member of the Board of Directors of +Tupperware Brands Corporation (NYSE: TUP) since 1998. +Zohar Ziv , age 53, joined Deckers in March +2006 as Chief Financial Officer and Executive Vice President +Finance and Administration. Previously, from February 2004 to +December 2005, Mr. Ziv was Chief Financial Officer with +EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services +firm. Prior to that, Mr. Ziv was Chief Financial Officer of +Stravina Operating Company, LLC, a supplier of personalized +novelty items in North America from June 2002 to February 2004. +Mr. Ziv has also served as Chief Financial Officer of Joico +Laboratories, Inc., a multi-national manufacturer and marketer +of hair products from July 2001 to June 2002. +Constance X. Rishwain , age 48, has been the +President of the UGG and Simple Divisions since December 2002 +after serving as Vice President, Brand Manager-UGG since April +1999 and Vice President, +5 +Table of Contents +Brand Manager-Simple since January 2001. Previously, +Ms. Rishwain held a variety of positions since joining us +in January 1995, including Vice President of Domestic Sales for +Teva, UGG and Simple from June 1999 to December 1999, Vice +President of Sales — Western Division for Teva, UGG +and Simple from December 1997 to June 1999 and Vice President +Merchandising for Teva, UGG and Simple from January 1995 to +December 1997. Before joining us, Ms. Rishwain held the +position of Vice President of Merchandising and Marketing for +Impo International Shoe Company from 1988 to 1994 and worked for +Nine West Group Inc. from 1984 to 1988 in several capacities. +Patrick C. Devaney , age 51, has been our +Senior Vice President of Global Sourcing, Production and +Development since March 2000 and served as our Vice President of +Global Sourcing, Production and Development from November 1997 +to March 2000. Prior to joining us, Mr. Devaney was +employed by Mizuno USA where he was Director of Global Footwear +from February 1990 to June 1997 and was a Global Product/ +Marketing Manager for Reebok International Ltd. from 1985 to +December 1989. +Peter K. Worley , age 45, joined Deckers in +March 2006 as President of the Company’s Teva brand. From +October 2005 to March 2006, Mr. Worley served as Vice +President of U.S. Sales with +K-Swiss, Inc. From May +1996 to October 2005, Mr. Worley was Vice President of +Product Design and Development with +K-Swiss. From 1991 to +1996 and from 1986 to 1989, Mr. Worley held various +managerial positions with Reebok International Ltd. +Colin G. Clark , age 43, joined Deckers in +September 2005 as Senior Vice President, International. Prior to +joining Deckers, from October 1991 to June 2004, Mr. Clark +spent nearly thirteen years at The Rockport Company, a +subsidiary of Reebok International Ltd., most recently serving +as Vice President and General Manager — International. +From 1991 to 2001, Mr. Clark held various senior positions +at Rockport, including Vice President — Global +Marketing, Vice President — International, Director +and General Manager — United Kingdom, and Sales +Manager — United Kingdom. +Janice M. Howell , age 56, has been our Vice +President of Operations since January 2003, Director of +Operations from November 1999 to December 2002 and Director of +Human Resources and Administration from January 1992 to November +1999. Ms. Howell previously was employed at Wavefront +Technologies, Inc., a computer graphics company, as Director of +Human Resources and Administration from 1986 to 1991. +John A. Kalinich , age 38, has served as Vice +President of Consumer Direct since November 2002, when he joined +us in connection with our acquisition of the Teva Rights at that +time. Mr. Kalinich served as a director of the Company +being appointed by Mark Thatcher as provided in the agreement +between Mark Thatcher and us for our acquisition of the Teva +Rights, from November 2002 until May 2004. Mr. Kalinish +also served as Director of Corporate Licensing for the Company +from November 2002 to September 2004. Prior to joining us, +Mr. Kalinich was the Chief Operations Officer for Teva +Sport Sandals, Inc. from January 1995 to November 2002. +Previously, Mr. Kalinich was employed as an audit senior +associate by Coopers and Lybrand LLP from July 1991 to January +1995. Mr. Kalinich is a certified public accountant. +Gene E. Burleson , age 65, has served as a +director since September 1993. Mr. Burleson has also served +as a director of Prospect Medical Holdings, Inc (AMEX: PZZ), a +healthcare management services organization, since August 2005. +In addition, Mr. Burleson has served as a director of Nesco +Industries, Inc., a manufacturer of medical products, since +November 2005, and a director for SunLink Health Systems, Inc. +(AMEX: SSY), an operator of acute hospitals, since October 2003. +He served as Chairman of the Board of Alterra Healthcare +Corporation, an operator of assisted living facilities, from +January 2003 to December 2003 and was a member of its board of +directors from January 1995 to December 2003. He served as +Chairman of the Board of Mariner Healthcare, Inc., a long-term +healthcare provider, from January 1999 to May 2002. +Rex A. Licklider , age 63, has served as a +director since September 1993. Mr. Licklider has been +director and Vice Chairman of The Sports Club Company, a +developer and operator of health and fitness clubs, since May +1994. Mr. Licklider has served as the Chief Executive +Officer of The Sports Club Company since March 2004 and as +Co-Chief Executive Officer of The Sports Club Company from +February 2002 to March 2004. From February 1992 to January 1993, +Mr. Licklider was Chairman of the Board of Resurgens +Communications Group, a long distance telecommunications +company, and from 1975 until February 1992, Mr. Licklider +6 +Table of Contents +was Chairman of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that +merged with Resurgens Communications Group in February 1992. +John M. Gibbons , age 57, has served as a +director since July 2000. Mr. Gibbons is a founding partner +of Tango Consulting Group, an executive consulting firm, since +February 2005. From June 2000 to April 2004, Mr. Gibbons +was Vice Chairman of TMC Communications, Inc., a long distance, +data and Internet services provider, and was its Chief Executive +Officer from June 2001 to April 2003. From June 2000 to June +2001, he was President of TMC Communications, Inc. He has served +as a director of National Technical Systems, Inc. (NASDAQ: +NTSC), a provider of integrated testing, certification, quality +registration, systems evaluation and staffing services, since +September 2003. Mr. Gibbons is also on the board of Habitat +for Humanity of Sonoma County. Mr. Gibbons was Vice +Chairman of Assisted Living Concepts, Inc., a national provider +of assisted living services, from March 2000 to December 2001. +Previously, Mr. Gibbons was employed by The Sports Club +Company, a developer and operator of health and fitness clubs, +where he was Chief Executive Officer and a director from July +1999 to February 2000 and was President and Chief Operating +Officer from January 1995 to July 1999. +Daniel L. Terheggen , age 55, has served as a +director since September 2002. Mr. Terheggen was the +co-founder and has been the Chief Executive Officer of BHPC +Global Licensing, Inc., an international licensing and marketing +firm, since April 1990. Mr. Terheggen has also been the +Chief Executive Officer and majority owner of Consolidated Smart +Systems, a provider of ancillary services to the multi-housing +market throughout California, since June 1973. +John G. Perenchio , age 50, has served as a +director since December 2005. Mr. Perenchio is the owner +and operator of Entrada Music LLC, a holding company with +controlling interests in Fearless Records LLC, a boutique rock +and punk music label; and Smartpunk, LLC, an internet music +retail store. From 1990 to 2004, Mr. Perenchio served as an +executive with Chartwell Partners, LLC, a family owned boutique +investment bank and holding company specializing in the +entertainment, media and real estate industries, where his +responsibilities included managing the company’s real +estate holdings. From 1984 to 1990, Mr. Perenchio was the +Director of Contemporary Music at Triad Artists, Inc., one of +the premier talent agencies in the world, and prior to that, +from 1982 to 1984, practiced law as an attorney in California. +Since 1992, Mr. Perenchio has been a director of Univision +Communications Inc (NYSE: UVN), the leading Spanish-language +media company in the United States. +Committees of the Board +The Company has an Audit Committee, a Compensation Committee and +a Corporate Governance and Nominating Committee. Each member of +these committees is “independent” as defined under the +applicable rules of the NASD and the SEC. +Audit Committee — The Board has a standing +Audit Committee that (i) monitors the integrity of the +Company’s financial reporting process and systems of +internal controls regarding finance, accounting and legal +compliance; (ii) monitors the independence and performance +of the Company’s independent registered public accounting +firm, and (iii) provides an avenue of communications among +the independent registered public accounting firm, management +and the Board of Directors. The committee met eight times during +2005. At the date of this Proxy Statement, Mr. Gibbons was +Chairman of the Audit Committee and the committee was comprised +of Messrs. Burleson, Licklider and Gibbons. The Board has +determined that Mr. Gibbons qualifies as an “audit +committee financial expert” as defined under the rules of +the SEC. All of the members of the Audit Committee meet the +independence and experience requirements of the NASD rules and +the independence requirements of the SEC. +Compensation Committee — The Board’s +Compensation Committee (i) reviews and approves corporate +goals and objectives relevant to compensation of the executive +officers, (ii) evaluates the performance of the executive +officers in light of those goals and objectives, +(iii) determines and approves the compensation level of the +executive officers based on this evaluation, and (iv) makes +recommendations to the Board with respect to +incentive-compensation plans and equity-based plans. The +Compensation Committee also reviews and recommends to the Board +any new compensation or retirement plans and administers the +Company’s 1993 +7 +Table of Contents +Employee Stock Incentive Plan (the “1993 Plan”) and +the Company’s 1995 Employee Stock Purchase Plan (the +“1995 Plan”). The committee met four times during +2005. At the date of this Proxy Statement, Mr. Burleson was +Chairman of the Compensation Committee and the committee was +comprised of Messrs. Burleson, Licklider, Gibbons, and +Terheggen. All of the members of the Compensation Committee meet +the independence requirements of the NASD rules. Beginning +January 1, 2006 the Board determined that +Mr. Terheggen is independent pursuant to the NASD rules. +The Board made this determination after considering that the +Company does not make any payments directly to +Mr. Terheggen, no other owner of BHPC Global Licensing, +Inc. is personally affiliated with Mr. Terheggen, and the +payments made to BHPC Global Licensing, Inc. in 2005 amounted to +substantially less than a majority of such company’s annual +revenue. +Corporate Governance and Nominating Committee — +The Board’s Corporate Governance and Nominating Committee +(i) develops and recommends to the Board a set of corporate +governance principles applicable to the Company, +(ii) recommends the director nominees to be selected by the +Board for the next annual meeting of stockholders, +(iii) identifies individuals qualified to become Board +members, consistent with criteria approved by the Board and +(iv) oversees the evaluation of the Board and management. +The committee met four times during 2005. At the date of this +Proxy Statement, the Corporate Governance and Nominating +Committee was comprised of Messrs. Licklider, Burleson, +Gibbons and Terheggen, and Mr. Licklider was the Chairman. +All of the members of the Corporate Governance and Nominating +Committee meet the independence requirements of the NASD rules. +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating +Committee consider and approve nominees for election to the +Board of Directors. In addition to the candidates proposed by +the Board of Directors or identified by the committee, the +committee considers candidates for director suggested by +stockholders, provided such recommendations are made in +accordance with the procedures set forth in the Bylaws and +described under “Stockholder Proposals and Director +Nominations for the 2007 Annual Meeting — Procedures +for Stockholder Nominations.” Stockholder nominations that +meet the criteria outlined below will receive the same +consideration that the committee’s nominees receive. +Essential criteria for all candidates considered by the +Corporate Governance and Nominating Committee include the +following: integrity and ethical behavior, maturity, management +experience and expertise, independence and diversity of thought +and broad business or professional experience, with an +understanding of business and financial affairs, and the +complexities of business organizations. +In evaluating candidates for certain Board positions, the +committee evaluates additional criteria, including the +following: financial or accounting expertise; industry +expertise; accomplishment in designing, marketing, +manufacturing, distribution and licensing of footwear, apparel +and accessories; business and other experience relevant to +public companies of a size comparable to the Company; and +experience in investment banking, commercial lending or other +financing activities. +In selecting nominees for the Board of Directors, the committee +evaluates the general and specialized criteria set forth above, +identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous +performance if the candidate is a candidate for re-election, and +generally considers the candidate’s ability to contribute +to the success of the Company. +The Board of Directors’ nominees for the Annual Meeting +have been recommended by the Corporate Governance and Nominating +Committee, as well as the full Board of Directors. +Stockholders did not propose any candidates for election at the +Annual Meeting. +Communications with Directors +You may communicate with the chair of our Audit Committee, +Corporate Governance and Nominating Committee, or Compensation +Committees, or with our independent directors as a group, by +writing to any +8 +Table of Contents +such person or group c/o the Secretary of the Company, at +the Company’s office at +495-A South +Fairview Avenue, Goleta, California 93117. +Communications are distributed to the Board of Directors, or to +any individual director, depending on the facts and +circumstances described in the communication. In that regard, +the Board of Directors has requested that certain items that are +unrelated to the duties and responsibilities of the Board of +Directors should be excluded, including the following: junk mail +and mass mailings; product complaints; product inquiries; new +product suggestions; resumes and other forms of job inquiries; +surveys; and business solicitations or advertisements. In +addition, material that is unduly hostile, threatening, illegal +or similarly unsuitable will not be distributed, with the +provision that any communication that is not distributed will be +made available to any independent director upon request. +Director Attendance +In 2005, the Company held seven meetings of the Board of +Directors. During 2005, all of the directors attended at least +75% of the aggregate of the meetings of the Board and of the +committees of which they were members. +Director Compensation +Standard Compensation — Directors who are not +employees of the Company or its subsidiaries (“Nonemployee +Directors”) receive an annual retainer of $20,000 in cash +and 1,600 shares of Common Stock per year, which shares are +granted on a quarterly basis. Additionally, Nonemployee +Directors receive $1,500 for each meeting of the Board and each +committee meeting that they attend plus reimbursement of any +expenses they may incur with respect to such meetings. The Audit +Committee Chairman receives an additional annual retainer fee of +$12,000 and the Committee Chairmen for the Compensation +Committee and the Corporate Governance and Nominating Committee +each receive an annual retainer fee of $4,000. Directors who are +employees of the Company or its subsidiaries serve as directors +without compensation. +9 +Table of Contents +Executive Compensation +The following table sets forth for the years ended +December 31, 2005, 2004, and 2003, the reportable +compensation paid or awarded to the Chief Executive Officer and +to each of the four other most highly compensated executive +officers of the Company who were executive officers of the +Company at December 31, 2005 and received compensation in +excess of $100,000 in such year (the “Named Executive +Officers”). +Summary Compensation Table +Annual Compensation +Long-Term Compensation +Restricted +Securities +Stock +Underlying +Name and principal position +Year +Salary +Bonus +Awards($)(1) +Options (#) +Angel R. Martinez +2005 +$ +252,000 +$ +232,000 +$ +2,002,000 +(2) +— +President and Chief Executive Officer(3) +2004 +— +— +— +— +2003 +— +— +— +— +Douglas B. Otto +2005 +169,000 +232,000 +— +— +Chairman of Board of Directors(3) +2004 +345,000 +1,476,000 +358,000 +(4) +— +2003 +345,000 +813,000 +— +25,000 +(5) +Constance X. Rishwain +2005 +168,000 +203,000 +147,000 +(6) +— +President of the UGG and +2004 +160,000 +822,000 +268,000 +(4) +— +Simple Divisions +2003 +160,000 +639,000 +— +20,000 +(5) +M. Scott Ash +2005 +165,000 +130,000 +147,000 +(6) +— +Chief Financial Officer(7) +2004 +165,000 +413,000 +268,000 +(4) +— +2003 +146,000 +204,000 +— +20,000 +(5) +Patrick C. Devaney +2005 +167,000 +112,000 +147,000 +(6) +— +Senior Vice President of Global Sourcing, +2004 +167,000 +356,000 +268,000 +(4) +— +Production and Development +2003 +167,000 +228,000 +— +20,000 +(5) +John A. Kalinich +2005 +178,000 +83,000 +98,000 +(6) +— +Vice President of Consumer Direct +2004 +173,000 +206,000 +179,000 +(4) +— +2003 +166,000 +129,000 +— +12,500 +(5) +(1) +As of December 31, 2005, Mr. Martinez beneficially +owned 62,000 shares of nonvested stock units in the +aggregate, then valued at $1,712,440. As of December 31, +2005, Mr. Otto beneficially owned 4,240 shares of +nonvested stock units in the aggregate, then valued at $117,109. +As of December 31, 2005, Ms. Rishwain beneficially +owned 9,180 shares of nonvested stock units in the +aggregate, then valued at $253,552. As of December 31, +2005, Mr. Ash beneficially owned 9,180 shares of +nonvested stock units in the aggregate, then valued at $253,552. +As of December 31, 2005, Mr. Devaney beneficially +owned 9,180 shares of nonvested stock units in the +aggregate, then valued at $253,552. As of December 31, +2005, Mr. Kalinich beneficially owned 6,120 shares of +nonvested stock units in the aggregate, then valued at $169,034. +The value of the aggregate nonvested stock unit holdings of the +Named Executive Officers contained in this footnote is based on +the closing price on December 31, 2005, which was +$27.62 per share. +(2) +Represents two grants of nonvested stock units under which the +executive has the right to receive shares of Common Stock: +(i) 50,000 shares valued at the closing price on the +date of grant, which was $34.16 and (ii) 12,000 shares +valued at the closing price on the date of grant, which was +$24.46. Both awards will vest 25% per quarter between the +third and fourth anniversaries of the respective grant dates; +however, the latter is subject to target performance as well. +The stock awards are not entitled to dividends or dividend +equivalents. +(3) +Effective April 11, 2005, Mr. Angel Martinez succeeded +Mr. Otto as President and Chief Executive Officer. +Mr. Otto continues to be Chairman of the Board of Directors. +10 +Table of Contents +(4) +Represents the grant of nonvested stock units under which the +executive has the right to receive shares of Common Stock, +subject to vesting and target performance. The nonvested stock +units were granted to the following executives: Douglas B. Otto +(8,000 shares), Constance X. Rishwain (6,000 shares), +M. Scott Ash (6,000 shares), Patrick C. Devaney +(6,000 shares) and John A. Kalinich (4,000). The stock +awards vest 25% per quarter, beginning on March 31, +2008. The value set forth in the table is based on the closing +price on the date of grant, which was $44.73. The stock awards +are not entitled to dividends or dividend equivalents. +(5) +Represents non-qualified stock options granted on +December 5, 2003 at an exercise price of $19.00 per +share, vesting 20% on the date of grant and 20% on each +anniversary of the grant date until fully vested on +December 5, 2007. +(6) +Represents the grant of nonvested stock units under which the +executive has the right to receive shares of Common Stock, +subject to vesting and target performance. The nonvested stock +units were granted to the following executives: Constance X. +Rishwain (6,000 shares), M. Scott Ash (6,000 shares), +Patrick C. Devaney (6,000 shares) and John A. Kalinich +(4,000 shares). The stock awards vest 25% per quarter, +beginning on March 31, 2009. The value set forth in the +table is based on the closing price on the date of grant, which +was $24.46. The stock awards are not entitled to dividends or +dividend equivalents. +(7) +Effective March 10, 2006, Mr. Ash resigned as Chief +Financial Officer and was succeeded by Zohar Ziv who also +assumed the position of Executive Vice President of Finance and +Administration and Assistant Secretary of the Company. +Option Exercises and Holdings +None of the Named Executive Officers were granted stock options +during 2005. +Aggregated Option Exercises in 2005 and +2005 Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the- Money Options at +Shares +December 31, 2005 +December 31, 2005 +Acquired on +Value +Name +Exercise (#) +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Angel R. Martinez +— +$ +— +— +— +$ +— +$ +— +Douglas B. Otto +— +— +360,000 +20,000 +8,479,635 +319,400 +Constance X. Rishwain +31,500 +940,439 +8,000 +18,000 +130,560 +302,160 +M. Scott Ash +57,000 +1,994,111 +17,000 +16,000 +223,540 +255,520 +Patrick C. Devaney +43,051 +1,363,336 +9,000 +16,000 +154,580 +255,520 +John A. Kalinich +7,500 +155,527 +8,500 +17,000 +165,478 +330,870 +Incentive Compensation Plans +The Company currently has two incentive compensation plans: +(i) The 1993 Plan and (ii) the 1995 Plan. The 1993 +Plan, as amended, provides for 3,000,000 shares of Common +Stock that are reserved for issuance to officers, directors, +employees, and consultants of the Company. Awards to 1993 Plan +participants are not restricted to any specified form and may +include stock options, securities convertible into or redeemable +for stock, stock appreciation rights, stock purchase warrants, +or other rights to acquire stock. The 1995 Plan is intended to +qualify as an Employee Stock Purchase Plan under +Section 423 of the Internal Revenue Code. Under the terms +of the 1995 Plan, as amended, 300,000 shares of Common +Stock are reserved for issuance to employees who have been +employed by the Company for at least six months. The 1995 Plan +provides for employees to purchase the Company’s Common +Stock at a discount below market value, as defined by the 1995 +Plan. +The Board has determined that the 1993 Plan will no longer be +available for further awards upon the effective date of the +approval of our stockholders of the 2006 Equity Incentive Plan. +11 +Table of Contents +Equity Compensation Plan Information +The following table shows outstanding options, their +weighted-average exercise price and options remaining available +for issuance under the Company’s existing compensation +plans. +EQUITY COMPENSATION PLAN INFORMATION +Number of Securities +Number of +Remaining Available +Securities to be +Weighted-Average +For Future Issuance +Issued upon +Exercise Price of +Under Equity +Exercise of +Outstanding +Compensation Plans +Outstanding +Options, +(Excluding +Options, Warrants +Warrants and +Securities Reflected +Plan Category +and Rights (a) +Rights (b) +in Column (a)) (c) +Equity compensation plans approved by security holders +819,000 +(1) +$ +7.16 +259,000 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +819,000 +$ +7.16 +259,000 +(1) +Shares issuable pursuant to outstanding options (628,000) and +nonvested stock units (191,000) under the Company’s 1993 +Employee Stock Incentive Plan. +(2) +Represents shares of the Company’s Common Stock, which may +be issued pursuant to future awards under the Company’s +1993 Employee Stock Incentive Plan. +Employment Agreements +Angel R. Martinez, President and Chief Executive +Officer +Effective April 11, 2005, the Company entered into an +employment agreement with Angel R. Martinez pursuant to which +Mr. Martinez shall serve as the President and Chief +Executive Officer of the Company. Mr. Martinez’s +employment with the Company is “at will,” but the term +of his employment agreement ends December 31, 2008. In +2005, Mr. Martinez’s compensation included an annual +base salary of $345,000 and a bonus of $232,000. For 2006, +Mr. Martinez will be entitled to an annual base salary of +$500,000 and may be entitled to a performance bonus based on a +target bonus of 100% of his annual base salary. The actual 2006 +bonus paid, if any, to Mr. Martinez will be based upon the +achievement of certain performance targets. If the performance +targets are surpassed or if they are not achieved, the bonus may +be more or less, as applicable, than the amount of the target +bonus. Pursuant to his employment agreement, Mr. Martinez +received 50,000 nonvested stock units upon commencement of his +employment, the full amount of which will vest in quarterly +equal installments between the third and fourth anniversary of +his employment. Mr. Martinez may also be granted options or +nonvested stock units to the extent approved by the Compensation +Committee. Mr. Martinez will also receive the normal fringe +benefits available to other senior executives and will be +entitled to severance pay under the circumstances described +below. +If Mr. Martinez is terminated by the Company for Cause, or +Mr. Martinez terminates his employment, other than for Good +Reasons, Mr. Martinez or his beneficiaries will be entitled +to payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +nonvested stock units outstanding as of the termination date. If +Mr. Martinez is terminated due to his death or total +disability, in addition to those rights described in the first +sentence of this paragraph, Mr. Martinez will be entitled +to full acceleration of his initial grant of 50,000 nonvested +stock units. If Mr. Martinez is terminated by the Company +without Cause or Mr. Martinez terminates his employment for +Good Reason, in addition to those rights described in the first +two sentences of this paragraph, Mr. Martinez will be +entitled to payment of his base salary for one year following +his termination, subject to Mr. Martinez signing a release, +and receipt of health benefits for a period of one year +following his termination or his +12 +Table of Contents +attainment of alternative employment that provides health +benefits, whichever is earlier. If Mr. Martinez is +terminated within two years of a Change of Control of the +Company without Cause or by Mr. Martinez for Good Reason, +in addition to those rights described in the first two sentences +of this paragraph, Mr. Martinez will be entitled to payment +of a pro-rata incentive bonus based on actual performance for +the year of termination, payment of two times his annual base +salary plus the greater of two times the targeted incentive +bonus immediately prior to the termination or two times the +average actual incentive bonus for the previous three years, +subject to Mr. Martinez signing a release, receipt of +health benefits for a period of two years following his +termination or his attainment of alternative employment that +provides health benefits, whichever is earlier, and full +acceleration of his initial grant of 50,000 nonvested stock +units. +As used in the previous paragraph, (1) Cause means +(i) any willful breach of duty by Mr. Martinez in the +course of his employment or continued violation of written +Company employment policies after written notice of such +violation, (ii) violation of the Company’s insider +trading policies, (iii) conviction of a felony or any crime +involving fraud, theft, embezzlement, dishonesty or moral +turpitude, (iv) engaging in activities which materially +defame the Company, engaging in conduct which is material +injurious to the Company or its affiliates, or any of their +respective customer or supplier relationships, financially or +otherwise, or (v) Mr. Martinez’s gross negligence +or incapacity to perform duties, excluding +Mr. Martinez’s total disability, (2) Good Reason +means the occurrence of a material breach of the employment +agreement by the Company, which breach is not cured within 15 +calendar days after written notice thereof is received by the +Company, or in the event of a Change of Control, a reduction of +total compensation, benefits, and perquisites, relocation +greater than 50 miles, or a material change in position or +duties, and (3) Change of Control means if there is a +merger, consolidation, sale of all or a major portion of the +assets of the Company (or a successor organization) or similar +transaction or circumstance where any person or group (other +than Douglas B. Otto) acquires or obtains the right to acquire, +in one or more transactions, beneficial ownership of more than +50% of the outstanding shares of any class of voting stock of +the Company (or a successor organization). +Douglas B. Otto, Chairman of the Board +Effective April 11, 2005, the Company entered into an +amendment to Douglas B. Otto’s employment agreement +pursuant to which Mr. Otto shall serve as the Chairman of +the Board. Mr. Otto’s employment with the Company is +“at will,” but the term of his employment agreement +ends December 31, 2007. For 2005, Mr. Otto was +entitled to compensation based on an annual base salary of +$345,000 pro rated for the period through April 11, 2005 +and an annual salary of $104,00 pro rated for the period after +April 11, 2005. Mr. Otto was also entitled to an +incentive bonus of $103,000 in 2005, based on achievement of +certain performance criteria. For 2006, Mr. Otto is +entitled to an annual base salary of $52,000. Pursuant to his +employment agreement, Mr. Otto is not entitled to a bonus +or any grants of nonvested stock units. Mr. Otto will +receive the normal fringe benefits available to other senior +executives and will be entitled to severance pay under the +circumstances described below. +If Mr. Otto is terminated by the Company for any reason or +Mr. Otto terminates his employment for any reason, +Mr. Otto or his beneficiaries will be entitled to payment +of his accrued base salary, payment for his accrued vacation, +reimbursement for certain expenses, receipt of accrued and +vested benefits under the Company’s plans or programs and +other benefits required to be paid by law, payment of three +times his annual base salary plus the greater of three times the +targeted incentive bonus immediately prior to the time such +termination occurs or three times the average actual incentive +bonus for the previous three years, if any, subject to +Mr. Otto signing a release, receipt of health benefits for +a period of three years following his termination or his +attainment of alternative employment that provides health +benefits, whichever is earlier, and the right to exercise all +vested unexercised stock options and warrants outstanding as of +the termination date. +Constance X. Rishwain, President of the UGG and Simple +Divisions +Effective January 1, 2006, the Company entered into an +employment agreement with Constance X. Rishwain pursuant to +which Ms. Rishwain shall serve as the President of the UGG +and Simple Divisions. Ms. Rishwain’s employment with +the Company is “at will,” but the term of her +employment agreement ends +13 +Table of Contents +December 31, 2007. For 2006, Ms. Rishwain will be +entitled to an annual base salary of $225,000 and may be +entitled to a performance bonus based on a target bonus of 100% +of her annual base salary. The actual 2006 bonus paid, if any, +to Ms. Rishwain will be based upon the achievement of +certain performance targets. If the performance targets are +surpassed or if they are not achieved, the bonus may be more or +less, as applicable, than the amount of the target bonus. +Ms. Rishwain may also be granted options or nonvested stock +units to the extent approved by the Compensation Committee. +Ms. Rishwain will also receive the normal fringe benefits +available to other senior executives and will be entitled to +severance pay under the circumstances described below. +If Ms. Rishwain is terminated by the Company for Cause or +Ms. Rishwain terminates her employment, other than for Good +Reasons, Ms. Rishwain or her beneficiaries will be entitled +to payment of her accrued base salary, payment for her accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Ms. Rishwain is terminated by the Company due to her death +or total disability, in addition to those rights described in +the first sentence of this paragraph, Ms. Rishwain shall be +entitled to payment of any accrued but unpaid incentive bonus +for the current fiscal year based on actual performance. If +Ms. Rishwain is terminated by the Company without Cause or +Ms. Rishwain terminates her employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Ms. Rishwain will be entitled to payment of +her base salary for six months following her termination, +subject to Ms. Rishwain signing a release, and receipt of +health benefits for a period of six months following her +termination or her attainment of alternative employment that +provides health benefits, whichever is earlier. If +Ms. Rishwain is terminated within two years of a Change of +Control of the Company without Cause or by Ms. Rishwain for +Good Reason, in addition to those rights described in the first +two sentences of this paragraph, Ms. Rishwain will be +entitled to payment of a pro-rata incentive bonus based on +actual performance for the year of termination, payment of one +and one-half times her annual base salary plus the greater of +one and one-half times the targeted incentive bonus immediately +prior to the termination or two times the average actual +incentive bonus for the previous three years, subject to +Ms. Rishwain signing a release, receipt of health benefits +for a period of eighteen months following her termination or her +attainment of alternative employment that provides health +benefits, whichever is earlier. +As used in the previous paragraph, (1) Cause means +(i) any willful breach of duty by Ms. Rishwain in the +course of her employment or continued violation of written +Company employment policies after written notice of such +violation, (ii) violation of the Company’s insider +trading policies, (iii) conviction of a felony or any crime +involving fraud, theft, embezzlement, dishonesty or moral +turpitude, (iv) engaging in activities which materially +defame the Company, engaging in conduct which is material +injurious to the Company or its affiliates, or any of their +respective customer or supplier relationships, financially or +otherwise, or (v) Ms. Rishwain’s gross negligence +or incapacity to perform duties, excluding +Ms. Rishwain’s total disability, (2) Good Reason +means the occurrence of a material breach of the employment +agreement by the Company, which breach is not cured within 15 +calendar days after written notice thereof is received by the +Company, or if within two years of a Change of Control, there is +a reduction of Ms. Rishwain’s total compensation, +benefits, and perquisites, the Company’s relocation is +greater than 50 miles further from Ms. Rishwain’s +home, or a material change in Ms. Rishwain’s position +or duties, and (3) Change of Control means if there is a +merger, consolidation, sale of all or a major portion of the +assets of the Company (or a successor organization) or similar +transaction or circumstance where any person or group (other +than Douglas B. Otto) acquires or obtains the right to acquire, +in one or more transactions, beneficial ownership of more than +50% of the outstanding shares of any class of voting stock of +the Company (or a successor organization). +M. Scott Ash, Former Chief Financial Officer +On March 10, 2006, M. Scott Ash, resigned as Chief +Financial Officer of the Company. Prior to his resignation, +Mr. Ash was party to an employment agreement with the +Company. In 2005, Mr. Ash was entitled to an annual base +salary of $165,000, and in 2006, Mr. Ash was entitled to an +annual base salary of $200,000. For 2005, Mr. Ash received +a performance-based bonus equal to $130,000 and a grant of 6,000 +14 +Table of Contents +nonvested stock units. Pursuant to his employment agreement, +Mr. Ash was entitled to the following benefits as a result +of his resignation: (i) payment of his accrued base salary, +(ii) payment for his accrued vacation, +(iii) reimbursement for certain expenses, (iv) receipt +of accrued and vested benefits under the Company’s plans or +programs and other benefits required to be paid by law, +(v) payment of any accrued but unpaid incentive bonus for +the prior fiscal year and (vi) the right to exercise all +vested unexercised stock options and warrants outstanding as of +the termination date. +Effective March 10, 2006, the Company entered into a +consulting agreement with M. Scott Ash pursuant to which, +following his resignation, Mr. Ash shall serve as a +consultant to the Company, on an as needed basis, without any +specified level of effort to assist the Company’s personnel +and Mr. Ash’s successor as Chief Financial Officer. +Pursuant to the agreement, Mr. Ash is an independent +contractor and not an employee of the Company. The term of the +agreement is for one year following Mr. Ash’s +resignation. Mr. Ash will be entitled to a consulting fee +of $100,000, payable in equal quarterly installments. In +addition, Mr. Ash will be entitled to reimbursement for any +reasonable +out-of -pocket expenses +incurred by him in the performance of his duties hereunder. +Patrick C. Devaney, Senior Vice President of Global +Sourcing, Production and Development +Effective January 1, 2006, the Company entered into an +employment agreement with Patrick C. Devaney pursuant to which +Mr. Devaney shall serve as the Senior Vice President of +Global Sourcing, Production and Development. +Mr. Devaney’s employment with the Company is “at +will,” but the term of his employment agreement ends +December 31, 2007. For 2006, Mr. Devaney will be +entitled to an annual base salary of $200,000 and may be +entitled to a performance bonus based on a target bonus of 67% +of his annual base salary. The actual 2006 bonus paid, if any, +to Mr. Devaney will be based upon the achievement of +certain performance targets. If the performance targets are +surpassed or if they are not achieved, the bonus may be more or +less, as applicable, than the amount of the target bonus. +Mr. Devaney may also be granted options or nonvested stock +units to the extent approved by the Compensation Committee. +Mr. Devaney will also receive the normal fringe benefits +available to other senior executives and will be entitled to +severance pay under the circumstances described below. +If Mr. Devaney is terminated by the Company for Cause or +Mr. Devaney terminates his employment, other than for Good +Reasons, Mr. Devaney or his beneficiaries will be entitled +to payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Mr. Devaney is terminated by the Company due to his death +or total disability, in addition to those rights described in +the first sentence of this paragraph, Mr. Devaney shall be +entitled to payment of any accrued but unpaid incentive bonus +for the current fiscal year based on actual performance. If +Mr. Devaney is terminated by the Company without Cause or +Mr. Devaney terminates his employment for Good Reason, in +addition to those rights described in the first two sentences of +this paragraph, Mr. Devaney will be entitled to payment of +his base salary for six months following his termination, +subject to Mr. Devaney signing a release, and receipt of +health benefits for a period of six months following his +termination or his attainment of alternative employment that +provides health benefits, whichever is earlier. If +Mr. Devaney is terminated within two years of a Change of +Control of the Company without Cause or by Mr. Devaney for +Good Reason, in addition to those rights described in the first +two sentences of this paragraph, Mr. Devaney will be +entitled to payment of a pro-rata incentive bonus based on +actual performance for the year of termination, payment of one +and one-half times his annual base salary plus the greater of +one and one-half times the targeted incentive bonus immediately +prior to the termination or two times the average actual +incentive bonus for the previous three years, subject to +Mr. Devaney signing a release, receipt of health benefits +for a period of eighteen months following his termination or his +attainment of alternative employment that provides health +benefits, whichever is earlier. +As used in the previous paragraph, (1) Cause means +(i) any willful breach of duty by Mr. Devaney in the +course of his employment or continued violation of written +Company employment policies after written notice of such +violation, (ii) violation of the Company’s insider +trading policies, (iii) conviction of a felony or any +15 +Table of Contents +crime involving fraud, theft, embezzlement, dishonesty or moral +turpitude, (iv) engaging in activities which materially +defame the Company, engaging in conduct which is material +injurious to the Company or its affiliates, or any of their +respective customer or supplier relationships, financially or +otherwise, or (v) Mr. Devaney’s gross negligence +or incapacity to perform duties, excluding +Mr. Devaney’s total disability, (2) Good Reason +means the occurrence of a material breach of the employment +agreement by the Company, which breach is not cured within 15 +calendar days after written notice thereof is received by the +Company, or if within two years of a Change of Control, there is +a reduction of Mr. Devaney’s total compensation, +benefits, and perquisites, the Company’s relocation is +greater than 50 miles further from Mr. Devaney’s +home, or a material change in Mr. Devaney’s position +or duties, and (3) Change of Control means if there is a +merger, consolidation, sale of all or a major portion of the +assets of the Company (or a successor organization) or similar +transaction or circumstance where any person or group (other +than Douglas B. Otto) acquires or obtains the right to acquire, +in one or more transactions, beneficial ownership of more than +50% of the outstanding shares of any class of voting stock of +the Company (or a successor organization). +John A. Kalinich, Vice President of Consumer Direct +Effective November 25, 2005, the Company entered into an +employment agreement with John A. Kalinich pursuant to which +Mr. Kalinich shall serve as the Vice President of Consumer +Direct, which expires on December 31, 2007. Commencing on +November 25, 2007, Mr. Kalinich’s term of +employment shall automatically be extended without further +action by the Company or Mr. Kalinich on a +month-to -month basis +until such time as 30 calendar days’ written notice of +termination is given by the Company or written notice is given +by Mr. Kalinich. Pursuant to his employment agreement, +Mr. Kalinich received an option to +purchase 50,000 shares of Common Stock upon +commencement of his employment. For 2006, Mr. Kalinich is +entitled to an annual base salary of $180,000 and may be +entitled to a performance bonus based on a target bonus of 50% +of his annual base salary. The actual 2006 bonus paid, if any, +to Mr. Kalinich will be based upon the achievement of +certain performance targets. If the performance targets are +surpassed or if they are not achieved, the bonus may be more or +less, as applicable, than the amount of the target bonus. +Mr. Kalinich may also be granted options or nonvested stock +units to the extent approved by the Compensation Committee. +Mr. Kalinich will also receive the normal fringe benefits +available to other senior executives and will be entitled to +severance pay under the circumstances described below. +If Mr. Kalinich is terminated by the Company due to his +death or total disability or for Cause, or Mr. Kalinich +terminates his employment, other than for Good Reasons, +Mr. Kalinich or his beneficiaries will be entitled to +payment of his accrued base salary, payment for his accrued +vacation, reimbursement for certain expenses, receipt of accrued +and vested benefits under the Company’s plans or programs +and other benefits required to be paid by law, payment of any +accrued but unpaid incentive bonus for the prior fiscal year and +the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. If +Mr. Kalinich is terminated by the Company without Cause or +Mr. Kalinich terminates his employment for Good Reason, in +addition to those rights described above, Mr. Kalinich will +be entitled to payment of an amount equal to the sum of +(i) five times Mr. Kalinich’s base salary minus +(ii) the base salary payments made to Mr. Kalinich +during the first five years following the date of his employment +agreement. Such payment shall be made over a period of one year +following his termination. Mr. Kalinich shall also be +entitled to receipt of health benefits until the first to occur +of the fifth anniversary of his employment agreement and his +attainment of alternative employment that provides health +benefits. +As used in the previous paragraph, (1) Cause means +(i) any willful breach of duty by Mr. Kalinich in the +course of his employment, continued violation of written Company +employment policies after written notice of such violation, +conviction of a felony, engaging in illegal activities which +defame the Company, or his habitual negligence of his duty or +continued incapacity to perform it, and (2) Good Reason +means the occurrence of a material breach of the employment +agreement by the Company, which breach is not cured within 15 +calendar days after written notice thereof is received by the +Company. +16 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following table sets forth, as of the Record Date, certain +information concerning the shares of Common Stock beneficially +owned by (i) each person who is a Named Executive Officer +in the Summary Compensation Table; (ii) each director and +director nominee; (iii) all executive officers and +directors as a group (fourteen persons); and (iv) each +person known by the Company to be the beneficial owner of more +than 5% of our Common Stock (other than directors, executive +officers and depositaries). +Name and Address of +Amount and Nature of +Beneficial Owner(1) +Beneficial Ownership(2),(3),(4) +Percent of Class(3) +Named Executive Officers +Douglas B. Otto(5) +1,632,472 +12.7 +% +Angel R. Martinez +7,200 +* +Constance X Rishwain +— +* +M. Scott Ash +12,000 +* +Patrick C. Devaney +2,486 +* +John A. Kalinich +1,291 +* +Directors and Director Nominees +Douglas B. Otto(5) +1,632,472 +12.7 +% +Angel R. Martinez +7,200 +* +Rex A. Licklider(6) +225,808 +1.8 +% +Gene E. Burleson +56,339 +* +John M. Gibbons(7) +15,429 +* +Daniel L. Terheggen +6,005 +* +John G. Perenchio +400 +* +All directors and executive officers as a group (fourteen +persons) +1,968,945 +15.3 +% +5% Stockholders +Morgan Stanley(8) +1,200,318 +9.6 +% +PAR Capital Management(9) +1,147,567 +9.2 +% +Burgundy Asset Management Ltd.(10) +1,042,700 +8.4 +% +Witmer Asset Management(11) +1,037,803 +8.3 +% +FMR Corp.(12) +1,000,100 +8.0 +% +Wellington Management Co. LLP(13) +840,600 +6.7 +% +Lotsoff Capital Management(14) +726,783 +5.8 +% +* +Percentage of shares beneficially owned does not exceed 1% of +the class so owned. +(1) +The address of each beneficial owner is +495-A South +Fairview Avenue, Goleta, California 93117, unless otherwise +noted. +(2) +Unless otherwise noted, the Company believes that each +individual or entity named has sole investment and voting power +with respect to shares of Common Stock indicated as beneficially +owned by them, subject to community property laws, where +applicable. +(3) +Pursuant to +Rule 13d-3(d)(1) +of the Exchange Act, shares not outstanding which are subject to +options, warrants, rights or conversion privileges exercisable +on or before the date that is 60 days after the Record Date +are deemed outstanding for the purpose of calculating the number +and percentage owned by such person, but not deemed outstanding +for the purpose of calculating the percentage owned by any other +person listed. +(4) +Includes shares under stock options that are presently +exercisable or are exercisable within 60 days from the +Record Date for the following: Douglas B. Otto — +360,000; M. Scott Ash — 12,000; John A. +17 +Table of Contents +Kalinich — 900; Rex A. Licklider — 6,000; +John M. Gibbons — 2,000; Daniel L. +Terheggen — 3,334; and all directors and executive +officers as a group — 386,534. +(5) +Includes (a) 968,822 shares held by the Douglas B. +Otto Trust as to which Mr. Otto has sole voting and +investment power, (b) 114,750 shares held as trustee +for the Tiffany Jade Otto Trust, of which Mr. Otto has sole +voting and investment power, (c) 114,750 shares held +as trustee for the Ty Dylan Bard Otto Trust, of which +Mr. Otto has sole voting and investment power, +(d) 39,150 shares held by the Edgecliff Foundation, a +charitable foundation formed by Mr. Otto, of which +Mr. Otto is the Chairman of the Board of Directors and +(e) 35,000 shares held by Mr. Otto’s wife. +Mr. Otto disclaims ownership of the shares held by his wife. +(6) +Includes 219,808 shares held by the Licklider Living Trust +as to which Mr. Licklider has joint voting and investment +power. +(7) +Includes 13,429 shares held by the Gibbons Living Trust as +to which Mr. Gibbons has joint voting and investment power. +(8) +Includes 1,126,118 shares held by Morgan Stanley, as to +which the beneficial owners have sole voting and dispositive +power, and 1,076,668 shares held by Morgan Stanley +Investment Management Inc., as to which the beneficial owners +have sole voting and dispositive power. This information is +based solely on a Schedule 13G filed by the parties on +February 15, 2006 whose business address is +1585 Broadway, New York, NY 10036 and 1221 Avenue of +the Americas, New York, NY 10020, respectively. +(9) +Includes 1,147,567 shares held by PAR Investment Partners, +L.P., PAR Group L.P. and PAR Capital Management, Inc., as to +which the beneficial owners have sole voting and dispositive +power. This information is based solely on a Schedule 13G/A +filed by the parties on February 14, 2006 whose business +address is One International Place, Suite 2401, Boston, MA +02110. +(10) +Includes 1,042,700 shares held by Burgundy Asset Management +Ltd, as to which the beneficial owners have sole voting and +dispositive power. This information is based solely on a +Schedule 13G filed by the party on February 1, 2006 +whose business address is 181 Bay Street, Suite 4510, +Toronto, Ontario M5J 2T3, Canada. +(11) +Includes 981,303 shares held by Witmer Asset Management, as +to which the beneficial owners have shared voting and +dispositive power; 41,500 shares held by Charles H. Witmer +and Meryl B. Witmer, as to which the beneficial owners have sole +voting and dispositive power and 996,303 shares held by +Charles H. Witmer and Meryl B. Witmer, as to which the +beneficial owners have shared voting and dispositive power. This +information is based solely on a Schedule 13G/A filed by +the parties on February 16, 2006 whose business address is +237 Park Avenue, Suite 800, New York, NY 10017. +(12) +Includes 22,500 shares held by FMR Corp., as to which the +beneficial owners have sole voting power and +1,000,100 shares as to which the beneficial owners have +sole dispositive power. This information is based solely on a +Schedule 13G filed by the party on February 14, 2006 +whose business address is 82 Devonshire Street, Boston, MA +02109. +(13) +Includes 458,000 shares held by Wellington Management Co. +LLP, as to which the beneficial owners have shared voting power +and 840,600 shares, as to which the beneficial owners have +shared dispositive power. This information is based solely on a +Schedule 13G filed by the parties on February 14, 2006 +whose business address is 75 State Street, Boston, MA 02109. +(14) +Includes 237,749 shares held by Lotsoff Capital Management, +as to which the members have sole voting power, +489,034 shares as to which the members have shared voting +power, and 726,783 shares, as to which the members have +sole dispositive power. This information is based solely on a +Schedule 13G filed by the members on January 19, 2006. +The LLC’s address is 20 North Clark St., +34th Floor, Chicago, IL +60602-4109. +18 +Table of Contents +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee of the Board of Directors consists +entirely of directors who have never served as officers or +employees of the Company or any of its subsidiaries and whom +meet the independence requirements under the NASD rules. The +Compensation Committee determines and administers the +compensation of the Company’s executive officers. Set forth +below are the principal factors underlying the Compensation +Committee’s philosophy used in setting compensation. +Compensation Philosophy — At the direction of +the Board of Directors, the Compensation Committee endeavors to +ensure that the compensation programs for executive officers of +the Company and its subsidiaries are competitive and consistent +in order to attract and retain key executives critical to the +Company’s long-term success. The Compensation Committee +believes that the Company’s overall financial performance +should be an important factor in the total compensation of +executive officers. At the executive officer level, the +Compensation Committee has a policy that a significant +proportion of potential total compensation should consist of +variable, performance-based components, such as nonvested stock +awards and bonuses, which can increase or decrease to reflect +changes in corporate and individual performance. These incentive +compensation programs are intended to reinforce +management’s commitment to enhancement of profitability and +stockholder value. +The Compensation Committee takes into account various +qualitative and quantitative indicators of corporate and +individual performance in determining the level and composition +of compensation for the Chief Executive Officer and other +executive officers. The Compensation Committee considers such +corporate performance measures as net sales, open orders, net +income, earnings per share and similar quantitative measures. +The Compensation Committee also appreciates the importance of +achievements that may be difficult to quantify, and accordingly +recognizes qualitative factors, such as successful supervision +of major corporate projects, demonstrated leadership ability and +contributions to industry and community development. For 2005, +the most important qualitative factors in determining incentive +compensation awards to executive officers were the Compensation +Committee’s assessments of their contributions to the +Company’s net sales, open orders, and diluted earnings per +share. +The Compensation Committee also evaluates the total compensation +of the Company’s Chief Executive Officer and other +executive officers in light of information regarding the +compensation practices and corporate financial performance of +similar companies in the Company’s industry. However, the +Compensation Committee does not target a specific percentile +range within the peer group compensation structure in +determining compensation for executive officers. From time to +time, the Compensation Committee also receives assessments and +advice regarding the Company’s compensation practices from +independent compensation consultants. +Relationship of Performance to Compensation — +Compensation that may be earned by the executive officers in any +fiscal year consists of base salary, cash bonus and stock-based +compensation. Salaries are reviewed periodically and adjusted as +warranted to reflect sustained individual performance. The +Compensation Committee focuses primarily on total annual +compensation, including incentive awards and cash bonuses, +rather than base salary alone, as the appropriate measure of +executive officer performance and contribution. +The executive officers receive incentive awards based on +individual goals and milestones established for each officer at +the beginning of each year and other factors as determined by +the Compensation Committee. Such officers receive compensation +for the subsequent attainment of these goals. +The 1993 Plan authorizes the Compensation Committee to make +grants and awards of stock options, stock appreciation rights, +nonvested stock units and other stock-based awards. The +Compensation Committee grants such compensation to executive +officers, as well as other employees and consultants of the +Company and its subsidiaries below the executive officer level, +as it deems appropriate. +In approving grants and awards under the 1993 Plan, the +quantitative and qualitative factors and industry comparisons +outlined above will be considered. The number and type of awards +previously granted to and held by executive officers is reviewed +but is not an important factor in determining the size of +current grants. +19 +Table of Contents +To the extent readily determinable and as one of the factors in +its consideration of compensation matters, the Compensation +Committee considers the anticipated tax treatment to the Company +and to the executives of various payments and benefits. Some +types of compensation payments and their deductibility (e.g., +the spread of exercise of non-qualified options) depend upon the +timing of an executive’s vesting or exercise of previously +granted rights. Further, interpretations of and changes in the +tax laws and other factors beyond the Compensation +Committee’s control also affect the deductibility of +compensation. +Beginning in December 2004, the Board of Directors and the +Compensation Committee of the Company have determined to cease +issuing stock options to directors, officers and employees of +the Company and, rather, to issue nonvested stock units to +continue to align the interests of the directors, officers and +employees with those of the stockholders at a lower cost than +the previous stock option grants. This policy will be reviewed +by the Board of Directors and Compensation Committee +periodically and may be changed in the future. As of +December 20, 2004, officers and key employees will be +eligible to receive nonvested stock units annually in an amount +to be determined by the Board of Directors or the Compensation +Committee. The vesting of the nonvested stock units will be as +set forth in each grant and be dependent on the achievement of +certain corporate milestones and continued employment with the +Company for a designated period. +Chief Executive Officer — Effective +April 11, 2005, the Company entered into an employment +agreement with Angel R. Martinez pursuant to which +Mr. Martinez shall serve as the President and Chief +Executive Officer of the Company. For 2005, his employment +agreement provided for an annual salary of $345,000, based on an +assessment and recommendation performed by an independent +compensation consultant. The amounts of Mr. Martinez’s +bonuses are determined by the Compensation Committee and are +based upon certain performance criteria, weighted heavily toward +net sales, open orders and operating results of the Company. In +the event that performance targets are surpassed, the bonus +earned can exceed the minimum incentive bonus amount, as did +occur in 2005. For 2005, Mr. Martinez’s bonus was +$232,000. Mr. Martinez may also be granted options or +nonvested stock units to the extent approved by the Compensation +Committee based on certain performance criteria. +Mr. Martinez did not receive any such grants for +performance in 2005. +For 2005, the Compensation Committee based the majority of +Mr. Martinez’s bonus on several criteria established +at the beginning of the year, which were focused primarily on +the Company’s ability to achieve targeted goals for net +sales, open orders and earnings. In 2005, under the direction of +Mr. Martinez, the Company exceeded the targeted goals for +each of these areas. In 2005, the Company had record net sales +of $264.8 million and record operating income of +$52.3 million, and increased diluted earnings per share by +18%. +In December 2005 and in February 2006, the Compensation +Committee established the compensation of the Company’s +Chief Executive Officer and its other executive officers for +fiscal year 2006. In each case, the Compensation +Committee’s decision was based upon the principles and +procedures outlined above. +Deductibility of Compensation +Under Section 162(m) of the Internal Revenue Code of 1986, +as amended (the “Code”), a public company generally +will not be entitled to a deduction for non-performance-based +compensation paid to certain executive officers to the extent +such compensation exceeds $1.0 million. Special rules apply +for “performance-based” compensation, including the +approval of the performance goals by the stockholders of the +Company. +20 +Table of Contents +The Company has not adopted any formal policy with respect to +Section 162(m) of the Internal Revenue Code of 1986. +However, the Compensation Committee generally structures +compensation to be deductible and considers cost and value to +the Company in making compensation decisions, which would result +in non-deductibility. The Board has on occasion made decisions +resulting in non-deductible compensation. The Compensation +Committee believes that these payments were appropriate and in +the best interests of the Company. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Daniel L. Terheggen +The Report of the Compensation Committee on Executive +Compensation shall not be deemed incorporated by reference by +any general statement incorporating by reference this Proxy +Statement into any filing under the Securities Act of 1933, as +amended, or under the Securities Exchange Act of 1934, as +amended, except to the extent that the Company specifically +incorporates this information by reference, and shall not +otherwise be deemed filed under such Acts. +Compensation Committee Interlocks and Insider +Participation +As of the date of this Proxy Statement, the members of the +Compensation Committee were Messrs. Burleson, Licklider, +Gibbons and Terheggen, none of whom was an officer or employee +of the Company or any of its subsidiaries during fiscal year +2005 or is a former officer or employee of the Company or any of +its subsidiaries. Mr. Terheggen is a 50% owner and Chief +Executive Officer of BHPC Global Licensing, Inc. The Company +paid BHPC Global Licensing, Inc. an aggregate of approximately +$118,000 for agency fees related to licensing of the +Company’s products during 2005. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing +independent, objective oversight of the Company’s +accounting functions and internal controls. The Audit Committee +is currently composed of three directors, each of whom meets the +independence and experience requirements under the NASD rules +and the independence requirements of the SEC. +Management is responsible for the preparation of the +Company’s financial statements and financial reporting +process including its system of internal controls. The +independent registered public accounting firm is responsible for +performing an independent audit of the Company’s +consolidated financial statements in accordance with the +standards of the Public Company Accounting Oversight Board +(United States) and expressing (i) an opinion on whether +the Company’s financial statements present fairly, in all +material respects, the Company’s financial position and +results of operations for the periods presented in conformity +with accounting principles generally accepted in the United +States and (ii) an opinion on whether management’s +assessment that the Company maintained effective internal +control over financial reporting as of December 31, 2005, +is fairly stated, in all material respects, based on criteria +established in Internal Control-Integrated Framework issued by +the Committee of Sponsoring Organizations of the Treadway +Commission. The Audit Committee’s responsibility is to +monitor and oversee these processes. The Board of Directors has +determined that John M. Gibbons, the Chairman of the Audit +Committee, is an audit committee financial expert and is +independent. +In connection with these responsibilities, the Audit Committee +met with management and the independent registered public +accounting firm to review and discuss the December 31, 2005 +consolidated financial statements and obtained from management +their representation that the Company’s financial +statements have been prepared in accordance with accounting +principles generally accepted in the United States. The Audit +Committee also discussed with the independent registered public +accounting firm the +21 +Table of Contents +matters required by Statement on Auditing Standards No. 61 +(Communication with Audit Committees), which includes, among +other items, information regarding the conduct of the audit of +the Company’s consolidated financial statements. The Audit +Committee also received written disclosures from KPMG LLP +required by Independence Standards Board Standard No. 1 +(Independence Discussions with Audit Committees), and the Audit +Committee discussed with KPMG LLP that firm’s independence +from the Company and its management. The Audit Committee has +further considered the compatibility of the services provided by +KPMG LLP with that firm’s independence. +The Audit Committee operates under a written charter, which was +adopted by the Board and is assessed annually for adequacy by +the Audit Committee. The Audit Committee held eight meetings +during fiscal 2005, including meetings with the independent +registered public accounting firm, both with and without +management present. In performing its functions, the Audit +Committee acts only in an oversight capacity. It is not the +responsibility of the Audit Committee to determine that the +Company’s financial statements are complete and accurate, +are presented in accordance with accounting principles generally +accepted in the United States or present fairly the results of +operations of the Company for the periods presented or that the +Company maintains appropriate internal controls. Nor is it the +duty of the Audit Committee to determine that the audit of the +Company’s financial statements has been carried out in +accordance with the standards of the Public Company Accounting +Oversight Board (United States) or that the Company’s +registered public accounting firm is independent. +Based upon the Audit Committee’s review and discussions +with management and the independent registered public accounting +firm, the Audit Committee recommended that the Board of +Directors include the audited consolidated financial statements +in the Company’s Annual Report on +Form 10-K as of +and for the year ended December 31, 2005, to be filed with +the Securities and Exchange Commission (the “SEC”). +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +The Report of the Audit Committee shall not be deemed +incorporated by reference by any general statement incorporating +by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities +Exchange Act of 1934, as amended, except to the extent that the +Company specifically incorporates this information by reference, +and shall not otherwise be deemed filed under such Acts. +22 +Table of Contents +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +Set forth below is a line graph comparing the percentage change +in the cumulative total stockholder return on the Company’s +Common Stock against the cumulative total return of the Nasdaq +Composite Index and a peer group index for the five-year period +commencing December 31, 2000 and ending December 31, +2005. The data represented below assumes $100 invested in each +of the Company’s Common Stock, the Nasdaq Composite Index +and the peer group index on December 31, 2000. The stock +performance graph shall not be deemed incorporated by reference +by any general statement incorporating by reference this Proxy +Statement into any filing under the Securities Act of 1933, as +amended, or under the Securities Exchange Act of 1934, as +amended, except to the extent that the Company specifically +incorporates this information by reference, and shall not +otherwise be deemed filed under either of such Acts. +Comparison of Total Return +December 31, 2000 +December 31, 2001 +December 31, 2002 +December 31, 2003 +December 31, 2004 +December 31, 2005 +Deckers Outdoor Corporation +100.0 +81.0 +63.6 +390.5 +895.1 +526.1 +Nasdaq Composite +100.0 +79.7 +55.6 +83.6 +90.6 +92.6 +Athletic Shoe Composite +100.0 +90.0 +76.9 +119.6 +156.6 +155.3 +* +Athletic Shoe Composite peer group index consisting of K-Swiss +Inc., Kenneth Cole Productions, Inc., Nike Inc., Rocky Shoes and +Boots, Inc., The Stride Rite Corporation, The Timberland +Company, and Wolverine World Wide Inc. In previous years, this +peer group index also included Fila Holding SPA, which has been +excluded from the index in all periods presented above, as its +securities are no longer publicly-traded. Vans Inc., which was +previously in our peer group index, was acquired by VF Corp in +2005 and has also been excluded. Reebok International Ltd. also +was previously included in our peer group index, was acquired by +Adidas-Salomon AG in 2005 and has been excluded. +23 +Table of Contents +Certain Relationships and Related Transactions +Transactions with Directors +Daniel L. Terheggen, a member of the Company’s Board of +Directors, is a 50% owner and Chief Executive Officer of BHPC +Global Licensing, Inc. The Company paid BHPC Global Licensing, +Inc. an aggregate of approximately $118,000 for agency fees +related to licensing of the Company’s products during 2005. +In 1993, the Company and Douglas B. Otto, Chairman of the Board, +entered into a split dollar life insurance arrangement, whereby +the Company participated in a portion of the life insurance +premiums paid through 2001. The arrangement provided that +Mr. Otto’s estate would reimburse the Company for all +premiums previous paid. In 2005, Mr. Otto reimbursed the +Company for all premiums paid on his behalf. The Company carried +the value of the life insurance policy at its cash surrender +value, which was lower than the amount of premiums paid on the +policy. As a result, the Company recognized a gain of $260,000 +in 2005 upon settlement and receipt of the reimbursement. +Limitation of Liability and Indemnification of Directors +and Officers +Our Certificate of Incorporation and Bylaws provide that we +shall indemnify directors and executive officers to the fullest +extent now or hereafter permitted by the Delaware General +Corporation Law (the “DGCL”). In addition, we entered +into Indemnification Agreements with our directors and executive +officers in which we agree to indemnify such persons to the +fullest extent now or hereafter permitted by the DGCL. +We have obtained a liability policy for our directors and +officers as permitted by the DGCL which extends to, among other +things, liability arising under the Securities Act of 1933, as +amended. +We maintain an insurance policy pursuant to which our directors +and officers are insured, within the limits and subject to the +limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or +proceedings, and liabilities which might be imposed as a result +of such claims, actions, suits or proceedings, that may be +brought against them by reason of their being or having been +directors or officers. +Code of Ethics +The Company has adopted a Code of Ethics applicable to all +senior officers of the Company. The Code of Ethics appears as +Exhibit 14.1 to our Annual Report on +Form 10-K for the +fiscal year ended December 31, 2005. A copy of the Code of +Ethics is available free of charge by writing to the Secretary +of the Company at the Company’s office at 495-A South +Fairview Avenue, Goleta, California 93117. A free copy can also +be obtained from the corporate website at www.deckers.com. +Section 16(A) Beneficial Ownership Reporting +Compliance +Section 16(a) of the Securities Exchange Act of 1934, as +amended, requires the Company’s directors, executive +officers and persons who own more than 10% of the Common Stock +(collectively “Section 16 Persons”) to file +initial reports of ownership (Forms 3) and reports of +changes in ownership of Common Stock (Forms 4 and +Forms 5) with the SEC as well as the Company. +To the Company’s knowledge, based solely on a review of the +copies of such reports furnished to the Company and +representations from each Section 16 Person known to the +Company that no other reports were required, during the fiscal +year ended December 31, 2005, all Section 16(a) filing +requirements applicable to its Section 16 Persons were +complied with except that: (i) Rex A. Licklider, Gene E. +Burleson, Daniel L. Terheggen and John M. Gibbons each filed a +Form 4 on December 9, 2005, which reported +transactions that were due to be reported on November 1, +2005; (ii) M. Scott Ash, Patrick C. Devaney, Janice M. +Howell, Constance X. Rishwain, Angel R. Martinez, Colin G. +Clark, John A. Kalinich, Keith Sparks, Ed Goins, Leslyn M. Nitta +and George Troy each filed a Form 5 on March 3, 2006, +which reported transactions that were due to be reported on a +Form 4 on December 5, 2005; (iii) Patrick C. +Devaney and Janice M. Howell +24 +Table of Contents +each filed a Form 4 on December 9, 2005, which +reported transactions that were due to be reported on +October 20, 2005; (iv) Douglas B. Otto filed a +Form 4 on April 11, 2005, which reported transactions +that were due to be reported on April 8, 2005; +(v) Leslyn M. Nitta filed a Form 5 on March 30, +2006, which reported a transaction that was due to be reported +on a Form 4 on October 20, 2005; and (vi) Douglas +B. Otto filed a Form 5 on March 30, 2006, which +reported a transaction that was due to be reported on +February 14, 2006. +25 +Table of Contents +PROPOSAL NO. 2 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2005 fiscal year, KPMG LLP provided audit services, +which included examination of the Company’s annual +consolidated financial statements. The Audit Committee has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2006. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP +will attend the Annual Meeting to make any statements he or she +may desire and to respond to appropriate stockholder questions. +Although this appointment is not required to be submitted to a +vote of the stockholders, the Audit Committee believes it is +appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the +appointment of the independent registered public accounting firm +requires the affirmative vote of holders of a majority of the +outstanding shares of our Common Stock, present in person or +represented by Proxy of the Annual Meeting and entitled to vote. +If the stockholders do not ratify the appointment, the Board of +Directors and Audit Committee will consider the selection of +another independent registered public accounting firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 2 TO RATIFY THE ELECTION OF KPMG +LLP AS THE +COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING +FIRM. +Audit Fees and All Other Fees +Audit Fees +Fees for audit services totaled approximately $932,000 in 2005 +and $962,000 in 2004. The audit fees include fees associated +with the internal control attestation related to +Section 404 of the Sarbanes-Oxley Act with the remainder of +the fees associated with the annual audit, the reviews of the +Company’s quarterly reports on +Form 10-Q, +statutory audits required internationally, and assistance with +and review of documents filed with the SEC including services +related to the Company’s follow-on public stock offering of +$117,000 in 2004. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2005 or +2004. +Tax Fees +Fees for tax services, including tax compliance, tax advice and +tax planning for income taxes and customs matters, totaled +approximately $123,000 in 2005 and $255,000 in 2004. +KPMG LLP has advised the Company that neither the firm, nor any +member of the firm, has any financial interest, direct or +indirect, in any capacity in the Company or its subsidiaries. +All Other Fees +The Company was not billed for any such fees in 2005 or 2004. +Audit Committee Pre-Approval of Audit and Permissible +Non-Audit Services of Independent Registered Public Accounting +Firm +The Audit Committee administers the Company’s engagement of +KPMG LLP and pre-approves all audit and permissible non-audit +services on a case-by-case basis. In approving non-audit +services, the Audit Committee considers whether the engagement +could compromise the independence of KPMG LLP, and whether for +reasons of efficiency or convenience it is in the best interest +of the Company to engage its +26 +Table of Contents +independent auditor to perform the services. The Audit Committee +has determined that performance by KPMG LLP of the non-audit +services listed above did not affect their independence. +Prior to engagement, the Audit Committee pre-approves all +independent auditor services. During the year, circumstances may +arise when it may become necessary to engage the independent +auditor for additional services not contemplated in the original +pre-approval categories. In those instances, the Audit Committee +requires that those services be submitted to the Audit Committee +for specific pre-approval before the Company can engage for them. +The Audit Committee may delegate pre-approval authority to one +or more of its members. The member to whom such authority is +delegated reports any pre-approval decisions to the Audit +Committee at its next scheduled meeting. +27 +Table of Contents +PROPOSAL NO. 3 +2006 EQUITY INCENTIVE PLAN +The stockholders are being asked to approve the adoption of the +2006 Equity Incentive Plan (the “2006 Plan”). The 2006 +Plan is intended to replace the Deckers Outdoor Corporation 1993 +Employee Stock Incentive Plan (the “1993 Plan”). The +Board of Directors adopted the 2006 Plan on March 27, 2006, +subject to the approval of the stockholders at the Annual +Meeting. Stockholder approval of the 2006 Plan is being sought +to (1) satisfy the requirements of The Nasdaq National +Market, (2) qualify certain compensation under the 2006 +Plan as “performance-based compensation” not subject +to the tax deduction limitation under Section 162(m) of the +Internal Revenue Code of 1986, as amended (the +“Code”), and (3) qualify certain stock options +that may be granted under the 2006 Plan as incentive stock +options under Section 422 of the Code. +Description of the Proposal +The Board approved the 2006 Plan because it believes that the +best means for aligning the interests of employees and +stockholders is through equity incentives, and the Company needs +additional shares available for issuance as equity-based +compensation. As of the Record Date, the Company had +288,000 shares available for future issuance under its 1993 +Plan. Additionally, the 2006 Plan includes provisions that are +not part of the 1993 Plan and which are necessary for the +Company to offer a competitive equity incentive program. Recent +changes in the accounting treatment for stock options are +expected to make the use of alternative types of awards more +attractive in the future. +Description of the 2006 Equity Incentive Plan +A copy of the 2006 Plan is attached to this Proxy Statement as +Appendix A. The following description of the 2006 Plan is a +summary and is qualified by reference to the complete text of +the 2006 Plan. +Background and Purpose. The primary purpose of the 2006 +Plan is to encourage ownership in our Company by key personnel, +whose long-term service is considered essential to our continued +progress, thereby linking these employees directly to +stockholder interests through increased stock ownership. We +currently have one stock option plan from which awards can be +made, which we refer to as the 1993 Plan. The 1993 Plan +authorizes up to 3,000,000 shares for issuance pursuant to +stock options. The 2006 Plan will provide for added flexibility +over the 1993 Plan in light of recent changes in the rules +affecting such plans. +As of March 27, 2006, options with respect to +579,000 shares were outstanding under the 1993 Plan at +exercise prices ranging from $1.56 to $33.10 and +288,000 shares remained available for future grants. The +Board has determined that the 1993 Plan will no longer be +available for further option grants upon the effective date of +the approval of our stockholders of the 2006 Plan. +Eligible Participants. Awards may be granted under the +2006 Plan to any of our employees, directors, or consultants or +those of our affiliates, except that an incentive stock option +may only be granted to a person who, at the time of the grant, +is an employee of us or a related corporation. As of +March 27, 2006, there were approximately 225 employees and +five non-employee directors who would be eligible to participate. +Number of Shares of Common Stock Available. If approved +by the stockholders, a total of 2,000,000 new shares of our +Common Stock will be reserved for issuance under the 2006 Plan. +The maximum aggregate number of shares that may be issued under +the 2006 Plan through the exercise of incentive stock options is +1,500,000. If an award is cancelled, terminates, expires, or +lapses for any reason without having been fully exercised or +vested, or is settled for less than the full number of shares of +Common Stock represented by such award actually being issued, +the unvested, cancelled, or unissued shares of Common Stock +generally will be returned to the available pool of shares +reserved for issuance under the 2006 Plan. In addition, if we +experience a stock dividend, reorganization, or other change in +our capital structure, the administrator may, in its discretion, +adjust the number of shares available for issuance under the +2006 Plan and any outstanding awards as appropriate to reflect +the stock dividend or other change. The share number limitations +included in the 2006 Plan will also adjust appropriately upon +such event. +28 +Table of Contents +Administration of the 2006 Plan. The 2006 Plan will be +administered by the Board or one or more committees of the +Board, which we refer to as the Committee. Our Board has +appointed our Compensation Committee as the Committee referred +to in the 2006 Plan. In the case of awards intended to qualify +as “performance-based-compensation” excludable from +the deduction limitation under Section 162(m) of the Code, +the Committee will consist of two or more “outside +directors” within the meaning of Section 162(m). +The administrator has the authority to, among other things, +select the individuals to whom awards will be granted and to +determine the type of award to grant; determine the terms of the +awards, including the exercise price, the number of shares +subject to each award, the exercisability of the awards, and the +form of consideration payable upon exercise; to provide for a +right dividends or dividend equivalents; and to interpret the +2006 Plan and adopt rules and procedures relating to +administration of the 2006 Plan. Except to the extent prohibited +by any applicable law, the administrator may delegate to one or +more individuals the +day-to -day +administration of the 2006 Plan. +Award Types +Options. A stock option is the right to purchase shares +of our Common Stock at a fixed exercise price for a fixed +period. An option under the 2006 Plan may be an incentive stock +option or a nonstatutory stock option. The exercise price of an +option granted under the 2006 Plan must be at least equal to the +fair market value of our Common Stock on the date of grant. In +addition, the exercise price for any incentive stock option +granted to any employee owning more than 10% of our Common Stock +may not be less than 110% of the fair market value of our Common +Stock on the date of grant. +Unless the administrator determines to use another method, the +fair market value of our Common Stock on the date of grant will +be determined as the closing price for our Common Stock on the +date the option is granted (or if no sales are reported that +day, the last preceding day on which a sale occurred), using a +reporting source selected by the administrator. As of +March 27, 2006, the closing price on The Nasdaq National +Market for our Common Stock was $39.64 per share. The +administrator determines the acceptable form of consideration +for exercising an option, including the method of payment, +either through the terms of the option agreement or at the time +of exercise of an option, provided that consideration must have +a value of not less than the par value of the shares to be +issued and must be actually received before issuing any shares. +The 2006 Plan permits payment in the form of cash, check or wire +transfer, other shares of Common Stock of the Company, cashless +exercises, any other form of consideration and method of payment +permitted by applicable laws, or any combination thereof. +An option granted under the 2006 Plan generally cannot be +exercised until it becomes vested. The administrator establishes +the vesting schedule of each option at the time of grant and the +option will expire at the times established by the +administrator. After termination of the optionee’s service, +he or she may exercise his or her option for the period stated +in the option agreement, to the extent the option is vested on +the date of termination. If termination is due to death or +disability, the option generally will remain exercisable for +twelve months following such termination. In all other cases, +the option generally will remain exercisable for three months. +However, an option may never be exercised later than the +expiration of its term. The term of any stock option may not +exceed ten years, except that with respect to any participant +who owns 10% or more of the voting power of all classes of our +outstanding capital stock, the term for incentive stock options +must not exceed five years. +Stock Awards. Stock awards are awards or issuances of +shares of our Common Stock that vest in accordance with terms +and conditions established by the administrator. Stock awards +include stock units, which are bookkeeping entries representing +an amount equivalent to the fair market value of a share of +Common Stock, payable in cash, property, or other shares of +stock. The administrator may determine the number of shares to +be granted, and impose whatever conditions to vesting it +determines to be appropriate, including performance criteria and +level of achievement versus the criteria that the administrator +determines. The criteria may be based on financial performance, +personal performance evaluations, and completion of service by +the participant. Unless the administrator determines otherwise, +shares that do not vest typically will be subject to forfeiture +or to our right of repurchase of the unvested portion of such +shares at the original price +29 +Table of Contents +paid by the participant, which we may exercise upon the +voluntary or involuntary termination of the awardee’s +service with us for any reason, including death or disability. +For stock awards intended to qualify as “performance-based +compensation” within the meaning of Section 162(m) of +the Code, the measures established by the administrator must be +qualifying performance criteria. Qualifying performance criteria +under the 2006 Plan include any of the following performance +criteria, individually or in combination: +• +Quarterly and annual earnings per share growth +• +Quarterly and annual sales levels +• +Quarterly and annual backlog and inventory levels +• +Quarterly and annual brand contribution +• +Achieving expense and shipping targets +• +Achieving targets for bad debt and collectibility measures +• +Any other similar criteria +Qualifying performance criteria may be applied either to the +Company as a whole or to a business unit, affiliate, or business +segment, individually or in any combination. Qualifying +performance criteria may be measured either annually or +cumulatively over a period of years, and may be measured on an +absolute basis or relative to a pre-established target, to +previous years’ results, or to a designated comparison +group, in each case as specified by the administrator in writing +in the award. +Stock Appreciation Rights. A stock appreciation right is +the right to receive the appreciation in the fair market value +of our Common Stock in an amount equal to the difference between +(a) the fair market value of a share of our Common Stock on +the date of exercise, and (b) the exercise price. This +amount will be paid, as determined by the administrator, in +shares of our Common Stock with equivalent value, cash, or a +combination of both. The exercise price must be at least equal +to the fair market value of our Common Stock on the date of +grant. Subject to these limitations, the administrator +determines the exercise price, term, vesting schedule, and other +terms and conditions of stock appreciation rights; except that +stock appreciation rights terminate under the same rules that +apply to stock options. +Cash Awards. Cash awards confer upon the participant the +opportunity to earn future cash payments tied to the level of +achievement with respect to one or more performance criteria +established by the administrator for a performance period. The +administrator will establish the performance criteria and level +of achievement versus these criteria, which will determine the +target and the minimum and maximum amount payable under a cash +award. The criteria may be based on financial performance or +personal performance evaluations, or both. For cash awards +intended to qualify as “performance-based +compensation” within the meaning of Section 162(m) of +the Code, the measures established by the administrator must be +specified in writing and the amount payable as cash under such +cash award is limited to $2.0 million. +Other Provisions of the 2006 Plan +Transferability of Awards. Unless the administrator +determines otherwise, the 2006 Plan does not permit the transfer +of awards other than by beneficiary designation, will, or by the +laws of descent or distribution, and only the participant may +exercise an award during his or her lifetime. +Preemptive Rights. The 2006 Plan provides that no shares +will be issued thereunder in violation of any preemptive rights +held by any stockholder of the Company. +Adjustments upon Merger or Change in Control. The 2006 +Plan provides that in the event of a merger with or into another +corporation or our “change in control,” including the +sale of all or substantially all of our assets, and certain +other events, our Board or the Committee may, in its discretion, +provide for the assumption or substitution of, or adjustment to, +each outstanding award; accelerate the vesting of options and +stock appreciation rights, and terminate any restrictions on +stock awards or cash awards; provide for the cancellation +30 +Table of Contents +of awards in exchange for a cash payment to the participant; or +provide for the cancellation of awards that have not been +exercised or redeemed as of the relevant event. +Amendment and Termination of the 2006 Plan. The +administrator has the authority to amend, alter, or discontinue +the 2006 Plan, subject to the approval of the stockholders to +the extent required by applicable laws. No amendment may impair +the rights of any outstanding award without the agreement of the +participant. +Certain Federal Income Tax Information +The following is a general summary as of this date of the +federal income tax consequences to us and to +U.S. participants for awards granted under the 2006 Plan. +The federal tax laws may change and the federal, state, and +local tax consequences for any participant will depend upon his +or her individual circumstances. Tax consequences for any +particular individual may be different. +Tax Effects for Participants +Incentive Stock Options. For federal income tax purposes, +an optionee does not recognize taxable income when an incentive +stock option is granted or upon its exercise. When an incentive +stock option is exercised, however, the difference between the +option exercise price and the fair market value of the shares on +the exercise date is an adjustment in computing the +holder’s alternative minimum taxable income and may be +subject to an alternative minimum tax, which is paid if such tax +exceeds the optionee’s regular tax for the year. +An optionee who disposes of shares acquired by exercise of an +incentive stock option more than two years after the option is +granted and one year after its exercise recognizes a long-term +capital gain or loss equal to the difference between the sale +price and the exercise price. If the holding periods are not met +and the sale price exceeds the exercise price, the +optionee generally will recognize ordinary income (for which we +must withhold the taxes) as of the exercise date equal to the +difference between the exercise price and the lower of the sale +price of the shares or their fair market value on the exercise +date. Any gain or loss recognized on such premature sale of the +shares in excess of the amount of ordinary income is +characterized as capital gain or loss. If the holding periods +are not met and the sale price is less than the exercise +price, the option will recognize a capital loss equal to the +difference between the exercise price and the sale price. +Nonstatutory Stock Options. A participant who receives a +nonstatutory stock option with an exercise price equal to or +greater than the fair market value of the stock on the grant +date generally will not realize taxable income on the grant of +such option, but will realize ordinary income when he or she +exercises the option, equal to the excess of the fair market +value of the shares on the date of exercise over the option +exercise price. Any additional gain or loss recognized upon any +later disposition of shares would be capital gain or loss. Any +taxable income recognized in connection with an option exercise +by an employee or former employee of the Company is subject to +tax withholding by us. +Stock Awards. A participant who receives a stock award +that is not subject to a “substantial risk of +forfeiture” will recognize ordinary income at the time of +grant equal to the difference between the fair market value of +the stock on the date of grant less the amount paid for the +stock, if any. A restricted stock award is subject to a +“substantial risk of forfeiture” within the meaning of +Section 83 of the Code to the extent the award will be +forfeited if the participant ceases to provide services to us. +Because of this substantial risk of forfeiture, a participant +who receives a stock award that is subject to a +“substantial risk of forfeiture” will not recognize +ordinary income at the time of grant, but will recognize +ordinary income on the date or dates when the stock is no longer +subject to a substantial risk of forfeiture, or when the stock +becomes transferable, if earlier. The participant’s +ordinary income is measured as the difference between the fair +market value of the stock on the date the stock is no longer +subject to a substantial risk of forfeiture less the amount paid +for the stock, if any. +The participant may accelerate his or her recognition of +ordinary income, if any, and begin his or her capital gains +holding period by timely filing (i.e., within thirty days of the +award) an election pursuant to Section 83(b) of the Code. +In such event, the ordinary income recognized, if any, is +measured as the +31 +Table of Contents +difference between the fair market value of the stock on the +date of award less the amount paid for the stock, if any, and +the capital gain holding period commences on such date. The +ordinary income recognized by an employee or former employee +will be subject to tax withholding by us. If the stock award +consists of stock units, no taxable income is reportable when +stock units are granted to a participant or upon vesting. Upon +settlement, the participant will recognize ordinary income in an +amount equal to the value of the payment received pursuant to +the stock units. +Stock Appreciation Rights. No taxable income is +reportable when a stock appreciation right with an exercise +price equal to or greater than the fair market value of the +stock on the date of grant is granted to a participant or upon +vesting. Upon exercise, the participant will recognize ordinary +income in an amount equal to the fair market value of any shares +or cash received. If the participant receives shares upon +exercise, any additional gain or loss recognized upon any later +disposition of the shares would be capital gain or loss. +Cash Awards. Upon receipt of cash, the recipient will +have taxable ordinary income, in the year of receipt, equal to +the cash received. Any cash received by an employee or former +employee will be subject to tax withholding by us. +Tax Effect for Us. Unless limited by Section 162(m) +or Section 280G of the Code, we generally will be entitled +to a tax deduction in connection with an award under the 2006 +Plan in an amount equal to the ordinary income realized by a +participant at the time the participant recognizes such income +(for example, upon the exercise of a nonstatutory stock option). +Section 162(m) Limits. Section 162(m) of the +Code places a limit of $1 million on the amount of +compensation that we may deduct in any one year with respect to +the Chief Executive Officer and each of the four other most +highly paid executive officers. Certain performance-based +compensation is not subject to the deduction limit. The 2006 +Plan is qualified such that awards under the Plan may constitute +performance-based compensation not subject to +Section 162(m) of the Code. One of the requirements for +equity compensation plans is that there must be a limit to the +number of shares granted to any one individual under the plan. +Accordingly, the 2006 Plan provides that the maximum number of +shares for which awards may be made to any employee, in any +calendar year, is 1,000,000, except that in connection with his +or her initial service, an awardee may be granted awards +covering up to an additional 1,000,000 shares. The maximum +amount payable pursuant to that portion of a cash award granted +under the 2006 Plan for any fiscal year to any employee that is +intended to satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code may not +exceed $2,000,000. +Section 409A. The American Jobs Creation Act of 2004 +contains deferred compensation provisions added as +Section 409A of the Code. These provisions make +compensation deferred under a nonqualified deferred compensation +plan taxable on a current basis (or, if later, when vested) and +subject to an additional 20% tax, unless certain requirements +are met. The Internal Revenue Service has issued proposed +regulations on the application of Section 409A, and further +guidance is expected later in 2006. The 2006 Plan provides that +it is the Company’s intent that all awards granted under +the 2006 Plan will not cause an imposition of additional taxes +provided by Section 409A of the Code, and that the 2006 +Plan should be administered so that such taxes are not imposed. +Section 280G Limits. Section 280G of the Code +limits the amount of certain compensation payable upon a change +in control of the Company, so-called “parachute +payments.” If stock options or other awards vest upon a +change in control, or if other payments contingent upon such a +change in control are made, the vesting or payment may in whole +or in part result in a nondeductible parachute payment. In +addition, the recipient of the parachute payment would be +subject to a 20% excise tax that we would be required to +withhold in addition to federal income tax. The 2006 Plan +provides discretion to the Board to provide for the vesting of +awards upon a change in control. +32 +Table of Contents +New Plan Benefits +We have no current plans, proposals, or arrangements to grant +any awards under the 2006 Plan. +Amendment and Termination +The administrator may amend the 2006 Plan at any time or from +time to time or may terminate it, but any such amendment shall +be subject to the approval of the stockholders in the manner and +to the extent required by applicable law, rules, or regulations. +Nevertheless, no action by the administrator or the stockholders +may alter or impair any option or other type of award under the +2006 Plan, unless mutually agreed otherwise between the holder +of the award and the administrator. The 2006 Plan will continue +in effect for a term of ten years, unless terminated earlier in +accordance with the provisions of the 2006 Plan. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” +PROPOSAL NO. 3 TO APPROVE THE 2006 EQUITY INCENTIVE PLAN. +33 +Table of Contents +PROPOSAL NO. 4 +AMENDMENT TO THE COMPANY’S CERTIFICATE OF +INCORPORATION +TO AUTHORIZE THE ANNUAL ELECTION OF DIRECTORS +Stockholders are being asked to approve an amendment to +Article IX (the “Amendment”) of the +Company’s Certificate of Incorporation to eliminate the +present three-year staggered terms of our directors and to +provide instead for the annual election of all directors. Under +the present, classified board structure, our directors are +divided into three classes, with each class serving three-year +terms. If the Amendment is approved, directors will be elected +to one-year terms of office beginning at the 2007 Annual Meeting +of Stockholders. +In determining whether the Amendment is in the best interests of +the Company’s stockholders, the Board considered arguments +for and against the classified board structure which was adopted +by the Board and approved by the stockholders in 1993. The Board +considered that overlapping three-year terms of directors +promote continuity and stability in governance, that experienced +directors may have a longer-term perspective, that three-year +director terms can strengthen director independence and +facilitate retention of qualified directors. The classified +board structure can also increase the Board’s negotiating +leverage with respect to an unsolicited takeover proposal. +The Board also considered the views of investors who believe +that the classified board structure reduces the accountability +of directors to stockholders because the directors on such a +board do not face an annual election. Since director elections +are the primary means by which the stockholders can affect +corporate management, the classified board structure may +diminish stockholder influence over Company policy. Furthermore, +the classified board structure may negatively affect stockholder +value by discouraging Proxy contests in which stockholders have +an opportunity to vote for an entire slate of competing nominees. +After weighing all of these considerations, the Board determined +that the Amendment is advisable and in the best interests of the +Company and its stockholders. Accordingly, the Board has +approved the Amendment (which is described below and set forth +in its entirety in Appendix B), and recommends that the +stockholders approve the Amendment by voting in favor of this +Proposal. +If the Amendment is approved by the stockholders, the terms of +office of all directors who are in office immediately prior to +the closing of the polls for the election of directors at the +2007 Annual Meeting of Stockholders of the Corporation shall +expire at such time. At each Annual Meeting of Stockholders +beginning with the 2007 Annual Meeting of Stockholders of the +Corporation, the directors shall not be classified, and the +directors shall be elected annually and shall hold office for a +term expiring at the next Annual Meeting of Stockholders and +until their respective successors shall have been duly elected +and qualified. +The affirmative vote of holders of a majority in voting power of +the outstanding shares of our Common Stock is required to +approve the Amendment. +If approved by the stockholders, the Amendment would become +effective upon the filing with the Secretary of State of +Delaware of a Certificate of Amendment, which is set forth in +Appendix B attached hereto, which filing is expected to +take place shortly after the stockholders approve the Amendment. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” PROPOSAL NO. 4 TO APPROVE AN AMENDMENT TO THE +COMPANY’S +CERTIFICATION OF INCORPORATION TO AUTHORIZE +THE ANNUAL ELECTION OF DIRECTORS. +34 +Table of Contents +STOCKHOLDER PROPOSALS FOR THE 2007 ANNUAL MEETING +The Company’s Bylaws provide that a stockholder seeking to +bring business before an annual meeting of stockholders, or to +nominate a candidate for election as director at an annual +meeting of stockholders, must provide timely advance written +notice. To be timely, a stockholder’s notice generally must +be received at our principal executive office on or before the +date 90 days prior to the scheduled date of the annual +meeting or, if it is a later date, on or before the date seven +days after the Company first publishes notice of the annual +meeting. +In addition, SEC rules provide that a stockholder wishing to +include a proposal in the proxy statement for the Company’s +2007 Annual Meeting must submit the proposal so that it is +received by the Company at its principal executive office, +attention Corporate Secretary, at 495-A South Fairview Avenue, +Goleta, California 93117 no later than December 19, 2006. +If the date of the 2007 Annual Meeting is advanced or delayed +more than 30 days from the date of the Annual Meeting, +stockholder proposals intended to be included in the proxy +statement for the 2007 Annual Meeting must be received by us +within a reasonable time before the Company begins to print and +mail the proxy statement for the 2007 Annual Meeting. Upon any +determination that the date of the 2007 Annual Meeting will be +advanced or delayed by more than 30 days from the date of +the Annual Meeting, the Company will disclose the change in the +earliest practicable Quarterly Report on +Form 10-Q. +SEC rules also govern a company’s ability to use +discretionary proxy authority with respect to stockholder +proposals that were not submitted to stockholders in time to be +included in the Proxy Statement. In the event a stockholder +proposal is not submitted to the Company on or before +February 27, 2007, the proxies solicited by the Board for +the 2007 Annual Meeting of stockholders will confer authority on +the Proxyholders to vote the shares in accordance with the +recommendation of the Board if the proposal is presented at the +2007 Annual Meeting of stockholders without any discussion of +the proposal in the proxy statement for such meeting. +Stockholder nominations for the 2007 Annual Meeting must be +submitted in accordance with the procedures described under the +caption “Procedures for Stockholder Nominations.” +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual +Meeting or any continuation, postponement or adjournment thereof +other than the election of directors, the ratification of the +selection of the Company’s independent registered public +accounting firm, the approval of the 2006 Equity Incentive Plan +and the approval of an amendment to the Company’s +Certificate of Incorporation. However, inasmuch as matters of +which management is not now aware may come before the Annual +Meeting or any continuation, postponement or adjournment +thereof, the Proxies confer discretionary authority with respect +to acting thereon, and the persons named in such Proxies intend +to vote, act and consent in accordance with their best judgment +with respect thereto, provided that, to the extent the Company +becomes aware a reasonable time before the Annual Meeting of any +matter to come before such meeting, the Company will provide an +opportunity to vote by Proxy directly on such matter. Upon +receipt of such Proxies in time for voting, the shares +represented thereby will be voted as indicated thereon and as +described in this Proxy Statement. +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and +all the expenses of soliciting Proxies from stockholders will be +borne by the Company. In addition to the solicitation of Proxies +by use of the mails, officers and regular employees may +communicate with stockholders personally or by mail, telephone, +telegram or otherwise for the purpose of soliciting such +Proxies, but in such event no additional compensation will be +paid to any such persons for such solicitation. The Company will +reimburse banks, brokers and other nominees for their reasonable +out-of -pocket expenses +in forwarding soliciting material to beneficial owners of shares +held of record by such persons. The total estimated cost of the +solicitation of Proxies is approximately $50,000. +35 +Table of Contents +ANNUAL REPORT ON +FORM 10-K +A copy of the Company’s Annual Report on +Form 10-K for the +fiscal year ended December 31, 2005 (excluding the exhibits +thereto) as filed with the SEC, accompanies this Proxy +Statement, but it is not deemed to be a part of the Proxy +soliciting material. The +Form 10-K contains +consolidated financial statements of the Company and its +subsidiaries and the report thereon of KPMG LLP, the +Company’s independent registered public accounting firm. +The Company will provide a copy of the exhibits to its +Form 10-K for the +fiscal year ended December 31, 2005 upon the written +request of any beneficial owner of the Company’s securities +as of the Record Date and reimbursement of the Company’s +reasonable expenses. Such request should be addressed to the +Secretary of the Company at the Company’s office at 495-A +South Fairview Avenue, Goleta, California 93117. +STOCKHOLDERS ARE URGED IMMEDIATELY TO COMPLETE, DATE AND SIGN +THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED, TO +WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED +STATES. +BY ORDER OF THE BOARD OF DIRECTORS +Angel R. Martinez +President and Chief Executive Officer +Goleta, California +April 21, 2006 +36 +Table of Contents +APPENDIX A +DECKERS OUTDOOR CORPORATION +2006 EQUITY INCENTIVE PLAN +1. Purpose of the Plan. The +purpose of this Plan is to encourage ownership in the Company by +key personnel whose long-term service is considered essential to +the Company’s continued progress and, thereby, encourage +recipients to act in the stockholders’ interest and share +in the Company’s success. +2. Definitions. As used +herein, the following definitions shall apply: +“Act” shall mean the Securities Act of 1933, as +amended. +“Administrator” shall mean the Board or any Committees +or such delegates as shall be administering the Plan in +accordance with Section 4 of the Plan. +“Affiliate” shall mean any entity that is directly or +indirectly controlled by the Company or any entity in which the +Company has a significant ownership interest as determined by +the Administrator. +“Applicable Laws” shall mean the requirements relating +to the administration of stock plans under federal and state +laws; any stock exchange or quotation system on which the +Company has listed or submitted for quotation the Common Stock +to the extent provided under the terms of the Company’s +agreement with such exchange or quotation system; and, with +respect to Awards subject to the laws of any foreign +jurisdiction where Awards are, or will be, granted under the +Plan, to the laws of such jurisdiction. +“Award” shall mean, individually or collectively, a +grant under the Plan of an Option, Stock Award, SAR, or Cash +Award. +“Awardee” shall mean a Service Provider who has been +granted an Award under the Plan. +“Award Agreement” shall mean an Option Agreement, +Stock Award Agreement, SAR Agreement, or Cash Award Agreement, +which may be in written or electronic format, in such form and +with such terms as may be specified by the Administrator, +evidencing the terms and conditions of an individual Award. Each +Award Agreement is subject to the terms and conditions of the +Plan. +“Board” shall mean the Board of Directors of the +Company. +“Cash Award” shall mean a bonus opportunity awarded +under Section 13 pursuant to which a Participant may become +entitled to receive an amount based on the satisfaction of such +performance criteria as are specified in the agreement or other +documents evidencing the Award (the “Cash Award +Agreement”). +“Change in Control” shall mean any of the following, +unless the Administrator provides otherwise: +2.1.1 any merger or consolidation in which the Company +shall not be the surviving entity (or survives only as a +subsidiary of another entity whose stockholders did not own all +or substantially all of the Common Stock in substantially the +same proportions as immediately before such transaction); +2.1.2 the sale of all or substantially all of the +Company’s assets to any other person or entity (other than +a wholly-owned subsidiary); +2.1.3 the acquisition of beneficial ownership of a +controlling interest (including power to vote) in the +outstanding shares of Common Stock by any person or entity +(including a “group” as defined by or under +Section 13(d)(3) of the Exchange Act); +2.1.4 the dissolution or liquidation of the Company; +2.1.5 a contested election of Directors, as a result of +which or in connection with which the persons who were Directors +before such election or their nominees cease to constitute a +majority of the Board; or +2.1.6 any other event specified by the Board or a +Committee, regardless of whether at the time an Award is granted +or thereafter. +A-1 +Table of Contents +Notwithstanding the foregoing, the term “Change in +Control” shall not include any underwritten public offering +of Shares registered under the Act. +“Code” shall mean the Internal Revenue Code of 1986, +as amended. +“Committee” shall mean a committee of Directors +appointed by the Board in accordance with Section 4 of the +Plan. +“Common Stock” shall mean the common stock of the +Company, par value $0.01. +“Company” shall mean Deckers Outdoor Corporation, a +Delaware corporation, or its successor. +“Consultant” shall mean any natural person who +performs bona fide services for the Company or an Affiliate as a +consultant or advisor, excluding Employees and Directors. +“Conversion Award” has the meaning set forth in +Section 4(b)(xii) of the Plan. +“Director” shall mean a member of the Board. +“Disability” shall mean permanent and total disability +as defined in Section 22(e)(3) of the Code. +“Employee” shall mean an employee of the Company or +any Affiliate, and may include an Officer or Director. Within +the limitations of Applicable Law, the Administrator shall have +the discretion to determine the effect upon an Award and upon an +individual’s status as an Employee in the case of +(i) any individual who is classified by the Company or its +Affiliate as leased from or otherwise employed by a third party +or as intermittent or temporary, even if any such classification +is changed retroactively as a result of an audit, litigation or +otherwise; (ii) any leave of absence approved by the +Company or an Affiliate; (iii) any transfer between +locations of employment with the Company or an Affiliate or +between the Company and any Affiliate or between any Affiliates; +(iv) any change in the Awardee’s status from an +employee to a Consultant or Director; and (v) at the +request of the Company or an Affiliate an employee becomes +employed by any partnership, joint venture or corporation not +meeting the requirements of an Affiliate in which the Company or +an Affiliate is a party. +“Exchange Act” shall mean the Securities Exchange Act +of 1934, as amended. +“Fair Market Value” shall mean, unless the +Administrator determines otherwise, as of any date, the closing +price for such Common Stock as of such date (or if no sales were +reported on such date, the closing price on the last preceding +day on which a sale was made), as reported in such source as the +Administrator shall determine. +“Grant Date” shall mean the date upon which an Award +is granted to an Awardee pursuant to this Plan. +“Incentive Stock Option” shall mean an Option intended +to qualify as an incentive stock option within the meaning of +Section 422 of the Code. +“Nonstatutory Stock Option” shall mean an Option not +intended to qualify as an Incentive Stock Option. +“Officer” shall mean a person who is an officer of the +Company within the meaning of Section 16 of the Exchange +Act. +“Option” shall mean a right granted under +Section 8 of the Plan to purchase a certain number of +Shares at such exercise price, at such times, and on such other +terms and conditions as are specified in the agreement or other +documents evidencing the Award (the “Option +Agreement”). Both Options intended to qualify as Incentive +Stock Options and Nonstatutory Stock Options may be granted +under the Plan. +“Participant” shall mean the Awardee or any person +(including any estate) to whom an Award has been assigned or +transferred as permitted hereunder. +“Plan” shall mean this Deckers Outdoor Corporation +2006 Equity Incentive Plan. +“Qualifying Performance Criteria” shall have the +meaning set forth in Section 14(b) of the Plan. +A-2 +Table of Contents +“Related Corporation” shall mean any parent or +subsidiary (as those terms are defined in Section 424(e) +and (f) of the Code) of the Company. +“Service Provider” shall mean an Employee, Officer, +Director, or Consultant. +“Share” shall mean a share of the Common Stock, as +adjusted in accordance with Section 15 of the Plan. +“Stock Award” shall mean an award or issuance of +Shares or Stock Units made under Section 11 of the Plan, +the grant, issuance, retention, vesting, and transferability of +which is subject during specified periods to such conditions +(including continued service or performance conditions) and +terms as are expressed in the agreement or other documents +evidencing the Award (the “Stock Award Agreement”). +“Stock Appreciation Right” or “SAR” shall +mean an Award, granted alone or in connection with an Option, +that pursuant to Section 12 of the Plan is designated as a +SAR. The terms of the SAR are expressed in the agreement or +other documents evidencing the Award (the “SAR +Agreement”). +“Stock Unit” shall mean a bookkeeping entry +representing an amount equivalent to the fair market value of +one Share, payable in cash, property or Shares. Stock Units +represent an unfunded and unsecured obligation of the Company, +except as otherwise provided for by the Administrator. +“Ten-Percent Stockholder” shall mean the owner of +stock (as determined under Section 424(d) of the Code) +possessing more than 10% of the total combined voting power of +all classes of stock of the Company (or any Related Corporation). +“Termination of Service” shall mean ceasing to be a +Service Provider. However, for Incentive Stock Option purposes, +Termination of Service will occur when the Awardee ceases to be +an employee (as determined in accordance with +Section 3401(c) of the Code and the regulations promulgated +thereunder) of the Company or one of its Related Corporations. +The Administrator shall determine whether any corporate +transaction, such as a sale or spin-off of a division or +business unit, or a joint venture, shall be deemed to result in +a Termination of Service. +3. +Stock Subject to the Plan. +3.1 Aggregate Limits. +3.1.1 The maximum aggregate number of Shares that may be +issued under the Plan through Awards is 2,000,000 Shares. +Notwithstanding the foregoing, the maximum aggregate number of +Shares that may be issued under the Plan through Incentive Stock +Options is 1,500,000 Shares. The limitations of this +Section 3(a)(i) shall be subject to the adjustments +provided for in Section 15 of the Plan. +3.1.2 Upon payment in Shares pursuant to the exercise of an +Award, the number of Shares available for issuance under the +Plan shall be reduced only by the number of Shares actually +issued in such payment. If any outstanding Award expires or is +terminated or canceled without having been exercised or settled +in full, or if Shares acquired pursuant to an Award subject to +forfeiture or repurchase are forfeited or repurchased by the +Company, the Shares allocable to the terminated portion of such +Award or such forfeited or repurchased Shares shall again be +available to grant under the Plan. Notwithstanding the +foregoing, the aggregate number of shares of Common Stock that +may be issued under the Plan upon the exercise of Incentive +Stock Options shall not be increased for restricted Shares that +are forfeited or repurchased. Notwithstanding anything in the +Plan, or any Award Agreement to the contrary, Shares +attributable to Awards transferred under any Award transfer +program shall not be again available for grant under the Plan. +The Shares subject to the Plan may be either Shares reacquired +by the Company, including Shares purchased in the open market, +or authorized but unissued Shares. +3.2 Code Section 162(m) Limit. Subject to the +provisions of Section 15 of the Plan, the aggregate number +of Shares subject to Awards granted under this Plan during any +calendar year to any one Awardee shall not exceed +1 million, except that in connection with his or her +initial service, an Awardee may be granted Awards covering up to +an additional 1 million Shares. Notwithstanding anything to +the contrary in the Plan, the limitations set forth in this +Section 3(b) shall be subject to adjustment under +Section 15 of the Plan only +A-3 +Table of Contents +to the extent that such adjustment will not affect the status of +any Award intended to qualify as “performance-based +compensation” under Code Section 162(m). +4. +Administration of the Plan. +4.1 Procedure. +4.1.1 Multiple Administrative +Bodies . The Plan shall be administered by the Board or +one or more Committees, including such delegates as may be +appointed under paragraph (a)(iv) of this Section 4. +4.1.2 Section 162 . +To the extent that the Administrator determines it to be +desirable to qualify Awards granted hereunder as +“performance-based compensation” within the meaning of +Section 162(m) of the Code, Awards to “covered +employees” within the meaning of Section 162(m) of the +Code or Employees that the Committee determines may be +“covered employees” in the future shall be made by a +Committee of two or more “outside directors” within +the meaning of Section 162(m) of the Code. +4.1.3 Rule 16b-3 . +To the extent desirable to qualify transactions hereunder as +exempt under +Rule 16b-3 +promulgated under the Exchange Act +(“Rule 16b-3”), +Awards to Officers and Directors shall be made in such a manner +to satisfy the requirement for exemption under +Rule 16b-3. +4.1.4 Other +Administration . The Board or a Committee may delegate to +an authorized Officer or Officers of the Company the power to +approve Awards to persons eligible to receive Awards under the +Plan who are not (A) subject to Section 16 of the Exchange +Act; or (B) at the time of such approval, “covered +employees” under Section 162(m) of the Code. +4.1.5 Delegation of Authority +for the Day-to -Day +Administration of the Plan . Except to the extent +prohibited by Applicable Law, the Administrator may delegate to +one or more individuals the +day-to -day +administration of the Plan and any of the functions assigned to +it in this Plan. Such delegation may be revoked at any time. +4.2 Powers of the +Administrator. Subject to the provisions of the Plan and, in +the case of a Committee or delegates acting as the +Administrator, subject to the specific duties delegated to such +Committee or delegates, the Administrator shall have the +authority, in its discretion: +4.2.1 to select the Service Providers of the Company or its +Affiliates to whom Awards are to be granted hereunder; +4.2.2 to determine the number of shares of Common Stock to be +covered by each Award granted hereunder; +4.2.3 to determine the type of Award to be granted to the +selected Service Provider; +4.2.4 to approve the forms of Award Agreements for use +under the Plan; +4.2.5 to determine the terms and conditions, not +inconsistent with the terms of the Plan, of any Award granted +hereunder. Such terms and conditions include the exercise or +purchase price, the time or times when an Award may be exercised +(which may or may not be based on performance criteria), the +vesting schedule, any vesting or exercisability acceleration or +waiver of forfeiture restrictions, the acceptable forms of +consideration, the term, and any restriction or limitation +regarding any Award or the Shares relating thereto, based in +each case on such factors as the Administrator, in its sole +discretion, shall determine and may be established at the time +an Award is granted or thereafter; +4.2.6 to correct administrative errors; +4.2.7 to construe and interpret the terms of the Plan +(including sub-plans and Plan addenda) and Awards granted +pursuant to the Plan; +4.2.8 to adopt rules and procedures relating to the +operation and administration of the Plan to accommodate the +specific requirements of local laws and procedures. Without +limiting the generality of +A-4 +Table of Contents +the foregoing, the Administrator is specifically authorized +(A) to adopt the rules and procedures regarding the +conversion of local currency, withholding procedures, and +handling of stock certificates that vary with local +requirements; and (B) to adopt sub-plans and Plan addenda +as the Administrator deems desirable, to accommodate foreign +laws, regulations and practice; +4.2.9 to prescribe, amend and rescind rules and regulations +relating to the Plan, including rules and regulations relating +to sub-plans and Plan addenda; +4.2.10 to modify or amend each Award, including the +acceleration of vesting, exercisability, or both; provided, +however, that any modification or amendment of an Award is +subject to Section 16 of the Plan and may not materially +impair any outstanding Award unless agreed to by the Participant; +4.2.11 to allow Participants to satisfy withholding tax +amounts by electing to have the Company withhold from the Shares +to be issued pursuant to an Award that number of Shares having a +Fair Market Value equal to the amount required to be withheld. +The Fair Market Value of the Shares to be withheld shall be +determined in such manner and on such date that the +Administrator shall determine or, in the absence of provision +otherwise, on the date that the amount of tax to be withheld is +to be determined. All elections by a Participant to have Shares +withheld for this purpose shall be made in such form and under +such conditions as the Administrator may provide; +4.2.12 to authorize conversion or substitution under the +Plan of any or all stock options, stock appreciation rights, or +other stock awards held by service providers of an entity +acquired by the Company (the “Conversion Awards”). Any +conversion or substitution shall be effective as of the close of +the merger or acquisition. The Conversion Awards may be +Nonstatutory Stock Options or Incentive Stock Options, as +determined by the Administrator, with respect to options granted +by the acquired entity. Unless otherwise determined by the +Administrator at the time of conversion or substitution, all +Conversion Awards shall have the same terms and conditions as +Awards generally granted by the Company under the Plan; +4.2.13 to authorize any person to execute on behalf of the +Company any instrument required to effect the grant of an Award +previously granted by the Administrator; +4.2.14 to determine whether to provide for the right to +receive dividends or dividend equivalents; +4.2.15 to establish a program whereby Service Providers +designated by the Administrator can reduce compensation +otherwise payable in cash in exchange for Awards under the Plan; +4.2.16 to impose such restrictions, conditions, or +limitations as it determines appropriate as to the timing and +manner of any resales by a Participant or other subsequent +transfers by the Participant of any Shares issued as a result of +or under an Award, including (A) restrictions under an +insider trading policy, and (B) restrictions as to the use +of a specified brokerage firm for such resales or other +transfers; +4.2.17 to provide, either at the time an Award is granted +or by subsequent action, that an Award shall contain as a term +thereof, a right, either in tandem with the other rights under +the Award or as an alternative thereto, of the Participant to +receive, without payment to the Company, a number of Shares, +cash, or both, the amount of which is determined by reference to +the value of the Award; and +4.2.18 to make all other determinations deemed necessary or +advisable for administering the Plan and any Award granted +hereunder. +4.3 Effect of +Administrator’s Decision. All decisions, determinations +and interpretations by the Administrator regarding the Plan, any +rules and regulations under the Plan and the terms and +conditions of any Award granted hereunder, shall be final and +binding on all Participants. The Administrator shall consider +such factors as it deems relevant, in its sole and absolute +discretion, to making such decisions, determinations and +interpretations, including the recommendations or advice of any +officer or other employee of the Company and such attorneys, +consultants and accountants as it may select. +A-5 +Table of Contents +5. Eligibility. Awards may +be granted to Service Providers of the Company or any of its +Affiliates. +6. Effective Date and Term of +the Plan. The Plan shall become effective upon its approval +by the stockholders of the Company. It shall continue in effect +for a term of ten years from the date of the Plan is approved by +the stockholders unless terminated earlier under Section 16 +herein. +7. Term of Award. The term +of each Award shall be determined by the Administrator and +stated in the Award Agreement. In the case of an Option, the +term shall be ten years from the Grant Date or such shorter term +as may be provided in the Award Agreement. +8. Options. The +Administrator may grant an Option or provide for the grant of an +Option, either from time to time in the discretion of the +Administrator or automatically upon the occurrence of specified +events, including the achievement of performance goals, and for +the satisfaction of an event or condition within the control of +the Awardee or within the control of others. +8.1 Option Agreement. Each +Option Agreement shall contain provisions regarding (i) the +number of Shares that may be issued upon exercise of the Option; +(ii) the type of Option; (iii) the exercise price of +the Shares and the means of payment for the Shares; +(iv) the term of the Option; (v) such terms and +conditions on the vesting or exercisability of an Option, or +both, as may be determined from time to time by the +Administrator; (vi) restrictions on the transfer of the +Option and forfeiture provisions; and (vii) such further +terms and conditions, in each case not inconsistent with this +Plan, as may be determined from time to time by the +Administrator. +8.2 Exercise Price. The per +share exercise price for the Shares to be issued pursuant to +exercise of an Option shall be determined by the Administrator, +subject to the following: +8.2.1 In the case of an Incentive Stock Option, the per +Share exercise price shall be no less than 100% of the Fair +Market Value per Share on the Grant Date. Notwithstanding the +foregoing, if any Employee to whom an Incentive Stock Option is +granted is a Ten-Percent Stockholder, then the exercise price +shall not be less than 110% of the Fair Market Value of a share +of Common Stock on the Grant Date. +8.2.2 In the case of a Nonstatutory Stock Option, the per +Share exercise price shall be no less than 100% of the Fair +Market Value per Share on the Grant Date. The per Share exercise +price may also vary according to a predetermined formula; +provided, that the exercise price never falls below 100% of the +Fair Market Value per Share on the Grant Date. +8.2.3 Notwithstanding the foregoing, at the +Administrator’s discretion, Conversion Awards may be +granted in substitution or conversion of options of an acquired +entity, with a per Share exercise price of less than 100% of the +Fair Market Value per Share on the date of such substitution or +conversion. +8.3 Vesting Period and Exercise +Dates. Options granted under this Plan shall vest, be +exercisable, or both, at such times and in such installments +during the Option’s term as determined by the +Administrator. The Administrator shall have the right to make +the timing of the ability to exercise any Option granted under +this Plan subject to continued service, the passage of time, or +such performance requirements as deemed appropriate by the +Administrator. At any time after the grant of an Option, the +Administrator may reduce or eliminate any restrictions +surrounding any Participant’s right to exercise all or part +of the Option. +8.4 Form of Consideration. +The Administrator shall determine the acceptable form of +consideration for exercising an Option, including the method of +payment, either through the terms of the Option Agreement or at +the time of exercise of an Option. The consideration, determined +by the Board (or pursuant to authority expressly delegated by +the Board, a Committee, or other person), and in the form and +amount required by applicable law, shall be actually received +before issuing any Shares pursuant to the Plan; which +consideration +A-6 +Table of Contents +shall have a value, as determined by the Board, not less than +the par value of such Shares. Acceptable forms of consideration +may include: +8.4.1 cash; +8.4.2 check or wire transfer; +8.4.3 subject to any conditions or limitations established +by the Administrator, other Shares that have a Fair Market Value +on the date of surrender or attestation that does not exceed the +aggregate exercise price of the Shares as to which said Option +shall be exercised; +8.4.4 consideration received by the Company under a +broker-assisted sale and remittance program acceptable to the +Administrator to the extent that this procedure would not +violate Section 402 of the Sarbanes-Oxley Act of 2002, as +amended; +8.4.5 cashless exercise, subject to any conditions or +limitations established by the Administrator; +8.4.6 such other consideration and method of payment for +the issuance of Shares to the extent permitted by Applicable +Laws; or +8.4.7 any combination of the foregoing methods of payment. +9. +Incentive Stock Option Limitations. +9.1 Eligibility. Only +employees (as determined in accordance with Section 3401(c) +of the Code and the regulations promulgated thereunder) of the +Company or any of its Related Corporations may be granted +Incentive Stock Options. +9.2 $100,000 Limitation. +Notwithstanding the designation “Incentive Stock +Option” in an Option Agreement, if the aggregate Fair +Market Value of the Shares with respect to which Incentive Stock +Options are exercisable for the first time by the Awardee during +any calendar year (under all plans of the Company and any of its +Related Corporations) exceeds $100,000, then the portion of such +Options that exceeds $100,000 shall be treated as Nonstatutory +Stock Options. An Incentive Stock Option is considered to be +first exercisable during a calendar year if the Incentive Stock +Option will become exercisable at any time during the year, +assuming that any condition on the Awardee’s ability to +exercise the Incentive Stock Option related to the performance +of services is satisfied. If the Awardee’s ability to +exercise the Incentive Stock Option in the year is subject to an +acceleration provision, then the Incentive Stock Option is +considered first exercisable in the calendar year in which the +acceleration provision is triggered. For purposes of this +Section 9(b), Incentive Stock Options shall be taken into +account in the order in which they were granted. However, +because an acceleration provision is not taken into account +before its triggering, an Incentive Stock Option that becomes +exercisable for the first time during a calendar year by +operation of such provision does not affect the application of +the $100,000 limitation with respect to any Incentive Stock +Option (or portion thereof) exercised before such acceleration. +The Fair Market Value of the Shares shall be determined as of +the Grant Date. +9.3 Leave of Absence. For +purposes of Incentive Stock Options, no leave of absence may +exceed three months, unless reemployment upon expiration of such +leave is provided by statute or contract. If reemployment upon +expiration of a leave of absence approved by the Company or a +Related Corporation is not so provided by statute or contract, +an Awardee’s employment with the Company shall be deemed +terminated on the first day immediately following such three +month period of leave for Incentive Stock Option purposes and +any Incentive Stock Option granted to the Awardee shall cease to +be treated as an Incentive Stock Option and shall terminate upon +the expiration of the three month period following the date the +employment relationship is deemed terminated. +9.4 Transferability. The +Option Agreement must provide that an Incentive Stock Option +cannot be transferable by the Awardee otherwise than by will or +the laws of descent and distribution, and, during the lifetime +of such Awardee, must not be exercisable by any other person. +Notwithstanding the foregoing, the Administrator, in its sole +discretion, may allow the Awardee to transfer his or her +Incentive Stock Option to a +A-7 +Table of Contents +trust where under Section 671 of the Code and other +Applicable Law, the Awardee is considered the sole beneficial +owner of the Option while it is held in the trust. If the terms +of an Incentive Stock Option are amended to permit +transferability, the Option will be treated for tax purposes as +a Nonstatutory Stock Option. +9.5 Exercise Price. The per +Share exercise price of an Incentive Stock Option shall be +determined by the Administrator in accordance with +Section 8(b)(i) of the Plan. +9.6 Ten-Percent Stockholder. +If any Employee to whom an Incentive Stock Option is granted is +a Ten-Percent Stockholder, then the Option term shall not exceed +five years measured from the date of grant of such Option. +9.7 Other Terms. Option +Agreements evidencing Incentive Stock Options shall contain such +other terms and conditions as may be necessary to qualify, to +the extent determined desirable by the Administrator, under the +applicable provisions of Section 422 of the Code. +10. +Exercise of Option. +10.1 Procedure for Exercise; +Rights as a Stockholder. +10.1.1 Any Option granted hereunder shall be exercisable +according to the terms of the Plan and at such times and under +such conditions as determined by the Administrator and set forth +in the respective Award Agreement. +10.1.2 An Option shall be deemed exercised when the Company +receives (A) written or electronic notice of exercise (in +accordance with the Award Agreement) from the person entitled to +exercise the Option; (B) full payment for the Shares with +respect to which the related Option is exercised; and (C) with +respect to Nonstatutory Stock Options, payment of all applicable +withholding taxes. +10.1.3 Shares issued upon exercise of an Option shall be +issued in the name of the Participant or, if requested by the +Participant, in the name of the Participant and his or her +spouse. Unless provided otherwise by the Administrator or +pursuant to this Plan, until the Shares are issued (as evidenced +by the appropriate entry on the books of the Company or of a +duly authorized transfer agent of the Company), no right to vote +or receive dividends or any other rights as a stockholder shall +exist with respect to the Shares subject to an Option, +notwithstanding the exercise of the Option. +10.1.4 The Company shall issue (or cause to be issued) such +Shares as soon as administratively practicable after the Option +is exercised. An Option may not be exercised for a fraction of a +Share. +10.2 Effect of Termination of +Service on Options. +10.2.1 Generally . +Unless otherwise provided for by the Administrator, if a +Participant ceases to be a Service Provider, other than upon the +Participant’s death or Disability, the Participant may +exercise his or her Option within such period as is specified in +the Award Agreement to the extent that the Option is vested on +the date of termination (but in no event later than the +expiration of the term of such Option as set forth in the Award +Agreement). In the absence of a specified time in the Award +Agreement, the vested portion of the Option will remain +exercisable for three months following the Participant’s +termination. Unless otherwise provided by the Administrator, if +on the date of termination the Participant is not vested as to +his or her entire Option, the Shares covered by the unvested +portion of the Option will revert to the Plan. If after the +Termination of Service the Participant does not exercise his or +her Option within the time specified by the Administrator, the +Option will terminate, and the Shares covered by such Option +will revert to the Plan. +10.2.2 Disability of +Awardee . Unless otherwise provided for by the +Administrator, if a Participant ceases to be a Service Provider +as a result of the Participant’s Disability, the +Participant may exercise his or her Option within such period of +time as is specified in the Award Agreement to the extent the +Option is vested on the date of termination (but in no event +later than the expiration of the term of such Option as set +forth in the Award Agreement). In the absence of a specified +time in the Award Agreement, the Option will remain exercisable +for twelve months following the Participant’s termination. +Unless +A-8 +Table of Contents +otherwise provided by the Administrator, if at the time of +Disability the Participant is not vested as to his or her entire +Option, the Shares covered by the unvested portion of the Option +will revert to the Plan. If the Option is not so exercised +within the time specified herein, the Option will terminate, and +the Shares covered by such Option will revert to the Plan. +10.2.3 Death of +Awardee . Unless otherwise provided for by the +Administrator, if a Participant dies while a Service Provider, +the Option may be exercised following the Participant’s +death within such period as is specified in the Award Agreement +to the extent that the Option is vested on the date of death +(but in no event may the Option be exercised later than the +expiration of the term of such Option as set forth in the Award +Agreement), by the Participant’s designated beneficiary, +provided such beneficiary has been designated before the +Participant’s death in a form acceptable to the +Administrator. If no such beneficiary has been designated by the +Participant, then such Option may be exercised by the personal +representative of the Participant’s estate or by the person +or persons to whom the Option is transferred pursuant to the +Participant’s will or in accordance with the laws of +descent and distribution. In the absence of a specified time in +the Award Agreement, the Option will remain exercisable for +twelve months following Participant’s death. Unless +otherwise provided by the Administrator, if at the time of death +Participant is not vested as to his or her entire Option, the +Shares covered by the unvested portion of the Option will revert +to the Plan. If the Option is not so exercised within the time +specified herein, the Option will terminate, and the Shares +covered by such Option will revert to the Plan. +11. +Stock Awards. +11.1 Stock Award Agreement. Each Stock Award Agreement +shall contain provisions regarding (i) the number of Shares +subject to such Stock Award or a formula for determining such +number; (ii) the purchase price of the Shares, if any, and +the means of payment for the Shares; (iii) the performance +criteria, if any, and level of achievement versus these criteria +that shall determine the number of Shares granted, issued, +retained, or vested, as applicable; (iv) such terms and +conditions on the grant, issuance, vesting, or forfeiture of the +Shares, as applicable, as may be determined from time to time by +the Administrator; (v) restrictions on the transferability +of the Stock Award; and (vi) such further terms and +conditions in each case not inconsistent with this Plan as may +be determined from time to time by the Administrator. +11.2 Restrictions and Performance Criteria. The grant, +issuance, retention, and vesting of each Stock Award may be +subject to such performance criteria and level of achievement +versus these criteria as the Administrator shall determine, +which criteria may be based on financial performance, personal +performance evaluations, or completion of service by the Awardee. +Notwithstanding anything to the contrary herein, the performance +criteria for any Stock Award that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code shall be established by +the Administrator based on one or more Qualifying Performance +Criteria selected by the Administrator and specified in writing. +11.3 Forfeiture. Unless otherwise provided for by the +Administrator, upon the Awardee’s Termination of Service, +the unvested Stock Award and the Shares subject thereto shall be +forfeited, provided that to the extent that the Participant +purchased any Shares pursuant to such Stock Award, the Company +shall have a right to repurchase the unvested portion of such +Shares at the original price paid by the Participant. +11.4 Rights as a Stockholder. Unless otherwise provided by +the Administrator, the Participant shall have the rights +equivalent to those of a stockholder and shall be a stockholder +only after Shares are issued (as evidenced by the appropriate +entry on the books of the Company or of a duly authorized +transfer agent of the Company) to the Participant. Unless +otherwise provided by the Administrator, a Participant holding +Stock Units shall be entitled to receive dividend payments as if +he or she were an actual stockholder. +A-9 +Table of Contents +12. +Stock Appreciation Rights. +Subject to the terms and conditions of the Plan, a SAR may be +granted to a Service Provider at any time and from time to time +as determined by the Administrator in its sole discretion. +12.1 Number of SARs. The Administrator shall have complete +discretion to determine the number of SARs granted to any +Service Provider. +12.2 Exercise Price and Other Terms. The per SAR exercise +price shall be no less than 100% of the Fair Market Value per +Share on the Grant Date. The Administrator, subject to the +provisions of the Plan, shall have complete discretion to +determine the other terms and conditions of SARs granted under +the Plan. +12.3 Exercise of SARs. SARs shall be exercisable on such +terms and conditions as the Administrator, in its sole +discretion, shall determine. +12.4 SAR Agreement. Each SAR grant shall be evidenced by a +SAR Agreement that will specify the exercise price, the term of +the SAR, the conditions of exercise, and such other terms and +conditions as the Administrator, in its sole discretion, shall +determine. +12.5 Expiration of SARs. A SAR granted under the Plan shall +expire upon the date determined by the Administrator, in its +sole discretion, and set forth in the SAR Agreement. +Notwithstanding the foregoing, the rules of Section 10(b) +will also apply to SARs. +12.6 Payment of SAR Amount. Upon exercise of a SAR, the +Participant shall be entitled to receive a payment from the +Company in an amount equal to the difference between the Fair +Market Value of a Share on the date of exercise over the +exercise price of the SAR. This amount shall be paid in cash, +Shares of equivalent value, or a combination of both, as the +Administrator shall determine. +13. +Cash Awards. +Each Cash Award will confer upon the Participant the opportunity +to earn a future payment tied to the level of achievement with +respect to one or more performance criteria established for a +performance period. +13.1 Cash Award. Each Cash Award shall contain provisions +regarding (i) the performance goal or goals and maximum +amount payable to the Participant as a Cash Award; (ii) the +performance criteria and level of achievement versus these +criteria that shall determine the amount of such payment; +(iii) the period as to which performance shall be measured +for establishing the amount of any payment; (iv) the timing +of any payment earned by virtue of performance; +(v) restrictions on the alienation or transfer of the Cash +Award before actual payment; (vi) forfeiture provisions; +and (vii) such further terms and conditions, in each case +not inconsistent with the Plan, as may be determined from time +to time by the Administrator. The maximum amount payable as a +Cash Award that is settled for cash may be a multiple of the +target amount payable, but the maximum amount payable pursuant +to that portion of a Cash Award granted under this Plan for any +fiscal year to any Awardee that is intended to satisfy the +requirements for “performance-based compensation” +under Section 162(m) of the Code shall not exceed +$2 million. +13.2 Performance Criteria. The Administrator shall +establish the performance criteria and level of achievement +versus these criteria that shall determine the target and the +minimum and maximum amount payable under a Cash Award, which +criteria may be based on financial performance or personal +performance evaluations or both. The Administrator may specify +the percentage of the target Cash Award that is intended to +satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code. +Notwithstanding anything to the contrary herein, the performance +criteria for any portion of a Cash Award that is intended to +satisfy the requirements for “performance-based +compensation” under Section 162(m) of the Code shall +be a measure established by the Administrator based on one or +more Qualifying Performance Criteria selected by the +Administrator and specified in writing. +A-10 +Table of Contents +13.3 Timing and Form of Payment. The Administrator shall +determine the timing of payment of any Cash Award. The +Administrator may specify the form of payment of Cash Awards, +which may be cash or other property, or may provide for an +Awardee to have the option for his or her Cash Award, or such +portion thereof as the Administrator may specify, to be paid in +whole or in part in cash or other property. +13.4 Termination of Service. The Administrator shall have +the discretion to determine the effect of a Termination of +Service on any Cash Award due to (i) disability, +(ii) retirement, (iii) death, (iv) participation +in a voluntary severance program, or (v) participation in a +work force restructuring. +14. +Other Provisions Applicable to Awards. +14.1 Non-Transferability of Awards. Unless determined +otherwise by the Administrator, an Award may not be sold, +pledged, assigned, hypothecated, transferred, or disposed of in +any manner other than by beneficiary designation, will or by the +laws of descent or distribution and may be exercised, during the +lifetime of the Participant, only by the Participant. The +Administrator may make an Award transferable to an +Awardee’s family member or any other person or entity. If +the Administrator makes an Award transferable, either at the +time of grant or thereafter, such Award shall contain such +additional terms and conditions as the Administrator deems +appropriate, and any transferee shall be deemed to be bound by +such terms upon acceptance of such transfer. +14.2 Qualifying Performance Criteria. For purposes of this +Plan, the term “Qualifying Performance Criteria” shall +mean any one or more of certain specified performance criteria, +either individually, alternatively or in any combination, +applied to either the Company as a whole or to a business unit, +Affiliate or business segment, either individually, +alternatively or in any combination, and measured either +annually or cumulatively over a period of years, on an absolute +basis or relative to a pre-established target, to previous +years’ results or to a designated comparison group, in each +case as specified by the Committee in the Award: (i) cash +flow, (ii) earnings (including gross margin, earnings +before interest and taxes, earnings before taxes, and net +earnings), (iii) earnings per share, (iv) growth in +earnings or earnings per share, (v) stock price, +(vi) return on equity or average stockholders’ equity, +(vii) total stockholder return, (viii) return on +capital, (ix) return on assets or net assets, +(x) return on investment, (xi) revenue, +(xii) income or net income, (xiii) operating income or +net operating income, (xiv) operating profit or net +operating profit, (xv) operating margin, (xvi) return +on operating revenue, (xvii) market share, +(xviii) contract awards or backlog, (xix) overhead or +other expense reduction, (xx) growth in stockholder value +relative to the moving average of the S&P 500 Index or +a peer group index, (xxi) credit rating, +(xxii) strategic plan development and implementation, +(xxiii) improvement in workforce diversity and +(xxiv) EBITDA. +14.3 Certification. Prior to the payment of any +compensation under an Award intended to qualify as +“performance-based compensation” under +Section 162(m) of the Code, the Committee shall certify the +extent to which any Qualifying Performance Criteria and any +other material terms under such Award have been satisfied (other +than in cases where such relate solely to the increase in the +value of the Common Stock). +14.4 Discretionary Adjustments Pursuant to +Section 162(m). Notwithstanding satisfaction or completion +of any Qualifying Performance Criteria, to the extent specified +at the time of grant of an Award to “covered +employees” within the meaning of Section 162(m) of the +Code, the number of Shares, Options or other benefits granted, +issued, retained, or vested under an Award on account of +satisfaction of such Qualifying Performance Criteria may be +reduced by the Committee on the basis of such further +considerations as the Committee in its sole discretion shall +determine. +14.5 Section 409A. Notwithstanding anything in the +Plan to the contrary, it is the intent of the Company that all +Awards granted under this Plan shall not cause an imposition of +the additional taxes provided for in Section 409A(a)(1)(B) +of the Code. +14.6 Lock-Up Agreement. The Award Agreement for every Award +that may be settled in Shares shall provide that in connection +with any underwritten public offering of Shares made by the +Company +A-11 +Table of Contents +pursuant to a registration statement filed under the Securities +Act of 1933, as amended, the Optionee shall not offer, sell, +contract to sell, pledge, hypothecate, grant any option to +purchase or make any short sale of, or otherwise dispose of any +Shares or any rights to acquire Shares for the period beginning +on the date of filing of such registration statement with the +Securities and Exchange Commission and ending at the time as may +be established by the underwriters for such public offering; +provided, however, that such period shall end not later than +180 days from the effective date of such registration +statement. The foregoing limitation shall not apply to shares +registered for sale in such public offering. +15. +Adjustments upon Changes in Capitalization, Dissolution, +Merger or Asset Sale. +15.1 Changes in Capitalization. Subject to any required +action by the stockholders of the Company, (i) the number +and kind of Shares covered by each outstanding Award, and the +number and kind of shares of Common Stock that have been +authorized for issuance under the Plan but as to which no Awards +have yet been granted or that have been returned to the Plan +upon cancellation or expiration of an Award; (ii) the price +per Share subject to each such outstanding Award; and +(iii) the Share limitations set forth in Section 3 of +the Plan, may be appropriately adjusted if any change is made in +the Common Stock subject to the Plan, or subject to any Award, +without the receipt of consideration by the Company through a +stock split, reverse stock split, stock dividend, combination or +reclassification of the Common Stock, merger, consolidation, +reorganization, recapitalization, reincorporation, spin-off, +dividend in property other than cash, liquidating dividend, +extraordinary dividends or distributions, combination of shares, +exchange of shares, change in corporate structure or other +transaction effected without receipt of consideration by the +Company; provided, however, that conversion of any convertible +securities of the Company shall not be deemed to have been +“effected without receipt of consideration.” Such +adjustment shall be made by the Administrator in its sole +discretion, whose determination in that respect shall be final, +binding and conclusive. Except as expressly provided herein, no +issuance by the Company of shares of stock of any class, or +securities convertible into shares of stock of any class, shall +affect, and no adjustment by reason thereof shall be made with +respect to, the number or price of shares of Common Stock +subject to an Award. +15.2 Dissolution or Liquidation. In the event of the +proposed dissolution or liquidation of the Company, the +Administrator shall notify each Participant as soon as +practicable before the effective date of such proposed +transaction. The Administrator in its discretion may provide for +an Option to be fully vested and exercisable until ten days +before such transaction. In addition, the Administrator may +provide that any restrictions on any Award shall lapse before +the transaction, provided the proposed dissolution or +liquidation takes place at the time and in the manner +contemplated. To the extent it has not been previously +exercised, an Award will terminate immediately before the +consummation of such proposed transaction. +15.3 Change in Control. If there is a Change in Control of +the Company, as determined by the Board or a Committee, the +Board or Committee, or board of directors of any surviving +entity or acquiring entity may, in its discretion, +(i) provide for the assumption, continuation, or +substitution (including an award to acquire substantially the +same type of consideration paid to the stockholders in the +transaction in which the Change in Control occurs) of, or +adjustment to, all or any part of the Awards; +(ii) accelerate the vesting of all or any part of the +Options and SARs and terminate any restrictions on all or any +part of the Stock Awards or Cash Awards; (iii) provide for +the cancellation of all or any part of the Awards for a cash +payment to the Participants; and (iv) provide for the +cancellation of all or any part of the Awards as of the closing +of the Change in Control; provided, that the Participants are +notified that they must exercise or redeem their Awards +(including, at the discretion of the Board or Committee, any +unvested portion of such Award) at or before the closing of the +Change in Control. +16. +Amendment and Termination of the Plan. +16.1 Amendment and Termination. The Administrator may +amend, alter, or discontinue the Plan or any Award Agreement, +but any such amendment shall be subject to approval of the +stockholders of the Company in the manner and to the extent +required by Applicable Law. +A-12 +Table of Contents +16.2 Effect of Amendment or Termination. No amendment, +suspension, or termination of the Plan shall materially impair +the rights of any Award, unless agreed otherwise between the +Participant and the Administrator. Termination of the Plan shall +not affect the Administrator’s ability to exercise the +powers granted to it hereunder with respect to Awards granted +under the Plan before the date of such termination. +16.3 Effect of the Plan on Other Arrangements. Neither the +adoption of the Plan by the Board or a Committee nor the +submission of the Plan to the stockholders of the Company for +approval shall be construed as creating any limitations on the +power of the Board or any Committee to adopt such other +incentive arrangements as it or they may deem desirable, +including the granting of restricted stock or stock options +otherwise than under the Plan, and such arrangements may be +either generally applicable or applicable only in specific cases. +17. +Designation of Beneficiary. +17.1 An Awardee may file a written designation of a +beneficiary who is to receive the Awardee’s rights pursuant +to Awardee’s Award or the Awardee may include his or her +Awards in an omnibus beneficiary designation for all benefits +under the Plan. To the extent that Awardee has completed a +designation of beneficiary such beneficiary designation shall +remain in effect with respect to any Award hereunder until +changed by the Awardee to the extent enforceable under +Applicable Law. +17.2 Such designation of beneficiary may be changed by the +Awardee at any time by written notice. If an Awardee dies and no +beneficiary is validly designated under the Plan who is living +at the time of such Awardee’s death, the Company shall +allow the executor or administrator of the estate of the Awardee +to exercise the Award, or if no such executor or administrator +has been appointed (to the knowledge of the Company), the +Company, in its discretion, may allow the spouse or one or more +dependents or relatives of the Awardee to exercise the Award to +the extent permissible under Applicable Law. +18. +No Right to Awards or to Service. +No person shall have any claim or right to be granted an Award +and the grant of any Award shall not be construed as giving an +Awardee the right to continue in the service of the Company or +its Affiliates. Further, the Company and its Affiliates +expressly reserve the right, at any time, to dismiss any Service +Provider or Awardee at any time without liability or any claim +under the Plan, except as provided herein or in any Award +Agreement entered into hereunder. +19. +Preemptive Rights. +No Shares will be issued under the Plan in violation of any +preemptive rights held by any stockholder of the Company. +20. +Legal Compliance. +No Share will be issued pursuant to an Award under the Plan +unless the issuance and delivery of such Shares, as well as the +exercise of such Award, if applicable, will comply with +Applicable Laws. Issuance of Shares under the Plan shall be +subject to the approval of counsel for the Company with respect +to such compliance. Notwithstanding anything in the Plan to the +contrary, it is the intent of the Company that the Plan shall be +administered so that the additional taxes provided for in +Section 409A(a)(1)(B) of the Code are not imposed. +21. +Inability to Obtain Authority. +To the extent the Company is unable to or the Administrator +deems that it is not feasible to obtain authority from any +regulatory body having jurisdiction, which authority is deemed +by the Company’s counsel to be necessary to the lawful +issuance and sale of any Shares hereunder, the Company shall be +relieved of any +A-13 +Table of Contents +liability with respect to the failure to issue or sell such +Shares as to which such requisite authority shall not have been +obtained. +22. +Reservation of Shares. +The Company, during the term of this Plan, will at all times +reserve and keep available such number of Shares as shall be +sufficient to satisfy the requirements of the Plan. +23. +Notice. +Any written notice to the Company required by any provisions of +this Plan shall be addressed to the Secretary of the Company and +shall be effective when received. +24. +Governing Law; Interpretation of Plan and Awards. +24.1 This Plan and all determinations made and actions +taken pursuant hereto shall be governed by the substantive laws, +but not the choice of law rules, of the state of Delaware. +24.2 If any provision of the Plan or any Award granted +under the Plan is declared to be illegal, invalid, or otherwise +unenforceable by a court of competent jurisdiction, such +provision shall be reformed, if possible, to the extent +necessary to render it legal, valid, and enforceable, or +otherwise deleted, and the remainder of the terms of the Plan +and Award shall not be affected except to the extent necessary +to reform or delete such illegal, invalid, or unenforceable +provision. +24.3 The headings preceding the text of the sections hereof +are inserted solely for convenience of reference, and shall not +constitute a part of the Plan, nor shall they affect its +meaning, construction or effect. +24.4 The terms of the Plan and any Award shall inure to the +benefit of and be binding upon the parties hereto and their +respective permitted heirs, beneficiaries, successors, and +assigns. +24.5 All questions arising under the Plan or under any +Award shall be decided by the Administrator in its total and +absolute discretion. If the Participant believes that a decision +by the Administrator with respect to such person was arbitrary +or capricious, the Participant may request arbitration with +respect to such decision. The review by the arbitrator shall be +limited to determining whether the Administrator’s decision +was arbitrary or capricious. This arbitration shall be the sole +and exclusive review permitted of the Administrator’s +decision, and the Awardee shall as a condition to the receipt of +an Award be deemed to explicitly waive any right to judicial +review. +25. +Limitation on Liability. +The Company and any Affiliate or Related Corporation that is in +existence or hereafter comes into existence shall not be liable +to a Participant, an Employee, an Awardee, or any other persons +as to: +25.1 The Non-Issuance of Shares. The non-issuance or sale +of Shares as to which the Company has been unable to obtain from +any regulatory body having jurisdiction the authority deemed by +the Company’s counsel to be necessary to the lawful +issuance and sale of any shares hereunder; and +25.2 Tax Consequences. Any tax consequence expected, but +not realized, by any Participant, Employee, Awardee or other +person due to the receipt, exercise or settlement of any Option +or other Award granted hereunder. +26. +Unfunded Plan. +Insofar as it provides for Awards, the Plan shall be unfunded. +Although bookkeeping accounts may be established with respect to +Awardees who are granted Stock Awards under this Plan, any such +accounts will be used merely as a bookkeeping convenience. The +Company shall not be required to segregate any assets that may +at any time be represented by Awards, nor shall this Plan be +construed as providing for such segregation, +A-14 +Table of Contents +nor shall the Company or the Administrator be deemed to be a +trustee of stock or cash to be awarded under the Plan. Any +liability of the Company to any Participant with respect to an +Award shall be based solely upon any contractual obligations +that may be created by the Plan; no such obligation of the +Company shall be deemed to be secured by any pledge or other +encumbrance on any property of the Company. Neither the Company +nor the Administrator shall be required to give any security or +bond for the performance of any obligation that may be created +by this Plan. +IN WITNESS WHEREOF, the Company, by its duly authorized officer, +has executed this Plan, effective as of +2006. +DECKERS OUTDOOR CORPORATION +By: +Its: +Chief Financial Officer and Executive Vice President of Finance +and Administration +A-15 +Table of Contents +APPENDIX B +CERTIFICATE OF AMENDMENT +OF +RESTATED CERTIFICATE OF INCORPORATION +OF +DECKERS OUTDOOR CORPORATION +DECKERS OUTDOOR CORPORATION (the “Corporation”), a +corporation organized and existing under the General Corporation +Law of the State of Delaware, by its duly authorized officer, +does hereby certify: +FIRST: That the Board of Directors of the Corporation duly +adopted a resolution setting forth a proposed amendment to the +Restated Certificate of Incorporation of the Corporation, and +declaring said amendment to be advisable and recommended for +approval by the stockholders of the Corporation. +SECOND: That the amendment was duly adopted in accordance with +the provisions of Sections 242 of the General Corporation +Law of the State of Delaware. +THIRD: That upon the effectiveness of this Certificate of +Amendment, Section 1 of Article IX of the Restated +Certificate of Incorporation of the Corporation is hereby +amended in its entirety as follows: +SECTION 1. At the 1993 Annual Meeting of Stockholders of +the Corporation, the Board of Directors shall be divided into +three classes, Class I, Class II and Class III. +Such classes shall be as nearly equal in number of directors as +reasonably possible. At each Annual Meeting of Stockholders +following such initial classification and election until the +2007 Annual Meeting of Stockholders, each director shall be +elected to serve for a term ending on the third annual meeting +following the annual meeting at which such director was elected; +provided, however, that the directors first elected to +Class I shall serve for a term ending on the annual meeting +date next following the end of calendar year 1993, the directors +first elected to Class II shall serve for a term ending on +the second annual meeting date next following the end of +calendar year 1993, and the directors first elected to +Class III shall serve for a term ending on the third annual +meeting date next following the end of calendar year 1993. The +terms of office of all directors who are in office immediately +prior to the closing of the polls for the election of directors +at the 2007 Annual Meeting of Stockholders of the Corporation +shall expire at such time. At each Annual Meeting of +Stockholders beginning with the 2007 Annual Meeting of +Stockholders of the Corporation, the directors shall not be +classified, and the directors shall be elected annually and +shall hold office for a term expiring at the next Annual Meeting +of Stockholders and until their respective successors shall have +been duly elected and qualified unless such directors shall +resign, become disqualified or shall otherwise be removed in +accordance with law. +Vacancies and newly created directorships resulting from any +increase in the authorized number of directors elected by all of +the stockholders having the right to vote as a single class may, +unless the Board of Directors determines otherwise, only be +filled by a majority of the directors then in office, although +less than a quorum, or by a sole remaining director; provided, +however, that if the holders of any class or classes of stock or +series thereof are entitled to elect one or more directors, +vacancies and newly created directorships of such class or +classes or series may only be filled by a majority of the +directors elected by such class or classes or series thereof +then in office, or by a sole remaining director so elected. +FOURTH: That the foregoing amendment shall be effective +on , +2006 at 8:00 a.m. Eastern Time. +B-1 +Table of Contents +IN WITNESS WHEREOF, this Certificate of Amendment has been +executed on +this day +of , +2006. +DECKERS OUTDOOR CORPORATION +By: +Zohar Ziv +Chief Financial Officer and Executive Vice President of Finance +and Administration +B-2 +Table of Contents +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on behalf of the Board of +Directors of Deckers Outdoor Corporation. +The undersigned hereby appoints Angel R. Martinez and Zohar Ziv, and each of them, as Proxyholders, each +with the power to appoint his substitute, and hereby authorizes each of them to represent and to +vote as designated below, all the shares of common stock of Deckers Outdoor Corporation held of +record by the undersigned on March 27, 2006, at the Annual Meeting of Stockholders to be held on +May 19, 2006 and any continuations, postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE. +Address Change/Comments (Mark the corresponding box on the reverse side) +5 FOLD AND DETACH HERE 5 +Table of Contents +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE +PROPOSALS AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Mark Here +for Address +Change or +Comments +o +PLEASE SEE REVERSE SIDE +FOR +WITHHOLD +AUTHORITY to vote +for the nominees +listed below +1. +ELECTION OF CLASS I DIRECTORS: +Instruction: To withhold authority +to vote for a nominee listed below, +strike a line through the +nominee’s name. +o +o +Nominees: +01 John M. Gibbons +02 Daniel L. Terheggen +03 John G. Perenchio +FOR +AGAINST +ABSTAIN +2. +TO RATIFY THE SELECTION OF KPMG LLP +AS THE COMPANY’S INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM. +o +o +o +FOR +AGAINST +ABSTAIN +3. +TO APPROVE THE 2006 EQUITY INCENTIVE PLAN. +o +o +o +FOR +AGAINST +ABSTAIN +4. +TO APPROVE AN AMENDMENT +TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ANNUAL ELECTION OF DIRECTORS. +o +o +o +FOR +AGAINST +ABSTAIN +5. +In their discretion, +the Proxyholders are authorized to transact such other business as may properly come before the Annual +Meeting or any continuation, postponements or +adjournments thereof. +o +o +o +The Board of Directors recommends a +vote “For” the election of each of the nominees, “For” +ratification of the selection of KPMG LLP as the Company’s independent registered public accounting +firm for fiscal 2006, “For” the approval of the 2006 Equity +Incentive Plan, and “For” the approval to amend the +Company’s Certificate of Incorporation to authorize the annual election of directors. +All proposals to be acted upon are proposals of the Board of Directors. If +any other business is properly presented at the Meeting, including, among other things, +consideration of a motion to adjourn the meeting to another time or place in order to solicit +additional Proxies in favor of the recommendations of the Board of Directors, this Proxy shall be +voted by the Proxyholders in accordance with the recommendations of a majority of the Board of +Directors. At the date the Proxy Statement went to press, we did not anticipate any other matters +would be raised at the Meeting. +PLEASE MARK, SIGN, DATE AND +RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +WILL +ATTEND +If you plan to attend the Annual Meeting, +please mark the WILL ATTEND box. +o +Signature +Signature +Dated +2006 +Please sign exactly as the name appears above. When +shares are held by joint tenants, both +should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give +your full title as such. If the signer is a corporation, please sign in full corporate name by the President or +other authorized officer giving full title as such. If the signer is a partnership, please sign in the partnership name by an authorized +person. +5 FOLD AND DETACH HERE 5 \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950129-06-004208/proxy_rpt.txt b/raw/proxies/0000910521/0000950129-06-004208/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..bb877ddb6c4026f0635925c3bca421937e4d8a64 --- /dev/null +++ b/raw/proxies/0000910521/0000950129-06-004208/proxy_rpt.txt @@ -0,0 +1,39 @@ +Certain Relationships and Related Transactions +Transactions with Directors +Daniel L. Terheggen, a member of the Company’s Board of +Directors, is a 50% owner and Chief Executive Officer of BHPC +Global Licensing, Inc. The Company paid BHPC Global Licensing, +Inc. an aggregate of approximately $118,000 for agency fees +related to licensing of the Company’s products during 2005. +In 1993, the Company and Douglas B. Otto, Chairman of the Board, +entered into a split dollar life insurance arrangement, whereby +the Company participated in a portion of the life insurance +premiums paid through 2001. The arrangement provided that +Mr. Otto’s estate would reimburse the Company for all +premiums previous paid. In 2005, Mr. Otto reimbursed the +Company for all premiums paid on his behalf. The Company carried +the value of the life insurance policy at its cash surrender +value, which was lower than the amount of premiums paid on the +policy. As a result, the Company recognized a gain of $260,000 +in 2005 upon settlement and receipt of the reimbursement. +Limitation of Liability and Indemnification of Directors +and Officers +Our Certificate of Incorporation and Bylaws provide that we +shall indemnify directors and executive officers to the fullest +extent now or hereafter permitted by the Delaware General +Corporation Law (the “DGCL”). In addition, we entered +into Indemnification Agreements with our directors and executive +officers in which we agree to indemnify such persons to the +fullest extent now or hereafter permitted by the DGCL. +We have obtained a liability policy for our directors and +officers as permitted by the DGCL which extends to, among other +things, liability arising under the Securities Act of 1933, as +amended. +We maintain an insurance policy pursuant to which our directors +and officers are insured, within the limits and subject to the +limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or +proceedings, and liabilities which might be imposed as a result +of such claims, actions, suits or proceedings, that may be +brought against them by reason of their being or having been +directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-01-000557/proxy.txt b/raw/proxies/0000910521/0000950148-01-000557/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c28f2b27d68c26dac8229a381abe8d7ebecda260 --- /dev/null +++ b/raw/proxies/0000910521/0000950148-01-000557/proxy.txt @@ -0,0 +1,1273 @@ +DEF 14A +1 +v70183def14a.txt +DEFINITIVE PROXY STATEMENT +1 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 +DECKERS OUTDOOR CORPORATION +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +--------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +--------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +--------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +--------------------------------------------------------------------- +(5) Total fee paid: +--------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act +Rule 0-11(a)(2) and identify the filing for which the offsetting fee was +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +--------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +--------------------------------------------------------------------- +(3) Filing Party: +--------------------------------------------------------------------- +(4) Date Filed: +--------------------------------------------------------------------- +2 +DECKERS OUTDOOR CORPORATION +April 6, 2001 +Dear Stockholder: +We cordially invite you to attend our 2001 Annual Meeting of Stockholders +to be held at 5:00 p.m. on Wednesday, May 23, 2001 at Deckers Outdoor +Corporation, 495-A South Fairview Avenue, Goleta, California 93117. Enclosed are +the Notice of Annual Meeting, Proxy Statement and a Proxy Card relating to the +Annual Meeting which we urge you to read carefully. Also enclosed is the +Company's 2000 Annual Report to Stockholders on Form 10-K. Whether or not you +expect to attend the Annual Meeting, please sign and date the enclosed Proxy +Card and return it as promptly as possible to ensure that your shares will be +voted. Properly executed Proxy Cards received by the Company prior to the Annual +Meeting will be voted in accordance with the instructions indicated in such +cards. Because mail delays occur frequently, it is important that the enclosed +Proxy Card be returned well in advance of the meeting. +ON BEHALF OF YOUR +BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +3 +DECKERS OUTDOOR CORPORATION +495-A SOUTH FAIRVIEW AVENUE, GOLETA, CALIFORNIA 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 23, 2001 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of Stockholders (the "Annual +Meeting") of Deckers Outdoor Corporation, a Delaware corporation (the +"Company"), will be held at Deckers Outdoor Corporation, 495-A South Fairview +Avenue, Goleta, California 93117, on Wednesday, May 23, 2001, beginning at 5:00 +p.m., local time. The Annual Meeting will be held for the following purposes: +1. To elect one (1) director of the Company to serve as a Class II +director until the Annual Meeting of Stockholders to be held in 2004. +2. To approve an amendment to the Company's 1993 Employee Stock +Incentive Plan (the "1993 Plan") to (a) increase the number of shares of +Common Stock reserved for issuance thereunder by 1,000,000 shares to an +aggregate of 3,000,000 shares, of which 2,800,000 may be issued pursuant to +incentive stock options and (b) extend the duration of the 1993 Plan for an +additional three years. +3. To ratify the selection of KPMG LLP as the Company's independent +auditors. +4. To transact such other business as may properly come before the +meeting or any postponements or adjournments thereof. +The Board of Directors has fixed March 26, 2001 as the record date for the +determination of stockholders entitled to notice of and to vote at the Annual +Meeting and any postponements or adjournments thereof, and only stockholders of +record at the close of business on that date are entitled to such notice and to +vote at the Annual Meeting. +A list of stockholders entitled to vote at the Annual Meeting will be +available at the offices of the Company for ten (10) days prior to the Annual +Meeting. +We hope that you will use this opportunity to take an active part in the +affairs of the Company by voting on the business to come before the Annual +Meeting either by executing and returning the enclosed Proxy Card or by casting +your vote in person at the Annual Meeting. +STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON ARE REQUESTED TO +DATE AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. A STAMPED +ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN +ONE PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR +ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +Goleta, California +April 6, 2001 +4 +DECKERS OUTDOOR CORPORATION +495-A SOUTH FAIRVIEW AVENUE +GOLETA, CALIFORNIA 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 23, 2001 +------------------------- +PROXY STATEMENT +------------------------- +This Proxy Statement is furnished in connection with the solicitation of +proxies by the Board of Directors of Deckers Outdoor Corporation, a Delaware +corporation (the "Company"), for use at the Annual Meeting of Stockholders (the +"Annual Meeting") to be held at 5:00 p.m., local time, on May 23, 2001, at +Deckers Outdoor Corporation, 495-A South Fairview Avenue, Goleta, California +93117, and any postponements or adjournments thereof for the purposes set forth +in the accompanying Notice of Annual Meeting. This Proxy Statement and the +accompanying Form of Proxy were first mailed to stockholders on or about April +6, 2001. +RECORD DATE AND VOTING +March 26, 2001 has been fixed as the record date (the "Record Date") for +the determination of stockholders entitled to notice of and to vote at the +Annual Meeting, and any postponements or adjournments thereof. As of March 26, +2001, there were outstanding 9,172,677 shares of the Company's common stock, par +value $.01 per share (the "Common Stock"). No shares of the Company's preferred +stock, par value $.01 per share, were outstanding as of that date. A majority of +the shares of Common Stock entitled to vote, present in person or represented by +proxy, will constitute a quorum at the meeting. +Each share of Common Stock issued and outstanding on the Record Date is +entitled to one vote on any matter presented for consideration and action by the +stockholders at the Annual Meeting. With respect to all matters, other than the +election of the directors, including the approval of the proposal to amend the +1993 Plan, the affirmative vote of a majority of shares of the Company's Common +Stock present in person or represented by proxy at the meeting and entitled to +vote on the subject matter will be the act of the stockholders. Directors will +be elected by a plurality of the votes of the shares of the Company's Common +Stock present in person or represented by proxy and entitled to vote on the +election of directors. Abstentions will be treated as the equivalent of a +negative vote for the purpose of determining whether a director has been +elected. Unless otherwise instructed, proxies solicited by the Company will be +voted "FOR" the nominee named herein for election as director, "FOR" the +proposal to increase the number of shares of Common Stock reserved for issuance +pursuant to the 1993 Plan and to extend the duration of the 1993 Plan, "FOR" the +ratification of the selection of KPMG LLP as the Company's independent auditors, +and in their discretion upon such other business as may properly come before +such meeting or any and all postponements or adjournments thereof. +With respect to brokers who are members of the New York Stock Exchange, the +New York Stock Exchange Rules ("NYSE Rules") generally require that when shares +are registered in street or nominee name, its member brokers must receive +specific instructions from the beneficial owners in order to vote on certain +proposals. However, the NYSE Rules do not require specific instructions in order +for a broker to vote on the election of the Class II director, the amendment of +the Plan and on ratification of the selection of the Company's independent +auditors. If a member broker indicates on the proxy that such broker does not +have discretionary authority as to certain shares to vote on any proposal that +does require specific instructions, those shares will not be considered as +present and entitled to vote with respect to that matter. Pursuant to Delaware +law, a broker non-vote will not be treated as present or voting in person or by +proxy on the proposal. +A stockholder giving a proxy has the power to revoke it at any time before +it is exercised by giving written notice of revocation to the Secretary of the +Company, by executing a subsequent proxy, or by attending the Annual Meeting and +voting in person. Subject to any such revocation, all shares represented by +properly executed proxies will be voted in accordance with the specifications on +the enclosed proxy card. +1 +5 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's By-Laws state that the Board of Directors shall consist of +not less than one nor more than seven members. The specific number of Board +members within this range is established by the Board of Directors and is +currently set at six. The Company's Certificate of Incorporation provides that +the Board shall be classified into three classes of directors, which classes +serve staggered three-year terms. The Board currently consists of one Class I +director, two Class II directors and two Class III directors. There is currently +one vacancy in the Class I directors. The current term of the Class I director +expires at the Annual Meeting of Stockholders to be held in 2003, the current +term of each Class II director expires at the May 23, 2001 Annual Meeting of +Stockholders, and the current term of each Class III director expires at the +Annual Meeting of Stockholders to be held in 2002. The Board of Directors is +proposing Rex A. Licklider, who is now serving as a Class II director, for +re-election as a Class II director at the Annual Meeting. The term for the +directorship of Karl F. Lopker, a current Class II director, expires on May 23, +2001. Mr. Lopker has decided not to run for re-election as a Class II director +in order to focus on his other interests. The Class II director elected at the +Annual Meeting will serve until the Annual Meeting of Stockholders to be held in +2004, until such director's successor has been duly elected and qualified or +until such director has otherwise ceased to serve as a director. To the +Company's knowledge, the nominee is and will be available to serve. The nominee +has supplied the following background information to the Company: +PRINCIPAL OCCUPATION DURING THE LAST 5 YEARS, +OTHER BUSINESS DIRECTOR +NAME AGE EXPERIENCE AND DIRECTORSHIPS SINCE +---- --- --------------------------------------------- -------- +Rex A. Licklider.................. 58 Chairman of the Board and Chief Executive 1993 +Officer of Com Systems, Inc., a long distance +telecommunications company, from 1975 to +February 1992, Chairman of the Board of +Resurgens Communications Group, with whom Com +Systems, Inc. had merged, from February 1992 +to January 1993, Co-CEO of The Sports Club +Company since February 2000 and Vice Chairman +since 1994. Currently, he is a Director of +The Sports Club Company. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" THE ELECTION OF THE ABOVE NOMINEE. +2 +6 +MANAGEMENT +The directors and executive officers of the Company are set forth below. +The following table includes information with respect to each director and +executive officer of the Company. +CLASS OF +NAME AGE POSITION DIRECTOR +---- --- -------- -------- +Douglas B. Otto................... 49 Chairman of the Board and Chief Executive III +Officer +Peter C. Benjamin................. 57 President and Chief Operating Officer +M. Scott Ash...................... 36 Chief Financial Officer and Assistant +Secretary +Patrick C. Devaney................ 46 Senior Vice President and Vice +President-Global Sourcing, Production and +Development +Joseph E. Nida.................... 61 Secretary +Gene E. Burleson.................. 60 Director III +Rex A. Licklider.................. 58 Director II +Karl F. Lopker.................... 49 Director II +John M. Gibbons................... 52 Director I +Douglas B. Otto, co-founder of the Company in 1973, has served as an +executive officer since that time and as Chairman of the Board and Chief +Executive Officer since 1982. He has also served as President from March 1999 +through February 2000 and from 1982 through May 1998, and served as Chief +Financial Officer from June 1990 through December 1992. +Peter C. Benjamin joined the Company in July 1997 to direct the Company's +distribution efforts throughout Japan. He has been President since March 2000, +Chief Operating Officer since March 1999, and served as a Vice President from +March 1999 through March 2000. Mr. Benjamin has been President since 1993 of +Pacific Resources Holding, Inc., an agency for the Japanese outdoor market. +Previously, he was Chief Operating Officer for The North Face, Inc. from March +1992 to March 1993 and was a Vice President of Odyssey USA, Inc., from January +1991 to March 1992. +M. Scott Ash has been Chief Financial Officer since January 1997, Assistant +Secretary since December 1999 and was Secretary from March 1999 to December +1999. Prior to such time, Mr. Ash served as Controller of the Company, beginning +in January 1993. Prior to joining the Company, he was employed by Dole Food +Company, Inc. from August 1992 to January 1993 as Manager of Corporate +Reporting. Previously, he was a Senior Manager at KPMG LLP where he was employed +from September 1986 to August 1992. Mr. Ash is a Certified Public Accountant. +Patrick C. Devaney has been the Company's Senior Vice President since March +2000 and served as Vice President -- Global Sourcing, Production and Development +since November 1997. Prior to joining the Company, Mr. Devaney was employed by +Mizuno USA where he was Director of Global Footwear from February 1990 to June +1997 and was a Global Product/Marketing Manager for Reebok International from +1985 to December 1989. +Joseph E. Nida has been Secretary of the Company since December 1999. Mr. +Nida has been Chairman of the law firm of Nida & Maloney, LLP, the Company's +outside general counsel, since its formation in 1994. Mr. Nida also acts as +Corporate Secretary for two other NASDAQ-NMS companies, QAD Inc. and Miravant +Medical Technologies. He is also a founder and secretary of Santa Barbara +Technology Group, a technology incubator company. +Gene E. Burleson has been a Director of the Company since September 1993. +Mr. Burleson is currently Chairman of Mariner Post-Acute Network, Inc. and a +Director of Alterra Healthcare Corporation and THCG, Inc. From February 1997 to +August 1997, Mr. Burleson was Chief Executive Officer and a Director of Vitalink +Pharmacy Services, Inc., a provider of pharmacy services to nursing facilities. +From October 1989 to February 1997, Mr. Burleson was employed by GranCare, Inc., +a provider of routine and specialty medical care and rehabilitative services, +where he served as Chief Executive Officer and Chairman of the Board. +3 +7 +Rex A. Licklider has been a Director of the Company since September 1993. +From 1975 until February 1992, Mr. Licklider served as Chairman of the Board and +Chief Executive Officer of Com Systems, Inc., a long distance telecommunications +company. From February 1992 to January 1993, Mr. Licklider was Chairman of the +Board of Resurgens Communications Group, with whom Com Systems, Inc. had merged. +He has been Co-CEO of The Sports Club Company since February 2000 and Vice +Chairman since 1994. Mr. Licklider is a founder and Partner of Pentium +Investments, Inc. and a Director of The Sports Club Company. +Karl F. Lopker has been a Director of the Company since May 1995 and was +originally a co-founder of the Company in 1973. Since 1979, Mr. Lopker has been +Chief Executive Officer and a Director of QAD Inc., a developer and marketer of +computer software. +John M. Gibbons has been a Director of the Company since July 2000. Since +June 2000, Mr. Gibbons has been President and Vice Chairman of TMC +Communications, Inc., a long distance, data and internet services provider and +since March 2000 has been Vice Chairman of Assisted Living Concepts, Inc., a +national provider of assisted living services. Previously, Mr. Gibbons was +employed by The Sports Club Company, a developer and operator of health and +fitness clubs, where he was Chief Executive Officer and a member of the board of +directors from June 1999 to February 2000 and was President and Chief Operating +Officer from June 1995 to June 1999. +For information concerning beneficial ownership of Common Stock by +directors and executive officers, see "Security Ownership of Certain Beneficial +Owners and Management" below. +INFORMATION ABOUT THE BOARD OF DIRECTORS AND +COMMITTEES OF THE BOARD OF DIRECTORS +COMMITTEES OF THE BOARD +Audit Committee -- The Board has a standing Audit Committee that reviews +the audit and control functions of the Company, the Company's accounting +principles, policies and practices and financial reporting, the scope of the +audit conducted by the Company's auditors, the fees and all non-audit services +of the independent auditors and the independent auditors' opinion and letter of +comment to management and management's response thereto. The committee met six +times during 2000. At the date of this Proxy Statement. Mr. Licklider was +Chairman of the Audit Committee and the committee was comprised of Messrs. +Burleson, Licklider, Lopker, and Gibbons. +Compensation Committee -- The Board has a Compensation Committee (the +"Compensation Committee") that reviews and recommends to the Board the salaries, +bonuses and prerequisites of the Company's executive officers. The Compensation +Committee also reviews and recommends to the Board any new compensation or +retirement plans and administers the Company's 1993 Plan and the Company's 1995 +Employee Stock Purchase Plan (the "Stock Purchase Plan"). The committee met four +times during 2000. At the date of this Proxy Statement, Mr. Burleson was +Chairman of the Compensation Committee and the committee was comprised of +Messrs. Burleson, Licklider, Lopker, and Gibbons. +DIRECTOR ATTENDANCE +In 2000, the Company held four meetings of the Board of Directors. During +2000, or since the date they became members of the Board of Directors and its +committees, all of the directors attended at least 75% of the aggregate of the +meetings of the Board and of the committees of which they were members, except +that Mr. Licklider attended 71% of the aggregate of the meetings. +DIRECTOR COMPENSATION +Standard Compensation -- Directors who are not employees of the Company or +its subsidiaries ("Nonemployee Directors") receive an annual retainer to be paid +as follows: $11,000 in cash, or, at the option of a Nonemployee Director, +exercised ten days prior to the start of each year, in Common Stock of the +4 +8 +Company at a 20% discount off the price of the shares at the closing price at +the beginning of the year; and 2,000 shares of the Common Stock of the Company +per year. On January 1, 1999 and every three years thereafter, the Board sets +the number of shares for the following three years. For 1999 through 2001, the +Board reaffirmed the terms above, except that the annual 2,000 shares awards per +year for both 1999 and 2000 were issued and fully vested effective January 1, +1999. Additionally, Nonemployee Directors receive $1,500 for each meeting of the +Board and $1,000 for each separately scheduled committee meeting that they +attend plus reimbursement of any expenses they may incur with respect to such +meetings. Committee Chairmen receive additional annual retainer fees of $4,000. +Directors who are employees of the Company or its subsidiaries serve as +directors without compensation. +Stock Options -- Nonemployee Directors receive additional compensation in +the form of stock options granted automatically under the 1993 Plan. Upon their +initial election to the Board of Directors, Nonemployee Directors automatically +receive options to purchase 10,000 shares of Common Stock. Such options vest in +annual one-third installments, with the first such installment vesting on the +first anniversary of the date of grant of such option. In addition, beginning on +the fourth annual meeting of stockholders after a Nonemployee Director is first +elected, such Nonemployee Director will automatically be granted each year +options to purchase 2,000 shares of Common Stock. Such additional options will +be fully vested and exercisable at the time of grant. All options granted to +Nonemployee Directors have an exercise price equal to the fair market value of +the shares on the date they are granted. +In February 2000, an independent committee of the Board of Directors, +consisting solely of Mr. Otto, granted to each of the three Non-employee +Directors at that date an additional option to purchase 20,000 shares of Common +Stock. These options have an exercise price equal to the fair market value of +the shares on the date of grant and vest over a three year period. +5 +9 +COMPENSATION OF EXECUTIVE OFFICERS +The following table sets forth for the years ended December 31, 2000, 1999 +and 1998, the reportable compensation paid or awarded to the Chief Executive +Officer and to each of the four other most highly compensated executive officers +of the Company who were executive officers of the Company at December 31, 2000 +and received compensation in excess of $100,000 in such year (the "Named +Executive Officers"). +SUMMARY COMPENSATION TABLE +LONG-TERM +COMPENSATION +------------- +ANNUAL COMPENSATION SECURITIES +---------------------------------- UNDERLYING +OTHER ANNUAL OPTIONS/SARS ALL OTHER +NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (#) COMPENSATION +--------------------------- ---- ------ ----- ------------ ------------ ------------ +Douglas B. Otto................ 2000 $275,000 $320,000 -- -- $109,000(1) +Chief Executive Officer 1999 275,000 -- -- 25,000 113,000(1) +1998 275,000 -- -- 180,000 116,000(1) +Peter C. Benjamin.............. 2000 180,000 115,000 -- -- -- +President and Chief Operating 1999 160,000 144,000 -- 155,000 13,000(2) +Officer(5) 1998 -- -- -- -- -- +M. Scott Ash................... 2000 135,000 27,000 -- -- -- +Chief Financial Officer 1999 113,000 17,000 -- 25,000 -- +1998 112,000 32,000 -- 35,000 -- +Jean-Luc Derclaye(4)........... 2000 145,000 111,000 -- 40,000 -- +Former Executive Vice 1999 77,000 40,000 -- 80,000 -- +President, Vice 1998 -- -- -- -- -- +President-Brand Development +and Managing +Director-European Operations +Patrick C. Devaney............. 2000 140,000 24,000 -- -- -- +Senior Vice President and 1999 113,000 17,000 -- 25,000 -- +Vice +President-Global Sourcing, 1998 116,000 31,000 -- 45,000 8,000(3) +Production and Development +--------------- +(1) In 1997, the Company entered into a split-dollar life insurance agreement +with a trust established by Douglas B. Otto, pursuant to which the Company +and the trust will share in the premium costs of life insurance policies +that pay cumulative death benefits upon the death of Mr. Otto. The portion +of the premium equal to the value of the economic benefit is paid by the +trust, with the Company paying the remainder of the premiums. The amounts +above, $109,000 in 2000, $113,000 in 1999 and $116,000 in 1998, reflect the +present value of the economic benefit to Mr. Otto of the portion of the +premium paid by the Company in 2000, 1999 and 1998, respectively. Upon +surrender of the policy or payment of the death benefits thereunder, the +Company is entitled to repayment of an amount equal to the cumulative +payments previously paid by the Company. +(2) In connection with Mr. Benjamin's acceptance of the Chief Operating Officer +position in March 1999, the Company reimbursed him for $13,000 of relocation +costs in 1999. +(3) In connection with Mr. Devaney's acceptance of employment, the Company +reimbursed him for $8,000 of relocation costs in 1998. +(4) In January 2001, Mr. Derclaye resigned from his positions as Executive Vice +President, Vice President -- Brand Development and Managing +Director -- European Operations. +(5) Mr. Benjamin became an executive officer of the Company in 1999. +6 +10 +The following table sets forth information with respect to options to +purchase shares of the Company's Common Stock granted in 2000 to the Named +Executive Officers. +STOCK OPTION GRANTS IN 2000 +POTENTIAL REALIZABLE +% OF TOTAL VALUE AT ASSUMED +OPTIONS RATES OF STOCK +GRANTED APPRECIATION FOR +TO EXERCISE OPTION TERM(1) +OPTIONS EMPLOYEES PRICE EXPIRATION --------------------- +NAME GRANTED(#) IN 2000 (PER SHARE) DATE 5% 10% +---- ---------- ---------- ----------- ---------- --------- --------- +Douglas B. Otto................. -- -- $ -- -- $ -- $ -- +Peter C. Benjamin............... -- -- -- -- -- -- +M. Scott Ash.................... -- -- -- -- -- -- +Jean-Luc Derclaye............... 40,000 18.6% 3.50 2-25-2010 88,000 223,000 +Patrick C. Devaney.............. -- -- -- -- -- -- +--------------- +(1) The 5% and 10% assumed rates of appreciation are specified under the rules +of the Securities and Exchange Commission and do not represent the Company's +estimate or projection of the future Common Stock price. +The following table sets forth, for the Named Executive Officers, +information with respect to options exercised, unexercised options and year-end +option values, in each case with respect to options to purchase shares of the +Company's Common Stock. +AGGREGATED OPTION EXERCISES IN 2000 AND +2000 YEAR-END OPTION VALUES +NUMBER OF UNEXERCISED VALUE OF UNEXERCISED +OPTIONS AT IN-THE-MONEY OPTIONS AT +SHARES DECEMBER 31, 2000(#) DECEMBER 31, 2000 +ACQUIRED ON VALUE --------------------------- --------------------------- +NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE +---- ----------- -------- ----------- ------------- ----------- ------------- +Douglas B. Otto.............. -- $ -- 100,000 105,000 $242,470 $289,965 +Peter C. Benjamin............ -- -- 79,500 110,500 248,273 340,148 +M. Scott Ash................. -- -- 53,500 36,500 85,773 96,398 +Jean-Luc Derclaye............ -- -- 40,000 80,000 100,000 185,000 +Patrick C. Devaney........... -- -- 41,500 38,500 85,773 96,398 +EMPLOYMENT AGREEMENTS +Effective January 1992, Douglas B. Otto entered into a five-year employment +agreement with the Company, which was subsequently extended through 2001. For +2001, Mr. Otto's compensation includes a base salary of $345,000, a target bonus +of $175,000 and a maximum bonus of $525,000, based upon the achievement of +certain performance criteria. In the event Mr. Otto's employment agreement is +terminated for any reason, including "For Cause" as defined therein, Mr. Otto +will receive an annual payment of $260,000 and his existing employee benefits +for five years from the date of termination. After any termination of +employment, Mr. Otto may not compete with the Company for one year in the United +States (except in Montana and Wyoming). The Company may not terminate his +employment agreement except "For Cause." +In March 1999, Peter C. Benjamin entered into an employment agreement with +the Company through December 31, 2000, which was subsequently extended through +2002. The agreement provides for a base salary of $260,000 in 2001 and $283,000 +in 2002. The agreement also provides for a target bonus of $135,000 and a +maximum bonus of $405,000 in 2001 and a target bonus of $142,000 and a maximum +bonus of $426,000 in 2002, all based upon the achievement of certain performance +criteria. In the event that termination of employment occurs for reasons other +than: (1) cause, or (2) voluntary termination, he will receive nine months' +severance plus committed incentives. In the event that there is a change of +control and +7 +11 +termination, or constructive termination, Mr. Benjamin will receive eighteen +months of severance, including earned bonuses, plus the acceleration of vesting +of all stock options. +The other officers of the Company do not have employment agreements with +the Company and serve at the pleasure of the Board. +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee (the "Committee") of the Board of Directors, +consisting entirely of directors who have never served as officers or employees +of the Company or any of its subsidiaries, except for Mr. Lopker who was +formerly the President of the Company from 1976 to 1982, determines and +administers the compensation of the Company's executive officers. Set forth +below are the principal factors underlying the Committee's philosophy used in +setting compensation. +Compensation Philosophy -- At the direction of the Board of Directors, the +Committee endeavors to ensure that the compensation programs for executive +officers of the Company and its subsidiaries are competitive and consistent in +order to attract and retain key executives critical to the Company's long-term +success. The Committee believes that the Company's overall financial performance +should be an important factor in the total compensation of executive officers. +At the executive officer level, the Committee has a policy that a significant +proportion of potential total compensation should consist of variable, +performance-based components, such as stock options, stock awards and bonuses, +which can increase or decrease to reflect changes in corporate and individual +performance. These incentive compensation programs are intended to reinforce +management's commitment to enhancement of profitability and stockholder value. +The Committee takes into account various qualitative and quantitative +indicators of corporate and individual performance in determining the level and +composition of compensation for the chief executive officer and other executive +officers. The Committee considers such corporate performance measures as net +sales, net income, earnings per share and similar quantitative measures. The +Committee also appreciates the importance of achievements that may be difficult +to quantify, and accordingly recognizes qualitative factors, such as successful +supervision of major corporate projects, demonstrated leadership ability and +contributions to industry and community development. For 2000, the most +important qualitative factors in determining incentive compensation awards to +executive officers were the Committee's assessments of their contributions to +the Company's stockholder value, sales, net earnings per share, and improvements +and efficiencies in operations. +The Committee also evaluates the total compensation of the Company's chief +executive officer and other executive officers in light of information regarding +the compensation practices and corporate financial performance of similar +companies in the Company's industry. However, the Committee does not target a +specific percentile range within the peer group compensation structure in +determining compensation for executive officers. From time to time, the +Committee also receives assessments and advice regarding the Company's +compensation practices from independent compensation consultants. +Relationship of Performance to Compensation -- Compensation that may be +earned by the executive officers in any fiscal year consists of base salary, +cash bonus and stock options. Salaries are reviewed periodically and adjusted as +warranted to reflect sustained individual performance. The Committee focuses +primarily on total annual compensation, including incentive awards and cash +bonuses, rather than base salary alone, as the appropriate measure of executive +officer performance and contribution. +The executive officers receive incentive compensation awards based on +individual goals and milestones established for each officer at the beginning of +each year and other factors as determined by the Committee. Such officers +receive compensation for the subsequent attainment of these goals. +The 1993 Plan authorizes the Committee to make grants and awards of stock +options, stock appreciation rights, restricted stock and other stock-based +awards. The Committee grants stock options to executive officers, as well as +other employees and consultants of the Company and its subsidiaries below the +executive +8 +12 +officer level. Executive officers are eligible to receive stock option grants, +which the Committee approves from time to time as it deems appropriate. +In approving grants and awards under the 1993 Plan, the quantitative and +qualitative factors and industry comparisons outlined above will be considered. +The number of options previously awarded to and held by executive officers is +reviewed but is not an important factor in determining the size of current +option grants. +To the extent readily determinable and as one of the factors in its +consideration of compensation matters, the Committee considers the anticipated +tax treatment to the Company and to the executives of various payments and +benefits. Some types of compensation payments and their deductibility (e.g., the +spread of exercise of non-qualified options) depend upon the timing of an +executive's vesting or exercise of previously granted rights. Further, +interpretations of and changes in the tax laws and other factors beyond the +Committee's control also affect the deductibility of compensation. +Chief Executive Officer Compensation -- Douglas B. Otto entered into a five +year employment agreement, effective January 1992, and subsequently extended +through 2001. For 2000, his employment agreement provides for an annual salary +of $275,000 and a maximum possible bonus of $500,000, of which $320,000 was +ultimately earned. For 2001, the base salary of Mr. Otto is $345,000, the target +bonus was set at $175,000 and the maximum available bonus was set at $525,000, +based on an assessment and recommendation performed by an independent +compensation consultant. The amounts of Mr. Otto's bonuses are determined by the +Compensation Committee and are based upon a combination of factors including the +sales and operating results of the Company. +For 2000, the Committee based the majority of Mr. Otto's bonus on several +criteria established at the beginning of the year including the Company's stock +price in relation to that of its Peer Group and the Company's ability to achieve +targeted goals for sales, earnings per share and open orders. In 2000, the +Company experienced an increase in its stock price of 100%, achieved record +sales and increased its earnings per share by 131%. Mr. Otto's 2000 bonus was +therefore based upon the Company's ability to achieve these results together +with a general assessment by the Committee of his contributions to the Company. +Mr. Otto was not granted any stock options during fiscal year 2000, although the +Committee may grant options to him in the future. +In December 2000, the Committee established the compensation of the +Company's Chief Executive Officer and its other executive officers for fiscal +year 2001. In each case, the Committee's decision was based upon the principles +and procedures outlined above. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Karl F. Lopker +The Report of the Compensation Committee on Executive Compensation shall +not be deemed incorporated by reference by any general statement incorporating +by reference this proxy statement into any filing under the Securities Act of +1933 or under the Securities Exchange Act of 1934, except to the extent that the +Company specifically incorporates this information by reference, and shall not +otherwise be deemed filed under such acts. +9 +13 +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +As of the date of this Proxy Statement, the members of the Compensation +Committee were Messrs. Burleson, Licklider, Lopker and Gibbons, none of whom was +an officer or employee of the Company or any of its subsidiaries during fiscal +year 2000 or is a former officer or employee of the Company or any of its +subsidiaries, except for Mr. Lopker who was formerly the President of the +Company from 1976 to 1982. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing independent, +objective oversight of the Company's accounting functions and internal controls. +The Audit Committee is currently composed of four directors, each of whom is +independent as defined by the National Association of Securities Dealers' +listing standards. The Audit Committee operates under a written charter approved +by the Board of Directors. A copy of the charter is attached to this Proxy +Statement as Appendix A. +Management is responsible for the Company's internal controls and financial +reporting process. The independent accountants are responsible for performing an +independent audit of the Company's consolidated financial statements in +accordance with generally accepted auditing standards and to issue a report +thereon. The Audit Committee's responsibility is to monitor and oversee these +processes. +In connection with these responsibilities, the Audit Committee met with +management and the independent accountants to review and discuss the December +31, 2000 financial statements. The Audit Committee also discussed with the +independent accountants the matters required by Statement on Auditing Standards +No. 61 (Communication with Audit Committees) which includes, among other items, +information regarding the conduct of the audit of the Company's financial +statements. The Audit Committee also received written disclosures from KPMG LLP +required by Independence Standards Board Standard No. 1 (Independence +Discussions with Audit Committees), and the Audit Committee discussed with KPMG +LLP that firm's independence from the Company and its management. The Audit +Committee has further considered the compatibility of the services provided by +KPMG LLP with that firm's independence. +Based upon the Audit Committee's review and discussions with management and +independent accountants, the Audit Committee recommended that the Board of +Directors include the audited consolidated financial statements in the Company's +Annual Report on Form 10-K for the year ended December 31, 2000, to be filed +with the Securities and Exchange Commission. +THE AUDIT COMMITTEE +Rex A. Licklider, Chairman +Gene E. Burleson +John M. Gibbons +Karl F. Lopker +AUDIT FEES +For the year ended December 31, 2000, an aggregate of $116,000 was billed +by KPMG LLP for the professional services rendered for the audit of the +Company's financial statements for such fiscal year and the reviews of the +financial statements included in the Company's Quarterly Reports on Form 10-Q +during such period. +ALL OTHER FEES +KPMG LLP billed the Company an aggregate of $161,000 for other services +provided to the Company in 2000 consisting primarily of planning and compliance +services for income taxes and customs matters. +10 +14 +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +Set forth below is a line graph comparing the percentage change in the +cumulative total stockholder return on the Company's Common Stock against the +cumulative total return of the Nasdaq Composite Index and a peer group index for +the five-year period commencing December 31, 1995 and ending December 31, 2000. +The data represented below assumes $100 invested in each of the Company's Common +Stock, the Nasdaq Composite Index and the peer group index on December 31, 1995. +The stock performance graph shall not be deemed incorporated by reference by any +general statement incorporating by reference this proxy statement into any +filing under the Securities Act of 1933 or under the Securities Exchange Act of +1934, except to the extent that the Company specifically incorporates this +information by reference, and shall not otherwise be deemed filed under either +of such Acts. +COMPARISON OF TOTAL RETURN (ASSUMING DIVIDEND REINVESTMENT) +DECKERS OUTDOOR +CORPORATION NASDAQ COMPOSITE ATHLETIC SHOE COMPOSITE +--------------- ---------------- ----------------------- +December 31, 1995 100.0 100.0 100.0 +December 31, 1996 119.6 124.3 159.1 +December 31, 1997 130.4 152.0 112.4 +December 31, 1998 38.0 214.4 97.2 +December 31, 1999 45.7 378.1 117.6 +December 31, 2000 91.3 237.7 161.4 +* Athletic Shoe Composite peer group index consisting of Saucony Inc., K-Swiss, +Nike Inc., Reebok International Ltd., Rocky Shoes & Boots, Inc., The Stride +Rite Corporation, The Timberland Company, Vans Inc., Wolverine World Wide +Inc., Fila Holding SPA, and Kenneth Cole Productions. +11 +15 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following security ownership information is set forth, as of February +28, 2001, with respect to certain persons or groups known to the Company to be +beneficial owners of more than 5% of the Company's outstanding Common Stock and +with respect to each director of the Company, each of the Named Executive +Officers, and all current directors, nominees and executive officers as a group +(nine persons). Other than as set forth below, the Company is not aware of any +other person who may be deemed to be a beneficial owner of more than 5% of the +Company's Common Stock. +NAME AND ADDRESS OF AMOUNT AND NATURE OF +BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2),(5) PERCENT OF CLASS +------------------- --------------------------- ---------------- +Douglas B. Otto(3)............................. 3,358,450 36.3% +Peter C. Benjamin.............................. 139,000 1.5% +M. Scott Ash................................... 60,500 * +Jean-Luc Derclaye(8)........................... 272,000 3.0% +Patrick C. Devaney............................. 52,500 * +Gene E. Burleson............................... 105,254 1.2% +Rex A. Licklider(4)............................ 288,155 3.1% +Karl F. Lopker................................. 45,154 * +John M. Gibbons................................ 3,657 * +Dimensional Fund Advisors, Inc.(6)............. 534,500 5.9% +Mark Thatcher(7)............................... 528,473 5.7% +All directors and executive officers as a group +(nine persons)............................... 4,431,270 46.6% +--------------- +(1) The address of each beneficial owner is 495-A South Fairview Avenue, Goleta, +California 93117, unless otherwise noted. +(2) Unless otherwise noted, sole voting and dispositive power are possessed with +respect to all shares of Common Stock owned. +(3) Includes (a) 2,532,750 shares held by the Douglas B. Otto Trust as to which +Mr. Otto has sole voting and investment power, (b) 283,750 shares held as +trustee for the Tiffany Jade Otto Trust, of which Mr. Otto has sole voting +and investment power, (c) 283,750 shares held as trustee for the Ty Dylan +Bard Otto Trust, of which Mr. Otto has sole voting and investment power, (d) +64,200 shares held by the Edgecliff Foundation, a charitable foundation +formed by Mr. Otto, of which Mr. Otto is the Chairman of the Board of +Directors, and (e) 84,000 shares held by Mr. Otto's wife. Mr. Otto disclaims +ownership of the shares held by his wife. +(4) Includes 275,488 shares held by the Licklider Living Trust as to which Mr. +Licklider has joint voting and investment power. +(5) Includes shares under stock options that are presently exercisable or are +exercisable within 60 days for the following: Douglas B. Otto -- 110,000; +Peter C. Benjamin -- 113,500; M. Scott Ash -- 60,500; Jean-Luc +Derclaye -- 56,000; Patrick C. Devaney -- 48,500; Gene E. +Burleson -- 12,667; Rex A. Licklider -- 12,667; Karl F. Lopker -- 10,667; +John M. Gibbons -- 0; and all directors and executive officers as a +group -- 375,601. +(6) This information is based solely on a Schedule 13G filed by Dimensional Fund +Advisors, Inc. on February 2, 2001. The fund's address is 1299 Ocean Ave., +11th Floor, Santa Monica, California 90401. +(7) Includes (a) 428,473 shares and (b) 100,000 stock options that are presently +exercisable, all of which were issued in connection with the Teva License +Agreement dated June 7, 1999. Mr. Thatcher's address is: P.O. Box 968, +Flagstaff, Arizona 86002. +(8) Includes 216,000 shares held by a foreign corporation as to which Mr. +Derclaye has joint voting and investment power. In January 2001, Mr. +Derclaye resigned from his positions as Executive Vice President, Vice +President-Brand Development and Managing Director -- European Operations. +* Percentage of shares beneficially owned does not exceed 1% of the class so +owned. +12 +16 +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") +requires the Company's directors, executive officers and persons who own more +than 10% of the Common Stock (collectively "Section 16 Persons") to file initial +reports of ownership (Forms 3) and reports of changes in ownership of Common +Stock (Forms 4 and Forms 5) with the Securities and Exchange Commission as well +as the Company. +To the Company's knowledge, based solely on a review of the copies of such +reports furnished to the Company and representations from each Section 16 Person +known to the Company that no other reports were required, during the fiscal year +ended December 31, 2000, all Section 16(a) filing requirements applicable to its +Section 16 Persons were complied with except that Rex Licklider filed a Form 4 +on October 31, 2000 which was due on September 10, 2000, reporting the purchase +of 32,792 shares of Common Stock. +13 +17 +PROPOSAL NO. 2 +ADDITIONAL 1,000,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE +UNDER THE 1993 PLAN AND EXTENSION OF THE DURATION OF THE 1993 PLAN +FOR AN ADDITIONAL THREE YEARS +The 1993 Plan was adopted in August 1993 and amended in May 1994 and May +1998. The 1993 Plan is administered by the Compensation Committee, except that +grants to Nonemployee Directors are automatically made pursuant to a +pre-determined formula. The Compensation Committee consists solely of +Nonemployee Directors. The Compensation Committee has broad authority in +administering and interpreting the 1993 Plan. +The purpose of the 1993 Plan is to enable the Company to attract, retain +and motivate employees by providing for or increasing their proprietary +interests in the Company and, in the case of Nonemployee Directors, to attract +such directors and further align their interests with those of the Company's +stockholders by providing for or increasing their proprietary interests in the +Company. Under the 1993 Plan, officers, directors, employees, independent sales +representatives and outside consultants of the Company are eligible to receive +options to purchase Common Stock. As of the date of this Proxy Statement, +approximately 131 employees and 39 independent sales representatives were +eligible. The par value of the Company's Common Stock is $.01 per share, and the +closing price of the Common Stock on the NASDAQ National Market System on March +26, 2001 was $3.91 per share. Under the current provisions of the 1993 Plan no +Award may be made after August 2003, and no shares of Common Stock of the +Company may be issued upon exercise of any Award after August 2013. +The aggregate number of shares which may be issued pursuant to the grant of +Awards under the 1993 Plan is currently 2,000,000, subject to adjustment for +certain circumstances such as a stock exchange, reorganization, +recapitalization, stock split, reverse stock split, stock dividend or other +capital change or adjustment. At the Annual Meeting, the stockholders are being +requested to consider and approve the proposed amendment to the 1993 Plan to (a) +increase the number of shares reserved for issuance thereunder by 1,000,000 +shares to an aggregate of 3,000,000 shares, of which 2,800,000 may be issued +pursuant to incentive stock options and (b) extend the duration of the 1993 Plan +for an additional three years. The Board of Directors approved this amendment, +subject to stockholder approval, in February 2001. +AWARDS TO EMPLOYEES +The 1993 Plan authorizes the Committee to enter into any type of +arrangement with an eligible employee that, by its terms, involves or might +involve the issuance of Common Stock or any other security or benefit with a +value derived from the value of Common Stock. Awards to employees are not +restricted to any specified form or structure and may include, without +limitation, sales or bonuses of stock, restricted stock, stock options, reload +stock options, stock purchase warrants, other rights to acquire stock, +securities convertible into or redeemable for stock, stock appreciation rights, +phantom stock, dividend equivalents, performance units or performance shares +(collectively, "Awards"). An Award to an employee may consist of one such +security or benefit or two or more of them in tandem or in the alternative. +Options granted under the 1993 Plan may be options intended to qualify as +incentive stock options (the "Incentive Stock Options") under Section 422 of the +Internal Revenue Code of 1986, as amended (the "Code"), or options not intended +to so qualify (the "Non-Qualified Stock Options"). +An Award to an employee may permit the employee to pay all or part of the +purchase price of the shares or other property issuable pursuant thereto, and/or +to pay all or part of such employee's tax withholding obligation with respect to +such issuance, by (i) delivering previously owned shares of capital stock of the +Company or other property or (ii) reducing the amount of shares or other +property otherwise issuable pursuant to the award. If an option granted to an +employee permitted the employee to pay for the shares issuable pursuant thereto +with previously owned shares, the employee would be able to exercise the option +in successive transactions, known as pyramiding, to acquire a large number of +shares with no more investment than the original share or shares delivered upon +exercise of the option. The exercise price and any withholding taxes are payable +in cash by Nonemployee Directors, although the Board at its discretion may +permit such +14 +18 +payment by delivery of shares of Common Stock or by delivery of broker +instructions authorizing payment to the Company of proceeds from the sale of +such shares. +Upon the grant of an option under the 1993 Plan, the person receiving the +grant (the "Option Holder") must enter into a written option agreement with the +Company that contains terms, provisions and conditions that are consistent with +the 1993 Plan and have been determined from time to time by the Committee. +Incentive Stock Options granted under the 1993 Plan may not expire later than +ten years after the date of grant, except that an Incentive Stock Option granted +to an individual owning (after the application of the family and other +attribution rules of Section 424(d) of the Code), at the time the option was +granted, more than 10% of the total combined voting power of all classes of +stock of the Company or of any of its subsidiaries (a "10% Stockholder"), may +not expire later than five years from the date the option is granted. The +exercise price for any Incentive Stock Option may not be less than 100% of the +fair market value of Common Stock of the Company on the date the Option is +granted and the exercise price of an Incentive Stock Option granted to a 10% +Stockholder may not be less than 110% of the fair market value of the Common +Stock of the Company on the date such option is granted. The 1993 Plan provides +that the maximum number of shares of Common Stock that may be issued pursuant to +Incentive Stock Options, in the aggregate, is 1,800,000 shares. The Board has +approved an amendment, subject to stockholder approval, to increase the number +of shares which may be issued pursuant to Incentive Stock Options by 1,000,000 +shares to an aggregate of 2,800,000 shares. +An Award granted under the 1993 Plan to an employee may include a provision +terminating the Award upon termination of employment under certain circumstances +or accelerating the receipt of benefits upon the occurrence of specified events, +such as a change of control of the Company or a dissolution, liquidation, +merger, reclassification, sale of substantially all of the property and assets +of the Company or other significant corporate transaction. Options granted to +Nonemployee Directors must be exercised by the fifth anniversary of the date of +grant if the grantee ceases to be a Director of the Company as a result of death +or disability, and the first anniversary after such grantee ceases to be a +Director for any other reason. +AWARDS TO NONEMPLOYEE DIRECTORS +Non-Qualified Stock Options to purchase 10,000 shares of Common Stock are +automatically granted to Nonemployee Directors upon their election to the Board. +Such options will vest in one-third annual installments, with the first +installment vesting on the first anniversary of the date of grant. Non-Qualified +Stock Options to purchase an additional 2,000 shares will be granted each year +commencing with the fourth anniversary of each Nonemployee Director's tenure, +provided such individual continues to serve as a director. Such options will be +fully vested and exercisable at the time of grant. All options granted to +Nonemployee Directors pursuant to the 1993 Plan have a five-year term and an +exercise price equal to the fair market value of the shares on the date of grant +of such option. In addition, each Nonemployee Director receives an Annual +Retainer to be paid as follows: $11,000 in cash, or, at the option of a +Nonemployee Director, in Common Stock of the Company at a 20% discount off the +price of the shares at the closing price at the beginning of the year; and 500 +shares of the Common Stock of the Company per quarter. +FEDERAL INCOME TAX TREATMENT FOR THE 1993 PLAN +The following is a brief description of the federal income tax treatment +that will generally apply to Awards made under the 1993 Plan, based on federal +income tax laws in effect on the date hereof. The exact federal income tax +treatment of Awards will depend on the specific nature of the Award. Such an +Award may, depending on the conditions applicable to the Award, be taxable as an +option, as restricted or unrestricted stock, as a cash payment, or otherwise. +Because the following is only a brief summary of the general federal income tax +rules, recipients of Awards should not rely thereon for individual tax advice, +as each taxpayer's situation and the consequences of any particular transaction +will vary depending upon the specific facts and circumstances involved. EACH +RECIPIENT OF AN AWARD IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR FOR +PARTICULAR FEDERAL, AS WELL AS STATE AND LOCAL, INCOME AND ANY OTHER TAX ADVICE. +15 +19 +Incentive Stock Options +Pursuant to the 1993 Plan, participants who are employees may be granted +Incentive Stock Options. Generally, the optionee is not taxed and the Company is +not entitled to a deduction on the grant or the exercise of an Incentive Stock +Option. However, if the optionee sells the shares acquired upon the exercise of +an Incentive Stock Option (the "Option Shares") at any time within (a) one year +after the date of transfer of shares to the optionee pursuant to the exercise of +such Incentive Stock Option or (b) two years after the date of grant of such +Incentive Stock Option, then (1) such optionee will recognize capital gain in an +amount equal to the excess, if any, of the sales price over the fair market +value of the Option Shares on the date of exercise, (2) such optionee will +recognize ordinary income in an amount equal to the excess, if any, of the +lesser of the sales price or the fair market value of the Option Shares on the +date of exercise, over the exercise price of such Incentive Stock Option, (3) +such optionee will recognize capital loss equal to the excess, if any, of the +exercise price of such Incentive Stock Option over the sales price of the Option +Shares. If the optionee sells the Option Shares at any time after the optionee +has held the Option Shares for at least (a) one year after the date of transfer +of the Option Shares to the optionee pursuant to the exercise of the Incentive +Stock Option and (b) two years after the date of grant of the Incentive Stock +Option, then the optionee will recognize capital gain or loss equal to the +difference between the sales price and the exercise price of such Incentive +Stock Option. +The amount by which the fair market value of Option Shares on the date of +exercise exceeds the exercise price will be included as a positive adjustment in +the calculation of an optionee's "alternative minimum taxable income" ("AMTI") +in the year of exercise. The "alternative minimum tax" imposed on individual +taxpayers is generally equal to the amount by which 28% (26% of AMTI below a +certain amount) of the individual's AMTI (reduced by certain exemption amounts) +exceeds his or her regular income tax liability for the year. A taxpayer's +alternative minimum tax attributable to such excess may be credited against the +taxpayer's regular tax liability in later years to the extent that the regular +tax liability exceeds the alternative minimum tax in any such year. Insiders (as +defined below) should consult their tax advisors concerning the possibility of +making an 83(b) Election (as defined below) upon the exercise of an Award. +Non-Qualified Stock Options +The grant of a Non-Qualified Stock Option is generally not a taxable event +for the optionee. Upon exercise of the option, the optionee will generally +recognize ordinary income in an amount equal to the excess of the fair market +value of the stock acquired upon exercise (determined as of the date of the +exercise) over the exercise price of such option. See, however, "Special Rules +for Awards Granted to Insiders," below. A subsequent sale of the Common Stock +generally will give rise to capital gain or loss equal to the difference between +the sales price and the sum of the exercise price paid for such shares plus the +ordinary income recognized with respect to such shares. If an optionee receives +a Non-Qualified Stock Option having an exercise price that is only a small +fraction of the value of the underlying Common Stock on the date of grant, such +optionee may be required to include the value of the option in taxable income at +the time of grant. +Special Rules for Awards Granted to Insiders +Special rules apply if the recipient of an Award is a director (including a +non-employee director), officer or stockholder subject to Section 16 of the +Exchange Act (an "Insider") and during any period of time a sale of the stock +acquired pursuant to an Award could subject such optionee to suit under Section +16. In such case, the determination of the amount and the timing of income +recognition in connection with the exercise of an option or the receipt of +Common Stock pursuant to other Awards, and the beginning of the holding period +for any Common Stock received, generally may be required to be deferred until +the expiration of any period during which the Insider would be restricted from +disposing of any stock received. An Insider may elect under Section 83(b) of the +Internal Revenue Code, as amended, within 30 days of the exercise date to +recognize ordinary income on the date of exercise (an "83(b) Election"), based +on the value of the Common Stock on that date. Insiders should consult their tax +advisors to determine the tax consequences to them of exercising Options granted +to them pursuant to the 1993 Plan, including the advisability of making the +83(b) Election and the timing and manner of making such an election. +16 +20 +Miscellaneous Tax Issues +The tax consequences of Awards other than Incentive Stock Options and +Non-Qualified Stock Options depend on the specific nature and terms of such +Awards. The Company generally will be required to make arrangements for +withholding applicable taxes with respect to any ordinary income recognized by +an employee in connection with Awards made to such employee under the 1993 Plan. +With certain exceptions, an individual may not deduct investment-related +interest to the extent such interest exceeds the individual's net investment +income for the year. Investment interest generally includes interest paid on +indebtedness incurred to purchase Common Stock. Interest disallowed under this +rule may be carried forward to and deducted in later years, subject to the same +limitations. +Special rules will apply in cases where a recipient of an Award pays the +exercise or purchase price of the Award or applicable withholding tax +obligations under the 1993 Plan by delivering previously owned Common Stock or +by reducing the amount of Common Stock otherwise issuable pursuant to the Award. +The surrender or withholding of such shares will in certain circumstances result +in the recognition of income with respect to such shares. +The terms of the Awards may provide for accelerated vesting or payment in +connection with a change in ownership or control of the Company or its assets. +In that event and depending upon the individual circumstances of the recipient, +certain amounts with respect to such Awards may constitute "excess parachute +payments" under the "golden parachute" provisions of the Code. Pursuant to these +provisions, a recipient will be subject to a 20% excise tax on any "excess +parachute payments" and the Company will be denied any deduction with respect to +such payment. Recipients of Awards should consult their tax advisors as to +whether accelerated vesting of an Award in connection with a change of ownership +or control of the Company or its assets would give rise to an excess parachute +payment. +APPLICATION OF CERTAIN LAWS +The acquisition of shares of Common Stock by directors, certain officers, +or 10% stockholders of the Company could be subject to the provisions of Section +16(b) of the Exchange Act under which a purchase of the Company's Common Stock +within six months before or after any sale of such stock could result in +recovery by the Company of all or a portion of any amount by which the sale +proceeds exceed the purchase price. Such officers, directors and 10% +stockholders are required to file reports of changes in beneficial ownership +under Section 16(a) of the Exchange Act. Rule 16b-3 under the Exchange Act +provides an exemption from Section 16(b) liability for certain transactions +pursuant to employee benefit plans. Officers, directors and 10% stockholders +should consult their counsel with respect to the effect of Section 16 upon their +participation in the 1993 Plan. +Resales of shares received on grants of Awards or purchased on exercise of +Awards by any person who has a control relationship with the Company may be +restricted under the provisions of the Securities Act and the rules and +regulations of the Commission, including Rule 144. +APPROVAL OF AMENDMENT TO 1993 +EMPLOYEE STOCK INCENTIVE PLAN +At the Annual Meeting, the stockholders are being requested to consider and +approve the proposed amendment to the 1993 Plan to (a) increase the number of +shares of Common Stock reserved for issuance thereunder by 1,000,000 shares, +bringing the total number of shares issuable under the 1993 Plan to 3,000,000 +shares, of which 2,800,000 may be issued pursuant to incentive stock options and +(b) to extend the duration of the 1993 Plan for an additional three years. This +amendment will enable the Company to continue its policy of employee stock +ownership as a means to attract and retain highly qualified personnel, to +motivate high levels of performance and to recognize key employee +accomplishments. +17 +21 +VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS +The approval of the amendment to the 1993 Plan requires the affirmative +vote of a majority of the shares represented, in person or by proxy, and voting +at the Annual Meeting (which shares voting affirmatively also constitute at +least a majority of the required quorum). +THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED +THE AMENDMENT TO THE 1993 PLAN AND RECOMMENDS A VOTE "FOR" +THE APPROVAL OF THE AMENDMENT TO THE 1993 PLAN. +18 +22 +PROPOSAL NO. 3 +INDEPENDENT AUDITORS +For the 2000 fiscal year, KPMG LLP provided audit services which included +examination of the Company's annual consolidated financial statements. Upon the +recommendation of the Audit Committee, the Board has selected KPMG LLP to +provide audit services to the Company and its subsidiaries for the fiscal year +ending December 31, 2001. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP will attend the +Annual Meeting to make any statements he or she may desire and to respond to +appropriate stockholder questions. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE +RATIFICATION OF THE ELECTION OF KPMG LLP AS THE +COMPANY'S INDEPENDENT AUDITORS. +DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS +FOR 2002 ANNUAL MEETING +Any proposal relating to a proper subject which an eligible stockholder may +intend to present for action at the Company's 2001 Annual Meeting of +Stockholders and which such stockholder may wish to have included in the proxy +materials for such meeting in accordance with the provisions of Rule 14a-8 +promulgated under the Exchange Act must be received as far in advance of the +meeting as possible in proper form by the Secretary of the Company at 495-A +South Fairview Avenue, Goleta, California 93117 and in any event not later than +December 6, 2001. It is suggested that any such proposal be submitted by +certified mail, return receipt requested. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or +any postponement or adjournment thereof other than the election of directors and +the ratification of the selection of the Company's independent auditors. +However, inasmuch as matters of which management is not now aware may come +before the meeting or any postponement or adjournment thereof, the proxies +confer discretionary authority with respect to acting thereon, and the persons +named in such proxies intend to vote, act and consent in accordance with their +best judgment with respect thereto, provided that, to the extent the Company +becomes aware a reasonable time before the Annual Meeting of any matter to come +before such meeting, the Company will provide an opportunity to vote by proxy +directly on such matter. Upon receipt of such proxies in time for voting, the +shares represented thereby will be voted as indicated thereon and as described +in this Proxy Statement. +19 +23 +MISCELLANEOUS +The solicitation of proxies is made on behalf of the Company and all the +expenses of soliciting proxies from stockholders will be borne by the Company. +In addition to the solicitation of proxies by use of the mails, officers and +regular employees may communicate with stockholders personally or by mail, +telephone, telegram or otherwise for the purpose of soliciting such proxies, but +in such event no additional compensation will be paid to any such persons for +such solicitation. The Company will reimburse banks, brokers and other nominees +for their reasonable out-of-pocket expenses in forwarding soliciting material to +beneficial owners of shares held of record by such persons. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +Goleta, California +April 6, 2001 +20 +24 +APPENDIX A +DECKERS OUTDOOR CORPORATION +CHARTER +OF THE AUDIT COMMITTEE +OF THE BOARD OF DIRECTORS +I. AUDIT COMMITTEE PURPOSE +The Audit Committee is appointed by the Board of Directors to assist the +Board in fulfilling its oversight responsibilities. The Audit Committee's +primary duties and responsibilities are to: +- Monitor the integrity of the Company's financial reporting process and +systems of internal controls regarding finance, accounting and legal +compliance. +- Monitor the independence and performance of the Company's independent +auditors. +- Provide an avenue of communication among the independent auditors, +management and the Board of Directors. +The Audit Committee has the authority to conduct investigations appropriate +to fulfilling its responsibilities, and it has direct access to the independent +auditors as well as personnel of the Company. The Audit Committee has the +authority to retain, at the Company's expense, special legal, accounting or +other consultants or experts it deems necessary to carry out its duties and +responsibilities. +II. AUDIT COMMITTEE COMPOSITION AND MEETINGS +Audit Committee members shall meet the requirements of the Nasdaq Stock +Exchange, including Nasdaq Marketplace Rule 4460(d). The Audit Committee shall +be comprised of three or more directors as determined by the Board, each of whom +shall be independent nonexecutive directors. All members of the Audit Committee +shall have a basic understanding of finance and accounting, as evidenced by +their ability to read and understand fundamental financial statements, and at +least one member of the Audit Committee shall have accounting or related +financial management expertise. Financial management expertise shall mean past +employment experience in finance or accounting, requisite professional +certification in accounting, or any other comparable experience or background +which results in the individual's financial sophistication, including being or +having been a chief executive officer, chief financial officer, or other senior +officer with financial oversight responsibilities. +Audit Committee members shall be appointed by the Board. If an Audit +Committee Chair is not designated or present, the members of the Audit Committee +may designate a Chair by majority vote of the Audit Committee membership. +The Audit Committee shall meet at least four times annually, or more +frequently as circumstances dictate. The Audit Committee Chair shall prepare +and/or approve an agenda in advance of each meeting. The Audit Committee should +meet privately in executive session at least annually with management, the +independent auditors, and as a committee to discuss any matters that the Audit +Committee or each of these groups believe should be discussed. In addition, the +Audit Committee, through any of its members, should communicate with management +and the independent auditors quarterly to review the Company's financial +statements and significant findings based upon the auditors' limited review +procedures. +III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES +REVIEW PROCEDURES +1. Review and reassess the adequacy of this Charter at least annually. +Submit the Charter to the Board of Directors for approval and have the document +published at least every three (3) years in accordance with Securities and +Exchange Commission ("SEC") regulations. +A-1 +25 +2. Review the Company's annual audited financial statements prior to filing +or distribution. Review should include discussion with management and +independent auditors of significant issues regarding accounting principles, +practices and judgments. +3. In consultation with management and the independent auditors, consider +the integrity of the Company's financial reporting processes and controls. +Discuss significant financial risk exposures and the steps management has taken +to monitor, control and report such expenses. Review significant findings +prepared by the independent auditors together with management's responses. +4. Review with financial management and the independent auditors the +Company's quarterly financial results prior to the release of earnings and/or +the Company's quarterly financial statements prior to filing or distribution. +Discuss any significant changes to the Company's accounting principles and any +items the independent auditors are required to communicate in accordance with +SAS 61 (see item 9). The Chair of the Audit Committee may represent the entire +Audit Committee for purposes of this review. +INDEPENDENT AUDITORS +5. Review the independence and performance of the auditors and annually +recommend to the Board of Directors the appointment of the independent auditors +or approve any discharge of auditors when circumstances warrant. +6. Approve the fees and other significant compensation to be paid to the +independent auditors. +7. Review and discuss with the independent auditors all significant +relationships they have with the Company that could impair the auditors' +independence. +8. Review the independent auditors' audit plan, and discuss scope, +staffing, locations, reliance upon management and general audit approach. +9. Prior to releasing the year-end earnings, discuss the results of the +audit with the independent auditors. When appropriate, discuss certain matters +required to be communicated to Audit Committees in accordance with AICPA SAS 61. +10. Consider the independent auditors' judgments about the quality and +appropriateness of the Company's accounting principles as applied in its +financial reporting. +LEGAL COMPLIANCE +11. When deemed appropriate in the discretion of the Audit Committee, or at +least annually, review with the Company's counsel (1) any legal matters that +could have a significant impact on the organization's financial statements, (2) +the Company's compliance with applicable laws and regulations, and (3) inquiries +received from regulators or governmental agencies. +OTHER AUDIT COMMITTEE RESPONSIBILITIES +12. Annually prepare a report to shareholders as required by the SEC. The +report should be included in the Company's annual proxy statement. +13. Perform any other activities consistent with this Charter, the +Company's Bylaws and governing law, as the Audit Committee or the Board deems +necessary or appropriate. +14. Maintain minutes of meetings and periodically report to the Board of +Directors on significant results of the foregoing activities. +A-2 +26 +Please mark +your votes as +indicated in +this example. [x] +WITHHOLD +FOR AUTHORITY +THE NOMINEE TO VOTE FOR THE +LISTED BELOW NOMINEE LISTED BELOW FOR AGAINST ABSTAIN +1. ELECTION OF CLASS II DIRECTOR: 2. To approve an amend- +Instruction: To withhold authority to [ ] [ ] ment to the Company's [ ] [ ] [ ] +vote for a nominee listed below, 1993 Employee Stock +strike a line through the nominee's Incentive Plan, as amended, +name. (the "Plan"), to (a) increase the number of +shares reserved for issuance thereunder +Nominee: Rex A. Licklider by 1,000,000 shares and (b) extend the +duration of the Plan for an additional +three years. +FOR AGAINST ABSTAIN +3. TO RATIFY THE SELECTION OF [ ] [ ] [ ] 4. In their discretion, the Proxies are +KPMG LLP AS THE COMPANY'S authorized to vote upon such other +INDEPENDENT AUDITORS. business as may properly come before +such meeting or any and all postponements +or adjournments thereof. +YES NO +Do You Plan to Attend the Meeting? [ ] [ ] +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY +USING THE ENCLOSED ENVELOPE. This proxy when properly executed will be voted +in the manner directed herein by the +undersigned stockholder. If no direction is +made, the Proxies will vote for the nominee +listed above, for the approval of the +amendment to the 1993 Employee Stock +Incentive Plan, for the ratification of +the selection of KPMG LLP as the Company's +independent auditors and in their discretion +on matters described in Item 4. +____ +| +| +Signature(s) _____________________________________________________________________________ Dated ___________________________2001 +Please sign exactly as name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, +executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign the full corporate +name by the President or other authorized officer. If a partnership, please sign in partnership name by authorized person. +------------------------------------------------------------------------------------------------------------------------------------ +FOLD AND DETACH HERE +27 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on Behalf of the Board of Directors of Deckers Outdoor +Corporation. The undersigned hereby appoints Douglas B. Otto and M. Scott Ash, +and each of them, as Proxies, each with the power to appoint his substitute, and +hereby authorizes each of them to represent and to vote as designated below, +all the shares of common stock of Deckers Outdoor Corporation held of record by +the undersigned on March 26, 2001, at the Annual Meeting of Shareholders to be +held on May 23, 2001 and any postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE. +-------------------------------------------------------------------------------- +FOLD AND DETACH HERE \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-02-000971/proxy.txt b/raw/proxies/0000910521/0000950148-02-000971/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..e271def7d9652dd8bce7e1e033c27c99af19ecb3 --- /dev/null +++ b/raw/proxies/0000910521/0000950148-02-000971/proxy.txt @@ -0,0 +1,1309 @@ +DEF 14A +1 +v79717def14a.htm +DEFINITIVE PROXY STATEMENT +Deckers Outdoor Corp. Definitive Proxy Statement +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[X] +Definitive Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +DECKERS OUTDOOR CORPORATION +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] +No +fee required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +DECKERS OUTDOOR CORPORATION +April 11, 2002 +Dear Stockholder: +We cordially invite you to attend our 2002 Annual Meeting of +Stockholders to be held at 5:00 p.m. on Monday, +May 20, 2002 at Deckers Outdoor Corporation, 495-A South +Fairview Avenue, Goleta, California 93117. Enclosed are the +Notice of Annual Meeting, Proxy Statement and a Proxy Card +relating to the Annual Meeting which we urge you to read +carefully. Also enclosed is the Company’s 2001 Annual +Report to Stockholders on Form 10-K. Whether or not you +expect to attend the Annual Meeting, please sign and date the +enclosed Proxy Card and return it as promptly as possible to +ensure that your shares will be voted. Properly executed Proxy +Cards received by the Company prior to the Annual Meeting will +be voted in accordance with the instructions indicated in such +cards. Because mail delays occur frequently, it is important +that the enclosed Proxy Card be returned well in advance of the +meeting. +ON BEHALF OF YOUR +BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be held May 20, 2002 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of Stockholders +(the “Annual Meeting”) of Deckers Outdoor Corporation, +a Delaware corporation (the “Company”), will be held +at Deckers Outdoor Corporation, 495-A South Fairview Avenue, +Goleta, California 93117, on Monday, May 20, 2002, +beginning at 5:00 p.m., local time. The Annual Meeting will +be held for the following purposes: +1. To elect two (2) directors of the Company to serve as +Class III directors until the Annual Meeting of +Stockholders to be held in 2005. +2. To ratify the selection of KPMG LLP as the +Company’s independent auditors. +3. To transact such other business as may properly come +before the meeting or any postponements or adjournments thereof. +The Board of Directors has fixed March 22, 2002 as the +record date for the determination of stockholders entitled to +notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof, and only stockholders of +record at the close of business on that date are entitled to +such notice and to vote at the Annual Meeting. +A list of stockholders entitled to vote at the Annual Meeting +will be available at the offices of the Company for ten (10) +days prior to the Annual Meeting. +We hope that you will use this opportunity to take an active +part in the affairs of the Company by voting on the business to +come before the Annual Meeting either by executing and returning +the enclosed Proxy Card or by casting your vote in person at the +Annual Meeting. +STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON ARE +REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY +AS POSSIBLE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR +CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD +BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR +ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +Goleta, California +April 11, 2002 +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +To be Held May 20, 2002 +PROXY STATEMENT +This Proxy Statement is furnished in connection with the +solicitation of proxies by the Board of Directors of Deckers +Outdoor Corporation, a Delaware corporation (the +“Company”), for use at the Annual Meeting of +Stockholders (the “Annual Meeting”) to be held at +5:00 p.m., local time, on May 20, 2002, at Deckers +Outdoor Corporation, 495-A South Fairview Avenue, Goleta, +California 93117, and any postponements or adjournments thereof +for the purposes set forth in the accompanying Notice of Annual +Meeting. This Proxy Statement and the accompanying Form of Proxy +were first mailed to stockholders on or about April 11, +2002. +RECORD DATE AND VOTING +March 22, 2002 has been fixed as the record date (the +“Record Date”) for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting, and any +postponements or adjournments thereof. As of March 22, +2002, there were outstanding 9,356,897 shares of the +Company’s common stock, par value $.01 per share (the +“Common Stock”). No shares of the Company’s +preferred stock, par value $.01 per share, were outstanding as +of that date. A majority of the shares of Common Stock entitled +to vote, present in person or represented by proxy, will +constitute a quorum at the meeting. +Each share of Common Stock issued and outstanding on the Record +Date is entitled to one vote on any matter presented for +consideration and action by the stockholders at the Annual +Meeting. With respect to all matters, other than the election of +the directors, the affirmative vote of a majority of shares of +the Company’s Common Stock present in person or represented +by proxy at the meeting and entitled to vote on the subject +matter will be the act of the stockholders. Directors will be +elected by a plurality of the votes of the shares of the +Company’s Common Stock present in person or represented by +proxy and entitled to vote on the election of directors. +Abstentions will be treated as the equivalent of a negative vote +for the purpose of determining whether a director has been +elected. Unless otherwise instructed, proxies solicited by the +Company will be voted “FOR” the nominees named herein +for election as directors, “FOR” the ratification of +the selection of KPMG LLP as the Company’s independent +auditors, and in their discretion upon such other business as +may properly come before such meeting or any and all +postponements or adjournments thereof. +With respect to brokers who are members of the New York Stock +Exchange, the New York Stock Exchange Rules (“NYSE +Rules”) generally require that when shares are registered +in street or nominee name, its member brokers must receive +specific instructions from the beneficial owners in order to +vote on certain proposals. However, the NYSE Rules do not +require specific instructions in order for a broker to vote on +the election of the Class III directors and on ratification +of the selection of the Company’s independent auditors. If +a member broker indicates on the proxy that such broker does not +have discretionary authority as to certain shares to vote on any +proposal that does require specific instructions, those shares +will not be considered as present and entitled to vote with +respect to that matter. Pursuant to Delaware law, a broker +non-vote will not be treated as present or voting in person or +by proxy on the proposal. +A stockholder giving a proxy has the power to revoke it at any +time before it is exercised by giving written notice of +revocation to the Secretary of the Company, by executing a +subsequent proxy, or by attending the Annual Meeting and voting +in person. Subject to any such revocation, all shares +represented by properly executed proxies will be voted in +accordance with the specifications on the enclosed proxy card. +1 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s By-Laws state that the Board of Directors +shall consist of not less than one nor more than seven members. +The specific number of Board members within this range is +established by the Board of Directors and is currently set at +six. There are currently four Board members and two vacancies. +The Company’s Certificate of Incorporation provides that +the Board shall be classified into three classes of directors, +which classes serve staggered three-year terms. The Board +currently consists of one Class I director, one +Class II director and two Class III directors. There +is currently one vacancy in the Class I directors and one +vacancy in the Class II directors. The current term of the +Class I director expires at the Annual Meeting of +Stockholders to be held in 2003, the current term of the +Class II director expires at the Annual Meeting of +Stockholders to be held in 2004, and the current term of each +Class III director expires at the May 20, 2002 Annual +Meeting of Stockholders. The Board of Directors is proposing +Douglas B. Otto and Gene E. Burleson, who are now serving as +Class III directors, for re-election as Class III +directors at the Annual Meeting. Each of the Class III +directors elected at the Annual Meeting will serve until the +Annual Meeting of Stockholders to be held in 2005, until such +director’s successor has been duly elected and qualified or +until such director has otherwise ceased to serve as a director. +To the Company’s knowledge, each nominee is and will be +available to serve. The nominees have supplied the following +background information to the Company: +Principal Occupation During the Last 5 Years, +Other Business +Director +Name +Age +Experience and Directorships +Since +Douglas B. Otto +50 +Co-founder of the Company in 1973 and an +executive officer of the Company since that time, Chairman of +the Board and Chief Executive Officer of the Company since 1982, +President from March 1999 through February 2000 and from 1982 +through May 1998, and Chief Financial Officer from June 1990 +through December 1992. +1982 +Gene E. Burleson +61 +Chairman of the Board of Mariner Post-Acute +Network, Inc., a provider of post-acute health care services, +since January 2000, Chief Executive Officer and a Director of +Vitalink Pharmacy Services, Inc. a provider of pharmacy services +to nursing facilities, from February 1997 to August 1997, Chief +Executive Officer and a Director of GranCare, Inc., a provider +of routine and specialty medical care and rehabilitative +services, from December 1990 to February 1997 and Chairman of +the Board of GranCare, Inc. from January 1994 to November 1997. +He is currently also a director of Alterra Healthcare +Corporation and THCG, Inc. +1993 +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” THE ELECTION OF THE ABOVE NOMINEES. +2 +MANAGEMENT +The directors and executive officers of the Company are set +forth below. The following table includes information with +respect to each director and executive officer of the Company. +Class of +Name +Age +Position +Director +Douglas B. Otto +50 +Chairman of the Board and Chief Executive Officer +III +Peter C. Benjamin +58 +President and Chief Operating Officer +M. Scott Ash +37 +Chief Financial Officer and Assistant Secretary +Patrick C. Devaney +47 +Senior Vice President and Vice +President–Global Sourcing, Production and Development +Joseph E. Nida +62 +Secretary +Gene E. Burleson +61 +Director +III +Rex A. Licklider +59 +Director +II +John M. Gibbons +53 +Director +I +Douglas B. Otto, co-founder of the Company in 1973, has +served as an executive officer since that time and as Chairman +of the Board and Chief Executive Officer since 1982. He has also +served as President from March 1999 through February 2000 and +from 1982 through May 1998, and served as Chief Financial +Officer from June 1990 through December 1992. +Peter C. Benjamin joined the Company in July 1997 to +direct the Company’s distribution efforts throughout Japan. +He has been President since March 2000, Chief Operating Officer +since March 1999, and served as a Vice President from March 1999 +through March 2000. Mr. Benjamin has been President since +1993 of Pacific Resources Holding, Inc., an agency for the +Japanese outdoor market. Previously, he was Chief Operating +Officer for The North Face, Inc. from March 1992 to March 1993 +and was a Vice President of Odyssey USA, Inc., from January 1991 +to March 1992. +M. Scott Ash has been Chief Financial Officer since +January 1997, Assistant Secretary since December 1999 and was +Secretary from March 1999 to December 1999. Prior to such time, +Mr. Ash served as Controller of the Company, beginning in +January 1993. Prior to joining the Company, he was employed by +Dole Food Company, Inc. from August 1992 to January 1993 as +Manager of Corporate Reporting. Previously, he was a Senior +Manager at KPMG LLP where he was employed from September 1986 to +August 1992. Mr. Ash is a Certified Public Accountant. +Patrick C. Devaney has been the Company’s Senior +Vice President since March 2000 and served as Vice +President — Global Sourcing, Production and +Development since November 1997. Prior to joining the Company, +Mr. Devaney was employed by Mizuno USA where he was +Director of Global Footwear from February 1990 to June 1997 and +was a Global Product/ Marketing Manager for Reebok International +from 1985 to December 1989. +Joseph E. Nida has been Secretary of the Company since +December 1999. Mr. Nida has been a partner in the law firm +of Sheppard, Mullin, Richter & Hampton, LLP +(“SMRH”), the Company’s outside general counsel, +since SMRH acquired Nida & Maloney LLP in September +2001. Previously, Mr. Nida was Chairman of the law firm of +Nida & Maloney, LLP since its formation in 1994. +Mr. Nida also acts as Corporate Secretary for another +NASDAQ-NMS company, Miravant Medical Technologies. He is also a +founder and secretary of Santa Barbara Technology Group, a +technology incubator company. +Gene E. Burleson has been a Director of the Company since +September 1993. Mr. Burleson has been Chairman of Mariner +Post-Acute Network, Inc. since January 2000 and is a Director of +Alterra Healthcare Corporation and THCG, Inc. From February 1997 +to August 1997, Mr. Burleson was Chief Executive Officer and a +Director of Vitalink Pharmacy Services, Inc., a provider of +pharmacy services to nursing facilities. From October 1989 to +February 1997, Mr. Burleson was employed by GranCare, Inc., +a provider of routine and specialty medical care and +rehabilitative services, where he served as Chief Executive +Officer and Chairman of the Board. +3 +Rex A. Licklider has been a Director of the Company since +September 1993. From 1975 until February 1992, +Mr. Licklider served as Chairman of the Board and Chief +Executive Officer of Com Systems, Inc., a long distance +telecommunications company. From February 1992 to January 1993, +Mr. Licklider was Chairman of the Board of Resurgens +Communications Group, with whom Com Systems, Inc. had merged. He +has been Co-CEO of The Sports Club Company since February 2000 +and Vice Chairman since 1994. Mr. Licklider is a founder +and Partner of Pentium Investments, Inc. and a Director of The +Sports Club Company. +John M. Gibbons has been a Director of the Company since +July 2000. Since June 2000, Mr. Gibbons has been Vice +Chairman of TMC Communications, Inc., a long distance, data and +internet services provider and has been its Chief Executive +Officer since August 2001. From June 2000 to August 2001 he was +President of TMC Communications, Inc. Mr. Gibbons was Vice +Chairman of Assisted Living Concepts, Inc., a national provider +of assisted living services from March 2000 to December 2001. +Previously, Mr. Gibbons was employed by The Sports Club +Company, a developer and operator of health and fitness clubs, +where he was Chief Executive Officer and a member of the board +of directors from June 1999 to February 2000 and was President +and Chief Operating Officer from June 1995 to June 1999. +For information concerning beneficial ownership of Common Stock +by directors and executive officers, see “Security +Ownership of Certain Beneficial Owners and Management” +below. +CERTAIN RELATIONSHIPS +Joseph E. Nida is a partner in the law firm of Sheppard, Mullin, +Richter & Hampton LLP, the Company’s general +counsel, and was Chairman of the law firm of Nida & +Maloney LLP prior to its acquisition by Sheppard, Mullin, +Richter & Hampton LLP in September 2001. The Company +paid these firms an aggregate of approximately $72,000 for legal +services rendered during 2001. +INFORMATION ABOUT THE BOARD OF DIRECTORS AND +COMMITTEES OF THE BOARD OF DIRECTORS +Committees of the Board +The Company has an Audit Committee and a Compensation Committee. +The Company does not have a nominating committee or a committee +performing the functions of such committee. +Audit Committee — The Board has a standing +Audit Committee that reviews the audit and control functions of +the Company, the Company’s accounting principles, policies +and practices and financial reporting, the scope of the audit +conducted by the Company’s auditors, the fees and all +non-audit services of the independent auditors and the +independent auditors’ opinion and letter of comment to +management and management’s response thereto. The committee +met eight times during 2001. At the date of this Proxy +Statement, Mr. Gibbons was Chairman of the Audit Committee +and the committee was comprised of Messrs. Burleson, +Licklider, and Gibbons. +Compensation Committee — The Board’s +Compensation Committee (the “Compensation Committee”) +reviews and recommends to the Board the salaries, bonuses and +prerequisites of the Company’s executive officers. The +Compensation Committee also reviews and recommends to the Board +any new compensation or retirement plans and administers the +Company’s 1993 Employee Stock Incentive Plan (the +“1993 Plan”) and the Company’s 1995 Employee +Stock Purchase Plan (the “Stock Purchase Plan”). The +committee met four times during 2001. At the date of this Proxy +Statement, Mr. Burleson was Chairman of the Compensation +Committee and the committee was comprised of +Messrs. Burleson, Licklider, and Gibbons. +Director Attendance +In 2001, the Company held six meetings of the Board of +Directors. During 2001, all of the directors attended at least +75% of the aggregate of the meetings of the Board and of the +committees of which they were +4 +members, except that Mr. Karl F. Lopker, who is no longer a +member of the Board of Directors, attended 40% of the aggregate +of the meetings prior to the expiration of his term on the Board. +Director Compensation +Standard Compensation — Directors who are not +employees of the Company or its subsidiaries (“Nonemployee +Directors”) receive an annual retainer to be paid as +follows: $11,000 in cash, or, at the option of a Nonemployee +Director, exercised ten days prior to the start of each year, in +Common Stock of the Company at a 20% discount off the price of +the shares at the closing price at the beginning of the year; +and 2,000 shares of the Common Stock of the Company per year. On +January 1, 1999 and every three years thereafter, the Board +sets the number of shares for the following three years. For +2002 through 2004, the Board reaffirmed the terms above. +Additionally, Nonemployee Directors receive $1,500 for each +meeting of the Board and $1,000 for each separately scheduled +committee meeting that they attend plus reimbursement of any +expenses they may incur with respect to such meetings. Committee +Chairmen receive additional annual retainer fees of $4,000. +Directors who are employees of the Company or its subsidiaries +serve as directors without compensation. +Stock Options — Nonemployee Directors receive +additional compensation in the form of stock options granted +automatically under the 1993 Plan. Upon their initial election +to the Board of Directors, Nonemployee Directors automatically +receive options to purchase 10,000 shares of Common Stock. Such +options vest in annual one-third installments, with the first +such installment vesting on the first anniversary of the date of +grant of such option. In addition, beginning on the fourth +annual meeting of stockholders after a Nonemployee Director is +first elected, such Nonemployee Director will automatically be +granted each year options to purchase 2,000 shares of Common +Stock. Such additional options will be fully vested and +exercisable at the time of grant. All options granted to +Nonemployee Directors have an exercise price equal to the fair +market value of the shares on the date they are granted. +5 +COMPENSATION OF EXECUTIVE OFFICERS +The following table sets forth for the years ended +December 31, 2001, 2000 and 1999, the reportable +compensation paid or awarded to the Chief Executive Officer and +to the only other executive officers of the Company who were +executive officers of the Company at December 31, 2001 and +received compensation in excess of $100,000 in such year (the +“Named Executive Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Securities +Underlying +Other Annual +Options/SARs +All Other +Name and principal position +Year +Salary +Bonus +Compensation +(#) +Compensation +Douglas B. Otto +2001 +$ +345,000 +$ +18,000 +— +100,000 +$ +104,000 +(1) +Chief Executive Officer +2000 +275,000 +320,000 +— +— +109,000 +(1) +1999 +275,000 +— +— +25,000 +113,000 +(1) +Peter C. Benjamin +2001 +260,000 +14,000 +— +80,000 +— +President and Chief Operating +2000 +180,000 +115,000 +— +— +— +Officer +1999 +160,000 +144,000 +— +155,000 +13,000 +(2) +M. Scott Ash +2001 +146,000 +14,000 +— +50,000 +— +Chief Financial Officer +2000 +135,000 +27,000 +— +— +— +1999 +113,000 +17,000 +— +25,000 +— +Patrick C. Devaney +2001 +157,000 +14,000 +— +50,000 +— +Senior Vice President and Vice +2000 +140,000 +24,000 +— +— +— +President–Global Sourcing, +1999 +113,000 +17,000 +— +25,000 +— +Production and Development +(1) +In 1997, the Company entered into a split-dollar life insurance +agreement with a trust established by Douglas B. Otto, +pursuant to which the Company and the trust will share in the +premium costs of life insurance policies that pay cumulative +death benefits upon the death of Mr. Otto. The portion of +the premium equal to the value of the economic benefit is paid +by the trust, with the Company paying the remainder of the +premiums. The amounts above, $104,000 in 2001, $109,000 in 2000 +and $113,000 in 1999, reflect the present value of the economic +benefit to Mr. Otto of the portion of the premium paid by +the Company in 2001, 2000, and 1999, respectively. Upon +surrender of the policy or payment of the death benefits +thereunder, the Company is entitled to repayment of an amount +equal to the cumulative payments previously paid by the Company. +(2) +In connection with Mr. Benjamin’s acceptance of the +Chief Operating Officer position in March 1999, the Company +reimbursed him for $13,000 of relocation costs in 1999. +6 +The following table sets forth information with respect to +options to purchase shares of the Company’s Common Stock +granted in 2001 to the Named Executive Officers. +Stock Option Grants in 2001 +Potential Realizable +% of Total +Value at Assumed +Options +Rates of Stock +Granted +Appreciation for +to +Exercise +Option Term(1) +Options +Employees +Price +Expiration +Name +Granted(#) +in 2001 +(per share) +Date +5% +10% +Douglas B. Otto +50,000 +9.5 +% +$ +4.03 +1/25/2011 +$ +127,000 +$ +321,000 +50,000 +9.5 +% +3.60 +12/10/2011 +113,000 +287,000 +Peter Benjamin +40,000 +7.6 +% +4.03 +1/25/2011 +101,000 +257,000 +40,000 +7.6 +% +3.60 +12/10/2011 +91,000 +229,000 +Scott Ash +25,000 +4.8 +% +4.03 +1/25/2011 +63,000 +161,000 +25,000 +4.8 +% +3.60 +12/10/2011 +57,000 +143,000 +Pat Devaney +25,000 +4.8 +% +4.03 +1/25/2011 +63,000 +161,000 +25,000 +4.8 +% +3.60 +12/10/2011 +57,000 +143,000 +(1) +The 5% and 10% assumed rates of appreciation are specified under +the rules of the Securities and Exchange Commission and do not +represent the Company’s estimate or projection of the +future Common Stock price. +The following table sets forth, for the Named Executive +Officers, information with respect to options exercised, +unexercised options and year-end option values, in each case +with respect to options to purchase shares of the Company’s +Common Stock. +Aggregated Option Exercises in 2001 and +2001 Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options at +Shares +December 31, 2001(#) +December 31, 2001 +Acquired on +Value +Name +Exercise(#) +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas B. Otto +— +$ +— +170,000 +135,000 +$ +281,000 +$ +140,000 +Peter C. Benjamin +37,500 +81,000 +99,500 +133,000 +175,000 +168,000 +M. Scott Ash +— +— +83,000 +57,000 +96,000 +47,000 +Patrick C. Devaney +— +— +71,000 +59,000 +96,000 +47,000 +Employment Agreements +Effective January 1992, Douglas B. Otto entered into an +employment agreement with the Company, which was subsequently +extended through 2004. For 2002, Mr. Otto’s compensation +includes a base salary of $345,000 and a target bonus of +$207,000, based upon the achievement of certain performance +criteria. In the event that performance targets are surpassed, +the bonus earned can exceed the target bonus amount. The +Compensation Committee will adjust the base salary and +re-establish a target bonus amount annually beginning in 2003. +If Mr. Otto’s employment agreement is terminated for +any reason, including “For Cause” as defined therein, +Mr. Otto will receive an annual payment of $345,000, +adjusted annually for any increase in the Consumer Price Index, +plus his existing employee benefits for three years from the +date of termination. After any termination of employment, +Mr. Otto may not compete with the Company for one year in +the United States (except in Montana and Wyoming). The Company +may not terminate his employment agreement except “For +Cause.” +In March 1999, Peter C. Benjamin entered into an employment +agreement with the Company through December 31, 2000, which +was subsequently extended through 2002. The agreement provides +for a base salary of $260,000 in 2001 and $283,000 in 2002. The +agreement also provides for a target bonus of $135,000 in 2001 +7 +and a target bonus of $142,000 in 2002, all based upon the +achievement of certain performance criteria. In the event that +performance targets are surpassed, the bonus earned can exceed +the target bonus. In the event that termination of employment +occurs for reasons other than: (1) cause, or +(2) voluntary termination, he will receive +nine months’ severance plus committed incentives. In +the event that there is a change of control and termination, or +constructive termination, Mr. Benjamin will receive +eighteen months of severance, including earned bonuses, +plus the acceleration of vesting of all stock options. +The other officers of the Company do not have employment +agreements with the Company and serve at the pleasure of the +Board. +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee (the “Committee”) of the +Board of Directors, consists entirely of directors who have +never served as officers or employees of the Company or any of +its subsidiaries, except that Mr. Lopker, who was a member +of the Compensation Committee until May 2001 when his term as a +Board member expired, was formerly the President of the Company +from 1976 to 1982. The Committee determines and administers the +compensation of the Company’s executive officers. Set forth +below are the principal factors underlying the Committee’s +philosophy used in setting compensation. +Compensation Philosophy — At the direction of +the Board of Directors, the Committee endeavors to ensure that +the compensation programs for executive officers of the Company +and its subsidiaries are competitive and consistent in order to +attract and retain key executives critical to the Company’s +long-term success. The Committee believes that the +Company’s overall financial performance should be an +important factor in the total compensation of executive +officers. At the executive officer level, the Committee has a +policy that a significant proportion of potential total +compensation should consist of variable, performance-based +components, such as stock options, stock awards and bonuses, +which can increase or decrease to reflect changes in corporate +and individual performance. These incentive compensation +programs are intended to reinforce management’s commitment +to enhancement of profitability and stockholder value. +The Committee takes into account various qualitative and +quantitative indicators of corporate and individual performance +in determining the level and composition of compensation for the +chief executive officer and other executive officers. The +Committee considers such corporate performance measures as net +sales, net income, earnings per share and similar quantitative +measures. The Committee also appreciates the importance of +achievements that may be difficult to quantify, and accordingly +recognizes qualitative factors, such as successful supervision +of major corporate projects, demonstrated leadership ability and +contributions to industry and community development. For 2001, +the most important qualitative factors in determining incentive +compensation awards to executive officers were the +Committee’s assessments of their contributions to the +Company’s sales, net earnings per share, stockholder value, +and improvements and efficiencies in operations. +The Committee also evaluates the total compensation of the +Company’s chief executive officer and other executive +officers in light of information regarding the compensation +practices and corporate financial performance of similar +companies in the Company’s industry. However, the Committee +does not target a specific percentile range within the peer +group compensation structure in determining compensation for +executive officers. From time to time, the Committee also +receives assessments and advice regarding the Company’s +compensation practices from independent compensation consultants. +Relationship of Performance to Compensation — +Compensation that may be earned by the executive officers in any +fiscal year consists of base salary, cash bonus and stock +options. Salaries are reviewed periodically and adjusted as +warranted to reflect sustained individual performance. The +Committee focuses primarily on total annual compensation, +including incentive awards and cash bonuses, rather than base +salary alone, as the appropriate measure of executive officer +performance and contribution. +8 +The executive officers receive incentive compensation awards +based on individual goals and milestones established for each +officer at the beginning of each year and other factors as +determined by the Committee. Such officers receive compensation +for the subsequent attainment of these goals. +The 1993 Plan authorizes the Committee to make grants and awards +of stock options, stock appreciation rights, restricted stock +and other stock-based awards. The Committee grants stock options +to executive officers, as well as other employees and +consultants of the Company and its subsidiaries below the +executive officer level. Executive officers are eligible to +receive stock option grants, which the Committee approves from +time to time as it deems appropriate. +In approving grants and awards under the 1993 Plan, the +quantitative and qualitative factors and industry comparisons +outlined above will be considered. The number of options +previously awarded to and held by executive officers is reviewed +but is not an important factor in determining the size of +current option grants. +To the extent readily determinable and as one of the factors in +its consideration of compensation matters, the Committee +considers the anticipated tax treatment to the Company and to +the executives of various payments and benefits. Some types of +compensation payments and their deductibility (e.g., the spread +of exercise of non-qualified options) depend upon the timing of +an executive’s vesting or exercise of previously granted +rights. Further, interpretations of and changes in the tax laws +and other factors beyond the Committee’s control also +affect the deductibility of compensation. +Chief Executive Officer Compensation — +Douglas B. Otto entered into an employment agreement, +effective January 1992, and subsequently extended through 2004. +For 2001, his employment agreement provides for an annual salary +of $345,000, and a target bonus of $175,000, based on an +assessment and recommendation performed by an independent +compensation consultant. The amounts of Mr. Otto’s +bonuses are determined by the Compensation Committee and are +based upon a combination of factors, weighted heavily toward the +sales and operating results of the Company. +For 2001, the Committee based the majority of +Mr. Otto’s bonus on several criteria established at +the beginning of the year which were focused primarily on the +Company’s ability to achieve targeted goals for sales, open +orders and earnings per share. Given the recent unanticipated +world events, 2001 was a challenging year for many reasons, +including those outside the control of the Company’s +management. Nevertheless, the Company experienced declines in +the three previously established performance measures in 2001, +and Mr. Otto’s bonus continued to be determined based +on those criteria. However, the Committee does recognize +Mr. Otto’s continuing contributions to the Company +including his contributions to the Company’s ability to +strengthen its balance sheet; generate strong operating cash +flows; and re-design and expand its product offering into new +categories including the trail running and rugged outdoor +markets. In recognition of his efforts, the Committee granted +Mr. Otto 100,000 stock options during fiscal 2001. +In December 2001 and in February 2002, the Committee established +the compensation of the Company’s Chief Executive Officer +and its other executive officers for fiscal year 2002. In each +case, the Committee’s decision was based upon the +principles and procedures outlined above. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +The Report of the Compensation Committee on Executive +Compensation shall not be deemed incorporated by reference by +any general statement incorporating by reference this proxy +statement into any filing under the Securities Act of 1933 or +under the Securities Exchange Act of 1934, except to the extent +that the Company specifically incorporates this information by +reference, and shall not otherwise be deemed filed under such +acts. +9 +Compensation Committee Interlocks and Insider +Participation +As of the date of this Proxy Statement, the members of the +Compensation Committee were Messrs. Burleson, Licklider and +Gibbons, none of whom was an officer or employee of the Company +or any of its subsidiaries during fiscal year 2001 or is a +former officer or employee of the Company or any of its +subsidiaries. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing +independent, objective oversight of the Company’s +accounting functions and internal controls. The Audit Committee +is currently composed of three directors, each of whom is +independent as defined by the National Association of Securities +Dealers’ listing standards. The Audit Committee operates +under a written charter approved by the Board of Directors. +Management is responsible for the Company’s internal +controls and financial reporting process. The independent +accountants are responsible for performing an independent audit +of the Company’s consolidated financial statements in +accordance with generally accepted auditing standards and to +issue a report thereon. The Audit Committee’s +responsibility is to monitor and oversee these processes. +In connection with these responsibilities, the Audit Committee +met with management and the independent accountants to review +and discuss the December 31, 2001 financial statements. The +Audit Committee also discussed with the independent accountants +the matters required by Statement on Auditing Standards +No. 61 (Communication with Audit Committees) which +includes, among other items, information regarding the conduct +of the audit of the Company’s financial statements. The +Audit Committee also received written disclosures from +KPMG LLP required by Independence Standards Board Standard +No. 1 (Independence Discussions with Audit Committees), and +the Audit Committee discussed with KPMG LLP that firm’s +independence from the Company and its management. The Audit +Committee has further considered the compatibility of the +services provided by KPMG LLP with that firm’s +independence. +Based upon the Audit Committee’s review and discussions +with management and independent accountants, the Audit Committee +recommended that the Board of Directors include the audited +consolidated financial statements in the Company’s Annual +Report on Form 10-K for the year ended December 31, +2001, to be filed with the Securities and Exchange Commission. +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +Audit and Non-audit Fees +For the year ended December 31, 2001 KPMG LLP billed the +Company for services rendered for the audit of the +Company’s financial statements and for other services +rendered. For 2001, fees for the annual financial statement +audit were $169,000, and all other fees were $175,000. Audit +services primarily consisted of the Company’s annual audit, +statutory audits of its overseas subsidiaries and quarterly +reviews of its consolidated financial statements. Non-audit +services primarily consisted of planning and compliance services +for income taxes and customs matters. +10 +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +Set forth below is a line graph comparing the percentage change +in the cumulative total stockholder return on the Company’s +Common Stock against the cumulative total return of the Nasdaq +Composite Index and a peer group index for the five-year period +commencing December 31, 1996 and ending December 31, +2001. The data represented below assumes $100 invested in each +of the Company’s Common Stock, the Nasdaq Composite Index +and the peer group index on December 31, 1996. The stock +performance graph shall not be deemed incorporated by reference +by any general statement incorporating by reference this proxy +statement into any filing under the Securities Act of 1933 or +under the Securities Exchange Act of 1934, except to the extent +that the Company specifically incorporates this information by +reference, and shall not otherwise be deemed filed under either +of such Acts. +Comparison of Total Return (Assuming Dividend +Reinvestment) +Deckers Outdoor +Corporation +Nasdaq Composite +Athletic Shoe Composite +December 31, 1996 +100.0 +100.0 +100.0 +December 31, 1997 +109.1 +122.3 +70.8 +December 31, 1998 +31.8 +172.5 +62.3 +December 31, 1999 +38.2 +304.3 +76.6 +December 31, 2000 +76.4 +191.3 +103.3 +December 31, 2001 +61.8 +152.5 +93.1 +* +Athletic Shoe Composite peer group index consisting of Saucony +Inc., K-Swiss, Nike Inc., Reebok International Ltd., Rocky Shoes +& Boots, Inc., The Stride Rite Corporation, The Timberland +Company, Vans Inc., Wolverine World Wide Inc., Fila Holding SPA, +and Kenneth Cole Productions. +11 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND +MANAGEMENT +The following security ownership information is set forth, as of +February 28, 2002, with respect to certain persons or +groups known to the Company to be beneficial owners of more than +5% of the Company’s outstanding Common Stock and with +respect to each director of the Company, each of the Named +Executive Officers, and all current directors, nominees and +executive officers as a group (eight persons). Other than as set +forth below, the Company is not aware of any other person who +may be deemed to be a beneficial owner of more than 5% of the +Company’s Common Stock. +Name and Address of +Amount and Nature of +Beneficial Owner(1) +Beneficial Ownership(2),(5) +Percent of Class +Douglas B. Otto(3) +3,318,450 +34.9 +% +Peter C. Benjamin +151,000 +1.6 +% +M. Scott Ash +88,000 +* +Patrick C. Devaney +86,000 +* +Gene E. Burleson +128,039 +1.4 +% +Rex A. Licklider(4) +300,940 +3.2 +% +John M. Gibbons +11,109 +* +Dimensional Fund Advisors, Inc.(6) +535,300 +5.7 +% +Mark Thatcher(7) +578,473 +6.1 +% +All directors and executive officers as a group +(eight persons) +4,462,138 +45.3 +% +(1) +The address of each beneficial owner is +495-A South Fairview Avenue, Goleta, California 93117, +unless otherwise noted. +(2) +Unless otherwise noted, sole voting and dispositive power are +possessed with respect to all shares of Common Stock owned. +(3) +Includes (a) 2,452,750 shares held by the Douglas B. +Otto Trust as to which Mr. Otto has sole voting and +investment power, (b) 268,750 shares held as trustee +for the Tiffany Jade Otto Trust, of which Mr. Otto has sole +voting and investment power, (c) 268,750 shares held +as trustee for the Ty Dylan Bard Otto Trust, of which +Mr. Otto has sole voting and investment power, +(d) 64,200 shares held by the Edgecliff Foundation, a +charitable foundation formed by Mr. Otto, of which +Mr. Otto is the Chairman of the Board of Directors, and +(e) 84,000 shares held by Mr. Otto’s wife. +Mr. Otto disclaims ownership of the shares held by his wife. +(4) +Includes 279,607 shares held by the Licklider Living Trust +as to which Mr. Licklider has joint voting and investment +power. +(5) +Includes shares under stock options that are presently +exercisable or are exercisable within 60 days for the following: +Douglas B. Otto — 180,000; Peter C. +Benjamin — 133,500; M. Scott Ash — +88,000; Patrick C. Devaney — 78,000; Gene E. +Burleson — 21,333; Rex A. Licklider — +21,333; John M. Gibbons — 3,333; and all +directors and executive officers as a group — 532,599. +(6) +This information is based solely on a Schedule 13G filed by +Dimensional Fund Advisors, Inc. on January 30, 2002. The +fund’s address is 1299 Ocean Ave., 11th Floor, +Santa Monica, California 90401. +(7) +Includes (a) 428,473 shares and +(b) 150,000 stock options that are presently +exercisable, all of which were issued in connection with the +Teva License Agreement dated June 7, 1999. +Mr. Thatcher’s address is: P.O. Box 968, +Flagstaff, Arizona 86002. +* +Percentage of shares beneficially owned does not exceed 1% of +the class so owned. +12 +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT +OF 1934 +Section 16(a) of the Securities Exchange Act of 1934 (the +“Exchange Act”) requires the Company’s directors, +executive officers and persons who own more than 10% of the +Common Stock (collectively “Section 16 Persons”) +to file initial reports of ownership (Forms 3) and reports +of changes in ownership of Common Stock (Forms 4 and +Forms 5) with the Securities and Exchange Commission as +well as the Company. +To the Company’s knowledge, based solely on a review of the +copies of such reports furnished to the Company and +representations from each Section 16 Person known to the +Company that no other reports were required, during the fiscal +year ended December 31, 2001, all Section 16(a) filing +requirements applicable to its Section 16 Persons were +complied with except that Douglas Otto filed Form 4’s +on December 18, 2001 and January 9, 2002 reporting the +sale of 8,000 shares of Common Stock which were due to be +reported on December 10, 2001 and Peter Benjamin filed a +Form 4 on April 4, 2002 reporting the exercise of +employee stock options for the purchase of 37,500 shares of +Common Stock which was due to be reported on July 10, 2001. +13 +PROPOSAL NO. 2 +INDEPENDENT AUDITORS +For the 2001 fiscal year, KPMG LLP provided audit services which +included examination of the Company’s annual consolidated +financial statements. Upon the recommendation of the Audit +Committee, the Board has selected KPMG LLP to provide audit +services to the Company and its subsidiaries for the fiscal year +ending December 31, 2002. The stockholders are being +requested to ratify such selection at the Annual Meeting. A +representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +“FOR” THE +RATIFICATION OF THE ELECTION OF KPMG LLP AS THE +COMPANY’S INDEPENDENT AUDITORS. +DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS +FOR 2003 ANNUAL MEETING +Any proposal relating to a proper subject which an eligible +stockholder may intend to present for action at the +Company’s 2003 Annual Meeting of Stockholders and which +such stockholder may wish to have included in the proxy +materials for such meeting in accordance with the provisions of +Rule 14a-8 promulgated under the Exchange Act must be received +as far in advance of the meeting as possible in proper form by +the Secretary of the Company at 495-A South Fairview Avenue, +Goleta, California 93117 and in any event not later than +December 13, 2002. It is suggested that any such proposal +be submitted by certified mail, return receipt requested. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual +Meeting or any postponement or adjournment thereof other than +the election of directors and the ratification of the selection +of the Company’s independent auditors. However, inasmuch as +matters of which management is not now aware may come before the +meeting or any postponement or adjournment thereof, the proxies +confer discretionary authority with respect to acting thereon, +and the persons named in such proxies intend to vote, act and +consent in accordance with their best judgment with respect +thereto, provided that, to the extent the Company becomes aware +a reasonable time before the Annual Meeting of any matter to +come before such meeting, the Company will provide an +opportunity to vote by proxy directly on such matter. Upon +receipt of such proxies in time for voting, the shares +represented thereby will be voted as indicated thereon and as +described in this Proxy Statement. +14 +MISCELLANEOUS +The solicitation of proxies is made on behalf of the Company and +all the expenses of soliciting proxies from stockholders will be +borne by the Company. In addition to the solicitation of proxies +by use of the mails, officers and regular employees may +communicate with stockholders personally or by mail, telephone, +telegram or otherwise for the purpose of soliciting such +proxies, but in such event no additional compensation will be +paid to any such persons for such solicitation. The Company will +reimburse banks, brokers and other nominees for their reasonable +out-of-pocket expenses in forwarding soliciting material to +beneficial owners of shares held of record by such persons. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board and +Chief Executive Officer +Goleta, California +April 11, 2002 +15 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on Behalf of the Board of Directors of Deckers Outdoor Corporation. The undersigned hereby +appoints Douglas B. Otto and M. Scott Ash, and each of them, +and each of them, as Proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote as designated below, all the shares of common stock of Deckers Outdoor Corporation held of record by the undersigned on March 22, 2002, at the Annual Meeting of Shareholders to be held on May 20, 2002 and any postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE +ACCOMPANYING ENVELOPE. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ +Please mark +your vote as +indicated in +the example. +x +WITHHOLD +FOR +AUTHORITY +the nominees +to vote for the +listed below +nominees listed below +1. +ELECTION OF CLASS III +DIRECTORS: +Instruction: To withhold authority to vote for a nominee +listed below, strike a line +through the nominee's name. +o +o +Nominees: Douglas B. Otto +Gene E. Burleson +FOR +AGAINST +ABSTAIN +2. +TO RATIFY THE SELECTION +OF KPMG LLP AS THE COMPANY'S +INDEPENDENT AUDITORS. +o +o +o +3. +In their +discretion, the Proxies are authorized to vote upon such other +business as may properly come before such meeting or +any and +all postponements or adjournments thereof. +YES +NO +Do You Plan to Attend the Meeting? +o +o +This proxy when properly executed will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, the Proxies will vote for the nominees listed above, for the ratification of the selection of KPMG LLP as the Company's independent auditor and in their discretion on matters described in Item 3. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY +USING THE ENCLOSED ENVELOPE. +Signature(s) ___________________________________________________________________ Dated _____________ 2002 +Please sign exactly as the name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign in full corporate name by the President or other authorized officer. If a partnership, please sign in the partnership name by an authorized person. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-02-000971/proxy_rpt.txt b/raw/proxies/0000910521/0000950148-02-000971/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0000950148-03-000832/proxy.txt b/raw/proxies/0000910521/0000950148-03-000832/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..50d5ae77e517b48054d85b6454708d25fa9324b8 --- /dev/null +++ b/raw/proxies/0000910521/0000950148-03-000832/proxy.txt @@ -0,0 +1,1629 @@ +DEF 14A +1 +v88349def14a.htm +DEFINITIVE PROXY STATEMENT +Deckers Outdoor Corp. Definitive Proxy Statement +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[X] +Definitive Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +DECKERS OUTDOOR CORPORATION +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] +No +fee required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +DECKERS OUTDOOR CORPORATION +April 11, 2003 +Dear Stockholder: +We cordially invite you to attend our 2003 Annual Meeting of +Stockholders to be held at 3:00 p.m. on Monday, +May 19, 2003 at Deckers Outdoor Corporation’s +distribution center, 4880 Colt Street, Ventura, California +93003. Enclosed are the Notice of Annual Meeting, Proxy +Statement and a Proxy Card relating to the Annual Meeting which +we urge you to read carefully. Also enclosed is the +Company’s 2002 Annual Report to Stockholders on +Form 10-K. Whether or not you expect to attend the Annual +Meeting, please sign and date the enclosed Proxy Card and return +it as promptly as possible to ensure that your shares will be +voted. Properly executed Proxy Cards received by the Company +prior to the Annual Meeting will be voted in accordance with the +instructions indicated in such cards. Because mail delays occur +frequently, it is important that the enclosed Proxy Card be +returned well in advance of the meeting. +ON BEHALF OF YOUR +BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, +California 93117 +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +To be held May 19, 2003 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of +Stockholders (the “Annual Meeting”) of Deckers Outdoor +Corporation, a Delaware corporation (the “Company”), +will be held at Deckers Outdoor Corporation’s distribution +center, 4880 Colt Street, Ventura, California 93003, on Monday, +May 19, 2003, beginning at 3:00 p.m., local time. The +Annual Meeting will be held for the following purposes: +1. To elect two (2) directors of the Company +to serve as Class I directors until the Annual Meeting of +Stockholders to be held in 2006. +2. To ratify the selection of KPMG LLP as +the Company’s independent auditors. +3. To transact such other business as may +properly come before the meeting or any postponements or +adjournments thereof. +The Board of Directors has fixed March 25, +2003 as the record date for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof, and only stockholders of +record at the close of business on that date are entitled to +such notice and to vote at the Annual Meeting. +A list of stockholders entitled to vote at the +Annual Meeting will be available at the offices of the Company +for ten (10) days prior to the Annual Meeting. +We hope that you will use this opportunity to +take an active part in the affairs of the Company by voting on +the business to come before the Annual Meeting either by +executing and returning the enclosed Proxy Card or by casting +your vote in person at the Annual Meeting. +STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING +IN PERSON ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY CARD +AS PROMPTLY AS POSSIBLE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR +CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD +BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR +ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +Goleta, California +April 11, 2003 +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +To be Held May 19, 2003 +PROXY STATEMENT +This Proxy Statement is furnished in connection +with the solicitation of proxies by the Board of Directors of +Deckers Outdoor Corporation, a Delaware corporation (the +“Company”), for use at the Annual Meeting of +Stockholders (the “Annual Meeting”) to be held at +3:00 p.m., local time, on May 19, 2003, at Deckers +Outdoor Corporation’s distribution center, 4880 Colt +Street, Ventura, California 93003, and any postponements or +adjournments thereof for the purposes set forth in the +accompanying Notice of Annual Meeting. This Proxy Statement and +the accompanying Form of Proxy were first mailed to stockholders +on or about April 11, 2003. +RECORD DATE AND VOTING +March 25, 2003 has been fixed as the record +date (the “Record Date”) for the determination of +stockholders entitled to notice of and to vote at the Annual +Meeting and any postponements or adjournments thereof. As of +March 25, 2003, there were outstanding +9,524,843 shares of the Company’s common stock, par +value $.01 per share (the “Common Stock”) and +1,375,000 shares of the Company’s Series A +Preferred Stock, par value $.01 per share (the “Preferred +Stock”). A majority of the shares of Common Stock and +Preferred Stock entitled to vote, present in person or +represented by proxy, will constitute a quorum at the meeting. +Each share of Common Stock issued and outstanding +on the Record Date is entitled to one vote on any matter +presented for consideration and action by the stockholders at +the Annual Meeting. Each share of Preferred Stock is entitled to +one vote per share on all matters except for the election of or +removal of directors, other than the director elected by the +holders of the Preferred Stock pursuant to Section 2(b) of +the Company’s Preferred Stock Certificate of Designation. +With respect to all matters, other than the election of the +directors, the affirmative vote of a majority of shares of the +Company’s Common and Preferred Stock present in person or +represented by proxy at the meeting and entitled to vote on the +subject matter will be the act of the stockholders. Directors +will be elected by a plurality of the votes of the shares of the +Company’s Common Stock present in person or represented by +proxy and entitled to vote on the election of directors. +Abstentions will be treated as the equivalent of a negative vote +for the purpose of determining whether a director has been +elected and for the ratification of the selection of independent +auditors. Unless otherwise instructed, proxies solicited by the +Company will be voted “FOR” the nominees named herein +for election as directors, “FOR” ratification of the +selection of KPMG LLP as the Company’s independent +auditors, and in their discretion upon such other business as +may properly come before such meeting or any and all +postponements or adjournments thereof. +If any other matters are promptly presented for +consideration at the annual meeting including, among other +things, consideration of a motion to adjourn the meeting to +another time or place in order to solicit additional proxies in +favor of the nominee of the Board of Directors, the persons +named as proxies and acting thereunder will have discretion to +vote on these matters according to their best judgement to the +same extent as the person delivering the proxy would be entitled +to vote. At the date this proxy statement went to press, we did +not anticipate any other matter would be raised at the annual +meeting. +With respect to brokers who are members of the +New York Stock Exchange, the New York Stock Exchange Rules +(“NYSE Rules”) generally require that when shares are +registered in street or nominee name, its member brokers must +receive specific instructions from the beneficial owners in +order to vote on certain proposals. However, the NYSE Rules do +not require specific instructions in order for a broker to vote +on the election of the Class I directors and on +ratification of the selection of the Company’s independent +auditors. If a member broker indicates on the proxy that such +broker does not have discretionary authority as +1 +to certain shares to vote on any proposal that +does require specific instructions, those shares will not be +considered as present and entitled to vote with respect to that +matter. Pursuant to Delaware law, a broker non-vote will not be +treated as present or voting in person or by proxy on the +proposal. +A stockholder giving a proxy has the power to +revoke it at any time before it is exercised by giving written +notice of revocation to the Secretary of the Company, by +executing a subsequent proxy, or by attending the Annual Meeting +and voting in person. Subject to any such revocation, all shares +represented by properly executed proxies will be voted in +accordance with the specifications on the enclosed proxy card. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s By-Laws state that the Board +of Directors shall consist of not less than one nor more than +seven members. The specific number of Board members within this +range is established by the Board of Directors and is currently +set at six. There are currently six Board members and no +vacancies. The Company’s Certificate of Incorporation +provides that the Board shall be classified into three classes +of directors, which classes serve staggered three-year terms. +The Board currently consists of two directors of each class. The +current term of the Class II directors expires at the +Annual Meeting of Stockholders to be held in 2004, the current +term of the Class III directors expires at the Annual +Meeting of Stockholders to be held in 2005, and the current term +of each Class I director expires at the May 19, 2003 +Annual Meeting of Stockholders. The Board of Directors is +proposing John M. Gibbons and Daniel L. Terheggen, who +are now serving as Class I directors, for re-election as +Class I directors at the Annual Meeting. Each of the +Class I directors elected at the Annual Meeting will serve +until the Annual Meeting of Stockholders to be held in 2006, +until such director’s successor has been duly elected and +qualified or until such director has otherwise ceased to serve +as a director. To the Company’s knowledge, each nominee is +and will be available to serve. The nominees have supplied the +following background information to the Company: +Principal Occupation During the Last 5 Years, +Other Business +Director +Name +Age +Experience and Directorships +Since +John M. Gibbons +54 +Vice Chairman of TMC Communications, Inc. +(“TMC”), a long distance, data and internet services +provider, since June 2000, Chief Executive Officer of TMC since +August 2001 and President of TMC from June 2000 to August 2001, +Vice Chairman of Assisted Living Concepts, Inc., a national +provider of assisted living services from March 2000 to December +2001, Chief Executive Officer and member of the board of +directors of The Sports Club Company, a developer and operator +of health and fitness clubs, from July 1999 to February 2000, +and the President and Chief Operating Officer of the Sports Club +Company from July 1995 to July 1999. +2000 +Daniel L. Terheggen +52 +Co-founder and Chief Executive Officer of BHPC +Global Licensing, Inc., a leading branded international +licensing and marketing firm, since April 1990, and owner of +Consolidated Smart Systems, a premier provider of ancillary +services to the multi-housing market throughout California, +since June 1973. +2002 +THE BOARD OF DIRECTORS OF THE COMPANY +RECOMMENDS A VOTE +“FOR” THE ELECTION OF THE ABOVE +NOMINEES. +3 +MANAGEMENT +The directors and executive officers of the +Company are set forth below. The following table includes +information with respect to each director and executive officer +of the Company. +Class of +Name +Age +Position +Director +Douglas B. Otto +51 +Chairman of the Board, President and +Chief Executive Officer +III +M. Scott Ash +38 +Chief Financial Officer and Assistant Secretary +Patrick C. Devaney +48 +Senior Vice President and Vice +President — Global Sourcing, Production and Development +Constance X. Rishwain +45 +President of the Simple and Ugg Divisions +Robert P. Orlando +50 +President of the Teva Division +Janice M. Howell +53 +Vice President — Operations +John A. Kalinich +35 +Vice President and Director of Retail and +Licensing and Director +II +Joseph E. Nida +63 +Secretary +Gene E. Burleson +62 +Director +III +Rex A. Licklider +60 +Director +II +John M. Gibbons +54 +Director +I +Daniel L. Terheggen +52 +Director +I +Douglas B. Otto, +co-founder of the Company in 1973, has served as an executive +officer since that time and as Chairman of the Board and Chief +Executive Officer since 1982 and as President since +January 1, 2003. He has also served as President from March +1999 through February 2000 and from 1982 through May 1998, and +served as Chief Financial Officer from June 1990 through +December 1992. +M. Scott Ash +has been Chief Financial Officer since January 1997, Assistant +Secretary since December 1999 and was Secretary from March 1999 +to December 1999. Prior to such time, Mr. Ash served as +Controller of the Company, beginning in January 1993. Prior to +joining the Company, he was employed by Dole Food Company, Inc. +from August 1992 to January 1993 as Manager of Corporate +Reporting. Previously, he was a Senior Manager at KPMG LLP where +he was employed from September 1986 to August 1992. Mr. Ash is a +Certified Public Accountant. +Patrick C. Devaney +has been the Company’s Senior Vice President since March +2000 and served as Vice President — Global Sourcing, +Production and Development since November 1997. Prior to joining +the Company, Mr. Devaney was employed by Mizuno USA where +he was Director of Global Footwear from February 1990 to June +1997 and was a Global Product/ Marketing Manager for Reebok +International from 1985 to December 1989. +Constance X. Rishwain +has been the President of the Simple +and Ugg Divisions since December 2002 after serving as Vice +President, Brand Manager — Simple since January 2001 +and Vice President, Brand Manager — Ugg since April +1999. Previously, Ms. Rishwain held a variety of positions +since joining the Company in January 1995, including Vice +President of Domestic Sales for Teva, Simple and Ugg from June +1999 to December 1999, Vice President of Sales — +Western Division for Teva, Simple and Ugg from December 1997 to +June 1999 and Vice President Merchandising for Teva, Simple and +Ugg from January 1995 to December 1997. Before joining Deckers, +Ms. Rishwain held the position of Vice President of +Merchandising and Marketing for Impo International Shoe Company +from 1988 to 1994 and prior to that worked for Nine West from +1984 to 1988 in several capacities. +Robert P. Orlando +has been the President of the Teva +Division since December 2002 and was previously the Vice +President — Brand Manager of Teva since joining the +Company in May 2000. Previously, Mr. Orlando worked for +Adidas Salomon North America where he was Vice President of +Footwear and +4 +Apparel from 1999 to 2000 and Business Unit +Manager from 1996 to 1999, and he was President of Newport +Outfitters from 1994 to 1996. +Janice M. Howell has +been the Vice President of Operations since December 2002, the +Director of Operations from November 1999 to December 2002, and +Director of Human Resources and Administration from January 1992 +to November 1999. Ms. Howell previously was employed at +Wavefront Technologies as Director of Human Resources and +Administration from 1986 to 1991. +John A. Kalinich is +currently the nominee as a Director by the Preferred Stock and +has been a Director of the Company since November 2002. +Mr. Kalinich was previously an employee of the +Company’s former Teva Licensor, Teva Sport Sandals. In +connection with the Company’s acquisition of Teva in +November 2002, Mr. Kalinich joined the Company as Vice +President and Director of Retail and Licensing, responsible for +the protection of the Company’s worldwide intellectual +property and the operation of the e-commerce web sites for Teva, +Simple and Ugg. Prior to joining the Company, Mr. Kalinich +was the Chief Operations Officer for Teva Sport Sandals, Inc. +from January 1995 to November 2002. Previously, +Mr. Kalinich was employed as an audit Senior Associate by +Coopers & Lybrand from July 1991 to January 1995. +Mr. Kalinich is a Certified Public Accountant. +Joseph E. Nida has +been Secretary of the Company since December 1999. Mr. Nida +has been a partner in the law firm of Sheppard, Mullin, +Richter & Hampton, LLP (“SMRH”), the +Company’s outside general counsel, since SMRH acquired +Nida & Maloney LLP in September 2001. Previously, +Mr. Nida was Chairman of the law firm of Nida & +Maloney, LLP since its formation in 1994. Mr. Nida also +serves as secretary of Miravant Medical Technologies (OTC-BB). +He also serves as a director or officer of several emerging +growth companies. +Gene E. Burleson has +been a director of the Company since September 1993. +Mr. Burleson has currently been serving on the Board of +Directors of Alterra Healthcare Corporation, an operator of +assisted living facilities, since January 1995 and has served as +its Chairman of the Board since January 2003. He also served as +Chairman of the Board of Directors of Mariner Healthcare, Inc. +from January 1999 to May 2002. In addition, Mr. Burleson served +as the Chief Executive Officer and as a Director of Vitalink +Pharmacy Services, Inc., a provider of pharmacy services to +nursing facilities, from February 1997 to August 1997. He also +served as Chairman of the Board of Directors of GranCare, Inc., +a provider of long-term and specialty health care services, from +January 1994 to November 1997 and its Chief Executive Officer +from December 1990 to February 1997. +Rex A. Licklider has +been a Director of the Company since September 1993. From 1975 +until February 1992, Mr. Licklider served as Chairman of +the Board and Chief Executive Officer of Com Systems, Inc., a +long distance telecommunications company. From February 1992 to +January 1993, Mr. Licklider was Chairman of the Board of +Resurgens Communications Group, with whom Com Systems, Inc. had +merged. He has been Co-CEO of The Sports Club Company +(AMEX-SCY), a developer and operator of health and fitness +clubs, since February 2000 and Vice Chairman since 1994. +Mr. Licklider is a founder and Partner of Pentium +Investments, Inc. and a Director of The Sports Club Company. +John M. Gibbons has +been a Director of the Company since July 2000. Since June 2000, +Mr. Gibbons has been Vice Chairman of TMC Communications, +Inc., a long distance, data and internet services provider and +has been its Chief Executive Officer since August 2001. From +June 2000 to August 2001 he was President of TMC Communications, +Inc. Mr. Gibbons was Vice Chairman of Assisted Living +Concepts, Inc., a national provider of assisted living services +from March 2000 to December 2001. Previously, Mr. Gibbons +was employed by The Sports Club Company where he was Chief +Executive Officer and a member of the board of directors from +July 1999 to February 2000 and was President and Chief Operating +Officer from July 1995 to July 1999. +Daniel L. Terheggen +has been a Director of the Company +since September 2002. Mr. Terheggen has been the co-founder +and Chief Executive Officer of BHPC Global Licensing, Inc., a +leading branded international licensing and marketing firm, +since April 1990. Mr. Terheggen has also been the owner of +Consolidated Smart +5 +Systems, a premier provider of ancillary services +to the multi-housing market throughout California, since June +1973. +For information concerning beneficial ownership +of Common Stock by directors and executive officers, see +“Security Ownership of Certain Beneficial Owners and +Management” below. +CERTAIN RELATIONSHIPS +In February 2002, the Company’s Board of +Directors agreed to guarantee a home construction bank loan of +Douglas B. Otto for up to three years, which guarantee was +subsequently amended July 26, 2002. The Company has not +modified or amended the guarantee subsequent to July 26, +2002. The Company’s guarantee is limited to a maximum of +$1,000,000 of Mr. Otto’s outstanding loan from a bank. +The guarantee was provided on behalf of Mr. Otto in order +to avoid any need for Mr. Otto to sell a portion of his +common stock in the Company. During 2002, the largest amount +outstanding at any time on the loan from the bank to +Mr. Otto was $1,200,000 and the amount outstanding at +March 7, 2003 was $1,500,000, although the Company still +only guaranteed up to $1,000,000. The loan with the bank bears +interest at the prime rate (4.25% at March 7, 2003), with +interest only payable monthly. The loan matures on June 1, +2004. +Joseph E. Nida is a partner in the law firm of +Sheppard, Mullin, Richter & Hampton LLP, the +Company’s general counsel. The Company paid this law firm +an aggregate of approximately $334,000 for legal services +rendered during 2002. +INFORMATION ABOUT THE BOARD OF DIRECTORS +AND +COMMITTEES OF THE BOARD OF DIRECTORS +Committees of the Board +The Company has an Audit Committee, a +Compensation Committee and a Corporate Governance and Nominating +Committee. +Audit +Committee — The Board has a +standing Audit Committee that reviews the audit and control +functions of the Company, the Company’s accounting +principles, policies and practices and financial reporting, the +scope of the audit conducted by the Company’s auditors, the +fees and all non-audit services of the independent auditors and +the independent auditors’ opinion and letter of comment to +management and management’s response thereto. The Committee +met six times during 2002. At the date of this Proxy Statement, +Mr. Gibbons was Chairman of the Audit Committee and the +Committee was comprised of Messrs. Burleson, Licklider, and +Gibbons. +Compensation +Committee — The Board’s +Compensation Committee (the “Compensation Committee”) +reviews and recommends to the Board the salaries, bonuses and +prerequisites of the Company’s executive officers. The +Compensation Committee also reviews and recommends to the Board +any new compensation or retirement plans and administers the +Company’s 1993 Employee Stock Incentive Plan (the +“1993 Plan”) and the Company’s 1995 Employee +Stock Purchase Plan (the “Stock Purchase Plan”). The +Committee met four times during 2002. At the date of this Proxy +Statement, Mr. Burleson was Chairman of the Compensation +Committee and the Committee was comprised of +Messrs. Burleson, Licklider, Gibbons, and Terheggen. +Corporate Governance and Nominating +Committee — The Board has a +Corporate Governance and Nominating Committee (the +“Corporate Governance Committee”) that assures that +the Company satisfies the requirements of NASDAQ and the +Securities and Exchange Commission regarding composition and +qualifications of the Board of Directors and seeks qualified +candidates for the Company’s Board of Directors when +additional Board members are to be added and when Board +vacancies are to be filled. The Corporate Governance Committee +considers nominees proposed by stockholders. To recommend a +prospective nominee for the Corporate Governance +Committee’s consideration, you may submit the +candidate’s name and qualifications to the Company’s +Assistant Corporate Secretary in writing to Deckers Outdoor +Corporation, Attention: Scott Ash at 495-A South Fairview +Avenue, Goleta, CA 93117. The Committee met one time +6 +during 2002. At the date of this Proxy Statement, +Mr. Licklider was Chairman of the Corporate Governance +Committee and the Committee was comprised of +Messrs. Licklider, Burleson and Gibbons. +Director Attendance +In 2002, the Company held nine meetings of the +Board of Directors. During 2002, all of the directors attended +at least 75% of the aggregate of the meetings of the Board and +of the committees of which they were members. +Director Compensation +Standard +Compensation — Directors who +are not employees of the Company or its subsidiaries +(“Nonemployee Directors”) receive an annual retainer +to be paid as follows: $11,000 in cash, or, at the option of a +Nonemployee Director, exercised ten days prior to the start of +each year, in Common Stock of the Company at a 20% discount off +the price of the shares at the closing price at the beginning of +the year; and 2,000 shares of the Common Stock of the Company +per year. Every three years, the Board sets the number of shares +for the following three years. Additionally, Nonemployee +Directors receive $1,500 for each meeting of the Board and +$1,000 for each separately scheduled committee meeting that they +attend plus reimbursement of any expenses they may incur with +respect to such meetings. Committee Chairmen receive additional +annual retainer fees of $4,000. Directors who are employees of +the Company or its subsidiaries serve as directors without +compensation. +Stock +Options — Nonemployee +Directors receive additional compensation in the form of stock +options granted automatically under the 1993 Plan. Upon their +initial election to the Board of Directors, Nonemployee +Directors automatically receive options to purchase 10,000 +shares of Common Stock. Such options vest in annual one-third +installments, with the first such installment vesting on the +first anniversary of the date of grant of such option. In +addition, beginning on the fourth annual meeting of stockholders +after a Nonemployee Director is first elected, such Nonemployee +Director will automatically be granted each year options to +purchase 2,000 shares of Common Stock. Such additional options +will be fully vested and exercisable at the time of grant. All +options granted to Nonemployee Directors have an exercise price +equal to the fair market value of the shares on the date they +are granted. +7 +COMPENSATION OF EXECUTIVE OFFICERS +The following table sets forth for the years +ended December 31, 2002, 2001 and 2000, the reportable +compensation paid or awarded to the Chief Executive Officer and +to each of the four other most highly compensated executive +officers of the Company who were executive officers of the +Company at December 31, 2002 and received compensation in +excess of $100,000 in such year (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Securities +Underlying +Other Annual +Options/SARs +All Other +Name and principal position +Year +Salary +Bonus +Compensation +(#) +Compensation +Douglas B. Otto +2002 +$ +345,000 +$ +388,000 +— +50,000 +$ +— +Chief Executive Officer +2001 +345,000 +18,000 +— +100,000 +104,000 +(1) +2000 +275,000 +320,000 +— +— +109,000 +(1) +Peter C. Benjamin(2) +2002 +283,000 +266,000 +— +— +— +President and Chief Operating +2001 +260,000 +14,000 +— +80,000 +— +Officer +2000 +180,000 +115,000 +— +— +— +Constance X. Rishwain +2002 +140,000 +103,000 +— +50,000 +— +President of Simple and +2001 +140,000 +64,000 +— +30,000 +— +Ugg Divisions +2000 +120,000 +117,000 +— +— +— +M. Scott Ash +2002 +146,000 +82,000 +— +40,000 +— +Chief Financial Officer +2001 +146,000 +14,000 +— +50,000 +— +2000 +135,000 +27,000 +— +— +— +Patrick C. Devaney +2002 +167,000 +52,000 +— +40,000 +— +Senior Vice President and Vice +2001 +157,000 +14,000 +— +50,000 +— +President–Global Sourcing, +2000 +140,000 +24,000 +— +— +— +Production and Development +(1) +In 1997, the Company entered into a split-dollar +life insurance agreement with a trust established by +Douglas B. Otto, pursuant to which the Company and the +trust shared in the premium costs of life insurance policies +that pay cumulative death benefits upon the death of +Mr. Otto. The portion of the premium equal to the value of +the economic benefit is paid by the trust, with the Company +paying the remainder of the premiums. In 2002, the policies were +amended such that the Company no longer makes any premium +payments on the policy. The amounts above, $0 in 2002, $104,000 +in 2001 and $109,000 in 2000, reflect the present value of the +economic benefit to Mr. Otto of the portion of the premium +paid by the Company in 2002, 2001 and 2000, respectively. Upon +surrender of the policy or payment of the death benefits +thereunder, the Company is entitled to repayment of an amount +equal to the cumulative payments previously paid by the Company. +(2) +Effective December 31, 2002, +Mr. Benjamin resigned from his position as President and +Chief Operating Officer of the Company in order to return to his +role of directing Asian sales operations on behalf of the +Company. +8 +The following table sets forth information with +respect to options to purchase shares of the Company’s +Common Stock granted in 2002 to the Named Executive Officers. +Stock Option Grants in 2002 +Potential Realizable +% of Total +Value at Assumed +Options +Rates of Stock +Granted +Appreciation for +to +Exercise +Option Term(1) +Options +Employees +Price +Expiration +Name +Granted(#) +in 2002 +(per share) +Date +5% +10% +Douglas B. Otto +50,000 +10.5 +% +$ +4.30 +9/20/2012 +$ +135,000 +$ +343,000 +Peter C. Benjamin +— +— +— +— +— +— +Constance X. Rishwain +50,000 +10.5 +% +4.30 +9/20/2012 +135,000 +343,000 +M. Scott Ash +40,000 +8.4 +% +4.30 +9/20/2012 +108,000 +274,000 +Patrick C. Devaney +40,000 +8.4 +% +4.30 +9/20/2012 +108,000 +274,000 +(1) +The 5% and 10% assumed rates of appreciation are +specified under the rules of the Securities and Exchange +Commission and do not represent the Company’s estimate or +projection of the future Common Stock price. +The following table sets forth, for the Named +Executive Officers, information with respect to exercised +options, unexercised options and year-end option values, in each +case with respect to options to purchase shares of the +Company’s Common Stock. +Aggregated Option Exercises in 2002 +and +2002 Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options at +Shares +December 31, 2002 +December 31, 2002 +Acquired on +Value +Name +Exercise(#) +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas B. Otto +— +$ +— +250,000 +105,000 +$ +235,000 +$ +1,000 +Peter C. Benjamin +60,500 +197,000 +93,000 +— +58,000 +— +Constance X. Rishwain +11,400 +37,000 +86,000 +63,000 +37,000 +1,000 +M. Scott Ash +— +— +113,000 +67,000 +66,000 +1,000 +Patrick C. Devaney +— +— +103,000 +67,000 +66,000 +1,000 +Employment Agreements +Effective January 1992, Douglas B. Otto entered +into an employment agreement with the Company, which was +subsequently extended through 2004. For 2003, Mr. Otto’s +compensation includes a base salary of $345,000 and a target +bonus of $207,000, based upon the achievement of certain +performance criteria. In the event that performance targets are +surpassed, the bonus earned can exceed the target bonus amount. +If Mr. Otto’s employment agreement is terminated for +any reason, including “For Cause” as defined therein, +Mr. Otto will receive an annual payment of $345,000, +adjusted annually for any increase in the Consumer Price Index, +plus his existing employee benefits for three years from the +date of termination. After any termination of employment, +Mr. Otto may not compete with the Company for one year in +the United States (except in Montana and Wyoming). +In March 1999, Peter C. Benjamin entered into an +employment agreement with the Company through December 31, +2000, which was subsequently extended through 2002. The +agreement provided for a base salary of $260,000 in 2001 and +$283,000 in 2002. The agreement also provided for a target bonus +of $135,000 in 2001 and a target bonus of $142,000 in 2002, all +based upon the achievement of certain performance criteria. +Effective January 1, 2003, Mr. Benjamin resigned as +President and Chief Operating Officer in order to return to his +role of directing Asian sales operations on behalf of the +Company. +9 +On November 25, 2002, John A. Kalinich +entered into an employment agreement with the Company through +November 24, 2007. For 2003, Mr. Kalinich’s +compensation includes a base salary of $166,125 and an incentive +bonus of $30,000 to $60,000, based on mutually agreed +performance criteria established annually. At the commencement +of Mr. Kalinich’s employment, he was granted options +to purchase 50,000 shares of the Company’s Common +Stock, pursuant to the Company’s employee stock option +plan. Commencing in calendar year 2003, and annually as long as +he is an employee of the Company, Mr. Kalinich will be +granted additional options to purchase 10,000 shares of Common +Stock pursuant to the Company’s employee stock option plan. +Concurrent with the Company’s acquisition of +Teva, on November 25, 2002, Mark Thatcher entered into an +employment agreement with the Company through November 24, +2007. The agreement provides for an initial annual base salary +of $276,875 and provides that Mr. Thatcher shall be +included in any Company general incentive plan for a like-level +executive during his employment with the Company. The Company +also received a non-compete agreement from Mr. Thatcher, +which expires two years after termination of employment. +The other officers of the Company do not have +employment agreements with the Company and serve at the pleasure +of the Board. +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee (the +“Committee”) of the Board of Directors, consists +entirely of directors who have never served as officers or +employees of the Company or any of its subsidiaries. The +Committee determines and administers the compensation of the +Company’s executive officers. Set forth below are the +principal factors underlying the Committee’s philosophy +used in setting compensation. +Compensation +Philosophy — At the +direction of the Board of Directors, the Committee endeavors to +ensure that the compensation programs for executive officers of +the Company and its subsidiaries are competitive and consistent +in order to attract and retain key executives critical to the +Company’s long-term success. The Committee believes that +the Company’s overall financial performance should be an +important factor in the total compensation of executive +officers. At the executive officer level, the Committee has a +policy that a significant proportion of potential total +compensation should consist of variable, performance-based +components, such as stock options, stock awards and bonuses, +which can increase or decrease to reflect changes in corporate +and individual performance. These incentive compensation +programs are intended to reinforce management’s commitment +to enhancement of profitability and stockholder value. +The Committee takes into account various +qualitative and quantitative indicators of corporate and +individual performance in determining the level and composition +of compensation for the chief executive officer and other +executive officers. The Committee considers such corporate +performance measures as net sales, open orders, net income, +earnings per share and similar quantitative measures. The +Committee also appreciates the importance of achievements that +may be difficult to quantify, and accordingly recognizes +qualitative factors, such as successful supervision of major +corporate projects, demonstrated leadership ability and +contributions to industry and community development. For 2002, +the most important qualitative factors in determining incentive +compensation awards to executive officers were the +Committee’s assessments of their contributions to the +Company’s sales, open orders, and earnings per share, +excluding the litigation charges and cumulative effect of change +in accounting principle (“Adjusted EPS”). +The Committee also evaluates the total +compensation of the Company’s chief executive officer and +other executive officers in light of information regarding the +compensation practices and corporate financial performance of +similar companies in the Company’s industry. However, the +Committee does not target a specific percentile range within the +peer group compensation structure in determining compensation +for executive officers. From time to time, the Committee also +receives assessments and advice regarding the Company’s +compensation practices from independent compensation consultants. +Relationship of Performance to +Compensation — Compensation +that may be earned by the executive officers in any fiscal year +consists of base salary, cash bonus and stock options. Salaries +are reviewed +10 +periodically and adjusted as warranted to reflect +sustained individual performance. The Committee focuses +primarily on total annual compensation, including incentive +awards and cash bonuses, rather than base salary alone, as the +appropriate measure of executive officer performance and +contribution. +The executive officers receive incentive +compensation awards based on individual goals and milestones +established for each officer at the beginning of each year and +other factors as determined by the Committee. Such officers +receive compensation for the subsequent attainment of these +goals. +The 1993 Plan authorizes the Committee to make +grants and awards of stock options, stock appreciation rights, +restricted stock and other stock-based awards. The Committee +grants stock options to executive officers, as well as other +employees and consultants of the Company and its subsidiaries +below the executive officer level. Executive officers are +eligible to receive stock option grants, which the Committee +approves from time to time as it deems appropriate. +In approving grants and awards under the 1993 +Plan, the quantitative and qualitative factors and industry +comparisons outlined above will be considered. The number of +options previously awarded to and held by executive officers is +reviewed but is not an important factor in determining the size +of current option grants. +To the extent readily determinable and as one of +the factors in its consideration of compensation matters, the +Committee considers the anticipated tax treatment to the Company +and to the executives of various payments and benefits. Some +types of compensation payments and their deductibility (e.g., +the spread of exercise of non-qualified options) depend upon the +timing of an executive’s vesting or exercise of previously +granted rights. Further, interpretations of and changes in the +tax laws and other factors beyond the Committee’s control +also affect the deductibility of compensation. +Chief Executive Officer +Compensation — +Douglas B. Otto entered into an employment agreement, +effective January 1992, and subsequently extended through 2004. +For 2002, his employment agreement provides for an annual salary +of $345,000, based on an assessment and recommendation performed +by an independent compensation consultant. The amounts of +Mr. Otto’s bonuses are determined by the Compensation +Committee and are based upon a combination of factors, weighted +heavily toward the sales and operating results of the Company. +For 2002, Mr. Otto’s bonus was $388,000. +For 2002, the Committee based the majority of +Mr. Otto’s bonus on several criteria established at +the beginning of the year which were focused primarily on the +Company’s ability to achieve targeted goals for sales, open +orders and Adjusted EPS. In 2002, under the direction of +Mr. Otto, the Company exceeded the targeted goals for each +of these areas. In comparison to 2001, net sales increased by 8% +in 2002 and Adjusted EPS increased by 17%, despite the +challenging retail environment. Strategically, the Company was +able to successfully finance and complete the acquisition of +Teva, its flagship brand. In addition, the Company maintained +its strong operating cash flows, continued its expansion of Teva +into closed-toe footwear, and achieved its fifth consecutive +year of double-digit revenue growth for its Ugg brand. +In December 2002 and in February 2003, the +Committee established the compensation of the Company’s +Chief Executive Officer and its other executive officers for +fiscal year 2003. In each case, the Committee’s decision +was based upon the principles and procedures outlined above. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Daniel L. Terheggen +The Report of the Compensation Committee on +Executive Compensation shall not be deemed incorporated by +reference by any general statement incorporating by reference +this proxy statement into any filing under the Securities Act of +1933 or under the Securities Exchange Act of 1934, except to the +extent that the Company specifically incorporates this +information by reference, and shall not otherwise be deemed +filed under such acts. +11 +Compensation Committee Interlocks and Insider +Participation +As of the date of this Proxy Statement, the +members of the Compensation Committee were +Messrs. Burleson, Licklider, Gibbons and Terheggen, none of +whom was an officer or employee of the Company or any of its +subsidiaries during fiscal year 2002 or is a former officer or +employee of the Company or any of its subsidiaries. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible +for providing independent, objective oversight of the +Company’s accounting functions and internal controls. The +Audit Committee is currently composed of three directors, +each of whom is independent as defined by the National +Association of Securities Dealers’ listing standards and +who meet the expertise requirements under such standards. The +Audit Committee operates under a written charter approved by the +Board of Directors. +Management is responsible for the Company’s +internal controls and financial reporting process. The +independent accountants are responsible for performing an +independent audit of the Company’s consolidated financial +statements in accordance with generally accepted auditing +standards and to issue a report thereon. The Audit +Committee’s responsibility is to monitor and oversee these +processes. +In connection with these responsibilities, the +Audit Committee met with management and the independent +accountants to review and discuss the December 31, 2002 +financial statements. The Audit Committee also discussed with +the independent accountants the matters required by Statement on +Auditing Standards No. 61 (Communication with Audit +Committees) which includes, among other items, information +regarding the conduct of the audit of the Company’s +financial statements. The Audit Committee also received written +disclosures from KPMG LLP required by Independence +Standards Board Standard No. 1 (Independence Discussions +with Audit Committees), and the Audit Committee discussed with +KPMG LLP that firm’s independence from the Company and its +management. The Audit Committee has further considered the +compatibility of the services provided by KPMG LLP with +that firm’s independence. +Based upon the Audit Committee’s review and +discussions with management and independent accountants, the +Audit Committee recommended that the Board of Directors include +the audited consolidated financial statements in the +Company’s Annual Report on Form 10-K for the year +ended December 31, 2002, to be filed with the Securities +and Exchange Commission. +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +Audit and Non-audit Fees +For the year ended December 31, 2002 KPMG +LLP billed the Company for services rendered for the audit of +the Company’s financial statements and for other services +rendered. For 2002, fees for the annual financial statement +audit were $163,000 and all other fees were $361,000. Audit +services primarily consisted of the Company’s annual audit, +statutory audits of its overseas subsidiaries and quarterly +reviews of its consolidated financial statements. Non-audit +services consisted of $208,000 for planning and compliance +services for income taxes and customs matters, $100,000 for +audit related services and $53,000 for other services, including +consulting related to the acquisition of the Teva brand. +12 +STOCKHOLDER RETURN PERFORMANCE +PRESENTATION +Set forth below is a line graph comparing the +percentage change in the cumulative total stockholder return on +the Company’s Common Stock against the cumulative total +return of the Nasdaq Composite Index and a peer group index for +the five-year period commencing December 31, 1997 and +ending December 31, 2002. The data represented below +assumes $100 invested in each of the Company’s Common +Stock, the Nasdaq Composite Index and the peer group index on +December 31, 1997. The stock performance graph shall not be +deemed incorporated by reference by any general statement +incorporating by reference this proxy statement into any filing +under the Securities Act of 1933 or under the Securities +Exchange Act of 1934, except to the extent that the Company +specifically incorporates this information by reference, and +shall not otherwise be deemed filed under either of such Acts. +Comparison of Total Return (Assuming Dividend +Reinvestment) +December 31, 1997 +December 31, 1998 +December 31, 1999 +December 31, 2000 +December 31, 2001 +December 31, 2002 +Deckers Outdoor Corporation +100.0 +29.2 +35.0 +70.0 +56.7 +44.5 +Nasdaq Composite +100.0 +141.0 +248.8 +156.4 +124.6 +86.9 +Athletic Shoe Composite +100.0 +87.7 +108.0 +145.9 +131.4 +114.1 +* +Athletic Shoe Composite peer group index +consisting of Saucony Inc., K-Swiss, Nike Inc., Reebok +International Ltd., Rocky Shoes & Boots, Inc., The Stride +Rite Corporation, The Timberland Company, Vans Inc., Wolverine +World Wide Inc., Fila Holding SPA, and Kenneth Cole Productions. +13 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following security ownership information is +set forth, as of February 28, 2003, with respect to certain +persons or groups known to the Company to be beneficial owners +of more than 5% of the Company’s outstanding Common Stock +and with respect to each director of the Company, each of the +Named Executive Officers, and all current directors, nominees +and executive officers as a group (thirteen persons). Other than +as set forth below, the Company is not aware of any other person +who may be deemed to be a beneficial owner of more than 5% of +the Company’s Common Stock. +The Preferred Stock votes with the Common Stock +on all matters presented to the Stockholders with each share of +Preferred Stock entitled to one vote per share on all matters +except for the election of or removal of directors, other than +the director elected by the holders of the Preferred Stock +pursuant to Section 2(b) of the “Certificate Of +Designation of Series A Preferred Stock of Deckers Outdoor +Corporation.” +Name and Address of +Class of +Amount and Nature of +Beneficial Owner(1) +Stock +Beneficial Ownership(2),(3),(6) +Percent of Class(3) +Douglas B. Otto(4) +Common +3,343,450 +34.4 +% +Peter C. Benjamin +Common +105,049 +1.1 +% +M. Scott Ash +Common +118,000 +1.2 +% +Patrick C. Devaney +Common +117,002 +1.2 +% +Constance X. Rishwain +Common +89,156 +* +John A. Kalinich +Common +12,000 +* +Gene E. Burleson +Common +142,441 +1.5 +% +Rex A. Licklider(5) +Common +315,342 +3.3 +% +John M. Gibbons +Common +20,177 +* +Daniel L. Terheggen +Common +4,235 +* +Dimensional Fund Advisors, Inc.(7) +Common +588,100 +5.9 +% +Mark Thatcher(8) +Common +2,293,060 +20.4 +% +Mark Thatcher(9) +Preferred +1,375,000 +100.0 +% +All directors and executive officers as a group +(thirteen persons) +Common +4,744,913 +46.2 +% +(1) +The address of each beneficial owner is +495-A South Fairview Avenue, Goleta, California 93117, +unless otherwise noted. +(2) +Unless otherwise noted, sole voting and +dispositive power are possessed with respect to all shares of +Common Stock and Preferred Stock owned. +(3) +Shares of Common Stock subject to options +exercisable within 60 days after the Record Date and +issuable on conversion of Preferred Stock are treated as issued +and outstanding for the purpose of computing the percent of +Common Stock owned by the holder of the option or Preferred +Stock, but not for computing the percent of Common Stock owned +by any other person. +(4) +Includes (a) 2,393,750 shares held by the +Douglas B. Otto Trust as to which Mr. Otto has sole +voting and investment power, (b) 240,250 shares held +as trustee for the Tiffany Jade Otto Trust, of which +Mr. Otto has sole voting and investment power, +(c) 267,250 shares held as trustee for the +Ty Dylan Bard Otto Trust, of which Mr. Otto has sole +voting and investment power, (d) 64,200 shares held by +the Edgecliff Foundation, a charitable foundation formed by +Mr. Otto, of which Mr. Otto is the Chairman of the +Board of Directors, and (e) 118,000 shares held by +Mr. Otto’s wife. Mr. Otto disclaims ownership of +the shares held by his wife. +(5) +Includes 285,342 shares held by the +Licklider Living Trust as to which Mr. Licklider has joint +voting and investment power. +(6) +Includes shares under stock options that are +presently exercisable or are exercisable within 60 days for the +following: Douglas B. Otto — 260,000; Peter C. +Benjamin — 93,000; M. Scott Ash — +118,000; Patrick C. Devaney — 108,000; Constance +X. Rishwain — 87,589; John A. +Kalinich — 12,000; Gene E. +14 +Burleson — 30,000; Rex A. +Licklider — 30,000; John M. Gibbons — +6,666; Daniel L. Terheggen — 0; +Mark Thatcher — 250,000; and all directors and +executive officers as a group — 816,155. +(7) +This information is based solely on a +Schedule 13G/A filed by Dimensional Fund Advisors, Inc. on +February 3, 2003. The fund’s address is +1299 Ocean Ave., 11th Floor, Santa Monica, California +90401. +(8) +Includes (a) 528,743 shares of Common +Stock, (b) 250,000 Common Stock options that are +presently exercisable, all of which were issued in connection +with the Teva License Agreement dated June 7, 1999 and the +Asset Purchase Agreement dated October 9, 2002 and +(c) 1,514,317 shares of Common Stock resulting from the +potential conversion of 1,375,000 shares of Preferred Stock +at a conversion rate of 1.1013215 per share. +Mr. Thatcher’s address is: 515 N. Beaver St., +Flagstaff, Arizona 86001. +(9) +Each share of Preferred Stock is convertible into +1.1013215 shares of Common Stock commencing on November 25, +2005 (subject to adjustment for antidilution). +* +Percentage of shares beneficially owned does not +exceed 1% of the class so owned. +Equity Compensation Plan Information +Number of Securities +Number of +Remaining Available +Securities to be +Weighted-Average +For Future Issuance +Issued upon +Exercise Price of +Under Equity +Exercise +Outstanding +Compensation Plans +of Outstanding +Options, +(Excluding Securities +Options, Warrants +Warrants and +Reflected in +Plan Category +and Rights +Rights +Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +1,682,000 +(1) +$ +4.07 +774,000 +(2) +Equity compensation plans not approved by +security holders +150,000 +(3) +4.04 +— +Total +1,832,000 +4.06 +774,000 +(1) +Shares issuable pursuant to outstanding options +under the Company’s 1993 Employee Stock Incentive Plan. +(2) +Represents shares of the Company’s Common +Stock which may be issued pursuant to future awards under the +Company’s 1993 Employee Stock Incentive Plan. +(3) +Represents options that were issued to Mark +Thatcher in connection with the Teva License Agreement dated +June 7, 1999 as partial consideration for Teva license +rights. +15 +COMPLIANCE WITH SECTION 16(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Exchange Act of +1934 (the “Exchange Act”) requires the Company’s +directors, executive officers and persons who own more than 10% +of the Common Stock (collectively “Section 16 +Persons”) to file initial reports of ownership +(Forms 3) and reports of changes in ownership of Common +Stock (Forms 4 and Forms 5) with the Securities and +Exchange Commission as well as the Company. +To the Company’s knowledge, based solely on +a review of the copies of such reports furnished to the Company +and representations from each Section 16 Person known to +the Company that no other reports were required, during the +fiscal year ended December 31, 2002, all Section 16(a) +filing requirements applicable to its Section 16 Persons +were complied with except that Joseph E. Nida filed a +Form 4 on October 25, 2002, reporting the sale of +240 shares of Common Stock which was due to be reported on +October 19, 2002. +16 +PROPOSAL NO. 2 +INDEPENDENT AUDITORS +For the 2002 fiscal year, KPMG LLP provided audit +services which included examination of the Company’s annual +consolidated financial statements. The Audit Committee has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2003. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP +will attend the Annual Meeting to make any statements he or she +may desire and to respond to appropriate stockholder questions. +THE BOARD OF DIRECTORS OF THE COMPANY +RECOMMENDS A VOTE “FOR” THE +RATIFICATION OF THE ELECTION OF KPMG LLP AS +THE +COMPANY’S INDEPENDENT AUDITORS. +DATE FOR SUBMISSION OF STOCKHOLDER +PROPOSALS +FOR 2004 ANNUAL MEETING +Any proposal relating to a proper subject which +an eligible stockholder may intend to present for action at the +Company’s 2004 Annual Meeting of Stockholders and which +such stockholder may wish to have included in the proxy +materials for such meeting in accordance with the provisions of +Rule 14a-8 promulgated under the Exchange Act must be received +as far in advance of the meeting as possible in proper form by +the Secretary of the Company at 495-A South Fairview Avenue, +Goleta, California 93117 and in any event not later than +December 14, 2003. It is suggested that any such proposal +be submitted by certified mail, return receipt requested. +Alternatively, under the Company’s bylaws, +if a stockholder does not wish to include a proposal or a +nomination for the 2004 Annual Stockholders’ Meeting in the +Company’s proxy statement, the stockholder must give notice +thereof in writing to the Secretary of the Company not less than +90 days in advance of such meeting or, if later, the +seventh day following the first public announcement of the date +of such meeting. A stockholder’s submission must include +certain specified information concerning the proposal and +information as to the stockholder’s ownership of the +Company’s stock. In addition, the stockholder making such +proposal shall promptly provide any other information reasonably +requested by the Company. The Company will not entertain any +proposals or nominations at the annual meeting that do not meet +these requirements. If the stockholder does not also comply with +the requirements of Rule 14a-4 under the Securities +Exchange Act of 1934, the Company may exercise discretionary +voting authority under proxies it solicits to vote in accordance +with its best judgement on any such stockholder proposal or +nomination. Stockholders should contact the Company’s +Assistant Corporate Secretary in writing to Deckers Outdoor +Corporation, Attention: Scott Ash at 495-A South Fairview +Avenue, Goleta, CA 93117. The Company strongly encourages +stockholders to seek advice from knowledgeable counsel before +submitting a proposal or nomination. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come +before the Annual Meeting or any postponement or adjournment +thereof other than the election of directors and the +ratification of the selection of the Company’s independent +auditors. However, inasmuch as matters of which management is +not now aware may come before the meeting or any postponement or +adjournment thereof, the proxies confer discretionary authority +with respect to acting thereon, and the persons named in such +proxies intend to vote, act and consent in accordance with their +best judgment with respect thereto, provided that, to the extent +the Company becomes aware a reasonable time before the Annual +Meeting of any matter to come before such meeting, the Company +will provide an opportunity to vote by proxy directly on such +matter. Upon receipt of such proxies in time for voting, the +shares represented thereby will be voted as indicated thereon +and as described in this Proxy Statement. +17 +MISCELLANEOUS +The solicitation of proxies is made on behalf of +the Company and all the expenses of soliciting proxies from +stockholders will be borne by the Company. In addition to the +solicitation of proxies by use of the mails, officers and +regular employees may communicate with stockholders personally +or by mail, telephone, telegram or otherwise for the purpose of +soliciting such proxies, but in such event no additional +compensation will be paid to any such persons for such +solicitation. The Company will reimburse banks, brokers and +other nominees for their reasonable out-of-pocket expenses in +forwarding soliciting material to beneficial owners of shares +held of record by such persons. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +Goleta, California +April 11, 2003 +18 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on Behalf of the Board of Directors of Deckers Outdoor Corporation. The undersigned hereby +appoints Douglas B. Otto and M. Scott Ash, and each of them, as Proxies, each with the power to appoint his +substitute, and hereby authorizes each of them to represent and to +vote as designated below, all the shares of common stock of Deckers +Outdoor Corporation held of record by the undersigned on March 25, +2003, at the Annual Meeting of Shareholders to be held on May 19, 2003 and any postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE +ACCOMPANYING ENVELOPE. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ +Please mark +your vote as +indicated in +the example. +x +WITHHOLD +FOR +AUTHORITY +the nominees +to vote for the +listed below +nominees listed below +1. +ELECTION OF CLASS I +DIRECTORS: +Instruction: To withhold authority to vote for a nominee +listed below, strike a line +through the nominee's name. +o +o +Nominees: 01 John +M. Gibbons +02 Daniel +L. Terheggen +FOR +AGAINST +ABSTAIN +2. +TO RATIFY THE SELECTION +OF KPMG LLP AS THE COMPANY’S +INDEPENDENT AUDITORS. +o +o +o +3. +In their +discretion, the Proxies are authorized to vote upon such other +business as may properly come before such meeting or +any and +all postponements or adjournments thereof. +YES +NO +Do You Plan to Attend the Meeting? +o +o +This proxy when properly +executed will be voted in the manner directed herein by the +undersigned stockholder. If no direction is made, the Proxies will +vote for the nominees listed above, for the ratification of the +selection of KPMG LLP as the Company’s independent auditor and +in their discretion on matters described in Item 3. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY +USING THE ENCLOSED ENVELOPE. +Signature(s) ___________________________________________________________________ Dated _____________ 2003 +Please sign exactly as the name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign in full corporate name by the President or other authorized officer. If a partnership, please sign in the partnership name by an authorized person. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-03-000832/proxy_rpt.txt b/raw/proxies/0000910521/0000950148-03-000832/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0000950148-04-000761/proxy.txt b/raw/proxies/0000910521/0000950148-04-000761/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d77fe98ccfd3b0aa3b83e5d1cc76cee853813f2d --- /dev/null +++ b/raw/proxies/0000910521/0000950148-04-000761/proxy.txt @@ -0,0 +1,1665 @@ +DEF 14A +1 +v97203def14a.htm +DEFINITIVE PROXY STATEMENT +Deckers Outdoor Corporation +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[X] +Definitive Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to sec. 240.14a-12 +DECKERS OUTDOOR CORPORATION +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] +No +fee required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +DECKERS OUTDOOR CORPORATION +April 19, 2004 +Dear Stockholder: +We cordially invite you to attend our 2004 Annual Meeting of +Stockholders to be held at 3:00 p.m. on Monday, +June 7, 2004 at the offices of Sheppard, Mullin, Richter +and Hampton LLP, 800 Anacapa Street, Santa Barbara, +California 93101. Enclosed are the Notice of Annual Meeting, +Proxy Statement and a Proxy Card relating to the Annual Meeting +which we urge you to read carefully. Also enclosed is the +Company’s 2003 Annual Report to Stockholders on +Form 10-K. Whether or not you expect to attend the Annual +Meeting, please sign and date the enclosed Proxy Card and return +it as promptly as possible to ensure that your shares will be +voted. Properly executed Proxy Cards received by the Company +prior to the Annual Meeting will be voted in accordance with the +instructions indicated in such cards. Because mail delays occur +frequently, it is important that the enclosed Proxy Card be +returned well in advance of the meeting. +ON BEHALF OF YOUR +BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, +California 93117 +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +To be held June 7, 2004 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION +Notice is hereby given that the Annual Meeting of +Stockholders (the “Annual Meeting”) of Deckers Outdoor +Corporation, a Delaware corporation (the “Company”), +will be held at the offices of Sheppard, Mullin, Richter and +Hampton LLP, 800 Anacapa Street, Santa Barbara, California +93101, on Monday, June 7, 2004, beginning at +3:00 p.m., local time. The Annual Meeting will be held for +the following purposes: +1. To elect two (2) directors of the Company +to serve as Class II directors until the Annual Meeting of +Stockholders to be held in 2007. +2. To ratify the selection of KPMG LLP as +the Company’s independent auditors. +3. To transact such other business as may +properly come before the meeting or any postponements or +adjournments thereof. +The Board of Directors has fixed April 15, +2004 as the record date for the determination of stockholders +entitled to notice of and to vote at the Annual Meeting and any +postponements or adjournments thereof, and only stockholders of +record at the close of business on that date are entitled to +such notice and to vote at the Annual Meeting. +A list of stockholders entitled to vote at the +Annual Meeting will be available at the offices of the Company +for ten (10) days prior to the Annual Meeting. +We hope that you will use this opportunity to +take an active part in the affairs of the Company by voting on +the business to come before the Annual Meeting either by +executing and returning the enclosed Proxy Card or by casting +your vote in person at the Annual Meeting. +STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING +IN PERSON ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY CARD +AS PROMPTLY AS POSSIBLE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR +CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD +BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR +ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +Goleta, California +April 19, 2004 +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +To be Held June 7, 2004 +PROXY STATEMENT +This Proxy Statement is furnished in connection +with the solicitation of proxies by the Board of Directors of +Deckers Outdoor Corporation, a Delaware corporation (the +“Company”), for use at the Annual Meeting of +Stockholders (the “Annual Meeting”) to be held at +3:00 p.m., local time, on June 7, 2004, at the offices +of Sheppard, Mullin, Richter and Hampton LLP, 800 Anacapa +Street, Santa Barbara, California 93101, and any postponements +or adjournments thereof for the purposes set forth in the +accompanying Notice of Annual Meeting. This Proxy Statement and +the accompanying Form of Proxy were first mailed to stockholders +on or about May 3, 2004. +RECORD DATE AND VOTING +April 15, 2004 has been fixed as the record +date (the “Record Date”) for the determination of +stockholders entitled to notice of and to vote at the Annual +Meeting and any postponements or adjournments thereof. As of +April 15, 2004, there were outstanding +9,788,881 shares of the Company’s common stock, par +value $.01 per share (the “Common Stock”). A majority +of the shares of Common Stock entitled to vote, present in +person or represented by proxy, will constitute a quorum at the +meeting. +Each share of Common Stock issued and outstanding +on the Record Date is entitled to one vote on any matter +presented for consideration and action by the stockholders at +the Annual Meeting. With respect to all matters, other than the +election of the directors, the affirmative vote of a majority of +shares of the Company’s Common Stock present in person or +represented by proxy at the meeting and entitled to vote on the +subject matter will be the act of the stockholders. Directors +will be elected by a plurality of the votes of the shares of the +Company’s Common Stock present in person or represented by +proxy and entitled to vote on the election of directors. An +abstention on any proposal submitted to the stockholders, other +than the election of directors, will be included in the number +of votes cast on that proposal and, accordingly, will have the +effect of a vote “AGAINST” the proposal. Unless +otherwise instructed, proxies solicited by the Company will be +voted “FOR” the nominees named herein for election as +directors, “FOR” ratification of the selection of KPMG +LLP as the Company’s independent auditors, and in their +discretion upon such other business as may properly come before +such meeting or any and all postponements or adjournments +thereof. +If any other matters are promptly presented for +consideration at the annual meeting including, among other +things, consideration of a motion to adjourn the meeting to +another time or place in order to solicit additional proxies in +favor of the nominee of the Board of Directors, the persons +named as proxies and acting thereunder will have discretion to +vote on these matters according to their best judgement to the +same extent as the person delivering the proxy would be entitled +to vote. At the date this proxy statement went to press, we did +not anticipate any other matter would be raised at the annual +meeting. +With respect to brokers who are members of a +stock exchange, the exchange rules generally require that when +shares are registered in street or nominee name, its member +brokers must receive specific instructions from the beneficial +owners in order to vote on certain proposals. However, the +exchange rules do not require specific instructions in order for +a broker to vote on the election of the Class II directors +and on ratification of the selection of the Company’s +independent auditors. If a member broker indicates on the proxy +that such broker does not have discretionary authority as to +certain shares to vote on any proposal that does require +specific instructions, those shares will not be considered as +present and entitled to vote with respect to that proposal, and +accordingly will have the effect of reducing the number of +affirmative votes needed to approve the proposal. +1 +A stockholder giving a proxy has the power to +revoke it at any time before it is exercised by giving written +notice of revocation to the Secretary of the Company, by +executing a subsequent proxy, or by attending the Annual Meeting +and voting in person. Subject to any such revocation, all shares +represented by properly executed proxies will be voted in +accordance with the specifications on the enclosed proxy card. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s By-Laws state that the Board +of Directors shall consist of not less than one nor more than +seven members. The specific number of Board members within this +range is established by the Board of Directors and is currently +set at six. There are currently six Board members and no +vacancies. The Company’s Certificate of Incorporation +provides that the Board shall be classified into three classes +of directors, which classes serve staggered three-year terms. +The Board currently consists of two directors of each class. The +current term of the Class III directors expires at the +Annual Meeting of Stockholders to be held in 2005, the current +term of the Class I directors expires at the Annual Meeting +of Stockholders to be held in 2006, and the current term of each +Class II director expires at the June 7, 2004 Annual +Meeting of Stockholders. The Board of Directors is proposing +John A. Kalinich and Rex A. Licklider, who are now serving as +Class II directors, for re-election as Class II +directors at the Annual Meeting. Each of the Class II +directors elected at the Annual Meeting will serve until the +Annual Meeting of Stockholders to be held in 2007, until such +director’s successor has been duly elected and qualified or +until such director has otherwise ceased to serve as a director. +To the Company’s knowledge, each nominee is and will be +available to serve. The nominees have supplied the following +background information to the Company: +Director +Name +Age +Principal Occupation During the Last 5 Years of Experience +Since +John A. Kalinich +36 +Vice President and Director of Retail and +Licensing for the Company since November 2002, the nominee as a +Director by the Preferred Stock since November 2002, Chief +Operations Officer for the Company’s former Teva Licensor, +Teva Sport Sandals, Inc. from January 1995 to November 2002, +audit Senior Associate for Coopers & Lybrand from July 1991 +to January 1995. He is a Certified Public Accountant. +Mr. Kalinich has served as a Director of the Company since +2002. +2002 +Rex A. Licklider +61 +Co-Chief Executive Officer of The Sports Club +Company (AMEX-SCY), a developer and operator of health and +fitness clubs, since February 2000 and Vice Chairman since 1994, +founder and Partner of Pentium Investments, Inc., Chairman of +the Board and Chief Executive Officer of Com Systems, Inc., a +long distance telecommunications company, from 1975 to February +1992 and Chairman of the Board of Resurgens Communications +Group, with which Com Systems, Inc. had merged, from February +1992 to January 1993. Currently, he is a Director of The Sports +Club Company. Mr. Licklider has served as a Director of the +Company since 1993. +1993 +THE BOARD OF DIRECTORS OF THE COMPANY +RECOMMENDS A VOTE +“FOR” THE ELECTION OF THE ABOVE +NOMINEES. +3 +MANAGEMENT +The directors and executive officers of the +Company are set forth below. The following table includes +information with respect to each director and executive officer +of the Company. +Class of +Name +Age +Position +Director +Douglas B. Otto +52 +Chairman of the Board of Directors, Chief +Executive Officer and President +III +M. Scott Ash +39 +Chief Financial Officer and Assistant Secretary +Patrick C. Devaney +49 +Senior Vice President of Global Sourcing, +Production and Development +Constance X. Rishwain +46 +President of the UGG and Simple Divisions +Robert P. Orlando +51 +President of the Teva Division +Janice M. Howell +54 +Vice President of Operations +John A. Kalinich +36 +Vice President and Director of Retail and +Licensing and Director +II +Gene E. Burleson +63 +Director(1) +III +Rex A. Licklider +61 +Director(1) +II +John M. Gibbons +55 +Director(1) +I +Daniel L. Terheggen +53 +Director(1) +I +(1) +The Board of Directors has determined that each +of these Directors is “independent” as that term is +defined under Nasdaq Rule 4200(a)(15). +Douglas B. +Otto , co-founder of Deckers in +1973, has served as an executive officer and director since that +time, as Chairman of the Board and Chief Executive Officer since +1982 and as President since January 1, 2003. He also served +as President from March 1999 through February 2000 and +from 1982 through May 1998, and he served as Chief +Financial Officer from June 1990 through December 1992. +M. Scott +Ash has been our Chief Financial +Officer since January 1997 and our Assistant Secretary since +December 1999. He was our Controller from 1993 through 1996 and +was our Secretary from March 1999 to December 1999. Prior to +joining us, he was employed by Dole Food Company, Inc. from +August 1992 to January 1993 as Manager of Corporate Reporting. +Previously, he was a Senior Manager at KPMG LLP where he +was employed from September 1986 to August 1992. Mr. Ash is +a certified public accountant. +Patrick C. +Devaney has been our Senior Vice +President of Global Sourcing, Production and Development since +March 2000 and served as our Vice President of Global Sourcing, +Production and Development from November 1997 to March 2000. +Prior to joining us, Mr. Devaney was employed by Mizuno USA +where he was Director of Global Footwear from February 1990 to +June 1997 and was a Global Product/ Marketing Manager for Reebok +International from 1985 to December 1989. +Constance X. +Rishwain has been the President of +the UGG and Simple Divisions since December 2002 after serving +as Vice President, Brand Manager-Simple since January 2001, and +Vice President, Brand Manager-UGG since April 1999. Previously, +Ms. Rishwain held a variety of positions since joining us +in January 1995, including Vice President of Domestic Sales for +Teva, UGG and Simple from June 1999 to December 1999, Vice +President of Sales - Western Division for Teva, UGG and +Simple from December 1997 to June 1999 and Vice President +Merchandising for Teva, UGG and Simple from January 1995 to +December 1997. Before joining us, Ms. Rishwain held the +position of Vice President of Merchandising and Marketing for +Impo International Shoe Company from 1988 to 1994 and worked for +Nine West from 1984 to 1988 in several capacities. +Robert P. +Orlando has been the President of +the Teva Division since December 2002 and was the Vice +President - Brand Manager of Teva from May 2000 until +December 2002. Previously, Mr. Orlando worked for +adidas-Salomon North America where he was Vice President of +Footwear and Apparel from 1999 to 2000 and +4 +Business Unit Manager from 1996 to 1999. He was +President of Newport Outfitters, a footwear manufacturer, from +1994 to 1996. +Janice M. +Howell has been our Vice President +of Operations since December 2002, Director of Operations from +November 1999 to December 2002 and Director of Human Resources +and Administration from January 1992 to November 1999. +Ms. Howell previously was employed at Wavefront +Technologies, Inc., a computer graphics company, as Director of +Human Resources and Administration from 1986 to 1991. +John A. +Kalinich has served as a director +and as our Vice President and Director of Retail and Licensing +since November 2002, when he joined us in connection with our +acquisition of the Teva Rights at that time. Mr. Kalinich +currently serves as the director appointed by Mark Thatcher as +provided in the agreement between Mark Thatcher and us for our +acquisition of the Teva Rights. He is responsible for the +protection of our worldwide intellectual property and the +operation of the Internet websites for Teva, UGG and Simple. +Prior to joining us, Mr. Kalinich was the Chief Operations +Officer for Teva Sport Sandals, Inc. from January 1995 to +November 2002. Previously, Mr. Kalinich was employed as an +audit senior associate by Coopers & Lybrand LLP +from July 1991 to January 1995. Mr. Kalinich is a certified +public accountant. +Gene E. +Burleson has served as a director +since September 1993. Mr. Burleson served as Chairman of +the Board of Alterra Healthcare Corporation, an operator of +assisted living facilities, from January 2003 to December 2003 +and was a member of its board of directors from January 1995 to +December 2003. He served as Chairman of the Board of Mariner +Healthcare, Inc., a long-term healthcare provider, from January +1999 to May 2002 and as the Chief Executive Officer and a +director of Vitalink Pharmacy Services, Inc., a provider of +pharmacy services to nursing facilities, from February 1997 to +August 1997. He served as chairman of the Board of GranCare, +Inc., a provider of long-term and specialty health care +services, from January 1994 to November 1997 and as its Chief +Executive Officer from December 1990 to February 1997. +Rex A. +Licklider has served as a director +since September 1993. He has been Co-Chief Executive Officer and +a director of The Sports Club Company, a publicly held developer +and operator of health and fitness clubs, since February 2000 +and Vice Chairman since 1994. From February 1992 to January +1993, Mr. Licklider was Chairman of the Board of Resurgens +Communications Group, a long distance telecommunications +company, and from 1975 until February 1992, Mr. Licklider +was Chairman of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that +merged with Resurgens Communications Group in February 1992. +John M. +Gibbons has served as a director +since July 2000. From June 2000 until February 2004, +Mr. Gibbons was Vice Chairman of TMC Communications, +Inc., a long distance, data and Internet services provider, and +was its Chief Executive Officer from August 2001 until February +2004. From June 2000 to August 2001 he was President of +TMC Communications, Inc. Mr. Gibbons was Vice Chairman +of Assisted Living Concepts, Inc., a national provider of +assisted living services, from March 2000 to December 2001. +Previously, Mr. Gibbons was employed by The Sports Club +Company where he was Chief Executive Officer and a director from +July 1999 to February 2000 and was President and Chief Operating +Officer from July 1995 to July 1999. +Daniel L. +Terheggen has served as a director +since September 2002. Mr. Terheggen was the co-founder and +has been the Chief Executive Officer of BHPC Global Licensing, +Inc., an international licensing and marketing firm, since April +1990. Mr. Terheggen has also been the owner of Consolidated +Smart Systems, a provider of ancillary services to the +multi-housing market throughout California, since June 1973. +INFORMATION ABOUT THE BOARD OF DIRECTORS +AND +COMMITTEES OF THE BOARD OF DIRECTORS +Committees of the Board +The Company has an Audit Committee, a +Compensation Committee and a Corporate Governance and Nominating +Committee. +5 +Audit +Committee — The Board has a +standing Audit Committee that reviews the audit and control +functions of the Company, the Company’s accounting +principles, policies, practices and financial reporting, the +scope of the audit conducted by the Company’s auditors, the +fees and all non-audit services of the independent auditors and +the independent auditors’ opinion and letter of comment to +management and management’s response thereto. The Committee +met seven times during 2003. At the date of this Proxy +Statement, Mr. Gibbons was Chairman of the Audit Committee +and the Committee was comprised of Messrs. Burleson, +Licklider, and Gibbons. +Compensation +Committee — The Board’s +Compensation Committee (the “Compensation Committee”) +reviews and recommends to the Board the salaries, bonuses and +prerequisites of the Company’s executive officers. The +Compensation Committee also reviews and recommends to the Board +any new compensation or retirement plans and administers the +Company’s 1993 Employee Stock Incentive Plan (the +“1993 Plan”) and the Company’s 1995 Employee +Stock Purchase Plan (the “Stock Purchase Plan”). The +Committee met four times during 2003. At the date of this Proxy +Statement, Mr. Burleson was Chairman of the Compensation +Committee and the Committee was comprised of +Messrs. Burleson, Licklider, Gibbons, and Terheggen. +Corporate Governance and Nominating +Committee — The Board has a +Corporate Governance and Nominating Committee (the +“Corporate Governance Committee”) which helps assure +that the Company satisfies the requirements of NASDAQ and the +Securities and Exchange Commission regarding composition and +qualifications of the Board of Directors and seeks qualified +candidates for the Company’s Board of Directors when +additional Board members are to be added and when Board +vacancies are to be filled. The Committee met four times during +2003. At the date of this Proxy Statement, Mr. Licklider +was Chairman of the Corporate Governance Committee and the +Committee was comprised of Messrs. Licklider, Burleson and +Gibbons. +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and +Nominating Committee considers and approves nominees for +election to the Board of Directors. In addition to the +candidates proposed by the Board of Directors or identified by +the committee, the committee considers candidates for director +suggested by stockholders. Stockholder nominations that meet the +criteria outlined below will receive the same consideration that +the committee’s nominees receive. +Essential criteria for all candidates considered +by the Nominating and Governance Committee include the +following: integrity and ethical behavior, maturity, management +experience and expertise, independence and diversity of thought +and broad business or professional experience, with an +understanding of business and financial affairs, and the +complexities of business organizations. +In evaluating candidates for certain Board +positions, the committee evaluates additional criteria, +including the following: financial or accounting expertise; +industry expertise; accomplishment in designing, marketing, +manufacturing, distribution and licensing of footwear, apparel +and accessories; business and other experience relevant to +public companies of a size comparable to the Company; and +experience in investment banking, commercial lending or other +financing activities. +In selecting nominees for the Board of Directors, +the committee evaluates the general and specialized criteria set +forth above, identifying the relevant specialized criteria prior +to commencement of the recruitment process, considers previous +performance if the candidate is a candidate for re-election, and +generally considers the candidate’s ability to contribute +to the success of the Company. +The Board of Director’s nominees for the +Meeting have been recommended by the Nominating and Governance +Committee, as well as the full Board of Directors. +Stockholders did not propose any candidates for +election at the Meeting. +6 +Communications with Directors +You may communicate with the chair of our Audit +Committee, Corporate Governance and Nominating Committee, or +Compensation Committee, or with our independent directors as a +group, by writing to any such person or group c/o the +Secretary at 495-A South Fairview Avenue, Goleta, +CA 93117. +Communications are distributed to the Board of +Directors, or to any individual director, depending on the facts +and circumstances described in the communication. In that +regard, the Board of Directors has requested that certain items +that are unrelated to the duties and responsibilities of the +Board of Directors should be excluded, including the following: +junk mail and mass mailings; product complaints; product +inquiries; new product suggestions; resumés and other forms +of job inquiries; surveys; and business solicitations or +advertisements. In addition, material that is unduly hostile, +threatening, illegal or similarly unsuitable will not be +distributed, with the provision that any communication that is +not distributed will be made available to any independent +director upon request. +Director Attendance +In 2003, the Company held twelve meetings of the +Board of Directors. During 2003, all of the directors attended +at least 75% of the aggregate of the meetings of the Board and +of the committees of which they were members. +Director Compensation +Standard +Compensation — Directors who +are not employees of the Company or its subsidiaries +(“Nonemployee Directors”) receive an annual retainer +to be paid as follows: $11,000 in cash, or, at the option of a +Nonemployee Director, exercised ten days prior to the start of +each year, in Common Stock of the Company at a 20% discount off +the price of the shares at the closing price at the beginning of +the year; and 2,000 shares of the Common Stock of the Company +per year. Every three years, the Board sets the number of shares +for the following three years. Additionally, Nonemployee +Directors receive $1,500 for each meeting of the Board and +$1,000 for each separately scheduled committee meeting that they +attend plus reimbursement of any expenses they may incur with +respect to such meetings. The Audit Committee Chairman receives +an additional annual retainer fee of $12,000 and the Committee +Chairman for the Compensation Committee and the Corporate +Governance Committee each receive an annual retainer fee of +$4,000. Directors who are employees of the Company or its +subsidiaries serve as directors without compensation. +Stock +Options — Nonemployee +Directors receive additional compensation in the form of stock +options granted automatically under the 1993 Plan. Upon their +initial election to the Board of Directors, Nonemployee +Directors automatically receive options to purchase 10,000 +shares of Common Stock. Such options vest in annual one-third +installments, with the first such installment vesting on the +first anniversary of the date of grant of such option. In +addition, beginning on the fourth annual meeting of stockholders +after a Nonemployee Director is first elected, such Nonemployee +Director will automatically be granted each year options to +purchase 2,000 shares of Common Stock. Such additional options +will be fully vested and exercisable at the time of grant. All +options granted to Nonemployee Directors have an exercise price +equal to the fair market value of the shares on the date they +are granted. +7 +COMPENSATION OF EXECUTIVE OFFICERS +The following table sets forth for the years +ended December 31, 2003, 2002 and 2001, the reportable +compensation paid or awarded to the Chief Executive Officer and +to each of the four other most highly compensated executive +officers of the Company who were executive officers of the +Company at December 31, 2003 and received compensation in +excess of $100,000 in such year (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Securities +Underlying +Other Annual +Options/SARs +All Other +Name and principal position +Year +Salary +Bonus +Compensation +(#) +Compensation +Douglas B. Otto +2003 +$ +345,000 +$ +813,000 +— +25,000 +$ +— +Chief Executive Officer +2002 +345,000 +388,000 +— +50,000 +— +2001 +345,000 +18,000 +— +100,000 +104,000 +(1) +Constance X. Rishwain +2003 +160,000 +639,000 +— +20,000 +— +President of the UGG and +2002 +140,000 +103,000 +— +50,000 +— +Simple Divisions +2001 +140,000 +64,000 +— +30,000 +— +Patrick C. Devaney +2003 +167,000 +228,000 +— +20,000 +— +Senior Vice President of +2002 +167,000 +52,000 +— +40,000 +— +Global Sourcing, +2001 +157,000 +14,000 +— +50,000 +— +Production and Development +M. Scott Ash +2003 +146,000 +204,000 +— +20,000 +— +Chief Financial Officer +2002 +146,000 +82,000 +— +40,000 +— +2001 +146,000 +14,000 +— +50,000 +— +Robert P. Orlando +2003 +160,000 +137,000 +— +20,000 +— +President of the Teva Division +2002 +152,000 +62,000 +— +50,000 +— +2001 +152,000 +22,000 +— +25,000 +— +(1) +In 1997, the Company entered into a split-dollar +life insurance agreement with a trust established by +Douglas B. Otto, pursuant to which the Company and the +trust shared in the premium costs of life insurance policies +that pay cumulative death benefits upon the death of +Mr. Otto. The portion of the premium equal to the value of +the economic benefit is paid by the trust, with the Company +paying the remainder of the premiums. In 2002, the policies were +amended such that the Company no longer makes any premium +payments on the policy. The amounts above, $0 in 2003, $0 in +2002 and $104,000 in 2001, reflect the present value of the +economic benefit to Mr. Otto of the portion of the premium +paid by the Company in 2003, 2002 and 2001, respectively. Upon +surrender of the policy or payment of the death benefits +thereunder, the Company is entitled to repayment of an amount +equal to the cumulative payments previously paid by the Company. +8 +The following table sets forth information with +respect to options to purchase shares of the Company’s +Common Stock granted in 2003 to the Named Executive Officers. +Stock Option Grants in 2003 +Potential Realizable +% of Total +Value at Assumed +Options +Rates of Stock +Granted +Appreciation for +to +Exercise +Option Term(1) +Options +Employees +Price +Expiration +Name +Granted(#) +in 2003 +(per share) +Date +5% +10% +Douglas B. Otto +25,000 +12.1 +% +$ +19.00 +12/5/2013 +$ +299,000 +$ +757,000 +Constance X. Rishwain +20,000 +9.7 +% +19.00 +12/5/2013 +239,000 +606,000 +Patrick C. Devaney +20,000 +9.7 +% +19.00 +12/5/2013 +239,000 +606,000 +M. Scott Ash +20,000 +9.7 +% +19.00 +12/5/2013 +239,000 +606,000 +Robert P. Orlando +20,000 +9.7 +% +19.00 +12/5/2013 +239,000 +606,000 +(1) +The 5% and 10% assumed rates of appreciation are +specified under the rules of the Securities and Exchange +Commission and do not represent the Company’s estimate or +projection of the future Common Stock price. +The following table sets forth, for the Named +Executive Officers, information with respect to exercised +options, unexercised options and year-end option values, in each +case with respect to options to purchase shares of the +Company’s Common Stock. +Aggregated Option Exercises in 2003 +and +2003 Year-End Option Values +Number of Unexercised +Value of Unexercised +Options at +In-the-Money Options at +Shares +December 31, 2003 +December 31, 2003 +Acquired on +Value +Name +Exercise(#) +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +Douglas B. Otto +— +$ +— +290,000 +90,000 +$ +4,910,000 +$ +1,183,000 +Constance X. Rishwain +18,600 +77,100 +92,000 +58,000 +1,375,000 +711,000 +Patrick C. Devaney +— +— +130,000 +60,000 +2,109,000 +747,000 +M. Scott Ash +— +— +140,000 +60,000 +2,263,000 +747,000 +Robert P. Orlando +26,000 +62,300 +33,000 +61,000 +480,000 +761,000 +Employment Agreements +Effective January 1, 2004, the employment +agreement for Douglas B. Otto was amended and extended +through 2007. For 2004, Mr. Otto’s compensation +includes a base salary of $345,000 and a target bonus of +$207,000, based upon the achievement of certain performance +criteria. In the event that performance targets are surpassed, +the bonus earned can exceed the target bonus amount. If +Mr. Otto’s employment agreement is terminated for any +reason, including termination within two years of a Change in +Control, the Company will pay Mr. Otto severance in the +amount of three times his annual base salary in effect +immediately prior to the time such termination occurs, plus the +greater of (x) three times the targeted Incentive Bonus +immediately prior to the time such termination occurs or +(y) three times the average actual Incentive Bonus for the +previous three years, whichever is greater. +Effective January 1, 2004, the other Named +Executive Officers entered into separate employment agreements +with the Company, which will continue until December 31, +2005. The agreements provide for base salaries in the amounts of +$160,000, $167,000, $165,000 and $168,000 for Constance X. +Rishwain, Patrick C. Devaney, M. Scott Ash and Robert P. +Orlando, respectively, and target bonuses in the amounts of +$56,000, $50,000, $58,000 and $59,000, respectively. In the +event that performance targets are surpassed, the bonus earned +can exceed the target bonus amount. The agreements also provide +for severance payments to be made in the event of termination, +excluding “For Cause” as defined therein, and +including termination within two +9 +years of a Change in Control by the Company +without cause or by the Named Executive Officers for good +reason. The amount of severance pay ranges from one half to one +and one-half times the respective executive’s annual base +salary plus, if there is a change in control, the greater of +(x) one and one-half times the targeted Incentive Bonus +immediately prior to the time such termination occurs or +(y) one and one-half times the average actual Incentive +Bonus for the previous three years, whichever is greater. +CERTAIN TRANSACTIONS +In February 2002, we agreed to guarantee up to +$1,000,000 of principal for a home construction bank loan of +Doug Otto for up to three years. We provided the guarantee on +behalf of Mr. Otto in order to avoid any need for +Mr. Otto to sell a portion of his common stock in our +Company. During 2003, the largest amount outstanding at any time +on the loan from the bank to Mr. Otto was $1,800,000, and +the amount outstanding at December 31, 2003 was $1,000,000, +although we still only guaranteed up to $1,000,000. The loan +matures on June 1, 2004. +In December 2003, the Company repurchased all of +the outstanding convertible preferred stock of $5,500,000 from +Mark Thatcher. In connection with the repurchase, the Company +paid Mr. Thatcher a premium of approximately $438,000. +In November 2002, the Company entered into an +employment agreement with Mark Thatcher as part of its +acquisition of the Teva Rights from Mr. Thatcher. In +exchange for his services as an advisor on Teva matters, the +Company has agreed to pay Mr. Thatcher an annual salary of +$276,875 through 2007. Mr. Thatcher currently beneficially +owns approximately 7.8% of the Company’s common stock. +REPORT OF THE COMPENSATION COMMITTEE +ON EXECUTIVE COMPENSATION +The Compensation Committee (the +“Committee”) of the Board of Directors, consists +entirely of directors who have never served as officers or +employees of the Company or any of its subsidiaries. The +Committee determines and administers the compensation of the +Company’s executive officers. Set forth below are the +principal factors underlying the Committee’s philosophy +used in setting compensation. +Compensation +Philosophy — At the +direction of the Board of Directors, the Committee endeavors to +ensure that the compensation programs for executive officers of +the Company and its subsidiaries are competitive and consistent +in order to attract and retain key executives critical to the +Company’s long-term success. The Committee believes that +the Company’s overall financial performance should be an +important factor in the total compensation of executive +officers. At the executive officer level, the Committee has a +policy that a significant proportion of potential total +compensation should consist of variable, performance-based +components, such as stock options, stock awards and bonuses, +which can increase or decrease to reflect changes in corporate +and individual performance. These incentive compensation +programs are intended to reinforce management’s commitment +to enhancement of profitability and stockholder value. +The Committee takes into account various +qualitative and quantitative indicators of corporate and +individual performance in determining the level and composition +of compensation for the chief executive officer and other +executive officers. The Committee considers such corporate +performance measures as net sales, open orders, net income, +earnings per share and similar quantitative measures. The +Committee also appreciates the importance of achievements that +may be difficult to quantify, and accordingly recognizes +qualitative factors, such as successful supervision of major +corporate projects, demonstrated leadership ability and +contributions to industry and community development. For 2003, +the most important qualitative factors in determining incentive +compensation awards to executive officers were the +Committee’s assessments of their contributions to the +Company’s sales, open orders, and earnings per share. +The Committee also evaluates the total +compensation of the Company’s chief executive officer and +other executive officers in light of information regarding the +compensation practices and corporate financial performance of +similar companies in the Company’s industry. However, the +Committee does not target a +10 +specific percentile range within the peer group +compensation structure in determining compensation for executive +officers. From time to time, the Committee also receives +assessments and advice regarding the Company’s compensation +practices from independent compensation consultants. +Relationship of Performance to +Compensation — Compensation +that may be earned by the executive officers in any fiscal year +consists of base salary, cash bonus and stock options. Salaries +are reviewed periodically and adjusted as warranted to reflect +sustained individual performance. The Committee focuses +primarily on total annual compensation, including incentive +awards and cash bonuses, rather than base salary alone, as the +appropriate measure of executive officer performance and +contribution. +The executive officers receive incentive +compensation awards based on individual goals and milestones +established for each officer at the beginning of each year and +other factors as determined by the Committee. Such officers +receive compensation for the subsequent attainment of these +goals. +The 1993 Plan authorizes the Committee to make +grants and awards of stock options, stock appreciation rights, +restricted stock and other stock-based awards. The Committee +grants stock options to executive officers, as well as other +employees and consultants of the Company and its subsidiaries +below the executive officer level. Executive officers are +eligible to receive stock option grants, which the Committee +approves from time to time as it deems appropriate. +In approving grants and awards under the 1993 +Plan, the quantitative and qualitative factors and industry +comparisons outlined above will be considered. The number of +options previously awarded to and held by executive officers is +reviewed but is not an important factor in determining the size +of current option grants. +To the extent readily determinable and as one of +the factors in its consideration of compensation matters, the +Committee considers the anticipated tax treatment to the Company +and to the executives of various payments and benefits. Some +types of compensation payments and their deductibility (e.g., +the spread of exercise of non-qualified options) depend upon the +timing of an executive’s vesting or exercise of previously +granted rights. Further, interpretations of and changes in the +tax laws and other factors beyond the Committee’s control +also affect the deductibility of compensation. +Chief Executive Officer +Compensation — +Douglas B. Otto entered into an employment agreement, +effective January 1992, and subsequently extended through 2007. +For 2003, his employment agreement provided for an annual salary +of $345,000, based on an assessment and recommendation performed +by an independent compensation consultant. The amounts of +Mr. Otto’s bonuses are determined by the Compensation +Committee and are based upon a combination of factors, weighted +heavily toward the sales, open orders and operating results of +the Company. For 2003, Mr. Otto’s bonus was $813,000. +For 2003, the Committee based the majority of +Mr. Otto’s bonus on several criteria established at +the beginning of the year which were focused primarily on the +Company’s ability to achieve targeted goals for sales, open +orders and earnings. In 2003, under the direction of +Mr. Otto, the Company exceeded the targeted goals for each +of these areas. In 2003, the Company had record sales of +$121.1 million and record operating income of +$19.4 million; generated cash flow from operations of +$17.6 million, up 121% from that in 2002; improved the +balance sheet by repurchasing all $5.5 million of +outstanding preferred stock while repaying $4 million of +subordinated debt approximately four years ahead of schedule; +and experienced a 514% increase in stock price for the year. +11 +In December 2003 and in February 2004, the +Committee established the compensation of the Company’s +Chief Executive Officer and its other executive officers for +fiscal year 2004. In each case, the Committee’s decision +was based upon the principles and procedures outlined above. +COMPENSATION COMMITTEE +Gene E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +Daniel L. Terheggen +The Report of the Compensation Committee on +Executive Compensation shall not be deemed incorporated by +reference by any general statement incorporating by reference +this proxy statement into any filing under the Securities Act of +1933 or under the Securities Exchange Act of 1934, except to the +extent that the Company specifically incorporates this +information by reference, and shall not otherwise be deemed +filed under such acts. +Compensation Committee Interlocks and Insider +Participation +As of the date of this Proxy Statement, the +members of the Compensation Committee were +Messrs. Burleson, Licklider, Gibbons and Terheggen, none of +whom was an officer or employee of the Company or any of its +subsidiaries during fiscal year 2003 or is a former officer or +employee of the Company or any of its subsidiaries. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible +for providing independent, objective oversight of the +Company’s accounting functions and internal controls. The +Audit Committee is currently composed of three directors, +each of whom is independent as defined by the National +Association of Securities Dealers’ listing standards and +who meet the expertise requirements under such standards. The +Audit Committee operates under a written charter approved by the +Board of Directors. +Management is responsible for the Company’s +internal controls and financial reporting process. The +independent accountants are responsible for performing an +independent audit of the Company’s consolidated financial +statements in accordance with generally accepted auditing +standards and to issue a report thereon. The Audit +Committee’s responsibility is to monitor and oversee these +processes. The Board of Directors has determined that +John M. Gibbons, the Chairman of the Audit Committee, is an +audit committee financial expert and is independent. +In connection with these responsibilities, the +Audit Committee met with management and the independent auditors +to review and discuss the December 31, 2003 consolidated +financial statements. The Audit Committee also discussed with +the independent auditors the matters required by Statement on +Auditing Standards No. 61 (Communication with Audit +Committees) which includes, among other items, information +regarding the conduct of the audit of the Company’s +consolidated financial statements. The Audit Committee also +received written disclosures from KPMG LLP required by +Independence Standards Board Standard No. 1 (Independence +Discussions with Audit Committees), and the Audit Committee +discussed with KPMG LLP that firm’s independence from the +Company and its management. The Audit Committee has further +considered the compatibility of the services provided by +KPMG LLP with that firm’s independence. +12 +Based upon the Audit Committee’s review and +discussions with management and independent auditors, the Audit +Committee recommended that the Board of Directors include the +audited consolidated financial statements in the Company’s +Annual Report on Form 10-K as of and for the year ended +December 31, 2003, to be filed with the Securities and +Exchange Commission. +THE AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +Audit Fees and All Other Fees +Audit Fees +Fees for audit services totaled approximately +$170,000 in 2003 and $163,000 in 2002, including fees associated +with the annual audit, the reviews of the Company’s +quarterly reports on Form 10-Q, statutory audits required +internationally, and assistance with and review of documents +filed with the Securities and Exchange Commission. +Audit Related Fees +Fees for audit related services totaled +approximately $119,000 in 2002. Audit related services +principally include due diligence in connection with +acquisitions, consultation on accounting and internal control +matters, and audits in connection with proposed or consummated +acquisitions. No similar fees were incurred in 2003. +Tax Services Fees +Fees for tax services, including tax compliance, +tax advice and tax planning for income taxes and customs +matters, totaled approximately $271,000 in 2003 and $208,000 in +2002. +All Other Fees +Fees for all other services not described above +totaled approximately $34,000 in 2002 for consultation and +advice regarding hedge accounting. No similar fees were incurred +in 2003. +The Company has been advised by KPMG LLP that +neither the firm, nor any member of the firm, has any financial +interest, direct or indirect, in any capacity in the Company or +its subsidiaries. One or more representatives of KPMG LLP will +be present at this year’s Annual Meeting of Stockholders. +The representatives will have an opportunity to make a statement +if they desire to do so and will be available to respond to +appropriate questions. +Ratification of the appointment of the +independent auditors requires the affirmative vote of a majority +of the votes cast by the holders of the shares of Common Stock +voting in person or by proxy at the Annual Meeting of +Stockholders. If the stockholders should not ratify the +appointment of KPMG LLP, the Audit Committee will reconsider the +appointment. +Audit Committee Pre-Approval of Audit and +Permissible Non-Audit Services of Independent Auditors +The Audit Committee administers the +Company’s engagement of KPMG LLP and pre-approves all +audit and permissible non-audit services on a case-by-case +basis. In approving non-audit services, the Audit Committee +considers whether the engagement could compromise the +independence of KPMG LLP, and whether for reasons of +efficiency or convenience it is in the best interest of the +Company to engage its independent auditor to perform the +services. The audit committee has determined that performance by +KPMG LLP of the non-audit services listed above did not +affect their independence. +13 +Prior to engagement, the Audit Committee +pre-approves all independent auditor services. During the year, +circumstances may arise when it may become necessary to engage +the independent auditor for additional services not contemplated +in the original pre-approval categories. In those instances, the +Audit Committee requires that those services be submitted to the +committee for specific pre-approval before the Company can +engage for them. +The Audit Committee may delegate pre-approval +authority to one or more of its members. The member to whom such +authority is delegated reports any pre-approval decisions to the +Audit Committee at its next scheduled meeting. +14 +STOCKHOLDER RETURN PERFORMANCE +PRESENTATION +Set forth below is a line graph comparing the +percentage change in the cumulative total stockholder return on +the Company’s Common Stock against the cumulative total +return of the Nasdaq Composite Index and a peer group index for +the five-year period commencing December 31, 1998 and +ending December 31, 2003. The data represented below +assumes $100 invested in each of the Company’s Common +Stock, the Nasdaq Composite Index and the peer group index on +December 31, 1998. The stock performance graph shall not be +deemed incorporated by reference by any general statement +incorporating by reference this proxy statement into any filing +under the Securities Act of 1933 or under the Securities +Exchange Act of 1934, except to the extent that the Company +specifically incorporates this information by reference, and +shall not otherwise be deemed filed under either of such Acts. +Comparison of Total Return (Assuming Dividend +Reinvestment) +December 31, 1998 +December 31, 1999 +December 31, 2000 +December 31, 2001 +December 31, 2002 +December 31, 2003 +Deckers Outdoor Corporation +100.0 +120.0 +240.0 +194.3 +152.7 +937.1 +Nasdaq Composite +100.0 +176.4 +110.9 +88.4 +61.6 +92.7 +Athletic Shoe Composite +100.0 +123.0 +169.3 +152.7 +133.7 +205.0 +* +Athletic Shoe Composite peer group index +consisting of Saucony Inc., K-Swiss, Nike Inc., Reebok +International Ltd., Rocky Shoes & Boots, Inc., The Stride +Rite Corporation, The Timberland Company, Vans Inc., Wolverine +World Wide Inc., and Kenneth Cole Productions. In previous +years, this peer group index also included Fila Holding SPA, +which has been excluded from the index in all periods presented +above as its securities are no longer publicly-traded. +15 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following security ownership information is +set forth, as of March 31, 2004, with respect to certain +persons or groups known to the Company to be beneficial owners +of more than 5% of the Company’s outstanding Common Stock +and with respect to each director of the Company, each of the +Named Executive Officers, and all current directors, nominees +and executive officers as a group (eleven persons). Other than +as set forth below, the Company is not aware of any other person +who may be deemed to be a beneficial owner of more than 5% of +the Company’s Common Stock. +Name and Address of +Amount and Nature of +Beneficial Owner(1) +Beneficial Ownership(2),(3),(7) +Percent of Class(3) +Douglas B. Otto(4) +3,342,650 +33.1 +% +M. Scott Ash +145,000 +1.5 +% +Patrick C. Devaney +142,002 +1.4 +% +Constance X. Rishwain +94,000 +* +Robert P. Orlando +40,000 +* +John A. Kalinich +26,500 +* +Gene E. Burleson +154,258 +1.6 +% +Rex A. Licklider(5) +321,459 +3.3 +% +John M. Gibbons(6) +29,628 +* +Daniel L. Terheggen +11,250 +* +Mark Thatcher(8) +778,743 +7.8 +% +All directors and executive officers as a group +(eleven persons) +4,357,619 +41.0 +% +* +Percentage of shares beneficially owned does not +exceed 1% of the class so owned. +(1) +The address of each beneficial owner is +495-A South Fairview Avenue, Goleta, California 93117, +unless otherwise noted. +(2) +Unless otherwise noted, sole voting and +dispositive power are possessed with respect to all shares of +Common Stock owned. +(3) +Shares of Common Stock subject to options +exercisable within 60 days after the Record Date are +treated as issued and outstanding for the purpose of computing +the percent of Common Stock owned by the holder of the option, +but not for computing the percent of Common Stock owned by any +other person. +(4) +Includes (a) 2,398,750 shares held by the +Douglas B. Otto Trust as to which Mr. Otto has sole +voting and investment power, (b) 238,750 shares held +as trustee for the Tiffany Jade Otto Trust, of which +Mr. Otto has sole voting and investment power, +(c) 238,750 shares held as trustee for the +Ty Dylan Bard Otto Trust, of which Mr. Otto has sole +voting and investment power, (d) 48,400 shares held by +the Edgecliff Foundation, a charitable foundation formed by +Mr. Otto, of which Mr. Otto is the Chairman of the +Board of Directors, and (e) 118,000 shares held by +Mr. Otto’s wife. Mr. Otto disclaims ownership of +the shares held by his wife. +(5) +Includes 291,459 shares held by the +Licklider Living Trust as to which Mr. Licklider has joint +voting and investment power. +(6) +Includes 19,628 shares held by the Gibbons Living +Trust as to which Mr. Gibbons has joint voting and +investment power. +(7) +Includes shares under stock options that are +presently exercisable or are exercisable within 60 days for the +following: Douglas B. Otto — 300,000; M. Scott +Ash — 145,000; Patrick C. Devaney — +135,000; Constance X. Rishwain — 94,000; +Robert P. Orlando — 40,000; John A. +Kalinich — 26,500; Gene E. Burleson — +30,000; Rex A. Licklider — 30,000; John M. +Gibbons — 10,000; Daniel L. Terheggen — +3,333; Mark Thatcher — 250,000; and all directors +and executive officers as a group — 850,733. +(8) +Includes (a) 528,743 shares of Common +Stock and (b) 250,000 Common Stock options that are +presently exercisable, all of which were issued in connection +with the Teva License Agreement dated June 7, 1999 and the +Asset Purchase Agreement dated October 9, 2002. +Mr. Thatcher’s address is: 515 N. Beaver St., +Flagstaff, Arizona 86001. +16 +Equity Compensation Plan Information +Number of Securities +Number of +Remaining Available +Securities to be +Weighted-Average +For Future Issuance +Issued upon +Exercise Price of +Under Equity +Exercise +Outstanding +Compensation Plans +of Outstanding +Options, +(Excluding Securities +Options, Warrants +Warrants and +Reflected in +Plan Category +and Rights +Rights +Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +1,525,000 +(1) +$ +5.90 +669,000 +(2) +Equity compensation plans not approved by +security holders +— +— +— +Total +1,525,000 +5.90 +669,000 +(1) +Shares issuable pursuant to outstanding options +under the Company’s 1993 Employee Stock Incentive Plan. +(2) +Represents shares of the Company’s Common +Stock which may be issued pursuant to future awards under the +Company’s 1993 Employee Stock Incentive Plan. +17 +COMPLIANCE WITH SECTION 16(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Exchange Act of +1934 (the “Exchange Act”) requires the Company’s +directors, executive officers and persons who own more than 10% +of the Common Stock (collectively “Section 16 +Persons”) to file initial reports of ownership +(Forms 3) and reports of changes in ownership of Common +Stock (Forms 4 and Forms 5) with the Securities and +Exchange Commission as well as the Company. +To the Company’s knowledge, based solely on +a review of the copies of such reports furnished to the Company +and representations from each Section 16 Person known to +the Company that no other reports were required, during the +fiscal year ended December 31, 2003, all Section 16(a) +filing requirements applicable to its Section 16 Persons +were complied with except that Rex A. Licklider, Gene E. +Burleson, Daniel L. Terheggen and John M. Gibbons each filed a +Form 5 on February 10, 2004, which reported +transactions that were due to be reported on a Form 4 on +January 24, 2003, April 8, 2003, July 7, 2003, +October 20, 2003, and December 27, 2003. +18 +PROPOSAL NO. 2 +INDEPENDENT AUDITORS +For the 2003 fiscal year, KPMG LLP provided audit +services which included examination of the Company’s annual +consolidated financial statements. The Audit Committee has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2004. The stockholders are being requested to ratify such +selection at the Annual Meeting. A representative of KPMG LLP +will attend the Annual Meeting to make any statements he or she +may desire and to respond to appropriate stockholder questions. +THE BOARD OF DIRECTORS OF THE COMPANY +RECOMMENDS A VOTE “FOR” THE +RATIFICATION OF THE ELECTION OF KPMG LLP AS +THE +COMPANY’S INDEPENDENT AUDITORS. +STOCKHOLDER PROPOSALS AND DIRECTOR +NOMINATIONS +FOR THE 2005 ANNUAL MEETING +The Company’s Bylaws provide that a +stockholder seeking to bring business before an annual meeting +of stockholders, or to nominate a candidate for election as +director at an annual meeting of stockholders, must provide +timely advance written notice. To be timely, a +stockholder’s notice generally must be received at our +principal executive offices on or before the date 90 days +prior to the scheduled date of the annual meeting or, if it is a +later date, on or before the date seven days after the Company +first publishes notice of the annual meeting. +In addition, SEC rules provide that a stockholder +wishing to include a proposal in the proxy statement for the +Company’s 2005 annual meeting must submit the proposal so +that it is received by the Company at its principal executive +office, attention Corporate Secretary, at 495-A South Fairview +Avenue, Goleta, California 93117 no later than January 3, +2005. +Stockholders who wish the Corporate Governance +and Nominating Committee to consider a candidate for nomination +as a director at the 2005 annual meeting must submit advance +notice of the nomination to the committee a reasonable time +prior to the mailing date of the proxy statement for the 2005 +annual meeting. +Under our Bylaws, a stockholder’s notice of +a proposed nomination for director to be made at an annual +meeting must include the following information: +• +the name and address of the stockholder proposing +to make the nomination and of the person or persons to be +nominated; +• +a representation that the holder is a stockholder +entitled to vote his or her shares at the annual meeting and +intends to vote his or her shares in person or by proxy for the +person nominated in the notice; +• +a description of all arrangements or +understandings between the stockholder(s) supporting the +nomination and each nominee; +• +any other information concerning the proposed +nominee(s) that the Company would be required to include in the +proxy statement if the Board of Directors made the nomination; +• +the consent of the nominee(s) to serve as +director if elected. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come +before the Annual Meeting or any postponement or adjournment +thereof other than the election of directors and the +ratification of the selection of the Company’s independent +auditors. However, inasmuch as matters of which management is +not now aware may come before the meeting or any postponement or +adjournment thereof, the proxies confer discretionary authority +with respect to acting thereon, and the persons named in such +proxies intend to vote, act and consent in +19 +accordance with their best judgment with respect +thereto, provided that, to the extent the Company becomes aware +a reasonable time before the Annual Meeting of any matter to +come before such meeting, the Company will provide an +opportunity to vote by proxy directly on such matter. Upon +receipt of such proxies in time for voting, the shares +represented thereby will be voted as indicated thereon and as +described in this Proxy Statement. +MISCELLANEOUS +The solicitation of proxies is made on behalf of +the Company and all the expenses of soliciting proxies from +stockholders will be borne by the Company. In addition to the +solicitation of proxies by use of the mails, officers and +regular employees may communicate with stockholders personally +or by mail, telephone, telegram or otherwise for the purpose of +soliciting such proxies, but in such event no additional +compensation will be paid to any such persons for such +solicitation. The Company will reimburse banks, brokers and +other nominees for their reasonable out-of-pocket expenses in +forwarding soliciting material to beneficial owners of shares +held of record by such persons. +BY ORDER OF THE BOARD OF DIRECTORS +DOUGLAS B. OTTO +Chairman of the Board, President and +Chief Executive Officer +Goleta, California +April 19, 2004 +20 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This Proxy is solicited on Behalf of the Board of Directors of Deckers Outdoor Corporation. The undersigned hereby +appoints Douglas B. Otto and M. Scott Ash, and each of them, as Proxies, each with the power to appoint his +substitute, and hereby authorizes each of them to represent and to +vote as designated below, all the shares of common stock of Deckers +Outdoor Corporation held of record by the undersigned on April 15, +2004, at the Annual Meeting of Shareholders to be held on June 7, 2004 and any postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE +ACCOMPANYING ENVELOPE. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ +THIS PROXY WILL BE VOTED AS DIRECTED, +OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE +PROPOSALS +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF +DIRECTORS +Mark here +for Address +Change or +Comments +o +PLEASE SEE REVERSE SIDE +WITHHOLD +AUTHORITY +to vote for the +FOR +nominees listed below +1. +ELECTION OF CLASS I +DIRECTORS: +Instruction: To withhold authority to vote for a nominee +listed below, strike a line +through the nominee's name. +o +o +Nominees: 01 John +A. Kalinich +02 +Rex A. Licklider +FOR +AGAINST +ABSTAIN +2. +TO RATIFY THE SELECTION +OF KPMG LLP AS THE COMPANY’S +INDEPENDENT AUDITORS. +o +o +o +3. +In their +discretion, the Proxies are authorized to vote upon such other +business as may properly come before such meeting or +any and +all postponements or adjournments thereof. +WILL +ATTEND +If you plan to attend the +Annual Meeting, please mark the WILL ATTEND box +o +This proxy when properly +executed will be voted in the manner directed herein by the +undersigned stockholder. If no direction is made, the Proxies will +vote for the nominees listed above, for the ratification of the +selection of KPMG LLP as the Company’s independent auditor and +in their discretion on matters described in Item 3. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY +USING THE ENCLOSED ENVELOPE. +Signature _____________________________________Signature______________________________ Dated _____________ 2004 +Please sign exactly as the name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give your full title as such. If a corporation, please sign in full corporate name by the President or other authorized officer. If a partnership, please sign in the partnership name by an authorized person. +– – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– – – – – – – – – – – – – – +– +^ FOLD AND DETACH HERE ^ \ No newline at end of file diff --git a/raw/proxies/0000910521/0000950148-04-000761/proxy_rpt.txt b/raw/proxies/0000910521/0000950148-04-000761/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/proxies/0000910521/0001047469-08-005236/proxy.txt b/raw/proxies/0000910521/0001047469-08-005236/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..a8f5988508023226ff3b7b1eef6197f6548016ff --- /dev/null +++ b/raw/proxies/0000910521/0001047469-08-005236/proxy.txt @@ -0,0 +1,2189 @@ +DEF 14A +1 +a2185073zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +April 25, 2008 +Dear +Stockholder: +We +cordially invite you to attend our 2008 Annual Meeting of Stockholders to be held at 11:00 a.m., local time, on Thursday, May 29, 2008 at Deckers Outdoor Corporation's +headquarters, 495-A South Fairview Avenue, Goleta, California 93117. +Enclosed +are the Notice of Annual Meeting, Proxy Statement and a Proxy Card relating to the Annual Meeting which we urge you to read carefully. Also enclosed is the Company's 2007 Annual +Report. +Please +use this opportunity to take part in our affairs by voting on the business to come before the Annual Meeting. If you are a record holder of our Common Stock as of the close of +business on March 31, 2008, you are eligible to vote on these matters, either by attending the Annual Meeting in person or by Proxy. It is important that your shares be voted, whether or not +you plan to attend the Annual Meeting, to ensure the presence of a quorum. Therefore, please complete, date, sign, and return the accompanying Proxy Card in the enclosed +postage-paid envelope. Properly executed Proxy Cards received by the Company prior to the Annual Meeting will be voted in accordance with the instructions indicated +on such cards. Because mail delays occur frequently, it is important that the enclosed Proxy Card be returned well in advance of the Annual Meeting. Submitting the Proxy Card does NOT deprive you of +your right to attend the Annual Meeting and vote your shares in person for the matters acted on at the Annual Meeting. +Sincerely, +Angel +R. Martinez +President and Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 29, 2008 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders (the "Annual Meeting") of Deckers Outdoor Corporation, a Delaware corporation (the "Company"), will be held at the +Company's headquarters, 495-A South Fairview Avenue, Goleta, California 93117, on Thursday, May 29, 2008, beginning at 11:00 a.m., local time. The Annual Meeting will be held +for the following purposes: +1. Election of Directors. To elect eight (8) directors of the Company to serve until the Annual Meeting of Stockholders +to be held in 2009. +2. Amendment of the Company's Certificate of Incorporation. To approve an amendment to the Company's Amended and Restated +Certificate of Incorporation, as amended, to increase the number of shares of Common Stock that the Company is authorized to issue from 20,000,000 shares to 100,000,000 shares. +3. Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the selection of KPMG LLP as the +Company's independent registered public accounting firm for the year ending December 31, 2008. +4. Other Business. To consider and act upon such other business as may properly come before the Annual Meeting or any +postponements or adjournments thereof. +The +Board of Directors has fixed the close of business on March 31, 2008 as the record date (the "Record Date") for determining stockholders entitled to notice of and to vote at +the Annual Meeting and any continuations, postponements or adjournments thereof. Only stockholders of record at the close of business on the Record Date are entitled to such notice and to vote, in +person or by Proxy, at the Annual Meeting. +The +Proxy Statement that accompanies this Notice contains additional information regarding the proposals to be considered at the Annual Meeting, and stockholders are encouraged to read +it in its entirety. +Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held May 29, 2008: The Notice of 2008 Annual Meeting of +Stockholders, Proxy Statement, and 2007 Annual Report to Stockholders of Deckers Outdoor Corporation are available online at: +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 +The +Board of Directors welcomes your personal attendance at the Annual Meeting. However, whether or not you plan to attend, please sign and return the enclosed proxy, which you may +revoke at any time prior to its use. A self-addressed, postage prepaid envelope is enclosed for your convenience. Your proxy will not be used if you attend the Annual Meeting and choose to +vote in person. +BY +ORDER OF THE BOARD OF DIRECTORS +Angel +R. Martinez +President and Chief Executive Officer +Goleta, +California +April 25, 2008 +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +PLEASE COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. IF A STOCKHOLDER RECEIVES MORE THAN ONE +PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 29, 2008 +PROXY STATEMENT +GENERAL INFORMATION +This Proxy Statement is furnished in connection with the solicitation of Proxies by the Board of Directors of Deckers Outdoor Corporation, a Delaware corporation +(the "Company" or "Deckers"), +for use at its Annual Meeting of Stockholders (the "Annual Meeting") to be held at 11:00 a.m., local time, on May 29, 2008, at the Company's headquarters, 495-A South +Fairview Avenue, Goleta, California 93117, and any continuations, postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting. This Proxy Statement +and the accompanying Proxy Card (the "Proxy") were first mailed to stockholders on or about April 29, 2008. +Method of Voting and Voting Rights +Stockholders can vote by Proxy or by attending the Annual Meeting and voting in person. A Proxy is enclosed. If you vote by Proxy, the Proxy Card included with +this Proxy Statement must be completed, signed and dated by you or your authorized representative. The completed Proxy may be returned in the postage-paid envelope provided, or you may +vote via the internet or telephone as indicated on the Proxy Card instructions. Angel R. Martinez and Zohar Ziv, the designated proxyholders (the "Proxyholders"), are members of the Company's +management. If you hold Common Stock in "street name," you must either instruct your broker or nominee as to how to vote such shares or obtain a Proxy, executed in your favor by your broker or +nominee, to be able to vote at the Annual Meeting. +Meeting Quorum. In order to conduct business at the Annual Meeting, a quorum must be present. The presence at the Annual +Meeting, in person or represented by Proxy, of holders of a majority of the outstanding shares of the Company's Common Stock outstanding as of the Record Date, will constitute a quorum at the Annual +Meeting. We will treat shares of Common Stock represented by a properly signed and returned Proxy, including abstentions and broker non-votes (as defined below), as present at the Annual +Meeting for the purposes of determining the existence of a quorum. +Vote Required. Each share of Common Stock issued and outstanding on the Record Date is entitled to one vote on any matter +presented for consideration and action by the stockholders at the Annual Meeting. The eight directors to be elected at the Annual Meeting (Proposal No. 1) will be elected by a plurality of the +votes cast by stockholders present in person or represented by Proxy at the Annual Meeting and entitled to vote and voting. Approval of the proposal to amend the Company's Certificate of Incorporation +to increase the authorized shares of the Company's Common Stock from 20,000,000 shares to 100,000,000 shares (Proposal No. 2) will require the affirmative vote of holders of a majority of the +shares of our Common Stock outstanding as of the Record Date. Approval of each other matter to be voted on at the Annual Meeting, including Proposal No. 3 regarding the ratification +1 +of +the selection of KPMG LLP as the Company's independent registered public accounting firm, will require the affirmative vote of a majority of the shares present in person or represented by +Proxy at the Annual Meeting and entitled to vote (assuming that a quorum is present). +Abstentions. A stockholder may withhold authority to vote for one or more nominees for director and may abstain from one or +more of the other matters to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains from voting will be counted for purposes of determining whether a +quorum is present at the Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of directors (which requires a plurality of the votes cast). Shares +that a stockholder abstains from voting will be included in the total of votes cast and have the same effect as a vote AGAINST Proposals No. 2 and No. 3. +Broker Non-Votes. If your shares are held by a broker, the broker will vote your shares for you if you provide +instructions to your broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. "Broker non-votes" are +shares held by a broker or other nominee that are represented at the Annual Meeting, but with respect to which the broker or nominee has not received instructions from the beneficial owner of the +shares to vote on the particular proposal and does not have discretionary voting power on the proposal. Brokers holding shares of record for beneficial owners generally are entitled to exercise their +discretion to follow the recommendation of the Board of Directors and vote in favor of Proposals No. 1 and No. 3, but do not have the discretion to vote on Proposal No. 2 included +in this Proxy Statement unless they receive other instructions from their customers. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum at the +Annual Meeting but will not be counted for purposes of determining the number of shares represented and voting with respect to a proposal. Accordingly, broker non-votes will have no effect +on voting on the election of directors or on the ratification of the independent registered public accounting firm. However, broker non-votes will have the effect of a vote AGAINST +Proposal No. 2 regarding amendment of the Company's Certificate of Incorporation. +Voting Shares in Person that are Held Through Brokers. If your shares are held of record by your broker, bank or another +nominee and you wish to vote those shares in person at the Annual Meeting, you must obtain from the nominee holding your shares a properly executed legal Proxy identifying you as a Company +stockholder, authorizing you to act on behalf of the nominee at the Annual Meeting and identifying the number of shares with respect to which the authorization is granted. +Revocation of Proxy +A stockholder giving a Proxy has the power to revoke it at any time before it is exercised by giving written notice of revocation to the Secretary of the Company, +by executing a subsequent Proxy, or by attending the Annual Meeting and voting in person. If you have instructed your broker to vote your shares, you must follow directions received from your broker +to change those instructions. Subject to any such revocation, all shares represented by properly executed Proxies will be voted in accordance with the specifications on the enclosed Proxy. +Record Date +In accordance with the Company's Bylaws, the Board of Directors has fixed March 31, 2008 as the Record Date for the determination of stockholders entitled +to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. As of the close of business on March 31, 2008, there were 13,010,238 shares of the Company's Common +Stock outstanding. +Procedures for Stockholder Nominations +The Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at an annual meeting of stockholders must provide timely +advance written notice. To be timely, +2 +a +stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to the scheduled date of the annual meeting or, if it is a later date, on +or before the date seven days after the Company first publishes notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting must include the following information: +• the +name and address of the stockholder proposing to make the nomination and of the person or persons to be nominated; +• a +representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to vote his or her shares in person or by proxy for +the person nominated in the notice; +• a +description of all arrangements or understandings between the stockholder(s) supporting the nomination and each nominee; +• any +other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy Statement if the Board of Directors made the nomination; +and +• the +consent of the nominee(s) to serve as director if elected. +The +presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Stockholder nominations submitted +in accordance with the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and Nominating Committee. +Other Business +If any other matters are promptly presented for consideration at the Annual Meeting including, among other things, consideration of a motion to adjourn the Annual +Meeting to another time or place in order to solicit additional Proxies in favor of one or more of the proposals, the persons named as Proxyholders and acting thereunder will have discretion to vote +on these matters according to their best judgment to the same extent as the person delivering the Proxy would be entitled to vote. At the date this Proxy Statement went to press, we did not anticipate +that any other matter would be raised at the Annual Meeting. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's Bylaws state that the Board of Directors shall consist of not less than one or more than nine members. The specific number of Board members within +this range is established by the Board of Directors and is currently set at nine. There are currently eight Board members and one vacancy, and all directors are elected annually. +At +the Annual Meeting, stockholders will be asked to elect eight directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2009 and until +his or her successor is elected and qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons +nominated by the Board of Directors to become directors at the Annual Meeting are set forth below. Aside from Ruth M. Owades and Karyn O. Barsa, each of the proposed nominees currently serves as a +member of the Board of Directors. Ms. Owades' and Ms. Barsa's nominations were brought before the Corporate Governance and Nominating Committee who, after evaluating Ms. Owades' +and Ms. Barsa's qualifications, recommended such nominations to the Board of Directors. Douglas B. Otto, one of our current directors and the current Chairman of our Board of Directors, is not +standing for re-election as director at the Annual Meeting, and his term of office on the Board of Directors will end effective +3 +upon +the conclusion of the Annual Meeting. Gene E. Burleson, one of our current directors and the Chairman of the Compensation and Management Development Committee and a member of the Audit Committee +of the Board, is not standing for re-election as director at the Annual Meeting, and his term of office on the Board of Directors will end effective upon the conclusion of the Annual +Meeting. Accordingly, if all nominees for director are elected, then following the Annual Meeting the Board of Directors will consist of eight members and one vacancy, and a majority of the Board of +Directors and all members of each of its standing committees will continue to be "independent" under applicable regulations as described below. In addition, effective upon the conclusion of the Annual +Meeting, Angel R. Martinez, a current director and our Chief Executive Officer, will become Chairman of the Board. +The +election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person or by Proxy at the Annual Meeting. The persons named as +Proxyholders in the enclosed Proxy will vote to elect all eight proposed nominees named below unless contrary instructions are given in the Proxy. Broker non-votes and Proxies marked +"withheld" as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such +action. +Although +each of the persons named below has consented to serve as a director if elected and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the persons named as Proxyholders in the enclosed Proxy will vote for any substitute nominee +designated by the Board of Directors. +None +of the directors or nominees for director were selected pursuant to any arrangement or understanding, other than with the directors of the Company acting within their capacity as +such. There are no family relationships among directors, nominees for director or executive officers of the Company. +Nominees for Director +The names of the nominees for director and certain biographical information about them are set forth below: +Name +Age +Director Since +Principal Occupation +Angel R. Martinez +52 +2005 +President and Chief Executive Officer of the Company +Rex. A. Licklider(1)(2)(3) +65 +1993 +Chief Executive Officer and Vice Chairman of The Sports Club Company +John M. Gibbons(1)(2) +59 +2000 +Independent Consultant +John G. Perenchio(1)(3) +52 +2005 +Owner, Entrada Music LLC +Maureen Conners(1)(3) +61 +2006 +President of Conners Consulting +Tore Steen(2)(3) +70 +2007 +President and Chief Executive Officer of World Intelligent Network LLC +Ruth M. Owades +59 +— +Corporate Director +Karyn O. Barsa +47 +— +President of Investors' Circle +(1) Member +of the Compensation and Management Development Committee +(2) Member +of the Audit Committee +(3) Member +of the Governance and Nominating Committee +Angel R. Martinez , age 52, joined Deckers in April 2005 as President and Chief Executive Officer. In September 2005, he became a director +of the Company. Subject to his re-election as a director at +4 +the +Annual Meeting, Mr. Martinez will become Chairman of the Board, replacing Douglas B. Otto in that position. Previously, Mr. Martinez was Chief Executive Officer and Vice +Chairman of Keen LLC, an outdoor footwear manufacturer, from January 2005 to March 2005, after serving as President and Chief Executive Officer from April 2003 to December 2004, and as an +independent consultant since June 2002. Prior thereto he served as Executive Vice President and Chief Marketing Officer of Reebok International Ltd. and as Chief Executive Officer and President +of The Rockport Company, a subsidiary of Reebok. Mr. Martinez has been a member of the Board of Directors of Tupperware Brands Corporation since 1998. +Rex A. Licklider , age 65, has served as a director since September 1993. Mr. Licklider has been director and Vice Chairman of The +Sports Club Company, a developer and operator of health and fitness clubs, since May 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company since March 2004 +and as Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. From February 1992 to January 1993, Mr. Licklider was Chairman of the Board of +Resurgens Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chairman of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992. +John M. Gibbons , age 59, has served as a director since June 2000. Mr. Gibbons has been an independent consultant since April 2004. +From June 2000 to April 2004, Mr. Gibbons was Vice Chairman of TMC Communications, Inc., a long distance, data and Internet services provider, and was its Chief Executive Officer from +June 2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of National Technical Systems, Inc., a provider of +integrated testing, certification, quality registration, systems evaluation and staffing services, since September 2003. Mr. Gibbons was Vice Chairman of Assisted Living Concepts, Inc., +a national provider of assisted living services, from March 2000 to December 2001. Previously, Mr. Gibbons was employed by The Sports Club Company, a developer and operator of health and +fitness clubs, where he was Chief Executive Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +John G. Perenchio , age 52, has served as a director since December 2005. Since 2003, Mr. Perenchio has been the owner and operator +of Entrada Music LLC, a holding company with controlling interests in Fearless Records LLC, a boutique indie rock music label; and Smartpunk, LLC, an internet music retail store. +From 1990 to 2003, Mr. Perenchio served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and +real estate industries. From 1984 to 1990, Mr. Perenchio was the Director of Contemporary Music at Triad Artists, Inc., one of the premier talent agencies in the world, and prior to +that, from 1982 to 1984, practiced law as an attorney in California. From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading Spanish-language media company +in the United States. +Maureen Conners , age 61, has served as a director since September 2006. Ms. Conners is President of Conners Consulting, which she +founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp +Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. Prior to founding +Conners Consulting, Ms. Conners held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to +that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Ms. Conners has an MBA from the Wharton School of the University of +Pennsylvania. +5 +Tore Steen , age 70, has served as a director since May 2007. Mr. Steen has been the owner and President/CEO of World Intelligent +Network, LLC (formerly the Coventry Group, Inc.), and of management, consulting and holding companies, since 1995. He also served as President of the IOS Foundation from 2003 to 2004. +From March 1991 to March 1995, Mr. Steen served as President and CEO of H.C. Inc. and later as Chairman and CEO of Cascade General, Inc., both major west coast ship repair +companies. Mr. Steen was the Executive Vice President, Finance for WTD Industries, Inc., a NASDAQ forest products company, from January 1989 to December 1990. Previously, +Mr. Steen had +been involved at executive and board levels of NYSE, NASDAQ and London Stock Exchange companies. Early in his career, he was with Citibank and Chemical Bank (now JPMorgan) and for seven years built a +major international financial services company with operations in sixteen countries globally. He holds an MBA in International Finance from the University of Oregon. Mr. Steen has served on +many corporate and not-for-profit boards, including the World Technology Group, ABSO Alarms Company, the Young Presidents' Organization, the World Presidents' Organization, the +Chief Executives Organization, Outward Bound, and the Regional Drug Initiative. +Ruth M. Owades , age 59, has been nominated for election as a director of the Company. Ms. Owades' principal occupation is as a +Corporate Director for various private companies, and she is a frequent lecturer and consultant on corporate governance. Since 2006, Ms. Owades has served as a director on the Western Advisory +Board of Northern Trust Corporation. From 2002 to 2006, Ms. Owades was a director of Armstrong World Industries, a manufacturer and wholesaler of flooring, ceiling and cabinetry products. From +1997 to 2006, she was a director of the J. Jill Group, a women's apparel, accessory and footwear retailer, and between 1998 and 2005 she served as a director of Providian Financial Corporation. From +1988 until 2000, Ms. Owades was the Founder, CEO and Chairman of Calyx & Corolla, Inc., the first fresh flower catalog and online retailer. From 2000 to 2002, she served as a +consultant to the financial group that purchased Calyx & Corolla. Prior thereto Ms. Owades was Founder and CEO of Gardener's Eden, Inc., a catalog and retailer of upscale +gardening tools, accessories and outdoor furniture. She sold the company to Williams-Sonoma, Inc., continuing to serve for five years as President. Ms. Owades is a graduate of Scripps +College in Claremont, California and earned an MBA from Harvard Business School. +Karyn O. Barsa , age 47, has been nominated for election as a director of the Company. Since February 2008, she has served as President and +Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. Between May 2007 and February 2008, she was Chief Executive +Officer of Embark Stores, Inc., a start-up pet supplies retailer where she remains on the advisory board, and prior to this time she was an independent investor. Between 1999 and +2001, Ms. Barsa was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer, and prior to that she was Chief Operating Officer and Chief Financial Officer +of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. She serves on the advisory board of inResonance, Inc. and is a Trustee of the Institute of Interpersonal +Psychology. Ms. Barsa holds a BA in Economics from Connecticut College and an MBA from the University of Southern California. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +6 +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the direction of the Board of Directors. Thus, +the Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive Officer and other senior officers, by reviewing materials requested by them or otherwise provided to +them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, the Board of Directors acts as an advisor and counselor to senior +management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +The Board affirmatively determines the independence of each director and nominee for election as a director in accordance with guidelines it has adopted, which +include all elements of independence set forth in Marketplace Rule 4200(a) (15) of the National Association of Securities Dealers, Inc. ("NASD") and applicable rules of the +Securities and Exchange Commission ("SEC"). These guidelines help ensure that the Board and its committees are independent from management and that the interests of the Board and management align with +the interests of the stockholders. Based on these standards, the Board has determined that each of the Company's directors, other than Mr. Otto and Mr. Martinez, is +independent. The Board has further determined that Ms. Owades and Ms. Barsa, current nominees for director, are "independent" under the standards described above. +Board of Directors and Committee Meetings +The Board of Directors held four meetings during the year ended December 31, 2007. For the fiscal year ended December 31, 2007, each of the +directors attended at least 75% of the aggregate number of meetings of both the Board of Directors and the committees on which he or she served, held during the period for which he or she was a +director or committee member, respectively. +The +Company has not adopted a formal policy on members of the Board of Directors attendance at its annual meeting of stockholders, although all members of the Board of Directors are +invited to attend. All members of the then Board of Directors attended the Company's 2007 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three committees: an Audit Committee, a Compensation and Management Development Committee and a Corporate Governance and Nominating +Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term is defined under NASD Marketplace +Rule 4200(a) (15) and applicable rules of the SEC. +Audit Committee +The Board has a standing Audit Committee that (i) monitors the integrity of the Company's financial reporting process and systems of internal controls +regarding finance, accounting and legal compliance; (ii) monitors the independence and performance of the Company's independent registered public accounting firm, (iii) provides +management and oversight of the internal audit department, and (iv) provides an avenue of communications among the independent registered public accounting firm, +7 +Chief +Audit Executive, management and the Board of Directors. The committee held eight regularly scheduled meetings during 2007. The committee held an additional fifteen meetings during 2007 related +to the Company's investigation of certain matters in the Far East and the related restatement of its consolidated financial statements as disclosed in its Amended Annual Report on +Form 10-K/A for the year ended December 31, 2006 and its condensed consolidated financial statements as disclosed in its Amended Quarterly Report on +Form 10-Q/A for the period ended March 31, 2007. At the date of this Proxy Statement, Mr. Gibbons was Chairman of the Audit Committee and the committee was comprised +of Messrs. Gibbons, Burleson, Licklider and Steen. The Board has determined that Mr. Gibbons qualifies as an "audit committee financial expert" as defined under the rules of the SEC. All +of the members of the Audit Committee meet the independence and experience requirements of the NASD rules and the independence requirements of the SEC. The Audit Committee operates under a formal +charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Compensation and Management Development Committee +The Board's Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives relevant to compensation of the +executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the compensation level of the executive +officers based on this evaluation, and (iv) makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans. The Compensation and Management Development +Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1993 Employee Stock Incentive Plan (the "1993 Plan"), the Company's 1995 +Employee Stock Purchase Plan (the "1995 Plan"), and the Company's 2006 Equity Incentive Plan (the "2006 Plan"). The committee held four regularly scheduled meetings and two additional meetings for +employment contract review during 2007. At the date of this Proxy Statement, Mr. Burleson was Chairman of the Compensation and Management Development Committee and the committee was comprised +of Messrs. Burleson, Licklider, Gibbons, and Perenchio and Ms. Conners. All of the members of the Compensation and Management Development Committee meet the independence requirements of +all applicable NASD and SEC rules and regulations. The Compensation and Management Development Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available +on the Company's website at http://www.deckers.com . +Corporate Governance and Nominating Committee +The Board's Corporate Governance and Nominating Committee (i) develops and recommends to the Board a set of corporate governance principles applicable to +the Company, (ii) recommends the director nominees to be selected by the Board for the next annual meeting of stockholders, (iii) identifies individuals qualified to become Board +members, consistent with criteria approved by the Board and (iv) oversees the evaluation of the Board and management. The committee met four times during 2007. At the date of this Proxy +Statement, the Corporate Governance and Nominating Committee was comprised of Messrs. Licklider, Perenchio and Steen and Ms. Conners, and Mr. Licklider was the Chairman. All of +the members of the Corporate Governance and Nominating Committee meet the independence requirements of all applicable NASD and SEC rules and regulations. The Corporate Governance and Nominating +Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee consider and approve nominees for election to the Board of Directors. In addition to the +candidates proposed by the Board +8 +of +Directors or identified by the committee, the committee considers candidates for director suggested by stockholders, provided such recommendations are made in accordance with the procedures set +forth in the Company's Bylaws and described above under "Procedures for Stockholder Nominations." Stockholder nominations that meet the criteria outlined below will receive the same consideration that +the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee include the following: integrity and ethical behavior, maturity, management +experience and expertise, independence and diversity of thought and broad business or professional experience, with an understanding of business and financial affairs, and the complexities of business +organizations. +In +evaluating candidates for certain Board positions, the committee evaluates additional criteria, including the following: financial or accounting expertise; industry expertise; +accomplishment in designing, marketing, manufacturing, distribution and licensing of footwear, apparel and accessories; business and other experience relevant to public companies of a size comparable +to the Company; and experience in investment banking, commercial lending or other financing activities. +In +selecting nominees for the Board of Directors, the committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and generally considers the candidate's ability to contribute to +the success of the Company. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +Stockholders +did not propose any candidates for election at the Annual Meeting. +Lead Director +In March 2008, the Board of Directors established the position of Lead Director and elected Mr. Licklider to serve in that position, effective with the +2008 Annual Meeting, for a two-year term, subject to his earlier replacement, retirement or resignation. The Lead Director is an independent director who is selected for a +two-year term by the independent directors on the Board. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agenda for the executive +sessions of the Board and other meetings of the Board in the absence of the Chairman of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in the absence +of the Chairman of the Board, (iii) serving as a liaison between the Chairman of the Board and the other independent directors; and (iv) approving meeting agenda, information and meeting +schedules for circulation to the Board. The Lead Director has the authority to call meetings of independent directors. +Communications with Directors +Stockholders may communicate with the chair of our Audit Committee, Corporate Governance and Nominating Committee, or Compensation and Management Development +Committee, or with our independent directors as a group, by writing to any such person or group c/o the Secretary of the Company, at the Company's offices at 495-A South Fairview Avenue, +Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of +Directors should be excluded, including the following: junk mail and mass mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; +and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any +communication that is not distributed will be made available to any independent director upon request. +9 +Code of Ethics +The Company has adopted a Code of Ethics to help its officers, directors and other employees comply with the law and maintain the highest standards of ethical +conduct. The Code of Ethics contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics, and is intended to qualify as a "code of +ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. All of the Company's officers, directors and employees must carry out their +duties in accordance with the policies set forth in the Code of Ethics and with applicable laws and regulations. The Code of Ethics appears as Exhibit 14.1 to our Annual Report on +Form 10-K for the fiscal year ended December 31, 2003. A copy of the Code of Ethics is available free of charge by writing to the Secretary of the Company at the Company's +executive offices at 495-A South Fairview Avenue, Goleta, California 93117. A free copy can also be obtained from our corporate website at www.deckers.com . +Compensation Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted of Messrs. Burleson, Licklider, +Gibbons, and Perenchio and Ms. Conners, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2007 or is a former officer or employee of the +Company or any of its subsidiaries. None of these directors had any relationship with the Company during 2007 requiring disclosure under Item 404 of Regulation S-K. None of our executive +officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has an executive officer serving on our board of directors +or compensation committee. +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for the executive officers of the Company who +are not directors is set forth below. There are no family relationships between any executive officer and any other executive officer or director. +None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. +Name +Age +Position +Angel R. Martinez +52 +President, Chief Executive Officer and Director +Zohar Ziv +55 +Chief Operating Officer, Chief Financial Officer and Assistant Secretary +Constance X. Rishwain +50 +President of the UGG and Simple Divisions +Colin G. Clark +45 +Senior Vice President, International +Peter K. Worley +47 +President of the Teva Division +The biographical summary for Mr. Martinez is presented earlier under the heading "Nominees for Director." +Zohar Ziv , age 55, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also serves as our Assistant Secretary. Previously, from February 2004 to December 2005, Mr. Ziv was Chief Financial +Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, Mr. Ziv was Chief Financial Officer of Stravina Operating Company, LLC, a +supplier of personalized novelty items in North America, from June 2002 to February 2004. Mr. Ziv has also served as Chief Financial Officer of Joico Laboratories, Inc., a multi-national +manufacturer and marketer of hair products, from July 2001 to June 2002. +10 +Constance X. Rishwain , age 50, has been the President of the UGG and Simple Divisions since December 2002 after serving as Vice President, +Brand Manager-UGG since April 1999 and Vice President, Brand Manager-Simple since January 2001. Previously, Ms. Rishwain held a variety of positions since joining us in January +1995, including Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of Sales—Western Division for Teva, UGG and Simple from December +1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining us, Ms. Rishwain held the position of Vice President of +Merchandising and Marketing for Impo International Shoe Company from 1988 to 1994 and worked for Nine West Group Inc. from 1984 to 1988 in several capacities. +Colin G. Clark , age 45, joined Deckers in September 2005 as Senior Vice President, International. Prior to joining Deckers, from October +1991 to June 2004, Mr. Clark spent nearly thirteen years at The Rockport Company, a subsidiary of Reebok International Ltd., most recently serving as Vice President and General +Manager—International. From 1991 to 2001, Mr. Clark held various senior positions at Rockport, including Vice President—Global Marketing, Vice +President—International, Director and General Manager—United Kingdom, and Sales Manager—United Kingdom. +Peter K. Worley , age 47, joined Deckers in March 2006 as President of the Company's Teva brand. From October 2005 to March 2006, +Mr. Worley served as Vice President of U.S. Sales with K-Swiss, Inc. From May 1996 to October 2005, Mr. Worley was Vice President of Product Design and Development +with K-Swiss. From 1991 to 1996 and from 1986 to 1989, Mr. Worley held various managerial positions with Reebok International Ltd. +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee (for purposes of this analysis, the "Committee") of the Board of Directors (the "Board") (i) reviews +and approves corporate goals and objectives relevant to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, +(iii) determines and approves the compensation level of the executive officers based on this evaluation, and (iv) makes recommendations to the Board with respect to cash incentive +compensation plans and equity incentive plans. The Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1993 Plan, 1995 Plan and +2006 Plan. The Committee met four times during 2007. At the date of this Proxy Statement, Mr. Burleson was Chairman of the Committee and the Committee was comprised of Messrs. Burleson, +Licklider, Gibbons and Perenchio and Ms. Conners. The Committee consists entirely of directors who have never served as officers or employees of the Company or any of +its subsidiaries and who meet the independence requirements under all applicable NASD and SEC rules and regulations. +Throughout +this Proxy Statement, the individuals who served during fiscal 2007 as the Company's Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and the other three most +highly compensated executive officers of the Company who were executive officers of the Company as of December 31, 2007 and received compensation in excess of $100,000 in such year are referred +to as the "Named Executive Officers." +Compensation Philosophy and Objectives +At the direction of the Board, the Compensation and Management Development Committee endeavors to ensure that the compensation programs for executive officers of +the Company and its subsidiaries are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term success. The +Committee also must ensure that the compensation is attractive to key executives with the proper background and experience required for the future growth of the Company. The Committee believes that +the Company's overall financial +11 +performance +and stockholder value should be the most important factors in determining the total compensation of executive officers. At the executive officer level, the Committee has a policy that a +significant proportion of potential total compensation should consist of variable, performance-based components, such as share-based awards and annual incentive plan compensation, which can increase +or decrease to reflect changes in corporate and individual performance. These incentive compensation programs are intended to reward performance that enhances profitability and stockholder value. +The +Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such corporate performance measures as net sales, gross margins, operating expenses, diluted earnings per share +and similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as successful +supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2007, the most important qualitative factors in determining +incentive compensation awards to the Named Executive Officers were the Committee's assessments of their contributions to the Company's and stockholders' value by establishing and implementing a +strategy for long-term success. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. The Committee targets a specific +percentile range of the peer company data in determining compensation for executive officers as discussed in more detail below. +Compensation Consultant +The Committee also receives assessments and advice regarding the Company's compensation practices from its independent compensation consultant, Frederic W. +Cook & Co., Inc. ("FWC"). The use of an independent consultant provides additional assurance that our executive compensation programs are reasonable and consistent with our +objectives. The consultant reports directly to the Committee, and provides information on competitive practices and trends in our industry and makes recommendations regarding the design of our +compensation program. Our management did not engage FWC in any other capacity for 2007 and does not direct or oversee the retention or activities of FWC with respect to our executive compensation +program. +Role of Executive Officers in Compensation Decisions +The CEO and CFO provide compensation and related data to the Committee to facilitate its decisions, and considers the CEO's recommendations when making its +determinations. The CEO does not make any recommendations on his own compensation. The Committee uses the information provided by the CEO, CFO, and FWC to make compensation decisions for the Named +Executive Officers as well as other executive officers. The Committee, which includes all independent members of the Board, approves all elements of compensation for the Named Executive Officers. The +Committee also reviews and approves aggregate equity awards to all employees of the company based on the recommendations of executive management. The Committee can exercise its discretion in modifying +any recommended adjustments or awards to executives. +Setting Executive Compensation +In making compensation decisions, the Committee compares each element of total compensation against a peer group of publicly-traded footwear and apparel companies +(collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists +12 +of +companies against which the Committee believes the Company competes for talent and for stockholder investment. The Peer Group is composed of companies in related businesses of similar size and +market value and consists of the following twelve companies: +• Quiksilver, Inc. +• Crocs, Inc. +• The Stride Rite Corporation +• The Timberland Company +• Kenneth Cole Productions, Inc. +• Skechers U.S.A., Inc. +• Coach, Inc. +• Steven Madden, Ltd. +• Phoenix Footwear Group, Inc. +• Columbia Sportswear Company +• K•Swiss Inc. +• Wolverine World Wide, Inc. +The +Stride Rite Corporation was acquired by Collective Brands, Inc. in 2007, and going forward will be excluded from the Peer Group. For comparison purposes, Deckers' annual +revenues are at the low end of the Peer Group. Because of the large variance in size among the companies comprising the Peer Group, regression analysis is used to adjust the compensation data for +differences in company revenues. The adjusted value is used as the basis of comparison of compensation between Deckers and the companies in the Peer Group. The Committee generally sets total cash +compensation (base salary plus annual incentive plan, as described below) for the Named Executive Officers at the 75 th percentile of compensation paid to similarly situated +executives of the Peer Group. This is required for the Company to attract the appropriate executive personnel for future growth and we believe our goals are set at a level that represents commensurate +company financial performance. +The +Committee also looks at proprietary survey information from FWC, which include non-industry specific data on pay levels and design practices for similarly-sized +companies. The data covers more than 300 companies across industries other than financial services, and are sized-adjusted based on the Company's revenues. The Committee reviews this data and the +proxy data as a guideline to determine the appropriate level and mix of compensation. There is no pre-established policy or target for the allocation between either cash and +non-cash or short-term and long-term incentive compensation. +2007 Executive Compensation Elements +For the fiscal year ended December 31, 2007, the principal components of compensation for the Named Executive Officers were: +• base +salary, +• annual +non-equity incentive plan compensation, +• performance-based +long-term equity incentive compensation, and +• perquisites +and other personal benefits +Base Salary. Salaries are reviewed periodically and adjusted as warranted to reflect sustained +individual performance and comparable market salaries. The Committee focuses primarily on total annual compensation, including incentive awards and cash bonuses, rather than base salary alone, as the +appropriate measure of executive officer performance and contribution. For this reason, the Committee generally sets base salary at the 50 th percentile of compensation paid to +similarly situated +13 +executives +of the companies in the Peer Group. The following table summarizes adjustments made, if any, to base salaries for the Named Executive Officers during 2007 compared to 2006: +Named Executive Officer +Base Salary +Angel R. Martinez +No increase +Zohar Ziv +No increase +Constance X. Rishwain +Increased by approximately 11%, effective January 1, 2007 +Colin G. Clark +No increase +Peter K. Worley +No increase +Mr. Martinez's +salary was provided in his employment contract at $400,000 effective January 1, 2006. The Committee determined to increase his salary above the contracted +rate to $500,000 in 2006 because of the Company's performance and growth and increased stockholder value under his leadership. Mr. Martinez's salary was not changed during 2007. +Mr. Ziv's +salary was provided in his employment contract at $300,000, effective March 6, 2006, which may be reviewed and adjusted, as deemed appropriate. Mr. Ziv's +salary was not changed during 2007. +Ms. Rishwain's +salary was provided in her employment contract at $225,000, effective January 1, 2006, and was subsequently adjusted to $250,000, effective January 1, +2007. The Committee determined to increase her salary over 2006 based on the UGG and Simple brands' performance and growth under her leadership. The UGG brand's performance consistently exceeded +expectations throughout 2007. +Mr. Clark's +salary was provided in his employment contract at $225,000, effective January 1, 2006, which may be reviewed and adjusted, as deemed appropriate. +Mr. Clark's salary was not changed during 2007. +Mr. Worley's +salary was provided in his employment contract at $225,000 effective March 20, 2006, which may be reviewed and adjusted, as deemed appropriate. +Mr. Worley's salary was not changed during 2007. +Annual Non-Equity Incentive Plan Compensation. Each of the Named Executive Officers may +receive cash incentive plan compensation comprised of two components: one based on the overall financial performance of the Company (the company profit portion) and the second based upon the +achievement of individualized goals that are established for each executive, which we refer to as Management by Objectives, or "MBO." For 2007, the company profit portion of each Named Executive +Officer's incentive compensation was based entirely on the Company's diluted earnings per share ("EPS"). The Compensation and Management Development Committee establishes individual MBO goals for each +officer at the beginning of each year and such officers receive compensation for the subsequent attainment of these goals as well as for the Company's achievement of financial performance goals. The +annual non-equity incentive plan target is expressed as a percentage of each of the executive's annual salary, and is determined so that the total annual cash compensation opportunity +(base plus non-equity incentive plan compensation) approximates the 75 th percentile of the Peer Group. One of the goals of the Company's compensation structure is to +foster a team approach and as a result, each Named Executive Officer has the same target percentage opportunity. The target amount for 2007 for each executive was 100% of base salary, with the +potential to exceed the target and earn up to 200% for the company profit portion and up to 150% for the MBO portion. However, the Committee can use its discretion in awarding amounts in excess of the +maximums if it chooses to do so, which it did in 2007. More detail on why the Committee made the decision to pay above the maximum is +14 +provided +below. Individuals can also earn a percentage less than 100%. The allocation of the 2007 annual non-equity incentive plan and respective percentages and amounts earned are as +follows: +Earned (%) +Earned ($) +Name +Target Percentage of Salary +Company Profit Portion +MBO Portion +Company +MBO +Company +MBO +Angel R. Martinez +100 +% +60 +% +40 +% +300 +% +250 +% +900,000 +500,000 +Zohar Ziv +100 +% +60 +% +40 +% +300 +% +250 +% +540,000 +300,000 +Constance X. Rishwain +100 +% +25 +% +75 +% +300 +% +250 +% +187,500 +468,750 +Colin G. Clark +100 +% +25 +% +75 +% +300 +% +175 +% +168,750 +295,313 +Peter K. Worley +100 +% +25 +% +75 +% +300 +% +50 +% +168,750 +84,375 +The +Committee set the 2007 targets at a moderate growth rate over the prior year for the company profit portion and at high growth rates for the MBO portion for the Named Executive +Officers. The high growth rates were necessary to achieve a moderate EPS growth, as we anticipated that our gross margins would decrease in 2007 compared to 2006. In 2006, our gross margins were +approximately 46% of sales, compared to approximately 42% in both 2005 and 2004, and we expected our gross margins to return to a lower level in 2007. The Committee determined that the anticipated +decrease in gross margins would make the EPS target more difficult to obtain. The target amounts and relative weight of the company profit portion and MBO portion of executive non-equity +incentive plan compensation may be varied by the Committee from year to year. +Company profit portion. Those executives that are responsible for brands and have influence over brand decisions are less +heavily weighted on the company profit portion, as opposed to those executives that cannot be directly attributed to specific brands. In 2007, demand for our products increased substantially more than +anticipated, and as a result, the Company substantially exceeded the EPS target, thus earning over the maximum of the company profit portion at the discretion and approval of the Committee. +MBO portion. For 2007, MBOs were established at the beginning of the year as follows for each Named Executive Officer. +Generally, there is no specific weight assigned to each MBO element, and the Committee uses its discretion when evaluating the MBO portion earned for each of the Named Executive Officers. +Mr. Martinez's +MBOs were based on sales, inventory, and backlog. He substantially exceeded the sales and backlog targets. While inventory levels did not meet his base level +inventory targets, the targets were substantially exceeded when adjusted for the higher sales levels. The Committee determined to award Mr. Martinez over the maximum because, in addition, he +positioned the Company to achieve our long-term growth goals, and under his leadership, stockholder value was substantially increased. +Mr. Ziv's +MBOs were based on return on capital, operating expenses, inventory, SEC filings and compliance with Section 404 of the Sarbanes-Oxley Act of 2002. He +substantially exceeded the return on capital target. While operating expenses and inventory levels did not meet his base level targets, the targets were substantially exceeded when adjusted for the +higher sales levels. SEC filings were made on a timely basis, with the exception of the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2007, which was +delayed until after the investigation and resolution of certain matters in the Far East. Mr. Ziv earned over the maximum because he substantially exceeded the return on capital target and the +adjusted operating expenses and inventory targets. +Ms. Rishwain's +MBOs were based on UGG and Simple brand sales, inventory, contribution income, and backlog. She substantially exceeded the sales, contribution income and backlog +targets. While inventory levels did not meet her base level inventory targets, the targets were substantially +15 +exceeded +when adjusted for the higher sales levels. Ms. Rishwain earned over the maximum because she substantially exceeded the sales, contribution income, backlog and adjusted inventory +targets. +Mr. Clark's +MBOs were based on international sales, contribution income, and backlog. He exceeded or substantially exceeded each MBO, thus earning over the maximum. +Mr. Worley's +MBOs were based on Teva brand sales, inventory, contribution income, and backlog. He did not meet the targets and therefore earned less than the target amount. +The +Committee assesses the attainment of the MBOs based on business or other factors that may have affected the attainment of those objectives, thus awarding this portion of incentive +compensation on measurable and also on a discretionary basis. In order to retain key executives and incentivize them to reach our growth goals, the Committee generally sets the annual incentive plan +compensation targets at the high end of target bonus opportunity paid to similarly situated executives of the companies in the Peer Group. +Performance-based Long-Term Equity Incentive Compensation. The 1993 Plan was terminated +for new grants effective in May 2006, when the 2006 Plan was adopted by the stockholders. These plans authorize the Committee to make grants and awards of stock options, stock appreciation rights +("SARs"), nonvested stock units ("NSUs") and restricted stock units ("RSUs"). +To +the extent readily determinable and as one of the factors in its consideration of compensation matters, the Committee considers the anticipated tax treatment to the Company and to the +executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the timing of an executive's vesting of previously granted awards. Further, +interpretations of and changes in the tax laws and other factors beyond the Committee's control also affect the deductibility of compensation. As explained below, the Company has taken measures to +ensure that equity compensation is fully deductible by the Company. +Beginning +in December 2004, the Board and the Committee determined to cease issuing stock options to directors, officers and employees of the Company and, rather, to issue NSUs or shares +of Common Stock to continue to align the interests of the directors, officers and employees with those of the stockholders at a lower cost than the previous stock option grants. This policy will be +reviewed by the +Board and the Committee periodically and may be changed in the future. As of December 20, 2004, officers and key employees were eligible to receive NSUs annually in an amount to be determined +by the Board or the Committee that would be earned based on performance for fiscal 2005. Additional NSUs were granted in December 2005 for fiscal 2006 performance and in December 2006 for fiscal 2007 +performance. No NSUs were granted during 2007. In February 2008, additional NSUs were granted for fiscal 2008 performance. +The +amount of NSUs granted is primarily determined by the executive's level within the organization and the level of criticality of their position to the organization. NSUs are earned +based on the achievement of a one year EPS goal. The EPS goal is the same as discussed above under Annual Non-Equity Incentive Plan Compensation. Once earned, the NSUs vest based on +continued employment over four years according to the following schedule: 25% on March 31, June 30, September 30, and December 31 of the fourth year from the grant year. +This vesting schedule was determined to encourage officers and key employees to remain with the Company for the long-term, as well as to provide the executives with the opportunity to sell +or withhold shares in the same year as when their tax consequences will occur. +In +May 2007, the Company's Board of Directors, upon recommendation of the Committee, adopted four new types of long-term incentive award agreements under the 2006 Plan for +issuance to the Company's current and future senior executive officers. The new award types consist of SAR awards and RSU awards. These awards vest subject to certain long-term performance +objectives and certain long-term service conditions. Provided that these conditions are met, one-half of the SAR and +16 +RSU +awards vest 80% on December 31, 2010 and 20% on December 31, 2011, and one-half of the SAR and RSU awards vest 80% on December 31, 2015 and 20% on +December 31, 2016. The goals of these long-term incentive awards include motivating senior executive officers to strive to reach long-term performance objectives as well +as retention of senior executive officers. In May 2007, the Committee granted SARs and RSUs to the Named Executive Officers. In approving 2007 grants, the Committee considered industry comparisons and +competitive data as well as the responsibility levels of the executives relative to one another. +In +addition, the Committee evaluates aggregate equity awards based on a Shareholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus peer companies. +The Committee set the SVT rate in 2007 so that it would be under 1%, which approximates the Peer Group median. Other factors considered in share-based award grants were total carried-interest for each +executive, total potential dilution, annual share usage, executive allocation of annual equity pool, and the fair value of awards granted to each individual. The Committee assessed where the Company's +Named Executive Officers ranked in all these areas among the Peer Group. +Perquisites and Other Personal Benefits. There is no specific policy on perquisites and other +personal benefits awarded to the Named Executive Officers. The Company administers a 401(k) defined contribution plan that substantially all employees are eligible to participate in through +tax-deferred contributions. The Company matches 50% of an employee's contribution up to the greater of $2,400 or 6% of their eligible compensation per year. Prior to 2007 the Company +matched 50% of an employee's contribution up to $2,400 per year. In order to attract the appropriate candidates, the Committee may approve relocation benefits, as deemed appropriate. In 2007, the only +perquisites and other personal benefits approved by the Committee for the Named Executive Officers was relocation assistance, which was awarded to Mr. Ziv, hired in 2006, and Mr. Clark, +hired in 2005. +Employment Contracts and Severance Arrangements. During 2007, each of the Named Executive Officers +was party to employment agreements with the Company. Those agreements establish the terms and conditions for the employment relationship each executive has with the Company and specifies compensation, +executive benefits, severance provisions, change in control provisions, and other conditions. The Committee periodically reviews the competitiveness of its severance and change in control arrangements +when the employment agreements with the Named Executive Officers near the end of their stated terms. +Separation +benefits described below provide benefits to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs. The Named Executive Officers are eligible for the benefits and payments if their employment terminates for various reasons or as a result of a change in +control of Deckers. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to take a separated +executive to find another job. The Company benefits by requiring a general release, non-compete and non-solicitation provisions in connection with the individual separation +agreements. +The +Company considers it likely that it will take more time for higher-level employees to find new employment commensurate with their prior experience, and therefore senior management +generally are paid severance for a longer period. Additional payments may be approved by the Committee in some circumstances as a result of negotiation with executives, especially where the Company +desires particular non-disparagement, cooperation with litigation, non-competition and non-solicitation terms. +The +employment agreement for each executive specifically details various provisions for benefits and cash payments in the event of a separation. Generally, these agreements specify +conditions and benefits within the following categories: death, disability, termination by the Company for cause; +17 +termination +by executive without good reason; termination by the executive with good reason and termination by the Company without cause. +The +Company also has change in control provisions in the equity compensation awards granted to the Named Executive Officers. In general, these arrangements provide for benefits upon a +termination of the executive's employment in connection with a change in control, although a portion of the benefits are triggered solely upon the occurrence of a change in control of the Company. +These arrangements are intended to preserve morale and productivity and encourage retention in the face of the disruptive impact of a change in control of the Company. In addition, change in control +benefits encourage the Named Executive Officers to remain focused on the business and interest of our stockholders when considering strategic alternatives. Based on a competitive analysis of the +change in control arrangements maintained by the corporations in the Company's Peer Group, the Committee believes that these benefits are customary among the Company's Peer Group for executives in +similar positions as the Named Executive Officers. +Please +refer to the discussion on page 23 under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control +arrangements. +Tax and Accounting Implications +Deductibility of Executive Compensation +Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), a public company generally will not be entitled to a deduction for +non-performance-based compensation paid to certain executive officers to the extent such compensation exceeds $1.0 million. Special rules apply for "performance-based" compensation, +including the approval of the performance goals by the stockholders of the Company. On February 21, 2008, the Internal Revenue Service ("IRS") issued Revenue Ruling 2008-13, +regarding the impact of certain severance provisions on performance-based compensation under Section 162(m). This guidance clarifies the position taken by the IRS in a private letter ruling +released on January 25, 2008. Under Revenue Ruling 2008-13, if compensation is potentially payable upon an involuntary termination without Cause or a resignation for Good Reason, +the compensation will not be deductible under Section 162(m) in any circumstances, even if the compensation is actually paid upon achievement of the performance goals and not upon such +termination or resignation. However, Revenue Ruling 2008-13 provides that such position will not apply to either (1) compensation for which the performance period begins on or +before January 1, 2009; or (2) compensation that is payable pursuant to the terms of an employment contract as in effect on February 21, 2008 (without respect to future renewals +or extensions of such contract, whether automatic or by agreement). +The +Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be deductible and considers +cost and value to the Company in making compensation decisions, which would result in non-deductibility. +The Board has on occasion made decisions resulting in non-deductible compensation. The Committee and the Board believe that these payments were appropriate and in the best interests of the +Company. +Accounting for Stock-Based Compensation +Beginning on January 1, 2006, the Company began accounting for share-based awards including its NSUs and stock options in accordance with the requirements +of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"). +18 +COMPENSATION COMMITTEE REPORT +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by +Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee recommended to the Board that +the Compensation Discussion and Analysis be included in this Proxy Statement. +THE +COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +Gene +E. Burleson, Chairman +John M. Gibbons +Rex A. Licklider +John G. Perenchio +Maureen Conners +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating +by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +19 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2007 and 2006, all compensation paid or awarded to the Named Executive Officers. +Name and Principal Position +Year +Salary +($) +Stock +Awards +($)(1) +Option +Awards +($)(1) +Stock +Appreciation +Rights +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All +Other +Compensation +($)(3) +Total +($) +Angel R. Martinez +Chief Executive Officer and President +2007 +2006 +$ +500,000 +500,000 +$ +809,971 +477,109 +$ +— +— +$ +687,609 +— +$ +1,400,000 +850,000 +$ +— +— +$ +3,397,580 +1,827,109 +Zohar Ziv +Chief Operating Officer and Chief Financial Officer +2007 +2006 +300,000 +248,110 +311,261 +138,014 +— +— +171,902 +— +840,000 +251,250 +20,338 +15,856 +(4) +(4) +1,643,501 +653,230 +Constance X. Rishwain +President of the UGG and Simple Divisions +2007 +2006 +250,000 +225,000 +188,368 +70,250 +42,200 +66,520 +171,902 +— +656,250 +421,875 +— +— +1,308,720 +783,645 +Colin G. Clark +Senior Vice President, International +2007 +2006 +225,000 +225,000 +176,146 +61,232 +— +— +171,902 +— +464,063 +253,125 +24,000 +24,000 +1,061,111 +563,357 +Peter K. Worley +President of the Teva Division +2007 +2006 +225,000 +177,407 +174,616 +49,236 +— +— +171,902 +— +253,125 +133,594 +— +— +824,643 +360,237 +(1) The +amounts in this column are calculated based on provisions of SFAS 123R. See notes 1 and 7 of the consolidated financial statements of the Company's Annual Report on +Form 10-K for the year ended December 31, 2007 regarding assumptions underlying valuation of equity awards. +(2) The +amounts in this column reflect the cash awards to the named individuals under the Annual Incentive Plan, which is discussed in further detail on page 14 under the heading +"Annual Non-Equity Incentive Plan Compensation." +(3) The +amounts in this column reflect, for each respective executive, a housing allowance for relocation paid by the Company to the executives, except as noted in footnote +(4) below. +(4) In +addition to the item noted in footnote (3) above, the amount shown in the table above as "All Other Compensation" for Mr. Ziv includes $6,750 and $1,200 for the years +ended December 31, 2007 and 2006, respectively, received as a matching contribution paid by the Company pursuant to the 401(k) defined contribution plan, which is more fully described on +page 17 under the heading "Perquisites and Other Personal Benefits." +20 +GRANTS OF PLAN BASED AWARDS IN 2007 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during the fiscal year ended December 31, +2007. For further discussion regarding the grants, see above under "Compensation Discussion and Analysis." +Estimated Future Payouts Under Non-Equity Incentive Plan Awards +Estimated Future Payouts Under Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards($) +Name +Grant +Date +Threshold +($) +Target +($) +Maximum +(1)($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +5/9/2007 +5/9/2007 +(3) +(4) +$ +150,000 +$ +500,000 +$ +900,000 +10,000 +80,000 +12,500 +100,000 +12,500 +100,000 +$ +1,002,500 +5,040,000 +Zohar Ziv +5/9/2007 +5/9/2007 +(3) +(4) +90,000 +300,000 +540,000 +2,800 +20,000 +3,500 +25,000 +3,500 +25,000 +280,700 +1,260,000 +Constance X. Rishwain +5/9/2007 +5/9/2007 +(3) +(4) +31,250 +250,000 +406,250 +2,800 +20,000 +3,500 +25,000 +3,500 +25,000 +280,700 +1,260,000 +Colin G. Clark +5/9/2007 +5/9/2007 +(3) +(4) +28,125 +225,000 +365,625 +2,800 +20,000 +3,500 +25,000 +3,500 +25,000 +280,700 +1,260,000 +Peter K. Worley +5/9/2007 +5/9/2007 +(3) +(4) +28,125 +225,000 +365,625 +2,800 +20,000 +3,500 +25,000 +3,500 +25,000 +280,700 +1,260,000 +(1) The +amounts shown here are the designated maximum plan awards; however, in some cases, the actual amounts paid exceeded the maximum amounts designated. Refer to page 14 for +further discussion on actual amounts paid to Named Executive Officers. +(2) All +grants are under the 2006 Plan. +(3) The +number of RSUs awarded in the 2007 grant was based on the executive's respective level within the Company. The target number was based on achievement of certain +long-term performance objectives and certain long-term service conditions. Excluded from the table above are additional RSUs that were awarded on May 9, 2007 and vest +80% on December 31, 2015 and 20% on December 31, 2016. As of December 31, 2007, the Company did not believe that the achievement of the performance objectives for the RSU awards +with final vesting dates of December 31, 2016 was probable. Therefore, they have been excluded from the table above. +(4) The +number of SARs awarded in the 2007 grant was based on the executive's respective level within the Company. The target number was based on achievement of certain +long-term performance objectives and certain long-term service conditions. Excluded from the table above are additional SARs that were awarded on May 9, 2007 and vest +80% on December 31, 2015 and 20% on December 31, 2016. As of December 31, 2007, the Company did not believe that the achievement of the performance objectives for the SAR awards +with final vesting dates of December 31, 2016 was probable. Therefore, they have been excluded from the table above. +21 +OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, 2007. +Stock Appreciation Rights (SAR) Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +SARs(1)(#) +Exercisable +Number of +Securities +Underlying +Unexercised +SARs(1)(#) +Unexercisable +Stock +Price at +Date of +Grant +($) +SAR +Expiration +Date(1)(2) +Number of +Stock +Awards +That Have +Not Vested +(3)(#) +Market +Value of +Units of +Stock That +Have Not +Vested +(4)($) +Angel R. Martinez +— +100,000 +$ +80.20 +5/9/2017 +86,500 +(5) +$ +13,412,690 +Zohar Ziv +— +25,000 +80.20 +5/9/2017 +30,000 +(6) +4,651,800 +Constance X. Rishwain +— +25,000 +80.20 +5/9/2017 +18,680 +(7) +2,896,521 +Colin G. Clark +— +25,000 +80.20 +5/9/2017 +20,500 +(8) +3,178,730 +Peter Worley +— +25,000 +80.20 +5/9/2017 +15,500 +(9) +2,403,430 +(1) All +SARs were granted on May 9, 2007. +(2) SARs +vest subject to certain long-term performance objectives and certain long-term service conditions. Provided that these conditions are met, these SAR +awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Excluded from the table above are additional SARs that were awarded on May 9, 2007 and vest 80% on +December 31, 2015 and 20% on December 31, 2016. As of December 31, 2007, the Company did not believe that the achievement of the performance objectives for the SAR awards with +final vesting dates of December 31, 2016 was probable. Therefore, they have been excluded from the table above. +(3) All +RSUs were granted on May 9, 2007. RSUs vest subject to certain long-term performance objectives and certain long-term service conditions. Provided +that these conditions are met, these RSU awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Excluded from the table above are additional RSUs that were awarded on +May 9, 2007 and vest 80% on December 31, 2015 and 20% on December 31, 2016. As of December 31, 2007, the Company did not believe that the achievement of the performance +objectives for the RSU awards with final vesting dates of December 31, 2016 was probable. Therefore, they have been excluded from the table above. +(4) The +market value was based on the closing price of the Company's Common Stock on December 31, 2007 of $155.06. +(5) Consists +of: (i) 50,000 NSUs granted on April 11, 2005, which shares vest in equal quarterly installments starting on June 30, 2008, (ii) 12,000 NSUs +granted on December 2, 2005, which shares vest in equal quarterly installments starting March 31, 2009; and (iii) 12,000 NSUs granted on December 21, 2006, which shares +vest in equal quarterly installments starting March 31, 2010; (iv) 12,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on +December 31, 2011. +(6) Consists +of (i) 14,500 NSUs granted on March 10, 2006, which shares vest in equal quarterly installments starting on March 31, 2009, (ii) 6,000 NSUs +granted on June 23, 2006, which shares vest in equal quarterly installments starting on March 31, 2009, and (iii) 6,000 NSUs granted on December 21, 2006, which shares vest +in equal quarterly installments starting on March 31, 2010; (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on +December 31, 2011. +22 +(7) Consists +of (i) 3,180 NSUs granted on December 20, 2004, which shares vest in equal quarterly installments starting on March 31, 2008, (ii) 6,000 NSUs +granted on December 2, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, and (iii) 6,000 NSUs granted on December 21, 2006, which shares +vest in equal quarterly installments starting on March 31, 2010; (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on +December 31, 2011. +(8) Consists +of (i) 5,000 NSUs granted on September 16, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, (ii) 6,000 NSUs +granted on December 2, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, and (iii) 6,000 NSUs granted on December 21, 2006, which shares +vest in equal quarterly installments starting on March 31, 2010; (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and 20% on +December 31, 2011. +(9) Consists +of (i) 6,000 NSUs granted on March 20, 2006 which shares vest in equal quarterly installments starting on March 31, 2009, (ii) 6,000 NSUs granted +on December 21, 2006, which shares vest in equal quarterly installments starting on March 31, 2010; (iii) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on +December 31, 2010 and 20% on December 31, 2011. +2007 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding stock option exercises during 2007, including the number of shares acquired +upon exercise and the value realized, before payment of any applicable withholding tax and broker commissions. None of the Named Executive Officers acquired any shares of stock due to vesting of stock +awards in 2007. +Option Awards +Stock Awards +Number of +Shares Acquired +on Exercise +(#) +Value Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting +(#) +Value Realized +on Vesting +($) +Angel R. Martinez +— +$ +— +— +$ +— +Zohar Ziv +— +— +— +— +Constance X. Rishwain +8,000 +722,288 +— +— +Colin G. Clark +— +— +— +— +Peter K. Worley +— +— +— +— +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company has entered into employment agreements with each of the Named Executive Officers. The information below describes compensation and benefits that are +payable or earned under these existing contractual arrangements and reflects all amendments to date to the employment agreements with the Named Executive Officers as of and through January 1, +2008. +As +used in the following paragraphs, (1) Cause means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written +Company employment policies after written notice of such violation, (ii) violation of the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, +theft, embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame the Company, engaging in conduct which is material injurious to the Company or its +affiliates, or any of their respective customer or supplier relationships, financially or otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total +disability, (2) Good Reason means the occurrence of a material breach of the employment agreement by the Company, which breach is not cured within 15 calendar days after written notice thereof +is received by the Company, or in the event of a Change of Control, a reduction +23 +of +total compensation, benefits, and perquisites, relocation greater than 50 miles, or a material change in position or duties, and (3) Change of Control means if there is a merger, +consolidation, sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or circumstance where any person or group (other than Douglas B. Otto) +acquires or obtains the right to acquire, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a successor +organization). +Angel R. Martinez, President and Chief Executive Officer +Effective April 11, 2005, the Company entered into an employment agreement with Angel R. Martinez which was amended effective January 1, 2008. +Mr. Martinez's employment with the Company is "at will," but the term of his employment agreement, as amended, ends December 31, 2009. +If +Mr. Martinez is terminated by the Company for Cause, or he terminates his own employment, other than for Good Reason, then Mr. Martinez will be entitled to payment of +his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required +to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year and the right to exercise all vested unexercised stock options and NSUs outstanding as of the termination +date. If Mr. Martinez is terminated due to his death or total disability, then in addition to those rights described in the first sentence of this paragraph, Mr. Martinez will be +entitled to full acceleration of his initial grant of 50,000 NSUs. If Mr. Martinez is terminated by the Company without Cause or Mr. Martinez terminates his own employment for Good +Reason, then in addition to those rights described in the first two sentences of this paragraph, Mr. Martinez will be entitled to payment of his then effective base salary for one year +following his termination, subject to Mr. Martinez signing a release, and receipt of health benefits for a period of one year following his termination or his attainment of alternative +employment that provides health benefits, whichever is earlier. If Mr. Martinez is terminated without Cause or if he terminates his own employment for Good Reason, in either case within two +years of a Change of Control of the Company, then in addition to those rights described in the first two sentences of this paragraph and subject to his signing a release, Mr. Martinez will be +entitled to payment of a pro-rata incentive bonus based on actual performance for the year of termination, payment of two times his then effective annual base salary plus the greater of +(i) two times the targeted incentive bonus immediately prior to the termination or (ii) two times the average actual incentive bonus for the +previous three years, receipt of health benefits for a period of two years following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier, +and full acceleration of his initial grant of 50,000 NSUs. +Zohar Ziv, Chief Operating Officer and Chief Financial Officer +Effective March 6, 2006, the Company entered into an employment agreement with Zohar Ziv which was amended effective December 19, 2007. +Mr. Ziv's employment agreement was amended in connection with his promotion from Chief Financial Officer and Executive Vice President of Finance and Administration to Chief Operating Officer, +and as of the date of this Proxy Statement, Mr. Ziv continues to serve as the Company's Chief Financial Officer in an interim capacity. Mr. Ziv's employment with the Company is "at +will," but the term of his employment agreement, as amended, ends December 31, 2009. +If +Mr. Ziv is terminated by the Company for Cause, or if he terminates his own employment other than for Good Reason, Mr. Ziv or his beneficiaries will be entitled to +payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other +benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year and the right to exercise all vested unexercised stock options outstanding as of the +termination date. If Mr. Ziv is terminated due to +24 +his +death or total disability, then in addition to those rights described in the first sentence of this paragraph, Mr. Ziv shall be entitled to exercise all vested unexercised stock options and +NSUs outstanding as of his date of termination in accordance with the terms of the plans and agreements pursuant to which options or NSUs were issued to him. If Mr. Ziv is terminated by the +Company without Cause or if he terminates his own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, and subject to Mr. Ziv +signing a release, Mr. Ziv will be entitled to payment of his then effective base salary for one year following his termination, receipt of health benefits for a period of one year following +his termination or his attainment of alternative employment that provides health benefits, whichever is earlier, and full acceleration of his initial grant of 14,500 NSUs. If Mr. Ziv is +terminated by the Company without Cause or if he terminates his own employment for Good Reason, in either case within two years of a Change of Control of the Company, then in addition to those rights +described in the first two sentences of this paragraph and subject to Mr. Ziv signing a release, Mr. Ziv will be entitled to payment of a pro-rata incentive bonus based on +actual performance for the year of termination, payment of two times his then effective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to +the termination or (ii) two times the average actual incentive bonus for the previous three years, receipt of health benefits for a period of one year following his termination or his +attainment of alternative employment that provides health benefits, whichever is earlier. +Constance X. Rishwain, President of the UGG and Simple Divisions +Effective January 1, 2006, the Company entered into an employment agreement with Constance X. Rishwain which was amended effective January 1, 2008. +Ms. Rishwain's employment with the Company is "at will," but the term of her employment agreement as amended ends December 31, 2009. +If +Ms. Rishwain is terminated by the Company for Cause or if she terminates her own employment, other than for Good Reason, then Ms. Rishwain will be entitled to payment of +her accrued base salary, payment for her accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required +to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year and the right to exercise all vested unexercised stock options and warrants outstanding as of the +termination date. If Ms. Rishwain is terminated by the Company due to her death or total disability, then in addition to those rights described in the first sentence of this paragraph, +Ms. Rishwain shall be entitled to payment of any accrued but unpaid incentive bonus for the current fiscal year based on actual performance. If Ms. Rishwain is terminated by the Company +without Cause or if she terminates her own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, Ms. Rishwain will be entitled to +payment of her base salary for twelve months following her termination, subject to Ms. Rishwain signing a release, and receipt of health benefits for a period of six months following her +termination or her attainment of alternative employment that provides health benefits, whichever is earlier. If Ms. Rishwain, within two years of a Change of Control of the Company is +terminated without Cause or if she terminates her own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph and subject to her signing a +release, Ms. Rishwain will be entitled to payment of one and one-half times her annual base salary plus the greater of (i) one and one-half times the targeted +incentive bonus immediately prior to the termination or (ii) two times the average actual incentive bonus for the previous three years, receipt of health benefits for a period of eighteen +months following her termination or her attainment of alternative employment that provides health benefits, whichever is earlier. +25 +Colin G. Clark, Senior Vice President, International +Effective January 1, 2006, the Company entered into an employment agreement with Colin G. Clark which was amended effective January 1, 2008. +Mr. Clark's employment with the Company is "at will," but the term of his employment agreement as amended ends December 31, 2009. +If +Mr. Clark is terminated by the Company for Cause or if he terminates his own employment, other than for Good Reasons, then Mr. Clark will be entitled to payment of his +accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required to +be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year and the right to exercise all vested unexercised stock options and warrants outstanding as of the +termination date. If Mr. Clark is terminated by the Company due to his death or total disability, then in addition to those rights described in the first sentence of this paragraph, +Mr. Clark shall be entitled to payment of any accrued but unpaid incentive bonus for the current fiscal year based on actual performance. If Mr. Clark is terminated by the Company +without Cause or if he terminates his own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, Mr. Clark will be entitled to +payment of his base salary for twelve months following his termination, subject to Mr. Clark signing a release, and receipt of health benefits for a period of six months following his +termination or his attainment of alternative employment that provides health benefits, whichever is earlier. If within two years of a Change of Control of the Company Mr. Clark is terminated +without Cause or if he terminates his own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, and subject to him signing a release, +Mr. Clark will be entitled to payment of one and one-half times his annual base salary plus the greater of (i) one and one-half times the targeted incentive bonus +immediately prior to the termination or (ii) one and one-half times the average actual incentive bonus for the previous three years, and receipt of health benefits for a period of +eighteen months following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. +Peter K. Worley, President of the Teva Division +Effective March 20, 2006, the Company entered into an employment agreement with Peter K. Worley, which was amended effective January 1, 2008. +Mr. Worley's employment with the Company is "at will," but the term of his employment agreement, as amended, ends December 31, 2009. +If +Mr. Worley is terminated by the Company for Cause or due to his death or disability, or if he terminates his own employment other than for Good Reason, then Mr. Worley +will be entitled to payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or +programs and other benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year and the right to exercise all vested unexercised stock options and +warrants outstanding as of the termination date. +If +Mr. Worley is terminated by the Company without Cause or if he terminates his employment for Good Reason, then in addition to those rights described in the first sentence of +this paragraph, Mr. Worley will be entitled to payment of his base salary for twelve months following his termination, subject to Mr. Worley signing a release, and receipt of health +benefits for a period of six months following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. +26 +If within two years of a Change of Control of the Company Mr. Worley is terminated without Cause or if he terminates his own employment for Good Reason, then in addition to those +rights described in the first sentence of this paragraph and subject to his signing a release, Mr. Worley will be entitled to payment of a pro-rata incentive bonus based on actual +performance for the year of termination, payment of one and one-half times his annual base salary plus the greater of (i) one and one-half times the targeted incentive +bonus immediately prior to the termination or (ii) one and one-half times the average actual incentive bonus for the previous three years, and receipt of health benefits for a +period of eighteen months following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. +A +summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, incentive bonus and reimbursable expenses, +if the termination or change of control had occurred on December 31, 2007 (based on the closing price of the Company's Common Stock on December 31, 2007 of $155.06), given the Named +Executive Officers' compensation and service levels per their respective amended employment agreements is as follows: +Upon Termination: +Upon Change of +Control and +Termination by +the Company +Without Cause or +by Executive for +Good Reason +Name +Type of Compensation +or Benefit +By the Company +Without Cause or +by Executive for +Good Reason +For Death or +Disability +Angel R. Martinez +cash payments +value of health benefits +value of NSUs +value of excise tax gross-up +$ +750,000 +17,413 +7,753,000 +— +$ +— +— +7,753,000 +— +$ +3,000,000 +34,827 +7,753,000 +2,000,600 +8,520,413 +7,753,000 +12,788,427 +Zohar Ziv +cash payments +value of health benefits +value of NSUs +value of excise tax gross-up +375,000 +17,413 +2,248,370 +— +— +— +— +— +1,500,000 +17,413 +2,248,370 +674,674 +2,640,783 +— +4,440,457 +Constance X. Rishwain +cash payments +value of health benefits +value of excise tax gross-up +300,000 +8,707 +— +— +— +— +1,173,438 +26,120 +174,688 +308,707 +— +1,374,246 +Colin G. Clark +cash payments +value of health benefits +value of excise tax gross-up +250,000 +6,086 +— +— +— +— +754,688 +18,257 +100,938 +256,086 +— +873,883 +Peter K. Worley +cash payments +value of health benefits +value of excise tax gross-up +250,000 +8,707 +— +— +— +— +750,000 +26,120 +100,000 +258,707 +— +876,120 +No +additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause or by the executive without Good Reason. +27 +DIRECTOR COMPENSATION +Directors who are not employees of the Company or its subsidiaries ("Nonemployee Directors") receive an annual retainer of $20,000 in cash and 1,600 shares of +Common Stock per year, which awards are made at a rate of 400 shares per quarter. Additionally, Nonemployee Directors receive $1,500 for each meeting of the Board and each committee meeting that they +attend plus reimbursement of any expenses they may incur with respect to such meetings. The Audit Committee Chairman receives an additional annual retainer fee of $12,000 and the Committee Chairmen +for the Compensation and Management Development Committee and the Corporate Governance and Nominating Committee each receive an annual retainer fee of $4,000. Directors who are employees of the +Company or its subsidiaries serve as directors without compensation. +Name +Year +Fees +Earned +($) +Stock Awards +(1) ($) +Total ($) +John M. Gibbons(7) +Director +2007 +$ +68,000 +$ +144,124 +(2) +$ +212,124 +Gene E. Burleson(7) +Director +2007 +55,000 +144,124 +(2) +199,124 +Rex A. Licklider(7) +Director +2007 +58,000 +144,124 +(2) +202,124 +Daniel L. Terheggen(3) +Director +2007 +19,000 +56,852 +(4) +75,852 +John G. Perenchio +Director +2007 +38,000 +144,124 +(2) +182,124 +Maureen Conners +Director +2007 +38,000 +144,124 +(2) +182,124 +Tore Steen(7) +Director +2007 +30,500 +119,088 +(5) +149,588 +Douglas B. Otto(6) +Chairman of the Board +2007 +N/A +N/A +N/A +(1) As +of December 31, 2007, the amount of outstanding equity held by each director was as follows: Mr. Gibbons had 2,000 options that were vested and outstanding; +Mr. Otto had 20,000 options which were vested and 4,240 nonvested stock units outstanding. +(2) Represents +grants of 400 shares of Common Stock at a per share price of $62.59 on February 12, 2007, 400 shares of Common Stock at a per share price of $79.54 on May 10, +2007, 400 shares of Common Stock at a per share price of $101.65 on July 5, 2007, and 400 shares of Common Stock at a per share price of $116.53 on October 25, 2007. +(3) Mr. Terheggen +resigned his position as a director of the Company, effective May 10, 2007. +(4) Represents +grants of 400 shares of Common Stock at a per share price of $62.69 on February 12, 2007 and 400 shares of Common Stock at a per share price of $79.54 on +May 10, 2007. +(5) Represents +400 shares of Common Stock at a per share price of $79.54 on May 10, 2007, 400 shares of Common Stock at a per share price of $101.65 on July 5, 2007, and 400 +shares of Common Stock at a per share price of $116.53 on October 25, 2007. +(6) Mr. Otto +received a salary of $52,000 for 2007 as an employee of the Company. He did not receive any compensation as a director in 2007. +(7) During +2007, the Audit Committee met 23 times, 15 more than in 2006, due to the Company's internal investigation and restatement of its historical financial statements described in +the Report of the Audit Committee below. Accordingly, fees paid to members of the Audit Committee in 2007 were $45,000 higher in the aggregate compared to 2006. Each member of Audit Committee +voluntarily elected to receive one-half of his usual meeting fees for each meeting of the Audit Committee held in connection with the internal investigation and the restatement. +28 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of the Company's Common Stock that may be issued under the Company's equity compensation plans as of +December 31, 2007. +Number of +securities to be +issued upon +exercise of +outstanding +options, warrants +and rights +Weighted-average +exercise price of +outstanding +options, warrants +and rights +Number of +securities remaining +available for future +issuance +(1) +(2) +(3) +Equity compensation plans approved by security holders +459,750 +$ +71.46 +1,451,900 +Equity compensation plans not approved by security holders +— +— +— +Total +459,750 +$ +71.46 +1,451,900 +(1) Includes +59,750 options and 400,000 SARs awards. +(2) The +weighted-average exercise price of the options was $12.97 and the stock price at the date of grant of the SARs was $80.20. +(3) Includes +2,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +29 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of the Record Date, certain information concerning the shares of Common Stock beneficially owned by (i) each person who +is a Named Executive Officer in the Summary Compensation Table; (ii) each director and director nominee; (iii) all executive officers and directors as a group (fifteen persons); and +(iv) each person known by the Company to be the beneficial owner of more than 5% of our Common Stock (other than directors, executive officers and depositaries). +Name and Address of Beneficial Owner(1) +Amount and Nature of Beneficial Ownership(2),(3),(4) +Percent of Class(3) +Named Executive Officers +Angel R. Martinez +4,900 +* +Zohar Ziv +1,000 +* +Constance X Rishwain +795 +* +Colin G. Clark +— +* +Peter K. Worley +5,000 +* +Directors and Director Nominees +Douglas B. Otto(5) +175,382 +1.3 +% +Angel R. Martinez +4,900 +* +Rex A. Licklider(6) +215,508 +1.7 +% +Gene E. Burleson +29,539 +* +John M. Gibbons(7) +12,629 +* +John G. Perenchio +15,600 +* +Maureen Conners +2,400 +* +Tore Steen +2,100 +* +Ruth M. Owades +— +* +Karyn O. Barsa +— +* +All directors and executive officers as a group (fifteen persons) +464,853 +3.6 +% +5% Stockholders +FMR, LLC(8) +1,807,703 +13.9 +% +Renaissance Technologies Corp.(9) +896,700 +6.9 +% +Goldman Sachs Group, Inc.(10) +817,411 +6.3 +% +Barclays Global Investors Japan Limited(11) +665,071 +5.1 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common Stock indicated as beneficially +owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d) (1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable +on or before the date that is 60 days after the Record Date are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for +the purpose of calculating the percentage owned by any other person listed. +30 +(4) Includes +shares under stock options that are presently exercisable or are exercisable within 60 days from the Record Date for the following: Douglas B. Otto—20,000; +John M. Gibbons—2,000; and all directors and executive officers as a group—22,000. +(5) Includes +(a) 107,882 shares held by the Douglas B. Otto Trust as to which Mr. Otto has sole voting and investment power and (b) 47,500 shares held by the +Edgecliff Foundation, a charitable foundation formed by Mr. Otto, of which Mr. Otto is the Chairman of the Board of Directors. +(6) Includes +215,508 shares held by the Licklider Living Trust as to which Mr. Licklider has joint voting and investment power. +(7) Includes +12,629 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(8) Includes +59,000 shares held by FMR, LLC, as to which the beneficial owners have sole voting power and 1,807,703 shares as to which the beneficial owners have sole dispositive power. +This information is based solely on a Schedule 13G/A filed by the party on February 14, 2008 whose business address is 82 Devonshire Street, Boston, MA 02109. +(9) Includes +637,115 shares held by Renaissance Technologies LLC, as to which the beneficial owners have sole voting power and 896,700 shares as to which the beneficial owners have +sole dispositive power. This information is based solely on a Schedule 13G filed by the party on February 13, 2008 whose business address is 800 Third Avenue, New York, NY 10022. +(10) Includes +701,586 shares held by Goldman Sachs Asset Management, L.P., as to which the beneficial owners have sole voting power and 804,711 shares as to which the beneficial +owners have sole dispositive power. This information is based solely on a Schedule 13G filed by the party on February 1, 2008 whose business address is 32 Old Slip, New York, NY 10005. +(11) Includes +506,153 shares held by Barclays Global Investors (Deutschland) AG, as to which the beneficial owners have sole voting power and 665,071 shares as to which the beneficial +owners have sole dispositive power. This information is based solely on a Schedule 13G filed by the party on February 5, 2008 whose business address is Apianstrasse 6, +D-85774, Unterfohring, Germany. +31 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company's accounting functions and internal controls. The +Audit Committee is currently composed of four directors, each of whom meets the independence and experience requirements under the NASD rules and the independence requirements of the SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. The independent registered +public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight +Board (United States) and expressing (i) an opinion on whether the Company's financial statements present fairly, in all material respects, the Company's financial position and results of +operations for the periods presented in conformity with accounting principles generally accepted in the United States and (ii) an opinion on the Company's internal control over financial +reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring +Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. The Board of Directors has determined that John M. Gibbons, the +Chairman of the Audit Committee, is an audit committee financial expert and is independent. +In +connection with these responsibilities, the Audit Committee met with management and the independent registered public accounting firm to review and discuss the December 31, +2007 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with accounting principles generally +accepted in the United States. The Audit Committee also discussed with management, the Chief Audit Executive and the independent registered public accounting firm matters relating to the Company's +restatement of its consolidated financial statements as disclosed in its Amended Annual Report on Form 10-K/A for the year ended December 31, 2006 and its condensed +consolidated financial statements as disclosed in its Amended Quarterly Report on Form 10-Q/A for the period ended March 31, 2007. The restatement was the result of material +misstatements due to the underreporting of employee payroll expense and underpayment of certain tax obligations to authorities in China for one of the Company's foreign subsidiaries, Holbrook Limited, +a Hong Kong company. The Company implemented a remediation plan during 2007 that resulted in changes in its internal control over financial reporting, including the removal of certain operational and +accounting personnel involved in the underpayment of taxes, changing the oversight and supervision of its subsidiary accounting personnel to the Company's Assistant Controller, implementing controls +to confirm the accurate +determination and timely remittance of the China subsidiary's taxes due and inclusion of the China subsidiary in the scope of the annual Sarbanes-Oxley section 404 internal control evaluation. +Management determined that, as of December 31, 2007, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with KPMG LLP that firm's +independence from the Company and its management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board and is assessed annually for adequacy by the Audit Committee. The Audit Committee held eight +regularly +32 +scheduled +meetings during fiscal 2007, including meetings with the independent registered public accounting firm and Chief Audit Executive, both with and without management present. During 2007, the +Audit Committee held an additional fifteen meetings related to the Company's investigation of the underreporting and underpayment by Holbrook Limited described above and related restatement of its +prior financial statements. In performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's +financial statements are complete and accurate, are presented in accordance with accounting principles generally accepted in the United States or present fairly the results of operations of the +Company for the periods presented or that the Company maintains appropriate internal controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company's financial +statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States) or that the Company's registered public accounting firm is +independent. +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended that the Board of Directors +include the audited consolidated financial statements in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2007, to be filed with the SEC. +THE +AUDIT COMMITTEE +John M. Gibbons, Chairman +Gene E. Burleson +Rex A. Licklider +Tore Steen +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Transactions +Other than as set forth below, there were no disclosable transactions with related persons under Item 404 of Regulation S-K during the +fiscal year ended December 31, 2007 or currently proposed. +Transactions with Directors +Daniel L. Terheggen, a former member of the Company's Board of Directors, was a 50% owner and Chief Executive Officer of BHPC Global Licensing, Inc. +(BHPC). The Company paid BHPC an aggregate of approximately $34,000 for agency fees related to licensing of the Company's products during 2007 and there was no unpaid balance to BHPC at +December 31, 2007. In April 2007, Mr. Terheggen sold his interest in BHPC and the Company began to pay American Heritage Apparel, which was also 50% owned by Mr. Terheggen. +Beginning November 2007, the Company began paying Weebairn, Inc., which is 50% owned by Mr. Terheggen. The Company paid American Heritage Apparel approximately $22,000 during 2007 and +there was no unpaid balance to American Heritage Apparel at December 31, 2007. The Company paid Weebairn, Inc. approximately $5,000 in 2007 and the unpaid balance to +Weebairn, Inc. at December 31, 2007 was $56,000. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by +the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with +33 +our +directors and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(A) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and persons who own more than 10% of +the Common Stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock (Forms 4 and +Forms 5) with the SEC as well as the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2007, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) Douglas +B. Otto filed a Form 5 on March 23, 2007, which reported transactions that were due to be reported on February 14, 2007; +(ii) John +M. Gibbons filed a Form 4 on May 8, 2007, which reported transactions that were due to be reported on May 4, 2007; +(iii) Douglas +B. Otto filed a Form 4 on July 6, 2007, which reported transactions that were due to be reported on July 5, 2007; +(iv) Gene +E. Burleson filed a Form 4 on July 19, 2007, which reported transactions that were due to be reported on July 9, 2007; and +(v) Rex +A. Licklider filed a Form 4 on December 10, 2007, which reported transactions that were due to be reported on December 6, 2007. +34 +PROPOSAL NO. 2 +AMENDMENT OF CERTIFICATE OF INCORPORATION +TO INCREASE AUTHORIZED CAPITAL STOCK +At the Annual Meeting, stockholders will be asked to approve an amendment to the Company's Restated Certificate of Incorporation to increase the authorized number +of shares of Common Stock from 20,000,000 shares to 100,000,000 shares (the "Amendment"). On March 13, 2008, the Board of Directors adopted resolutions setting forth the Amendment in the form +of an amendment to Section 1 of Article IV of the Company's Restated Certificate of Incorporation which is attached hereto as Exhibit A, and has determined the Amendment to be +advisable and in Company's best interest and is hereby seeking approval of the Amendment by the Company's stockholders. +The +following is the relevant text of Section 1 of Article IV of the Company's Restated Certificate of Incorporation, as proposed to be amended, with additions indicated +with italicized text and deletions indicated by strike-through text: +SECTION 1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock +to be designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is One +Hundred-Five Twenty-Five Million ( 105,000,000 ) +( 25,000,000 ); the total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and +the total number of shares of Common Stock shall be One Hundred Twenty Million +( 100,000,000 ) ( 20,000,000 ), and each such share shall have a par value of one cent ($0.01). +Purpose of the Amendment +The purpose of the Amendment is to increase the total authorized number of shares of Common Stock from 20,000,000 shares to 100,000,000 shares. The additional +authorized shares may be used by the Company for business and financial purposes as determined by the Board of Directors from time to +time to be necessary or desirable. Subject to favorable market conditions and approval of the Amendment, the Company is considering using a number of the additional shares of Common Stock to effect a +stock split, in the form of a stock dividend payable on all outstanding shares of Common Stock. The Board has not yet determined whether to implement a stock split, and the magnitude of a stock split, +if any, will be based on market conditions and remain in the Board's sole discretion. Should the Board determine that a stock split is advisable, the proposed increase in the number of authorized +shares of Common Stock will be necessary, as the current number of authorized shares of Common Stock that are not reserved or outstanding is not sufficient to effect a stock split. Stockholder +approval of a stock split effected in the form of a stock dividend is not required under Delaware law, is not being solicited by this Proxy Statement and will not be solicited in the future in order +to effect a stock split. +The +objective of a stock split would be to lower the per share market price of the Common Stock in inverse proportion to the stock split. Such lower price would be expected to increase +the liquidity and broaden the marketability of the Common Stock to a larger group of investors. The Board may decide, however, in the best interests of the Company and due to market conditions or +otherwise, not to effect a stock split. Therefore, no assurances can be given that the Board will effect a stock split or declare any type of stock split or stock dividend, even if the Amendment is +approved. Alternatively, the additional shares authorized as a result of the Amendment could be used in connection with other possible business and financial uses, such as raising capital through the +sale of Common Stock; acquiring other companies, businesses, products or services in exchange for shares of Common Stock; attracting and retaining employees by the issuance of additional securities +under the Company's various equity compensation plans; and other transactions and corporate purposes that the Board of Directors deems to be in the Company's best interest. +35 +The +additional authorized shares would enable the Company to act quickly in response to opportunities that may arise for these types of transactions, in most cases without the necessity +of obtaining future stockholder approval and holding a special stockholders' meeting before such issuance(s) could proceed, except as provided under Delaware law or under the marketplace rules of +Nasdaq. Whether and how to undertake any of these types of transactions, if at all, will depend in part on market conditions at the time and there can be no assurance that the Company will undertake +any of these types of transactions even if the Amendment is approved by the stockholders. +As +of the close of business on the Record Date, there were 13,010,238 shares of Common Stock issued and outstanding. In addition, as of such date, 822,215 shares were subject to +outstanding equity compensation awards such as stock options, stock appreciation rights (SARs), nonvested stock units (NSUs) and restricted stock units (RSUs). An additional 1,366,250 shares were +reserved for issuance in connection with future awards available for grant under the Company's stockholder-approved, 2006 Equity Incentive Plan. +Other +than consideration of a possible stock split and shares that may be issued under the equity compensation plans listed above, as of the date of this Proxy Statement the Company has +no immediate plans, understandings, agreements or commitments to issue additional shares of Common Stock for any purposes. However, the Company also reviews and evaluates potential capital raising +activities, strategic transactions and other corporate actions on an ongoing basis to determine if such actions would be in the best interests of the Company and its stockholders. +Effects of the Amendment, if Adopted +Upon issuance, the additional shares of authorized Common Stock would have rights identical to the shares of Common Stock currently outstanding. Approval of the +Amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders. In the event that a stock split were effected, it would reduce the +Company's diluted earnings per share but would not affect voting rights of current stockholders, as each stockholder would continue to hold the same percentage interest in the Company. However, to the +extent that the additional authorized shares of Common Stock are issued in the future in a corporate transaction, other than a stock split, they may decrease existing stockholders' percentage equity +ownership and, depending on the price at which they were issued, could be dilutive to the voting rights of existing stockholders and have a negative effect on the market price of the Company's Common +Stock. Because the Company's Restated Certificate of Incorporation does not confer to the Company's stockholders preemptive rights with respect to Common Stock, should the Board of Directors elect to +issue additional shares of Common Stock, existing stockholders would not have any preferential rights to purchase these shares. +The +Amendment could, under certain circumstances, have an anti-takeover effect, although it is not the Company's intention with this proposal. For example, in the event of a +hostile attempt to take control of the Company, it may be possible for the Company to impede the attempt by issuing shares of Common Stock, which would dilute the voting power of the other outstanding +shares and increase the potential cost to acquire control of the Company. The Amendment therefore may have the effect of discouraging unsolicited takeover attempts, potentially limiting the +opportunity for the Company's stockholders to dispose of their shares at a premium, which is often offered in takeover attempts, or that may be available under a merger proposal. The Amendment may +have the effect of permitting the Company's current management, including the current Board of Directors, to retain its position, and place it in a better position to resist changes that stockholders +may wish to make if they are dissatisfied with the conduct of the Company's business. However, as of the date of this Proxy Statement, the Board of Directors is not aware of any attempt to take +control of the Company, and the Board of Directors has not presented this proposal with the intent that it be utilized as a type of anti-takeover device. +36 +The +affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company is required to authorize the proposed increase in the authorized number of +shares of Common Stock. Both abstentions and broker non-votes are not affirmative votes and, therefore, will have the same effect as votes against this Proposal No. 2. +The +Board of Directors has reserved the right, in the exercise of its discretion, to abandon the Amendment regardless of whether the stockholders approve the Amendment. +If +the Amendment is approved by the stockholders and it is not abandoned by the Board of Directors, it will become effective upon filing of a Certificate of Amendment, in the form set +forth as Appendix A to this Proxy Statement, to the Company's Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which filing is expected to occur soon +after the Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. +37 +PROPOSAL NO. 3 +RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2007 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated financial statements. The Audit +Committee has selected KPMG LLP to provide audit services to the Company and its subsidiaries for the fiscal year ending December 31, 2008. The stockholders are being requested to ratify +such selection at the Annual Meeting. A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder +questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of holders of a majority of the outstanding +shares of our Common Stock, present in person or represented by Proxy of the Annual Meeting and entitled to vote. If the stockholders do not ratify the appointment, the Board of Directors and Audit +Committee will consider the selection of another independent registered public accounting firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 3 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR +ENDING DECEMBER 31, 2008. +Audit Fees and All Other Fees +Audit Fees +Fees for audit services totaled approximately $1,446,000 in 2007 and $891,000 in 2006. The 2007 audit fees include fees associated with the audit of the Company's +consolidated balance sheet as of December 31, 2007, the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the +three-year period ended December 31, 2007 and the audit of internal control over financial reporting as of December 31, 2007 (collectively referred to as the integrated +audit), as well as the reviews of the Company's quarterly reports on Form 10-Q and statutory audits required internationally. Included in the audit fees in 2007 was approximately +$448,000 related to the restatement of the Company's Annual Report on Form 10-K/A for the year ending December 31, 2006 and the Company's Quarterly Report on +Form 10-Q/A for the period ending March 31, 2007 described in the Report of the Audit Committee above. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2007 or 2006. +Tax Fees +Fees for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters, totaled approximately $187,000 in 2007 and +$477,000 in 2006. +KPMG LLP +has advised the Company that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in the Company or its +subsidiaries. +All Other Fees +The Company was not billed for any other fees in 2007 or 2006. +38 +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all audit and permissible non-audit services +on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the independence of KPMG LLP, +and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent auditor to perform the services. The Audit Committee has determined that +performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee pre-approves all independent auditor services. During the year, circumstances may arise when it may become necessary to engage the +independent auditor for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires that those services be submitted to +the Audit Committee for specific pre-approval before the Company can engage the independent auditor to provide them. On May 8, 2007, the Audit Committee approved an Audit and +Non-Audit Financial Service Approval Policy giving our Chief Audit Executive and Chief Financial Officer discretionary authority to engage financial services firms for audit and +permissible non-audit services to the Company of up to a dollar amount equal to 5% of the total fees paid to our independent auditors during each fiscal year. +The +Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated reports any pre-approval +decisions to the Audit Committee at its next scheduled meeting. +39 +STOCKHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING +Any stockholder desiring to submit a proposal for action at our 2009 Annual Meeting of Stockholders and include it in our Proxy Statement with respect to such +meeting should arrange for such proposal to be delivered to us at our principal place of business no later than December 23, 2008, which is 120 calendar days prior to the anniversary of the +mailing date of this year's Proxy Statement, in order to be considered for possible inclusion in the Proxy Statement for that meeting. If the date of next year's annual meeting is moved more than +30 days before or after the anniversary date of this year's annual meeting, the deadline for inclusion of proposals in our Proxy Statement for our 2009 Annual Meeting of Stockholders is instead +a reasonable time before we begin to print and mail the proxy materials for that meeting. Matters pertaining to such proposals, including the number and length thereof, eligibility of persons entitled +to have such proposals included, and other aspects, are regulated by the Securities Exchange Act of 1934, as amended, rules and regulations of the Securities and Exchange Commission, other laws and +regulations, and our Bylaws, to which interested persons should refer. You may obtain a complete copy of our Bylaws without charge by submitting a written request to our Corporate Secretary at our +principal executive office. Stockholders wishing to submit for consideration a possible board candidate should follow the procedures set forth under "Procedures for Stockholder Nominations." +If +a stockholder desires to bring business before the 2009 Annual Meeting of Stockholders which is not the subject of a proposal properly submitted for inclusion in the Company's Proxy +Statement, the stockholder must follow procedures outlined in the Company's Bylaws. The Bylaws provide that a stockholder entitled to vote at the meeting may make nominations for the election of +directors or may propose that other business be brought before the meeting only if (a) such nominations or proposals are included in the Company's Proxy Statement or otherwise properly brought +before the meeting by or at the direction of the Board of Directors, or (b) the stockholder has delivered written notice to the Company (containing certain information specified in the Bylaws) +not less than 90 days prior to the date of the meeting. However, if the Company has given less than 90 days advance notice or public disclosure of the date the meeting is to be held, +written notice of a nomination or proposal to be submitted by a stockholder at the meeting will be timely if it has been received by the Company not later than the 7th day following the date on +which notice of the meeting is mailed or the meeting date is otherwise publicly disclosed. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any continuation, postponement or adjournment thereof other than the election of +directors, the ratification of the selection of the Company's independent registered public accounting firm and the approval of an amendment to the Company's Restated Certificate of Incorporation. +However, inasmuch as matters of which management is not now aware may come before the Annual Meeting or any continuation, postponement or adjournment thereof, the Proxies confer discretionary +authority with respect to acting thereon, and the persons named in such Proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided that, to the +extent the Company becomes aware a reasonable time before the Annual Meeting of any matter to come before such meeting, the Company will provide an opportunity to vote by Proxy directly on such +matter. Upon receipt of such Proxies in time for voting, the shares represented thereby will be voted as indicated thereon and as described in this Proxy Statement. +40 +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and all the expenses of soliciting Proxies from stockholders will be borne by the Company. In +addition to the solicitation of Proxies by use of the mails, officers and regular employees may communicate with stockholders personally or by mail, telephone, telegram or otherwise for the purpose of +soliciting such Proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse banks, brokers and other nominees for their +reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. In addition, the Company has retained +Georgeson, Inc. as their proxy solicitation agent and has agreed to pay Georgeson, Inc. a fee of $12,500 plus out-of-pocket expenses. The total estimated cost of all solicitation of Proxies, including +fees and estimated expenses payable to Georgeson, Inc., is approximately $70,000. +ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (excluding the exhibits thereto) as filed +with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the Proxy soliciting material. The +Form 10-K contains consolidated financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public +accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2007 upon the written request of any beneficial owner of +the Company's securities as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Secretary of the Company at the Company's corporate +offices at 495-A South Fairview Avenue, Goleta, California 93117. +STOCKHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AS SOON AS POSSIBLE AND RETURN IT IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE +AFFIXED IF MAILED IN THE UNITED STATES. +BY +ORDER OF THE BOARD OF DIRECTORS +Angel +R. Martinez +President and Chief Executive Officer +Goleta, +California +April 25, 2008 +41 +Appendix A +CERTIFICATE OF AMENDMENT +OF +AMENDED AND RESTATED +CERTIFICATE OF INCORPORATION +OF +DECKERS OUTDOOR CORPORATION +DECKERS OUTDOOR CORPORATION, a Delaware corporation organized and existing under and by virtue of the Delaware General Corporation Law (the +" Corporation "), does hereby certify: +FIRST: +The Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the following amendments to the Amended and Restated Certificate of +Incorporation of the Corporation, directing that said amendment be submitted to the stockholders of the Corporation for consideration thereof. The resolutions setting forth the proposed amendments are +as follows: +RESOLVED, +that the Section 1 of Article IV of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows: +SECTION 1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock +to be designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is One Hundred-Five Million +(105,000,000); the total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and the total number of shares of Common +Stock shall be One Hundred Million (100,000,000), and each such share shall have a par value of one cent ($0.01). +SECOND: +That thereafter, the holders of the necessary number of shares of capital stock of the Corporation voted in favor of the foregoing amendment at the Corporation's 2008 Annual +Meeting of Stockholders called and held on May 29, 2008 upon notice in accordance with the provisions of Section 222 of the Delaware General Corporation Law. +THIRD: +That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law of the State of Delaware. +IN +WITNESS WHEREOF, I affirm, under penalties of perjury, that the matters set forth in this certificate, which is executed on , 2008, are true +and correct of my own +knowledge. +Angel R. Martinez +President and Chief Executive Officer +A-1 +PROXY +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue +Goleta, California 93117 +This +Proxy is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation. The undersigned hereby appoints Angel R. Martinez and Zohar Ziv, and each of them, as Proxyholders, each +with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote as designated below, all the shares of Common Stock of Deckers Outdoor Corporation held of record +by the undersigned on March 31, 2008, at the 2008 Annual Meeting of Stockholders to be held on May 29, 2008 and any continuations, postponements or adjournments thereof. +PLEASE DATE, SIGN ON REVERSE SIDE AND RETURN IN THE ACCOMPANYING ENVELOPE. +Address Change/Comments (Mark the corresponding box on the reverse side) +FOLD AND DETACH HERE +You can now access Deckers Outdoor Corporation accounts online. +Access +to Deckers Outdoor Corporation shareholder/stockholder accounts is available online via Investor ServiceDirect® (ISD). +Mellon +Investor Services LLC, Transfer Agent for Deckers Outdoor Corporation, now makes it easy and convenient to get current information on your shareholder accounts. +• View account status +• View payment history for dividends +• View certificate history +• Make address changes +• View book-entry information +• Obtain a duplicate 1099 tax form +• Establish/change your PIN +Visit us on the web at http://www.melloninvestor.com +For Technical Assistance Call 1-877-978-7778 between +9am-7pm Monday-Friday Eastern Time +Investor ServiceDirect® is a registered trademark of Mellon Investor Services LLC +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE PROPOSALS AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS. THIS PROXY IS SOLICITED ON +BEHALF OF THE BOARD OF DIRECTORS. +Mark here +for Address +Change or +Comments +o +PLEASE SEE REVERSE SIDE +FOR +WITHHOLD AUTHORITY +to vote for the nominees +listed below +1. +ELECTION OF DIRECTORS: +o +o +Instruction: To withhold authority to vote for a nominee listed below, strike a line through the nominee's name. +Nominees: +01 Angel R. Martinez +02 Rex A. Licklider +03 John M. Gibbons +04 John G. Perenchio +05 Maureen Conners +06 Tore Steen +07 Ruth M. Owades +08 Karyn O. Barsa +FOR +AGAINST +ABSTAIN +2. +TO APPROVE THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 20,000,000 SHARES TO 100,000,000 SHARES +o +o +o +FOR +AGAINST +ABSTAIN +3. +TO RATIFY THE SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2008 +o +o +o +FOR +AGAINST +ABSTAIN +4. +In their discretion, the Proxyholders are authorized to transact such other business as may properly come before the Annual Meeting or any continuations, postponements or adjournments thereof. +o +o +o +The Board of Directors recommends a vote "For" the election of each of the director nominees, "For" the approval to amend the Company's Certificate of Incorporation, and "For" ratification of the selection of KPMG LLP +as the Company's independent registered public accounting firm for fiscal 2008. All proposals to be acted upon are proposals of the Board of Directors. If any other business is properly presented at the Annual Meeting, including, among other things, +consideration of a motion to adjourn the meeting to another time or place in order to solicit additional Proxies in favor of the recommendations of the Board of Directors, this Proxy shall be voted by the Proxyholders in accordance with the +recommendations of a majority of the Board of Directors. At the date the Proxy Statement went to press, we did not anticipate any other matters would be raised at the Annual Meeting. +PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +WILL +ATTEND +If you plan to attend the Annual Meeting, please mark the WILL ATTEND box. +o +Signature +Signature +Dated +2008 +Please sign exactly as the name appears above. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or +guardian, please give your full title as such. If the signer is a corporation, please sign in full corporate name by the President or other authorized officer giving full title as such. If the signer +is a partnership, please sign in the partnership name by an authorized person. +FOLD AND DETACH HERE +WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING. +BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. +Internet and telephone voting are available through 11:59 PM Eastern Time the day prior to the Annual Meeting date. +Internet or telephone voting authorizes the named Proxyholders to vote in the same manner as if marked, signed and returned on the proxy card. +Internet +http://www.proxyvoting.com/deck +Telephone +1-866-540-5760 +OR +Use the internet to vote your proxy. Have your proxy card in hand when you access the web site. +Use any touch tone telephone to vote your proxy. Have your proxy card in hand when you call. +If voting by internet or by telephone, you do NOT need to mail back the proxy card. +To vote by mail, mark, sign and date the proxy card and return it in the enclosed postage-paid envelope. +Choose MLink SM for fast, easy and secure 24/7 online access to future proxy materials, investment plan statements, tax documents and more. Simply log +on to Investor ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment. +You can view the Annual Report and Proxy Statement on the internet at +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 +QuickLinks +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +GENERAL INFORMATION +PROPOSAL NO. 1 ELECTION OF DIRECTORS +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION COMMITTEE REPORT +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2007 +OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR END +2007 OPTION EXERCISES AND STOCK VESTED +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. +PROPOSAL NO. 3 RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" PROPOSAL NO. 3 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING +DECEMBER 31, 2008. +STOCKHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING +OTHER BUSINESS OF THE ANNUAL MEETING +COST OF SOLICITATION +ANNUAL REPORT ON FORM 10-K +Appendix A +CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DECKERS OUTDOOR CORPORATION \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-08-005236/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-08-005236/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..e8a92bc5f909c85673b01e65850a80a1107b1a53 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-08-005236/proxy_rpt.txt @@ -0,0 +1,23 @@ +Certain Relationships and Related Transactions +Other than as set forth below, there were no disclosable transactions with related persons under Item 404 of Regulation S-K during the +fiscal year ended December 31, 2007 or currently proposed. +Transactions with Directors +Daniel L. Terheggen, a former member of the Company's Board of Directors, was a 50% owner and Chief Executive Officer of BHPC Global Licensing, Inc. +(BHPC). The Company paid BHPC an aggregate of approximately $34,000 for agency fees related to licensing of the Company's products during 2007 and there was no unpaid balance to BHPC at +December 31, 2007. In April 2007, Mr. Terheggen sold his interest in BHPC and the Company began to pay American Heritage Apparel, which was also 50% owned by Mr. Terheggen. +Beginning November 2007, the Company began paying Weebairn, Inc., which is 50% owned by Mr. Terheggen. The Company paid American Heritage Apparel approximately $22,000 during 2007 and +there was no unpaid balance to American Heritage Apparel at December 31, 2007. The Company paid Weebairn, Inc. approximately $5,000 in 2007 and the unpaid balance to +Weebairn, Inc. at December 31, 2007 was $56,000. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by +the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with +33 +our +directors and executive officers in which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-09-004501/proxy.txt b/raw/proxies/0000910521/0001047469-09-004501/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..19ad5f43c608fa958ec693273fbebc8d82981bfc --- /dev/null +++ b/raw/proxies/0000910521/0001047469-09-004501/proxy.txt @@ -0,0 +1,2322 @@ +DEF 14A +1 +a2192531zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +April 24, 2009 +Dear +Stockholder: +We +cordially invite you to attend our 2009 Annual Meeting of Stockholders to be held at 3:00 p.m., local time, on Thursday, May 28, 2009 at Deckers Outdoor Corporation's +headquarters, 495-A South Fairview Avenue, Goleta, California 93117. +Enclosed +are the Notice of Annual Meeting, Proxy Statement and a Proxy Card relating to the Annual Meeting which we urge you to read carefully. Also enclosed is the Company's 2008 Annual +Report. +Please +use this opportunity to take part in our affairs by voting on the business to come before the Annual Meeting. If you are a record holder of our Common Stock as of the close of +business on April 13, 2009, you are eligible to vote on these matters, either by attending the Annual Meeting in person or by Proxy. It is important that your shares be voted, whether or not +you plan to attend the Annual Meeting, to ensure the presence of a quorum. Therefore, please complete, date, sign, and return the accompanying Proxy Card in the enclosed +postage-paid envelope. Properly executed Proxy Cards received by the Company prior to the Annual Meeting will be voted in accordance with the instructions indicated +on such cards. Because mail delays occur frequently, it is important that the enclosed Proxy Card be returned well in advance of the Annual Meeting. Submitting the Proxy Card does NOT deprive you of +your right to attend the Annual Meeting and vote your shares in person for the matters acted on at the Annual Meeting. +Sincerely, +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and Chief Executive Officer +DECKERS OUTDOOR CORPORATION +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 28, 2009 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders (the "Annual Meeting") of Deckers Outdoor Corporation, a Delaware corporation (the "Company"), will be held at the +Company's headquarters, 495-A South Fairview Avenue, Goleta, California 93117, on Thursday, May 28, 2009, beginning at 3:00 p.m., local time. The Annual Meeting will be held +for the following purposes: +1. Election of Directors. To elect eight (8) directors of the Company to serve +until the Annual Meeting of Stockholders to be held in 2010. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To +ratify the selection of KPMG LLP as the Company's independent registered public accounting firm for the year ending December 31, 2009. +3. Amendment of the Company's Certificate of Incorporation. To approve an amendment to +the Company's Amended and Restated Certificate of Incorporation, as amended, to increase the number of shares of Common Stock that the Company is authorized to issue from 20,000,000 shares to +50,000,000 shares. +4. Other Business. To consider and act upon such other business as may properly come +before the Annual Meeting or any postponements or adjournments thereof. +The +Board of Directors has fixed the close of business on April 13, 2009 as the record date (the "Record Date") for determining stockholders entitled to notice of and to vote at +the Annual Meeting and any continuations, postponements or adjournments thereof. Only stockholders of record at the close of business on the Record Date are entitled to such notice and to vote, in +person or by Proxy, at the Annual Meeting. +The +Proxy Statement that accompanies this Notice contains additional information regarding the proposals to be considered at the Annual Meeting, and stockholders are encouraged to read +it in its entirety. +Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held May 28, 2009: The Notice of 2009 Annual Meeting of +Stockholders, Proxy Statement, and 2008 Annual Report to Stockholders of Deckers Outdoor Corporation are available online at: +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 +The Board of Directors welcomes your personal attendance at the Annual Meeting. However, whether or not you plan to attend, please sign and return the enclosed Proxy Card, which you may +revoke at any time prior to its use. A self-addressed, postage prepaid envelope is enclosed for your convenience. Your Proxy Card will not be used if you attend the Annual Meeting and +choose to vote in person. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +Goleta, California +April 24, 2009 +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +PLEASE COMPLETE, DATE, SIGN AND MAIL THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. IF A STOCKHOLDER RECEIVES MORE THAN +ONE PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 28, 2009 +PROXY STATEMENT +GENERAL INFORMATION +This Proxy Statement is furnished in connection with the solicitation of Proxies by the Board of Directors of Deckers Outdoor Corporation, a Delaware corporation +(the "Company" or "Deckers"), for use at its Annual Meeting of Stockholders (the "Annual Meeting") to be held at 3:00 p.m., local time, on May 28, 2009, at the Company's headquarters, +495-A South Fairview Avenue, Goleta, California 93117, and any continuations, postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting. +This Proxy Statement and the accompanying Proxy Card (the "Proxy") were first mailed to stockholders on or about April 28, 2009. +Method of Voting and Voting Rights +Stockholders can vote by Proxy or by attending the Annual Meeting and voting in person. A Proxy is enclosed. If you vote by Proxy, the +Proxy Card included with this Proxy Statement must be completed, signed and dated by you or your authorized representative. The completed Proxy may be returned in the postage-paid envelope +provided, or you may vote via the internet or telephone as indicated on the Proxy Card instructions. Angel R. Martinez and Zohar Ziv, the designated proxyholders (the "Proxyholders"), are members of +the Company's management. If you hold Common Stock in "street name," you must either instruct your broker or nominee as to how to vote such shares or obtain a Proxy, executed in your favor by your +broker or nominee, to be able to vote at the Annual Meeting. +Meeting Quorum. In order to conduct business at the Annual Meeting, a quorum must be present. The presence at the Annual Meeting, in +person or +represented by Proxy, of holders of a majority of the outstanding shares of the Company's Common Stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat +shares of Common Stock represented by a properly signed and returned Proxy, including abstentions and broker non-votes (as defined below), as present at the Annual Meeting for the purposes +of determining the existence of a quorum. +Vote Required. Each share of Common Stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for +consideration +and action by the stockholders at the Annual Meeting. The eight directors to be elected at the Annual Meeting (Proposal No. 1) will be elected by a plurality of the votes cast by stockholders +present in person or represented by Proxy at the Annual Meeting and entitled to vote and voting. Approval of the proposal to amend the Company's Certificate of Incorporation to increase the authorized +shares of the Company's Common Stock from 20,000,000 shares to 50,000,000 shares (Proposal No. 3) will require the affirmative vote of holders of a majority of the shares of our Common Stock +outstanding as of the Record Date. Approval of each other matter to be voted on at the Annual Meeting, including Proposal No. 2 regarding the ratification +1 +of +the selection of KPMG LLP as the Company's independent registered public accounting firm, will require the affirmative vote of a majority of the shares present in person or represented by +Proxy at the Annual Meeting and entitled to vote (assuming that a quorum is present). +Abstentions. A stockholder may withhold authority to vote for one or more nominees for director and may abstain from one or more of the +other matters +to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains from voting will be counted for purposes of determining whether a quorum is present at the +Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of directors (which requires a plurality of the votes cast). Shares that a stockholder +abstains from voting will be included in the total of votes cast and have the same effect as a vote AGAINST Proposals No. 2 and No. 3. +Broker Non-Votes. If your shares are held by a broker, the broker will vote your shares for you if you provide instructions to your +broker on how to vote. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. "Broker non-votes" are shares held by a broker or +other nominee that are represented at the Annual Meeting, but with respect to which the broker or nominee has not received instructions from the beneficial owner of the shares to vote on the +particular proposal and does not have discretionary voting power on the proposal. Brokers holding shares of record for beneficial owners generally are entitled to exercise their discretion to follow +the recommendation of the Board of Directors and vote in favor of Proposals No. 1 and No. 2, but do not have the discretion to vote on Proposal No. 3 included in this Proxy +Statement unless they receive other instructions from their customers. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum at the Annual +Meeting but will not be counted for purposes of determining the number of shares represented and voting with respect to a proposal. Accordingly, broker non-votes will have no effect on +voting on the election of directors or on the ratification of the independent registered public accounting firm. However, broker non-votes will have the effect of a vote AGAINST Proposal +No. 3 regarding amendment of the Company's Certificate of Incorporation. +Voting Shares in Person that are Held Through Brokers. If your shares are held of record by your broker, bank or another nominee and +you wish to vote +those shares in person at the Annual Meeting, you must obtain from the nominee holding your shares a properly executed legal Proxy identifying you as a Company stockholder, authorizing you to act on +behalf of the nominee at the Annual Meeting and identifying the number of shares with respect to which the authorization is granted. +Revocation of Proxy +A stockholder giving a Proxy has the power to revoke it at any time before it is exercised by giving written notice of revocation to +the Secretary of the Company, by executing a subsequent Proxy, or by attending the Annual Meeting and voting in person. If you have instructed your broker to vote your shares, you must follow +directions received from your broker to change those instructions. Subject to any such revocation, all shares represented by properly executed Proxies will be voted in accordance with the +specifications on the enclosed Proxy. +Record Date +In accordance with the Company's Bylaws, the Board of Directors has fixed April 13, 2009 as the Record Date for the +determination of stockholders entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof. As of the close of business on April 13, 2009, there were +13,115,373 shares of the Company's Common Stock outstanding. +2 +Procedures for Stockholder Nominations +The Company's Bylaws provide that a stockholder seeking to nominate a candidate for election as director at an annual meeting of +stockholders must provide timely advance +written notice. To be timely, a stockholder's notice generally must be received at our principal executive office on or before the date 90 days prior to the scheduled date of the annual meeting +or, if it is a later date, on or before the date seven days after the Company first publishes notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting must include the following information: +• the name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person +or persons to be nominated; +• the class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder or +any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or +series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any +borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power +of, such stockholder or any Stockholder Affiliate; +• a representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to +vote his or her shares in person or by proxy for the person nominated in the notice; +• a description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the +nomination and each nominee; +• any other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy +Statement if the Board of Directors made the nomination; +• the consent and commitment of the nominee(s) to serve as director; +• for each nominee, a completed and signed questionnaire, in a form provided by the Company upon written request, with +respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• for each nominee, a written representation and agreement, in the form provided by the Company upon written request, with +regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of the Company; +• a description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any +other person, including their name, in connection with the nominee; and +• whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For +these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner +of shares of stock of the Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder +Affiliate. The presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not +3 +made +in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and +Nominating Committee. +Other Business +If any other matters are promptly presented for consideration at the Annual Meeting including, among other things, consideration of a +motion to adjourn the Annual Meeting to another time or place in order to solicit additional Proxies in favor of one or more of the proposals, the persons named as Proxyholders and acting thereunder +will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the Proxy would be entitled to vote. At the date this Proxy Statement went to +press, we did not anticipate that any other matter would be raised at the Annual Meeting. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's Bylaws state that the Board of Directors shall consist of not less than one or more than nine members. The specific +number of Board members within this range is established by the Board of Directors and is currently set at eight. There are currently eight Board members, and all directors are elected annually. +At +the Annual Meeting, stockholders will be asked to elect eight directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2010 and until +his or her successor is elected and qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons +nominated by the Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of the Board of Directors. +Accordingly, +if all nominees for director are elected, then following the Annual Meeting, the Board of Directors will consist of eight members, and a majority of the Board of Directors +and all members of each of its standing committees will continue to be "independent" under applicable regulations as described below. +The +election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person or by Proxy at the Annual Meeting. The persons named as +Proxyholders in the enclosed Proxy will vote to elect all eight proposed nominees named below unless contrary instructions are given in the Proxy. Broker non-votes and Proxies marked +"withheld" as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise received by the nominee will not be reduced by such +action. +Although +each of the persons named below has consented to serve as a director if elected, and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the persons named as Proxyholders in the enclosed Proxy will vote for any substitute nominee +designated by the Board of Directors. +None +of the directors or nominees for director were selected pursuant to any arrangement or understanding, other than with the directors of the Company acting within their capacity as +such. There are no family relationships among directors, nominees for director or executive officers of the Company. +4 +Nominees for Director +The names of the nominees for director and certain biographical information about them are set forth below: +Name +Age +Director Since +Principal Occupation +Angel R. Martinez +53 +2005 +Chair of the Board, President and Chief Executive Officer of the Company +Rex. A. Licklider(3) +66 +1993 +Chief Executive Officer and Vice Chair of The Sports Club Company +John M. Gibbons(1)(2) +60 +2000 +Independent Consultant +John G. Perenchio(1) +53 +2005 +Owner, Entrada Music LLC +Maureen Conners(1)(3) +62 +2006 +President of Conners Consulting +Tore Steen(2) +71 +2007 +President and Chief Executive Officer of World Intelligent Network LLC +Ruth M. Owades(3) +60 +2008 +Corporate Director +Karyn O. Barsa(2) +48 +2008 +President of Investors' Circle +(1) Member +of the Compensation and Management Development Committee +(2) Member +of the Audit Committee +(3) Member +of the Corporate Governance and Nominating Committee +Angel R. Martinez , age 53, joined Deckers in April 2005 as President and Chief Executive Officer. In September 2005, he became a director +of the Company and in May 2008, he became Chair of the Board. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board. +Previously, Mr. Martinez was Chief Executive Officer and Vice Chair of Keen LLC, an outdoor footwear manufacturer, from January 2005 to March 2005, after serving as President and Chief +Executive Officer from April 2003 to December 2004, and as an independent consultant since June 2002. Prior thereto he served as Executive Vice President and Chief Marketing Officer of Reebok +International Ltd. and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. Mr. Martinez has been a member of the Board of Directors of Tupperware +Brands Corporation since 1998. +Rex A. Licklider , age 66, has served as a director since September 1993. Mr. Licklider has been director and Vice Chair of The +Sports Club Company, a developer and operator of health and fitness clubs, since May 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company since March 2004 +and as Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. From February 1992 to January 1993, Mr. Licklider was Chair of the Board of Resurgens +Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chair of the Board and Chief Executive Officer of Com +Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992. +John M. Gibbons , age 60, has served as a director since June 2000. Mr. Gibbons has been an independent consultant since April 2004. +From June 2000 to April 2004, Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long distance, data and Internet services provider, and was its Chief Executive Officer from June +2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of National Technical Systems, Inc., a provider of integrated +testing, certification, quality registration, systems evaluation and staffing services, since September 2003. Mr. Gibbons was Vice Chair of Assisted Living Concepts, Inc., a national +provider of assisted living services, from March 2000 to December 2001. Previously, Mr. Gibbons was employed by The Sports Club Company, a developer and operator of health and fitness clubs, +where he was Chief +5 +Executive +Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +John G. Perenchio , age 53, has served as a director since December 2005. Since 2003, Mr. Perenchio has been the owner and operator +of Entrada Music LLC, a holding company with a controlling interest in Fearless Records LLC, a boutique indie rock music label. From 1990 to 2003, Mr. Perenchio served as an +executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and real estate industries. From 1984 to 1990, +Mr. Perenchio was the Director of Contemporary Music at Triad Artists, Inc., one of the premier talent agencies in the world, and prior to that, from 1982 to 1984, practiced law as an +attorney in California. From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading Spanish-language media company in the United States. +Maureen Conners , age 62, has served as a director since September 2006. Ms. Conners is President of Conners Consulting, which she +founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp +Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. Prior to founding +Conners Consulting, Ms. Conners held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to +that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Ms. Conners has an MBA from the Wharton School of the University of +Pennsylvania. +Tore Steen , age 71, has served as a director since May 2007. Mr. Steen has been the owner and President/CEO of World Intelligent +Network, LLC (formerly the Coventry Group, Inc.), and of management, consulting and holding companies, since 1995. He also served as President of the IOS Foundation from 2003 to 2004. +From March 1991 to March 1995, Mr. Steen served as President and CEO of H.C. Inc. and later as Chair and CEO of Cascade General, Inc., both major west coast ship repair companies. +Mr. Steen was the Executive Vice President, Finance for WTD Industries, Inc., a Nasdaq forest products company, from January 1989 to December 1990. Previously, Mr. Steen had been +involved at executive and board levels of NYSE, Nasdaq and London Stock Exchange companies. Early in his career, he was with Citibank and Chemical Bank (now JPMorgan Chase) and for seven years built a +major international financial services company with operations in sixteen countries globally. He holds an MBA in International Finance from the University of Oregon. Mr. Steen has served on +many corporate and not-for-profit boards, including the World Technology Group, ABSO Alarms Company, the Young Presidents' Organization, the World Presidents' Organization, the +Chief Executives Organization, Outward Bound, and the Regional Drug Initiative. +Ruth M. Owades , age 60, has served as a director since May 2008. Ms. Owades' principal occupation is as a Corporate Director for +various private companies, and she is a frequent lecturer and consultant on corporate governance. Since 2006, Ms. Owades has served as a director on the Western Advisory Board of Northern Trust +Corporation. From 2002 to 2006, Ms. Owades was a director of Armstrong World Industries, a manufacturer and wholesaler of flooring, ceiling and cabinetry products. From 1997 to 2006, she was a +director of the J. Jill Group, a women's apparel, accessory and footwear retailer, and between 1998 and 2005 she served as a director of Providian Financial Corporation. From 1988 until 2000, +Ms. Owades was the Founder, CEO and Chair of Calyx & Corolla, Inc., the first fresh flower catalog and online retailer. From 2000 to 2002, she served as a consultant to the +financial group that purchased Calyx & Corolla. Prior thereto, Ms. Owades was Founder and CEO of Gardener's Eden, Inc., a catalog and retailer of upscale gardening tools, +accessories and outdoor furniture. She sold the company to Williams-Sonoma, Inc., continuing to serve for five years as President. Ms. Owades is a +graduate of Scripps College in Claremont, California and earned an MBA from Harvard Business School. +6 +Karyn O. Barsa , age 48, has served as a director since May 2008. Since February 2008, she has served as President and Chief Executive +Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. Between May 2007 and February 2008, she was Chief Executive Officer of +Embark Stores, Inc., a start-up pet supplies retailer where she remains on the advisory board, and prior to this time she was an independent investor. Between 1999 and 2001, +Ms. Barsa was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer, and prior to that she was Chief Operating Officer and Chief Financial Officer of +Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. She serves on the boards of Coyuchi, Inc. and NESsT, and the advisory board of Embark Stores, Inc. +Ms. Barsa holds a BA in Economics from Connecticut College and an MBA from the University of Southern California. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the direction of the +Board of Directors. Thus, the +Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive Officer and other senior officers, by reviewing materials requested by them or otherwise provided to +them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, the Board of Directors acts as an advisor and counselor to senior +management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +The Board affirmatively determines the independence of each director and nominee for election as a director in accordance with +guidelines it has adopted, which include all elements of independence set forth in Marketplace Rule 4200(a) (15) of the NASDAQ Stock Market LLC ("Nasdaq") and applicable rules of +the Securities and Exchange Commission ("SEC"). The guidelines for director independence are set forth in the Company's Corporate Governance Guidelines. These guidelines help ensure that the Board and +its committees are independent from management and that the interests of the Board and management align with the interests of the stockholders. Based on these standards, the Board has determined that +each of the Company's directors, other than Mr. Martinez, is independent (including, with respect to audit committee members and compensation and management development committee members, the +heightened independence criteria applicable to such committee members under Nasdaq and SEC independence standards). +Board of Directors Meetings +The Board of Directors held eight meetings during the year ended December 31, 2008. For the fiscal year ended +December 31, 2008, each of the directors attended 100% of the aggregate number of meetings of both the Board of Directors and the committees on which he or she served, held during the period +for which he or she was a director or committee member, respectively. +7 +The +Company's Corporate Governance Guidelines states that directors are expected to attend the Company's annual meeting of stockholders. All members of the then Board of Directors +attended the Company's 2008 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three committees: an Audit Committee, a Compensation and Management Development Committee and a Corporate +Governance and Nominating Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term is defined under Nasdaq +Marketplace Rule 4200(a) (15) and applicable rules of the SEC. +Audit Committee +The Board has a standing Audit Committee that (i) monitors the integrity of the Company's financial reporting process and +systems of internal controls regarding finance, accounting and legal compliance; (ii) monitors the independence and performance of the Company's independent registered public accounting firm, +and internal audit department, and (iii) provides an avenue of communications among the independent registered public accounting firm, Chief Audit Executive, management, and the Board of +Directors. The committee held eight meetings during 2008. At the date of this Proxy Statement, Mr. Gibbons was Chair of the Audit Committee and the committee was comprised of +Messrs. Gibbons and Steen and Ms. Barsa. The Board has determined that Mr. Gibbons qualifies as an "audit committee financial expert" as defined under the rules of the SEC. All of +the members of the Audit Committee meet the independence and experience requirements of the Nasdaq rules and the independence requirements of the SEC. The Audit Committee operates under a formal +charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Compensation and Management Development Committee +The Board's Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives relevant +to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the compensation +level of the executive officers based on this evaluation, (iv) makes recommendations to the Board with respect to incentive-compensation plans and equity-based plans, (v) oversees and +approves the management continuity planning process, and (vi) reviews and evaluates the succession plans relating to the executive officers. The Compensation and Management Development +Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's 1993 Employee Stock Incentive Plan (the "1993 Plan") and the Company's 2006 +Equity Incentive Plan (the "2006 Plan"). The committee held seven meetings during 2008. At the date of this Proxy Statement, Mr. Perenchio was Chair of the Compensation and Management +Development Committee and the committee was comprised of Messrs. Perenchio and Gibbons and Ms. Conners. All of the members of the Compensation and Management Development Committee meet +the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Compensation and Management Development Committee operates under a formal charter adopted by the Board of +Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Corporate Governance and Nominating Committee +The Board's Corporate Governance and Nominating Committee (i) develops and recommends to the Board a set of Corporate Governance +Guidelines applicable to the Company, (ii) recommends the director nominees to be selected by the Board for the next annual meeting of stockholders, +8 +(iii) identifies +individuals qualified to become Board members, consistent with criteria specified in the Corporate Governance Guidelines, (iv) recommends to the Board membership of the +Board committees, and (v) oversees the evaluation of the Board and Board committees. The committee met five times during 2008. At the date of this Proxy Statement, Mr. Licklider was +Chair of the Corporate Governance and Nominating Committee and the committee was comprised of Mr. Licklider, Ms. Conners, and Ms. Owades. All of the members of the Corporate +Governance and Nominating Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Corporate Governance and Nominating Committee operates under a formal +charter adopted by the Board of Directors, a copy of which is available on the Company's website at http://www.deckers.com . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee consider and approve nominees for election to the Board of +Directors. In addition to the candidates proposed by the Board of Directors or identified by the committee, the committee considers candidates for director suggested by stockholders, provided such +recommendations are made in accordance with the procedures set forth in the Company's Bylaws and described above under "Procedures for Stockholder Nominations." Stockholder nominations that meet the +criteria outlined below will receive the same consideration that the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee include the following: personal and professional integrity, good business judgment, +relevant experience and skills, ability to be an effective director in conjunction with the full Board in collectively serving the long-term interests of the Company stockholders, and a +commitment to devoting sufficient time and energy to diligently perform their duties as a director. +In +evaluating candidates for certain Board positions, the committee evaluates additional criteria, including the following: financial or accounting expertise; industry expertise; +accomplishment in designing, marketing, manufacturing, distribution of footwear, apparel and accessories; business and other experience relevant to public companies of a size comparable to the +Company; international experience; and experience in investment banking, commercial lending or other financing activities. +In +selecting nominees for the Board of Directors, the committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and generally considers the candidate's ability to contribute to +the success of the Company. In evaluating an existing director for re-election to the Board, the committee considers the existing director's board and committee meeting attendance and +performance, the length of Board service, experience, skills and contributions brought to the Board, and independence. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +Stockholders +did not propose any candidates for election at the Annual Meeting. +Corporate Governance Guidelines +The Board has adopted Corporate Governance Guidelines that set forth the primary framework of governance principles applicable to the +Company. The Corporate Governance Guidelines outline the general principles regarding the role and functions of the Board including director qualifications; director independence; Board meetings; +Board committees; the chair and lead director of the Board; director access to officers, employees, and independent advisers; director compensation; director orientation and continuing education; +shareholder rights plans; evaluation of the Chief Executive +9 +Officer +and management succession; annual Board self-evaluations; and ethical expectations. The complete copy of the Company's current Corporate Governance Guidelines are available on the +Company's website at http://www.deckers.com . +Lead Director +In March 2008, the Board of Directors established the position of Lead Director and elected Mr. Licklider to serve in that +position, effective with the 2008 Annual Meeting, for a two-year term, subject to his earlier replacement, retirement or resignation. The Lead Director is an independent director who is +selected for a two-year term by the independent directors on the Board. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agenda for +the executive sessions of the Board and other meetings of the Board in the absence of the Chairman of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in +the absence of the Chairman of the Board, (iii) approving information sent to the Board, (iv) serving as a liaison between the Chairman of the Board and the other independent directors, +(v) approving the meeting agendas for the Board and approving the meeting schedules of the Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if +requested by major stockholders, ensuring that he or she will be available for consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings +of independent directors. +Communications with Directors +Stockholders may communicate with the chair of our Audit Committee, Corporate Governance and Nominating Committee, or Compensation and +Management Development Committee or with our independent directors as a group, by writing to any such person or group c/o the Secretary of the Company, at the Company's offices at 495-A +South Fairview Avenue, Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of Directors should be excluded, including the following: junk mail and mass +mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is +unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any independent +director upon request. +Code of Ethics +The Company has adopted a Code of Ethics to help its officers, directors and other employees comply with the law and maintain the +highest standards of ethical conduct. The Code of Ethics contains general guidelines for conducting the business of the Company consistent with the highest standards of business ethics, and is +intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. All of the Company's officers, directors and +employees must carry out their duties in accordance with the policies set forth in the Code of Ethics and with applicable laws and regulations. The Code of Ethics appears as Exhibit 14.1 to our +Annual Report on Form 10-K for the fiscal year ended December 31, 2003. A copy of the Code of Ethics is available free of charge by writing to the Secretary of the Company at +the Company's executive offices at 495-A South Fairview Avenue, Goleta, California 93117. A free copy can also be obtained from our corporate website at www.deckers.com . In addition to the Code of +Ethics, the Company has also adopted a Code of Business Conduct and Ethics to provide our directors, +officers and employees with further guidance on our standards of ethical behavior. +10 +Compensation and Management Development Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted of +Messrs. Perenchio and Gibbons and Ms. Conners, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2008 or is a former officer or +employee of the Company or any of its subsidiaries. None of these directors had any relationship with the Company during 2008 requiring disclosure under Item 404 of +Regulation S-K. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee of any entity that +has an executive officer serving on our Board of Directors or Compensation and Management Development Committee. +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for the executive +officers of the Company as of the date this proxy was filed who are not directors is set forth below. There are no family relationships between any executive officer and any other executive officer or +director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. +Executive Officer +Age +Position +Angel R. Martinez +53 +Chair of the Board, President and Chief Executive Officer +Zohar Ziv +56 +Chief Operating Officer, Assistant Secretary and Interim Principal Financial and Accounting Officer +Constance X. Rishwain +51 +President of the UGG and Simple Divisions +Colin G. Clark +46 +Senior Vice President, International +Peter K. Worley +48 +President of the Teva Division +The +biographical summary for Mr. Martinez is presented earlier under the heading "Nominees for Director." +Zohar Ziv , age 56, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. He has +assumed the responsibilities of Principal Financial and Accounting Officer from Mr. Thomas Hillebrandt, our Chief Financial Officer from April 2008 until March 2009, on an interim basis. +Previously, from February 2004 to December 2005, Mr. Ziv was Chief Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, +Mr. Ziv was Chief Financial Officer of Stravina Operating Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +Constance X. Rishwain , age 51, has been the President of the UGG and Simple Divisions since December 2002 after serving as Vice President, +Brand Manager-UGG since April 1999 and Vice President, Brand Manager-Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and +Simple from June 1999 to December 1999, Vice President of Sales—Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and +Simple from January 1995 to December 1997. Before joining us in January 1995, Ms. Rishwain held the position of Vice President of Merchandising and Marketing for Impo International Shoe Company +from 1988 to 1994 and worked for Nine West Group Inc. from 1984 to 1988 in several capacities. +Colin G. Clark , age 46, joined Deckers in September 2005 as Senior Vice President, International. Prior to joining Deckers, from October +1991 to June 2004, Mr. Clark spent nearly thirteen years at The +11 +Rockport +Company, a subsidiary of Reebok International Ltd., most recently serving as Vice President and General Manager—International. From 1991 to 2001, Mr. Clark held +various senior positions at Rockport, including Vice President—Global Marketing, Vice +President—International, Director and General Manager—United Kingdom, and Sales Manager—United Kingdom. +Peter K. Worley , age 48, joined Deckers in March 2006 as President of the Company's Teva brand. From October 2005 to March 2006, +Mr. Worley served as Vice President of U.S. Sales with K-Swiss, Inc. From May 1996 to October 2005, Mr. Worley was Vice President of Product Design and Development +with K-Swiss. From 1991 to 1996 and from 1986 to 1989, Mr. Worley held various managerial positions with Reebok International Ltd. +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee (for purposes of this analysis, the "Committee") of the Board of Directors (the +"Board") (i) reviews and approves corporate goals and objectives relevant to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of +those goals and objectives, (iii) determines and approves the compensation level of the executive officers based on this evaluation, and (iv) makes recommendations to the Board with +respect to cash incentive compensation plans and equity incentive plans. The Committee also reviews and recommends to the Board any new compensation or retirement plans and administers the Company's +1993 Plan and 2006 Plan. The Committee met seven times during 2008. At the date of this Proxy Statement, Mr. Perenchio was Chair of the Compensation and Management Development Committee and the +committee was comprised of Messrs. Perenchio and Gibbons and Ms. Conners. The Committee consists entirely of directors who have never served as officers or employees of the Company or +any of its subsidiaries and who meet the independence requirements under all applicable Nasdaq and SEC rules and regulations. +Throughout +this Proxy Statement, the individuals who served during fiscal 2008 as the Company's Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), and the other three most +highly compensated executive officers of the Company who were executive officers of the Company as of December 31, 2008 and received compensation in excess of $100,000 in such year are referred +to as the "Named Executive Officers." Mr. Thomas Hillebrandt served as the Company's CFO from April 2008 and information is provided as to all of his compensation for the full fiscal year. +Mr. Hillebrandt resigned from the Company effective March 20, 2009, and the Company's current executive officers are listed under the heading "Executive Officers" above. Mr. Ziv +served as the Company's interim CFO from December 2007 to April 2008 and he was also one of the three most highly compensated executive officers as of December 31, 2008 and information is +provided as to all of his compensation for the full fiscal year. +Compensation Philosophy and Objectives +At the direction of the Board, the Committee endeavors to ensure that the compensation programs for executive officers of the Company +and its subsidiaries are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term success. The Committee also +must ensure that the compensation is attractive to key executives with the proper background and experience required for the future growth of the Company. The Committee believes that the Company's +overall financial performance and long-term stockholder value should be the most important factors in determining the total compensation of executive officers. At the executive officer +level, the Committee has a policy that a significant proportion of potential total compensation should consist of variable, performance-based components, such as share-based awards and annual +incentive plan compensation, which can increase or decrease to reflect changes in corporate and individual performance. These incentive compensation programs are intended to reward performance that +enhances profitability and long-term stockholder value. +12 +The Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such corporate performance measures as net sales, gross margins, operating expenses, diluted earnings per share +and other similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as +successful supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2008, the most important qualitative factors in +determining incentive compensation awards to the Named Executive Officers were the Committee's assessments of their contributions to the Company's and stockholders' value by establishing and +implementing a strategy for long-term success. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. The Committee targets a specific percentile range of the peer company data in determining compensation for executive officers as +discussed in more detail below. +The +Committee believes that although the majority of compensation provided to our executive officers is performance-based, our executive compensation programs do not encourage excessive +and unnecessary risk taking. The design of these compensation programs encourages our executive officers to remain focused on both the short- and long-term operational and financial goals +of the Company. For example, the long-term incentive award agreements under the 2006 Plan provide for two levels of awards, Level 1 awards will not begin to vest until +December 31, 2010 and Level 2 awards will not begin to vest until December 31, 2015, which encourages officers to satisfy long-term performance objectives. +Additionally, although the NSU grants, as defined below in the discussion of our "Performance-based Short-Term and Long-Term Equity Incentive Compensation," are based upon a one-year +performance cycle, the units do not begin to vest until approximately the third anniversary of the date of grant at which time the units vest in quarterly installments over a one-year +period, which encourages officers to satisfy short-term financial goals and long-term shareholder value, while also encouraging executive retention. +Compensation Consultant +The Committee also receives assessments and advice regarding the Company's compensation practices from its independent compensation +consultant, Frederic W. Cook & Co., Inc. ("FWC"). The use of an independent consultant provides additional assurance that our executive compensation programs are reasonable and +consistent with our objectives. The consultant reports directly to the Committee, and provides information on competitive practices and trends in our industry and makes recommendations regarding the +design of our compensation program. Our management did not engage FWC in any other capacity for 2008 and does not direct or oversee the retention or activities of FWC with respect to our executive +compensation program. +Role of Executive Officers in Compensation Decisions +The CEO and CFO provide compensation and related data to the Committee to facilitate its decisions and the Committee considers the +CEO's recommendations when making its determinations. The CEO does not make any recommendations on his own compensation. The Committee uses the information provided by the CEO, CFO, and FWC to make +compensation decisions for the Named Executive Officers as well as other executive officers. The Committee, which includes only independent members of the Board, approves all elements of compensation +for the Named Executive Officers. The Committee also reviews and approves aggregate equity awards to all employees of the Company based +13 +on +the recommendations of executive management. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. +Setting Executive Compensation +In making compensation decisions, the Committee compares each element of total compensation against a peer group of publicly-traded +footwear and apparel companies (collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists of companies against which the Committee +believes the Company competes for +talent and for stockholder investment. The Peer Group is composed of companies in related businesses of similar size and market value and consisted of the following eleven companies: +• Quiksilver, Inc. +• Crocs, Inc. +• Skechers U.S.A., Inc. +• The Timberland Company +• Kenneth Cole Productions, Inc. +• Phoenix Footwear Group, Inc. +• Coach, Inc. +• Steven Madden, Ltd. +• Wolverine World Wide, Inc. +• Columbia Sportswear Company +• K•Swiss Inc. +For +comparison purposes, Deckers' annual revenues are at the low end of the Peer Group. Because of the large variance in size among the companies comprising the Peer Group, regression +analysis is used to adjust the compensation data for differences in company revenues. The adjusted value is used as the basis of comparison of compensation between Deckers and the companies in the +Peer Group. The Committee generally sets total direct compensation (base salary plus annual incentive plan, plus long-term incentives, as described below) for the Named Executive Officers +at or above the 75 th percentile of compensation paid to similarly situated executives of the Peer Group. We believe this is necessary for the Company to attract the appropriate +executive personnel for future growth and that our performance goals are set at a level that represents commensurate company financial performance. +The +Committee also looks at proprietary survey information from FWC, which include non-industry specific data on pay levels and design practices for similarly-sized +companies. The data covers more than 300 companies across industries other than financial services, and are sized-adjusted based on the Company's revenues. The Committee reviews this data and the +Proxy data as a guideline to determine the appropriate level and mix of compensation. There is no pre-established policy or target for the allocation between either cash and +non-cash or short-term and long-term incentive compensation. +2008 Executive Compensation Elements +For the fiscal year ended December 31, 2008, the principal components of compensation for the Named Executive Officers +were: +• base salary, +• bonus and annual non-equity incentive plan compensation, +• performance-based short-term and long-term equity incentive compensation, and +• perquisites and other personal benefits. +Base Salary. Salaries are reviewed periodically and adjusted as warranted to reflect sustained individual performance and comparable +market salaries. +The Committee focuses primarily on total annual compensation, including incentive awards and cash bonuses, rather than base salary alone, as the appropriate measure of executive officer performance +and contribution. For this reason, the Committee generally sets base salary at or below the 50 th percentile of compensation paid to similarly +14 +situated +executives of the companies in the Peer Group. The following table summarizes adjustments made, if any, to base salaries for the Named Executive Officers during 2008 compared to 2007: +Named Executive Officer +Base Salary +Angel R. Martinez +Increased by 50%, effective January 1, 2008 +Thomas R. Hillebrandt +Salary effective April 28, 2008 +Zohar Ziv +Increased by 25%, effective January 1, 2008 +Constance X. Rishwain +Increased by 20%, effective January 1, 2008 +Colin G. Clark +Increased by approximately 11%, effective January 1, 2008 +Mr. Martinez's +salary was $500,000 at the end of 2007, and was subsequently adjusted to $750,000 effective January 1, 2008. The Committee determined to increase his salary +over 2007 because of the Company's performance and growth and increased stockholder value under his leadership. Mr. Martinez led the Company to outperform our peers and sustain the Company's +growth in a declining economy. This increase placed Mr. Martinez's base salary plus annual non-equity incentive plan compensation at a level that was more consistent with the +75 th percentile of the Peer Group. +Mr. Hillebrandt's +salary was provided in his employment contract at $250,000 effective upon his hire date of April 28, 2008. Mr. Hillebrandt's salary was not changed +during 2008. +Mr. Ziv's +salary was provided in his employment contract at $300,000, effective March 6, 2006, and was subsequently adjusted to $375,000, effective January 1, 2008. +The Committee determined to increase his salary over 2007 in connection with and as a condition to the Company's promotion of Mr. Ziv to the position of Chief Operating Officer. In addition, +Mr. Ziv was tasked to lead the Company's new initiatives including the acquisition of TSUBO, LLC, the formation of our joint venture in China, and the expansion of the retail business both +domestically and internationally. +Ms. Rishwain's +salary was $250,000 at the end of 2007 and was subsequently adjusted to $300,000, effective January 1, 2008. The Committee determined to increase her salary +over 2007 based on the UGG and Simple brands' performance and growth under her leadership. The UGG brand's performance consistently exceeded expectations throughout 2008. Ms. Rishwain +successfully expanded and diversified the UGG and Simple brands. +Mr. Clark's +salary was provided in his employment contract at $225,000, effective January 1, 2006, and was subsequently adjusted to $250,000, effective January 1, +2008. The Committee determined to increase his salary over 2006 based on the international division's performance and growth under his leadership. Mr. Clark successfully increased the +international percentage of our total sales, as well as expanding the international business into new markets. +Bonus and Annual Non-Equity Incentive Plan Compensation. Each of the Named Executive Officers may receive cash incentive plan +compensation comprised of two components: one based on the overall financial performance of the Company (the company profit portion) and the second based upon the achievement of individualized goals +that are established for each executive, which we refer to as Management by Objectives, or "MBO." The Committee believes in tying our executives' total incentive compensation with the short and +long-term strategic objectives of the Company to align our executives' interests with those of our stockholders. For 2008, the company profit portion of each Named Executive Officer's +incentive compensation was based entirely on the Company's diluted earnings per share ("EPS"). The Committee determined that the 2008 diluted EPS should be calculated without taking into account the +impairment related to the Teva and TSUBO brands, because the Committee believes that these expenses are outside of the Company's normal business operations and therefore not reflective of underlying +trends in the Company's ongoing operations. The Compensation and +15 +Management +Development Committee establishes individual MBO goals for each officer at the beginning of each year and such officers receive compensation for the subsequent attainment of these goals in +addition to the Company's achievement of financial performance goals. Mr. Hillebrandt's MBO goals were established at the time of hiring and additional performance expectations were included +periodically during the year. The annual non-equity incentive plan target is expressed as a percentage of each of the executive's annual salary, and is determined so that the total annual +cash compensation opportunity, at target, (base plus annual non-equity incentive plan compensation) approximates the 75 th percentile of the Peer Group. One of the +goals of the Company's compensation structure is to foster a team approach, and as a result, each Named Executive Officer has the same target percentage opportunity. The target amount for 2008 for +each executive was 100% of base salary, with the potential to exceed the target and earn up to 200% for the company profit portion and up to 200% for the MBO portion. The Committee may exercise +discretion and award amounts over the maximum annual non-equity incentive plan compensation, which are included in the Summary Compensation Table in the Bonus column. The Chief Financial +Officer was hired mid-year, thus the Committee determined to use a 50% target percentage opportunity. However, the Committee can use its discretion in awarding amounts in excess of the +maximums if it chooses to do so, which it did for the MBO portion for certain named executive officers in 2008. More detail on the Committee's decision to pay above the maximum for the MBO portion is +provided below. Individuals can also earn a percentage less than 100%. The allocation of the 2008 annual non-equity incentive plan and respective percentages and amounts earned are as +follows: +Earned (%) +Earned ($) +Target +Percentage +of Salary +Company +Profit +Portion +MBO +Portion +Name +Company +MBO +Company +MBO +Angel R. Martinez +100 +% +60 +% +40 +% +200 +% +300 +% +$ +900,000 +$ +900,000 +Thomas R. Hillebrandt +50 +% +60 +% +40 +% +200 +% +50 +% +100,000 +16,667 +Zohar Ziv +100 +% +60 +% +40 +% +200 +% +250 +% +450,000 +375,000 +Constance X. Rishwain +100 +% +25 +% +75 +% +200 +% +300 +% +150,000 +675,000 +Colin G. Clark +100 +% +25 +% +75 +% +200 +% +250 +% +125,000 +468,750 +The +Committee set the 2008 targets at a high growth rate over the prior year for the company profit portion and for the MBO portion for the Named Executive Officers. The high growth +rates were necessary to achieve a moderate diluted EPS growth, as we anticipated that our gross margins would decrease in 2008 compared to 2007. In 2007 and 2006, our gross margins were approximately +46% of sales, compared to approximately 42% in 2005, and we expected our gross margins to return to a lower level in 2008. The Committee determined that the anticipated decrease in gross margins would +make the diluted EPS target more difficult to obtain. The target amounts and relative weight of the company profit portion and MBO portion of executive annual non-equity incentive plan +compensation may be varied by the Committee from year to year. +Company profit portion. Those executives that are responsible for brands and have influence over brand decisions are less heavily +weighted on the +company profit portion, as opposed to those executives that cannot be directly attributed to specific brands. In 2008, demand for our products increased substantially more than anticipated, and as a +result, the Company, without taking into account the impairment related to the Teva and TSUBO brands, substantially exceeded the diluted EPS target, thus earning the maximum of the company profit +portion at the discretion and approval of the Committee. The 2008 diluted EPS goal was set at the time the non-equity incentive plan goals were established at a threshold of $5.31, a +target of $5.82, and the maximum performance amount was set at $6.32. +MBO portion. For 2008, MBOs were established at the beginning of the year as follows for each Named Executive Officer. Generally, there +is no +specific weight assigned to each MBO element, and +16 +the +Committee uses its discretion when evaluating the MBO portion earned for each of the Named Executive Officers. +Mr. Martinez's +MBOs were based on achieving sales of $543 million, managing quarterly levels of domestic gross wholesale inventory to achieve the sales goals, and a backlog +increase of 15% over prior year. He substantially exceeded all targets. The Committee determined to award Mr. Martinez compensation in excess of his target, because he successfully led the +Company through the economic downturn during 2008, while still exceeding all of his goals. He also continued to position the Company to achieve our long-term growth and strategic +objectives. +Mr. Hillebrandt's +MBOs were based on quantitative measures of managing quarterly levels of domestic gross wholesale inventory to achieve sales goals, managing operating expenses +to not exceed $130 million, and achieve a return on capital of 24% and on qualitative measures of timely SEC filings and maintain adequate internal control systems. In addition to these +measures, periodically during the year, additional performance expectations were included as part of Mr. Hillebrandt's MBOs, including realigning the finance department to meet the demands of +our long-term strategic objectives. Based on the needs of our finance department and the importance of these performance expectations to the Company, the completion of these additional +performance expectations were given more weight in the assessment of Mr. Hillebrandt's attainment of his MBOs and therefore Mr. Hillebrandt earned less than the threshold. +Mr. Ziv's +MBOs were based on achieving sales of $543 million, managing quarterly levels of domestic gross wholesale inventory to achieve the sales goals, and managing +operating expenses to not exceed $130 million. He substantially exceeded the sales and inventory targets. While operating expenses did not meet his base level target, the target was +substantially exceeded when adjusted for the higher sales levels. Mr. Ziv earned over the maximum because he substantially exceeded the sales and inventory targets and the adjusted operating +expense target. +Ms. Rishwain's +MBOs were based on achieving UGG and Simple brand sales of $440 million, managing quarterly levels of domestic gross wholesale inventory to achieve the sales +goals, contribution income growth of approximately 15%, and a backlog increase of 15% over prior year. She substantially exceeded all targets. Ms. Rishwain earned over the maximum because she +substantially exceeded all of her goals. +Mr. Clark's +MBOs were based on achieving international sales of $81 million, contribution income growth of approximately 30%, and a backlog increase of 15% over prior year. +He exceeded or substantially exceeded each MBO, thus earning over the maximum. +The +Committee assesses the attainment of the MBOs based on business or other factors that may have affected the attainment of those objectives, thus awarding this portion of incentive +compensation on measurable and also on a discretionary basis. In order to retain key executives and incentivize them to reach our growth goals, which we believe to be at the high end of our peers, the +Committee generally sets the annual incentive plan compensation targets at the high end of target bonus opportunities paid to similarly situated executives of the companies in the Peer Group. +Performance-based Short-Term and Long-Term Equity Incentive Compensation. The 1993 Plan was terminated for new grants +effective in May 2006, when the 2006 Plan was adopted by the stockholders. These plans authorize the Committee to make grants and awards such as stock options, stock appreciation rights ("SARs"), +nonvested stock units ("NSUs") and restricted stock units ("RSUs"). +Beginning +in December 2004, the Board and the Committee determined to cease issuing stock options to directors, officers and employees of the Company. Officers and employees are now +issued NSUs, which are stock units payable in shares upon satisfying specific performance and service-related vesting conditions, to continue to align the interests of the directors, officers and +employees with those +17 +of +the stockholders at a lower cost than the previous stock option grants. This policy is reviewed by the Board and the Committee periodically and may be changed in the future. +Officers +and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by the Board or the Committee. The amount of NSUs granted is +primarily determined by the executive's level within the organization and the level of criticality of their positions to the organization. NSUs granted for fiscal 2007 performance were granted in +December 2006. In February 2008, NSUs were granted with respect to fiscal 2008 performance. NSUs were also granted to +the Chief Financial Officer upon his hiring in April 2008 for fiscal 2008 performance. Additionally, in March 2009, NSUs were granted for fiscal 2009 performance. The Committee sets these annual +equity grants at approximately the 75 th percentile of the Peer Group. +Specifically, +the NSUs granted in 2008 were earned based on the achievement of the 2008 EPS goal and the 2009 NSUs will be earned if the 2009 EPS goal is met. The 2008 diluted EPS goal +for NSUs was set at the time of the grant at a threshold of $5.57 and a target of $6.07. Once earned, the NSUs vest based on continued employment over approximately four years according to the +following schedule: 25% on March 31, June 30, September 30, and December 31 of the fourth year from the grant year. This vesting schedule was determined to encourage +officers and key employees to remain with the Company for the long-term. As discussed further under "Potential Payments Upon Termination or Change of Control" below, this vesting schedule +may be accelerated if the executive's employment is terminated for various reasons or upon a change in control followed by a termination. +In +May 2007, the Company's Board of Directors, upon recommendation of the Committee, adopted four new types of long-term incentive award agreements under the 2006 Plan for +issuance to the Company's current and future senior executive officers. The new award types consist of SAR awards and RSU awards. These awards vest subject to the achievement of revenue and earnings +goals, which assumes a high rate of growth for sales and gross profit, and long-term service conditions over a five-year period (Level 1 grants) and a +ten-year period (Level 2 grants). Provided that these conditions are met, the Level 1 SAR and RSU awards vest 80% on December 31, 2010 and 20% on December 31, +2011, and the Level 2 SAR and RSU awards vest 80% on December 31, 2015 and 20% on December 31, 2016. These awards were designed to motivate the executive team to outperform the +Company's peer group (otherwise the awards would not vest) as well as for retention purposes. In May 2007, the Committee granted SARs and RSUs to the Named Executive Officers. In approving 2007 +grants, the Committee considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. No grants of these types of awards were made +in 2008. +In +addition, the Committee evaluates aggregate equity awards based on a Shareholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus peer companies. +The Committee set the SVT rate in 2008 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered in share-based award grants were total +carried-interest for each executive, total potential dilution under all employee stock plans, annual share usage, executive allocation of annual equity pool, and the fair value of awards granted to +each individual. The Committee assessed where the Company's Named Executive Officers ranked in all these areas among the Peer Group. +Perquisites and Other Personal Benefits. There is no specific policy on perquisites and other personal benefits awarded to the Named +Executive +Officers. The Company administers a 401(k) defined contribution plan that substantially all employees are eligible to participate in through tax-deferred contributions. The Company matches +50% of an employee's contribution up to the greater of $2,400 or 6% of their eligible compensation per year. In order to attract the appropriate candidates, +18 +the +Committee may approve relocation benefits, as deemed appropriate. In 2008, the only perquisites and other personal benefits approved by the Committee for the Named Executive Officers was +(1) relocation assistance, which was awarded to Mr. Hillebrandt, in connection with his hiring in 2008, and (2) the continuation of a housing differential to Mr. Clark, +which was agreed to at the time of his hiring in 2005. +Employment Contracts and Severance Arrangements. During 2008, each of the Named Executive Officers was party to employment agreements +with the +Company. Those agreements establish the terms and conditions for the employment relationship each executive has with the Company and specifies compensation, executive benefits, severance provisions, +change in control provisions, and other conditions. The Committee periodically reviews the competitiveness of its severance and change in control arrangements when the employment agreements with the +Named Executive Officers near the end of their stated terms. +Separation +benefits described below provide benefits to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs. The Named Executive Officers are eligible for the benefits and payments if their employment terminates for various reasons or as a result of a change in +control of the Company. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to take a separated +executive to find another job. The Company benefits by requiring a general release, and non-solicitation provisions in connection with the individual separation agreements. +The +Company considers it likely that it will take more time for higher-level employees to find new employment commensurate with their prior experience, and therefore senior management +generally are paid severance for a longer period. Additional payments may be approved by the Committee in some circumstances as a result of negotiation with executives, especially where the Company +desires particular non-disparagement, cooperation with litigation, non-competition and non-solicitation terms. +The +employment agreement for each executive specifically details various provisions for benefits and cash payments in the event of a separation during the normal course of business and +in the event of a change in control. Generally, these agreements specify conditions and benefits within the following categories: death, disability, termination by the Company for cause; termination +by executive without good reason; termination by the executive with good reason and termination by the Company without cause. +The +Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a termination of the +executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control. However, upon a change in control, the performance +conditions of the SARs and RSUs are deemed satisfied, but the awards remain subject to the service-based vesting conditions. These arrangements are intended to preserve morale and productivity and +encourage retention in the face of the disruptive impact of a change in control of the Company. In addition, change in control benefits encourage the Named Executive Officers to remain focused on the +business and interest of our stockholders when considering strategic alternatives. Based on a competitive analysis of the change in control arrangements maintained by the corporations in the Company's +Peer Group, the Committee believes that these benefits are customary among the Company's Peer Group for executives in similar positions as the Named Executive Officers. +Please +refer to the discussion on under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control arrangements. +19 +Tax and Accounting Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the Committee considers the +anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation +payments and their deductibility depend upon the timing of an executive's vesting of previously granted awards. +Under +Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), a public company generally will not be entitled to a deduction for +non-performance-based compensation paid to certain executive officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance-based compensation, +including the approval of the performance goals by the stockholders of the Company. The Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the +Committee generally structures compensation to be deductible and considers cost and value to the Company in making compensation decisions, which would result in non-deductibility. The +Board has on occasion made decisions resulting in non-deductible compensation. The Committee and the Board believe that these payments were appropriate and in the best interests of the +Company. +The +Company believes that its non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the exception for performance based compensation described in the previous paragraph. +Accounting for Stock-Based Compensation +Beginning on January 1, 2006, the Company began accounting for share-based awards in accordance with the requirements of +Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"). +COMPENSATION COMMITTEE REPORT +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and +Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee +recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +John G. Perenchio, Chair +John M. Gibbons +Maureen Conners +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +20 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2008, 2007, and 2006 all compensation paid or awarded to the +Named Executive Officers. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1) +Option +Awards +($) +Stock +Appreciation +Rights +Awards +($)(1) +Non-Equity +Incentive +Plan +Compensation +($)(2) +All +Other +Compensation +($)(3) +Total +($) +Angel R. Martinez +2008 +$ +750,000 +$ +300,000 +$ +1,473,819 +$ +— +$ +1,927,963 +$ +1,500,000 +$ +— +$ +5,951,782 +Chief Executive Officer and +2007 +500,000 +— +809,971 +— +687,609 +1,400,000 +— +3,397,580 +President +2006 +500,000 +— +477,109 +— +— +850,000 +— +1,827,109 +Thomas R. Hillebrandt(4) +2008 +166,667 +— +87,415 +— +— +116,667 +38,665 +(5) +409,414 +Former Chief Financial Officer +Zohar Ziv +2008 +375,000 +75,000 +648,564 +— +481,991 +750,000 +— +2,330,555 +Chief Operating Officer +2007 +300,000 +— +311,261 +— +171,902 +840,000 +20,338 +(6) +1,643,501 +2006 +248,110 +— +138,014 +— +— +251,250 +15,856 +(6) +653,230 +Constance X. Rishwain +2008 +300,000 +225,000 +498,670 +— +481,991 +600,000 +— +2,105,661 +President of the UGG and +2007 +250,000 +— +188,368 +42,200 +171,902 +656,250 +— +1,308,720 +Simple Divisions +2006 +225,000 +— +70,250 +66,520 +— +421,875 +— +783,645 +Colin G. Clark +2008 +250,000 +93,750 +433,970 +— +481,991 +500,000 +24,000 +(7) +1,783,711 +Senior Vice President of +2007 +225,000 +— +176,146 +— +171,902 +464,063 +24,000 +(7) +1,061,111 +International +2006 +225,000 +— +61,232 +— +— +253,125 +24,000 +(7) +563,357 +(1) The +amounts in these columns are calculated based on provisions of SFAS 123R. See note 7 of the consolidated financial statements of the +Company's Annual Report on Form 10-K for the year ended December 31, 2008 regarding assumptions underlying valuation of equity awards recognized during 2008. +(2) The +amounts in this column reflect the cash awards to the named individuals under the Annual Incentive Plan, which is discussed in further detail under the +heading "Annual Non-Equity Incentive Plan Compensation." +(3) The +amounts in this column reflect, for each respective executive, a housing allowance for relocation paid by the Company to, or on behalf of, the +executives, except as noted in footnotes (5) through (7) below. +(4) Mr. Hillebrandt +resigned from the Company effective March 20, 2009. +(5) In +addition to the item noted in footnote (3) above, the amount shown in the table above as "All Other Compensation" for Mr. Hillebrandt +includes $25,000 for a sign-on bonus and $3,184 received as matching contributions paid by the Company pursuant to the 401(k) defined contribution plan, which is more fully described under +the heading "Perquisites and Other Personal Benefits." +(6) In +addition to the item noted in footnote (3) above, the amount shown in the table above as "All Other Compensation" for Mr. Ziv includes +$6,750 and $1,200 for the years ended December 31, 2007 and 2006, respectively, received as matching contributions paid by the Company pursuant to the 401(k) defined contribution plan, which is +more fully described under the heading "Perquisites and Other Personal Benefits." +(7) The +amounts in this column reflect a housing differential paid by the Company to Mr. Clark. +21 +GRANTS OF PLAN BASED AWARDS IN 2008 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during the fiscal year +ended December 31, 2008. For further discussion regarding the grants, see above under "Compensation Discussion and Analysis." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards ($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum(1) +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +2/27/2008 +(3) +$ +337,500 +$ +750,000 +$ +1,500,000 +6,000 +12,000 +12,000 +1,526,400 +Thomas R. Hillebrandt(4) +4/28/2008 +(3) +37,500 +83,334 +166,667 +1,675 +3,350 +3,350 +470,340 +Zohar Ziv +2/27/2008 +(3) +168,750 +375,000 +750,000 +4,000 +8,000 +8,000 +1,017,600 +Constance X. Rishwain +2/27/2008 +(3) +187,500 +300,000 +600,000 +3,750 +7,500 +7,500 +954,000 +Colin G. Clark +2/27/2008 +(3) +156,250 +250,000 +500,000 +3,000 +6,000 +6,000 +763,200 +(1) The +amounts shown here are the designated maximum plan awards; however, in some cases, the actual amounts paid exceeded the maximum amounts designated. +Refer to " Annual Non-Equity Incentive Plan Compensation " above for further discussion on actual amounts paid to Named Executive Officers. +(2) All +grants are under the 2006 Plan. +(3) The +number of NSUs awarded in the 2008 annual grant was primarily based on the executive's respective level within the Company and the level of criticality +of his or her position. Mr. Hillebrandt's award was pro-rated based on his hire date. The amount of NSUs paid is based on achievement of Company performance objectives for fiscal +2008 and long-term service conditions. +(4) Mr. Hillebrandt +resigned from the Company effective March 20, 2009, and consequently, a pro-rata portion of 698 NSUs vested and +the remaining were forfeited after his resignation. +22 +OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, 2008. +Stock Appreciation Rights (SAR) Awards +Stock Awards +Name +Number of +Securities +Underlying +Unexercised +SARs (#) +Exercisable +Number of +Securities +Underlying +Unexercised +SARs (#) +Unexercisable +Stock +Price at +Date of +Grant ($) +SAR +Expiration +Date(1) +Number +of Stock +Awards That +Have Not +Vested(2) (#) +Market +Value of +Units of +Stock that +Have Not +Vested(3) ($) +Angel R. Martinez +— +100,000 +$ +80.20 +5/9/2017 +73,500 +(4) +$ +5,870,445 +— +100,000 +80.20 +5/9/2022 +Thomas R. Hillebrandt +— +— +— +— +3,350 +(5) +267,565 +Zohar Ziv +— +25,000 +80.20 +5/9/2017 +41,500 +(6) +3,314,605 +— +25,000 +80.20 +5/9/2022 +Constance X. Rishwain +— +25,000 +80.20 +5/9/2017 +26,500 +(7) +2,116,555 +— +25,000 +80.20 +5/9/2022 +Colin G. Clark +— +25,000 +80.20 +5/9/2017 +30,000 +(8) +2,396,100 +— +25,000 +80.20 +5/9/2022 +(1) All +SARs were granted on May 9, 2007. SARs vest subject to long-term performance objectives and long-term service conditions. +Provided that these conditions are met, Level 1 SAR awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Level 2 SAR awards vest 80% on December 31, +2015 and 20% on December 31, 2016. +(2) All +RSUs were granted on May 9, 2007. RSUs vest subject to long-term performance objectives and long-term service conditions. +Provided that these conditions are met, Level 1 RSU awards vest 80% on December 31, 2010 and 20% on December 31, 2011. Level 2 RSU awards vest 80% on December 31, +2015 and 20% on December 31, 2016. +(3) The +market value was based on the closing price of the Company's Common Stock on December 31, 2008 of $79.87. +(4) Consists +of (i) 12,500 NSUs remaining of 50,000 NSUs granted on April 11, 2005, which shares vest in equal quarterly installments originally +starting on June 30, 2008, (ii) 12,000 NSUs granted on December 2, 2005, which shares vest in equal quarterly installments starting March 31, 2009, (iii) 12,000 NSUs +granted on December 21, 2006, which shares vest in equal quarterly installments starting March 31, 2010, (iv) 12,500 RSUs granted on May 9, 2007, which shares vest 80% on +December 31, 2010 and 20% on December 31, 2011, (v) 12,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, +2016, and (vi) 12,000 NSUs granted February 27, 2008 which shares vest in equal quarterly installments starting March 31, 2011. +(5) Consists +of 3,350 NSUs granted on April 28, 2008, which shares vest in equal quarterly installments starting March 31, 2012. However, +Mr. Hillebrandt resigned from the Company effective March 20, 2009, and consequently, a pro-rata portion of 698 NSUs vested and the remaining were forfeited after his +resignation. +(6) Consists +of (i) 14,500 NSUs granted on March 10, 2006, which shares vest in equal quarterly installments starting on March 31, 2009, +(ii) 6,000 NSUs granted on June 23, 2006, which shares vest in equal quarterly installments starting on March 31, 2009, (iii) 6,000 NSUs granted on December 21, +2006, which shares vest in equal quarterly installments starting on March 31, 2010, (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and +20% +23 +on +December 31, 2011, (v) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, and (vi) 8,000 NSUs +granted on February 27, 2008, which shares vest in equal quarterly installments starting March 31, 2011. +(7) Consists +of (i) 6,000 NSUs granted on December 2, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, +(ii) 6,000 NSUs granted on December 21, 2006, which shares vest in equal quarterly installments starting on March 31, 2010, (iii) 3,500 RSUs granted on May 9, 2007, +which shares vest 80% on December 31, 2010 and 20% on December 31, 2011, (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% +on December 31, 2016, and (v) 7,500 NSUs granted February 27, 2008, which shares vest in equal quarterly installments starting March 31, 2011. +(8) Consists +of (i) 5,000 NSUs granted on September 16, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, +(ii) 6,000 NSUs granted on December 2, 2005, which shares vest in equal quarterly installments starting on March 31, 2009, (iii) 6,000 NSUs granted on December 21, +2006, which shares vest in equal quarterly installments starting on March 31, 2010, (iv) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2010 and +20% on December 31, 2011, (v) 3,500 RSUs granted on May 9, 2007, which shares vest 80% on December 31, 2015 and 20% on December 31, 2016, and (vi) 6,000 NSUs +granted February 27, 2008 which shares vest in equal quarterly installments starting March 31, 2011. +2008 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding stock option exercises and stock award vesting +during 2008, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +Option Awards +Stock Awards +Number of +Shares +Acquired +on Exercise +Value +Realized on +Exercise ($) +Number of +Shares +Acquired +on Vesting +Value +Realized on +Vesting ($) +Angel R. Martinez +— +$ +— +37,500 +$ +4,039,375 +Thomas R. Hillebrandt +— +— +— +— +Zohar Ziv +— +— +— +— +Constance X. Rishwain +— +— +3,180 +342,605 +Colin G. Clark +— +— +— +— +NONQUALIFIED DEFERRED COMPENSATION +In 2008, the Board adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the Deckers Outdoor Corporation 2006 Equity +Incentive Plan. A director or employee of the Company who holds an unvested Restricted Stock Award may elect to defer vesting of up to 100% of his or her unvested Restricted Stock Awards made in any +calendar year. For each share of +Common Stock held pursuant to a Restricted Stock Award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as more specifically described in +the plan, at the time elected by the participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as more specifically described in the plan. In 2008, none of the +Company's executive officers elected to participate in the Company's Deferred Stock Unit Compensation Plan. +24 +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company has entered into employment agreements with each of the Named Executive Officers. The information below describes +compensation and benefits that are payable or earned under these existing contractual arrangements and reflects all amendments to the employment agreements to date with the Named Executive Officers as +of and through January 1, 2009. +As +used in the following paragraphs, (1) Cause means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written +Company employment policies after written notice of such violation, (ii) violation of the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, +theft, embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame the Company, engaging in conduct which is material injurious to the Company or its +affiliates, or any of their respective customer or supplier relationships, financially or otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total +disability, (2) Good Reason means the occurrence of a material breach of the employment agreement by the Company, which breach is not cured within 15 calendar days after written notice thereof +is received by the Company, or in the event of a Change of Control, a reduction of total compensation, benefits, and perquisites, relocation greater than 50 miles, or a material change in position or +duties, and (3) Change of Control means if there is a merger, consolidation, sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or +circumstance where any person or group (other than Douglas B. Otto) acquires or obtains the right to acquire, in one or more transactions, beneficial ownership of more than 50% of the outstanding +shares of any class of voting stock of the Company (or a successor organization). +Angel R. Martinez, Chair of the Board, President and Chief Executive Officer +Effective April 11, 2005, the Company entered into an employment agreement with Angel R. Martinez which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. The 2008 amendments to this agreement, among other items, extended the term, changed +the base salary and severance payments, revised the form of release, and addressed Section 409A of the Internal Revenue Code (the "IRC"). Mr. Martinez's employment with the Company is +"at will," but the term of his employment agreement, as amended, ends December 31, 2009. +If +Mr. Martinez is terminated by the Company for Cause, or he terminates his own employment, other than for Good Reason, then Mr. Martinez will be entitled to payment of +his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required +to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of termination) and the right to exercise all vested +unexercised stock options and NSUs outstanding as of the termination date. If Mr. Martinez is terminated due to his death or total disability, then in addition to those rights described in the +first sentence of this paragraph, Mr. Martinez will be entitled to full acceleration of 12,500 remaining NSUs from his initial grant of 50,000 NSUs, as 37,500 NSUs have previously vested, plus +payment of a pro-rated portion of his incentive bonus for the current fiscal year based on actual length of service during the year of termination. If Mr. Martinez is terminated by +the Company without Cause or Mr. Martinez terminates his own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, +Mr. Martinez will be entitled to payment of his then effective base salary for one year following his termination, subject to Mr. Martinez signing a release, and receipt of health +benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. In addition, if Mr. Martinez is +terminated by the Company without cause or pursuant to a constructive termination, if the threshold performance criteria of the NSUs awarded to Mr. Martinez under the 2006 Equity Incentive Plan +have been satisfied, +25 +Mr. Martinez +will be entitled to accelerated vesting for a pro rata portion of the NSU award based on his length of service after the NSU grant, which will be settled in shares of the Company's +common stock. If Mr. Martinez is terminated without Cause or if he terminates his own employment for Good Reason, in either case within two years of a Change of Control of the Company, then in +addition to those rights described in the first two sentences of this paragraph and subject to his signing a release, Mr. Martinez will be entitled to payment of two times his then effective +annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to the termination or (ii) two times the average actual incentive bonus for the +previous three years, receipt of health benefits for a period of two years following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier, +and full acceleration of the remaining 12,500 NSUs mentioned above. In addition, if Mr. Martinez is terminated within twelve months of a Change of Control, he will be entitled to full +acceleration of any unvested NSUs, SARs and RSUs awarded under the 2006 Equity Incentive Plan. All payments made to Mr. Martinez as a result of termination following a Change of +Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments." +Thomas R. Hillebrandt, Chief Financial Officer +Effective April 24, 2008, the Company entered into an employment agreement with Thomas R. Hillebrandt, which was amended on +August 6, 2008. The amendment to this agreement, among other items, addressed Section 409A of the IRC and revised the form of release. Mr. Hillebrandt resigned from the Company +effective as of March 20, 2009. Pursuant to this resignation, we agreed to treat Mr. Hillebrandt's resignation as a termination by Mr. Hillebrandt for Good Reason under his +employment agreement. Upon Mr. Hillebrandt's departure from the Company and pursuant to his employment agreement, he received his accrued base salary, vacation payments and reimbursable +expenses. In addition, pursuant to his employment agreement, Mr. Hillebrandt will receive $250,000, payable in equal amounts during the 12-month period following his resignation, a +pro-rated portion of his 2009 incentive bonus based on actual length of service during 2009, health insurance benefits under our group health plans for 12 months following his +resignation, and he may exercise his vested stock options and warrants pursuant to the terms and conditions of his employment agreement. In accordance with his Stock Unit Award Agreement, and because +the Company attained the threshold performance criteria in 2008, a pro-rata portion of Mr. Hillebrandt's NSUs awarded under the 2006 Equity Incentive Plan vested effective upon his +resignation, thus, based on his length of service after the NSU grant, he received 698 shares of Common Stock and the remainder of his NSUs were forfeited after his resignation. Mr. Hillebrandt +provided a general release of claims against the Company, agreed to certain confidentiality obligations, and agreed to certain non-solicitation obligations. The Board believes that the +separation amount was appropriate and in the best interests of the Company in exchange for certain covenants and the release provided by Mr. Hillebrandt. +Zohar Ziv, Chief Operating Officer +Effective March 6, 2006, the Company entered into an employment agreement with Zohar Ziv which was amended effective +December 19, 2007 and amended on August 6, 2008 and effective January 1, 2008. The recent amendment to this agreement, among other items, addressed Section 409A of the IRC +and revised the form of release. Mr. Ziv's employment agreement was amended in connection with his promotion from Chief Financial Officer and Executive Vice President of Finance and +Administration to Chief Operating Officer. Effective upon the resignation of Mr. Hillebrandt, and as of the date of this Proxy Statement, Mr. Ziv also serves as the Company's Chief +Financial Officer in an interim capacity. Mr. Ziv's employment with the Company is "at will," but the term of his employment agreement, as amended, ends December 31, 2009. +26 +If Mr. Ziv is terminated by the Company for Cause, or if he terminates his own employment other than for Good Reason, Mr. Ziv or his beneficiaries will be entitled to +payment of his accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other +benefits required to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of termination) and the right to exercise +all vested unexercised stock options outstanding as of the termination date. If Mr. Ziv is terminated due to his death or total disability, then in addition to those rights described in the +first sentence of this paragraph, Mr. Ziv shall be entitled to exercise all vested unexercised stock options and RSUs outstanding as of his date of termination in accordance with the terms of +the plans and agreements pursuant to which options or RSUs were issued to him plus payment of a pro-rated portion of his incentive bonus for the current fiscal year based on actual length +of service during the year of termination. If Mr. Ziv is terminated by the Company without Cause or if he terminates his own employment for Good Reason, then in addition to those rights +described in the first two sentences of this paragraph, and subject to Mr. Ziv signing a release, Mr. Ziv will be entitled to payment of his then effective base salary for one year +following his termination, receipt of health benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, whichever is +earlier, and full acceleration of his initial grant of 14,500 NSUs. In addition, if Mr. Ziv is terminated by the Company without cause or pursuant to a constructive termination, if the +threshold performance criteria of the NSUs awarded to Mr. Ziv under the 2006 Equity Incentive Plan have been satisfied, Mr. Ziv will be entitled to accelerated vesting for a pro rata +portion of the NSU award based on satisfaction of the NSU performance criteria and his length of service after the NSU grant, which will be settled in shares of the Company's common stock. If +Mr. Ziv is terminated by the Company without Cause or if he terminates his own employment for Good Reason, in either case within two years of a Change of Control of the Company, then in +addition to those rights described in the first two sentences of this paragraph and subject to Mr. Ziv signing a release, Mr. Ziv will be entitled to payment of two times his then +effective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to the termination or (ii) two times the average actual incentive bonus for +the previous three years, receipt of health benefits for a period of one year following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. +In addition, if Mr. Ziv is terminated within twelve months of a Change of Control, he will be entitled to full acceleration of any unvested NSUs, SARs and RSUs awarded under the 2006 Equity +Incentive Plan. All payments made to Mr. Ziv as a result of termination following a Change of Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on +"excess golden parachute payments." +Constance X. Rishwain, President of the UGG and Simple Divisions +Effective January 1, 2006, the Company entered into an employment agreement with Constance X. Rishwain which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. The 2008 amendments to this agreement, among other items, extended the term, changed +the base salary and severance payments, revised the form of release, and addressed Section 409A of the IRC. Ms. Rishwain's employment with the Company is "at will," but the term of her +employment agreement as amended ends December 31, 2009. +If +Ms. Rishwain is terminated by the Company for Cause or if she terminates her own employment, other than for Good Reason, then Ms. Rishwain will be entitled to payment of +her accrued base salary, payment for her accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required +to be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of termination) and the right to exercise all vested +unexercised stock +27 +options +and warrants outstanding as of the termination date. If Ms. Rishwain is terminated by the Company due to her death or total disability, then in addition to those rights described in the +first sentence of this paragraph, Ms. Rishwain shall be entitled to payment of the unpaid pro-rated portion of her incentive bonus for the current fiscal year based on actual length +of service during the year of termination. If Ms. Rishwain is terminated by the Company without Cause or if she terminates her own employment for Good Reason, then in addition to those rights +described in the first two sentences of this paragraph, Ms. Rishwain will be entitled to payment of her base salary for twelve months following her termination, subject to Ms. Rishwain +signing a release, and receipt of health benefits for a period of twelve months following her termination or her attainment of alternative employment that provides health benefits, whichever is +earlier. In addition, if Ms. Rishwain is terminated by the Company without cause or pursuant to a constructive termination, if the threshold performance criteria of the NSUs awarded to +Ms. Rishwain under the 2006 Equity Incentive Plan have been satisfied, Ms. Rishwain will be entitled to accelerated vesting for a pro rata portion of the NSU award based on her length of +service after the NSU grant, which will be settled in shares of the Company's common stock. If Ms. Rishwain, within two years of a Change of Control of the Company is terminated without Cause +or if she terminates her own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph and subject to her signing a release, +Ms. Rishwain will be entitled to payment of one and one-half times her annual base salary plus the greater of (i) one and one-half times the targeted incentive +bonus immediately prior to the termination or (ii) one and one-half times the average actual incentive bonus for the previous three years, receipt of health benefits for a period of +eighteen months following her termination or her attainment of alternative employment that provides health benefits, whichever is earlier. In addition, if Ms. Rishwain is terminated within +twelve months of a Change of Control, she will be entitled to full acceleration of any unvested NSUs, SARs and RSUs awarded under the 2006 Equity Incentive Plan. All payments made to +Ms. Rishwain as a result of termination following a Change of Control will be grossed up for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute +payments." +Colin G. Clark, Senior Vice President, International +Effective January 1, 2006, the Company entered into an employment agreement with Colin G. Clark which was amended on +February 28, 2008 and August 6, 2008 and both amendments were effective as of January 1, 2008. The 2008 amendments to this agreement, among other items, extended the term, changed +the base salary and severance payments, revised the form of release, and addressed Section 409A of the IRC. Mr. Clark's employment with the Company is "at will," but the term of his +employment agreement as amended ends December 31, 2009. +If +Mr. Clark is terminated by the Company for Cause or if he terminates his own employment, other than for Good Reasons, then Mr. Clark will be entitled to payment of his +accrued base salary, payment for his accrued vacation, reimbursement for certain expenses, receipt of accrued and vested benefits under the Company's plans or programs and other benefits required to +be paid by law, payment of any accrued but unpaid incentive bonus for the prior fiscal year (excluding any incentive bonus for the year of termination) and the right to exercise all vested unexercised +stock options and warrants outstanding as of the termination date. If Mr. Clark is terminated by the Company due to his death or total disability, then in addition to those rights described in +the first sentence of this paragraph, Mr. Clark shall be entitled to payment of the unpaid pro-rated portion of his incentive bonus for the current fiscal year based on actual +length of service during the year of termination. If Mr. Clark is terminated by the Company without Cause or if he terminates his own employment for Good Reason, then in addition to those +rights described in the first two sentences of this paragraph, Mr. Clark will be entitled to payment of his base salary for twelve months following his termination, subject to Mr. Clark +signing a release, and receipt of health benefits for a period of twelve months following his termination or his attainment of alternative employment that provides health benefits, +28 +whichever +is earlier. In addition, if Mr. Clark is terminated by the Company without cause or pursuant to a constructive termination, if the threshold performance criteria of the NSUs awarded +to Mr. Clark under the 2006 Equity Incentive Plan have been satisfied, Mr. Clark will be entitled to accelerated vesting for a pro rata portion of the NSU award based on his length of +service after the NSU grant, which will be settled in shares of the Company's common stock. If within two years of a Change of Control of the Company Mr. Clark is terminated without Cause or if +he terminates his own employment for Good Reason, then in addition to those rights described in the first two sentences of this paragraph, and subject to him signing a release, Mr. Clark will +be entitled to payment of one and one-half times his annual base salary plus the greater of (i) one and one-half times the targeted incentive bonus immediately prior to +the termination or (ii) one and one-half times the average actual incentive bonus for the previous three years, and receipt of health benefits for a period of eighteen months +following his termination or his attainment of alternative employment that provides health benefits, whichever is earlier. In addition, if Mr. Clark is terminated within twelve months of a +Change of Control, he will be entitled to full acceleration of any unvested NSUs, SARs and RSUs awarded under the 2006 Equity Incentive Plan. All payments made to Mr. Clark as a result of +termination following a Change of Control will be +grossed up for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments." +A +summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, incentive bonus and reimbursable expenses, +if the termination or change of control had occurred on December 31, 2008 (based on the closing price of the Company's Common Stock on December 31, 2008 of $79.87), given the Named +Executive +29 +Officers' +compensation and service levels per their respective amended employment agreements is as follows: +Upon Termination: +Name +Type of Compensation or Benefit +By the Company +Without Cause or +by Executive for +Good Reason +For Death +or Disability +Upon Change +of Control +Angel R. Martinez +cash payments +$ +750,000 +$ +— +$ +4,200,000 +value of health benefits +18,857 +— +37,714 +value of NSUs +1,237,985 +998,375 +1,956,815 +value of RSUs +— +— +1,996,750 +value of SARs +— +— +2,076,620 +value of excise tax gross-up +— +— +4,013,077 +2,006,842 +998,375 +14,280,976 +Thomas R. Hillebrandt(1) +cash payments +250,000 +— +562,500 +value of health benefits +18,857 +— +28,286 +value of NSUs +66,891 +— +267,565 +value of excise tax gross-up +— +— +324,009 +335,748 +— +1,182,360 +Zohar Ziv +cash payments +375,000 +— +2,027,500 +value of health benefits +13,101 +— +13,101 +value of NSUs +1,317,855 +1,158,115 +1,797,075 +value of RSUs +— +— +559,090 +value of SARs +— +— +519,155 +value of excise tax gross-up +— +— +1,782,733 +1,705,956 +1,158,115 +6,698,654 +Constance X. Rishwain +cash payments +300,000 +— +1,401,563 +value of health benefits +18,857 +— +28,286 +value of NSUs +149,756 +— +599,025 +value of RSUs +— +— +559,090 +value of SARs +— +— +519,155 +value of excise tax gross-up +— +— +— +468,613 +— +3,107,119 +Colin G. Clark +cash payments +250,000 +— +1,030,469 +value of health benefits +13,101 +— +19,652 +value of NSUs +119,805 +— +479,220 +value of RSUs +— +— +559,090 +value of SARs +— +— +519,155 +value of excise tax gross-up +— +— +1,193,255 +382,906 +— +3,800,841 +No +additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause or by the executive without Good Reason. +(1) As +discussed above, Mr. Hillebrandt resigned from the Company effective March 20, 2009. +30 +DIRECTOR COMPENSATION +In 2008, directors who are not employees of the Company or its subsidiaries ("Nonemployee Directors") received an annual retainer of +$20,000 in cash and 1,600 shares of Common Stock, granted at a rate of 400 shares per quarter. The Nonemployee Directors that did not serve for the full year received a pro-rated annual +retainer of $10,000 in cash. Nonemployee Directors also received $1,500 for each regularly scheduled meeting of the Board and each regularly scheduled committee meeting that they attended in person +plus reimbursement of any expenses they may incur with respect to such meetings. In addition, the following positions were entitled to receive an additional annual retainer fee of $15,000 for the Lead +Director, $15,000 for the Audit Committee Chair, and $7,500 each for the Committee Chair for the Compensation and Management Development Committee and the Corporate Governance and Nominating +Committee. Directors who were employees of the Company or its subsidiaries served as directors without compensation. +Year +Fees +Earned +($) +Stock +Awards(1) +($) +Total +($) +Gene E. Burleson(3) +2008 +$ +22,750 +$ +93,584 +(5) +$ +116,334 +Director +Douglas B. Otto(4) +2008 +N/A +N/A +N/A +Chair of the Board +Rex A. Licklider +2008 +53,000 +178,944 +(2) +231,944 +Director +John M. Gibbons +2008 +53,000 +178,944 +(2) +231,944 +Director +John G. Perenchio +2008 +38,750 +178,944 +(2) +217,694 +Director +Maureen Conners +2008 +38,000 +178,944 +(2) +216,944 +Director +Tore Steen +2008 +35,000 +178,944 +(2) +213,944 +Director +Ruth M. Owades +2008 +17,500 +140,776 +(6) +158,276 +Director +Karyn O. Barsa +2008 +17,500 +140,776 +(6) +158,276 +Director +Angel R. Martinez(7) +2008 +N/A +N/A +N/A +Chair of the Board +(1) As +of December 31, 2008, Mr. Gibbons was the only director who held outstanding equity of 2,000 options vested and outstanding. +(2) Represents +grants of 400 shares of Common Stock at a per share price of $120.60 on January 25, 2008, 400 shares of Common Stock at a per share price +of $113.36 on April 2, 2008, 400 shares of Common Stock at a per share price of $118.26 on July 25, 2008, and 400 shares of Common Stock at a per share price of $95.14 on +October 16, 2008. +(3) Mr. Burleson +resigned his position as a director of the Company, effective May 29, 2008. +31 +(4) Mr. Otto +resigned his position as a director of the Company, effective May 29, 2008. He did not receive any compensation as a director in +2008. +(5) Represents +grants of 400 shares of Common Stock at a per share price of $120.60 on January 25, 2008, and 400 shares of Common Stock at a per share +price of $113.36 on April 2, 2008. +(6) Represents +400 shares of Common Stock at a per share price of $138.54 on June 24, 2008, 400 shares of Common Stock at a per share price of $118.26 on +July 25, 2008, and 400 shares of Common Stock at a per share price of $95.14 on October 16, 2008. +(7) Mr. Martinez +received compensation as President and Chief Executive Officer of the Company for 2008 as discussed above. He did not receive any +compensation as a director in 2008. +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of the Company's Common Stock that may be issued under the Company's equity +compensation plans as of December 31, 2008. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +724,351 +$ +76.63 +1,361,760 +Equity compensation plans not approved by security holders +— +— +— +Total +724,351 +$ +76.63 +1,361,760 +(1) Includes +outstanding options, unexercisable SARs, and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the Compensation +Discussion and Analysis. +(2) The +weighted-average exercise price of the options was $15.81 and the stock price at the date of grant of the SARs was $80.20. The weighted-average exercise +price does not take into account the NSUs and RSUs. +(3) Includes +2,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +32 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of March 31, 2009, certain information concerning the shares of Common Stock beneficially +owned by (i) each person who is a Named Executive Officer in the Summary Compensation Table; (ii) each director and director nominee; (iii) all executive officers and directors as +a group (thirteen persons); and (iv) each person known by the Company to be the beneficial owner of more than 5% of our Common Stock (other than directors, executive officers and depositaries) +based upon the most recent SEC filings available. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3)(4) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez +26,874 +* +Thomas R. Hillebrandt +698 +* +Zohar Ziv +4,142 +* +Constance X Rishwain +4,680 +* +Colin G. Clark +2,750 +* +Directors and Director Nominees +Angel R. Martinez +26,874 +* +Rex A. Licklider(5) +213,107 +1.6 +% +John M. Gibbons(6) +13,829 +* +John G. Perenchio +41,331 +* +Maureen Conners +4,083 +* +Tore Steen(7) +4,283 +* +Ruth M. Owades +1,683 +* +Karyn O. Barsa +1,683 +* +All directors and executive officers as a group (thirteen persons) +325,107 +2.5 +% +5% Stockholders +Turner Investment Partners, Inc.(8) +1,422,414 +10.8 +% +Stephen F. Mandel, Jr.(9) +1,093,072 +8.3 +% +FMR, LLC(10) +890,052 +6.8 +% +Barclays Global Investors UK Holdings, Ltd.(11) +835,141 +6.4 +% +Apex Capital, LLC(12) +750,000 +5.7 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common +Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d) (1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or +conversion privileges exercisable on or before the date that is 60 days after March 31, 2009 are deemed outstanding for the purpose of calculating the number and percentage owned by such +person, but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +(4) Includes +2,000 shares under stock options that are presently exercisable or are exercisable within 60 days from March 31, 2009 for John M. +Gibbons. +33 +(5) Includes +213,107 shares held by the Licklider Living Trust as to which Mr. Licklider has joint voting and investment power. +(6) Includes +11,829 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(7) Includes +2,800 shares which are pledged as security. +(8) Includes +1,257,124 shares held by Turner Investment Partners, Inc., as to which the beneficial owners have sole voting power and 1,422,414 shares as +to which the beneficial owners have sole dispositive power. This information is based solely on a Schedule 13G filed by the party on April 8, 2009 whose business address is 1205 +Westlakes Drive, Suite 100, Berwyn, PA 19312. +(9) Includes +1,093,072 shares held by Stephen F. Mandel, Jr., as to which the beneficial owners have shared voting power and 1,093,072 shares as to which the +beneficial owners have shared dispositive power. This information is based solely on the information contained in a Schedule 13G filed with the SEC on March 2, 2009, whose business +address is Two Greenwich Plaza, Greenwich, CT 06830. Of the shares reported in the Schedule 13G, (i) Lone Spruce, L.P. ("Lone Spruce") has shared voting and dispositive power with +respect to 13,598 shares; (ii) Lone Balsam, L.P. ("Lone Balsam") has shared voting and dispositive power with respect to 29,839 shares; (iii) Lone Sequoia, L.P. ("Lone +Sequoia") has shared voting and dispositive power with respect to 24,931 shares; (iv) Lone Cascade, L.P. ("Lone Cascade") has shared voting and dispositive power with respect to 400,864 +shares; (v) Lone Sierra, L.P. ("Lone Sierra") has shared voting and dispositive power with respect to 20,021 shares; (vi) Lone Pine Associates LLC ("Lone Pine") has shared +voting and dispositive power with respect to 68,368 shares; (vii) Lone Pine Members LLC ("Lone Pine Members") has shared voting and dispositive power with respect to 420,885 shares; +(viii) Lone Pine Capital LLC ("Lone Pine Capital") has shared voting and dispositive power with respect to 603,819 shares; and (ix) Stephen F. Mandel, Jr. ("Mr. Mandel") +has shared voting and dispositive power with respect to 1,093,072 shares. Mr. Mandel is the managing member of (a) Lone Pine (which is the general partner of Lone Spruce, Lone Sequoia +and Lone Balsam); (b) Lone Pine Members (which is the general partner of Lone Cascade and Lone Sierra); and (c) Lone Pine Capital (which is the investment manager of shares held by Lone +Cypress, Ltd., Lone Kauri, Ltd., and Lone Monterey Master Fund, Ltd.). +(10) Includes +5,900 shares held by FMR LLC., as to which the beneficial owners have sole voting power and 890,052 shares as to which the beneficial +owners have sole dispositive power. This information is based solely on a Schedule 13G/A filed by the party on February 17, 2009 whose business address is 82 Devonshire Street, Boston, +MA 02109. +(11) Includes +636,792 shares held by Barclays Global Investors (Deutschland) AG, as to which the beneficial owners have sole voting power and 835,141 shares as +to which the beneficial owners have sole dispositive power. This information is based solely on a Schedule 13G filed by the party on February 5, 2009 whose business address is +Apianstrasse 6, D-85774, Unterfohring, Germany. +(12) Includes +750,000 shares held by Apex Capital, LLC., as to which the beneficial owners have shared voting power and 750,000 shares as to which the +beneficial owners have shared dispositive power. This information is based solely on a Schedule 13G filed by the party on March 3, 2009 whose business address is 25 Orinda Way, +Suite 300, Orinda, CA 94563. +34 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board is responsible for providing independent, objective oversight of the Company's accounting functions +and internal controls. The Audit Committee is currently composed of three directors, each of whom meets the independence and experience requirements under the Nasdaq rules and the independence +requirements of the SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. The independent registered +public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight +Board (United States) (the "PCAOB") and expressing (i) an opinion on whether the Company's consolidated financial statements present fairly, in all material respects, the Company's financial +position and results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles and (ii) an opinion on whether the Company +maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal +Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to +monitor and oversee these processes. The Board of Directors has determined that John M. Gibbons, the Chair of the Audit Committee, is an audit committee financial expert and is independent. +In +connection with these responsibilities, the Audit Committee met with management and the independent registered public accounting firm to review and discuss the December 31, +2008 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with U.S. generally accepted +accounting principles. Management determined that, as of December 31, 2008, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by the PCAOB's Rule 3526: Communication with Audit Committees Concerning Independence , and the Audit Committee +discussed with KPMG LLP its independence from the Company and the Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP +with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board and is assessed annually for adequacy by the Audit Committee. The Audit Committee held eight meetings +during fiscal 2008, including meetings with the independent registered public accounting firm and Chief Audit Executive, both with and without management present. In performing its functions, the +Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's financial statements are complete and accurate, are presented in +accordance with U.S. generally accepted accounting principles or present fairly the results of operations of the Company for the periods presented or that the Company maintains appropriate internal +controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company's financial statements has been carried out in accordance with the standards of the PCAOB or that the +Company's registered public accounting firm is independent. +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, the Audit Committee recommended that the Board of Directors +35 +include +the audited consolidated financial statements in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2008, filed with the SEC on +March 2, 2009. +THE AUDIT COMMITTEE +John M. Gibbons, Chair +Tore Steen +Karyn O. Barsa +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, +certain of our shareholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material interest. In order to +identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire which includes +questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of interest where an individual's +private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or appear to +impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of +directors, the Board. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the Company's anonymous reporting +hotline and may be subsequently obtained by the Audit Committee Chair, the Chair of the Board and the chief audit executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Board is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Board members apply the +same standards of good faith and fiduciary duty they apply to their general responsibilities as the Board and as individual directors. The Board may approve a related person transaction when, in its +good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2008 or currently +proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +36 +We maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and +persons who own more than 10% of the Common Stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock +(Forms 4 and Forms 5) with the SEC as well as the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2008, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) Ruth +M. Owades filed a Form 4 on July 17, 2008, which reported transactions that were due to be reported on June 26, 2008; and +(ii) Karyn +O. Barsa filed a Form 4 on July 17, 2008, which reported transactions that were due to be reported on June 26, 2008. +PROPOSAL NO. 2 +RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +For the 2008 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated +financial statements. The Audit Committee has selected KPMG LLP to provide audit services to the Company and its subsidiaries for the fiscal year ending December 31, 2009. The +stockholders are being requested to ratify such selection at the Annual Meeting. A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to +respond to appropriate stockholder questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. Ratification of the appointment of the independent registered public accounting firm requires the affirmative vote of holders of a majority of the outstanding +shares of our Common Stock, present in person or represented by Proxy of the Annual Meeting and entitled to vote. If the stockholders do not ratify the appointment, the Board of Directors and Audit +Committee will consider the selection of another independent registered public accounting firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2009. +Audit Fees and All Other Fees +Audit Fees +Fees approved for audit services totaled approximately $1,164,000 in 2008 and $1,446,000 in 2007. The 2008 audit fees include fees +associated with the audit of the Company's consolidated balance sheet as of December 31, 2008, the related consolidated statements of operations, stockholders' equity and +37 +comprehensive +income, and cash flows for each of the years in the three-year period ended December 31, 2008 and the audit of internal control over financial reporting as of +December 31, 2008 (collectively referred to as the integrated audit), as well as the reviews of the Company's quarterly reports on Form 10-Q and statutory audits required +internationally. Included in the audit fees in 2007 was approximately $448,000 related to the restatement of the Company's Annual Report on Form 10-K/A for the year ending +December 31, 2006 and the Company's Quarterly Report on Form 10-Q/A for the period ending March 31, 2007. +Audit-Related Fees +The Company was not billed for any audit-related fees in 2008 or 2007. +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs matters, totaled +approximately $228,000 in 2008 and $187,000 in 2007. +All Other Fees +The Company was not billed for any other fees in 2008 or 2007. +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all audit and permissible +non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the +independence of KPMG LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent auditor to perform the services. The Audit +Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee Chair pre-approves all independent auditor services. During the year, circumstances may arise when it may become necessary to engage +the independent auditor for additional services not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires that those services be submitted +to the Audit Committee Chair for specific pre-approval before the Company can engage the independent auditor to provide them. On May 8, 2007, the Audit Committee approved an Audit +and Non-Audit Financial Service Approval Policy giving our Chief Audit Executive and Chief Financial Officer discretionary authority to engage financial services firms for audit and +permissible non-audit services to the Company of up to a dollar amount equal to 5% of the total fees paid to our independent auditors during each fiscal year. +The +Audit Committee Chair has been delegated pre-approval authority. The Chair reports any pre-approval decisions to the Audit Committee at its next scheduled +meeting for approval by the Committee. +PROPOSAL NO. 3 +AMENDMENT OF CERTIFICATE OF INCORPORATION +TO INCREASE AUTHORIZED CAPITAL STOCK +At the Annual Meeting, stockholders will be asked to approve an amendment to the Company's Restated Certificate of Incorporation to +increase the authorized number of shares of Common Stock from 20,000,000 shares to 50,000,000 shares (the "Amendment"). On April 7, 2009, the Board of Directors adopted resolutions setting +forth the Amendment in the form of an amendment to Section 1 +38 +of +Article IV of the Company's Restated Certificate of Incorporation which is attached hereto as Exhibit A, and has determined the Amendment to be advisable and in Company's best +interest and is hereby seeking approval of the Amendment by the Company's stockholders. +The +following is the relevant text of Section 1 of Article IV of the Company's Restated Certificate of Incorporation, as proposed to be amended, with additions indicated +with italicized text and deletions indicated by strike-through text: +SECTION 1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock +to be designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is Fifty-Five Twenty Five Million +( 55,000,000 ) +( 25,000,000 ); the total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and +the total number of shares of Common Stock shall be Fifty Twenty Million +( 50,000,000 ) ( 20,000,000 ), and each such share shall have a par value of one cent ($0.01). +Purpose of the Amendment +The purpose of the Amendment is to increase the total authorized number of shares of Common Stock from 20,000,000 shares to 50,000,000 +shares. The additional authorized shares may be used by the Company for business and financial purposes as determined by the Board of Directors from time to time to be necessary or desirable. Subject +to favorable market conditions and approval of the Amendment, the Company is considering using a number of the additional shares of Common Stock to effect a stock split, in the form of a stock +dividend payable on +all outstanding shares of Common Stock. The Board has not yet determined whether to implement a stock split, and the magnitude of a stock split, if any, will be based on market conditions and remain +in the Board's sole discretion. Should the Board determine that a stock split is advisable, the proposed increase in the number of authorized shares of Common Stock will be necessary, as the current +number of authorized shares of Common Stock that are not reserved or outstanding is not sufficient to effect a stock split. Stockholder approval of a stock split effected in the form of a stock +dividend is not required under Delaware law, is not being solicited by this Proxy Statement and will not be solicited in the future in order to effect a stock split. +The +objective of a stock split would be to lower the per share market price of the Common Stock in inverse proportion to the stock split. Such lower price would be expected to increase +the liquidity and broaden the marketability of the Common Stock to a larger group of investors. The Board may decide, however, in the best interests of the Company and due to market conditions or +otherwise, not to effect a stock split. Therefore, no assurances can be given that the Board will effect a stock split or declare any type of stock split or stock dividend, even if the Amendment is +approved. Alternatively, the additional shares authorized as a result of the Amendment could be used in connection with other possible business and financial uses, such as raising capital through the +sale of Common Stock; acquiring other companies, businesses, products or services in exchange for shares of Common Stock; attracting and retaining employees by the issuance of additional securities +under the Company's various equity compensation plans; and other transactions and corporate purposes that the Board of Directors deems to be in the Company's best interest. +The +additional authorized shares would enable the Company to act quickly in response to opportunities that may arise for these types of transactions, in most cases without the necessity +of obtaining future stockholder approval and holding a special stockholders' meeting before such issuance(s) could proceed, except as provided under Delaware law or under the marketplace rules of +Nasdaq. Whether and how to undertake any of these types of transactions, if at all, will depend in part on market conditions at the time and there can be no assurance that the Company will undertake +any of these types of transactions even if the Amendment is approved by the stockholders. +39 +As of the close of business on the Record Date, there were 13,115,373 shares of Common Stock issued and outstanding. In addition, as of such date, 777,006 shares were subject to +outstanding equity compensation awards such as stock options, stock appreciation rights (SARs), nonvested stock units (NSUs) and restricted stock units (RSUs). An additional 1,272,329 shares were +reserved for issuance in connection with future awards available for grant under the Company's stockholder-approved, 2006 Equity Incentive Plan. +Other +than consideration of a possible stock split and shares that may be issued under the equity compensation plans listed above, as of the date of this Proxy Statement the Company has +no immediate +plans, understandings, agreements or commitments to issue additional shares of Common Stock for any purposes. However, the Company also reviews and evaluates potential capital raising activities, +strategic transactions and other corporate actions on an ongoing basis to determine if such actions would be in the best interests of the Company and its stockholders. +Effects of the Amendment, if Adopted +Upon issuance, the additional shares of authorized Common Stock would have rights identical to the shares of Common Stock currently +outstanding. Approval of the Amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders. In the event that a stock split were +effected, it would reduce the Company's diluted earnings per share but would not affect voting rights of current stockholders, as each stockholder would continue to hold the same percentage interest +in the Company. However, to the extent that the additional authorized shares of Common Stock are issued in the future in a corporate transaction, other than a stock split, they may decrease existing +stockholders' percentage equity ownership and, depending on the price at which they were issued, could be dilutive to the voting rights of existing stockholders and have a negative effect on the +market price of the Company's Common Stock. Because the Company's Restated Certificate of Incorporation does not confer to the Company's stockholders preemptive rights with respect to Common Stock, +should the Board of Directors elect to issue additional shares of Common Stock, existing stockholders would not have any preferential rights to purchase these shares. +The +Amendment could, under certain circumstances, have an anti-takeover effect, although it is not the Company's intention with this proposal. For example, in the event of a +hostile attempt to take control of the Company, it may be possible for the Company to impede the attempt by issuing shares of Common Stock, which would dilute the voting power of the other outstanding +shares and increase the potential cost to acquire control of the Company. The Amendment therefore may have the effect of discouraging unsolicited takeover attempts, potentially limiting the +opportunity for the Company's stockholders to dispose of their shares at a premium, which is often offered in takeover attempts, or that may be available under a merger proposal. The Amendment may +have the effect of permitting the Company's current management, including the current Board of Directors, to retain its position, and place it in a better position to resist changes that stockholders +may wish to make if they are dissatisfied with the conduct of the Company's business. However, as of the date of this Proxy Statement, the Board of Directors is not aware of any attempt to take +control of the Company, and the Board of Directors has not presented this proposal with the intent that it be utilized as a type of anti-takeover device. +The +affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Company is required to authorize the proposed increase in the authorized number of +shares of Common Stock. Both abstentions and broker non-votes are not affirmative votes and, therefore, will have the same effect as votes against this Proposal No. 3. +The +Board of Directors has reserved the right, in the exercise of its discretion, to abandon the Amendment regardless of whether the stockholders approve the Amendment. +40 +If +the Amendment is approved by the stockholders and it is not abandoned by the Board of Directors, it will become effective upon filing of a Certificate of Amendment, in the form set +forth as Appendix A to this Proxy Statement, to the Company's Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which filing is expected to occur soon +after the Annual Meeting. +THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 3 TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION. +STOCKHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING +Any stockholder desiring to submit a proposal for action at our 2010 Annual Meeting of Stockholders and include it in our Proxy +Statement with respect to such meeting should arrange for such proposal to be delivered to us at our principal executive offices no later than December 29, 2009, which is 120 calendar days +prior to the anniversary of the mailing date of this year's Proxy Statement, in order to be considered for possible inclusion in the Proxy Statement for that meeting. If the date of next year's annual +meeting is moved more than 30 days before or after the anniversary date of this year's annual meeting, the deadline for inclusion of proposals in our Proxy Statement for our 2010 Annual Meeting +of Stockholders is instead a reasonable time before we begin to print and mail the proxy materials for that meeting. Matters pertaining to such proposals, including the number and length thereof, +eligibility of persons entitled to have such proposals included, and other aspects, are regulated by the Securities Exchange Act of 1934, as amended, rules and regulations of the Securities and +Exchange Commission, other laws and regulations, and our Bylaws, to which interested persons should refer. You may obtain a complete copy of our Bylaws without charge by submitting a written request +to our Corporate Secretary at our principal executive office. Stockholders wishing to submit for consideration a possible board candidate should follow the procedures set forth under "Procedures for +Stockholder Nominations." +If +a stockholder desires to bring business before the 2010 Annual Meeting of Stockholders which is not the subject of a proposal properly submitted for inclusion in the Company's Proxy +Statement, the stockholder must follow procedures outlined in the Company's Bylaws. The Bylaws provide that a stockholder entitled to vote at the meeting may make nominations for the election of +directors or may propose that other business be brought before the meeting only if (a) such nominations or proposals are +included in the Company's Proxy Statement or otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (b) the stockholder has delivered written notice +to the Company (containing certain information specified in the Bylaws) not less than 90 days prior to the date of the meeting. However, if the Company has given less than 90 days +advance notice or public disclosure of the date the meeting is to be held, written notice of a nomination or proposal to be submitted by a stockholder at the meeting will be timely if it has been +received by the Company not later than the 7th day following the date on which notice of the meeting is mailed or the meeting date is otherwise publicly disclosed. +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any continuation, postponement or adjournment thereof other +than the election of directors, the ratification of the selection of the Company's independent registered public accounting firm and the approval of an amendment to the Company's Restated Certificate +of Incorporation. However, inasmuch as matters of which management is not now aware may come before the Annual Meeting or any continuation, postponement or adjournment thereof, the Proxies confer +discretionary authority with respect to acting thereon, and the persons named in such Proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided +that, to the extent the Company becomes aware a reasonable time before the Annual Meeting of any matter to come before such meeting, the Company +41 +will +provide an opportunity to vote by Proxy directly on such matter. Upon receipt of such Proxies in time for voting, the shares represented thereby will be voted as indicated thereon and as +described in this Proxy Statement. +COST OF SOLICITATION +The solicitation of Proxies is made on behalf of the Company and all the expenses of soliciting Proxies from stockholders will be borne +by the Company. In addition to the solicitation of Proxies by use of the mail, officers and regular employees may communicate with stockholders personally or by mail, telephone, or otherwise for the +purpose of soliciting such Proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse banks, brokers and other nominees +for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons. The total estimated cost of the +solicitation of Proxies is approximately $85,000. +ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (excluding the +exhibits thereto) as filed with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the Proxy soliciting material. The Form 10-K contains consolidated +financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2008 upon the written request of any beneficial owner of +the Company's securities as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Secretary of the Company at the Company's corporate +offices at 495-A South Fairview Avenue, Goleta, California 93117. +STOCKHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AS SOON AS POSSIBLE AND RETURN IT IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE +AFFIXED IF MAILED IN THE UNITED STATES. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +Goleta, California +April 24, 2009 +42 +Appendix A +CERTIFICATE OF AMENDMENT +OF +AMENDED AND RESTATED +CERTIFICATE OF INCORPORATION +OF +DECKERS OUTDOOR CORPORATION +DECKERS OUTDOOR CORPORATION, a Delaware corporation organized and existing under and by virtue of the Delaware General Corporation Law +(the " Corporation "), does hereby certify: +FIRST: +The Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the following amendments to the Amended and Restated Certificate of +Incorporation of the Corporation, directing that said amendment be submitted to the stockholders of the Corporation for consideration thereof. The resolutions setting forth the proposed amendments are +as follows: +RESOLVED, +that the Section 1 of Article IV of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended to read in its entirety as follows: +SECTION 1. Authorized Shares. The Corporation shall be authorized to issue two classes of shares of stock +to be designated, respectively, "Preferred Stock" and "Common Stock;" the total number of shares that the Corporation shall have authority to issue is Fifty-Five Million (55,000,000); the +total number of shares of Preferred Stock shall be Five Million (5,000,000) and all such shares shall have a par value of one cent ($0.01); and the total number of shares of Common Stock shall be +Fifty Million (50,000,000), and each such share shall have a par value of one cent ($0.01). +SECOND: +That thereafter, the holders of the necessary number of shares of capital stock of the Corporation voted in favor of the foregoing amendment at the Corporation's 2009 Annual +Meeting of Stockholders called and held on May 28, 2009 upon notice in accordance with the provisions of Section 222 of the Delaware General Corporation Law. +THIRD: +That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law of the State of Delaware. +IN +WITNESS WHEREOF, I affirm, under penalties of perjury, that the matters set forth in this certificate, which is executed +on , 2009, are true and correct of my own +knowledge. +Angel R. Martinez +Chair of the Board, President and +Chief Executive Officer +A-1 +PROXY DECKERS +OUTDOOR CORPORATION 495-A South Fairview Avenue Goleta, California 93117 This +Proxy is solicited on behalf of the Board of Directors of Deckers Outdoor +Corporation. The undersigned hereby appoints Angel R. Martinez and Zohar Ziv, +and each of them, as Proxyholders, each with the power to appoint his +substitute, and hereby authorizes each of them to represent and to vote as +designated below, all the shares of Common Stock of Deckers Outdoor +Corporation held of record by the undersigned on April 13, 2009, at the 2009 +Annual Meeting of Stockholders to be held on May 28, 2009 and any +continuations, postponements or adjournments thereof. BNY MELLON SHAREOWNER +SERVICES P.O. BOX 3550 SOUTH HACKENSACK, NJ 07606-9250 (Continued and to be +marked, dated and signed, on the other side) . FOLD AND DETACH HERE . You can +now access your Deckers Outdoor Corporation account online. Access your +Deckers Outdoor Corporation stockholder account online via Investor +ServiceDirect® (ISD). The transfer agent for Deckers Outdoor Corporation now +makes it easy and convenient to get current information on your stockholder +account. • View account status • View payment history for dividends • View +certificate history • Make address changes • View book-entry information • +Obtain a duplicate 1099 tax form • Establish/change your PIN Visit us on the +web at http://www.bnymellon.com/shareowner/isd For technical assistance call +1-877-978-7778 between 9am-7pm Monday-Friday Eastern Time +www.bnymellon.com/shareowner/isd Investor ServiceDirect® Available 24 hours +per day, 7 days per week TOLL FREE NUMBER: 1-800-370-1163 Choose MLinkSM for +fast, easy and secure 24/7 online access to your future proxy materials, +investment plan statements, tax documents and more. Simply log on to Investor +ServiceDirect® at www.bnymellon.com/shareowner/isd where step-by-step +instructions will prompt you through enrollment. Address Change/Comments +(Mark the corresponding box on the reverse side) 46131 +Please mark +your votes as indicated in this example X THIS PROXY WILL BE VOTED AS +DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSALS +AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF +DIRECTORS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. . FOLD +AND DETACH HERE . WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE +VOTING, BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK. Internet and +telephone voting are available through 11:59 PM Eastern Time the day prior to +the annual meeting date. Internet http://www.proxyvoting.com/deck Use the +internet to vote your proxy. Have your proxy card in hand when you access the +website. Telephone 1-866-540-5760 Use any touch-tone telephone to vote your +proxy. Have your proxy card in hand when you call. NOTE: Please sign as name +appears hereon. Joint owners should each sign. When signing as attorney, +executor, administrator, trustee or guardian, please give full title as such. +Signature Signature Date FOR ALL WITHHOLD FOR ALL *EXCEPTIONS You can view +the Annual Report and Proxy Statement on the internet at +http://www.deckers.com/investors/FinancialReports.asp?compid=91148 1. +ELECTION OF DIRECTORS: Nominees: 01 Angel R. Martinez 04 John G. Perenchio 07 +Ruth M. Owades 02 Rex A. Licklider 05 Maureen Conners 08 Karyn O. Barsa 03 +John M. Gibbons 06 Tore Steen (INSTRUCTIONS: To withhold authority to vote +for any individual nominee, mark the “Exceptions” box above and write that +nominee’s name in the space provided below.) *Exceptions 2. TO RATIFY THE +SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC +ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2009. 3. TO APPROVE THE +AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE +THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM 20,000,000 SHARES TO +50,000,000 SHARES. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY +USING THE ENCLOSED ENVELOPE. FOR AGAINST ABSTAIN The Board of Directors +recommends a vote "FOR" the election of each of the director +nominees, "FOR" ratification of the selection of KPMG LLP as the +Company's independent registered public accounting firm for fiscal 2009 and, +“FOR” the approval to amend the Company’s Certificate of Incorporation. All +proposals to be acted upon are proposals of the Board of Directors. If any +other business is properly presented at the Annual Meeting, including, among +other things, consideration of a motion to adjourn the meeting to another +time or place in order to solicit additional Proxies in favor of the +recommendations of the Board of Directors, this Proxy shall be voted by the +Proxyholders in accordance with the recommendations of a majority of the +Board of Directors. At the date the Proxy Statement went to press, we did not +anticipate any other matters would be raised at the Annual Meeting. 4. In +their discretion, the Proxyholders are authorized to transact such other +business as may properly come before the Annual Meeting or any continuations, +postponements or adjournments thereof. YES Will Attend Meeting Mark Here for +Address Change or Comments SEE REVERSE If you vote your proxy by internet or +by telephone, you do NOT need to mail back your proxy card. To vote by mail, +mark, sign and date your proxy card and return it in the enclosed +postage-paid envelope. Your internet or telephone vote authorizes the named +proxies to vote your shares in the same manner as if you marked, signed and +returned your proxy card. DECKERS OUTDOOR CORPORATION 46131 OR +QuickLinks +EVERY STOCKHOLDER'S VOTE IS IMPORTANT. +PROPOSAL NO. 1 ELECTION OF DIRECTORS +CORPORATE GOVERNANCE +EXECUTIVE OFFICERS +COMPENSATION DISCUSSION AND ANALYSIS +COMPENSATION COMMITTEE REPORT +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2008 +OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR END +2008 OPTION EXERCISES AND STOCK VESTED +NONQUALIFIED DEFERRED COMPENSATION +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 3 AMENDMENT OF CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED CAPITAL STOCK +STOCKHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING +OTHER BUSINESS OF THE ANNUAL MEETING +COST OF SOLICITATION +ANNUAL REPORT ON FORM 10-K +Appendix A +CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DECKERS OUTDOOR CORPORATION \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-09-004501/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-09-004501/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..f8bc950f03f19333283354726fe0efffb08f36b2 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-09-004501/proxy_rpt.txt @@ -0,0 +1,29 @@ +Certain Relationships and Related Transactions +The legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our +directors, executive officers, +certain of our shareholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material interest. In order to +identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire which includes +questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of interest where an individual's +private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or appear to +impair the exercise of judgment solely for the benefit of the Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of +directors, the Board. Information regarding potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the Company's anonymous reporting +hotline and may be subsequently obtained by the Audit Committee Chair, the Chair of the Board and the chief audit executive. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable Securities and Exchange +Commission regulations, our Board is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, our Board members apply the +same standards of good faith and fiduciary duty they apply to their general responsibilities as the Board and as individual directors. The Board may approve a related person transaction when, in its +good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2008 or currently +proposed. +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now +or hereafter permitted by the Delaware General Corporation Law (the "DGCL"). In addition, we have entered into Indemnification Agreements with our directors and executive officers in +which we agree to indemnify such persons to the fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +36 +We maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-12-004278/proxy.txt b/raw/proxies/0000910521/0001047469-12-004278/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..64042a17a0b7f1579c175d45b3c219ae5c97b84c --- /dev/null +++ b/raw/proxies/0000910521/0001047469-12-004278/proxy.txt @@ -0,0 +1,3472 @@ +DEF 14A +1 +a2208819zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +Deckers Outdoor Corporation +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +April 13, +2012 +Dear +Stockholder: +We +cordially invite you to attend our 2012 Annual Meeting of Stockholders to be held at 3:00 p.m., local time, on Thursday, May 24, 2012 at our corporate headquarters +located at 495-A South Fairview Avenue, Goleta, California 93117. +We +have elected to provide access to our proxy materials over the Internet under the Securities and Exchange Commission's "notice and access" rules. These rules allow us to make our +stockholders aware of the availability of our proxy materials by sending a Notice of Internet Availability of Proxy Materials, which provides instructions for how to access the full set of proxy +materials through the Internet or make a request to have printed proxy materials delivered by mail. We believe compliance with these rules will allow us to provide our stockholders with the materials +they need to make informed decisions, while lowering the costs of printing and delivering those materials and reducing the environmental impact of our Annual Meeting. +Your +vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible using one of the voting methods we have provided to you. You may +vote over the Internet or, if you requested to receive printed proxy materials, by telephone or by mailing a proxy or voting instruction card. Please review the instructions on each of your voting +options described in this Proxy Statement as well as in the Notice you received in the mail. +Also, +please let us know if you plan to attend our Annual Meeting when you vote by telephone or Internet by indicating your plans when prompted or, if you requested to receive printed +proxy materials, by marking the appropriate box on the enclosed proxy card. +Thank +you for your ongoing support of Deckers Outdoor Corporation. We look forward to seeing you at our Annual Meeting. +Sincerely, +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and Chief Executive Officer +2012 Proxy Summary +This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain +all of the information that you should consider, and you should read the entire Proxy Statement carefully before voting. +Annual Meeting of Stockholders +• +Time and +Date +3:00 p.m., May 24, 2012 +• +Location +Deckers Outdoor Corporation Corporate Headquarters +495-A South Fairview Avenue +Goleta, California 93117 +• +Record +Date +April 4, 2012 +• +Voting +Stockholders as of the record date are entitled to vote. +Meeting Agenda +• Election of nine directors +• Ratification of KPMG as independent registered public accounting firm for 2012 +• Advisory vote to approve Named Executive Officer compensation +• Transact other business that may properly come before the meeting +Voting Matters +Proposal +No. +Matter +Board Vote Recommendation +Page Reference +1 +Election of 9 directors +FOR EACH DIRECTOR NOMINEE +10 +2 +Ratification of KPMG LLP as Independent Registered Public Accounting Firm for 2012 +FOR +62 +3 +Advisory vote to approve named executive officer compensation +FOR +64 +The +following is summary information with respect to each of the proposals to be voted on at the meeting. +Board Nominees +The following table provides summary information about each director nominee. Each director nominee is elected annually by a plurality +of votes cast. +Name +Age +Director +Since +Occupation +Independent +Angel R. Martinez +56 +2005 +Chair of the Board of Directors, President & CEO, Deckers Outdoor Corporation +Rex A. Licklider +68 +1993 +CEO & Vice Chair, The Sports Club Company +X +John M. Gibbons(1)(2) +63 +2000 +Independent Consultant +X +John G. Perenchio(1)(3) +56 +2005 +Owner and Co-Manager, Fearless Records LLC and Fearmore Publishing, LLC +X +Maureen Conners(1)(3) +65 +2006 +President, Conners Consulting +X +Karyn O. Barsa(2) +50 +2008 +CEO, Coyuchi, Inc. +X +Michael F. Devine, III(2) +53 +2011 +Corporate Director +X +Lauri Shanahan(3) +49 +2011 +Corporate Director, Independent Consultant +X +James Quinn(1) +60 +2011 +Corporate Director +X +(1) Member +of Compensation and Management Development Committee +(2) Member +of Audit Committee +(3) Member +of Corporate Governance and Nominating Committee +No +director nominee who is a current director attended fewer than 75% of the meetings of the Board of Directors and committee meetings on which he or she sits. +The +Board of Directors recommends that you vote FOR each of the director nominees named in Proposal No. 1. +Independent Registered Public Accounting Firm +As a matter of good corporate governance, we are asking our stockholders to ratify the selection of KPMG LLP as our independent +registered public accounting firm +for 2012. Approval of the proposal requires the vote of the majority of the shares present at the meeting. +The +Board of Directors recommends that you vote FOR Proposal No. 2. +Executive Compensation Advisory Vote +We are asking our stockholders to approve, on a non-binding advisory basis, the compensation of our Named Executive +Officers as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement. Approval of this proposal requires the vote of a majority of the shares present at the meeting. The +Board recommends a FOR vote because it believes that our compensation policies and practices are effective in achieving our goals of paying for financial and operating performance, and aligning our +executives' interests with those of our stockholders. +Executive Compensation Elements +Type +Form +Terms +Equity +• Annual Short-Term Equity Awards (Nonvested Stock Units, or "NSUs") +• If performance goals are achieved, NSUs vest over a period of approximately 3 years +• Long-Term Incentive Equity Awards—Level 1, Level 2 and Level 3 (includes Restricted Stock Units, or "RSUs" and Stock Appreciation Rights, or "SARs") +• RSUs and SARs have performance periods (5 years for Level 1, 10 years for Level 2, 4 years for Level 3) with 2 objective performance measures +Cash +• Salary +• Increases must be approved by Compensation Committee +• Annual Cash Incentive Plan Awards +• Based on quantitative and qualitative goals +• Incentive plan awards not guaranteed; Determined by compensation committee based on year-end results +Other +• Benefits +• Generally benefits provided to executives mirror those provided to all employees +Other Key Compensation Features +• No tax gross-ups as a result of termination following a change of control +• Prohibit hedging and speculative transactions with respect to our stock +• Stock ownership guidelines for our Named Executive Officers and directors +• "Double Trigger" event required for severance benefits upon a change in control +• Annual equity awards granted in 2011 and 2012 are subject to a Clawback Policy provision subjecting these awards to a +Clawback Policy to be adopted by the Company following adoption of the relevant rules by the Securities and Exchange Commission +2011 Compensation Philosophy +The compensation for our Named Executive Officers is tied to Company performance. Each year for the past six years, our annual revenue +and diluted earnings per share have steadily increased. Throughout this period of time, we believe that our executive team has provided both the leadership and strategic vision to achieve this +success. +During +fiscal 2011, we achieved a record $1.377 billion in net sales, a 37.6% increase over the prior year. Furthermore, our executive team successfully implemented strategic +goals that we believe will contribute to our long-term success. These goals include expanding our brands into new product categories and attracting new consumers, growing our multi-channel +distribution strategy, aggressively pursuing new and sophisticated marketing, and continuing to build our team of talented and passionate employees. Our acquisition of the Sanuk brand also contributed +to our record results and provided us with another exciting growth vehicle for the future. +Our +executive compensation philosophy continues to focus on at-risk pay, which for the CEO is 90% of his total compensation, and limits annual guaranteed pay. Therefore, +compensation increases for our executive officers are generally tied to the Company's performance and each executive's contributions to that performance through their respective functions. At the same +time, we +balance our annual guaranteed pay with the at-risk pay so as to mitigate excessive risk taking to the Company. +2013 Annual Meeting +• Deadline for Stockholder Proposals December 15, 2012 +495-A South Fairview Avenue, Goleta, California 93117 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 24, 2012 +TO THE STOCKHOLDERS OF +DECKERS OUTDOOR CORPORATION: +Notice +is hereby given that the Annual Meeting of Stockholders of Deckers Outdoor Corporation, a Delaware corporation, will be held at the Deckers' corporate headquarters located at +495-A South Fairview Avenue, Goleta, California, 93117, on Thursday, May 24, 2012, beginning at 3:00 p.m., local time. The Annual Meeting will be held for the following +purposes: +1. Election of Directors. To elect nine directors to serve until our Annual Meeting of +Stockholders to be held in 2013. +2. Ratification of Appointment of Independent Registered Public Accounting Firm. To +ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2012. +3. Advisory Vote to Approve Named Executive Officer Compensation. To approve, by a +non-binding advisory vote, the compensation of our Named Executive Officers, as disclosed in the Compensation Discussion and Analysis section of the Proxy Statement. +4. Other Business. To consider and act upon such other business as may properly come +before the Annual Meeting or any postponements or adjournments thereof. +The +Board of Directors recommends that you vote FOR each of the director nominees named in proposal 1 and FOR proposals 2 and 3. +The +Board of Directors has fixed the close of business on April 4, 2012 as the record date for determining stockholders entitled to notice of and to vote at the Annual Meeting and +any postponements or adjournments thereof. Only stockholders of record at the close of business on the record date are entitled to such notice and to vote, in person or by proxy, at the Annual +Meeting. +Your vote is very important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this Proxy Statement and submit your proxy or voting +instructions as soon as possible. For specific instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the +mail, the section entitled "How Can I Vote My Shares" in this Proxy Statement or, if you requested to receive printed proxy materials, your enclosed proxy card. +BY ORDER OF THE BOARD OF +DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and +Chief Executive Officer +Goleta, +California +April 13, 2012 +Approximate +Date of Mailing of Notice of Internet Availability of Proxy Materials: April 13, 2012 +495-A South Fairview Avenue +Goleta, California 93117 +ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD MAY 24, 2012 +PROXY STATEMENT +GENERAL INFORMATION +The enclosed Proxy Statement is solicited on behalf of the Board of Directors of Deckers Outdoor Corporation, which we refer to as "the Company," "we," "us," or +"our," for use at the Company's Annual Meeting of Stockholders to be held on May 24, 2012 at 3:00 p.m., local time, or the Annual Meeting, or at any postponements or adjournments +thereof. The Annual Meeting is being held for the purposes described in this Proxy Statement and in the accompanying Notice of Annual Meeting of Stockholders. +QUESTIONS AND ANSWERS ABOUT THE 2012 ANNUAL MEETING AND VOTING +The following questions and answers are intended to briefly address potential questions +regarding this Proxy Statement and the Annual Meeting. They are also intended to provide our stockholders with certain information that is required to be provided under the rules and regulations of +the Securities and Exchange Commission, or the SEC. These questions and answers may not address all of the questions that are important to you as a stockholder. If you have additional questions about +the Proxy Statement or the Annual Meeting, please contact our Corporate Secretary using the contact information provided herein. +Q: What is the purpose of the Annual +Meeting? +A: At the Annual Meeting, our stockholders will be asked to consider and vote upon the matters described in this Proxy +Statement and in the accompanying Notice of Annual Meeting of Stockholders, and any other matters that properly come before the Annual Meeting. +Q: When and where will the Annual Meeting be +held? +A: You are invited to attend the Annual Meeting on May 24, 2012, +beginning at 3:00 p.m., local time. The Annual Meeting will be held at our corporate headquarters, located at 495-A South Fairview Avenue, Goleta, California 93117. +Q: Why did I receive these proxy +materials? +A: We are providing these proxy materials in connection with the +solicitation by the Board of Directors of the Company of proxies to be voted at the Annual Meeting, and at any adjournment or postponement thereof. This Proxy Statement contains important information +for you to consider when deciding how to vote on the matters brought before the Annual Meeting. You are invited to attend the Annual Meeting in person to vote on the proposals described in this Proxy +Statement. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may +1 +vote +your shares using one of the other voting methods described in this Proxy Statement. Whether or not you expect to attend the Annual Meeting, please vote your shares as soon as possible in order +to ensure your representation at the Annual Meeting and to minimize the cost of proxy solicitation. +Q: Why did I receive a notice in the mail +regarding the Internet availability of proxy materials? +A: Instead of mailing printed copies to each of our stockholders, we +have elected to provide access to our proxy materials over the Internet under the SEC's "notice and access" rules. These rules allow us to make our stockholders aware of the availability of our proxy +materials by sending a Notice of Internet Availability of Proxy Materials, or a Notice, which provides instructions for how to access the full set of proxy materials through the Internet or make a +request to have printed proxy materials delivered by mail. Accordingly, on or about April 13, 2012, we mailed a Notice to each of our stockholders. The Notice contains instructions on how to +access our proxy materials, including our Proxy Statement and our Annual Report, each of which are available at www.proxyvote.com . The Notice also +provides instructions on how to vote your shares through the Internet or by telephone. +Q: What is the purpose of complying with the +SEC's "notice and access" rules? +A: We believe compliance with the SEC's "notice and access" rules will +allow us to provide our stockholders with the materials they need to make informed decisions, while lowering the costs of printing and delivering those materials and reducing the environmental impact +of our Annual Meeting. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice. If you have previously elected to receive our proxy +materials electronically, you will continue to receive these materials via e-mail unless you elect otherwise. +Q: What am I being asked to vote upon at the +Annual Meeting? +A: At the Annual Meeting, you will be asked to: +• elect nine directors to serve until the Annual Meeting of Stockholders to be held in 2013 (Proposal No. 1); +• ratify the selection of KPMG LLP as our independent registered public accounting firm for the year ending +December 31, 2012 (Proposal No. 2); +• vote upon a proposal to approve, on a non-binding advisory basis, the compensation of our Named Executive +Officers, as disclosed in the Compensation Discussion and Analysis section of this Proxy Statement (Proposal No. 3); and +• act upon such other matters as may properly come before the Annual Meeting or any postponement or adjournment thereof. +Q: Does the Board of Directors recommend voting +in favor of the proposals? +A: Yes. The Board of Directors unanimously recommends that you vote each +of your shares "FOR" each of the nine director nominees, "FOR" the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending +December 31, 2012, and "FOR" the approval, on a non-binding advisory basis, of the compensation of our Named Executive Officers. +2 +Q: What are the voting requirements to approve +the proposals? +A: The voting requirements to approve each of the proposals to be voted +upon at the Annual Meeting are as follows: +• Election of Directors (Proposal No. 1) —Directors will +be elected by a plurality of the votes cast, so the nine director nominees who receive the most votes will be elected. Abstentions and broker non-votes will not be taken into account in +determining the election of directors. Under the rules applicable to brokers, brokers no longer possess discretionary authority to vote shares with respect to the election of directors. Accordingly, +"broker non-votes" will result for this proposal if brokers do not receive instructions from beneficial owners. Please see " What happens if I do not +vote? " below for a discussion of "broker non-votes." +• Ratification of Selection of Accounting Firm (Proposal +No. 2) —Ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, +2012 will require the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is +present). Abstentions will have the same effect as votes against the proposal. Because the ratification of the independent registered public accounting firm is a matter on which brokers have the +discretion to vote, "broker non-votes" will not result for this proposal. +• Advisory Vote on Executive Compensation (Proposal +No. 3) —Approval of the non-binding advisory resolution regarding the compensation of our Named Executive Officers will require the affirmative +vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter (assuming that a quorum is present). Abstentions will have the same +effect as votes against the proposal. "Broker non-votes" will not be counted for any purpose in determining whether this proposal has been approved. +Q: What happens if I do not +vote? +A: The following is a brief explanation of the effect that a decision +not to vote shares will have on the proposals at the Annual Meeting: +• Abstentions: You may withhold authority to vote for one or +more nominees for director and may abstain from voting on one or more of the other matters to be voted on at the Annual Meeting. Shares for which authority is withheld or that a stockholder abstains +from voting will be counted for purposes of determining whether a quorum is present at the Annual Meeting. Shares for which authority is withheld will have no effect on the voting for the election of +directors (which requires a plurality of the votes cast). Shares that a stockholder abstains from voting will be included in the total number of votes cast on the particular matter, and will have the +same effect as a vote "AGAINST" Proposal No. 2 and Proposal No. 3 (each of which require the affirmative vote of a majority of the shares present in person or represented by proxy at the +Annual Meeting). +• Broker Non-Votes. "Broker +non-votes" are shares held by a bank, broker, dealer or other nominee that are represented at the Annual Meeting, but with respect to which the nominee holding those shares (i) has +not received instructions from the beneficial owner of the shares to vote on the particular proposal, and (ii) does not have discretionary voting power with respect to the particular proposal. +Whether a nominee has authority to vote shares that it holds is determined by stock exchange rules. Nominees holding shares of record for beneficial owners generally are entitled to exercise their +discretion to vote on Proposal No. 2, but do not have the discretion to vote on Proposal No. 1 or Proposal No. 3 unless they receive other instructions from the beneficial owners +of the shares. Please see " Who can vote at the Annual Meeting? " below for a discussion of beneficial ownership. +3 +Broker +non-votes will be counted for purposes of determining the presence or absence of a quorum at the Annual Meeting, but will not be counted for purposes of determining the number of +shares represented and voting with respect to a proposal. +Q: Who can vote at the Annual +Meeting? +Only +our stockholders of record at the close of business on April 4, 2012, the Record Date, will be entitled to vote at the Annual Meeting. On the Record Date, there were +38,479,564 shares of our common stock outstanding and entitled to vote. Each share of common stock issued and outstanding on the Record Date is entitled to one vote on any matter presented for +consideration and action by our stockholders at the Annual Meeting. +Holders of Record +If, +on the Record Date, your shares were registered directly in your name with our transfer agent, Computershare, then you are a "holder of record." As a "holder of record," you may vote in person at +the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares using one of the voting methods described in this Proxy Statement and the +Notice. +Beneficial Owners +If, +on the Record Date, your shares were held in an account at a bank, broker, dealer, or other nominee, then you are the "beneficial owner" of shares held in "street name" and this Proxy Statement is +being forwarded to you by that nominee. The nominee holding your account is considered the "holder of record" for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to +direct your nominee on how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the "holder of record," you may not vote your shares in +person at the Annual Meeting unless you request and obtain a valid proxy from your nominee. Please contact your nominee directly for additional information. +Q: What is the quorum requirement for the Annual +Meeting? +A: The presence at the Annual Meeting, in person or by proxy, of holders +of a majority of the outstanding shares of our common stock outstanding as of the Record Date, will constitute a quorum at the Annual Meeting. We will treat shares of common stock represented by a +properly voted proxy, including abstentions and broker non-votes, as present at the Annual Meeting for the purposes of determining the existence of a quorum. If a quorum is not present, +the Annual Meeting will be adjourned until a quorum is obtained. +Q: How can I vote my +shares? +A: Stockholders of record can vote by proxy or by attending the Annual +Meeting and voting in person. If you vote by proxy, you can vote by telephone, by Internet or by mail as described below. Zohar Ziv and Thomas A. George, the designated proxyholders, are members of +the Company's management. If you are the beneficial owner of shares held in "street name," please refer to the information forwarded by your bank, broker, dealer or other nominee to see which voting +options are available to you. +• Vote by Internet. You can vote by proxy over the Internet +by following the instructions provided in the Notice. If you hold shares beneficially in "street name," you may vote by proxy over the Internet by following the instructions provided in the Notice or +the voting instruction card provided to you by your broker, bank, trustee or nominee. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on +May 23, 2012 by visiting +4 +www.proxyvote.com and following the instructions. Our Internet voting procedures are designed to authenticate stockholders by using individual control numbers, which are +located on the Notice. If you vote by Internet, you do not need to return your proxy card. +• Vote by Telephone. If you requested to receive printed +proxy materials, you can vote by telephone pursuant to the instructions provided on the proxy card. If you hold shares beneficially in "street name" and requested to receive printed proxy materials, +you can vote by telephone following the voting instruction card provided to you by your broker, bank, trustee or nominee. Telephone voting is available 24 hours a day and will be accessible +until 11:59 p.m. Eastern Time on May 23, 2012. If you vote by telephone, you do not need to return your proxy +card. +• Vote by Mail. If you requested to receive printed proxy +materials, you can vote by mail pursuant to the instructions provided on the proxy card. If you hold shares beneficially in "street name" and requested to receive printed proxy materials, you can vote +by mail by following the voting instruction card provided to you by your broker, bank, trustee or nominee. In order to be effective, completed proxy cards must be received by 12:00 p.m. Eastern +Time on May 24, 2012. If you choose to vote by mail, simply mark your proxy, date and sign it, and return it in the business reply envelope provided with this Proxy Statement. +• Vote at the Annual Meeting. The method you use to vote +will not limit your right to vote at the Annual Meeting if you decide to attend in person. If you hold shares beneficially in "street name," you must obtain a proxy, executed in your favor by your +bank, broker, dealer or other nominee, to be able to vote at the Annual Meeting. All shares that have been properly voted and not revoked will be voted at the Annual Meeting. If you sign and return +your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors. +Q: How may I attend the Annual +Meeting? +A: You are entitled to attend the Annual Meeting only if you were a +stockholder as of the Record Date or hold a valid proxy for the Annual Meeting. Since seating is limited, admission to the Annual Meeting will be on a first-come, first-served basis. You +should be prepared to present government-issued photo identification for admittance, such as a passport or driver's license. If your shares are held in "street name", you also will need proof of +ownership as of the Record Date to be admitted to the Annual Meeting, such as your most recent account statement prior to the Record Date, a copy of the voting instruction card provided by your bank, +broker, dealer or other nominee, or similar evidence of ownership. Please note that for security reasons, you and your bags may be subject to search prior to your admittance to the Annual Meeting. If +you do not comply with each of the foregoing requirements, you will not be admitted to the Annual Meeting. +Q: What can I do if I change my mind after I +vote my shares? +A: You may change your vote at any time before your proxy is voted at +the Annual Meeting. You may change your vote by (i) providing written notice of revocation to the Secretary of the Company at our corporate headquarters located at 495-A South +Fairview Avenue, Goleta, California 93117, (ii) by executing a subsequent proxy using any of the voting methods discussed above, or (iii) by attending the Annual Meeting and voting in +person. However, simply attending the Annual Meeting will not, by itself, revoke your proxy. If you have instructed your bank, broker, dealer or other nominee to vote your shares, you must follow +directions received from your nominee to change those instructions. Subject to any such revocation, all shares represented by properly executed proxies will be voted in accordance with the +specifications on the enclosed proxy. +5 +Q: Could other matters be decided at the Annual +Meeting? +A: As of the date this Proxy Statement went to press, we did not know of +any matters to be raised at the Annual Meeting other than those referred to in this Proxy Statement. However, if any other matters are presented for consideration at the Annual Meeting including, +among other things, consideration of a motion to adjourn the Annual Meeting to another time or place in order to solicit additional proxies in favor of one or more of the proposals, the persons named +as proxyholders and acting thereunder will have discretion to vote on these matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. +Q: Who is paying for the cost of this proxy +solicitation? +A: The solicitation of proxies is made on behalf of the Company and all +the expenses of soliciting proxies from stockholders will be borne by the Company. In addition to the solicitation of proxies by use of the mail, officers and regular employees may communicate with +stockholders personally or by mail, telephone, or otherwise for the purpose of soliciting such proxies, but in such event no additional compensation will be paid to any such persons for such +solicitation. The Company will reimburse banks, brokers and other nominees for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of +shares held of record by such persons. The total estimated cost of the solicitation of proxies is approximately $71,000. +Q: What is the deadline to submit stockholder +proposals for the 2013 Annual Meeting? +A: Notice of any director nomination or other proposal that you intend +to present at our 2013 Annual Meeting of Stockholders must be delivered to our corporate headquarters located at 495-A South Fairview Avenue, Goleta, California 93117 no earlier than +October 1, 2012 and no later than the close of business on December 15, 2012. In addition, your notice must satisfy the conditions for such proposals set forth in our Bylaws, which +contain requirements with respect to advance notice of director nominations and other stockholder proposals. +Q: How can stockholders nominate a candidate for +election as a director? +A: The Company's Bylaws provide that a stockholder seeking to nominate a +candidate for election as director at an annual meeting of stockholders must provide timely advance written notice. To be timely, a stockholder's notice generally must be received at our principal +executive office on or before the date 90 days prior to the scheduled date of the annual meeting or, if it is a later date, on or before the date seven days after the Company first publishes +notice of the annual meeting. +Under +our Bylaws, a stockholder's notice of a proposed nomination for director to be made at an annual meeting of stockholders must include the following +information: +• the name and address of the stockholder and any Stockholder Affiliate proposing to make the nomination and of the person +or persons to be nominated; +• the class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder or +any Stockholder Affiliate and any derivative positions held or beneficially held by the stockholder or any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or +series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any +borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power +of, such stockholder or any Stockholder Affiliate; +6 +• a representation that the holder is a stockholder entitled to vote his or her shares at the annual meeting and intends to +vote his or her shares in person or by proxy for the person nominated in the notice; +• a description of all arrangements or understandings between the stockholder(s) or Stockholder Affiliate supporting the +nomination and each nominee; +• any other information concerning the proposed nominee(s) that the Company would be required to include in the Proxy +Statement if the Board of Directors made the nomination; +• the consent and commitment of the nominee(s) to serve as a director; +• for each nominee, a completed and signed questionnaire, in a form provided by the Company upon written request, with +respect to the background and qualification of such person being nominated and the background of any other person or entity on whose behalf the nomination is being made; +• for each nominee, a written representation and agreement, in the form provided by the Company upon written request, with +regards to any voting commitments, compensatory arrangements with a third party and compliance requirements applicable to directors of the Company; +• a description of all agreements, arrangements and understandings between the stockholder and Stockholder Affiliate and any +other person, including their name, in connection with the nominee; and +• whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +For +these purposes, "Stockholder Affiliate" means any person controlling, directly or indirectly, or acting in concert with, any stockholder making the nomination; any beneficial owner of shares of +stock of the Company owned of record or beneficially by the stockholder making the nomination; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The +presiding officer of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Stockholder nominations submitted in accordance with +the requirements of the Company's Bylaws will be forwarded to the Corporate Governance and Nominating Committee. +Q: How can stockholders propose actions for +consideration at an annual meeting of stockholders (other than nomination of directors)? +A: The Company's Bylaws provide that a stockholder seeking to propose +actions at an annual meeting of stockholders must provide timely advance written notice to the Company. To be timely, a stockholder's notice generally must be received at our principal executive +office on or before the date 90 days prior to the scheduled date of the meeting or, if it is a later date, on or before the date seven days after the Company first publishes notice of the +meeting. +Under +our Bylaws, a stockholder's notice of proposed action to be made at an annual meeting of stockholders must include the following information: +• a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such +business at the meeting; +• the name and address of the stockholder proposing such business and any Stockholder Affiliate; +• the class and number of shares of the Company that are, directly or indirectly, beneficially owned by the stockholder and +any Stockholder Affiliate; +7 +• any derivative positions held or beneficially held by the stockholder and any Stockholder Affiliate, and whether and the +extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited +to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes +for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate with respect to the Company's securities; +• a description of all agreements, arrangements and understandings between such stockholder or any Stockholder Affiliate and +any other person or persons (including their names) in connection with the proposal of such business by such stockholder; +• any material interest of the stockholder or any Stockholder Affiliate in such business; and +• whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation. +Any +stockholder providing such notice shall promptly provide any other information that the Company may reasonably request. For these purposes, "Stockholder Affiliate" means any person controlling, +directly or indirectly, or acting in concert with, any stockholder making the proposal for action at an annual meeting; any beneficial owner of shares of stock of the Company owned of record or +beneficially by the stockholder making the proposal for action at an annual meeting; and any person controlling, controlled by or under common control with the Stockholder Affiliate. The presiding +officer of the annual meeting may refuse to acknowledge any business not brought before the meeting in compliance with the foregoing procedure. +Q: I share an address with another stockholder, +and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? +A: We have adopted a procedure called "householding," which the SEC has +approved. Under this procedure, we are delivering a single copy of the Notice and, if applicable, this Proxy Statement and the Annual Report to multiple stockholders who share the same address unless +we have received contrary instructions from one or more of the stockholders. This procedure reduces our printing costs, mailing costs and fees. Stockholders who participate in householding will +continue to be able to access and receive separate proxy cards. Upon written or oral request, we will promptly deliver a separate copy of the Notice and, if applicable, this Proxy Statement and the +Annual Report to any stockholder at a shared address to which we delivered a single copy of any of these documents. To receive a separate copy of the Notice and, if applicable, this Proxy Statement or +the Annual Report, please write or call us at the following address and telephone number: +Deckers +Outdoor Corporation +Attn: Corporate Secretary +495-A South Fairview Avenue, +Goleta, California 93117 +(805) 967-7611 +In +addition, if you are currently a stockholder sharing an address with another stockholder and wish to receive only one copy of future proxy materials for your household, please contact us using the +contact information set forth above. Stockholders who hold shares in "street name" may contact their bank, broker, dealer or other nominee to request information about householding. This Proxy +Statement and the Annual Report to Stockholders for the fiscal year ended December 31, 2011, are available at http://www.deckers.com. +8 +Q: Where can I find voting results of the Annual +Meeting? +A: We will announce preliminary voting results with respect to each +proposal at the Annual Meeting. In accordance with SEC rules, final voting results will be published in a Current Report on Form 8-K within four business days following the Annual +Meeting, unless final results are not known at that time in which case preliminary voting results will be published within four business days of the Annual Meeting and final voting results will be +published once they are known by the Company. +Q: Whom should I contact with other +questions? +A: If you have additional questions about this Proxy Statement or the +Annual Meeting or would like additional copies of this Proxy Statement, please contact: Deckers Outdoor Corporation, 495-A South Fairview Avenue, Goleta, California 93117, Attention: +Corporate Secretary, Telephone: (805) 967-7611. +9 +ELECTION OF DIRECTORS +PROPOSAL NO. 1 +Overview +The Company's Bylaws provide for the annual election of directors. The Company's Bylaws also provide that the directors +shall consist of not less than one or more than ten members. The specific number of Board members within this range is established by the Board of Directors and is currently set at ten and will be +reduced to nine effective upon the conclusion of the Annual Meeting. There are currently ten Board members. +At +the Annual Meeting, stockholders will be asked to elect nine directors of the Company to serve until the Company's next annual meeting of stockholders to be held in 2013 and until his +or her successor is elected and qualified. Proxies cannot be voted for a greater number of persons than the number of nominees named. The names and certain information concerning the persons nominated +by the Board of Directors to become directors at the Annual Meeting are set forth below. Each of the proposed nominees currently serves as a member of the Board of Directors. Ruth Owades, one of our +current directors and a member of the Corporate Governance and Nominating Committee, is not standing for re-election as director at the Annual Meeting, and her term of office on the Board +of Directors will end effective upon the conclusion of the Annual Meeting. +Accordingly, +if all nominees for director are elected, then following the Annual Meeting, the Board of Directors will consist of nine members, and a majority of the Board of Directors +and all members of each of its standing committees will continue to be "independent" under applicable regulations as described below. In addition, assuming that John Gibbons is elected to be a +director at the Annual Meeting, he will replace Rex Licklider as the Lead Director of the Board of Directors. +Voting Requirements +The election of directors shall be by the affirmative vote of the holders of a plurality of the shares voting in person +or by proxy at the Annual Meeting. The persons named as proxyholders in the enclosed proxy will vote to elect all nine director nominees named below unless contrary instructions are given in the +proxy. Broker non-votes and proxies marked "withheld" as to one or more of the nominees will result in the respective nominees receiving fewer votes. However, the number of votes otherwise +received by the nominee will not be reduced by such actions. +Although +each of the persons named below has consented to serve as a director if elected, and the Board of Directors has no reason to believe that any of the nominees named below will be +unable to serve as a director, if any nominee withdraws or otherwise becomes unavailable to serve, the Board of Directors may reduce the number of directors fixed by our Bylaws, or the proxies may be +voted for the election of such other person to the office of director as the Board of Directors may recommend in place of the nominee. +Agreements with Directors +None of the directors or nominees for director was selected pursuant to any arrangement or understanding, other than +with the directors of the Company acting within their capacity as such. There are no family relationships among directors, nominees for director or executive officers of the Company. +10 +Director Nominations +The Corporate Governance and Nominating Committee is responsible for identifying and evaluating nominees for election +to the Board of Directors. In addition to the candidates proposed by the Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by stockholders, +provided such recommendations are made in accordance with the procedures set forth in our Bylaws and described above under "How can stockholders nominate a candidate for election as a director." +Stockholder nominations that meet the criteria outlined below will receive the same consideration that the Committee's nominees receive. +Director Qualifications +Directors are responsible for overseeing and monitoring our business consistent with their fiduciary duty to our +stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes, and professional experience. As detailed under "Nominating Procedures and +Criteria" below, the Board of Directors believes that there are both general requirements for services the Board of Directors that are applicable to all directors and other specialized criteria that +should be represented on the Board as a whole, but not necessarily by each director. +The +names of the nominees for director and certain biographical information about them, including public company directorships over the last five years, are set forth below. In addition, +information about the specific qualifications, attributes and skills of each nominee that led to the Board's conclusion that each nominee should serve as a director of the Company is set forth below. +Legal Proceedings with Directors +There are no legal proceedings related to any of the directors or director nominees which must be disclosed pursuant to +Item 401(f) of Regulation S-K. +Qualifications for All Directors +Essential criteria for all candidates considered by the Corporate Governance and Nominating Committee include the +following: +All Director Nominees Exhibit +• Personal and professional integrity +• Good business judgment +• Relevant experience and skills +• Ability to be an effective director in conjunction with the full Board of Directors in collectively serving the +long-term interests of the Company's stockholders +• Commitment to devoting sufficient time and energy to diligently perform their duties as a director +The +Committee considers diversity among other factors in identifying nominees for director, such as personal characteristics including race and gender, as well as diversity in the +experience and skills that contribute to the Board's performance of its responsibilities in the oversight of the Company's business. +11 +Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board of Directors +The Nominating and Corporate Governance Committee believes that the competencies we seek in our directors should +support our Company's strategies for long-term success. Below we identify the key qualifications and skills our directors bring to the Board of Directors that we believe are important in +light of our business and strategic direction. The particular qualifications and skills that the Board of Directors considered in nominating each individual director nominee are included in the +directors' individual biographies below. +Company Strategy +Qualifications, Attributes, Skills and Experience +Build niche brands into global lifestyle leaders +• +Luxury/premium branding +experience +• +Entrepreneurial +Evolve and grow our multi-channel distribution +• +Distribution/logistics +expertise +• +Retail +experience +Pursue new, diverse and sophisticated marketing +• +Sales and +marketing experience +Grow our global business, involving complex financial transactions +• +High level of financial +literacy and experience +• +International +experience +• +Public Company Management +Experience +Innovate based on our industry expertise +• +Industry experience +(footwear, apparel, accessories) +Manage risk appropriately in light of our long-term strategic goals +• +Risk oversight +experience +2012 Nominees for Director +Name +Age +Director +Since +Principal Occupation +Angel R. Martinez +56 +2005 +Chair of the Board, President and Chief Executive Officer of the Company +Rex. A. Licklider +68 +1993 +Chief Executive Officer and Vice Chair of The Sports Club Company +John M. Gibbons(1)(2)(3) +63 +2000 +Independent Consultant +John G. Perenchio(1)(4) +56 +2005 +Owner and Co-Manager of Fearless Records LLC and Fearmore Publishing, LLC +Maureen Conners(1)(4) +65 +2006 +President of Conners Consulting +Karyn O. Barsa(2) +50 +2008 +Chief Executive Officer of Coyuchi, Inc. +Michael F. Devine, III(2) +53 +2011 +Corporate Director +Lauri Shanahan(4) +49 +2011 +Corporate Director, Independent Consultant +James Quinn(1) +60 +2011 +Corporate Director +(1) Current +Member of the Compensation and Management Development Committee +(2) Current +Member of the Audit Committee +(3) Nominee +to become Lead Director +(4) Current +Member of the Corporate Governance and Nominating Committee +12 +Angel R. Martinez +Director Since 2005 +Age 56 +Mr. Martinez +has been President and Chief Executive Officer of the Company since April 2005. In September 2005, Mr. Martinez became a director of the Company and in May 2008, he became +Chair of the Board of Directors. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will remain Chair of the Board of Directors. Mr. Martinez has +also served as a director of Tupperware Brands Corporation (NYSE:TUP) since 1998. +Specific Qualifications, Attributes, Skills and Experience +• Industry Experience— Extensive experience in the footwear +industry, including serving as Chief Executive Officer and Vice Chair of Keen LLC, an outdoor footwear manufacturer. Also served in a variety of positions at Reebok International Ltd. +and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. +• Entrepreneurial— During his tenure at Keen LLC, +successfully established this incipient brand for future growth. +• Sales and Marketing Experience —Served as Executive Vice +President and Chief Marketing Officer of Reebok International Ltd., a global athletic brand that creates and markets sports and lifestyle products. +• International Experience— Held key management roles at Reebok +International, Keen and the Company during periods of international expansion. +• Luxury/Premium Branding Experience —Seven years experience with +the UGG Australia brand, a premier brand in luxury and comfort footwear, handbags, apparel, and cold weather accessories. Acquired the Ralph Lauren Footwear brand, managed as a subsidiary of The +Rockport Co. +• Retail Experience and Distribution/Logistics +Experience— Owned and operated his own retail stores. While President of Rockport, oversaw retail evolution for the brand, including opening over fifty Rockport +brand stores. Involved in management of supply chain and distribution channels during his many years of industry experience. +• Public Company Management Experience— Has served as President +and Chief Executive Officer of the Company for seven years. +• Risk Oversight Experience —Fourteen years experience as a +corporate director with risk oversight responsibilities. +Rex A. Licklider +Director Since 1993 +Age 68 +Mr. Licklider +is director, Vice Chair and Chief Executive Officer of The Sports Club Company (OTC Markets: SCYL), a developer and operator of health and fitness clubs, a company he has been +involved with since 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company since March 2004 and as Co-Chief Executive Officer of The Sports Club +Company from February 2002 to March 2004. +Specific Qualifications, Attributes, Skills and Experience +• Industry Experience —19-year directorship at the +Company. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion. +• Luxury/Premium Branding Experience— Involved in several +different capacities at The Sports Club Company, a company which markets clubs to affluent, health conscious individuals. +13 +• Public Company Management Experience —Served as Chief Executive +Officer for eight years of the Sports Club Company, which was previously listed on the American Stock Exchange. +• High level of financial literacy and experience— Extensive +experience as a Chief Executive Officer and director. In addition to the positions discussed above, from February 1992 to January 1993, Mr. Licklider was Chair of the Board of Directors of +Resurgens Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chair of the Board of Directors and Chief Executive Officer of +Com Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992. +• Risk Oversight Experience— In addition to serving as a director +and executive officer for various companies, has served as the Lead Director since 2008. +John M. Gibbons +Director Since 2000 +Age 63 +Mr. Gibbons +is an independent consultant. He has also served as a director and Chair of the Audit Committee of National Technical Systems, Corp., a provider of integrated testing, +certification, quality registration and systems evaluation services, since September 2003. +Specific Qualifications, Attributes, Skills and Experience +• High level of financial literacy and experience— Currently +serves as Chair of the Company's Audit Committee. In addition to the positions listed above, from June 2000 to April 2004, Mr. Gibbons was Vice Chair of TMC Communications, Inc., a long +distance, data and internet services provider, and was its Chief Executive Officer from June 2001 to April 2003. Mr. Gibbons was also Vice Chair of Assisted Living Corporation, a national +provider of assisted living services, from March 2000 to December 2001. +• Risk Oversight Experience —Extensive experience in risk +oversight as Chair of the Company's Audit Committee and Chair of the Audit Committee of National Technical Systems, Corp. +• Industry Experience —12-year directorship at the +Company. +• Public Company Management Experience —Previously employed by +The Sports Club Company, a developer and operator of health and fitness clubs which was previously listed on the American Stock Exchange, where he was Chief Executive Officer and a director from July +1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion. +• Luxury/Premium Branding Experience —Involved in several +different capacities at The Sports Club Company, a company which markets clubs to affluent, health conscious individuals. +Karyn O. Barsa +Director Since 2008 +Age 50 +Ms. Barsa +has served as Chief Executive Officer of Coyuchi, Inc., a maker of organic cotton bedding, bath and baby products, since April 2009. From February 2008 to April 2009, she +served as President and Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. She serves on the boards of +Coyuchi, Inc. and The Directors' Organization Ltd., and the advisory board of Embark Stores, Inc. +14 +Specific Qualifications, Attributes, Skills and Experience +• High Level of Financial Literacy and Experience— In addition to +the Chief Executive Officer and director positions discussed above, served as Chief Financial Officer of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. Also holds a BA +in Economics from Connecticut College and an MBA from the University of Southern California. +• Risk Oversight Experience— Serves as a member of the Audit +Committee and serves on the boards of Coyuchi, Inc. and The Directors' Organization Ltd. +• Luxury/Premium Branding Experience— In addition to serving as +Chief Executive Officer of Coyuchi, Inc. was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer between 1999 and 2001. +• Distribution/Logistics Experience— As Chief Executive Officer +of Coyuchi, Inc., gained extensive experience in management of supply chain and distribution issues. +• Entrepreneurial —Has served in a variety of leadership +positions for several companies during periods of expansion, including serving as Chief Executive Officer of Embark Stores, Inc., a start-up pet supplies retailer between May 2007 +and February 2008. +Maureen Conners +Director Since 2006 +Age 65 +Ms. Conners +is President of Conners Consulting, which she founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, +Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new +business development, and global brand building. +Specific Qualifications, Attributes, Skills and Experience +• Sales and Marketing Experience —Prior to founding Conners +Consulting, held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to that, she served as Director +of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Also has an MBA from the Wharton School of the University of Pennsylvania. +• Industry and Luxury/Premium Branding Experience— Experience +working with a myriad of footwear and apparel companies, including Ralph Lauren Footwear, Rockport and Levi Strauss. +• International Experience— Worked for three multi-billion dollar +global companies, Gillette, Levi Strauss and Mattel. +• Entrepreneurial— Experience owning and running her own business +as well as working with various startup companies. +• Risk Oversight Experience— Significant profit and loss +responsibility at a number of global companies. +Michael F. Devine, III +Director Since March, 2011 +Age 53 +Mr. Devine +recently retired as Senior Vice President and Chief Financial Officer from Coach, Inc. (NYSE: COH) in 2011. Currently Mr. Devine serves as a member of the Board of +Directors and of the Audit Committee of NutriSystem, Inc. (NASDAQ: NTRI) as well as a member of the Board of Directors and Chair of the Audit Committee of Express, Inc. (NYSE: EXPR). +From 2004 to 2007, Mr. Devine served as member of the Board of Directors and Chair of the Audit Committee of Educate +15 +(formerly +NASDAQ: EEEE), a leading K-12 education service company with solutions such as Sylvan Learning Center. +Specific Qualifications, Attributes, Skills and Experience +• High Level of Financial Literacy and Experience— In addition to +Mr. Devine's experiences at Coach, Inc. and as a director, prior to joining Coach, served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February +2000 until November 2001. From 1997 to 2000, was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, was Chief Financial Officer at +Industrial System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. Holds a +Bachelor of Science degree in Finance and Marketing from Boston College and an MBA in Finance from the Wharton School of the University of Pennsylvania. +• Public Company Management Experience— Experience at +Coach, Inc. involved managing a public company during a period of high growth. +• Risk Oversight Experience —Eight years' experience as a +corporate director with risk oversight responsibilities. +• Luxury/Premium Branding Experience— Coach, Inc. is a +leading marketer of modern classic American accessories. +• Industry Experience —In addition to experience at +Coach, Inc., has served as a director of Express Inc., a nationally recognized specialty apparel and accessory retailer offering both women's and men's merchandise. +• Distribution/Logistics Experience and Retail +Experience— Involved in supply chain and wholesale and retail distribution channels while at Coach, Inc. +• International Experience— Involved in a global brand with +worldwide operations while at Coach, Inc. +John G. Perenchio +Director Since 2005 +Age 56 +Mr. Perenchio +is a private investor. Beginning in 1999, he has held controlling interests in and is the principal manager of various music industry companies. Currently he holds controlling +interests in and co-manages Fearless Records LLC, an independent rock music label distributed by Sony-BMG, and Fearmore Publishing, LLC, a music publishing +company administered by Warner/Chappell Music, Inc. Since late 2009, Mr. Perenchio has been involved in Club Ride Apparel, LLC, a start-up sports apparel company in +which he owns a controlling interest. +Specific Qualifications, Attributes, Skills and Experience +• Entrepreneurial— Involved in the formation of a myriad of +different successful business enterprises, from music to apparel. From 1990 to 2003, served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company +specializing in the entertainment, media and real estate industries. +• Industry Experience— Experience in apparel and has been a +director of the Company for seven years. +• Sales and Marketing Experience— Experience with designing and +implementing marketing and sales plans in the music industry, internet retail, real estate industry and the sports apparel industry. +16 +• Risk Oversight Experience— In addition to the director and +management experiences discussed above, from 1984 to 1990, served as in-house counsel at Triad Artists, Inc., one of the then premier talent agencies in the world, and prior to +that, from 1982 to 1984, he practiced law as an attorney in California. +• Public Company Management Experience— From 1992 to 2007, +Mr. Perenchio was a director of Univision Communications Inc., the leading Spanish-language media company in the United States. +James Quinn +Director Since September, 2011 +Age 60 +Mr. Quinn +retired as president of Tiffany & Co. [NYSE: TIF] effective January 31, 2012. He was named to Tiffany's board of directors in 1995 and +served until 2008. Mr. Quinn also currently serves as a director of Mutual of America Capital Management, Inc. +Specific Qualifications, Attributes, Skills and Experience +• Public Company Management Experience— As the former president +of Tiffany & Co., oversaw retail sales in Tiffany stores in more than 50 countries, with responsibility for the company's global expansion strategy, including the significant Tiffany +presence established throughout Asia. Joined Tiffany in 1986 and held a series of significant positions including Vice Chairman prior to his appointment as president in 2003. +• Luxury/Premium Branding Experience— Tiffany & Co. +is a jeweler and specialty retailer whose principal merchandise offering is fine jewelry. +• Distribution/Logistics Experience and Retail Experience —At +Tiffany & Co., involved in supply chain and retail and other distribution channels. +• International Experience— As discussed above, while at +Tiffany & Co., involved in a global brand with worldwide operations. +• Risk Oversight Experience —Over ten years' experience as a +corporate director with risk oversight responsibilities. +Lauri Shanahan +Director Since September, 2011 +Age 49 +Ms. Shanahan +is a seasoned retail executive with over 19 years of senior level experience across global, multi-channel, multi-brand enterprises and other specialty retail companies. +Ms. Shanahan is also on the board of directors of Charlotte Russe Holding, Inc. a specialty retailer of apparel and accessories with over 500 stores. In addition, Ms. Shanahan is +a principal of Maroon Peak Advisors, which provides a broad range of advisory services in the retail and consumer products sector. +Specific Qualifications, Attributes, Skills and Experience +• Public Company Management Experience— Joined The +Gap Inc. [NYSE: GPS] in 1992 and served in numerous leadership roles including Chief Administrative Officer, Chief Legal Officer and corporate secretary. +• Distribution/Logistics Experience and Retail +Experience— Involved in retail and other distribution channels and supply chain while at The Gap Inc. and as a consultant. +• International Experience— Involved with global brands with +worldwide operations while at The Gap Inc.. +17 +• Industry Experience and Luxury/Premium Branding +Experience— Gained experience in footwear, apparel and accessories at The Gap Inc., Charlotte Russe and through consulting business. Gap Inc. is a +leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta +brands. +• Risk Oversight Experience— In addition to her other leadership +roles at The Gap Inc., Ms. Shanahan served as Chief Compliance Officer where she oversaw the global corporate risk committee as well as the governance and compliance organization. +Summary of Qualifications of 2012 Nominees for Director +The table below includes the specific qualifications, attributes, skills and experience of each director that led the +Board of Directors to conclude that the director is qualified to serve on the Board of Directors. We look to each director to be knowledgeable in these areas, an "X" in the chart below indicates that +the item is a specific qualification, attribute, skill or experience that the director brings to the Board of Directors. The lack of an "X" for a particular item does not mean +that the director does not possess that qualification, attribute, skill or experience. +Angel +Martinez +Rex +Licklider +John +Gibbons +Karyn +Barsa +Maureen +Conners +Mike +Devine +John +Perenchio +James +Quinn +Lauri +Shanahan +Luxury/Premium Branding Experience +X +X +X +X +X +X +X +X +Entrepreneurial +X +X +X +X +X +X +Distribution/Logistics Experience +X +X +X +X +X +Retail Experience +X +X +X +X +Sales and Marketing Experience +X +X +X +High Level of Financial Literacy and Experience +X +X +X +X +International Experience +X +X +X +X +X +Public Company Management Experience +X +X +X +X +X +X +X +Industry Experience (footwear, apparel, accessories) +X +X +X +X +X +X +X +Risk Oversight Experience +X +X +X +X +X +X +X +X +X +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +18 +CORPORATE GOVERNANCE +Corporate Governance Principles +Pursuant to Delaware law and the Company's Bylaws, the Company's business, property and affairs are managed under the +direction of the Board of Directors. Thus, the Board of Directors is the ultimate decision-making body of the Company except with respect to those matters reserved to the stockholders. +The +Board of Directors selects the senior management team, which is charged with the day-to-day operations of the Company's business. Members of the Board of +Directors are kept informed of the Company's business through discussions with the Chief Executive Officer and other senior management personnel, by reviewing materials requested by them or otherwise +provided to them and by participating in meetings of the Board of Directors and its committees. Having selected the senior management team, the Board of Directors acts as an advisor and counselor to +senior management, monitors its performance and proposes or makes changes to the senior management team when it deems necessary or appropriate. +Director Independence +The Board of Directors affirmatively determines the independence of each director and nominee for election as a +director in accordance with guidelines it has adopted, which include all elements of independence set forth in Listing Rule 5605(a)(2) of the NASDAQ Stock Market LLC ("Nasdaq") and +applicable rules of the SEC. The guidelines for director independence are set forth in our Corporate Governance Guidelines and are posted on our website at www.deckers.com . These guidelines help ensure +that the Board of Directors and its committees are independent from management and that the interests of +the Board of Directors and management align with the interests of the stockholders. Based on these standards, the Board of Directors has determined that each of our directors, other than +Mr. Martinez, is independent (including, with respect to Audit Committee members, the heightened independence criteria applicable to such committee members under NASDAQ and SEC independence +standards). +Board of Directors Meetings +The Board of Directors held 6 meetings during the year ended December 31, 2011. For the fiscal year ended +December 31, 2011, each of the directors attended at least 75% of the aggregate number of meetings of the Board of Directors and 100% of the aggregate number of meetings of the committees on +which he or she served. Time is scheduled for our independent directors to meet in an executive session at every Board meeting. As Lead Director, Mr. Licklider presided at these executive +sessions. +The +Company's Corporate Governance Guidelines states that directors are expected to attend the Company's annual meeting of stockholders. Six members of the then Board of Directors +attended the Company's 2011 Annual Meeting of Stockholders. +Committees of the Board of Directors +The Board of Directors has three standing committees: an Audit Committee, a Compensation and Management Development +Committee and a Corporate Governance and Nominating Committee. The Board of Directors has determined that each of the directors serving on each of these three committees is "independent" as that term +is defined under Nasdaq Listing +Rule 5605(a)(2) and applicable rules of the SEC, including the heightened independence criteria applicable to Audit Committee members. +19 +At +the date this Proxy Statement went to press, membership of the committees was as listed below. Ms. Owades, one of our current directors and a member of the Corporate Governance +and Nominating Committee, is not standing for re-election as director at the Annual Meeting. +Audit +Compensation and Management +Development +Corporate Governance and +Nominating +John M. Gibbons (Chair) +John G. Perenchio (Chair) +Maureen Conners (Chair) +Karyn O. Barsa +Maureen Conners +John G. Perenchio +Michael F. Devine, III +John M. Gibbons +Lauri Shanahan +James Quinn +Ruth Owades +Audit Committee +The Audit Committee oversees (i) management's conduct of, and the integrity of, the Company's financial +reporting to any governmental or regulatory body, stockholders, public and any other uses of Company financial reports, (ii) the Company's systems of internal controls and procedures over +financial reporting and disclosure, (iii) the qualifications, engagement, compensation, independence and performance of the independent registered public accounting firm that shall audit the +annual financial statements of the Company and review the quarterly financial statements and any other registered public accounting firm engaged to prepare or issue an audit report or to perform other +audit, review or attest services for the Company, (iv) the Company's legal and regulatory compliance, (v) the application of the Company's related person transaction policy as +established by the Board of Directors, and (vi) the applications of the Company's code of business conduct and ethics as established by management and the Board of Directors. The committee held +8 meetings during 2011. At the date this Proxy Statement went to press, Mr. Gibbons was Chair of the Audit Committee and the Committee was comprised of Messrs. Gibbons and Devine and +Ms. Barsa. The Board has determined that Mr. Gibbons qualifies as an "audit committee financial expert" as defined under the rules of the SEC. All of the members of the Audit Committee +meet the independence and experience requirements of the Nasdaq rules and the independence requirements of the SEC. The Audit Committee operates under a formal charter adopted by the Board of +Directors, a copy of which is available on our website at www.deckers.com . +Compensation and Management Development Committee +The Compensation and Management Development Committee (i) reviews and approves corporate goals and objectives +relevant to compensation of the executive officers, (ii) evaluates the performance of the executive officers in light of those goals and objectives, (iii) determines and approves the +compensation level of the executive officers based on this evaluation, (iv) makes recommendations to the Board of Directors with respect to incentive-compensation plans including equity-based +plans, (v) oversees and approves the management continuity planning process, and (vi) reviews and evaluates the succession plans relating to the executive officers. The Compensation and +Management Development Committee also reviews and recommends to the Board of Directors any new compensation or retirement plans and administers the Company's 1993 Employee Stock Incentive Plan (the +"1993 Plan") and the Company's 2006 Equity Incentive Plan (the "2006 Plan"). The Compensation and Management Development Committee held 8 meetings during 2011. At the date this Proxy Statement went to +press, Mr. Perenchio was Chair of the Compensation and Management Development Committee and the Committee was comprised of Messrs. Perenchio, Gibbons and Quinn and Ms. Conners. +All of the members of the Compensation and Management Development Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Compensation and Management +Development Committee operates under a formal charter adopted by the Board of Directors, a copy of which is available on our website at www.deckers.com . +20 +Corporate Governance and Nominating Committee +The Corporate Governance and Nominating Committee (i) develops and recommends to the Board of Directors a set of +Corporate Governance Guidelines applicable to the Company, (ii) recommends the director nominees to be selected by the Board of Directors for the next annual meeting of stockholders, +(iii) identifies individuals qualified to become directors, consistent with criteria specified in the Corporate Governance Guidelines, (iv) recommends to the directors membership of the +Committees of the Board of Directors, and (v) oversees the evaluation of the Board of Directors and Committees of the Board of Directors. The Corporate Governance and Nominating Committee held +5 meetings during 2011 and communicated as frequently throughout the year as was necessary to fulfill its duties. At the date this Proxy Statement went to press, Ms. Conners was Chair of the +Corporate Governance and Nominating Committee and the Committee was comprised of Mr. Perenchio, Ms. Conners, Ms. Owades and Ms. Shanahan. All of the members of the +Corporate Governance and Nominating Committee meet the independence requirements of all applicable Nasdaq and SEC rules and regulations. The Corporate Governance and Nominating Committee operates +under +a formal charter adopted by the Board of Directors, a copy of which is available on our website at www.deckers.com . +Nominating Procedures and Criteria +Among its functions, the Corporate Governance and Nominating Committee considers and approves nominees for election to +the Board of Directors. In addition to the candidates proposed by the Board of Directors or identified by the Committee, the Committee considers candidates for director proposed by our stockholders, +provided such recommendations are made in accordance with the procedures set forth in our Bylaws and described above under "How can stockholders nominate a candidate for election as a director." +Stockholder nominations that meet the criteria outlined below will receive the same consideration that the committee's nominees receive. +Essential +criteria for all candidates considered by the Corporate Governance and Nominating Committee are discussed above under "Qualifications for All Directors." In evaluating +candidates for certain Board positions, the Committee also evaluates additional criteria, as discussed above under "Specific Qualifications, Attributes, Skills and Experience to be Represented on the +Board of Directors." +In +selecting nominees for the Board of Directors, the committee evaluates the general and specialized criteria set forth above, identifying the relevant specialized criteria prior to +commencement of the recruitment process, considers previous performance if the candidate is a candidate for re-election, and considers the candidate's ability to contribute to the success +of the Company. In evaluating an existing director for re-election, the committee considers the existing director's Board and committee meeting attendance and performance, the length of +service on the Board of Directors, experience, skills and contributions brought to the Board of Directors, and independence. +The +Board of Directors' nominees for the Annual Meeting have been recommended by the Corporate Governance and Nominating Committee, as well as the full Board of Directors. +As +of the date this Proxy Statement went to press, our stockholders had not proposed any candidates for election at the Annual Meeting. +Corporate Governance Guidelines +The Board of Directors has adopted Corporate Governance Guidelines that set forth the primary framework of governance +principles applicable to the Company. The Corporate Governance Guidelines outline the general principles regarding the role and functions of the Board of Directors including director qualifications; +director independence; Board meetings; Board committees; the Chair and Lead +21 +Director +of the Board of Directors; director access to officers, employees, and independent advisers; director compensation; director orientation and continuing education; adopting of stockholder +rights plans; establishment of evaluation of the Chief Executive Officer and management succession; annual Board self-evaluations; ethical expectations; and monitoring reports of +irregularities. The complete copy of the Company's current Corporate Governance Guidelines is available on our website at www.deckers.com . +Management Succession +Pursuant to our Corporate Governance Guidelines, the Compensation and Management Development Committee provides an +annual report to the Board of Directors on emergency and expected Chief Executive Officer succession planning. The Board of Directors works with the Compensation Committee to nominate and evaluate +potential successors to the Chief Executive Officer. The Chief Executive Officer provides the Compensation Committee with his input as to potential successors. +Board Leadership Structure and Lead Director +We have employed a leadership structure utilizing a combined Chair and Chief Executive Officer for many years and the +Board of Directors believes that this leadership +structure has been effective. The combined Chair and Chief Executive Officer provides a single leader for us who is seen by our employees, customers, business partners and stockholders as providing +strong leadership. Furthermore, the Board of Directors believes this structure facilitates communication between the Board of Directors and our management. In light of this combined office, the Board +of Directors has implemented various counterbalancing governance structures including a Lead Director, an eight-ninths independent board, independent committees of the Board of Directors, and +established governance guidelines. +In +March 2008, the Board of Directors established the position of Lead Director and elected Mr. Licklider to serve in that position, effective with the 2008 Annual Meeting, for a +two-year term. In 2010, the Board of Directors again elected Mr. Licklider as Lead Director for an additional two-year term, subject to his earlier replacement, +retirement or resignation. Effective upon the conclusion of the Annual Meeting, John Gibbons, a current director, will replace Mr. Licklider as the Lead Director, for a two-year +term. Pursuant to our Corporate Governance Guidelines, the Lead Director is an independent director who is selected for a two-year term by the independent directors on the Board of +Directors. The Lead Director's responsibilities include (i) coordinating the scheduling and preparation of agendas for the executive sessions of the Board and other meetings of the Board in the +absence of the Chair of the Board, (ii) chairing executive sessions of the Board and other meetings of the Board in the absence of the Chair of the Board, (iii) approving information +sent to the Board, (iv) serving as a liaison between the Chair of the Board and the other independent directors, (v) approving the meeting agendas for the Board and approving the meeting +schedules of the Board to assure that there is sufficient time for discussion of all agenda items, and (vi) if requested by major stockholders, ensuring that he or she will be available for +consultation and direct communication with such major stockholders. The Lead Director has the authority to call meetings of independent directors. +Board Role in Risk Oversight +While risk management is primarily the responsibility of our management, the Board of Directors is responsible for the +overall supervision of our risk management activities. The Board of Directors delegates many of these functions to the Audit Committee. Under its charter, the Audit Committee is responsible for: +(i) reviewing and discussing with management, the highest ranking manager of internal audit and the independent registered public accounting firm the Company's financial risk exposures and +assessing the policies and processes management has implemented to monitor and control such +22 +exposure; +(ii) assisting the Board in fulfilling its oversight responsibilities regarding our policies and processes with respect to risk assessment and risk management, including any +significant non-financial risk exposures; and (iii) reviewing our annual disclosures concerning the role of the Board in the risk oversight of the Company, such as how the Board +administers its oversight function. The Audit Committee also oversees our internal audit function. In addition to the Audit Committee's work in overseeing risk management, our full Board of Directors +regularly engages in discussions of the most significant risks that we face and how these risks are being managed, and the Board receives reports on risk management from the Chair of the Audit +Committee. +Our +legal and internal audit executives report directly to the Audit Committee regarding material risks to our business, among other matters, and the Audit Committee meets in executive +sessions with the internal audit executive and with representatives of our independent registered public accounting firm. The Chair of the Audit Committee reports to the full Board of Directors +regarding material risks as deemed appropriate. Every Board meeting agenda also includes a time to discuss risk management updates. In addition to the responsibilities undertaken by the Audit +Committee, the other Board committees have oversight of specific risk areas, consistent with the committees' charters and responsibilities. For example, the Compensation and Management Development +Committee oversees the design of our executive compensation program so as to mitigate compensation-related risk and our Corporate Governance and Nominating Committee develops our Corporate Governance +Guidelines to establish appropriate governance practices. +Communications with Directors +Stockholders may communicate with the Chair of the Audit Committee, Corporate Governance and Nominating Committee, or +Compensation and Management Development Committee, or with our independent directors as a group, by writing to any such person or group c/o the Corporate Secretary, at the Company's offices at +495-A South Fairview Avenue, Goleta, California 93117. +Communications +are distributed to the Board of Directors, or to any individual director, depending on the facts and circumstances described in the communication. In that regard, the +Board of Directors has requested that certain items that are unrelated to the duties and responsibilities of the Board of Directors should be excluded, including the following: junk mail and mass +mailings; product complaints; product inquiries; new product suggestions; resumes and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is +unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, with the provision that any communication that is not distributed will be made available to any independent +director upon request. +Code of Ethics +The Company has adopted a Code of Business Conduct and Ethics to help its officers, directors and other employees +comply with the law and maintain the highest standards of ethical conduct. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of the Company consistent +with the highest standards of business ethics, and is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated +thereunder. All of the Company's officers, directors and employees must carry out their duties in accordance with the policies set forth in the Code of Business Conduct and Ethics and with applicable +laws and regulations. To the extent required by law, any amendments to, or waivers from, any provision of the code will be promptly disclosed publicly on our corporate website. The code is available +on our website at www.deckers.com . +23 +Compensation and Management Development Committee Interlocks and Insider Participation +As of the date of this Proxy Statement, the members of the Compensation and Management Development Committee consisted +of Messrs. Perenchio, Gibbons and Quinn and Ms. Conners, none of whom was an officer or employee of the Company or any of its subsidiaries during fiscal year 2011 or is a former officer +or employee of the Company or any of its subsidiaries. None of these directors had any relationship with the Company during 2011 requiring disclosure under Item 404 of +Regulation S-K. None of our executive officers currently serves, or in the past year has served, as a member of the Board of Directors or compensation committee of any entity that +has an executive officer serving on the Board of Directors or Compensation and Management Development Committee. +EXECUTIVE OFFICERS +Each executive officer of the Company serves at the discretion of the Board of Directors. Biographical information for +the executive officers of the Company as of the date this Proxy Statement went to press is set forth below. There are no family relationships between any executive officer and any other executive +officer or director. None of our executive officers were selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as +such. There are no legal proceedings related to any of the executive officers which must be disclosed pursuant to Item 401(f) of Regulation S-K. +Executive Officer +Age +Position +Angel R. Martinez +56 +Chair of the Board of Directors, President and Chief Executive Officer +Thomas A. George +56 +Chief Financial Officer +Zohar Ziv +59 +Chief Operating Officer +Constance X. Rishwain +53 +President of the UGG® brand +Peter K. Worley +51 +President, Asia Pacific +Stephen Murray +52 +President, EMEA +The +biographical summary for Mr. Martinez is presented earlier under the heading "2012 Nominees for Director." +Thomas A. George , age 56, has been our Chief Financial Officer since September 2009. Mr. George has over thirty years of experience +in corporate finance and accounting, having served in a number of senior level positions with both public and private companies. Most recently, from February 2005 to September 2009, Mr. George +was Chief Financial Officer of Ophthonix, Inc., a private technology company. Prior to Ophthonix, from October 1997 through February 2005 Mr. George was the Chief Financial Officer of +publicly held Oakley, Inc., now a division of Luxottica Group S.p.A. (NYSE:LUX), a global consumer products brand with wholesale and retail distribution of multiple product categories +including sunglasses and prescription eyewear, apparel, footwear, watches and electronics. Prior to +Oakley, from December 1987 through October 1997 Mr. George was the Senior Vice President and Chief Financial Officer of REMEC, Inc., a public technology company. Mr. George has +also served as Corporate Controller and Manager of Financial Planning for other public technology firms. He began his career at Coopers & Lybrand where he became a Certified Public Accountant. +He received a BS in Business Administration from the University of Southern California. +Zohar Ziv , age 59, has been our Chief Operating Officer since December 2007 after serving as Chief Financial Officer and Executive Vice +President, Finance and Administration since March 2006. Mr. Ziv also served as interim Chief Financial Officer after his promotion to Chief Operating Officer from December 2007 to April 2008. +Previously, from February 2004 to December 2005, Mr. Ziv was +24 +Chief +Financial Officer with EMAK Worldwide, Inc. (NASDAQ: EMAK), a global marketing services firm. Prior to that, Mr. Ziv was Chief Financial Officer of Stravina Operating +Company, LLC, a supplier of personalized novelty items in North America, from June 2002 to February 2004. +Constance X. Rishwain , age 53, has been the President of UGG Australia since December 2002. She also served as President of Simple from +December 2002 to December 2009. Prior to her promotion to President in December 2002, she served as the Vice President, Brand Manager of UGG since April 1999 and Vice President, Brand Manager of +Simple since January 2001. Ms. Rishwain held the positions of Vice President of Domestic Sales for Teva, UGG and Simple from June 1999 to December 1999, Vice President of +Sales—Western Division for Teva, UGG and Simple from December 1997 to June 1999 and Vice President Merchandising for Teva, UGG and Simple from January 1995 to December 1997. Before joining +us in January 1995, Ms. Rishwain held the position of Vice President of Merchandising and Marketing for Impo International Shoe Company from 1988 to 1994 and worked for Nine West +Group Inc. from 1984 to 1988 in several capacities, including Vice President Merchandising of Nine West retail division. +Peter K. Worley , age 51, was made President of Deckers Asia Pacific effective as of January 1, 2012. From March 2006 to December +2011, Mr. Worley served as President of Teva. From October 2005 to March 2006, Mr. Worley served as Vice President of US Sales with K-Swiss, Inc. From May 1996 to +October 2005, Mr. Worley was Vice President of Product Design and Development with K-Swiss. From 1991 to 1996, and from 1986 to 1989, Mr. Worley held various managerial +positions with Reebok International Ltd. +Stephen Murray , age 52, joined the Company as President of Europe, Middle East and Africa (EMEA) in May 2011. +Prior to joining the Company, Mr. Murray served as Global President of Urban Outfitters Inc. (NASDAQ: URBN) from April 2010 to May 2011. Prior to Urban Outfitters Mr. Murray, was +at VF Corporation, where he served as President, VF Action Sports Coalition since February 2009, +overseeing the Vans and Reef brands. Prior to assuming that role, Mr. Murray was President of VF's Vans brand from 2004 to 2009. Mr. Murray had been the Chief Marketing Officer for +Vans, Inc. from 2002 to 2004 and Senior Vice President, International from 1998 to 2002. Prior to joining Vans, Inc., Mr. Murray held various leadership roles, including Vice +President of Global Apparel in the U.S. and abroad for Reebok International, Ltd. from 1991 to 1998. Mr. Murray holds a BA in Business Studies from Middlesex University, England. +25 +COMPENSATION DISCUSSION AND ANALYSIS +The Compensation and Management Development Committee, which we refer to as the Committee for purposes of this +Compensation Discussion and Analysis, is responsible for the compensation of our Named Executive Officers (defined below). In this section we discuss and analyze the compensation of our principal +executive and financial officers and our three other most highly compensated executive officers, which we refer to as the "Named Executive Officers," for the fiscal year ended December 31, +2011. This section is divided into the following five parts: +• Executive Summary +• Compensation Philosophy and Objectives +• Compensation Consultant and Market Comparisons +• 2011 Executive Compensation Elements +• Other Compensation Considerations +Our +Named Executive Officers for 2011 were the following: +• Mr. Angel R. Martinez—Chair of the Board of Directors, President and Chief Executive Officer +• Mr. Thomas A. George—Chief Financial Officer +• Mr. Zohar Ziv—Chief Operating Officer +• Ms. Constance X. Rishwain—President of the UGG brand +• Mr. Peter K. Worley—President of the Teva brand during fiscal 2011. Effective January 1, 2012, +Mr. Worley assumed the position of President of Deckers Asia Pacific. +Executive Summary +The 2011 Fiscal Year in Review +Fiscal 2011 was another record year at the Company, with strong financial performance and the successful implementation +of several key strategic efforts. Highlights of the year include: +• Our three- and five-year total returns to stockholders were 61.3% and 55.6%, respectively; +• Our net sales increased 37.6% to a record $1.377 billion, including international sales growth of 82.4% to +$432.2 million; +• Our diluted earnings per share increased 25.8% and reached a record level of $5.07 per share; +• We ended the year with a cash and cash equivalents balance of $263.6 million; +• We acquired the Sanuk brand in July 2011. This brand brings with it a very passionate consumer base and lends some +diversification to our business in terms of distribution, seasonality and consumers; +• We continued to evolve and grow our multi-channel distribution strategy to support our broader, more extensive product +lines; +• We converted to a wholesale subsidiary model in our two largest international markets, the UK for our UGG and Teva brands +and Benelux for the UGG brand; +• We embarked on our most aggressive expansion yet, opening 18 new stores across five countries: Japan, China, the UK, +Canada and the US; +26 +• We continued to enhance our eCommerce capabilities through additional investments in our websites, which we believe +translated into record sales, unique visits and online transactions. We also launched sites in the UK, Netherlands, France, Japan and Canada; +• We continued to extend successfully into new product offering that are attracting new consumers to our brands, including +our UGG for Men campaign and a larger selection of closed-toe footwear for our Teva brand; and +• We made critical investments to emphasize and aggressively pursue new, diverse, and more sophisticated marketing to both +reach prospective consumers and engage key existing consumers with our new categories of products. +As +demonstrated by the charts below, these achievements represent the continuation of a strong growth trend over the past five fiscal years. We have both steadily and significantly +increased our revenues and diluted earnings per share, which has resulted in annual average stockholder returns over five years of 55.6%. +Total Annual Net Sales +Annual Diluted +Earnings Per Share +We Pay for Performance +Our executive compensation program is designed to pay for performance. Our fiscal 2011 financial performance along with +the individual performance of our executive officers, served as key factors in determining compensation for 2011, including as follows: +• Annual cash incentive plan awards are based on a combination of diluted earnings per share targets, and individual +financial and non-financial performance goals tailored to each executive's role. Examples of these individual performance targets include annual net sales, inventory turn, operating +expenses, return on capital, brand contribution and backlog. +• Annual equity incentive plan awards are based on one-year diluted earnings per share targets. +• Long-term equity awards are based on annual revenue and diluted earnings per share targets over a +four-year period and are designed to reward the achievement of exceptional performance. +We +believe that these metrics provide for a balanced approach to measuring annual and long-term company performance and are designed to support the company's strategic +objectives. +Furthermore, +our executive compensation mix is heavily weighted toward performance-based compensation, and limits guaranteed annual pay. For example, as illustrated in the chart below, +the base salary and all other compensation of our Chief Executive Officer is only approximately 10% of his 2011 compensation and approximately 90% is at-risk and dependent on performance, +based on the +27 +amounts +disclosed in the Summary Compensation Table and assuming achievement of the highest level of performance under the long-term equity awards granted in 2011. At the same time, we +review annually the guaranteed pay and establish appropriate performance targets so as to mitigate our compensation-related risk. +CEO's 2011 Guaranteed Pay vs. At-Risk Pay +Recent Changes to our Compensation Practices +Recent +changes to our compensation practices to further align the interests of our Named Executive Officers with those of our stockholders, include: +• Eliminating excise tax gross-ups as a result of termination following a change of control from the Change of +Control and Severance Agreements. +• Adopting stock ownership guidelines for our Named Executive Officers in 2011 and for our directors in 2010. +• Adding a Clawback Policy provision to our annual equity awards granted in 2011 and 2012 subjecting these awards to a +Clawback Policy to be adopted by the Company following adoption of the relevant rules by the SEC. +We Have Adopted Other Compensation Practices that Benefit our Stockholders +• Annual cash incentive awards are only earned if significant financial and non-financial performance levels are +achieved. +• If earned, our annual equity awards become fully vested after 3 years, to encourage retention of key executives. +• If earned, based on aspirational long-term Company financial goals, our long-term equity incentive +awards fully vest over 5 years (for our Level 1 awards), 10 years (for our Level 2 awards) and 4 years (for our Level 3 awards) after initial grant, providing +additional retentive qualities. +• Our insider trading policy prohibits our directors, Named Executive Officers, and other key executives from hedging the +economic interest in the Company securities that they hold and from engaging in speculative transactions with respect to our stock, from holding Company securities in margin accounts, from short +sales, and from using stock as collateral for a loan. +• Generally, we do not provide our executives benefits or perquisites that are not provided to all employees. +28 +Compensation Philosophy and Objectives +At the direction of the Board of Directors, the Committee endeavors to ensure that the compensation programs for our +executive officers are competitive and consistent with market conditions in order to attract and retain key executives critical to the Company's long-term success. When reviewing and +approving our executive compensation program, the Committee is guided by the following four principles: +• To attract key executives with the proper background and experience required for the future growth of the Company +• To align the interests of our executives with our stockholders by tying total compensation to our overall financial +performance and the creation of long-term stockholder value +• To provide a significant proportion of potential total compensation through variable, performance-based components, which +can increase or decrease to reflect achievement of pre-established corporate and individual goals +• To provide incentives for achieving both short-term and long-term corporate goals +The +Committee takes into account various qualitative and quantitative indicators of corporate and individual performance in determining the level and structure of compensation for the +Named Executive Officers, as well as other executive officers. The Committee considers such corporate performance measures as net sales, operating expenses, diluted earnings per share and other +similar quantitative measures. The Committee also appreciates the importance of achievements that may be difficult to quantify, and accordingly recognizes qualitative factors, such as successful +supervision of major corporate projects, demonstrated leadership ability and contributions to industry and community development. For 2011, the most important qualitative factor in determining +incentive compensation +awards to the Named Executive Officers was the Committee's assessments of their contributions to increasing stockholders' value by establishing and implementing a strategy for long-term +success, including our expansion internationally, implementing our transition to an international wholesale model in certain markets, and increasing our number of retail stores, expanding our product +categories, and making critical investments in marketing. +The +Committee also evaluates the total compensation of the Named Executive Officers and other executives in light of information regarding the compensation practices and corporate +financial performance of similar companies in the Company's industry. The Committee targets a specific percentile range of the peer company data in determining compensation for executive officers as +discussed in more detail below. +29 +Compensation Consultant and Market Comparisons +Compensation Consultant +The Committee receives assessments and advice regarding the Company's compensation practices from its independent +compensation consultant, Frederic W. Cook & Co., Inc. (FWC). The Committee believes that the use of an independent consultant provides additional assurance that our executive +compensation programs are reasonable and consistent with our objectives. +The +consultant was retained by and reports directly to the Committee, and provides information on competitive practices and trends in our industry and makes recommendations regarding the +design of our compensation program. Our management did not engage FWC in any other capacity for 2011 and +does not direct or oversee the retention or activities of FWC with respect to our executive compensation program. Furthermore, management did not recommend the engagement of FWC. +Market Comparisons +In making compensation decisions, the Committee compares each element of total compensation against a peer group of +publicly-traded footwear and apparel companies (collectively, the "Peer Group"). The Peer Group, which is reviewed and updated at least annually by the Committee, consists of companies against which +the Committee believes the Company competes for talent and for stockholder investment. The Peer Group used for 2011 compensation is composed of companies in related businesses of similar size and +market value and consisted of the following 12 companies: +•Columbia Sportswear Company +•The Timberland Company +•Lululemon Athletica, Inc. +•Crocs, Inc. +•Under Armour, Inc. +•Phillips-Van Heusen +•Skechers U.S.A., Inc. +•Wolverine World Wide, Inc. +•Quicksilver, Inc. +•Steven Madden, Ltd. +•Fossil, Inc. +•Warnaco Group, Inc. +For comparison purposes, at the time 2011 compensation was established, the Company's annual revenues were below the median of the Peer Group, the +Company's net income was above the median, and the Company's market capitalization was above the median. The Committee generally sets the target for annual total direct compensation (defined as base +salary, plus annual cash incentive plan compensation, plus annual equity incentive compensation) for the Named Executive Officers between median and 75 th percentile of +compensation paid to executives with similar titles and levels of responsibility within the Peer Group. The Committee generally sets the target for overall total direct compensation (defined as annual +total direct compensation, plus long-term equity incentive compensation assuming achievement at a level above the threshold) for the Named Executive Officers between the +75 th and the 100 th percentile of compensation paid to executives with similar titles and levels of responsibility within the Peer Group. We believe +competitive position is appropriate because the performance goals in the long-term equity incentive plan are set at a level that we believe represents commensurate Company financial +performance. We believe it also allows the Company to attract and retain the qualified executives necessary to attain top quartile performance. However, while the Committee uses the Peer Group for +general guidance as to the targets for annual and overall total direct compensation, the Committee continues to exercise its judgment and considers a variety of factors when setting compensation +levels, including general economic conditions, actual recent individual performance and performance expectations. +30 +The +Committee also reviews where actual overall total direct compensation and other benchmarked compensation amounts fall relative to targeted levels to ensure actual compensation is +aligned with actual performance. For all of the Named Executive Officers, with the exception of Mr. Worley, 2011 actual overall total direct compensation, calculated in accordance with the +definition above, was +approximately 10% above the targeted amounts. For Mr. Worley, 2011 actual overall total direct compensation was approximately 2% under the targeted amounts. The 2011 actual overall total direct +compensation was higher than the targeted amounts mostly due to the cash incentive plan awards being paid above the targeted amounts due to exceptional Company and individual performance. The annual +cash incentive plan compensation amounts for all of the Named Executive Officers, except Mr. Worley, was between approximately 65% and 92% higher than the target due to payment greater than +target based on superior performance in 2011. Mr. Worley's annual cash award amount was approximately 20% lower than the target. +For +2012 compensation decisions, the Peer Group has changed from the companies listed above to eliminate Phillips-Van Heusen and Quicksilver, Inc., and to add +Coach, Inc. and Guess?, Inc.. These changes reflect the Company's continued growth and will provide the Committee with data that reflects the Company's current business stage and +competitors so that the Company can continue to evaluate pay levels versus appropriate peers. +The +Committee also looks at proprietary survey information from FWC, which include non-industry specific data on pay levels and design practices for similarly-sized +companies. The data covers more than 300 companies across industries other than financial services, and are sized-adjusted based on the Company's revenues. The Committee reviews this data and the +proxy data as a guideline to determine the appropriate level and mix of compensation. There is no pre-established policy or target for the allocation between either cash and +non-cash or short-term and long-term incentive compensation. +31 +2011 Executive Compensation Elements +Type +Form +Purpose +Performance Criteria +Cash +Base Salary +Fixed annual compensation to attract and retain key executives with necessary experience for our future growth +Not performance-based +Cash +Annual Cash Incentive Plan Award +Incentive for executives to achieve annual pre-established goals +Company and individual performance goals, both quantitative and qualitative, approved by the Committee annually +Equity +Annual Equity Awards (Nonvested Stock Units or "NSUs") +Incentive to achieve annual Company financial goals; encouraging executive stock ownership; retention of key +executives +Diluted earnings per share target for the year of the grant +Equity +Long-Term Equity Incentive Awards—Level 1 and Level 2 (includes Restricted Stock Units or "RSUs" and Stock +Appreciation Rights or "SARs") +Incentive to achieve aspirational long-term Company financial goals; aligning executives' interests with those of our +stockholders; retention of key executives +Diluted earnings per share and revenue targets approximately 5 and 10 years from year of grant +Equity +Long-Term Equity Incentive Awards—Level 3 (includes RSUs) +Incentive to achieve aspirational long-term Company financial goals, aligning executives' interest with stockholders; +retention of key executives +Diluted earnings per share and revenue targets approximately 4 years from year of grant +Benefits +401(k) match; health and welfare benefits; long-term disability insurance; life insurance; product discounts +Provide competitive, broad-based employee benefits structure; benefits offered to Named Executive Officers are generally offered +to all full time employees. +Not performance-based +Severance Arrangements +Change of Control and Severance Agreements; Provisions in Equity Awards +To recruit and retain key executives and maintain a stable and effective management team in the event of a change of +control +Not performance-based +32 +Base Salary. +What this Compensation Element is Designed to Reward +We provide base salaries to attract and retain key executives with the necessary experience for our future growth. Base +salaries reflect each Named Executive Officer's +responsibility level, individual performance, and business experience. Base salaries also provide a guaranteed base amount of compensation. The Committee balances the levels of guaranteed pay through +base salaries with at-risk pay, to properly maintain the Company's compensation-related risk. +How We Choose the Amount of this Compensation Element +The Committee establishes base salaries after review of the Peer Group compensation data and in light of the +Committee's goal to focus on performance-based compensation, while also attracting and retaining qualified executive candidates. Salaries are reviewed periodically and adjusted as warranted to reflect +sustained individual performance, responsibility level, and comparable market salaries. As a result of the Committee's goal of focusing on performance-based compensation, the Committee generally sets +base salary at or moderately below the 50th percentile of the base salaries paid to executives with similar titles and levels of responsibility within the Peer Group so that performance-based +pay represents a larger portion of total compensation. The following table summarizes adjustments made to base salaries for the Named Executive Officers during 2011 compared to 2010: +Named Executive Officer +Base Salary +Base Salary Change +Angel R. Martinez +$ +1,000,000 +Increased by 5.3% +Thomas A. George +$ +400,000 +Increased by 14.3% +Zohar Ziv +$ +600,000 +Increased by 20.0% +Constance X. Rishwain +$ +420,000 +Increased by 5.0% +Peter K. Worley +$ +300,000 +Increased by 9.1% +Consistent +with our salary review described above, each of the Named Executive Officers received base salary increases in 2011. These increases were made based on their performance and +to align this compensation element with market comparables and to retain executives we believe have been instrumental to our financial success. +Effective +as of January 1, 2012, the Committee increased Mr. Martinez's salary to $1,200,000, Mr. George's salary to $475,000, Ms. Rishwain's salary to +$475,000 and Mr. Worley's salary to $400,000. These salary increases were implemented following a review of each Named Executive Officer's performance, the Company's financial results and the +competitive environment. Mr. Ziv's salary was not increased in 2012. +Annual Cash Incentive Plan Compensation. +What this Compensation Element is Designed to Reward +The Committee believes in tying our executives' total incentive compensation with the short and long-term +financial and strategic objectives of the Company to align our executives' interests with those of our stockholders and therefore has designed our annual cash incentive plan to reward achievement of +our financial and strategic goals. At the beginning of each year, the Committee reviews our financial and strategic plan for the next fiscal year and for the years ahead and then establishes specific +annual goals for each executive. This provides our executives with clearly defined goals, which they are then responsible for achieving. By establishing annual goals, the Committee sets appropriate +performance expectations for our executives and makes our executives accountable for our continued growth and +33 +success. +Furthermore, the executives will only receive payment under the Company portion of this plan if the Company performs well for our stockholders, as defined by the performance criteria set by +the Committee at the beginning of the year. +In +addition, the Committee may exercise discretion and award amounts outside of the annual cash incentive plan. This flexibility allows the Committee to consider the executive's and the +Company's performance holistically and to reward successes with respect to circumstances which were unforeseen at the beginning of the year. It also provides the Committee with the discretion to pay +bonuses for exceptional performance or effort even where results with respect to our financial goals may be outside of the control of the executives. In 2011, the Committee did not grant any +discretionary amounts outside of the annual cash incentive plan. +How We Choose Amount of this Compensation Element +Each of the Named Executive Officers is eligible to receive annual cash incentive plan compensation calculated as +follows: +The +components of the annual cash incentive plan compensation are: +• Company Profit. Based on the Company's 2011 diluted +earnings per share (EPS). +• Quantitative Management by Objectives (MBO). Based on +individual strategic and financial goals for each officer. +• Qualitative MBO. Based on non-financial +individual goals for each officer. +The +Committee establishes an EPS goal, which is the same for each officer, and quantitative and qualitative MBO goals, which are unique to each officer, at the beginning of each year and +the officers receive compensation for the subsequent attainment of these goals. Each component of the award for each officer is calculated separately by multiplying the full target bonus amount by the +percentage of +target earned for each component and then multiplying this amount by the weighting of each component in accordance with the terms of the cash incentive plan. +In +order to retain key executives and incentivize them to reach our financial and strategic performance goals, which we believe to be at the high end compared to those of our peers, and +in light of the Committee's philosophy to pay lower guaranteed compensation than the median for our peers, the Committee generally sets the annual cash incentive plan target compensation levels at or +above comparable levels compared to the target bonus opportunities paid to executives with similar titles and levels of responsibility within the companies in the Peer Group. The annual cash incentive +plan target compensation is expressed as a percentage of each of the executive's annual salary, and is determined so that the total annual cash compensation opportunity, (base salary plus annual cash +incentive plan compensation), when earned at the targeted amounts, is in the median-to-75th percentile range of the Peer Group. +The +target amount for the total award for 2011 for each executive, except for Mr. Martinez whose target was 100% of base salary, was 75% of base salary, with the potential to +exceed the target and earn up to 250% for the company profit portion, up to 250% for the quantitative MBO and up to 100% for the qualitative MBO. The Committee believes that utilizing these multiples +of base salary provide our Named Executive Officers with the opportunity to earn significant cash incentive payments for exceptional contributions to our financial success, while also limiting the +maximum potential awards +34 +and +thereby mitigate compensation-related risk by discouraging the executives from taking unnecessary risk to achieve higher performance. +The +target amounts and relative weight of the company profit portion and MBO portions of executive's annual cash incentive plan compensation may be varied by the Committee from year to +year. In general, those executives that are responsible for brands and have influence over brand decisions are less heavily weighted on the company profit portion than those executives whose efforts +cannot be directly attributed to specific brands. For threshold performance, 50% of each component would be earned. +Amounts +attributable to the Company profit portion and quantitative MBO portion shall not be effected by the calculation of the qualitative MBO portion and are intended to qualify as +"performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee establishes the respective percentages for the +company profit portion, quantitative MBO and qualitative MBO portions principally based on the executives' respective roles at the Company. For those executives with Company-wide +responsibilities, the Company profit portion was weighted more heavily than the quantitative MBO +portion and for those executives with more brand-specific responsibilities, the quantitative MBO portion was weighted more heavily that the Company profit portion. This enabled the Committee to more +specifically tailor the performance targets to incentivize goals that each executive had the greatest power to influence. The allocation of the 2011 annual cash incentive plan compensation and +respective percentages and amounts earned are as follows: +Earned (%) and Earned ($) +Name +Target +Percentage +of Salary +Company +Profit +Portion +Quantitative +MBO +Portion +Qualitative +MBO +Portion +Company +Profit +Quantitative +MBO +Qualitative +MBO +Total +Angel R. Martinez +100 +% +50 +% +30 +% +20 +% +202% +175% +100% +$(1,010,000) +$(525,000) +$(200,000) +$1,735,000 +Thomas A. George +75 +% +50 +% +30 +% +20 +% +202% +190% +100% +$(303,000) +$(170,784) +$(60,000) +$533,784 +Zohar Ziv +75 +% +50 +% +30 +% +20 +% +202% +213% +0% +$(454,500) +$(286,875) +$(—) +$741,375 +Constance X. Rishwain +75 +% +25 +% +55 +% +20 +% +202% +220% +100% +$(159,075) +$(381,535) +$(63,000) +$603,610 +Peter K. Worley +75 +% +25 +% +55 +% +20 +% +202% +18% +100% +$(113,625) +$(21,875) +$(45,000) +$180,500 +35 +Performance Targets under the Annual Cash Incentive Plan +The performance targets under the Annual Cash Incentive Plan, and each Named Executive Officer's performance in light +of the targets, are summarized below. The Committee selects these targets based on categories that the Committee believes will drive the Company's short-term and long-term +success and therefore return value to our stockholders. When establishing these performance targets, the Committee determined to calculate the annual cash incentive plan objectives in accordance with +the Company's 2011 audited financial statements excluding any earnings or losses from operations of any new acquisition completed in fiscal 2011. +Officer +Component +Target Performance +Results +All NEOs +Company Profit +• +Fully diluted annual EPS of +$4.50 +þ Exceeded Target +Angel R. Martinez +Quantitative MBO +• +Sales of $1.22 billion +• +Inventory turnover rate of 3.17 +• +Non-UGG brand sales of +$155 million +þ Substantially exceeded sales targets and did not achieve threshold in Non-UGG brand sales and inventory turn. Overachievement in the first goal was well above maximum levels, +which offset below threshold performance in the other categories, and resulted in a quantitative MBO payout above target. +Qualitative MBO +• +Business: Maintain a +compelling vision and strategy for the Company and anticipate short and long-term trends that may affect key strategies +• +Team: Drive the leadership team accountability to meet the Company's strategic plan while delivering bench strength at the executive management level +• +Personal: Set the tone and pace for change, strong +culture and performance +þ Excelled in all categories; oversaw a number of strategic accomplishments this year, including investments in more sophisticated marketing, diversification of our product lines, +expansion of our selling seasons, acquisition of Sanuk and an increase in our global footprint; leadership role established the strong culture for success at the Company and can be seen in the Company's continued sales growth; key figure in +establishing our strong culture. +Thomas A. George +Quantitative MBO +• +Timely SEC filings and +favorable SOX opinions +• +Inventory +turnover rate of 3.17 +• +Operating +expenses not exceeding approximately 29% of net sales +• +Return on capital of 23.77% +þ Substantially exceeded operating expenses target and return on capital and achieved timely SEC filings and favorable SOX opinions. Overachievement in these goals was well above +maximum levels, which offset below threshold performance in the other categories, and resulted in a quantitative MBO payout above target. +Qualitative MBO +• +Business: Facilitate review +of international offices, integrate Sanuk successfully, and continue Company's positive investor relations program +• +Team: Successfully add key hires to finance team to prepare team for future growth +• +Personal: Attend an executive management development +seminar +þ Excelled in all categories; successfully facilitated integration of our newly acquired Sanuk brand; demonstrated leadership by hiring key finance team members ; attended +management development seminar +Zohar Ziv +Quantitative MBO +• +Sales of $1.22 billion +• +Inventory turnover rate of 3.17 +• +Operating expenses not exceeding +approximately 29% of net sales +þ Substantially exceeded sales and operating expenses targets. Overachievement in these goals was well above maximum levels, which offset below threshold performance in the other +categories, and resulted in a quantitative MBO payout above target. +36 +Officer +Component +Target Performance +Results +Qualitative MBO +• +Business: Develop action +plans to support strategic initiatives and establish infrastructure for growth +• +Team: Lead development plans for key direct reports to support long-term strategies for growth +• +Personal: Continue to develop leadership skills by attending leadership training +program +In light of Mr. Ziv's success achieving his quantitative MBOs, the Committee determined to limit the payout in this category to reflect challenges faced in implementation of these strategic initiatives. +Constance X. Rishwain +Quantitative MBO +• +UGG brand sales of +$1.07 billion +• +UGG brand +inventory turnover rate of 3.27 +• +Contribution income growth of 14% +• +Backlog increase of 10% over prior year +þ Substantially exceeded sales and brand contribution targets. Overachievement in these goals was well above maximum levels, which offset below target performance in the other +categories, and resulted in a quantitative MBO payout above target. +Qualitative MBO +• +Business: Drive the expansion +of global retail presence for the UGG brand and assist development of wholesale subsidiary model for the UGG brand. Continue to drive a compelling strategic vision with a focus on consumer insights +• +Team: Continue brand staff development toward leadership and innovation +• +Personal: Attend executive leadership +seminar +þ Excelled in all categories; led the UGG brand to a sales increase of 37.6% +Peter K. Worley +Quantitative MBO +• +Teva brand sales of +$140 million +• +Teva brand +inventory turnover rate of 2.68 +• +Contribution income growth of approximately 51% +• +Backlog increase of approximately 9% over prior year +Achieved above threshold but did not achieve target in sales and did not achieve threshold in the other categories, which +resulted in a quantitative MBO payout below target. +Qualitative MBO +• +Business: Establish a vision +to expand and grow Teva brand globally +• +Team: Identify key team member development needs +• +Personal: Grow measurably as a bold, inspiring leader +þ Excelled in all categories; led the Teva brand to a sales increase of 23.1%; key members of Teva team demonstrated strong leadership and growth potential +Performance-based Equity Incentive Compensation . +What this Compensation Element is Designed to Reward +Our equity incentive compensation program is designed to address many of our compensation objectives. First, by +utilizing long-term vesting provisions, these equity awards are designed to retain our key executives. Second, because these awards will only be earned upon achievement of Company +financial goals that will drive value for our stockholders and the awards are equity-based, these awards serve to align the interests of our executives with those of our stockholders. +Furthermore, by requiring achievement of financial goals, these awards support the company's pay-for-performance philosophy. Finally, our annual equity awards reward +achievement of our short-term goals and our long-term equity awards reward achievement of our long-term goals (approximately 4, 5 and 10 years after +the grant year). +37 +How We Choose Amount of this Compensation Element +Short-term and long-term incentive awards are granted under the 2006 Plan, which +authorizes the Committee to make grants and awards such as stock options, SARs, NSUs and restricted stock units ("RSUs"). The compensation attributable to SARs, NSUs and RSUs is intended to qualify as +"performance-based compensation" under Section 162(m) of the Code. A summary of the equity awards used by the Company and their respective vesting provisions are: +Compensation Element +Award +Type +Vesting Provisions +Annual Equity +NSU +Once earned based on one-year performance, vest based on continued employment after approximately three years following achievement of the performance criteria according to the following schedule: 33% per year at end of +year 2, 3, and 4 +Long-Term Equity (Level 1) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a five-year period +Long-Term Equity (Level 2) +RSU +SAR +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a ten-year period +Long-Term Equity (Level 3) +RSU +Vest subject to (1) the achievement of revenue and earnings goals, which goals are based on a high rate of +growth for sales, and (2) satisfaction of long-term service conditions over approximately a four-year period +Annual Equity +The Board of Directors and the Committee has determined to issue NSUs to officers and employees of the Company, which +are stock units payable in common stock of the Company upon satisfying specific performance and service-related vesting conditions. +The Committee believes that NSUs continue to align the interests of the officers and employees with those of the stockholders at a lower cost than stock option grants. This policy is reviewed by the +Board of Directors and the Committee periodically and may be changed in the future. +Officers +and key employees are eligible to receive NSUs annually, or as circumstances warrant, in an amount to be determined by the Board of Directors or the Committee. The amount of +NSUs granted is primarily determined by the employee's level within the organization and the extent that their position is critical to the organization. In March 2011, NSUs were granted with respect +to fiscal 2011 performance. The Committee sets these annual equity grants in the median-to-75th percentile range of the Peer Group, which is in line with our +compensation philosophy to provide a greater percentage of at-risk pay versus guaranteed pay. +Specifically, +the NSUs granted in 2011 were earned based on the achievement of the 2011 diluted EPS goal. The 2011 diluted EPS goals established on the date of grant were a threshold of +$4.28 and a target of $4.50. Because the 2011 diluted EPS was over the target amount, 100% of the NSUs granted were earned. The NSUs vest in equal installments over a three-year period. +The vesting schedule for +38 +these +awards was established to encourage officers and key employees to remain with the Company for the long-term. As discussed further under "Potential Payments Upon Termination or Change +of Control" below, this vesting schedule may be accelerated if the executive's employment is terminated for various reasons or upon a change in control followed by a termination. +Long-Term Equity +Our Long-Term Equity Awards are designed to reward aspirational long-term Company financial +goals and are granted in addition to the Annual Equity awards described above. These Long-Term Equity Awards are designed to result in a payout only if the Company achieves the highest +levels of long-term performance. The Committee recommends the adoption of these awards periodically as they deem necessary to incentivize long-term Company performance. +Beginning in 2011 with the Level 3 grants, discussed in detail below, the Committee began to shift a portion of the equity awards that had previously been granted to the Company's senior +management team in the form of annual +equity awards, or NSUs, to the Long-Term equity Award program in order to increase the reward for achieving the Company's aspirational long-term financial goals. +In +May 2007, the Board of Directors, upon recommendation of the Committee, adopted two types of long-term incentive award agreements under the 2006 Plan for issuance +to the Company's senior executive officers. These award types consist of SAR awards and RSU awards. The SAR and RSU awards are designed to vest based on the achievement of two objective +financial performance measures. The Committee selected these performance measures to align the executive's interests with the long-term financial success of the Company. In establishing +the performance measure criteria, the Committee sought to balance the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue and vice +versa. For Level 1 grants, sales must increase approximately 65% and diluted earnings per share must increase approximately 110% over these levels at the time these awards were +adopted by the Board of Directors. For Level 2 grants, sales must increase over 220% and diluted earnings per share must increase approximately 320% over these levels at the time these +awards were adopted by the Board of Directors. The Level 1 performance conditions were met on December 31, 2010 and therefore 80% of the Level 1 SAR and RSU awards vested +on December 31, 2010 and were settled on March 1, 2011. The Level 1 performance conditions were also met on December 31, 2011 and therefore the remaining 20% of the +Level 1 awards vested on December 31, 2011 and were settled on February 29, 2012. Provided that the Level 2 performance conditions are met, the Level 2 SAR and +RSU awards will vest 80% on December 31, 2015 and 20% on December 31, 2016. These awards were designed to motivate the executive team to outperform the Peer Group (otherwise the +awards would not vest) as well as for retention purposes. In May 2007, the Committee granted these SARs and RSUs to the Named Executive Officers. In approving these 2007 grants, the Committee +considered industry comparisons and competitive data as well as the responsibility levels of the executives relative to one another. +In +June 2011, the Board of Directors, upon recommendation of the Committee, adopted a Level 3 long-term incentive award agreement under the 2006 Plan for +issuance to the Company's senior management team, including the Named Executive Officers. The new program consists of RSU awards. The Board determined to grant these Level 3 awards to +provide another equity incentive grant which rewards higher achievement of long-term financial goals than found in the Level 1 and Level 2 grants, for which achievement had +already been deemed probable at the time the Level 3 awards were granted. The Level 3 grants are designed to have a shorter performance period than the Level 1 and 2 grants, thus +enabling the Committee greater visibility to establish appropriate performance targets. +Similar +to the Level 1 and Level 2 grants, Level 3 awards are designed to vest based on the achievement of two objective financial performance measures four years in +the future. The Committee selected these performance measures to align the executive's interests with the long-term financial success of the Company. In establishing the performance +measure criteria, the Committee sought to +39 +balance +the metrics between earnings and revenue growth so that profitability would not be sacrificed at the expense of revenue and vice versa. For Level 3 grants, the awards will vest only if +the Company meets certain revenue targets ranging between $1.85 billion and $2.50 billion and certain diluted earnings per share targets ranging between $7.00 and $9.60 as of +December 31, 2014. To the extent financial performance is achieved above the threshold level, the number of RSUs that will vest will increase up to the maximum number of units issued under a +particular Level 3 award. In addition, the recipient of the Level 3 award must provide service to the Company through December 31, 2014. The Committee anticipates granting +annually long-term equity incentive awards similar in terms to the Level 3 awards as it continues to shift a portion of the equity awards that had previously been granted to the +Company's senior management team in the form of annual equity awards, or NSUs, to the Long-Term equity award program. +In +addition, the Committee evaluates aggregate equity awards based on a Stockholder Value Transfer ("SVT") rate. SVT is the fair value of all equity awards granted during the year as a +percentage of company market capitalization value. The Committee believes this measure is valuable because it allows the Company to compare the annual cost of its equity program versus the Peer Group. +The Committee set the SVT rate in 2011 so that it would be approximately 1%, which is in line with the Peer Group median. Other factors considered in share-based award grants +was the fair value of awards granted to each individual, total outstanding equity awards for each executive, company-wide annual share usage, and total potential dilution under all +employee stock plans. The Committee assessed where the Company and its Named Executive Officers ranked in these areas versus the Peer Group. +Benefits. +What this Compensation Element is Designed to Reward +The personal benefits provided to our Named Executive Officers establish a competitive benefits structure necessary to +attract and retain key employees. Generally, these personal benefits provided to our Named Executive Officers reflect those provided to all of our employees. +How We Choose Amount of this Compensation Element +There is no specific policy on personal benefits awarded to the Named Executive Officers. The Company provides a 401(k) +defined contribution plan in which eligible employees may elect to participate through tax-deferred contributions. The Company matches 50% of each eligible participant's +tax-deferred contributions on up to 6% of eligible compensation on a per payroll period basis, with a true-up contribution if such eligible participant is employed by the +Company on the last day of the calendar year. The Company also pays the premiums for long-term disability insurance and life insurance for the Named Executive Officers both of which are +generally available to all full-time employees. Furthermore, Named Executive Officers are also eligible to participate in our health and welfare benefit plans and product discounts +generally available to all full-time employees. During 2011, Mr. Ziv was provided a per diem for international travel necessary to facilitate the transition to a wholesale +subsidiary model. In 2011 there were no other additional perquisites or other personal benefits approved by the Committee for the Named Executive Officers. +Beginning +on February 1, 2010, the Named Executive Officers were also eligible to make contributions to the Company's Nonqualified Deferred Compensation Plan, described in further +detail below under the section entitled "Nonqualified Deferred Compensation." This plan is not available to all employees. +40 +Severance Arrangements . +What this Compensation Element is Designed to Reward +The Committee adopted Change of Control and Severance Agreements for each of the Named Executive Officers. The terms of +employment for all Named Executive Officers with the Company is "at will," meaning that we can terminate them at any time and they can terminate their employment with us at any time. +Separation +benefits described below are intended to ease a Named Executive Officer's transition due to an unexpected employment termination by the Company due to on-going +changes in the Company's employment needs and also encourage retention of key executives. Separation benefits include cash payments and other benefits in an amount the Company believes is appropriate, +taking into account the time it is expected to take a separated executive to find a similarly situated job. The Company considers it likely that it will take more time for higher-level +employees to find new employment commensurate with their prior experience, and therefore senior management generally are paid severance for a longer period. The Company benefits by requiring a general +release and non-solicitation provisions in connection with the individual separation agreements. +Furthermore, +the provisions in the Change of Control and Severance Agreements providing for the payment of severance benefits upon a change-in-control of the +Company followed by a subsequent termination of employment (a "double trigger" event) are intended to preserve morale and productivity and encourage retention in the face of the potential disruptive +impact of a change-in-control of the Company. The change-in-control benefits are intended to encourage the Named Executive Officers to remain focused on +the business and interest of our stockholders when considering strategic alternatives that may be beneficial to our stockholders. +How We Choose Amount of this Compensation Element +The Change of Control and Severance Agreements for each executive specifically details various provisions for benefits +and cash payments in the event of a separation during the normal course of business and in the event of a change in control is followed by a subsequent termination. Generally, these agreements specify +conditions and benefits within the following categories: death, disability, termination by the Company for cause; termination by executive without good reason; termination by the executive with good +reason; and termination by the Company without cause. +The +Company's change in control provisions for the Named Executive Officers provide for severance benefits and the accelerated vesting of certain equity awards upon a "double trigger" +event, meaning the termination of the executive's employment in connection with a change in control. There are no benefits triggered solely based on the occurrence of a change in control as long as +the change in control is approved by a majority of the directors and the successor entity provides for the continuance of the award. However, upon a change in control, the performance conditions of +the SARs and RSUs are deemed satisfied, but the awards remain subject to the service-based vesting conditions. Based on a competitive analysis of the change in control arrangements +maintained by the corporations in the Peer Group, the Committee believes that these benefits are customary among the Peer Group for executives with similar titles and levels of responsibility as the +Named Executive Officers. +NSUs, +RSUs and SARs cannot be sold, assigned, transferred or pledged other than by will or laws of descent. +Please +refer to the discussion under "Potential Payments upon Termination or Change of Control" for a more detailed discussion of the severance and change in control arrangements. +41 +Other Compensation Considerations +Role of Executive Officers in Compensation Decisions +At the request of the Committee, the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer may +provide compensation and related data to the Committee to facilitate its compensation decisions. In addition, the Committee may consider the Chief Executive Officer's recommendations when making its +compensation decisions. However, our Chief Executive Officer is not permitted to be present during deliberations and voting regarding his own +compensation, as well as during other executive sessions of the Committee. The Committee uses the information provided by the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer +and FWC to make compensation decisions for the Named Executive Officers as well as other management personnel. The Committee, which includes only independent members of the Board of Directors, +approves all elements of compensation for the Named Executive Officers. The Committee also reviews and approves aggregate equity awards to all employees of the Company based on the recommendations of +executive management. The Committee can exercise its discretion in modifying any recommended adjustments or awards to executives. +Risk Considerations +The Committee believes that although the majority of compensation provided to our executive officers is +performance-based, our executive compensation programs do not encourage excessive and unnecessary risk-taking. We believe that the design of our compensation programs +encourages our executive officers to remain focused on both our short- and long-term financial and strategic goals. First, our program consists of guaranteed pay (salary) and +at-risk pay (annual cash incentive plan awards, and annual and long-term equity awards) and the Committee reviews this mix annually. Second, our program establishes appropriate +short-term and long-term performance goals that are designed to encourage sustained growth and long-term success. Third, our program requires executive retention +through the vesting provisions of our equity-based awards. For example, our long-term incentive equity awards only become fully vested over 5 years (for our +Level 1 awards), 10 years (for our Level 2 awards) and 4 years (for our Level 3 awards) after their initial grant. Fourth, amounts paid under our 2011 annual cash +incentive plan compensation were capped at 250% for the Company profit and quantitative MBO portion and at 100% for the qualitative MBO portion. Fifth, performance goals for our annual cash +incentive plan mix among corporate, business unit and individual performance and financial and non-financial goals. Sixth, we have adopted share ownership guidelines for the Named +Executive Officers, which ensures that the interests of our executive officers are aligned with our stockholders. Seventh, our annual equity awards granted in 2011 and 2012 are subject to a Clawback +Policy provision subjecting these awards to a Clawback Policy to be adopted by the Company following adoption of the relevant rules by the SEC. Eighth, our insider trading policy prohibits our Named +Executive Officers and other key executives from hedging the economic interest in the Company securities that they hold. Finally, the Committee retains ultimate oversight over the compensation of our +Named Executive Officers and retains the ability to use discretion where appropriate. +Tax and Accounting Implications +Taxation and Deductibility of Executive Compensation +To the extent readily determinable, and as one of the factors in its consideration of compensation matters, the +Committee considers the anticipated tax treatment to the Company and to the executives of various payments and benefits. Some types of compensation payments and their deductibility depend upon the +timing of an executive's vesting of previously granted awards. +42 +Under +Section 162(m) of the Code, a public company generally will not be entitled to a deduction for non-performance-based compensation paid to certain +executive officers to the extent such compensation exceeds $1.0 million. Special rules apply for performance-based compensation, including the approval of the performance goals by +the stockholders of the Company. The Company has not adopted any formal policy with respect to Section 162(m) of the Code. However, the Committee generally structures compensation to be +deductible and considers cost and value to the Company in making compensation decisions, which would result in non-deductibility. The Board of Directors has on occasion made decisions +resulting in non-deductible compensation. The qualitative MBO portion of the annual non-equity incentive plan compensation is not intended to qualify as +"performance-based compensation" under Section 162(m) of the Code. The Committee and the Board of Directors believe that these payments were appropriate and in the best interests of +the Company and serve to retain key executives and reward past performance. +The +Company believes that the Company profit portion and the quantitative MBO portion of its non-equity incentive plan and its grants of NSUs, RSUs and SARs meet the +exception for performance-based compensation described in the previous paragraph. +Accounting for Share-Based Compensation +The Company accounts for share-based awards in accordance with the requirements of Financial Accounting +Standards Board Accounting Standards Codification Topic 718, Stock Compensation . +43 +REPORT OF THE COMPENSATION AND +MANAGEMENT DEVELOPMENT COMMITTEE +The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation +Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development +Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND MANAGEMENT +DEVELOPMENT COMMITTEE +John G. Perenchio, Chair +Maureen Conners +John M. Gibbons +James Quinn +The +Report of the Compensation and Management Development Committee on Executive Compensation shall not be deemed incorporated by reference by any general statement incorporating by +reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company +specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. +44 +SUMMARY COMPENSATION TABLE +The following table sets forth, for the years ended December 31, 2011, 2010, and 2009 all compensation paid or +awarded to the Named Executive Officers. +Name and Principal Position +Year +Salary ($) +Bonus ($) +Stock +Awards +($)(1)(2) +Non-Equity +Incentive +Plan +Comp +($)(3) +All Other +Compensation +($)(4) +Total ($) +Angel R. Martinez +2011 +$ +1,000,000 +$ +— +$ +1,922,580 +$ +1,735,000 +$ +7,350 +$ +4,664,930 +Chief Executive Officer and +2010 +$ +950,000 +$ +350,000 +$ +1,863,000 +$ +1,900,000 +$ +7,350 +$ +5,070,350 +President +2009 +$ +750,000 +$ +441,715 +$ +706,725 +$ +1,458,285 +$ +6,900 +$ +3,363,625 +Thomas A. George +2011 +$ +400,000 +$ +— +$ +873,900 +$ +533,784 +$ +7,350 +$ +1,815,034 +Chief Financial Officer +2010 +$ +350,000 +$ +150,000 +$ +828,000 +$ +350,000 +$ +7,350 +$ +1,685,350 +2009 +$ +95,577 +$ +73,333 +$ +105,315 +$ +116,667 +$ +— +$ +390,892 +Zohar Ziv +2011 +$ +600,000 +$ +— +$ +1,310,850 +$ +741,375 +$ +24,640 +(5) +$ +2,676,865 +Chief Operating Officer +2010 +$ +500,000 +$ +229,000 +$ +1,242,000 +$ +1,000,000 +$ +7,350 +$ +2,978,350 +2009 +$ +375,000 +$ +150,000 +$ +471,150 +$ +750,000 +$ +6,900 +$ +1,753,050 +Constance X. Rishwain +2011 +$ +420,000 +$ +— +$ +873,900 +$ +603,610 +$ +7,350 +$ +1,904,860 +President of the +2010 +$ +400,000 +$ +200,000 +$ +1,242,000 +$ +800,000 +$ +7,350 +$ +2,649,350 +UGG Brand +2009 +$ +350,000 +$ +200,000 +$ +471,150 +$ +700,000 +$ +6,900 +$ +1,728,050 +Peter K. Worley +2011 +$ +300,000 +$ +— +$ +655,425 +$ +180,500 +$ +7,350 +$ +1,143,275 +President of the Teva Brand +2010 +$ +275,000 +$ +94,387 +$ +414,000 +$ +505,613 +$ +7,350 +$ +1,296,350 +2009 +$ +250,000 +$ +58,937 +$ +104,700 +$ +391,063 +$ +6,231 +$ +810,931 +(1) The +amounts in this column represent the grant date fair value of the awards computed in accordance with ASC Topic 718. In accordance with SEC rules, for +awards that are subject to performance conditions, the amounts reflect the full grant date fair value of the awards based upon the probable outcome of the performance conditions. These amounts do not +represent cash payments made to the Named Executive Officers. Assumptions used in the calculation of these amounts are included in Note 6 to our consolidated financial statements in our Annual +Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the SEC on February 29, 2012. +(2) The +amounts in this column reflect stock awards whose performance condition was considered probable in 2011. Assuming the highest level of performance +condition will be met, the award amounts are as follows: $7,668,880 for Angel Martinez, $2,789,306 for Thomas George, $4,184,000 for Zohar Ziv, $2,789,306 for Constance Rishwain, and $2,092,000 for +Peter Worley. +(3) The +amounts in this column reflect the cash awards paid to our Named Executive Officers under our annual cash incentive program, which is discussed in +further detail under the heading "Annual Cash Incentive Plan Compensation." +(4) Unless +noted otherwise, the amounts in this column reflect the Company's 401(k) matching contributions made for the benefit of our Named Executive Officers. +(5) This +amount includes $17,290 in total Per Diem paid to Mr. Ziv for international travel necessary to facilitate the transition to a wholesale +subsidiary model. +45 +GRANTS OF PLAN BASED AWARDS IN 2011 +The following table sets forth all grants of plan-based awards made to the Named Executive Officers during +the fiscal year ended December 31, 2011. For further discussion regarding the grants, refer to the heading "2011 Executive Compensation Elements." +Estimated Future Payouts Under +Non-Equity Incentive Plan Awards +Estimated Future Payouts Under +Equity Incentive Plan Awards(2) +Grant Date +Fair Value +of Stock +Awards(3) ($) +Name +Grant Date +Threshold +($) +Target +($) +Maximum(1) +($) +Threshold +(#) +Target +(#) +Maximum +(#) +Angel R. Martinez +$ +500,000 +$ +1,000,000 +$ +2,200,000 +3/30/2011 +11,000 +22,000 +22,000 +$ +1,922,580 +6/22/2011 +20,000 +40,000 +70,000 +— +Thomas A. George +150,000 +300,000 +660,000 +3/30/2011 +5,000 +10,000 +10,000 +873,900 +6/22/2011 +6,667 +13,333 +23,333 +— +Zohar Ziv +225,000 +450,000 +990,000 +3/30/2011 +7,500 +15,000 +15,000 +1,310,850 +6/22/2011 +10,000 +20,000 +35,000 +— +Constance X. Rishwain +157,500 +315,000 +693,000 +3/30/2011 +5,000 +10,000 +10,000 +873,900 +6/22/2011 +6,667 +13,333 +23,333 +— +Peter K. Worley +112,500 +225,000 +495,000 +3/30/2011 +3,750 +7,500 +7,500 +655,425 +6/22/2011 +5,000 +10,000 +17,500 +— +(1) The +amounts shown here are the designated maximum plan awards. Refer to "Annual Cash Incentive Plan Compensation" above for further discussion on actual +amounts paid to Named Executive Officers. +(2) All +grants are under the 2006 Plan. +(3) Assuming +the highest level of performance condition will be met, the maximum compensation cost to be recognized for awards granted on 6/22/2011 is: +$5,746,300 for Angel Martinez, $1,915,406 for Thomas George, $2,873,150 for Zohar Ziv, $1,915,406 for Constance Rishwain, and $1,436,575 for Peter Worley. +46 +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR END +The following table sets forth equity awards of the Named Executive Officers outstanding as of December 31, +2011. For further discussion regarding the outstanding equity awards, refer to the heading "Performance-based Equity Incentive Compensation." +Stock Appreciation Rights (SAR) Awards(1) +Stock Awards +Name +Number of +securities +underlying +unexercised +SARs (#) +exercisable +Number of +securities +underlying +unexercised +SARs (#) +unexerciseable +Number of +securities +underlying +unexercised +unearned +SARs (#) +SAR +exercise +price +($) +SAR +expiration +date +Number of +shares or +units of +stock that +have not +vested (#) +Market +value of +shares or +units of +stock that +have not +vested(3)($) +Number of +unearned +shares or +units that +have not +vested(2)(#) +Market +value of +unearned +shares or +units that +have not +vested(3)($) +Angel R. Martinez +100,000 +60,000 +— +$ +26.73 +5/9/2017 +103,000 +(4) +$ +7,783,710 +107,500 +(9) +$ +8,123,775 +— +— +300,000 +26.73 +5/9/2022 +Thomas A. George +— +— +— +— +— +32,500 +(5) +2,456,025 +23,333 +(10) +1,763,275 +Zohar Ziv +15,000 +15,000 +— +26.73 +5/9/2017 +69,000 +(6) +5,214,330 +45,500 +(11) +3,438,435 +— +— +75,000 +26.73 +5/9/2022 +Constance X. Rishwain +— +15,000 +— +26.73 +5/9/2017 +64,000 +(7) +4,836,480 +33,833 +(12) +2,556,760 +— +— +75,000 +26.73 +5/9/2022 +Peter K. Worley +— +15,000 +— +26.73 +5/9/2017 +22,500 +(8) +1,700,325 +28,000 +(13) +2,115,960 +— +— +75,000 +26.73 +5/9/2022 +(1) All +SARs were granted on May 9, 2007. SARs vest subject to long-term performance objectives and long-term service conditions. +The remaining 20% of Level 1 SAR awards vested on December 31, 2011 and became exercisable on February 29, 2012. Provided the conditions are met, the Level 2 SAR awards +will vest 80% on December 31, 2015 and 20% on December 31, 2016. +(2) This +column includes Level 2 and Level 3 (at the 175% maximum amount) RSUs granted on May 9, 2007 and June 22, 2011, +respectively, which vest December 31, 2014, subject to long-term performance objectives and service conditions. Provided the conditions are met, the Level 2 RSU awards will +vest 80% on December 31, 2015 and 20% on December 31, 2016. (see "Grants of Plan Based Awards" table for more detail). +(3) The +closing price of the Company's Common Stock on December 30, 2011 was $75.57. +(4) Consists +of (i) 40,500 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting +March 31, 2012; (ii) 40,500 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 22,000 nonvested stock units granted on March 30, 2011, which vest 33.3% on December 31 of 2012, 2013, and 2014. +(5) Consists +of (i) 4,500 nonvested stock units granted on September 11, 2009, which shares vest in equal quarterly installments starting +September 30, 2012; (ii) 18,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 10,000 nonvested stock units granted on March 30, 2011, which vest 33.3% on December 31 of 2012, 2013, and 2014. +(6) Consists +of (i) 27,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting +March 31, 2012; (ii) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 15,000 nonvested stock units granted on March 30, 2011, which vest 33.3% on December 31 of 2012, 2013, and 2014. +(7) Consists +of (i) 27,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting +March 31, 2012; (ii) 27,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 10,000 nonvested stock units granted on March 30, 2011, which vest 33.3% on December 31 of 2012, 2013, and 2014. +(8) Consists +of (i) 6,000 nonvested stock units granted on March 30, 2009, which shares vest in equal quarterly installments starting +March 31, 2012; (ii) 9,000 nonvested stock units granted on March 30, 2010, which shares vest in equal quarterly installments starting March 31, 2013; and +(iii) 7,500 nonvested stock units granted on March 30, 2011, which vest 33.3% on December 31 of 2012, 2013, and 2014. +(9) Consists +of (i) 37,500 Level 2 RSUs and (ii) 70,000 Level 3 RSUs at 175%. +(10) Consists +of 23,333 Level 3 RSUs at 175%. +(11) Consists +of (i) 10,500 Level 2 RSUs and (ii) 35,000 Level 3 RSUs at 175%. +(12) Consists +of (i) 10,500 Level 2 RSUs and (ii) 23,333 Level 3 RSUs at 175%. +(13) Consists +of (i) 10,500 Level 2 RSUs and (ii) 17,500 Level 3 RSUs at 175%. +47 +2011 OPTION EXERCISES AND STOCK VESTED +The following table provides information, for the Named Executive Officers, regarding SAR exercises and stock award +vesting during 2011, including the number of shares acquired upon exercise or vesting and the value realized, before payment of any applicable withholding tax and broker commissions. +SAR Awards +Stock Awards +Number of +Shares +Acquired on +Exercise +(#)(1) +Value Realized on +Exercise +($) +Number of +Shares +Acquired on +Vesting +(#)(2)(3) +Value Realized +on Vesting +($)(4)(5) +Angel R. Martinez +105,284 +$ +11,363,564 +43,500 +$ +3,647,880 +Thomas A. George +— +$ +— +— +— +Zohar Ziv +33,775 +$ +3,623,691 +26,100 +$ +2,215,116 +Constance X. Rishwain +40,829 +$ +3,415,800 +24,600 +$ +2,086,484 +Peter K. Worley +42,136 +$ +3,783,000 +20,100 +$ +1,700,586 +(1) Total +shares received net of shares withheld for taxes were 56,137 by Angel Martinez; 18,008 by Zohar Ziv; 22,125 by Constance Rishwain; and 22,467 by Peter +Worley. +(2) This +column includes restricted stock units (RSUs) that vested on December 31, 2011 and were issued on February 29, 2012. These RSUs represent +20% of the Level 1 grants awarded as part of the long-term incentive plan and amounted to 7,500 shares acquired by Angel Martinez and 2,100 shares acquired each by Zohar Ziv, +Constance Rishwain, and Peter Worley. +(3) Total +shares received net of shares withheld for taxes were 23,945 by Angel Martinez; 14,130 by Zohar Ziv; 13,311 by Constance Rishwain; and 10,916 by Peter +Worley. +(4) This +column calculates the RSU values based on the closing stock price on the February 29, 2012 issuance date. +(5) This +column calculates the NSU values based on the closing stock price on the quarterly vesting dates. +NONQUALIFIED DEFERRED COMPENSATION +In 2008, the Board of Directors adopted a Deferred Stock Unit Compensation Plan, a Sub Plan under the 2006 Equity +Incentive Plan. A director or employee of the Company who holds unvested restricted stock awards, including NSUs and RSUs, may elect to defer settlement of up to 100% of his or her awards. For each +unit of stock held pursuant to a restricted stock award that is deferred, the participant will receive one Deferred Stock Unit. Amounts deferred will be distributed, as described in the plan, at the +time elected by the participant. A participant's Deferred Stock Units will be settled in shares of Common Stock, as more specifically described in the Deferred Stock Unit Compensation Plan. In 2010 +and 2011, none of the Company's executive officers elected to participate in the Company's Deferred Stock Unit Compensation Plan. +In +2009, the Compensation Committee adopted and approved a Nonqualified Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation program sponsored by the +Company to provide certain of its management or highly compensated employees designated by the Board of Directors (or a committee appointed by the Board of Directors to administer the plan) the +opportunity to defer compensation into the plan. The effective date for the plan for the first year +48 +was +February 1, 2010, and thereafter the plan year is from January 1 to December 31. Participants may defer up to 50% of their annual base salary and up to 95% of any performance +bonus to the plan. At the discretion of the Board of Directors (or a committee appointed by the Board of Directors to administer the plan), the Company may make additional contributions to be credited +to the account of any or all participants in the plan. No such contribution had been approved as of December 31, 2011. Under the terms of the plan, the Company established a rabbi trust as a +reserve for the benefits payable under the plan. Distributions from the plan are governed by the Internal Revenue Code and the plan. Certain of the Named Executive Officers did elect to participate in +this plan during 2010 and 2011 and, pursuant to such elections, amounts were contributed to this plan during 2011. +Name +Executive +contributions +in last FY(1) +Registrant +contributions +in last FY +Aggregate +earnings in +last FY +Aggregate +withdrawals/ +distributions +Aggregate +balance at +last FYE +Angel R. Martinez +$ +1,125,032 +$ +— +$ +(7,870 +) +$ +— +$ +1,117,162 +Zohar Ziv +200,000 +— +(7,673 +) +— +192,327 +Peter K. Worley +450,371 +— +(40,107 +) +— +531,817 +$ +1,775,403 +$ +— +$ +(55,650 +) +$ +— +$ +1,841,306 +(1) All +amounts reported in the contributions column are reported as compensation in the Summary Compensation Table +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +The Company entered into Change of Control and Severance Agreements (the "Severance Agreements") with each of the Named +Executive Officers effective as of January 1, 2010 to replace, in part, the expired employment agreements with such executives. These Severance Agreements eliminated gross ups for the Internal +Revenue Code section 280G excise tax penalty on "excess golden parachute payments" paid as a result of termination following a change of control. The information below describes compensation +and benefits that are payable or earned under the Severance Agreements with the Named Executive Officers which were effective as of January 1, 2010. +For +purposes of the Severance Agreements, "Cause" means (i) any willful breach of duty by the executive in the course of their employment or continued violation of written Company +employment policies after written notice of such violation, (ii) violation of the Company's insider trading policies, (iii) conviction of a felony or any crime involving fraud, theft, +embezzlement, dishonesty or moral turpitude, (iv) engaging in activities which materially defame the Company, engaging in conduct which is material injurious to the Company or its affiliates, +or any of their respective customer or supplier +relationships, financially or otherwise, or (v) the executive's gross negligence or incapacity to perform duties, excluding total disability. +"Good +Reason" means without the consent of the Executive (a) the occurrence of material breach of this agreement by the Company, or (b) if within two years of a change of +control, there is a material reduction of the Executive's total compensation, benefits, and perquisites, the Company's relocation is greater than 50 miles from the location where the Executive +performs services, or a material change in the Executive's position or duties; provided, however, no such event shall constitute Good Reason hereunder unless the Executive shall have given written +notice to the Company of Executive's intent to resign for "Good Reason" within 30 days after the Executive first becomes aware of the occurrence of any such event (specifying the nature and +scope of the event) and such event or occurrence shall not have been cured within 30 days of the Company's receipt of such notice. +49 +"Change +of Control" means the occurrence of a merger, consolidation, sale of all or a major portion of the assets of the Company (or a successor organization) or similar transaction or +circumstance where any person or group acquires, in one or more transactions, beneficial ownership of more than 50% of the outstanding shares of any class of voting stock of the Company (or a +successor organization). +"Constructive +Termination" means a termination following the occurrence of any one or more of the following events without the executive's written consent: (i) any material +reduction in position, title, overall responsibilities, level of authority, level of reporting, base compensation, annual incentive compensation opportunity, aggregate employee benefits or +(ii) a change of the executive's location of employment by more than 50 miles. +Termination by the Company for Cause, or by Executive other than for Good Reason +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the +Company for Cause, or the executive terminates his or her employment, other than for Good Reason, then the Named Executive Officer will receive the following from the +Company: +• payment of his or her accrued base salary, accrued vacation, reimbursement for reimbursable expenses, accrued and vested +benefits under the Company's plans or programs and other benefits required to be paid by law, accrued but unpaid non-equity incentive bonus for the prior fiscal year (excluding any +non-equity incentive bonus for the year of termination); and +• right to exercise all vested unexercised SARs and awards outstanding as of the termination date. +Termination due to Death or Total Disability +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated due to +his or her Death or Total Disability, then in addition to those benefits provided upon a termination for Cause, the Named Executive Officer will receive: +• pro-rated portion of his or her non-equity incentive bonus for the current fiscal year based on +actual length of service during the year of termination. +Termination by the Company without Cause or by Executive for Good Reason +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the +Company without Cause or by Executive for Good Reason, then in addition to those benefits provided upon a termination due to Death or Total Disability, the Named Executive Officer will +receive: +• payment of his or her then effective base salary for one year following his or her termination, subject to such executive +signing a release; and +• receipt of health benefits for a period of one year following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. +50 +Termination without Cause or by Executive for Good Reason within Two Years of a Change of Control +Pursuant to the Severance Agreements with each of the Named Executive Officers, if the executive is terminated by the +Company without Cause or by Executive for Good Reason within two years of a Change of Control, then in addition to those benefits provided upon a termination due to Death or Total Disability, the +Named Executive Officer will receive: +• subject to such executive signing a release, payment of one and one-half times his or her then effective +annual base salary plus the greater of (i) one and one-half times the targeted non-equity incentive bonus immediately prior to the termination or (ii) one and +one-half times the average actual non-equity incentive bonus for the previous three years. Each of Mr. Martinez and Mr. Ziv will receive two times their +respective annual base salary plus the greater of (i) two times the targeted incentive bonus immediately prior to termination or (ii) two times the average actual non-equity +incentive bonus for the previous three years, subject to signing a release. +• receipt of health benefits for a period of eighteen months following his or her termination or his or her attainment of +alternative employment that provides health benefits, whichever is earlier. Mr. Martinez will receive these benefits for two years and Mr. Ziv will receive these benefits for one year. +The +Company determined to provide Mr. Martinez and Mr. Ziv with a slightly higher severance payment upon a termination following a Change of Control to reflect each of +their key leadership roles and their importance to the Company's management. +No +Named Executive Officers will be entitled to gross ups for the Internal Revenue Code section 280G excise tax penalty on "excess golden parachute payments" as a result of +termination following a Change of Control. +Equity Awards Upon Termination or Change of Control +Pursuant to the terms of the equity awards under the 2006 Plan, the employees that receive such awards, including the +Named Executive Officers, are entitled to certain benefits upon the occurrence of each of the following: (i) termination without cause or pursuant to a Constructive Termination (as such term is +defined in the 2006 Plan), (ii) a change of control and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the award, and +(iii) a change of control followed by termination. +For +the NSUs awarded annually as part of our performance-based short-term equity incentive compensation, if an awardee is terminated by the Company without cause or pursuant +to a Constructive Termination, if the threshold performance criteria of the NSUs awarded to such executive have been satisfied, the awardee will be entitled to accelerated vesting for a pro rata +portion of the NSU award based on a fraction, the numerator of which is the length of service beginning in January in the year of the NSU grant divided by 48 months, and will be settled in +shares of the Company's common stock. If a change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the +NSUs, then the NSUs will fully vest if the threshold performance criteria has been satisfied. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve +months of a change of control, he or she will be entitled to full acceleration of any unvested NSUs awarded. +For +the Level 1 and Level 2 SARs and RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the +performance conditions of the SARs and RSUs will be deemed satisfied, but the awards will remain subject to service-based vesting conditions. If +51 +a +change of control occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the SARs and RSUs, then the SARs and RSUs will +fully vest. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a change of control, he or she will be entitled to full acceleration of +any unvested SARs and RSUs. The RSUs will fully vest upon the awardee's death or disability. +For +the Level 3 RSUs awarded as part of our performance-based long-term equity incentive compensation, upon a change of control the performance conditions of the RSUs +will be deemed satisfied and the target number of RSUs shall vest effective December 31, 2014, but the awards will remain subject to service-based vesting conditions. If a change of control +occurs and either it is not approved by a majority of the directors or the successor entity does not provide for the continuance of the RSUs, then the target number of RSUs will fully vest +immediately, regardless of the performance conditions. Finally, if an awardee is terminated without cause or pursuant to a Constructive Termination within twelve months of a change of control, he or +she will be entitled to acceleration of the target number of RSUs, regardless of the performance conditions. Upon the awardee's death, disability or retirement, a pro-rata portion of the +RSUs, based on a fraction the numerator of which is the length of service beginning in January, 2011 divided by 48 months, will fully vest effective as of December 31, 2014, subject to +the achievement of the performance conditions. +52 +A +summary of payments and benefits that would be provided by the Company in addition to amounts accrued for unpaid base salary, vacation pay, non-equity incentive bonus and +reimbursable expenses, if the termination or change of control had occurred on December 31, 2011 (based on the closing price of the Company's common stock on December 30, 2011 of +$75.57), given the Named Executive Officers' compensation and service levels per their respective Severance Agreements and equity awards is as follows: +Upon Termination +Name +Type of Compensation or Benefit +For Death or +Total Disability +By the Company +Without Cause +or by Executive +for Good Reason +Upon Change +of Control +Angel R. Martinez +cash payments +$ +— +$ +1,000,000 +$ +5,923,333 +value of health benefits +— +22,799 +45,597 +value of NSUs +— +4,241,366 +7,783,710 +value of RSUs +4,156,350 +— +5,856,675 +value of SARs +— +— +4,602,213 +4,156,350 +5,264,165 +24,211,528 +Thomas A. George +cash payments +— +400,000 +1,192,000 +value of health benefits +— +18,734 +28,101 +value of NSUs +— +1,124,104 +2,456,025 +value of RSUs +440,814 +— +1,007,575 +440,814 +1,542,838 +4,683,701 +Zohar Ziv +cash payments +— +600,000 +3,113,333 +value of health benefits +— +21,820 +21,820 +value of NSUs +— +2,833,875 +5,214,330 +value of RSUs +1,454,723 +— +2,304,885 +value of SARs +— +— +1,150,553 +1,454,723 +3,455,695 +11,804,921 +Constance X. Rishwain +cash payments +— +420,000 +1,882,000 +value of health benefits +— +20,759 +31,138 +value of NSUs +— +2,739,413 +4,836,480 +value of RSUs +1,234,299 +— +1,801,060 +value of SARs +— +— +1,150,553 +1,234,299 +3,180,172 +9,701,231 +Peter K. Worley +cash payments +— +300,000 +1,065,500 +value of health benefits +— +20,855 +31,283 +value of NSUs +— +821,824 +1,700,325 +value of RSUs +1,124,104 +— +1,549,185 +value of SARs +— +— +1,150,553 +1,124,104 +1,142,679 +5,496,846 +No additional payments or benefits would be provided by the Company if the termination occurred by the Company for Cause or by the executive +without Good Reason. +53 +DIRECTOR COMPENSATION +For service during 2011, directors who are not employees of the Company or its subsidiaries, which we refer to as "Nonemployee Directors," received an annual +retainer of $50,000 in cash plus $15,000 for each committee assignment. Nonemployee Directors are also reimbursed for any expenses they may incur with respect to such meetings. In addition, the +following positions were entitled to receive an additional annual retainer fee of $70,000 for Lead Director, $40,000 for Audit Committee Chair, and $15,000 each for the Chair for the Compensation and +Management Development Committee and the Corporate Governance and Nominating Committee. Nonemployee Directors also received equity compensation with a total value of approximately $125,000 annually of +the Company's common stock, +to be issued out in quarterly installments with the value to be determined using a rolling average of the share price during the last 10 days of each quarter. Nonemployee Directors also +received product discounts, which are generally available to the Company's employees and from time to time may receive products without charge in order to help expand the directors' knowledge of the +Company's products. Nonemployee Directors who did not serve as directors for the full year received a pro-rated portion of the amounts discussed above. +In +2011, the Board of Directors did not make any changes to the Board compensation package provided to the Nonemployee Directors in 2010. +In +addition, in 2011, the Board of Directors adopted stock ownership guidelines for the Nonemployee Directors. Nonemployee Directors are also required to hold Company shares worth 5 +times the annual retainer within 5 years of joining the Board and each director must hold Company shares after 1 year of joining the Board. +54 +Directors +who were employees of the Company or its subsidiaries served as directors without compensation. +Name +Year +Fees +Earned in +2011 +($) +Stock +Awards +($) +Total +($) +John M. Gibbons +2011 +$ +120,000 +$ +122,293 +(1)(2) +$ +242,293 +Director +Rex A. Licklider +2011 +120,000 +122,293 +(1) +242,293 +Director +Ruth M. Owades +2011 +65,000 +122,293 +(1) +187,293 +Director +John G. Perenchio +2011 +95,000 +122,293 +(1) +217,293 +Director +Maureen Conners +2011 +95,000 +122,293 +(1) +217,293 +Director +Karyn O. Barsa +2011 +65,000 +122,293 +(1) +187,293 +Director +Michael F. Devine(7) +2011 +50,417 +100,670 +(3) +151,087 +Director +James E. Quinn(8) +2011 +19,167 +37,458 +(4) +56,625 +Director +Lauri M. Shanahan(8) +2011 +19,167 +37,458 +(4)(5) +56,625 +Director +Tore Steen(9) +2011 +27,083 +57,093 +(6) +84,176 +Director +Angel R. Martinez(10) +2011 +N/A +N/A +N/A +Chair of the Board +(1) Represents +grants of 377 shares of common stock at a per share price of $86.15 on March 31, 2011, 371 shares of common stock at a per share price of +$88.14 on June 30, 2011, 317 shares of common stock at a per share price of $93.16 on September 30, 2011, and 365 shares of common stock at a per share price of $75.57 on +December 31, 2011. +(2) Entire +amount of compensation was deferred until January 5, 2012. +(3) Represents +grants of 126 shares of common stock at a per share price of $86.15 on March 31, 2011, 371 shares of common stock at a per share price of +$88.14 on June 30, 2011, 317 shares of common stock at a per share price of $93.16 on September 30, 2011, and 365 shares of common stock at a per share price of $75.57 on +December 31, 2011. +(4) Represents +grants of 106 shares of common stock at a per share price of $93.16 on September 30, 2011, and 365 shares of common stock at a per share +price of $75.57 on December 31, 2011. +(5) Includes +$27,507 of compensation which was deferred until January 1, 2017. +(6) Represents +grants of 377 shares of common stock at a per share price of $86.15 on March 31, 2011 and 248 shares of common stock at a per share price +of $99.25 on July 29, 2011. +(7) Mr. Devine +joined the board on March 1, 2011. +(8) Mr. Quinn +and Ms. Shanahan joined the board on September 12, 2011. +(9) Mr. Steen +resigned his position as a director of the Company, effective May 31, 2011. +(10) Mr. Martinez +received compensation as President and Chief Executive Officer of the Company for 2011 as discussed previously. He did not receive any +compensation as a director in 2011. +55 +EQUITY COMPENSATION PLAN INFORMATION +The following table sets forth information regarding shares of our common stock that may be issued under our equity compensation plans as of December 31, +2011. +Number of securities +to be issued +upon exercise of +outstanding options, +warrants and rights(1) +Weighted-average +exercise price of +outstanding options, +warrants and rights(2) +Number of securities +remaining available +for future issuance(3) +Equity compensation plans approved by security holders +1,769,596 +$ +26.34 +3,350,965 +Equity compensation plans not approved by security holders +— +— +— +Total +1,769,596 +$ +26.34 +3,350,965 +(1) Includes +outstanding options, unexercisable SARs and unvested NSUs and RSUs. The nature of the NSU and RSU grants are described in the +Compensation Discussion and Analysis. +(2) The +weighted-average exercise price of the options was $4.67 and the stock price at the date of grant of the SARs was $26.73. The weighted-average exercise +price does not take into account the NSUs and RSUs. +(3) Includes +6,000,000 authorized shares under the 2006 Plan less actual shares issued as well as shares reserved for outstanding SARs, NSUs and RSUs. +Compensation Policies and Practices and their Relation to Risk Management +In addition to our compensation policies for executive officers, the Compensation and Management Development Committee reviews the risks and rewards associated +with the Company's compensation programs for all employees generally. The Committee believes that our compensation programs for all employees include elements that mitigate risk while continuing to +properly incentivize our employees. The Committee also believes that our compensation policies reward prudent business judgment and appropriate risk taking for our long term performance. Specifically, +the policies which mitigate undue risk taking include: (i) independent Committee oversight and the ability of the Committee to exercise its discretion, (ii) the use of a mix of cash and +equity, (iii) the use of multiple performance factors in our cash incentive compensation plan, so that employees do not focus on a single financial measure, (iv) capping awards payable +under our cash incentive compensation plan, (v) multiple-year vesting of our equity awards to support long-term stockholder value creation; (vi) subjecting our +annual equity awards granted in 2011 and 2012 to a Clawback Policy provision subjecting these awards to a Clawback Policy to be adopted by the Company following the SEC's adoption of the relevant +rules by the SEC; and (vii) prohibiting in our insider trading policy our Named Executive Officers and other key executives from hedging the economic interest in the Company securities that +they hold. +Management +and the Committee evaluate the risk involved with the compensation policies for all of our employees and do not believe any of the Company's compensation programs create risks +that are reasonably likely to pose a material adverse impact to the Company. +56 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth, as of March 31, 2012, certain information concerning the shares of common stock beneficially owned by (i) each +person who is a Named Executive Officer; (ii) each director and director nominee; (iii) all executive officers and directors as a group (fifteen persons); and (iv) each person +known by the Company to be the beneficial owner of more than 5% of our common stock (other than directors, executive officers and depositaries) based upon the most recent SEC filings available. +Name and Address of Beneficial Owner(1) +Amount and +Nature of Beneficial +Ownership(2)(3) +Percent +of Class(3) +Named Executive Officers +Angel R. Martinez(8) +194,757 +* +Thomas A. George +— +* +Zohar Ziv(8) +60,186 +* +Constance X Rishwain(8) +33,269 +* +Peter K. Worley(8) +32,995 +* +Directors and Director Nominees +Angel R. Martinez +194,757 +* +Rex A. Licklider +629,120 +1.6 +% +John M. Gibbons(4) +18,898 +* +John G. Perenchio +77,232 +* +Maureen Conners +14,288 +* +Ruth M. Owades +8,488 +* +Karyn O. Barsa +7,013 +* +Mike F. Devine III +1,179 +* +James E. Quinn +1,271 +* +Lauri M. Shanahan +107 +* +All directors and executive officers as a group (fifteen persons) +1,078,803 +2.8 +% +5% Stockholders +FMR LLC(5) +2,213,460 +5.8 +% +Wellington Management Co, LLP(6) +4,276,444 +11.1 +% +BlackRock, Inc.(7) +2,281,618 +5.9 +% +* Percentage +of shares beneficially owned does not exceed 1% of the class so owned. +(1) The +address of each beneficial owner is 495-A South Fairview Avenue, Goleta, California 93117, unless otherwise noted. +(2) Unless +otherwise noted, the Company believes that each individual or entity named has sole investment and voting power with respect to shares of Common +Stock indicated as beneficially owned by them, subject to community property laws, where applicable. +(3) Pursuant +to Rule 13d-3(d)(1) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion +privileges exercisable on or before the date that is 60 days after March 31, 2012 are deemed outstanding for the purpose of calculating the number and percentage owned by such person, +but not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. +57 +(4) Includes +18,898 shares held by the Gibbons Living Trust as to which Mr. Gibbons has joint voting and investment power. +(5) This +information is based solely on a 13G/A filed by the party on February 14, 2012 whose business address is 82 Devonshire Street, Boston, MA 02109. +Fidelity Management & Research Company (Fidelity), a wholly-owned subsidiary of FMR LLC and an investment advisor, is the beneficial owner of 2,175,980 shares. Edward C. +Johnson 3d and FMR LLC, through its control of Fidelity, and the funds each has sole power to dispose of the 2,175,980 shares. Edward C. Johnson 3d, Chairman of +FMR LLC, and members of his family, collectively own 49% of the voting power of FMR LLC and may constitute a controlling group with respect to FMR LLC. Neither Edward C. +Johnson 3d nor FMR LLC has the sole power to vote or direct the voting of shares held by the Fidelity Funds, which power resides with the board of trustees of the Fidelity Funds. Pyramis +Global Advisors Trust Company (PGATC), an indirect wholly-owned subsidiary of FMR LLC and bank, is the beneficial owner of 37,290 shares, as a result of its serving as investment manager of +institutional accounts owning such shares. Edward C. Johnson 3d and FMR LLC, through its control of PGATC, each has sole dispositve power over 37,290 shares and sole power to vote +or to direct the voting of 29,100 shares. +(6) This +information is based solely on a Schedule 13G/A filed by the party on February 10, 2012 whose business address is 280 Congress Street, +Boston MA, 02210. Wellington Management Company, LLP (Wellington), has shared voting power for 3,162,947 shares and shared dispositive power for 4,276,444 shares. +(7) This +information is based solely on a Schedule 13G/A filed by the party on February 13, 2012 whose business address is 40 East +52nd Street, New York, NY 10022. Includes 2,281,618 shares held by BlackRock, Inc., which identified itself as a parent holding company, with sole dispositive power and voting power with +respect to all of such shares. +(8) Includes +exercisable SARs of 160,000 for Angel Martinez; 30,000 for Zohar Ziv; 15,000 for Constance Rishwain; and 15,000 for Peter Worley. +58 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of the Company's financial reporting, the Company's +independent registered public accounting firm, the highest ranking manager of internal audit, legal and regulatory compliance, related party transactions, code of conduct and system of internal +controls. The Audit Committee is currently composed of three directors, each of whom meets the independence and experience requirements under the Nasdaq rules and the independence requirements of the +SEC. +Management +is responsible for the preparation of the Company's financial statements and financial reporting process including its system of internal controls. KPMG LLP, the +Company's independent registered public accounting firm is responsible for performing an independent audit of the Company's consolidated financial statements in accordance with the standards of the +Public Company Accounting Oversight Board (United States) (the "PCAOB") and expressing (i) an opinion on whether the Company's consolidated financial statements present fairly, in all material +respects, the Company's financial position and results of operations and cash flows for the periods presented in conformity with US generally accepted accounting principles and (ii) an opinion +on whether the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal +Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Audit Committee's responsibility is to monitor and oversee these processes. The +Board of Directors has determined that John M. Gibbons, the Chair of the Audit Committee, is independent and is an "audit committee financial expert" under applicable rules and regulations. +In +connection with these responsibilities, the Audit Committee met with management and the Company's independent registered public accounting firm to review and discuss the +December 31, 2011 consolidated financial statements and obtained from management their representation that the Company's financial statements have been prepared in accordance with US generally +accepted accounting principles. Management determined that, as of December 31, 2011, the Company maintained effective internal control over financial reporting. +The +Audit Committee also discussed with the independent registered public accounting firm the matters required by Statement on Auditing Standards No. 61 (Communication with Audit +Committees), which includes, among other items, information regarding the conduct of the audit of the Company's consolidated financial statements. The Audit Committee also received written disclosures +from KPMG LLP required by the PCAOB's Rule 3526: Communication with Audit Committees Concerning Independence, and the Audit Committee discussed with KPMG LLP its independence from +the Company and the Company's management. The Audit Committee has further considered the compatibility of the services provided by KPMG LLP with that firm's independence. +The +Audit Committee operates under a written charter, which was adopted by the Board of Directors and is assessed annually for adequacy by the Audit Committee. The Audit Committee held +8 meetings during fiscal 2011, including meetings with the independent registered public accounting firm and the highest ranking manager of internal audit, both with and without management +present. In performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company's financial statements +are complete and accurate, are presented in accordance with U.S. generally accepted accounting principles or present fairly the results of operations of the Company for the periods presented or +that the Company maintains appropriate internal controls. Furthermore, it is the responsibility of the Audit Committee to determine that the audit of the Company's financial statements has been +carried out in accordance with the standards of the PCAOB or that the Company's registered public accounting firm is independent. +59 +Based +upon the Audit Committee's review and discussions with management and the independent registered public accounting firm, and subject to the limitations of the Audit Committee's +role and responsibilities referred to above and in the Audit Committee charter, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the +Company's Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on February 29, 2012. +THE AUDIT COMMITTEE +John M. Gibbons, Chair +Michael F. Devine, III +Karyn O. Barsa +The +Report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the +Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall +not otherwise be deemed filed under such Acts. +Certain Relationships and Related Person Transactions +The Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our directors, +executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material +interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire +which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of interest where an +individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or +appear to impair the exercise of judgment solely for the benefit of the +Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of directors, the Audit Committee. Information regarding +potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the Company's anonymous reporting hotline and may be subsequently obtained by the +Chair of the Audit Committee, the Chair of the Board of Directors and the highest ranking manager of internal audit. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable SEC regulations, the Audit +Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards +of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in +its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2011 nor are any +such transactions currently proposed. +60 +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by +the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our directors and executive officers in which we agree to indemnify such persons to the +fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the directors, executive officers and persons who own more than 10% of our +common stock (collectively "Section 16 Persons") to file initial reports of ownership (Forms 3) and reports of changes in ownership of common stock (Forms 4 and Forms 5) +with the SEC as well as provide copies of the reports to the Company. +To +the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and representations from each Section 16 Person known to the Company +that no other reports were required, during the fiscal year ended December 31, 2011, all Section 16(a) filing requirements applicable to its Section 16 Persons were complied with +except that: +(i) each +of Angel Martinez, Zohar Ziv, Thomas George, Constance Rishwain, and Pete Worley filed a Form 4 on April 6, 2011, +which reported one transaction each related to the grant by the Company of NSUs pursuant to the 2006 Plan, that were due to be reported on April 1, 2011 and +(ii) each +of Rex Licklider, John Gibbons, John Perenchio, Maureen Conners, Tore Steen, Ruth Owades, Karyn Barsa and +Michael Devine, III filed a Form 4 on April 6, 2011, which reported one transaction each related to the issuance by the Company of quarterly shares for director +compensation, that were due to be reported on April 4, 2011. +61 +RATIFICATION OF THE APPOINTMENT OF KMPG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +PROPOSAL NO. 2 +For the 2011 fiscal year, KPMG LLP provided audit services, which included examination of the Company's annual consolidated +financial statements. A summary of the fees for these services provided by KPMG is below. The Audit Committee has selected KPMG LLP to provide audit services to the Company and its subsidiaries +for the fiscal year ending December 31, 2012. Our stockholders are being requested to ratify this selection at the Annual Meeting. A representative of KPMG LLP will attend the Annual +Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +Although +this appointment is not required to be submitted to a vote of the stockholders, the Audit Committee believes it is appropriate as a matter of policy to request that the +stockholders ratify the appointment. If the stockholders do not ratify the appointment, the Audit Committee will consider the +selection of another independent registered public accounting firm, but is not required to select a different firm. +THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 2 TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE +COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +FOR THE FISCAL YEAR ENDING DECEMBER 31, 2012. +Audit Fees and All Other Fees +Audit Fees +Fees approved for audit services totaled approximately $2,038,000 in 2011 and $1,253,000 in 2010. The 2011 audit fees +include fees associated with the audit of the Company's consolidated balance sheets as of December 31, 2011 and 2010, the related consolidated statements of operations, stockholders' equity and +comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2011 and the audit of internal control over financial reporting as of +December 31, 2011, as well as the reviews of the Company's quarterly reports on Form 10-Q, audits of acquired entities and certain statutory audits required internationally. +Audit-Related Fees +The Company was billed for approximately $228,000 audit-related fees in 2011 and was not billed for any audit-related +fees in 2010. The 2011 audit-related fees relate to due diligence services rendered related to the Company's acquisition of the Sanuk brand. +Tax Fees +Fees incurred for tax services, including tax compliance, tax advice and tax planning for income taxes and customs +matters, totaled approximately $62,000 in 2011 and $18,000 in 2010. +All Other Fees +The Company was not billed for any other fees in 2011 or 2010. +62 +Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public +Accounting Firm +The Audit Committee administers the Company's engagement of KPMG LLP and pre-approves all their +audit and permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement +could compromise the independence of KPMG LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent registered public +accounting firm to perform the services. The Audit Committee has determined that performance by KPMG LLP of the non-audit services listed above did not affect their independence. +Prior +to engagement, the Audit Committee Chair pre-approves all independent registered public accounting firm services. During the year, circumstances may arise when it may +become necessary to engage the independent registered public accounting firm for additional services +not contemplated in the original pre-approval categories. In those instances, the Audit Committee requires that those services be submitted to the Audit Committee Chair for specific +pre-approval before the Company can engage the independent registered public accounting firm to provide them. The Chair reports any pre-approval decisions to the Audit +Committee at its next scheduled meeting for approval by the Committee. In 2007, the Audit Committee approved an Audit and Non-Audit Financial Service Approval Policy which adopts the de +minimus exception found in Section 10A of the Securities Exchange Act of 1934, as amended, for preapproval by the Audit Committee of certain audit and non-audit services. +63 +ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION +PROPOSAL NO. 3 +We are asking our stockholders to approve a non-binding advisory resolution on the compensation paid to our Named Executive +Officers as described in detail in the "Compensation Discussion and Analysis" section of this Proxy Statement. The Compensation and Management Development Committee has structured our executive +compensation program to: +• Attract and retain key executives +• Align executives' interests with that of our stockholders +• Pay for performance +• Reward achievement of short-term and long-term goals +In +2011, we achieved a record level of $1.377 billion in annual net sales, continuing a trend of increases in net sales and diluted earnings per share every year since 2006. We +believe that our executive compensation practices have fostered such success by: +• Including reasonable vesting provisions for our equity awards +• Providing both cash and equity awards and an appropriate mix of these awards +• Establishing performance goals to reflect the individual contribution of each executive and company-wide +performance +• Requiring achievement of long and short-term company goals before payment of certain compensation elements +We +urge stockholders to carefully read the "Compensation Discussion and Analysis" beginning on page 26, which describes in greater detail how our executive compensation policies +and procedures operate, as well as the Summary Compensation Table and related compensation tables that follow it. The Board and the Compensation and Management Development Committee believe that the +compensation policies and procedures described in this Proxy Statement are effective in achieving our compensation objectives. +Therefore, +in accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, we ask our stockholders to approve the following +advisory resolution at the 2012 Annual Meeting: +"RESOLVED, +that the Company's stockholders approve, on a non-binding advisory basis, the compensation of the Named Executive Officers, as described in the Compensation Discussion and +Analysis, the Summary Compensation Table, and the related compensation tables, notes and narrative in the Proxy Statement for the Company's 2012 Annual Meeting of Stockholders." +Because +this vote is advisory only, it will not be binding upon the Board of Directors or the Compensation and Management Development Committee. However, the Compensation and Management +Development Committee will take the outcome of the vote into account when considering future executive compensation arrangements. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE +"FOR" PROPOSAL NO. 3 TO APPROVE THE COMPENSATIN OF OUR NAMED +EXECUTIVE OFFICERS, AS DESCRIBED IN THIS PROXY STATEMENT. +64 +OTHER BUSINESS OF THE ANNUAL MEETING +Management is not aware of any matters to come before the Annual Meeting or any postponement or adjournment thereof +other than the election of directors, the +ratification of the selection of the Company's independent registered public accounting firm, and the advisory vote on executive compensation. However, inasmuch as matters of which management is not +now aware may come before the Annual Meeting or any postponement or adjournment thereof, the proxies confer discretionary authority with respect to acting thereon, and the persons named in such +proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided that, to the extent the Company becomes aware a reasonable time before the Annual Meeting +of any matter to come before such meeting, the Company will provide an opportunity to vote by proxy directly on such matter. Upon receipt of such proxies in time for voting, the shares represented +thereby will be voted as indicated thereon and as described in this Proxy Statement. +ANNUAL REPORT ON FORM 10-K +A copy of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, +2011 (excluding the exhibits thereto) as filed with the SEC, accompanies this Proxy Statement, but it is not deemed to be a part of the proxy soliciting material. The Form 10-K +contains consolidated financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP, the Company's independent registered public accounting firm. +The +Company will provide a copy of the exhibits to its Form 10-K for the fiscal year ended December 31, 2011 upon the written request of any beneficial owner of +the Company's securities as of the Record Date and reimbursement of the Company's reasonable expenses. Such request should be addressed to the Corporate Secretary at the Company's corporate offices +located at 495-A South Fairview Avenue, Goleta, California 93117. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ ANGEL R. MARTINEZ +Angel R. Martinez +Chair of the Board of Directors, President and Chief Executive Officer +Goleta, +California +April 13, 2012 +65 +1 1 000000000000 NAME THE COMPANY NAME INC. - COMMON +123,456,789,012.12345 THE COMPANY NAME INC. - CLASS A 123,456,789,012.12345 +THE COMPANY NAME INC. - CLASS B 123,456,789,012.12345 THE COMPANY NAME INC. - +CLASS C 123,456,789,012.12345 THE COMPANY NAME INC. - CLASS D +123,456,789,012.12345 THE COMPANY NAME INC. - CLASS E 123,456,789,012.12345 +THE COMPANY NAME INC. - CLASS F 123,456,789,012.12345 THE COMPANY NAME INC. - +401 K 123,456,789,012.12345 . x 02 0000000000 JOB # 1 OF 2 1 OF 2 PAGE SHARES +CUSIP # SEQUENCE # THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP +THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, +MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) +Signature [PLEASE SIGN WITHIN BOX] Date Date CONTROL # SHARES To withhold +authority to vote for any individual nominee(s), mark “For All Except” and +write the number(s) of the nominee(s) on the line below. 0 0 0 0 0 0 0 0 0 +0000137401_1 R1.0.0.11699 For Withhold For All All All Except The Board of +Directors recommends you vote FOR the following: 1. Election of Directors +Nominees 01 Angel R. Martinez 02 Rex A. Licklider 03 John M. Gibbons 04 John +G. Perenchio 05 Maureen Conners 06 Karyn O. Barsa 07 Michael F. Devine, III +08 James Quinn 09 Lauri Shanahan 495-A SOUTH FAIRVIEW AVE GOLETA, CA 93117 +Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 +Investor Address Line 4 Investor Address Line 5 John Sample 1234 ANYWHERE +STREET ANY CITY, ON A1A 1A1 Investor Address Line 1 Investor Address Line 2 +Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 John +Sample 1234 ANYWHERE STREET ANY CITY, ON A1A 1A1 VOTE BY INTERNET - +www.proxyvote.com Use the Internet to transmit your voting instructions and +for electronic delivery of information up until 11:59 P.M. Eastern Time on +May 23, 2012. Have your proxy card in hand when you access the web site and +follow the instructions to obtain your records and to create an electronic +voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you +would like to reduce the costs incurred by our company in mailing proxy +materials, you can consent to receiving all future proxy statements, proxy +cards and annual reports electronically via e-mail or the Internet. To sign up +for electronic delivery, please follow the instructions above to vote using +the Internet and, when prompted, indicate that you agree to receive or access +proxy materials electronically in future years. VOTE BY PHONE - +1-800-690-6903 Use any touch-tone telephone to transmit your voting +instructions up until 11:59 P.M. Eastern Time on May 23, 2012. Have your +proxy card in hand when you call and then follow the instructions. VOTE BY +MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope +we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes +Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR +proposals 2 and 3. For Against Abstain 2. To ratify the appointment of KPMG +LLP as our independent registered public accounting firm for the year ending +December 31, 2012. 3. To approve, by a non-binding advisory vote, the +compensation of our named executive officers as disclosed in the Compensation +Discussion and Analysis section of the Proxy Statement. NOTE: In their +discretion, the proxies are authorized to vote upon such other business as +may properly come before the meeting and any continuations, postponements or +adjournments thereof. Please sign exactly as your name(s) appear(s) hereon. +When signing as attorney, executor, administrator, or other fiduciary, please +give full title as such. Joint owners should each sign personally. All +holders must sign. If a corporation or partnership, please sign in full +corporate or partnership name, by authorized officer. +0000137401_2 R1.0.0.11699 Important Notice Regarding the +Availability of Proxy Materials for the Annual Meeting: The Notice & +Proxy Statement, Annual Report is/ are available at www.proxyvote.com . +DECKERS OUTDOOR CORPORATION Annual Meeting of Stockholders May 24, 2012 3:00 +PM This proxy is solicited by the Board of Directors of Deckers Outdoor +Corporation The undersigned hereby appoints Zohar Ziv and Thomas A. George, +and each of them, with power to act without the other and with power of substitution, +as proxies and attorneys-in-fact and hereby authorizes them to represent and +vote, as provided on the other side, all the shares of Common Stock of +Deckers Outdoor Corporation which the undersigned is entitled to vote and, in +their discretion, to vote upon such other business as may properly come +before the 2012 Annual Meeting of Stockholders to be held on May 24, 2012 and +any continuations, postponements or adjournments thereof, with all powers +which the undersigned would possess if present at the Meeting. This proxy +card, when properly executed, will be voted in the manner directed herein by +the undersigned. If no direction is made but the card is signed, this proxy +card will be voted for the election of all nominees under proposal 1, for proposal +2, and for proposal 3, and in the discretion of the proxies with respect to +such other business as may properly come before the meeting. At the date the +Proxy Statement went to press, we did not anticipate any other matters would +be raised at the Annual Meeting. Continued and to be signed on reverse side +QuickLinks +2012 Proxy Summary +QUESTIONS AND ANSWERS ABOUT THE 2012 ANNUAL MEETING AND VOTING +PROPOSAL NO. 1 +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE ABOVE NOMINEES FOR DIRECTOR. +CEO's 2011 Guaranteed Pay vs. At-Risk Pay +REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE +SUMMARY COMPENSATION TABLE +GRANTS OF PLAN BASED AWARDS IN 2011 +OUTSTANDING EQUITY AWARDS AT 2011 FISCAL YEAR END +2011 OPTION EXERCISES AND STOCK VESTED +NONQUALIFIED DEFERRED COMPENSATION +POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL +DIRECTOR COMPENSATION +EQUITY COMPENSATION PLAN INFORMATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +REPORT OF THE AUDIT COMMITTEE +PROPOSAL NO. 2 +PROPOSAL NO. 3 +OTHER BUSINESS OF THE ANNUAL MEETING +ANNUAL REPORT ON FORM 10-K \ No newline at end of file diff --git a/raw/proxies/0000910521/0001047469-12-004278/proxy_rpt.txt b/raw/proxies/0000910521/0001047469-12-004278/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..0e01b60bc307632b83ae5c1c1c2092b7ac5911a3 --- /dev/null +++ b/raw/proxies/0000910521/0001047469-12-004278/proxy_rpt.txt @@ -0,0 +1,30 @@ +Certain Relationships and Related Person Transactions +The Company's legal department is primarily responsible for identifying and reviewing relationships and transactions in which the Company and our directors, +executive officers, certain of our stockholders or their immediate family members are participants to determine whether any of these related persons had or will have a direct or indirect material +interest. In order to identify potential related person transactions, the Company's legal department annually prepares and distributes to all directors and executive officers a written questionnaire +which includes questions intended to elicit information about any related person transactions. In addition, the Company's Code of Business Conduct and Ethics addresses conflicts of interest where an +individual's private interests interfere or conflict with the interests of the Company, including relationships with suppliers, customers or competitors. Conflicts of interest which might impair or +appear to impair the exercise of judgment solely for the benefit of the +Company are prohibited. In general, such conflicts must be approved by the legal department, the employee's supervisor or, in the case of directors, the Audit Committee. Information regarding +potential conflicts of interests in violation of the Company's Code of Business Conduct and Ethics may be reported to the Company's anonymous reporting hotline and may be subsequently obtained by the +Chair of the Audit Committee, the Chair of the Board of Directors and the highest ranking manager of internal audit. +If +a related person transaction is identified by the legal department as one which must be reported in the Company's Proxy Statement pursuant to applicable SEC regulations, the Audit +Committee is responsible for reviewing and approving or ratifying any such related person transactions. In evaluating related person transactions, the Audit Committee members apply the same standards +of good faith and fiduciary duty they apply to their general responsibilities as the Audit Committee and as individual directors. The Audit Committee may approve a related person transaction when, in +its good faith judgment, the transaction is in the best interests of the Company. +There +were no disclosable transactions with related persons under Item 404 of Regulation S-K during the fiscal year ended December 31, 2011 nor are any +such transactions currently proposed. +60 +Limitation of Liability and Indemnification of Directors and Officers +Our Certificate of Incorporation and Bylaws provide that we shall indemnify directors and executive officers to the fullest extent now or hereafter permitted by +the Delaware General Corporation Law (DGCL). In addition, we have entered into indemnification agreements with our directors and executive officers in which we agree to indemnify such persons to the +fullest extent now or hereafter permitted by the DGCL. +We +have obtained a liability policy for our directors and officers as permitted by the DGCL which extends to, among other things, liability arising under the Securities Act of 1933, as +amended. +We +maintain an insurance policy pursuant to which our directors and officers are insured, within the limits and subject to the limitations of the policy, against specified expenses in +connection with the defense of claims, actions, suits or proceedings, and liabilities which might be imposed as a result of such claims, actions, suits or proceedings, that may be brought against them +by reason of their being or having been directors or officers. \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950123-10-040976/proxy.txt b/raw/proxies/0001065837/0000950123-10-040976/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..09be065501e24a86ca48ecb9e3aa3ebba48f987d --- /dev/null +++ b/raw/proxies/0001065837/0000950123-10-040976/proxy.txt @@ -0,0 +1,2846 @@ +DEF 14A +1 +v55826ddef14a.htm +SCHEDULE DEF 14A +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +þ +Definitive Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +Important Notice Regarding the Availability of Proxy +Materials for the Stockholder +Meeting to Be Held on June 2, 2010 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation, to be held at the Shade +Hotel located at 1221 North Valley Drive, Manhattan Beach, +California 90266 on June 2, 2010 at +10:00 a.m. Pacific Time. +Our Annual Meeting is being held to elect three members to the +Board of Directors to serve for a three-year term as +Class II Directors and to transact such other business as +may properly come before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on +April 7, 2010 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +The following proxy statement and enclosed proxy card are being +sent to each stockholder as of the record date, and our 2009 +annual report is enclosed with this notice to our stockholders. +The proxy statement and 2009 annual report are available in +the SEC filings section of the investor relations page of our +corporate information website at +www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if +you plan to attend the Annual Meeting in person, you may find +directions by going to the annual meeting of stockholders +section of the investor relations page of our corporate +information website at www.skx.com/investor.jsp . If you +do not expect to attend, or if you plan to attend but desire the +proxy holders to vote your shares, please date and sign your +proxy card and return it in the enclosed postage-paid envelope. +Returning a signed proxy card will not affect your right to vote +in person in the event you find it convenient to attend. Please +return the proxy card promptly to avoid the expense of +additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2010 +Manhattan Beach, California +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +PROPOSAL NO. 1 ELECTION OF DIRECTORS +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +CORPORATE GOVERNANCE AND BOARD MATTERS +COMPENSATION DISCUSSION AND ANALYSIS +REPORT OF THE COMPENSATION COMMITTEE +EXECUTIVE COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +TRANSACTIONS WITH RELATED PERSONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING +OTHER BUSINESS +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For +Annual Meeting to be Held +June 2, 2010 at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or +“Skechers”), in connection with our Annual Meeting of +Stockholders to be held on June 2, 2010 at +10:00 a.m. Pacific Time at the Shade Hotel located at +1221 North Valley Drive, Manhattan Beach, California 90266 (the +“Annual Meeting”). The approximate mailing date for +this proxy statement and the enclosed proxy is April 30, +2010. If a proxy in the accompanying form is duly executed and +returned, the shares represented by the proxy will be voted as +directed. If no direction is given, the shares represented by +the proxy will be voted for the election of the nominees for +director named herein. Any proxy given may be revoked at any +time prior to its exercise by notifying our Corporate Secretary, +Philip Paccione, in writing of such revocation, by duly +executing and delivering another proxy bearing a later date, or +by attending and voting in person at the Annual Meeting. Our +principal executive office is located at 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +We will incur the cost of this solicitation of proxies that will +be made by mail. In addition, our officers and other regularly +engaged employees may, in a limited number of instances, solicit +proxies personally or by telephone. We will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of our Class A Common Stock and +Class B Common Stock. +Holders of our Class A Common Stock and Class B Common +Stock of record at the close of business on April 7, 2010 +will be entitled to vote at the Annual Meeting. There were +37,421,907 shares of Class A Common Stock and +12,154,435 shares of Class B Common Stock outstanding +on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the combined voting interest of the +outstanding shares of Class A Common Stock and Class B +Common Stock is necessary to constitute a quorum for the Annual +Meeting. A quorum must be established to consider any matter. +The three candidates for director receiving the most votes will +become directors of Skechers. Stockholders may not cumulate +their votes. Any other proposals require the affirmative +“for” vote of a majority of the shares present in +person or represented by proxy and entitled to vote on those +proposals at the Annual Meeting. If you hold shares beneficially +in street name and do not provide your broker with voting +instructions, your shares may constitute “broker +non-votes.” Generally, broker non-votes occur on a matter +when a broker is not permitted to vote on that matter without +instructions from the beneficial owner and instructions are not +given. In tabulating the voting result for any particular +proposal, shares that constitute broker non-votes are not +considered entitled to vote on that proposal. Thus, broker +non-votes will not affect the outcome of any matter being voted +on at the meeting, assuming that a quorum is obtained. However, +shares represented by such “broker non-votes” will be +counted in determining whether there is a quorum. A properly +executed proxy marked “Abstain” with respect to any +such matter will not be voted, although it will be counted for +purposes of determining whether there is a quorum. Because +directors are elected by a plurality of the votes cast, proxies +marked “Abstain” as to Proposal No. 1 will +not have any effect on the election of directors as long as one +vote is cast for each director nominee. +Table of Contents +PROPOSAL NO. 1 +ELECTION +OF DIRECTORS +Our Board of Directors is divided into three classes, with each +director serving a three-year term and until their successors +are duly elected and qualified or until their death, resignation +or removal. One class of directors is elected annually at our +annual meeting of stockholders. Our bylaws provide for a +variable Board of Directors with between five and nine members. +We currently have seven members on our Board of Directors. Our +bylaws give the Board of Directors the authority to increase or +decrease the number of directors without the approval of our +stockholders, and our bylaws also give our stockholders the +authority to increase or decrease the size of our Board of +Directors. +Unless otherwise directed by stockholders, within the limits set +forth in our bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Michael +Greenberg, David Weinberg and Jeffrey Greenberg who are director +nominees and are currently members of the Board of Directors. We +have been advised by Michael Greenberg, David Weinberg and +Jeffrey Greenberg of their availability and willingness to serve +if re-elected. In the event that Michael Greenberg, David +Weinberg +and/or +Jeffrey Greenberg becomes unavailable or unable to serve as a +member of the Board of Directors prior to the voting, the proxy +holders will refrain from voting for them or will vote for a +substitute nominee in the exercise of their best judgment. +The Board +of Directors recommends a vote FOR these +director-nominees. +2 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year in Which +Name +Age +Term Will Expire +Position +Michael Greenberg +47 +Class II (2013) +President and Director +David Weinberg +59 +Class II (2013) +Executive Vice President; Chief Operating Officer; Chief +Financial Officer; and Director +Jeffrey Greenberg +42 +Class II (2013) +Senior Vice President, Active Electronic Media and Director +Michael Greenberg has served as our President and a +member of our Board of Directors since our company’s +inception in 1992, and from June 1992 to October 1993, he served +as our Chairman of the Board. +Mr. Greenberg’s qualifications to serve on our Board +include 25 years of experience in the footwear industry, +specifically in sales, including his leadership as President of +our company for the last 18 years. +David Weinberg has served as our Chief Operating Officer +since January 2006, as our Chief Financial Officer since +September 2009 and from October 1993 to January 2006, and as +Executive Vice President and a member of our Board of Directors +since July 1998. +Mr. Weinberg’s qualifications to serve on our Board +include more than 20 years of experience in the footwear +industry, specifically in finance and operations, including +12 years as our Chief Financial Officer and four years as +our Chief Operating Officer. +Jeffrey Greenberg has served as our Senior Vice +President, Active Electronic Media since June 2005 and as a +member of our Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as our Vice +President, Active Electronic Media. Previously, +Mr. Greenberg served as our Chief Operating Officer, +Secretary and a member of our Board of Directors from June 1992 +to July 1998, and as our Chief Executive Officer from June 1992 +to October 1993. +Mr. Greenberg’s qualifications to serve on our Board +include 20 years of experience in the footwear industry, +specifically in marketing and operations, including his role on +our management team during our early years of growth following +our company’s inception in 1992. +Directors +Not Standing for Election +The members of the Board of Directors who are continuing and not +standing for election at this year’s Annual Meeting are set +forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +70 +Class I (2012) +Chairman of the Board and Chief Executive Officer +Morton Erlich +65 +Class I (2012) +Director +Geyer Kosinski +44 +Class III (2011) +Director +Richard Siskind +64 +Class III (2011) +Director +Robert Greenberg has served as our Chairman of the Board +and Chief Executive Officer since October 1993. +As our founder, leader and largest stockholder since our +inception in 1992 and the driving force behind our brand and our +products, Mr. Greenberg is uniquely qualified to serve on +and lead our Board of Directors. +Morton Erlich has served as a member of our Board of +Directors since January 2006 and has been an independent +investor and consultant since September 2004. Mr. Erlich +worked for 34 years at KPMG LLP including 24 years as +an audit partner until retiring in September 2004. His last +position at KPMG LLP was office managing partner of the office +in Woodland Hills, California. +3 +Table of Contents +Mr. Erlich’s qualifications to serve on our Board +include 34 years of accounting and finance experience at +KPMG LLP and being licensed as a certified public accountant +(inactive) in California since 1974. While working at KPMG LLP, +Mr. Erlich served as lead audit partner for numerous +companies in a variety of industries including companies in +consumer markets and manufacturing, distribution and retail +sectors. His accounting and finance experience includes +expertise with various types of transactions that clients +completed such as bank lines of credit, debt financings, equity +financings including public offerings of securities, and mergers +and acquisitions. +Geyer Kosinski has served as a member of our Board of +Directors since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and directors. +From April 1997 to June 2004, Mr. Kosinski was a Managing +Partner and co-owner of Industry Entertainment, a talent +management and production company that produced feature films +and television programming and managed over 100 actors, writers +and directors. +Mr. Kosinski’s qualifications to serve on our Board +include 18 years of leadership and transactional +experience, specifically managing the careers of actors, writers +and directors and developing and producing numerous feature +films and television series in the entertainment industry. +Richard Siskind has served as a member of our Board of +Directors since June 1999. In 1991, Mr. Siskind founded R. +Siskind & Company, a business that purchases brand +name men’s and women’s apparel and accessories and +redistributes those items to off-price retailers, and he is its +Chief Executive Officer and a member of its Board of Directors. +From November 2002 to June 2006, Mr. Siskind served as a +member of the Board of Directors of Magic Lantern Group, Inc. +(AMEX:GML), which changed its name from JKC Group, Inc. +Mr. Siskind’s qualifications to serve on our Board +include 35 years of experience as chief executive officer +of various companies in the consumer retail sector, including +four years as Chief Executive Officer and six years as a Board +member of a large publicly traded apparel company, Magic Lantern +Group, and 20 years as founder, majority shareholder and +leader of R. Siskind & Company. +Mr. Siskind’s experience with consumer retail +businesses includes expertise with business planning, +operations, finance, inventory control, acquisitions and +licenses. +Executive +Officers +The following table sets forth certain information with respect +to our executive officers who are not also members of our Board +of Directors. For information concerning Michael Greenberg and +David Weinberg, see “ Information Concerning Director +Nominees ” above, and for information concerning Robert +Greenberg, see “ Directors Not Standing for +Election ” above. +Name +Age +Position +Philip Paccione +48 +General Counsel; Executive Vice President, Business Affairs; and +Corporate Secretary +Mark Nason +48 +Executive Vice President, Product Development +Leonard Armato +57 +Chief Marketing Officer and President, Fitness Group +Philip Paccione has served as our Executive Vice +President, Business Affairs since February 2000, as our +Corporate Secretary since July 1998 and as our General Counsel +since May 1998. +Mark Nason has served as our Executive Vice President, +Product Development since March 2002. From January 1998 to March +2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served +as our Director of Merchandising and Retail Development. +Leonard Armato has served as our Chief Marketing Officer +and President, Fitness Group since March 2010. Since founding +MPE in 1992, Mr. Armato has served as Chief Executive +Officer of the sports and entertainment management and marketing +company. From February 2005 to April 2009, Mr. Armato +served as Chairman of the Board of AVP, Inc. (OTC:AVPI), which +is the parent company of AVP Pro Beach Volleyball Tour, Inc., +and from 2002 to April 2009, he served as Chief Executive +Officer of AVP, Inc. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of our executive officers or directors. +4 +Table of Contents +CORPORATE +GOVERNANCE AND BOARD MATTERS +Board of +Directors, Committees of the Board and Attendance at +Meetings +Our Corporate Governance Guidelines were adopted by our Board of +Directors as of April 28, 2004 to assist the Board in the +exercise of its responsibilities. The Corporate Governance +Guidelines reflect the Board’s commitment to monitor the +effectiveness of policy and decision making both at the Board +and management levels, with a view to enhancing long-term +stockholder value. The Corporate Governance Guidelines are +posted in the corporate governance section of the investor +relations page of our corporate information website located at +www.skx.com/investor.jsp , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +Our Board of Directors met four times in 2009, and each of the +directors attended all of the meetings, except Jeffrey Greenberg +who was unable to attend one meeting. While we do not have a +policy requiring our directors to attend our Annual Meeting of +Stockholders, all of the directors attended the Annual Meeting +of Stockholders held in 2009. +The Board has an Audit Committee, a Compensation Committee and a +Nominating and Governance Committee. The table below provides +current membership and meeting information for 2009 for each of +the committees. Each of the members of these committees is +independent as defined by Section 303A of the New York +Stock Exchange (“NYSE”) Listed Company Manual +(collectively, the “NYSE Rules”), and each member of +the Audit Committee is independent as defined by +Section 10A(m)(3) of, and +Rule 10A-3(b) +under, the Securities Exchange Act of 1934, as amended (the +“Exchange Act”). All committee meetings were attended +by all respective committee members in 2009. +Nominating and +Governance +Name +Audit Committee +Compensation Committee +Committee +Morton D. Erlich +X +* +X +X +* +Geyer Kosinski +X +Richard Siskind +X +X +* +X +Total Meetings in 2009 +7 +6 +2 +* +Committee Chairman +Each of these committees acts under a written charter that +complies with the applicable NYSE Rules and Securities and +Exchange Commission (“SEC”) rules. The functions +performed by the committees are summarized below and are set +forth in greater detail in their respective charters. The +complete text of the charter for each committee can be found in +the corporate governance section of the investor relations page +of our corporate information website located at +www.skx.com/investor.jsp , and copies are available in +print, without charge, upon written request to our Corporate +Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +Director +Independence +Our Board of Directors has seven members including four +non-management directors, which are those directors who are not +also serving as one of our executive officers. Our Board of +Directors has affirmatively determined that the Board has three +members who are independent as defined by Section 303A.02 +of the NYSE Rules. These directors are Morton Erlich, Geyer +Kosinski and Richard Siskind. The Board of Directors made this +affirmative determination regarding these directors’ +independence based on discussions with the directors and on its +review of the directors’ responses to a questionnaire +regarding employment and compensation history; affiliations, +family and other relationships; and transactions with our +company, its subsidiaries and affiliates. The Board considered +relationships and transactions between each director or any +member of his immediate family and our company and its +subsidiaries and affiliates, including those reported in the +section entitled “ Transactions with Related +Persons ” in this proxy statement. The purpose of the +Board’s review with respect to each director was to +5 +Table of Contents +determine whether any such relationships or transactions were +inconsistent with a determination that the director is +independent under the NYSE Rules. +Under Section 303A of the NYSE Rules, we were considered a +“Controlled Company” until prior to share transfers by +our largest stockholder, Robert Greenberg, which occurred on +September 15, 2009. As a Controlled Company, we were exempt +from certain NYSE Rules including the requirement that our Board +of Directors must consist of a majority of independent members. +Since we are no longer a Controlled Company, we have until +September 15, 2010 to appoint additional independent +directors +and/or +remove non-independent directors to ensure that the Board +consists of a majority of independent directors. We plan to have +our Board of Directors consist of a majority of independent +members by September 15, 2010. +Board +Leadership Structure +Robert Greenberg currently serves as both Chairman of the Board +and Chief Executive Officer of our company. We believe combining +the roles of Chairman and Chief Executive Officer is currently +the appropriate leadership model for our company as it provides +for clear accountability and efficient and effective leadership +of our business. Mr. Greenberg’s knowledge regarding +our operations and the industries and markets in which we +compete positions him to best identify matters for Board review +and deliberation. The dual role serves as a bridge between +management and the Board of Directors that enables +Mr. Greenberg to provide his insight and direction on +important strategic initiatives to both groups, ensuring that +they act with a common purpose. As our founder and our largest +stockholder, with beneficial ownership of approximately 28.2% of +the aggregate number of votes eligible to be cast by our +stockholders and the ability to exert significant influence over +matters requiring approval by our stockholders, we believe +Mr. Greenberg is the appropriate person to lead both our +Board of Directors and the management of our company. +To further strengthen our corporate governance structure and +provide independent oversight of our company, we have appointed +Morton Erlich as our Lead Independent Director. As Lead +Independent Director, Mr. Erlich acts as a liaison between +the non-management directors on our Board and Robert Greenberg +and the other members of our management team, chairs regularly +held executive sessions without our management present, and +performs other functions as requested by the non-management +directors. Executive sessions are typically held in conjunction +with regularly scheduled Audit Committee meetings and additional +sessions may be called by the Lead Independent Director in his +own discretion or at the request of the Board of Directors. +Role of +Board in Risk Oversight +Our Board of Directors is responsible for the oversight of risk +management. The Board of Directors delegates much of this +responsibility to the various committees of the Board. The Audit +Committee is responsible for inquiring of management, our +Director of Internal Audit and our independent registered public +accounting firm about our financial reporting processes, +internal controls and policies with respect to financial risk +assessment and management. The Chairman of the Audit Committee +has periodic discussions with our Director of Internal Audit +about the adequacy and effectiveness of steps taken to monitor, +control and report financial risk exposures, and the Director of +Internal Audit also presents the Audit Committee with formal +periodic status reports as well. The Compensation Committee +oversees risks related to our compensation programs and the +Nominating and Governance Committee is responsible for reviewing +regulatory and other corporate compliance risks. The Board is +advised by the committees of significant risks and +management’s response via periodic updates. +Stockholder +Communications with the Board of Directors +Stockholders and other interested parties who wish to contact +our Presiding Independent Director, Morton D. Erlich, or any of +our other directors either individually or as a group may do so +by writing to them +c/o Philip +Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Each writing interested party should specify whether the +communication is directed to our entire Board of Directors, to +only the non-management directors or to a particular director. +Our personnel will review the communications and screen improper +and irrelevant communications such as solicitations. +6 +Table of Contents +Audit +Committee +Our Board of Directors has determined Morton Erlich, who is the +Chairman of the Audit Committee, is an “audit committee +financial expert” as that term is defined in +Item 407(d)(5) of +Regulation S-K. +The Audit Committee is responsible for overseeing and evaluating +(i) the quality and integrity of our financial statements, +(ii) the performance of our internal audit and internal +controls functions in addition to financial risk assessment and +management applicable to our company, (iii) our policies +and procedures regarding transactions with related persons, as +described in greater detail below in the section entitled +“ Transactions with Related Persons, ” +(iv) the appointment, compensation, independence and +performance of our independent registered public accounting +firm, and (v) our compliance with legal and regulatory +requirements. +Compensation +Committee +The Compensation Committee is responsible for +(i) discharging the Board’s responsibilities relating +to compensation of our executive officers, (ii) overseeing +the administration of our executive compensation plans, +(iii) reviewing and discussing with our management the +Compensation Discussion and Analysis required by the applicable +SEC rules and recommending to the Board whether such disclosure +should be included in our proxy statement and +(iv) overseeing risks related to our compensation programs +and (v) producing a report on executive compensation for +inclusion in our proxy statement in accordance with the +applicable rules of the SEC. This includes reviewing and +approving the annual compensation of our Chief Executive Officer +and other executive officers, reviewing and making +recommendations to the Board with respect to executive +compensation plans, including incentive compensation and +equity-based compensation, and reviewing and approving +performance goals and objectives with respect to the +compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. +Neither of the members of our Compensation Committee has ever +been an employee or officer of our company or any of its +subsidiaries. None of our executive officers has served or +currently serves on the board of directors or on the +compensation committee of any other entity, which has officers +who served on our Board of Directors or Compensation Committee +during the fiscal year ended December 31, 2009. +Nominating +and Governance Committee +The Nominating and Governance Committee, which was established +on September 15, 2009, is responsible for +(i) developing and recommending to our Board of Directors +the criteria for selecting directors and assessing director +independence, (ii) identifying individuals qualified to +become members of our Board of Directors and recommending +candidates as director nominees for election to the Board, +(iii) considering and making recommendations to the Board +regarding its size and composition, director assignments to the +other Board committees and the appointment of a chairperson for +each of the other Board committees, (iv) overseeing the +evaluation of our management, the Board and its committees, +(v) evaluating and recommending to the Board changes to the +corporate governance guidelines applicable to our company, and +(vi) reviewing regulatory and other corporate compliance +risks applicable to us. +Director +Nominations +The Nominating and Governance Committee recommends to our Board +of Directors candidates to fill vacancies or for election or +re-election to the Board. In the event of a vacancy on our Board +of Directors, the process followed by the Nominating and +Governance Committee to identify and evaluate director +candidates includes requests to our Board members, management +and others for recommendations, meeting from time to time to +evaluate biographical information and qualifications relating to +potential candidates and interviews of selected candidates by +members of the committee and other directors. In considering +whether to recommend any particular candidate for inclusion in +the Board’s slate of recommended director nominees, the +Nominating and Governance Committee applies the criteria set +forth in our Corporate Governance Guidelines. The committee also +considers the statutory requirements applicable to the +composition of the Board and its committees, including +independence requirements of the NYSE. Our Board of Directors +ultimately determines the director nominees approved for +inclusion on the proxy card for each annual meeting of +stockholders. +7 +Table of Contents +Our Nominating and Governance Committee does not have a formal +policy with regard to the consideration of diversity in +identifying director nominees. Consistent with the +committee’s charter, when identifying director nominees, +the committee considers general principles of diversity and does +so in the broadest sense. The committee evaluates the abilities +and skills, age and education, industry and professional +background, and accounting and financial experience of all +potential director nominees. We believe that the backgrounds and +qualifications of our directors, considered as a group, should +provide a diverse mix of background, experience, knowledge and +skills that will best allow our Board to fulfill its +responsibilities including oversight of our business. +The Nominating and Governance Committee will consider candidates +recommended by stockholders for nomination for election as +directors. The committee will evaluate stockholder-recommended +candidates by following substantially the same process, and +applying substantially the same criteria, as it follows for +candidates recommended by our Board members, management and +others. Stockholders wishing to submit recommendations must +provide the following information by written notice to the +attention of our General Counsel by certified or registered mail: +• +As to each person whom the stockholder proposes to nominate for +election as a director: +• +the name, age, business address and residential address of the +candidate; +• +the principal occupation or employment of the person; +• +the class and number of shares of our stock that are +beneficially owned by the candidate; and +• +the candidate’s consent to be named in the proxy statement +as a nominee and to serve as a director if elected. +• +As to the stockholder recommending a candidate for director: +• +the name and address, as they appear on our stock transfer +books, of the stockholder and of the beneficial owners, if any, +of the stock registered in the stockholder’s name and the +name and address of other stockholders known by the stockholder +to be supporting the nominee; and +• +the class and number of shares of our stock beneficially owned +(i) by the stockholder and the beneficial owners, if any, +and (ii) by any other stockholders known by the stockholder +to be supporting such candidates. +To be considered by the Nominating and Governance Committee for +the 2011 Annual Meeting of Stockholders, nominations for +director candidates must be received at our principal office +within the time period set forth below under the section +“ Nominations and Stockholder Proposals for 2011 Annual +Meeting ” in this proxy statement. +Code of +Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by our Board of +Directors as of April 28, 2004 and amended by the Board as +of January 15, 2007. The purpose of the Code of Business +Conduct and Ethics is to promote honest and ethical conduct. The +Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our +corporate information website located at +www.skx.com/investor.jsp , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. We intend to promptly post +any amendments to or waivers of the Code of Business Conduct and +Ethics on our website. +8 +Table of Contents +Compensation +of Directors +The following table sets forth information concerning the +compensation earned by our non-employee directors during 2009. +Robert Greenberg, Michael Greenberg, David Weinberg and Jeffrey +Greenberg are not included because as employee directors, they +did not earn any additional compensation for services provided +as members of our Board of Directors. +Fees Earned or +Stock +Name +Paid in Cash +($) (1) +Awards +($) (2) +Total ($) +Morton D. Erlich +76,000 +189,105 +265,105 +Geyer Kosinski +46,500 +189,105 +232,605 +Richard Siskind +63,500 +189,105 +251,105 +(1) +This column reports the amount of +cash compensation earned in 2009 for Board and committee service. +(2) +This column represents the +aggregate grant date fair value of restricted stock awards +granted during 2009, as calculated in accordance with Accounting +Standards Codification Topic 718, Compensation — Stock +Compensation (“FASB ASC Topic 718”). The fair value +was calculated using the closing price of our Class A +Common Stock on the grant date for the shares awarded, which was +$18.01 per share on September 4, 2009. As of +December 31, 2009, Mr. Erlich held 14,000 shares +of restricted stock and Messrs. Kosinski and Siskind each +held 12,000 shares of restricted stock. +Non-Employee Directors. We paid each of our +non-employee directors annual compensation of $30,000 for +serving on the Board of Directors in 2009. Our Audit Committee +Chairman, Compensation Committee Chairman and Nominating and +Governance Committee Chairman were paid additional annual fees +of $15,000, $5,000 and $10,000, respectively, in 2009. +Non-employee directors also received fees of $1,500 for each +Board and committee meeting attended during 2009. Non-employee +directors are reimbursed for reasonable costs and expenses +incurred for attending any of our Board or committee meetings. +Compensation, fees, and reimbursable costs and expenses are paid +quarterly. During 2009, non-employee directors were eligible to +receive awards of restricted shares of Class A Common +Stock, grants of options to purchase shares of Class A +Common Stock and other equity-based compensation under the 2007 +Plan as determined by the Board of Directors. In September 2009, +each of our non-employee directors received a discretionary +award of 10,500 shares of restricted stock, which is +scheduled to vest in three equal installments on each of +November 1, 2010, 2011 and 2012. +Employee Directors. As of December 31, +2009, Robert Greenberg, Michael Greenberg and David Weinberg +were the only Named Executive Officers serving on our Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on our Board of Directors. Employees of +Skechers who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2009 is set forth +under “ Executive Compensation .” Compensation of +Jeffrey Greenberg earned in 2009 is described in the section +entitled “ Transactions with Related Persons ” in +this proxy statement. During the 2009 fiscal year, employee +directors were eligible to receive awards of shares of +Class A Common Stock, grants of options to purchase shares +of Class A Common Stock and other equity-based compensation +under the 2007 Plan as determined by the Board of Directors. In +September 2009, they were awarded shares of restricted stock as +a component of their total compensation as executive employees +for the 2009 fiscal year. +COMPENSATION +DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation +arrangements of our Named Executive Officers for 2009 should be +read together with the compensation tables and related +disclosures set forth below. The Named Executive Officers are +those executive officers listed in the table captioned +Summary Compensation Table in this proxy statement: +Robert Greenberg, Chief Executive Officer; Michael Greenberg, +President; David Weinberg, Chief Operating Officer and Chief +Financial Officer; Frederick Schneider, former Chief Financial +Officer; Mark Nason, Executive Vice President of Product +Development; and Philip Paccione, General Counsel and Corporate +Secretary. This discussion contains forward looking statements +that are based on our current plans, considerations, +expectations and determinations regarding future compensation +programs. Actual compensation programs that we adopt may differ +materially from currently planned programs as summarized in this +discussion. +9 +Table of Contents +Role of +Compensation Committee +Our executive compensation program is administered by or under +the direction of the Compensation Committee of our Board of +Directors. Under the terms of its Charter, the Compensation +Committee is responsible for (i) discharging the +Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of +our executive compensation plans, (iii) reviewing and +discussing with Skechers’ management this Compensation +Discussion and Analysis required by the applicable SEC rules and +recommending to the Board its inclusion in this proxy statement +and (iv) producing the annual report on executive +compensation included elsewhere in this proxy statement in +accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the +services of outside advisors, experts and other consultants to +assist in the evaluation of the compensation of the Chief +Executive Officer, the other executive officers and the Board of +Directors. Neither we nor our Compensation Committee retained a +compensation consultant in 2009 to review policies and +procedures with respect to executive compensation or to advise +us on compensation matters. For 2009, the Compensation Committee +reviewed management’s compensation recommendations and then +discussed these recommendations with management. These +recommendations were then approved by the Compensation Committee. +Role of +Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and +Chief Operating Officer, annually makes recommendations to the +Compensation Committee regarding (i) annual base salary and +bonuses to be paid to executive officers, (ii) the +formation and modification of our equity-based and incentive +compensation plans for executive officers, (iii) awards to +be granted under our equity-based compensation plan and +(iv) performance metrics to be used to calculate incentive +compensation that executive officers may earn under our +incentive compensation plan. Management also meets periodically +with the Compensation Committee to discuss these +recommendations, which are based on management’s assessment +of the base salary, equity-based compensation and incentive +compensation opportunities that are competitive within our +industry and within the geographical labor markets in which we +participate. The Compensation Committee has the authority to +adopt, modify or reject any of these recommendations. +Compensation +Objectives +The basic compensation philosophy of our management and the +Compensation Committee is to provide competitive salaries and +incentives to executive officers in order to promote superior +financial performance. The Compensation Committee believes that +compensation paid to executive officers should be closely +aligned with our performance on both a short-term and long-term +basis, linked to specific, measurable results intended to create +value for stockholders, and that such compensation should assist +us in attracting and retaining key executives critical to our +long-term success. +Our executive compensation policies are designed to achieve four +primary objectives: +• +attract and motivate well-qualified individuals with the ability +and talent to enable us to achieve our business objectives and +corporate strategies; +• +provide incentives to achieve specific short-term individual and +corporate goals by rewarding achievement of those goals at +established financial performance levels; +• +provide incentives to achieve longer-term financial goals and +reinforce sense of ownership through award opportunities that +can result in ownership of stock; and +• +promote retention of key executives and align the interests of +management with those of the stockholders to reinforce +achievement of continuing increases in stockholder value. +Consistent with our performance-based philosophy, the +Compensation Committee reviews and approves our compensation +programs to effectively balance executive officers’ +salaries with incentive compensation that is performance-based +as well as to reward annual performance while maintaining a +focus on longer-term objectives. We believe that it serves the +needs of our stockholders and key executives to provide +incentives commensurate with +10 +Table of Contents +individual management responsibilities and past and future +contributions to corporate objectives. The mix of compensation +elements varies based on an executive officer’s position +and responsibilities with Skechers. +To maximize stockholder value, we believe that it is necessary +to deliver consistent, long-term sales and earnings growth. +Accordingly, the Compensation Committee reviews not only the +individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +short-term, long-term and currently paid cash and equity +compensation in a way that meets the objectives set forth above. +Elements +of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual +Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Incentive Award Plan +(the “2007 Plan”). +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking +into account market compensation paid by competitors within our +industry and other companies of similar type, size and financial +performance for individuals in similar positions. We set base +compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a +competitive environment, and to reward satisfactory performance +at an acceptable level based upon contributions to our overall +business objectives. +Base salaries are generally reviewed annually, but may be +adjusted from time to time to realign salaries with market +levels. In reviewing base salaries, we consider various factors, +including (i) each individual’s level of +responsibilities, performance and results achieved, and +professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and +companies of similar type, size and financial performance and +(iii) cost of living increases. +While the annual base salaries of the Named Executive Officers +remained unchanged for 2009 (except that fiscal 2009 included an +additional pay period as compared to fiscal 2008, resulting in +higher compensation for 2009 versus 2008), the total +compensation of Michael Greenberg, David Weinberg, Mark Nason +and Philip Paccione was greater in 2009 as compared to 2008, +primarily as a result of the restricted stock awards granted to +each of them in 2009 (for further information, see the section +below entitled “ Equity-Based Compensation — +Restricted Stock ”). As discussed below, the incentive +compensation component of each Named Executive Officer’s +total compensation, which increased in 2009 as compared to 2008 +for each Named Executive Officer, is based on a combination of +factors, including continued positive financial performance by +Skechers, improved individual performances and increased +responsibilities. The total compensation of Robert Greenberg was +less for 2009 as compared to 2008 because he did not receive a +stock award in 2009 for the reasons described below under +“ Equity-Based Compensation — Restricted +Stock .” The total compensation of Fred Schneider was +less in 2009 as compared to 2008, primarily as a result of his +resignation as our Chief Financial Officer in September 2009, +although he remained an employee of our company as of +December 31, 2009. +Annual +Incentive Compensation +The 2006 Plan is intended to advance our interests and those of +our stockholders and to assist us in attracting and retaining +executive officers by providing incentives and financial rewards +to such executives who, because of +11 +Table of Contents +the extent of their responsibilities can make significant +contributions to our success through their ability, industry +expertise, loyalty and exceptional services. +The 2006 Plan provides executive employees including the Named +Executive Officers with the opportunity to earn bonuses based on +our financial performance by linking incentive award +opportunities to the achievement of our performance goals. The +2006 Plan allows us to set annual performance criteria and goals +that are flexible and change with the needs of our business. The +Compensation Committee annually approves the performance +criteria and goals that will be used in formulae to calculate +our Named Executive Officers’ incentive compensation on a +quarterly basis for each fiscal year. By determining performance +criteria and setting goals at the beginning of each fiscal year, +our Named Executive Officers understand our goals and priorities +during the current fiscal year. Following the conclusion of each +quarter during the current fiscal year, the Compensation +Committee certifies the amount of the award for each participant +for each such quarter. The amount of an award actually paid to a +participant each quarter may, in the sole discretion of the +Compensation Committee, be reduced to less than the amount +payable to the participant based on attainment of the +performance goals for each such quarter. +The Compensation Committee approved the performance goals during +the first quarter of 2009 for fiscal 2009. The business criteria +used in the formulae to calculate the incentive compensation of +our Chief Executive Officer, President, Chief Operating Officer +and Executive Vice President of Product Development for 2009 +were our net sales and net earnings because the Compensation +Committee believes that they provide an accurate and +comprehensive measure of our annual performance. For our General +Counsel and then-current Chief Financial Officer, who are the +only other Named Executive Officers, our net sales were used to +calculate their incentive compensation for 2009. +The potential payments of incentive compensation to our Named +Executive Officers are performance-driven and therefore +completely at risk. The payment of any incentive compensation +for a fiscal year under the 2006 Plan is conditioned on our +company achieving at least certain threshold performance levels +of the business criteria approved by the Compensation Committee, +and no payments will be made to our Named Executive Officers if +the threshold performance levels are not met. Any incentive +compensation to be paid to the Named Executive Officers in +excess of the threshold amounts is based on the Compensation +Committee’s pre-approved business criteria and formulae for +the respective Named Executive Officers. The threshold +performance levels for 2009 were “attainable” based on +our recent historical financial performance, and additional +incentive compensation could have been earned based on our +financial performance exceeding increasingly challenging levels +of performance goals, none of which was certain to be achieved. +There were no specific target amounts that can be determined, as +any incentive compensation for each Named Executive Officer was +based on pre-approved percentages in excess of certain threshold +performance levels. The pre-approved percentages for 2009 were +identical to those in 2008. The Compensation Committee did not +place a maximum limit on the incentive compensation that could +have been earned by the Named Executive Officers in 2009, +although the maximum amount of incentive compensation that any +Named Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +The Named Executive Officers were generally targeted to receive +from 10% to 50% of their annual cash compensation, consisting of +base salary and bonus (“Non-Equity Compensation”), for +2009 in annual bonus compensation, which was determined to be +competitive in the marketplace for similar positions. These +percentages were also consistent with the targeted percentages +for 2008. In determining the potential awards that computed into +these percentages, the Compensation Committee considered each +Named Executive Officer’s position, responsibilities and +prospective contribution to the attainment of our performance +goals. The percentage of total compensation represented by +incentive awards is generally higher for more senior executives +to reflect their greater influence on profits and sales and to +put a larger percentage of their total potential cash +compensation “at risk.” Accordingly, our Chief +Executive Officer, Robert Greenberg, was at the top end of the +range. +Based on our financial performance and the performance goals +previously set by the Compensation Committee for each Named +Executive Officer for 2009, the actual incentive compensation +earned by each Named Executive Officer for 2009 was $1,148,471 +for Robert Greenberg, which represented 53% of his Non-Equity +Compensation; $778,930 for Michael Greenberg, which represented +43% of his Non-Equity Compensation; $439,083 for David Weinberg, +which represented 30% of his Non-Equity Compensation, $299,236 +for Mark Nason, which represented +12 +Table of Contents +22% of his Non-Equity Compensation; $78,033 for Philip Paccione, +which represented 16% of his Non-Equity Compensation; and +$79,694 for Frederick Schneider, which represented 13% of his +total compensation. +Incentive compensation awarded under the 2006 Plan complements +the approach of our equity compensation program described below, +which is focused on our long-term achievements for earnings per +share and total stockholder return. +Equity-Based +Compensation +Awards of restricted stock, stock options and other forms of +equity-based compensation under the 2007 Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees +for building stockholder value; and +• +encourage long-term investment in Skechers by participating +Named Executive Officers. +The Compensation Committee believes that stock ownership by +management has been demonstrated to be beneficial to all +stockholders and equity-based compensation awards have +historically been granted by Skechers to executive officers and +other employees for the foregoing reasons and as further +discussed below. Certain executive employees, including all of +the Named Executive Officers, were awarded shares of restricted +stock in September 2009 under the 2007 Plan as a component of +their total compensation for the 2009 fiscal year. We have not +granted any stock options to the Named Executive Officers as +part of their annual compensation since February 2004. +Equity-based compensation awards were previously granted under +our Amended and Restated 1998 Stock Option, Deferred Stock and +Restricted Stock Plan (the “1998 Stock Plan”). The +1998 Stock Plan was terminated and no additional awards under +that plan were permitted after December 31, 2007. As of +January 1, 2008, our employees, including the Named +Executive Officers, were eligible to receive, from time to time, +issuances of restricted stock, grants of stock options and other +equity-based compensation under the 2007 Plan. +Restricted +Stock +Historically, awards of restricted stock made to our Named +Executive Officers are subject to certain restrictions that +generally lapse over a period of two to four years from the date +of the award depending on the specific award. +This vesting schedule promoted retention and encouraged +long-term investment in our company by the Named Executive +Officers, especially those who did not already hold shares of +our Class A or Class B Common Stock. This also +provided a reasonable time frame to align the Named Executive +Officers’ compensation with stockholder interests since any +appreciation of our stock price will benefit both management and +stockholders. An additional advantage of restricted stock is +that, in comparison to stock options, fewer shares are required +to deliver the same economic value. This may result in lower +stockholder dilution than granting stock options. The +Compensation Committee awarded restricted stock to the Named +Executive Officers, except for Robert Greenberg and Frederick +Schneider, on September 4, 2009 as part of their total +compensation for the 2009 fiscal year in part due to these +advantages. These restricted stock awards are scheduled to vest +in three equal installments on each of November 1, 2010, +2011 and 2012. This vesting schedule is less than the four years +of vesting of previous awards because these shares were awarded +in September 2009 in lieu of potential annual incentive +compensation to be paid in cash to the Named Executive Officers +for 2010, 2011 and 2012. Robert Greenberg did not receive an +award of restricted stock in 2009 because management decided +that it was in his best interests to maintain his targeted +non-equity incentive compensation for 2010, 2011 and 2012 at +rates similar to 2009 rather than receive an award of restricted +stock in lieu of lower targeted non-equity compensation for +those years as did the other Named Executive Officers. +Employment +Agreements, Severance Benefits and Change of Control +Provisions +We do not have any employment, severance or +change-of-control +agreements in effect with any of our Named Executive Officers. +13 +Table of Contents +As mentioned above in this Compensation Discussion and Analysis +under the heading “ Equity-Based Compensation ,” +as of December 31, 2009, we have awarded shares of +restricted stock that are subject to accelerated vesting in full +upon a change of control of Skechers. Generally, for all shares +of restricted stock awarded under the 1998 Stock Plan prior to +its termination in 2007, 20% of the shares vested immediately on +the date of award and the remaining shares vest 20% per year on +each anniversary of the date of award, with restrictions on all +shares lapsing on the fourth anniversary of the date of award. +For all shares of restricted stock awarded on January 3, +2008 under the 2007 Plan, 50% of the shares vested on +March 1, 2009 and the remaining 50% vested on March 1, +2010. For all shares of restricted stock awarded on +September 4, 2009 under the 2007 Plan, the shares are +scheduled to vest in three equal installments on each of +November 1, 2010, 2011 and 2012. In the event of a change +of control, all shares of restricted stock previously awarded +under these plans would vest in full. +A “change of control” is generally defined in both the +1998 Stock Plan and the 2007 Plan, including the equity award +agreements thereunder, as (i) the acquisition by certain +persons of our securities representing 50% or more of the +combined voting power of our outstanding securities; (ii) a +change during any two-year period in a majority of the Board of +Directors unless each new director was approved by a vote of at +least two-thirds of the directors then still in office who were +directors at the beginning of the period, or whose election or +nomination was so approved; (iii) approval by our +stockholders of a merger or consolidation (except with certain +permitted entities); or (iv) approval by our stockholders +of a complete liquidation of our company or the sale or +disposition of all or substantially all of our assets. +The Compensation Committee believes that our change of control +policy is consistent with the objectives of providing the +highest possible return to stockholders by allowing the Named +Executive Officers to be able to effectively participate equally +with stockholders in evaluating alternatives in the event of a +change of control transaction, without compelling the Named +Executive Officer to remain employed under new ownership. +Equity +Award Practices +As described under the Equity Compensation section, equity-based +awards are a key component of our overall executive compensation +program. We do not backdate grants of awards nor do we +coordinate the grant of awards with the release of material +information that might result in favorable pricing. New hire +grants of awards to executive officers and other new employees +are generally based on the date of hire. It is our practice that +the per share exercise price for all grants of stock options be +equal to the closing price of a share of our Class A Common +Stock on the New York Stock Exchange on the date of grant, and +we have never re-priced any grants. +Perquisites +and Other Benefits +We provide our Named Executive Officers with perquisites and +other benefits, reflected in the “All Other +Compensation” column in the table captioned Summary +Compensation Table in this proxy statement, that we believe +are reasonable, competitive and consistent with our overall +executive compensation program. The costs of these benefits +constitute only a small percentage of each Named Executive +Officer’s total compensation and include the following: +Aircraft usage. We have an agreement with an +aircraft operator for use of its aircraft for business travel. +Each Named Executive Officer may also use the aircraft for +personal use. If we are not reimbursed for costs associated with +personal use of the aircraft, such costs are considered taxable +income to the Named Executive Officer. During 2009, there was no +personal use of the aircraft by any of the Named Executive +Officers for which we were not reimbursed in full. +Automobile usage. During 2009, automobiles +that we leased or purchased at our sole cost were used by Robert +Greenberg, Michael Greenberg and David Weinberg. We also paid on +their behalf the automobile insurance premiums related to their +use of these automobiles. +Health Club Dues. During 2009, we paid health +club membership fees for David Weinberg, Frederick Schneider and +Philip Paccione. +14 +Table of Contents +Impact of +Regulatory Requirements +Tax +Deductibility of Compensation +Section 162(m) of the Internal Revenue Code of 1986, as +amended (the “Code” and, collectively, +“Section 162(m)”), places a limit of $1,000,000 +on the annual amount of compensation (other than compensation +that qualifies as “qualified performance-based +compensation”) that publicly held companies may deduct for +federal income tax purposes for certain executive officers. +The Compensation Committee believes that tax deductibility is an +important factor, but only one factor, to be considered in +evaluating a compensation program. The Compensation Committee +generally seeks to structure compensation in a manner that is +intended to avoid the disallowance of deductions under +Section 162(m) of the Code. Nevertheless, when warranted +due to competitive and other factors, the Compensation Committee +may in certain circumstances award compensation that exceeds the +deductibility limit under Section 162(m) of the Code or +otherwise pay non-deductible compensation. +Internal +Revenue Code Section 409A +Section 409A of the Code requires that “nonqualified +deferred compensation” be deferred and paid under plans or +arrangements that satisfy the requirements of the statute with +respect to the timing of deferral elections, timing of payments +and certain other matters. Failure to satisfy these requirements +can expose employees and other service providers to accelerated +income tax liabilities and penalty taxes and interest on their +vested compensation under such plans. Accordingly, as a general +matter, it is our intention to design and administer our +compensation and benefits plans and programs for all of our +employees and other service providers, including the Named +Executive Officers, so that they are either exempt from, or +satisfy the requirements of, Section 409A of the Code. +Accounting +Standards +FASB ASC Topic 718 (formerly known as Financial Accounting +Standard No. 123(R), Share-Based Payments) requires us to +recognize an expense for the fair value of equity-based +compensation awards. Grants of restricted stock and stock +options under the 1998 Stock Plan and the 2007 Plan are +accounted for under FASB ASC Topic 718. The Compensation +Committee regularly considers the accounting implications of +significant compensation decisions, especially in connection +with decisions that relate to equity compensation awards. As +accounting standards change, we may revise certain programs to +appropriately align accounting expenses of our equity awards +with our overall executive compensation philosophy and +objectives. +Other +Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules +affect the delivery of executive compensation and are generally +taken into consideration as programs are developed. Our goal is +to create and maintain plans that are efficient and in full +compliance with these requirements. +REPORT OF +THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the +Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and +discussion, the Compensation Committee has recommended to the +Board of Directors that the Compensation Discussion and Analysis +be included in this proxy statement and, through incorporation +by reference from this proxy statement, in Skechers’ Annual +Report on +Form 10-K +for the year ended December 31, 2009. +Respectfully submitted, +Richard Siskind, Chairman +Morton D. Erlich +15 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth selected information concerning +the compensation earned by our Principal Executive Officer, +Principal Financial Officer, former Principal Financial Officer +who resigned in September 2009, and each of our three most +highly compensated executive officers who served in positions +other than Principal Executive Officer and Principal Financial +Officer at the end of the last completed fiscal year (the +“Named Executive Officers”). +Summary +Compensation Table +Non-Equity +Stock +Incentive Plan +All Other +Name and Principal Position +Year +Salary ($) +Awards +($) (1) +Compensation +($) (2) +Compensation ($) +Total ($) +Robert Greenberg +2009 +1,038,462 +— +1,148,471 +34,766 +(3) +2,221,699 +Chairman of the Board and +2008 +1,000,000 +508,588 +939,457 +32,424 +(3) +2,480,469 +Chief Executive Officer +2007 +1,000,000 +— +1,706,330 +29,920 +(3) +2,736,250 +Frederick Schneider +2009 +519,231 +— +79,694 +23,488 +(4) +622,413 +Former Chief Financial Officer +2008 +500,000 +101,724 +37,887 +13,986 +(4) +653,597 +2007 +500,000 +— +191,266 +21,949 +(4) +713,215 +Michael Greenberg +2009 +1,038,462 +5,403,000 +778,930 +62,377 +(5) +7,282,769 +President and Director +2008 +1,000,000 +356,019 +632,605 +24,167 +(5) +2,012,791 +2007 +1,000,000 +— +873,798 +48,205 +(5) +1,922,003 +David Weinberg +2009 +1,038,462 +2,251,250 +439,083 +66,462 +(6) +3,795,257 +Executive Vice President; +2008 +1,000,000 +305,156 +313,661 +55,083 +(6) +1,673,900 +Chief Operating Officer, Chief Financial +2007 +1,000,000 +— +528,166 +57,664 +(6) +1,585,830 +Officer and Director +Mark Nason +2009 +1,038,462 +1,350,750 +299,236 +21,656 +(7) +2,710,104 +Executive Vice President, +2008 +1,000,000 +254,294 +194,718 +18,806 +(7) +1,467,818 +Product Development +2007 +1,000,000 +— +382,532 +14,470 +(7) +1,397,002 +Philip +Paccione (8) +2009 +415,385 +1,350,750 +78,033 +23,304 +(9) +1,867,472 +Executive Vice President, +Business Affairs; General Counsel and Corporate Secretary +(1) +Represents the aggregate grant date +fair value of stock awards granted during the applicable fiscal +year, as calculated in accordance with FASB ASC Topic 718. The +fair value was calculated using the closing price of our +Class A Common Stock on the grant dates for the shares +awarded. +(2) +Represents the cash awards that the +Named Executive Officers earned under our 2006 Annual Incentive +Compensation Plan. Incentive compensation is paid quarterly +based on performance levels that our company achieved in the +prior quarter. The amounts listed for each year exclude any +bonuses earned by the Named Executive Officers in the previous +year that were paid in the indicated year and include incentive +compensation earned in the fourth quarter of the indicated year +that was paid in the following year. Additional information +regarding the 2006 Annual Incentive Compensation Plan is +described in the section entitled “ Compensation +Discussion and Analysis ” in this proxy statement. +(3) +Represents health and life +insurance payments of $15,288, $13,371 and $10,514, and costs of +$19,478, $19,053 and $19,406 related to automobiles purchased by +our company for use by Mr. Greenberg for 2009, 2008 and +2007, respectively. The aggregate incremental costs of +automobile usage are based on depreciation expense for an +automobile purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg. +(4) +Represents health and life +insurance payments of $15,046, $12,330 and $14,150, payments of +health club membership fees of $1,092, $1,656 and $1,049, and +annual matching contributions of $7,350, $0 and $6,750 that we +made under the 401(k) Plan for 2009, 2008 and 2007, respectively. +(5) +Represents health and life +insurance payments of $21,521, $18,806 and $14,340, costs of +$33,544, $5,361 and $27,115 related to automobiles purchased by +our company for use by Mr. Greenberg and automobile +insurance premiums paid by our company on behalf of +Mr. Greenberg, and annual matching contributions of $7,312, +$0 and $6,750 that we made under the 401(k) Plan for 2009, 2008 +and 2007, respectively. The aggregate incremental costs of +automobile usage are based on depreciation expense for an +automobile purchased in 2008 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg. +(6) +Represents health and life +insurance payments of $17,561, $13,040 and $9,354, payments of +health club membership fees of $1,092, $1,656 and $1,049, costs +of $40,459, $40,387 and $40,511 related to automobiles leased or +purchased by our company for use by Mr. Weinberg, and +annual matching contributions of $7,350, $0 and $6,750 that we +made under the 401(k) Plan for 2009, 2008 and 2007, +respectively. The aggregate incremental costs of automobile +usage are based on depreciation expense for an automobile +purchased in 2006 and automobile insurance premiums paid by our +company on behalf of Mr. Weinberg. +16 +Table of Contents +(7) +Represents health and life +insurance payments of $21,521, $18,806 and $14,340, and annual +matching contributions of $135, $0 and $130 that we made under +the 401(k) Plan for 2009, 2008 and 2007, respectively. +(8) +Mr. Paccione was not a Named +Executive Officer in 2007 or 2008. +(9) +Represents health and life +insurance payments of $14,862, payments of health club +membership fees of $1,092 and an annual matching contribution of +$7,350 that we made under the 401(k) Plan for 2009. +Grants of +Plan-Based Awards in Fiscal 2009 +The following table provides information about plan-based awards +granted to the Named Executive Officers in 2009: (i) the +grant date; (ii) the estimated future payouts under +non-equity incentive plan awards, which consist of potential +payouts under the 2006 Plan that were awarded in 2009 for the +performance period covering fiscal 2009; (iii) the number +of shares underlying all other stock awards and (iv) the +grant date fair value of each equity award computed under FASB +ASC Topic 718. +All Other +Grant Date +Stock Awards: +Fair Value of +Estimated Future Payments Under +Number of +Stock and +Non-Equity Incentive Plan +Awards (1) +Shares of Stock +Option +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +or Units +(#) (2) +Awards +($) (3) +Robert Greenberg +1/22/09 +0 +1,148,471 +5,000,000 +— +— +Frederick Schneider +1/22/09 +0 +79,694 +5,000,000 +— +— +Michael Greenberg +1/22/09 +0 +778,930 +5,000,000 +— +— +9/4/09 +— +— +— +300,000 +5,403,000 +David Weinberg +1/22/09 +0 +439,083 +5,000,000 +— +— +9/4/09 +— +— +— +125,000 +2,251,250 +Mark Nason +1/22/09 +0 +299,236 +5,000,000 +— +— +9/4/09 +— +— +— +75,000 +1,350,750 +Philip Paccione +1/22/09 +0 +78,033 +5,000,000 +— +— +9/4/09 +— +— +— +75,000 +1,350,750 +(1) +These columns are intended to show +the potential value of the payments for each Named Executive +Officer under the 2006 Plan if the threshold, target or maximum +goals are satisfied for the performance measures. The potential +payments are performance-driven and therefore completely at +risk. Incentive compensation is conditioned on our company +achieving a minimum or threshold performance level, and no +payments are made to the Named Executive Officers if the +threshold performance levels are not met. The Compensation +Committee approved the performance goals during the first +quarter of 2009 for fiscal 2009. Additional information +regarding the business measurements and performance goals for +determining the payments are described in the section entitled +“ Compensation Discussion and Analysis ” in this +proxy statement. There are no specific target amounts that can +be determined, as any incentive compensation for each Named +Executive Officer is based on pre-approved percentages in excess +of certain performance goals of Skechers. The target amounts +presented in this table represent the actual payments of +non-equity incentive compensation to each of our Named Executive +Officers that were earned in fiscal 2009. When determining the +performance goals, the Compensation Committee did not place a +limit on the non-equity incentive compensation that could be +earned by the Named Executive Officers in fiscal 2009; however, +the maximum amount of incentive compensation that any Named +Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +(2) +This column shows the number of +shares of restricted stock granted in 2009 to the Named +Executive Officers under the 2007 Plan. Of the restricted shares +of Class A Common Stock awarded on September 4, 2009, +the shares are scheduled to vest in three equal installments on +each of November 1, 2010, 2011 and 2012. +(3) +This column shows the aggregate +grant date fair value of stock awards in 2009, as calculated in +accordance with FASB ASC Topic 718. The fair value was +calculated using the closing price of our Class A Common +Stock on the grant date for the shares awarded, which was $18.01 +per share on September 4, 2009. +17 +Table of Contents +Options +Exercised and Stock Vested in Fiscal 2009 +The following table provides information for the Named Executive +Officers regarding stock options exercised in 2009, including +the number of shares acquired upon exercise and the value +realized, and the number of shares acquired in 2009 upon the +vesting of restricted stock awards and the value realized, each +before payment of any applicable withholding tax and broker +commissions. +Option Awards +Stock Awards +Number of Shares +Value Realized on +Number of Shares +Value Realized on +Name of Executive +Acquired on Exercise (#) +Exercise ($) +Acquired on Vesting (#) +Vesting ($) +Robert Greenberg +— +— +14,819 +89,062 +(1) +Frederick Schneider +— +— +4,964 +42,254 +(2) +Michael Greenberg +— +— +10,373 +62,342 +(1) +David Weinberg +— +— +8,891 +53,435 +(1) +Mark Nason +6,118 +(3) +23,991 +(3) +7,409 +44,528 +(1) +Philip Paccione +— +— +2,964 +17,814 +(1) +(1) +Amount is calculated by multiplying +the number of shares of Class A Common Stock acquired by +each of Robert Greenberg (14,819 shares), Michael Greenberg +(10,373 shares), David Weinberg (8,891 shares), Mark +Nason (7,409 shares) and Philip Paccione +(2,964 shares) by the closing price of $6.01 per share on +the first date that the financial markets were open after the +vesting date of March 1, 2009, which was a Sunday. +(2) +Amount is calculated as the sum of +(a) 2,964 shares of Class A Common Stock acquired +by Frederick Schneider multiplied by the closing price of $6.01 +per share on the first date that the financial markets were open +after the vesting date of March 1, 2009, and +(b) 2,000 shares of Class A Common Stock acquired +by Mr. Schneider multiplied by the closing price of $12.22 +per share on the first date that the financial markets were open +after the vesting date of January 3, 2009, which was a +Saturday. +(3) +Mr. Nason exercised 5,000 +stock options on June 2, 2009 with an exercise price of +$6.95 and market price of $10.33 per share, and 1,118 stock +options on June 3, 2009 with an exercise price of $3.9375 +and market price of $10.28 per share. +18 +Table of Contents +Outstanding +Equity Awards at 2009 Fiscal Year-End +The following table provides information on the outstanding +stock option and stock awards held by the Named Executive +Officers as of December 31, 2009. This table includes +unexercised option awards and unvested shares of restricted +stock. Each equity award is shown separately for each Named +Executive Officer. The market value of the stock award is based +on the closing price of our Class A Common Stock as of +December 31, 2009, which was $29.41. For additional +information about option awards and stock awards, see the +description of equity-based compensation in the section entitled +“ Compensation Discussion and Analysis ” in this +proxy statement. +Option Awards +Stock Awards +Number of +Number of +Number of +Securities +Securities +Shares or +Market Value +Underlying +Underlying +Units of +of Shares or +Unexercised +Unexercised +Option +Option +Stock That +Units of Stock +Options (#) +Options (#) +Exercise +Expiration +Have Not +That Have +Name of Executive +Exercisable +Unexercisable +Price ($) +Date +Vested (#) +Not Vested ($) +Robert Greenberg +— +— +— +— +14,819 +(1) +435,827 +Frederick Schneider +40,000 +0 +8.35 +2/5/14 +2,000 +(2) +58,820 +— +— +— +— +2,964 +(1) +87,171 +Michael Greenberg +37,500 +0 +13.00 +7/6/10 +10,374 +(1) +305,099 +— +— +— +— +300,000 +(3) +8,823,000 +David Weinberg +37,500 +0 +13.00 +7/6/10 +8,892 +(1) +261,514 +37,500 +0 +15.50 +1/1/11 +125,000 +(3) +3,676,250 +30,000 +0 +24.00 +4/1/11 +— +— +30,000 +0 +10.58 +11/6/11 +— +— +36,453 +0 +8.35 +2/5/14 +— +— +Mark Nason +10,200 +0 +13.00 +7/6/10 +7,410 +(1) +217,928 +2,500 +0 +15.50 +1/1/11 +75,000 +(3) +2,205,750 +30,000 +0 +24.00 +4/1/11 +— +— +9,200 +0 +10.58 +11/6/11 +— +— +15,000 +0 +6.95 +10/9/12 +— +— +51,000 +0 +8.35 +2/5/14 +— +— +Philip Paccione +7,500 +0 +24.00 +4/1/11 +2,964 +(1) +87,171 +— +— +— +— +75,000 +(3) +2,205,750 +(1) +Shares of restricted stock vested +on March 1, 2010. +(2) +Shares of restricted stock vested +on January 3, 2010. +(3) +Shares of restricted stock +scheduled to vest in three equal installments on each of +November 1, 2010, 2011 and 2012. +Change of +Control Benefits +Upon a “change of control” under the 1998 Stock Plan +and the 2007 Plan, Robert Greenberg, Frederick Schneider, +Michael Greenberg, David Weinberg, Mark Nason and Philip +Paccione would be entitled to full vesting of their outstanding +restricted stock valued at $435,827, $145,991, $9,128,099, +$3,937,764, $2,423,678 and $2,292,921, respectively, based on +the closing price of our Class A Common Stock on +December 31, 2009, which was $29.41 per share. As of +December 31, 2009, there were no outstanding unvested stock +options under the 1998 Stock Plan or the 2007 Plan held by any +of the Named Executive Officers. +For additional information about change of control terms under +the 1998 Stock Plan and the 2007 Plan, see the description +provided in the section entitled “ Compensation +Discussion and Analysis ” in this proxy statement. +19 +Table of Contents +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2009 regarding compensation plans (including individual +compensation arrangements) under which our equity securities are +authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued Upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Plan Category +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +1,505,694 +$ +12.01 +— +2007 Plan +— +— +5,238,382 +2008 ESPP +— +— +2,678,272 +Total plans approved by security holders +1,505,694 +(1) +$ +12.01 +7,916,654 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +1,505,694 +7,916,654 +(1) +Amount does not include an +additional 2,158,644 shares of restricted stock, which were +awarded under the 1998 Stock Plan or the 2007 Plan, that were +outstanding with a weighted-average grant date fair value of +$17.86. +(2) +The shares available for issuance +under the 2007 Plan are available for issuance as restricted +stock and other forms of equity-based compensation in addition +to stock options, warrants and rights. The number of shares +available for future issuance under the 2008 Employee Stock +Purchase Plan (the “2008 ESPP”) may be adjusted +annually on January 1 for increases equal to the least of +500,000 shares, 1% of the outstanding shares of our capital +stock on such date or a lesser amount as may be determined by +our Board of Directors. The 1998 Stock Plan and the Amended and +Restated 1998 Employee Stock Purchase Plan were terminated and +no additional granting of awards or rights under those plans +were permitted after December 31, 2007. +20 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who +are independent under the standards adopted by the Board of +Directors and applicable NYSE Rules and SEC standards. The Audit +Committee is responsible for oversight and evaluation of +(i) the quality and integrity of Skechers’ financial +statements, (ii) the performance of Skechers’ internal +audit and internal controls functions in addition to financial +risk assessment and management applicable to Skechers, +(iii) Skechers’ policies and procedures regarding +transactions with related persons, (iv) the appointment, +compensation, independence and performance of Skechers’ +registered public accounting firm, KPMG LLP, and +(v) Skechers’ compliance with legal and regulatory +requirements, +the performance of our internal audit and internal controls +functions in addition to financial risk assessment and +management applicable to our company, (iii) our policies +and procedures regarding transactions with related persons, as +described in greater detail below in the section entitled +“ Transactions with Related Persons ” +(iv) the appointment, compensation, independence and +performance of our independent registered public accounting +firm, and (v) our compliance with legal and regulatory +requirements +The Audit Committee has reviewed and discussed with +Skechers’ management, internal finance staff, internal +auditors and KPMG LLP, with and without management present, +Skechers’ audited financial statements for the fiscal year +ended December 31, 2009, management’s assessment of +the effectiveness of Skechers’ internal controls over +financial reporting and KPMG LLP’s evaluation of +Skechers’ internal controls over financial reporting. The +Audit Committee has also discussed with KPMG LLP the results of +its examinations and the judgments concerning the quality, as +well as the acceptability, of Skechers’ accounting +principles and such other matters that Skechers is required to +discuss with its independent auditors under applicable rules, +regulations or generally accepted auditing standards (including +Statement on Auditing Standards No. 61). In addition, the +Audit Committee has received from KPMG LLP the written +disclosures and the letter from its independent accountant +required by applicable requirements of the Public Company +Accounting Oversight Board regarding the independent +auditors’ communications with the Audit Committee +concerning independence and has discussed with KPMG LLP their +independence from Skechers and management, including a +consideration of the compatibility of non-audit services with +their independence, the scope of the audit and the fees paid to +KPMG LLP during the year. +Based on our review and the discussions referred to above, the +Audit Committee recommended to the Board of Directors that the +audited financial statements be included in Skechers’ +Annual Report on +Form 10-K +for the year ended December 31, 2009 for filing with the +SEC. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +21 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to +Independent Registered Public Accounting Firm for Fiscal Years +2009 and 2008 +We retained KPMG LLP to provide services for fiscal years 2009 +and 2008 in the categories and amounts as follows: +Service +2009 +2008 +Audit +fees (1) +$ +1,493,000 +$ +1,374,000 +Audit-related fees +— +— +Tax +fees (2) +200,000 +182,000 +All other +fees (3) +— +121,000 +Total audit and non-audit fees +$ +1,693,000 +$ +1,677,000 +(1) +These are fees for professional +services performed by KPMG LLP for the audit of our annual +financial statements and the review of our annual report on +Form 10-K, +the review of financial statements included in our quarterly +reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, as amended, +and consultations regarding financial accounting and reporting, +as well as for services that are normally provided in connection +with statutory and regulatory filings or engagements. +(2) +These are fees for professional +services performed by KPMG LLP with respect to U.S. federal, +state and international tax compliance, tax consulting and tax +work stemming from “Audit” items. This includes +preparation of original tax returns for our company and its +consolidated subsidiaries. +(3) +These are fees for other +permissible work performed by KPMG LLP that does not meet the +other category descriptions. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been approved +by the Audit Committee. Any fees for proposed services exceeding +these levels will also require specific pre-approval by the +Audit Committee. +Attendance +at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +22 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of Class A Common Stock and +Class B Common Stock as of April 7, 2010 by +(i) each of our directors, (ii) each of our Named +Executive Officers, (iii) each person that we know to be a +beneficial owner of more than 5% of either class of our Common +Stock and (iv) all of our directors and executive officers +as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 37,421,907 shares of Class A +Common Stock and 12,154,435 shares of Class B Common +Stock outstanding as of April 7, 2010. Our Class B +Common Stock is convertible at any time into shares of +Class A Common Stock on a +one-for-one +basis. Beneficial ownership is determined in accordance with SEC +rules and regulations. In computing the number of shares of our +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of April 7, 2010 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See the section +entitled “ Transactions with Related Persons ” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% +stockholders: (1) +FMR LLC +6,262,400 +(2) +16.7 +% +— +— +BlackRock, Inc. +2,412,216 +(3) +6.4 +Gil Schwartzberg +5,000,000 +(4) +11.8 +5,000,000 +(5) +41.1 +% +Named Executive Officers and directors: +Robert Greenberg +4,488,667 +(6) +10.7 +4,479,436 +(7) +36.9 +Michael Greenberg +1,019,303 +(8) +2.7 +640,341 +(9) +5.3 +Jeffrey Greenberg +960,198 +(10) +2.4 +624,834 +(11) +5.1 +David Weinberg +330,994 +(12) +* +— +— +Mark Nason +129,099 +(13) +* +— +— +Frederick Schneider +86,526 +(14) +* +— +— +Philip Paccione +75,475 +* +— +— +Morton Erlich +21,000 +(15) +* +— +— +Geyer Kosinski +12,000 +* +— +— +Richard Siskind +61,333 +(16) +* +— +— +All current directors and executive officers as a group +(10 persons) +7,173,069 +(17) +16.5 +% +5,744,611 +47.3 +% +* +Less than 1.0% +(1) +S.A.C. Capital Advisors, L.P., +S.A.C. Capital Advisors, Inc. and Steven A. Cohen jointly filed +a Schedule 13G with the SEC on February 12, 2010, +which disclosed the number of shares beneficially owned as of +February 11, 2010 when these stockholders beneficially +owned greater than 5% of our Class A Common Stock. However, +based on the number of outstanding shares of our Class A +Common Stock on April 7, 2010, each of these stockholders +then beneficially owned less than 5% of our Class A Common +Stock and therefore was excluded from this table. +(2) +Information is based on a +Schedule 13G filed with the SEC on January 11, 2010 +and represents the number of shares beneficially owned as of +December 31, 2009. The principal business office of FMR LLC +(“FMR”) and its subsidiary and related funds as set +forth below are located at 82 Devonshire Street, Boston, +Massachusetts 02109. FMR filed as a parent holding company. +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR and an +investment adviser registered under the Investment Advisers Act +of 1940, beneficially owns 6,262,400 shares of Class A +Common Stock. Various persons are reported to have the right to +receive or the power to direct the receipt of dividends from, or +the proceeds from the sale of, the Class A Common Stock. +The interest of one person, Fidelity Growth Company Fund, an +investment company registered under the Investment Company Act +of 1940, amounted to 2,005,000 shares of Class A +Common Stock. The interest of one person, Fidelity Low Priced +Stock Fund, an investment company registered under the +23 +Table of Contents +Investment Company Act of 1940, +amounted to 3,250,000 shares of Class A Common Stock. +Edward C. Johnson 3d, Chairman of FMR, and FMR, through its +control of Fidelity, and Fidelity’s funds each has sole +power to dispose of the 6,262,400 shares owned by such +funds. Neither FMR nor Mr. Johnson has the sole power to +vote or direct the voting of the shares owned directly by +Fidelity’s funds, which power resides with the funds’ +Boards of Trustees. Fidelity carries out the voting of the +shares under written guidelines established by the +funds’ Boards of Trustees. +(3) +Information is based on a +Schedule 13G filed with the SEC on January 29, 2010 +and represents the number of shares beneficially owned as of +December 31, 2009. BlackRock, Inc. has sole voting power +and sole dispositive power with respect to +2,412,216 shares. The principal business office of +BlackRock, Inc. is located at 40 East 52nd Street, New York, +New York 10022. +(4) +Represents 5,000,000 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 5 below. +(5) +Represents 2,500,000 shares of +Class B Common Stock held by the Robert Y. Greenberg 2009 +Annuity Trust and 2,500,000 shares of Class B Common +Stock held by the M. Susan Greenberg 2009 Annuity Trust. Gil +Schwartzberg may be deemed to beneficially own these shares as +sole trustee of the trusts, and Mr. Schwartzberg has sole +voting power and sole dispositive power with respect to the +shares held by these trusts. Mr. Schwartzberg disclaims +beneficial ownership of any of these shares except to the extent +of his pecuniary interest therein. The principal business office +of Mr. Schwartzberg is located at 269 S. Beverly +Drive, Suite 1315, Beverly Hills, California 90212. +(6) +Includes 4,479,436 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 7 below. +(7) +Represents 4,479,436 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(8) +Includes 640,341 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 16,695 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of April 7, 2010 and 46,542 shares of +Class A Common Stock beneficially owned by Michael +Greenberg, our President and a member of our Board of Directors, +indirectly through his wife, Wendy Greenberg, and their +children. Mr. Greenberg disclaims beneficial ownership of +these 46,542 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +640,341 shares of Class B Common Stock is described in +greater detail in note 9 below. +(9) +Represents 589,041 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(10) +Includes 624,834 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, and 7,964 shares of Class A Common Stock held +by the Chloe July Greenberg 2004 Trust and 7,964 shares of +Class A Common Stock held by the Catherine Elle Greenberg 2006 +Trust that Mr. Greenberg is deemed to beneficially own as +trustee of such trusts. Beneficial ownership of the +624,834 shares of Class B Common Stock is described in +greater detail in note 11 below. +(11) +Represents 538,214 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust. Also represents 68,336 shares of Class B Common +Stock held in various trust accounts for +Mr. Greenberg’s two daughters who are minors and of +which Mr. Greenberg is deemed to beneficially own as +trustee of such trusts, and 10,792 shares of Class B +Common Stock held by the Chloe July Greenberg custodial account +and 7,492 shares of Class B Common Stock held by the +Catherine Elle Greenberg custodial account, for which one of his +siblings acts as custodian. These custodial accounts are for the +benefit of Mr. Greenberg’s two daughters who are +minors, and he disclaims beneficial ownership of the +18,284 shares held in the two custodial accounts except to +the extent of his pecuniary interest therein. +(12) +Includes 109,541 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Chief Financial Officer, Executive Vice +President and a member of our Board of Directors, is deemed to +beneficially own as sole trustee of The David Weinberg Trust +dated September 7, 2000, and 96,453 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(13) +Includes 53,248 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(14) +Includes 50,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010, 15,000 shares held by the Schneider Limited +Partnership that Frederick Schneider, our former Chief Financial +Officer, is deemed to beneficially own as its general partner +and 16,562 shares held by The Schneider CA Partnership that +Mr. Schneider is deemed to beneficially own as its general +partner. +(15) +Includes 9,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a member of our Board of Directors, is deemed +to beneficially own as a trustee of such trust. +(16) +Includes 35,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(17) +Includes 201,396 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010 by our executive officers and Board of Directors. The group +of 10 current directors and executive officers excludes +Frederick Schneider, who resigned as our Chief Financial Officer +in September 2009, and includes Leonard Armato, who was hired as +our Chief Marketing Officer and President, Fitness Group in +March 2010. +24 +Table of Contents +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Exchange Act requires our officers, +directors and persons who own more than ten percent of a +registered class of our securities, to file with the SEC reports +of initial ownership (Form 3’s) and reports of changes +in ownership (Form 4’s and 5’s) of our +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish us with copies of all Section 16(a) forms that they +file. Based on our review of copies of Form 3’s, +4’s and 5’s furnished to us as well as communications +with our officers, directors and greater than ten percent +stockholders, we believe that all of them complied with the +filing requirements of Section 16(a) and we are not aware +of any late or missed filings of such reports for the 2009 +fiscal year. +TRANSACTIONS +WITH RELATED PERSONS +Policies +and Procedures +As provided in our Audit Committee Charter, the Audit Committee +shall review (i) at least annually a summary of +directors’ and executive officers’ related party +transactions and potential conflicts of interest and our +policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), +(ii) past and proposed transactions between our company, on +the one hand, and any of our directors or executive officers, on +the other hand, and (iii) policies and procedures as well +as audit results associated with directors’ and executive +officers’ expense accounts and perquisites, including the +use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the +“Policy”), which was adopted by the Board of Directors +as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or +relationships, (including any indebtedness or guarantee of +indebtedness) in which (i) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(ii) we are a participant, and (iii) any Related +Person has or will have a direct or indirect interest (other +than solely as a result of being a director or a less than ten +percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the +beginning of the last fiscal year for which we have filed a +Form 10-K +and proxy statement, even if they do not presently serve in that +role) an executive officer, director or nominee for election as +a director of Skechers, (b) greater than five percent +beneficial owner of our Class A or Class B Common +Stock or (c) immediate family member of either of the +foregoing. +Certain categories of transactions with Related Persons (such as +transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit +Committee shall review the material facts of all other +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2009, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of April 7, 2010, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust, collectively, beneficially own 58.3% of +our Class B Common Stock and approximately 45.7% of the +combined voting power of our Class A and Class B +Common Stock. Robert Greenberg, +25 +Table of Contents +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 28.2% of the combined voting +power of our Class A and Class B Common Stock. As a +result, Robert Greenberg is a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and we +are considered a “Controlled Company” under the NYSE +Rules and are thereby exempt from certain listing requirements +and regulations as set forth in the NYSE Rules. Michael +Greenberg, who is our President, and Jeffrey Greenberg, both of +whom are members of our Board of Directors, are each +beneficiaries of the Greenberg Family Trust, which influences +the election of Robert Greenberg, Michael Greenberg and Jeffrey +Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel +in Manhattan Beach, California. Michael Greenberg, David +Weinberg, who is our Chief Operating Officer, Chief Financial +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2009, we paid approximately $183,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and +Jennifer Greenberg Messer, who are the children of Robert +Greenberg and also the siblings of Michael Greenberg, are +non-executive employees of Skechers, and they earned total +compensation of $684,131, $653,024, $683,093 and $129,473, +respectively, in 2009. These amounts included awards of +restricted stock on September 4, 2009. Jeffrey Greenberg, +Jason Greenberg and Joshua Greenberg were each awarded 200,000 +restricted shares of Class A Common Stock that are +scheduled to vest in three equal installments on each of +November 1, 2010, 2011 and 2012. Jeffrey Greenberg was also +a member of our Board of Directors in 2009, but did not earn any +additional compensation for services provided as a director. +26 +Table of Contents +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING +Stockholder proposals intended to be presented at our next +Annual Meeting of Stockholders to be held in 2011 must be +received at our principal executive offices no later than +December 31, 2010 to be considered for inclusion in the +proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular +Rule 14a-8 +under the Exchange Act, to be included in our proxy materials. +Stockholders who wish to submit a proposal for consideration at +our 2011 Annual Meeting of Stockholders, but who do not wish to +submit a proposal for inclusion in our proxy statement, must, in +accordance with our bylaws, deliver a copy of their proposal no +later than the close of business on the 60th day nor earlier +than the close of business on the 90th day in advance of such +meeting. In either case, proposals should be sent by certified +or registered mail, return receipt requested, to Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266, Attention: General Counsel. +OTHER +BUSINESS +Our Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this proxy statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2010 +Manhattan Beach, California +27 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting to Be Held on June 2, 2010 +The Notice of Annual Meeting, Proxy Statement, 2009 Annual Report and other SEC filings are +available at the investor relations page of our corporate information website at +http://www.skx.com/investor.jsp . +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach +along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE +NOMINEES LISTED IN PROPOSAL +1. PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE MARK +YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. x +1. +Election of Directors +FOR ALL THE NOMINEES +WITHHOLD AUTHORITY +FOR ALL EXCEPT +NOMINEES: +FOR ALL +NOMINEES +(See instructions +below) +o +o +o +¡ Michael Greenberg +¡ David Weinberg +¡ Jeffrey Greenberg +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark +“FOR ALL EXCEPT” and mark the box next to each nominee you wish to withhold, as shown here: +x +Each of the persons named as +proxies herein are +authorized, in such person’s +discretion, to vote upon such +other matters as may properly +come before the Annual +Meeting of Stockholders, or +any adjournments thereof. +To change the address on +your account, please fill in +the box at right and indicate +your new address in the +address space above. Please +note that changes to the +registered name(s) on the +account may not be submitted +via this +method. o +Please +check here if you plan to attend the meeting. o +Signature +of +Stockholder: +Date: +Signature +of +Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. +When shares are held jointly, each holder should sign. When +signing as executor, administrator, attorney, trustee or +guardian, please give full title as such. If the signer is a +corporation, please sign full corporate name by duly authorized +officer, giving full title as such. If signer is a partnership, +please sign in partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 2, 2010 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 30, 2010, and hereby appoints Morton Erlich and Richard Siskind and each of them, with +full power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the +undersigned, and hereby authorizes each of them to represent and to vote all of the shares which +the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., Inc. +to be held at the Shade Hotel located at 1221 North Valley Drive, Manhattan Beach, California +90266, on Wednesday, June 2, 2010, at 10:00 a.m. Pacific time, and at any adjournments thereof, +upon the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, +receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to +the annual meeting section of the investor relations page of our corporate information website at +www.skx.com/investor.jsp . +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON +ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950123-10-040976/proxy_rpt.txt b/raw/proxies/0001065837/0000950123-10-040976/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..088e84c439a559503b8d7529240780dea2b87c52 --- /dev/null +++ b/raw/proxies/0001065837/0000950123-10-040976/proxy_rpt.txt @@ -0,0 +1,313 @@ +entitled “ Transactions with Related Persons ” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% +stockholders: (1) +FMR LLC +6,262,400 +(2) +16.7 +% +— +— +BlackRock, Inc. +2,412,216 +(3) +6.4 +Gil Schwartzberg +5,000,000 +(4) +11.8 +5,000,000 +(5) +41.1 +% +Named Executive Officers and directors: +Robert Greenberg +4,488,667 +(6) +10.7 +4,479,436 +(7) +36.9 +Michael Greenberg +1,019,303 +(8) +2.7 +640,341 +(9) +5.3 +Jeffrey Greenberg +960,198 +(10) +2.4 +624,834 +(11) +5.1 +David Weinberg +330,994 +(12) +* +— +— +Mark Nason +129,099 +(13) +* +— +— +Frederick Schneider +86,526 +(14) +* +— +— +Philip Paccione +75,475 +* +— +— +Morton Erlich +21,000 +(15) +* +— +— +Geyer Kosinski +12,000 +* +— +— +Richard Siskind +61,333 +(16) +* +— +— +All current directors and executive officers as a group +(10 persons) +7,173,069 +(17) +16.5 +% +5,744,611 +47.3 +% +* +Less than 1.0% +(1) +S.A.C. Capital Advisors, L.P., +S.A.C. Capital Advisors, Inc. and Steven A. Cohen jointly filed +a Schedule 13G with the SEC on February 12, 2010, +which disclosed the number of shares beneficially owned as of +February 11, 2010 when these stockholders beneficially +owned greater than 5% of our Class A Common Stock. However, +based on the number of outstanding shares of our Class A +Common Stock on April 7, 2010, each of these stockholders +then beneficially owned less than 5% of our Class A Common +Stock and therefore was excluded from this table. +(2) +Information is based on a +Schedule 13G filed with the SEC on January 11, 2010 +and represents the number of shares beneficially owned as of +December 31, 2009. The principal business office of FMR LLC +(“FMR”) and its subsidiary and related funds as set +forth below are located at 82 Devonshire Street, Boston, +Massachusetts 02109. FMR filed as a parent holding company. +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR and an +investment adviser registered under the Investment Advisers Act +of 1940, beneficially owns 6,262,400 shares of Class A +Common Stock. Various persons are reported to have the right to +receive or the power to direct the receipt of dividends from, or +the proceeds from the sale of, the Class A Common Stock. +The interest of one person, Fidelity Growth Company Fund, an +investment company registered under the Investment Company Act +of 1940, amounted to 2,005,000 shares of Class A +Common Stock. The interest of one person, Fidelity Low Priced +Stock Fund, an investment company registered under the +23 +Table of Contents +Investment Company Act of 1940, +amounted to 3,250,000 shares of Class A Common Stock. +Edward C. Johnson 3d, Chairman of FMR, and FMR, through its +control of Fidelity, and Fidelity’s funds each has sole +power to dispose of the 6,262,400 shares owned by such +funds. Neither FMR nor Mr. Johnson has the sole power to +vote or direct the voting of the shares owned directly by +Fidelity’s funds, which power resides with the funds’ +Boards of Trustees. Fidelity carries out the voting of the +shares under written guidelines established by the +funds’ Boards of Trustees. +(3) +Information is based on a +Schedule 13G filed with the SEC on January 29, 2010 +and represents the number of shares beneficially owned as of +December 31, 2009. BlackRock, Inc. has sole voting power +and sole dispositive power with respect to +2,412,216 shares. The principal business office of +BlackRock, Inc. is located at 40 East 52nd Street, New York, +New York 10022. +(4) +Represents 5,000,000 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 5 below. +(5) +Represents 2,500,000 shares of +Class B Common Stock held by the Robert Y. Greenberg 2009 +Annuity Trust and 2,500,000 shares of Class B Common +Stock held by the M. Susan Greenberg 2009 Annuity Trust. Gil +Schwartzberg may be deemed to beneficially own these shares as +sole trustee of the trusts, and Mr. Schwartzberg has sole +voting power and sole dispositive power with respect to the +shares held by these trusts. Mr. Schwartzberg disclaims +beneficial ownership of any of these shares except to the extent +of his pecuniary interest therein. The principal business office +of Mr. Schwartzberg is located at 269 S. Beverly +Drive, Suite 1315, Beverly Hills, California 90212. +(6) +Includes 4,479,436 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 7 below. +(7) +Represents 4,479,436 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(8) +Includes 640,341 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 16,695 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of April 7, 2010 and 46,542 shares of +Class A Common Stock beneficially owned by Michael +Greenberg, our President and a member of our Board of Directors, +indirectly through his wife, Wendy Greenberg, and their +children. Mr. Greenberg disclaims beneficial ownership of +these 46,542 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +640,341 shares of Class B Common Stock is described in +greater detail in note 9 below. +(9) +Represents 589,041 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(10) +Includes 624,834 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, and 7,964 shares of Class A Common Stock held +by the Chloe July Greenberg 2004 Trust and 7,964 shares of +Class A Common Stock held by the Catherine Elle Greenberg 2006 +Trust that Mr. Greenberg is deemed to beneficially own as +trustee of such trusts. Beneficial ownership of the +624,834 shares of Class B Common Stock is described in +greater detail in note 11 below. +(11) +Represents 538,214 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust. Also represents 68,336 shares of Class B Common +Stock held in various trust accounts for +Mr. Greenberg’s two daughters who are minors and of +which Mr. Greenberg is deemed to beneficially own as +trustee of such trusts, and 10,792 shares of Class B +Common Stock held by the Chloe July Greenberg custodial account +and 7,492 shares of Class B Common Stock held by the +Catherine Elle Greenberg custodial account, for which one of his +siblings acts as custodian. These custodial accounts are for the +benefit of Mr. Greenberg’s two daughters who are +minors, and he disclaims beneficial ownership of the +18,284 shares held in the two custodial accounts except to +the extent of his pecuniary interest therein. +(12) +Includes 109,541 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Chief Financial Officer, Executive Vice +President and a member of our Board of Directors, is deemed to +beneficially own as sole trustee of The David Weinberg Trust +dated September 7, 2000, and 96,453 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(13) +Includes 53,248 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(14) +Includes 50,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010, 15,000 shares held by the Schneider Limited +Partnership that Frederick Schneider, our former Chief Financial +Officer, is deemed to beneficially own as its general partner +and 16,562 shares held by The Schneider CA Partnership that +Mr. Schneider is deemed to beneficially own as its general +partner. +(15) +Includes 9,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a member of our Board of Directors, is deemed +to beneficially own as a trustee of such trust. +(16) +Includes 35,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010. +(17) +Includes 201,396 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of April 7, +2010 by our executive officers and Board of Directors. The group +of 10 current directors and executive officers excludes +Frederick Schneider, who resigned as our Chief Financial Officer +in September 2009, and includes Leonard Armato, who was hired as +our Chief Marketing Officer and President, Fitness Group in +March 2010. +24 +Table of Contents +COMPLIANCE \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950123-11-041912/proxy.txt b/raw/proxies/0001065837/0000950123-11-041912/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d08961f3d4579058e7ac87f0a984ff6861952086 --- /dev/null +++ b/raw/proxies/0001065837/0000950123-11-041912/proxy.txt @@ -0,0 +1,3687 @@ +DEF 14A +1 +v59249def14a.htm +DEF 14A +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +þ +Definitive Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee +computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +Important Notice Regarding the Availability of Proxy +Materials for the Stockholder +Meeting to Be Held on Wednesday, May 25, 2011 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation, to be held at the Shade +Hotel located at 1221 North Valley Drive, Manhattan Beach, +California 90266 on Wednesday, May 25, 2011 at +12:00 p.m. Pacific Time. +Our Annual Meeting is being held for the following purposes: +1. To elect three members to the Board of Directors to +serve for a three-year term as Class III Directors; +2. To conduct a non-binding advisory vote on the +compensation of our Named Executive Officers; +3. +To conduct a non-binding advisory vote on the frequency of +holding future advisory votes on the compensation of our Named +Executive Officers; +4. To re-approve the 2006 Annual Incentive Compensation +Plan; and +5. To transact such other business as may properly come +before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on +March 31, 2011 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +The following proxy statement and enclosed proxy card are being +sent to each stockholder as of the record date, and our 2010 +annual report is enclosed with this notice to our stockholders. +The proxy statement and 2010 annual report are available in +the SEC filings section of the investor relations page of our +corporate information website at +www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if +you plan to attend the Annual Meeting in person, you may find +directions by going to the annual meeting of stockholders +section of the investor relations page of our corporate +information website at www.skx.com/investor.jsp . If you +do not expect to attend, or if you plan to attend but desire the +proxy holders to vote your shares, please date and sign your +proxy card and return it in the enclosed postage-paid envelope. +Returning a signed proxy card will not affect your right to vote +in person in the event you find it convenient to attend. Please +return the proxy card promptly to avoid the expense of +additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 28, 2011 +Manhattan Beach, California +TABLE OF CONTENTS +PROXY STATEMENT +PROPOSAL NO. 1 +PROPOSAL NO. 2 +PROPOSAL NO. 3 +PROPOSAL NO. 4 +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +CORPORATE GOVERNANCE AND BOARD MATTERS +COMPENSATION DISCUSSION AND ANALYSIS +REPORT OF THE COMPENSATION COMMITTEE +EXECUTIVE COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +TRANSACTIONS WITH RELATED PERSONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING +OTHER BUSINESS +SKECHERS U.S.A., INC. 2006 ANNUAL INCENTIVE COMPENSATION PLAN +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be +Held +May 25, 2011 at +12:00 p.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or +“Skechers”), in connection with our Annual Meeting of +Stockholders to be held on May 25, 2011 at 12:00 p.m. +Pacific Time at the Shade Hotel located at 1221 North Valley +Drive, Manhattan Beach, California 90266 (the “Annual +Meeting”). The approximate mailing date for this proxy +statement and the enclosed proxy is April 28, 2011. If a +proxy in the accompanying form is duly executed and returned, +the shares represented by the proxy will be voted as directed. +If no direction is given, the shares represented by the proxy +will be voted for the election of the nominees for director +named herein. Any proxy given pursuant to this solicitation may +be revoked at any time prior to its exercise by notifying our +Corporate Secretary, Philip Paccione, in writing of such +revocation, by duly executing and delivering another proxy +bearing a later date, or by attending and voting in person at +the Annual Meeting. If your shares are held in street name and +you want to change your vote, please contact your broker, bank +or other nominee to find out how to do so. We will incur the +cost of this solicitation of proxies that will be made by mail. +In addition, our officers and other regularly engaged employees +may, in a limited number of instances, solicit proxies +personally or by telephone. We will reimburse banks, brokerage +firms, other custodians, nominees and fiduciaries for reasonable +expenses incurred in sending proxy materials to beneficial +owners of our Class A Common Stock and Class B Common +Stock. +Holders of our Class A Common Stock and Class B Common +Stock of record at the close of business on March 31, 2011 +will be entitled to vote at the Annual Meeting. There were +38,479,866 shares of Class A Common Stock and +11,310,610 shares of Class B Common Stock outstanding +on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the combined voting interest of the +outstanding shares of Class A Common Stock and Class B +Common Stock is necessary to constitute a quorum for the Annual +Meeting. A quorum must be established to consider any matter. +Pursuant to Proposal No. 1, the three candidates for +director receiving the most votes of the votes entitled to be +voted at the Annual Meeting will become directors of Skechers. +Stockholders may not cumulate their votes. +Proposal No. 2 is a non-binding advisory proposal to +approve the compensation of our Named Executive Officers and +will be considered as having passed if it receives an the +affirmative “for” vote of a majority of the shares +present in person or represented by proxy and entitled to vote +on this matter at the Annual Meeting. Proposal No. 3 +is a non-binding advisory proposal regarding the frequency of +holding future advisory votes on the compensation of our Named +Executive Officers, and the frequency — every one, two +or three years — that receives an affirmative vote of +a majority of the shares present in person or represented by +proxy and entitled to vote on this matter at the Annual Meeting +will be considered the frequency recommended by our +stockholders. If none of the frequency alternatives (one year, +two years or three years) receives a majority vote, we will +consider the alternative receiving the most votes of the shares +present in person or represented by proxy and entitled to vote +on this matter at the Annual Meeting as the frequency +recommended by our stockholders. +If you hold shares beneficially in street name and do not +provide your broker with voting instructions, your shares may +constitute “broker non-votes.” Generally, broker +non-votes occur on a matter when a broker is not permitted to +vote on that matter without instructions from the beneficial +owner and instructions are not given. In +Table of Contents +tabulating the voting result for any particular proposal, shares +that constitute broker non-votes are not considered entitled to +vote on that proposal. Thus, broker non-votes will not affect +the outcome of any matter being voted on at the meeting, +assuming that a quorum is obtained. However, shares represented +by such “broker non-votes” will be counted in +determining whether there is a quorum. A properly executed proxy +marked “Abstain” with respect to any such proposal +will not be voted, although it will be counted for purposes of +determining whether there is a quorum. Because directors are +elected by a plurality of the votes cast, proxies marked +“Abstain” as to Proposal No. 1 will not have +any effect on the election of directors as long as one vote is +cast for each director nominee. Proposal Nos. 2 and 4 will +be determined by a majority of the votes cast, and proxies +marked “Abstain” as to Proposal No. 2 +and/or 4 +will have the same effect as a vote cast against the respective +proposals. Because Proposal No. 3 is a non-binding +advisory vote, in the absence of an approval by a majority of +the votes for any single alternative, we will consider the +alternative receiving the most votes as the frequency +recommended by the stockholders, and therefore, proxies marked +“Abstain” as to Proposal No. 3 will not have +any effect on the outcome of the vote on the proposal. +Our principal executive office is located at 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Our Board of Directors is divided into three classes, with each +director serving a three-year term and until their successors +are duly elected and qualified or until their death, resignation +or removal. One class of directors is elected annually at our +annual meeting of stockholders. Our bylaws provide for a +variable Board of Directors with between five and nine members. +We currently have nine members on our Board of Directors. Our +bylaws give the Board of Directors the authority to increase or +decrease the number of directors without the approval of our +stockholders, and our bylaws also give our stockholders the +authority to increase or decrease the size of our Board of +Directors. +Unless otherwise directed by stockholders, within the limits set +forth in our bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Geyer +Kosinski, Richard Rappaport and Richard Siskind who are director +nominees and are currently members of the Board of Directors. We +have been advised by Geyer Kosinski, Richard Rappaport and +Richard Siskind of their availability and willingness to serve +if re-elected. In the event that any of Geyer Kosinski, Richard +Rappaport and Richard Siskind becomes unavailable or unable to +serve as a member of the Board of Directors prior to the voting, +the proxy holders will refrain from voting for them or will vote +for a substitute nominee in the exercise of their best judgment. +The Board +of Directors recommends a vote FOR these +director-nominees. +PROPOSAL NO. 2 +ADVISORY +VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS +As required by Section 14A of the Securities Exchange Act +of 1934, as amended (the “Securities Exchange Act”), +which was added under the Dodd-Frank Wall Street Reform and +Consumer Protection Act, we are seeking stockholder approval on +an advisory, non-binding basis of the compensation of our Named +Executive Officers as disclosed in the section of this proxy +statement titled “ Executive Compensation .” In +this Proposal No. 2, stockholders are being asked to +vote on the following advisory resolution: +“RESOLVED, that the stockholders approve, on an advisory +basis, the compensation of the Company’s Named Executive +Officers, as disclosed in the Compensation Discussion and +Analysis, the Summary Compensation Table and the related +compensation tables, notes and narrative in the Proxy Statement +for the Company’s 2011 Annual Meeting of Stockholders.” +Stockholders are urged to read the Compensation Discussion and +Analysis section of this Proxy Statement, which discusses in +detail how our compensation policies and procedures implement +our compensation philosophy, and to refer to the related +executive compensation tables. The compensation of our Named +Executive Officers is based on a design that ties a substantial +percentage of an executive’s compensation to our attainment +of financial and other performance measures that, our Board of +Directors believes, promote the creation of long-term +stockholder +2 +Table of Contents +value and position our company for long-term success. As +described more fully in the Compensation Discussion and +Analysis, the mix of fixed- and performance-based compensation, +as well as the terms of restricted stock awards, are designed to +enable our company to attract and maintain top talent while, at +the same time, creating a close relationship between our +company’s performance and overall stockholder return and +the Named Executive Officers’ compensation. Our +Compensation Committee and Board of Directors believe that the +design of the program, and hence the compensation awarded to +Named Executive Officers under the current program, fulfills +this objective. +Although the vote is advisory and non-binding, our Board of +Directors and Compensation Committee value the opinions that our +stockholders express in their votes and will consider the voting +results in connection with their ongoing evaluation of our +compensation program. +The Board +of Directors recommends a vote FOR the advisory, non-binding +resolution +approving the compensation of our Named Executive +Officers. +PROPOSAL NO. 3 +ADVISORY VOTE ON FREQUENCY OF FUTURE VOTES ON COMPENSATION +OF +NAMED EXECUTIVE OFFICERS +Section 14A of the Securities Exchange Act, which was added +under the Dodd-Frank Wall Street Reform and Consumer Protection +Act, requires us to submit a non-binding, advisory resolution to +stockholders at least once every six years to indicate how +frequently they believe we should seek an advisory vote on the +compensation of our Named Executive Officers. In this +Proposal No. 3, we are seeking an advisory, +non-binding determination from our stockholders as to the +frequency with which stockholders would have an opportunity to +provide an advisory approval of our executive compensation +program. We are providing stockholders the option of selecting a +frequency of every one, two or three years, or abstaining. In +voting on this proposal, you should mark your proxy for one, two +or three years based on your preference as to the frequency with +which future advisory votes on executive compensation should be +held. You may also abstain from voting on this proposal. +Our Board of Directors recommends that future advisory votes on +the compensation of our Named Executive Officers occur every +three years because our Board and Compensation Committee believe +that this frequency will provide the most effective means for +conducting and responding to the advisory vote based on a number +of considerations, including the following: +• +Our compensation program is designed to induce and reward +performance over a multi-year period; +• +A three-year cycle will provide investors sufficient time to +evaluate the effectiveness of our short- and long-term +compensation strategies and the related business outcome of our +company; +• +A three-year vote cycle gives our Board of Directors and +Compensation Committee sufficient time to thoughtfully respond +to stockholders’ sentiments and to implement any necessary +changes to our executive compensation policies and +procedures; and +• +Our Board of Directors will continue to engage with our +stockholders on executive compensation during the period between +stockholder votes. As discussed under “ Corporate +Governance and Board Matters — Stockholder +Communications with the Board of Directors ,” we provide +our stockholders an opportunity to communicate with the Board, +including on issues of executive compensation. +Stockholders are not voting to approve or disapprove the +recommendation of our Board of Directors, but rather to indicate +their choice among these frequency options. +Although the result of this vote is advisory and non-binding, +our Compensation Committee and Board of Directors value the +opinions that our stockholders express in their votes and will +consider our stockholders’ +3 +Table of Contents +concerns and take them into account in determining how +frequently future advisory votes on the compensation of our +Named Executive Officers will occur. +The Board +of Directors recommends a vote to hold future advisory votes on +the compensation +of our Named Executive Officers every THREE YEARS. +PROPOSAL NO. 4 +RE-APPROVAL +OF THE 2006 ANNUAL INCENTIVE COMPENSATION PLAN +We are asking our stockholders to approve a proposal with +respect to the Skechers U.S.A., Inc. 2006 Annual Incentive +Compensation Plan (the “2006 Plan”). The 2006 Plan, +which was authorized by our Board of Directors and approved by +our stockholders in 2006, generally provides for +performance-based incentive awards to certain of our key +employees. The 2006 Plan is designed to satisfy the requirements +of Section 162(m) of the Internal Revenue Code of 1986, as +amended (the “Code”), so that we can take federal +income tax deductions for the performance-based compensation +paid under the 2006 Plan to certain of our executive officers +who are considered “covered employees” within the +meaning of Section 162(m) of the Code. +Section 162(m) of the Code generally limits the +deductibility of compensation paid to certain executive officers +of a publicly-held corporation to $1,000,000 in any taxable year +of the corporation. Certain types of compensation, including +“qualified performance-based compensation,” are exempt +from this deduction limitation. In order to qualify for the +exemption for qualified performance-based compensation, +Section 162(m) of the Code generally requires that: +• +The compensation must be paid solely upon account of the +attainment of one or more pre-established objective performance +goals; +• +The performance goals must be established by a compensation +committee comprised solely of two or more “outside +directors”; +• +The material terms of the performance goals (including the +maximum amount of compensation that could be paid to the +employee) must be disclosed to and approved by the +stockholders; and +• +The compensation committee of “outside directors” must +certify that the performance goals have been met prior to +payment. +To continue to qualify for the exemption for qualified +performance-based compensation, the stockholders must re-approve +the material terms of the performance goals every five years. +Our stockholders last approved the material terms of the 2006 +Plan’s performance goals when the 2006 Plan was initially +approved by our stockholders in 2006 at our 2006 annual meeting +of stockholders. We are now submitting for re-approval in 2011 +the material terms of the 2006 Plan’s performance goals, +which have not changed from those that were included in the +terms of the 2006 Plan as approved by our stockholders in 2006. +Stockholder approval of the 2006 Plan under this proposal will +constitute stockholder re-approval of the material terms of the +performance goals for purposes of Section 162(m) of the +Code. +If stockholders do not approve this proposal, we will not have +the ability to structure cash bonus opportunities under the 2006 +Plan that qualify as “qualified performance-based +compensation” for tax deductibility purposes. In that case, +the 2006 Plan will terminate and we will no longer pay bonuses +under the 2006 Plan. If stockholders approve this proposal, we +will have the ability to treat compensation earned under the +2006 Plan for fiscal years 2011 through 2015 as “qualified +performance-based” compensation for tax-deductibility +purposes. +Summary +Description of the 2006 Plan +The 2006 Plan is intended to advance the interests of our +company and its stockholders and assist us in attracting and +retaining executive officers by providing incentives and +financial rewards to such individuals, who, because of the +extent of their responsibilities, can make significant +contributions to our success by their ability, industry, loyalty +and exceptional services. The following summary of the material +features of the 2006 Plan is qualified in its entirety by +reference to the terms of the 2006 Plan, a copy of which is +attached as Appendix A to this Proxy Statement. +4 +Table of Contents +Administration +The 2006 Plan is administered by the Compensation Committee of +the Board of Directors (the “Committee”). The +Committee has authority and discretion to administer and +interpret the provisions of the 2006 Plan and to adopt such +rules and regulations for the administration of the 2006 Plan as +the Committee deems necessary or advisable. Decisions of the +Committee will be final, conclusive and binding upon all +parties, including, without limitation, the Company and +participants in the 2006 Plan. The Committee may designate all +or any portion of its power and authority under the 2006 Plan to +any +sub-committee +of the Committee or to any of our executive officers, provided +that any such designation is consistent with the requirements of +Section 162(m) of the Code. +Eligibility +and Participation +The individuals eligible to participate in the 2006 Plan shall +be our Chief Executive Officer and any other executive officer +of our company or a subsidiary thereof. Prior to or at the time +performance objectives are established for a fiscal quarter, +fiscal year or such other period as established by the +Committee, in its sole discretion, not to exceed five years in +length (a “Performance Period”), the Committee will +approve those executive officers, including the Chief Executive +Officer, who will in fact be participants for such Performance +Period. Approximately twenty employees, including all of our +Named Executive Officers, participated in the 2006 Plan for the +2010 fiscal year and have been identified to participate for the +2011 fiscal year. +Determination +of Awards +Within the time period prescribed by Section 162(m) of the +Code, for each Performance Period for which performance +objectives are established, the Committee shall +(i) determine the participants who are to be eligible to +receive performance-based awards under the Plan, +(ii) select the performance criteria to be used for each +participant and (iii) establish, in terms of an objective +formula or standard for each participant, the performance goal +and the amount of each award which may be earned if such +performance goal is achieved. +The performance criteria are limited to the following: net +sales, revenue, revenue growth, operating income, pre- or +after-tax income (before or after allocation of corporate +overhead and bonus), net earnings, earnings per share, net +income, financial goals (division, group or corporate), return +on equity, total shareholder return, return on assets or net +assets, attainment of strategic and operational initiatives, +appreciation in +and/or +maintenance of the price of the shares of Class A Common +Stock or any other publicly-traded securities of our company, +market share, gross profits, earnings (including earnings before +taxes, earnings before interest and taxes or earnings before +interest, taxes, depreciation and amortization), economic +value-added models, comparisons with various stock market +indices, reductions in costs, cash flow (before or after +dividends), cash flow per share (before or after dividends), +return on capital (including return on total capital or return +on invested capital), cash flow return on investment, and +improvement in or attainment of expense levels or working +capital levels. +In determining satisfaction with performance goals for a +Performance Period, the Committee may direct that adjustments be +made to the performance goals or actual financial performance +results as reported to reflect extraordinary, unusual or +non-recurring organizational, operational or other changes that +have occurred during such Performance Period, in each case only +to the extent that such adjustments are consistent with the +requirements of Section 162(m) of the Code. +Maximum +Award +The maximum dollar value of an award payable under the 2006 Plan +to any participant in any +12-month +period is $5,000,000. +Current +Awards +Bonuses paid to our Named Executive Officers under the 2006 Plan +with respect to fiscal 2010 are reported under the column with +the heading entitled “ Non-Equity Incentive Plan +Compensation ” of the “ Executive +Compensation — Summary Compensation Table ” +below. The Committee has established the performance goals for +fiscal year 2011 with respect to awards to such participants by +reference to the business criteria set forth in the +5 +Table of Contents +2006 Plan. If the 2006 Plan is not approved by stockholders, any +cash bonuses paid to the Named Executive Officers for 2011 would +be made in the discretion of the Committee and would not be paid +under the 2006 Plan. +Payment +of Awards +At such time as it shall determine appropriate following the +conclusion of each Performance Period, the Committee shall +certify, in writing, the amount of the award for each +participant for such Performance Period. The amount of an award +actually paid to a participant may, in the sole discretion of +the Committee, be reduced to less than the amount payable to the +participant based on attainment of the performance goals for a +Performance Period. Payment of an award to each participant +shall be made no later than the fifteenth day of the third month +following the end of the fiscal quarter of the Company in which +the applicable Performance Period ends. +Duration +and Amendment +If the Plan is re-approved by the stockholders at the Annual +Meeting, it will be effective for fiscal years 2011 through +2015, after which our stockholders must re-approve the 2006 Plan +for an additional five years again at our annual meeting of +stockholders in 2016 in order for awards under the 2006 Plan to +continue to qualify as performance-based compensation under +Section 162(m) of the Code. The Committee may at any time +alter, amend, suspend or terminate the 2006 Plan as it shall +deem advisable, subject to any requirement for stockholder +approval imposed by applicable law including Section 162(m) +of the Code. No amendments to, or termination of, the 2006 Plan +shall in any way impair the rights of a participant under any +award previously granted without such participant’s consent. +Payment +of Taxes +We may deduct from any payments of awards under the 2006 Plan +any applicable withholding taxes required by law to be withheld +with respect to such payments. +Other +Compensation +The 2006 Plan is not exclusive. We may pay other bonuses and +other compensation to the Named Executive Officers and other key +employees under other authority of our Board of Directors and +applicable law. +Plan +Benefits +Bonus awards, if any, that our executive officers and other +employees may receive under the 2006 Plan for 2011 and future +years are subject to the discretion of the Committee and will +depend on meeting performance targets on a quarterly basis that +are substantially uncertain. Although the Committee has +pre-approved the awards granted to our Named Executive Officers +under the 2006 Plan for the 2011 fiscal year, including the +financial criteria that we will need to meet or exceed in order +for the Named Executive Officers to earn quarterly bonuses, as +of March 31, 2011, we are not able to determine any +quarterly bonuses that may be received by the Named Executive +Officers in 2011. Furthermore, any such determination with +respect to future awards under the 2006 Plan to any of the Named +Executive Officers are also subject to your approval of this +proposal. +6 +Table of Contents +Therefore, certain tables below under the general heading +“ Executive Compensation ,” including the Summary +Compensation Table and the Grants of Plan-Based Awards Table and +the discussion under “ Compensation Discussion and +Analysis — Annual Incentive Compensation ,” +set forth information with respect to prior awards granted to +our Named Executive Officers under the 2006 Plan. In addition, +the table below sets forth bonuses paid for the 2010 fiscal year +to each of the following under the 2006 Plan. +New Plan +Benefits +Under 2006 Annual Incentive Compensation Plan in Fiscal Year +2010 (1) +Name and Position +Dollar Value ($) +Robert Greenberg — Chairman of the Board and Chief +Executive Officer +3,602,143 +Michael Greenberg — President and Director +1,498,250 +David Weinberg — Executive Vice President, Chief +Operating Officer, Chief Financial Officer and Director +1,055,643 +Mark Nason — Executive Vice President, Product +Development +813,036 +Philip Paccione — Executive Vice President, Business +Affairs; General Counsel and Corporate Secretary +285,214 +All current executive officers as a group +7,254,286 +All current directors who are not executive officers as a group +427,821 +All employees who are not executive officers as a group +5,276,465 +(1) +Future benefits under the 2006 Plan +are not determinable at this time. Amounts shown represent +amounts received by such individual or group under the 2006 Plan +for our last completed fiscal year. +Recommendation +of the Board of Directors +The Board of Directors believes that it is desirable and in the +best interest of our company and its stockholders to enable our +company to pay bonuses under the 2006 Plan that are deductible +as “qualified performance-based compensation” under +Section 162(m) of the Code. The Board further believes that +the 2006 Plan provides an important incentive that complements +our existing policies and other long-term plans in linking +portions of executive compensation to our performance. +Four of the members of our Board of Directors are eligible for +awards under the 2006 Plan and thus may have a personal interest +in the approval of this proposal. +The Board +of Directors recommends a vote FOR re-approval +of the 2006 Annual Incentive Compensation Plan. +7 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year in Which +Name +Age +Term Will Expire +Position +Geyer Kosinski +45 +Class III (2014) +Director +Richard Rappaport +51 +Class III (2014) +Director +Richard Siskind +65 +Class III (2014) +Director +Geyer Kosinski has served as a member of our Board of +Directors since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and directors. +From April 1997 to June 2004, Mr. Kosinski was a Managing +Partner and co-owner of Industry Entertainment, a talent +management and production company that produced feature films +and television programming and managed over 100 actors, writers +and directors. +Mr. Kosinski’s qualifications to serve on our Board +include 18 years of leadership and transactional +experience, specifically managing the careers of actors, writers +and directors and developing and producing numerous feature +films and television series in the entertainment industry. +Richard Rappaport has served as a member of our Board of +Directors since September 2010. In 1999, Mr. Rappaport +founded WestPark Capital, a full service investment banking and +securities brokerage firm that serves the needs of both private +and public companies worldwide, as well as individual and +institutional investors, and he is its Chief Executive Officer. +Mr. Rappaport received his B.S. in Business Administration +from the University of California at Berkeley, and his M.B.A. +from the University of California at Los Angeles. +In August 2004, Mr. Rappaport entered into a settlement +agreement with the NASD (the “Settlement Agreement”) +to settle claims that Mr. Rappaport failed in his capacity +as Chief Compliance Officer of WestPark Capital to properly +supervise the preparation of the six research reports released +by WestPark Capital between July 2001 and October 2002 regarding +public companies with speculative securities which WestPark +Capital and Mr. Rappaport knew or had reason to know were +misleading in light of certain omissions and exaggerated, +unwarranted and misleading statements. Under the terms of the +Settlement Agreement, and without admitting or denying any +liability, Mr. Rappaport voluntarily surrendered his +Series 24 license to act as a general securities principal +on behalf of WestPark Capital for a period of 30 days +restricting Mr. Rappaport’s participation in principal +activities (the “Temporary Principal Suspension”), was +required to requalify his Series 24 license and paid a fine +of $50,000. Despite his good faith efforts to comply with the +terms of the Temporary Principal Suspension and his reliance on +the advice of legal counsel regarding the scope of the +restricted activities, the NASD determined that certain of the +activities that Mr. Rappaport engaged in during the +Temporary Principal Suspension were considered “principal +activities.” In September 2006, Mr. Rappaport entered +into a letter of acceptance, waiver and consent (the +“Consent”) with the NASD in connection with the +violation of the Temporary Principal Suspension. Under the terms +of the Consent, and without admitting or denying any liability, +Mr. Rappaport voluntarily surrendered his Series 7 and +24 licenses for a second +30-day +period and paid an additional fine of $10,000. +Mr. Rappaport fully complied with the terms of the Consent +to the satisfaction of the NASD. +Mr. Rappaport’s qualifications to serve on our Board +include 23 years of experience in business development and +corporate finance, specifically in the United States and +international small cap investment banking and securities +markets; he has completed over 50 public offerings of +issuers’ stock and numerous private financing and M&A +transactions. During his career, he has helped companies plan +and implement their financial and business development +strategies. +Richard Siskind has served as a member of our Board of +Directors since June 1999. In 1991, Mr. Siskind founded R. +Siskind & Company, a business that purchases brand +name men’s and women’s apparel and accessories and +redistributes those items to off-price retailers. R. +Siskind & Company also controls other companies that +have licenses and distribution agreements for various brands, +and he is its Chief Executive Officer and a member of its +8 +Table of Contents +Board of Directors. From November 2002 to June 2006, +Mr. Siskind served as a member of the Board of Directors of +Magic Lantern Group, Inc. (AMEX:GML), which changed its name +from JKC Group, Inc. +Mr. Siskind’s qualifications to serve on our Board +include 35 years of experience as chief executive officer +of various companies in the consumer retail sector, including +four years as Chief Executive Officer and six years as a Board +member of Magic Lantern Group, a publicly traded apparel +company, and 20 years as founder, majority shareholder and +leader of R. Siskind & Company. +Mr. Siskind’s experience with consumer retail +businesses includes expertise with business planning, +operations, finance, inventory control, acquisitions and +licenses. +Directors +Not Standing for Election +The members of the Board of Directors who are continuing and not +standing for election at this year’s Annual Meeting are set +forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +71 +Class I (2012) +Chairman of the Board and Chief Executive Officer +Morton Erlich +66 +Class I (2012) +Director +Thomas Walsh +69 +Class I (2012) +Director +Michael Greenberg +48 +Class II (2013) +President and Director +David Weinberg +60 +Class II (2013) +Executive Vice President; Chief Operating Officer; Chief +Financial Officer; and Director +Jeffrey Greenberg +43 +Class II (2013) +Senior Vice President, Active Electronic Media and Director +Robert Greenberg has served as our Chairman of the Board +and Chief Executive Officer since October 1993. +As our founder, leader and largest stockholder since our +inception in 1992 and the driving force behind our brand and our +products, Mr. Greenberg is uniquely qualified to serve on +and lead our Board of Directors. +Morton Erlich has served as a member of our Board of +Directors since January 2006 and has been an independent +investor and consultant since September 2004. Mr. Erlich +worked for 34 years at KPMG LLP including 24 years as +an audit partner until retiring in September 2004. His last +position at KPMG LLP was office managing partner of the office +in Woodland Hills, California. +Mr. Erlich’s qualifications to serve on our Board +include 34 years of accounting and finance experience at +KPMG LLP and being licensed as a certified public accountant +(inactive) in California since 1974. While a partner with KPMG +LLP, Mr. Erlich served as lead audit partner for numerous +companies in a variety of industries including companies in +consumer markets and manufacturing, distribution and retail +sectors. His accounting and finance experience includes +expertise with various types of transactions such as bank lines +of credit, debt financings, equity financings including public +offerings, and mergers and acquisitions. +Thomas Walsh has served as a member of our Board of +Directors since September 2010. From May 1993 to November 2006, +Mr. Walsh served as senior vice president and portfolio +manager with Colbie Pacific Capital, which is a factoring and +asset-based lender located in Southern California. +Mr. Walsh’s qualifications to serve on our Board +include over 40 years of experience in managing and +providing guidance to companies, the majority of which were in +the apparel business, regarding debt financing options, issues +with collateral on existing debt and action plans for companies +with respect to distressed customers. His qualifications also +include a background in accounting and extensive experience in +evaluating businesses and evaluating their financial information. +Michael Greenberg has served as our President and a +member of our Board of Directors since our company’s +inception in 1992, and from June 1992 to October 1993, he served +as our Chairman of the Board. +9 +Table of Contents +Mr. Greenberg’s qualifications to serve on our Board +include 25 years of experience in the footwear industry, +specifically in sales, including his leadership as President of +our company for the last 18 years. +David Weinberg has served as our Chief Operating Officer +since January 2006, as our Chief Financial Officer since +September 2009 and from October 1993 to January 2006, and as +Executive Vice President and a member of our Board of Directors +since July 1998. +Mr. Weinberg’s qualifications to serve on our Board +include more than 20 years of experience in the footwear +industry, specifically in finance and operations, including +12 years as our Chief Financial Officer and four years as +our Chief Operating Officer. +Jeffrey Greenberg has served as our Senior Vice +President, Active Electronic Media since June 2005 and as a +member of our Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as our Vice +President, Active Electronic Media. Previously, +Mr. Greenberg served as our Chief Operating Officer, +Secretary and a member of our Board of Directors from June 1992 +to July 1998, and as our Chief Executive Officer from June 1992 +to October 1993. +Mr. Greenberg’s qualifications to serve on our Board +include 20 years of experience in the footwear industry, +specifically in marketing and operations, including his role on +our management team during our early years of growth following +our company’s inception in 1992. +Executive +Officers +The following table sets forth certain information with respect +to our executive officers who are not also members of our Board +of Directors. For information concerning Robert Greenberg, +Michael Greenberg and David Weinberg, see “ Directors Not +Standing for Election ” above. +Name +Age +Position +Philip Paccione +49 +General Counsel; Executive Vice President, Business Affairs; and +Corporate Secretary +Mark Nason +49 +Executive Vice President, Product Development +Philip Paccione has served as our Executive Vice +President, Business Affairs since February 2000, as our +Corporate Secretary since July 1998 and as our General Counsel +since May 1998. +Mark Nason has served as our Executive Vice President, +Product Development since March 2002. From January 1998 to March +2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served +as our Director of Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of our executive officers or directors. +10 +Table of Contents +CORPORATE +GOVERNANCE AND BOARD MATTERS +Board of +Directors, Committees of the Board and Attendance at +Meetings +Our Corporate Governance Guidelines were adopted by our Board of +Directors as of April 28, 2004 to assist the Board in the +exercise of its responsibilities. The Corporate Governance +Guidelines reflect the Board’s commitment to monitor the +effectiveness of policy and decision making both at the Board +and management levels, with a view to enhancing long-term +stockholder value. The Corporate Governance Guidelines are +posted in the corporate governance section of the investor +relations page of our corporate information website located at +www.skx.com/investor.jsp , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. The information found on, or +otherwise accessible through, our website is not incorporated +into, and does not form a part of, this proxy statement. +Our Board of Directors met four times in 2010, and each of the +directors attended all of the meetings. While we do not have a +policy requiring our directors to attend our Annual Meeting of +Stockholders, all of the directors attended the Annual Meeting +of Stockholders held in 2010. +The Board has an Audit Committee, a Compensation Committee and a +Nominating and Governance Committee. The table below provides +current membership and meeting information for 2010 for each of +the committees. Each of the members of these committees is +independent as defined by Section 303A of the New York +Stock Exchange (“NYSE”) Listed Company Manual +(collectively, the “NYSE Rules”), and each member of +the Audit Committee is independent as defined by +Section 10A(m)(3) of, and +Rule 10A-3(b) +under, the Securities Exchange Act. All committee meetings were +attended by all respective committee members in 2010, except one +meeting of the Audit Committee that Geyer Kosinski was unable to +attend. +Nominating and +Governance +Name +Audit Committee +Compensation Committee +Committee +Morton Erlich +X +* +X +X +* +Geyer Kosinski +X +Richard Siskind +X +X +* +X +Total Meetings in 2010 +6 +8 +4 +* +Committee Chairman +Each of these committees acts under a written charter that +complies with the applicable NYSE Rules and Securities and +Exchange Commission (“SEC”) rules. The functions +performed by the committees are summarized below and are set +forth in greater detail in their respective charters. The +complete text of the charter for each committee can be found in +the corporate governance section of the investor relations page +of our corporate information website located at +www.skx.com/investor.jsp , and copies are available in +print, without charge, upon written request to our Corporate +Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. The information +found on, or otherwise accessible through, our website is not +incorporated into, and does not form a part of, this proxy +statement. +Director +Independence +Our Board of Directors has nine members including six +non-management directors, which are those directors who are not +also serving as one of our executive officers. Our Board of +Directors has affirmatively determined that the Board has five +members who are independent as defined by Section 303A.02 +of the NYSE Rules. These directors are Morton Erlich, Geyer +Kosinski, Richard Rappaport, Richard Siskind and Thomas Walsh. +The Board of Directors made this affirmative determination +regarding these directors’ independence based on +discussions with the directors and on its review of the +directors’ responses to a questionnaire regarding +employment and compensation history; affiliations, family and +other relationships; and transactions with our company, its +subsidiaries and affiliates. The Board considered relationships +and transactions between each director or any member of his +immediate family and our company and its subsidiaries and +affiliates, including those reported in the section +11 +Table of Contents +entitled “ Transactions with Related Persons ” in +this proxy statement. The purpose of the Board’s review +with respect to each director was to determine whether any such +relationships or transactions were inconsistent with a +determination that the director is independent under the NYSE +Rules. +Under Section 303A of the NYSE Rules, we were considered a +“Controlled Company” until prior to share transfers by +our largest stockholder, Robert Greenberg, which occurred on +September 15, 2009. As a Controlled Company, we were exempt +from certain NYSE Rules including the requirement that our Board +of Directors must consist of a majority of independent members. +Under NYSE Rules, our company needed to appoint additional +independent directors +and/or +remove non-independent directors to ensure that the Board +consisted of a majority of independent directors within one year +of no longer constituting a Controlled Company. Therefore, we +appointed two additional independent members to our Board of +Directors as of September 10, 2010. +Board +Leadership Structure +Robert Greenberg currently serves as both Chairman of the Board +and Chief Executive Officer of our company. We believe combining +the roles of Chairman and Chief Executive Officer is currently +the appropriate leadership model for our company as it provides +for clear accountability and efficient and effective leadership +of our business. Mr. Greenberg’s knowledge regarding +our operations and the industries and markets in which we +compete positions him to best identify matters for Board review +and deliberation. The dual role serves as a bridge between +management and the Board of Directors that enables +Mr. Greenberg to provide his insight and direction on +important strategic initiatives to both groups, ensuring that +they act with a common purpose. As our founder and our largest +stockholder, with beneficial ownership of approximately 22.2% of +the aggregate number of votes eligible to be cast by our +stockholders and the ability to exert significant influence over +matters requiring approval by our stockholders, we believe +Mr. Greenberg is the appropriate person to lead both our +Board of Directors and the management of our company. +To further strengthen our corporate governance structure and +provide independent oversight of our company, our Board of +Directors appointed Morton Erlich as our Lead Independent +Director. As Lead Independent Director, Mr. Erlich acts as +a liaison between the non-management directors on our Board and +Robert Greenberg and the other members of our management team, +chairs regularly held executive sessions without our management +present, and performs other functions as requested by the +non-management directors. Executive sessions are typically held +in conjunction with regularly scheduled Audit Committee meetings +and Board meetings, and additional sessions may be called by the +Lead Independent Director in his own discretion or at the +request of the Board of Directors. +Role of +Board in Risk Oversight +Our Board of Directors is responsible for the oversight of risk +management. The Board of Directors delegates much of this +responsibility to the various committees of the Board. The Audit +Committee is responsible for inquiring of management, our +Director of Internal Audit and our independent registered public +accounting firm about our financial reporting processes, +internal controls and policies with respect to financial risk +assessment and management. The Chairman of the Audit Committee +has periodic discussions with our Director of Internal Audit +about the adequacy and effectiveness of steps taken to monitor, +control and report financial risk exposures, and the Director of +Internal Audit also presents the Audit Committee with formal +periodic status reports as well. The Compensation Committee +oversees risks related to our compensation programs and the +Nominating and Governance Committee is responsible for reviewing +regulatory and other corporate compliance risks. The Board is +advised by the committees of significant risks and +management’s response via periodic updates. +Stockholder +Communications with the Board of Directors +Stockholders and other interested parties who wish to contact +our Presiding Independent Director, Morton Erlich, or any of our +other directors either individually or as a group may do so by +writing to them +c/o Philip +Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Each writing interested party should specify whether the +communication is directed to our entire Board of Directors, to +only the non-management directors or to a particular director. +12 +Table of Contents +Audit +Committee +Our Board of Directors has determined Morton Erlich, who is the +Chairman of the Audit Committee, is an “audit committee +financial expert” as that term is defined in +Item 407(d)(5) of +Regulation S-K. +The Audit Committee is responsible for overseeing and evaluating +(i) the quality and integrity of our financial statements, +(ii) the performance of our internal audit and internal +controls functions in addition to financial risk assessment and +management applicable to our company, (iii) our policies +and procedures regarding transactions with related persons, as +described in greater detail below in the section entitled +“ Transactions with Related Persons, ” +(iv) the appointment, compensation, independence and +performance of our independent registered public accounting +firm, and (v) our compliance with legal and regulatory +requirements. +Compensation +Committee +The Compensation Committee is responsible for +(i) discharging the Board’s responsibilities relating +to compensation of our executive officers, (ii) overseeing +the administration of our executive compensation plans, +(iii) reviewing and discussing with our management the +Compensation Discussion and Analysis required by the applicable +SEC rules and recommending to the Board whether such disclosure +should be included in our proxy statement and +(iv) overseeing risks related to our compensation programs +and (v) producing a report on executive compensation for +inclusion in our proxy statement in accordance with the +applicable rules of the SEC. This includes reviewing and +approving the annual compensation of our Chief Executive Officer +and other executive officers, reviewing and making +recommendations to the Board with respect to executive +compensation plans, including incentive compensation and +equity-based compensation, and reviewing and approving +performance goals and objectives with respect to the +compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. +Neither of the members of our Compensation Committee has ever +been an employee or officer of our company or any of its +subsidiaries. None of our executive officers has served or +currently serves on the board of directors or on the +compensation committee of any other entity, which has officers +who served on our Board of Directors or Compensation Committee +during the fiscal year ended December 31, 2010. +Nominating +and Governance Committee +The Nominating and Governance Committee, which was established +on September 15, 2009, is responsible for +(i) developing and recommending to our Board of Directors +the criteria for selecting directors and assessing director +independence, (ii) identifying individuals qualified to +become members of our Board of Directors and recommending +candidates as director nominees for election to the Board, +(iii) considering and making recommendations to the Board +regarding its size and composition, director assignments to the +other Board committees and the appointment of a chairperson for +each of the other Board committees, (iv) overseeing the +evaluation of our management, the Board and its committees, +(v) evaluating and recommending to the Board changes to the +corporate governance guidelines applicable to our company, and +(vi) reviewing regulatory and other corporate compliance +risks applicable to us. +Director +Nominations +The Nominating and Governance Committee recommends to our Board +of Directors candidates to fill vacancies or for election or +re-election to the Board. In the event of a vacancy on our Board +of Directors, the process followed by the Nominating and +Governance Committee to identify and evaluate director +candidates includes requests to our Board members, management +and others for recommendations, meeting from time to time to +evaluate biographical information and qualifications relating to +potential candidates and interviews of selected candidates by +members of the committee and other directors. In considering +whether to recommend any particular candidate for inclusion in +the Board’s slate of recommended director nominees, the +Nominating and Governance Committee applies the criteria set +forth in our Corporate Governance Guidelines. The committee also +considers the statutory requirements applicable to the +composition of the Board and its committees, including +independence requirements of the NYSE. Our Board of Directors +ultimately determines the director nominees approved for +inclusion on the proxy card for each annual meeting of +stockholders. +13 +Table of Contents +Our Nominating and Governance Committee does not have a formal +policy with regard to the consideration of diversity in +identifying director nominees. Consistent with the +committee’s charter, when identifying director nominees, +the committee considers general principles of diversity and does +so in the broadest sense. The committee evaluates the abilities +and skills, age and education, industry and professional +background, and accounting and financial experience of all +potential director nominees. We believe that the backgrounds and +qualifications of our directors, considered as a group, should +provide a diverse mix of background, experience, knowledge and +skills that will best allow our Board to fulfill its +responsibilities including oversight of our business. +The Nominating and Governance Committee will consider candidates +recommended by stockholders for nomination for election as +directors. The committee will evaluate stockholder-recommended +candidates by following substantially the same process, and +applying substantially the same criteria, as it follows for +candidates recommended by our Board members, management and +others. Stockholders wishing to submit recommendations must +provide the following information by written notice to the +attention of our General Counsel by certified or registered mail: +• +As to each person whom the stockholder proposes to nominate for +election as a director: +• +the name, age, business address and residential address of the +candidate; +• +the principal occupation or employment of the person; +• +the class and number of shares of our stock that are +beneficially owned by the candidate; and +• +the candidate’s consent to be named in the proxy statement +as a nominee and to serve as a director if elected. +• +As to the stockholder recommending a candidate for director: +• +the name and address, as they appear on our stock transfer +books, of the stockholder and of the beneficial owners, if any, +of the stock registered in the stockholder’s name and the +name and address of other stockholders known by the stockholder +to be supporting the nominee; and +• +the class and number of shares of our stock beneficially owned +(i) by the stockholder and the beneficial owners, if any, +and (ii) by any other stockholders known by the stockholder +to be supporting such candidates. +To be considered by the Nominating and Governance Committee for +the 2012 Annual Meeting of Stockholders, nominations for +director candidates must be received at our principal office +within the time period set forth below under the section +“ Nominations and Stockholder Proposals for 2012 Annual +Meeting ” in this proxy statement. +Code of +Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by our Board of +Directors as of April 28, 2004 and amended by the Board as +of January 15, 2007. The purpose of the Code of Business +Conduct and Ethics is to promote honest and ethical conduct. The +Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our +corporate information website located at +www.skx.com/investor.jsp , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. We intend to promptly post +any amendments to or waivers of the Code of Business Conduct and +Ethics on our website. The information found on, or otherwise +accessible through, our website is not incorporated into, and +does not form a part of, this proxy statement. +14 +Table of Contents +Compensation +of Directors +The following table sets forth information concerning the +compensation earned by our non-employee directors during 2010. +Robert Greenberg, Michael Greenberg, David Weinberg and Jeffrey +Greenberg are not included because as employee directors, they +did not earn any additional compensation for services provided +as members of our Board of Directors. +Fees Earned or Paid +Stock +Name +in Cash +($) (1) +Awards +($) (2) +Total ($) +Morton Erlich +88,000 +— +88,000 +Geyer Kosinski +43,500 +— +43,500 +Richard Rappaport +10,500 +114,200 +124,700 +Richard Siskind +73,000 +— +73,000 +Thomas Walsh +10,500 +114,200 +124,700 +(1) +This column reports the amount of +cash compensation earned in 2010 for Board and committee service. +(2) +This column represents the +aggregate grant date fair value of restricted stock awards +granted during 2010, as calculated in accordance with Accounting +Standards Codification Topic 718, Compensation — Stock +Compensation (“FASB ASC Topic 718”). The grant date +fair value was calculated using the closing price of our +Class A Common Stock on the grant date for the shares +awarded, which was $22.84 per share on September 10, 2010. +As of December 31, 2010, Messrs. Erlich, Kosinski and +Siskind each held 7,000 shares of restricted stock and +Messrs. Rappaport and Walsh each held 3,750 shares of +restricted stock. +Non-Employee Directors. We paid each of our +non-employee directors annual compensation of $30,000 for +serving on the Board of Directors in 2010. Our Audit Committee +Chairman, Compensation Committee Chairman and Nominating and +Governance Committee Chairman were paid additional annual fees +of $15,000, $10,000 and $10,000, respectively, in 2010. +Non-employee directors also received fees of $1,500 for each +Board and committee meeting attended during 2010. Non-employee +directors are reimbursed for reasonable costs and expenses +incurred for attending any of our Board or committee meetings. +Compensation, fees, and reimbursable costs and expenses are paid +quarterly. During 2010, non-employee directors were eligible to +receive awards of restricted shares of Class A Common +Stock, grants of options to purchase shares of Class A +Common Stock and other equity-based compensation under the 2007 +Incentive Award Plan (the “2007 Plan”) as determined +by the Board of Directors. In September 2010, upon being +appointed to our Board of Directors, Messrs. Rappaport and +Walsh each received a discretionary award of 5,000 shares +of restricted stock, of which 25% of the shares vested on +September 10, 2010, and the remaining shares are scheduled +to vest in three equal installments on each of +September 10, 2011, 2012 and 2013. In 2010, there were no +other issuances of restricted shares of Class A Common +Stock or grants of options to purchase shares of Class A +Common Stock to non-employee directors. +Employee Directors. As of December 31, +2010, Robert Greenberg, Michael Greenberg and David Weinberg +were the only Named Executive Officers serving on our Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on our Board of Directors. Employees of +Skechers who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2010 is set forth +under “ Executive Compensation .” Compensation of +Jeffrey Greenberg earned in 2010 is described in the section +entitled “ Transactions with Related Persons ” in +this proxy statement. During the 2010 fiscal year, employee +directors were eligible to receive awards of shares of +Class A Common Stock, grants of options to purchase shares +of Class A Common Stock and other equity-based compensation +under the 2007 Plan as determined by the Board of Directors. In +2010, employee directors were not issued any restricted shares +of Class A Common Stock nor granted any options to purchase +shares of Class A Common Stock. +15 +Table of Contents +COMPENSATION +DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation +arrangements of our Named Executive Officers for 2010 should be +read together with the compensation tables and related +disclosures set forth below. The Named Executive Officers are +those executive officers listed in the table captioned +Summary Compensation Table in this proxy statement: +Robert Greenberg, Chief Executive Officer; Michael Greenberg, +President; David Weinberg, Chief Operating Officer and Chief +Financial Officer; Mark Nason, Executive Vice President of +Product Development; Philip Paccione, General Counsel and +Corporate Secretary; and President of Fitness Group, Leonard +Armato. This discussion contains forward looking statements that +are based on our current plans, considerations, expectations and +determinations regarding future compensation programs. Actual +compensation programs that we adopt may differ materially from +currently planned programs as summarized in this discussion. +Role of +Compensation Committee +Our executive compensation program is administered by or under +the direction of the Compensation Committee of our Board of +Directors. Under the terms of its Charter, the Compensation +Committee is responsible for (i) discharging the +Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of +our executive compensation plans, (iii) reviewing and +discussing with Skechers’ management this Compensation +Discussion and Analysis required by the applicable SEC rules and +recommending to the Board its inclusion in this proxy statement +and (iv) producing the annual report on executive +compensation included elsewhere in this proxy statement in +accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the +services of outside advisors, experts and other consultants to +assist in the evaluation of the compensation of the Chief +Executive Officer, the other executive officers and the Board of +Directors. Neither we nor our Compensation Committee retained a +compensation consultant in 2010 to review policies and +procedures with respect to executive compensation or to advise +us on compensation matters. For 2010, the Compensation Committee +reviewed management’s compensation recommendations and then +discussed these recommendations with management. These +recommendations were then approved by the Compensation Committee. +Role of +Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and +Chief Operating Officer, annually makes recommendations to the +Compensation Committee regarding (i) annual base salary and +bonuses to be paid to executive officers, (ii) the +formation and modification of our equity-based and incentive +compensation plans for executive officers, (iii) awards to +be granted under our equity-based compensation plan and +(iv) performance metrics to be used to calculate incentive +compensation that executive officers may earn under our +incentive compensation plan. Management also meets periodically +with the Compensation Committee to discuss these +recommendations, which are based on management’s assessment +of the base salary, equity-based compensation and incentive +compensation opportunities that are competitive within our +industry and within the geographical labor markets in which we +participate. The Compensation Committee has the authority to +adopt, modify or reject any of these recommendations. +Compensation +Objectives +The basic compensation philosophy of our management and the +Compensation Committee is to provide competitive salaries and +incentives to executive officers in order to promote superior +financial performance. The Compensation Committee believes that +compensation paid to executive officers should be closely +aligned with our performance on both a short-term and long-term +basis, linked to specific, measurable results intended to create +value for stockholders, and that such compensation should assist +us in attracting and retaining key executives critical to our +long-term success. +Our executive compensation policies are designed to achieve four +primary objectives: +• +attract and motivate well-qualified individuals with the ability +and talent to enable us to achieve our business objectives and +corporate strategies; +16 +Table of Contents +• +provide incentives to achieve specific short-term individual and +corporate goals by rewarding achievement of those goals at +established financial performance levels; +• +provide incentives to achieve longer-term financial goals and +reinforce sense of ownership through award opportunities that +can result in ownership of stock; and +• +promote retention of key executives and align the interests of +management with those of the stockholders to reinforce +achievement of continuing increases in stockholder value. +Consistent with our performance-based philosophy, the +Compensation Committee reviews and approves our compensation +programs to effectively balance executive officers’ +salaries with incentive compensation that is performance-based +as well as to reward annual performance while maintaining a +focus on longer-term objectives. We believe that it serves the +needs of our stockholders and key executives to provide +incentives commensurate with individual management +responsibilities and past and future contributions to corporate +objectives. The mix of compensation elements varies based on an +executive officer’s position and responsibilities with +Skechers. +To maximize stockholder value, we believe that it is necessary +to deliver consistent, long-term sales and earnings growth. +Accordingly, the Compensation Committee reviews not only the +individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +short-term, long-term and currently paid cash and equity +compensation in a way that meets the objectives set forth above. +Elements +of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 +Plan; and +• +equity compensation awarded under the 2007 Plan. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking +into account market compensation paid by competitors within our +industry and other companies of similar type, size and financial +performance for individuals in similar positions. We set base +compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a +competitive environment, and to reward satisfactory performance +at an acceptable level based upon contributions to our overall +business objectives. +Base salaries are generally reviewed annually, but may be +adjusted from time to time to realign salaries with market +levels. In reviewing base salaries, we consider various factors, +including (i) each individual’s level of +responsibilities, performance and results achieved, and +professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and +companies of similar type, size and financial performance and +(iii) cost of living increases. +While the annual base salaries of the Named Executive Officers +remained unchanged for 2010, except for Philip Paccione who +received a raise of $100,000 from 2009, the total cash +compensation, consisting of base salary and incentive +compensation (“Non-Equity Compensation”), of all Named +Executive Officers was greater in 2010 as compared to 2009, +primarily due to our financial performance in 2010 being better +than anticipated, which resulted in higher incentive +compensation earned by all of them. Except for Robert Greenberg, +the total compensation of all Named Executive Officers disclosed +in the “ Executive Compensation — Summary +Compensation Table ” below was less in 2010 as compared +to 2009, but this was largely due to the fact that the +restricted stock awarded in September 2009 (for further +information, see the section below entitled +“ Equity-Based Compensation — Restricted +Stock ”) is recognized in full in 2009 for SEC reporting +purposes even though the awards vest in 2010, 2011 and 2012. +Thus, +17 +Table of Contents +the +year-over-year +increase in total compensation earned by all Named Executive +Officers in 2010, including the restricted stock that vested in +November 2010, was commensurate with the continued positive +financial performance by Skechers in fiscal 2010. +Annual +Incentive Compensation +The 2006 Plan is intended to advance our interests and those of +our stockholders and to assist us in attracting and retaining +executive officers by providing incentives and financial rewards +to such executives who, because of the extent of their +responsibilities can make significant contributions to our +success through their ability, industry expertise, loyalty and +exceptional services. +The 2006 Plan provides executive employees including the Named +Executive Officers with the opportunity to earn bonuses based on +our financial performance by linking incentive award +opportunities to the achievement of our performance goals. The +2006 Plan allows us to set annual performance criteria and goals +that are flexible and change with the needs of our business. The +Compensation Committee annually approves the performance +criteria and goals that will be used in formulae to calculate +our Named Executive Officers’ incentive compensation on a +quarterly basis for each fiscal year. By determining performance +criteria and setting goals at the beginning of each fiscal year, +our Named Executive Officers understand our goals and priorities +during the current fiscal year. Following the conclusion of each +quarter during the current fiscal year, the Compensation +Committee certifies the amount of the award for each participant +for each such quarter. The amount of an award actually paid to a +participant each quarter may, in the sole discretion of the +Compensation Committee, be reduced to less than the amount +payable to the participant based on attainment of the +performance goals for each such quarter. +The Compensation Committee approved the performance goals during +the first quarter of 2010 for fiscal 2010. The business criteria +used in the formulae to calculate the incentive compensation of +our Chief Executive Officer, President, Chief Operating Officer +and Executive Vice President of Product Development for 2010 +were our EBITDA (earnings before interest, taxes, depreciation +and amortization) and net sales because the Compensation +Committee believes that they provide an accurate and +comprehensive measure of our annual performance. For our General +Counsel and President of Fitness Group, who were the only other +Named Executive Officers, our net sales were used to calculate +their incentive compensation for 2010. +The potential payments of incentive compensation to our Named +Executive Officers are performance-driven and therefore +completely at risk. The payment of any incentive compensation +for a fiscal year under the 2006 Plan is conditioned on our +company achieving at least certain threshold performance levels +of the business criteria approved by the Compensation Committee, +and no payments will be made to our Named Executive Officers if +the threshold performance levels are not met. Any incentive +compensation to be paid to the Named Executive Officers in +excess of the threshold amounts is based on the Compensation +Committee’s pre-approved business criteria and formulae for +the respective Named Executive Officers. The following table +sets forth the two sets of performance criteria used to +determine the Named Executive Officers’ annual incentive +compensation on a quarterly basis, either or both of which may +be earned depending on our company’s financial performance: +Quarterly Incentive Compensation Earned +Quarterly Incentive Compensation +Equals Amount by which Net Sales for the +Earned if a Positive EBITDA is Achieved +Applicable Quarter Exceeds Net Sales for the +for Either the Applicable Quarter or the +Corresponding Quarter in the Previous Year +Name of Executive +Last Four Quarters Combined ($) +Multiplied by the Listed Percentage (%) +Robert Greenberg +187,500 +0.500 +Michael Greenberg +125,000 +0.175 +David Weinberg +50,000 +0.150 +Mark Nason +25,000 +0.125 +Philip Paccione +N/A +0.050 +Leonard Armato +N/A +0.075 +If positive EBITDA is achieved by our company for either the +applicable quarter or the last four quarters combined, then each +Named Executive Officer will earn a quarterly bonus equal to the +amount set forth in the table above with respect to such +quarter. If net sales for the applicable quarter exceed net +sales for the corresponding quarter in the previous year, then +the executive will earn a quarterly bonus equal to the amount of +such excess +18 +Table of Contents +multiplied by the percentage set forth in the table above with +respect to such quarter. Except for Robert Greenberg, who did +not receive an award of restricted stock in 2009, the +pre-approved percentages for 2010 were lower than those in 2009 +because the compensation paid to the other Named Executive +Officers in 2009 included a restricted stock award that vests in +2010, 2011 and 2012. The Compensation Committee did not place a +maximum limit on the incentive compensation that could have been +earned by the Named Executive Officers in 2010, although the +maximum amount of incentive compensation that any Named +Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +The Named Executive Officers were generally targeted to receive +from 10% to 50% of their Non-Equity Compensation for 2010 in +annual incentive compensation, which was determined to be +competitive in the marketplace for similar positions. These +percentages were also consistent with the targeted percentages +for 2009. In determining the potential awards that computed into +these percentages, the Compensation Committee considered each +Named Executive Officer’s position, responsibilities and +prospective contribution to the attainment of our performance +goals. The percentage of total compensation represented by +incentive awards is generally higher for more senior executives +to reflect their greater influence on profits and sales and to +put a larger percentage of their total potential cash +compensation “at risk.” Accordingly, our Chief +Executive Officer, Robert Greenberg, was at the top end of the +range. +Based on our financial performance and the performance goals +previously set by the Compensation Committee for each Named +Executive Officer for 2010, the actual incentive compensation +earned by each Named Executive Officer for 2010 was $3,602,143 +for Robert Greenberg, which represented 78% of his Non-Equity +Compensation; $1,498,250 for Michael Greenberg, which +represented 60% of his Non-Equity Compensation; $1,055,643 for +David Weinberg, which represented 51% of his Non-Equity +Compensation, $813,036 for Mark Nason, which represented 45% of +his Non-Equity Compensation; $285,214 for Philip Paccione, which +represented 39% of his Non-Equity Compensation; and $427,822 for +Leonard Armato, which represented 41% of his total compensation. +These percentages, ranging from approximately 40% to 80%, were +higher than the targeted percentages of 10% to 50% due to our +financial performance in 2010 being better than anticipated. +Incentive compensation awarded under the 2006 Plan complements +the approach of our equity compensation program described below, +which is focused on our long-term achievements for earnings per +share and total stockholder return. +Equity-Based +Compensation +Awards of restricted stock, stock options and other forms of +equity-based compensation under the 2007 Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees +for building stockholder value; and +• +encourage long-term investment in Skechers by participating +Named Executive Officers. +The Compensation Committee believes that stock ownership by +management has been demonstrated to be beneficial to all +stockholders and equity-based compensation awards have +historically been granted by Skechers to executive officers and +other employees for the foregoing reasons and as further +discussed below. Certain executive employees, including all of +the Named Executive Officers other than Robert Greenberg, were +awarded shares of restricted stock in September 2009 under the +2007 Plan as a component of their total compensation for the +2009 fiscal year. During the 2010 fiscal year, Leonard Armato +was the only Named Executive Officer to receive an award of +restricted stock. We have not granted any stock options to the +Named Executive Officers as part of their annual compensation +since February 2004. +Our employees, including the Named Executive Officers, are +eligible to receive, from time to time, issuances of restricted +stock, grants of stock options and other equity-based +compensation under the 2007 Plan. +Restricted +Stock +Historically, awards of restricted stock made to our Named +Executive Officers are subject to certain restrictions that +generally lapse over a period of two to four years from the date +of the award depending on the specific award. This +19 +Table of Contents +vesting schedule promoted retention and encouraged long-term +investment in our company by the Named Executive Officers, +especially those who did not already hold shares of our +Class A or Class B Common Stock. This also provided a +reasonable time frame to align the Named Executive +Officers’ compensation with stockholder interests since any +appreciation of our stock price will benefit both management and +stockholders. An additional advantage of restricted stock is +that, in comparison to stock options, fewer shares are required +to deliver the same economic value. This may result in lower +stockholder dilution than granting stock options. The +Compensation Committee awarded restricted stock to the Named +Executive Officers, except for Robert Greenberg, on +September 4, 2009 as part of their total compensation for +the 2009 fiscal year in part due to these advantages. These +restricted stock awards are scheduled to vest in three equal +installments, with one-third having vested on November 1, +2010 and one-third scheduled to vest on each of November 1, +2011 and 2012. This vesting schedule is less than the four years +of vesting of previous awards because these shares were awarded +in September 2009 in lieu of potential annual incentive +compensation to be paid in cash to the Named Executive Officers +for 2010, 2011 and 2012. Robert Greenberg did not receive an +award of restricted stock in 2009 because management decided +that it was in his best interests to maintain his targeted +non-equity incentive compensation for 2010, 2011 and 2012 at +rates similar to 2009 rather than receive an award of restricted +stock in lieu of lower targeted non-equity compensation for +those years as did the other Named Executive Officers. Leonard +Armato was awarded restricted stock upon being hired in March +2010 that is also scheduled to vest in three equal installments +in lieu of potential annual incentive compensation to be paid in +cash for 2011, 2012 and 2013, with one-third having vested on +March 1, 2011 and one-third scheduled to vest on each of +March 1, 2012 and 2013. +Employment +Agreements, Severance Benefits and Change of Control +Provisions +We do not have any employment, severance or +change-of-control +agreements in effect with any of our Named Executive Officers. +The restricted stock awards granted under our 2007 Plan provide +that in the event of a change of control, all outstanding +unvested shares will vest in full. +A “change of control” is generally defined in the 2007 +Plan, including the equity award agreements thereunder, as +(i) the acquisition by certain persons of our securities +representing 50% or more of the combined voting power of our +outstanding securities; (ii) a change during any two-year +period in a majority of the Board of Directors unless each new +director was approved by a vote of at least two-thirds of the +directors then still in office who were directors at the +beginning of the period, or whose election or nomination was so +approved; (iii) approval by our stockholders of a merger or +consolidation (except with certain permitted entities); or +(iv) approval by our stockholders of a complete liquidation +of our company or the sale or disposition of all or +substantially all of our assets. +The Compensation Committee believes that our change of control +policy is consistent with the objectives of providing the +highest possible return to stockholders by allowing the Named +Executive Officers to be able to effectively participate equally +with stockholders in evaluating alternatives in the event of a +change of control transaction, without compelling the Named +Executive Officer to remain employed under new ownership. +Equity +Award Practices +As described under the Equity Compensation section, equity-based +awards are a key component of our overall executive compensation +program. We do not backdate grants of awards nor do we +coordinate the grant of awards with the release of material +information that might result in favorable pricing. New hire +grants of awards to executive officers and other new employees +are generally based on the date of hire. It is our practice that +the per share exercise price for all grants of stock options be +equal to the closing price of a share of our Class A Common +Stock on the New York Stock Exchange on the date of grant, and +we have never re-priced any grants. +Perquisites +and Other Benefits +We provide our Named Executive Officers with perquisites and +other benefits that are reflected in the “All Other +Compensation” column in the table captioned Summary +Compensation Table in this proxy statement, which we believe +are reasonable, competitive and consistent with our overall +executive compensation program. The costs +20 +Table of Contents +of these benefits constitute only a small percentage of each +Named Executive Officer’s total compensation and include +the following: +Aircraft usage. We have an agreement with an +aircraft operator for use of its aircraft for business travel. +Each Named Executive Officer may also use the aircraft for +personal use. If we are not reimbursed for costs associated with +personal use of the aircraft, such costs are considered taxable +income to the Named Executive Officer. During 2010, there was no +personal use of the aircraft by any of the Named Executive +Officers for which we were not reimbursed in full. +Automobile usage. During 2010, automobiles +that we leased or purchased at our sole cost were used by Robert +Greenberg, Michael Greenberg and David Weinberg. We also paid on +their behalf the automobile insurance premiums related to their +use of these automobiles. +Health Club Dues. During 2010, we paid health +club membership fees for David Weinberg and Philip Paccione. +Impact of +Regulatory Requirements +Tax +Deductibility of Compensation +Section 162(m) of the Code places a limit of $1,000,000 on +the annual amount of compensation (other than compensation that +qualifies as “qualified performance-based +compensation”) that publicly held companies may deduct for +federal income tax purposes for certain executive officers. +The Compensation Committee believes that tax deductibility is an +important factor, but only one factor, to be considered in +evaluating a compensation program. The Compensation Committee +generally seeks to structure compensation in a manner that is +intended to avoid the disallowance of deductions under +Section 162(m) of the Code. Nevertheless, when warranted +due to competitive and other factors, the Compensation Committee +may in certain circumstances award compensation that exceeds the +deductibility limit under Section 162(m) of the Code or +otherwise pay non-deductible compensation. +Internal +Revenue Code Section 409A +Section 409A of the Code requires that “nonqualified +deferred compensation” be deferred and paid under plans or +arrangements that satisfy the requirements of the statute with +respect to the timing of deferral elections, timing of payments +and certain other matters. Failure to satisfy these requirements +can expose employees and other service providers to accelerated +income tax liabilities and penalty taxes and interest on their +vested compensation under such plans. Accordingly, as a general +matter, it is our intention to design and administer our +compensation and benefits plans and programs for all of our +employees and other service providers, including the Named +Executive Officers, so that they are either exempt from, or +satisfy the requirements of, Section 409A of the Code. +Accounting +Standards +FASB ASC Topic 718 requires us to recognize an expense for the +fair value of equity-based compensation awards. Grants of +restricted stock and stock options under the 2007 Plan are +accounted for under FASB ASC Topic 718. The Compensation +Committee regularly considers the accounting implications of +significant compensation decisions, especially in connection +with decisions that relate to equity compensation awards. As +accounting standards change, we may revise certain programs to +appropriately align accounting expenses of our equity awards +with our overall executive compensation philosophy and +objectives. +Other +Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules +affect the delivery of executive compensation and are generally +taken into consideration as programs are developed. Our goal is +to create and maintain plans that are efficient and in full +compliance with these requirements. +21 +Table of Contents +REPORT OF +THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the +Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and +discussion, the Compensation Committee has recommended to the +Board of Directors that the Compensation Discussion and Analysis +be included in this proxy statement and, through incorporation +by reference from this proxy statement, in Skechers’ Annual +Report on +Form 10-K +for the year ended December 31, 2010. +Respectfully submitted, +Richard Siskind, Chairman +Morton Erlich +22 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth selected information concerning +the compensation earned by our Principal Executive Officer, +Principal Financial Officer, each of our three most highly +compensated executive officers who served in positions other +than Principal Executive Officer and Principal Financial Officer +at the end of the last completed fiscal year, and Leonard +Armato, who would have qualified for such description based on +his hiring as an executive officer in March 2010 but he was no +longer serving as an executive officer in his capacity as +President of Fitness Group at December 31, 2010 (the +“Named Executive Officers”). +Summary +Compensation Table +Non-Equity +Stock +Incentive Plan +All Other +Name and Principal Position +Year +Salary ($) +Awards +($) (1) +Compensation +($) (2) +Compensation ($) +Total ($) +Robert Greenberg +2010 +1,000,000 +— +3,602,143 +34,977 (3 +) +4,637,120 +Chairman of the Board and +2009 +1,038,462 +— +1,148,471 +34,766 (3 +) +2,221,699 +Chief Executive Officer +2008 +1,000,000 +508,588 +939,457 +32,424 (3 +) +2,480,469 +Michael Greenberg +2010 +1,000,000 +— +1,498,250 +60,144 (4 +) +2,558,394 +President and Director +2009 +1,038,462 +5,403,000 +778,930 +62,377 (4 +) +7,282,769 +2008 +1,000,000 +356,019 +632,605 +24,167 (4 +) +2,012,791 +David Weinberg +2010 +1,000,000 +— +1,055,643 +84,521 (5 +) +2,140,164 +Executive Vice President; Chief Operating +2009 +1,038,462 +2,251,250 +439,083 +66,462 (5 +) +3,795,257 +Officer, Chief Financial Officer and Director +2008 +1,000,000 +305,156 +313,661 +55,083 (5 +) +1,673,900 +Mark Nason +2010 +1,000,000 +— +813,036 +22,359 (6 +) +1,835,405 +Executive Vice President, Product +2009 +1,038,462 +1,350,750 +299,236 +21,656 (6 +) +2,710,104 +Development +2008 +1,000,000 +254,294 +194,718 +18,806 (6 +) +1,467,818 +Philip +Paccione (7) +2010 +473,077 +— +285,214 +23,377 (8 +) +745,668 +Executive Vice President, Business Affairs; +2009 +415,385 +1,350,750 +78,033 +23,304 (8 +) +1,867,472 +General Counsel and Corporate Secretary +Leonard +Armato (9) +2010 +620,192 +2,316,000 +427,822 +12,189 (10 +) +3,376,203 +President, Fitness Group +(1) +Represents the aggregate grant date +fair value of stock awards granted during the applicable fiscal +year, as calculated in accordance with FASB ASC Topic 718. The +fair value was calculated using the closing price of our +Class A Common Stock on the grant dates for the shares +awarded. +(2) +Represents the cash awards that the +Named Executive Officers earned under our 2006 Annual Incentive +Compensation Plan. Incentive compensation is paid quarterly +based on performance levels that our company achieved in the +prior quarter. The amounts listed for each year exclude any +bonuses earned by the Named Executive Officers in the previous +year that were paid in the indicated year and include incentive +compensation earned in the fourth quarter of the indicated year +that was paid in the following year. Additional information +regarding the 2006 Annual Incentive Compensation Plan is +described in the section entitled “ Compensation +Discussion and Analysis ” in this proxy statement. +(3) +Represents health and life +insurance payments of $15,682, $15,288 and $13,371, and costs of +$19,295, $19,478 and $19,053 related to automobiles purchased by +our company for use by Mr. Greenberg for 2010, 2009 and +2008, respectively. The aggregate incremental costs of +automobile usage are based on depreciation expense for an +automobile purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg. +(4) +Represents health and life +insurance payments of $22,229, $21,521 and $18,806, costs of +$37,915, $33,544 and $5,361 related to automobiles purchased by +our company for use by Mr. Greenberg and automobile +insurance premiums paid by our company on behalf of +Mr. Greenberg, and annual matching contributions of $0, +$7,312 and $0 that we made under the 401(k) Plan for 2010, 2009 +and 2008, respectively. The aggregate incremental costs of +automobile usage are based on depreciation expense for +automobiles purchased in 2008 and 2010, and automobile insurance +premiums paid by our company on behalf of Mr. Greenberg. +(5) +Represents health and life +insurance payments of $22,229, $17,561 and $13,040, payments of +health club membership fees of $1,092, $1,092 and $1,656, costs +of $54,589, $40,459 and $40,387 related to automobiles leased or +purchased by our company for use by Mr. Weinberg, and +annual matching contributions of $6,611, $7,350 and $0 that we +made under the 401(k) Plan for 2010, 2009 and 2008, +respectively. The aggregate incremental costs of automobile +usage are based on depreciation expense for automobiles +purchased in 2006 and 2010, and automobile insurance premiums +paid by our company on behalf of Mr. Weinberg. +(6) +Represents health and life +insurance payments of $22,229, $21,521 and $18,806, and annual +matching contributions of $130, $135 and $0 that we made under +the 401(k) Plan for 2010, 2009 and 2008, respectively. +(7) +Mr. Paccione was not a Named +Executive Officer in 2008. +23 +Table of Contents +(8) +Represents health and life +insurance payments of $15,674 and $14,862, annual payments of +health club membership fees of $1,092 and annual matching +contributions of $6,611 and $7,350 that we made under the 401(k) +Plan for 2010 and 2009, respectively. +(9) +Mr. Armato was not an employee +prior to 2010, and he would have been one of our three most +highly compensated executive officers in 2010, other than our +principal executive officer and principal financial officer, but +for the fact that he was no longer serving as an executive +officer at the end of the fiscal year. +(10) +Represents health and life +insurance payments of $12,189 for 2010. +Grants of +Plan-Based Awards in Fiscal 2010 +The following table provides information about plan-based awards +granted to the Named Executive Officers in 2010: (i) the +grant date; (ii) the estimated future payouts under +non-equity incentive plan awards, which consist of potential +payouts under the 2006 Plan that were awarded in 2010 for the +performance period covering fiscal 2010; (iii) the number +of shares underlying all other stock awards and (iv) the +grant date fair value of each equity award computed under FASB +ASC Topic 718. +All Other +Grant Date +Stock Awards: +Fair Value of +Estimated Future Payments Under +Number of +Stock and +Non-Equity Incentive Plan +Awards (1) +Shares of Stock +Option +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +or Units +(#) (2) +Awards +($) (3) +Robert Greenberg +1/19/10 +0 +750,000 +5,000,000 +— +— +Michael Greenberg +1/19/10 +0 +500,000 +5,000,000 +— +— +David Weinberg +1/19/10 +0 +200,000 +5,000,000 +— +— +Mark Nason +1/19/10 +0 +100,000 +5,000,000 +— +— +Philip Paccione +1/19/10 +0 +0 +5,000,000 +— +— +Leonard Armato +3/5/10 +0 +0 +5,000,000 +— +— +3/5/10 +— +— +— +75,000 +2,316,000 +(1) +These columns are intended to show +the potential value of the payments for each Named Executive +Officer under the 2006 Plan if the threshold, target or maximum +goals are satisfied for the performance measures. The potential +payments are performance-driven and therefore completely at +risk. Incentive compensation is conditioned on our company +achieving a minimum or threshold performance level, and no +payments are made to the Named Executive Officers if the +threshold performance levels are not met. The Compensation +Committee approved the performance goals during the first +quarter of 2010 for fiscal 2010. Additional information +regarding the business measurements and performance goals for +determining the payments are described in the section entitled +“ Compensation Discussion and Analysis ” in this +proxy statement. The target amounts presented in this table +represent the annual amount payable to each of our Named +Executive Officers for fiscal 2010, one-quarter of which is +determined on a quarterly basis if positive EBITDA is achieved +by our company for either the applicable quarter or the last +four quarters combined under the 2006 Plan. There are no +specific target amounts that can be determined with respect to +the net sales component of incentive compensation under the 2006 +Plan for fiscal 2010 because any amounts payable are determined +on a quarterly basis based on pre-approved percentages for each +Named Executive Officer multiplied by the amount, if any, that +net sales for the applicable quarter exceed net sales for the +corresponding quarter in the previous year. When determining the +performance goals, the Compensation Committee did not place a +limit on the non-equity incentive compensation that could be +earned by the Named Executive Officers in fiscal 2010; however, +the maximum amount of incentive compensation that any Named +Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +(2) +This column shows the number of +shares of restricted stock granted in 2010 to the Named +Executive Officers under the 2007 Plan. Of the 75,000 restricted +shares of Class A Common Stock awarded on March 5, +2010, the shares are scheduled to vest in three equal +installments on March 1, 2011, 2012 and 2013. +(3) +This column shows the aggregate +grant date fair value of stock awards in 2010, as calculated in +accordance with FASB ASC Topic 718. The fair value was +calculated using the closing price of our Class A Common +Stock on the grant date for the shares awarded, which was $30.88 +per share on March 5, 2010. +24 +Table of Contents +Options +Exercised and Stock Vested in Fiscal 2010 +The following table provides information for the Named Executive +Officers regarding stock options exercised in 2010, including +the number of shares acquired upon exercise and the value +realized, and the number of shares acquired in 2010 upon the +vesting of restricted stock awards and the value realized, each +before payment of any applicable withholding tax and broker +commissions. +Option Awards +Stock Awards +Number of Shares +Value Realized on +Number of Shares +Value Realized on +Name of Executive +Acquired on Exercise (#) +Exercise +($) (1) +Acquired on Vesting (#) +Vesting +($) (2) +Robert Greenberg +— +— +14,819 +470,503 +Michael Greenberg +37,500 +896,647 +110,374 +2,253,375 +David Weinberg +111,453 +2,601,574 +50,559 +1,083,994 +Mark Nason +80,205 +1,892,516 +32,410 +716,268 +Philip Paccione +7,500 +68,148 +27,964 +575,107 +Leonard Armato +— +— +— +— +(1) +Amounts are calculated by +multiplying the number of shares of the Company’s +Class A Common Stock acquired on exercise of the related +option awards by the difference between the fair market value of +the shares acquired at the time of exercise and the exercise +price of the stock options. +(2) +Amounts are calculated by +multiplying the number of shares acquired on vesting of the +related stock awards by the closing price per share of the +Company’s Class A Common Stock on the date of vesting. +Outstanding +Equity Awards at 2010 Fiscal Year-End +The following table provides information on the outstanding +stock option and stock awards held by the Named Executive +Officers as of December 31, 2010. This table includes +unexercised option awards and unvested shares of restricted +stock. Each equity award is shown separately for each Named +Executive Officer. The market value of the stock award is based +on the closing price of our Class A Common Stock as of +December 31, 2010, which was $20.00. For additional +information about option awards and stock awards, see the +description of equity-based compensation in the section entitled +“ Compensation Discussion and Analysis ” in this +proxy statement. +Option Awards +Stock Awards +Number of +Number of +Number of +Securities +Securities +Shares or +Market Value +Underlying +Underlying +Units of +of Shares or +Unexercised +Unexercised +Option +Option +Stock That +Units of Stock +Options (#) +Options (#) +Exercise +Expiration +Have Not +That Have +Name of Executive +Exercisable +Unexercisable +Price ($) +Date +Vested (#) +Not Vested ($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +— +— +200,000 (1 +) +4,000,000 +David Weinberg +30,000 +0 +10.58 +11/6/11 +83,333 (1 +) +1,666,660 +30,000 +0 +24.00 +4/1/11 +— +— +Mark Nason +199 +0 +10.58 +11/6/11 +50,000 (1 +) +1,000,000 +10,048 +0 +8.35 +2/5/14 +— +— +27,448 +0 +24.00 +4/1/11 +— +— +Philip Paccione +— +— +— +— +50,000 (1 +) +1,000,000 +Leonard Armato +— +— +— +— +75,000 (2 +) +1,500,000 +(1) +Shares of restricted stock +scheduled to vest in two equal installments on each of +November 1, 2011 and 2012. +(2) +25,000 shares of restricted +stock vested on March 1, 2011, and remaining +50,000 shares scheduled to vest in two equal installments +on each of March 1, 2012 and 2013. +Change of +Control Benefits +Upon a “change of control” under the 2007 Plan, +Michael Greenberg, David Weinberg, Mark Nason, Philip Paccione +and Leonard Armato would be entitled to full vesting of their +outstanding restricted stock valued at $4,000,000, $1,666,680, +$1,000,000, $1,000,000 and $1,500,000, respectively, based on +the closing price of our +25 +Table of Contents +Class A Common Stock on December 31, 2010, which was +$20.00 per share. Robert Greenberg did not hold any shares of +restricted stock on December 31, 2010. As of +December 31, 2010, the Named Executive Officers did not +hold any shares of restricted stock or unvested stock options +under our Amended and Restated 1998 Stock Option, Deferred Stock +and Restricted Stock Plan (the “1998 Stock Plan”) or +any unvested stock options under the 2007 Plan. +For additional information about change of control terms under +the 2007 Plan, see the description provided in the section +entitled “ Compensation Discussion and Analysis ” +in this proxy statement. +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2010 regarding compensation plans (including individual +compensation arrangements) under which our equity securities are +authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued Upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Plan Category +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +451,308 +$ +11.26 +— +2007 Plan +— +— +5,099,382 +2008 ESPP +— +— +2,574,842 +Total plans approved by security holders +451,308 +(1) +$ +11.26 +7,674,224 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +451,308 +7,674,224 +(1) +Amount does not include an +additional 1,493,329 shares of restricted stock, which were +awarded under the 2007 Plan, that were outstanding with a +weighted-average grant date fair value of $18.97. +(2) +The shares available for issuance +under the 2007 Plan are available for issuance as restricted +stock and other forms of equity-based compensation in addition +to stock options, warrants and rights. The number of shares +available for future issuance under the 2008 Employee Stock +Purchase Plan (the “2008 ESPP”) may be adjusted +annually on January 1 for increases equal to the least of +500,000 shares, 1% of the outstanding shares of our capital +stock on such date or a lesser amount as may be determined by +our Board of Directors. The 1998 Stock Plan and the Amended and +Restated 1998 Employee Stock Purchase Plan were terminated and +no additional granting of awards or rights under those plans was +permitted after December 31, 2007. +Relationship +of Risk to Compensation Policies and Practices +In March 2011, our company’s management and Compensation +Committee reviewed our compensation programs and identified the +potential pay risks related to our compensation policies and +practices for executives and other employees. The Compensation +Committee discussed these potential pay risks with management, +and we determined that any such pay risks are not reasonably +likely to have a material adverse effect on our company. Base +salaries are fixed in amount and thus do not encourage risk +taking. While maximum bonus opportunities under our annual +incentive compensation plan for executives, including our Named +Executive Officers, are based on our EBIDTA and net sales, we +concluded that with the internal controls that we have over +financial reporting, one or more participating employees would +not be reasonably likely to be able to directly and materially +affect such financial criteria. Equity awards of restricted +stock make up a substantial portion of each of our +executive’s total compensation opportunity and these awards +align executives’ interests with those of our stockholders. +We believe that these awards do not encourage unnecessary or +excessive risk taking because the ultimate value of the awards +is tied to our stock price, and the awards are subject to +long-term vesting schedules to help ensure that executives +always have significant value tied to long-term stock price +performance. Potential risks are also mitigated by the +significant amounts of our Class B Common Stock that are +beneficially owned by Robert Greenberg and other members of the +Greenberg family who are employed by us. +26 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who +are independent under the standards adopted by the Board of +Directors and applicable NYSE Rules and SEC standards. The Audit +Committee is responsible for oversight and evaluation of +(i) the quality and integrity of Skechers’ financial +statements, (ii) the performance of Skechers’ internal +audit and internal controls functions in addition to financial +risk assessment and management applicable to Skechers, +(iii) Skechers’ policies and procedures regarding +transactions with related persons, (iv) the appointment, +compensation, independence and performance of Skechers’ +registered public accounting firm, KPMG LLP, and +(v) Skechers’ compliance with legal and regulatory +requirements. +The Audit Committee has reviewed and discussed with +Skechers’ management, internal finance staff, internal +auditors and KPMG LLP, with and without management present, +Skechers’ audited financial statements for the fiscal year +ended December 31, 2010, management’s assessment of +the effectiveness of Skechers’ internal controls over +financial reporting and KPMG LLP’s evaluation of +Skechers’ internal controls over financial reporting. The +Audit Committee has also discussed with KPMG LLP the results of +its examinations and the judgments concerning the quality, as +well as the acceptability, of Skechers’ accounting +principles and such other matters that Skechers is required to +discuss with its independent registered public accounting firm +under applicable rules, regulations and U.S. generally +accepted auditing standards (including Statement on Auditing +Standards No. 61). In addition, the Audit Committee has +received from KPMG LLP the written disclosures and the letter +from Skechers’ independent registered public accounting +firm required by applicable requirements of the Public Company +Accounting Oversight Board regarding the independent registered +public accounting firm’s communications with the Audit +Committee concerning independence and has discussed with KPMG +LLP their independence from Skechers and management, including a +consideration of the compatibility of non-audit services with +their independence, the scope of the audit and the fees paid to +KPMG LLP during the year. +Based on our review and the discussions referred to above, the +Audit Committee recommended to the Board of Directors that the +audited financial statements be included in Skechers’ +Annual Report on +Form 10-K +for the year ended December 31, 2010 for filing with the +SEC. +Respectfully submitted, +Morton Erlich, Chairman +Geyer Kosinski +Richard Siskind +27 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to +Independent Registered Public Accounting Firm for Fiscal Years +2010 and 2009 +We retained KPMG LLP to provide services for fiscal years 2010 +and 2009 in the categories and amounts as follows: +Service +2010 +2009 +Audit +fees (1) +$ +1,654,000 +$ +1,493,000 +Audit-related +fees (2) +30,000 +— +Tax +fees (3) +335,000 +200,000 +All other fees +— +— +Total audit and non-audit fees +$ +2,019,000 +$ +1,693,000 +(1) +These are fees for the audit of our +annual financial statements and the review of our annual report +on +Form 10-K, +the review of financial statements included in our quarterly +reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and +consultations regarding financial accounting and reporting, as +well as for services that are normally provided in connection +with statutory and regulatory filings or engagements. +(2) +These are fees for assurance, +accounting research and services related to the audit or a +review of our financial statements that are not reported as +“Audit” fees. +(3) +These are fees for U.S. federal, +state and international tax compliance and tax consulting. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been approved +by the Audit Committee. Any fees for proposed services exceeding +these levels will also require specific pre-approval by the +Audit Committee. +Attendance +at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +28 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of Class A Common Stock and +Class B Common Stock as of March 31, 2011 by +(i) each of our directors, (ii) each of our Named +Executive Officers, (iii) each person that we know to be a +beneficial owner of more than 5% of either class of our Common +Stock and (iv) all of our directors and executive officers +as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 38,479,866 shares of Class A +Common Stock and 11,310,610 shares of Class B Common +Stock outstanding as of March 31, 2011. Our Class B +Common Stock is convertible at any time into shares of +Class A Common Stock on a +one-for-one +basis. Beneficial ownership is determined in accordance with SEC +rules and regulations. In computing the number of shares of our +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of March 31, 2011 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See the section +entitled “ Transactions with Related Persons ” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Janus Capital Management LLC +2,775,985 +(1) +7.2 +% +— +— +BlackRock, Inc. +2,526,744 +(2) +6.6 +— +— +Cadian Capital Management, LLC +2,400,000 +(3) +6.2 +— +— +Gil Schwartzberg +6,100,766 +(4) +13.7 +6,100,766 +(5) +53.9 +% +Named Executive Officers and directors: +Robert Greenberg +3,374,261 +(6) +8.1 +3,365,030 +(7) +29.8 +Michael Greenberg +859,648 +(8) +2.2 +540,341 +(9) +4.8 +Jeffrey Greenberg +710,614 +(10) +1.8 +403,209 +(11) +3.6 +David Weinberg +220,772 +(12) +* +— +— +Mark Nason +77,499 +(13) +* +— +— +Philip Paccione +50,475 +* +— +— +Leonard Armato +50,000 +* +— +— +Morton Erlich +21,000 +(14) +* +— +— +Geyer Kosinski +9,700 +* +— +— +Richard Rappaport +11,000 +* +— +— +Richard Siskind +61,333 +(15) +* +— +— +Thomas Walsh +3,850 +* +— +— +All current directors and executive officers as a group +(12 persons) +5,450,152 +(16) +12.7 +% +4,308,580 +38.1 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2011, +which disclosed the number of shares beneficially owned as of +December 31, 2010. Janus Capital Management LLC +(“Janus Capital”) has a direct 94.5% ownership stake +in INTECH Investment Management (“INTECH”) and a +direct 77.8% ownership stake in Perkins Investment Management +LLC (“Perkins LLC”). Due to the above ownership +structure, holdings for Janus Capital, Perkins LLC and INTECH +are aggregated for purposes of their Schedule 13G and this +table. Janus Capital, Perkins LLC and INTECH are registered +investment advisers, each furnishing investment advice to +various investment companies registered under Section 8 of +the Investment Company Act of 1940 and to individual and +institutional clients (collectively +29 +Table of Contents +referred to herein as “Managed +Portfolios”). As a result of its role as investment adviser +or +sub-adviser +to the Managed Portfolios, Perkins LLC may be deemed to be the +beneficial owner of 2,775,985 shares of Class A Common +Stock held by such Managed Portfolios, or 7.2% of our shares +outstanding of Class A Common Stock. However, Perkins LLC +does not have the right to receive any dividends from, or the +proceeds from the sale of, the securities held in the Managed +Portfolios and disclaims any ownership associated with such +rights. Perkins Mid Cap Value Fund (“Perkins Fund”) is +an investment company registered under the Investment Company +Act of 1940 and is one of the Managed Portfolios to which Janus +Capital provides investment advice. The principal business +offices of Janus Capital and Perkins Fund are located at 151 +Detroit Street, Denver, Colorado 80206. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 8, 2011 +and represents the number of shares beneficially owned as of +December 31, 2010. BlackRock, Inc. has sole voting power +and sole dispositive power with respect to +2,526,744 shares. The principal business office of +BlackRock, Inc. is located at 40 East 52nd Street, New York, New +York 10022. +(3) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2011 +and represents the number of shares beneficially owned as of +December 31, 2010. Cadian Capital Management, LLC and Eric +Bannnasch have shared voting power and shared dispositive power +with respect to 2,400,000 shares. The principal business +office of Cadian is located at 461 Fifth Avenue, 24th +Floor, New York, New York 10017. +(4) +Represents 6,100,766 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 5 below. +(5) +Represents 1,550,383 shares of +Class B Common Stock held by the Robert Y. Greenberg 2009 +Annuity Trust, 1,550,383 shares of Class B Common +Stock held by the M. Susan Greenberg 2009 Annuity Trust, +1,500,000 shares of Class B Common Stock held by the +Robert Y. Greenberg 2010 Annuity Trust, 1,500,000 shares of +Class B Common Stock held by the M. Susan Greenberg 2010 +Annuity Trust. Gil Schwartzberg may be deemed to beneficially +own these shares as sole trustee of the trusts, and +Mr. Schwartzberg has sole voting power and sole dispositive +power with respect to the shares held by these trusts. +Mr. Schwartzberg disclaims beneficial ownership of any of +these shares except to the extent of his pecuniary interest +therein. The principal business office of Mr. Schwartzberg +is located at 269 S. Beverly Drive, Suite 1315, +Beverly Hills, California 90212. +(6) +Includes 3,365,030 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 7 below. +(7) +Represents 3,365,030 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(8) +Includes 540,341 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, and 50,262 shares of Class A Common Stock +beneficially owned by Michael Greenberg, our President and a +member of our Board of Directors, indirectly through his wife, +Wendy Greenberg, and their children. Mr. Greenberg +disclaims beneficial ownership of these 50,262 shares +except to the extent of his pecuniary interest therein. +Beneficial ownership of the 540,341 shares of Class B +Common Stock is described in greater detail in note 9 below. +(9) +Represents 489,041 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(10) +Includes 403,209 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 62,740 shares of Class A Common Stock held by +the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is +deemed to beneficially own as his wife is trustee of such +annuity trust, which is for the benefit of his two daughters who +are minors, and 9,204 shares of Class A Common Stock +held by the Chloe July Greenberg 2004 Trust and +9,204 shares of Class A Common Stock held by the +Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is +deemed to beneficially own as trustee of such trusts. +Mr. Greenberg disclaims beneficial ownership of the +62,740 shares held in the annuity trust except to the +extent of his pecuniary interest therein. Beneficial ownership +of the 403,209 shares of Class B Common Stock is +described in greater detail in note 11 below. +(11) +Represents 26,849 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust, and 287,260 shares of Class B Common Stock held +by the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is +deemed to beneficially own as his wife is trustee of such +annuity trust, which is for the benefit of his two daughters who +are minors. Also represents 70,816 shares of Class B +Common Stock held in various trust accounts for +Mr. Greenberg’s two daughters who are minors and of +which Mr. Greenberg is deemed to beneficially own as he or +his wife is trustee of such trusts, and 10,792 shares of +Class B Common Stock held by the Chloe July Greenberg +custodial account and 7,492 shares of Class B Common +Stock held by the Catherine Elle Greenberg custodial account, +for which one of his siblings acts as custodian. These custodial +accounts are for the benefit of Mr. Greenberg’s two +daughters who are minors, and he disclaims beneficial ownership +of the 287,260 shares held in the annuity trust and the +18,284 shares held in the two custodial accounts except to +the extent of his pecuniary interest therein. +(12) +Includes 107,438 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Chief Financial Officer, Executive Vice +President and a member of our Board of Directors, is deemed to +beneficially own as sole trustee of The David Weinberg Trust +dated September 7, 2000, and 30,000 shares of +Class A Common Stock underlying options that are currently +exercisable. +(13) +Includes 27,448 shares of +Class A Common Stock underlying options that are currently +exercisable. +(14) +Includes 14,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton Erlich, a member of our Board of Directors, is deemed to +beneficially own as a trustee of such trust. +(15) +Includes 35,000 shares of +Class A Common Stock underlying options that are currently +exercisable. +(16) +Includes 92,448 shares of +Class A Common Stock underlying options that are currently +exercisable by our executive officers and Board of Directors. +The group of 12 current directors and executive officers +excludes Leonard Armato, who was hired as our Chief Marketing +Officer in March 2010 but is no longer serving as an executive +officer in his current capacity as President of Fitness Group. +30 +Table of Contents +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Securities Exchange Act requires our +officers, directors and persons who own more than ten percent of +a registered class of our securities, to file with the SEC +reports of initial ownership (Form 3’s) and reports of +changes in ownership (Form 4’s and 5’s) of our +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish us with copies of all Section 16(a) forms that they +file. Based on our review of copies of Form 3’s, +4’s and 5’s furnished to us as well as communications +with our officers, directors and greater than ten percent +stockholders, we believe that all of them complied with the +filing requirements of Section 16(a) and we are not aware +of any late or missed filings of such reports for the 2010 +fiscal year, except that Jeffrey Greenberg filed late reports +with respect to two gifts and three sales transactions that +occurred during the most recent fiscal year, and Philip Paccione +filed a late report with respect to one sales transaction that +occurred during the most recent fiscal year. +TRANSACTIONS +WITH RELATED PERSONS +Policies +and Procedures +As provided in our Audit Committee Charter, the Audit Committee +shall review (i) at least annually a summary of +directors’ and executive officers’ related party +transactions and potential conflicts of interest and our +policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), +(ii) past and proposed transactions between our company, on +the one hand, and any of our directors or executive officers, on +the other hand, and (iii) policies and procedures as well +as audit results associated with directors’ and executive +officers’ expense accounts and perquisites, including the +use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the +“Policy”), which was adopted by the Board of Directors +as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or +relationships, (including any indebtedness or guarantee of +indebtedness) in which (i) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(ii) we are a participant, and (iii) any Related +Person has or will have a direct or indirect interest (other +than solely as a result of being a director or a less than ten +percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the +beginning of the last fiscal year for which we have filed a +Form 10-K +and proxy statement, even if they do not presently serve in that +role) an executive officer, director or nominee for election as +a director of Skechers, (b) greater than five percent +beneficial owner of our Class A or Class B Common +Stock or (c) immediate family member of either of the +foregoing. +Certain categories of transactions with Related Persons (such as +transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit +Committee shall review the material facts of all other +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions equal to or greater than $120,000 that +took place since January 1, 2010, which were identified by +the Audit Committee, and each of these transactions was +reviewed, and approved or ratified by the Audit Committee, +pursuant to the policies and procedures discussed herein. +31 +Table of Contents +Related +Person Transactions +As of March 31, 2011, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust, collectively, beneficially own 45.3% of +our Class B Common Stock and approximately 34.9% of the +combined voting power of our Class A and Class B +Common Stock. Robert Greenberg, directly and indirectly through +the Greenberg Family Trust, beneficially owns approximately +22.2% of the combined voting power of our Class A and +Class B Common Stock. As a result, Robert Greenberg is a +“control person” of Skechers within the meaning of the +rules and regulations promulgated under the Securities Act of +1933, as amended, and we are considered a “Controlled +Company” under the NYSE Rules and are thereby exempt from +certain listing requirements and regulations as set forth in the +NYSE Rules. Michael Greenberg, who is our President, and Jeffrey +Greenberg, both of whom are members of our Board of Directors, +are each beneficiaries of the Greenberg Family Trust, which +influences the election of Robert Greenberg, Michael Greenberg +and Jeffrey Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel +in Manhattan Beach, California. Michael Greenberg, David +Weinberg, who is our Chief Operating Officer, Chief Financial +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2010, we paid approximately $319,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the +“Foundation”), which is a 501(c)(3) non-profit entity +that does not have any shareholders or members. The Foundation +is not a subsidiary of and is not otherwise affiliated with +Skechers, and Skechers does not have a financial interest in the +Foundation. However, two officers and directors of Skechers, +Michael Greenberg who is our President and David Weinberg who is +our Chief Operating Officer and Chief Financial Officer, are +also officers and directors of the Foundation. During the year +ended December 31, 2010, we contributed $350,000 to the +Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and +Jennifer Greenberg Messer, who are the children of Robert +Greenberg and also the siblings of Michael Greenberg, are +non-executive employees of Skechers, and they earned total +compensation of $983,138, $989,457, $973,962 and $245,512, +respectively, in 2010. Jeffrey Greenberg was also a member of +our Board of Directors in 2010, but did not earn any additional +compensation for services provided as a director. +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING +Stockholder proposals intended to be presented at our next +Annual Meeting of Stockholders to be held in 2012 must be +received at our principal executive offices no later than +December 30, 2011 to be considered for inclusion in the +proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular +Rule 14a-8 +under the Securities Exchange Act, to be included in our proxy +materials. Stockholders who wish to submit a proposal for +consideration at our 2012 Annual Meeting of Stockholders, but +who do not wish to submit a proposal for inclusion in our proxy +statement, must, in accordance with our bylaws, deliver a copy +of their proposal no later than the close of business on the +60th day nor earlier than the close of business on the 90th day +in advance of such meeting. In either case, proposals should be +sent by certified or registered mail, return receipt requested, +to Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266, Attention: General Counsel. +32 +Table of Contents +OTHER +BUSINESS +Our Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this proxy statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 28, 2011 +Manhattan Beach, California +33 +Table of Contents +APPENDIX A +SKECHERS +U.S.A., INC. +2006 ANNUAL INCENTIVE COMPENSATION PLAN +Skechers USA, Inc. (the “Company”), a Delaware +corporation, hereby establishes and adopts the following 2006 +Annual Incentive Compensation Plan (the “Plan”) to +provide incentive awards that are intended to qualify as +“performance-based compensation” within the meaning of +Section 162(m) of the Internal Revenue Code of 1986, as +amended. +1. +PURPOSES +OF THE PLAN +The purposes of the Plan are to advance the interests of the +Company and its stockholders and assist the Company in +attracting and retaining executive officers of the Company and +its Affiliates who, because of the extent of their +responsibilities can make significant contributions to the +Company’s success by their ability, industry, loyalty and +exceptional services, by providing incentives and financial +rewards to such executive officers. +2. +DEFINITIONS +2.1. “Affiliate” shall mean any +corporation, partnership or other organization of which the +Company owns or controls, directly or indirectly, not less than +50% of the total combined voting power of all classes of stock +or other equity interests. +2.2. “Award” shall mean any amount +granted to a Participant under the Plan. +2.3. “Board” shall mean the board of +directors of the Company. +2.4. “Code” shall mean the Internal +Revenue Code of 1986, as amended from time to time, and any +successor thereto. +2.5. “Committee” shall mean the +Compensation Committee of the Board or any subcommittee thereof +formed by the Compensation Committee to act as the Committee +hereunder. For purposes of satisfying the requirements of +Section 162(m) of the Code and the regulations thereunder, +the Committee is intended to consist solely of “outside +directors” as such term is defined in Section 162(m) +of the Code. +2.6. “Disability” means any physical +or mental condition of a Participant that in the opinion of the +Committee renders the Participant incapable of continuing to be +an employee of the Company and its Affiliates. +2.7. “Participant” shall mean the +Company’s Chief Executive Officer and each other executive +officer of the Company or an Affiliate selected by the Committee +pursuant to Section 4.1 to participate in this Plan. +2.8. “Performance Criteria” shall +mean net sales; revenue; revenue growth; operating income; pre- +or after-tax income (before or after allocation of corporate +overhead and bonus); net earnings; earnings per share; net +income; division, group or corporate financial goals; return on +equity; total shareholder return; return on assets or net +assets; attainment of strategic and operational initiatives; +appreciation in +and/or +maintenance of the price of shares of the Class A Common +Stock or any other publicly-traded securities of the Company; +market share; gross profits; earnings (including earnings before +taxes, earnings before interest and taxes or earnings before +interest, taxes, depreciation and amortization); economic +value-added models; comparisons with various stock market +indices; reductions in costs; cash flow (before or after +dividends) cash flow per share (before or after dividends); +return on capital (including return on total capital or return +on invested capital; cash flow return on investment; and +improvement in or attainment of expense levels or working +capital levels. +2.9. “Performance Period” shall mean +the Company’s fiscal quarter, fiscal year or such other +period that the Committee, in its sole discretion, may +establish, provided no Performance Period shall be more than +five years in length. +A-1 +Table of Contents +3. +ELIGIBILITY +AND ADMINISTRATION +3.1. Eligibility. The +individuals eligible to participate in the Plan shall be the +Company’s Chief Executive Officer and any other executive +officer of the Company or an Affiliate. +3.2. Administration . +(a) The Plan shall be administered by the Committee. The +Committee shall have full power and authority, subject to the +provisions of the Plan and subject to such orders or resolutions +not inconsistent with the provisions of the Plan as may from +time to time be adopted by the Board, to: (i) select the +Participants to whom Awards may from time to time be granted +hereunder; (ii) determine the terms and conditions, not +inconsistent with the provisions of the Plan, of each Award; +(iii) determine the time when Awards will be granted and +paid and the Performance Period to which they relate; +(iv) determine the performance goals for Awards for each +Participant in respect of each Performance Period based on the +Performance Criteria and certify the calculation of the amount +of the Award payable to each Participant in respect of each +Performance Period; (v) determine whether payment of Awards +may be deferred by Participants; (vi) interpret and +administer the Plan and any instrument or agreement entered into +in connection with the Plan; (vii) correct any defect, +supply any omission or reconcile any inconsistency in the Plan +or any Award in the manner and to the extent that the Committee +shall deem desirable to carry it into effect; +(viii) establish such rules and regulations and appoint +such agents as it shall deem appropriate for the proper +administration of the Plan; and (ix) make any other +determination and take any other action that the Committee deems +necessary or desirable for administration of the Plan. +(b) Decisions of the Committee shall be final, conclusive +and binding on all persons or entities, including the Company, +any Affiliate, any Participant and any person claiming any +benefit or right under an Award or under the Plan. +(c) To the extent not inconsistent with applicable law or +the rules and regulations of the New York Stock Exchange (or +such other principal securities market on which the +Company’s securities are listed or qualified for trading), +including the applicable provisions of Section 162(m) of +the Code, the Committee may delegate to one or more officers of +the Company or a committee of officers the authority to take +actions on its behalf pursuant to the Plan. +4. +AWARDS +4.1. Performance Period; Performance +Goals. Not later than the earlier of +(i) 90 days after the commencement of each fiscal year +of the Company and (ii) the expiration of 25% of the +Performance Period, the Committee shall, in writing, designate +one or more Performance Periods, determine the Participants for +such Performance Periods and determine the performance goals for +determining the Award for each Participant for such Performance +Period(s) based on attainment of specified levels of one or any +combination of the Performance Criteria. Such performance goals +may be based solely by reference to the Company’s +performance or the performance of an Affiliate, division, +business segment or business unit of the Company, or based upon +the relative performance of other companies or upon comparisons +of any of the indicators of performance relative to other +companies. The Committee may also exclude charges related to an +event or occurrence which the Committee determines should +appropriately be excluded, including (a) restructurings, +discontinued operations, extraordinary items, and other unusual +or non-recurring charges, (b) an event either not directly +related to the operations of the Company or not within the +reasonable control of the Company’s management, or +(c) the cumulative effects of tax or accounting changes in +accordance with generally accepted accounting principles. Such +performance goals shall otherwise comply with the requirements +of, Section 162(m) of the Code, and the regulations +thereunder. For competitive reasons, specific performance goals +determined by the Committee for each Performance Period will not +be publicly disclosed. +4.2. Certification. At such +time as it shall determine appropriate following the conclusion +of each Performance Period, the Committee shall certify, in +writing, the amount of the Award for each Participant for such +Performance Period. +4.3. Payment of Awards. The +amount of the Award actually paid to a Participant may, in the +sole discretion of the Committee, be less than the amount +otherwise payable to the Participant based on attainment of the +A-2 +Table of Contents +performance goals for the Performance Period as determined in +accordance with Section 4.1. The actual amount of the Award +determined by the Committee for a Performance Period shall be +paid in cash or, to the extent provided in such plan share +awards under a shareholder-approved stock plan of the Company. +Payment to each Participant shall be made no later than the +fifteenth day of the third month following the end of the fiscal +quarter of the Company in which the applicable Performance +Period ends. +4.4. Commencement or Termination of +Employment. If a person becomes a Participant +during a Performance Period (whether through promotion or +commencement of employment) or if a person who otherwise would +have been a Participant dies, retires or is Disabled, or if the +person’s employment is otherwise terminated, during a +Performance Period (except for cause, as determined by the +Committee in its sole discretion), the Award payable to such a +Participant may, in the discretion of the Committee, be +proportionately reduced based on the period of actual employment +during the applicable Performance Period. +4.5. Maximum Award. The +maximum dollar value of an Award payable to any Participant in +any 12-month +period is $5,000,000. +5. +MISCELLANEOUS +5.1. Amendment and Termination of the +Plan. The Committee may, from time to time, +alter, amend, suspend or terminate the Plan as it shall deem +advisable, subject to any requirement for stockholder approval +imposed by applicable law, including Section 162(m) of the +Code. No amendments to, or termination of, the Plan shall in any +way impair the rights of a Participant under any Award +previously granted without such Participant’s consent. +5.2. Section 162(m) of the +Code. Unless otherwise determined by the +Committee, the provisions of this Plan shall be administered and +interpreted in accordance with Section 162(m) of the Code +to ensure the deductibility by the Company of the payment of +Awards. +5.3. Tax Withholding. The +Company or an Affiliate shall have the right to make all +payments or distributions pursuant to the Plan to a Participant, +net of any applicable federal, state and local taxes required to +be paid or withheld. The Company or an Affiliate shall have the +right to withhold from wages, Awards or other amounts otherwise +payable to such Participant such withholding taxes as may be +required by law, or to otherwise require the Participant to pay +such withholding taxes. If the Participant shall fail to make +such tax payments as are required, the Company or an Affiliate +shall, to the extent permitted by law, have the right to deduct +any such taxes from any payment of any kind otherwise due to +such Participant or to take such other action as may be +necessary to satisfy such withholding obligations. +5.4. Right of Discharge Reserved; Claims to +Awards. Nothing in this Plan shall provide any +Participant a right to receive any Award or payment under the +Plan with respect to a Performance Period. Nothing in the Plan +nor the grant of an Award hereunder shall confer upon any +Participant the right to continue in the employment of the +Company or an Affiliate or affect any right that the Company or +an Affiliate may have to terminate the employment of (or to +demote or to exclude from future Awards under the Plan) any such +Participant at any time for any reason. Except as specifically +provided by the Committee, the Company shall not be liable for +the loss of existing or potential profit from an Award granted +in the event of the termination of employment of any +Participant. No Participant shall have any claim to be granted +any Award under the Plan, and there is no obligation for +uniformity of treatment of Participants under the Plan. +5.5. Nature of Payments. All +Awards made pursuant to the Plan are in consideration of +services performed or to be performed for the Company or an +Affiliate, division or business unit of the Company. Any income +or gain realized pursuant to Awards under the Plan constitute a +special incentive payment to the Participant and shall not be +taken into account, to the extent permissible under applicable +law, as compensation for purposes of any of the employee benefit +plans of the Company or an Affiliate except as may be determined +by the Committee or by the Board or board of directors of the +applicable Affiliate. +5.6. Other Plans. Nothing +contained in the Plan shall prevent the Board from adopting +other or additional compensation arrangements, subject to +stockholder approval if such approval is required; and such +arrangements may be either generally applicable or applicable +only in specific cases. +A-3 +Table of Contents +5.7. Severability. If any +provision of the Plan shall be held unlawful or otherwise +invalid or unenforceable in whole or in part by a court of +competent jurisdiction, such provision shall (a) be deemed +limited to the extent that such court of competent jurisdiction +deems it lawful, valid +and/or +enforceable and as so limited shall remain in full force and +effect, and (b) not affect any other provision of the Plan +or part thereof, each of which shall remain in full force and +effect. If the making of any payment or the provision of any +other benefit required under the Plan shall be held unlawful or +otherwise invalid or unenforceable by a court of competent +jurisdiction, such unlawfulness, invalidity or unenforceability +shall not prevent any other payment or benefit from being made +or provided under the Plan, and if the making of any payment in +full or the provision of any other benefit required under the +Plan in full would be unlawful or otherwise invalid or +unenforceable, then such unlawfulness, invalidity or +unenforceability shall not prevent such payment or benefit from +being made or provided in part, to the extent that it would not +be unlawful, invalid or unenforceable, and the maximum payment +or benefit that would not be unlawful, invalid or unenforceable +shall be made or provided under the Plan. +5.8. Construction. As used +in the Plan, the words “include” and +“including,” and variations thereof, shall not be +deemed to be terms of limitation, but rather shall be deemed to +be followed by the words “without limitation.” +5.9. Unfunded Status of the +Plan. The Plan is intended to constitute an +“unfunded” plan for incentive compensation and +deferred compensation if permitted by the Committee. With +respect to any payments not yet made to a Participant by the +Company, nothing contained herein shall give any such +Participant any rights that are greater than those of a general +creditor of the Company. +5.10. Governing Law. The +Plan and all determinations made and actions taken thereunder, +to the extent not otherwise governed by the Code or the laws of +the United States, shall be governed by the laws of the State of +California without reference to principles of conflict of laws +that might result in the application of the laws of another +jurisdiction, and shall be construed accordingly. +5.11. Effective Date of +Plan. The Plan shall be effective on the date of +the approval of the Plan by the holders of the then outstanding +securities of the Company entitled to vote generally in the +election of directors. The Plan shall be null and void and of no +effect if the foregoing condition is not fulfilled. Any amounts +paid under the provisions of this Plan in advance of expected +shareholder approval shall be repaid to the Company by +January 31, 2007 if shareholder approval of this Plan is +not obtained by December 31, 2006. +5.12. Captions. The captions +in the Plan are for convenience of reference only, and are not +intended to narrow, limit or affect the substance or +interpretation of the provisions contained herein. +A-4 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting to Be Held on Wednesday, May 25, 2011 +The Notice of Annual Meeting, Proxy Statement, 2010 Annual Report and other SEC filings are +available at the investor relations page of our corporate information website at +http://www.skx.com/investor.jsp . +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach +along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE NOMINEES LISTED IN PROPOSAL +1, “FOR” PROPOSALS 2 AND 4, AND “THREE YEARS” FOR PROPOSAL 3. PLEASE SIGN, DATE AND RETURN THIS +PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS +SHOWN HERE. x +1. +Election of Directors +FOR ALL THE NOMINEES +WITHHOLD AUTHORITY +FOR ALL EXCEPT +NOMINEES: +FOR ALL NOMINEES +(See instructions below) +o +o +o +o Geyer Kosinski +o Richard Rappaport +o Richard Siskind +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL +EXCEPT” and mark the box next to each nominee you wish to withhold, as shown here: x +2. +Advisory Vote on Compensation of Named Executive Officers. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Advisory Vote on Frequency of Vote on Compensation of Named Executive Officers. +ONE YEAR +TWO YEARS +THREE YEARS +ABSTAIN +o +o +o +o +4. +Re-Approval of the 2006 Annual Incentive Compensation Plan. +FOR +AGAINST +ABSTAIN +o +o +o +Each of the persons named as proxies herein are authorized, in such person’s discretion, to +vote upon such other matters as may properly come before the Annual Meeting of Stockholders, or any +adjournments thereof. +To change the +address on your +account, please fill +in the box at right +and indicate your new +address in the +address space above. +Please note that +changes to the +registered name(s) on +the account may not +be submitted via this +method. o +Please check here if you plan to attend the meeting. o +Signature of +Stockholder: +Date: +Signature of +Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this +Proxy. When shares are held jointly, each holder should +sign. When signing as executor, administrator, attorney, +trustee or guardian, please give full title as such. If +the signer is a corporation, please sign full corporate +name by duly authorized officer, giving full title as +such. If signer is a partnership, please sign in +partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON WEDNESDAY, MAY 25, 2011 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 28, 2011, and hereby appoints David Weinberg and Morton Erlich and each of them, with +full power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the +undersigned, and hereby authorizes each of them to represent and to vote all of the shares which +the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., Inc. +to be held at the Shade Hotel located at 1221 North Valley Drive, Manhattan Beach, California +90266, on Wednesday, May 25, 2011, at 12:00 p.m. Pacific time, and at any adjournments thereof, +upon the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, +receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to +the annual meeting section of the investor relations page of our corporate information website at +www.skx.com/investor.jsp . +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1, FOR APPROVAL OF PROPOSALS 2 AND 4, AND FOR THREE YEARS UNDER PROPOSAL THREE +AS DESCRIBED IN THE PROXY STATEMENT, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS +PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950123-11-041912/proxy_rpt.txt b/raw/proxies/0001065837/0000950123-11-041912/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..48abfa4dc2b40663461310136646130eea8825d7 --- /dev/null +++ b/raw/proxies/0001065837/0000950123-11-041912/proxy_rpt.txt @@ -0,0 +1,327 @@ +entitled “ Transactions with Related Persons ” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Janus Capital Management LLC +2,775,985 +(1) +7.2 +% +— +— +BlackRock, Inc. +2,526,744 +(2) +6.6 +— +— +Cadian Capital Management, LLC +2,400,000 +(3) +6.2 +— +— +Gil Schwartzberg +6,100,766 +(4) +13.7 +6,100,766 +(5) +53.9 +% +Named Executive Officers and directors: +Robert Greenberg +3,374,261 +(6) +8.1 +3,365,030 +(7) +29.8 +Michael Greenberg +859,648 +(8) +2.2 +540,341 +(9) +4.8 +Jeffrey Greenberg +710,614 +(10) +1.8 +403,209 +(11) +3.6 +David Weinberg +220,772 +(12) +* +— +— +Mark Nason +77,499 +(13) +* +— +— +Philip Paccione +50,475 +* +— +— +Leonard Armato +50,000 +* +— +— +Morton Erlich +21,000 +(14) +* +— +— +Geyer Kosinski +9,700 +* +— +— +Richard Rappaport +11,000 +* +— +— +Richard Siskind +61,333 +(15) +* +— +— +Thomas Walsh +3,850 +* +— +— +All current directors and executive officers as a group +(12 persons) +5,450,152 +(16) +12.7 +% +4,308,580 +38.1 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2011, +which disclosed the number of shares beneficially owned as of +December 31, 2010. Janus Capital Management LLC +(“Janus Capital”) has a direct 94.5% ownership stake +in INTECH Investment Management (“INTECH”) and a +direct 77.8% ownership stake in Perkins Investment Management +LLC (“Perkins LLC”). Due to the above ownership +structure, holdings for Janus Capital, Perkins LLC and INTECH +are aggregated for purposes of their Schedule 13G and this +table. Janus Capital, Perkins LLC and INTECH are registered +investment advisers, each furnishing investment advice to +various investment companies registered under Section 8 of +the Investment Company Act of 1940 and to individual and +institutional clients (collectively +29 +Table of Contents +referred to herein as “Managed +Portfolios”). As a result of its role as investment adviser +or +sub-adviser +to the Managed Portfolios, Perkins LLC may be deemed to be the +beneficial owner of 2,775,985 shares of Class A Common +Stock held by such Managed Portfolios, or 7.2% of our shares +outstanding of Class A Common Stock. However, Perkins LLC +does not have the right to receive any dividends from, or the +proceeds from the sale of, the securities held in the Managed +Portfolios and disclaims any ownership associated with such +rights. Perkins Mid Cap Value Fund (“Perkins Fund”) is +an investment company registered under the Investment Company +Act of 1940 and is one of the Managed Portfolios to which Janus +Capital provides investment advice. The principal business +offices of Janus Capital and Perkins Fund are located at 151 +Detroit Street, Denver, Colorado 80206. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 8, 2011 +and represents the number of shares beneficially owned as of +December 31, 2010. BlackRock, Inc. has sole voting power +and sole dispositive power with respect to +2,526,744 shares. The principal business office of +BlackRock, Inc. is located at 40 East 52nd Street, New York, New +York 10022. +(3) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2011 +and represents the number of shares beneficially owned as of +December 31, 2010. Cadian Capital Management, LLC and Eric +Bannnasch have shared voting power and shared dispositive power +with respect to 2,400,000 shares. The principal business +office of Cadian is located at 461 Fifth Avenue, 24th +Floor, New York, New York 10017. +(4) +Represents 6,100,766 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 5 below. +(5) +Represents 1,550,383 shares of +Class B Common Stock held by the Robert Y. Greenberg 2009 +Annuity Trust, 1,550,383 shares of Class B Common +Stock held by the M. Susan Greenberg 2009 Annuity Trust, +1,500,000 shares of Class B Common Stock held by the +Robert Y. Greenberg 2010 Annuity Trust, 1,500,000 shares of +Class B Common Stock held by the M. Susan Greenberg 2010 +Annuity Trust. Gil Schwartzberg may be deemed to beneficially +own these shares as sole trustee of the trusts, and +Mr. Schwartzberg has sole voting power and sole dispositive +power with respect to the shares held by these trusts. +Mr. Schwartzberg disclaims beneficial ownership of any of +these shares except to the extent of his pecuniary interest +therein. The principal business office of Mr. Schwartzberg +is located at 269 S. Beverly Drive, Suite 1315, +Beverly Hills, California 90212. +(6) +Includes 3,365,030 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 7 below. +(7) +Represents 3,365,030 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(8) +Includes 540,341 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, and 50,262 shares of Class A Common Stock +beneficially owned by Michael Greenberg, our President and a +member of our Board of Directors, indirectly through his wife, +Wendy Greenberg, and their children. Mr. Greenberg +disclaims beneficial ownership of these 50,262 shares +except to the extent of his pecuniary interest therein. +Beneficial ownership of the 540,341 shares of Class B +Common Stock is described in greater detail in note 9 below. +(9) +Represents 489,041 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(10) +Includes 403,209 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 62,740 shares of Class A Common Stock held by +the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is +deemed to beneficially own as his wife is trustee of such +annuity trust, which is for the benefit of his two daughters who +are minors, and 9,204 shares of Class A Common Stock +held by the Chloe July Greenberg 2004 Trust and +9,204 shares of Class A Common Stock held by the +Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is +deemed to beneficially own as trustee of such trusts. +Mr. Greenberg disclaims beneficial ownership of the +62,740 shares held in the annuity trust except to the +extent of his pecuniary interest therein. Beneficial ownership +of the 403,209 shares of Class B Common Stock is +described in greater detail in note 11 below. +(11) +Represents 26,849 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust, and 287,260 shares of Class B Common Stock held +by the Jeffrey Greenberg 2010 GRAT that Mr. Greenberg is +deemed to beneficially own as his wife is trustee of such +annuity trust, which is for the benefit of his two daughters who +are minors. Also represents 70,816 shares of Class B +Common Stock held in various trust accounts for +Mr. Greenberg’s two daughters who are minors and of +which Mr. Greenberg is deemed to beneficially own as he or +his wife is trustee of such trusts, and 10,792 shares of +Class B Common Stock held by the Chloe July Greenberg +custodial account and 7,492 shares of Class B Common +Stock held by the Catherine Elle Greenberg custodial account, +for which one of his siblings acts as custodian. These custodial +accounts are for the benefit of Mr. Greenberg’s two +daughters who are minors, and he disclaims beneficial ownership +of the 287,260 shares held in the annuity trust and the +18,284 shares held in the two custodial accounts except to +the extent of his pecuniary interest therein. +(12) +Includes 107,438 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Chief Financial Officer, Executive Vice +President and a member of our Board of Directors, is deemed to +beneficially own as sole trustee of The David Weinberg Trust +dated September 7, 2000, and 30,000 shares of +Class A Common Stock underlying options that are currently +exercisable. +(13) +Includes 27,448 shares of +Class A Common Stock underlying options that are currently +exercisable. +(14) +Includes 14,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton Erlich, a member of our Board of Directors, is deemed to +beneficially own as a trustee of such trust. +(15) +Includes 35,000 shares of +Class A Common Stock underlying options that are currently +exercisable. +(16) +Includes 92,448 shares of +Class A Common Stock underlying options that are currently +exercisable by our executive officers and Board of Directors. +The group of 12 current directors and executive officers +excludes Leonard Armato, who was hired as our Chief Marketing +Officer in March 2010 but is no longer serving as an executive +officer in his current capacity as President of Fitness Group. +30 +Table of Contents +COMPLIANCE \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950124-08-002128/proxy.txt b/raw/proxies/0001065837/0000950124-08-002128/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d33780c73e2813c51e10a8f72c5fe93944cd613e --- /dev/null +++ b/raw/proxies/0001065837/0000950124-08-002128/proxy.txt @@ -0,0 +1,2934 @@ +DEF 14A +1 +v39970def14a.htm +DEFINITIVE NOTICE AND PROXY STATEMENT +Skechers U.S.A., Inc. +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +Important Notice Regarding the Availability of Proxy +Materials for the Stockholder +Meeting to Be Held on May 30, 2008 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation, to be held at the Shade +Hotel located at 1221 North Valley Drive, Manhattan Beach, +California 90266 on May 30, 2008 at 10:00 a.m. Pacific +Time. +Our Annual Meeting is being held to elect two members to the +Board of Directors to serve for a three-year term as +Class III Directors and to transact such other business as +may properly come before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on +March 31, 2008 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +The following proxy statement and enclosed proxy card are being +sent to each stockholder as of the record date, and our 2007 +annual report is enclosed with this notice to our stockholders. +The proxy statement and 2007 annual report are available in +the SEC filings section of the investor relations page of our +corporate information website at +http://www.skx.com/investor.html. +You are cordially invited to attend the Annual Meeting, and if +you plan to attend the Annual Meeting in person, you may find +directions by going to the annual meeting of stockholders +section of the investor relations page of our corporate +information website at www.skx.com/investor.html . If you +do not expect to attend, or if you plan to attend but desire the +proxy holders to vote your shares, please date and sign your +proxy card and return it in the enclosed postage-paid envelope. +The giving of this proxy card will not affect your right to vote +in person in the event you find it convenient to attend. Please +return the proxy card promptly to avoid the expense of +additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2008 +Manhattan Beach, California +TABLE OF CONTENTS +SKECHERS U.S.A., INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +PROPOSAL NO. 1 ELECTION OF DIRECTORS +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +CORPORATE GOVERNANCE AND BOARD MATTERS +COMPENSATION DISCUSSION AND ANALYSIS +REPORT OF THE COMPENSATION COMMITTEE +DIRECTOR COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +TRANSACTIONS WITH RELATED PERSONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +OTHER BUSINESS +APPENDIX A +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For +Annual Meeting to be Held +May 30, 2008 at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or +“Skechers”), in connection with our Annual Meeting of +Stockholders to be held on May 30, 2008 at 10:00 a.m. +Pacific Time at the Shade Hotel located at 1221 North Valley +Drive, Manhattan Beach, California 90266 (the “Annual +Meeting”). The approximate mailing date for this proxy +statement and the enclosed proxy is April 30, 2008. If a +proxy in the accompanying form is duly executed and returned, +the shares represented by the proxy will be voted as directed. +If no direction is given, the shares represented by the proxy +will be voted for the election of the nominees for director +named herein. Any proxy given may be revoked at any time prior +to its exercise by notifying our Corporate Secretary, Philip +Paccione, in writing of such revocation, by duly executing and +delivering another proxy bearing a later date, or by attending +and voting in person at the Annual Meeting. Our principal +executive office is located at 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +We will incur the cost of this solicitation of proxies that will +be made by mail. In addition, our officers and other regularly +engaged employees may, in a limited number of instances, solicit +proxies personally or by telephone. We will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of our Class A Common Stock and +Class B Common Stock. +Holders of our Class A Common Stock and Class B Common +Stock of record at the close of business on March 31, 2008 +will be entitled to vote at the Annual Meeting. There were +33,287,596 shares of Class A Common Stock and +12,851,789 shares of Class B Common Stock outstanding +on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the combined voting interest of the +outstanding shares of Class A Common Stock and Class B +Common Stock is necessary to constitute a quorum for the Annual +Meeting. A quorum must be established to consider any matter. +The two candidates for director receiving the most votes will +become directors of Skechers. Stockholders may not cumulate +their votes. Any other proposals require the affirmative +“for” vote of a majority of the shares present in +person or represented by proxy and entitled to vote on those +proposals at the Annual Meeting. If you hold shares beneficially +in street name and do not provide your broker with voting +instructions, your shares may constitute “broker +non-votes.” Generally, broker non-votes occur on a matter +when a broker is not permitted to vote on that matter without +instructions from the beneficial owner and instructions are not +given. In tabulating the voting result for any particular +proposal, shares that constitute broker non-votes are not +considered entitled to vote on that proposal. Thus, broker +non-votes will not affect the outcome of any matter being voted +on at the meeting, assuming that a quorum is obtained. However, +shares represented by such “broker non-votes” will be +counted in determining whether there is a quorum. A properly +executed proxy marked “Abstain” with respect to any +such matter will not be voted, although it will be counted for +purposes of determining whether there is a quorum. Because +directors are elected by a plurality of the votes cast, proxies +marked “Abstain” as to Proposal No. 1 will +not have any effect on the election of directors as long as one +vote is cast for each director nominee. +Table of Contents +PROPOSAL NO. 1 +ELECTION +OF DIRECTORS +Our Board of Directors is divided into three classes, with each +class serving a three-year term until their successors are duly +elected and qualified or until their death, resignation or +removal. One class of directors is elected annually at our +annual meeting of stockholders. Our bylaws provide for a +variable Board of Directors with between five and nine members. +We currently have seven members on our Board of Directors. Our +bylaws give the Board of Directors the authority to increase or +decrease the number of directors without the approval of our +stockholders, and our bylaws also give our stockholders the +authority to increase or decrease the size of our Board of +Directors. +Unless otherwise directed by stockholders, within the limits set +forth in our bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Geyer +Kosinski and Richard Siskind, who are director nominees and are +currently members of the Board of Directors. We have been +advised by Geyer Kosinski and Richard Siskind of their +availability and willingness to serve if re-elected. In the +event that Geyer Kosinski and/or Richard Siskind becomes +unavailable or unable to serve as a member of the Board of +Directors prior to the voting, the proxy holders will refrain +from voting for them or will vote for a substitute nominee in +the exercise of their best judgment. +The Board of Directors recommends a vote FOR these +director-nominees. +2 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year in Which +Name +Age +Term Will Expire +Position +Geyer +Kosinski (1) +42 +Class III (2011 +) +Director +Richard +Siskind (1)(2) +62 +Class III (2011 +) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Geyer Kosinski has served as a member of our Board of +Directors since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and directors. +From April 1997 to June 2004, Mr. Kosinski was a Managing +Partner and co-owner of Industry Entertainment, a talent +management and production company that produces feature films +and television programming and manages over 100 actors, writers +and directors. +Richard Siskind has served as a member of our Board of +Directors since June 1999. In 1991, Mr. Siskind founded R. +Siskind & Company, a business that purchases brand +name men’s and women’s apparel and accessories and +redistributes those items to off-price retailers, and he is its +sole shareholder, Chief Executive Officer, President and sole +member of its Board of Directors. From November 2002 to June +2006, Mr. Siskind served as a member of the Board of +Directors of Magic Lantern Group, Inc. (AMEX:GML), which changed +its name from JKC Group, Inc. +Directors +Not Standing for Election +The members of the Board of Directors who are continuing and not +standing for election at this year’s Annual Meeting are set +forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +68 +Class I (2009) +Chairman of the Board and Chief Executive Officer +Morton D. +Erlich (1)(2) +63 +Class I (2009) +Director +Michael Greenberg +45 +Class II (2010) +President and Director +David Weinberg +57 +Class II (2010) +Executive Vice President; Chief Operating Officer and Director +Jeffrey Greenberg +40 +Class II (2010) +Senior Vice President, Active Electronic Media and Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Robert Greenberg has served as our Chairman of the Board +and Chief Executive Officer since October 1993. +Morton D. Erlich has served as a member of our Board of +Directors since January 2006 and provided consulting services to +various private enterprises since September 2004. +Mr. Erlich worked for 34 years at KPMG LLP including +24 years as an audit partner until retiring in September +2004. +Michael Greenberg has served as our President and a +member of our Board of Directors since our company’s +inception in 1992, and from June 1992 to October 1993, he served +as our Chairman of the Board. +David Weinberg has served as our Chief Operating Officer +since January 2006 and as Executive Vice President and a member +of our Board of Directors since July 1998, and from October 1993 +to January 2006, he also served as our Chief Financial Officer. +3 +Table of Contents +Jeffrey Greenberg has served as our Senior Vice +President, Active Electronic Media since June 2005 and as a +member of our Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as our Vice +President, Active Electronic Media. Previously, +Mr. Greenberg served as our Chief Operating Officer, +Secretary and a member of our Board of Directors from June 1992 +to July 1998, and as our Chief Executive Officer from June 1992 +to October 1993. +Executive +Officers +The following table sets forth certain information with respect +to our executive officers who are not also members of our Board +of Directors. For information concerning Robert Greenberg, +Michael Greenberg and David Weinberg, see “Directors Not +Standing for Election” above. +Name +Age +Position +Frederick Schneider +51 +Chief Financial Officer +Philip Paccione +46 +General Counsel; Executive Vice President, Business Affairs; and +Corporate Secretary +Mark Nason +46 +Executive Vice President, Product Development +Frederick Schneider has served as our Chief Financial +Officer since January 2006. From February 2004 to when he joined +our company in January 2006, Mr. Schneider served on our +Board of Directors and as Chairman of our Audit Committee. He +also currently serves on the Board of Directors and as Chairman +of the Audit Committee at each of Meade Instruments +(NASDAQ:MEAD) and Sport Chalet, Inc. (NASDAQ:SPCH). +Mr. Schneider has served as a Board member and Audit +Committee member at Meade Instruments since August 2004 and at +Sport Chalet since May 2002. From July 2004 to December 2005, he +served as a senior managing director at Pasadena Capital +Partners, a private equity investment firm. Prior to working at +Pasadena Capital Partners, Mr. Schneider was an independent +private equity investor and consultant; from September 1994 to +January 1998, he served as chief financial officer and principal +of Leonard Green & Partners, L.P., a merchant banking +firm specializing in leveraged buyouts; and from June 1978 to +September 1994, he worked at KPMG LLP including five years as an +audit and due diligence partner. +Philip Paccione has served as our Executive Vice +President, Business Affairs since February 2000, as our +Corporate Secretary since July 1998 and as our General Counsel +since May 1998. +Mark Nason has served as our Executive Vice President, +Product Development since March 2002. From January 1998 to March +2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served +as our Director of Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of our executive officers or directors. +CORPORATE +GOVERNANCE AND BOARD MATTERS +Code of +Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by the Board of +Directors as of April 28, 2004 and amended by the Board as +of January 15, 2007. The purpose of the Code of Business +Conduct and Ethics is to promote honest and ethical conduct. The +Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our +corporate information website located at www.skx.com, and is +available in print, without charge, upon written request to our +Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan +Beach Boulevard, Manhattan Beach, California 90266. We intend to +promptly post any amendments to or waivers of the Code of +Business Conduct and Ethics on our website. +“Controlled +Company” Exemption under NYSE Rules +Under Section 303A of the New York Stock Exchange +(“NYSE”) Listed Company Manual (collectively, the +“NYSE Rules”), we are considered a “Controlled +Company” because Robert Greenberg beneficially owns 62.0% +of +4 +Table of Contents +the voting power in our company (see “Transactions with +Related Persons” ). As a Controlled Company, we are +exempt from certain NYSE Rules requiring a board of directors +with a majority of independent members, a compensation committee +composed entirely of independent directors and a nominating +committee composed entirely of independent directors. However, +notwithstanding this exemption, as described more fully below, +we established a Compensation Committee in 2006 that is composed +entirely of independent directors in accordance with +Section 303A.05 of the NYSE Rules. +Director +Independence +Our Board of Directors has affirmatively determined that the +Board has three members who are “independent” +consistent with Section 303A.02 of the NYSE Rules. These +directors are currently Morton D. Erlich, who is Chairman of our +Audit Committee and a member of our Compensation Committee, +Geyer Kosinski, who is a member of our Audit Committee, and +Richard Siskind, who is Chairman of our Compensation Committee +and a member of our Audit Committee. The Board of Directors made +this affirmative determination regarding these directors’ +independence based on discussions with the directors and on its +review of the directors’ responses to a questionnaire +regarding employment and compensation history; affiliations, +family and other relationships; and transactions with our +company, its subsidiaries and affiliates. The Board considered +relationships and transactions between each director or any +member of his immediate family and our company and its +subsidiaries and affiliates, including those reported in the +section entitled “Transactions with Related +Persons” in this proxy statement. The purpose of the +Board’s review with respect to each director was to +determine whether any such relationships or transactions were +inconsistent with a determination that the director is +independent under the NYSE Rules. +Attendance +of Directors at Board Meetings and Annual Meeting of +Stockholders +Our Board of Directors met four times in 2007, and each of the +directors attended all of the meetings, except Geyer Kosinski +who was unable to attend one meeting. While we do not have a +policy requiring our directors to attend our Annual Meeting of +Stockholders, all but one of the directors attended the Annual +Meeting of Stockholders held in 2007. +Audit +Committee +Our Audit Committee, which was established in accordance with +Section 3(a)(58)(A) of the Securities Exchange Act of 1934, +as amended (the “Exchange Act”), is responsible for +overseeing (i) the quality and integrity of our financial +statements, (ii) the appointment, compensation, +independence and performance of the independent registered +public accounting firm, (iii) our compliance with legal and +regulatory requirements and (iv) the performance of +internal audit and controls function. +The Audit Committee is currently composed of Chairman Morton D. +Erlich, Geyer Kosinski and Richard Siskind, each of whom is +“independent” under Sections 303A.02 of the NYSE +Rules and Section 10A(m)(3) of, and +Rule 10A-3(b) +under, the Exchange Act. The Audit Committee held seven meetings +in 2007, each of which was attended by all of its members. +Our Audit Committee currently acts under a written Audit +Committee Charter adopted by the Board of Directors as of +April 29, 2004 and amended by the Board as of +January 15, 2007 and December 18, 2007. The Audit +Committee Charter, which complies with the NYSE Rules and is +subject to amendment from time to time by the Board of +Directors, is attached as Appendix A to this proxy +statement. The Audit Committee Charter is also posted in the +corporate governance section of the investor relations page of +our corporate information website located at www.skx.com , +and copies are available in print, without charge, upon written +request to our Corporate Secretary at Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Audit +Committee Financial Expert +Our Board of Directors has determined that Morton D. Erlich, who +currently serves as Chairman of our Audit Committee, is an +“audit committee financial expert” as that term is +defined in Item 407(d)(5) of +Regulation S-K. +5 +Table of Contents +Compensation +Committee +Our Compensation Committee is responsible for +(i) discharging the Board’s responsibilities relating +to compensation of our executive officers, (ii) overseeing +the administration of our executive compensation plans, +(iii) reviewing and discussing with our management the +Compensation Discussion and Analysis required by the applicable +rules of the Securities and Exchange Commission (the +“SEC”) and recommending to the Board whether such +disclosure should be included in our proxy statement and +(iv) producing an annual report on executive compensation +for inclusion in our proxy statement in accordance with the +applicable rules of the SEC. This includes reviewing and +approving the annual compensation of our Chief Executive Officer +and other executive officers, reviewing and making +recommendations to the Board with respect to executive +compensation plans, including incentive compensation and +equity-based compensation, and reviewing and approving +performance goals and objectives with respect to the +compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. +The Compensation Committee is composed of Chairman Richard +Siskind and Morton D. Erlich. The Compensation Committee held +seven meetings in 2007, each of which was attended by both of +its members. +Our Compensation Committee currently acts under a written +Compensation Committee Charter adopted by the Board of Directors +as of March 31, 2006 and amended by the Board as of +December 12, 2006. The Compensation Committee Charter, +which complies with the NYSE Rules and is subject to amendment +from time to time by the Board of Directors, is posted in the +corporate governance section of the investor relations page of +our corporate information website located at www.skx.com . +Copies are available in print, without charge, upon written +request to our Corporate Secretary at Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Compensation +Committee Interlocks and Insider Participation +Our Compensation Committee is composed of Richard Siskind and +Morton D. Erlich, neither of whom has ever been an employee or +officer of our company or any of its subsidiaries. None of our +executive officers has served or currently serves on the board +of directors or on the compensation committee of any other +entity, which has officers who served on our Board of Directors +or Compensation Committee during the fiscal year ended +December 31, 2007. +Director +Nominations +As a Controlled Company under the NYSE Rules, we are not +required to and currently do not have a nominating committee. +Our Chairman of the Board, in consultation with other members of +management and directors, performs the functions of a nominating +committee, including the identification and evaluation of +director candidates. Nominees for directors are identified and +recommended by the Chairman of the Board and presented to the +full Board of Directors. Qualifications and skills that the +Board of Directors requires of directors are set forth in our +Corporate Governance Guidelines, which was adopted by the Board +as of April 28, 2004 and is posted in the corporate +governance section of the investor relations page of our +corporate information website located at www.skx.com. Copies are +available in print, without charge, upon written request to our +Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan +Beach Boulevard, Manhattan Beach, California 90266. Our Board of +Directors seeks members from diverse professional and personal +backgrounds who combine a broad spectrum of experience and +expertise with a reputation for integrity. Factors considered in +evaluating a director candidate include the evaluation of +diversity, age, skills and experience in the context of the +needs of the Board. Additionally, directors should not serve on +more than two boards of public companies in addition to our +Board of Directors. The Board believes that the functions of a +nominating committee are more than adequately performed by our +Chairman of the Board and the Board of Directors as a whole. +Pursuant to our bylaws, a stockholder may nominate a person for +election as a director at an annual meeting of stockholders only +if written notice of such stockholder’s intent to make such +nomination has been given to our Corporate Secretary no later +than the close of business on the 60th day nor earlier than the +close of business on the 90th day in advance of such meeting. +Each notice is required to set forth certain information, +including (i) the name and address of the stockholder and +of the person or persons to be nominated, (ii) a +description of all arrangements or +6 +Table of Contents +understandings between the stockholder and each nominee pursuant +to which the nomination is to be made, (iii) information +regarding each nominee as would be required to be included in a +proxy statement filed pursuant to the proxy rules of the SEC had +the nominee been nominated, or intended to be nominated, by the +Board and (iv) the consent of each nominee to serve as a +director if so elected. The stockholder must also promptly +provide any other information that we reasonably request. +Executive +Sessions +Non-management directors meet regularly in executive sessions +without our management. Non-management directors are those +directors who are not also our executive officers and include +directors, if any, who are not independent by virtue of the +existence of a material relationship with our company. Executive +sessions are led by a Presiding Independent Director. An +executive session is typically held in conjunction with each +regularly scheduled Audit Committee meeting and other sessions +may be called by the Presiding Independent Director in his own +discretion or at the request of the Board of Directors. Morton +D. Erlich is currently designated as the Presiding Independent +Director. +COMPENSATION +DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation +arrangements of our Named Executive Officers for 2007 should be +read together with the compensation tables and related +disclosures set forth below. The Named Executive Officers are +those executive officers listed in the table captioned +Summary Compensation Table in this proxy statement: +Robert Greenberg, Chief Executive Officer; Michael Greenberg, +President; David Weinberg, Chief Operating Officer; Frederick +Schneider, Chief Financial Officer; and Mark Nason, Executive +Vice President of Product Development. This discussion contains +forward looking statements that are based on our current plans, +considerations, expectations and determinations regarding future +compensation programs. Actual compensation programs that we +adopt may differ materially from currently planned programs as +summarized in this discussion. +Role of +Compensation Committee +Our executive compensation program is administered by or under +the direction of the Compensation Committee of our Board of +Directors. Under the terms of its Charter, the Compensation +Committee is responsible for (i) discharging the +Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of +our executive compensation plans, (iii) reviewing and +discussing with Skechers’ management this Compensation +Discussion and Analysis required by the applicable SEC rules and +recommending to the Board its inclusion in this proxy statement +and (iv) producing the annual report on executive +compensation included elsewhere in this proxy statement in +accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the +services of outside advisors, experts and other consultants to +assist in the evaluation of the compensation of the Chief +Executive Officer, the other executive officers and the Board of +Directors. Neither we nor our Compensation Committee retained a +compensation consultant in 2007 to review policies and +procedures with respect to executive compensation or to advise +us on compensation matters. For 2007, the Compensation Committee +reviewed management’s compensation recommendations and then +discussed these recommendations with management. The final +recommendation by the Compensation Committee was approved by the +Board of Directors. +Role of +Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and +Chief Operating Officer, annually makes recommendations to the +Compensation Committee regarding (i) annual base salary and +bonuses to be paid to executive officers, (ii) the +formation and modification of our equity-based and incentive +compensation plans for executive officers, (iii) awards to +be granted under our equity-based compensation plan and +(iv) performance metrics to be used to calculate incentive +compensation that executive officers may earn under our +incentive compensation plan. Management also meets periodically +with the Compensation Committee to discuss these +recommendations, which are based on management’s assessment +of the base salary, equity-based compensation and incentive +compensation opportunities that are competitive within our +industry and within the geographical labor +7 +Table of Contents +markets in which we participate. The Compensation Committee has +the authority to adopt, modify or reject any of these +recommendations. +Compensation +Objectives +The basic compensation philosophy of our management and the +Compensation Committee is to provide competitive salaries and +incentives to executive officers in order to promote superior +financial performance. The Compensation Committee believes that +compensation paid to executive officers should be closely +aligned with our performance on both a short-term and long-term +basis, linked to specific, measurable results intended to create +value for stockholders, and that such compensation should assist +us in attracting and retaining key executives critical to our +long-term success. +Our executive compensation policies are designed to achieve four +primary objectives: +• +attract and motivate well-qualified individuals with the ability +and talent for us to achieve our business objectives and +corporate strategies; +• +provide incentives to achieve specific short-term individual and +corporate goals by rewarding achievement of those goals at +established financial performance levels; +• +provide incentives to achieve longer-term financial goals and +reinforce sense of ownership through award opportunities that +can result in ownership of stock; and +• +promote retention of key executives and align the interests of +management with those of the stockholders to reinforce +achievement of continuing increases in stockholder value. +Consistent with our performance-based philosophy, the +Compensation Committee reviews and approves our compensation +programs to effectively balance executive officers’ +salaries with incentive compensation that is performance-based +as well as to reward annual performance while maintaining a +focus on longer-term objectives. We believe that it serves the +needs of our stockholders and key executives to provide +incentives commensurate with individual management +responsibilities and past and future contributions to corporate +objectives. The mix of compensation elements varies based on an +executive officer’s position and responsibilities with +Skechers. +To maximize stockholder value, we believe that it is necessary +to deliver consistent, long-term sales and earnings growth. +Accordingly, the Compensation Committee reviews not only the +individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +short-term, long-term and currently paid cash and equity +compensation in a way that meets the objectives set forth above. +Elements +of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual +Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Incentive Award Plan +(the “2007 Plan”), including restricted stock and +stock options. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +Base +Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking +into account market compensation paid by competitors within our +industry and other companies of similar type, size and financial +performance for individuals in similar positions. We set base +compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a +8 +Table of Contents +competitive environment, and to reward satisfactory performance +at an acceptable level based upon contributions to our overall +business objectives. +Base salaries are generally reviewed annually, but may be +adjusted from time to time to realign salaries with market +levels. In reviewing base salaries, we consider various factors, +including (i) each individual’s level of +responsibilities, performance and results achieved, and +professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and +companies of similar type, size and financial performance and +(iii) cost of living increases. The base salaries of +Messrs. Weinberg and Nason increased for 2007 over the +previous year’s levels as a result of a combination of +factors, including continued positive financial performance by +Skechers, improved individual performances and increased +responsibilities. While the base salaries of Robert Greenberg +and Michael Greenberg remained unchanged +year-over-year, +the same factors could be attributed to increases in their total +compensation over 2006. This was consistent with our +performance-based philosophy, as our Named Executive +Officers’ total compensation for 2007 was generally more +heavily weighted towards incentive compensation as compared to +the previous year. This same philosophy was applied when +determining Mr. Schneider’s base salary (and formulae +for annual incentive compensation) for 2007, and while his base +salary remained unchanged +year-over-year +too, his total compensation for 2007 did not increase largely +due to the decrease in the fair value of stock awards and option +awards that were granted prior to 2007. +Annual +Incentive Compensation +The 2006 Plan is intended to advance our interests and those of +our stockholders and to assist us in attracting and retaining +executive officers by providing incentives and financial rewards +to such executives who, because of the extent of their +responsibilities can make significant contributions to our +success through their ability, industry expertise, loyalty and +exceptional services. +The 2006 Plan continues the annual bonus policy that we have +used for many years and provides executive employees including +the Named Executive Officers with the opportunity to earn +bonuses based on our financial performance by linking incentive +award opportunities to the achievement of our performance goals. +The 2006 Plan allows us to set annual performance criteria and +goals that are flexible and change with the needs of our +business. The Compensation Committee annually approves the +performance criteria and goals that will be used in formulae to +calculate our Named Executive Officers’ incentive +compensation for each fiscal year. By determining performance +criteria and setting goals at the beginning of each fiscal year, +our Named Executive Officers understand our goals and priorities +during the current fiscal year. Our performance goals are set by +reference to one or more of the business criteria that are +listed under “Executive Compensation—2006 Annual +Incentive Compensation Plan. ” The business criteria +used in the formulae to calculate the incentive compensation of +our Chief Executive Officer, President and Chief Operating +Officer for 2007 were our net sales and net earnings because the +Compensation Committee believes that they provide an accurate +and comprehensive measure of our annual performance. For our +other Named Executive Officers, our net sales were used to +calculate their incentive compensation for 2007. +The potential payments of incentive compensation to our Named +Executive Officers are performance-driven and therefore +completely at risk. The payment of any incentive compensation +for a fiscal year under the 2006 Plan is conditioned on the +Company achieving at least certain threshold performance levels +of the business criteria approved by the Compensation Committee, +and no payments will be made to the Company’s Named +Executive Officers if the threshold performance levels are not +met. Any incentive compensation to be paid to the Named +Executive Officers in excess of the threshold amounts is based +on the Compensation Committee’s pre-approved business +criteria and formulae for the respective Named Executive +Officers. The threshold performance levels for 2007 were +“attainable” based on our recent historical financial +performance, and additional incentive compensation could have +been earned based on our financial performance exceeding +increasingly challenging levels of performance goals, none of +which was certain to be achieved. The Compensation Committee did +not place a maximum limit on the incentive compensation that +could have been earned by the Named Executive Officers in 2007, +although the maximum amount of incentive compensation that any +Named Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +The Named Executive Officers were generally targeted to receive +from 20% to 70% of their annual salaries for 2007 in annual +bonus compensation, which was determined to be competitive in +the marketplace for similar +9 +Table of Contents +positions. In determining the potential awards that computed +into these percentages, the Compensation Committee considered +each Named Executive Officer’s position, responsibilities +and prospective contribution to the attainment of our +performance goals. The percentage of total compensation +represented by incentive awards is generally higher for more +senior executives to reflect their greater influence on profits +and sales and to put a larger percentage of their total +potential cash compensation “at risk.” Accordingly, +our Chief Executive Officer, Robert Greenberg, was at the top +end of the range. +Based on our financial performance and the performance goals +previously set by the Compensation Committee for each Named +Executive Officer for 2007, the actual incentive compensation +earned by each Named Executive Officer for 2007 was $1,706,330 +for Robert Greenberg, which represented 62% of his total +compensation; $873,798 for Michael Greenberg, which represented +45% of his total compensation; $528,166 for David Weinberg, +which represented 33% of his total compensation, $382,532 for +Mark Nason, which represented 27% of his total compensation; and +$191,266 for Frederick Schneider, which represented 26% of his +total compensation. +Incentive compensation awarded under the 2006 Plan complements +the approach of our equity compensation program described below, +which is focused on our long-term achievements for earnings per +share and total stockholder return. +Equity-Based +Compensation +Awards of restricted stock, stock options and other forms of +equity-based compensation under the 2007 Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees +for building stockholder value; and +• +encourage long-term investment in Skechers by participating +Named Executive Officers. +The Compensation Committee believes that stock ownership by +management has been demonstrated to be beneficial to all +stockholders and stock awards have been granted by Skechers to +executive officers and other employees prior to 2007 for the +foregoing reasons. However, under the 1998 Stock Option, +Deferred Stock and Restricted Stock Plan (the “1998 Stock +Plan”), we did not issue any shares of restricted stock to +the Named Executive Officers as part of their annual +compensation in 2007, and we have not granted any stock options +to the Named Executive Officers as part of their annual +compensation since February 2004. The 1998 Stock Plan was +terminated and no additional awards under that plan were +permitted after December 31, 2007. As of January 1, +2008, our employees including the Named Executive Officers were +eligible to receive, from time to time, issuances of restricted +stock, grants of stock options and other equity-based +compensation under the 2007 Plan. Following a meeting of the +Compensation Committee in December 2007, certain executive +employees including all of the Named Executive Officers were +awarded shares of restricted stock in January 2008 under the +2007 Plan as a component of their total compensation for the +2008 fiscal year. +Restricted +Stock +Historically, awards of restricted stock made to our Named +Executive Officers are subject to certain restrictions that +generally lapse over a period of four years from the date of +award. This vesting schedule promotes retention and encourages +long-term investment in Skechers by those Named Executive +Officers who do not already hold shares of our Class A or +Class B Common Stock. This also provides a reasonable time +frame to align the Named Executive Officers’ compensation +with stockholder interests since any appreciation of our stock +price will benefit both management and stockholders. An +additional advantage of restricted stock is that, in comparison +to stock options, fewer shares are required to deliver the same +economic value. This may result in lower stockholder dilution +than granting stock options. While we did not issue any shares +of restricted stock to the Named Executive Officers as part of +their annual compensation in 2007, they were awarded restricted +shares in January 2008 as part of their total compensation for +the 2008 fiscal year in part due to these advantages. +10 +Table of Contents +Stock +Options +Historically, grants of stock options made to our Named +Executive Officers generally vest over a period of three years, +with 25% vesting on the date of grant and 25% vesting each +anniversary thereafter, with all such options exercisable on the +third anniversary of the date of grant. This vesting schedule +promotes retention while the nature of stock options provides +Named Executive Officers and other key employees with an +incentive to contribute to stockholder value in the long term. +Stock options are typically priced at the closing price of our +Class A Common Stock on the New York Stock Exchange on the +date of grant. All stock options expire ten years from the date +of grant. This provides a reasonable time frame to align the +Named Executive Officers’ compensation with stockholder +interests since any appreciation of our stock price will benefit +both management and stockholders. While playing a lesser role in +our current equity-based compensation program, stock options are +still an appropriate and highly motivating vehicle for +delivering long-term incentives. Stock options provide a direct +link with stockholder interests as they have zero intrinsic +value unless our stock price increases above the grant date +price. Despite these advantages, when the Compensation Committee +met in December 2007 to re-evaluate whether to award +equity-based compensation, they decided to award shares of +restricted stock rather than grant stock options to the Named +Executive Officers in January 2008 as part of their total +compensation for the 2008 fiscal year. +Employment +Agreements, Severance Benefits and Change of Control +Provisions +We do not have any employment, severance or +change-of-control +agreements in effect with any of our Named Executive Officers. +As mentioned above in this Compensation Discussion and Analysis +under the heading “Equity-Based Compensation,” +as of December 31, 2007, we had granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting upon a change of control of Skechers. +Generally, with respect to stock options previously granted +under the 1998 Stock Plan that remain outstanding, 25% of the +options vested immediately on the date of grant and the +remaining options vest 25% per year on each anniversary of the +date of grant, with all such options exercisable on the third +anniversary of the date of grant. For all shares of restricted +stock awarded to date under the 1998 Stock Plan, 20% of the +shares vested immediately on the date of award and the remaining +shares vest 20% per year on each anniversary of the date of +award, with restrictions on all shares lapsing on the fourth +anniversary of the date of award. In the event of a change of +control, all stock options and awards of restricted stock will +vest in full. +A “change of control” is defined in the 1998 Stock +Plan and the agreements under the 1998 Stock Plan as +(i) the acquisition by certain persons of our securities +representing 50% or more of the combined voting power of our +outstanding securities; (ii) a change during any two-year +period in a majority of the Board of Directors unless each new +director was approved by a vote of at least two-thirds of the +directors then still in office who were directors at the +beginning of the period, or whose election or nomination was so +approved; approval by our stockholders of a merger or +consolidation (except with certain permitted entities); or +(iii) approval by our stockholders of a complete +liquidation of our company or the sale or disposition of all or +substantially all of our assets. +As of December 31, 2007, we had not granted any awards of +restricted shares of Class A Common Stock, grants of +options to purchase shares of Class A Common Stock or other +equity-based compensation under the 2007 Plan, although the +change of control terms of the 2007 Plan are substantially +similar to those of the 1998 Stock Plan. +The Compensation Committee believes that our change of control +policy is consistent with the objectives of providing the +highest possible return to stockholders by allowing the Named +Executive Officers to be able to effectively participate equally +with stockholders in evaluating alternatives in the event of a +change of control transaction, without compelling the Named +Executive Officer to remain employed under new ownership. +Equity +Award Practices +As described under the Equity Compensation section, equity-based +awards are a key component of our overall executive compensation +program. We do not backdate grants of awards nor do we +coordinate the grant of awards with the release of material +information to result in favorable pricing. Initial grants of +awards to executive officers and other new employees are based +on the timing of date of hire. Historically, all grants of stock +options have been +11 +Table of Contents +made at 100% of fair market value—the closing price of our +Class A Common Stock on the New York Stock Exchange on the +date of grant—and grants have never been re-priced. +Perquisites +and Other Benefits +We provide our Named Executive Officers with perquisites and +other benefits, reflected in the “All Other +Compensation” column in the table captioned Summary +Compensation Table in this proxy statement, that we believe +are reasonable, competitive and consistent with our overall +executive compensation program. The costs of these benefits +constitute only a small percentage of each Named Executive +Officer’s total compensation and include the following: +Employee Healthcare Premiums. We, at our sole +cost, provide to each Named Executive Officer, his spouse and +his children such health, dental and vision insurance as we may +from time to time make available to our other employees. +Matching Contributions to 401(k) Plan +Accounts. Each Named Executive Officer +participating in our contributory retirement plan (the +“401(k) Plan”) may contribute up to 15% of his salary +to his account under the 401(k) Plan, up to the IRS statutory +limitation of $15,500 for 2007 or $20,500 for those over +50 years old. We may make a matching contribution equal to +a percentage of salary contributed by the Named Executive +Officer to his account by the end of the first quarter of the +following fiscal year, which vests 20% per year for five years +beginning on the first anniversary of the Named Executive +Officer’s hire date. The percentage of this matching +contribution is the same for all of our employees participating +in the 401(k) Plan for each calendar year. +Aircraft usage. We have an agreement with an +aircraft operator for use of its aircraft for business travel. +Each Named Executive Officer may also use the aircraft for +personal use. If we are not reimbursed for costs associated with +personal use of the aircraft, such costs are considered taxable +income to the Named Executive Officer. During 2007, there was no +personal use of the aircraft by any of the Named Executive +Officers for which we were not reimbursed in full. +Automobile usage. During 2007, automobiles +that we leased or purchased at our sole cost were used by Robert +Greenberg, Michael Greenberg and David Weinberg. We also paid on +their behalf the automobile insurance premiums related to their +use of these automobiles. +Health Club Dues. During 2007, we paid health +club membership fees for David Weinberg and Frederick Schneider. +Impact of +Regulatory Requirements +Tax +Deductibility of Compensation +Section 162(m) of the Internal Revenue Code of 1986, as +amended (the “Code” and, collectively, +“Section 162(m)”), places a limit of $1,000,000 +on the annual amount of compensation (other than compensation +that qualifies as “qualified performance-based +compensation”) that publicly held companies may deduct for +federal income tax purposes for certain executive officers. +The Compensation Committee believes that tax deductibility is an +important factor, but only one factor, to be considered in +evaluating a compensation program. Thus, while the 2006 Plan has +generally been designed and administered to maintain tax +deductibility and the 2007 Plan permits the Compensation +Committee to grant awards that constitute “qualified +performance-based compensation”, the Compensation Committee +believes competitive and other circumstances may require that +the interests of Skechers and its stockholders are best served +by providing compensation that is not fully tax deductible. +Accordingly, the Compensation Committee may continue to exercise +discretion to provide base salaries or other compensation that +may not be fully tax deductible by Skechers. +Other +Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules +affect the delivery of executive compensation and are generally +taken into consideration as programs are developed. Our goal is +to create and maintain plans that are efficient and in full +compliance with these requirements. +12 +Table of Contents +REPORT OF +THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the +Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and +discussion, the Compensation Committee has recommended to the +Board of Directors inclusion of the Compensation Discussion and +Analysis in this proxy statement and, through incorporation by +reference from this proxy statement, in Skechers’ Annual +Report on +Form 10-K +for the year ended December 31, 2007. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +13 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth selected information concerning +the compensation earned by our Principal Executive Officer, +Principal Financial Officer and each of our three most highly +compensated executive officers who served in positions other +than Principal Executive Officer and Principal Financial Officer +at the end of the last completed fiscal year (the “Named +Executive Officers”). +Summary +Compensation Table +Non-Equity +Stock +Option +Incentive Plan +All Other +Name and Principal Position +Year +Salary($) +Awards +($) (1) +Awards +($) (2) +Compensation +($) (3) +Compensation ($) +Total ($) +Robert Greenberg +2007 +1,000,000 +— +— +1,706,330 +29,920 +(4) +2,736,250 +Chairman of the Board +2006 +1,000,000 +— +— +1,494,455 +35,941 +(4) +2,530,396 +and Chief Executive Officer +Frederick Schneider +2007 +500,000 +31,320 +5,416 +191,266 +21,799 +(5) +749,801 +Chief Financial Officer +2006 +500,000 +62,389 +54,930 +198,891 +23,860 +(5) +840,070 +Michael Greenberg +2007 +1,000,000 +— +— +873,798 +48,055 +(6) +1,921,853 +President +2006 +1,000,000 +— +— +696,673 +40,993 +(6) +1,737,666 +David Weinberg +2007 +1,000,000 +— +6,773 +528,166 +57,514 +(7) +1,592,453 +Executive Vice President +2006 +900,000 +— +68,663 +497,227 +53,574 +(7) +1,519,464 +and Chief Operating Officer +Mark Nason +2007 +1,000,000 +— +13,546 +382,532 +14,465 +(8) +1,410,543 +Executive Vice President, +2006 +846,154 +— +137,325 +397,782 +11,139 +(8) +1,392,400 +Product Development +(1) +Represents the dollar amount +recognized for financial statement reporting purposes in +accordance with SFAS 123R for the fair value of restricted +stock that was awarded in 2006, as we did not grant any stock +awards prior to 2006 and we did not grant any stock awards to +Named Executive Officers in 2007. These stock awards are subject +to certain restrictions that lapse over a period of four years, +with 20% of the shares vesting on the date of award in 2006 and +20% vesting each anniversary thereafter, with all such shares +fully vested on the fourth anniversary of the award date. The +fair value is calculated using the closing price of our +Class A Common Stock on the grant date for the shares +awarded. Pursuant to SEC rules, the amount shown excludes the +impact of estimated forfeitures related to service-based vesting +conditions. The reported amount reflects our company’s +stock-based compensation expense for this award and does not +correspond to the actual value that will be recognized by +Mr. Schneider. +(2) +Represents the dollar amount +recognized for financial statement reporting purposes in +accordance with SFAS 123R for the fair value of all stock +options granted to the Named Executive Officers. We have not +granted stock options to Named Executive Officers since 2004. +Frederick Schneider’s compensation relates to stock options +granted to him in 2004 when he was a non-employee director. +These stock options vested over a period of three years, with +25% vesting on the date of grant in 2004 and 25% vesting each +anniversary thereafter, with all such options exercisable on the +third anniversary of the grant date. The fair value was +estimated using the Black-Scholes option-pricing model in +accordance with SFAS 123R. The fair value per option was +$5.49 based on assumptions of five years expected life, expected +volatility of 73%, a risk free rate of 3.23% and no expected +dividend yield. Pursuant to SEC rules, the amount shown excludes +the impact of estimated forfeitures related to service-based +vesting conditions. The reported amounts reflect our +company’s stock-based compensation expense for these awards +and do not correspond to the actual value that will be +recognized by Messrs. Schneider, Weinberg and Nason. +(3) +Represents the cash awards that the +Named Executive Officers earned under our 2006 Annual Incentive +Compensation Plan. Incentive compensation is paid quarterly +based on performance levels that our company achieved in the +prior quarter. The amounts listed for 2007 exclude any bonuses +earned by the Named Executive Officers in 2006 that were paid in +2007 and include incentive compensation earned in the fourth +quarter of 2007 that was paid in February 2008. The amounts +listed for 2006 exclude any bonuses earned by the Named +Executive Officers in 2005 that were paid in 2006 and include +incentive compensation earned in the fourth quarter of 2006 that +was paid in March 2007. Additional information regarding the +2006 Annual Incentive Compensation Plan is described in the +section entitled “Compensation Discussion and +Analysis” in this proxy statement. +(4) +Represents health and life +insurance payments of $10,514 and $11,712, and costs of $19,406 +and $24,229 related to automobiles purchased by our company for +use by Mr. Greenberg for 2007 and 2006, respectively. The +aggregate incremental costs of automobile usage are based on +depreciation expense for an automobile purchased in 2006 and +automobile insurance premiums paid by our company on behalf of +Mr. Greenberg. +(5) +Represents health and life +insurance payments of $14,150 and $16,240, and payments of +health club membership fees of $1,049 and $1,020 for 2007 and +2006, respectively, in addition to matching contributions of +$6,600 that we made under the 401(k) Plan for each year. +(6) +Represents health and life +insurance payments of $14,340 and $16,240, and costs of $27,115 +and $18,153 related to automobiles purchased by our company for +use by Mr. Greenberg for 2007 and 2006, respectively, in +addition to matching contributions of $6,600 that we made under +the 401(k) Plan for each year. The aggregate incremental costs +of automobile usage are based on depreciation expense for an +automobile purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg. +(7) +Represents health and life +insurance payments of $9,354 and $10,423, payments of health +club membership fees of $1,049 and $1,020, and costs of $40,511 +and $35,531 related to automobiles leased or purchased by our +company for use by Mr. Weinberg for 2007 and 2006, +respectively, in addition to matching contributions of $6,600 +that we made under the 401(k) Plan for each year. The aggregate +incremental +14 +Table of Contents +costs of automobile usage are based +on depreciation expense for an automobile purchased in 2006, +payments for another automobile leased prior to the one +purchased in 2006 and automobile insurance premiums paid by our +company on behalf of Mr. Weinberg. +(8) +Represents health and life +insurance payments of $14,340 and $11,014 for 2007 and 2006, +respectively, and matching contributions of $125 that we made +under the 401(k) Plan for each year. +2006 +Annual Incentive Compensation Plan +The 2006 Plan, which is designed to satisfy the requirements of +Section 162(m), generally provides for performance-based +incentive awards to certain of our key employees. +The 2006 Plan is administered by the Compensation Committee of +the Board of Directors (the “Committee”). The +Committee has the authority and discretion to administer and +interpret the provisions of the 2006 Plan and to adopt such +rules and regulations for the administration of the 2006 Plan as +the Committee deems necessary or advisable. Decisions of the +Committee are final, conclusive and binding upon all parties, +including, without limitation, our company and participants in +the 2006 Plan. The Committee may designate all or any portion of +its power and authority under the 2006 Plan to any sub-committee +of the Committee or to any of our executive officers, provided +that any such designation is consistent with the requirements of +Section 162(m). +The individuals eligible to participate in the 2006 Plan are our +Chief Executive Officer and any other executive officer of our +company or a subsidiary thereof. Prior to or at the time +performance objectives are established for a fiscal quarter, +fiscal year or such other period of our company that the +Committee, in its sole discretion, may establish up to five +years in length (collectively, “Performance Period”), +the Committee identifies those executive officers including the +Chief Executive Officer who will in fact be participants for +such Performance Period. +Within the time period prescribed by Section 162(m), for +each Performance Period for which performance objectives are +established, the Committee (i) determines the participants +who are to be eligible to receive performance-based awards under +the 2006 Plan, (ii) selects the performance criteria to be +used for each participant and (iii) establishes, in terms +of an objective formula or standard for each participant, the +performance goal and the amount of each award which may be +earned if such performance goal is achieved. +The performance criteria are as follows: net sales, revenue, +revenue growth, operating income, pre- or after-tax income +(before or after allocation of corporate overhead and bonus), +net earnings, earnings per share, net income, financial goals +(division, group or corporate), return on equity, total +shareholder return, return on assets or net assets, attainment +of strategic and operational initiatives, appreciation in and/or +maintenance of the price of the shares of our Class A +Common Stock or any other publicly-traded securities of our +company, market share, gross profits, earnings (including +earnings before taxes, earnings before interest and taxes or +earnings before interest, taxes, depreciation and amortization), +economic value-added models, comparisons with various stock +market indices, reductions in costs, cash flow (before or after +dividends), cash flow per share (before or after dividends), +return on capital (including return on total capital or return +on invested capital), cash flow return on investment, and +improvement in or attainment of expense levels or working +capital levels. +In determining satisfaction with performance goals for a +Performance Period, the Committee may direct that adjustments be +made to the performance goals or actual financial performance +results as reported to reflect extraordinary, unusual or +non-recurring organizational, operational or other changes that +have occurred during such Performance Period, in each case only +to the extent that such adjustments are consistent with the +requirements of Section 162(m). +At such time as it determines appropriate following the +conclusion of each Performance Period, the Committee certifies, +in writing, the amount of the award for each participant for +such Performance Period. The amount of an award actually paid to +a participant may, in the sole discretion of the Committee, be +reduced to less than the amount payable to the participant based +on attainment of the performance goals for a Performance Period. +Payment of an award to each participant shall be made no later +than the fifteenth day of the third month following the end of +the our fiscal quarter in which the applicable Performance +Period ends. +The 2006 Plan is effective for fiscal years 2006 through 2010, +after which our stockholders must re-approve the 2006 Plan for +an additional five years at our annual meeting of stockholders +in 2011 in order for awards under the 2006 Plan to continue to +qualify as performance-based compensation under +Section 162(m). The Committee may at any time alter, amend, +suspend or terminate the 2006 Plan as it shall deem advisable, +subject to any requirement for +15 +Table of Contents +stockholder approval as required by applicable law, including +Section 162(m), and our obligations under our listing +agreement with the NYSE. No amendments to, or termination of, +the 2006 Plan shall in any way impair the rights of a +participant under any award previously granted without such +participant’s consent. +We may deduct from any payments of awards under the 2006 Plan +any applicable withholding taxes required by law to be withheld +with respect to such payments. +Grants of +Plan-Based Awards in Fiscal 2007 +The following table provides information about plan-based awards +granted to the Named Executive Officers in 2007, specifically, +the grant date and the estimated future payouts under non-equity +incentive plan awards, which consist of potential payouts under +the 2006 Annual Incentive Compensation Plan that were awarded in +2007 for the performance period covering fiscal 2007. The Named +Executive Officers did not receive any grants of equity +incentive plan awards or other stock or option awards in 2007. +Estimated Future Payments Under +Non-Equity Incentive Plan +Awards (1) +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +Robert Greenberg +3/30/07 +— +1,706,330 +— +Frederick Schneider +3/30/07 +— +191,266 +— +Michael Greenberg +3/30/07 +— +873,798 +— +David Weinberg +3/30/07 +— +528,166 +— +Mark Nason +3/30/07 +— +382,532 +— +(1) +These columns are intended to show +the potential value of the payments for each Named Executive +Officer under the 2006 Plan if the threshold, target or maximum +goals are satisfied for the performance measures. The potential +payments are performance-driven and therefore completely at +risk. Incentive compensation is conditioned on our company +achieving a minimum or threshold performance level, and no +payments are made to the Named Executive Officers if the +threshold performance levels are not met. The Compensation +Committee approved the performance goals during the first +quarter of 2007 for fiscal 2007. Additional information +regarding the business measurements and performance goals for +determining the payments are described in the section entitled +“Compensation Discussion and Analysis” in this +proxy statement. There are no specific target amounts that can +be determined, as any incentive compensation for each Named +Executive Officer is based on pre-approved percentages in excess +of certain performance goals of Skechers. The target amounts +presented in this table represent the actual payments of +non-equity incentive compensation to each of our Named Executive +Officers that was earned in fiscal 2007. There are no maximum +amounts presented in this table because when determining the +performance goals, the Compensation Committee did not place a +limit on the non-equity incentive compensation that could be +earned by the Named Executive Officers in fiscal 2007, although +the maximum amount of incentive compensation that any Named +Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +Options +Exercised and Stock Vested in Fiscal 2007 +The following table provides information for the Named Executive +Officers regarding the number of shares acquired in 2007 upon +the vesting of restricted stock awards and the value realized +before payment of any applicable withholding tax and broker +commissions. None of the Named Executive Officers exercised +stock options in 2007. +Stock Awards +Number of Shares +Value Realized +Name of Executive +Acquired on Vesting (#) +on Vesting ($) +Robert Greenberg +— +— +Frederick Schneider +2,000 +(1) +67,340 +Michael Greenberg +— +— +David Weinberg +— +— +Mark Nason +— +— +(1) +Mr. Schneider held 2,000 +restricted shares that vested on January 3, 2007, when the +closing price per share was $33.67. A +Outstanding +Equity Awards at 2007 Fiscal Year-End +The following table provides information on the outstanding +stock option and stock awards held by the Named Executive +Officers as of December 31, 2007. This table includes +unexercised option awards and unvested shares of +16 +Table of Contents +restricted stock. Each equity award is shown separately for each +Named Executive Officer. The market value of the stock award is +based on the closing price of our Class A Common Stock as +of December 31, 2007, which was $19.51. For additional +information about option awards and stock awards, see the +description of equity-based compensation in the section entitled +“Compensation Discussion and Analysis” in this +proxy statement. The Named Executive Officers did not hold any +shares underlying unexercised options, unvested shares of stock, +units or other rights under any equity incentive plan that had +not been earned as of December 31, 2007. +Option Awards +Stock Awards +Number of +Number of +Number of +Securities +Securities +Shares or +Market Value +Underlying +Underlying +Units of +of Shares or +Unexercised +Unexercised +Option +Option +Stock That +Units of Stock +Options (#) +Options (#) +Exercise +Expiration +Have Not +That Have +Name of Executive +Exercisable +Unexercisable +Price ($) +Date +Vested (#) +Not Vested ($) +Robert Greenberg +— +— +— +— +— +— +Frederick Schneider +40,000 +0 +8.35 +2/5/14 +6,000 +(1) +117,060 +Michael Greenberg +37,500 +0 +13.00 +7/6/10 +— +— +David Weinberg +37,500 +0 +13.00 +7/6/10 +— +— +37,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/1/11 +30,000 +0 +10.58 +11/6/11 +36,453 +0 +8.35 +2/5/14 +Mark Nason +87 +0 +2.78 +1/15/08 +— +— +1,118 +0 +3.94 +2/1/10 +10,200 +0 +13.00 +7/6/10 +2,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/1/11 +9,200 +0 +10.58 +11/6/11 +20,000 +0 +6.95 +10/9/12 +51,000 +0 +8.35 +2/5/14 +(1) +On January 3, 2006, +Mr. Schneider was issued 10,000 restricted shares of +Class A Common Stock, of which 2,000 shares vested +immediately upon issuance, 2,000 shares vested on +January 3, 2007 and 2,000 shares vest each anniversary +thereafter for three years. A +Change of +Control Benefits +Upon a “change of control” under the 1998 Stock Plan, +Frederick Schneider would be entitled to full vesting of his +outstanding restricted stock valued at $117,060 based on the +closing price of our Class A Common Stock on +December 31, 2007. As of December 31, 2007, there were +no outstanding unexercisable stock options under the 1998 Stock +Plan held by any of the Named Executive Officers, which would be +subject to full vesting upon a change of control. For additional +information about change of control terms under the 1998 Stock +Plan, see the description of 1998 Stock Plan provisions in the +section entitled “Compensation Discussion and +Analysis” in this proxy statement. As of +December 31, 2007, there were no outstanding awards under +the 2007 Plan, which would be entitled to any change of control +benefits, although the change of control terms of the 2007 Plan +are substantially similar to those of the 1998 Stock Plan. +17 +Table of Contents +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2007 regarding compensation plans (including individual +compensation arrangements) under which our equity securities are +authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued Upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Plan Category +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders +1,961,756 +(1) +$ +11.56 +15,141,459 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +1,961,756 +15,141,459 +(1) +Represents 1,961,756 stock options +outstanding under the 1998 Stock Plan. Amount does not include +an additional 15,167 shares of restricted stock that were +outstanding with a weighted-average grant date fair value of +$18.32. +(2) +Represents 3,258,209 shares +available for issuance under the 1998 Stock Plan, +1,383,250 shares available for issuance under the Amended +and Restated 1998 Employee Stock Purchase Plan (the “1998 +ESPP”), 7,500,000 shares available for issuance under +the 2007 Plan and 3,000,000 shares available for issuance +under the 2008 Employee Stock Purchase Plan (the “2008 +ESPP”). The shares available for issuance under the 1998 +Stock Plan and the 2007 Stock Plan are available for issuance as +restricted stock and other forms of equity-based compensation in +addition to stock options, warrants and rights. However, the +1998 Stock Plan and the 1998 ESPP were terminated and no +additional granting of awards or rights under those plans were +permitted after December 31, 2007. The number of shares +available for future issuance under the 2008 ESPP Plan may be +adjusted on January 1, 2009 and each anniversary thereof +for increases equal to the least of 500,000 shares, 1% of +the outstanding shares of our capital stock on such date or a +lesser amount as may be determined by our Board of Directors. +18 +Table of Contents +DIRECTOR +COMPENSATION +The following table sets forth information concerning the +compensation earned by our directors during 2007. Robert +Greenberg, Michael Greenberg, David Weinberg and Jeffrey +Greenberg are not included because as employee directors, they +did not earn any additional compensation for services provided +as members of our Board of Directors. +Fees Earned or +Stock +Option +Name +Paid in Cash +($) (1) +Awards +($) (2) +Awards +($) (3) +Total ($) +Morton D. Erlich +72,000 +31,320 +— +103,320 +Geyer Kosinski +55,500 +— +2,708 +58,208 +Richard Siskind +62,000 +— +2,708 +64,708 +(1) +This column reports the amount of +cash compensation earned in 2007 for Board and committee service. +(2) +This column represents the dollar +amount recognized for financial statement reporting purposes +with respect to the 2007 fiscal year in accordance with +SFAS 123R for the fair value of restricted stock that +vested in 2007. These shares represent restricted stock that was +awarded in 2006, as we did not grant any stock awards prior to +2006 and we did not grant any stock awards to directors in 2007. +These stock awards are subject to certain restrictions that +lapse over a period of four years, with 20% of the shares +vesting on the date of award in 2006 and 20% vesting each +anniversary thereafter, with all such shares fully vested on the +fourth anniversary of the award date. The fair value of the +award granted to Mr. Erlich was calculated using the +closing price of $15.66 for our Class A Common Stock on the +New York Stock Exchange on the date of grant, which was +January 3, 2006. Mr. Erlich was the only non-employee +director with an outstanding stock award at 2007 fiscal +year-end, holding 8,000 restricted shares of Class A Common +Stock, of which 2,000 shares were vested and +6,000 shares remained restricted. +(3) +This column represents the dollar +amount recognized for financial statement reporting purposes +with respect to the 2007 fiscal year in accordance with +SFAS 123R for the fair value of all stock options granted +to the non-employee directors. We have not granted stock options +to our directors since 2004. These stock options vested over a +period of three years, with 25% vesting on the date of grant in +2004 and 25% vesting each anniversary thereafter, with all such +options exercisable on the third anniversary of the grant date. +The fair value was estimated using the Black-Scholes +option-pricing model in accordance with SFAS 123R. The fair +value per option was $5.49 based on assumptions of five years +expected life, expected volatility of 73%, a risk free rate of +3.23% and no expected dividend yield. We have not granted stock +options to non-employee directors since 2004. The following +non-employee directors had outstanding option awards at 2007 +fiscal year-end: Messrs. Kosinski and Siskind held options +to purchase 35,000 shares and 75,000 shares, +respectively. +Non-Employee Directors. We paid each of our +non-employee directors annual compensation of $30,000 for +serving on the Board of Directors in 2007. Our Audit Committee +Chairman and Compensation Committee Chairman were paid +additional annual fees of $15,000 and $5,000, respectively, in +2007. Non-employee directors also received fees of $1,500 for +each Board and committee meeting attended during 2007. +Non-employee directors are reimbursed for reasonable costs and +expenses incurred for attending any of our Board or committee +meetings. Compensation, fees, and reimbursable costs and +expenses are paid quarterly. During 2007, non-employee directors +were not issued any restricted shares of Class A Common +Stock nor granted any options to purchase shares of Class A +Common Stock under the 1998 Stock Plan. As of January 1, +2008, non-employee directors were eligible to receive awards of +restricted shares of Class A Common Stock, grants of +options to purchase shares of Class A Common Stock and +other equity-based compensation under the 2007 Plan as +determined by the Board of Directors. +Employee Directors. As of December 31, +2007, Robert Greenberg, Michael Greenberg and David Weinberg +were the only Named Executive Officers serving on our Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on our Board of Directors. Employees of +Skechers who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2007 is set forth +under “Executive Compensation.” Compensation of +Jeffrey Greenberg earned in 2007 is discussed in the section +entitled “Transactions with Related Persons” in +this proxy statement. During 2007, employee directors were not +awarded any restricted shares of Class A Common Stock nor +granted any options to purchase shares of Class A Common +Stock under the 1998 Stock Plan. As of January 1, 2008, +employee directors were eligible to receive awards of shares of +Class A Common Stock, grants of options to purchase shares +of Class A Common Stock and other equity-based compensation +under the 2007 Plan as determined by the Board of Directors. In +January 2008, they were awarded shares of restricted stock as a +component of their total compensation as executive employees for +the 2008 fiscal year. +19 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who +are independent under the standards adopted by the Board of +Directors and applicable NYSE Rules and SEC standards. The Audit +Committee is responsible for oversight and evaluation of the +quality and integrity of Skechers’ financial statements, +Skechers’ compliance with legal and regulatory +requirements, the qualifications and independence of +Skechers’ registered public accounting firm, KPMG LLP, and +the performance of Skechers’ internal audit function and of +KPMG LLP. +The Audit Committee has reviewed and discussed with +Skechers’ management, internal finance staff, internal +auditors and KPMG LLP, with and without management present, +Skechers’ audited financial statements for the fiscal year +ended December 31, 2007, management’s assessment of +the effectiveness of Skechers’ internal controls over +financial reporting and KPMG LLP’s evaluation of +Skechers’ internal controls over financial reporting. The +Audit Committee has also discussed with KPMG LLP the results of +the independent auditors’ examinations and the judgments of +KPMG LLP concerning the quality, as well as the acceptability, +of Skechers’ accounting principles and such other matters +that Skechers is required to discuss with the independent +auditors under applicable rules, regulations or generally +accepted auditing standards (including Statement on Auditing +Standards No. 114). In addition, the Audit Committee has +received from KPMG LLP the written disclosures required by +Independence Standards Board Standard No. 1, as amended, +and has discussed with KPMG LLP their independence from Skechers +and management, including a consideration of the compatibility +of non-audit services with their independence, the scope of the +audit and the fees paid to KPMG LLP during the year. +Based on our review and the discussions referred to above, the +Audit Committee recommended to the Board of Directors that the +audited financial statements be included in Skechers’ +Annual Report on +Form 10-K +for the year ended December 31, 2007 for filing with the +SEC. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +20 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to Independent Registered Public Accounting Firm for +Fiscal Years 2007 and 2006 +We retained KPMG LLP to provide services for fiscal years 2007 +and 2006 in the categories and amounts as follows: +Service +2007 +2006 +Audit +fees (1) +$ +1,554,000 +$ +1,577,000 +Audit-related fees +— +— +Tax +fees (2) +177,000 +173,000 +All other +fees (3) +100,000 +63,000 +Total audit and non-audit fees +$ +1,831,000 +$ +1,813,000 +(1) +These are fees for professional +services performed by KPMG LLP for the audit of our annual +financial statements and the review of our annual report on +Form 10-K, +the review of financial statements included in our quarterly +reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, as amended, +and consultations regarding financial accounting and reporting, +as well as for services that are normally provided in connection +with statutory and regulatory filings or engagements. +(2) +These are fees for professional +services performed by KPMG LLP with respect to U.S. federal, +state and international tax compliance, tax consulting and tax +work stemming from “Audit” items. This includes +preparation of original tax returns for our company and its +consolidated subsidiaries. +(3) +These are fees for other +permissible work performed by KPMG LLP that does not meet the +other category descriptions. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been ratified +by our stockholders at the Annual Meeting. Any fees for proposed +services exceeding these levels will also require specific +pre-approval by the Audit Committee. +Attendance +at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +21 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of Class A Common Stock and +Class B Common Stock as of March 31, 2008 by +(i) each of our directors, (ii) each of our Named +Executive Officers, (iii) each person that we know to be a +beneficial owner of more than 5% of either class of our Common +Stock and (iv) all of our directors and executive officers +as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 33,287,596 shares of Class A +Common Stock and 12,851,789 shares of Class B Common +Stock outstanding as of March 31, 2008. Our Class B +Common Stock is convertible at any time into shares of +Class A Common Stock on a +one-for-one +basis. Beneficial ownership is determined in accordance with SEC +rules and regulations. In computing the number of shares of our +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of March 31, 2008 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See the section +entitled “Transactions with Related Persons” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is c/o Skechers U.S.A., Inc., 228 Manhattan +Beach Boulevard, Manhattan Beach, California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Wellington Management Company, LLP +3,141,875 +(1) +9.4 +% +— +— +Defiance Asset Management, LLC +1,996,359 +(2) +6.0 +— +— +Named Executive Officers and directors: +Robert Greenberg +10,061,478 +(3) +23.2 +10,031,840 +(4) +78.1 +% +Michael Greenberg +896,883 +(5) +2.6 +799,991 +(6) +6.2 +Jeffrey Greenberg +747,526 +(7) +2.2 +624,834 +(8) +4.9 +David Weinberg +286,890 +(9) +* +— +— +Mark Nason +140,333 +(10) +* +— +— +Frederick Schneider +73,266 +(11) +* +— +— +Philip Paccione +21,403 +(12) +* +— +— +Morton D. Erlich +8,000 +(13) +* +— +— +Geyer Kosinski +35,000 +(14) +* +— +— +Richard Siskind +89,333 +(15) +* +— +— +All current directors and executive officers as a group (10 +persons) +12,360,112 +(16) +27.3 +% +11,456,665 +89.1 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2008 +and represents the number of shares reported as beneficially +owned as of December 31, 2007. Wellington Management +Company, LLP (“Wellington”), in its capacity as +investment adviser, may be deemed to beneficially own +3,141,875 shares that are held of record by its clients. +Wellington has shared voting power with respect to 2,012,604 of +the shares that it beneficially owns and shared dispositive +power with respect to 3,080,075 of these shares. Principal +business office of Wellington is located at 75 State Street, +Boston, Massachusetts 02109. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2008 +and represents the number of shares beneficially owned as of +December 31, 2007. Defiance Asset Management, LLC +(“Defiance”), Robert Marcin and Steve Epstein have +shared voting power and shared dispositive power with respect to +1,996,359 shares. Principal business office of Defiance is +located at 100 Front Street, Suite 920, West Conshohocken, +PA 19428. +(3) +Includes 10,031,840 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 4 below. +(4) +Represents 10,031,840 shares +of Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +22 +Table of Contents +(5) +Includes 799,991 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 37,500 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2008 and 22,650 shares of +Class A Common Stock beneficially owned by Michael +Greenberg, our President and a member of our Board of Directors, +indirectly through his wife, Wendy Greenberg, and their +children. Mr. Greenberg disclaims beneficial ownership of +these 22,650 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +799,991 shares of Class B Common Stock is described in +greater detail in note 6 below. +(6) +Represents 748,691 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(7) +Includes 624,834 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis and 47,260 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2008. Beneficial ownership of the +624,834 shares of Class B Common Stock is described in +greater detail in note 8 below. +(8) +Represents 549,830 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust. Also represents 36,476 shares of Class B Common +Stock held by the Chloe July Greenberg 2004 Trust and +30,000 shares of Class B Common Stock held by the +Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is +deemed to beneficially own as trustee of such trusts, and +5,914 shares of Class B Common Stock held by the Chloe +July Greenberg custodial account and 2,614 shares of +Class B Common Stock held by the Catherine Elle Greenberg +custodial account, for which one of his siblings acts as +custodian. These trust accounts and custodial accounts are for +Mr. Greenberg’s two daughters who are minors, and he +disclaims beneficial ownership of the 8,528 shares held in +the two custodial accounts except to the extent of his pecuniary +interest therein. +(9) +Includes 97,654 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Executive Vice President and a member of our +Board of Directors, is deemed to beneficially own as sole +trustee of The David Weinberg Trust dated September 7, +2000, and 171,453 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2008. +(10) +Includes 124,018 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2008. +(11) +Includes 40,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2008, 15,000 shares held by the Schneider Limited +Partnership that Frederick Schneider, our ChiefFinancial +Officer, is deemed to beneficially own as its general partner +and 8,338 shares held by The Schneider CA Partnership that +Mr. Schneider is deemed to beneficially own as its general +partner. +(12) +Includes 15,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2008. +(13) +Includes 4,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a member of our Board of Directors, is deemed +to beneficially own as a trustee of such trust. +(14) +Represents shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of March 31, 2008. +(15) +Includes 75,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2008. +(16) +Includes 545,231 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2008 by our executive officers and Board of Directors. +23 +Table of Contents +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Exchange Act requires our officers, +directors and persons who own more than ten percent of a +registered class of our securities, to file with the SEC reports +of initial ownership (Form 3’s) and reports of changes +in ownership (Form 4’s and 5’s) of our +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish us with copies of all Section 16(a) forms that they +file. Based on our review of copies of Form 3’s, +4’s and 5’s furnished to us as well as communications +with our officers, directors and greater than ten percent +stockholders, we believe that all of them complied with the +filing requirements of Section 16(a) and we are not aware +of any late or missed filings of such reports for the 2007 +fiscal year. +TRANSACTIONS +WITH RELATED PERSONS +Policies +and Procedures +As provided in our Audit Committee Charter, a copy of which is +attached as Appendix A to this proxy statement, the +Audit Committee shall review (i) at least annually a +summary of directors’ and executive officers’ related +party transactions and potential conflicts of interest and our +policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), +(ii) past and proposed transactions between our company, on +the one hand, and any of our directors or executive officers, on +the other hand, and (iii) policies and procedures as well +as audit results associated with directors’ and executive +officers’ expense accounts and perquisites, including the +use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the +“Policy”), which was adopted by the Board of Directors +as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or +relationships, (including any indebtedness or guarantee of +indebtedness) in which (i) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(ii) we are a participant, and (iii) any Related +Person has or will have a direct or indirect interest (other +than solely as a result of being a director or a less than ten +percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the +beginning of the last fiscal year for which we have filed a +Form 10-K +and proxy statement, even if they do not presently serve in that +role) an executive officer, director or nominee for election as +a director of Skechers, (b) greater than five percent +beneficial owner of our Class A or Class B Common +Stock or (c) immediate family member of either of the +foregoing. +Certain categories of transactions with Related Persons (such as +transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit +Committee shall review the material facts of all other +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2007, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of March 31, 2008, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust, collectively, beneficially own 99.6% of +our Class B Common Stock and +24 +Table of Contents +approximately 79.5% of the combined voting power of our +Class A and Class B Common Stock. Robert Greenberg, +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 62.0% of the combined voting +power of our Class A and Class B Common Stock. As a +result, Robert Greenberg is a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and we +are considered a “Controlled Company” under the NYSE +Rules and are thereby exempt from certain listing requirements +and regulations as set forth in the NYSE Rules. Michael +Greenberg, who is our President, and Jeffrey Greenberg, both of +whom are members of our Board of Directors, are each +beneficiaries of the Greenberg Family Trust, which influences +the election of Robert Greenberg, Michael Greenberg and Jeffrey +Greenberg to our Board of Directors. +Shares of our Class A Common Stock issuable upon conversion +of shares of Class B Common Stock held by the Greenberg +Family Trust and Michael Greenberg are subject to certain +registration rights. We entered into a registration rights +agreement with the Greenberg Family Trust and Michael Greenberg +pursuant to which we agreed that we will, on up to two separate +occasions per year, register up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of our +initial public offering of Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. We also agreed that, if we cause a registration +statement to be filed with the SEC, each such stockholder shall +have the right to include in such registration statement up to +one-third of the shares of our Class A Common Stock +issuable upon conversion of their shares of Class B Common +Stock beneficially owned as of our initial public offering of +Class A Common Stock provided, among other conditions, that +the underwriters of any such offering have the right to limit +the number of shares included in such registration. All expenses +of such registrations shall be at our expense. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel, +which opened in Manhattan Beach, California in November 2005. +Michael Greenberg, David Weinberg, who is our Chief Operating +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2007, we paid approximately $175,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are +the children of Robert Greenberg and also the siblings of +Michael Greenberg, are non-executive employees of Skechers, and +they earned total compensation of $746,843, $793,105 and +$772,900, respectively, in 2007. Jeffrey Greenberg was also a +member of our Board of Directors in 2007, but did not earn any +additional compensation for services provided as a director. +25 +Table of Contents +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING +Stockholder proposals intended to be presented at our next +Annual Meeting of Stockholders to be held in 2009 must be +received at our principal executive offices no later than +January 1, 2009 to be considered for inclusion in the proxy +statement and form of proxy relating to that meeting. Proposals +must comply with the proxy rules relating to stockholder +proposals, in particular +Rule 14a-8 +under the Exchange Act, to be included in our proxy materials. +Stockholders who wish to submit a proposal for consideration at +our 2009 Annual Meeting of Stockholders, but who do not wish to +submit a proposal for inclusion in our proxy statement, must, in +accordance with our bylaws, deliver a copy of their proposal no +later than the close of business on the 60th day nor earlier +than the close of business on the 90th day in advance of such +meeting. In either case, proposals should be delivered to +Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan +Beach, California 90266, Attention: Michael Greenberg, +President. To avoid controversy and establish timely receipt by +our company, it is suggested that stockholders send their +proposals by certified mail, return receipt requested. +STOCKHOLDER +COMMUNICATION WITH THE BOARD OF DIRECTORS +Stockholders and other interested parties who wish to contact +our Presiding Independent Director, Morton D. Erlich, or any of +our other directors either individually or as a group may do so +by writing to them c/o Philip Paccione, Corporate Secretary, +Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan +Beach, California 90266. Each writing interested party should +specify whether the communication is directed to our entire +Board of Directors, to only the non-management directors or to a +particular director. Our personnel will review the +communications and screen improper and irrelevant communications +such as solicitations. +OTHER +BUSINESS +Our Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this proxy statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2008 +Manhattan Beach, California +26 +Table of Contents +APPENDIX +A +SKECHERS +U.S.A., INC. +AUDIT COMMITTEE CHARTER +Purpose: +The purpose of the Audit Committee of the Board of Directors is +to assist the Board in fulfilling its responsibility for +oversight and evaluation of (1) the quality and integrity +of the Company’s financial statements, (2) the +Company’s compliance with legal and regulatory +requirements, (3) the independent auditor’s +qualifications and independence, and (4) the performance of +the Company’s internal audit function and independent +auditors, and such other duties as directed by the Board. The +Audit Committee is expected to maintain free and open +communication (including separate private executive sessions at +least annually) with the independent auditors, the internal +auditors and the management of the Company. In discharging this +oversight role, the Audit Committee is empowered to investigate +any matter brought to its attention, with full power to retain +external auditors, outside counsel or other experts for this +purpose. The Audit Committee shall review this Charter +periodically and recommend any proposed changes to the Board for +approval. +Audit +Committee Composition and Meetings: +The Audit Committee shall be comprised of three or more +directors as determined by the Board, each of whom shall satisfy +the independence requirements of the New York Stock Exchange and +Section 10A of the Securities Exchange Act of 1934, as +amended by the Sarbanes-Oxley Act of 2002, and the rules +promulgated thereunder. Each member of the Audit Committee shall +be financially literate, as determined by the Board in +accordance with the New York Stock Exchange Rules. At least one +member of the Audit Committee shall (i) qualify as a +“financial expert” within the meaning of the rules of +the Securities and Exchange Commission and (ii) have +“accounting or related financial management expertise” +within the meaning of the rules of the New York Stock Exchange. +Audit Committee members shall not simultaneously serve on the +audit committees of more than three public companies. +Directors’ fees (including fees for attendance at meetings +of committees of the Board) are the only compensation that an +Audit Committee member may receive from the Company. +Audit Committee members shall be appointed by the Board. If an +Audit Committee Chair is not designated or present, the members +of the Audit Committee may, subject to the provisions of the +preceding paragraph, designate a Chair by majority vote of the +Audit Committee membership. +The Audit Committee shall meet at least four times annually (in +the absence of unusual circumstances), or more frequently as +circumstances dictate. The Audit Committee Chair shall approve +an agenda in advance of each meeting. The Audit Committee shall +report its activities to the Board of Directors on a regular +basis and make such recommendations as the Audit Committee may +deem necessary or appropriate. +Audit +Committee Responsibilities and Duties: +(1) The Audit Committee is directly responsible for the +appointment, compensation and oversight of the work of the +independent auditors, and any registered public accounting firm, +engaged by the Company (including resolution of disagreements +between management and the auditors regarding financial +reporting) for the purpose of preparing or issuing an audit +report or performing other audit, review or attest services for +the Company or related work. The independent auditors, and each +such registered public accounting firm, shall report directly to +the Audit Committee. The Audit Committee shall have the sole +authority to appoint or replace the independent auditors that +audit the financial statements of the Company. The Audit +Committee shall have the ultimate authority and responsibility +to evaluate the qualifications, performance and independence of +the independent auditors. In the process, the Audit Committee +will (i) discuss and consider the auditors’ written +affirmation that the auditors are in fact independent, +(ii) discuss the nature and rigor of the audit process, +receive and review all reports and (iii) provide to the +independent auditors full access to the Audit Committee (and the +Board) to report on any and all appropriate matters. The +evaluation of the independent auditors shall include a review +and evaluation of the lead partner of the independent auditors, +taking into account the opinions of management and the +Company’s internal auditors. The Audit Committee will +assure the regular rotation of the independent auditors’ +lead and concurring audit partners +A-1 +Table of Contents +serving on the Company’s audit engagement team, as well as +the rotation of any other persons on the Company’s audit +engagement team who fall within the definition of “audit +partner,” as defined by applicable SEC regulation, in each +case as required by applicable law. In order to assure +continuing auditor independence, the Audit Committee will +consider whether it is appropriate to adopt a policy of rotating +the Company’s independent auditing firm itself on a regular +basis. The Audit Committee shall present its conclusions with +respect to the independent auditors to the full Board of +Directors. +(2) The Audit Committee shall obtain and review a report +from the independent auditors at least annually regarding +(i) the independent auditors’ internal quality-control +procedures, (ii) any material issues raised by the most +recent quality-control review, or peer review, of the firm, or +by any inquiry or investigation by governmental or professional +authorities within the preceding five years respecting one or +more independent audits carried out by the firm, (iii) any +steps taken to deal with any such issues, and (iv) all +relationships between the independent auditors and the Company. +(3) The Audit Committee shall review the independent +auditors’ audit plan - discuss scope, staffing, budget, +locations, reliance upon management, and internal audit and +general audit approach. Approve the fees and other significant +compensation to be paid to the independent auditors as well as +approve all non-audit engagements with the independent auditors. +The Audit Committee shall consult with management but shall not +delegate these responsibilities, except that pre-approvals of +non-audit services may be delegated to a single member of the +Audit Committee. +(4) The Audit Committee shall review the Company’s +annual audited financial statements prior to filing or +distribution, including the Company’s disclosures under +“Management’s Discussion and Analysis of Financial +Condition and Results of Operations.” Review should include +discussion with management and independent auditors of +significant issues regarding accounting principles, practices +and judgments. The Audit Committee shall advise management and +the independent auditors that they are expected to provide to +the Audit Committee a timely analysis of significant financial +reporting issues and practices; and obtain from the independent +auditors assurance that the audit was conducted in a manner +consistent with Section 10A of the Securities Exchange Act +of 1934, as amended, which sets forth certain procedures to be +followed in any audit of financial statements required under the +Securities Exchange Act of 1934, as amended. +(5) The Audit Committee shall review reports from the +independent auditors on (i) the Company’s critical +accounting policies and practices, (ii) all alternative +treatments of financial information permitted under GAAP that +have been discussed with management, the ramifications of the +use of such treatments and the treatment preferred by the +independent auditors, and (iii) all other material written +communications between the auditing firm and management. +(6) The Audit Committee shall review with financial +management and the independent auditors the Company’s +quarterly financial results prior to the release of earnings +and/or the Company’s quarterly financial statements prior +to filing or distribution including the Company’s +disclosures under “Management’s Discussion and +Analysis of Financial Condition and Results of Operations.” +The Audit Committee shall review and discuss with financial +management earnings press releases (paying particular attention +to any use of “pro forma,” or “adjusted” +non-GAAP, information), and discuss financial information and +earnings guidance, if any, provided to analysts and rating +agencies. The Audit Committee shall discuss any significant +changes to the Company’s accounting principles and any +items required to be communicated by the independent auditors in +accordance with Statement of Auditing Standards 61, as amended. +(7) The Audit Committee shall, in consultation with +management and the independent auditors, consider the adequacy +and effectiveness of the Company’s financial reporting +processes and controls. The Audit Committee shall discuss +policies with respect to risk assessment and risk management, +including discussion of significant financial risk exposures and +the steps management has taken to monitor, control and report +such exposures. +(8) The Audit Committee shall review with the independent +auditors significant findings prepared by the independent +auditors together with any audit problems or difficulties and +management’s responses. The review shall include the +resolution of any significant problems or difficulties and +management’s responses, including with respect to: +(1) any restrictions on the scope of the independent +auditor’s activities or access to requested +A-2 +Table of Contents +information; (2) any significant disagreements with +management; (3) any accounting adjustments that were noted +or proposed by the auditor but were “passed”; +(4) any communications between the audit team and the audit +firm’s national office respecting auditing or accounting +issues presented by the engagement; and (5) any +“management” or “internal controls” letter +issued or proposed to be issued.. The review shall include the +resolution of any significant problems and material disputes +between management and the independent auditors and a discussion +with the independent auditors out of management’s presence +of the quality of the Company’s accounting principles as +applied in its financial reporting, including any significant +changes in the Company’s selection or application of +accounting principles, the clarity of the Company’s +financial disclosures and a discussion of other significant +decisions made by management in preparing the financial +disclosures. +(9) The Audit Committee shall obtain and review disclosures +made by the Company’s principal executive officer and +principal financial officer regarding compliance with their +certification obligations as required under the Sarbanes-Oxley +Act of 2002 and the rules promulgated thereunder, including the +Company’s disclosure controls and procedures and internal +controls for financial reporting and evaluations thereof. +(10) The Audit Committee shall review with the +Company’s General Counsel legal matters that may have a +material impact on the financial statements, the Company’s +compliance policies and any material reports or inquiries +received from regulators or governmental agencies. +(11) The Audit Committee shall review the effect of +regulatory and accounting initiatives, as well as off-balance +sheet structures, on the financial statements of the Company. +(12) The Audit Committee shall meet at least annually and +separately with management, with internal auditors (or other +personnel responsible for the internal audit function) and with +independent auditors. +(13) With respect to the Company’s internal audit +function, the Audit Committee shall: +• +review the appointment, retention and/or replacement of the +director of the internal audit department (or other person, +persons or outside firm responsible for the Company’s +internal audit function) and ensure the independence of the +director of the internal audit department, or, at the discretion +of the Board, select and contract with an outside accounting +firm to serve as the Company’s internal auditors and +perform the Company’s internal audit function; +• +approve, and periodically review and revise as necessary, an +Internal Audit Charter, which describes the mission, scope of +work, independence, authority, and responsibilities conferred by +the Audit Committee on the Company’s Internal Audit +function; +• +advise the director of the internal audit department (or other +person, persons or outside firm responsible for the +Company’s internal audit function) that he or she is +expected to provide to the Audit Committee summaries of and, as +appropriate, the significant reports to management prepared by +the internal audit department (or other person, persons or +outside firm responsible for the Company’s internal audit +function) and management’s responses thereto and review +such reports; and +• +discuss with the Company’s independent auditors +responsibilities of the internal audit department (or such other +person, persons or outside firm responsible for the +Company’s internal audit function), the budget and staffing +relative to the Company’s internal audit function and any +recommended changes in the planned scope of the Company’s +internal audit. +(14) The Audit Committee shall receive periodic reports +from the Company’s Disclosure Committee, which is +responsible for assisting the Company’s Chief Executive +Officer and Chief Financial Officer in fulfilling their +responsibility for oversight of the accuracy and timeliness of +the disclosures made by the Company and reviewing material +issues relating thereto. +(15) The Audit Committee shall receive periodic reports +from the independent auditors regarding the auditors’ +independence, discuss such reports with the auditors, and, if so +determined by the Audit Committee, take appropriate action to +satisfy itself of the independence of the auditors. +A-3 +Table of Contents +(16) The Audit Committee shall review the Company’s +policies and practices related to compliance with the law, the +Company’s Code of Ethical Conduct, and conflicts of +interest, to be satisfied that such policies are adequate and +adhered to by the Company and its executive officers and +directors. +(17) The Audit Committee shall review (i) at least +annually a summary of directors’ and officers’ related +party transactions and potential conflicts of interest and the +Company’s policies relating to the avoidance of conflicts +of interest, (ii) past and proposed transactions between +the Company, on the one hand, and any of its directors or +executive officers, on the other hand, and (iii) policies +and procedures as well as audit results associated with +directors’ and officers’ expense accounts and +perquisites, including the use of corporate assets. The Audit +Committee shall consider the results of any review of any of the +foregoing by the Company’s independent auditors. +(18) The Audit Committee shall maintain and review annually +procedures for (i) the receipt, retention and treatment of +complaints received by the Committee regarding accounting, +internal accounting controls or auditing matters, and +(ii) the confidential, anonymous submission by employees of +the Company of concerns regarding questionable accounting or +auditing matters. +(19) The Audit Committee shall set clear hiring policies +for employees or former employees of the independent auditors. +(20) The Audit Committee shall annually prepare an audit +committee report to shareholders as required by the Securities +and Exchange Commission. The report should be included in the +Company’s annual proxy statement. +(21) The Audit Committee shall annually conduct a +self-evaluation of the Audit Committee. +(22) The Audit Committee shall have the authority to engage +independent counsel and other advisers as it determines +necessary to carry out its duties. +(23) The Audit Committee shall provide for appropriate +funding, as determined by the Audit Committee, in its capacity +as a committee of the Board, for payment of: +• +compensation to any registered public accounting firm engaged +for the purpose of preparing or issuing an audit report or +performing other audit, review or attest services for the +Company; +• +compensation of any advisors employed by the Audit Committee to +assist the Audit Committee in carrying out its duties; and +• +ordinary administrative expenses of the Audit Committee that are +necessary or appropriate in carrying out its duties. +While the Audit Committee has the responsibilities and powers +set forth in this Charter, the Audit Committee’s function +is one of oversight. The Company’s management is +responsible for preparing the Company’s financial +statements and, along with the internal auditors, for developing +and maintaining systems of internal accounting and financial +controls. The independent auditors will assist the Audit +Committee and the Board in fulfilling their responsibilities for +the review of these financial statements and internal controls. +The Audit Committee expects the independent auditors to call its +attention to any accounting, auditing, internal accounting +control, regulatory or other related matters that they believe +warrant consideration or action. The Audit Committee recognizes +that the financial management and the internal and independent +auditors have more knowledge and information about the Company +than do Audit Committee members. Consequently, in carrying out +its oversight responsibilities, the Audit Committee does not +provide any expert or special assurance as to the Company’s +financial statements or internal controls or any professional +certification as to the independent auditors’ work. +A-4 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting to Be Held on May 30, 2008 +The Notice of Annual Meeting, Proxy Statement, 2007 Annual Report and other SEC filings are +available at the investor relations page of our corporate information website at +http://www.skx.com/investor.html . +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE NOMINEES LISTED IN PROPOSAL +1. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK +YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. x +1. +Election of Directors +FOR ALL THE NOMINEES +WITHHOLD AUTHORITY +FOR ALL EXCEPT +NOMINEES: +FOR ALL +NOMINEES +(See instructions +below) +o +o +o +¡ Geyer Kosinski +¡ Richard Siskind +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL +EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: l +Each of the persons +named as proxies +herein are +authorized, in such +person’s +discretion, to vote +upon such other +matters as may +properly come +before the Annual +Meeting of +Stockholders, or +any adjournments +thereof. +To change the +address on your +account, please +fill in the box at +right and indicate +your new address in +the address space +above. Please note +that changes to the +registered name(s) +on the account may +not be submitted +via this +method. o +Please +check here if you plan to attend the meeting. o +Signature +of +Stockholder: +Date: +Signature +of +Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. +When shares are held jointly, each holder should sign. When signing +as executor, administrator, attorney, trustee or guardian, please +give full title as such. If the signer is a corporation, please +sign full corporate name by duly authorized officer, giving full +title as such. If signer is a partnership, please sign in +partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 30, 2008 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, +hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, +each dated April 30, 2008, and hereby appoints Michael Greenberg and David Weinberg and each of them, +with full power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the +undersigned, and hereby authorizes each of them to represent and to vote all of the shares which the undersigned +is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., Inc. to be held at the Shade Hotel +located at 1221 North Valley, Manhattan Beach, California 90266, on Friday, May 30, 2008, at 10:00 a.m. Pacific time, +and at any adjournments thereof, upon the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy +Statement, receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to the annual +meeting section of the investor relations page of our corporate +information website at www.skx.com . +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER +MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950124-08-002128/proxy_rpt.txt b/raw/proxies/0001065837/0000950124-08-002128/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..370b9fee0524ef7c91238058e9d980ae3e15bb7e --- /dev/null +++ b/raw/proxies/0001065837/0000950124-08-002128/proxy_rpt.txt @@ -0,0 +1,95 @@ +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2007, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of March 31, 2008, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust, collectively, beneficially own 99.6% of +our Class B Common Stock and +24 +Table of Contents +approximately 79.5% of the combined voting power of our +Class A and Class B Common Stock. Robert Greenberg, +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 62.0% of the combined voting +power of our Class A and Class B Common Stock. As a +result, Robert Greenberg is a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and we +are considered a “Controlled Company” under the NYSE +Rules and are thereby exempt from certain listing requirements +and regulations as set forth in the NYSE Rules. Michael +Greenberg, who is our President, and Jeffrey Greenberg, both of +whom are members of our Board of Directors, are each +beneficiaries of the Greenberg Family Trust, which influences +the election of Robert Greenberg, Michael Greenberg and Jeffrey +Greenberg to our Board of Directors. +Shares of our Class A Common Stock issuable upon conversion +of shares of Class B Common Stock held by the Greenberg +Family Trust and Michael Greenberg are subject to certain +registration rights. We entered into a registration rights +agreement with the Greenberg Family Trust and Michael Greenberg +pursuant to which we agreed that we will, on up to two separate +occasions per year, register up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of our +initial public offering of Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. We also agreed that, if we cause a registration +statement to be filed with the SEC, each such stockholder shall +have the right to include in such registration statement up to +one-third of the shares of our Class A Common Stock +issuable upon conversion of their shares of Class B Common +Stock beneficially owned as of our initial public offering of +Class A Common Stock provided, among other conditions, that +the underwriters of any such offering have the right to limit +the number of shares included in such registration. All expenses +of such registrations shall be at our expense. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel, +which opened in Manhattan Beach, California in November 2005. +Michael Greenberg, David Weinberg, who is our Chief Operating +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2007, we paid approximately $175,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are +the children of Robert Greenberg and also the siblings of +Michael Greenberg, are non-executive employees of Skechers, and +they earned total compensation of $746,843, $793,105 and +$772,900, respectively, in 2007. Jeffrey Greenberg was also a +member of our Board of Directors in 2007, but did not earn any +additional compensation for services provided as a director. +25 +Table of Contents +NOMINATIONS \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950129-05-004239/proxy.txt b/raw/proxies/0001065837/0000950129-05-004239/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0755e818399bdf2ebbee28841cdaf838790d1c9f --- /dev/null +++ b/raw/proxies/0001065837/0000950129-05-004239/proxy.txt @@ -0,0 +1,1755 @@ +DEF 14A +1 +v07749ddef14a.htm +SKECHERS U.S.A., INC. +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +o +Fee not required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +PROPOSAL NO. 1 +PROPOSAL NO. 2 +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +CORPORATE GOVERNANCE AND BOARD MATTERS +EXECUTIVE COMPENSATION +BOARD REPORT ON EXECUTIVE COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT AUDITORS +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +OTHER BUSINESS +APPENDIX A +Table of Contents +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual +Meeting”) of Skechers U.S.A., Inc., a Delaware corporation (the “Company”), to be held at The Ayres +Hotel located at 14400 Hindry Avenue, Hawthorne, California 90250 on May 26, 2005, at 10:00 a.m., +Pacific Time. +The Annual Meeting of the Stockholders of the Company is being held for the following +purposes: +1. +To elect two members to the Board of Directors to serve for a three-year term as Class III +Directors; +2. +To ratify the appointment of KPMG LLP as the independent accountants of the Company for +the year ending December 31, 2005; and +3. +To transact such other business as may properly come before the meeting or any +adjournments thereof. +The Board of Directors recommends a vote “for” each of the nominees and for each proposal +listed above. +The Board of Directors has fixed the close of business on March 31, 2005 as the record date +for determining those stockholders who will be entitled to vote at the Annual Meeting. +The Company’s Annual Report to Stockholders for the year ended December 31, 2004 is enclosed +with this notice. The following proxy statement and enclosed proxy card is being sent to each +stockholder as of the record date. You are cordially invited to attend the Annual Meeting, but if +you do not expect to attend, or if you plan to attend, but desire the proxy holders to vote your +shares, please date and sign your proxy card and return it in the enclosed postage paid envelope. +The giving of this proxy card will not affect your right to vote in person in the event you find it +convenient to attend. Please return the proxy card promptly to avoid the expense of additional +proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 29, 2005 +Manhattan Beach, California +Table of Contents +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be Held +May 26, 2005, at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., Inc. (the “Company” or +“Skechers”), a Delaware corporation, in connection with the Annual Meeting of Stockholders of the +Company to be held on May 26, 2005 at 10:00 a.m. Pacific Time at The Ayres Hotel located at 14400 +Hindry Avenue, Hawthorne, California 90250 (the “Annual Meeting”). The approximate mailing date for +this proxy statement and the enclosed proxy is April 29, 2005. If a proxy in the accompanying form +is duly executed and returned, the shares represented by the proxy will be voted as directed. If no +direction is given, the shares represented by the proxy will be voted for the election of the +nominees for director named herein and for the ratification of the appointment of KPMG LLP as the +Company’s independent accountants for the year ending December 31, 2005. Any proxy given may be +revoked at any time prior to its exercise by notifying the Corporate Secretary of the Company in +writing of such revocation, by duly executing and delivering another proxy bearing a later date, or +by attending and voting in person at the Annual Meeting. The Company’s principal executive office +is located at 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. +The cost of this solicitation of proxies will be borne by the Company. Solicitations will be +made by mail. In addition, the officers and regularly engaged employees of the Company may, in a +limited number of instances, solicit proxies personally or by telephone. The Company will reimburse +banks, brokerage firms, other custodians, nominees and fiduciaries for reasonable expenses incurred +in sending proxy materials to beneficial owners of common stock of the Company. +Holders of Class A Common Stock and Class B Common Stock of record at the close of business on +March 31, 2005 will be entitled to vote at the Annual Meeting. There were 22,528,634 shares of +Class A Common Stock and 17,011,189 shares of Class B Common Stock outstanding at that date. Each +share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is +entitled to ten votes, and the presence in person or by proxy of holders of a majority of the +outstanding shares of Class A Common Stock and Class B Common Stock is necessary to constitute a +quorum for the Annual Meeting. The affirmative vote of a plurality of all of the votes cast at a +meeting at which a quorum is present is necessary for the election of each of the nominees for +director. For purposes of the election of directors, abstentions and broker non-votes will not be +counted as votes cast and will have no effect on the result of the vote, although they will count +toward the presence of a quorum. The affirmative vote of a majority of all votes cast at a meeting +at which a quorum is present is necessary for the ratification of the appointment of KPMG LLP as +the Company’s independent accountants. For purposes of the vote on this matter, abstentions and +broker non-votes will not be counted as votes cast and will have no effect on the result of the +vote although they will count toward the presence of a quorum. +Table of Contents +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Board of Directors is divided into three classes, with each class serving a +three-year term and thereafter until their successors are duly elected and qualified or until +death, resignation or removal. One class of directors is elected annually at the Annual Meeting of +Stockholders. The Company’s Bylaws currently provide for a variable Board of Directors with a range +of between five and nine members. The Company currently has seven members on its Board of +Directors. The Company’s Bylaws give the Board of Directors the authority to establish, increase or +decrease the number of directors. +Unless otherwise directed by stockholders within the limits set forth in the Bylaws, the proxy +holders will vote all shares represented by proxies held by them for the election of Geyer Kosinski +and Richard Siskind who are currently members of the Company’s Board of Directors. The Company has +been advised by Geyer Kosinski and Richard Siskind of their availability and willingness to serve +if elected. In the event that Geyer Kosinski and/or Richard Siskind becomes unavailable or unable +to serve as a member of the Company’s Board of Directors prior to the voting, the proxy holders +will refrain from voting for them or will vote for a substitute nominee in the exercise of their +best judgment. +The Board of Directors recommends a vote “for” these director-nominees. +PROPOSAL NO. 2 +RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS +For the 2004 fiscal year, KPMG LLP provided audit services that included examination of the +Company’s annual consolidated financial statements. Upon the recommendation of the Audit Committee, +the Company’s Board of Directors has selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, 2005. The stockholders are being +requested to ratify such selection at the Annual Meeting. A representative of KPMG LLP will attend +the Annual Meeting to make any statements he or she may desire and to respond to appropriate +stockholder questions. +The Board of Directors recommends a vote to ratify the appointment of KPMG LLP. +2 +Table of Contents +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +Information Concerning Director Nominees +Class and Year +in Which Term +Name +Age +Will Expire +Position +Geyer Kosinski (1) +39 +Class III (2008) +Director +Richard Siskind (1) +59 +Class III (2008) +Director +(1) +Member of the Audit Committee +Geyer Kosinski has served as a member of the Board of Directors since November 2001. +Since July 2004, Mr. Kosinski has been the Chairman and Chief Executive Officer of Media Talent +Group, a talent management and production company that produces feature films and television +programming and manages over 50 actors, writers and directors. From April 1997 to June 2004, Mr. +Kosinski was a Managing Partner and co-owner of Industry Entertainment, a talent management and +production company that produces feature films and television programming and manages over 100 +actors, writers and directors. From 1992 to 1997, Mr. Kosinski was an agent at The William Morris +Agency, where he represented talent including George Clooney, Robert Downey, Jr., Kevin Spacey, +Angelina Jolie and Billy Bob Thornton, and packaged over 20 motion pictures. +Richard Siskind has served as a member of the Board of Directors of the Company since June +1999. Since November 2002, Mr. Siskind has served as a member of the Board of Directors of Magic +Lantern Group, Inc. (AMEX: GML), which changed its name from JKC Group, Inc. From May 1998 to +November 2002, Mr. Siskind served as President, Chief Executive Officer and a member of the Board +of Directors of Stage II Apparel Corp. (AMEX:SA), which changed its name to JKC Group, Inc. +(AMEX:JKC) in April 2002. In 1991, Mr. Siskind founded R. Siskind & Company, a business that +purchases brand name men’s and women’s apparel and accessories and redistributes those items to +off-price retailers, and he is its sole shareholder, Chief Executive Officer, President and sole +member of its Board of Directors. +Directors Not Standing for Election +The members of the Board of Directors who are not standing for election at this year’s Annual +Meeting are set forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +65 +Class I (2006) +Chairman of the Board +and Chief Executive Officer +Michael Greenberg +42 +Class II (2007) +President and Director +David Weinberg +54 +Class II (2007) +Executive Vice President; +Chief Financial Officer and Director +Jeffrey Greenberg +37 +Class II (2007) +Vice President of Active Electronic Media +and Director +Frederick Schneider (1) +48 +Class I (2006) +Director +(1) +Member of the Audit Committee +Robert Greenberg has served as the Chairman of the Board and Chief Executive Officer of +the Company since October 1993. From 1979 to 1992, Mr. Greenberg was the Chairman of the Board and +President of L.A. Gear. +Michael Greenberg has served as the President and a member of the Board of Directors of the +Company since its inception in 1992, and from June 1992 to October 1993, he was Chairman of the +Board. From 1989 to 1992, Mr. Greenberg was the National Sales Manager of L.A. Gear, Inc. (“L.A. +Gear”), an athletic and casual footwear +3 +Table of Contents +and apparel company. Previously, from 1986 to 1989, he was the Regional Sales Manager of L.A. +Gear for the West Coast, and from 1984 to 1986, he was an account representative for the West Coast +at L.A. Gear. +David Weinberg has served as Chief Financial Officer of the Company since October 1993 and +Executive Vice President and a member of the Board of Directors since July 1998. From June 1989 to +September 1992, Mr. Weinberg served as Vice President, Credit and Collections at L.A. Gear. +Jeffrey Greenberg has served as a member of the Board of Directors of the Company since +September 2000 and Vice President of Active Electronic Media of the Company since January 1998. +Previously, Mr. Greenberg served as Chief Operating Officer, Secretary and a member of the Board of +Directors of the Company from June 1992 to July 1998 and as Chief Executive Officer from June 1992 +to October 1993. +Frederick Schneider has served as a member of the Board of Directors since February 2004. Mr. +Schneider currently is an independent private equity investor and consultant. Since May 2000, he +has served as a Director and a member of the Audit Committee for Sport Chalet, Inc. (NASDAQ:SPCH). +From September 1994 to January 1998, he served as Chief Financial Officer and Principal of Leonard +Green & Partners, L.P., a merchant banking firm specializing in leveraged buyouts, where he played +a key role in various acquisitions as well as dealing with investors. From June 1978 to September +1994, he was with KPMG LLP, including as an Audit and Due Diligence Partner from June 1989 to +September 1994. +Executive Officers +The following table sets forth certain information with respect to the executive officers of +the Company who are not also directors. For information concerning Robert Greenberg, Michael +Greenberg and David Weinberg, see “ Directors Not Standing for Election ” above. +Name +Age +Position +Philip Paccione +43 +General Counsel; Executive Vice President, Business Affairs; and Corporate Secretary +Mark Nason +43 +Executive Vice President, Product Development +Philip Paccione has served as Executive Vice President, Business Affairs since February 2000, +Corporate Secretary since July 1998, and General Counsel of the Company since May 1998. Before +joining the Company and since June 1997, Mr. Paccione was an attorney at the law firm of Riordan & +McKinzie, in Los Angeles, and from May 1996 to June 1997 he was a sole practitioner of law. Mr. +Paccione also practiced law at the law firm of Gartner & Young from December 1994 to May 1996 and +at the law firm of Kelley, Drye & Warren from June 1991 to December 1994. +Mark Nason has served as Executive Vice President, Product Development of the Company since +March 2002. From January 1998 to March 2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served as our Director of Merchandising +and Retail Development. From January 1981 through November 1993, Mr. Nason was employed in various +capacities, including General Merchandising Manager, Director of Visual Merchandising and Buyer at +Track ’n Trail. +Robert Greenberg is the father of Michael Greenberg and Jeffrey Greenberg; other than the +foregoing, no family relationships exist between any of the directors or executive officers of the +Company. +Compensation of Directors +Non-Employee Directors . The Company pays its non-employee directors annual compensation of +$15,000 for serving on the Board of Directors, except for Frederick Schneider who is paid $25,000 +annually as a Board member and Audit Committee Chairman. In addition, non-employee directors +receive a fee of $1,000 for each board meeting attended. Non-employee directors attending any +committee meeting receive an additional fee of $750 for each committee meeting attended, unless the +committee meeting is held on the day of a meeting of the Board of Directors, in which case they +receive no additional fees for the committee meeting. Non-employee directors are also +4 +Table of Contents +reimbursed for reasonable costs and expenses incurred for attending any director or committee +meetings. Compensation, fees, and reimbursable costs and expenses are paid quarterly. Officers of +the Company who are members of the Board of Directors are not paid any directors’ compensation. +Non-employee directors are eligible to receive, from time to time, grants of options to purchase +shares of Class A Common Stock under the 1998 Stock Option, Deferred Stock and Restricted Stock +Plan as determined by the Board of Directors. During the fiscal year ended December 31, 2004, +options to purchase a total of 80,000 shares of the Company’s Class A Common Stock were granted to +non-employee directors as follows: +Name +Number of Shares +Exercise Price +Date of Grant +Geyer Kosinski +20,000 +$8.35 +2/5/04 +Frederick Schneider +40,000 +$8.35 +2/5/04 +Richard Siskind +20,000 +$8.35 +2/5/04 +Employee Directors . As of December 31, 2004, Robert Greenberg, Michael Greenberg and David +Weinberg were the only executive officers serving on the Board of Directors, and Jeffrey Greenberg +was the only non-executive employee serving on the Board of Directors. Employees of the Company +who are members of the Board of Directors are not paid any directors’ fees. Compensation of Robert +Greenberg, Michael Greenberg and David Weinberg for the fiscal year ended December 31, 2004 is set +forth under “ Executive Compensation .” Employee directors are eligible to receive, from time to +time, grants of options to purchase shares of Class A Common Stock under the 1998 Stock Option, +Deferred Stock and Restricted Stock Plan as determined by the Board of Directors. During the +fiscal year ended December 31, 2004, options to purchase a total of 50,000 shares of the Company’s +Class A Common Stock were granted to one employee director as set forth under “ Executive +Compensation—Options Granted in 2004 .” +CORPORATE GOVERNANCE AND BOARD MATTERS +Attendance of Directors at Board and Annual Meetings +The Board of Directors met three times in 2004. Each director attended all of the meetings, +except Geyer Kosinski who was unable to attend two of the meetings. The Company does not have a +policy requiring its directors to attend the Annual Meeting of Stockholders. In 2004, all but one +of the directors attended the Annual Meeting of Stockholders. +“Controlled Company” Exception to NYSE Rules +Under Section 303A of the New York Stock Exchange Listed Company Manual (the “NYSE Rules”), +the Company is considered a “Controlled Company” because Robert Greenberg, directly and indirectly, +owns 65.1% of the voting power in the Company (see “ Certain Relationships and Related +Transactions ”). As a Controlled Company, the Company is exempt from certain NYSE Rules, including +the requirements to maintain a Board of Directors with a majority of independent members and to +have a compensation committee and a nominating committee. The Company does not presently require +the Board of Directors to consist of a majority of independent directors, nor does the Company have +a compensation committee or nominating committee. +Director Independence +The Board of Directors has affirmatively determined, assuming the re-election of all of the +nominees for director at the Annual Meeting, that the Board will have three members who are +“independent” consistent with Section 303A.02 of the NYSE Rules. These directors are Geyer +Kosinski, Frederick Schneider and Richard Siskind. The Board of Directors made this affirmative +determination based on discussions with the directors and on its review of the directors’ responses +to a formal questionnaire regarding employment and compensation history; affiliations, family and +other relationships; and transactions with the Company, its subsidiaries and affiliates. The Board +considered relationships and transactions between each director or any member of his immediate +family and the Company and its subsidiaries and affiliates, including those reported under “ Certain +Relationships and Related Transactions ” below. The purpose of the Board’s review with respect to +each director was to determine whether any such relationships or transactions were inconsistent +with a determination that the director is independent under the NYSE Rules. +5 +Table of Contents +Audit Committee +The Audit Committee is responsible for overseeing (1) the quality and integrity of the +Company’s financial statements, (2) the appointment, compensation, independence and performance of +the independent auditors, (3) the Company’s compliance with legal and regulatory requirements, and +(4) the performance of internal audit and controls function. The Audit Committee is comprised of +Chairman Frederick Schneider, Geyer Kosinski and Richard Siskind, each of whom is “independent” +under Sections 303A.06 and 303A.07 of the NYSE Rules and Section 10A(m)(3) of the Exchange Act. +The Audit Committee met four times during 2004. Each Audit Committee member attended all of the +meetings, except Geyer Kosinski who was unable to attend two of the meetings. +The Audit Committee currently acts under a written Audit Committee Charter adopted by the +Board of Directors as of April 29, 2004. A copy of the current Audit Committee Charter, which +complies with the NYSE Rules and is subject to change from time to time by the Company’s Board of +Directors, is attached as Appendix A to this Proxy Statement. The Audit Committee Charter +is posted in the corporate governance section of the investor relations page of our website located +at www.skechers.com . +Audit Committee Financial Expert +The Board of Directors has determined that Frederick Schneider, who serves as the Chairman on +the Audit Committee, is an “audit committee financial expert” as that term is defined in Item +401(h) of Regulation S-K. +Director Nominations +As a Controlled Company under the NYSE Rules, the Company is not required to and currently +does not have a nominating committee. The Chairman of the Board, in consultation with the +President and Chief Financial Officer, performs the functions of a nominating committee, including +the identification and evaluation of director candidates. Nominees for directors are identified +and recommended by the Chairman of the Board and presented to the full Board of Directors. +Qualifications and skills that the Board of Directors require in directors are set forth in the +Company’s Corporate Governance Guidelines, which was adopted by the Board of Directors as of April +28, 2004 and is posted in the corporate governance section of the investor relations page of our +website located at www.skechers.com by the time of the Annual Meeting of Stockholders. The Board +seeks members from diverse professional and personal backgrounds who combine a broad spectrum of +experience and expertise with a reputation for integrity. Factors considered in evaluating a +director candidate include the evaluation of diversity, age, skills and experience in the context +of the needs of the Board. Additionally, directors should not serve on more than two boards of +public companies in addition to the Board. The Board of Directors believes that the functions of +nominating committee are more than adequately performed by the Chairman of the Board and the Board +of Directors as a whole. +Pursuant to the Company’s Bylaws, a stockholder may nominate a person for election as a +director at an annual meeting of stockholders only if written notice of such stockholder’s intent +to make such nomination has been given to the Secretary of the Company not later than ninety (90) +days in advance of the meeting or, if later, the seventh day following the first public +announcement of the date of the meeting. Each notice is required to set forth certain information, +including (1) the name and address of the stockholder and of the person or persons to be nominated, +(2) a description of all arrangements or understandings between the stockholder and each nominee +pursuant to which the nomination is to be made, (3) information regarding each nominee as would be +required to be included in a proxy statement filed pursuant to the proxy rules of the United States +Securities and Exchange Commission (the “SEC”) had the nominee been nominated, or intended to be +nominated, by the Board, and (4) the consent of each nominee to serve as a director if so elected. +The stockholder must also promptly provide any other information reasonably requested by the +Company. +Executive Sessions +Non-management directors meet regularly in executive sessions without the Company’s +management. Non-management directors are those directors who are not executive officers of the +Company and include directors, if any, who are not independent by virtue of the existence of a +material relationship with the Company. Executive sessions are led by a Presiding Independent +Director. An executive session is held in conjunction with each +6 +Table of Contents +regularly scheduled Board meeting and other sessions may be called by the Presiding +Independent Director in his own discretion or at the request of the Board of Directors. Frederick +Schneider is currently designated as the Presiding Independent Director. +Compensation Committee Interlocks and Insider Participation +The Company, as a Controlled Company under the NYSE Rules, is not required to and currently +does not have a compensation committee. Robert Greenberg, the Company’s Chief Executive Officer, +Michael Greenberg, the Company’s President, and David Weinberg, the Company’s Executive Vice +President and Chief Financial Officer, reviewed and discussed the compensation of the executive +officers for 2004. See “ Certain Relationships and Related Transactions ” regarding arrangements +between the Company and the Greenberg Family Trust, of which Robert Greenberg is a trustee, and +Michael Greenberg. None of the executive officers of the Company serves on the board of directors +or on the compensation committee of any other entity, which has officers who serve on the Company’s +Board of Directors. +Code of Business Conduct and Ethics +The Code of Business Conduct and Ethics, which applies to all directors, officers and +employees, was adopted by the Board of Directors as of April 28, 2004. The purpose of the Code is +to promote honest and ethical conduct. The Code is posted in the corporate governance section of +the investor relations page of our website located at www.skechers.com , and is available in print, +without charge, upon written request to the Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. The Company intends to promptly post any amendments +to or waivers of the Code on the Company’s website. +7 +Table of Contents +EXECUTIVE COMPENSATION +The following table sets forth information concerning the annual and long-term compensation +earned by the Company’s Chief Executive Officer and each of the other named executive officers +whose annual salary and bonus during 2002, 2003 and 2004 exceeded $100,000 (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Awards +Other Annual +Securities +All Other +Compensation +Underlying +Compensation +Name and Principal Position +Year +Salary($) +Bonus($) +($) +Options(#) +($) +Robert Greenberg +2004 +0 +250,000 +—(1) +— +10,786(3) +Chairman of the Board; +2003 +986,538 +— +—(1) +— +11,157(3) +Chief Executive Officer +2002 +500,102 +— +8,603(2) +— +10,192(3) +Michael Greenberg +2004 +884,615 +50,000 +15,491(2) +— +20,913(4) +President +2003 +745,961 +— +19,774(2) +— +21,296(4) +2002 +584,616 +108,122 +16,703(2) +50,000 +19,273(4) +David Weinberg +2004 +744,154 +50,000 +23,611(2) +50,000 +16,410(5) +Executive Vice President; +2003 +674,307 +— +23,611(2) +— +17,109(5) +Chief Financial Officer +2002 +494,231 +108,122 +24,210(2) +50,000 +15,848(5) +Mark Nason(6) +2004 +696,154 +40,000 +— +100,000 +10,395(7) +Executive Vice President, +2003 +645,961 +— +— +— +14,960(7) +Product Development +2002 +493,077 +86,518 +— +50,000 +13,687(7) +Philip Paccione +2004 +311,539 +20,000 +— +10,000 +19,503(8) +General Counsel; Executive +2003 +307,709 +— +— +— +9,806(8) +Vice President, Business Affairs; +2002 +248,039 +21,706 +— +25,000 +8,764(8) +Corporate Secretary +(1) +Excludes the purchase of a car in March 2003 for $66,594 by the Company that is owned by the Company and used by Mr. Greenberg. +(2) +Represents the amount of an automobile lease for the benefit of each executive officer. With respect to David Weinberg, +excludes rental payments of $32,000 and $48,000 in 2003 and 2002, respectively, made by the Company directly to landlord +regarding property that was used primarily for corporate purposes but was leased under the individual’s name. +(3) +Represents health and life insurance payments. +(4) +Represents health and life insurance payments of $14,763, $15,296 and $13,773, and contributions of $6,150, $6,000 and $5,500 +by the Company under its 401(k) Plan for 2004, 2003 and 2002, respectively. +(5) +Represents health and life insurance payments of $10,260, $11,109 and $9,848, and contributions of $6,150, $6,000 and $6,000 +by the Company under its 401(k) Plan for 2004, 2003 and 2002, respectively. +(6) +Mr. Nason began serving as an executive officer of the Company in March 2002. +(7) +Represents health and life insurance payments of $10,260, $14,830 and $13,557, and contributions of $135, $130 and $130 by the +Company under its 401(k) Plan for 2004, 2003 and 2002, respectively. +(8) +Represents health and life insurance payments of $13,353, $3,806 and $3,264, and contributions of $6,150, $6,000 and $5,500 by +the Company under its 401(k) Plan for 2004, 2003 and 2002, respectively. +8 +Table of Contents +Stock Options Granted in 2004 +The following table sets forth information concerning individual grants of stock options to +the Named Executive Officers during the fiscal year ended December 31, 2004. With respect to each +of these option grants, 25% of the options were exercisable on the date of grant and 25% of the +options become exercisable on each subsequent anniversary date with full vesting occurring on the +third anniversary of the date of grant. The total number of options granted to the Company’s +employees (not including 80,000 shares underlying options granted to non-employee directors) during +the fiscal year ended December 31, 2004 was 825,000. The exercise price per share of options +granted represents the fair market value of the underlying shares of Class A Common Stock on the +date the options were granted. The stock options expire ten years from the date of grant or +earlier upon termination of employment. In accordance with the rules of the SEC, the Company is +including the gains or “option spreads” that would exist at the end of their respective ten-year +terms. These gains are based on assumed annual rates of compounded stock price appreciation of 5% +and 10% from the dates that the options were granted until the end of the respective option terms. +These gains do not represent the Company’s estimate or projection of the future price of the Class +A Common Stock. Actual gains, if any, on option exercises depend upon the future performance of +the Class A Common Stock. +Individual Grants +Potential Realizable +Number Of +Percent Of +Value At Assumed +Securities +Total +Annual Rates Of Stock +Underlying +Options +Exercise Or +Price Appreciation For +Options +Granted To +Base Price +Expiration +Option Term +Name +Granted(#) +Employees +($/Share) +Date +5%($) +10%($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +— +— +— +— +David Weinberg +50,000 +6.1 +% +8.35 +2/5/14 +262,564 +665,387 +Mark Nason +100,000 +12.1 +% +8.35 +2/5/14 +525,127 +1,330,775 +Philip Paccione +10,000 +1.2 +% +8.35 +2/5/14 +52,513 +133,078 +Aggregated Option Exercises in 2004 and 2004 Year-End Option Values +The following table sets forth the outstanding stock options of the Named Executive Officers +as of December 31, 2004. The value of the unexercised “in-the-money” options is based on the fair +market value of $12.96 as of December 31, 2004, minus the exercise price, multiplied by the numbers +of shares underlying the option. +Number of Securities +Value of Unexercised +Shares +Underlying Unexercised Options +In-The-Money Options +Acquired on +Value +at December 31, 2004 +at December 31, 2004 +Name +Exercise(#) +Realized($) +Exercisable(#) +Unexercisable(#) +Unexercisable($) +Exercisable($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +30,000 +240,278 +50,000 +— +75,125 +— +David Weinberg +— +— +223,565 +50,500 +741,204 +250,305 +Mark Nason +25,000 +130,530 +162,268 +87,500 +639,138 +420,875 +Philip Paccione +14,097 +84,922 +53,713 +13,750 +95,183 +72,138 +9 +Table of Contents +Securities Authorized for Issuance Under Equity Compensation Plans +The following table provides information as of December 31, 2004 regarding compensation plans +(including individual compensation arrangements) under which equity securities of the Company are +authorized for issuance. +Number of securities +Weighted-average +remaining available for +Number of Securities to be +exercise price of +future issuance under +issued upon exercise of +outstanding +equity compensation plans +outstanding options, +options, warrants +(excluding securities +Plan Category +warrants and rights +and rights +reflected in column (a)) +(a) +(b) +(c) +Equity compensation +plans approved by +security holders +4,975,341 +(1) +$ +10.90 +4,814,978 +(2) +Equity +compensation plans +not approved by +security holders +— +— +— +Total +4,975,341 +4,814,978 +(1) +Represents stock options outstanding under the Company’s 1998 +Stock Option, Deferred Stock and Restricted Stock Plan (the “Stock +Option Plan”). Amount does not include shares available under the +Company’s 1998 Employee Stock Purchase Plan (the “1998 Purchase +Plan”), which has a shareholder approved reserve of 1,738,364 +shares. +(2) +Represents 3,076,614 shares available for future issuance under +the Stock Option Plan and 1,738,364 shares available for future +issuance under the 1998 Purchase Plan. Under the 1998 Purchase +Plan, each eligible employee may purchase a limited number of +shares of Class A common stock at semi-annual intervals each year +at a purchase price per share equal to 85% of the fair market +value of the Company’s Class A common stock as of either the +beginning or ending date of the semi-annual purchase period. +Stock Option Plan +In January 1998, the Company’s Board of Directors and stockholders adopted the Stock Option +Plan, which provides for the grant of qualified incentive stock options (“ISOs”) that meet the +requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), stock +options not so qualified (“NQSOs”), deferred stock and restricted stock awards (“Awards”). The +Stock Option Plan may be administered by either the Board of Directors or a committee of directors +appointed by the Board of Directors (the “Committee”). ISOs may be granted to the officers and key +employees of the Company or any of its subsidiaries. The exercise price for any ISO granted under +the Stock Option Plan may not be less than 100% (or 110% in the case of ISOs granted to an employee +who is deemed to own in excess of 10% of the outstanding Class A Common Stock) of the fair market +value of the shares of Class A Common Stock at the time the option is granted. The exercise price +for any NQSO granted under the Stock Option Plan may not be less than 85% of the fair market value +of the shares of Class A Common Stock at the time the option is granted. The purpose of the Stock +Option Plan is to provide a means of performance-based compensation in order to attract and retain +qualified personnel and to provide an incentive to those whose job performance affects the Company. +The Stock Option Plan originally authorized the grant of options to purchase, and Awards of, +an aggregate of up to 5,215,154 shares of the Company’s Class A Common Stock. By action at the +Annual Meeting of Stockholders on June 1, 2001, the number of shares of Class A Common Stock +authorized for issuance under the Stock Option Plan was increased by 3,000,000 shares, and by +action at the Annual Meeting of Stockholders held on May 30, 2003, the number was increased by an +additional 3,000,000 shares, so that the Stock Option Plan authorizes the grant of options to +purchase and awards of up to an aggregate of 11,215,154 shares of the Company’s Class A Common +Stock. The number of shares reserved for issuance under the Stock Option Plan is subject to +anti-dilution provisions for stock splits, stock dividends and similar events. If an option granted +under the Stock Option Plan expires or terminates, or an Award is forfeited, the shares subject to +any unexercised portion of such option or Award will again become available for the issuance of +further options or Awards under the Stock Option Plan. +10 +Table of Contents +Under the Stock Option Plan, the Company may make loans available to stock option holders, +subject to the Committee’s approval, in connection with the exercise of stock options granted under +the Stock Option Plan. If shares of Class A Common Stock are pledged as collateral for such +indebtedness, such shares may be returned to the Company in satisfaction of such indebtedness. If +so returned, such shares shall again be available for issuance in connection with future stock +options and Awards under the Stock Option Plan. +No options or Awards may be granted under the Stock Option Plan after January 14, 2008, +provided that the Company’s Board of Directors does not otherwise amend or terminate the Stock +Option Plan prior to such date. +Options granted under the Stock Option Plan will become exercisable according to the terms of +the grant made by the Board of Directors or the Committee. Awards will be subject to the terms and +restrictions of the award made by the Board of Directors or the Committee. The Board of Directors +and the Committee have discretionary authority to select participants from among eligible persons +and to determine at the time an option or Award is granted, and in the case of options, whether it +is intended to be an ISO or a NQSO, and when and in what increments shares covered by the option +may be purchased. Under current law, ISOs may not be granted to any individual who is not also an +officer or employee of the Company or any subsidiary. +The exercise price of any option granted under the Stock Option Plan is payable in full (i) in +cash, (ii) by surrender of shares of the Company’s Class A Common Stock already owned by the option +holder having a market value equal to the aggregate exercise price of all shares to be purchased, +(iii) by cancellation of indebtedness owed by the Company to the option holder, (iv) by a full +recourse promissory note executed by the option holder, (v) by arrangement with a broker or (vi) by +any combination of the foregoing. The terms of any promissory note may be changed from time to time +by the Board of Directors to comply with applicable Internal Revenue Service or SEC regulations or +other relevant pronouncements. +The Board of Directors may from time to time revise or amend the Stock Option Plan and may +suspend or discontinue it at any time. However, no such revision or amendment may impair the rights +of any participant under any outstanding stock option or Awards without such participant’s consent +or may, without stockholder approval, increase the number of shares subject to the Stock Option +Plan or decrease the exercise price of a stock option to less than 100% of fair market value on the +date of grant (with the exception of adjustments resulting from changes in capitalization), +materially modify the class of participants eligible to receive options or Awards under the Stock +Option Plan, materially increase the benefits accruing to participants under the Stock Option Plan +or extend the maximum option term under the Stock Option Plan. +In the event of a change of control, all outstanding stock options and Awards will fully vest +and any indebtedness incurred in connection with the Stock Option Plan will be forgiven. A “change +of control” occurs when (i) any person becomes the beneficial owner, directly or indirectly, of 50 +percent or more of the combined voting power of the Company’s securities, (ii) during any +consecutive two-year period, individuals who at the beginning of such period constitute the Board +of Directors, and any new director, with certain exceptions, who was approved by at least +two-thirds of the directors still in office who either were directors at the beginning of the +period or whose election or nomination for election was previously so approved, cease for any +reason to constitute at least a majority of the Board of Directors, (iii) in some circumstances, +the stockholders approve a merger or consolidation, or (iv) the stockholders approve the complete +liquidation, sale or disposition of all or substantially all of the Company’s assets. +As of December 31, 2004, options to purchase 4,975,341 shares of Class A Common Stock were +outstanding at a per share exercise price ranging from $2.78 to $29.45, and the Company had +3,076,614 shares of Class A Common Stock underlying options available for grant. +Federal Income Tax Consequences of Stock Option Plan +Incentive Stock Options. There is no taxable income to an employee of the Company when an +incentive stock option is granted or when that option is exercised; however, generally the amount +by which the fair market value of the shares at the time of exercise exceeds the option price will +be included in the optionee’s alternative minimum taxable income upon exercise. If the shares of +Class A Common Stock received upon exercise of the incentive stock option are disposed of in the +same year the option was exercised, and the amount realized is less than the Class A Common Stock’s +fair market value at the time of exercise, the amount includable in the alternative minimum taxable +11 +Table of Contents +income will be the amount realized upon the sale or exchange of the shares, less the +optionee’s basis in the shares of Class A Common Stock. Gain realized by an optionee upon the sale +of shares of Class A Common Stock issued upon exercise of an incentive stock option is taxable as a +long-term capital gain, in accordance with the applicable holding periods, and no tax deduction is +available to the Company, unless the optionee disposed of the shares of Class A Common Stock of the +Company within two years after the date of grant of the option or within one year after the date of +exercise. In such event, the difference between the option exercise price and the fair market value +of the Class A Common Stock on the date of the optionee’s exercise will be taxed at ordinary income +rates, and, subject to Section 162(m) of the Code, the Company will be entitled to a deduction to +the extent the optionee must recognize ordinary income. +Nonqualified Stock Options. The recipient of a nonqualified stock option will not realize +taxable income upon the grant of the option, nor will the Company be entitled to take any +deduction. Upon the exercise of a nonqualified stock option, the optionee will realize ordinary +income and, subject to Section 162(m) of the Code, the Company will be entitled to a deduction in +an amount equal to the difference between the option exercise price and the fair market value of +the Class A Common Stock on the date of exercise. The Company may be required to withhold taxes on +the ordinary income realized by an optionee upon exercise of nonqualified stock options in order to +be entitled to the tax deduction. An optionee’s basis for the shares of Class A Common Stock for +purposes of determining gain or loss on any subsequent disposition of the shares generally will be +the fair market value of the Class A Common Stock on the date of exercise of the nonqualified stock +options. +Restricted Stock. The receipt of restricted stock will not cause a recipient to realize +taxable income until the expiration of any repurchase rights retained by the Company with respect +to such stock, unless the recipient makes an election under Section 83(b) of the Code to be taxed +as of the date of such purchase. If no repurchase rights are retained or if a Section 83(b) +election is made, the participant will recognize ordinary income in an amount equal to the +difference between the purchase price paid for the shares of Class A Common Stock and the fair +market value of such shares on the date of purchase. If no Section 83(b) election is made or if +repurchase rights are retained, the recipient will realize taxable income on each date that the +recipient’s ownership rights vest (when the Company no longer has the right to repurchase all or a +portion of the shares). The recipient will recognize ordinary income, and, subject to Section +162(m) of the Code, the Company will be entitled to a deduction on each date shares of Class A +Common Stock vest in an amount equal to the excess of the fair market value of such shares on that +date over the purchase price paid for such shares. However, if the recipient is subject to Section +16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and if no Section +83(b) election was made at the time of purchase, the date that ordinary income is recognized for +shares which vest within six months of purchase dates shall be deferred to six months from the date +of purchase. +The foregoing summary is not a complete description of the U.S. federal income tax aspects of +the Stock Option Plan. Moreover, the foregoing summary relates only to federal income taxes; there +may also be federal estate and gift tax consequences associated with the Stock Option Plan, as the +case may be, as well as foreign, state and local tax consequences. +Employee Stock Purchase Plan +The Company’s 1998 Purchase Plan was adopted by the Company’s Board of Directors and +stockholders in July 1998 and amended by its Board of Directors in June 2000. The 1998 Purchase +Plan is intended to qualify under Section 423 of the Code. Each twelve-month offering period +includes two consecutive six-month purchase periods. The offering periods generally start on the +first trading day on or after January 1 and July 1 of each year. The initial offering period +commenced on July 1, 1999. A total of 2,781,415 shares of Class A Common Stock was initially +reserved for issuance under the 1998 Purchase Plan, which is adjusted annually for increases equal +to the lesser of (i) 2,781,415 shares, (ii) 1% of the outstanding shares of Class A Common Stock on +such date, or (iii) such lesser amount as may be determined by the Company’s Board of Directors. +Employees are eligible to participate if they are customarily employed by the Company or +any designated subsidiary for at least 20 hours per week and more than five months in any calendar +year. However, any employee who (i) immediately after the grant of a stock purchase right owns +stock possessing 5% or more of the total combined voting power or value of all classes of the +capital stock of the Company or (ii) whose rights to purchase stock under all +employee stock purchase plans of the Company accrue at a rate which exceeds $25,000 worth of +12 +Table of Contents +stock for each calendar year may not be granted an option to purchase stock under the +1998 Purchase Plan for that year. +The 1998 Purchase Plan permits participants to purchase Class A Common Stock through payroll +deductions of up to 15% of the participant’s “compensation.” Compensation is defined as the +participant’s base straight time gross earnings, including commissions, payments for overtime, +incentive bonuses and performance bonuses. Amounts deducted and accumulated by the participant are +used to purchase shares of Class A Common Stock at the end of each purchase period. The price of +stock purchased under the 1998 Purchase Plan is 85% of the lower of the fair market value of the +Class A Common Stock as of either the beginning or ending date of the semi-annual purchase period. +The maximum number of shares a participant may purchase during a single offering period is +determined by dividing $25,000 by the fair market value of a share of the Company’s Class A Common +Stock on the first day of the offering period. Participants may end their participation at any time +during an offering period, and they will be paid their payroll deductions to date. Participation +ends automatically upon termination of employment with the Company. +Rights granted under the 1998 Purchase Plan are not transferable by a participant other than +by will, the laws of descent and distribution, or as otherwise provided under the 1998 Purchase +Plan. +The 1998 Purchase Plan provides that, in the event of a merger of the Company with or into +another corporation or a sale of all or substantially all of the Company’s assets, each outstanding +stock purchase right may be assumed or substituted for by the successor corporation. If the +successor corporation refuses to assume or substitute for the outstanding stock purchase right, the +offering period then in progress will be shortened and a new purchase date will be set so that +shares of Class A Common Stock are purchased with the participant’s accumulated payroll deductions +prior to the effective date of such transaction. +The Board of Directors has the authority to amend or terminate the 1998 Purchase Plan, except +that no such action may adversely affect any outstanding rights to purchase stock under the 1998 +Purchase Plan, provided that the Board of Directors may terminate an offering period on any +exercise date if the Board of Directors determines that the termination of the 1998 Purchase Plan +is in the best interests of the Company and its stockholders. Notwithstanding anything to the +contrary, the Board of Directors may in its sole discretion amend the 1998 Purchase Plan to the +extent necessary and desirable to avoid unfavorable financial accounting consequences by altering +the purchase price for any offering period, shortening any offering period or allocating remaining +shares among the participants. Unless terminated sooner by the Board of Directors, the 1998 +Purchase Plan will terminate on June 30, 2008. +As of December 31, 2004, 1,043,051 shares of the Company’s Class A Common Stock had been +purchased by the Company’s employees at the average price of $7.19 per share, which was an +aggregate purchase price of $7,503,000. +401(k) Plan +The Company has in place a contributory retirement plan (the “401(k) Plan”) for all employees +age 21 and older with at least 12 months of service, which is designed to be tax deferred in +accordance with the provisions of Section 401(k) of the Code. The 401(k) Plan provides that each +participant may contribute up to 15% of his or her salary, but not exceeding the IRS statutory +limits, and the Company may make a contribution equal to a percentage of salary contributed by the +participant to his or her plan account by the end of the first quarter of the following year. Under +the 401(k) Plan, employees may elect to enroll on the first day of any month of any plan year, +provided that they have been employed by the Company for at least one year. The 401(k) Plan was +amended in April 2001 to allow employees to enroll after six months of service. +Subject to the rules for maintaining the tax status of the 401(k) Plan, an additional Company +contribution may be made at the Company’s discretion. The Company’s contributions to the 401(k) +Plan in 2004, 2003 and 2002 were $767,000, $763,000 and $707,000, respectively, which included the +issuance by the Company of 59,203, 93,692 and 83,351 shares of its Class A common stock to the +401(k) Plan for 2004, 2003 and 2002 in March 2005, 2004 and 2003, respectively. +13 +Table of Contents +BOARD REPORT ON EXECUTIVE COMPENSATION +The Company is considered a Controlled Company under the NYSE Rules, and, as a result, is not +required to and currently does not have a compensation committee. Robert Greenberg, Michael +Greenberg and David Weinberg are the directors who primarily administered the policies governing +the Company’s executive compensation program in 2004. +The Board of Directors believes that executive compensation should reward sustained earnings +and long-term value created for stockholders and reflect the business strategies and long-range +plans of the Company. The guiding principles affecting executive compensation are to: (1) attract +and retain key high caliber executives; (2) provide levels of compensation competitive with those +offered by the Company’s competitors and (3) motivate executives to enhance earnings and long-term +stockholder value by linking stock performance on a total returns basis with long-term incentive +compensation. +The Company’s executive compensation philosophy is to set base salary at a competitive market +rate and then to provide performance-based variable compensation which allows total compensation to +fluctuate according to the Company’s earnings as well as to value received by its stockholders. +Targeted levels of executive compensation are set at levels consistent with others in the Company’s +industry, determined after comparison, with such compensation increasingly weighted towards +programs contingent upon the Company’s level of annual and long-term performance. +Each executive officer’s compensation is comprised of up to three principal components: base +salary, bonus and any stock options or restricted stock awards granted pursuant to the Company’s +1998 Stock Option, Deferred Stock and Restricted Stock Plan. Base salary and bonus are determined +by executive management and are reviewed at least annually by the Board of Directors. See +“ Executive Compensation ” for a description of the allocation of base salary and bonus. Based on +certain objective performance criteria of the Company for 2004, Robert Greenberg, Michael +Greenberg, David Weinberg, Mark Nason and Philip Paccione each received an annual bonus of +$250,000, $50,000, $50,000, $40,000 and $20,000, respectively. The Company’s management and the +Board of Directors believe that the total compensation package of the executive officers should be +linked to certain objective performance criteria of the Company and to the total return of the +Company’s stock, both on an absolute basis and relative to similar companies. The Company uses +stock options to align the long-range interests of its executive officers with the interests of +stockholders. The amount of stock options that may be granted to each executive officer is +determined by taking into consideration the officer’s position with the Company, overall individual +performance, the Company’s performance and an estimate of the long-term value of the award +considering current base salary and any cash bonus awarded. +The foregoing principles and policies are applied in examining the compensation of Robert +Greenberg, the Company’s Chief Executive Officer. The Board of Directors believes that Mr. +Greenberg, as Chief Executive Officer, significantly and directly influences the Company’s overall +performance. Mr. Greenberg elected to forego his base salary in 2004. Thus, his compensation for +2004 consisted of a base salary of $0. +Section 162(m) was added to the Code as part of the Omnibus Budget Reconciliation Act of 1993. +Section 162(m) limits the deduction for compensation paid to the Chief Executive Officer and the +other Named Executive Officers to the extent that compensation of a particular executive exceeds +$1,000,000, with certain exceptions for qualified “performance-based” compensation. While the tax +impact of any compensation arrangement is one factor to be considered, such impact is evaluated in +light of the Company’s overall compensation philosophy. The Company intends to establish executive +officer compensation programs that will maximize the Company’s tax deduction if the Board of +Directors determines that such actions are consistent with its philosophy and in the best interests +of the Company and its stockholders. However, from time to time, the Company may award compensation +that is not fully deductible if it is determined that such award is consistent with its philosophy +and in the best interest of the Company and its stockholders. +14 +Table of Contents +The Board of Directors will review the Company’s existing compensation program to determine +the deductibility of the future compensation paid or awarded pursuant thereto and will seek +guidance with respect to changes to the Company’s existing compensation program that will enable +the Company to continue to attract and retain key individuals while optimizing the deductibility to +the Company of amounts paid as compensation. +The Board of Directors believes that its overall executive compensation program will be +successful in providing competitive compensation appropriate to attract and retain highly qualified +executives and also to encourage increased performance from the executive group which will create +added stockholder value. +Respectfully submitted, +Robert Greenberg +Michael Greenberg +Jeffrey Greenberg +David Weinberg +Geyer Kosinski +Frederick Schneider +Richard Siskind +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors consists of three non-employee directors who are +independent under the standards adopted by the Board of Directors and applicable NYSE Rules and SEC +standards. The Audit Committee represents and assists the Board of Directors in fulfilling its +responsibility for oversight and evaluation of the quality and integrity of the Company’s financial +statements, the Company’s compliance with legal and regulatory requirements, the independent +auditor’s qualifications and independence, and the performance of the Company’s internal audit +function and independent auditors. +The Audit Committee has reviewed the Company’s audited financial statements for the fiscal +year ended December 31, 2004, and has discussed those financial statements with the Company’s +management, internal finance staff, internal auditors and independent auditors, with and without +management present. The Audit Committee has also discussed with the Company’s independent auditors +the results of the independent auditors’ examinations and the judgments of the independent auditors +concerning the quality, as well as the acceptability, of the Company’s accounting principles and +such other matters that it is required to discuss with the independent auditors under applicable +rules, regulations or generally accepted auditing standards (including Statement on Auditing +Standards No. 61). In addition, the Audit Committee has received from the independent auditors the +written disclosures required by the Independence Standards Board and has discussed their +independence from the Company and the Company’s management with them, including a consideration of +the compatibility of non-audit services with their independence, the scope of the audit and the +scope of all fees paid to the independent auditors during the year. +Based on its review and the discussions referred to above, the Audit Committee recommended to +the Company’s Board of Directors that the audited financial statements for the fiscal year ended +December 31, 2004 be included in the Company’s Annual Report on Form 10-K for the year then ended +for filing with the SEC. +Respectfully submitted, +Geyer Kosinski +Frederick Schneider +Richard Siskind +15 +Table of Contents +INDEPENDENT AUDITORS +Fees to Independent Auditors for Fiscal Years 2004 and 2003 +During the fiscal years ended December 31, 2004 and 2003, the Company retained KPMG LLP to +provide services as follows: +Fees for the Year Ended +December 31, +Service +2004 +2003 +Audit fees (1) +$ +1,050,000 +$ +581,000 +Audit-related fees (2) +680,000 +14,000 +Tax fees (3) +712,000 +1,157,000 +All other fees (4) +46,000 +21,000 +Total audit and non-audit fees +$ +2,488,000 +$ +1,773,000 +(1) +These are fees for professional services performed by KPMG LLP for the audit of the Company’s annual financial +statements and the review of the Company’s annual report on Form 10-K, the review of financial statements included +in the Company’s quarterly reports on Form 10-Q, the attestation of the effectiveness of internal +controls under Section 404 of the Sarbanes-Oxley Act of 2002, and for services that are normally provided in connection with +statutory and regulatory filings or engagements. +(2) +These are fees for assurance and related services performed by KPMG LLP that are reasonably related to the +performance of the audit or review of the Company’s financial statements as required by the Sarbanes-Oxley Act of +2002. +(3) +These are fees for professional services performed by KPMG LLP with respect to U.S. federal and international tax +compliance, tax consulting and tax work stemming from “Audit” and “Audit-related” items. This includes preparation of +original and amended tax returns for the Company and its consolidated subsidiaries, refund claims, payment planning +and tax audit assistance. +(4) +These are fees for other permissible work performed by KPMG LLP that does not meet the other category descriptions. +Pre-Approval Policy +The Audit Committee’s Pre-Approval Policy provides for pre-approval of specifically described +audit, audit-related, tax and all other services by the Audit Committee in order to ensure that the +provision of such services does not impair the auditor’s independence. The Pre-Approval Policy +also provides a list of prohibited non-audit services. Unless a type of service to be provided by +the independent auditor has received general pre-approval, the requested service will require +specific pre-approval by the Audit Committee. The term of any pre-approved services is 12 months +from the date of pre-approval, unless the Audit Committee specifically provides for a different +period. The Audit Committee will periodically review and may revise the list of pre-approved +services, based on subsequent determinations. Pre-approval fee levels for all services to be +provided by the independent auditor are established annually by the Audit Committee after the +independent auditor’s appointment for the then current fiscal year has been ratified by the +Company’s stockholders at the Annual Meeting. Any fees for proposed services exceeding these +levels will also require specific pre-approval by the Audit Committee. +16 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the beneficial ownership of the +Company’s Class A Common Stock and Class B Common Stock as of March 31, 2005 by (i) each director +of the Company, (ii) each of the Named Executive Officers, (iii) each person known to the Company +to be beneficial owner of more than 5% of either class of the Common Stock and (iv) all directors +and executive officers of the Company as a group. +Beneficial ownership is determined in accordance with SEC rules and regulations. In computing +the number of shares of Class A Common Stock beneficially owned by a person and the percentage of +ownership of that person, shares of Class A Common Stock underlying options held by that person +that are currently exercisable or become exercisable within 60 days of March 31, 2005 are included. +Those shares, however, are not deemed outstanding for the purpose of computing the percentage +ownership of any other person. Each stockholder’s percentage of ownership in the following table +is based upon 22,528,634 shares of Class A Common Stock and 17,011,189 shares of Class B Common +Stock outstanding as of March 31, 2005. The Class B Common Stock is convertible at any time into +shares of the Class A Common Stock on a share-for-share basis. See “ Certain Relationships and +Related Transactions ” for a description of transactions between the Greenberg Family Trust, of +which Robert Greenberg is a trustee, Michael Greenberg and the Company. To the Company’s +knowledge, unless otherwise indicated in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole voting and investment power with +respect to the shares of Class A and Class B Common Stock set forth opposite such person’s name. +Unless otherwise indicated in the footnotes below, the address of each beneficial owner listed +below is c/o Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California +90266. +Number of +Number of +Percentage of +Percentage of +Class A Shares +Class B Shares +Class A Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Wellington Management +Company, LLP +2,218,900 (1) +— +9.8% +— +Lord, Abbett & Co. LLC +1,961,197 (2) +— +8.7 +— +Named Executive Officers +and directors: +Robert Greenberg +— +12,541,240 (3) +— +73.7% +Michael Greenberg +83,245 (4) +1,189,991 (5) +* +7.0 +Jeffrey Greenberg +100,825 (6) +867,334 (7) +* +5.1 +David Weinberg +317,904 (8) +— +1.4 +— +Mark Nason +189,588 (9) +— +* +— +Philip Paccione +56,213 (10) +— +* +— +Geyer Kosinski +41,250 (10) +— +* +— +Frederick Schneider +30,000 (11) +— +* +— +Richard Siskind +67,250 (12) +— +* +— +All current directors and +executive officers as a +group (9 persons) +886,275 (4,6,8-12) +14,598,565 (3,5,7) +3.8% +85.8% +* +Less than 1.0% +(1) +Information is based on a Schedule 13G filed with the SEC on January 10, 2005. Principal business office of Wellington +Management Company, LLP (“Wellington”) and its subsidiary as set forth below are located at 75 State Street, Boston, +Massachusetts 02109. Wellington beneficially owns these shares via its wholly-owned subsidiary, Wellington Trust Company, NA, +which is a bank as defined in Section 3(a)(6) of the Exchange Act. Wellington, which is an investment adviser registered under +Section 203 of the Investment Advisers Act of 1940, has shared voting power with respect to 1,854,600 of the shares that it +beneficially owns and shared dispositive power with respect to 2,168,300 of the shares that it beneficially owns. Number of +shares of Class A Common Stock beneficially owned is reported as of December 31, 2004. +(2) +Information is based on a Schedule 13G filed with the SEC on February 14, 2005. Principal business office of Lord, Abbett & Co. +LLC (“Lord, Abbett”) is located at 90 Hudson Street, Jersey City, New Jersey 07302. Lord, Abbett is an investment adviser +registered under Section 203 of the Investment Advisers Act of 1940. Number of shares of Class A Common Stock beneficially +owned is reported as of December 31, 2004. +(3) +Includes 12,036,016 shares of Class B Common Stock that Robert Greenberg, Chief Executive Officer and Chairman of the Board of +the Company, is deemed to beneficially own as a trustee of the Greenberg Family Trust. Susan Greenberg, Robert Greenberg’s +wife, is also a trustee of the Greenberg Family Trust and is also deemed to beneficially own all shares held by the Greenberg +Family Trust. +(4) +Includes 50,000 shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March 31, +2005, and includes 22,650 shares of Class A Common Stock beneficially owned by Michael Greenberg, President and a Director of +the Company, indirectly through his wife, Wendy Greenberg, and their children. Michael Greenberg disclaims beneficial ownership +of these 22,650 shares except to the extent of his pecuniary interest therein. +17 +Table of Contents +(5) +Includes 1,055,093 shares of Class B Common Stock that Michael Greenberg, President and a Director of the Company, is deemed to +beneficially own as a trustee of the Michael and Wendy Greenberg Family Trust. Wendy Greenberg, Michael Greenberg’s wife, is a +trustee of the Michael and Wendy Greenberg Family Trust and is also deemed to beneficially own all shares held by the Michael +and Wendy Greenberg Family Trust. Also, includes 134,898 shares of Class B Common Stock held in various custodial accounts and +trust accounts for Mr. Greenberg’s minor children and of which a third party acts as trustee or custodian, as the case may be. +Mr. Greenberg disclaims beneficial ownership of these 134,898 shares except to the extent of his pecuniary interest therein. +(6) +Includes 97,500 shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March 31, +2005. +(7) +Includes 802,558 shares of Class B Common Stock that Jeffrey Greenberg, a Director of the Company, is deemed to beneficially +own as a trustee of the Jeffrey and Lori Greenberg Family Trust. Lori Greenberg, Jeffrey Greenberg’s wife, is a trustee of the +Jeffrey and Lori Greenberg Family Trust and is also deemed to beneficially own all shares held by the Jeffrey and Lori +Greenberg Family Trust. Also, includes 61,476 shares of Class B Common Stock that Mr. Greenberg is deemed to beneficially own +as custodian of the Chloe July Greenberg custodial account and 3,300 shares of Class B Common Stock that Mr. Greenberg is +deemed to beneficially own as trustee of the Chloe July Greenberg 2004 Trust, both of which are for his child who is a minor. +(8) +Represents 81,839 shares of Class A Common Stock that David Weinberg, Executive Vice President, Chief Financial Officer and a +Director of the Company, is deemed to beneficially own as sole trustee of The David Weinberg Trust dated September 7, 2000, and +236,065 shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March 31, 2005. +(9) +Includes 187,268 shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March +31, 2005. +(10) +Represents shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March 31, 2005. +(11) +Represents 10,000 shares of Class A Common Stock beneficially owned by Frederick Schneider, a Director of the Company, +indirectly through the Schneider General Partnership, and 20,000 shares of Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, 2005. +(12) +Includes 61,250 shares of Class A Common Stock underlying options that are exercisable currently or within 60 days of March 31, +2005. +18 +Table of Contents +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +The following graph demonstrates from December 31, 1999 to December 31, 2004, a comparison of +cumulative total returns for Skechers’ Class A Common Stock, the Standard & Poor’s 500 Stock Index, +and the Standard & Poor’s Shoes Index. The graph assumes an investment of $100 on December 31, +1999 in each of the Company’s Class A Common Stock, the stocks comprising the Standard & Poor’s 500 +Stock Index and the stocks comprising the Standard & Poor’s Footwear Index. Each of the indices +assumes that all dividends were reinvested. +COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* +AMONG SKECHERS U.S.A., INC., THE S & P 500 INDEX +AND THE S & P FOOTWEAR INDEX +* $100 invested on 12/31/99 in stock or index-including reinvestment of dividends. Fiscal +year ending December 31. +Copyright © 2002, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights +reserved. www.researchdatagroup.com/S&P.htm +Company / Index +12/31/1999 +12/31/2000 +12/31/2001 +12/31/2002 +12/31/2003 +12/31/2004 +SKECHERS U.S.A., INC. +100.00 +406.50 +383.43 +222.66 +213.74 +339.89 +S & P500 +100.00 +90.89 +80.09 +62.39 +80.29 +89.02 +S & P FOOTWEAR +100.00 +121.14 +122.75 +101.87 +155.74 +204.80 +The Standard & Poor’s Footwear Index consists of NIKE and Reebok International. The Standard +& Poor’s Footwear Index includes companies in one major line of business in which the Company +competes. The index does not encompass all of the Company’s competitors nor all product categories +and lines of business in which the Company is engaged. +The stock performance of the Company’s Class A Common Stock shown on the graph above is not +necessarily indicative of future performance. The Company will not make nor endorse any +predictions as to its future stock performance. +19 +Table of Contents +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Exchange Act requires the Company’s officers, directors and persons who +own more than ten percent of a registered class of the Company’s securities, to file with the SEC +initial reports of ownership and reports of changes in ownership of Securities of the Company. +Officers, directors and greater than ten percent stockholders are required by the SEC’s regulations +to furnish the Company with copies of all Section 16(a) forms that they file. +Based solely on the Company’s review of the copies of such reports furnished to the Company, +management believes that all officers, directors and greater than ten percent stockholders complied +with the filing requirements of Section 16(a) for the fiscal year ended December 31, 2004, except +that Robert Greenberg filed an amended report with respect to one Section 16(b) exempt transaction +that occurred during the most recent fiscal year, which was +inadvertently omitted from the original +filing, and Richard Siskind filed three reports late with respect to one transaction that occurred +during the most recent fiscal year and three transactions that occurred in prior fiscal years. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +As of March 31, 2005, Robert Greenberg, his children, and the Greenberg Family Trust +beneficially own all of the Class B Common Stock and approximately 88.4% of the combined voting +power of the Company’s Class A and Class B Common Stock. By virtue of this stock ownership, Robert +Greenberg may be deemed to be a “control person” of the Company within the meaning of the rules and +regulations promulgated under the Securities Act of 1933, as amended, and the Greenberg Family +Trust influences the election of Robert Greenberg. Michael Greenberg, the Company’s President, and +Jeffrey Greenberg, both of whom are members of the Board of Directors of the Company, are each +beneficiaries of the Greenberg Family Trust. Additionally, Robert Greenberg, directly and +indirectly through the Greenberg Family Trust, beneficially owns approximately 65.1% of the +combined voting power of the Company’s Class A and Class B Common Stock. As a result, the Company +is considered a “Controlled Company” under the NYSE Rules and is thereby exempt from certain +listing requirements and regulations as set forth in the NYSE Rules. +Shares of Class A Common Stock issuable upon conversion of shares of Class B Common Stock held +by the Greenberg Family Trust and Michael Greenberg, President of the Company, are subject to +certain registration rights. The Company entered into a registration rights agreement with the +Greenberg Family Trust and Michael Greenberg pursuant to which the Company agreed that it will, on +up to two separate occasions per year, register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common Stock beneficially owned as of the closing +of the Company’s initial public offering of its Class A Common Stock by each such stockholder in +any one year, provided, among other conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such registration. The Company also agreed that, if +it shall cause to be filed with the SEC a registration statement, each such stockholder shall have +the right to include up to one-third of the shares of Class A Common Stock issuable upon conversion +of their Class B Common Stock beneficially owned as of the closing of the Company’s initial public +offering of its Class A Common Stock by each of them in such registration statement provided, among +other conditions, that the underwriters of any such offering have the right to limit the number of +shares included in such registration. All expenses of such registrations shall be at the Company’s +expense. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg, Scott Greenberg and Jennifer Greenberg, +who are the children of Robert Greenberg, Chairman of the Board and Chief Executive Officer of the +Company, and are also the siblings of Michael Greenberg, President of the Company, were +non-executive employees of the Company in 2004, and each of them received compensation that +exceeded $60,000 for 2004. +Richard Siskind, who is a director of the Company, founded R. Siskind & Company, which is a +business that purchases brand name men’s and women’s apparel and accessories and redistributes +those items to off-price retailers, and he is its sole shareholder, Chief Executive Officer, +President and sole member of its Board of Directors. During 2004, the Company sold backpacks to R. +Siskind & Company in the amount of $894,000. The Company had no outstanding accounts receivable +from R. Siskind & Company at December 31, 2004. +The Company believes that all of the foregoing relationships and transactions were reasonable +and in the best interest of the Company. +20 +Table of Contents +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING +Stockholder proposals intended to be presented at the Company’s next Annual Meeting of +Stockholders to be held in 2006 must be received at the Company’s principal executive offices no +later than December 30, 2005, in order to be considered for inclusion in the proxy statement and +form of proxy relating to that meeting. Proposals must comply with the proxy rules relating to +stockholder proposals, in particular Rule 14a-8 under the Exchange Act, to be included in the +Company’s proxy materials. Stockholders who wish to submit a proposal for consideration at the +Company’s 2006 Annual Meeting of Stockholders, but who do not wish to submit a proposal for +inclusion in the Company’s Proxy Statement, must, in accordance with the Company’s Bylaws, deliver +a copy of their proposal no later than the close of business on the ninetieth (90 th ) day +in advance of such meeting or, if later, the seventh day following the first public announcement of +the date of such meeting. In either case, proposals should be delivered to Skechers U.S.A., Inc., +228 Manhattan Beach Blvd., Manhattan Beach, California 90266, Attention: Michael Greenberg, +President. To avoid controversy and establish timely receipt by the Company, it is suggested that +stockholders send their proposals by certified mail, return receipt requested. +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +Stockholders who wish to contact any of our directors either individually or as a group may do +so by writing to them c/o Philip Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. Each writing stockholder should +specify whether the communication is directed to the entire Board of Directors or to a particular +director. Company personnel will review the communications and screen improper and irrelevant +communications such as solicitations. +OTHER BUSINESS +The Board of Directors does not know of any other matter to be acted upon at the meeting. +However, if any other matter shall properly come before the meeting, the proxyholders named in the +proxy accompanying this Proxy Statement will have authority to vote all proxies in accordance with +their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 29, 2005 +Manhattan Beach, California +21 +Table of Contents +APPENDIX A +SKECHERS U.S.A., INC. +AUDIT COMMITTEE CHARTER +Purpose: +The purpose of the Audit Committee of the Board of Directors is to assist the Board in +fulfilling its responsibility for oversight and evaluation of (1) the quality and integrity of the +Company’s financial statements, (2) the Company’s compliance with legal and regulatory +requirements, (3) the independent auditor’s qualifications and independence, and (4) the +performance of the Company’s internal audit function and independent auditors, and such other +duties as directed by the Board. The Audit Committee is expected to maintain free and open +communication (including separate private executive sessions at least annually) with the +independent auditors, the internal auditors and the management of the Company. In discharging this +oversight role, the Audit Committee is empowered to investigate any matter brought to its +attention, with full power to retain external auditors, outside counsel or other experts for this +purpose. The Audit Committee shall review this Charter annually and recommend any proposed changes +to the Board for approval. +Audit Committee Composition and Meetings: +The Audit Committee shall be comprised of three or more directors as determined by the Board, +each of whom shall satisfy the independence requirements of the New York Stock Exchange and Section +10A of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, and the +rules promulgated thereunder. Each member of the Audit Committee shall be financially literate, as +determined by the Board in accordance with the New York Stock Exchange Rules. At least one member +of the Audit Committee shall (i) qualify as a “financial expert” within the meaning of the rules of +the Securities and Exchange Commission and (ii) have “accounting or related financial management +expertise” within the meaning of the rules of the New York Stock Exchange. Audit Committee members +shall not simultaneously serve on the audit committees of more than three public companies. +Directors’ fees (including fees for attendance at meetings of committees of the Board) are the only +compensation that an Audit Committee member may receive from the Company. +Audit Committee members shall be appointed by the Board. If an Audit Committee Chair is not +designated or present, the members of the Audit Committee may, subject to the provisions of the +preceding paragraph, designate a Chair by majority vote of the Audit Committee membership. +The Audit Committee shall meet at least four times annually (in the absence of unusual +circumstances), or more frequently as circumstances dictate. The Audit Committee Chair shall +approve an agenda in advance of each meeting. The Audit Committee shall report its activities to +the Board of Directors on a regular basis and make such recommendations as the Audit Committee may +deem necessary or appropriate. +Audit Committee Responsibilities and Duties: +(1) The Audit Committee is directly responsible for the appointment, compensation and +oversight of the work of the independent auditors, and any registered public accounting firm, +engaged by the Company (including resolution of disagreements between management and the auditors +regarding financial reporting) for the purpose of preparing or issuing an audit report or +performing other audit, review or attest services for the Company or related work. The independent +auditors, and each such registered public accounting firm, shall report directly to the Audit +Committee. The Audit Committee shall have the sole authority to appoint or replace the independent +auditors that audit the financial statements of the Company. The Audit Committee shall have the +ultimate authority and responsibility to evaluate the qualifications, performance and independence +of the independent auditors. In the process, the Audit Committee will (i) discuss and consider the +auditors’ written affirmation that the auditors are in fact independent, (ii) discuss the nature +and rigor of the audit process, receive and review all reports and (iii) provide to the independent +auditors full access to the Audit Committee (and the Board) to report on any and all appropriate +matters. The evaluation of the independent auditors shall include a review and evaluation of the +lead partner of the independent auditors, taking into account the opinions of management and the +Company’s internal auditors. The Audit Committee will assure the regular rotation of the +independent auditors’ lead and concurring audit partners serving on the Company’s audit engagement +team, as well as the rotation of any other persons on the Company’s audit engagement team who fall +within the definition of “audit partner,” as defined by applicable SEC regulation, in each case as +required by applicable law. In order to assure continuing auditor independence, the Audit +Committee will consider whether it is appropriate to adopt a policy of rotating the Company’s +independent auditing firm itself +A-1 +Table of Contents +on a regular basis. The Audit Committee shall present its conclusions with respect to the +independent auditors to the full Board of Directors. +(2) The Audit Committee shall obtain and review a report from the independent auditors at +least annually regarding (i) the independent auditors’ internal quality-control procedures, (ii) +any material issues raised by the most recent quality-control review, or peer review, of the firm, +or by any inquiry or investigation by governmental or professional authorities within the preceding +five years respecting one or more independent audits carried out by the firm, (iii) any steps taken +to deal with any such issues, and (iv) all relationships between the independent auditors and the +Company. +(3) The Audit Committee shall review the independent auditors’ audit plan — discuss scope, +staffing, budget, locations, reliance upon management, and internal audit and general audit +approach. Approve the fees and other significant compensation to be paid to the independent +auditors as well as approve all non-audit engagements with the independent auditors. The Audit +Committee shall consult with management but shall not delegate these responsibilities, except that +pre-approvals of non-audit services may be delegated to a single member of the Audit Committee. +(4) The Audit Committee shall review the Company’s annual audited financial statements prior +to filing or distribution, including the Company’s disclosures under “Management’s Discussion and +Analysis of Financial Condition and Results of Operations.” Review should include discussion with +management and independent auditors of significant issues regarding accounting principles, +practices and judgments. The Audit Committee shall advise management and the independent auditors +that they are expected to provide to the Audit Committee a timely analysis of significant financial +reporting issues and practices; and obtain from the independent auditors assurance that the audit +was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934, as +amended, which sets forth certain procedures to be followed in any audit of financial statements +required under the Securities Exchange Act of 1934, as amended. +(5) The Audit Committee shall review reports from the independent auditors on (i) the +Company’s critical accounting policies and practices, (ii) all alternative treatments of financial +information permitted under GAAP that have been discussed with management, the ramifications of the +use of such treatments and the treatment preferred by the independent auditors, and (iii) all other +material written communications between the auditing firm and management. +(6) The Audit Committee shall review with financial management and the independent auditors +the Company’s quarterly financial results prior to the release of earnings and/or the Company’s +quarterly financial statements prior to filing or distribution including the Company’s disclosures +under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” +The Audit Committee shall review and discuss with financial management earnings press releases +(paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP, information), and +discuss financial information and earnings guidance, if any, provided to analysts and rating +agencies. The Audit Committee shall discuss any significant changes to the Company’s accounting +principles and any items required to be communicated by the independent auditors in accordance with +Statement of Auditing Standards 61. +(7) The Audit Committee shall, in consultation with management and the independent auditors, +consider the adequacy and effectiveness of the Company’s financial reporting processes and +controls. The Audit Committee shall discuss policies with respect to risk assessment and risk +management, including discussion of significant financial risk exposures and the steps management +has taken to monitor, control and report such exposures. +(8) The Audit Committee shall review with the independent auditors significant findings +prepared by the independent auditors together with any audit problems or difficulties and +management’s responses. The review shall include the resolution of any significant problems or +difficulties and management’s responses, including with respect to: (1) any restrictions on the +scope of the independent auditor’s activities or access to requested information; (2) any +significant disagreements with management; (3) any accounting adjustments that were noted or +proposed by the auditor but were “passed”; (4) any communications between the audit team and the +audit firm’s national office respecting auditing or accounting issues presented by the engagement; +and (5) any “management” or “internal controls” letter issued or proposed to be issued.. The +review shall include the resolution of any significant problems and material disputes between +management and the independent auditors and a discussion with the independent auditors out of +management’s presence of the quality of the Company’s accounting principles as applied in its +financial reporting, including any significant changes in the Company’s selection or application of +accounting principles, the clarity of the Company’s financial disclosures and a discussion of other +significant decisions made by management in preparing the financial disclosures. +A-2 +Table of Contents +(9) The Audit Committee shall obtain and review disclosures made by the Company’s principal +executive officer and principal financial officer regarding compliance with their certification +obligations as required under the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder, +including the Company’s disclosure controls and procedures and internal controls for financial +reporting and evaluations thereof. +(10) The Audit Committee shall review with the Company’s General Counsel legal matters that +may have a material impact on the financial statements, the Company’s compliance policies and any +material reports or inquiries received from regulators or governmental agencies. +(11) The Audit Committee shall review the effect of regulatory and accounting initiatives, as +well as off-balance sheet structures, on the financial statements of the Company. +(12) The Audit Committee shall meet at least annually and separately with management, with +internal auditors (or other personnel responsible for the internal audit function) and with +independent auditors. +(13) With respect to the Company’s internal audit function, the Audit Committee shall: +• +review the appointment and/or replacement of the director of the internal audit +department (or other person, persons or outside firm responsible for the Company’s +internal audit function) or, at the discretion of the Board, select and contract with +an outside accounting firm to serve as the Company’s internal auditors and perform the +Company’s internal audit function; +• +advise the director of the internal audit department (or other person, persons or +outside firm responsible for the Company’s internal audit function) that he or she is +expected to provide to the Audit Committee summaries of and, as appropriate, the +significant reports to management prepared by the internal audit department (or other +person, persons or outside firm responsible for the Company’s internal audit function) +and management’s responses thereto and review such reports; and +• +discuss with the Company’s independent auditors responsibilities of the internal +audit department (or such other person, persons or outside firm responsible for the +Company’s internal audit function), the budget and staffing relative to the Company’s +internal audit function and any recommended changes in the planned scope of the +Company’s internal audit. +(14) The Audit Committee shall receive periodic reports from the independent auditors +regarding the auditors’ independence, discuss such reports with the auditors, and, if so determined +by the Audit Committee, take appropriate action to satisfy itself of the independence of the +auditors. +(15) The Audit Committee shall review the Company’s policies and practices related to +compliance with the law, the Company’s Code of Ethical Conduct, and conflicts of interest, to be +satisfied that such policies are adequate and adhered to by the Company and its executive officers +and directors. +(16) The Audit Committee shall maintain and review annually procedures for (i) the receipt, +retention and treatment of complaints received by the Committee regarding accounting, internal +accounting controls or auditing matters, and (ii) the confidential, anonymous submission by +employees of the Company of concerns regarding questionable accounting or auditing matters. +(17) The Audit Committee shall set clear hiring policies for employees or former employees of +the independent auditors. +(18) The Audit Committee shall annually prepare an audit committee report to shareholders as +required by the Securities and Exchange Commission. The report should be included in the Company’s +annual proxy statement. +(19) The Audit Committee shall annually conduct a self-evaluation of the Audit Committee. +(20) The Audit Committee shall have the authority to engage independent counsel and other +advisers as it determines necessary to carry out its duties. +(21) The Audit Committee shall provide for appropriate funding, as determined by the Audit +Committee, in its capacity as a committee of the Board, for payment of: +• +compensation to any registered public accounting firm engaged for the purpose of +preparing or issuing an audit report or performing other audit, review or attest +services for the Company; +A-3 +Table of Contents +• +compensation of any advisors employed by the Audit Committee to assist the Audit +Committee in carrying out its duties; and +• +ordinary administrative expenses of the Audit Committee that are necessary or +appropriate in carrying out its duties. +While the Audit Committee has the responsibilities and powers set forth in this Charter, the +Audit Committee’s function is one of oversight. The Company’s management is responsible for +preparing the Company’s financial statements and, along with the internal auditors, for developing +and maintaining systems of internal accounting and financial controls. The independent auditors +will assist the Audit Committee and the Board in fulfilling their responsibilities for the review +of these financial statements and internal controls. The Audit Committee expects the independent +auditors to call its attention to any accounting, auditing, internal accounting control, regulatory +or other related matters that they believe warrant consideration or action. The Audit Committee +recognizes that the financial management and the internal and independent auditors have more +knowledge and information about the Company than do Audit Committee members. Consequently, in +carrying out its oversight responsibilities, the Audit Committee does not provide any expert or +special assurance as to the Company’s financial statements or internal controls or any professional +certification as to the independent auditors’ work. +A-4 +Table of Contents +Annual Meeting of Stockholders of +SKECHERS U.S.A., INC. +May 26, 2005 +Please date, sign and mail your proxy card in the envelope +provided as soon as possible. +â Please detach along perforated line and mail in the envelope provided â +THE BOARD OF DIRECTORS +RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND +“FOR” PROPOSAL 2. +PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x +1. +Election of Directors +FOR ALL NOMINEES +WITHHOLD AUTHORITY +FOR ALL NOMINEES +FOR ALL EXCEPT +(See instructions below) +NOMINEES: +¡ Geyer +Kosinski +¡ Richard Siskind +o +o +o +INSTRUCTIONS: +To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” +and fill in the circle next to each nominee you wish to withhold, as shown here: l +2. +Ratify the appointment of KPMG LLP as independent accountants for the year ending December 31, 2005. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Each of the persons named as proxies herein are authorized, in such person’s +discretion, to vote upon such other matters as may properly come before the Annual +Meeting, or any adjournments thereof. +PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE MEETING. +o +To change the address on your account, please check the box at right and +indicate your new address in the address space above. Please note that +changes to the registered name(s) on the account may not be submitted via +this method. +o +Signature of Stockholder +Date: +Signature of Stockholder +Dated: +NOTE: +Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. +When signing as executive administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, +please sign full corporate name by duly authorized officer, giving full title as such. If signer is a +partnership, please sign in partnership name by a authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 26, 2005 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 29, 2005, and hereby appoints Michael Greenberg and David Weinberg and each of them, +with full power of substitution, as attorneys-in-fact and proxies for, and in the name and place +of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares +which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., +Inc. to be held at The Ayres Hotel, 14400 Hindry Avenue, Hawthorne, California 90250, on +Thursday, May 26, 2005, at 10:00 a.m., Pacific time, and at any adjournments thereof, upon the +matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt +of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSAL 2 AS DESCRIBED IN THE PROXY, AND IN ACCORDANCE +WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY +COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950129-05-004239/proxy_rpt.txt b/raw/proxies/0001065837/0000950129-05-004239/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff87263560b48bcce62e02854ff5287e3a6f3a82 --- /dev/null +++ b/raw/proxies/0001065837/0000950129-05-004239/proxy_rpt.txt @@ -0,0 +1,44 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +As of March 31, 2005, Robert Greenberg, his children, and the Greenberg Family Trust +beneficially own all of the Class B Common Stock and approximately 88.4% of the combined voting +power of the Company’s Class A and Class B Common Stock. By virtue of this stock ownership, Robert +Greenberg may be deemed to be a “control person” of the Company within the meaning of the rules and +regulations promulgated under the Securities Act of 1933, as amended, and the Greenberg Family +Trust influences the election of Robert Greenberg. Michael Greenberg, the Company’s President, and +Jeffrey Greenberg, both of whom are members of the Board of Directors of the Company, are each +beneficiaries of the Greenberg Family Trust. Additionally, Robert Greenberg, directly and +indirectly through the Greenberg Family Trust, beneficially owns approximately 65.1% of the +combined voting power of the Company’s Class A and Class B Common Stock. As a result, the Company +is considered a “Controlled Company” under the NYSE Rules and is thereby exempt from certain +listing requirements and regulations as set forth in the NYSE Rules. +Shares of Class A Common Stock issuable upon conversion of shares of Class B Common Stock held +by the Greenberg Family Trust and Michael Greenberg, President of the Company, are subject to +certain registration rights. The Company entered into a registration rights agreement with the +Greenberg Family Trust and Michael Greenberg pursuant to which the Company agreed that it will, on +up to two separate occasions per year, register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common Stock beneficially owned as of the closing +of the Company’s initial public offering of its Class A Common Stock by each such stockholder in +any one year, provided, among other conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such registration. The Company also agreed that, if +it shall cause to be filed with the SEC a registration statement, each such stockholder shall have +the right to include up to one-third of the shares of Class A Common Stock issuable upon conversion +of their Class B Common Stock beneficially owned as of the closing of the Company’s initial public +offering of its Class A Common Stock by each of them in such registration statement provided, among +other conditions, that the underwriters of any such offering have the right to limit the number of +shares included in such registration. All expenses of such registrations shall be at the Company’s +expense. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg, Scott Greenberg and Jennifer Greenberg, +who are the children of Robert Greenberg, Chairman of the Board and Chief Executive Officer of the +Company, and are also the siblings of Michael Greenberg, President of the Company, were +non-executive employees of the Company in 2004, and each of them received compensation that +exceeded $60,000 for 2004. +Richard Siskind, who is a director of the Company, founded R. Siskind & Company, which is a +business that purchases brand name men’s and women’s apparel and accessories and redistributes +those items to off-price retailers, and he is its sole shareholder, Chief Executive Officer, +President and sole member of its Board of Directors. During 2004, the Company sold backpacks to R. +Siskind & Company in the amount of $894,000. The Company had no outstanding accounts receivable +from R. Siskind & Company at December 31, 2004. +The Company believes that all of the foregoing relationships and transactions were reasonable +and in the best interest of the Company. +20 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950129-06-004637/proxy.txt b/raw/proxies/0001065837/0000950129-06-004637/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..bba6aa4152acdd76fc746a03d96c93a20cdfa83e --- /dev/null +++ b/raw/proxies/0001065837/0000950129-06-004637/proxy.txt @@ -0,0 +1,2663 @@ +DEF 14A +1 +v19646def14a.htm +SKECHERS U.S.A., INC. +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation (the “Company”), +to be held at The Ayres Hotel located at 14400 Hindry Avenue, +Hawthorne, California 90250 on May 19, 2006 at +10:00 a.m. Pacific Time. +The Annual Meeting of the Company is being held for the +following purposes: +1. To elect two members to the Board of Directors to serve +for a three-year term as Class I Directors; +2. To approve the Company’s 2006 Annual Incentive +Compensation Plan; +3. To ratify the appointment of KPMG LLP as the independent +registered public accounting firm of the Company for the year +ending December 31, 2006; and +4. To transact such other business as may properly come +before the meeting or any adjournments thereof. +The Board of Directors recommends a vote “for” each +of the nominees and for each proposal listed above. +The Board of Directors has fixed the close of business on +March 31, 2006 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +The Company’s Annual Report to Stockholders for the year +ended December 31, 2005 is enclosed with this notice. The +following proxy statement and enclosed proxy card is being sent +to each stockholder as of the record date. You are cordially +invited to attend the Annual Meeting, but if you do not expect +to attend, or if you plan to attend, but desire the proxy +holders to vote your shares, please date and sign your proxy +card and return it in the enclosed postage paid envelope. The +giving of this proxy card will not affect your right to vote in +person in the event you find it convenient to attend. Please +return the proxy card promptly to avoid the expense of +additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: May 1, 2006 +Manhattan Beach, California +TABLE OF CONTENTS +PROXY STATEMENT +ELECTION OF DIRECTORS +PROPOSAL NO. 2 APPROVAL OF THE SKECHERS U.S.A., INC. 2006 ANNUAL INCENTIVE COMPENSATION PLAN +PROPOSAL NO. 3 RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +CORPORATE GOVERNANCE AND BOARD MATTERS +EXECUTIVE COMPENSATION +BOARD REPORT ON EXECUTIVE COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16( a ) OF THE SECURITIES EXCHANGE ACT OF 1934 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +OTHER BUSINESS +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For +Annual Meeting to be Held +May 19, 2006 at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc. (the “Company” or “Skechers”), a +Delaware corporation, in connection with the Annual Meeting of +Stockholders of the Company to be held on May 19, 2006 at +10:00 a.m. Pacific Time at The Ayres Hotel located at 14400 +Hindry Avenue, Hawthorne, California 90250 (the “Annual +Meeting”). The approximate mailing date for this proxy +statement and the enclosed proxy is May 1, 2006. If a proxy +in the accompanying form is duly executed and returned, the +shares represented by the proxy will be voted as directed. If no +direction is given, the shares represented by the proxy will be +voted (i) for the election of the nominees for director +named herein, (ii) for the approval of the Company’s +2006 Annual Incentive Compensation Plan and (iii) for the +ratification of the appointment of KPMG LLP as the +Company’s independent registered public accounting firm for +the year ending December 31, 2006. Any proxy given may be +revoked at any time prior to its exercise by notifying the +Corporate Secretary of the Company in writing of such +revocation, by duly executing and delivering another proxy +bearing a later date, or by attending and voting in person at +the Annual Meeting. The Company’s principal executive +office is located at 228 Manhattan Beach Boulevard, Manhattan +Beach, California 90266. +The cost of this solicitation of proxies will be borne by the +Company. Solicitations will be made by mail. In addition, the +officers and other regularly engaged employees of the Company +may, in a limited number of instances, solicit proxies +personally or by telephone. The Company will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of the Class A Common Stock and +Class B Common Stock of the Company. +Holders of Class A Common Stock and Class B Common +Stock of record at the close of business on March 31, 2006 +will be entitled to vote at the Annual Meeting. There were +24,665,215 shares of Class A Common Stock and +16,151,189 shares of Class B Common Stock outstanding +at that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the outstanding shares of +Class A Common Stock and Class B Common Stock is +necessary to constitute a quorum for the Annual Meeting. A +quorum must have been established in order to consider any +matter. To elect the two directors, the two candidates for +director receiving the most votes will become directors of the +Company. Stockholders may not cumulate their votes. All other +proposals require the affirmative “for” vote of a +majority of those shares present in person or represented by +proxy and entitled to vote on those proposals at the Annual +Meeting. If you hold shares beneficially in street name and do +not provide your broker with voting instructions, your shares +may constitute “broker non-votes.” Generally, broker +non-votes occur on a matter when a broker is not permitted to +vote on that matter without instructions from the beneficial +owner and instructions are not given. In tabulating the voting +result for any particular proposal, shares that constitute +broker non-votes are not considered entitled to vote on that +proposal. Thus, broker non-votes will not affect the outcome of +any matter being voted on at the meeting, assuming that a quorum +is obtained. However, shares represented by such “broker +non-votes” will be counted in determining whether there is +a quorum. A properly executed proxy marked “Abstain” +with respect to any such matter will not be voted, although it +will be counted for purposes of determining whether there is a +quorum. Accordingly, proxies marked “Abstain” as to +Proposal No. 1 will not have any effect on the +election of directors, but proxies marked “Abstain” as +to Proposal No. 2 and Proposal No. 3 will +have the same effect as a vote cast against the proposal. +Table of Contents +PROPOSAL NO. 1 +ELECTION OF +DIRECTORS +The Company’s Board of Directors is divided into three +classes, with each class serving a three-year term and +thereafter until their successors are duly elected and qualified +or until their death, resignation or removal. One class of +directors is elected annually at the Annual Meeting. The +Company’s Bylaws provide for a variable Board of Directors +with a range of between five and nine members. The Company +currently has seven members on its Board of Directors. The +Company’s Bylaws give the Board of Directors the authority +to establish, increase or decrease the number of directors. +Unless otherwise directed by stockholders within the limits set +forth in the Bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Robert +Greenberg and Morton D. Erlich, who are currently members of the +Company’s Board of Directors. The Company has been advised +by Robert Greenberg and Morton D. Erlich of their availability +and willingness to serve if elected. In the event that Robert +Greenberg +and/or +Morton D. Erlich becomes unavailable or unable to serve as a +member of the Company’s Board of Directors prior to the +voting, the proxy holders will refrain from voting for them or +will vote for a substitute nominee in the exercise of their best +judgment. +The Board +of Directors recommends a vote “for” these +director-nominees. +PROPOSAL NO. 2 +APPROVAL +OF THE SKECHERS U.S.A., INC. 2006 ANNUAL INCENTIVE COMPENSATION +PLAN +The Skechers U.S.A., Inc. Annual Incentive Compensation Plan +(the “Plan”), which was authorized by the Board of +Directors of the Company on March 31, 2006, generally +provides for performance-based incentive awards to certain key +employees of the Company. The Compensation Plan is designed to +satisfy the requirements of Section 162(m) of the Internal +Revenue Code, as amended (“Section 162(m)”), so +that the Company can take federal income tax deductions for the +performance-based compensation paid under the Plan to its +“Named Executive Officers” (see “ Executive +Compensation — Summary Compensation +Table” herein for a list of the Company’s Named +Executive Officers for 2005). +Section 162(m) generally provides that publicly held +companies may not take a federal income tax deduction for +certain compensation in excess of $1 million paid to each +of its Named Executive Officers in any one year unless that +compensation is “qualified performance-based +compensation.” One of the requirements of “qualified +performance-based compensation” for purposes of +Section 162(m) is that the compensation be paid pursuant to +a plan that has been approved by stockholders. Accordingly, for +awards under the Plan to qualify as performance-based +compensation for fiscal year 2006, Section 162(m) requires +that the Plan be approved by the Company’s stockholders at +the Annual Meeting. +The Plan is intended to advance the interests of the Company and +its stockholders and assist the Company in attracting and +retaining executive officers of the Company and its subsidiaries +who, because of the extent of their responsibilities can make +significant contributions to the Company’s success by their +ability, industry, loyalty and exceptional services, by +providing incentives and financial rewards to such executive +officers. +The following summary of the material features of the Plan is +qualified in its entirety by reference to the terms of the Plan, +a copy of which is attached as Appendix A to this +Proxy Statement. +Administration +The Plan is administered by the Compensation Committee of the +Board of Directors (the “Committee”). The Committee +has authority and discretion to administer and interpret the +provisions of the Plan and to adopt such rules and regulations +for the administration of the Plan as the Committee deems +necessary or advisable. Decisions of the Committee will be +final, conclusive and binding upon all parties, including, +without limitation, the Company and participants in the Plan. +The Committee may designate all or any portion of its power and +authority under the Plan to +2 +Table of Contents +any sub-committee of the Committee or to any executive officer +or executive officers of the Company, provided that any such +designation is consistent with the requirements of +Section 162(m). +Eligibility +and Participation +The individuals eligible to participate in the Plan shall be the +Company’s Chief Executive Officer and any other executive +officer of the Company or a subsidiary thereof. Prior to or at +the time performance objectives are established for a fiscal +quarter, fiscal year or such other period of the Company that +the Committee, in its sole discretion, may establish up to five +years in length (collectively, “Performance Period”), +the Committee will identify those executive officers including +the Chief Executive Officer who will in fact be participants for +such Performance Period. +Determination +of Awards +Within the time period prescribed by Section 162(m), for +each Performance Period for which performance objectives are +established, the Committee shall (i) determine the +participants who are to be eligible to receive performance-based +awards under the Plan, (ii) select the performance criteria +to be used for each participant and (iii) establish, in +terms of an objective formula or standard for each participant, +the performance goal and the amount of each award which may be +earned if such performance goal is achieved. +The performance criteria are limited to the following: net +sales, revenue, revenue growth, operating income, pre- or +after-tax income (before or after allocation of corporate +overhead and bonus), net earnings, earnings per share, net +income, financial goals (division, group or corporate), return +on equity, total shareholder return, return on assets or net +assets, attainment of strategic and operational initiatives, +appreciation in +and/or +maintenance of the price of the shares of Class A Common +Stock or any other publicly-traded securities of the Company, +market share, gross profits, earnings (including earnings before +taxes, earnings before interest and taxes or earnings before +interest, taxes, depreciation and amortization), economic +value-added models, comparisons with various stock market +indices, reductions in costs, cash flow (before or after +dividends), cash flow per share (before or after dividends), +return on capital (including return on total capital or return +on invested capital), cash flow return on investment, and +improvement in or attainment of expense levels or working +capital levels. +In determining satisfaction with performance goals for a +Performance Period, the Committee may direct that adjustments be +made to the performance goals or actual financial performance +results as reported to reflect extraordinary, unusual or +non-recurring organizational, operational or other changes that +have occurred during such Performance Period, in each case only +to the extent that such adjustments are consistent with the +requirements of Section 162(m). For competitive reasons, +specific performance goals determined by the Committee for each +Performance Period will not be publicly disclosed. +Current +Awards +Five individuals, including the Company’s Chief Executive +Officer, President and Chief Operating Officer, have been +identified to participate in the Plan for fiscal year 2006. The +Committee has established the performance goals for fiscal year +2006 with respect to awards to such participants by reference to +the business criteria set forth in the Plan. Bonus amounts, if +any, that will be paid to participants for fiscal year 2006 and +future plan years are not determinable at this time. Bonus +amounts for performance-based awards will depend upon meeting +performance targets that are substantially uncertain and that +even if met would remain subject to the Committee’s +discretion as described herein. +Payment +of Awards +At such time as it shall determine appropriate following the +conclusion of each Performance Period, the Committee shall +certify, in writing, the amount of the award for each +participant for such Performance Period. The amount of an award +actually paid to a participant may, in the sole discretion of +the Committee, be reduced to less than the amount payable to the +participant based on attainment of the performance goals for a +Performance Period. Payment of an award to each participant +shall be made no later than the fifteenth day of the third month +following the end of the fiscal quarter of the Company in which +the applicable Performance Period ends. +3 +Table of Contents +Duration +and Amendment +If the Plan is approved by the stockholders at the Annual +Meeting, it will be effective for fiscal years 2006 through +2010, after which the Company’s stockholders must +re-approve the Plan for an additional five years at the +Company’s annual meeting of stockholders in 2011 in order +for awards under the Plan to continue to qualify as +performance-based compensation under Section 162(m). The +Committee may at any time alter, amend, suspend or terminate the +Plan as it shall deem advisable, subject to any requirement for +stockholder approval imposed by applicable law including +Section 162(m). No amendments to, or termination of, the +Plan shall in any way impair the rights of a participant under +any award previously granted without such participant’s +consent. +Payment +of Taxes +The Company may deduct from any payments of awards under the +Plan any applicable withholding taxes required by law to be +withheld with respect to such payments. +Other +Compensation +The Plan is not exclusive. The Company may pay other bonuses and +other compensation to the Named Executive Officers and other key +employees under other authority of the Board of Directors and +applicable law. If the Plan is not approved by stockholders, the +Company currently contemplates that any cash bonuses for fiscal +year 2006 for the Named Executive Officers would be +discretionary. Any such bonuses then paid would not be +deductible under Section 162(m) to the extent that when +combined with other non-exempt compensation paid, they exceed +the $1 million limit on non-exempt compensation paid to +each of the Named Executive Officers. +Recommendation +of the Board of Directors +The Board of Directors believes that it is desirable and in the +best interest of the Company and its stockholders to enable the +Plan to comply with the requirements of Section 162(m). The +Board further believes that the Plan provides an important +incentive that complements the Company’s existing policies +and other long-term plans in linking portions of executive +compensation to the Company’s performance. +The Board +of Directors recommends a vote to approve the Company’s +2006 Annual +Incentive Compensation Plan. +PROPOSAL NO. 3 +RATIFICATION +OF APPOINTMENT OF INDEPENDENT REGISTERED +PUBLIC +ACCOUNTING FIRM +For the 2005 fiscal year, KPMG LLP provided audit services that +included examination of the Company’s annual consolidated +financial statements. Upon the recommendation of the Audit +Committee, the Company’s Board of Directors has selected +KPMG LLP to perform an audit of the consolidated financial +statements of the Company and its subsidiaries for the fiscal +year ending December 31, 2006 in accordance with auditing +standards generally accepted in the United States and for +issuing a report thereon. The stockholders are being requested +to ratify such selection at the Annual Meeting. A representative +of KPMG LLP will attend the Annual Meeting to make any +statements he or she may desire and to respond to appropriate +stockholder questions. +The Board of Directors recommends a vote to ratify the +appointment of KPMG LLP. +4 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year +in Which Term +Name +Age +Will Expire +Position +Robert Greenberg +66 +Class I (2009) +Chairman of the Board and Chief +Executive Officer +Morton D. +Erlich (1)(2) +61 +Class I (2009) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Robert Greenberg has served as the Chairman of the Board +and Chief Executive Officer of the Company since October 1993. +From 1979 to 1992, Mr. Greenberg was the Chairman of the +Board and President of L.A. Gear, Inc. (“L.A. Gear”), +an athletic and casual footwear and apparel company. +Morton D. Erlich has served as a member of the Board of +Directors of the Company since January 2006. Mr. Erlich +worked for 34 years at KPMG LLP including 24 years as +an audit partner until retiring in September 2004. +Directors +Not Standing for Election +The members of the Board of Directors who are not standing for +election at this year’s Annual Meeting are set forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Michael Greenberg +43 +Class II (2007) +President and Director +David Weinberg +55 +Class II (2007) +Executive Vice President; Chief +Operating Officer and Director +Jeffrey Greenberg +38 +Class II (2007) +Senior Vice President, Active +Electronic Media and Director +Geyer +Kosinski (1) +40 +Class III (2008) +Director +Richard +Siskind (1)(2) +60 +Class III (2008) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Michael Greenberg has served as the President and a +member of the Board of Directors of the Company since its +inception in 1992, and from June 1992 to October 1993, he served +as Chairman of the Board of the Company. From 1989 to 1992, +Mr. Greenberg was the National Sales Manager of L.A. Gear. +Previously, from 1986 to 1989, Mr. Greenberg was the +Regional Sales Manager of L.A. Gear for the West Coast, and from +1984 to 1986, he was an account representative for the West +Coast at L.A. Gear. +David Weinberg has served as Chief Operating Officer of +the Company since January 2006 and as Executive Vice President +of the Company and a member of its Board of Directors of the +Company since July 1998, and from October 1993 to January 2006, +he also served as Chief Financial Officer of the Company. From +June 1989 to September 1992, Mr. Weinberg served as Vice +President, Credit and Collections at L.A. Gear. +Jeffrey Greenberg has served as Senior Vice President, +Active Electronic Media of the Company since June 2005 and as a +member of its Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as Vice +President, Active Electronic Media of the Company. +Previously , Mr. Greenberg served as Chief Operating +Officer, Secretary and a member of the Board of Directors of the +Company from June 1992 to July 1998 and as its Chief Executive +Officer from June 1992 to October 1993. +5 +Table of Contents +Geyer Kosinski has served as a member of the Board of +Directors of the Company since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and +directors. From April 1997 to June 2004, Mr. Kosinski was a +Managing Partner and co-owner of Industry Entertainment, a +talent management and production company that produces feature +films and television programming and manages over 100 actors, +writers and directors. From 1992 to 1997, Mr. Kosinski was +an agent at The William Morris Agency, where he represented +talent including George Clooney, Robert Downey, Jr., +Kevin Spacey, Angelina Jolie and Billy Bob Thornton, and +packaged over 20 motion pictures. +Richard Siskind has served as a member of the Board of +Directors of the Company since June 1999. Since November 2002, +Mr. Siskind has served as a member of the Board of +Directors of Magic Lantern Group, Inc. (AMEX: GML), which +changed its name from JKC Group, Inc. From May 1998 to November +2002, Mr. Siskind served as President, Chief Executive +Officer and a member of the Board of Directors of Stage II +Apparel Corp. (AMEX:SA), which changed its name to JKC Group, +Inc. (AMEX:JKC) in April 2002. In 1991, Mr. Siskind founded +R. Siskind & Company, a business that purchases brand +name men’s and women’s apparel and accessories and +redistributes those items to off-price retailers, and he is its +sole shareholder, Chief Executive Officer, President and sole +member of its Board of Directors. +Executive +Officers +The following table sets forth certain information with respect +to the executive officers of the Company who are not also +directors. For information concerning Robert Greenberg, Michael +Greenberg and David Weinberg, see “Information +Concerning Director Nominees” and “Directors +Not Standing for Election” above. +Name +Age +Position +Frederick Schneider +49 +Chief Financial Officer +Philip Paccione +44 +General Counsel; Executive Vice +President, Business Affairs; and Corporate Secretary +Mark Nason +44 +Executive Vice President, Product +Development +Frederick Schneider has served as Chief Financial Officer +of the Company since January 2006. From February 2004 to January +2006, Mr. Schneider served on the Board of Directors and as +Chairman of the Audit Committee of the Company. He also +currently serves on the Board of Directors and as Chairman of +the Audit Committee at each of Meade Instruments (NASDAQ:MEAD) +and Sport Chalet, Inc. (NASDAQ:SPCH). Mr. Schneider has +served as a Board member and Audit Committee member at Meade +Instruments since August 2004 and at Sport Chalet since May +2002. He served as a senior managing director at Pasadena +Capital Partners, a private equity investment firm, since July +2004. Prior to working at Pasadena Capital Partners, +Mr. Schneider was an independent private equity investor +and consultant; from September 1994 to January 1998, he served +as chief financial officer and principal of Leonard +Green & Partners, L.P., a merchant banking firm +specializing in leveraged buyouts; and from June 1978 to +September 1994, he worked at KPMG LLP including five years as an +audit and due diligence partner. +Philip Paccione has served as Executive Vice President, +Business Affairs since February 2000, Corporate Secretary since +July 1998, and General Counsel of the Company since May 1998. +Before joining the Company and since June 1997, +Mr. Paccione was an attorney at the law firm of +Riordan & McKinzie, in Los Angeles, and from May 1996 +to June 1997 he was a sole practitioner of law. +Mr. Paccione also practiced law at the law firm of +Gartner & Young from December 1994 to May 1996 and at +the law firm of Kelley, Drye & Warren from June 1991 to +December 1994. +Mark Nason has served as Executive Vice President, +Product Development of the Company since March 2002. From +January 1998 to March 2002, Mr. Nason served as our Vice +President, Retail and Merchandising, and from December 1993 to +January 1998, he served as our Director of Merchandising and +Retail Development. From January 1981 through November 1993, +Mr. Nason was employed in various capacities, including +General Merchandising Manager, Director of Visual Merchandising +and Buyer at Track ’n Trail. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of the directors or executive officers of the +Company. +6 +Table of Contents +CORPORATE +GOVERNANCE AND BOARD MATTERS +Attendance +of Directors at Board Meetings and Annual Meeting of +Stockholders +The Board of Directors met four times in 2005. Each director +attended all of the meetings, except Geyer Kosinski and Jeffrey +Greenberg who were each unable to attend one meeting. The +Company does not have a policy requiring its directors to attend +the Annual Meeting of Stockholders. In 2005, all but two of the +directors attended the Annual Meeting of Stockholders. +Compensation +of Directors +Non-Employee Directors. The Company pays each +of its non-employee directors annual compensation of $15,000 for +serving on the Board of Directors. The Audit Committee Chairman +and the Compensation Committee Chairman are paid additional +annual fees of $10,000 and $1,500, respectively. Non-employee +directors also receive fees of $1,000 for each Board meeting +attended and $1,000 for each committee meeting attended. In +addition, Morton D. Erlich received a one-time bonus of $65,000 +when he joined the Board of Directors in January 2006. +Non-employee directors are reimbursed for reasonable costs and +expenses incurred for attending any Board or committee meetings. +Compensation, fees, and reimbursable costs and expenses are paid +quarterly. Officers of the Company who are members of the Board +of Directors are not paid any directors’ compensation. +Non-employee directors are eligible to receive, from time to +time, issuances of restricted shares of Class A Common +Stock and grants of options to purchase shares of Class A +Common Stock under the 1998 Stock Option, Deferred Stock and +Restricted Stock Plan (the “Stock Option Plan”) as +determined by the Board of Directors. In 2005, non-employee +directors were not issued any restricted shares of Class A +Common Stock or granted any options to purchase shares of +Class A Common Stock. +Employee Directors. As of December 31, +2005, Robert Greenberg, Michael Greenberg and David Weinberg +were the only executive officers serving on the Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on the Board of Directors. Employees of the +Company who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2005 is set forth +under “Executive Compensation.’’ Employee +directors are eligible to receive, from time to time, issuances +of shares of Class A Common Stock and grants of options to +purchase shares of Class A Common Stock under the Stock +Option Plan as determined by the Board of Directors. In 2005, +employee directors were not issued any restricted shares of +Class A Common Stock or granted any options to purchase +shares of Class A Common Stock. +“Controlled +Company” Exemption under NYSE Rules +Under Section 303A of the New York Stock Exchange Listed +Company Manual (the “NYSE Rules”), the Company is +considered a “Controlled Company” because Robert +Greenberg, directly and indirectly, owns 63.1% of the voting +power in the Company (see “Certain Relationships and +Related Transactions” ). As a Controlled Company, the +Company is exempt from certain NYSE Rules requiring a Board of +Directors with a majority of independent members, a compensation +committee composed entirely of independent directors and a +nominating committee composed entirely of independent directors. +However, notwithstanding this exemption, as described more fully +below, during 2006, the Company established a Compensation +Committee composed entirely of independent directors. +Director +Independence +The Board of Directors has affirmatively determined, assuming +the re-election of all of the nominees for director at the +Annual Meeting, that the Board will have three members who are +“independent” consistent with Section 303A.02 of +the NYSE Rules. These directors are currently Morton D. Erlich, +Geyer Kosinski and Richard Siskind. Mr. Erlich replaced +Frederick Schneider as an independent director in January 2006, +when he was elected to the Board of Directors following +Mr. Schneider’s resignation from the Board and +appointment as Chief Financial Officer of the Company. The Board +of Directors made this affirmative determination regarding these +directors’ independence based on discussions with the +directors and on its review of the directors’ responses to +a formal questionnaire regarding employment and compensation +history; affiliations, family and other relationships; and +7 +Table of Contents +transactions with the Company, its subsidiaries and affiliates. +The Board considered relationships and transactions between each +director or any member of his immediate family and the Company +and its subsidiaries and affiliates, including those reported +under “Certain Relationships and Related +Transactions” below. The purpose of the Board’s +review with respect to each director was to determine whether +any such relationships or transactions were inconsistent with a +determination that the director is independent under the NYSE +Rules. +Audit +Committee +The Audit Committee is responsible for overseeing (i) the +quality and integrity of the Company’s financial +statements, (ii) the appointment, compensation, +independence and performance of the independent registered +public accounting firm, (iii) the Company’s compliance +with legal and regulatory requirements, and (iv) the +performance of internal audit and controls function. The Audit +Committee is currently composed of Chairman Morton D. Erlich, +Geyer Kosinski and Richard Siskind, each of whom is +“independent” under Sections 303A.06 and 303A.07 +of the NYSE Rules and Section 10A(m)(3) of the Exchange +Act. Mr. Erlich replaced Frederick Schneider as a member +and Chairman of the Audit Committee when he was elected to the +Board of Directors in January 2006. The Audit Committee met four +times during 2005. Each Audit Committee member attended all of +the meetings, except Geyer Kosinski who was unable to attend two +meetings and Richard Siskind who was unable to attend one other +meeting. +The Audit Committee currently acts under a written Audit +Committee Charter adopted by the Board of Directors as of +April 29, 2004. The Audit Committee Charter, which complies +with the NYSE Rules and is subject to change from time to time +by the Company’s Board of Directors, is posted in the +corporate governance section of the investor relations page of +our website located at www.skechers.com . +Audit +Committee Financial Expert +The Board of Directors has determined that Morton D. Erlich, who +currently serves as the Chairman of the Audit Committee, is an +“audit committee financial expert” as that term is +defined in Item 401(h) of +Regulation S-K. +Mr. Erlich replaced Frederick Schneider as the audit +committee financial expert when he was appointed to serve as a +member and Chairman of the Audit Committee in January 2006. +Compensation +Committee +The Board of Directors approved and established the Compensation +Committee as of March 31, 2006. The Compensation Committee +is responsible for (i) discharging the Board’s +responsibilities relating to compensation of the Company’s +executive officers, (ii) overseeing the administration of +the Company’s executive compensation plans and +(iii) producing an annual report on executive compensation +for inclusion in the Company’s proxy statement in +accordance with applicable rules and regulations. The +Compensation Committee is currently composed of Chairman Richard +Siskind and Morton D. Erlich, neither of whom is an employee or +former executive officer of the Company or any of its +subsidiaries. There were no meetings held by the Compensation +Committee in 2005. +The Compensation Committee currently acts under a written +Compensation Committee Charter adopted by the Board of Directors +as of March 31, 2006. The Compensation Committee Charter, +which complies with the NYSE Rules and is subject to change from +time to time by the Company’s Board of Directors, is posted +in the corporate governance section of the investor relations +page of our website located at www.skechers.com . +Director +Nominations +As a Controlled Company under the NYSE Rules, the Company is not +required to and currently does not have a nominating committee. +The Chairman of the Board, in consultation with other members of +management, performs the functions of a nominating committee, +including the identification and evaluation of director +candidates. Nominees for directors are identified and +recommended by the Chairman of the Board and presented to the +full Board of Directors. Qualifications and skills that the +Board of Directors require in directors are set forth in the +Company’s Corporate Governance Guidelines, which was +adopted by the Board of Directors as of April 28, 2004 and +is posted in the corporate governance section of the investor +relations page of our website located at +www.skechers.com . The Board seeks members from +diverse professional and personal backgrounds who combine a +broad spectrum of experience and expertise with a reputation for +integrity. Factors considered in evaluating a +8 +Table of Contents +director candidate include the evaluation of diversity, age, +skills and experience in the context of the needs of the Board. +Additionally, directors should not serve on more than two boards +of public companies in addition to the Board. The Board of +Directors believes that the functions of nominating committee +are more than adequately performed by the Chairman of the Board +and the Board of Directors as a whole. +Pursuant to the Company’s Bylaws, a stockholder may +nominate a person for election as a director at an annual +meeting of stockholders only if written notice of such +stockholder’s intent to make such nomination has been given +to the Corporate Secretary of the Company no later than the +close of business on the sixtieth +(60 th ) +day nor earlier than the close of business on the ninetieth +(90 th ) +day in advance of such meeting. Each notice is required to set +forth certain information, including (i) the name and +address of the stockholder and of the person or persons to be +nominated, (ii) a description of all arrangements or +understandings between the stockholder and each nominee pursuant +to which the nomination is to be made, (iii) information +regarding each nominee as would be required to be included in a +proxy statement filed pursuant to the proxy rules of the United +States Securities and Exchange Commission (the “SEC”) +had the nominee been nominated, or intended to be nominated, by +the Board and (iv) the consent of each nominee to serve as +a director if so elected. The stockholder must also promptly +provide any other information reasonably requested by the +Company. +Executive +Sessions +Non-management directors meet regularly in executive sessions +without the Company’s management. Non-management directors +are those directors who are not executive officers of the +Company and include directors, if any, who are not independent +by virtue of the existence of a material relationship with the +Company. Executive sessions are led by a Presiding Independent +Director. An executive session is held in conjunction with each +regularly scheduled Audit Committee meeting and other sessions +may be called by the Presiding Independent Director in his own +discretion or at the request of the Board of Directors. Morton +D. Erlich is currently designated as the Presiding Independent +Director, since replacing Frederick Schneider in such capacity +in January 2006. +Compensation +Committee Interlocks and Insider Participation +The Company, as a Controlled Company under the NYSE Rules, was +not required to and did not have a compensation committee during +2005. Robert Greenberg, the Company’s Chief Executive +Officer, Michael Greenberg, the Company’s President, and +David Weinberg, the Company’s Executive Vice President and +former Chief Financial Officer, reviewed and discussed the +compensation of the Company’s executive officers for 2005. +See “Certain Relationships and Related Transactions” +regarding arrangements between the Company and the Greenberg +Family Trust, of which Robert Greenberg is a trustee, and +Michael Greenberg. The Company’s Compensation Committee +that was approved and established as of March 31, 2006 is +currently composed of Richard Siskind and Morton D. Erlich, +neither of whom has ever been an employee or officer of the +Company or any of its subsidiaries. +None of the Company’s executive officers who reviewed and +discussed executive compensation for 2005, and neither of the +current members of the Compensation Committee, has served or +currently serves on the board of directors or on the +compensation committee of any other entity, which has officers +who served on the Company’s Board of Directors during the +fiscal year ended December 31, 2005 or thereafter. +Code of +Business Conduct and Ethics +The Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by the Board of +Directors as of April 28, 2004. The purpose of the Code is +to promote honest and ethical conduct. The Code is posted in the +corporate governance section of the investor relations page of +our website located at www.skechers.com , and is +available in print, without charge, upon written request to the +Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan +Beach Boulevard, Manhattan Beach, California 90266. The Company +intends to promptly post any amendments to or waivers of the +Code on the Company’s website. +9 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth information concerning the annual +and long-term compensation earned by the Company’s Chief +Executive Officer and each of the other named executive officers +whose annual salary and bonus during 2003, 2004 and 2005 +exceeded $100,000 (the “Named Executive Officers”). +Summary +Compensation Table +Long-Term +Compensation +Awards +Annual Compensation +Securities +Other Annual +Underlying +All Other +Name and Principal +Position +Year +Salary ($) +Bonus ($) +Compensation ($) +Options (#) +Compensation ($) +Robert Greenberg +2005 +1,442,307 +— +—(3) +—— +10,927 +(5) +Chairman of the Board +2004 +— (2) +250,000 +—(3) +— +10,786 +(5) +and Chief Executive Officer +2003 +986,538 +— +—(3) +— +11,157 +(5) +Michael Greenberg +2005 +1,000,000 +362,833 +15,086 +(4) +— +21,235 +(6) +President +2004 +884,615 +50,000 +15,491 +(4) +— +20,913 +(6) +2003 +745,961 +— +19,774 +(4) +— +21,296 +(6) +David +Weinberg (1) +2005 +798,000 +172,833 +23,611 +(4) +— +16,454 +(7) +Executive Vice President +2004 +744,154 +50,000 +23,611 +(4) +50,000 +16,410 +(7) +and Chief Operating Officer +2003 +674,307 +— +23,611 +(4) +— +17,109 +(7) +Mark Nason +2005 +750,000 +138,266 +— +— +10,439 +(8) +Executive Vice President, +2004 +696,154 +40,000 +— +100,000 +10,395 +(8) +Product Development +2003 +645,961 +— +— +— +14,960 +(8) +Philip Paccione +2005 +325,000 +51,851 +— +— +20,150 +(9) +General Counsel; Executive +2004 +311,539 +20,000 +— +10,000 +19,503 +(9) +Vice President, Business Affairs +2003 +307,709 +— +— +— +9,806 +(9) +and Corporate Secretary +(1) +On January 3, 2006, David +Weinberg was promoted from Chief Financial Officer to Chief +Operating Officer of the Company, and Frederick Schneider was +appointed Chief Financial Officer and principal financial and +accounting officer of the Company to replace Mr. Weinberg +in such capacities. +(2) +Robert Greenberg voluntarily +elected to waive his entire salary for 2004. +(3) +Excludes the purchase of a car in +March 2003 for $66,594 by the Company that is owned by the +Company and used by Robert Greenberg. +(4) +Represents the amount of an +automobile lease for the benefit of each executive officer. With +respect to David Weinberg, excludes rental payments of $32,000 +in 2003 made by the Company directly to landlord regarding +property that was used primarily for corporate purposes but was +leased under the individual’s name. +(5) +Represents health and life +insurance payments. +(6) +Represents health and life +insurance payments of $15,085, $14,763 and $15,296, and +contributions of $6,150, $6,150 and $6,000 by the Company under +its 401(k) Plan for 2005, 2004 and 2003, respectively. +(7) +Represents health and life +insurance payments of $10,304, $10,260 and $11,109, and +contributions of $6,150, $6,150 and $6,000 by the Company under +its 401(k) Plan for 2005, 2004 and 2003, respectively. +(8) +Represents health and life +insurance payments of $10,304, $10,260 and $14,830, and +contributions of $135, $135 and $130 by the Company under its +401(k) Plan for 2005, 2004 and 2003, respectively. +(9) +Represents health and life +insurance payments of $14,000, $13,353 and $3,806, and +contributions of $6,150, $6,150 and $6,000 by the Company under +its 401(k) Plan for 2005, 2004 and 2003, respectively. +10 +Table of Contents +Stock +Options Granted in 2005 +During 2005, the Company’s employees were granted options +to purchase an aggregate of 35,000 shares of the +Company’s Class A Common Stock, none of which were +grants to the Named Executive Officers. +Aggregated +Option Exercises in 2005 and 2005 Year-End Option +Values +The following table sets forth the outstanding stock options of +the Named Executive Officers as of December 31, 2005. The +value of the unexercised +“in-the-money” +options is based on the fair market value of $15.32 as of +December 31, 2005, minus the exercise price, multiplied by +the numbers of shares underlying the options. +Number of Securities +Value of Unexercised +Shares +Underlying Unexercised +Options +In-The-Money Options +Acquired on +Value +at December 31, +2005 +at December 31, +2005 +Name +Exercise (#) +Realized ($) +Exercisable (#) +Unexercisable (#) +Exercisable ($) +Unexercisable ($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +62,500 +— +296,250 +— +David Weinberg +— +— +248,565 +25,000 +1,299,768 +174,250 +Mark Nason +31,000 +273,167 +168,768 +50,000 +974,496 +348,500 +Philip Paccione +— +— +62,463 +5,000 +261,783 +34,850 +Stock +Option Plan +In January 1998, the Company’s Board of Directors and +stockholders adopted the Stock Option Plan, which provides for +the grant of qualified incentive stock options +(“ISOs”) that meet the requirements of +Section 422 of the Internal Revenue Code of 1986, as +amended (the “Code”), stock options not so qualified +(“NQSOs”), and deferred stock and restricted stock +awards (“Awards”). The Stock Option Plan may be +administered by either the Board of Directors or a committee of +directors appointed by the Board of Directors (the +“Committee”). ISOs may be granted to the officers and +key employees of the Company or any of its subsidiaries. The +exercise price for any ISO granted under the Stock Option Plan +may not be less than 100% (or 110% in the case of ISOs granted +to an employee who is deemed to own in excess of 10% of the +outstanding Class A Common Stock) of the fair market value +of the shares of Class A Common Stock at the time the +option is granted. The exercise price for any NQSO granted under +the Stock Option Plan may not be less than 85% of the fair +market value of the shares of Class A Common Stock at the +time the option is granted. The purpose of the Stock Option Plan +is to provide a means of performance-based compensation in order +to attract and retain qualified personnel and to provide an +incentive to those whose job performance affects the Company. +The Stock Option Plan originally authorized the grant of options +to purchase, and Awards of, an aggregate of up to +5,215,154 shares of the Company’s Class A Common +Stock. By action at the Annual Meeting of Stockholders on +June 1, 2001, the number of shares of Class A Common +Stock authorized for issuance under the Stock Option Plan was +increased by 3,000,000 shares, and by action at the Annual +Meeting of Stockholders held on May 30, 2003, the number +was increased by an additional 3,000,000 shares, so that +the Stock Option Plan authorizes the grant of options to +purchase and awards of up to an aggregate of +11,215,154 shares of the Company’s Class A Common +Stock. The number of shares reserved for issuance under the +Stock Option Plan is subject to anti-dilution provisions for +stock splits, stock dividends and similar events. If an option +granted under the Stock Option Plan expires or terminates, or an +Award is forfeited, the shares subject to any unexercised +portion of such option or Award will again become available for +the issuance of further options or Awards under the Stock Option +Plan. +Under the Stock Option Plan, the Company may make loans +available to stock option holders, subject to the Board’s +(or if applicable, Committee’s) approval, in connection +with the exercise of stock options granted under the Stock +Option Plan. If shares of Class A Common Stock are pledged +as collateral for such indebtedness, such shares may be returned +to the Company in satisfaction of such indebtedness. If so +returned, such shares shall again be available for issuance in +connection with future stock options and Awards under the Stock +Option Plan. +No options or Awards may be granted under the Stock Option Plan +after January 14, 2008, provided that the Company’s +Board of Directors does not otherwise amend or terminate the +Stock Option Plan prior to such date. +Options granted under the Stock Option Plan will become +exercisable according to the terms of the grant made by the +Board of Directors or the Committee. Awards will be subject to +the terms and restrictions of the Award made +11 +Table of Contents +by the Board of Directors or the Committee. The Board of +Directors and the Committee have discretionary authority to +select participants from among eligible persons and to determine +at the time an option or Award is granted, and in the case of +options, whether it is intended to be an ISO or a NQSO, and when +and in what increments shares covered by the option may be +purchased. Under current law, ISOs may not be granted to any +individual who is not also an officer or employee of the Company +or any subsidiary thereof. +The exercise price of any option granted under the Stock Option +Plan is payable in full (i) in cash, (ii) by surrender +of shares of the Company’s Class A Common Stock +already owned by the option holder having a market value equal +to the aggregate exercise price of all shares to be purchased, +(iii) by cancellation of indebtedness owed by the Company +to the option holder, (iv) by a full recourse promissory +note executed by the option holder, (v) by arrangement with +a broker or (vi) by any combination of the foregoing. The +terms of any promissory note may be changed from time to time by +the Board of Directors to comply with applicable Internal +Revenue Service or SEC regulations or other relevant +pronouncements. +The Board of Directors may from time to time revise or amend the +Stock Option Plan and may suspend or discontinue it at any time. +However, no such revision or amendment may impair the rights of +any participant under any outstanding stock option or Awards +without such participant’s consent or may, without +stockholder approval, increase the number of shares subject to +the Stock Option Plan or decrease the exercise price of a stock +option to less than 100% of fair market value on the date of +grant (with the exception of adjustments resulting from changes +in capitalization), materially modify the class of participants +eligible to receive options or Awards under the Stock Option +Plan, materially increase the benefits accruing to participants +under the Stock Option Plan or extend the maximum option term +under the Stock Option Plan. +In the event of a change of control, all outstanding stock +options and Awards will fully vest and any indebtedness incurred +in connection with the Stock Option Plan will be forgiven. A +“change of control” occurs when (i) any person +becomes the beneficial owner, directly or indirectly, of +50 percent or more of the combined voting power of the +Company’s securities, (ii) during any consecutive +two-year period, individuals who at the beginning of such period +constitute the Board of Directors, and any new director, with +certain exceptions, who was approved by at least two-thirds of +the directors still in office who either were directors at the +beginning of the period or whose election or nomination for +election was previously so approved, cease for any reason to +constitute at least a majority of the Board of Directors, +(iii) in some circumstances, the stockholders approve a +merger or consolidation or (iv) the stockholders approve +the complete liquidation, sale or disposition of all or +substantially all of the Company’s assets. +As of December 31, 2005, options to purchase +4,209,437 shares of Class A Common Stock were +outstanding at a per share exercise price ranging from $2.78 to +$29.45, and the Company had 3,248,847 shares of +Class A Common Stock underlying options available for grant. +Employee +Stock Purchase Plan +The Company’s 1998 Employee Stock Purchase Plan (the +“Purchase Plan”) was adopted by the Company’s +Board of Directors and stockholders in July 1998 and amended by +its Board of Directors in June 2000. The Purchase Plan is +intended to qualify under Section 423 of the Code. Each +twelve-month offering period includes two consecutive six-month +purchase periods. The offering periods generally start on the +first trading day on or after January 1 and July 1 of each +year. The initial offering period commenced on July 1, +1999. A total of 2,781,415 shares of Class A Common +Stock was initially reserved for issuance under the Purchase +Plan, which may be adjusted annually on January 1 for increases +equal to the lesser of (i) 2,781,415 shares, +(ii) 1% of the outstanding shares of Class A Common +Stock on such date or (iii) such lesser amount as may be +determined by the Company’s Board of Directors. +Employees are eligible to participate if they are customarily +employed by the Company or any designated subsidiary for at +least 20 hours per week and more than five months in any +calendar year. However, any employee who immediately after the +grant of a stock purchase right owns stock possessing 5% or more +of the total combined voting power or value of all classes of +the capital stock of the Company or whose rights to purchase +stock under all employee stock purchase plans of the Company +accrue at a rate which exceeds $25,000 worth of stock for each +calendar year may not be granted the right to purchase stock +under the Purchase Plan for that year. +12 +Table of Contents +The Purchase Plan permits participants to purchase Class A +Common Stock through payroll deductions of up to 15% of the +participant’s “compensation.” Compensation is +defined as the participant’s base straight time gross +earnings, including commissions, payments for overtime, +incentive bonuses and performance bonuses. Amounts deducted and +accumulated by the participant are used to purchase shares of +Class A Common Stock at the end of each purchase period. +The price of stock purchased under the Purchase Plan is 85% of +the lower of the fair market value of the Class A Common +Stock as of either the beginning or ending date of the +semi-annual purchase period. The maximum number of shares a +participant may purchase during a single offering period is +determined by dividing $25,000 by the fair market value of a +share of the Company’s Class A Common Stock on the +first day of the offering period. Participants may end their +participation at any time during an offering period, and they +will be paid their payroll deductions to date. Participation +ends automatically upon termination of employment with the +Company. +Rights granted under the Purchase Plan are not transferable by a +participant other than by will, the laws of descent and +distribution, or as otherwise provided under the Purchase Plan. +The Purchase Plan provides that, in the event of a merger of the +Company with or into another corporation or a sale of all or +substantially all of the Company’s assets, each outstanding +stock purchase right may be assumed or substituted for by the +successor corporation. If the successor corporation refuses to +assume or substitute for the outstanding stock purchase right, +the offering period then in progress will be shortened and a new +purchase date will be set so that shares of Class A Common +Stock are purchased with the participant’s accumulated +payroll deductions prior to the effective date of such +transaction. +The Board of Directors has the authority to amend or terminate +the Purchase Plan, except that no such action may adversely +affect any outstanding rights to purchase stock under the +Purchase Plan, provided that the Board of Directors may +terminate an offering period on any exercise date if the Board +of Directors determines that the termination of the Purchase +Plan is in the best interests of the Company and its +stockholders. Notwithstanding anything to the contrary, the +Board of Directors may in its sole discretion amend the Purchase +Plan to the extent necessary and desirable to avoid unfavorable +financial accounting consequences by altering the purchase price +for any offering period, shortening any offering period or +allocating remaining shares among the participants. Unless +terminated sooner by the Board of Directors, the Purchase Plan +will terminate on June 30, 2008. +Since the inception of the Purchase Plan in July 1998 through +December 31, 2005, 1,178,438 shares of Class A +Common Stock were purchased by the Company’s employees at +the average price of $7.68 per share for an aggregate +purchase price of $9,053,000. As of December 31, 2005, +1,602,977 shares of Class A Common Stock were +available for future issuance under the Purchase Plan. +401(k) +Plan +The Company has in place a contributory retirement plan (the +“401(k) Plan”) for all employees age 21 and older +with at least 12 months of service, which is designed to be +tax deferred in accordance with the provisions of +Section 401(k) of the Code. The 401(k) Plan provides that +each participant may contribute up to 15% of his or her salary, +but not exceeding the IRS statutory limits, and the Company may +make a contribution equal to a percentage of salary contributed +by the participant to his or her plan account by the end of the +first quarter of the following year. Under the 401(k) Plan, +employees may elect to enroll on the first day of any month of +any plan year, provided that they have been employed by the +Company for at least six months. +Subject to the rules for maintaining the tax status of the +401(k) Plan, an additional Company contribution may be made at +the Company’s discretion. The Company’s contributions +to the 401(k) Plan in 2005, 2004 and 2003 were $939,000, +$767,000 and $763,000, respectively, which included the issuance +by the Company of 59,203 and 93,692 shares of its +Class A Common Stock to the 401(k) Plan for 2004 and 2003 +in March 2005 and 2004, respectively. The Company’s +contribution to the 401(k) Plan for 2005 in March 2006 did not +include the issuance of any shares of its Class A Common +Stock. +13 +Table of Contents +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2005 regarding compensation plans (including individual +compensation arrangements) under which equity securities of the +Company are authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +Plan Category +(a) +(b) +(c) +Equity compensation plans approved +by security holders +4,209,437 +(1) +$ +10.98 +4,851,824 +(2) +Equity compensation plans not +approved by security holders +— +— +— +Total +4,209,437 +4,851,824 +(1) +Represents stock options +outstanding under the Company’s Stock Option Plan. Amount +does not include shares available under the Company’s +Purchase Plan, which has a stockholder approved reserve of +1,602,977 shares. +(2) +Represents 3,248,847 shares +available for future issuance under the Stock Option Plan and +1,602,977 shares available for future issuance under the +Purchase Plan. The number of shares available for future +issuance under the Purchase Plan may be adjusted on January 1 +each year for increases equal to the lesser of +2,781,415 shares, 1% of the outstanding shares of +Class A Common Stock on such date or such lesser amount as +may be determined by the Company’s Board of Directors. +Under the Purchase Plan, each eligible employee may purchase a +limited number of shares of Class A Common Stock at +semi-annual intervals each year at a purchase price per share +equal to 85% of the fair market value of the Company’s +Class A Common Stock as of either the beginning or ending +date of the semi-annual purchase period. +14 +Table of Contents +BOARD +REPORT ON EXECUTIVE COMPENSATION +The Company is considered a Controlled Company under the NYSE +Rules, and, as a result, was not required to and did not have a +compensation committee during 2005. Robert Greenberg, Michael +Greenberg and David Weinberg were the directors who +primarily administered the policies governing the Company’s +executive compensation program for fiscal year 2005. +The Board of Directors believes that executive compensation +should reward sustained earnings and long-term value created for +stockholders and reflect the business strategies and long-range +plans of the Company. The guiding principles affecting executive +compensation are to (i) attract and retain key high caliber +executives, (ii) provide levels of compensation competitive +with those offered by the Company’s competitors and +(iii) motivate executives to enhance earnings and long-term +stockholder value by linking stock performance on a total +returns basis with long-term incentive compensation. +The Company’s executive compensation philosophy is to set +base salary at a competitive market rate and then to provide +performance-based variable compensation that allows total +compensation to fluctuate according to the Company’s growth +and sales as well as earnings. Targeted levels of executive +compensation are set at levels consistent with others in the +Company’s industry, determined after comparison, with such +compensation increasingly weighted towards programs contingent +upon the Company’s level of annual and long-term +performance. +Each executive officer’s compensation is comprised of up to +three principal components: base salary, bonus and any stock +options or restricted stock awards granted pursuant to the +Company’s Stock Option Plan. Base salary and bonus are +determined by executive management and are reviewed at least +annually by the Board of Directors. See “Executive +Compensation” for a description of the allocation of +base salary and bonus. Based on certain objective performance +criteria of the Company for fiscal year 2005, Robert Greenberg, +Michael Greenberg, David Weinberg, Mark Nason and Philip +Paccione received an annual bonus of $0, $362,833, $172,833, +$138,266 and $51,851, respectively. The Company’s +management and the Board of Directors believe that the total +compensation package of the executive officers should be linked +to certain objective performance criteria of the Company and to +the total return of the Company’s stock, both on an +absolute basis and relative to similar companies. The Company +uses stock options to align the long-range interests of its +executive officers with the interests of stockholders. The +amount of stock options that may be granted to each executive +officer is determined by taking into consideration the +officer’s position and individual performance with the +Company, the Company’s overall performance and an estimate +of the long-term value of the award considering current base +salary and any cash bonus awarded. +The foregoing principles and policies are applied in examining +the compensation of Robert Greenberg, the Company’s Chief +Executive Officer. The Board of Directors believes that Robert +Greenberg, as Chief Executive Officer, significantly and +directly influences the Company’s overall performance. +Mr. Greenberg’s compensation for fiscal year 2005 +consisted of a base salary of $1,442,307. +Section 162(m) was added to the Code as part of the Omnibus +Budget Reconciliation Act of 1993. Section 162(m) limits +the deduction for compensation paid to the Chief Executive +Officer and the other Named Executive Officers to the extent +that compensation of a particular executive exceeds $1,000,000, +with certain exceptions for “qualified performance-based +compensation.” The Board of Directors has taken steps to +provide that these exceptions will generally apply to +compensation paid to its Named Executive Officers. If the +stockholders of the Company approve Proposal No. 2 +herein concerning the 2006 Annual Incentive Compensation Plan, +compensation paid to such Named Executive Officers under the +Plan are expected to be deductible for federal income tax +purposes under Section 162(m). If the stockholders of the +Company do not approve the Plan, any bonuses paid to such Named +Executive Officers will be discretionary and may not be +deductible by the Company. The Board of Directors will continue +to monitor the applicability of Section 162(m) to its +ongoing compensation arrangements, although the Board may +exercise its discretion to provide compensation that may not be +fully deductible to the Company under Section 162(m). +15 +Table of Contents +The Board of Directors believes that its overall executive +compensation program will be successful in providing competitive +compensation appropriate to attract and retain highly qualified +executives and also to encourage increased performance from the +executive group, which will create added stockholder value. +Respectfully submitted, +Robert Greenberg +Michael Greenberg +Jeffrey Greenberg +David Weinberg +Morton D. Erlich +Geyer Kosinski +Richard Siskind +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee of the Board of Directors consists of three +non-employee directors who are independent under the standards +adopted by the Board of Directors and applicable NYSE Rules and +SEC standards. The Audit Committee represents and assists the +Board of Directors in fulfilling its responsibility for +oversight and evaluation of the quality and integrity of the +Company’s financial statements, the Company’s +compliance with legal and regulatory requirements, the +independent auditors’ qualifications and independence, and +the performance of the Company’s internal audit function +and independent auditors. +The Audit Committee has reviewed the Company’s audited +financial statements for the fiscal year ended December 31, +2005, and has discussed those financial statements with the +Company’s management, internal finance staff, internal +auditors and independent auditors, with and without management +present. The Audit Committee has also discussed with the +Company’s independent auditors the results of the +independent auditors’ examinations and the judgments of the +independent auditors concerning the quality, as well as the +acceptability, of the Company’s accounting principles and +such other matters that it is required to discuss with the +independent auditors under applicable rules, regulations or +generally accepted auditing standards (including Statement on +Auditing Standards No. 61). In addition, the Audit +Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board and has +discussed their independence from the Company and the +Company’s management with them, including a consideration +of the compatibility of non-audit services with their +independence, the scope of the audit and the scope of all fees +paid to the independent auditors during the year. +Based on its review and the discussions referred to above, the +Audit Committee recommended to the Company’s Board of +Directors that the audited financial statements be included in +the Company’s Annual Report on +Form 10-K +for the fiscal year ended December 31, 2005 for filing with +the SEC. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +16 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to +Independent Registered Public Accounting Firm for Fiscal Years +2005 and 2004 +The Company retained KPMG LLP to provide services for fiscal +years 2005 and 2004 in the categories and amounts as follows: +Service +2005 +2004 +Audit +fees (1) +$ +1,391,000 +$ +1,273,000 +(5) +Audit-related +fees (2) +16,000 +680,000 +Tax +fees (3) +229,000 +712,000 +All other +fees (4) +0 +46,000 +Total audit and non-audit fees +$ +1,636,000 +$ +2,711,000 +(1) +These are fees for professional +services performed by KPMG LLP for the audit of the +Company’s annual financial statements and the review of the +Company’s annual report on +Form 10-K, +the review of financial statements included in the +Company’s quarterly reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, and for +services that are normally provided in connection with statutory +and regulatory filings or engagements. +(2) +These are fees for acquisition due +diligence and consultations regarding financial accounting and +reporting as well as assurance and related services performed by +KPMG LLP that are reasonably related to the performance of the +audit or review of the Company’s financial statements as +required by the Sarbanes-Oxley Act of 2002. +(3) +These are fees for professional +services performed by KPMG LLP with respect to U.S. federal +and international tax compliance, tax consulting and tax work +stemming from “Audit” and “Audit-related” +items. This includes preparation of original and amended tax +returns for the Company and its consolidated subsidiaries, +refund claims, payment planning and tax audit assistance. +(4) +These are fees for other +permissible work performed by KPMG LLP that does not meet the +other category descriptions. +(5) +Includes $223,000 of fees related +to the fiscal year 2004 audit that were billed by KPMG LLP +subsequent to the filing and mailing of the proxy statement for +the Company’s 2004 Annual Meeting of Stockholders. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been ratified +by the Company’s stockholders at the Annual Meeting. Any +fees for proposed services exceeding these levels will also +require specific pre-approval by the Audit Committee. +17 +Table of Contents +STOCKHOLDER +RETURN PERFORMANCE PRESENTATION +The following graph demonstrates the total return to +stockholders of the Company’s Class A Common Stock +from December 31, 2000 to December 31, 2005, relative +to the performance of (i) the Standard & +Poor’s 500 Index, (ii) the Standard & +Poor’s Footwear Index, (iii) the Russell 2000 Index, +which includes the Company’s Class A Common Stock, and +(iv) the Company’s peer group index, which consists of +eight companies believed to be engaged in similar businesses: +Nike, Inc., Adidas-Solomon AG, K-Swiss Inc., The Stride Rite +Corporation, Kenneth Cole Productions, Inc., Steven Madden, +Ltd., The Timberland Company and Wolverine World Wide, Inc. +The Company is including the Russell 2000 Index and the +customized peer group index in the performance comparison graph +for the first time, and after this year will no longer include +the S&P 500 Index or the S&P Footwear Index. Under SEC +rules, both the newly selected indices and last year’s +indices must be shown in this transition year. Management +believes that it is appropriate to change the broad equity +market index in the performance comparison graph to the Russell +2000 Index because it includes the Company and is more +reflective of companies with a market capitalization similar to +that of the Company. Further, management believes that it is +appropriate to change the peer group index from the S&P 500 +Index, which includes Nike, Inc. and previously included Reebok +International Ltd., to a customized group of eight companies as +it contains a greater number of companies that are +representative of the Company’s footwear business. The +graph assumes an investment of $100 on December 31, 2000 in +each of the Company’s Class A Common Stock and the +stocks comprising each of the S&P 500 Index, the S&P +Footwear Index, the Russell 2000 Index and the customized peer +group index. Each of the four indices assumes that all dividends +were reinvested. The stock performance of the Company’s +Class A Common Stock shown on the following graph is not +necessarily indicative of future performance. The Company will +not make nor endorse any predictions as to its future stock +performance. +Company/Index +12/31/00 +12/31/01 +12/31/02 +12/31/03 +12/31/04 +12/31/05 +Skechers +U.S.A., Inc. +100.00 +94.32 +54.77 +52.58 +83.61 +98.84 +S&P +500 +100.00 +88.12 +68.64 +88.33 +97.94 +102.75 +Russell +2000 +100.00 +102.49 +81.49 +120.00 +142.00 +148.46 +S&P +Footwear +100.00 +101.33 +84.09 +128.56 +169.06 +170.05 +Custom +Peer Group +100.00 +99.48 +87.97 +126.18 +166.06 +177.56 +18 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of the Company’s Class A Common +Stock and Class B Common Stock as of March 31, 2006 by +(i) each director of the Company, (ii) each of the +Named Executive Officers, (iii) each person known to the +Company to be beneficial owner of more than 5% of either class +of the Common Stock and (iv) all directors and executive +officers of the Company as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 24,665,215 shares of Class A +Common Stock and 16,151,189 shares of Class B Common +Stock outstanding as of March 31, 2006. The Class B +Common Stock is convertible at any time into shares of the +Class A Common Stock on a +one-for-one +basis. Beneficial ownership is determined in accordance with SEC +rules and regulations. In computing the number of shares of +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of March 31, 2006 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See +“Certain Relationships and Related +Transactions” for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and the Company. To the +Company’s knowledge, unless otherwise indicated in the +footnotes to this table and subject to applicable community +property laws, each person named in the table has sole voting +and investment power with respect to the shares of Class A +and Class B Common Stock set forth opposite such +person’s name. Unless otherwise indicated in the footnotes +below, the address of each beneficial owner listed below is +c/o Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +Number of +Number of +Percentage of +Percentage of +Class A Shares +Class B Shares +Class A Shares +Class B Shares +Name of Beneficial +Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Wellington Management Company, LLP +3,176,991 +(1) +— +12.9 +% +— +Alexandra Global Master +Fund Ltd. +2,848,349 +(2) +— +10.4 +— +Named Executive Officers and +directors: +Robert Greenberg +11,741,240 +(3) +11,741,240 +(4) +32.3 +72.7 +% +Michael Greenberg +1,202,689 +(5) +1,129,991 +(6) +4.7 +7.0 +Jeffrey Greenberg +981,134 +(7) +867,334 +(8) +3.8 +5.4 +David Weinberg +345,332 +(9) +— +1.4 +— +Mark Nason +193,819 +(10) +— +* +— +Philip Paccione +64,963 +(11) +— +* +— +Morton D. Erlich +10,000 +(12) +— +* +— +Geyer Kosinski +30,000 +(11) +— +* +— +Richard Siskind +84,333 +(13) +— +* +— +All current directors and +executive officers as a group (10 persons) +14,703,510 +(14) +13,738,565 +37.5 +% +85.1 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2006 +and represents the number of shares reported as beneficially +owned as of December 31, 2005. Wellington Management +Company, LLP (“Wellington”), which is an investment +adviser registered under Section 203 of the Investment +Advisers Act of 1940, has shared voting power with respect to +2,469,891 of the shares that it beneficially owns and shared +dispositive power with respect to 3,099,391 of the shares that +it beneficially owns. Wellington is located +at 75 State Street, Boston, Massachusetts 02109. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 15, 2006 +and represents the number of shares reported as beneficially +owned as of December 31, 2005. Alexandra Global Master +Fund Ltd. (“Alexandra”) has shared voting and +dispositive power with respect to the 2,848,349 shares +reported as beneficially owned by Alexandra, which represents +shares underlying 4.50% convertible subordinated notes due +2007 that are currently convertible. Alexandra Investment +Management, LLC (“AIM”) serves as an investment +advisor to Alexandra, and by reason of such relationship may be +deemed to share voting and dispositive power over the shares +beneficially owned by Alexandra. AIM disclaims beneficial +ownership of such shares. Mikhail A. Filimonov +(“Filimonov”) serves as the Chairman, the Chief +Executive Officer, a Managing Member and the Chief Investment +Officer of AIM. Dimitri Sogoloff (“Sogoloff”) serves +as the President, a Managing Member and the Chief Risk Officer +of AIM. By reason of such relationships, Filimonov and Sogoloff +may be deemed to share voting and dispositive power over the +shares listed as beneficially owned by AIM. Filimonov and +Sogoloff each disclaims beneficial ownership of the shares +listed as beneficially owned by AIM or any other reporting +person. Alexandra Global is located at Citco +19 +Table of Contents +Building, Wickams Cay, P.O. +Box 662, Road Town, Tortola, British Virgin Islands. AIM, +Filimonov and Sogoloff are located at 767 Third Avenue, +39 th Floor, +New York, New York 10017. +(3) +Represents 11,741,240 shares +of Class B Common Stock that are convertible at any time +into shares of Class A Common Stock on a one-for-one basis. +Beneficial ownership of these shares is described in greater +detail in note 4 below. +(4) +Includes 11,626,240 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, Chief Executive +Officer and Chairman of the Board of the Company, is deemed +to beneficially own as a trustee of the Trust. +Susan Greenberg, Robert Greenberg’s wife, is also a +trustee of the Trust and is also deemed to beneficially own all +shares held by the Trust. +(5) +Includes 1,129,991 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for- one basis, +37,500 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2006 and 22,650 shares of Class A +Common Stock beneficially owned by Michael Greenberg, President +and a Director of the Company, indirectly through his wife, +Wendy Greenberg, and their children. Michael Greenberg disclaims +beneficial ownership of these 22,650 shares except to the +extent of his pecuniary interest therein. Beneficial ownership +of the 1,129,991 shares of Class B Common Stock is +described in greater detail in note 6 below. +(6) +Includes 1,050,797 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg, President and a +Director of the Company, is deemed to beneficially own as +trustee of such trust. Also, includes 79,194 shares of +Class B Common Stock held in various trust accounts for +Mr. Greenberg’s minor children and of which a third +party acts as trustee or custodian, as the case may be. +Mr. Greenberg disclaims beneficial ownership of these +79,194 shares except to the extent of his pecuniary +interest therein. +(7) +Includes 867,334 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for- one basis and +110,000 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2006. Beneficial ownership of the +867,334 shares of Class B Common Stock is described in +greater detail in note 8 below. +(8) +Includes 802,558 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a Director of the Company, +is deemed to beneficially own as a trustee of such trust. +Lori Greenberg, Jeffrey Greenberg’s wife, is also a +trustee of the Jeffrey and Lori Greenberg Family Trust and is +also deemed to beneficially own all shares held by such trust. +Also, includes 3,300 shares of Class B Common Stock +held by the Chloe July Greenberg custodial account that +Mr. Greenberg is deemed to beneficially own as custodian of +such account and 61,476 shares of Class B Common Stock +held by the Chloe July Greenberg 2004 Trust that +Mr. Greenberg is deemed to beneficially own as trustee of +such trust, both of which are for his daughter who is a minor. +(9) +Represents 84,267 shares of +Class A Common Stock that David Weinberg, Executive Vice +President, Chief Operating Officer and a Director of the +Company, is deemed to beneficially own as sole trustee of The +David Weinberg Trust dated September 7, 2000, and +261,065 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2006. +(10) +Includes 193,768 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2006. +(11) +Represents shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of March 31, 2006. +(12) +Includes 2,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a Director of the Company, is deemed to +beneficially own as a trustee of such trust. +(13) +Includes 70,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2006. +(14) +Includes 767,296 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2006 by the Named Executive Officers and directors of the +Company. Also, includes 50,000 shares of Class A +Common Stock beneficially owned by Frederick Schneider, who is +currently an executive officer of the Company but neither a +Named Executive Officer nor director of the Company. These +50,000 shares include 30,000 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of March 31, 2006, +10,000 shares held by the Schneider Limited Partnership +that Mr. Schneider is deemed to beneficially own as its +general partner and 2,000 shares held by The Schneider CA +Partnership that Mr. Schneider is deemed to beneficially +own as its general partner. +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Exchange Act requires the +Company’s officers, directors and persons who own more than +ten percent of a registered class of the Company’s +securities, to file with the SEC reports of initial ownership +(Form 3’s) and reports of changes in ownership +(Form 4’s and 5’s) of the Company’s +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish the Company with copies of all Section 16(a) forms +that they file. +Based solely on the Company’s review of the copies of such +reports furnished to the Company, management believes that all +officers, directors and greater than ten percent stockholders +complied with the filing requirements of Section 16(a) for +the fiscal year 2005, except that Mark Nason filed a late +Form 4 with respect to one transaction, and Jeffrey +Greenberg filed a Form 5 for fiscal year 2005 that included +one Section 16(b) exempt transaction that occurred on +December 23, 2004, which was inadvertently omitted from the +Form 5 previously filed for fiscal year 2004. Also, another +Section 16(b) exempt transaction that occurred on +January 14, 2005 but inadvertently reported as occurring on +December 30, 2004 on both Jeffrey Greenberg’s +Form 5 for fiscal year 2004 and Robert Greenberg’s +Form 5 for fiscal year 2004 was corrected on Jeffrey +Greenberg’s Form 5 for fiscal year 2005 and by +amendment to Robert Greenberg’s Form 5 for fiscal year +2004, respectively. +20 +Table of Contents +CERTAIN +RELATIONSHIPS AND RELATED TRANSACTIONS +As of March 31, 2006, Robert Greenberg, his children, and +the Greenberg Family Trust beneficially own 99.5% of the +Class B Common Stock and approximately 86.6% of the +combined voting power of the Company’s Class A and +Class B Common Stock. By virtue of this stock ownership, +Robert Greenberg may be deemed to be a “control +person” of the Company within the meaning of the rules and +regulations promulgated under the Securities Act of 1933, as +amended, and the Greenberg Family Trust influences the election +of Robert Greenberg. Michael Greenberg, the Company’s +President, and Jeffrey Greenberg, both of whom are members of +the Board of Directors of the Company, are each beneficiaries of +the Greenberg Family Trust. Additionally, Robert Greenberg, +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 63.1% of the combined voting +power of the Company’s Class A and Class B Common +Stock. As a result, the Company is considered a “Controlled +Company” under the NYSE Rules and is thereby exempt from +certain listing requirements and regulations as set forth in the +NYSE Rules. +Shares of Class A Common Stock issuable upon conversion of +shares of Class B Common Stock held by the Greenberg Family +Trust and Michael Greenberg, President of the Company, are +subject to certain registration rights. The Company entered into +a registration rights agreement with the Greenberg Family Trust +and Michael Greenberg pursuant to which the Company agreed that +it will, on up to two separate occasions per year, register up +to one-third of the shares of Class A Common Stock issuable +upon conversion of their Class B Common Stock beneficially +owned as of the closing of the Company’s initial public +offering of its Class A Common Stock by each such +stockholder in any one year, provided, among other conditions, +that the underwriters of any such offering have the right to +limit the number of shares included in such registration. The +Company also agreed that, if it shall cause to be filed with the +SEC a registration statement, each such stockholder shall have +the right to include up to one-third of the shares of +Class A Common Stock issuable upon conversion of their +Class B Common Stock beneficially owned as of the closing +of the Company’s initial public offering of its +Class A Common Stock by each of them in such registration +statement provided, among other conditions, that the +underwriters of any such offering have the right to limit the +number of shares included in such registration. All expenses of +such registrations shall be at the Company’s expense. +Michael Greenberg, President and a director of the Company, owns +a 12% beneficial ownership interest in Manhattan Inn Operating +Company, LLC (“MIOC”), the primary business of which +is to own and operate the Shade Hotel, which recently opened in +Manhattan Beach, California. Michael Greenberg, David Weinberg, +who is Chief Operating Officer and a director of the Company, +and Michael Greenberg’s brothers Jeffrey Greenberg, who is +a senior vice president and director of the Company, and Jason +and Joshua Greenberg, who are senior vice presidents of the +Company, own in aggregate a 17% beneficial ownership interest in +MIOC. The Company held its 2005 holiday party at the Shade Hotel +in December 2005, and the total amount paid by Skechers to the +Shade Hotel for all related expenses was $47,000, which exceeded +5% of the gross revenues of the Shade Hotel in 2005 because it +did not open until November 2005. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and +Jennifer Greenberg, who are the children of +Robert Greenberg, Chairman of the Board and Chief Executive +Officer of the Company, and are also the siblings of +Michael Greenberg, President of the Company, were +non-executive employees of the Company in 2005, and each of them +received compensation that exceeded $60,000 for 2005. +The Company believes that all of the foregoing relationships and +transactions were reasonable and in the best interest of the +Company. +21 +Table of Contents +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING +Stockholder proposals intended to be presented at the +Company’s next Annual Meeting of Stockholders to be held in +2007 must be received at the Company’s principal executive +offices no later than January 1, 2007, in order to be +considered for inclusion in the proxy statement and form of +proxy relating to that meeting. Proposals must comply with the +proxy rules relating to stockholder proposals, in particular +Rule 14a-8 +under the Exchange Act, to be included in the Company’s +proxy materials. Stockholders who wish to submit a proposal for +consideration at the Company’s 2007 Annual Meeting of +Stockholders, but who do not wish to submit a proposal for +inclusion in the Company’s Proxy Statement, must, in +accordance with the Company’s Bylaws, deliver a copy of +their proposal no later than the close of business on the +sixtieth +(60 th ) +day nor earlier than the close of business on the ninetieth +(90 th ) +day in advance of such meeting. In either case, proposals should +be delivered to Skechers U.S.A., Inc., 228 Manhattan Beach +Blvd., Manhattan Beach, California 90266, Attention: Michael +Greenberg, President. To avoid controversy and establish timely +receipt by the Company, it is suggested that stockholders send +their proposals by certified mail, return receipt requested. +STOCKHOLDER +COMMUNICATION WITH THE BOARD OF DIRECTORS +Stockholders who wish to contact any of our directors either +individually or as a group may do so by writing to them +c/o Philip Paccione, Corporate Secretary, Skechers U.S.A., +Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. Each writing stockholder should specify +whether the communication is directed to the entire Board of +Directors or to a particular director. Company personnel will +review the communications and screen improper and irrelevant +communications such as solicitations. +OTHER +BUSINESS +The Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this Proxy Statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: May 1, 2006 +Manhattan Beach, California +22 +Table of Contents +APPENDIX A +SKECHERS +U.S.A., INC. +2006 +ANNUAL INCENTIVE COMPENSATION PLAN +Skechers USA, Inc. (the “Company”), a Delaware +corporation, hereby establishes and adopts the following 2006 +Annual Incentive Compensation Plan (the “Plan”) to +provide incentive awards that are intended to qualify as +“performance-based compensation” within the meaning of +Section 162(m) of the Internal Revenue Code of 1986, as +amended. +1. +PURPOSES +OF THE PLAN +The purposes of the Plan are to advance the interests of the +Company and its stockholders and assist the Company in +attracting and retaining executive officers of the Company and +its Affiliates who, because of the extent of their +responsibilities can make significant contributions to the +Company’s success by their ability, industry, loyalty and +exceptional services, by providing incentives and financial +rewards to such executive officers. +2. +DEFINITIONS +2.1. “Affiliate” shall mean any +corporation, partnership or other organization of which the +Company owns or controls, directly or indirectly, not less than +50% of the total combined voting power of all classes of stock +or other equity interests. +2.2. “Award” shall mean any amount +granted to a Participant under the Plan. +2.3. “Board” shall mean the board +of directors of the Company. +2.4. “Code” shall mean the Internal +Revenue Code of 1986, as amended from time to time, and any +successor thereto. +2.5. “Committee” shall mean the +Compensation Committee of the Board or any subcommittee thereof +formed by the Compensation Committee to act as the Committee +hereunder. For purposes of satisfying the requirements of +Section 162(m) of the Code and the regulations thereunder, +the Committee is intended to consist solely of “outside +directors” as such term is defined in Section 162(m) +of the Code. +2.6. “Disability” means any +physical or mental condition of a Participant that in the +opinion of the Committee renders the Participant incapable of +continuing to be an employee of the Company and its Affiliates. +2.7. “Participant” shall mean the +Company’s Chief Executive Officer and each other executive +officer of the Company or an Affiliate selected by the Committee +pursuant to Section 4.1 to participate in this Plan. +2.8. “Performance Criteria” shall +mean net sales; revenue; revenue growth; operating income; +pre-or after-tax income (before or after allocation of corporate +overhead and bonus); net earnings; earnings per share; net +income; division, group or corporate financial goals; return on +equity; total shareholder return; return on assets or net +assets; attainment of strategic and operational initiatives; +appreciation in +and/or +maintenance of the price of shares of the Class A Common +Stock or any other publicly-traded securities of the Company; +market share; gross profits; earnings (including earnings before +taxes, earnings before interest and taxes or earnings before +interest, taxes, depreciation and amortization); economic +value-added models; comparisons with various stock market +indices; reductions in costs; cash flow (before or after +dividends) cash flow per share (before or after dividends); +return on capital (including return on total capital or return +on invested capital; cash flow return on investment; and +improvement in or attainment of expense levels or working +capital levels. +2.9. “Performance Period” shall +mean the Company’s fiscal quarter, fiscal year or such +other period that the Committee, in its sole discretion, may +establish, provided no Performance Period shall be more than +five years in length. +A-1 +Table of Contents +3. +ELIGIBILITY +AND ADMINISTRATION +3.1. Eligibility. The +individuals eligible to participate in the Plan shall be the +Company’s Chief Executive Officer and any other executive +officer of the Company or an Affiliate. +3.2. Administration. +(a) The Plan shall be administered by the Committee. The +Committee shall have full power and authority, subject to the +provisions of the Plan and subject to such orders or resolutions +not inconsistent with the provisions of the Plan as may from +time to time be adopted by the Board, to: (i) select the +Participants to whom Awards may from time to time be granted +hereunder; (ii) determine the terms and conditions, not +inconsistent with the provisions of the Plan, of each Award; +(iii) determine the time when Awards will be granted and +paid and the Performance Period to which they relate; +(iv) determine the performance goals for Awards for each +Participant in respect of each Performance Period based on the +Performance Criteria and certify the calculation of the amount +of the Award payable to each Participant in respect of each +Performance Period; (v) determine whether payment of Awards +may be deferred by Participants; (vi) interpret and +administer the Plan and any instrument or agreement entered into +in connection with the Plan; (vii) correct any defect, +supply any omission or reconcile any inconsistency in the Plan +or any Award in the manner and to the extent that the Committee +shall deem desirable to carry it into effect; +(viii) establish such rules and regulations and appoint +such agents as it shall deem appropriate for the proper +administration of the Plan; and (ix) make any other +determination and take any other action that the Committee deems +necessary or desirable for administration of the Plan. +(b) Decisions of the Committee shall be final, conclusive +and binding on all persons or entities, including the Company, +any Affiliate, any Participant and any person claiming any +benefit or right under an Award or under the Plan. +(c) To the extent not inconsistent with applicable law or +the rules and regulations of the New York Stock Exchange (or +such other principal securities market on which the +Company’s securities are listed or qualified for trading), +including the applicable provisions of Section 162(m) of +the Code, the Committee may delegate to one or more officers of +the Company or a committee of officers the authority to take +actions on its behalf pursuant to the Plan. +4. +AWARDS +4.1. Performance Period; Performance +Goals. Not later than the earlier of +(i) 90 days after the commencement of each fiscal year +of the Company and (ii) the expiration of 25% of the +Performance Period, the Committee shall, in writing, designate +one or more Performance Periods, determine the Participants for +such Performance Periods and determine the performance goals for +determining the Award for each Participant for such Performance +Period(s) based on attainment of specified levels of one or any +combination of the Performance Criteria. Such performance goals +may be based solely by reference to the Company’s +performance or the performance of an Affiliate, division, +business segment or business unit of the Company, or based upon +the relative performance of other companies or upon comparisons +of any of the indicators of performance relative to other +companies. The Committee may also exclude charges related to an +event or occurrence which the Committee determines should +appropriately be excluded, including (a) restructurings, +discontinued operations, extraordinary items, and other unusual +or non-recurring charges, (b) an event either not directly +related to the operations of the Company or not within the +reasonable control of the Company’s management, or +(c) the cumulative effects of tax or accounting changes in +accordance with generally accepted accounting principles. Such +performance goals shall otherwise comply with the requirements +of, Section 162(m) of the Code, and the regulations +thereunder. For competitive reasons, specific performance goals +determined by the Committee for each Performance Period will not +be publicly disclosed. +4.2. Certification. At such +time as it shall determine appropriate following the conclusion +of each Performance Period, the Committee shall certify, in +writing, the amount of the Award for each Participant for such +Performance Period. +4.3. Payment of Awards. The +amount of the Award actually paid to a Participant may, in the +sole discretion of the Committee, be less than the amount +otherwise payable to the Participant based on attainment of the +A-2 +Table of Contents +performance goals for the Performance Period as determined in +accordance with Section 4.1. The actual amount of the Award +determined by the Committee for a Performance Period shall be +paid in cash or, to the extent provided in such plan share +awards under a shareholder-approved stock plan of the Company. +Payment to each Participant shall be made no later than the +fifteenth day of the third month following the end of the fiscal +quarter of the Company in which the applicable Performance +Period ends. +4.4. Commencement or Termination of +Employment. If a person becomes a Participant +during a Performance Period (whether through promotion or +commencement of employment) or if a person who otherwise would +have been a Participant dies, retires or is Disabled, or if the +person’s employment is otherwise terminated, during a +Performance Period (except for cause, as determined by the +Committee in its sole discretion), the Award payable to such a +Participant may, in the discretion of the Committee, be +proportionately reduced based on the period of actual employment +during the applicable Performance Period. +4.5. Maximum Award. The +maximum dollar value of an Award payable to any Participant in +any 12-month +period is $5,000,000. +5. +MISCELLANEOUS +5.1. Amendment and Termination of the +Plan. The Committee may, from time to time, +alter, amend, suspend or terminate the Plan as it shall deem +advisable, subject to any requirement for stockholder approval +imposed by applicable law, including Section 162(m) of the +Code. No amendments to, or termination of, the Plan shall in any +way impair the rights of a Participant under any Award +previously granted without such Participant’s consent. +5.2. Section 162(m) of the +Code. Unless otherwise determined by the +Committee, the provisions of this Plan shall be administered and +interpreted in accordance with Section 162(m) of the Code +to ensure the deductibility by the Company of the payment of +Awards. +5.3. Tax Withholding. The +Company or an Affiliate shall have the right to make all +payments or distributions pursuant to the Plan to a Participant, +net of any applicable federal, state and local taxes required to +be paid or withheld. The Company or an Affiliate shall have the +right to withhold from wages, Awards or other amounts otherwise +payable to such Participant such withholding taxes as may be +required by law, or to otherwise require the Participant to pay +such withholding taxes. If the Participant shall fail to make +such tax payments as are required, the Company or an Affiliate +shall, to the extent permitted by law, have the right to deduct +any such taxes from any payment of any kind otherwise due to +such Participant or to take such other action as may be +necessary to satisfy such withholding obligations. +5.4. Right of Discharge Reserved; Claims to +Awards. Nothing in this Plan shall provide any +Participant a right to receive any Award or payment under the +Plan with respect to a Performance Period. Nothing in the Plan +nor the grant of an Award hereunder shall confer upon any +Participant the right to continue in the employment of the +Company or an Affiliate or affect any right that the Company or +an Affiliate may have to terminate the employment of (or to +demote or to exclude from future Awards under the Plan) any such +Participant at any time for any reason. Except as specifically +provided by the Committee, the Company shall not be liable for +the loss of existing or potential profit from an Award granted +in the event of the termination of employment of any +Participant. No Participant shall have any claim to be granted +any Award under the Plan, and there is no obligation for +uniformity of treatment of Participants under the Plan. +5.5. Nature of Payments. All +Awards made pursuant to the Plan are in consideration of +services performed or to be performed for the Company or an +Affiliate, division or business unit of the Company. Any income +or gain realized pursuant to Awards under the Plan constitute a +special incentive payment to the Participant and shall not be +taken into account, to the extent permissible under applicable +law, as compensation for purposes of any of the employee benefit +plans of the Company or an Affiliate except as may be determined +by the Committee or by the Board or board of directors of the +applicable Affiliate. +5.6. Other Plans. Nothing +contained in the Plan shall prevent the Board from adopting +other or additional compensation arrangements, subject to +stockholder approval if such approval is required; and such +arrangements may be either generally applicable or applicable +only in specific cases. +A-3 +Table of Contents +5.7. Severability. If any +provision of the Plan shall be held unlawful or otherwise +invalid or unenforceable in whole or in part by a court of +competent jurisdiction, such provision shall (a) be deemed +limited to the extent that such court of competent jurisdiction +deems it lawful, valid +and/or +enforceable and as so limited shall remain in full force and +effect, and (b) not affect any other provision of the Plan +or part thereof, each of which shall remain in full force and +effect. If the making of any payment or the provision of any +other benefit required under the Plan shall be held unlawful or +otherwise invalid or unenforceable by a court of competent +jurisdiction, such unlawfulness, invalidity or unenforceability +shall not prevent any other payment or benefit from being made +or provided under the Plan, and if the making of any payment in +full or the provision of any other benefit required under the +Plan in full would be unlawful or otherwise invalid or +unenforceable, then such unlawfulness, invalidity or +unenforceability shall not prevent such payment or benefit from +being made or provided in part, to the extent that it would not +be unlawful, invalid or unenforceable, and the maximum payment +or benefit that would not be unlawful, invalid or unenforceable +shall be made or provided under the Plan. +5.8. Construction. As used +in the Plan, the words “include” and +“including,” and variations thereof, shall not be +deemed to be terms of limitation, but rather shall be deemed to +be followed by the words “without limitation.” +5.9. Unfunded Status of the +Plan. The Plan is intended to constitute an +“unfunded” plan for incentive compensation and +deferred compensation if permitted by the Committee. With +respect to any payments not yet made to a Participant by the +Company, nothing contained herein shall give any such +Participant any rights that are greater than those of a general +creditor of the Company. +5.10. Governing Law. The +Plan and all determinations made and actions taken thereunder, +to the extent not otherwise governed by the Code or the laws of +the United States, shall be governed by the laws of the State of +California without reference to principles of conflict of laws +that might result in the application of the laws of another +jurisdiction, and shall be construed accordingly. +5.11. Effective Date of +Plan. The Plan shall be effective on the date of +the approval of the Plan by the holders of the then outstanding +securities of the Company entitled to vote generally in the +election of directors. The Plan shall be null and void and of no +effect if the foregoing condition is not fulfilled. Any amounts +paid under the provisions of this Plan in advance of expected +shareholder approval shall be repaid to the Company by +January 31, 2007 if shareholder approval of this Plan is +not obtained by December 31, 2006. +5.12. Captions. The captions +in the Plan are for convenience of reference only, and are not +intended to narrow, limit or affect the substance or +interpretation of the provisions contained herein. +A-4 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +May 19, 2006 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE NOMINEES LISTED IN PROPOSAL 1 +AND “FOR” PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. x +1. +Election of +FOR ALL THE NOMINEES +WITHHOLD +FOR ALL EXCEPT +NOMINEES: +Directors +AUTHORITY FOR ALL +(See instructions below) +NOMINEES +o +o +o +o +Robert Greenberg +o +Morton D. Erlich +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL +EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: x +2. +Approve the Company’s 2006 Annual Incentive Compensation Plan. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the year ending +December 31, 2006. +FOR +AGAINST +ABSTAIN +o +o +o +Each of the persons named as proxies herein are +authorized, in such person’s discretion, to vote upon such +other matters as may properly come before the Annual +Meeting, or any adjournments thereof. +To change the address on your account, please check the box +at right and indicate your new address in the address space +above. Please note that changes to the registered name(s) +on the account may not be submitted via this +method. o +Please check here if you plan to attend the meeting. +o +Signature +Signature +of Stockholder: +Date: +of Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. +When shares are held jointly, each holder should sign. When +signing as executor, administrator, attorney, trustee or +guardian, please give full title as such. If the signer is a +corporation, please sign full corporate name by duly authorized +officer, giving full title as such. If signer is a partnership, +please sign in partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 19, 2006 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated May 1, 2006, and hereby appoints Michael Greenberg and David Weinberg and each of them, with +full power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the +undersigned, and hereby authorizes each of them to represent and to vote all of the shares which +the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., Inc. +to be held at The Ayres Hotel located at 14400 Hindry Avenue, Hawthorne, California 90250, on +Friday, May 19, 2006, at 10:00 a.m. Pacific time, and at any adjournments thereof, upon the matters +as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which +is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSALS 2 AND 3 AS DESCRIBED IN THE PROXY, AND IN +ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY +PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950129-06-004637/proxy_rpt.txt b/raw/proxies/0001065837/0000950129-06-004637/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..18eac2db0bd1b0df4c0f810ae9715604075e2715 --- /dev/null +++ b/raw/proxies/0001065837/0000950129-06-004637/proxy_rpt.txt @@ -0,0 +1,21 @@ +See “Certain Relationships and Related Transactions” +regarding arrangements between the Company and the Greenberg +Family Trust, of which Robert Greenberg is a trustee, and +Michael Greenberg. The Company’s Compensation Committee +that was approved and established as of March 31, 2006 is +currently composed of Richard Siskind and Morton D. Erlich, +neither of whom has ever been an employee or officer of the +Company or any of its subsidiaries. +None of the Company’s executive officers who reviewed and +discussed executive compensation for 2005, and neither of the +current members of the Compensation Committee, has served or +currently serves on the board of directors or on the +compensation committee of any other entity, which has officers +who served on the Company’s Board of Directors during the +fiscal year ended December 31, 2005 or thereafter. +Code of +Business Conduct and Ethics +The Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by the Board of +Directors as of April 28, 2004. The purpose of the Code is +to promote honest and ethical conduct. The Code is posted in the \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950134-07-009374/proxy.txt b/raw/proxies/0001065837/0000950134-07-009374/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..482ca207fe5a01b0eecd40a87243cd987c0be284 --- /dev/null +++ b/raw/proxies/0001065837/0000950134-07-009374/proxy.txt @@ -0,0 +1,6327 @@ +DEF 14A +1 +v29291ddef14a.htm +DEF 14A +def14a +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE +14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the Securities +Exchange Act of 1934 (Amendment No. ___ ) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) ) +þ +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act +Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was +determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) +and identify the filing for which the offsetting fee was paid previously. Identify the +previous filing by registration statement number, or the Form or Schedule and the date of its +filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF +STOCKHOLDERS +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation, to be held at The Ayres +Hotel located at 14400 Hindry Avenue, Hawthorne, California +90250 on May 24, 2007 at 9:00 a.m. Pacific Time. +Our Annual Meeting is being held for the following purposes: +1. To elect three members to the Board of Directors to +serve for a three-year term as Class II Directors; +2. To approve the 2007 Incentive Award Plan; +3. To approve the 2008 Employee Stock Purchase +Plan; and +4. To transact such other business as may properly come +before the meeting or any adjournments thereof. +The Board of Directors recommends a vote “for” each +of the nominees and for each proposal listed above. +The Board of Directors has fixed the close of business on +March 30, 2007 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +Our Annual Report for the year ended December 31, 2006 is +enclosed with this notice to our stockholders. The following +proxy statement and enclosed proxy card is being sent to each +stockholder as of the record date. You are cordially invited to +attend the Annual Meeting, but if you do not expect to attend, +or if you plan to attend, but desire the proxy holders to vote +your shares, please date and sign your proxy card and return it +in the enclosed postage paid envelope. The giving of this proxy +card will not affect your right to vote in person in the event +you find it convenient to attend. Please return the proxy card +promptly to avoid the expense of additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2007 +Manhattan Beach, California +TABLE OF CONTENTS +SKECHERS U.S.A., INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +PROPOSAL NO. 1 ELECTION OF DIRECTORS +PROPOSAL NO. 2 APPROVAL OF THE 2007 INCENTIVE AWARD PLAN +PROPOSAL NO. 3 APPROVAL OF THE 2008 EMPLOYEE STOCK PURCHASE PLAN +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +CORPORATE GOVERNANCE AND BOARD MATTERS +COMPENSATION DISCUSSION AND ANALYSIS +REPORT OF THE COMPENSATION COMMITTEE +EXECUTIVE COMPENSATION +DIRECTOR COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +TRANSACTIONS WITH RELATED PERSONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +OTHER BUSINESS +SKECHERS U.S.A., INC. 2007 INCENTIVE AWARD PLAN +ARTICLE 1 +ARTICLE 2. +DEFINITIONS AND CONSTRUCTION +ARTICLE 3. +SHARES SUBJECT TO THE PLAN +ARTICLE 4. +ELIGIBILITY AND PARTICIPATION +ARTICLE 5. +STOCK OPTIONS +ARTICLE 6. +RESTRICTED STOCK AWARDS +ARTICLE 7. +STOCK APPRECIATION RIGHTS +ARTICLE 8. +OTHER TYPES OF AWARDS +ARTICLE 9. +PERFORMANCE-BASED AWARDS +ARTICLE 10. +PROVISIONS APPLICABLE TO AWARDS +ARTICLE 11. +CHANGES IN CAPITAL STRUCTURE +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For +Annual Meeting to be Held +May 24, 2007 at 9:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or +“Skechers”), in connection with our Annual Meeting of +Stockholders to be held on May 24, 2007 at +9:00 a.m. Pacific Time at The Ayres Hotel located at +14400 Hindry Avenue, Hawthorne, California 90250 (the +“Annual Meeting”). The approximate mailing date for +this proxy statement and the enclosed proxy is May 1, 2007. +If a proxy in the accompanying form is duly executed and +returned, the shares represented by the proxy will be voted as +directed. If no direction is given, the shares represented by +the proxy will be voted (i) for the election of the +nominees for director named herein, (ii) for the approval +of the 2007 Incentive Award Plan and (iii) for the approval +of the 2008 Employee Stock Purchase Plan. Any proxy given may be +revoked at any time prior to its exercise by notifying our +Corporate Secretary in writing of such revocation, by duly +executing and delivering another proxy bearing a later date, or +by attending and voting in person at the Annual Meeting. Our +principal executive office is located at 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +We will incur the cost of this solicitation of proxies that will +be made by mail. In addition, our officers and other regularly +engaged employees may, in a limited number of instances, solicit +proxies personally or by telephone. We will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of our Class A Common Stock and +Class B Common Stock. +Holders of our Class A Common Stock and Class B Common +Stock of record at the close of business on March 30, 2007 +will be entitled to vote at the Annual Meeting. There were +32,269,424 shares of Class A Common Stock and +13,241,789 shares of Class B Common Stock outstanding +on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the outstanding shares of +Class A Common Stock and Class B Common Stock is +necessary to constitute a quorum for the Annual Meeting. A +quorum must have been established in order to consider any +matter. To elect the three directors, the three candidates for +director receiving the most votes will become directors of +Skechers. Stockholders may not cumulate their votes. All other +proposals require the affirmative “for” vote of a +majority of those shares present in person or represented by +proxy and entitled to vote on those proposals at the Annual +Meeting. If you hold shares beneficially in street name and do +not provide your broker with voting instructions, your shares +may constitute “broker non-votes.” Generally, broker +non-votes occur on a matter when a broker is not permitted to +vote on that matter without instructions from the beneficial +owner and instructions are not given. In tabulating the voting +result for any particular proposal, shares that constitute +broker non-votes are not considered entitled to vote on that +proposal. Thus, broker non-votes will not affect the outcome of +any matter being voted on at the meeting, assuming that a quorum +is obtained. However, shares represented by such “broker +non-votes” will be counted in determining whether there is +a quorum. A properly executed proxy marked “Abstain” +with respect to any such matter will not be voted, although it +will be counted for purposes of determining whether there is a +quorum. Accordingly, proxies marked “Abstain” as to +Proposal No. 1 will not have any effect on the +election of directors, but proxies marked “Abstain” as +to Proposal No. 2 or Proposal No. 3 will +have the same effect as a vote cast against the proposal. +Table of Contents +PROPOSAL NO. 1 +ELECTION +OF DIRECTORS +Our Board of Directors is divided into three classes, with each +class serving a three-year term and thereafter until their +successors are duly elected and qualified or until their death, +resignation or removal. One class of directors is elected +annually at the Annual Meeting. Our bylaws provide for a +variable Board of Directors with a range of between five and +nine members. We currently have seven members on our Board of +Directors. Our bylaws give the Board of Directors the authority +to establish, increase or decrease the number of directors. +Unless otherwise directed by stockholders within the limits set +forth in our bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Michael +Greenberg, David Weinberg and Jeffrey Greenberg, who are +currently members of the Board of Directors. We have been +advised by Michael Greenberg, David Weinberg and Jeffrey +Greenberg of their availability and willingness to serve if +elected. In the event that Michael Greenberg, David Weinberg +and/or +Jeffrey Greenberg becomes unavailable or unable to serve as a +member of the Board of Directors prior to the voting, the proxy +holders will refrain from voting for them or will vote for a +substitute nominee in the exercise of their best judgment. +The Board of Directors recommends a vote FOR these +director-nominees. +PROPOSAL NO. 2 +APPROVAL +OF THE 2007 INCENTIVE AWARD PLAN +2007 +Incentive Award Plan +The Board of Directors has adopted, subject to stockholder +approval, the Skechers U.S.A., Inc. 2007 Incentive Award Plan +(the “2007 Incentive Award Plan”) for our employees, +consultants and directors. The 2007 Incentive Award Plan will +become effective only upon approval by our stockholders. +If the 2007 Incentive Award Plan is approved by our +stockholders, we intend to terminate our Amended and Restated +1998 Stock Option, Deferred Stock and Restricted Stock Plan (the +“1998 Stock Plan”) effective upon such approval, and +no additional awards will thereafter be made under the 1998 +Stock Plan. +Any awards outstanding upon the termination of the 1998 Stock +Plan will remain outstanding and in full force and effect in +accordance with the terms of such plan and the applicable award +agreement. If the 2007 Incentive Award Plan is not approved by +our stockholders, it will not become effective and the 1998 +Stock Plan will continue in full force and effect in accordance +with its terms. If the 2007 Incentive Award Plan is approved by +our stockholders, we intend to file with the Securities and +Exchange Commission a Registration Statement on +Form S-8 +covering the shares of our Class A Common Stock and other +securities issuable under the 2007 Incentive Award Plan. +The Board believes that the 2007 Incentive Award Plan will +promote the success and enhance the value of our company by +continuing to link the personal interest of participants to +those of our stockholders and by providing participants with an +incentive for outstanding performance. +A summary of the principal provisions of the 2007 Incentive +Award Plan is set forth below. This summary is qualified in its +entirety by reference to the 2007 Incentive Award Plan itself, +which is included as Appendix A . +Shares Available +for Awards +Subject to certain adjustments set forth in the plan, the +maximum number of shares of our Class A Common Stock that +may be issued or awarded under the 2007 Incentive Award Plan is +7,500,000 shares. We have not granted any awards under the +2007 Incentive Award Plan and do not intend to do so unless and +until our stockholders approve the plan. +To the extent that an award terminates, expires, lapses for any +reason, or is settled in cash, any shares of Class A Common +Stock subject to the award will again be available for the grant +of an award pursuant to the 2007 Incentive +2 +Table of Contents +Award Plan. Any shares of Class A Common Stock tendered or +withheld to satisfy the grant or exercise price or tax +withholding obligation with respect to any award will be +available for subsequent grant under the 2007 Incentive Award +Plan. For purposes of calculating the number of shares available +for issuance under the 2007 Incentive Award Plan, to the extent +that a stock appreciation right is settled in Class A +Common Stock, the full number of shares subject to such stock +appreciation right will be counted, regardless of the actual +number of shares issued upon settlement. +Awards +The 2007 Incentive Award Plan provides for the grant of +incentive stock options, nonqualified stock options, restricted +stock, stock appreciation rights, performance shares, +performance stock units, dividend equivalents, stock payments, +deferred stock, restricted stock units, performance bonus +awards, and performance-based awards to eligible individuals. +Except as otherwise provided by the plan administrator, no award +granted under the 2007 Incentive Award Plan may be assigned, +transferred or otherwise disposed of by the grantee, except to +our company, or by will or the laws of descent and distribution +or pursuant to beneficiary designation procedures approved from +time to time by the plan administrator. The plan administrator +may, however, permit an award to be transferred without +consideration to certain persons or entities related to the +participant or who are otherwise approved, provided that no +transfer of an incentive stock option will be permitted to the +extent that the transfer would cause the option to fail to +qualify as an “incentive stock option” under the +Internal Revenue Code of 1986, as amended (the “Internal +Revenue Code”). +The maximum number of shares of our Class A Common Stock +which may be subject to awards granted to any one participant +during any calendar year is 750,000 shares and the maximum +amount that may be paid to a participant in cash during any +calendar year with respect to one or more cash-based performance +awards is $5,000,000. +Awards under the 2007 Incentive Award Plan will be evidenced by +a written award agreement that sets forth the terms, conditions +and limitations for each award, as determined by the plan +administrator. +Stock +Options +Stock options, including incentive stock options, as defined +under Section 422 of the Internal Revenue Code, and +nonqualified stock options, may be granted pursuant to the 2007 +Incentive Award Plan. The option exercise price of all stock +options granted pursuant to the plan will not be less than 100% +of the fair market value of our Class A Common Stock on the +date of grant. No incentive stock option may be granted to a +grantee who owns more than 10% of the total combined voting +power of all classes of our capital stock on the date of grant +unless the exercise price is at least 110% of the fair market +value at the time of grant. For purposes of the 2007 Incentive +Award Plan, provided that our Class A Common Stock +continues to be traded on the New York Stock Exchange or another +exchange, the “fair market value” of the Class A +Common Stock on any given date will be the closing price of a +share as reported in the Wall Street Journal (or such +other source as we may deem reliable) for that date, or if no +sale occurred on that date, the first trading day immediately +prior to such date during which a sale occurred. On +March 30, 2007, the closing price of our Class A +Common Stock as reported on the New York Stock Exchange was +$33.57 per share. +Notwithstanding whether an option is designated as an incentive +stock option, to the extent that the aggregate fair market value +of the shares with respect to which such option is exercisable +for the first time by any optionee during any calendar year +exceeds $100,000, such excess will be treated as a nonqualified +stock option. +The plan administrator will determine the methods of payment of +the exercise price of an option, including, without limitation, +cash, shares of our Class A Common Stock with a fair market +value on the date of delivery equal to the exercise price of the +option or exercised portion thereof (including shares issuable +upon exercise of the option) or other property acceptable to the +plan administrator (including the delivery of a notice that the +participant has placed a market sell order with a broker with +respect to shares then issuable upon exercise of the option, and +that the broker has been directed to pay a sufficient portion of +the net proceeds of the sale to us in satisfaction of the option +exercise price, provided that payment of such proceeds is then +made to us not later than settlement of such sale). However, no +participant who is a director or an executive officer of our +company within the meaning of +3 +Table of Contents +Section 13(k) of the Exchange Act will be permitted to pay +the exercise price of an option in any method which would +violate Section 13(k) of the Exchange Act. +Stock options may be exercised as determined by the plan +administrator, but in no event after the tenth anniversary of +the date of grant. However, in the case of an incentive stock +option granted to a person who owns more than 10% of the total +combined voting power of all classes of our capital stock on the +date of grant, such term will not exceed 5 years. +Restricted +Stock +Eligible employees, consultants and directors may be issued +restricted stock in such amounts and on such terms and +conditions as determined by the plan administrator. Restricted +stock will be evidenced by a written restricted stock agreement. +The restricted stock agreement will contain restrictions on +transferability and other such restrictions as the plan +administrator may determine, including, without limitation, +limitations on the right to vote restricted stock or the right +to receive dividends on the restricted stock. These restrictions +may lapse separately or in combination at such times, pursuant +to such circumstances, in such installments, or otherwise, as +the plan administrator determines at the time of grant of the +award or thereafter. +Stock +Appreciation Rights +A stock appreciation right (or a “SAR”) is the right +to receive payment of an amount equal to the excess of the fair +market value of a share of our Class A Common Stock on the +date of exercise of the SAR over the per share exercise price of +the SAR, which exercise price will not be less than the fair +market value of a share of our Class A Common Stock on the +date of grant of the SAR. The plan administrator may issue SARs +in such amounts and on such terms and conditions as it may +determine, consistent with the terms of the 2007 Incentive Award +Plan. SARs may be exercised as determined by the plan +administrator, but in no event after the tenth anniversary of +the date of grant. The plan administrator may elect to pay SARs +in cash, in our Class A Common Stock or in a combination of +cash and our Class A Common Stock. +Other +Awards under the Plan +The 2007 Incentive Award Plan provides that the plan +administrator may also grant or issue performance shares, +performance stock units, dividend equivalents, stock payments, +deferred stock, restricted stock units, performance bonus +awards, and performance-based awards or any combination thereof +to eligible employees, consultants and directors. The terms of +each such grant or issuance will be set by the plan +administrator in its discretion. The plan administrator may +establish the exercise price or purchase price, if any, of any +such award, provided that such price will not be less than the +par value of a share of our Class A Common Stock, unless +otherwise permitted by applicable state law. +Any such award will only vest or be exercisable or payable while +the participant is an employee, consultant or director of our +company or our qualifying corporate subsidiaries, provided that +the plan administrator, in its sole and absolute discretion, may +provide that any such award may vest or be exercised or paid +subsequent to a termination of employment or service, as +applicable, or following a change in control (as defined in the +2007 Incentive Award Plan) of our company, or because of the +participant’s retirement, death or disability, or +otherwise. However, to the extent required to preserve the tax +deductibility under Section 162(m) of the Internal Revenue +Code, any such provision with respect to awards that are +intended to constitute “qualified performance-based +compensation” within the meaning of Section 162(m) of +the Internal Revenue Code will be subject to the requirements of +Section 162(m) of the Internal Revenue Code that apply to +such “qualified performance-based compensation.” +Payments with respect to any such award will be made in cash, in +our Class A Common Stock or a combination of both, as +determined by the plan administrator. +Performance Shares . Awards of +performance shares are denominated in a number of shares of our +Class A Common Stock and may be linked to any one or more +performance criteria determined appropriate by the plan +administrator, in each case on a specified date or dates or over +any period or periods determined by the plan administrator. +4 +Table of Contents +Performance Stock Units . Awards of +performance stock units are denominated in unit equivalent of +shares of our Class A Common Stock +and/or units +of value, including dollar value of shares of our Class A +Common Stock, and may be linked to any one or more performance +criteria determined appropriate by the plan administrator, in +each case on a specified date or dates or over any period or +periods determined by the plan administrator. +Dividend Equivalents . Dividend +equivalents are rights to receive the equivalent value (in cash +or our Class A Common Stock) of dividends paid on our +Class A Common Stock. They represent the value of the +dividends per share paid by us, calculated with reference to the +number of shares that are subject to any award held by the +participant. +Stock Payments . Stock payments include +payments in the form of our Class A Common Stock or options +or other rights to purchase our Class A Common Stock, in +each case made in lieu of all or any portion of the compensation +that would otherwise be paid to the participant. The number of +shares will be determined by the plan administrator and may be +based upon specific performance criteria determined appropriate +by the plan administrator, determined on the date such stock +payment is made or on any date thereafter. +Deferred Stock . Deferred stock may be +awarded to participants and may be linked to any performance +criteria determined to be appropriate by the plan administrator. +The Class A Common Stock underlying a deferred stock award +will not be issued until the deferred stock award has vested, +pursuant to a vesting schedule or upon the satisfaction of +performance criteria set by the plan administrator, and unless +otherwise provided by the plan administrator, a recipient of +deferred stock generally will have no rights as a stockholder +with respect to such deferred stock until the time the vesting +conditions are satisfied and the Class A Common Stock +underlying the deferred stock award has been issued. +Restricted Stock Units . Restricted +stock units may be granted to any participant in such amounts +and subject to such terms and conditions as determined by the +plan administrator. At the time of grant, the plan administrator +will specify the date or dates on which the restricted stock +units will become fully vested and nonforfeitable, and may +specify such conditions to vesting as it deems appropriate. At +the time of grant, the plan administrator will specify the +maturity date applicable to each grant of restricted stock units +which will be no earlier than the vesting date or dates of the +award and may be determined at the election of the participant. +On the maturity date, we will transfer to the participant one +unrestricted, fully transferable share of our Class A +Common Stock for each restricted stock unit scheduled to be paid +out on such date and not previously forfeited. The plan +administrator will specify the purchase price, if any, to be +paid by the participant to us for such shares of our +Class A Common Stock. +Performance Bonus Awards . Any +participant selected by the plan administrator may be granted a +cash bonus payable upon the attainment of performance goals that +are established by the plan administrator and relate to any one +or more performance criteria determined appropriate by the plan +administrator on a specified date or dates or over any period or +periods determined by the plan administrator. Any such cash +bonus paid to a “covered employee” within the meaning +of Section 162(m) of the Internal Revenue Code may be a +performance-based award as described below. +Performance-Based +Awards +The plan administrator may grant awards to employees who are or +may be “covered employees,” as defined in +Section 162(m) of the Internal Revenue Code, that are +intended to be performance-based awards within the meaning of +Section 162(m) of the Internal Revenue Code in order to +preserve the deductibility of these awards for federal income +tax purposes. Participants are only entitled to receive payment +for a performance-based award for any given performance period +to the extent that pre-established performance goals set by the +plan administrator for the period are satisfied. These +pre-established performance goals must be based on one or more +of the following performance criteria: net earnings (either +before or after interest, taxes, depreciation and amortization), +economic value-added, sales or revenue, net income (either +before or after taxes), operating earnings, cash flow +(including, but not limited to, operating cash flow and free +cash flow), cash flow return on capital, return on net assets, +return on shareholders’ equity, return on assets, return on +capital, stockholder returns, return on sales, gross or net +profit margin, productivity, expense, margins, operating +efficiency, customer satisfaction, working capital, earnings per +share, price per share, and market share. These performance +criteria may be measured in absolute terms or as compared to +performance in an earlier period or as compared to any +incremental increase or as compared to results of a peer +5 +Table of Contents +group, industry index or other companies. With regard to a +particular performance period, the plan administrator will have +the discretion to select the length of the performance period, +the type of performance-based awards to be granted, and the +goals that will be used to measure the performance for the +period. In determining the actual size of an individual +performance-based award for a performance period, the plan +administrator may reduce or eliminate (but not increase) the +award. Generally, a participant will have to be employed by our +company on the date the performance-based award is paid to be +eligible for a performance-based award for any period. +Administration +Unless otherwise determined by our Board of Directors, the 2007 +Incentive Award Plan will be administered by a committee +consisting of at least two directors, each of whom qualifies as +a non-employee director pursuant to +Rule 16b-3 +of the Exchange Act, an “outside director” pursuant to +Section 162(m) of the Internal Revenue Code and an +independent director under the rules of the principal securities +market on which our shares are traded. Our Compensation +Committee will be the administrator of the 2007 Incentive Award +Plan. However, our full Board of Directors will administer the +plan with respect to awards granted to our non-employee +directors. In addition, our Board may at any time exercise any +rights and duties of the Compensation Committee as they relate +to the 2007 Incentive Award Plan except with respect to matters +which under +Rule 16b-3 +of the Exchange Act or Section 162(m) of the Internal +Revenue Code, or any regulations or rules issued thereunder, are +required to be determined in the sole discretion of the +Compensation Committee. +The governance of the Compensation Committee will be subject to +its charter as approved by our Board of Directors. Any action +taken by the Compensation Committee under the 2007 Incentive +Award Plan will be valid and effective, whether or not its +members at the time of such action are later determined not to +have satisfied the requirements for membership provided in the +2007 Incentive Award Plan or the charter of the Compensation +Committee. +The plan administrator will have the exclusive authority to +administer the plan, including, but not limited to, the power to +determine eligibility, the types and sizes of awards, the price +and timing of awards and the acceleration or waiver of any +vesting or forfeiture restriction, provided that the plan +administrator will not have the authority to accelerate vesting +or waive the forfeiture of any performance-based awards under +Section 162(m) of the Internal Revenue Code. +Eligibility +Employees, consultants and directors of our company and our +qualifying corporate subsidiaries are eligible to be granted +non-qualified stock options, restricted stock, stock +appreciation rights, performance share awards, performance stock +units, dividend equivalents, stock payments, deferred stock, +restricted stock units, and performance bonus awards under the +2007 Incentive Award Plan. Only employees of our company and our +qualifying corporate subsidiaries are eligible to be granted +options that are intended to qualify as “incentive stock +options” under Section 422 of the Internal Revenue +Code. As of March 31, 2007, we and our subsidiaries had +approximately 3,720 employees and consultants worldwide and our +board consisted of three non-employee directors who were +eligible to participate in the 2007 Incentive Award Plan. +Adjustments +If there is any stock dividend, stock split, combination or +exchange of shares, merger, consolidation or other distribution +(other than normal cash dividends) of our assets to +stockholders, or any other change affecting the shares of our +Class A Common Stock or the share price of our Class A +Common Stock other than an equity restructuring (as defined in +the 2007 Incentive Award Plan), the plan administrator will make +such proportionate adjustments, if any, as the plan +administrator in its discretion may deem appropriate to reflect +such change with respect to (i) the aggregate number and +type of shares that may be issued under the 2007 Incentive Award +Plan (including, but not limited to, adjustments of the number +of shares available under the plan and the maximum number of +shares which may be subject to one or more awards to a +participant pursuant to the plan during any calendar year), +(ii) the terms and conditions of any outstanding awards +(including, without limitation, any applicable performance +targets or criteria with respect thereto), and (iii) the +grant or exercise price per share +6 +Table of Contents +for any outstanding awards under the plan. If there is any +equity restructuring, (i) the number and type of securities +subject to each outstanding award and the grant or exercise +price per share for each outstanding award, if applicable, will +be proportionately adjusted, and (ii) the plan +administrator will make proportionate adjustments to reflect +such equity restructuring with respect to the aggregate number +and type of shares that may be issued under the 2007 Incentive +Award Plan (including, but not limited to, adjustments of the +number of shares available under the plan and the maximum number +of shares which may be subject to one or more awards to a +participant pursuant to the plan during any calendar year). +Adjustments in the event of an equity restructuring will not be +discretionary. Any adjustment affecting an award intended as +“qualified performance-based compensation” will be +made consistent with the requirements of Section 162(m) of +the Internal Revenue Code. The plan administrator also has the +authority under the 2007 Incentive Award Plan to take certain +other actions with respect to outstanding awards in the event of +a corporate transaction, including provision for the cash-out, +termination, assumption or substitution of such awards. +Change +in Control +Except as may otherwise be provided in any written agreement +between the participant and us, in the event of a change in +control (as defined in the 2007 Incentive Award Plan) of our +company in which awards are not converted, assumed, or replaced +by the successor, such awards will become fully exercisable and +all forfeiture restrictions on such awards will lapse. Upon, or +in anticipation of, a change in control, the plan administrator +may cause any and all awards outstanding under the 2007 +Incentive Award Plan to terminate at a specific time in the +future and will give each participant the right to exercise such +awards during a period of time as the plan administrator, in its +sole and absolute discretion, will determine. +Termination +or Amendment +With the approval of our Board of Directors, the plan +administrator may terminate, amend, or modify the 2007 Incentive +Award Plan at any time. However, stockholder approval will be +required for any amendment to the extent necessary and desirable +to comply with any applicable law, regulation or stock exchange +rule, to increase the number of shares available under the plan, +to permit the grant of options or SARs with an exercise price +below fair market value on the date of grant, or to extend the +exercise period for an option or SAR beyond ten years from the +date of grant. In addition, absent stockholder approval, no +option or SAR may be amended to reduce the per share exercise +price of the shares subject to such option or SAR below the per +share exercise price as of the date the option or SAR was +granted and, except to the extent permitted by the plan in +connection with certain changes in capital structure, no option +or SAR may be granted in exchange for, or in connection with, +the cancellation or surrender of an option or SAR having a +higher per share exercise price. +No award may be granted pursuant to the 2007 Incentive Award +Plan after the tenth anniversary of the effective date of the +plan, and no awards that are intended to be incentive stock +options may be granted under the plan after the tenth +anniversary of the date the plan is adopted by our Board of +Directors. Any awards that are outstanding on the tenth +anniversary of the effective date will remain in force according +to the terms of the 2007 Incentive Award Plan and the applicable +award agreement. +Section 409A +of the Internal Revenue Code +To the extent that the plan administrator determines that any +award granted under the 2007 Incentive Award Plan is subject to +Section 409A of the Internal Revenue Code +(“Section 409A”), the award agreement evidencing +such award shall incorporate the terms and conditions required +by Section 409A. In the event that the plan administrator +determines that any award may be subject to Section 409A, +the 2007 Incentive Award Plan and any applicable awards may be +modified to exempt the awards from Section 409A or comply +with the requirements of Section 409A. +Federal +Income Tax Consequences +The federal income tax consequences of the 2007 Incentive Award +Plan under current federal income tax law are summarized in the +following discussion which deals with the general tax principles +applicable to the 2007 +7 +Table of Contents +Incentive Award Plan and is intended for general information +only. The following discussion of federal income tax +consequences does not purport to be a complete analysis of all +of the potential tax effects of the 2007 Incentive Award Plan. +It is based upon laws, regulations, rulings and decisions now in +effect, all of which are subject to change. Foreign, state and +local tax laws, and estate and gift tax considerations are not +discussed, and may vary depending on individual circumstances +and from locality to locality. +Stock +Options. +With respect to nonqualified stock options, we are generally +entitled to deduct and the optionee recognizes taxable income in +an amount equal to the difference between the option exercise +price and the fair market value of the shares at the time of +exercise. A participant receiving incentive stock options will +not recognize taxable income upon grant. Additionally, if +applicable holding period requirements are met, the participant +will not recognize taxable income at the time of exercise. +However, the excess of the fair market value of the shares +received over the option price is an item of tax preference +income potentially subject to the alternative minimum tax. If +Class A Common Stock acquired upon exercise of an incentive +stock option is held for a minimum of two years from the date of +grant and one year from the date of exercise, the gain or loss +(in an amount equal to the difference between the fair market +value on the date of sale and the exercise price) upon +disposition of the Class A Common Stock will be treated as +a long-term capital gain or loss, and we will not be entitled to +any deduction. If the holding period requirements are not met, +the incentive stock option will be treated as one which does not +meet the requirements of the Internal Revenue Code for incentive +stock options and the tax consequences described for +nonqualified stock options will apply. +Other +Awards. +The current federal income tax consequences of other awards +authorized under the 2007 Incentive Award Plan generally follow +certain basic patterns: SARs are taxed and deductible in +substantially the same manner as nonqualified stock options; +nontransferable restricted stock subject to a substantial risk +of forfeiture results in income recognition equal to the excess +of the fair market value over the price paid, if any, only at +the time the restrictions lapse (unless the recipient elects to +accelerate recognition as of the date of grant); stock-based +performance awards, dividend equivalents and other types of +awards are generally subject to tax at the time of payment. +Compensation otherwise effectively deferred is taxed when paid. +In each of the foregoing cases, we will generally have a +corresponding deduction at the time the participant recognizes +income, subject to Section 162(m) of the Internal Revenue +Code with respect to covered employees. +Section 409A +of the Internal Revenue Code. +Certain types of awards under the 2007 Incentive Award Plan may +constitute, or provide for, a deferral of compensation under +Section 409A of the Internal Revenue Code. Unless certain +requirements set forth in Section 409A are complied with, +holders of such awards may be taxed earlier than would otherwise +be the case (e.g., at the time of vesting instead of the time of +payment) and may be subject to an additional 20% penalty tax +(and, potentially, certain interest penalties). To the extent +applicable, the 2007 Incentive Award Plan and awards granted +under the 2007 Incentive Award Plan will be structured and +interpreted to comply with Section 409A and the Department +of Treasury regulations and other interpretive guidance that may +be issued pursuant to Section 409A. +Tax +Deductibility and Section 162(m) of the Internal Revenue +Code. +Section 162(m) of the Internal Revenue Code generally +places a $1 million annual limit on the amount of +compensation paid to each of our named executive officers that +may be deducted by our company for federal income tax purposes +unless such compensation constitutes “qualified +performance-based compensation” which is based on the +achievement of pre-established performance goals set by a +committee of the Board of Directors pursuant to an incentive +plan that has been approved by our company’s stockholders. +The 2007 Incentive Award Plan provides that certain awards made +thereunder may, in the discretion of the plan administrator, be +structured so as to qualify for the “qualified +performance-based compensation” exception to the +$1 million annual deductibility limit of +Section 162(m). +8 +Table of Contents +Other +Considerations. +Awards that are granted, accelerated or enhanced upon the +occurrence of a change in control may give rise, in whole or in +part, to excess parachute payments within the meaning of +Section 280G of the Internal Revenue Code to the extent +that such payments, when aggregated with other payments subject +to Section 280G, exceed the limitations contained in that +provision. Such excess parachute payments are not deductible by +our company and are subject to a 20% excise tax payable by the +recipient. +The 2007 Incentive Award Plan is not subject to any provision of +the Employee Retirement Income Security Act of 1974, as amended, +and is not qualified under Section 401(a) of the Internal +Revenue Code. Special rules may apply to a participant who is +subject to Section 16 of the Exchange Act. Certain +additional special rules apply if the exercise price for an +option is paid in Class A Common Stock previously owned by +the participant rather than in cash. +Plan +Benefits +No awards will be granted pursuant to the 2007 Incentive Award +Plan unless and until it is approved by our stockholders. In +addition, awards are subject to the discretion of the plan +administrator and no determination has been made as to the types +or amounts of awards that will be granted to specific +individuals pursuant to the plan. Therefore, it is not possible +to determine the benefits that will be received in the future by +participants in the 2007 Incentive Award Plan or the benefits +that would have been received by such participants if the 2007 +Incentive Award Plan had been effect in the year ended +December 31, 2006. +If the 2007 Incentive Award Plan is approved, we intend to +terminate the 1998 Stock Plan effective upon such approval and +replace it with the 2007 Incentive Award Plan. Certain +information regarding prior awards to our individual named +executive officers under the 1998 Stock Plan is presented in the +tables below captioned Summary Compensation Table , +Outstanding Equity Awards at 2006 Fiscal Year-End and +Options Exercised and Stock Vested in Fiscal +2006. During 2006, under the 1998 Stock Plan, +awards with respect to 10,000 shares of our Class A +Common Stock were granted to our executive officers as a group +and awards with respect to 17,000 shares of our +Class A Common Stock were granted to our other employees. +Vote +Required +Approval of the 2007 Incentive Award Plan requires approval by a +majority of votes cast at the Annual Meeting, provided that the +total vote cast on the proposal represents over 50% in interest +of all securities entitled to vote on the proposal. +The Board of Directors recommends a vote FOR approval of +the 2007 Incentive Award Plan. +9 +Table of Contents +PROPOSAL NO. 3 +APPROVAL +OF THE 2008 EMPLOYEE STOCK PURCHASE PLAN +2008 +Employee Stock Purchase Plan +The Board of Directors has adopted, subject to stockholder +approval, the Skechers U.S.A., Inc. 2008 Employee Stock Purchase +Plan (the “2008 Stock Purchase Plan”) for our +employees and employees of our designated subsidiaries. Subject +to approval by our stockholders, the 2008 Stock Purchase Plan +will become effective as of January 1, 2008 (the +“effective date”). +If the 2008 Stock Purchase Plan is approved by our stockholders, +we intend to terminate our Amended and Restated 1998 Employee +Stock Purchase Plan (the “1998 Stock Purchase Plan”) +effective upon the completion of the purchase period under the +1998 Stock Purchase Plan ending on December 31, 2007, and +no additional rights will thereafter be granted under the 1998 +Stock Purchase Plan. +If the 2008 Stock Purchase Plan is not approved by our +stockholders, it will not become effective and the 1998 Stock +Purchase Plan will continue in full force and effect in +accordance with its terms. If the 2008 Stock Purchase Plan is +approved by our stockholders, we intend to file with the +Securities and Exchange Commission a Registration Statement on +Form S-8 +covering the shares of our Class A Common Stock and other +securities issuable under the 2008 Stock Purchase Plan. +The purposes of the 2008 Stock Purchase Plan are to assist +employees of our company and our designated subsidiaries in +purchasing shares of our Class A Common Stock, thereby +helping them provide for their future security, and to encourage +them to remain in our employment. The plan provides employees of +our company and our designated subsidiaries with the opportunity +to acquire shares of Class A Common Stock at a discounted +price through payroll deductions. The 2008 Stock Purchase Plan +allows each participant to: +• +Invest up to 15% of the participant’s compensation through +payroll deductions, subject to the limitations described below +under “ Shares Subject to the 2008 Stock Purchase +Plan ” and “ Eligibility ”; and +• +Purchase our Class A Common Stock at a discount of 15%. +A summary of the principal provisions of the 2008 Stock Purchase +Plan is set forth below. This summary is qualified in its +entirety by reference to the 2008 Stock Purchase Plan itself, +which is included as Appendix B . +Administration +The 2008 Stock Purchase Plan is administered, at our +company’s expense, by the Board of Directors or a committee +appointed by the Board comprised of two or more members of the +Board, each of whom is a “non-employee director” +within the meaning of +Rule 16b-3 +under the Exchange Act, and which is otherwise constituted to +comply with applicable law. All questions of interpretation or +application of the plan are determined by the Board of Directors +or its committee, whose decisions are final and binding upon all +participants. The administrator of the plan has final authority +to interpret any provision of the plan. +Eligibility +An individual is eligible to participate in the 2008 Stock +Purchase Plan in an offering period if, on the first day of the +offering period, he or she is an employee of our company or any +of our designated subsidiaries customarily scheduled to work +more than five months in any calendar year. Employees who choose +not to participate or are not eligible to participate at the +start of an offering period but who become eligible thereafter +may enroll in any subsequent purchase period. As of +March 31, 2007, we and our subsidiaries had approximately +3,720 employees worldwide. +An individual is not eligible to participate in the 2008 Stock +Purchase Plan for a given offering period if, immediately after +the purchase right is granted, he or she owns 5% or more of the +total combined voting power or value of all classes of capital +stock of our company or our subsidiaries or parent corporations. +In addition, the participant’s right to buy Class A +Common Stock under the plan may not accrue at a rate in excess +of $25,000 of the fair market value of such shares (determined +at the time such purchase right is granted) per calendar year +for each calendar year in which such purchase right is +outstanding. +10 +Table of Contents +Shares Subject +to the 2008 Stock Purchase Plan +Under the terms of the 2008 Stock Purchase plan, the aggregate +number of shares of Class A Common Stock available for sale +under the plan is 3,000,000 shares. In addition, the number +of shares that may be made available for sale under the 2008 +Stock Purchase Plan will be automatically increased on the first +day of each of our company’s fiscal years during the term +of the plan, commencing on January 1, 2009, by a number of +shares equal to the least of: (1) 1% of the shares of our +company’s outstanding capital stock on such date; +(2) 500,000 shares; or (3) a lesser amount +determined by the Board of Directors. +During each offering period or purchase period, the participant +may purchase up to a maximum number of shares of the +Class A Common Stock determined by dividing $25,000 by the +fair market value of a share of Class A Common Stock on the +first trading day of the offering period. When the purchase date +arrives and the purchase price is calculated, if the +participant’s payroll contributions exceed the amount used +to purchase the number of shares described in the preceding +sentence, then the excess payroll contributions will be rolled +over to the next offering period or purchase period. Within this +limit, the number of shares purchased depends on the fair market +value of the Class A Common Stock on the first trading day +of the offering period and the last trading day of the purchase +period and the total amount of the participant’s +accumulated payroll deductions at the end of the purchase +period. On the purchase date, the participant’s accumulated +contributions will be used to purchase whole shares at the +purchase price. The participant cannot buy a fraction of a +share. Any cash remaining to buy less than a whole share will be +rolled over to the next offering period or purchase period. +If the number of shares to be purchased exceeds the number of +shares available under the 2008 Stock Purchase Plan, then the +available shares will be allocated among the participants on a +pro rata basis. +Purchase +Rights, Offering Periods and Purchase Periods +Under the 2008 Stock Purchase Plan, our company will grant each +eligible employee a nontransferable right to purchase shares of +Class A Common Stock. The participant’s rights to +purchase shares under the plan may not be assigned to any other +person. Through the plan, the participant may buy the +Class A Common Stock at reduced prices. The +participant’s purchase price is 85% of our Class A +Common Stock’s fair market value on the first trading day +of the offering period or the last trading day of the purchase +period, whichever is lower. +The 2008 Stock Purchase Plan is implemented by consecutive +offering periods. Each offering period will last approximately +6 months commencing on each January 1 or July 1 and +terminating on the last trading day on or before the next +occurring June 30 or December 31, as applicable. The +initial offering period under the plan will commence on +January 1, 2008, and end on the last trading day on or +before June 30, 2008. The 2008 Stock Purchase Plan +generally provides for two six-month purchase periods each year: +(i) January 1 through June 30, and +(ii) July 1 through December 31. The initial +purchase period under the plan will commence on the first +trading day on or after January 1, 2008 and will extend +until the last trading day on or before June 30, 2008. +Unless and until the plan administrator changes the duration of +the offering periods or purchase periods under the 2008 Stock +Purchase Plan in accordance with the terms of the plan, each +offering period will be approximately the same six-month period +as each purchase period. +Once the participant has enrolled in the plan, the payroll +deductions will continue until he or she notifies our company +otherwise. On the last trading day of each purchase period, the +largest number of whole shares that may be purchased based on +the accumulated payroll deductions in the participant’s +account will automatically be purchased for such participant, +without any action on the part of such participant. +Subject to the eligibility requirements described above under +“ Eligibility ” and completion of all required +enrollment documentation, each person who, during the course of +an offering period, becomes an eligible employee subsequent to +the enrollment date may become a participant in the 2008 Stock +Purchase Plan by completing a subscription agreement authorizing +payroll deductions and filing it with our company’s payroll +office within a time period as determined by the plan +administrator prior to the first trading day of the first +offering period with respect to which his or her participation +is to commence. As an example, for an employee who is hired on +May 1, 2008 and otherwise satisfies the eligibility +requirements of the plan, such employee will be able to enroll +in the plan on the first trading day on or after July 1, +2008, the first trading day of the first offering period with +respect to which the employee’s participation is to +commence. +11 +Table of Contents +Enrollment +in the 2008 Stock Purchase Plan +An eligible employee may enroll in the 2008 Stock Purchase Plan +for any offering period by submitting a completed subscription +agreement to the plan administrator prior to the enrollment date +for the offering period with respect to which his or her +participation is to commence. In general, the enrollment date +will be January 1st or July 1st (or, if +those dates are not trading days, the first trading day +thereafter) for the offering periods which begin on those dates. +The subscription agreement will remain in effect for successive +offering periods and purchase periods unless it is revised or +revoked by the participant or the participant becomes ineligible +to participate in the plan. +If an eligible employee decides not to enroll at the time of the +effective date of the 2008 Stock Purchase Plan, he or she may +enroll at a later time before the start of any subsequent +offering period during which the plan is in effect. Eligible +employees may not begin participating in the middle of an +offering period. Employees who choose not to participate in an +offering period or who are not eligible to participate at the +start of an offering period may enroll in any subsequent +offering period if they are eligible to participate at that +time. Offering periods under the plan begin on each +January 1st and July 1st (or, if those dates +are not trading days, the first trading day thereafter). +Participant +Contributions +A participant may contribute through payroll deductions in whole +percentages from 1% to 15% of his or her eligible compensation. +For this purpose, eligible compensation means base straight time +gross earnings including commissions, payments for overtime, +incentive payments and performance bonuses. +After the participant authorizes us to deduct a certain +percentage of his or her compensation for the purchase of shares +under the 2008 Stock Purchase Plan, we will make such deductions +from the participant’s paycheck each pay period during the +offering period and will hold the accumulated amounts in an +account until the completion of the purchase period. The +participant will not receive any interest on the amounts of his +or her compensation that we accumulate for the purchase of +shares under the plan. We may use all funds held by our company +under the plan for any corporate purpose. +Price +of the Class A Common Stock +The purchase price will be 85% of the fair market value of a +share of our Class A Common Stock on the first trading day +of the offering period or the last trading day of the purchase +period, whichever is lower. For purposes of the 2008 Stock +Purchase Plan, provided that our Class A Common Stock +continues to be traded on the New York Stock Exchange or another +exchange, the “fair market value” of a share of our +Class A Common Stock as of a given date will be the closing +sales price of a share as reported in the Wall Street Journal +(or such other source as we may deem reliable) for that +date, or if no sale occurred on that date, the first trading day +immediately prior to such date during which a sale occurred. On +March 30, 2007, the closing price of our Class A +Common Stock as reported on the New York Stock Exchange was +$33.57 per share. +Changes +in Payroll Deductions +A participant may decrease (but not increase) the rate of +payroll deductions during the offering period by submitting a +new subscription agreement within the time period specified by +the plan administrator. Any such decrease will be effective as +soon as practicable after our company’s receipt of the new +subscription agreement. A participant may increase the rate of +payroll deductions for any subsequent offering period by +submitting a new subscription agreement within the time period +specified by the plan administrator. Any such increase will be +effective with the first full offering period after our +company’s receipt of the new subscription agreement, +provided that our company has received the new subscription +agreement at least five (5) business days prior to the +commencement of such offering period. +Withdrawal +From the 2008 Stock Purchase Plan +A participant may withdraw from the 2008 Stock Purchase Plan by +completing the appropriate withdrawal form and submitting it to +the plan administrator. The payroll deductions will stop, and +the balance in the participant’s account (without interest) +will be paid to such participant within a reasonable time +period. If the participant does withdraw from the plan, he or +she cannot rejoin until the next offering period. +12 +Table of Contents +Shares Purchased +under the 2008 Stock Purchase Plan +As soon as practicable after each purchase date, our +company’s transfer agent will make an entry on its books +and records indicating that the shares of Class A Common +Stock purchased by the participant on that purchase date (using +the total payroll deductions credited to the participant’s +account under the 2008 Stock Purchase Plan) have been duly +issued and transferred or recorded to a brokerage account +established in the participant’s name in connection with +the plan. +Individual accounts will be maintained for each participant in +the 2008 Stock Purchase Plan. Statements of account will be +provided to participants at least annually, and will set forth +the amounts of payroll deductions, the purchase price, the +number of shares purchased and the remaining cash balance, if +any. +Termination +of Employment +Upon a participant’s ceasing to be an eligible employee for +any reason, he or she will be deemed to have elected to withdraw +from the 2008 Stock Purchase Plan and the payroll deductions +credited to the participant’s account during the purchase +period (without interest) will be paid to the participant as +soon as reasonably practicable. The participant’s purchase +right for the then current offering period will be automatically +terminated. +No +Rights as Employee +Nothing in the 2008 Stock Purchase Plan will give any person, +including any eligible employee or participant, any right to +remain an employee of our company or any of our subsidiaries or +will interfere with or restrict in any way the rights of any +such entity to discharge any person, including any eligible +employee or participant, at any time. +Adjustments +In the event of any increase or decrease in the number of shares +of our Class A Common Stock resulting from a stock split, +reverse stock split, stock dividend, combination or +reclassification or any other increase or decrease effected +without the receipt of consideration by us, the number of shares +reserved under the 2008 Stock Purchase Plan, the maximum number +of shares that a participant may purchase in an offering period +or a purchase period, and the price per share and number of +shares of Class A Common Stock covered by each outstanding +purchase right will be adjusted proportionately. Such +adjustments will be made by the Board of Directors whose +determination in that respect will be final, binding and +conclusive. +In the event of our company’s proposed dissolution or +liquidation, the offering period then in progress will be +shortened by setting a new purchase date immediately prior to +the proposed dissolution or liquidation, unless otherwise +provided by the plan administrator. +In the event of our company’s merger with or into another +corporation, or the sale of all or substantially all of our +company’s assets, outstanding purchase rights will be +assumed or an equivalent purchase right will be substituted by +the successor corporation (or a parent or subsidiary of such +successor corporation). In the event that the successor +corporation refuses to assume or substitute the outstanding +purchase rights, the purchase period then in progress will be +shortened by setting a new purchase date for outstanding +purchase rights and the offering period then in progress will +end on the new purchase date. This new purchase date will be +prior to the date of consummation of the merger or sale. +Amendment, +Modification and Termination of the 2008 Stock Purchase +Plan +Our Board of Directors may terminate or amend the 2008 Stock +Purchase Plan at any time. No termination may affect outstanding +purchase rights and generally no amendment may impair the rights +of any participant under an outstanding purchase right without +the participant’s consent, except that our Board of +Directors may terminate an offering period if the Board +determines that the termination of the offering period or the +plan is in the best interests of our company and our +stockholders. We will seek stockholder approval for any +amendment to the extent necessary and desirable to comply with +Section 423 of the Code or any other applicable law, +regulation or stock exchange rule. +Certain changes may be made to the 2008 Stock Purchase Plan +without stockholder approval and without regard to whether any +participant rights may be considered to have been impaired, +including changes to the offering +13 +Table of Contents +periods and the establishment of certain limitations and +procedures regarding payroll deductions and the application of +such payroll deductions towards the purchase of Class A +Common Stock. +In addition, in the event that our Board of Directors determines +that the ongoing operation of the 2008 Stock Purchase Plan may +result in unfavorable financial accounting consequences, the +Board may modify or amend the plan to reduce or eliminate such +accounting consequences including, but not limited to +(i) altering the purchase price for any offering period, +(ii) shortening any offering period, and +(iii) allocating shares. +The 2008 Stock Purchase Plan will continue in effect for a term +of ten years from the effective date of the plan, unless sooner +terminated by the Board. +Federal +Income Tax Consequences +The federal income tax consequences of the 2008 Stock Purchase +Plan under current federal income tax law are summarized in the +following discussion which deals with the general tax principles +applicable to the 2008 Stock Purchase Plan and is intended for +general information only. The following discussion of federal +income tax consequences does not purport to be a complete +analysis of all of the potential tax effects of the 2008 Stock +Purchase Plan. It is based upon laws, regulations, rulings and +decisions now in effect, all of which are subject to change. +Foreign, state and local tax laws, and estate and gift tax +considerations are not discussed, and may vary depending on +individual circumstances and from locality to locality. +The following summary assumes that the 2008 Stock Purchase Plan +qualifies as an “employee stock purchase plan” under +Section 423(b) of the Code. Although the plan is intended +to be an “employee stock purchase plan,” no assurance +is given that the plan will qualify as an “employee stock +purchase plan.” +Grant of +Purchase Right; Exercise of Purchase Right. +A participant will not recognize taxable income upon the grant +of a purchase right on the date of grant (generally, the first +trading day of the offering period). In addition, the +participant will not recognize taxable income upon the exercise +of a purchase right on the date of exercise (generally, the last +trading day of the purchase period). +Sale of +Class A Common Stock After the Holding Period. +The tax treatment resulting from the sale or other disposition +of the shares of Class A Common Stock that a participant +purchased upon the exercise of a purchase right under the 2008 +Stock Purchase Plan will depend on whether such sale or +disposition occurs before or after the later of: (1) two +years after the date of grant of the purchase right, or +(2) one year after the date such shares are transferred to +the participant (the “Holding Period”). +If the participant sells or disposes of the shares of +Class A Common Stock that he or she purchased upon the +exercise of a purchase right under the 2008 Stock Purchase Plan +after the Holding Period, the participant will be taxed in the +year in which he or she sells or disposes of such shares of +Class A Common Stock, as follows: +• +The participant will recognize ordinary income in an amount +equal to the lesser of: +• +The excess, if any, of the fair market value of such shares of +Class A Common Stock on the date on which he or she sold or +disposed of such shares, over the purchase price he or she paid +for such shares of Class A Common Stock, or +• +15% of the fair market value of the shares of Class A +Common Stock on the date of grant; and +• +The remaining gain (or loss) will be treated as capital gain (or +loss). +We (or our designated subsidiary) will not be entitled to any +deduction as a result of the participant’s sale or +disposition of the shares of Class A Common Stock after the +expiration of the Holding Period for such shares. +14 +Table of Contents +Sale of +Class A Common Stock During the Holding Period. +If a participant sells or disposes of the shares of Class A +Common Stock that he or she purchased upon the exercise of a +purchase right under the 2008 Stock Purchase Plan before the +Holding Period expires, the participant will be taxed in the +year in which he or she sells or disposes of such shares of +Class A Common Stock, as follows: +• +The participant will recognize ordinary income in an amount +equal to the excess of the fair market value of such shares of +Class A Common Stock on the date such shares were transferred to +him or her, over the purchase price the participant paid for +such shares of Class A Common Stock; and +• +The remaining gain (if any) will be treated as capital gain. +If the participant sells or disposes of the shares of +Class A Common Stock for less than the fair market value on +the date such shares were transferred to him or her, the excess +of the fair market value of such shares of Class A Common +Stock on the date such shares were transferred to the +participant, over the price he or she received upon the sale or +disposition of such shares, will be treated as a capital loss. +We (or our designated subsidiary) will be entitled to a +deduction equal to the amount of ordinary income that is +recognized by the participant as a result of his or her sale or +disposition of the shares of Class A Common Stock before +the Holding Period expires for such shares. +The 2008 Stock Purchase Plan is not subject to any provision of +the Employee Retirement Income Security Act of 1974, as amended, +and is not qualified under Section 401(a) of the Internal +Revenue Code. Special rules may apply to a participant who is +subject to Section 16 of the Exchange Act. +Plan +Benefits +No rights to purchase shares will be granted pursuant to the +2008 Stock Purchase Plan until it is approved by our +company’s stockholders. The benefits that will be received +by all eligible employees under the 2008 Stock Purchase Plan are +not determinable in advance because the number of shares of +Class A Common Stock that a participant may receive under +the 2008 Stock Purchase Plan is based on the amount of payroll +deductions elected by the participant. +If the 2008 Stock Purchase Plan is approved, we intend to +terminate the 1998 Stock Purchase Plan effective upon the +completion of the purchase period under the 1998 Stock Purchase +Plan ending on December 31, 2007 and replace it with the +2008 Stock Purchase Plan. With respect to the 1998 Stock +Purchase Plan, the following table sets forth (a) the +aggregate number of shares of Class A Common Stock +purchased under the 1998 Stock Purchase Plan during the 2006 +fiscal year, and (b) the market value of such shares of +Class A Common Stock based on the closing price of our +Class A Common Stock as of December 29, 2006, which +was $33.31 per share. +Number of +Market Value of +Class A Shares +Class A Shares +Name of Individual or Group +Purchased (#) +Purchased ($) +Robert Greenberg +— +— +Michael Greenberg +1,596 +53,163 +David Weinberg +1,596 +53,163 +Frederick Schneider +1,596 +53,163 +Mark Nason +1,445 +48,133 +All executive officers, as a group +6,233 +207,621 +All directors who are not +executive officers, as a group +— +— +All employees who are not +executive officers, as a group +115,145 +3,835,480 +Vote +Required +Approval of the 2008 Stock Purchase Plan requires approval by a +majority of votes cast at the Annual Meeting, provided that the +total vote cast on the proposal represents over 50% in interest +of all securities entitled to vote on the proposal. +The Board of Directors recommends a vote FOR approval of +the 2008 Employee Stock Purchase Plan. +15 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year +in Which Term +Name +Age +Will Expire +Position +Michael Greenberg +44 +Class II (2010) +President and Director +David Weinberg +56 +Class II (2010) +Executive Vice President; +Chief Operating Officer and Director +Jeffrey Greenberg +39 +Class II (2010) +Senior Vice President, Active +Electronic Media and Director +Michael Greenberg has served as our President and a +member of our Board of Directors since our company’s +inception in 1992, and from June 1992 to October 1993, he served +as our Chairman of the Board. +David Weinberg has served as our Chief Operating Officer +since January 2006 and as Executive Vice President and a member +of our Board of Directors since July 1998, and from October 1993 +to January 2006, he also served as our Chief Financial Officer. +Jeffrey Greenberg has served as our Senior Vice +President, Active Electronic Media since June 2005 and as a +member of our Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as our Vice +President, Active Electronic Media. Previously, +Mr. Greenberg served as our Chief Operating Officer, +Secretary and a member of our Board of Directors from June 1992 +to July 1998, and as our Chief Executive Officer from June 1992 +to October 1993. +Directors +Not Standing for Election +The members of the Board of Directors who are not standing for +election at this year’s Annual Meeting are set forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +67 +Class I (2009) +Chairman of the Board and Chief +Executive Officer +Morton D. +Erlich (1)(2) +62 +Class I (2009) +Director +Geyer +Kosinski (1) +41 +Class III (2008) +Director +Richard +Siskind (1)(2) +61 +Class III (2008) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Robert Greenberg has served as our Chairman of the Board +and Chief Executive Officer since October 1993. +Morton D. Erlich has served as a member of our Board of +Directors since January 2006. Mr. Erlich worked for +34 years at KPMG LLP including 24 years as an audit +partner until retiring in September 2004. +Geyer Kosinski has served as a member of our Board of +Directors since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and directors. +From April 1997 to June 2004, Mr. Kosinski was a Managing +Partner and co-owner of Industry Entertainment, a talent +management and production company that produces feature films +and television programming and manages over 100 actors, writers +and directors. +Richard Siskind has served as a member of our Board of +Directors since June 1999. From November 2002 to June 2006, +Mr. Siskind served as a member of the Board of Directors of +Magic Lantern Group, Inc. (AMEX:GML), which changed its name +from JKC Group, Inc. From May 1998 to November 2002, +Mr. Siskind served as President, Chief Executive Officer +and a member of the Board of Directors of Stage II Apparel +Corp. (AMEX:SA), which +16 +Table of Contents +changed its name to JKC Group, Inc. (AMEX:JKC) in April 2002. In +1991, Mr. Siskind founded R. Siskind & Company, a +business that purchases brand name men’s and women’s +apparel and accessories and redistributes those items to +off-price retailers, and he is its sole shareholder, Chief +Executive Officer, President and sole member of its Board of +Directors. +Executive +Officers +The following table sets forth certain information with respect +to our executive officers who are not also members of our Board +of Directors. For information concerning Robert Greenberg, +Michael Greenberg and David Weinberg, see “Information +Concerning Director Nominees” and “Directors +Not Standing for Election” above. +Name +Age +Position +Frederick Schneider +50 +Chief Financial Officer +Philip Paccione +45 +General Counsel; Executive Vice +President, Business Affairs; and Corporate Secretary +Mark Nason +45 +Executive Vice President, Product +Development +Frederick Schneider has served as our Chief Financial +Officer since January 2006. From February 2004 to when he joined +our company in January 2006, Mr. Schneider served on our +Board of Directors and as Chairman of our Audit Committee. He +also currently serves on the Board of Directors and as Chairman +of the Audit Committee at each of Meade Instruments +(NASDAQ:MEAD) and Sport Chalet, Inc. (NASDAQ:SPCH). +Mr. Schneider has served as a Board member and Audit +Committee member at Meade Instruments since August 2004 and at +Sport Chalet since May 2002. From July 2004 to December 2005, he +served as a senior managing director at Pasadena Capital +Partners, a private equity investment firm. Prior to working at +Pasadena Capital Partners, Mr. Schneider was an independent +private equity investor and consultant; from September 1994 to +January 1998, he served as chief financial officer and principal +of Leonard Green & Partners, L.P., a merchant banking +firm specializing in leveraged buyouts; and from June 1978 to +September 1994, he worked at KPMG LLP including five years as an +audit and due diligence partner. +Philip Paccione has served as our Executive Vice +President, Business Affairs since February 2000, as our +Corporate Secretary since July 1998 and as our General Counsel +since May 1998. +Mark Nason has served as our Executive Vice President, +Product Development since March 2002. From January 1998 to March +2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served +as our Director of Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of our executive officers or directors. +CORPORATE +GOVERNANCE AND BOARD MATTERS +Code of +Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by the Board of +Directors as of April 28, 2004 and amended by the Board as +of January 15, 2007. The purpose of the Code is to promote +honest and ethical conduct. The Code of Business Conduct and +Ethics is posted in the corporate governance section of the +investor relations page of our website located at +www.skechers.com , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. We intend to promptly post +any amendments to or waivers of the Code of Business Conduct and +Ethics on our website. +“Controlled +Company” Exemption under NYSE Rules +Under Section 303A of the New York Stock Exchange +(“NYSE”) Listed Company Manual (collectively, the +“NYSE Rules”), we are considered a “Controlled +Company” because Robert Greenberg, directly and indirectly, +owns 61.5% of the voting power in our company (see +“Transactions With Related Persons” ). As a +Controlled +17 +Table of Contents +Company, we are exempt from certain NYSE Rules requiring a board +of directors with a majority of independent members, a +compensation committee composed entirely of independent +directors and a nominating committee composed entirely of +independent directors. However, notwithstanding this exemption, +as described more fully below, we established a Compensation +Committee in 2006 that is composed entirely of independent +directors. +Director +Independence +Our Board of Directors has affirmatively determined that the +Board has three members who are “independent” +consistent with Section 303A.02 of the NYSE Rules. These +directors are currently Morton D. Erlich, who is Chairman of our +Audit Committee and a member of our Compensation Committee, +Geyer Kosinski, who is a member of our Audit Committee, and +Richard Siskind, who is Chairman of our Compensation Committee +and a member of our Audit Committee. The Board of Directors made +this affirmative determination regarding these directors’ +independence based on discussions with the directors and on its +review of the directors’ responses to a standard +questionnaire regarding employment and compensation history; +affiliations, family and other relationships; and transactions +with our company, its subsidiaries and affiliates. The Board +considered relationships and transactions between each director +or any member of his immediate family and our company and its +subsidiaries and affiliates, including those reported under the +section entitled “Transactions With Related +Persons” in this proxy statement. The purpose of the +Board’s review with respect to each director was to +determine whether any such relationships or transactions were +inconsistent with a determination that the director is +independent under the NYSE Rules. +Attendance +of Directors at Board Meetings and Annual Meeting of +Stockholders +Our Board of Directors met four times in 2006, and each of the +directors attended all of the meetings. While we do not have a +policy requiring our directors to attend our Annual Meeting of +Stockholders, all of the directors attended the Annual Meeting +held in 2006. +Audit +Committee +Our Audit Committee, which was established in accordance with +Section 3(a)(58)(A) of the Exchange Act, is responsible for +overseeing (i) the quality and integrity of our financial +statements, (ii) the appointment, compensation, +independence and performance of the independent registered +public accounting firm, (iii) our compliance with legal and +regulatory requirements and (iv) the performance of +internal audit and controls function. +The Audit Committee is currently composed of Chairman Morton D. +Erlich, Geyer Kosinski and Richard Siskind, each of whom is +“independent” under Sections 303A.06 and 303A.07 +of the NYSE Rules and Section 10A(m)(3) of the Exchange Act. The +Audit Committee met six times during 2006. Each Audit Committee +member attended all of the meetings, except Geyer Kosinski who +was unable to attend two of the meetings. +Our Audit Committee currently acts under a written Audit +Committee Charter adopted by the Board of Directors as of +April 29, 2004 and amended by the Board as of +January 15, 2007. The Audit Committee Charter, which +complies with the NYSE Rules and is subject to change from time +to time by the Board of Directors, is posted in the corporate +governance section of the investor relations page of our website +located at www.skechers.com . Copies are available +in print, without charge, upon written request to our Corporate +Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +Audit +Committee Financial Expert +Our Board of Directors has determined that Morton D. Erlich, who +currently serves as Chairman of our Audit Committee, is an +“audit committee financial expert” as that term is +defined in Item 401(h) of +Regulation S-K. +Compensation +Committee +Our Board of Directors approved and established the Compensation +Committee as of March 31, 2006. The Compensation Committee +is responsible for (i) discharging the Board’s +responsibilities relating to compensation of our executive +officers, (ii) overseeing the administration of our +executive compensation plans, (iii) reviewing and +18 +Table of Contents +discussing with our management the Compensation Discussion and +Analysis required by the applicable rules of the Securities and +Exchange Commission (the “SEC”) and recommending to +the Board whether such disclosure should be included in our +proxy statement and (iv) producing an annual report on +executive compensation for inclusion in our proxy statement in +accordance with the applicable rules of the SEC. This includes +reviewing and approving the annual compensation of our Chief +Executive Officer and other executive officers, reviewing and +making recommendations to the Board with respect to executive +compensation plans, including incentive compensation and +equity-based compensation, and reviewing and approving +performance goals and objectives with respect to the +compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. +The Compensation Committee is composed of Chairman Richard +Siskind and Morton D. Erlich. The Compensation Committee held +two meetings in 2006, which were attended by both of its members. +Our Compensation Committee currently acts under a written +Compensation Committee Charter adopted by the Board of Directors +as of March 31, 2006 and amended by the Board as of +December 12, 2006. The Compensation Committee Charter, +which complies with the NYSE Rules and is subject to change from +time to time by the Board of Directors, is posted in the +corporate governance section of the investor relations page of +our website located at www.skechers.com . Copies +are available in print, without charge, upon written request to +our Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan +Beach Boulevard, Manhattan Beach, California 90266. +Compensation +Committee Interlocks and Insider Participation +Our Compensation Committee is composed of Richard Siskind and +Morton D. Erlich, neither of whom has ever been an employee or +officer of our company or any of its subsidiaries. None of our +executive officers has served or currently serves on the board +of directors or on the compensation committee of any other +entity, which has officers who served on our Board of Directors +or Compensation Committee during the fiscal year ended +December 31, 2006. +Director +Nominations +As a Controlled Company under the NYSE Rules, we are not +required to and currently do not have a nominating committee. +Our Chairman of the Board, in consultation with other members of +management, performs the functions of a nominating committee, +including the identification and evaluation of director +candidates. Nominees for directors are identified and +recommended by the Chairman of the Board and presented to the +full Board of Directors. Qualifications and skills that the +Board of Directors requires of directors are set forth in our +Corporate Governance Guidelines, which was adopted by the Board +as of April 28, 2004 and is posted in the corporate +governance section of the investor relations page of our website +located at www.skechers.com . Copies are available +in print, without charge, upon written request to our Corporate +Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. Our Board of +Directors seeks members from diverse professional and personal +backgrounds who combine a broad spectrum of experience and +expertise with a reputation for integrity. Factors considered in +evaluating a director candidate include the evaluation of +diversity, age, skills and experience in the context of the +needs of the Board. Additionally, directors should not serve on +more than two boards of public companies in addition to our +Board of Directors. The Board believes that the functions of a +nominating committee are more than adequately performed by our +Chairman of the Board and the Board of Directors as a whole. +Pursuant to our bylaws, a stockholder may nominate a person for +election as a director at an annual meeting of stockholders only +if written notice of such stockholder’s intent to make such +nomination has been given to our Corporate Secretary no later +than the close of business on the sixtieth +(60 th ) +day nor earlier than the close of business on the ninetieth +(90 th ) +day in advance of such meeting. Each notice is required to set +forth certain information, including (i) the name and +address of the stockholder and of the person or persons to be +nominated, (ii) a description of all arrangements or +understandings between the stockholder and each nominee pursuant +to which the nomination is to be made, (iii) information +regarding each nominee as would be required to be included in a +proxy statement filed pursuant to the proxy rules of the SEC had +the nominee been nominated, or intended to be nominated, by the +19 +Table of Contents +Board and (iv) the consent of each nominee to serve as a +director if so elected. The stockholder must also promptly +provide any other information that we reasonably request. +Executive +Sessions +Non-management directors meet regularly in executive sessions +without our management. Non-management directors are those +directors who are not also our executive officers and include +directors, if any, who are not independent by virtue of the +existence of a material relationship with our company. Executive +sessions are led by a Presiding Independent Director. An +executive session is held in conjunction with each regularly +scheduled Audit Committee meeting and other sessions may be +called by the Presiding Independent Director in his own +discretion or at the request of the Board of Directors. Morton +D. Erlich is currently designated as the Presiding Independent +Director. +COMPENSATION +DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation +arrangements of our Named Executive Officers for 2006 should be +read together with the compensation tables and related +disclosures set forth below. The Named Executive Officers are +those executive officers listed in the table captioned +Summary Compensation Table in this proxy statement: +specifically, Robert Greenberg, Chief Executive Officer; Michael +Greenberg, President; David Weinberg, Chief Operating Officer; +Frederick Schneider, Chief Financial Officer; and Mark Nason, +Executive Vice President of Product Development. This discussion +contains forward looking statements that are based on our +current plans, considerations, expectations and determinations +regarding future compensation programs. Actual compensation +programs that we adopt may differ materially from currently +planned programs as summarized in this discussion. +Role of +Compensation Committee +Our executive compensation program is administered by or under +the direction of the Compensation Committee of our Board of +Directors. Under the terms of its Charter, the Compensation +Committee is responsible for (i) discharging the +Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of +our executive compensation plans, (iii) reviewing and +discussing with Skechers’ management this Compensation +Discussion and Analysis required by the applicable SEC rules and +recommending to the Board its inclusion in this proxy statement +and (iv) producing the annual report on executive +compensation included elsewhere in this proxy statement in +accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the +services of outside advisors, experts and other consultants to +assist in the evaluation of the compensation of the Chief +Executive Officer, the other executive officers and the Board of +Directors. Neither we nor our Compensation Committee retained a +compensation consultant in 2006 to review policies and +procedures with respect to executive compensation or to advise +us on compensation matters. For 2006, the Compensation Committee +reviewed management’s compensation recommendations and then +discussed these recommendations with management. The final +recommendation by the Compensation Committee was approved by the +Board of Directors. +Role of +Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and +Chief Operating Officer, annually makes recommendations to the +Compensation Committee regarding (i) annual base salary and +bonuses to be paid to executive officers, (ii) the +formation and modification of our equity-based and incentive +compensation plans for executive officers, (iii) awards to +be granted under our equity-based compensation plan and +(iv) performance metrics to be used to calculate incentive +compensation that executive officers may earn under our +incentive compensation plan. These recommendations are based on +management’s assessment of the base salary, equity-based +compensation and incentive compensation opportunities that are +competitive within our industry and within the geographical +labor markets in which we participate. The Compensation +Committee has the authority to adopt, modify or reject any of +these recommendations. +20 +Table of Contents +Compensation +Objectives +The basic compensation philosophy of our management and the +Compensation Committee is to provide competitive salaries and +incentives to executive officers in order to promote superior +financial performance. The Compensation Committee believes that +compensation paid to executive officers should be closely +aligned with our performance on both a short-term and long-term +basis, linked to specific, measurable results intended to create +value for stockholders, and that such compensation should assist +us in attracting and retaining key executives critical to our +long-term success. +Our executive compensation policies are designed to achieve four +primary objectives: +• +attract and motivate well-qualified individuals with the ability +and talent for us to achieve our business objectives and +corporate strategies; +• +provide incentives to achieve specific short-term individual and +corporate goals by rewarding achievement of those goals at +established financial performance levels; +• +provide incentives to achieve longer-term financial goals and +reinforce sense of ownership through award opportunities that +can result in ownership of stock; and +• +promote retention of key executives and align the interests of +management with those of the stockholders to reinforce +achievement of continuing increases in stockholder value. +Consistent with our performance-based philosophy, the +Compensation Committee reviews and approves our compensation +programs to effectively balance executive officers’ +salaries with incentive compensation that is performance-based +as well as to reward annual performance while maintaining a +focus on longer-term objectives. We believe that it serves the +needs of our stockholders and key executives to provide +incentives commensurate with individual management +responsibilities and past and future contributions to corporate +objectives. The mix of compensation elements varies based on an +executive officer’s position and responsibilities with +Skechers. +To maximize stockholder value, we believe that it is necessary +to deliver consistent, long-term sales and earnings growth. +Accordingly, the Compensation Committee reviews not only the +individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +short-term, long-term and currently paid cash and equity +compensation in a way that meets the objectives set forth above. +Elements +of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual +Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded as stock options or restricted stock +under the 1998 Stock Plan. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above +Base +Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking +into account market compensation paid by competitors within our +industry and other companies of similar type, size and financial +performance for individuals in similar positions. We set base +compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a +competitive environment, such as with Mr. Schneider who was +hired as our Chief Financial Officer in January 2006, and to +reward satisfactory performance at an acceptable level based +upon contributions to our overall business objectives. +21 +Table of Contents +Base salaries are generally reviewed annually, but may be +adjusted from time to time to realign salaries with market +levels. In reviewing base salaries, we consider various factors, +including (i) each individual’s level of +responsibilities, performance and results achieved, and +professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and +companies of similar type, size and financial performance and +(iii) cost of living increases. The base salaries of +Messrs. Weinberg and Nason increased for 2006 over the +previous year’s levels as a result of a combination of +factors, including continued positive financial performance by +Skechers, improved individual performances, individual +promotions and increased responsibilities. While the same +factors could be attributed to increases in total compensation +for Robert Greenberg and Michael Greenberg for 2006 over the +previous year, Robert Greenberg’s base salary decreased in +2006 and Michael Greenberg’s base salary remained unchanged +year-over-year. +This was consistent with our performance-based philosophy, as +each of our Named Executive Officer’s total compensation +for 2006 was more heavily weighted towards incentive +compensation as compared to the previous year. +Annual +Incentive Compensation +The 2006 Plan is intended to advance our interests and those of +our stockholders and to assist us in attracting and retaining +executive officers by providing incentives and financial rewards +to such executives who, because of the extent of their +responsibilities can make significant contributions to our +success through their ability, industry expertise, loyalty and +exceptional services. The 2006 Plan was adopted by our Board of +Directors in March 2006, and then approved at our 2006 Annual +Meeting of Stockholders. +The 2006 Plan continues the annual bonus policy that we have +used for many years and provides Named Executive Officers with +the opportunity to earn bonuses based on our financial +performance by linking incentive award opportunities to the +achievement of our performance goals. The 2006 Plan allows us to +set annual performance criteria and goals that are flexible and +change with the needs of our business. The Compensation +Committee annually approves the performance criteria and goals +that will be used in formulae to calculate our Named Executive +Officers’ incentive compensation for each fiscal year. By +determining performance criteria and setting goals at the +beginning of each fiscal year, our Named Executive Officers +understand our goals and priorities during the current fiscal +year. Our performance goals are set by reference to one or more +of the business criteria that are listed under +“Executive Compensation — 2006 Annual +Incentive Compensation Plan.” The business criteria +used in the formulae to calculate the incentive compensation of +our Chief Executive Officer and President for 2006 were our net +sales and net earnings because the Compensation Committee +believes that they provide an accurate and comprehensive measure +of our annual performance. For our other Named Executive +Officers, our net sales were used to calculate their incentive +compensation for 2006. +The potential payments of incentive compensation to our Named +Executive Officers are performance-driven and therefore +completely at risk. The payment of any incentive compensation +for a fiscal year under the 2006 Plan is conditioned on the +Company achieving at least certain threshold performance levels +of the business criteria approved by the Compensation Committee, +and no payments will be made to the Company’s Named +Executive Officers if the threshold performance levels are not +met. Any incentive compensation to be paid to the Named +Executive Officers in excess of the threshold amounts is based +on the Compensation Committee’s pre-approved business +criteria and formulae for the respective Named Executive +Officers. The threshold performance levels for 2006 were +“attainable,” and additional incentive compensation +could have been earned based on our financial performance +exceeding increasingly challenging levels of performance goals, +none of which was certain to be achieved. The Compensation +Committee did not place a maximum limit on the incentive +compensation that could have been earned by the Named Executive +Officers in 2006, although the maximum amount of incentive +compensation that any Named Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +The Named Executive Officers were generally targeted to receive +from 20% to 70% of their annual salaries for 2006 in annual +bonus compensation, which was determined to be competitive in +the marketplace for similar positions. In determining the +potential awards that computed into these percentages, the +Compensation Committee considered each Named Executive +Officer’s position, responsibilities and prospective +contribution to the attainment of our performance goals. The +percentage of total compensation represented by incentive awards +is generally higher for more senior executives to reflect their +greater influence on profits and sales and to put a larger +percentage of their +22 +Table of Contents +total potential cash compensation “at risk.” +Accordingly, our Chief Executive Officer, Robert Greenberg, was +at the top end of the range. +Based on our financial performance and the performance goals +previously set by the Compensation Committee for each Named +Executive Officer for 2006, the actual incentive compensation +earned by each Named Executive Officer for 2006 was $1,494,455 +for Robert Greenberg, which represented 59% of his total +compensation; $696,673 for Michael Greenberg, which represented +40% of his total compensation; $497,227 for David Weinberg, +which represented 33% of his total compensation, $397,782 for +Mark Nason, which represented 29% of his total compensation; and +$198,891 for Frederick Schneider, which represented 24% of his +total compensation. +Incentive compensation awarded under the 2006 Plan complements +the approach of our equity compensation program described below, +which is focused on our long-term achievements for earnings per +share and total stockholder return. +Equity-Based +Compensation +Awards of stock options and restricted stock under the 1998 +Stock Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees +for building stockholder value; and +• +encourage long-term investment in Skechers by participating +Named Executive Officers. +The Compensation Committee believes that stockholder ownership +by management has been demonstrated to be beneficial to all +stockholders and stock awards have been granted by Skechers to +executive officers and other employees prior to 2006 for the +foregoing reasons. However, we did not issue any shares of +restricted stock to the Named Executive Officers as part of +their annual compensation in 2006, except for a new hire award +to our Chief Financial Officer when he joined our company in +January 2006, and we have not granted any stock options to the +Named Executive Officers as part of their annual compensation +since February 2004. The Compensation Committee plans to +re-evaluate whether to award equity-based compensation as a +component of total executive compensation in 2007. +Restricted +Stock +The 1998 Stock Plan provides for awards of restricted shares of +our Class A Common Stock to our executives and other key +employees. The Compensation Committee has the authority to +determine the individuals to whom restricted shares are awarded, +the terms upon which shares are awarded and the number of shares +subject to each award. If not the Board of Directors, the +Compensation Committee takes final action on the amount, timing, +price and other terms of all restricted shares awarded to our +employees, advisors and consultants. +Restricted shares are subject to certain restrictions that +generally lapse over a period of four years from the date of +award. This vesting schedule promotes retention and encourages +long-term investment in Skechers by those Named Executive +Officers who do not already hold shares of our Class A or +Class B Common Stock. This also provides a reasonable time +frame to align the Named Executive Officers’ compensation +with stockholder interests since any appreciation of our stock +price will benefit both management and stockholders. An +additional advantage of restricted stock is that, in comparison +to stock options, fewer shares are required to deliver the same +economic value. This may result in lower stockholder dilution +than granting stock options. The Compensation Committee is +expected to consider these advantages when re-evaluating whether +to award restricted stock or other equity-based compensation as +a component of total executive compensation in 2007. +Stock +Options +The 1998 Stock Plan provides for grants of stock options to our +executives and other key employees to purchase shares of our +Class A Common Stock. The Compensation Committee has the +authority to determine the individuals to whom options are +granted, the terms upon which options are granted and the number +of shares subject to each option. Our Chief Executive Officer +makes periodic recommendations of stock option grants (other +than for himself), which the Compensation Committee then +considers, and may approve, revise or reject. If not the Board +of +23 +Table of Contents +Directors, the Compensation Committee takes final action on the +amount, timing, price and other terms of all options granted to +our employees, advisors and consultants. +Stock options generally vest over a period of three years, with +25% vesting on the date of grant and 25% vesting each +anniversary thereafter, with all options exercisable on the +third anniversary of the date of grant. This vesting schedule +promotes retention while the nature of stock options provides +Named Executive Officers and other key employees with an +incentive to contribute to stockholder value in the long term. +Stock options are typically priced at the closing price of our +Class A Common Stock on the New York Stock Exchange on the +date of grant. All stock options expire ten years from the date +of grant. This provides a reasonable time frame to align the +Named Executive Officers’ compensation with stockholder +interests since any appreciation of our stock price will benefit +both management and stockholders. While playing a lesser role in +our current equity-based compensation program, stock options are +still an appropriate and highly motivating vehicle for +delivering long-term incentives. Stock options provide a direct +link with stockholder interests as they have zero intrinsic +value unless our stock price increases above the grant date +price. The Compensation Committee is expected to consider these +advantages when re-evaluating whether to award stock options or +other equity-based compensation as a component of total +executive compensation in 2007. +2007 +Incentive Award Plan +The Board of Directors has adopted, subject to stockholder +approval, the 2007 Incentive Award Plan. If the 2007 Incentive +Award Plan is approved by our stockholders at the Annual +Meeting, we intend to terminate the 1998 Stock Plan effective +upon such approval, and no additional awards will thereafter be +made under the 1998 Stock Plan. Any future awards will be made +under the 2007 Incentive Award Plan, although any awards +outstanding upon the termination of the 1998 Stock Plan will +remain outstanding and in full force and effect in accordance +with the terms of the 1998 Stock Plan and the applicable award +agreement. +Perquisites +and Other Benefits +We provide our Named Executive Officers with perquisites and +other benefits, reflected in the “All Other +Compensation” column in the table captioned Summary +Compensation Table in this proxy statement, that we believe +are reasonable, competitive and consistent with our overall +executive compensation program. The costs of these benefits +constitute only a small percentage of each Named Executive +Officer’s total compensation and include the following: +Employee Healthcare Premiums. We, at our sole +cost, provide to each Named Executive Officer, his spouse and +his children such health, dental and vision insurance as we may +from time to time make available to our other employees. +Matching Contributions to 401(k) Plan +Accounts. Each Named Executive Officer +participating in our contributory retirement plan (the +“401(k) Plan”) may contribute up to 15% of his salary, +up to the IRS statutory limitation of $15,000 for 2006, to his +account under the 401(k) Plan. We may make a matching +contribution equal to a percentage of salary contributed by the +Named Executive Officer to his account, which vests 20% per +year for five years on and after the first anniversary of the +Named Executive Officer’s hire date. The percentage of this +matching contribution is the same for all of our employees +participating in the 401(k) Plan for each calendar year. +Aircraft usage. We have an agreement with an +aircraft operator for use of its aircraft for business travel. +Each Named Executive Officer may also use the aircraft for +personal use. If we are not reimbursed for costs associated with +personal use of the aircraft, such costs are considered taxable +income to the Named Executive Officer. During 2006, there was no +personal use of the aircraft by any of the Named Executive +Officers for which we were not reimbursed in full. +Automobile usage. During 2006, automobiles +that we leased or purchased at our sole cost were used by Robert +Greenberg, Michael Greenberg and David Weinberg. We also paid on +their behalf the automobile insurance premiums related to their +use of these automobiles. +Health Club Dues. During 2006, we paid health +club membership fees for David Weinberg and Frederick Schneider. +24 +Table of Contents +Employment +Agreements, Severance Benefits and Change of Control +Provisions +We do not have any employment, severance or +change-of-control +agreements in effect with any of our Named Executive Officers. +1998 +Stock Plan Provisions +As mentioned above in this Compensation Discussion and Analysis +under the heading “Equity-Based Compensation,” +we have granted certain stock options and awarded shares of +restricted stock that are subject to accelerated vesting upon a +change of control of Skechers. +Generally, with respect to stock options previously granted +under the 1998 Stock Plan that remain outstanding, 25% of the +options vested immediately on the date of grant and the +remaining options vest 25% per year on each anniversary of +the date of grant, with all options exercisable on the third +anniversary of the date of grant. For all shares of restricted +stock awarded to date under the 1998 Stock Plan, 20% of the +shares vested immediately on the date of award and the remaining +shares vest 20% per year on each anniversary of the date of +award, with restrictions on all shares lapsing on the fourth +anniversary of the date of award. These vesting schedules +promote the retention of our executive officers. In the event of +a change of control, all stock options and awards of restricted +stock will vest in full and any indebtedness incurred in +connection with the 1998 Stock Plan will be forgiven, although +no such loans have been made to our director or executive +officers that violate Section 402 of the Sarbanes-Oxley Act +of 2002, as amended (the “Sarbanes-Oxley Act”). +A “change of control” is defined in the 1998 Stock +Plan and the agreements under the 1998 Stock Plan as the +acquisition by certain persons of our securities representing +50% or more of the combined voting power of our outstanding +securities; a change during any two-year period in a majority of +the Board of Directors unless each new director was approved by +a vote of at least two-thirds of the directors then still in +office who were directors at the beginning of the period, or +whose election or nomination was so approved; approval by our +stockholders of a merger or consolidation (except with certain +permitted entities) or approval by our stockholders of a +complete liquidation of our company or the sale or disposition +of all or substantially all of our assets. +The Compensation Committee believes that a “single +trigger” change of control policy is consistent with the +objectives of providing the highest possible return to +stockholders by allowing the Named Executive Officers to be able +to effectively participate equally with stockholders in +evaluating alternatives in the event of a change of control +transaction, without compelling the Named Executive Officer to +remain employed under new ownership. +Equity +Award Practices +As described under the Equity Compensation section, equity-based +awards are a key component of our overall executive compensation +program. We do not backdate grants of awards nor do we +coordinate the grant of awards with the release of material +information to result in favorable pricing. Initial grants of +awards to executive officers and other new employees are based +on the timing of date of hire. Historically, all grants of stock +options have been made at 100% of fair market value — +the closing price of our Class A Common Stock on the New +York Stock Exchange on the date of grant — and grants +have never been re-priced. +Impact of +Regulatory Requirements +Tax +Deductibility of Compensation +Section 162(m) of the Internal Revenue Code of 1986, as +amended (the “Code” and, collectively, +“Section 162(m)”) places a limit of $1,000,000 on +the annual amount of compensation (other than compensation that +qualifies as “qualified performance-based +compensation”) that publicly held companies may deduct for +federal income tax purposes for certain executive officers. +25 +Table of Contents +The Compensation Committee believes that tax deductibility is an +important factor, but only one factor, to be considered in +evaluating a compensation program. Thus, while the 2006 Plan has +generally been designed and administered to maintain tax +deductibility, including stockholder approval of the plan, the +Compensation Committee believes competitive and other +circumstances may require that the interests of Skechers and its +stockholders are best served by providing compensation that is +not fully tax deductible. Accordingly, the Compensation +Committee may continue to exercise discretion to provide base +salaries or other compensation that may not be fully tax +deductible by Skechers. +Other +Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules +affect the delivery of executive compensation and are generally +taken into consideration as programs are developed. Our goal is +to create and maintain plans that are efficient and in full +compliance with these requirements. +REPORT OF +THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the +Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and +discussion, the Compensation Committee has recommended to the +Board of Directors inclusion of the Compensation Discussion and +Analysis in this Proxy Statement and, through incorporation by +reference from this Proxy Statement, our Annual Report on +Form 10-K +for the year ended December 31, 2006. +Respectfully submitted, +Richard Siskind, Chairman +Morton D. Erlich +26 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth information concerning the annual +and long-term compensation earned by our Chief Executive Officer +and each of our other named executive officers whose annual +salary and bonus during 2006 exceeded $100,000 (the “Named +Executive Officers”). +Summary +Compensation Table +Non-Equity +Stock +Option +Incentive Plan +All Other +Name and Principal Position +Year +Salary ($) +Awards +($) (1) +Awards +($) (2) +Compensation +($) (3) +Compensation ($) +Total ($) +Robert Greenberg +2006 +1,000,000 +— +— +1,494,455 +35,941 +(5) +2,530,396 +Chairman of the Board +and Chief Executive Officer +Frederick +Schneider (4) +2006 +500,000 +62,389 +54,930 +198,891 +23,860 +(6) +840,070 +Chief Financial Officer +Michael Greenberg +2006 +1,000,000 +— +— +696,673 +40,993 +(7) +1,737,666 +President +David +Weinberg (4) +2006 +900,000 +— +68,663 +497,227 +53,574 +(8) +1,519,464 +Executive Vice President and Chief +Operating Officer +Mark Nason +2006 +846,154 +— +137,325 +397,782 +11,139 +(9) +1,392,400 +Executive Vice President, +Product Development +(1) +Represents the dollar amount +recognized for financial statement reporting purposes with +respect to the 2006 fiscal year in accordance with +SFAS 123R for the fair value of restricted stock that was +awarded in 2006, as we did not grant any stock awards prior to +2006. The fair value is calculated using the closing price of +our Class A Common Stock on the grant date for the shares +awarded. Pursuant to SEC rules, the amount shown excludes the +impact of estimated forfeitures related to service-based vesting +conditions. See the table captioned Grants of Plan-Based +Awards in Fiscal 2006 in this proxy statement for additional +information on the stock award granted in 2006. The reported +amount reflects our company’s stock-based compensation +expense for this award and does not correspond to the actual +value that will be recognized by Mr. Schneider. +(2) +Represents the dollar amount +recognized for financial statement reporting purposes with +respect to the 2006 fiscal year in accordance with +SFAS 123R for the fair value of all stock options granted +to the Named Executive Officers. We have not granted stock +options to Named Executive Officers since 2004. Frederick +Schneider’s compensation relates to stock options granted +to him in 2004 when he was a non-employee director. The fair +value was estimated using the Black-Scholes option-pricing model +in accordance with SFAS 123R. The fair value per option was +$5.49 based on assumptions of 5 years expected life, +expected volatility of 73%, a risk free rate of 3.23% and no +expected dividend yield. Pursuant to SEC rules, the amount shown +excludes the impact of estimated forfeitures related to +service-based vesting conditions. The reported amounts reflect +our company’s stock-based compensation expense for these +awards and do not correspond to the actual value that will be +recognized by Messrs. Schneider, Weinberg and Nason. +(3) +Represents the actual cash awards +that the Named Executive Officers earned in 2006 under our 2006 +Annual Incentive Compensation Plan. Incentive compensation is +paid quarterly based on performance levels that our company +achieved in the prior quarter. These amounts exclude any bonuses +earned by the Named Executive Officers in 2005 that were paid in +2006 and include incentive compensation earned in the fourth +quarter of 2006 that was paid in March 2007. Additional +information regarding the 2006 Annual Incentive Compensation +Plan is described in the section entitled “Compensation +Discussion And Analysis” in this proxy statement. +(4) +On January 3, 2006, David +Weinberg was promoted from Chief Financial Officer to Chief +Operating Officer of our company, and Frederick Schneider was +hired to replace Mr. Weinberg as Chief Financial Officer +and principal financial and accounting officer of our company. +(5) +Represents health and life +insurance payments of $11,712 and costs of $24,229 related to +automobiles purchased by our company for use by +Mr. Greenberg. The aggregate incremental costs of +automobile usage are based on depreciation expense for +automobiles purchased in 2006 or prior years and automobile +insurance premiums paid by our company on behalf of +Mr. Greenberg in 2006. +(6) +Represents health and life +insurance payments of $16,240, matching contribution of $6,600 +that we made under the 401(k) Plan and payment of health club +membership fees of $1,020. +(7) +Represents health and life +insurance payments of $16,240, matching contribution of $6,600 +that we made under the 401(k) Plan and costs of $18,153 related +to an automobile purchased by our company for use by +Mr. Greenberg. The aggregate incremental costs of +automobile usage are based on depreciation expense for an +automobile purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg in 2006. +(8) +Represents health and life +insurance payments of $10,423, matching contribution of $6,600 +that we made under the 401(k) Plan, payment of health club +membership fees of $1,020 and costs of $35,531 related to +automobiles leased or purchased by our company for use by +Mr. Weinberg. The aggregate incremental costs of automobile +usage are based on payments for an automobile leased in 2006, +depreciation expense for an automobile purchased in 2006 and +automobile insurance premiums paid by our company on behalf of +Mr. Weinberg in 2006. +(9) +Represents health and life +insurance payments of $11,014 and matching contributions of $125 +that we made under the 401(k) Plan. +27 +Table of Contents +2006 +Annual Incentive Compensation Plan +In May 2006, our stockholders approved the 2006 Plan, which was +adopted by our Board of Directors in March 2006. The 2006 Plan +generally provides for performance-based incentive awards to +certain of our key employees. The 2006 Plan is designed to +satisfy the requirements of Section 162(m). +The 2006 Plan is administered by the Compensation Committee of +the Board of Directors (the “Committee”). The +Committee has the authority and discretion to administer and +interpret the provisions of the 2006 Plan and to adopt such +rules and regulations for the administration of the 2006 Plan as +the Committee deems necessary or advisable. Decisions of the +Committee are final, conclusive and binding upon all parties, +including, without limitation, our company and participants in +the 2006 Plan. The Committee may designate all or any portion of +its power and authority under the 2006 Plan to any +sub-committee +of the Committee or to any of our executive officers, provided +that any such designation is consistent with the requirements of +Section 162(m). +The individuals eligible to participate in the 2006 Plan are our +Chief Executive Officer and any other executive officer of our +company or a subsidiary thereof. Prior to or at the time +performance objectives are established for a fiscal quarter, +fiscal year or such other period of our company that the +Committee, in its sole discretion, may establish up to five +years in length (collectively, “Performance Period”), +the Committee identifies those executive officers including the +Chief Executive Officer who will in fact be participants for +such Performance Period. +Within the time period prescribed by Section 162(m), for +each Performance Period for which performance objectives are +established, the Committee (i) determines the participants +who are to be eligible to receive performance-based awards under +the 2006 Plan, (ii) selects the performance criteria to be +used for each participant and (iii) establishes, in terms +of an objective formula or standard for each participant, the +performance goal and the amount of each award which may be +earned if such performance goal is achieved. +The performance criteria are as follows: net sales, revenue, +revenue growth, operating income, pre- or after-tax income +(before or after allocation of corporate overhead and bonus), +net earnings, earnings per share, net income, financial goals +(division, group or corporate), return on equity, total +shareholder return, return on assets or net assets, attainment +of strategic and operational initiatives, appreciation in +and/or +maintenance of the price of the shares of our Class A +Common Stock or any other publicly-traded securities of our +company, market share, gross profits, earnings (including +earnings before taxes, earnings before interest and taxes or +earnings before interest, taxes, depreciation and amortization), +economic value-added models, comparisons with various stock +market indices, reductions in costs, cash flow (before or after +dividends), cash flow per share (before or after dividends), +return on capital (including return on total capital or return +on invested capital), cash flow return on investment, and +improvement in or attainment of expense levels or working +capital levels. +In determining satisfaction with performance goals for a +Performance Period, the Committee may direct that adjustments be +made to the performance goals or actual financial performance +results as reported to reflect extraordinary, unusual or +non-recurring organizational, operational or other changes that +have occurred during such Performance Period, in each case only +to the extent that such adjustments are consistent with the +requirements of Section 162(m). +At such time as it determines appropriate following the +conclusion of each Performance Period, the Committee certifies, +in writing, the amount of the award for each participant for +such Performance Period. The amount of an award actually paid to +a participant may, in the sole discretion of the Committee, be +reduced to less than the amount payable to the participant based +on attainment of the performance goals for a Performance Period. +Payment of an award to each participant shall be made no later +than the fifteenth day of the third month following the end of +the our fiscal quarter in which the applicable Performance +Period ends. +The 2006 Plan is effective for fiscal years 2006 through 2010, +after which our stockholders must re-approve the 2006 Plan for +an additional five years at our annual meeting of stockholders +in 2011 in order for awards under the 2006 Plan to continue to +qualify as performance-based compensation under +Section 162(m). The Committee may at any time alter, amend, +suspend or terminate the 2006 Plan as it shall deem advisable, +subject to any requirement for stockholder approval as required +by applicable law, including Section 162(m), and our +obligations under our listing +28 +Table of Contents +agreement with the NYSE. No amendments to, or termination of, +the 2006 Plan shall in any way impair the rights of a +participant under any award previously granted without such +participant’s consent. +We may deduct from any payments of awards under the 2006 Plan +any applicable withholding taxes required by law to be withheld +with respect to such payments. +Grants of +Plan-Based Awards in Fiscal 2006 +The following table provides information about equity and +non-equity awards granted to the Named Executive Officers in +2006: (i) the grant date; (ii) the estimated future +payouts under non-equity incentive plan awards, which consist of +potential payouts under the 2006 Annual Incentive Compensation +Plan that were awarded in 2006 for the performance period +covering fiscal 2006; (iii) the number of shares underlying +all other stock awards, which consists of shares of restricted +stock awarded to Mr. Schneider; and (iv) the grant +date fair value of each equity award computed under +SFAS 123R. +All Other +Grant Date +Stock Awards: +Fair Value of +Estimated Future Payments Under +Number of +Stock and +Grant +Non-Equity Incentive Plan +Awards (1) +Shares of Stock +Option +Name of Executive +Date +Threshold ($) +Target ($) +Maximum ($) +or Units +(#) (2) +Awards +($) (3) +Robert Greenberg +3/31/06 +0 +1,494,455 +— +— +— +Frederick Schneider +1/3/06 +— +— +— +10,000 +156,600 +3/31/06 +0 +198,891 +— +— +— +Michael Greenberg +3/31/06 +0 +696,673 +— +— +— +David Weinberg +3/31/06 +0 +497,227 +— +— +— +Mark Nason +3/31/06 +0 +397,782 +— +— +— +(1) +These columns are intended to show +the potential value of the payments for each Named Executive +Officer under the 2006 Plan if the threshold, target or maximum +goals are satisfied for the performance measures. The potential +payments are performance-driven and therefore completely at +risk. Incentive compensation is conditioned on our company +achieving a minimum or threshold performance level, and no +payments are made to the Named Executive Officers if the +threshold performance levels are not met. The Compensation +Committee approved the performance goals in the first quarter of +2006 for fiscal 2006. Additional information regarding the +business measurements and performance goals for determining the +payments are described in the section entitled +“Compensation Discussion And Analysis” in this +proxy statement. There are no specific target amounts that can +be determined, as any incentive compensation for each Named +Executive Officer in excess of the threshold amount is based on +a pre-approved percentage of certain performance goals of +Skechers. The target amounts presented in this table represent +the actual payments of non-equity incentive compensation to each +of our Named Executive Officers that was earned in fiscal 2006. +There are no maximum amounts presented in this table because +when determining the performance goals, the Compensation +Committee did not place a limit on the non-equity incentive +compensation that could be earned by the Named Executive +Officers in fiscal 2006, although the maximum amount of +incentive compensation that any Named Executive Officer may earn +in a +12-month +period under the 2006 Plan is $5,000,000. +(2) +This column shows the number of +shares of restricted stock granted in 2006 to the Named +Executive Officers under the 1998 Stock Plan. Mr. Schneider +was granted 10,000 restricted shares of Class A Common +Stock on January 3, 2006, of which 2,000 shares vested +immediately upon grant, and 2,000 shares vest each +anniversary thereafter for four years. +(3) +This column shows the full grant +date fair value of restricted stock awarded to +Mr. Schneider, which was accounted for in accordance with +SFAS 123R and generally is the amount that we will +recognize as stock-based compensation expense in our +consolidated financial statements over the vesting term of the +award. The fair value of the award granted to Mr. Schneider +was calculated using the closing price of $15.66 for our +Class A Common Stock on the New York Stock Exchange on the +date of grant, which was January 3, 2006. This amount +reflects our stock-based compensation expense for this award and +does not correspond to the actual value that will be recognized +by Mr. Schneider. +Options +Exercised and Stock Vested in Fiscal 2006 +The following table provides information for the Named Executive +Officers on stock options exercised during 2006, including the +number of shares acquired upon exercise and the value realized, +and the number of shares +29 +Table of Contents +acquired upon the vesting of restricted stock awards and the +value realized, each before payment of any applicable +withholding tax and broker commissions. +Option Awards +Stock Awards +Number of Shares +Number of Shares +Acquired on +Value Realized +Acquired on +Value Realized +Name of Executive +Exercise (#) +on Exercise ($) +Vesting (#) +on Vesting ($) +Robert Greenberg +— +— +— +— +Frederick Schneider +— +— +2,000 +(4) +31,320 +Michael Greenberg +25,000 +(1) +377,280 +— +— +David Weinberg +102,112 +(2) +2,398,504 +— +— +Mark Nason +94,663 +(3) +1,954,063 +— +— +(1) +Mr. Greenberg exercised 25,000 +stock options on March 24, 2006, with an exercise price of +$6.95 and market price of $22.04. +(2) +Mr. Weinberg exercised 33,565 +stock options on November 16, 2006 with an exercise price +of $2.78 and market price of $29.00; 5,000 stock options on +November 16, 2006 with an exercise price of $3.9375 and +market price of $29.34; 37,498 stock options on +November 16, 2006 with an exercise price of $6.95 and +market price of $29.00; 12,502 stock options on +November 16, 2006 with an exercise price of $6.95 and +market price of $29.34; and 13,547 stock options on +November 16, 2006 with an exercise price of $8.35 and +market price of $29.34. +(3) +Mr. Nason exercised 9,000 +stock options on May 1, 2006, with an exercise price of +$2.78 and market price of $27.63; 4,000 stock options on +May 1, 2006 with an exercise price of $3.9375 and market +price of $27.63; 6,000 stock options on May 1, 2006 with an +exercise price of $6.95 and market price of $27.69; 8,000 stock +options on May 1, 2006 with an exercise price of $8.35 and +market price of $27.69; 15,000 stock options on May 1, 2006 +with an exercise price of $10.58 and market price of $27.63; +9,000 stock options on May 1, 2006 with an exercise price +of $13.00 and market price of $27.63; 3,000 stock options on +May 1, 2006 with an exercise price of $15.50 and market +price of $27.69; 15,681 stock options on October 30, 2006 +with an exercise price of $2.78 and market price of $29.68; +4,882 stock options on October 30, 2006 with an exercise +price of $3.9375 and market price of $29.68; 1,300 stock options +on November 15, 2006 with an exercise price of $6.95 and +market price of $29.00; 7,700 stock options on November 16, +2006 with an exercise price of $6.95 and market price of $29.00; +5,800 stock options on November 16, 2006 with an exercise +price of $10.58 and market price of $29.00; 3,300 stock options +on November 16, 2006 with an exercise price of $13.00 and +market price of $29.00; and 2,000 stock options on +November 16, 2006 with an exercise price of $15.50 and +market price of $29.00. +(4) +Mr. Schneider held 2,000 +restricted shares that vested on January 3, 2006, when the +closing price per share was $15.66. +30 +Table of Contents +Outstanding +Equity Awards at 2006 Fiscal Year-End +The following table provides information on the outstanding +stock option and stock awards held by our Named Executive +Officers as of December 31, 2006. This table includes +unexercised and unvested option awards and unvested shares of +restricted stock. Each equity award is shown separately for each +Named Executive Officer. The market value of the stock awards is +based on the closing price of our Class A Common Stock as +of December 29, 2006, which was $33.31. For additional +information about the option awards and stock awards, see the +description of equity incentive compensation in the section +entitled “ Compensation Discussion And Analysis ” +in this proxy statement. +Option Awards +Stock Awards +Number of +Number of +Number of +Securities +Securities +Shares or +Market Value +Underlying +Underlying +Option +Units of +of Shares or +Unexercised +Unexercised +Exercise +Option +Stock That +Units of Stock +Options (#) +Options (#) +Price +Expiration +Have Not +That Have +Name of Executive +Exercisable +Unexercisable +($) +Date +Vested (#) +Not Vested ($) +Robert Greenberg +— +— +— +— +— +— +Frederick Schneider +30,000 +10,000 +(1) +8.35 +2/5/14 +8,000 +(2) +266,480 +Michael Greenberg +37,500 +0 +13.00 +7/6/10 +— +— +David Weinberg +37,500 +0 +13.00 +7/6/10 +— +— +37,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/2/11 +30,000 +0 +10.58 +11/7/11 +23,953 +12,500 +(1) +8.35 +2/5/14 +Mark Nason +87 +0 +2.78 +1/14/08 +— +— +1,118 +0 +3.9375 +2/2/10 +10,200 +0 +13.00 +7/6/10 +2,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/2/11 +9,200 +0 +10.58 +11/7/11 +20,000 +0 +6.95 +10/9/12 +26,000 +25,000 +(1) +8.35 +2/5/14 +(1) +Remainder of unexercisable options +vested on February 5, 2007. +(2) +On January 3, 2006, +Mr. Schneider was issued 10,000 restricted shares of +Class A Common Stock, of which 2,000 shares vested +immediately upon issuance, 2,000 shares vested on +January 3, 2007 and 2,000 shares vest each anniversary +thereafter for three years. +Change of +Control Benefits +Upon a “change of control” under the 1998 Stock Plan, +(i) Frederick Schneider would be entitled to full vesting +of his outstanding restricted stock and stock options valued at +$516,080 based on the closing price of our Class A Common +Stock on December 29, 2006; (ii) David Weinberg would +be entitled to full vesting of his outstanding stock options +valued at $312,000 based on the closing price of our +Class A Common Stock on December 29, 2006 and +(iii) Mark Nason would be entitled to full vesting of his +outstanding stock options valued at $624,000 based on the +closing price of our Class A Common Stock on +December 29, 2006. For additional information about change +of control terms under the 1998 Stock Plan, see the description +of 1998 Stock Plan provisions in the section entitled +“Compensation Discussion And Analysis” in this +proxy statement. +1998 +Stock Plan +In January 1998, our Board of Directors and stockholders adopted +the 1998 Stock Plan, which provides for the grant of qualified +incentive stock options (“ISOs”) that meet the +requirements of Section 422 of the Code of 1986, as amended +(the “Code”), stock options not so qualified +(“NQSOs”), and deferred stock and restricted stock +awards (“Awards”). The 1998 Stock Plan may be +administered by either our Board of Directors or a committee of +directors appointed by the Board (the “Committee”). +ISOs may be granted to the officers and key employees of our +company or any of its subsidiaries. The exercise price for any +ISO granted under the 1998 Stock Plan may not be less than +31 +Table of Contents +100% (or 110% in the case of ISOs granted to an employee who is +deemed to own in excess of 10% of the total combined voting +power of all classes of our capital stock on the date of grant) +of the fair market value of the shares of Class A Common +Stock at the time the option is granted. The exercise price for +any NQSO granted under the 1998 Stock Plan may not be less than +85% of the fair market value of the shares of Class A +Common Stock at the time the option is granted. The purpose of +the 1998 Stock Plan is to provide a means of performance-based +compensation in order to attract and retain qualified personnel +and to provide an incentive to those whose job performance +affects our company. +The 1998 Stock Plan originally authorized the grant of options +to purchase, and Awards of, an aggregate of up to +5,215,154 shares of Class A Common Stock. By action at +our Annual Meeting of Stockholders on June 1, 2001, the +number of shares of Class A Common Stock authorized for +issuance under the 1998 Stock Plan was increased by +3,000,000 shares, and by action at our Annual Meeting of +Stockholders held on May 30, 2003, the number was increased +by an additional 3,000,000 shares, so that the 1998 Stock +Plan authorizes the grant of stock options to purchase, and the +issuance of Awards of, up to an aggregate of +11,215,154 shares of Class A Common Stock. The number +of shares reserved for issuance under the 1998 Stock Plan is +subject to anti-dilution provisions for stock splits, stock +dividends and similar events. If an option granted under the +1998 Stock Plan expires or terminates, or an Award is forfeited, +the shares subject to any unexercised portion of such option or +Award will again become available for the issuance of further +options or Awards under the 1998 Stock Plan. +Under the 1998 Stock Plan, we may make loans available to stock +option holders, subject to the Board’s (or if applicable, +the Committee’s) approval, in connection with the exercise +of stock options granted under the 1998 Stock Plan, although +such loans will not be made to our directors or executive +officers that would violate Section 402 of the +Sarbanes-Oxley Act. If shares of Class A Common Stock are +pledged as collateral for such indebtedness, such shares may be +returned to Skechers in satisfaction of such indebtedness. If so +returned, such shares shall again be available for issuance in +connection with future stock options and Awards under the 1998 +Stock Plan. +No options or Awards may be granted under the 1998 Stock Plan +after January 14, 2008, provided that our Board of +Directors does not otherwise amend or terminate the 1998 Stock +Plan prior to such date. +Options granted under the 1998 Stock Plan will become +exercisable according to the terms of the grant made by the +Board of Directors or the Committee. Awards will be subject to +the terms and restrictions of the Award made by the Board of +Directors or the Committee. The Board of Directors and the +Committee have discretionary authority to select participants +from among eligible persons and to determine at the time a stock +option or Award is granted, and in the case of options, whether +it is intended to be an ISO or a NQSO, and when and in what +increments shares covered by the option may be purchased. Under +current law, ISOs may not be granted to any individual who is +not also an officer or employee of Skechers or any subsidiary +thereof. +The exercise price of any option granted under the 1998 Stock +Plan is payable in full (i) in cash, (ii) by surrender +of shares of Class A Common Stock already owned by the +option holder having a market value equal to the aggregate +exercise price of all shares to be purchased, (iii) by +cancellation of indebtedness owed by Skechers to the option +holder, (iv) by a full recourse promissory note executed by +the option holder, (v) by arrangement with a broker or +(vi) by any combination of the foregoing. The terms of any +promissory note may be changed from time to time by our Board of +Directors to comply with applicable Internal Revenue Service or +SEC regulations or other relevant pronouncements. +Our Board of Directors may from time to time revise or amend the +1998 Stock Plan and may suspend or discontinue it at any time. +However, no such revision or amendment may impair the rights of +any participant under any outstanding stock option or Award +without such participant’s consent or may, without +stockholder approval, increase the number of shares subject to +the 1998 Stock Plan or decrease the exercise price of a stock +option to less than 100% of fair market value on the date of +grant (with the exception of adjustments resulting from changes +in capitalization), materially modify the class of participants +eligible to receive options or Awards under the 1998 Stock Plan, +materially increase the benefits accruing to participants under +the 1998 Stock Plan or extend the maximum option term under the +1998 Stock Plan. +32 +Table of Contents +As of December 31, 2006, options to purchase +2,502,915 shares of our Class A Common Stock were +outstanding at a per share exercise price ranging from $2.78 to +$24.00, and we had 3,238,757 shares of Class A Common +Stock underlying options available for grant. +1998 +Stock Purchase Plan +The 1998 Stock Purchase Plan was adopted by our Board of +Directors and stockholders in July 1998 and amended by the Board +in June 2000. The 1998 Stock Purchase Plan is intended to +qualify under Section 423 of the Code. Each twelve-month +offering period includes two consecutive six-month purchase +periods. The offering periods generally start on the first +trading day on or after January 1 and July 1 of each year. +The initial offering period commenced on July 1, 1999. A +total of 2,781,415 shares of Class A Common Stock was +initially reserved for issuance under the 1998 Stock Purchase +Plan, which may be adjusted annually on January 1 for increases +equal to the lesser of (i) 2,781,415 shares, +(ii) 1% of the outstanding shares of Class A Common +Stock on such date or (iii) such lesser amount as may be +determined by the Board of Directors. +Employees are eligible to participate if they are customarily +employed by our company or any designated subsidiary for at +least 20 hours per week and more than five months in any +calendar year. However, any employee who immediately after the +grant of a stock purchase right owns stock possessing 5% or more +of the total combined voting power or value of all classes of +our capital stock or whose rights to purchase stock under all of +our employee stock purchase plans accrue at a rate which exceeds +$25,000 worth of stock for each calendar year may not be granted +the right to purchase stock under the 1998 Stock Purchase Plan +for that year. +The 1998 Stock Purchase Plan permits participants to purchase +our Class A Common Stock through payroll deductions of up +to 15% of the participant’s “compensation.” +Compensation is defined as the participant’s base straight +time gross earnings, including commissions, payments for +overtime, incentive bonuses and performance bonuses. Amounts +deducted and accumulated by the participant are used to purchase +shares of Class A Common Stock at the end of each purchase +period. The price of stock purchased under the 1998 Stock +Purchase Plan is 85% of the lower of the fair market value of +the shares of our Class A Common Stock as of either the +beginning or ending date of the semi-annual purchase period. The +maximum number of shares a participant may purchase during a +single offering period is determined by dividing $25,000 by the +fair market value of a share of our Class A Common Stock on +the first day of the offering period. Participants may end their +participation at any time during an offering period, and they +will be paid their payroll deductions to date. Participation +ends automatically upon termination of employment with our +company. +Rights granted under the 1998 Stock Purchase Plan are not +transferable by a participant other than by will, the laws of +descent and distribution, or as otherwise provided under the +1998 Stock Purchase Plan. +The 1998 Stock Purchase Plan provides that, in the event of a +merger of Skechers with or into another corporation or a sale of +all or substantially all of our assets, each outstanding stock +purchase right may be assumed or substituted for by the +successor corporation. If the successor corporation refuses to +assume or substitute for the outstanding stock purchase right, +the offering period then in progress will be shortened and a new +purchase date will be set so that shares of our Class A +Common Stock are purchased with the participant’s +accumulated payroll deductions prior to the effective date of +such transaction. +Our Board of Directors has the authority to amend or terminate +the 1998 Stock Purchase Plan, except that no such action may +adversely affect any outstanding rights to purchase stock under +the 1998 Stock Purchase Plan, provided that the Board may +terminate an offering period on any exercise date if the Board +determines that the termination of the 1998 Stock Purchase Plan +is in the best interests of Skechers and our stockholders. +Notwithstanding anything to the contrary, the Board of Directors +may in its sole discretion amend the 1998 Stock Purchase Plan to +the extent necessary and desirable to avoid unfavorable +financial accounting consequences by altering the purchase price +for any offering period, shortening any offering period or +allocating remaining shares among the participants. Unless +terminated sooner by the Board of Directors, the 1998 Stock +Purchase Plan will terminate on June 30, 2008. +Since the inception of the 1998 Stock Purchase Plan in July 1998 +through December 31, 2006, 1,299,816 shares of our +Class A Common Stock were purchased by our employees at the +average price of $8.43 per share for an aggregate purchase +price of $10,960,000. As of December 31, 2006, +1,481,599 shares of our Class A Common Stock were +available for future issuance under the 1998 Stock Purchase Plan. +33 +Table of Contents +401(k) +Plan +We have in place a 401(k) Plan for all employees age 21 and +older with at least six months of service, which is designed to +be tax deferred in accordance with the provisions of +Section 401(k) of the Code. The 401(k) Plan provides that +each participant may contribute up to 15% of his or her salary, +but not exceeding the IRS statutory limits, and we may make a +contribution equal to a percentage of salary contributed by the +participant to his or her plan account by the end of the first +quarter of the following year. Under the 401(k) Plan, employees +may elect to enroll on the first day of any month of any plan +year, provided that they have been employed by our company or +any of its domestic subsidiaries for at least six months. +Subject to the rules for maintaining the tax status of the +401(k) Plan, we may make an additional contribution at our +discretion. Our contributions to the 401(k) Plan in 2006, 2005 +and 2004 were $1,056,000, $939,000 and $852,000, respectively, +which included our issuance of 59,203 shares of +Class A Common Stock to the 401(k) Plan for 2004 in March +2005. Our contributions to the 401(k) Plan for 2006 and 2005 in +March 2007 and 2006, respectively, did not include the issuance +of any shares of Class A Common Stock. +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2006 regarding compensation plans (including individual +compensation arrangements) under which our equity securities are +authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued Upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Plan Category +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +(a) +(b) +(c) +Equity compensation plans approved +by security holders +2,502,915 +(1) +$ +11.74 +4,720,356 +(2) +Equity compensation plans not +approved by security holders +— +— +— +Total +2,261,707 +4,720,356 +(1) +Represents stock options +outstanding under our 1998 Stock Plan. Amount does not include +shares available under the 1998 Stock Purchase Plan, which has a +stockholder approved reserve of 1,481,599 shares. +(2) +Represents 3,238,757 shares +available for future issuance under our 1998 Stock Plan and +1,481,599 shares available for future issuance under the +1998 Stock Purchase Plan. The number of shares available for +future issuance under the 1998 Stock Purchase Plan may be +adjusted on January 1 each year for increases equal to the +lesser of 2,781,415 shares, 1% of the outstanding shares of +our Class A Common Stock on such date or such lesser amount +as may be determined by our Board of Directors. Under the 1998 +Stock Purchase Plan, each eligible employee may purchase a +limited number of shares of our Class A Common Stock at +semi-annual intervals each year at a purchase price per share +equal to 85% of the fair market value of shares of our +Class A Common Stock as of either the beginning or ending +date of the semi-annual purchase period. +34 +Table of Contents +DIRECTOR +COMPENSATION +The following table sets forth information concerning the +compensation earned by our directors during 2006. Robert +Greenberg, Michael Greenberg, David Weinberg and Jeffrey +Greenberg are not included because as employee directors, they +did not earn any additional compensation for services provided +as members of our Board of Directors. +Fees Earned or +Stock +Option +Name +Paid in Cash +($) (1) +Awards +($) (2) +Awards +($) (3) +Total ($) +Morton D. Erlich +102,000 +62,389 +— +164,389 +Geyer Kosinski +23,000 +— +27,465 +50,465 +Richard Siskind +28,500 +— +27,465 +55,965 +(1) +This column reports the amount of +cash compensation earned in 2006 for Board and committee service. +(2) +This column represents the dollar +amount recognized for financial statement reporting purposes +with respect to the 2006 fiscal year in accordance with +SFAS 123R for the fair value of restricted stock that +vested in 2006. These shares represented restricted stock that +was awarded in 2006, as we did not grant any stock awards prior +to 2006. The fair value of the award granted to Mr. Erlich +was calculated using the closing price of $15.66 for our +Class A Common Stock on the New York Stock Exchange on the +date of grant, which was January 3, 2006. Mr. Erlich +was the only non-employee director with an outstanding stock +award at 2006 fiscal year-end, holding 8,000 restricted shares +of Class A Common Stock, as detailed below. +(3) +This column represents the dollar +amount recognized for financial statement reporting purposes +with respect to the 2006 fiscal year in accordance with +SFAS 123R for the fair value of all stock options granted +to the non-employee directors. The fair value was estimated +using the Black-Scholes option-pricing model in accordance with +SFAS 123R. The fair value per option was $5.49 based on +assumptions of 5 years expected life, expected volatility +of 73%, a risk free rate of 3.23% and no expected dividend +yield. We have not granted stock options to non-employee +directors since 2004. The following non-employee directors had +outstanding option awards at 2006 fiscal year-end: +Messrs. Kosinski and Siskind held options to purchase +35,000 shares and 75,000 shares, respectively. +Non-Employee Directors. We paid each of our +non-employee directors annual compensation of $15,000 for +serving on the Board of Directors in 2006. Our Audit Committee +Chairman and Compensation Committee Chairman were paid +additional annual fees of $10,000 and $1,500, respectively, in +2006. Non-employee directors also received fees of $1,000 for +each Board meeting attended and $1,000 for each committee +meeting attended during 2006. In addition, Morton D. Erlich +received a one-time bonus of $65,000 when he joined the Board of +Directors in January 2006. Effective as of January 1, 2007, +we pay each of our non-employee directors annual compensation of +$30,000 for serving on the Board of Directors, additional annual +fees to our Audit Committee Chairman and Compensation Committee +Chairman of $15,000 and $5,000, respectively, and fees of $1,500 +for each Board and committee meeting attended. Non-employee +directors are reimbursed for reasonable costs and expenses +incurred for attending any of our Board or committee meetings. +Compensation, fees, and reimbursable costs and expenses are paid +quarterly. +Non-employee directors are eligible to receive, from time to +time, issuances of restricted shares of Class A Common +Stock and grants of options to purchase shares of Class A +Common Stock under the 1998 Stock Plan as determined by the +Board of Directors. In 2006, except for Morton D. Erlich, +non-employee directors were not issued any restricted shares of +Class A Common Stock nor granted any options to purchase +shares of Class A Common Stock. On January 3, 2006, +Mr. Erlich was issued 10,000 restricted shares of +Class A Common Stock, of which 2,000 shares vested +immediately upon issuance and 2,000 shares vest each +anniversary thereafter for four years. +Employee Directors. As of December 31, +2006, Robert Greenberg, Michael Greenberg and David Weinberg +were the only Named Executive Officers serving on our Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on our Board of Directors. Employees of +Skechers who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2006 is set forth +under “Executive Compensation.” Compensation of +Jeffrey Greenberg earned in 2006 is discussed in the section +entitled “Transactions With Related Persons” in +this proxy statement. Employee directors are eligible to +receive, from time to time, issuances of shares of Class A +Common Stock and grants of options to purchase shares of +Class A Common Stock under the 1998 Stock Plan as +determined by the Board of Directors. In 2006, employee +directors were not issued any restricted shares of Class A +Common Stock nor granted any options to purchase shares of +Class A Common Stock. +35 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who +are independent under the standards adopted by the Board of +Directors and applicable NYSE Rules and SEC standards. The Audit +Committee represents and assists the Board of Directors in +fulfilling its responsibility for oversight and evaluation of +the quality and integrity of Skechers’ financial +statements, Skechers’ compliance with legal and regulatory +requirements, the qualifications and independence of +Skechers’ registered public accounting firm, KPMG LLP, and +the performance of Skechers’ internal audit function and of +KPMG LLP. +The Audit Committee has reviewed and discussed with +Skechers’ management, internal finance staff, internal +auditors and KPMG LLP, with and without management present, +Skechers’ audited financial statements for the fiscal year +ended December 31, 2006, management’s assessment of +the effectiveness of Skechers’ internal controls over +financial reporting and KPMG LLP’s evaluation of +Skechers’ internal controls over financial reporting. The +Audit Committee has also discussed with KPMG LLP the results of +the independent auditors’ examinations and the judgments of +KPMG LLP concerning the quality, as well as the acceptability, +of Skechers’ accounting principles and such other matters +that Skechers is required to discuss with the independent +auditors under applicable rules, regulations or generally +accepted auditing standards (including Statement on Auditing +Standards No. 61). In addition, the Audit Committee has +received from KPMG LLP the written disclosures required by +Independence Standards Board Standard No. 1, as amended, +and has discussed with KPMG LLP their independence from Skechers +and management, including a consideration of the compatibility +of non-audit services with their independence, the scope of the +audit and the fees paid to KPMG LLP during the year. +Based on our review and the discussions referred to above, the +Audit Committee recommended to the Board of Directors that the +audited financial statements be included in our Annual Report on +Form 10-K +for the fiscal year ended December 31, 2006 for filing with +the SEC. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +36 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to +Independent Registered Public Accounting Firm for Fiscal Years +2006 and 2005 +We retained KPMG LLP to provide services for fiscal years 2006 +and 2005 in the categories and amounts as follows: +Service +2006 +2005 +Audit +fees (1) +$ +1,577,000 +$ +1,391,000 +Audit-related +fees (2) +0 +16,000 +Tax +fees (3) +173,000 +229,000 +All other +fees (4) +63,000 +0 +Total audit and non-audit fees +$ +1,813,000 +$ +1,636,000 +(1) +These are fees for professional +services performed by KPMG LLP for the audit of our annual +financial statements and the review of our annual report on +Form 10-K, +the review of financial statements included in our quarterly +reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, and +consultations regarding financial accounting and reporting, as +well as for services that are normally provided in connection +with statutory and regulatory filings or engagements. +(2) +These are fees for assurance and +related services performed by KPMG LLP that are reasonably +related to the performance of the audit or review of our +financial statements as required by the Sarbanes-Oxley Act of +2002. +(3) +These are fees for professional +services performed by KPMG LLP with respect to +U.S. federal, state and international tax compliance, tax +consulting and tax work stemming from “Audit” and +“Audit-related” items. This includes preparation of +original tax returns for our company and its consolidated +subsidiaries. +(4) +These are fees for other +permissible work performed by KPMG LLP that does not meet the +other category descriptions. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been ratified +by our stockholders at the Annual Meeting. Any fees for proposed +services exceeding these levels will also require specific +pre-approval by the Audit Committee. +Attendance +at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +37 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of Class A Common Stock and +Class B Common Stock as of March 31, 2007 by +(i) each of our directors, (ii) each of our Named +Executive Officers, (iii) each person that we know to be a +beneficial owner of more than 5% of either class of our Common +Stock and (iv) all of our directors and executive officers +as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 32,269,424 shares of Class A +Common Stock and 13,241,789 shares of Class B Common +Stock outstanding as of March 31, 2007. Our Class B +Common Stock is convertible at any time into shares of +Class A Common Stock on a +one-for-one +basis. Beneficial ownership is determined in accordance with SEC +rules and regulations. In computing the number of shares of our +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of March 31, 2007 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See the section +entitled “Transactions With Related Persons” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is c/o Skechers U.S.A., Inc., +228 Manhattan Beach Boulevard, Manhattan Beach, California +90266. +Number of +Number of +Percentage of +Percentage of +Class A Shares +Class B Shares +Class A Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +Wellington Management Company, LLP +3,641,223 (1 +) +— +11.3 +% +— +FMR Corp. +2,825,351 (2 +) +— +8.8 +— +Named Executive Officers +and +directors: +Robert Greenberg +10,131,840 (3 +) +10,131,840 (4 +) +23.9 +76.5 +% +Michael Greenberg +974,285 (5 +) +899,991 (6 +) +2.9 +6.8 +Jeffrey Greenberg +786,134 (7 +) +672,334 (8 +) +2.4 +5.1 +David Weinberg +268,365 (9 +) +— +* +— +Mark Nason +125,601 (10 +) +— +* +— +Frederick Schneider +66,596 (11 +) +— +* +— +Philip Paccione +15,475 (12 +) +— +* +— +Morton D. Erlich +8,000 (13 +) +— +* +— +Geyer Kosinski +35,000 (14 +) +— +* +— +Richard Siskind +89,333 (15 +) +— +* +— +All current directors and +executive officers as a group (10 persons) +12,500,629 (16 +) +11,704,165 +28.0 +% +88.4 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 14, 2007 +and represents the number of shares reported as beneficially +owned as of December 31, 2006. Wellington Management +Company, LLP (“Wellington”), which is an investment +adviser registered under Section 203 of the Investment +Advisers Act of 1940, has shared voting power with respect to +2,898,242 of the shares that it beneficially owns and shared +dispositive power with respect to 3,594,923 of the shares that +it beneficially owns. Wellington is located at 75 State Street, +Boston, Massachusetts 02109. +(2) +Information is based on a +Schedule 13G filed with the SEC on January 10, 2007. +Principal business office of FMR Corp. (“FMR”) and its +subsidiary and related funds as set forth below are located at +82 Devonshire Street, Boston, Massachusetts, 02109. Number of +and shares of Class A Common Stock owned is reported as of +December 31, 2006. FMR filed as a parent holding company. +Each of FMR and Edward C. Johnson 3d is reported to beneficially +own the 2,825,351 shares of Class A Common Stock. +Various persons are reported to have the right to receive or the +power to direct the receipt of dividends from, or the proceeds +from the sale of, the Class A Common Stock. Fidelity +Management & Research Company (“Fidelity”), a +wholly-owned subsidiary of FMR and an investment adviser +registered under the Investment Advisers Act of 1940, is the +beneficial owner of 1,922,691 shares or 6.0% of the +Class A Common Stock. Edward C. Johnson 3d, FMR (through +its control of Fidelity) and the funds each has sole power to +dispose of the 1,922,691 shares owned by the funds. Neither +FMR nor Edward C. Johnson 3d has the sole power to vote or +direct the voting of the shares owned directly by Fidelity +funds, which power resides +38 +Table of Contents +with the funds’ Boards of +Trustees. Pyramis Global Advisors, LLC (“PGALLC”), a +wholly-owned subsidiary of FMR is the beneficial owner of +72,300 shares or 0.2% of the outstanding Class A +Common Stock. Edward C. Johnson 3d and FMR, through its control +of PGALLC, each has sole dispositive power over the +72,300 shares and sole power to vote or to direct the +voting of the 72,300 shares. Pyramis Global Advisors Trust +Company (“PGATC”), a wholly-owned subsidiary of FMR is +the beneficial owner of 250,860 shares or 0.8% of the +outstanding Class A Common Stock. Edward C. Johnson 3d and +FMR, through its control of PGATC, each has sole dispositive +power over the 250,860 shares and sole power to vote or to +direct the voting of the 250,860 shares. Fidelity +International Limited (“FIL”) is the beneficial owner +of 579,500 shares or 1.8% of the outstanding Class A +Common Stock. Partnerships controlled predominantly by members +of the family of Edward C. Johnson 3d, Chairman of FMR and FIL, +or trusts for their benefit, own shares of FIL voting stock with +the right to cast approximately 47% of the total votes that may +be cast by all holders of FIL voting stock. FMR and FIL are +separate and independent corporate entities with Boards of +Directors generally composed of different individuals. FMR and +FIL are of the view that the shares held by the other +corporation need not be aggregated for purposes of +Section 13(d). However, FMR filed the Schedule 13G on +a voluntary basis as if all of the shares are beneficially owned +by FMR and FIL on a joint basis. +(3) +Represents 10,131,840 shares +of Class B Common Stock that are convertible at any time +into shares of Class A Common Stock on a +one-for-one +basis. Beneficial ownership of these shares is described in +greater detail in note 4 below. +(4) +Represents 10,131,840 shares +of Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. Susan Greenberg, +Robert Greenberg’s wife, is also a trustee of the Trust and +is also deemed to beneficially own all shares held by the Trust. +(5) +Includes 899,991 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis, 37,500 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2007 and 22,650 shares of +Class A Common Stock beneficially owned by Michael +Greenberg, our President and a member of our Board of Directors, +indirectly through his wife, Wendy Greenberg, and their +children. Michael Greenberg disclaims beneficial ownership of +these 22,650 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +899,991 shares of Class B Common Stock is described in +greater detail in note 6 below. +(6) +Includes 848,691 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg, our President and +a member of our Board of Directors, is deemed to beneficially +own as trustee of such trust. Also, includes 51,300 shares +of Class B Common Stock held in various trust accounts for +Mr. Greenberg’s minor children and of which a third +party acts as trustee or custodian, as the case may be. +Mr. Greenberg disclaims beneficial ownership of these +51,300 shares except to the extent of his pecuniary +interest therein. +(7) +Includes 672,334 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a +one-for-one +basis and 110,000 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2007. Beneficial ownership of the +672,334 shares of Class B Common Stock is described in +greater detail in note 8 below. +(8) +Includes 602,558 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as a trustee of such +trust. Lori Greenberg, Jeffrey Greenberg’s wife, is also a +trustee of the Jeffrey and Lori Greenberg Family Trust and is +also deemed to beneficially own all shares held by such trust. +Also, includes 3,300 shares of Class B Common Stock +held by the Chloe July Greenberg custodial account that +Mr. Greenberg is deemed to beneficially own as custodian of +such account, 36,476 shares of Class B Common Stock +held by the Chloe July Greenberg 2004 Trust that +Mr. Greenberg is deemed to beneficially own as trustee of +such trust, and 30,000 shares of Class B Common Stock +held by the Catherine Elle Greenberg 2006 Trust that +Mr. Greenberg is deemed to beneficially own as trustee of +such trust, all of which are for his two daughters who are +minors. +(9) +Represents 96,912 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Executive Vice President and a member of our +Board of Directors, is deemed to beneficially own as sole +trustee of The David Weinberg Trust dated September 7, +2000, and 171,453 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2007. +(10) +Includes 124,105 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2007. +(11) +Includes 40,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2007, 15,000 shares held by the Schneider Limited +Partnership that Frederick Schneider, our Chief Financial +Officer, is deemed to beneficially own as its general partner +and 5,596 shares held by The Schneider CA Partnership that +Mr. Schneider is deemed to beneficially own as its general +partner. +(12) +Includes 15,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2007. +(13) +Includes 4,000 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a member of our Board of Directors, is deemed +to beneficially own as a trustee of such trust. +(14) +Represents shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of March 31, 2007. +(15) +Includes 75,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2007. +(16) +Includes 608,058 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2007 by our executive officers and Board of Directors. +39 +Table of Contents +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Exchange Act requires our officers, +directors and persons who own more than ten percent of a +registered class of our securities, to file with the SEC reports +of initial ownership (Form 3’s) and reports of changes +in ownership (Form 4’s and 5’s) of our +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish us with copies of all Section 16(a) forms that they +file. Based solely on our review of copies of such reports +furnished to us, we believe that all of our officers, directors +and greater than ten percent stockholders complied with the +filing requirements of Section 16(a) for the 2006 fiscal +year. +TRANSACTIONS +WITH RELATED PERSONS +Policies +and Procedures +As provided in our Audit Committee Charter, the Audit Committee +shall review (i) at least annually a summary of +directors’ and executive officers’ related party +transactions and potential conflicts of interest and our +policies relating to the avoidance of conflicts of interest, +which is discussed in our Code of Business Conduct and Ethics, +(ii) past and proposed transactions between our company, on +the one hand, and any of our directors or executive officers, on +the other hand, and (iii) policies and procedures as well +as audit results associated with directors’ and executive +officers’ expense accounts and perquisites, including the +use of corporate assets. +Furthermore, our Board of Directors adopted, approved and +ratified written Policies and Procedures for Related Person +Transactions (the “Policy”) as of March 8, 2007. +The Policy covers any transaction, arrangement or relationship, +or series of similar transactions, arrangements or +relationships, (including any indebtedness or guarantee of +indebtedness) in which (i) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(ii) we are a participant, and (iii) any Related +Person has or will have a direct or indirect interest (other +than solely as a result of being a director or a less than +10 percent beneficial owner of another entity). A +“Related Person” is any (a) person who is or was +(since the beginning of the last fiscal year for which we have +filed a +Form 10-K +and proxy statement, even if they do not presently serve in that +role) an executive officer, director or nominee for election as +a director of Skechers, (b) greater than 5 percent +beneficial owner of our Class A or Class B Common +Stock or (c) immediate family member of either of the +foregoing. +Certain categories of transactions with Related Persons (such as +transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit +Committee shall review the material facts of all other +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2006, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of March 31, 2007, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust beneficially own 99.7% of our +Class B Common Stock and approximately 80.4% of the +combined voting power of our Class A and Class B +Common Stock. By virtue of this stock ownership, Robert +Greenberg may be deemed to be a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and +the Greenberg Family Trust influences +40 +Table of Contents +the election of Robert Greenberg. Michael Greenberg, who is our +President, and Jeffrey Greenberg, both of whom are members of +our Board of Directors, are each beneficiaries of the Greenberg +Family Trust. Additionally, Robert Greenberg, directly and +indirectly through the Greenberg Family Trust, beneficially owns +approximately 61.5% of the combined voting power of our +Class A and Class B Common Stock. As a result, we are +considered a “Controlled Company” under the NYSE Rules +and are thereby exempt from certain listing requirements and +regulations as set forth in the NYSE Rules. +Shares of our Class A Common Stock issuable upon conversion +of shares of Class B Common Stock held by the Greenberg +Family Trust and Michael Greenberg are subject to certain +registration rights. We entered into a registration rights +agreement with the Greenberg Family Trust and Michael Greenberg +pursuant to which we agreed that we will, on up to two separate +occasions per year, register up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of the +closing of our initial public offering of Class A Common +Stock by each such stockholder in any one year, provided, among +other conditions, that the underwriters of any such offering +have the right to limit the number of shares included in such +registration. We also agreed that, if it shall cause to be filed +with the SEC a registration statement, each such stockholder +shall have the right to include up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of the +closing of our initial public offering of Class A Common +Stock by each of them in such registration statement provided, +among other conditions, that the underwriters of any such +offering have the right to limit the number of shares included +in such registration. All expenses of such registrations shall +be at our expense. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel, +which opened in Manhattan Beach, California in November 2005. +Michael Greenberg, David Weinberg, who is our Chief Operating +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2006, we paid approximately $177,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are +the children of Robert Greenberg and also the siblings of +Michael Greenberg, are non-executive employees of Skechers, and +they earned total compensation of $641,218, $660,273 and +$625,193, respectively, in 2006. Jeffrey Greenberg was also a +member of our Board of Directors in 2006, but did not earn any +additional compensation for services provided as a director. +41 +Table of Contents +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2008 ANNUAL MEETING +Stockholder proposals intended to be presented at our next +Annual Meeting of Stockholders to be held in 2008 must be +received at our principal executive offices no later than +January 1, 2008, in order to be considered for inclusion in +the proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular +Rule 14a-8 +under the Exchange Act, to be included in our proxy materials. +Stockholders who wish to submit a proposal for consideration at +our 2008 Annual Meeting of Stockholders, but who do not wish to +submit a proposal for inclusion in our Proxy Statement, must, in +accordance with our bylaws, deliver a copy of their proposal no +later than the close of business on the sixtieth +(60 th ) +day nor earlier than the close of business on the ninetieth +(90 th ) +day in advance of such meeting. In either case, proposals should +be delivered to Skechers U.S.A., Inc., 228 Manhattan Beach +Blvd., Manhattan Beach, California 90266, Attention: Michael +Greenberg, President. To avoid controversy and establish timely +receipt by our company, it is suggested that stockholders send +their proposals by certified mail, return receipt requested. +STOCKHOLDER +COMMUNICATION WITH THE BOARD OF DIRECTORS +Stockholders and other interested parties who wish to contact +our Presiding Independent Director, Morton D. Erlich, or any of +our other directors either individually or as a group may do so +by writing to them c/o Philip Paccione, Corporate +Secretary, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. Each writing interested party +should specify whether the communication is directed to our +entire Board of Directors, to only the non-management directors +or to a particular director. Our personnel will review the +communications and screen improper and irrelevant communications +such as solicitations. +OTHER +BUSINESS +Our Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this Proxy Statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2007 +Manhattan Beach, California +42 +Table of Contents +APPENDIX A +SKECHERS +U.S.A., INC. +2007 +INCENTIVE AWARD PLAN +ARTICLE 1 +PURPOSE +The purpose of the Skechers U.S.A., Inc. 2007 Incentive Award +Plan (the “ Plan ”) is to promote the success and +enhance the value of Skechers U.S.A., Inc. (the +“ Company ”) by linking the personal interests of +the members of the Board, Employees, and Consultants to those of +Company stockholders and by providing such individuals with an +incentive for outstanding performance to generate superior +returns to Company stockholders. The Plan is further intended to +provide flexibility to the Company in its ability to motivate, +attract, and retain the services of members of the Board, +Employees, and Consultants upon whose judgment, interest, and +special effort the successful conduct of the Company’s +operation is largely dependent. +ARTICLE 2. +DEFINITIONS +AND CONSTRUCTION +Wherever the following terms are used in the Plan they shall +have the meanings specified below, unless the context clearly +indicates otherwise. The singular pronoun shall include the +plural where the context so indicates. +2.1 “ Award ” means an Option, a +Restricted Stock award, a Stock Appreciation Right award, a +Performance Share award, a Performance Stock Unit award, a +Dividend Equivalents award, a Stock Payment award, a Deferred +Stock award, a Restricted Stock Unit award, a Performance Bonus +Award, or a Performance-Based Award granted to a Participant +pursuant to the Plan. +2.2 “ Award Agreement ” means any +written agreement, contract, or other instrument or document +evidencing an Award, including through electronic medium. +2.3 “ Board ” means the Board of +Directors of the Company. +2.4 “ Change in Control ” means and +includes each of the following: +(a) A transaction or series of transactions (other than an +offering of Stock to the general public through a registration +statement filed with the Securities and Exchange Commission) +whereby any “person” or related “group” of +“persons” (as such terms are used in +Sections 13(d) and 14(d)(2) of the Exchange Act) (other +than the Company, any of its subsidiaries, any member of the +Greenberg Group, an employee benefit plan maintained by the +Company or any of its subsidiaries or a “person” that, +prior to such transaction, directly or indirectly controls, is +controlled by, or is under common control with, the Company) +directly or indirectly acquires beneficial ownership (within the +meaning of +Rule 13d-3 +under the Exchange Act) of securities of the Company possessing +more than 50% of the total combined voting power of the +Company’s securities outstanding immediately after such +acquisition; or +(b) During any period of two consecutive years, individuals +who, at the beginning of such period, constitute the Board +together with any new director(s) (other than a director +designated by a person who shall have entered into an agreement +with the Company to effect a transaction described in +Section 2.4(a) or Section 2.4(c)) whose election by +the Board or nomination for election by the Company’s +stockholders was approved by a vote of at least two-thirds of +the directors then still in office who either were directors at +the beginning of the two-year period or whose election or +nomination for election was previously so approved, cease for +any reason to constitute a majority thereof; or +(c) The consummation by the Company (whether directly +involving the Company or indirectly involving the Company +through one or more intermediaries) of (x) a merger, +consolidation, reorganization, or business combination or +(y) a sale or other disposition of all or substantially all +of the Company’s assets in any single +A-1 +Table of Contents +transaction or series of related transactions or (z) the +acquisition of assets or stock of another entity, in each case +other than a transaction: +(i) Which results in the Company’s voting securities +outstanding immediately before the transaction continuing to +represent (either by remaining outstanding or by being converted +into voting securities of the Company or the person that, as a +result of the transaction, controls, directly or indirectly, the +Company or owns, directly or indirectly, all or substantially +all of the Company’s assets or otherwise succeeds to the +business of the Company (the Company or such person, the +“ Successor Entity ”)) directly or indirectly, at +least a majority of the combined voting power of the Successor +Entity’s outstanding voting securities immediately after +the transaction, and +(ii) After which no person or group (other than any member +of the Greenberg Group) beneficially owns voting securities +representing 50% or more of the combined voting power of the +Successor Entity; provided, however , that no person or +group shall be treated for purposes of this +Section 2.4(c)(ii) as beneficially owning 50% or more of +combined voting power of the Successor Entity solely as a result +of the voting power held in the Company prior to the +consummation of the transaction; or +(d) The Company’s stockholders approve a liquidation +or dissolution of the Company. +The Committee shall have full and final authority, which shall +be exercised in its discretion, to determine conclusively +whether a Change in Control of the Company has occurred pursuant +to the above definition, and the date of the occurrence of such +Change in Control and any incidental matters relating thereto. +2.5 “ Code ” means the Internal +Revenue Code of 1986, as amended. +2.6 “ Committee ” means the committee +of the Board described in Article 12. +2.7 “ Company ” means Skechers U.S.A., +Inc., a Delaware corporation, or any successor thereto. +2.8 “ Consultant ” means any +consultant or adviser if: (a) the consultant or adviser +renders bona fide services to the Company or any Subsidiary; +(b) the services rendered by the consultant or adviser are +not in connection with the offer or sale of securities in a +capital-raising transaction and do not directly or indirectly +promote or maintain a market for the Company’s securities; +and (c) the consultant or adviser is a natural person. +2.9 “ Covered Employee ” means an +Employee who is, or could be, a “covered employee” +within the meaning of Section 162(m) of the Code. +2.10 “ Deferred Stock ” means a right +to receive a specified number of shares of Stock during +specified time periods pursuant to Section 8.5. +2.11 “ Director ” means a member of +the Board, or as applicable, a member of the board of directors +of a Subsidiary. +2.12 “ Disability ” means that the +Participant qualifies to receive long-term disability payments +under the Company’s long-term disability insurance program, +as it may be amended from time to time. +2.13 “ Dividend Equivalents ” means a +right granted to a Participant pursuant to Section 8.3 to +receive the equivalent value (in cash or Stock) of dividends +paid on Stock. +2.14 “ Effective Date ” shall have the +meaning set forth in Section 13.1. +2.15 “ Eligible Individual ” means any +person who is an Employee, a Consultant or an Independent +Director, as determined by the Committee. +2.16 “ Employee ” means any officer or +other employee (as defined in accordance with +Section 3401(c) of the Code) of the Company or any +Subsidiary. +2.17 “ Equity Restructuring ” shall +mean a nonreciprocal transaction between the Company and its +stockholders, such as a stock dividend, stock split, spin-off, +rights offering or recapitalization through a large, +nonrecurring cash dividend, that affects the shares of Stock (or +other securities of the Company) or the share +A-2 +Table of Contents +price of Stock (or other securities) and causes a change in the +per share value of the Stock underlying outstanding Awards. +2.18 “ Exchange Act ” means the +Securities Exchange Act of 1934, as amended. +2.19 “ Fair Market Value ” means, as +of any given date, (a) if Stock is traded on any +established stock exchange, the closing price of a share of +Stock as reported in the Wall Street Journal (or such +other source as the Company may deem reliable for such purposes) +for such date, or if no sale occurred on such date, the first +trading date immediately prior to such date during which a sale +occurred; or (b) if Stock is not traded on an exchange but +is quoted on a national market or other quotation system, the +last sales price on such date, or if no sales occurred on such +date, then on the date immediately prior to such date on which +sales prices are reported; or (c) if Stock is not publicly +traded, the fair market value established by the Committee +acting in good faith. +2.20 “ Greenberg Group ” means Robert +Greenberg, M. Susan Greenberg, any member of their family, the +Greenberg Family Trust, or any entity controlled by any of the +foregoing. +2.21 “ Incentive Stock Option ” means +an Option that is intended to meet the requirements of +Section 422 of the Code or any successor provision thereto. +2.22 “ Independent Director ” means a +Director of the Company who is not an Employee. +2.23 “ Non-Employee Director ” means a +Director of the Company who qualifies as a “Non-Employee +Director” as defined in +Rule 16b-3(b)(3) +under the Exchange Act or any successor rule. +2.24 “ Non-Qualified Stock Option ” +means an Option that is not intended to be an Incentive Stock +Option or that is intended to be an Incentive Stock Option but +fails to qualify as such. +2.25 “ Option ” means a right granted +to a Participant pursuant to Article 5 of the Plan to +purchase a specified number of shares of Stock at a specified +price during specified time periods. An Option may be either an +Incentive Stock Option or a Non-Qualified Stock Option. +2.26 “ Participant ” means any +Eligible Individual who, as a member of the Board, Consultant or +Employee, has been granted an Award pursuant to the Plan. +2.27 “ Performance-Based Award ” means +an Award, other than an Option or SAR, granted to selected +Covered Employees which the Committee determines shall be +subject to the terms and conditions set forth in Article 9. +All Performance-Based Awards are intended to qualify as +Qualified Performance-Based Compensation. +2.28 “ Performance Bonus Award ” has +the meaning set forth in Section 8.7. +2.29 “ Performance Criteria ” means +the criteria that the Committee selects for purposes of +establishing the Performance Goal or Performance Goals for a +Participant for a Performance Period. The Performance Criteria +that will be used to establish Performance Goals are limited to +the following: net earnings (either before or after interest, +taxes, depreciation and amortization), economic value-added, +sales or revenue, net income (either before or after taxes), +operating earnings, cash flow (including, but not limited to, +operating cash flow and free cash flow), cash flow return on +capital, return on net assets, return on stockholders’ +equity, return on assets, return on capital, stockholder +returns, return on sales, gross or net profit margin, +productivity, expense, margins, operating efficiency, customer +satisfaction, working capital, earnings per share, price per +share of Stock, and market share, any of which may be measured +either in absolute terms, by comparison to performance in an +earlier period or periods, or as compared to any incremental +increase or as compared to results of a peer group, industry +index, or other company or companies. The Committee shall define +in an objective fashion the manner of calculating the +Performance Criteria it selects to use for such Performance +Period for such Participant. +2.30 “ Performance Goals ” means, for +a Performance Period, the goals established in writing by the +Committee for the Performance Period based upon the Performance +Criteria. Depending on the Performance Criteria used to +establish such Performance Goals, the Performance Goals may be +expressed in terms of overall Company performance or the +performance of a division, business unit, or an individual. The +Committee, in its discretion, may, within the time prescribed by +Section 162(m) of the Code, adjust or modify the +calculation of Performance Goals for such Performance Period in +order to prevent the dilution or enlargement of the rights of +A-3 +Table of Contents +Participants (a) in the event of, or in anticipation of, +any unusual or extraordinary corporate item, transaction, event, +or development, or (b) in recognition of, or in +anticipation of, any other unusual or nonrecurring events +affecting the Company, or the financial statements of the +Company, or in response to, or in anticipation of, changes in +applicable laws, regulations, accounting principles, or business +conditions. +2.31 “ Performance Period ” means the +one or more periods of time, which may be of varying and +overlapping durations, as the Committee may select, over which +the attainment of one or more Performance Goals will be measured +for the purpose of determining a Participant’s right to, +and the payment of, a Performance-Based Award. +2.32 “ Performance Share ” means a +right granted to a Participant pursuant to Section 8.1, to +receive Stock, the payment of which is contingent upon achieving +certain Performance Goals or other performance-based targets +established by the Committee. +2.33 “ Performance Stock Unit ” means +a right granted to a Participant pursuant to Section 8.2 +hereof, to receive Stock, the payment of which is contingent +upon achieving certain Performance Goals or other +performance-based targets established by the Committee. +2.34 “ Plan ” means this Skechers +U.S.A., Inc. 2007 Incentive Award Plan, as it may be amended +from time to time. +2.35 “ Qualified Performance-Based +Compensation ” means any compensation that is intended +to qualify as “qualified performance-based +compensation” as described in Section 162(m)(4)(C) of +the Code. +2.36 “ Restricted Stock ” means Stock +awarded to a Participant pursuant to Article 6 that is +subject to certain restrictions and may be subject to risk of +forfeiture. +2.37 “ Restricted Stock Unit ” means +an Award granted pursuant to Section 8.6. +2.38 “ Securities Act ” shall mean the +Securities Act of 1933, as amended. +2.39 “ Stock ” means the Class A +Common Stock of the Company, $0.001 par value per share, and +such other securities that may be substituted for Stock pursuant +to Article 11. +2.40 “ Stock Appreciation Right ” or +“ SAR ” means a right granted pursuant to +Article 7 to receive a payment equal to the excess of the +Fair Market Value of a specified number of shares of Stock on +the date the SAR is exercised over the exercise price of the SAR +as set forth in the applicable Award Agreement, which per share +exercise price shall not be less than the Fair Market Value of a +share of Stock on the date the SAR is granted. +2.41 “ Stock Payment ” means +(a) a payment in the form of shares of Stock, or +(b) an option or other right to purchase shares of Stock, +as part of any bonus, deferred compensation or other +arrangement, made in lieu of all or any portion of the +compensation, granted pursuant to Section 8.4. +2.42 “ Subsidiary ” means any +“subsidiary corporation” as defined in +Section 424(f) of the Code and any applicable regulations +promulgated thereunder or any other entity of which a majority +of the outstanding voting stock or voting power is beneficially +owned directly or indirectly by the Company. +ARTICLE 3. +SHARES SUBJECT +TO THE PLAN +3.1 Number of Shares . +(a) Subject to Article 11 and Section 3.1(b), the +aggregate number of shares of Stock which may be issued or +transferred pursuant to Awards under the Plan is 7,500,000. +(b) To the extent that an Award terminates, expires, or +lapses for any reason, or is settled in cash, any shares of +Stock subject to the Award shall again be available for the +grant of an Award pursuant to the Plan. Additionally, any shares +of Stock tendered or withheld to satisfy the grant or exercise +price or tax withholding obligation pursuant to any Award shall +again be available for the grant of an Award pursuant to the +Plan. To the extent permitted by applicable law or any exchange +rule, shares of Stock issued in assumption of, or in +substitution +A-4 +Table of Contents +for, any outstanding awards of any entity acquired in any form +of combination by the Company or any Subsidiary shall not be +counted against shares of Stock available for grant pursuant to +this Plan. To the extent that a SAR is exercised for, or settled +in, Stock, the full number of shares subject to such SAR shall +be counted for purposes of calculating the aggregate number of +shares of Stock available for issuance under the Plan as set +forth in Section 3.1(a), regardless of the actual number of +shares issued upon such exercise or settlement. The payment of +Dividend Equivalents in cash in conjunction with any outstanding +Awards shall not be counted against the shares available for +issuance under the Plan. Notwithstanding the provisions of this +Section 3.1(b), no shares of Stock may again be optioned, +granted or awarded if such action would cause an Incentive Stock +Option to fail to qualify as an incentive stock option under +Section 422 of the Code. +3.2 Stock Distributed . Any Stock +distributed pursuant to an Award may consist, in whole or in +part, of authorized and unissued Stock, treasury Stock or Stock +purchased on the open market. +3.3 Limitation on Number of Shares Subject to +Awards . Notwithstanding any provision in the Plan +to the contrary, and subject to Article 11, the maximum +number of shares of Stock with respect to one or more Awards +that may be granted to any one Participant during any calendar +year shall be 750,000 and the maximum amount that may be paid in +cash to any one Participant during any calendar year with +respect to one or more Performance-Based Awards not denominated +in Stock or otherwise for which the foregoing limitation would +not be an effective limitation shall be $5,000,000. +ARTICLE 4. +ELIGIBILITY +AND PARTICIPATION +4.1 Eligibility . Each Eligible +Individual shall be eligible to be granted one or more Awards +pursuant to the Plan. +4.2 Participation . Subject to the +provisions of the Plan, the Committee may, from time to time, +select from among all Eligible Individuals, those to whom Awards +shall be granted and shall determine the nature and amount of +each Award. No Eligible Individual shall have any right to be +granted an Award pursuant to this Plan. +4.3 Foreign +Participants . Notwithstanding any provision of +the Plan to the contrary, in order to comply with the laws in +other countries in which the Company and its Subsidiaries +operate or have Eligible Individuals, the Committee, in its sole +discretion, shall have the power and authority to: +(i) determine which Subsidiaries shall be covered by the +Plan; (ii) determine which Eligible Individuals outside the +United States are eligible to participate in the Plan; +(iii) modify the terms and conditions of any Award granted +to Eligible Individuals outside the United States to comply with +applicable foreign laws; (iv) establish subplans and modify +exercise procedures and other terms and procedures, to the +extent such actions may be necessary or advisable (any such +subplans +and/or +modifications shall be attached to this Plan as appendices); +provided, however , that no such subplans +and/or +modifications shall increase the share limitations contained in +Sections 3.1 and 3.3; and (v) take any action, before +or after an Award is made, that it deems advisable to obtain +approval or comply with any necessary local governmental +regulatory exemptions or approvals. Notwithstanding the +foregoing, the Committee may not take any actions hereunder, and +no Awards shall be granted, that would violate the Exchange Act, +the Code, any securities law or governing statute or any other +applicable law. +ARTICLE 5. +STOCK +OPTIONS +5.1 General . The Committee is +authorized to grant Options to Eligible Individuals on the +following terms and conditions: +(a) Exercise Price . The exercise price +per share of Stock subject to an Option shall be determined by +the Committee and set forth in the Award Agreement; provided +that the per share exercise price for any Option shall not be +less than 100% of the Fair Market Value of a share of Stock on +the date of grant. +A-5 +Table of Contents +(b) Time and Conditions of Exercise . The +Committee shall determine the time or times at which an Option +may be exercised in whole or in part; provided that the term of +any Option granted under the Plan shall not exceed ten years. +The Committee shall also determine the performance or other +conditions, if any, that must be satisfied before all or part of +an Option may be exercised. +(c) Payment . The Committee shall +determine the methods by which the exercise price of an Option +may be paid, the form of payment including, without limitation: +(i) cash, (ii) shares of Stock held for such period of +time as may be required by the Committee in order to avoid +adverse accounting consequences to the Company and having a Fair +Market Value on the date of delivery equal to the aggregate +exercise price of the Option or exercised portion thereof, +including shares that would otherwise be issuable or +transferable upon exercise of the Option, or (iii) other +property acceptable to the Committee (including through the +delivery of a notice that the Participant has placed a market +sell order with a broker with respect to shares of Stock then +issuable upon exercise of the Option, and that the broker has +been directed to pay a sufficient portion of the net proceeds of +the sale to the Company in satisfaction of the Option exercise +price; provided that payment of such proceeds is then made to +the Company at such time as may be required by the Company not +later than the settlement of such sale). The Committee shall +also determine the methods by which shares of Stock shall be +delivered or deemed to be delivered to Participants. +Notwithstanding any other provision of the Plan to the contrary, +no Participant who is a Director or an “executive +officer” of the Company within the meaning of +Section 13(k) of the Exchange Act shall be permitted to pay +the exercise price of an Option, or continue any extension of +credit with respect to the exercise price of an Option with a +loan from the Company or a loan arranged by the Company in +violation of Section 13(k) of the Exchange Act. +(d) Evidence of Grant . All Options shall +be evidenced by an Award Agreement between the Company and the +Participant. The Award Agreement shall include such additional +provisions as may be specified by the Committee. +5.2 Incentive Stock +Options . Incentive Stock Options may be granted +only to employees of the Company or any “parent +corporation” or “subsidiary corporation” of the +Company within the meaning of Section 424(e) and 424(f), +respectively, of the Code, and the terms of any Incentive Stock +Options granted pursuant to the Plan, in addition to the +requirements of Section 5.1, must comply with the +provisions of this Section 5.2. +(a) Dollar Limitation . The aggregate Fair +Market Value (determined as of the time the Option is granted) +of all shares of Stock with respect to which Incentive Stock +Options are first exercisable by a Participant in any calendar +year may not exceed $100,000 or such other limitation as imposed +by Section 422(d) of the Code or any successor provision. +To the extent that Incentive Stock Options are first exercisable +by a Participant in excess of such limitation, the excess shall +be considered Non-Qualified Stock Options. +(b) Ten Percent Owners . An Incentive +Stock Option may not be granted to any individual who, at the +date of grant, owns stock possessing more than ten percent of +the total combined voting power of all classes of capital stock +of the Company or any “parent corporation” or +“subsidiary corporation” of the Company within the +meaning of Section 424(e) and 424(f), respectively, of the +Code, unless such Option is granted at a price that is not less +than 110% of Fair Market Value on the date of grant and the +Option is exercisable for no more than five years from the date +of grant. +(c) Notice of Disposition . The +Participant shall give the Company prompt notice of any +disposition of shares of Stock acquired by exercise of an +Incentive Stock Option within (i) two years from the date +of grant of such Incentive Stock Option or (ii) one year +after the transfer of such shares of Stock to the Participant. +(d) Right to Exercise . During a +Participant’s lifetime, an Incentive Stock Option may be +exercised only by the Participant. +(e) Failure to Meet Requirements . Any +Option (or portion thereof) purported to be an Incentive Stock +Option, which, for any reason, fails to meet the requirements of +Section 422 of the Code shall be considered a Non-Qualified +Stock Option. +A-6 +Table of Contents +5.3 Granting of Options to Independent +Directors . The Board may from time to time, in +its sole discretion, and subject to the limitations of the Plan: +(a) Select from among the Independent Directors (including +Independent Directors who have previously been granted Options +under the Plan) such of them as in its opinion should be granted +Options; +(b) Subject to Section 3.3, determine the number of +shares of Stock that may be purchased upon exercise of the +Options granted to such selected Independent Directors; and +(c) Subject to the provisions of this Article 5, +determine the terms and conditions of such Options, consistent +with the Plan. +Options granted to Independent Directors shall be Non-Qualified +Stock Options. +ARTICLE 6. +RESTRICTED +STOCK AWARDS +6.1 Grant of Restricted Stock . The +Committee is authorized to make Awards of Restricted Stock to +any Eligible Individual selected by the Committee in such +amounts and subject to such terms and conditions as determined +by the Committee. All Awards of Restricted Stock shall be +evidenced by an Award Agreement. +6.2 Issuance and +Restrictions . Restricted Stock shall be subject +to such restrictions on transferability and other restrictions +as the Committee may impose (including, without limitation, +limitations on the right to vote Restricted Stock or the right +to receive dividends on the Restricted Stock). These +restrictions may lapse separately or in combination at such +times, pursuant to such circumstances, in such installments, or +otherwise, as the Committee determines at the time of the grant +of the Award or thereafter. +6.3 Forfeiture . Except as otherwise +determined by the Committee at the time of the grant of the +Award or thereafter, upon termination of employment or service +during the applicable restriction period, Restricted Stock that +is at that time subject to restrictions shall be forfeited; +provided, however , that the Committee may +(a) provide in any Restricted Stock Award Agreement that +restrictions or forfeiture conditions relating to Restricted +Stock will lapse in whole or in part in the event of +terminations resulting from specified causes, and +(b) provide in other cases for the lapse in whole or in +part of restrictions or forfeiture conditions relating to +Restricted Stock. +6.4 Certificates for Restricted +Stock . Restricted Stock granted pursuant to the +Plan may be evidenced in such manner as the Committee shall +determine. If certificates representing shares of Restricted +Stock are registered in the name of the Participant, +certificates must bear an appropriate legend referring to the +terms, conditions, and restrictions applicable to such +Restricted Stock, and the Company may, at its discretion, retain +physical possession of the certificate until such time as all +applicable restrictions lapse. +ARTICLE 7. +STOCK +APPRECIATION RIGHTS +7.1 Grant of Stock Appreciation +Rights . +(a) A Stock Appreciation Right may be granted to any +Eligible Individual selected by the Committee. A Stock +Appreciation Right shall be subject to such terms and conditions +not inconsistent with the Plan as the Committee shall impose and +shall be evidenced by an Award Agreement. +(b) A Stock Appreciation Right shall entitle the +Participant (or other person entitled to exercise the Stock +Appreciation Right pursuant to the Plan) to exercise all or a +specified portion of the Stock Appreciation Right (to the extent +then exercisable pursuant to its terms) and to receive from the +Company an amount equal to the product of (i) the excess of +(A) the Fair Market Value of the Stock on the date the +Stock Appreciation Right is exercised over (B) the per +share exercise price of the Stock Appreciation Right, which +exercise price shall not be less than the Fair Market Value of +the Stock on the date the Stock Appreciation Right was granted +and (ii) the number of shares of Stock with respect to +which the Stock Appreciation Right is exercised, subject to any +limitations the Committee +A-7 +Table of Contents +may impose. The Committee shall determine the time or times at +which a Stock Appreciation Right may be exercised in whole or in +part; provided that the term of any Stock Appreciation Right +granted under the Plan shall not exceed ten years. +7.2 Payment and Limitations on +Exercise . +(a) Subject to Section 7.2(b), payment of the amounts +determined under Section 7.1(b) above shall be in cash, in +Stock (based on its Fair Market Value as of the date the Stock +Appreciation Right is exercised) or a combination of both, as +determined by the Committee in the Award Agreement. +(b) To the extent any payment under Section 7.1(b) is +effected in Stock, it shall be made subject to satisfaction of +all provisions of Article 5 above pertaining to Options. +ARTICLE 8. +OTHER +TYPES OF AWARDS +8.1 Performance Share Awards . Any +Eligible Individual selected by the Committee may be granted one +or more Performance Share awards which shall be denominated in a +number of shares of Stock and which may be linked to any one or +more of the Performance Criteria or other specific performance +criteria determined appropriate by the Committee, in each case +on a specified date or dates or over any period or periods +determined by the Committee. In making such determinations, the +Committee shall consider (among such other factors as it deems +relevant in light of the specific type of award) the +contributions, responsibilities and other compensation of the +particular Participant. +8.2 Performance Stock Units . Any +Eligible Individual selected by the Committee may be granted one +or more Performance Stock Unit awards which shall be denominated +in unit equivalent of shares of Stock +and/or units +of value including dollar value of shares of Stock and which may +be linked to any one or more of the Performance Criteria or +other specific performance criteria determined appropriate by +the Committee, in each case on a specified date or dates or over +any period or periods determined by the Committee. In making +such determinations, the Committee shall consider (among such +other factors as it deems relevant in light of the specific type +of award) the contributions, responsibilities and other +compensation of the particular Participant. +8.3 Dividend Equivalents . +(a) Any Eligible Individual selected by the Committee may +be granted Dividend Equivalents based on the dividends declared +on the shares of Stock that are subject to any Award, to be +credited as of dividend payment dates, during the period between +the date the Award is granted and the date the Award is +exercised, vests or expires, as determined by the Committee. +Such Dividend Equivalents shall be converted to cash or +additional shares of Stock by such formula and at such time and +subject to such limitations as may be determined by the +Committee. +(b) Dividend Equivalents granted with respect to Options or +SARs that are intended to be Qualified Performance-Based +Compensation shall be payable, with respect to pre-exercise +periods, regardless of whether such Option or SAR is +subsequently exercised. +8.4 Stock Payments . Any Eligible +Individual selected by the Committee may receive Stock Payments +in the manner determined from time to time by the Committee; +provided that unless otherwise determined by the +Committee, such Stock Payments shall be made in lieu of base +salary, bonus, or other cash compensation otherwise payable to +such Participant. The number of shares shall be determined by +the Committee and may be based upon the Performance Criteria or +other specific performance criteria determined appropriate by +the Committee, determined on the date such Stock Payment is made +or on any date thereafter. +8.5 Deferred Stock . Any Eligible +Individual selected by the Committee may be granted an award of +Deferred Stock in the manner determined from time to time by the +Committee. The number of shares of Deferred Stock shall be +determined by the Committee and may be linked to the Performance +Criteria or other specific performance criteria determined to be +appropriate by the Committee, in each case on a specified date +or dates or over any period or periods determined by the +Committee. Stock underlying a Deferred Stock award will not be +issued until the Deferred Stock award has vested, pursuant to a +vesting schedule or performance criteria set by the +A-8 +Table of Contents +Committee. Unless otherwise provided by the Committee, a +Participant awarded Deferred Stock shall have no rights as a +Company stockholder with respect to such Deferred Stock until +such time as the Deferred Stock Award has vested and the Stock +underlying the Deferred Stock Award has been issued. +8.6 Restricted Stock Units . The +Committee is authorized to make Awards of Restricted Stock Units +to any Eligible Individual selected by the Committee in such +amounts and subject to such terms and conditions as determined +by the Committee. At the time of grant, the Committee shall +specify the date or dates on which the Restricted Stock Units +shall become fully vested and nonforfeitable, and may specify +such conditions to vesting as it deems appropriate. At the time +of grant, the Committee shall specify the maturity date +applicable to each grant of Restricted Stock Units which shall +be no earlier than the vesting date or dates of the Award and +may be determined at the election of the grantee. On the +maturity date, the Company shall, subject to +Section 10.5(b), transfer to the Participant one +unrestricted, fully transferable share of Stock for each +Restricted Stock Unit scheduled to be paid out on such date and +not previously forfeited. +8.7 Performance Bonus Awards . Any +Eligible Individual selected by the Committee may be granted a +cash bonus (a “ Performance Bonus Award ”) +payable upon the attainment of Performance Goals that are +established by the Committee and relate to one or more of the +Performance Criteria or other specific performance criteria +determined to be appropriate by the Committee, in each case on a +specified date or dates or over any period or periods determined +by the Committee. Any such Performance Bonus Award paid to a +Covered Employee may be a Performance-Based Award and be based +upon objectively determinable bonus formulas established in +accordance with Article 9. +8.8 Term . Except as otherwise +provided herein, the term of any Award of Performance Shares, +Performance Stock Units, Dividend Equivalents, Stock Payments, +Deferred Stock or Restricted Stock Units shall be set by the +Committee in its discretion. +8.9 Exercise or Purchase Price . The +Committee may establish the exercise or purchase price, if any, +of any Award of Performance Shares, Performance Stock Units, +Deferred Stock, Stock Payments or Restricted Stock Units; +provided, however, that such price shall not be less than the +par value of a share of Stock on the date of grant, unless +otherwise permitted by applicable state law. +8.10 Exercise upon Termination of Employment or +Service . An Award of Performance Shares, +Performance Stock Units, Dividend Equivalents, Deferred Stock, +Stock Payments and Restricted Stock Units shall only vest or be +exercisable or payable while the Participant is an Employee, +Consultant or Director, as applicable; provided, however , +that the Committee in its sole and absolute discretion may +provide that an Award of Performance Shares, Performance Stock +Units, Dividend Equivalents, Stock Payments, Deferred Stock or +Restricted Stock Units may be exercised or paid subsequent to a +termination of employment or service, as applicable, or +following a Change in Control of the Company, or because of the +Participant’s retirement, death or Disability, or +otherwise; provided, however , that, to the extent +required to preserve tax deductibility under Section 162(m) +of the Code, any such provision with respect to Performance +Shares or Performance Stock Units that are intended to +constitute Qualified Performance-Based Compensation shall be +subject to the requirements of Section 162(m) of the Code +that apply to Qualified Performance-Based Compensation. +8.11 Form of Payment . Payments with +respect to any Awards granted under this Article 8 shall be +made in cash, in Stock or a combination of both, as determined +by the Committee. +ARTICLE 9. +PERFORMANCE-BASED +AWARDS +9.1 Purpose . The purpose of this +Article 9 is to provide the Committee the ability to +qualify Awards other than Options and SARs and that are granted +pursuant to Articles 6 and 8 as Qualified Performance-Based +Compensation. If the Committee, in its discretion, decides to +grant a Performance-Based Award to a Covered Employee, the +provisions of this Article 9 shall control over any +contrary provision contained in Articles 6 or 8; provided, +however, that the Committee may in its discretion grant Awards +to Covered Employees that are based on Performance Criteria or +Performance Goals but that do not satisfy the requirements of +this Article 9. +A-9 +Table of Contents +9.2 Applicability . This +Article 9 shall apply only to those Covered Employees +selected by the Committee to receive Performance-Based Awards. +The designation of a Covered Employee as a Participant for a +Performance Period shall not in any manner entitle the +Participant to receive an Award for the period. Moreover, +designation of a Covered Employee as a Participant for a +particular Performance Period shall not require designation of +such Covered Employee as a Participant in any subsequent +Performance Period and designation of one Covered Employee as a +Participant shall not require designation of any other Covered +Employee as a Participant in such Performance Period or in any +other Performance Period. +9.3 Procedures with Respect to Performance-Based +Awards . To the extent necessary to comply with +the Qualified Performance-Based Compensation requirements of +Section 162(m)(4)(C) of the Code, with respect to any Award +granted under Articles 6 or 8 which may be granted to one +or more Covered Employees, no later than ninety (90) days +following the commencement of any fiscal year in question or any +other designated fiscal period or period of service (or such +other time as may be required or permitted by +Section 162(m) of the Code), the Committee shall, in +writing, (a) designate one or more Covered Employees, +(b) select the Performance Criteria applicable to the +Performance Period, (c) establish the Performance Goals, +and amounts of such Awards, as applicable, which may be earned +for such Performance Period, and (d) specify the +relationship between Performance Criteria and the Performance +Goals and the amounts of such Awards, as applicable, to be +earned by each Covered Employee for such Performance Period. +Following the completion of each Performance Period, the +Committee shall certify in writing whether the applicable +Performance Goals have been achieved for such Performance +Period. In determining the amount earned by a Covered Employee, +the Committee shall have the right to reduce or eliminate (but +not to increase) the amount payable at a given level of +performance to take into account additional factors that the +Committee may deem relevant to the assessment of individual or +corporate performance for the Performance Period. +9.4 Payment of Performance-Based +Awards . Unless otherwise provided in the +applicable Award Agreement, a Participant must be employed by +the Company or a Subsidiary on the day a Performance-Based Award +for such Performance Period is paid to the Participant. +Furthermore, a Participant shall be eligible to receive payment +pursuant to a Performance-Based Award for a Performance Period +only if the Performance Goals for such period are achieved. In +determining the amount earned under a Performance-Based Award, +the Committee may reduce or eliminate the amount of the +Performance-Based Award earned for the Performance Period, if in +its sole and absolute discretion, such reduction or elimination +is appropriate. +9.5 Additional +Limitations . Notwithstanding any other provision +of the Plan, any Award which is granted to a Covered Employee +and is intended to constitute Qualified Performance-Based +Compensation shall be subject to any additional limitations set +forth in Section 162(m) of the Code (including any +amendment to Section 162(m) of the Code) or any regulations +or rulings issued thereunder that are requirements for +qualification as qualified performance-based compensation as +described in Section 162(m)(4)(C) of the Code, and the Plan +shall be deemed amended to the extent necessary to conform to +such requirements. +ARTICLE 10. +PROVISIONS +APPLICABLE TO AWARDS +10.1 Stand-Alone and Tandem +Awards . Awards granted pursuant to the Plan may, +in the discretion of the Committee, be granted either alone, in +addition to, or in tandem with, any other Award granted pursuant +to the Plan. Awards granted in addition to or in tandem with +other Awards may be granted either at the same time as or at a +different time from the grant of such other Awards. +10.2 Award Agreement . Awards under +the Plan shall be evidenced by Award Agreements that set forth +the terms, conditions and limitations for each Award, as +determined by the Committee, and which may include the term of +an Award, the provisions applicable in the event the +Participant’s employment or service terminates, and the +Company’s authority to unilaterally or bilaterally amend, +modify, suspend, cancel or rescind an Award. +10.3 Limits on Transfer . No right +or interest of a Participant in any Award may be pledged, +encumbered, or hypothecated to or in favor of any party other +than the Company or a Subsidiary, or shall be subject to any +lien, obligation, or liability of such Participant to any other +party other than the Company or a Subsidiary. Except as +A-10 +Table of Contents +otherwise provided by the Committee, no Award shall be assigned, +transferred, or otherwise disposed of by a Participant other +than by will or the laws of descent and distribution or pursuant +to beneficiary designation procedures approved from time to time +by the Committee (or the Board in the case of Awards granted to +Independent Directors). The Committee by express provision in +the Award or an amendment thereto may permit an Award to be +transferred to, exercised by and paid to certain persons or +entities related to the Participant, including but not limited +to members of the Participant’s family, charitable +institutions, or trusts or other entities whose beneficiaries or +beneficial owners are members of the Participant’s family +and/or +charitable institutions, or to such other persons or entities as +may be expressly approved by the Committee, pursuant to such +conditions and procedures as the Committee may establish; +provided, however, that no such transfer of an Incentive Stock +Option shall be permitted to the extent that such transfer would +cause the Incentive Stock Option to fail to qualify as an +“incentive stock option” under Section 422 of the +Code. Any permitted transfer shall be subject to the condition +that the Committee receive evidence satisfactory to it that the +transfer is being made for estate +and/or tax +planning purposes (or to a “blind trust” in connection +with the Participant’s termination of employment or service +with the Company or a Subsidiary to assume a position with a +governmental, charitable, educational or similar non-profit +institution) and on a basis consistent with the Company’s +lawful issue of securities. +10.4 Beneficiaries . Notwithstanding +Section 10.3, a Participant may, in the manner determined +by the Committee, designate a beneficiary to exercise the rights +of the Participant and to receive any distribution with respect +to any Award upon the Participant’s death. A beneficiary, +legal guardian, legal representative, or other person claiming +any rights pursuant to the Plan is subject to all terms and +conditions of the Plan and any Award Agreement applicable to the +Participant, except to the extent the Plan and Award Agreement +otherwise provide, and to any additional restrictions deemed +necessary or appropriate by the Committee. If the Participant is +married and resides in a community property state, a designation +of a person other than the Participant’s spouse as his or +her beneficiary with respect to more than 50% of the +Participant’s interest in the Award shall not be effective +without the prior written consent of the Participant’s +spouse. If no beneficiary has been designated or survives the +Participant, payment shall be made to the person entitled +thereto pursuant to the Participant’s will or the laws of +descent and distribution. Subject to the foregoing, a +beneficiary designation may be changed or revoked by a +Participant at any time provided the change or revocation is +filed with the Committee. +10.5 Stock Certificates; Book Entry Procedures . +(a) Notwithstanding anything herein to the contrary, the +Company shall not be required to record, issue or deliver any +certificates evidencing shares of Stock pursuant to the exercise +of any Award, unless and until the Board has determined, with +advice of counsel, that the recordation, issuance and delivery +of such shares or certificates is in compliance with all +applicable laws, regulations of governmental authorities and, if +applicable, the requirements of any exchange on which the shares +of Stock are listed or traded. All Stock certificates delivered +pursuant to the Plan are subject to any stop-transfer orders and +other restrictions as the Committee deems necessary or advisable +to comply with federal, state, or foreign jurisdiction, +securities or other laws, rules and regulations and the rules of +any national securities exchange or automated quotation system +on which the Stock is listed, quoted, or traded. The Committee +may place legends on any Stock certificate to reference +restrictions applicable to the Stock. In addition to the terms +and conditions provided herein, the Board may require that a +Participant make such reasonable covenants, agreements, and +representations as the Board, in its discretion, deems advisable +in order to comply with any such laws, regulations, or +requirements. The Committee shall have the right to require any +Participant to comply with any timing or other restrictions with +respect to the settlement or exercise of any Award, including a +window-period limitation, as may be imposed in the discretion of +the Committee. +(b) Notwithstanding any other provision of the Plan, unless +otherwise determined by the Committee or required by any +applicable law, rule or regulation, the Company shall not +deliver to any Participant certificates evidencing shares of +Stock issued in connection with any Award and instead such +shares of Stock shall be recorded in the books of the Company +(or, as applicable, its transfer agent or stock plan +administrator). +10.6 Paperless Administration . In +the event that the Company establishes, for itself or using the +services of a third party, an automated system for the +documentation, granting or exercise of Awards, such as a system +using an internet website or interactive voice response, then +the paperless documentation, granting or exercise of Awards by a +Participant may be permitted through the use of such an +automated system. +A-11 +Table of Contents +ARTICLE 11. +CHANGES +IN CAPITAL STRUCTURE +11.1 Adjustments . +(a) In the event of any stock dividend, stock split, +combination or exchange of shares, merger, consolidation or +other distribution (other than normal cash dividends) of Company +assets to stockholders, or any other change affecting the shares +of Stock or the share price of the Stock other than an Equity +Restructuring, the Committee shall make such proportionate +adjustments, if any, as the Committee in its discretion may deem +appropriate to reflect such change with respect to (a) the +aggregate number and kind of shares that may be issued under the +Plan (including, but not limited to, adjustments of the +limitations in Sections 3.1 and 3.3); (b) the terms +and conditions of any outstanding Awards (including, without +limitation, any applicable performance targets or criteria with +respect thereto); and (c) the grant or exercise price per +share for any outstanding Awards under the Plan. Any adjustment +affecting an Award intended as Qualified Performance-Based +Compensation shall be made consistent with the requirements of +Section 162(m) of the Code. +(b) In the event of any transaction or event described in +Section 11.1(a) or any unusual or nonrecurring transactions +or events affecting the Company, any affiliate of the Company, +or the financial statements of the Company or any affiliate, or +of changes in applicable laws, regulations or accounting +principles, the Committee, in its sole and absolute discretion, +and on such terms and conditions as it deems appropriate, either +by the terms of the Award or by action taken prior to the +occurrence of such transaction or event and either automatically +or upon the Participant’s request, is hereby authorized to +take any one or more of the following actions whenever the +Committee determines that such action is appropriate in order to +prevent dilution or enlargement of the benefits or potential +benefits intended to be made available under the Plan or with +respect to any Award under the Plan, to facilitate such +transactions or events or to give effect to such changes in +laws, regulations or principles: +(i) To provide for either (A) termination of any such +Award in exchange for an amount of cash, if any, equal to the +amount that would have been attained upon the exercise of such +Award or realization of the Participant’s rights (and, for +the avoidance of doubt, if as of the date of the occurrence of +the transaction or event described in this Section 11.1, +the Committee determines in good faith that no amount would have +been attained upon the exercise of such Award or realization of +the Participant’s rights, then such Award may be terminated +by the Company without payment) or (B) the replacement of +such Award with other rights or property selected by the +Committee in its sole discretion; +(ii) To provide that such Award be assumed by the successor +or survivor corporation, or a parent or subsidiary thereof, or +shall be substituted for by similar options, rights or awards +covering the stock of the successor or survivor corporation, or +a parent or subsidiary thereof, with appropriate adjustments as +to the number and kind of shares and prices; +(iii) To make adjustments in the number and type of shares +of Stock (or other securities or property) subject to +outstanding Awards, and in the number and kind of outstanding +Restricted Stock or Deferred Stock +and/or in +the terms and conditions of (including the grant or exercise +price), and the criteria included in, outstanding options, +rights and awards and options, rights and awards which may be +granted in the future; +(iv) To provide that such Award shall be exercisable or +payable or fully vested with respect to all shares covered +thereby, notwithstanding anything to the contrary in the Plan or +the applicable Award Agreement; and +(v) To provide that the Award cannot vest, be exercised or +become payable after such event. +(c) In connection with the occurrence of any Equity +Restructuring, and notwithstanding anything to the contrary in +Sections 11.1(a) and 11.1(b): +(i) The number and type of securities subject to each +outstanding Award and the exercise price or grant price thereof, +if applicable, will be proportionately adjusted. The adjustments +provided under this Section 11.1(c)(i) shall be +nondiscretionary and shall be final and binding on the affected +Participant and the Company; and +A-12 +Table of Contents +(ii) The Committee shall make such proportionate +adjustments, if any, as the Committee in its discretion may deem +appropriate to reflect such Equity Restructuring with respect to +the aggregate number and kind of shares that may be issued under +the Plan (including, but not limited to, adjustments of the +limitations in Sections 3.1 and 3.3). +11.2 Acceleration Upon a Change in +Control . Notwithstanding Section 11.1, and +except as may otherwise be provided in any applicable Award +Agreement or other written agreement entered into between the +Company and a Participant, if a Change in Control occurs and a +Participant’s Awards are not converted, assumed, or +replaced by a successor entity, then immediately prior to the +Change in Control any such outstanding Awards shall become fully +exercisable and all forfeiture restrictions on such Awards shall +lapse. Upon, or in anticipation of, a Change in Control, the +Committee may cause any and all Awards outstanding hereunder to +terminate at a specific time in the future, including but not +limited to the date of such Change in Control, and shall give +each Participant the right to exercise such Awards during a +period of time as the Committee, in its sole and absolute +discretion, shall determine. +11.3 No Other Rights . Except as +expressly provided in the Plan, no Participant shall have any +rights by reason of any subdivision or consolidation of shares +of stock of any class, the payment of any dividend, any increase +or decrease in the number of shares of stock of any class or any +dissolution, liquidation, merger, or consolidation of the +Company or any other corporation. Except as expressly provided +in the Plan or pursuant to action of the Committee under the +Plan, no issuance by the Company of shares of stock of any +class, or securities convertible into shares of stock of any +class, shall affect, and no adjustment by reason thereof shall +be made with respect to, the number of shares of Stock subject +to an Award or the grant or exercise price of any Award. +ARTICLE 12. +ADMINISTRATION +12.1 Committee . Unless and until +the Board delegates administration of the Plan to a Committee as +set forth below, the Plan shall be administered by the full +Board, and for such purposes the term “Committee” as +used in this Plan shall be deemed to refer to the Board. The +Board, at its discretion or as otherwise necessary to comply +with the requirements of Section 162(m) of the Code, +Rule 16b-3 +promulgated under the Exchange Act or to the extent required by +any other applicable rule or regulation, may delegate +administration of the Plan to a Committee consisting of two or +more members of the Board. Unless otherwise determined by the +Board, the Committee shall consist solely of two or more members +of the Board each of whom is an “outside director,” +within the meaning of Section 162(m) of the Code, a +Non-Employee Director and an “independent director” +under the rules of the New York Stock Exchange (or other +principal securities market on which shares of Stock are traded, +if any). Any action taken by the Committee shall be valid and +effective, whether or not members of the Committee at the time +of such action are later determined not to have satisfied the +requirements for membership set forth in this Section 12.1 +or otherwise provided in any charter of the Committee. +Notwithstanding the foregoing: (a) the full Board, acting +by a majority of its members in office, shall conduct the +general administration of the Plan with respect to all Awards +granted to Independent Directors and for purposes of such Awards +the term “Committee” as used in this Plan shall be +deemed to refer to the Board and (b) the Committee may +delegate its authority hereunder to the extent permitted by +Section 12.5. In its sole discretion, the Board may at any +time and from time to time exercise any and all rights and +duties of the Committee under the Plan except with respect to +matters which under +Rule 16b-3 +under the Exchange Act or Section 162(m) of the Code, or +any regulations or rules issued thereunder, are required to be +determined in the sole discretion of the Committee. The +governance of the Committee shall be subject to the charter of +the Committee as approved by the Board. +12.2 Action by the Committee . Each +member of the Committee is entitled to, in good faith, rely or +act upon any report or other information furnished to that +member by any officer or other employee of the Company or any +Subsidiary, the Company’s independent certified public +accountants, or any executive compensation consultant or other +professional retained by the Company to assist in the +administration of the Plan. +12.3 Authority of +Committee . Subject to any specific designation in +the Plan, the Committee has the exclusive power, authority and +discretion to: +(a) Designate Participants to receive Awards; +A-13 +Table of Contents +(b) Determine the type or types of Awards to be granted to +each Participant; +(c) Determine the number of Awards to be granted and the +number of shares of Stock to which an Award will relate; +(d) Determine the terms and conditions of any Award granted +pursuant to the Plan, including, but not limited to, the +exercise price, grant price, or purchase price, any reload +provision, any restrictions or limitations on the Award, any +schedule for lapse of forfeiture restrictions or restrictions on +the exercisability of an Award, and accelerations or waivers +thereof, any provisions related to non-competition and recapture +of gain on an Award, based in each case on such considerations +as the Committee in its sole discretion determines; provided, +however, that the Committee shall not have the authority to +accelerate the vesting or waive the forfeiture of any +Performance-Based Awards; +(e) Determine whether, to what extent, and pursuant to what +circumstances an Award may be settled in, or the exercise price +of an Award may be paid in, cash, Stock, other Awards, or other +property, or an Award may be canceled, forfeited, or surrendered; +(f) Prescribe the form of each Award Agreement, which need +not be identical for each Participant; +(g) Decide all other matters that must be determined in +connection with an Award; +(h) Establish, adopt, or revise any rules and regulations +as it may deem necessary or advisable to administer the Plan; +(i) Interpret the terms of, and any matter arising pursuant +to, the Plan or any Award Agreement; and +(j) Make all other decisions and determinations that may be +required pursuant to the Plan or as the Committee deems +necessary or advisable to administer the Plan. +12.4 Decisions Binding . The +Committee’s interpretation of the Plan, any Awards granted +pursuant to the Plan, any Award Agreement and all decisions and +determinations by the Committee with respect to the Plan are +final, binding, and conclusive on all parties. +12.5 Delegation of Authority . To +the extent permitted by applicable law, the Board may from time +to time delegate to a committee of one or more members of the +Board or one or more officers of the Company the authority to +grant or amend Awards to Participants other than +(a) Employees who are subject to Section 16 of the +Exchange Act, (b) Covered Employees, or (c) officers +of the Company (or Directors) to whom authority to grant or +amend Awards has been delegated hereunder. Any delegation +hereunder shall be subject to the restrictions and limits that +the Board specifies at the time of such delegation, and the +Board may at any time rescind the authority so delegated or +appoint a new delegatee. At all times, the delegatee appointed +under this Section 12.5 shall serve in such capacity at the +pleasure of the Board. +ARTICLE 13. +EFFECTIVE AND EXPIRATION DATE +13.1 Effective Date . The Plan is +effective as of the date the Plan is approved by the +Company’s stockholders (the “ Effective +Date ”). The Plan will be deemed to be approved by the +stockholders if it is approved either: +(a) By a majority of the votes cast at a duly held +stockholders meeting at which a quorum representing a majority +of outstanding voting stock is, either in person or by proxy, +present and voting on the Plan; or +(b) By a method and in a degree that would be treated as +adequate under Delaware law in the case of an action requiring +stockholder approval. +13.2 Expiration Date . The Plan will +expire on, and no Award may be granted pursuant to the Plan +after, the tenth anniversary of the Effective Date, except that +no Incentive Stock Options may be granted under the Plan after +the tenth anniversary of the date the Plan is adopted by the +Board. Any Awards that are outstanding on the tenth anniversary +of the Effective Date shall remain in force according to the +terms of the Plan and the applicable Award Agreement. +A-14 +Table of Contents +ARTICLE 14. +AMENDMENT, MODIFICATION, AND TERMINATION +14.1 Amendment, Modification, and +Termination . Subject to Section 15.14, with +the approval of the Board, at any time and from time to time, +the Committee may terminate, amend or modify the Plan; +provided, however , that (a) to the extent necessary +and desirable to comply with any applicable law, regulation, or +stock exchange rule, the Company shall obtain stockholder +approval of any Plan amendment in such a manner and to such a +degree as required, and (b) stockholder approval shall be +required for any amendment to the Plan that (i) increases +the number of shares available under the Plan (other than any +adjustment as provided by Article 11), (ii) permits +the Committee to grant Options or SARs with an exercise price +that is below Fair Market Value on the date of grant, or +(iii) permits the Committee to extend the exercise period +for an Option or SAR beyond ten years from the date of grant. +Notwithstanding any provision in this Plan to the contrary, +absent approval of the stockholders of the Company, no Option or +SAR may be amended to reduce the per share exercise price of the +shares subject to such Option or SAR below the per share +exercise price as of the date the Option or SAR is granted and, +except as permitted by Article 11, no Option or SAR may be +granted in exchange for, or in connection with, the cancellation +or surrender of an Option or SAR having a higher per share +exercise price. +14.2 Awards Previously +Granted . Except with respect to amendments made +pursuant to Section 15.14, no termination, amendment, or +modification of the Plan shall adversely affect in any material +way any Award previously granted pursuant to the Plan without +the prior written consent of the Participant. +ARTICLE 15. +GENERAL PROVISIONS +15.1 No Rights to Awards . No +Eligible Individual or other person shall have any claim to be +granted any Award pursuant to the Plan, and neither the Company +nor the Committee is obligated to treat Eligible Individuals, +Participants or any other persons uniformly. +15.2 No Stockholders Rights . Except +as otherwise provided herein, a Participant shall have none of +the rights of a stockholder with respect to shares of Stock +covered by any Award until the Participant becomes the record +owner of such shares of Stock. +15.3 Withholding . The Company or +any Subsidiary shall have the authority and the right to deduct +or withhold, or require a Participant to remit to the Company, +an amount sufficient to satisfy federal, state, local and +foreign taxes (including the Participant’s employment tax +obligations) required by law to be withheld with respect to any +taxable event concerning a Participant arising as a result of +this Plan. The Committee may in its discretion and in +satisfaction of the foregoing requirement allow a Participant to +elect to have the Company withhold shares of Stock otherwise +issuable under an Award (or allow the return of shares of Stock) +having a Fair Market Value equal to the sums required to be +withheld. Notwithstanding any other provision of the Plan, the +number of shares of Stock which may be withheld with respect to +the issuance, vesting, exercise or payment of any Award (or +which may be repurchased from the Participant of such Award +within six months (or such other period as may be required by +the Committee in order to avoid adverse accounting consequences +to the Company) after such shares of Stock were acquired by the +Participant from the Company) in order to satisfy the +Participant’s federal, state, local and foreign income and +payroll tax liabilities with respect to the issuance, vesting, +exercise or payment of the Award shall be limited to the number +of shares which have a Fair Market Value on the date of +withholding or repurchase equal to the aggregate amount of such +liabilities based on the minimum statutory withholding rates for +federal, state, local and foreign income tax and payroll tax +purposes that are applicable to such supplemental taxable income. +15.4 No Right to Employment or +Services . Nothing in the Plan or any Award +Agreement shall interfere with or limit in any way the right of +the Company or any Subsidiary to terminate any +Participant’s employment or services at any time, nor +confer upon any Participant any right to continue in the employ +or service of the Company or any Subsidiary. +15.5 Unfunded Status of Awards . The +Plan is intended to be an “unfunded” plan for +incentive compensation. With respect to any payments not yet +made to a Participant pursuant to an Award, nothing contained in +the +A-15 +Table of Contents +Plan or any Award Agreement shall give the Participant any +rights that are greater than those of a general creditor of the +Company or any Subsidiary. +15.6 Indemnification . To the extent +allowable pursuant to applicable law, each member of the +Committee or of the Board shall be indemnified and held harmless +by the Company from any loss, cost, liability, or expense that +may be imposed upon or reasonably incurred by such member in +connection with or resulting from any claim, action, suit, or +proceeding to which he or she may be a party or in which he or +she may be involved by reason of any action or failure to act +pursuant to the Plan and against and from any and all amounts +paid by him or her in satisfaction of judgment in such action, +suit, or proceeding against him or her; provided he or +she gives the Company an opportunity, at its own expense, to +handle and defend the same before he or she undertakes to handle +and defend it on his or her own behalf. The foregoing right of +indemnification shall not be exclusive of any other rights of +indemnification to which such persons may be entitled pursuant +to the Company’s Certificate of Incorporation or Bylaws, as +a matter of law, or otherwise, or any power that the Company may +have to indemnify them or hold them harmless. +15.7 Relationship to Other +Benefits . No payment pursuant to the Plan shall +be taken into account in determining any benefits pursuant to +any pension, retirement, savings, profit sharing, group +insurance, welfare or other benefit plan of the Company or any +Subsidiary except to the extent otherwise expressly provided in +writing in such other plan or an agreement thereunder. +15.8 Expenses . The expenses of +administering the Plan shall be borne by the Company and its +Subsidiaries. +15.9 Titles and Headings . The +titles and headings of the Sections in the Plan are for +convenience of reference only and, in the event of any conflict, +the text of the Plan, rather than such titles or headings, shall +control. +15.10 Fractional Shares . No +fractional shares of Stock shall be issued and the Committee +shall determine, in its discretion, whether cash shall be given +in lieu of fractional shares or whether such fractional shares +shall be eliminated by rounding up or down as appropriate. +15.11 Limitations Applicable to Section 16 +Persons . Notwithstanding any other provision of +the Plan, the Plan, and any Award granted or awarded to any +Participant who is then subject to Section 16 of the +Exchange Act, shall be subject to any additional limitations set +forth in any applicable exemptive rule under Section 16 of +the Exchange Act (including any amendment to +Rule 16b-3 +under the Exchange Act) that are requirements for the +application of such exemptive rule. To the extent permitted by +applicable law, the Plan and Awards granted or awarded hereunder +shall be deemed amended to the extent necessary to conform to +such applicable exemptive rule. +15.12 Government and Other +Regulations . The obligation of the Company to +make payment of awards in Stock or otherwise shall be subject to +all applicable laws, rules, and regulations, and to such +approvals by government agencies as may be required. The Company +shall be under no obligation to register pursuant to the +Securities Act, as amended, any of the shares of Stock paid +pursuant to the Plan. If the shares paid pursuant to the Plan +may in certain circumstances be exempt from registration +pursuant to the Securities Act, as amended, the Company may +restrict the transfer of such shares in such manner as it deems +advisable to ensure the availability of any such exemption. +15.13 Governing Law . The Plan and +all Award Agreements shall be construed in accordance with and +governed by the laws of the State of Delaware. +15.14 Section 409A . To the +extent that the Committee determines that any Award granted +under the Plan is subject to Section 409A of the Code, the +Award Agreement evidencing such Award shall incorporate the +terms and conditions required by Section 409A of the Code. +To the extent applicable, the Plan and Award Agreements shall be +interpreted in accordance with Section 409A of the Code and +Department of Treasury regulations and other interpretive +guidance issued thereunder, including without limitation any +such regulations or other guidance that may be issued after the +Effective Date. Notwithstanding any provision of the Plan to the +contrary, in the event that following the Effective Date the +Committee determines that any Award may be subject to +Section 409A of the Code and related Department of Treasury +guidance (including such Department of Treasury guidance as may +be issued after the Effective Date), the Committee may adopt +such amendments to the Plan and the applicable Award Agreement +or adopt other policies and procedures (including amendments, +policies and procedures with retroactive +A-16 +Table of Contents +effect), or take any other actions, that the Committee +determines are necessary or appropriate to (a) exempt the +Award from Section 409A of the Code +and/or +preserve the intended tax treatment of the benefits provided +with respect to the Award, or (b) comply with the +requirements of Section 409A of the Code and related +Department of Treasury guidance and thereby avoid the +application of any penalty taxes under such Section. +* * * * * +I hereby certify that the foregoing Plan was duly adopted by the +Board of Directors of Skechers U.S.A., Inc. on April 16, +2007. +* * * * * +I hereby certify that the foregoing Plan was approved by the +stockholders of Skechers U.S.A., Inc. on +, +2007. +Executed on this day of +, +2007. +Corporate +Secretary +A-17 +Table of Contents +APPENDIX B +SKECHERS +U.S.A., INC. +2008 +EMPLOYEE STOCK PURCHASE PLAN +Skechers U.S.A., Inc., a Delaware corporation (the +“ Company ”), hereby adopts the Skechers U.S.A., +Inc. 2008 Employee Stock Purchase Plan (the +“ Plan ”), effective as of the Effective Date (as +defined herein). +1. Purpose . The purposes of the +Plan are as follows: +(a) To assist employees of the Company and its Designated +Subsidiaries (as defined below) in acquiring a stock ownership +interest in the Company pursuant to a plan which is intended to +qualify as an “employee stock purchase plan” within +the meaning of Section 423(b) of the Internal Revenue Code +of 1986, as amended. +(b) To help employees provide for their future security and +to encourage them to remain in the employment of the Company and +its Designated Subsidiaries. +2. Definitions . +(a) “ Administrator ” shall mean the +administrator of the Plan, as determined pursuant to +Section 14 hereof. +(b) “ Board ” shall mean the Board of +Directors of the Company. +(c) “ Code ” shall mean the Internal Revenue +Code of 1986, as amended. +(d) “ Committee ” shall mean the committee +appointed to administer the Plan pursuant to Section 14 +hereof. +(e) “ Common Stock ” shall mean the +Class A Common Stock of the Company, $0.001 par value +per share, and such other securities that may be substituted for +Common Stock pursuant to Section 19 hereof. +(f) “ Company ” shall mean Skechers U.S.A., +Inc., a Delaware corporation, or any successor thereto. +(g) “ Compensation ” shall mean all base +straight time gross earnings including commissions, payments for +overtime, incentive payments and performance bonuses. +(h) “ Designated Subsidiary ” shall mean any +Subsidiary which has been designated by the Administrator from +time to time in its sole discretion as eligible to participate +in the Plan. The Administrator may designate, or terminate the +designation of, a subsidiary as a Designated Subsidiary without +the approval of the stockholders of the Company. +(i) “ Effective Date ” shall have the +meaning set forth in Section 23. +(j) “ Eligible Employee ” shall mean an +Employee of the Company or a Designated Subsidiary: (i) who +does not, immediately after the option is granted, own stock +possessing five percent (5%) or more of the total combined +voting power or value of all classes of capital stock of the +Company, a Parent or a Subsidiary (as determined under +Section 423(b)(3) of the Code); and (ii) whose +customary employment is for more than five (5) months in +any calendar year. For purposes of clause (i), the rules of +Section 424(d) of the Code with regard to the attribution +of stock ownership shall apply in determining the stock +ownership of an individual, and stock which an Employee may +purchase under outstanding options shall be treated as stock +owned by the Employee. For purposes of the Plan, the employment +relationship shall be treated as continuing intact while the +individual is on sick leave or other leave of absence approved +by the Company or Designated Subsidiary and meeting the +requirements of Treasury +Regulation Section 1.421-7(h)(2). +Where the period of leave exceeds ninety (90) days and the +individual’s right to reemployment is not guaranteed either +by statute or by contract, the employment relationship shall be +deemed to have terminated on the ninety-first (91st) day of such +leave. +(k) “ Employee ” shall mean any person who +renders services to the Company or a Subsidiary in the status of +an employee within the meaning of Code Section 3401(c). +“Employee” shall not include any director of the +B-1 +Table of Contents +Company or a Subsidiary who does not render services to the +Company or a Subsidiary in the status of an employee within the +meaning of Code Section 3401(c). +(l) “ Enrollment Date ” shall mean the first +Trading Day of each Offering Period. +(m) “ Exercise Date ” shall mean the last +Trading Day of each Purchase Period. +(n) “ Fair Market Value ” shall mean, as of +any date, the value of Common Stock determined as follows: +(i) If the Common Stock is traded on an exchange, its Fair +Market Value shall be the closing sales price for a share of +Common Stock as reported in The Wall Street Journal (or +such other source as the Administrator may deem reliable for +such purposes) for such date, or if no sale occurred on such +date, the first trading date immediately prior to such date +during which a sale occurred; +(ii) If the Common Stock is not traded on an exchange but +is quoted on a quotation system, its Fair Market Value shall be +the mean between the closing representative bid and asked prices +for the Common Stock on such date, or if no sale occurred on +such date, the first date immediately prior to such date on +which sales prices or bid and asked prices, as applicable, are +reported by such quotation system; or +(iii) In the absence of an established market for the +Common Stock, the Fair Market Value thereof shall be determined +in good faith by the Administrator. +(o) “ Offering Period ” shall mean each +period of approximately six (6) months commencing on any +January 1 or July 1 and terminating on the last Trading Day +on or before the next occurring June 30 or +December 31, as applicable. The first Offering Period under +the Plan shall commence on January 1, 2008 and end on the +last Trading Day on or before June 30, 2008. The duration +and timing of Offering Periods may be changed pursuant to +Section 4 of this Plan, but in no event may an Offering +Period have a duration in excess of twenty-seven +(27) months. +(p) “ Parent ” means any corporation, other +than the Company, in an unbroken chain of corporations ending +with the Company if, at the time of the determination, each of +the corporations other than the Company owns stock possessing +50% or more of the total combined voting power of all classes of +stock in one of the other corporations in such chain. +(q) “ Per Period Limit ” shall have the +meaning set forth in Section 7. +(r) “ Plan ” shall mean this Skechers +U.S.A., Inc. 2008 Employee Stock Purchase Plan. +(s) “ Purchase Period ” shall mean the +approximately six (6) month period commencing on each +Enrollment Date and ending with the next Exercise Date. +Notwithstanding the foregoing, the first Purchase Period with +respect to the initial Offering Period under the Plan shall +commence on January 1, 2008 (or if such day is not a +Trading Day, then on the first Trading Day thereafter) and end +on the last Trading Day on or before June 30, 2008. Unless +and until changed by the Administrator, each Purchase Period +shall be for approximately the same six month interval as the +corresponding Offering Period. +(t) “ Purchase Price ” shall mean 85% of the +Fair Market Value of a share of Common Stock on the Enrollment +Date or on the Exercise Date, whichever is lower; provided, +however , that the Purchase Price may be adjusted by the +Administrator pursuant to Section 19 hereof; provided, +further , that the Purchase Price shall not be less than the +par value of a share of Common Stock. +(u) “ Subsidiary ” shall mean any +corporation, other than the Company, in an unbroken chain of +corporations beginning with the Company if, at the time of the +determination, each of the corporations other than the last +corporation in an unbroken chain owns stock possessing 50% or +more of the total combined voting power of all classes of stock +in one of the other corporations in such chain. +(v) “ Trading Day ” shall mean a day on +which national stock exchanges are open for trading. +3. Eligibility . +(a) Any Eligible Employee who shall be employed by the +Company or a Designated Subsidiary on a given Enrollment Date +for an Offering Period shall be eligible to participate in the +Plan during such Offering Period, subject to the requirements of +Section 5 hereof and the limitations imposed by +Section 423(b) of the Code. +B-2 +Table of Contents +(b) Each person who, during the course of an Offering +Period, first becomes an Eligible Employee subsequent to the +Enrollment Date will be eligible to become a participant in the +Plan on the first day of the first Purchase Period following the +day on which such person becomes an Eligible Employee, subject +to the requirements of Section 5 hereof and the limitations +imposed by Section 423(b) of the Code. +(c) No Eligible Employee shall be granted an option under +the Plan which permits his or her rights to purchase Common +Stock under the Plan, and to purchase stock under all other +employee stock purchase plans of the Company, any Parent or any +Subsidiary subject to Section 423 of the Code, to accrue at +a rate which exceeds $25,000 of fair market value of such stock +(determined at the time the option is granted) for each calendar +year in which the option is outstanding at any time. For +purposes of the limitation imposed by this subsection, the right +to purchase stock under an option accrues when the option (or +any portion thereof) first becomes exercisable during the +calendar year, the right to purchase stock under an option +accrues at the rate provided in the option, but in no case may +such rate exceed $25,000 of fair market value of such stock +(determined at the time such option is granted) for any one +calendar year, and a right to purchase stock which has accrued +under an option may not be carried over to any option. This +limitation shall be applied in accordance with +Section 423(b)(8) of the Code and the Treasury Regulations +thereunder. +4. Offering Periods . The Plan shall +be implemented by consecutive Offering Periods which shall +continue until the Plan expires or is terminated in accordance +with Section 20 hereof. The Administrator shall have the +power to change the duration of Offering Periods (including the +commencement dates thereof) with respect to future offerings +without stockholder approval if such change is announced at +least five (5) days prior to the scheduled beginning of the +first Offering Period to be affected thereafter. +5. Participation . +(a) An Eligible Employee may become a participant in the +Plan for any Offering Period by completing a subscription +agreement authorizing payroll deductions in a form acceptable to +the Administrator and filing it with the Company’s payroll +office fifteen (15) days (or such shorter or longer period +as may be determined by the Administrator, in its sole +discretion) prior to the applicable Enrollment Date. +(b) Each person who, during the course of an Offering +Period, first becomes an Eligible Employee subsequent to the +Enrollment Date may become a participant in the Plan for any +subsequent Offering Period by completing a subscription +agreement authorizing payroll deductions in a form acceptable to +the Administrator and filing it with the Company’s payroll +office fifteen (15) days (or such shorter or longer period +as may be determined by the Administrator, in its sole +discretion) prior to the Enrollment Date for the subsequent +Offering Period with respect to which such Eligible +Employee’s participation is to commence. The rights granted +to such participant shall have the same characteristics as any +rights originally granted during that Offering Period except +that the first day of the Purchase Period in which such person +initially participates in the Plan shall be the “Enrollment +Date” for all purposes for such person, including +determination of the Purchase Price. +(c) Payroll deductions for a participant shall commence on +the first payroll following the Enrollment Date and shall end on +the last payroll in the Offering Period to which such +authorization is applicable, unless sooner terminated by the +participant as provided in Section 10 hereof. +(d) A participant’s completion of a subscription +agreement will enroll such participant in the Plan for each +successive Purchase Period and each subsequent Offering Period +on the terms contained therein until the participant either +submits a new subscription agreement, withdraws from +participation under the Plan as provided in Section 10 +hereof or otherwise becomes ineligible to participate in the +Plan. +(e) The subscription agreement(s) used in connection with +the Plan shall be in a form prescribed by the Administrator, and +the Administrator may, in its sole discretion, determine whether +such agreement shall be submitted in written or electronic form. +6. Payroll Deductions . +(a) At the time a participant files his or her subscription +agreement, he or she shall elect to have payroll deductions made +on each pay day during the Offering Period in an amount from one +percent (1%) to fifteen percent (15%) of the Compensation which +he or she receives on each pay day during the Offering Period. +B-3 +Table of Contents +(b) All payroll deductions made for a participant shall be +credited to his or her account under the Plan and shall be +withheld in whole percentages only. A participant may not make +any additional payments into such account. +(c) (i) A participant may discontinue his or her +participation in the Plan as provided in Section 10 hereof, +or may decrease (but not increase) the rate of his or her +payroll deductions during the Offering Period by completing or +filing with the Company a new subscription agreement authorizing +a change in payroll deduction rate. The Administrator may, in +its discretion, limit the number of participation rate changes +during any Offering Period. Any such decrease in rate shall be +effective as soon as practicable after the Company’s +receipt of the new subscription agreement. +(ii) A participant may increase the rate of his or her +payroll deductions for any subsequent Offering Period by +completing or filing with the Company a new subscription +agreement authorizing a change in payroll deduction rate. Any +such increase in rate shall be effective with the first full +Offering Period after the Company’s receipt of the new +subscription agreement, provided that such subscription +agreement has been properly completed and filed with the Company +at least five (5) business days prior to the commencement +of such Offering Period (or such shorter or longer period as may +be determined by the Administrator, in its sole discretion). +(d) Notwithstanding the foregoing, to the extent necessary +to comply with Section 423(b)(8) of the Code and +Section 3(c) hereof, a participant’s payroll +deductions may be decreased to zero percent (0%) at any time +during a Purchase Period. +(e) At the time the option is exercised, in whole or in +part, or at the time some or all of the Company’s Common +Stock issued under the Plan is disposed of, the participant must +make adequate provision for the Company’s federal, state, +or other tax withholding obligations, if any, which arise upon +the exercise of the option or the disposition of the Common +Stock. At any time, the Company may, but shall not be obligated +to, withhold from the participant’s compensation the amount +necessary for the Company to meet applicable withholding +obligations, including any withholding required to make +available to the Company any tax deductions or benefits +attributable to the sale or early disposition of Common Stock by +the Employee. +7. Grant of Option . On the +Enrollment Date of each Offering Period, each Eligible Employee +participating in such Offering Period shall be granted an option +to purchase on each Exercise Date during such Offering Period +(at the applicable Purchase Price) up to a number of shares of +the Company’s Common Stock determined by dividing such +participant’s payroll deductions accumulated prior to or on +such Exercise Date and retained in the participant’s +account as of the Exercise Date by the applicable Purchase +Price; provided, however , that in no event shall a +participant be permitted to purchase during each Offering Period +more than that number of shares of Common Stock (subject to any +adjustment pursuant to Section 19 hereof) determined by +dividing $25,000 by the Fair Market Value of a share of Common +Stock on the Enrollment Date (the “ Per Period +Limit ”) and during each Purchase Period more than the +Per Period Limit (for the avoidance of doubt, in the event that +the Offering Period and Purchase Period are approximately the +same length, the participant shall only be entitled to purchase +an aggregate of the number of shares of Common Stock equal to +the Per Period Limit); and provided, further, that such purchase +shall be subject to the limitations set forth in +Sections 3(c) and 13 hereof. The Administrator may, for +future Offering Periods, increase or decrease, in its absolute +discretion, the maximum number of shares of the Company’s +Common Stock a participant may purchase during each Purchase +Period and Offering Period. Exercise of the option shall occur +as provided in Section 8 hereof, unless the participant has +withdrawn pursuant to Section 10 hereof or otherwise +becomes ineligible to participate in the Plan. The option shall +expire on the last day of the Offering Period. +B-4 +Table of Contents +8. Exercise of Option . +(a) Unless a participant withdraws from the Plan as +provided in Section 10 hereof or otherwise becomes +ineligible to participate in the Plan, his or her option for the +purchase of shares shall be exercised automatically on the +Exercise Date, and the maximum number of full shares subject to +the option shall be purchased for such participant at the +applicable Purchase Price with the accumulated payroll +deductions in his or her account. No fractional shares shall be +purchased. Any payroll deductions accumulated in a +participant’s account which exceed the amounts used to +purchase the number of shares equal to the Per Period Limit or +which are not sufficient to purchase a full share shall be +retained in the participant’s account for the subsequent +Purchase Period or Offering Period. During a participant’s +lifetime, a participant’s option to purchase shares +hereunder is exercisable only by him or her. +(b) If the Administrator determines that, on a given +Exercise Date, the number of shares with respect to which +options are to be exercised may exceed (i) the number of +shares of Common Stock that were available for sale under the +Plan on the Enrollment Date of the applicable Offering Period, +or (ii) the number of shares available for sale under the +Plan on such Exercise Date, the Administrator may in its sole +discretion (x) provide that the Company shall make a pro +rata allocation of the shares of Common Stock available for +purchase on such Enrollment Date or Exercise Date, as +applicable, in as uniform a manner as shall be practicable and +as it shall determine in its sole discretion to be equitable +among all participants exercising options to purchase Common +Stock on such Exercise Date, and continue all Offering Periods +then in effect, or (y) provide that the Company shall make +a pro rata allocation of the shares available for purchase on +such Enrollment Date or Exercise Date, as applicable, in as +uniform a manner as shall be practicable and as it shall +determine in its sole discretion to be equitable among all +participants exercising options to purchase Common Stock on such +Exercise Date, and terminate any or all Offering Periods then in +effect pursuant to Section 20 hereof. The Company may make +a pro rata allocation of the shares available on the Enrollment +Date of any applicable Offering Period pursuant to the preceding +sentence, notwithstanding any authorization of additional shares +for issuance under the Plan by the Company’s stockholders +subsequent to such Enrollment Date. The balance of the amount +credited to the account of each participant which has not been +applied to the purchase of shares of Common Stock shall be paid +to such participant in one lump sum in cash as soon as +reasonably practicable after the Exercise Date, without any +interest thereon. +9. Deposit of Shares . As promptly +as practicable after each Exercise Date on which a purchase of +shares occurs, the Company may arrange for the deposit or +recordation, into each participant’s account with any +broker designated by the Company to administer this Plan, of the +number of shares purchased upon exercise of his or her option. +10. Withdrawal . +(a) A participant may withdraw all but not less than all of +the payroll deductions credited to his or her account and not +yet used to exercise his or her option under the Plan by giving +written notice to the Company in a form acceptable to the +Administrator. All of the participant’s unused payroll +deductions credited to his or her account during the Offering +Period shall be paid to such participant as soon as reasonably +practicable after receipt of notice of withdrawal and such +participant’s option for the Offering Period during which +such withdrawal occurs shall be automatically terminated, and no +further payroll deductions for the purchase of shares shall be +made for such Offering Period. If a participant withdraws from +an Offering Period, payroll deductions shall not resume at the +beginning of the succeeding Offering Period unless the +participant delivers to the Company a new subscription agreement. +(b) A participant’s withdrawal from an Offering Period +shall not have any effect upon his or her eligibility to +participate in any similar plan which may hereafter be adopted +by the Company or in succeeding Offering Periods which commence +after the termination of the Offering Period from which the +participant withdraws. +11. Termination of Employment . Upon +a participant’s ceasing to be an Eligible Employee, for any +reason, he or she shall be deemed to have elected to withdraw +from the Plan and the payroll deductions credited to such +participant’s account during the Offering Period shall be +paid to such participant or, in the case of his or her death, to +B-5 +Table of Contents +the person or persons entitled thereto under Section 15 +hereof, as soon as reasonably practicable and such +participant’s option for the Offering Period shall be +automatically terminated. +12. Interest . No interest shall +accrue on the payroll deductions or lump sum contributions of a +participant in the Plan. +13. Shares Subject to Plan . +(a) Subject to adjustment upon changes in capitalization of +the Company as provided in Section 19 hereof, the maximum +number of shares of the Company’s Common Stock which shall +be made available for sale under the Plan shall be +3,000,000 shares. In addition to the foregoing, subject to +Section 19 hereof, commencing on January 1, 2009 and +on the first day of each fiscal year of the Company thereafter +during the term of the Plan, the number of shares of the +Company’s Common Stock which shall be made available for +sale under the Plan shall be increased by that number of shares +of the Company’s Common Stock equal to the least of +(i) one percent (1%) of the outstanding shares of the +Company’s capital stock on such date, +(ii) 500,000 shares, or (iii) a lesser amount +determined by the Board. The Company’s fiscal year +currently begins on January 1 and ends on December 31 of +each year and, accordingly, the number of shares of the +Company’s Common Stock which shall be available for sale +under the Plan shall be subject to automatic increase under the +preceding sentence only on January 1, 2009 and on each +subsequent January 1 through and including January 1, 2017 +(provided that the Company’s fiscal year remains the same). +If any right granted under the Plan shall for any reason +terminate without having been exercised, the Common Stock not +purchased under such right shall again become available for +issuance under the Plan. The Common Stock subject to the Plan +may be unissued shares or reacquired shares, bought on the +market or otherwise. +(b) With respect to shares of Common Stock subject to an +option granted under the Plan, a participant shall not be deemed +to be a stockholder of the Company, and the participant shall +not have any of the rights or privileges of a stockholder, until +such shares have been issued to the participant or his or her +nominee following exercise of the participant’s option. No +adjustments shall be made for dividends (ordinary or +extraordinary, whether in cash securities, or other property) or +distribution or other rights for which the record date occurs +prior to the date of such issuance, except as otherwise +expressly provided herein. +14. Administration . +(a) The Plan shall be administered by the Board unless and +until the Board delegates administration to a Committee as set +forth below. The Board may delegate administration of the Plan +to a Committee comprised of two or more members of the Board, +each of whom is a “non-employee director” within the +meaning of +Rule 16b-3 +which has been adopted by the Securities and Exchange Commission +under the Securities Exchange Act of 1934, as amended, and which +is otherwise constituted to comply with applicable law, and the +term “Committee” shall apply to any persons to whom +such authority has been delegated, provided that any action +taken by the Committee shall be valid and effective, whether or +not members of the Committee at the time of such action are +later determined not to have satisfied the requirements for +membership set forth in this Section 14(a) or otherwise +provided in the charter of the Committee. If administration is +delegated to a Committee, the Committee shall have, in +connection with the administration of the Plan, the powers +theretofore possessed by the Board, including the power to +delegate to a subcommittee any of the administrative powers the +Committee is authorized to exercise, subject, however, to such +resolutions, not inconsistent with the provisions of the Plan, +as may be adopted from time to time by the Board. The governance +of the Committee shall be subject to the charter of the +Committee as approved by the Board. References in this Plan to +the “Administrator” shall mean the Board unless +administration is delegated to a Committee or subcommittee, in +which case references in this Plan to the Administrator shall +thereafter be to the Committee or subcommittee. +(b) It shall be the duty of the Administrator to conduct +the general administration of the Plan in accordance with the +provisions of the Plan. The Administrator shall have the power +to interpret the Plan and the terms of the options and to adopt +such rules for the administration, interpretation, and +application of the Plan as are consistent therewith and to +interpret, amend or revoke any such rules. The Administrator at +its option may utilize the services of an agent to assist in the +administration of the Plan including establishing and +maintaining an individual securities account under the Plan for +each participant. In its absolute discretion, the Board may at +any time and from time to time exercise any and all rights and +duties of the Administrator under the Plan. +B-6 +Table of Contents +(c) All expenses and liabilities incurred by the +Administrator in connection with the administration of the Plan +shall be borne by the Company. The Administrator may, with the +approval of the Board, employ attorneys, consultants, +accountants, appraisers, brokers or other persons. The +Administrator, the Company and its officers and directors shall +be entitled to rely upon the advice, opinions or valuations of +any such persons. All actions taken and all interpretations and +determinations made by the Administrator in good faith shall be +final and binding upon all participants, the Company and all +other interested persons. No member of the Board shall be +personally liable for any action, determination or +interpretation made in good faith with respect to the Plan or +the options, and all members of the Board shall be fully +protected by the Company in respect to any such action, +determination, or interpretation. +15. Designation of Beneficiary . +(a) A participant may file a written designation of a +beneficiary who is to receive any shares and cash, if any, from +the participant’s account under the Plan in the event of +such participant’s death subsequent to an Exercise Date on +which the option is exercised but prior to delivery to such +participant of such shares and cash. In addition, a participant +may file a written designation of a beneficiary who is to +receive any cash from the participant’s account under the +Plan in the event of such participant’s death prior to +exercise of the option. If a participant is married and the +designated beneficiary is not the spouse, spousal consent shall +be required for such designation to be effective. +(b) Such designation of a beneficiary may be changed by the +participant at any time by written notice to the Company. In the +event of the death of a participant and in the absence of a +beneficiary validly designated under the Plan who is living at +the time of such participant’s death, the Company shall +deliver such shares +and/or cash +to the executor or administrator of the estate of the +participant, or if no such executor or administrator has been +appointed (to the knowledge of the Company), the Company, in its +discretion, may deliver such shares +and/or cash +to the spouse or to any one or more dependents or relatives of +the participant, or if no spouse, dependent or relative is known +to the Company, then to such other person as the Company may +designate. +16. Transferability . Neither +payroll deductions credited to a participant’s account nor +any rights with regard to the exercise of an option or to +receive shares under the Plan may be assigned, transferred, +pledged or otherwise disposed of in any way (other than by will, +the laws of descent and distribution or as provided in +Section 15 hereof) by the participant. Any such attempt at +assignment, transfer, pledge or other disposition shall be +without effect, except that the Company may treat such act as an +election to withdraw funds from an Offering Period in accordance +with Section 10 hereof. +17. Use of Funds . All payroll +deductions received or held by the Company under the Plan may be +used by the Company for any corporate purpose, and the Company +shall not be obligated to segregate such payroll deductions. +18. Reports . Individual accounts +shall be maintained for each participant in the Plan. Statements +of account shall be given to participating Employees at least +annually, which statements shall set forth the amounts of +payroll deductions, the Purchase Price, the number of shares +purchased and the remaining cash balance, if any. +19. Adjustments Upon Changes in Capitalization, +Dissolution, Liquidation, Merger or Asset Sale . +(a) Changes in Capitalization . Subject to +any required action by the stockholders of the Company, the +number of shares of Common Stock which have been authorized for +issuance under the Plan but not yet placed under option, the +maximum number of shares each participant may purchase each +Purchase Period (pursuant to Section 7 hereof), as well as +the price per share and the number of shares of Common Stock +covered by each option under the Plan which has not yet been +exercised shall be proportionately adjusted for any increase or +decrease in the number of issued shares of Common Stock +resulting from a stock split, reverse stock split, stock +dividend, combination or reclassification of the Common Stock, +or any other increase or decrease in the number of shares of +Common Stock effected without receipt of consideration by the +Company; provided, however, that conversion of any convertible +securities of the Company shall not be deemed to have been +“effected without receipt of consideration.” Such +adjustment shall be made by the Administrator, whose +determination in that respect shall be final, binding and +conclusive. Except as expressly provided herein, no issuance by +the Company of shares of stock of any class, or securities +convertible into shares of stock of any class, shall affect, and +no adjustment by reason thereof shall be made with respect to, +the number or price of shares of Common Stock subject to an +option. +B-7 +Table of Contents +(b) Dissolution or Liquidation . In the +event of the proposed dissolution or liquidation of the Company, +the Offering Period then in progress shall be shortened by +setting a new Exercise Date (the “ New Exercise +Date ”), and shall terminate immediately prior to the +consummation of such proposed dissolution or liquidation, unless +provided otherwise by the Administrator. The New Exercise Date +shall be before the effective date of the Company’s +proposed dissolution or liquidation. The Administrator shall +notify each participant in writing, at least ten +(10) business days prior to the New Exercise Date, that the +Exercise Date for the participant’s option has been changed +to the New Exercise Date and that the participant’s option +shall be exercised automatically on the New Exercise Date, +unless prior to such date the participant has withdrawn from the +Offering Period as provided in Section 10 hereof. +(c) Merger or Asset Sale . In the event of +a proposed sale of all or substantially all of the assets of the +Company, or the merger of the Company with or into another +corporation, each outstanding option shall be assumed or an +equivalent option substituted by the successor corporation or a +Parent or Subsidiary of the successor corporation. In the event +that the successor corporation refuses to assume or substitute +for the option, any Purchase Periods then in progress shall be +shortened by setting a New Exercise Date and any Offering +Periods then in progress shall end on the New Exercise Date. The +New Exercise Date shall be before the effective date of the +Company’s proposed sale or merger. The Administrator shall +notify each participant in writing, at least ten +(10) business days prior to the New Exercise Date, that the +Exercise Date for the participant’s option has been changed +to the New Exercise Date and that the participant’s option +shall be exercised automatically on the New Exercise Date, +unless prior to such date the participant has withdrawn from the +Offering Period as provided in Section 10 hereof. +20. Amendment or Termination . +(a) The Board may at any time and for any reason terminate +or amend the Plan. Except as provided in Section 19 hereof, +no such termination shall affect options previously granted, +provided that an Offering Period may be terminated by the Board +if the Board determines that the termination of the Offering +Period or the Plan is in the best interests of the Company and +its stockholders. Except as provided in Section 19 hereof +and this Section 20, no amendment may make any change in +any option theretofore granted which adversely affects the +rights of any participant without the consent of such +participant. To the extent necessary to comply with +Section 423 of the Code (or any successor rule or provision +or any other applicable law, regulation or stock exchange rule), +the Company shall obtain stockholder approval of any amendment +in such a manner and to such a degree as required. +(b) Without stockholder consent and without regard to +whether any participant rights may be considered to have been +“adversely affected,” the Administrator shall be +entitled to change the Offering Periods, limit the frequency +and/or +number of changes in the amount withheld during an Offering +Period, establish the exchange ratio applicable to amounts +withheld in a currency other than U.S. dollars, permit +payroll withholding in excess of the amount designated by a +participant in order to adjust for delays or mistakes in the +Company’s processing of properly completed withholding +elections, establish reasonable waiting and adjustment periods +and/or +accounting and crediting procedures to ensure that amounts +applied toward the purchase of Common Stock for each participant +properly correspond with amounts withheld from the +participant’s Compensation, and establish such other +limitations or procedures as the Administrator determines in its +sole discretion advisable which are consistent with the Plan. +(c) In the event the Board determines that the ongoing +operation of the Plan may result in unfavorable financial +accounting consequences, the Board may, in its discretion and, +to the extent necessary or desirable, modify or amend the Plan +to reduce or eliminate such accounting consequences including, +but not limited to: +(i) Altering the Purchase Price for any Offering Period +including an Offering Period underway at the time of the change +in Purchase Price; +(ii) Shortening any Offering Period so that the Offering +Period ends on a new Exercise Date, including an Offering Period +underway at the time of the Administrator action; and +(iii) Allocating shares. +Such modifications or amendments shall not require stockholder +approval or the consent of any Plan participants. +B-8 +Table of Contents +21. Notices . All notices or other +communications by a participant to the Company under or in +connection with the Plan shall be deemed to have been duly given +when received in the form specified by the Company at the +location, or by the person, designated by the Company for the +receipt thereof. +22. Conditions to Issuance of +Shares . The Company shall not be required to +issue or deliver any certificate or certificates for shares of +Common Stock purchased upon the exercise of options prior to +fulfillment of all the following conditions: +(a) The admission of such shares to listing on all stock +exchanges, if any, on which the Common Stock is then +listed; and +(b) The completion of any registration or other +qualification of such shares under any state or federal law or +under the rulings or regulations of the Securities and Exchange +Commission or any other governmental regulatory body, which the +Administrator shall, in its absolute discretion, deem necessary +or advisable; and +(c) The obtaining of any approval or other clearance from +any state or federal governmental agency which the Administrator +shall, in its absolute discretion, determine to be necessary or +advisable; and +(d) The payment to the Company of all amounts which it is +required to withhold under federal, state or local law upon +exercise of the option; and +(e) The lapse of such reasonable period of time following +the exercise of the option as the Administrator may from time to +time establish for reasons of administrative convenience. +23. Term of Plan . Subject to +approval by the Company’s stockholders, the Plan shall +become effective as of January 1, 2008 (the +“ Effective Date ”). The Plan shall be deemed to +be approved by the stockholders if it is approved either: +(a) By a majority of the votes cast at a duly held +stockholders meeting at which a quorum representing a majority +of outstanding voting stock is, either in person or by proxy, +present and voting on the Plan; or +(b) By a method and in a degree that would be treated as +adequate under Delaware law in the case of an action requiring +stockholder approval. +Subject to approval by the stockholders of the Company in +accordance with this Section 23, the Plan shall be in +effect until the tenth (10th) anniversary of the Effective Date, +unless sooner terminated under Section 20 hereof. +24. Equal Rights and +Privileges . All Eligible Employees will have +equal rights and privileges under this Plan so that this Plan +qualifies as an “employee stock purchase plan” within +the meaning of Section 423 of the Code or applicable +Treasury Regulations thereunder. Any provision of this Plan that +is inconsistent with Section 423 of the Code or applicable +Treasury Regulations will, without further act or amendment by +the Company, the Board or the Administrator, be reformed to +comply with the equal rights and privileges requirement of +Section 423 of the Code or applicable Treasury Regulations. +25. Section 409A . The options +to purchase shares of Common Stock under the Plan are not +intended to constitute “nonqualified deferred +compensation” within the meaning of Section 409A of +the Code. However, if at any time the Administrator determines +that the options may be subject to Section 409A of the +Code, the Administrator shall have the right, in its sole +discretion, to amend the Plan and any outstanding options as it +may determine is necessary or desirable either to +(a) exempt the options from Section 409A of the Code +and/or +preserve the intended tax treatment of the benefits provided +with respect to the options, or (b) comply with the +requirements of Section 409A of the Code and related +Department of Treasury guidance and thereby avoid the +application of any penalty taxes under such Section. +26. No Employment Rights . Nothing +in the Plan shall be construed to give any person (including any +Eligible Employee or participant) the right to remain in the +employ of the Company, a Parent or a Subsidiary or to affect the +right of the Company, any Parent or any Subsidiary to terminate +the employment of any person (including any Eligible Employee or +participant) at any time, with or without cause. +27. Notice of Disposition of +Shares . Each participant shall give prompt notice +to the Company of any disposition or other transfer of any +shares of Common Stock purchased upon exercise of an option if +such +B-9 +Table of Contents +disposition or transfer is made: (a) within two +(2) years from the Enrollment Date of the Offering Period +in which the shares were purchased or (b) within one +(1) year after the Exercise Date on which such shares were +purchased. Such notice shall specify the date of such +disposition or other transfer and the amount realized, in cash, +other property, assumption of indebtedness or other +consideration, by the participant in such disposition or other +transfer. +28. Governing Law . The validity and +enforceability of this Plan shall be governed by and construed +in accordance with the laws of the State of Delaware without +regard to otherwise governing principles of conflicts of law. +* * * * * +I hereby certify that the foregoing Plan was duly adopted by the +Board of Directors of Skechers U.S.A., Inc. on April 16, +2007. +* * * * * +I hereby certify that the foregoing Plan was approved by the +stockholders of Skechers U.S.A., Inc. on +, +2007. +Executed on this day of +, +2007. +Corporate +Secretary +B-10 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +May 24, 2007 +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE NOMINEES LISTED IN PROPOSAL 1 +AND “FOR” PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. x +1. +Election of +Directors +FOR ALL THE NOMINEES +WITHHOLD AUTHORITY +FOR ALL NOMINEES +FOR ALL EXCEPT +(See +instructions below) +NOMINEES: +o +o +o +o Michael Greenberg +o David Weinberg +o Jeffrey Greenberg +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL +EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: x +2. +Approve the 2007 Incentive Award Plan. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Approve the 2008 Employee Stock Purchase Plan. +FOR +AGAINST +ABSTAIN +o +o +o +Each of the persons named as proxies +herein are authorized, in such person’s +discretion, to vote upon such other matters +as may properly come before the Annual +Meeting of Stockholders, or any +adjournments thereof. +To change the address on your account, +please fill in the box at right and +indicate your new address in the address +space above. Please note that changes to +the registered name(s) on the account may +not be submitted via this +method. o +Please check here if you plan to attend the meeting. +o +Signature +of Stockholder: +Date: +Signature +of Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. +When shares are held jointly, each holder should sign. When +signing as executor, administrator, attorney, trustee or +guardian, please give full title as such. If the signer is a +corporation, please sign full corporate name by duly authorized +officer, giving full title as such. If signer is a partnership, +please sign in partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 24, 2007 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 30, 2007, and hereby appoints Michael Greenberg and David Weinberg and each of them, +with full power of substitution, as attorneys-in-fact and proxies for, and in the name and place +of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares +which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., +Inc. to be held at The Ayres Hotel located at 14400 Hindry Avenue, Hawthorne, California 90250, on +Thursday, May 24, 2007, at 9:00 a.m. Pacific time, and at any adjournments thereof, upon the +matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt +of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSALS 2 AND 3 AS DESCRIBED IN THE PROXY, AND IN +ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY +PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950134-07-009374/proxy_rpt.txt b/raw/proxies/0001065837/0000950134-07-009374/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc939db48d93debaa19a641001f9e6a15357adb8 --- /dev/null +++ b/raw/proxies/0001065837/0000950134-07-009374/proxy_rpt.txt @@ -0,0 +1,96 @@ +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2006, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of March 31, 2007, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust beneficially own 99.7% of our +Class B Common Stock and approximately 80.4% of the +combined voting power of our Class A and Class B +Common Stock. By virtue of this stock ownership, Robert +Greenberg may be deemed to be a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and +the Greenberg Family Trust influences +40 +Table of Contents +the election of Robert Greenberg. Michael Greenberg, who is our +President, and Jeffrey Greenberg, both of whom are members of +our Board of Directors, are each beneficiaries of the Greenberg +Family Trust. Additionally, Robert Greenberg, directly and +indirectly through the Greenberg Family Trust, beneficially owns +approximately 61.5% of the combined voting power of our +Class A and Class B Common Stock. As a result, we are +considered a “Controlled Company” under the NYSE Rules +and are thereby exempt from certain listing requirements and +regulations as set forth in the NYSE Rules. +Shares of our Class A Common Stock issuable upon conversion +of shares of Class B Common Stock held by the Greenberg +Family Trust and Michael Greenberg are subject to certain +registration rights. We entered into a registration rights +agreement with the Greenberg Family Trust and Michael Greenberg +pursuant to which we agreed that we will, on up to two separate +occasions per year, register up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of the +closing of our initial public offering of Class A Common +Stock by each such stockholder in any one year, provided, among +other conditions, that the underwriters of any such offering +have the right to limit the number of shares included in such +registration. We also agreed that, if it shall cause to be filed +with the SEC a registration statement, each such stockholder +shall have the right to include up to one-third of the shares of +our Class A Common Stock issuable upon conversion of their +shares of Class B Common Stock beneficially owned as of the +closing of our initial public offering of Class A Common +Stock by each of them in such registration statement provided, +among other conditions, that the underwriters of any such +offering have the right to limit the number of shares included +in such registration. All expenses of such registrations shall +be at our expense. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel, +which opened in Manhattan Beach, California in November 2005. +Michael Greenberg, David Weinberg, who is our Chief Operating +Officer, Executive Vice President and a member of our Board of +Directors, and Michael Greenberg’s brothers Jeffrey +Greenberg, who is a director of Skechers, and Jason and Joshua +Greenberg, all of whom are senior vice presidents of Skechers, +own in aggregate a 17% beneficial ownership interest in MIOC. +During 2006, we paid approximately $177,000 to the Shade Hotel +for lodging, food and events that were held there including our +annual holiday party. +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are +the children of Robert Greenberg and also the siblings of +Michael Greenberg, are non-executive employees of Skechers, and +they earned total compensation of $641,218, $660,273 and +$625,193, respectively, in 2006. Jeffrey Greenberg was also a +member of our Board of Directors in 2006, but did not earn any +additional compensation for services provided as a director. +41 +Table of Contents +NOMINATIONS \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950134-09-008879/proxy.txt b/raw/proxies/0001065837/0000950134-09-008879/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..c82cfc871fd4a7deed853c8a942bcc276c5e2d8c --- /dev/null +++ b/raw/proxies/0001065837/0000950134-09-008879/proxy.txt @@ -0,0 +1,2677 @@ +DEF 14A +1 +v52206ddef14a.htm +DEFINITIVE PROXY STATEMENT +def14a +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant þ +Filed by a Party other than the Registrant o +Check the appropriate box: +o Preliminary Proxy Statement +o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +þ Definitive Proxy Statement +o Definitive Additional Materials +o Soliciting Material Pursuant to sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +þ +Fee not required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS +U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +Important Notice Regarding the Availability of Proxy +Materials for the Stockholder +Meeting to Be Held on May 28, 2009 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of +Stockholders (the “Annual Meeting”) of Skechers +U.S.A., Inc., a Delaware corporation, to be held at our +corporate offices located at 330 South Sepulveda Boulevard, +Manhattan Beach, California 90266 on May 28, 2009 at +10:00 a.m. Pacific Time. +Our Annual Meeting is being held to elect two members to the +Board of Directors to serve for a three-year term as +Class I Directors and to transact such other business as +may properly come before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on +March 31, 2009 as the record date for determining those +stockholders who will be entitled to vote at the Annual Meeting. +The following proxy statement and enclosed proxy card are being +sent to each stockholder as of the record date, and our 2008 +annual report is enclosed with this notice to our stockholders. +The proxy statement and 2008 annual report are available in +the SEC filings section of the investor relations page of our +corporate information website at +www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if +you plan to attend the Annual Meeting in person, you may find +directions by going to the annual meeting of stockholders +section of the investor relations page of our corporate +information website at www.skx.com/investor.jsp . If you +do not expect to attend, or if you plan to attend but desire the +proxy holders to vote your shares, please date and sign your +proxy card and return it in the enclosed postage-paid envelope. +The giving of this proxy card will not affect your right to vote +in person in the event you find it convenient to attend. Please +return the proxy card promptly to avoid the expense of +additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2009 +Manhattan Beach, California +TABLE OF CONTENTS +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +PROXY STATEMENT +PROPOSAL NO. 1 ELECTION OF DIRECTORS +CORPORATE GOVERNANCE AND BOARD MATTERS +COMPENSATION DISCUSSION AND ANALYSIS +REPORT OF THE COMPENSATION COMMITTEE +EXECUTIVE COMPENSATION +DIRECTOR COMPENSATION +REPORT OF THE AUDIT COMMITTEE +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +TRANSACTIONS WITH RELATED PERSONS +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING +STOCKHOLDER COMMUNICATION WITH THE BOARD OF DIRECTORS +OTHER BUSINESS +Table of Contents +SKECHERS +U.S.A., INC. +PROXY STATEMENT +For +Annual Meeting to be Held +May 28, 2009 at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., +Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or +“Skechers”), in connection with our Annual Meeting of +Stockholders to be held on May 28, 2009 at +10:00 a.m. Pacific Time at our corporate offices +located at 330 South Sepulveda Boulevard, Manhattan Beach, +California 90266 (the “Annual Meeting”). The +approximate mailing date for this proxy statement and the +enclosed proxy is April 30, 2009. If a proxy in the +accompanying form is duly executed and returned, the shares +represented by the proxy will be voted as directed. If no +direction is given, the shares represented by the proxy will be +voted for the election of the nominees for director named +herein. Any proxy given may be revoked at any time prior to its +exercise by notifying our Corporate Secretary, Philip Paccione, +in writing of such revocation, by duly executing and delivering +another proxy bearing a later date, or by attending and voting +in person at the Annual Meeting. Our principal executive office +is located at 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +We will incur the cost of this solicitation of proxies that will +be made by mail. In addition, our officers and other regularly +engaged employees may, in a limited number of instances, solicit +proxies personally or by telephone. We will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of our Class A Common Stock and +Class B Common Stock. +Holders of our Class A Common Stock and Class B Common +Stock of record at the close of business on March 31, 2009 +will be entitled to vote at the Annual Meeting. There were +33,603,653 shares of Class A Common Stock and +12,782,385 shares of Class B Common Stock outstanding +on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock +is entitled to ten votes, and the presence in person or by proxy +of holders of a majority of the combined voting interest of the +outstanding shares of Class A Common Stock and Class B +Common Stock is necessary to constitute a quorum for the Annual +Meeting. A quorum must be established to consider any matter. +The two candidates for director receiving the most votes will +become directors of Skechers. Stockholders may not cumulate +their votes. Any other proposals require the affirmative +“for” vote of a majority of the shares present in +person or represented by proxy and entitled to vote on those +proposals at the Annual Meeting. If you hold shares beneficially +in street name and do not provide your broker with voting +instructions, your shares may constitute “broker +non-votes.” Generally, broker non-votes occur on a matter +when a broker is not permitted to vote on that matter without +instructions from the beneficial owner and instructions are not +given. In tabulating the voting result for any particular +proposal, shares that constitute broker non-votes are not +considered entitled to vote on that proposal. Thus, broker +non-votes will not affect the outcome of any matter being voted +on at the meeting, assuming that a quorum is obtained. However, +shares represented by such “broker non-votes” will be +counted in determining whether there is a quorum. A properly +executed proxy marked “Abstain” with respect to any +such matter will not be voted, although it will be counted for +purposes of determining whether there is a quorum. Because +directors are elected by a plurality of the votes cast, proxies +marked “Abstain” as to Proposal No. 1 will +not have any effect on the election of directors as long as one +vote is cast for each director nominee. +Table of Contents +PROPOSAL NO. 1 +ELECTION +OF DIRECTORS +Our Board of Directors is divided into three classes, with each +director serving a three-year term and until their successors +are duly elected and qualified or until their death, resignation +or removal. One class of directors is elected annually at our +annual meeting of stockholders. Our bylaws provide for a +variable Board of Directors with between five and nine members. +We currently have seven members on our Board of Directors. Our +bylaws give the Board of Directors the authority to increase or +decrease the number of directors without the approval of our +stockholders, and our bylaws also give our stockholders the +authority to increase or decrease the size of our Board of +Directors. +Unless otherwise directed by stockholders, within the limits set +forth in our bylaws, the proxy holders will vote all shares +represented by proxies held by them for the election of Robert +Greenberg and Morton D. Erlich, who are director nominees and +are currently members of the Board of Directors. We have been +advised by Robert Greenberg and Morton D. Erlich of their +availability and willingness to serve if re-elected. In the +event that Robert Greenberg +and/or +Morton D. Erlich becomes unavailable or unable to serve as a +member of the Board of Directors prior to the voting, the proxy +holders will refrain from voting for them or will vote for a +substitute nominee in the exercise of their best judgment. +The Board of Directors recommends a vote FOR these +director-nominees. +2 +Table of Contents +BOARD OF +DIRECTORS AND EXECUTIVE OFFICERS +Information +Concerning Director Nominees +Class and Year in Which +Name +Age +Term Will Expire +Position +Robert Greenberg +69 +Class I (2012 +) +Chairman of the Board and +Chief Executive Officer +Morton D. +Erlich (1)(2) +64 +Class I (2012 +) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Robert Greenberg has served as our Chairman of the Board +and Chief Executive Officer since October 1993. +Morton D. Erlich has served as a member of our Board of +Directors since January 2006 and has been an independent +investor and consultant since September 2004. Mr. Erlich +worked for 34 years at KPMG LLP including 24 years as +an audit partner until retiring in September 2004. His last +position at KPMG LLP was office managing partner of the office +in Woodland Hills, California. +Directors +Not Standing for Election +The members of the Board of Directors who are continuing and not +standing for election at this year’s Annual Meeting are set +forth below. +Class and Year in Which +Name +Age +Term Will Expire +Position +Michael Greenberg +46 +Class II (2010) +President and Director +David Weinberg +58 +Class II (2010) +Executive Vice President; Chief Operating Officer and Director +Jeffrey Greenberg +41 +Class II (2010) +Senior Vice President, Active Electronic Media and Director +Geyer +Kosinski (1) +43 +Class III (2011) +Director +Richard +Siskind (1)(2) +63 +Class III (2011) +Director +(1) +Member of the Audit Committee +(2) +Member of the Compensation Committee +Michael Greenberg has served as our President and a +member of our Board of Directors since our company’s +inception in 1992, and from June 1992 to October 1993, he served +as our Chairman of the Board. +David Weinberg has served as our Chief Operating Officer +since January 2006 and as Executive Vice President and a member +of our Board of Directors since July 1998, and from October 1993 +to January 2006, he also served as our Chief Financial Officer. +Jeffrey Greenberg has served as our Senior Vice +President, Active Electronic Media since June 2005 and as a +member of our Board of Directors since September 2000. From +January 1998 to June 2005, Mr. Greenberg served as our Vice +President, Active Electronic Media. Previously, +Mr. Greenberg served as our Chief Operating Officer, +Secretary and a member of our Board of Directors from June 1992 +to July 1998, and as our Chief Executive Officer from June 1992 +to October 1993. +Geyer Kosinski has served as a member of our Board of +Directors since November 2001. Since July 2004, +Mr. Kosinski has been the Chairman and Chief Executive +Officer of Media Talent Group, a talent management and +production company that produces feature films and television +programming and manages over 50 actors, writers and directors. +From April 1997 to June 2004, Mr. Kosinski was a Managing +Partner and co-owner of Industry Entertainment, a talent +management and production company that produces feature films +and television programming and manages over 100 actors, writers +and directors. +3 +Table of Contents +Richard Siskind has served as a member of our Board of +Directors since June 1999. In 1991, Mr. Siskind founded R. +Siskind & Company, a business that purchases brand +name men’s and women’s apparel and accessories and +redistributes those items to off-price retailers, and he is its +sole shareholder, Chief Executive Officer, President and sole +member of its Board of Directors. From November 2002 to June +2006, Mr. Siskind served as a member of the Board of +Directors of Magic Lantern Group, Inc. (AMEX:GML), which changed +its name from JKC Group, Inc. +Executive +Officers +The following table sets forth certain information with respect +to our executive officers who are not also members of our Board +of Directors. For information concerning Robert Greenberg, see +“Information Concerning Director Nominees” +above, and for information concerning Michael Greenberg and +David Weinberg, see “Directors Not Standing for +Election” above. +Name +Age +Position +Frederick Schneider +52 +Chief Financial Officer +Philip Paccione +47 +General Counsel; Executive Vice President, Business Affairs; and +Corporate Secretary +Mark Nason +47 +Executive Vice President, Product Development +Frederick Schneider has served as our Chief Financial +Officer since January 2006. From February 2004 to when he joined +our company in January 2006, Mr. Schneider served on our +Board of Directors and as Chairman of our Audit Committee. He +also currently serves on the Board of Directors and as Chairman +of the Audit Committee at each of Meade Instruments +(NASDAQ:MEAD) and Sport Chalet, Inc. (NASDAQ:SPCHA and SPCHB). +Mr. Schneider has served as a Board member and Audit +Committee member at Meade Instruments since August 2004 and at +Sport Chalet since May 2002. From July 2004 to December 2005, he +served as a senior managing director at Pasadena Capital +Partners, a private equity investment firm. Prior to working at +Pasadena Capital Partners, Mr. Schneider was an independent +private equity investor and consultant; from September 1994 to +January 1998, he served as chief financial officer and principal +of Leonard Green & Partners, L.P., a merchant banking +firm specializing in leveraged buyouts; and from June 1978 to +September 1994, he worked at KPMG LLP including five years as an +audit and due diligence partner. +Philip Paccione has served as our Executive Vice +President, Business Affairs since February 2000, as our +Corporate Secretary since July 1998 and as our General Counsel +since May 1998. +Mark Nason has served as our Executive Vice President, +Product Development since March 2002. From January 1998 to March +2002, Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, he served +as our Director of Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey +Greenberg; other than the foregoing, no family relationships +exist between any of our executive officers or directors. +CORPORATE +GOVERNANCE AND BOARD MATTERS +Code of +Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all +directors, officers and employees, was adopted by the Board of +Directors as of April 28, 2004 and amended by the Board as +of January 15, 2007. The purpose of the Code of Business +Conduct and Ethics is to promote honest and ethical conduct. The +Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our +corporate information website located at +www.skx.com/investor.jsp , and is available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. We intend to promptly post +any amendments to or waivers of the Code of Business Conduct and +Ethics on our website. +4 +Table of Contents +“Controlled +Company” Exemption under NYSE Rules +Under Section 303A of the New York Stock Exchange +(“NYSE”) Listed Company Manual (collectively, the +“NYSE Rules”), we are considered a “Controlled +Company” because Robert Greenberg beneficially owns 61.8% +of the voting power in our company (see “Transactions +with Related Persons” ). As a Controlled Company, we are +exempt from certain NYSE Rules requiring a board of directors +with a majority of independent members, a compensation committee +composed entirely of independent directors and a nominating +committee composed entirely of independent directors. However, +notwithstanding this exemption, as described more fully below, +we established a Compensation Committee in 2006 that is composed +entirely of independent directors in accordance with +Section 303A.05 of the NYSE Rules. +Director +Independence +Our Board of Directors has affirmatively determined that the +Board has three members who are “independent” +consistent with Section 303A.02 of the NYSE Rules. These +directors are Morton D. Erlich, who is Chairman of our Audit +Committee and a member of our Compensation Committee, Geyer +Kosinski, who is a member of our Audit Committee, and Richard +Siskind, who is Chairman of our Compensation Committee and a +member of our Audit Committee. The Board of Directors made this +affirmative determination regarding these directors’ +independence based on discussions with the directors and on its +review of the directors’ responses to a questionnaire +regarding employment and compensation history; affiliations, +family and other relationships; and transactions with our +company, its subsidiaries and affiliates. The Board considered +relationships and transactions between each director or any +member of his immediate family and our company and its +subsidiaries and affiliates, including those reported in the +section entitled “Transactions with Related +Persons” in this proxy statement. The purpose of the +Board’s review with respect to each director was to +determine whether any such relationships or transactions were +inconsistent with a determination that the director is +independent under the NYSE Rules. +Attendance +of Directors at Board Meetings and Annual Meeting of +Stockholders +Our Board of Directors met four times in 2008, and each of the +directors attended all of the meetings, except Jeffrey Greenberg +and Richard Siskind who were unable to attend one meeting. While +we do not have a policy requiring our directors to attend our +Annual Meeting of Stockholders, all but one of the directors +attended the Annual Meeting of Stockholders held in 2008. +Audit +Committee +Our Audit Committee, which was established in accordance with +Section 3(a)(58)(A) of the Securities Exchange Act of 1934, +as amended (the “Exchange Act”), is responsible for +overseeing (i) the quality and integrity of our financial +statements, (ii) the appointment, compensation, +independence and performance of the independent registered +public accounting firm, (iii) our compliance with legal and +regulatory requirements and (iv) the performance of +internal audit and controls function. +The Audit Committee is currently composed of Chairman Morton D. +Erlich, Geyer Kosinski and Richard Siskind, each of whom is +“independent” under Sections 303A.02 of the NYSE +Rules and Section 10A(m)(3) of, and +Rule 10A-3(b) +under, the Exchange Act. The Audit Committee held seven meetings +in 2008, each of which was attended by all of its members. +Our Audit Committee currently acts under a written Audit +Committee Charter adopted by the Board of Directors as of +April 29, 2004 and amended by the Board as of +January 15, 2007 and December 18, 2007. The Audit +Committee Charter, which complies with the NYSE Rules, is posted +in the corporate governance section of the investor relations +page of our corporate information website located at +www.skx.com/investor.jsp, and copies are available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +5 +Table of Contents +Audit +Committee Financial Expert +Our Board of Directors has determined that Morton D. Erlich, who +currently serves as Chairman of our Audit Committee, is an +“audit committee financial expert” as that term is +defined in Item 407(d)(5) of +Regulation S-K. +Compensation +Committee +Our Compensation Committee is responsible for +(i) discharging the Board’s responsibilities relating +to compensation of our executive officers, (ii) overseeing +the administration of our executive compensation plans, +(iii) reviewing and discussing with our management the +Compensation Discussion and Analysis required by the applicable +rules of the Securities and Exchange Commission (the +“SEC”) and recommending to the Board whether such +disclosure should be included in our proxy statement and +(iv) producing an annual report on executive compensation +for inclusion in our proxy statement in accordance with the +applicable rules of the SEC. This includes reviewing and +approving the annual compensation of our Chief Executive Officer +and other executive officers, reviewing and making +recommendations to the Board with respect to executive +compensation plans, including incentive compensation and +equity-based compensation, and reviewing and approving +performance goals and objectives with respect to the +compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. +The Compensation Committee is composed of Chairman Richard +Siskind and Morton D. Erlich. The Compensation Committee held +five meetings in 2008, each of which was attended by both of its +members. +Our Compensation Committee currently acts under a written +Compensation Committee Charter adopted by the Board of Directors +as of March 31, 2006 and amended by the Board as of +December 12, 2006. The Compensation Committee Charter, +which complies with the NYSE Rules and is subject to amendment +from time to time by the Board of Directors, is posted in the +corporate governance section of the investor relations page of +our corporate information website located at +www.skx.com/investor.jsp . Copies are available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +Compensation +Committee Interlocks and Insider Participation +Our Compensation Committee is composed of Richard Siskind and +Morton D. Erlich, neither of whom has ever been an employee or +officer of our company or any of its subsidiaries. None of our +executive officers has served or currently serves on the board +of directors or on the compensation committee of any other +entity, which has officers who served on our Board of Directors +or Compensation Committee during the fiscal year ended +December 31, 2008. +Director +Nominations +As a Controlled Company under the NYSE Rules, we are not +required to and currently do not have a nominating committee. +Our Chairman of the Board, in consultation with other members of +management and directors, performs the functions of a nominating +committee, including the identification and evaluation of +director candidates. Nominees for directors are identified and +recommended by the Chairman of the Board and presented to the +full Board of Directors. Qualifications and skills that the +Board of Directors requires of directors are set forth in our +Corporate Governance Guidelines, which was adopted by the Board +as of April 28, 2004 and is posted in the corporate +governance section of the investor relations page of our +corporate information website located at +www.skx.com/investor.jsp . Copies are available in print, +without charge, upon written request to our Corporate Secretary +at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. Our Board of Directors seeks +members from diverse professional and personal backgrounds who +combine a broad spectrum of experience and expertise with a +reputation for integrity. Factors considered in evaluating a +director candidate include the evaluation of diversity, age, +skills and experience in the context of the needs of the Board. +Additionally, directors should not serve on more than two boards +of public companies in addition to our Board of Directors. The +Board believes that the functions of a nominating committee are +more than adequately performed by our Chairman of the Board and +the Board of Directors as a whole. +6 +Table of Contents +Pursuant to our bylaws, a stockholder may nominate a person for +election as a director at an annual meeting of stockholders only +if written notice of such stockholder’s intent to make such +nomination has been given to our Corporate Secretary no later +than the close of business on the +60 th day +nor earlier than the close of business on the +90 th day +in advance of such meeting. Each notice is required to set forth +certain information, including (i) the name and address of +the stockholder and of the person or persons to be nominated, +(ii) a description of all arrangements or understandings +between the stockholder and each nominee pursuant to which the +nomination is to be made, (iii) information regarding each +nominee as would be required to be included in a proxy statement +filed pursuant to the proxy rules of the SEC had the nominee +been nominated, or intended to be nominated, by the Board and +(iv) the consent of each nominee to serve as a director if +so elected. The stockholder must also promptly provide any other +information that we reasonably request. +Executive +Sessions +Non-management directors meet regularly in executive sessions +without our management. Non-management directors are those +directors who are not also our executive officers and include +directors, if any, who are not independent by virtue of the +existence of a material relationship with our company. Executive +sessions are led by a Presiding Independent Director. An +executive session is typically held in conjunction with each +regularly scheduled Audit Committee meeting and other sessions +may be called by the Presiding Independent Director in his own +discretion or at the request of the Board of Directors. Morton +D. Erlich is currently designated as the Presiding Independent +Director. +COMPENSATION +DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation +arrangements of our Named Executive Officers for 2008 should be +read together with the compensation tables and related +disclosures set forth below. The Named Executive Officers are +those executive officers listed in the table captioned +Summary Compensation Table in this proxy statement: +Robert Greenberg, Chief Executive Officer; Michael Greenberg, +President; David Weinberg, Chief Operating Officer; Frederick +Schneider, Chief Financial Officer; and Mark Nason, Executive +Vice President of Product Development. This discussion contains +forward looking statements that are based on our current plans, +considerations, expectations and determinations regarding future +compensation programs. Actual compensation programs that we +adopt may differ materially from currently planned programs as +summarized in this discussion. +Role of +Compensation Committee +Our executive compensation program is administered by or under +the direction of the Compensation Committee of our Board of +Directors. Under the terms of its Charter, the Compensation +Committee is responsible for (i) discharging the +Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of +our executive compensation plans, (iii) reviewing and +discussing with Skechers’ management this Compensation +Discussion and Analysis required by the applicable SEC rules and +recommending to the Board its inclusion in this proxy statement +and (iv) producing the annual report on executive +compensation included elsewhere in this proxy statement in +accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the +services of outside advisors, experts and other consultants to +assist in the evaluation of the compensation of the Chief +Executive Officer, the other executive officers and the Board of +Directors. Neither we nor our Compensation Committee retained a +compensation consultant in 2008 to review policies and +procedures with respect to executive compensation or to advise +us on compensation matters. For 2008, the Compensation Committee +reviewed management’s compensation recommendations and then +discussed these recommendations with management. These +recommendations were then approved by the Compensation Committee. +Role of +Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and +Chief Operating Officer, annually makes recommendations to the +Compensation Committee regarding (i) annual base salary and +bonuses to be paid to executive officers, (ii) the +formation and modification of our equity-based and incentive +compensation plans for +7 +Table of Contents +executive officers, (iii) awards to be granted under our +equity-based compensation plan and (iv) performance metrics +to be used to calculate incentive compensation that executive +officers may earn under our incentive compensation plan. +Management also meets periodically with the Compensation +Committee to discuss these recommendations, which are based on +management’s assessment of the base salary, equity-based +compensation and incentive compensation opportunities that are +competitive within our industry and within the geographical +labor markets in which we participate. The Compensation +Committee has the authority to adopt, modify or reject any of +these recommendations. +Compensation +Objectives +The basic compensation philosophy of our management and the +Compensation Committee is to provide competitive salaries and +incentives to executive officers in order to promote superior +financial performance. The Compensation Committee believes that +compensation paid to executive officers should be closely +aligned with our performance on both a short-term and long-term +basis, linked to specific, measurable results intended to create +value for stockholders, and that such compensation should assist +us in attracting and retaining key executives critical to our +long-term success. +Our executive compensation policies are designed to achieve four +primary objectives: +• +attract and motivate well-qualified individuals with the ability +and talent to enable us to achieve our business objectives and +corporate strategies; +• +provide incentives to achieve specific short-term individual and +corporate goals by rewarding achievement of those goals at +established financial performance levels; +• +provide incentives to achieve longer-term financial goals and +reinforce sense of ownership through award opportunities that +can result in ownership of stock; and +• +promote retention of key executives and align the interests of +management with those of the stockholders to reinforce +achievement of continuing increases in stockholder value. +Consistent with our performance-based philosophy, the +Compensation Committee reviews and approves our compensation +programs to effectively balance executive officers’ +salaries with incentive compensation that is performance-based +as well as to reward annual performance while maintaining a +focus on longer-term objectives. We believe that it serves the +needs of our stockholders and key executives to provide +incentives commensurate with individual management +responsibilities and past and future contributions to corporate +objectives. The mix of compensation elements varies based on an +executive officer’s position and responsibilities with +Skechers. +To maximize stockholder value, we believe that it is necessary +to deliver consistent, long-term sales and earnings growth. +Accordingly, the Compensation Committee reviews not only the +individual compensation elements, but the mix of individual +compensation elements that make up the aggregate compensation +and attempts to balance the total compensation package between +short-term, long-term and currently paid cash and equity +compensation in a way that meets the objectives set forth above. +Elements +of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual +Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Incentive Award Plan +(the “2007 Plan”), including restricted stock and +stock options. +These components, individually and in the aggregate, are +designed to accomplish one or more of the four compensation +objectives described above. +8 +Table of Contents +Base +Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking +into account market compensation paid by competitors within our +industry and other companies of similar type, size and financial +performance for individuals in similar positions. We set base +compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a +competitive environment, and to reward satisfactory performance +at an acceptable level based upon contributions to our overall +business objectives. +Base salaries are generally reviewed annually, but may be +adjusted from time to time to realign salaries with market +levels. In reviewing base salaries, we consider various factors, +including (i) each individual’s level of +responsibilities, performance and results achieved, and +professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and +companies of similar type, size and financial performance and +(iii) cost of living increases. While the base salaries of +the Named Executive Officers remained unchanged for 2008, the +total compensation for each Named Executive Officers was less +for 2008 as compared to 2007, as a result of our financial +results for 2008 falling short of our performance goals used to +determine the incentive compensation provided to our Named +Executive Officers. As discussed below, the incentive +compensation component of each Named Executive Officer’s +total compensation is based on a combination of factors, +including continued positive financial performance by Skechers, +improved individual performances and increased responsibilities. +Annual +Incentive Compensation +The 2006 Plan is intended to advance our interests and those of +our stockholders and to assist us in attracting and retaining +executive officers by providing incentives and financial rewards +to such executives who, because of the extent of their +responsibilities can make significant contributions to our +success through their ability, industry expertise, loyalty and +exceptional services. +The 2006 Plan provides executive employees including the Named +Executive Officers with the opportunity to earn bonuses based on +our financial performance by linking incentive award +opportunities to the achievement of our performance goals. The +2006 Plan allows us to set annual performance criteria and goals +that are flexible and change with the needs of our business. The +Compensation Committee annually approves the performance +criteria and goals that will be used in formulae to calculate +our Named Executive Officers’ incentive compensation on a +quarterly basis for each fiscal year. By determining performance +criteria and setting goals at the beginning of each fiscal year, +our Named Executive Officers understand our goals and priorities +during the current fiscal year. Following the conclusion of each +quarter during the current fiscal year, the Compensation +Committee certifies the amount of the award for each participant +for each such quarter. The amount of an award actually paid to a +participant each quarter may, in the sole discretion of the +Compensation Committee, be reduced to less than the amount +payable to the participant based on attainment of the +performance goals for each such quarter. +The Compensation Committee approved the performance goals during +the first quarter of 2008 for fiscal 2008. The business criteria +used in the formulae to calculate the incentive compensation of +our Chief Executive Officer, President, Chief Operating Officer +and Executive Vice President of Product Development for 2008 +were our net sales and net earnings because the Compensation +Committee believes that they provide an accurate and +comprehensive measure of our annual performance. For our Chief +Financial Officer, who is the only other Named Executive +Officer, our net sales were used to calculate his incentive +compensation for 2008. +The potential payments of incentive compensation to our Named +Executive Officers are performance-driven and therefore +completely at risk. The payment of any incentive compensation +for a fiscal year under the 2006 Plan is conditioned on our +company achieving at least certain threshold performance levels +of the business criteria approved by the Compensation Committee, +and no payments will be made to our Named Executive Officers if +the threshold performance levels are not met. Any incentive +compensation to be paid to the Named Executive Officers in +excess of the threshold amounts is based on the Compensation +Committee’s pre-approved business criteria and formulae for +the respective Named Executive Officers. The threshold +performance levels for 2008 were “attainable” based on +our recent historical financial performance, and additional +incentive compensation could have been earned based on our +financial performance exceeding increasingly challenging levels +of performance goals, none of which +9 +Table of Contents +was certain to be achieved. There were no specific target +amounts that can be determined, as any incentive compensation +for each Named Executive Officer was based on pre-approved +percentages in excess of certain threshold performance levels. +The pre-approved percentages for 2008 were less than in prior +years, as the Compensation Committee approved management’s +recommendation that executive employees including the Named +Executive Officers be awarded shares of restricted stock in +January 2008 in lieu of potential annual incentive compensation +to be paid in cash, as described in greater detail below. The +Compensation Committee did not place a maximum limit on the +incentive compensation that could have been earned by the Named +Executive Officers in 2008, although the maximum amount of +incentive compensation that any Named Executive Officer may earn +in a +12-month +period under the 2006 Plan is $5,000,000. +The Named Executive Officers were generally targeted to receive +from 20% to 70% of their annual salaries for 2008 in annual +bonus compensation, which was determined to be competitive in +the marketplace for similar positions. In determining the +potential awards that computed into these percentages, the +Compensation Committee considered each Named Executive +Officer’s position, responsibilities and prospective +contribution to the attainment of our performance goals. The +percentage of total compensation represented by incentive awards +is generally higher for more senior executives to reflect their +greater influence on profits and sales and to put a larger +percentage of their total potential cash compensation “at +risk.” Accordingly, our Chief Executive Officer, Robert +Greenberg, was at the top end of the range. +Based on our financial performance and the performance goals +previously set by the Compensation Committee for each Named +Executive Officer for 2008, the actual incentive compensation +earned by each Named Executive Officer for 2008 was $939,457 for +Robert Greenberg, which represented 43% of his total +compensation; $632,605 for Michael Greenberg, which represented +35% of his total compensation; $313,661 for David Weinberg, +which represented 21% of his total compensation, $194,718 for +Mark Nason, which represented 15% of his total compensation; and +$37,887 for Frederick Schneider, which represented 6% of his +total compensation. Actual incentive compensation as a +percentage of total compensation of the Named Executive Officers +was less than the targeted amounts primarily due to our +financial results for 2008 falling short of our previously set +performance goals, and also because the pre-approved percentages +for 2008 were less than in prior years, as the Named Executive +Officers were awarded shares of restricted stock in January 2008 +in lieu of the potential annual incentive compensation to be +paid in cash for 2008 and 2009. +Incentive compensation awarded under the 2006 Plan complements +the approach of our equity compensation program described below, +which is focused on our long-term achievements for earnings per +share and total stockholder return. +Equity-Based +Compensation +Awards of restricted stock, stock options and other forms of +equity-based compensation under the 2007 Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees +for building stockholder value; and +• +encourage long-term investment in Skechers by participating +Named Executive Officers. +The Compensation Committee believes that stock ownership by +management has been demonstrated to be beneficial to all +stockholders and equity-based compensation awards have +historically been granted by Skechers to executive officers and +other employees for the foregoing reasons and as further +discussed below. Certain executive employees including all of +the Named Executive Officers were awarded shares of restricted +stock in January 2008 under the 2007 Plan as a component of +their total compensation for the 2008 fiscal year. We have not +granted any stock options to the Named Executive Officers as +part of their annual compensation since February 2004. +Equity-based compensation awards were previously granted under +our 1998 Stock Option, Deferred Stock and Restricted Stock Plan +(the “1998 Stock Plan”). The 1998 Stock Plan was +terminated and no additional awards under that plan were +permitted after December 31, 2007. As of January 1, +2008, our employees including the Named +10 +Table of Contents +Executive Officers were eligible to receive, from time to time, +issuances of restricted stock, grants of stock options and other +equity-based compensation under the 2007 Plan. +Restricted +Stock +Historically, awards of restricted stock made to our Named +Executive Officers are subject to certain restrictions that +generally lapse over a period of four years from the date of +award. This vesting schedule promoted retention and encouraged +long-term investment in Skechers by our Named Executive +Officers, especially those who did not already hold shares of +our Class A or Class B Common Stock. This also +provided a reasonable time frame to align the Named Executive +Officers’ compensation with stockholder interests since any +appreciation of our stock price will benefit both management and +stockholders. An additional advantage of restricted stock is +that, in comparison to stock options, fewer shares are required +to deliver the same economic value. This may result in lower +stockholder dilution than granting stock options. The +Compensation Committee awarded restricted shares to the Name +Executive Officers on January 18, 2008 as part of their +total compensation for the 2008 fiscal year in part due to these +advantages. Of these restricted shares, 50% vested on +March 1, 2009 and the remaining 50% will vest on +March 1, 2010. This vesting schedule is less than the four +years of vesting of previous awards because these shares were +awarded in January 2008 in lieu of potential annual incentive +compensation to be paid in cash to the Named Executive Officers +for 2008 and 2009. +Stock +Options +Historically, grants of stock options made to our Named +Executive Officers generally vest over a period of three years, +with 25% vesting on the date of grant and 25% vesting each +anniversary thereafter, with all such options exercisable on the +third anniversary of the date of grant. This vesting schedule +promotes retention while the nature of stock options provides +Named Executive Officers and other key employees with an +incentive to contribute to stockholder value in the long term. +Stock options are typically priced at the closing price of our +Class A Common Stock on the New York Stock Exchange on the +date of grant. All stock options expire ten years from the date +of grant. This provides a reasonable time frame to align the +Named Executive Officers’ compensation with stockholder +interests since any appreciation of our stock price will benefit +both management and stockholders. While playing a lesser role in +our current equity-based compensation program, stock options are +still an appropriate and highly motivating vehicle for +delivering long-term incentives. Stock options provide a direct +link with stockholder interests as they have zero intrinsic +value unless our stock price increases above the grant date +price. Despite these considerations, we have not granted any +stock options to the Named Executive Officers as part of their +annual compensation since February 2004, and the Compensation +Committee decided to award shares of restricted stock rather +than grant stock options to the Named Executive Officers in +January 2008 as part of their total compensation for the 2008 +fiscal year. +Employment +Agreements, Severance Benefits and Change of Control +Provisions +We do not have any employment, severance or change-of-control +agreements in effect with any of our Named Executive Officers. +As mentioned above in this Compensation Discussion and Analysis +under the heading “Equity-Based Compensation,” +as of December 31, 2008, we had granted certain stock +options and awarded shares of restricted stock that are subject +to accelerated vesting in full upon a change of control of +Skechers. Generally, for all shares of restricted stock awarded +under the 1998 Stock Plan prior to its termination in 2007, 20% +of the shares vested immediately on the date of award and the +remaining shares vest 20% per year on each anniversary of the +date of award, with restrictions on all shares lapsing on the +fourth anniversary of the date of award. For all shares of +restricted stock awarded to date under the 2007 Plan, 50% of the +shares vested on March 1, 2009 and the remaining 50% will +vest on March 1, 2010. In the event of a change of control, +all shares of restricted stock and grants of stock options +previously awarded under these plans would vest in full, +although as of January 1, 2008, there were no outstanding +stock options held by the Named Executive Officers that had not +already fully vested. +A “change of control” is generally defined in both the +1998 Stock Plan and the 2007 Plan, including the equity award +agreements thereunder, as (i) the acquisition by certain +persons of our securities representing 50% or more of +11 +Table of Contents +the combined voting power of our outstanding securities; +(ii) a change during any two-year period in a majority of +the Board of Directors unless each new director was approved by +a vote of at least two-thirds of the directors then still in +office who were directors at the beginning of the period, or +whose election or nomination was so approved; +(iii) approval by our stockholders of a merger or +consolidation (except with certain permitted entities); or +(iv) approval by our stockholders of a complete liquidation +of our company or the sale or disposition of all or +substantially all of our assets. +The Compensation Committee believes that our change of control +policy is consistent with the objectives of providing the +highest possible return to stockholders by allowing the Named +Executive Officers to be able to effectively participate equally +with stockholders in evaluating alternatives in the event of a +change of control transaction, without compelling the Named +Executive Officer to remain employed under new ownership. +Equity +Award Practices +As described under the Equity Compensation section, equity-based +awards are a key component of our overall executive compensation +program. We do not backdate grants of awards nor do we +coordinate the grant of awards with the release of material +information that might result in favorable pricing. Initial +grants of awards to executive officers and other new employees +are based on the timing of date of hire. The exercise price for +all grants of stock options is the closing price of our +Class A Common Stock on the New York Stock Exchange on the +date of grant, and no grants have ever been re-priced. +Perquisites +and Other Benefits +We provide our Named Executive Officers with perquisites and +other benefits, reflected in the “All Other +Compensation” column in the table captioned Summary +Compensation Table in this proxy statement, that we believe +are reasonable, competitive and consistent with our overall +executive compensation program. The costs of these benefits +constitute only a small percentage of each Named Executive +Officer’s total compensation and include the following: +Aircraft usage. We have an agreement with an +aircraft operator for use of its aircraft for business travel. +Each Named Executive Officer may also use the aircraft for +personal use. If we are not reimbursed for costs associated with +personal use of the aircraft, such costs are considered taxable +income to the Named Executive Officer. During 2008, there was no +personal use of the aircraft by any of the Named Executive +Officers for which we were not reimbursed in full. +Automobile usage. During 2008, automobiles +that we leased or purchased at our sole cost were used by Robert +Greenberg, Michael Greenberg and David Weinberg. We also paid on +their behalf the automobile insurance premiums related to their +use of these automobiles. +Health Club Dues. During 2008, we paid health +club membership fees for David Weinberg and Frederick Schneider. +Impact of +Regulatory Requirements +Tax +Deductibility of Compensation +Section 162(m) of the Internal Revenue Code of 1986, as +amended (the “Code” and, collectively, +“Section 162(m)”), places a limit of $1,000,000 +on the annual amount of compensation (other than compensation +that qualifies as “qualified performance-based +compensation”) that publicly held companies may deduct for +federal income tax purposes for certain executive officers. +The Compensation Committee believes that tax deductibility is an +important factor, but only one factor, to be considered in +evaluating a compensation program. Thus, while the 2006 Plan has +generally been designed to satisfy the requirements of +Section 162(m) and administered to maintain tax +deductibility, and the 2007 Plan permits the Compensation +Committee to grant awards that constitute “qualified +performance-based compensation”, the Compensation Committee +believes competitive and other circumstances may require that +the interests of Skechers and its stockholders are best served +by providing compensation that is not fully tax deductible. +Accordingly, the +12 +Table of Contents +Compensation Committee may continue to exercise discretion to +provide base salaries or other compensation that may not be +fully tax deductible by Skechers. +Internal +Revenue Code Section 409A +Section 409A of the Code (“Section 409A”) +requires that “nonqualified deferred compensation” be +deferred and paid under plans or arrangements that satisfy the +requirements of the statute with respect to the timing of +deferral elections, timing of payments and certain other +matters. Failure to satisfy these requirements can expose +employees and other service providers to accelerated income tax +liabilities and penalty taxes and interest on their vested +compensation under such plans. Accordingly, as a general matter, +it is our intention to design and administer our compensation +and benefits plans and programs for all of our employees and +other service providers, including the Named Executive Officers, +so that they are either exempt from, or satisfy the requirements +of, Section 409A. With respect to our compensation and +benefit plans that are subject to Section 409A, in +accordance with Section 409A and regulatory guidance issued +by the U.S. Internal Revenue Service, we are currently +operating such plans in compliance with Section 409A. +Pursuant to that regulatory guidance, we have amended our plans +and arrangements to either make them exempt from or have them +comply with Section 409A. +Accounting +Standards +Statement of Financial Accounting Standards No. 123(R) +“Share-Based Payment” (“SFAS 123R”) +requires us to recognize an expense for the fair value of +equity-based compensation awards. Grants of restricted stock and +stock options under the 2007 Plan and 1998 Stock Plan are +accounted for under SFAS 123R. The Compensation Committee +regularly considers the accounting implications of significant +compensation decisions, especially in connection with decisions +that relate to the 2007 Plan and equity award programs +thereunder. As accounting standards change, we may revise +certain programs to appropriately align accounting expenses of +our equity awards with our overall executive compensation +philosophy and objectives. +Other +Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules +affect the delivery of executive compensation and are generally +taken into consideration as programs are developed. Our goal is +to create and maintain plans that are efficient and in full +compliance with these requirements. +REPORT OF +THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the +Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and +discussion, the Compensation Committee has recommended to the +Board of Directors inclusion of the Compensation Discussion and +Analysis in this proxy statement and, through incorporation by +reference from this proxy statement, in Skechers’ Annual +Report on +Form 10-K +for the year ended December 31, 2008. +Respectfully submitted, +Richard Siskind, Chairman +Morton D. Erlich +13 +Table of Contents +EXECUTIVE +COMPENSATION +The following table sets forth selected information concerning +the compensation earned by our Principal Executive Officer, +Principal Financial Officer and each of our three most highly +compensated executive officers who served in positions other +than Principal Executive Officer and Principal Financial Officer +at the end of the last completed fiscal year (the “Named +Executive Officers”). +Summary +Compensation Table +Non-Equity +Stock +Option +Incentive Plan +All Other +Name and Principal Position +Year +Salary($) +Awards +($) (1) +Awards +($) (2) +Compensation +($) (3) +Compensation ($) +Total ($) +Robert Greenberg +2008 +1,000,000 +217,521 +— +939,457 +32,424 +(4) +2,189,402 +Chairman of the Board +2007 +1,000,000 +— +— +1,706,330 +29,920 +(4) +2,736,250 +and Chief Executive Officer +2006 +1,000,000 +— +— +1,494,455 +35,941 +(4) +2,530,396 +Frederick Schneider +2008 +500,000 +74,828 +— +37,887 +13,986 +(5) +626,701 +Chief Financial Officer +2007 +500,000 +31,320 +5,416 +191,266 +21,949 +(5) +749,951 +2006 +500,000 +62,389 +54,930 +198,891 +23,860 +(5) +840,070 +Michael Greenberg +2008 +1,000,000 +152,260 +— +632,605 +24,167 +(6) +1,809,032 +President +2007 +1,000,000 +— +— +873,798 +48,205 +(6) +1,922,003 +2006 +1,000,000 +— +— +696,673 +40,993 +(6) +1,737,666 +David Weinberg +2008 +1,000,000 +130,507 +— +313,661 +55,083 +(7) +1,499,251 +Executive Vice President +2007 +1,000,000 +— +6,773 +528,166 +57,664 +(7) +1,592,603 +and Chief Operating Officer +2006 +900,000 +— +68,663 +497,227 +53,574 +(7) +1,519,464 +Mark Nason +2008 +1,000,000 +108,753 +— +194,718 +18,806 +(8) +1,322,277 +Executive Vice President, +2007 +1,000,000 +— +13,546 +382,532 +14,470 +(8) +1,410,548 +Product Development +2006 +846,154 +— +137,325 +397,782 +11,139 +(8) +1,392,400 +(1) +Represents the dollar amount +recognized for financial statement reporting purposes in +accordance with SFAS 123R for the fair value of restricted +stock that was awarded in 2006 and 2008, as we did not grant any +stock awards prior to 2006 and we did not grant any stock awards +to Named Executive Officers in 2007. The fair value was +calculated using the closing price of our Class A Common +Stock on the grant dates for the shares awarded. Pursuant to SEC +rules, the amount shown excludes the impact of estimated +forfeitures related to service-based vesting conditions. The +reported amount reflects our company’s stock-based +compensation expense for this award and does not correspond to +the actual value that will be recognized by the Named Executive +Officers. +(2) +Represents the dollar amount +recognized for financial statement reporting purposes in +accordance with SFAS 123R for the fair value of all stock +options granted to the Named Executive Officers. We have not +granted stock options to Named Executive Officers since 2004. +Frederick Schneider’s compensation relates to stock options +granted to him in 2004 when he was a non-employee director. The +fair value was estimated using the Black-Scholes option-pricing +model in accordance with SFAS 123R. The fair value per +option was $5.49 based on assumptions of five years expected +life, expected volatility of 73 % , a risk free rate of +3.23 % and no expected dividend yield. Pursuant to SEC +rules, the amounts shown exclude the impact of estimated +forfeitures related to service-based vesting conditions. The +reported amounts reflect our company’s stock-based +compensation expense for these awards and do not correspond to +the actual value that will be recognized by +Messrs. Schneider, Weinberg and Nason. +(3) +Represents the cash awards that the +Named Executive Officers earned under our 2006 Annual Incentive +Compensation Plan. Incentive compensation is paid quarterly +based on performance levels that our company achieved in the +prior quarter. The amounts listed for each year exclude any +bonuses earned by the Named Executive Officers in the previous +year that were paid in the indicated year and include incentive +compensation earned in the fourth quarter of the indicated year +that was paid in the following year. Additional information +regarding the 2006 Annual Incentive Compensation Plan is +described in the section entitled “Compensation +Discussion and Analysis” in this proxy statement. +(4) +Represents health and life +insurance payments of $13,371, $10,514 and $11,712, and costs of +$19,053, $19,406 and $24,229 related to automobiles purchased by +our company for use by Mr. Greenberg for 2008, 2007 and +2006, respectively. The aggregate incremental costs of +automobile usage are based on depreciation expense for an +automobile purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Greenberg. +(5) +Represents health and life +insurance payments of $12,330, $14,150 and $16,240, payments of +health club membership fees of $1,656, $1,049 and $1,020, and +annual matching contributions of $0, $6,750 and $6,600 that we +made under the 401(k) Plan for 2008, 2007 and 2006, respectively. +(6) +Represents health and life +insurance payments of $18,806, $14,340 and $16,240, costs of +$5,361, $27,115 and $18,153 related to automobiles purchased by +our company for use by Mr. Greenberg, and annual matching +contributions of $0, $6,750 and $6,600 that we made under the +401(k) Plan for 2008, 2007 and 2006, respectively. The aggregate +incremental costs of automobile usage are based on depreciation +expense for an automobile purchased in 2008 and automobile +insurance premiums paid by our company on behalf of +Mr. Greenberg. +(7) +Represents health and life +insurance payments of $13,040, $9,354 and $10,423, payments of +health club membership fees of $1,656, $1,049 and $1,020, costs +of $40,387, $40,511 and $35,531 related to automobiles leased or +purchased by our company for use by Mr. Weinberg, and +annual matching contributions of $0, $6,750 and $6,600 that we +made under the 401(k) Plan for 2008, 2007 and 2006, +respectively. The aggregate incremental costs of automobile +usage are based on depreciation expense for an automobile +purchased in 2006, payments for another automobile leased prior +to the one purchased in 2006 and automobile insurance premiums +paid by our company on behalf of Mr. Weinberg. +(8) +Represents health and life +insurance payments of $18,806, $14,340 and $11,014, and annual +matching contributions of $0, $130 and $125 that we made under +the 401(k) Plan for 2008, 2007 and 2006, respectively. +14 +Table of Contents +Grants of +Plan-Based Awards in Fiscal 2008 +The following table provides information about plan-based awards +granted to the Named Executive Officers in 2008: (i) the +grant date; (ii) the estimated future payouts under +non-equity incentive plan awards, which consist of potential +payouts under the 2006 Plan that were awarded in 2008 for the +performance period covering fiscal 2008; (iii) the number +of shares underlying all other stock awards and (iv) the +grant date fair value of each equity award computed under +SFAS 123R. +All Other +Grant Date +Stock Awards: +Fair Value of +Estimated Future Payments Under +Number of +Stock and +Non-Equity Incentive Plan +Awards (1) +Shares of Stock +Option +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +or Units +(#) (2) +Awards +($) (3) +Robert Greenberg +1/18/08 +— +— +— +29,638 +508,588 +1/18/08 +0 +939,457 +— +— +— +Frederick Schneider +1/18/08 +— +— +— +5,928 +101,724 +1/18/08 +0 +37,887 +— +— +— +Michael Greenberg +1/18/08 +— +— +— +20,747 +356,019 +1/18/08 +0 +632,605 +— +— +— +David Weinberg +1/18/08 +— +— +— +17,783 +305,156 +1/18/08 +0 +313,661 +— +— +— +Mark Nason +1/18/08 +— +— +— +14,819 +254,294 +1/18/08 +0 +194,718 +— +— +— +(1) +These columns are intended to show +the potential value of the payments for each Named Executive +Officer under the 2006 Plan if the threshold, target or maximum +goals are satisfied for the performance measures. The potential +payments are performance-driven and therefore completely at +risk. Incentive compensation is conditioned on our company +achieving a minimum or threshold performance level, and no +payments are made to the Named Executive Officers if the +threshold performance levels are not met. The Compensation +Committee approved the performance goals during the first +quarter of 2008 for fiscal 2008. Additional information +regarding the business measurements and performance goals for +determining the payments are described in the section entitled +“Compensation Discussion and Analysis” in this +proxy statement. There are no specific target amounts that can +be determined, as any incentive compensation for each Named +Executive Officer is based on pre-approved percentages in excess +of certain performance goals of Skechers. The target amounts +presented in this table represent the actual payments of +non-equity incentive compensation to each of our Named Executive +Officers that was earned in fiscal 2008. There are no maximum +amounts presented in this table because when determining the +performance goals, the Compensation Committee did not place a +limit on the non-equity incentive compensation that could be +earned by the Named Executive Officers in fiscal 2008, although +the maximum amount of incentive compensation that any Named +Executive Officer may earn in a +12-month +period under the 2006 Plan is $5,000,000. +(2) +This column shows the number of +shares of restricted stock granted in 2008 to the Named +Executive Officers under the 2007 Plan. Of the restricted shares +of Class A Common Stock awarded on January 18, 2008, +50% of the shares vested on March 1, 2009 and the remaining +50% will vest on March 1, 2010. +(3) +This column shows the full grant +date fair value of restricted stock awarded to each Named +Executive Officer, which was accounted for in accordance with +SFAS 123R and generally is the amount that we will +recognize as stock-based compensation expense in our +consolidated financial statements over the vesting term of the +award. The fair value of the awards was calculated using the +closing price of $17.16 for our Class A Common Stock on the +New York Stock Exchange on the date of grant, which was +January 18, 2008. This amount reflects our stock-based +compensation expense for this award and does not correspond to +the actual value that will be recognized by the Named Executive +Officers. +Options +Exercised and Stock Vested in Fiscal 2008 +The following table provides information for the Named Executive +Officers regarding the number of shares acquired in 2008 upon +the vesting of restricted stock awards and the value realized +before payment of any applicable withholding tax and broker +commissions. None of the Named Executive Officers exercised +stock options in 2008. +Stock Awards +Number of Shares +Value Realized +Name of Executive +Acquired on Vesting (#) +on Vesting ($) +Robert Greenberg +— +— +Frederick Schneider +2,000 +(1) +36,360 +Michael Greenberg +— +— +David Weinberg +— +— +Mark Nason +— +— +(1) +Mr. Schneider held 2,000 +restricted shares that vested on January 3, 2008, when the +closing price per share was $18.18. +15 +Table of Contents +Outstanding +Equity Awards at 2008 Fiscal Year-End +The following table provides information on the outstanding +stock option and stock awards held by the Named Executive +Officers as of December 31, 2008. This table includes +unexercised option awards and unvested shares of restricted +stock. Each equity award is shown separately for each Named +Executive Officer. The market value of the stock award is based +on the closing price of our Class A Common Stock as of +December 31, 2008, which was $12.82. For additional +information about option awards and stock awards, see the +description of equity-based compensation in the section entitled +“Compensation Discussion and Analysis” in this +proxy statement. The Named Executive Officers did not hold any +shares underlying unexercised options, unvested shares of stock, +units or other rights under any equity incentive plan that had +not been earned as of December 31, 2008. +Option Awards +Stock Awards +Number of +Number of +Number of +Securities +Securities +Shares or +Market Value +Underlying +Underlying +Units of +of Shares or +Unexercised +Unexercised +Option +Option +Stock That +Units of Stock +Options (#) +Options (#) +Exercise +Expiration +Have Not +That Have +Name of Executive +Exercisable +Unexercisable +Price ($) +Date +Vested (#) +Not Vested ($) +Robert Greenberg +— +— +— +— +29,638 (1 +) +379,959 +Frederick Schneider +40,000 +0 +8.35 +2/5/14 +4,000 (2 +) +51,280 +5,928 (1 +) +75,997 +Michael Greenberg +37,500 +0 +13.00 +7/6/10 +20,747 (1 +) +265,977 +David Weinberg +37,500 +0 +13.00 +7/6/10 +17,783 (1 +) +227,978 +37,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/1/11 +30,000 +0 +10.58 +11/6/11 +36,453 +0 +8.35 +2/5/14 +Mark Nason +1,118 +0 +3.94 +2/1/10 +14,819 (1 +) +189,980 +10,200 +0 +13.00 +7/6/10 +2,500 +0 +15.50 +1/1/11 +30,000 +0 +24.00 +4/1/11 +9,200 +0 +10.58 +11/6/11 +20,000 +0 +6.95 +10/9/12 +51,000 +0 +8.35 +2/5/14 +(1) +On January 18, 2008, Robert +Greenberg, Frederick Schneider, Michael Greenberg, David +Weinberg and Mark Nason were issued 29,638 restricted shares, +5,928 restricted shares, 20,747 restricted shares, 17,783 +restricted shares and 14,819 restricted shares, respectively, of +Class A Common Stock, of which 50% vested on March 1, +2009 and the remaining 50% will vest on March 1, 2010. +(2) +On January 3, 2006, +Mr. Schneider was issued 10,000 restricted shares of +Class A Common Stock, of which 2,000 shares vested +immediately upon issuance, 2,000 shares vested on +January 3, 2007 and 2,000 shares vest each anniversary +thereafter for three years. +Change of +Control Benefits +Upon a “change of control” under the 1998 Stock Plan +and the 2007 Plan, Robert Greenberg, Frederick Schneider, +Michael Greenberg, David Weinberg and Mark Nason would be +entitled to full vesting of their outstanding restricted stock +valued at $379,959, $127,277, $265,977, $227,978 and $189,980 +based on the closing price of our Class A Common Stock on +December 31, 2008. As of December 31, 2008, there were +no outstanding unexercisable stock options under the 1998 Stock +Plan or the 2007 Plan held by any of the Named Executive +Officers that would be subject to full vesting upon a change of +control. +For additional information about change of control terms under +the 1998 Stock Plan and the 2007 Plan, see the description +provided in the section entitled “Compensation +Discussion and Analysis” in this proxy statement. +16 +Table of Contents +Securities +Authorized for Issuance Under Equity Compensation +Plans +The following table provides information as of December 31, +2008 regarding compensation plans (including individual +compensation arrangements) under which our equity securities are +authorized for issuance. +Number of Securities +Number of Securities +Remaining Available +to be Issued Upon +Weighted-Average +for Future Issuance +Exercise of +Exercise Price of +Under Equity Compensation +Outstanding Options, +Outstanding Options, +Plans (Excluding Securities +Plan Category +Warrants and Rights +Warrants and Rights +Reflected in Column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +1,739,721 +$ +11.79 +— +2007 Plan +— +— +7,287,882 +2008 ESPP +— +— +2,867,700 +Total plans approved by security holders +1,739,721 +(1) +$ +11.79 +10,155,582 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +1,739,721 +10,155,582 +(1) +Amount does not include an +additional 217,284 shares of restricted stock, which were +awarded under the 1998 Stock Plan or the 2007 Plan, that were +outstanding with a weighted-average grant date fair value of +$16.97. +(2) +The shares available for issuance +under the 2007 Plan are available for issuance as restricted +stock and other forms of equity-based compensation in addition +to stock options, warrants and rights. The number of shares +available for future issuance under the 2008 Employee Stock +Purchase Plan (the “2008 ESPP”) may be adjusted +annually on January 1 for increases equal to the least of +500,000 shares, 1% of the outstanding shares of our capital +stock on such date or a lesser amount as may be determined by +our Board of Directors. The 1998 Stock Plan and the Amended and +Restated 1998 Employee Stock Purchase Plan were terminated and +no additional granting of awards or rights under those plans +were permitted after December 31, 2007. +17 +Table of Contents +DIRECTOR +COMPENSATION +The following table sets forth information concerning the +compensation earned by our directors during 2008. Robert +Greenberg, Michael Greenberg, David Weinberg and Jeffrey +Greenberg are not included because as employee directors, they +did not earn any additional compensation for services provided +as members of our Board of Directors. +Fees Earned or +Stock +Name +Paid in Cash +($) (1) +Awards +($) (2) +Total ($) +Morton D. Erlich +69,000 +54,327 +123,327 +Geyer Kosinski +54,000 +23,006 +77,006 +Richard Siskind +57,500 +23,006 +80,506 +(1) +This column reports the amount of +cash compensation earned in 2008 for Board and committee service. +(2) +This column represents the dollar +amount recognized for financial statement reporting purposes +with respect to the 2008 fiscal year in accordance with +SFAS 123R for the fair value of restricted stock that +vested in 2008. These shares represent restricted stock that was +awarded to Mr. Erlich in 2006 and to all three non-employee +directors in 2008. As of December 31, 2008, Mr. Erlich +held 12,500 restricted shares of Class A Common Stock, of +which 5,500 shares were vested and 7,000 shares +remained restricted, and Messrs Kosinski and Siskind each held +4,500 restricted shares of Class A Common Stock, of which +1,500 shares were vested and 3,000 shares remained +restricted. +Non-Employee Directors. We paid each of our +non-employee directors annual compensation of $30,000 for +serving on the Board of Directors in 2008. Our Audit Committee +Chairman and Compensation Committee Chairman were paid +additional annual fees of $15,000 and $5,000, respectively, in +2008. Non-employee directors also received fees of $1,500 for +each Board and committee meeting attended during 2008. +Non-employee directors are reimbursed for reasonable costs and +expenses incurred for attending any of our Board or committee +meetings. Compensation, fees, and reimbursable costs and +expenses are paid quarterly. During the 2008 fiscal year, +non-employee directors were eligible to receive awards of +restricted shares of Class A Common Stock, grants of +options to purchase shares of Class A Common Stock and +other equity-based compensation under the 2007 Plan as +determined by the Board of Directors. In October 2008, each +non-employee director was issued 4,500 restricted shares of +Class A Common Stock under the 2007 Plan, of which +one-third vested immediately, one-third will vest on first +anniversary of the award date and the remaining one-third will +vest on the second anniversary of the award date. +Employee Directors. As of December 31, +2008, Robert Greenberg, Michael Greenberg and David Weinberg +were the only Named Executive Officers serving on our Board of +Directors, and Jeffrey Greenberg was the only non-executive +employee serving on our Board of Directors. Employees of +Skechers who are members of the Board of Directors are not paid +any directors’ fees. Compensation of Robert Greenberg, +Michael Greenberg and David Weinberg earned in 2008 is set forth +under “Executive Compensation.” Compensation of +Jeffrey Greenberg earned in 2008 is discussed in the section +entitled “Transactions with Related Persons” in +this proxy statement. During the 2008 fiscal year, employee +directors were eligible to receive awards of shares of +Class A Common Stock, grants of options to purchase shares +of Class A Common Stock and other equity-based compensation +under the 2007 Plan as determined by the Board of Directors. In +January 2008, they were awarded shares of restricted stock as a +component of their total compensation as executive employees for +the 2008 fiscal year. +18 +Table of Contents +REPORT OF +THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who +are independent under the standards adopted by the Board of +Directors and applicable NYSE Rules and SEC standards. The Audit +Committee is responsible for oversight and evaluation of the +quality and integrity of Skechers’ financial statements, +Skechers’ compliance with legal and regulatory +requirements, the qualifications and independence of +Skechers’ registered public accounting firm, KPMG LLP, and +the performance of Skechers’ internal audit function and of +KPMG LLP. +The Audit Committee has reviewed and discussed with +Skechers’ management, internal finance staff, internal +auditors and KPMG LLP, with and without management present, +Skechers’ audited financial statements for the fiscal year +ended December 31, 2008, management’s assessment of +the effectiveness of Skechers’ internal controls over +financial reporting and KPMG LLP’s evaluation of +Skechers’ internal controls over financial reporting. The +Audit Committee has also discussed with KPMG LLP the results of +its examinations and the judgments concerning the quality, as +well as the acceptability, of Skechers’ accounting +principles and such other matters that Skechers is required to +discuss with its independent auditors under applicable rules, +regulations or generally accepted auditing standards (including +Statement on Auditing Standards No. 61). In addition, the +Audit Committee has received from KPMG LLP the written +disclosures and the letter from its independent accountant +required by applicable requirements of the Public Company +Accounting Oversight Board regarding the independent +auditors’ communications with the Audit Committee +concerning independence and has discussed with KPMG LLP their +independence from Skechers and management, including a +consideration of the compatibility of non-audit services with +their independence, the scope of the audit and the fees paid to +KPMG LLP during the year. +Based on our review and the discussions referred to above, the +Audit Committee recommended to the Board of Directors that the +audited financial statements be included in Skechers’ +Annual Report on +Form 10-K +for the year ended December 31, 2008 for filing with the +SEC. +Respectfully submitted, +Morton D. Erlich, Chairman +Geyer Kosinski +Richard Siskind +19 +Table of Contents +INDEPENDENT +REGISTERED PUBLIC ACCOUNTING FIRM +Fees to +Independent Registered Public Accounting Firm for Fiscal Years +2008 and 2007 +We retained KPMG LLP to provide services for fiscal years 2008 +and 2007 in the categories and amounts as follows: +Service +2008 +2007 +Audit +fees (1) +$ +1,374,000 +$ +1,554,000 +Audit-related fees +— +— +Tax +fees (2) +182,000 +177,000 +All other +fees (3) +121,000 +100,000 +Total audit and non-audit fees +$ +1,677,000 +$ +1,831,000 +(1) +These are fees for professional +services performed by KPMG LLP for the audit of our annual +financial statements and the review of our annual report on +Form 10-K, +the review of financial statements included in our quarterly +reports on +Form 10-Q, +the attestation of the effectiveness of internal controls under +Section 404 of the Sarbanes-Oxley Act of 2002, as amended, +and consultations regarding financial accounting and reporting, +as well as for services that are normally provided in connection +with statutory and regulatory filings or engagements. +(2) +These are fees for professional +services performed by KPMG LLP with respect to U.S. federal, +state and international tax compliance, tax consulting and tax +work stemming from “Audit” items. This includes +preparation of original tax returns for our company and its +consolidated subsidiaries. +(3) +These are fees for other +permissible work performed by KPMG LLP that does not meet the +other category descriptions. +Pre-Approval +Policy +The Audit Committee’s Pre-Approval Policy provides for +pre-approval of specifically described audit, audit-related, tax +and all other services by the Audit Committee in order to ensure +that the provision of such services does not impair the +independent registered public accounting firm’s +independence. The Pre-Approval Policy also provides a list of +prohibited non-audit services. Unless a type of service to be +provided by the independent registered public accounting firm +has received general pre-approval, the requested service will +require specific pre-approval by the Audit Committee. The term +of any pre-approved services is 12 months from the date of +pre-approval, unless the Audit Committee specifically provides +for a different period. The Audit Committee will periodically +review and may revise the list of pre-approved services, based +on subsequent determinations. Pre-approval fee levels for all +services to be provided by the independent registered public +accounting firm are established annually by the Audit Committee +after the independent registered public accounting firm’s +appointment for the then current fiscal year has been approved +by the Audit Committee. Any fees for proposed services exceeding +these levels will also require specific pre-approval by the +Audit Committee. +Attendance +at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +20 +Table of Contents +SECURITY +OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the +beneficial ownership of Class A Common Stock and +Class B Common Stock as of March 31, 2009 by +(i) each of our directors, (ii) each of our Named +Executive Officers, (iii) each person that we know to be a +beneficial owner of more than 5% of either class of our Common +Stock and (iv) all of our directors and executive officers +as a group. +Each stockholder’s percentage of ownership in the following +table is based upon 33,603,653 shares of Class A +Common Stock and 12,782,385 shares of Class B Common +Stock outstanding as of March 31, 2009. Our Class B +Common Stock is convertible at any time into shares of +Class A Common Stock on a one-for-one basis. Beneficial +ownership is determined in accordance with SEC rules and +regulations. In computing the number of shares of our +Class A Common Stock beneficially owned by a person and the +percentage of beneficial ownership of that person, shares of +Class A Common Stock underlying notes, options or shares of +Class B Common Stock held by that person that are +convertible or exercisable, as the case may be, within +60 days of March 31, 2009 are included. Those shares, +however, are not deemed outstanding for the purpose of computing +the percentage ownership of any other person. See the section +entitled “Transactions with Related Persons” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan +Beach, California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +FMR LLC +4,469,570 +(1) +13.3 +% +— +— +Barclays Global Investors, NA +2,118,739 +(2) +6.3 +Burgundy Asset Management Ltd. +1,732,550 +(3) +5.2 +— +— +Named Executive Officers and directors: +Robert Greenberg +9,983,353 +(4) +22.9 +9,968,534 +(5) +78.0 +% +Michael Greenberg +864,006 +(6) +2.5 +749,991 +(7) +5.9 +Jeffrey Greenberg +759,969 +(8) +2.2 +624,834 +(9) +4.9 +David Weinberg +288,216 +(10) +* +— +— +Mark Nason +137,684 +(11) +* +— +— +Frederick Schneider +74,592 +(12) +* +— +— +Philip Paccione +20,130 +(13) +* +—— +Morton D. Erlich +12,500 +(14) +* +— +— +Geyer Kosinski +39,500 +(15) +* +— +— +Richard Siskind +93,833 +(16) +* +— +— +All current directors and executive officers as a group +(10 persons) +12,273,783 +(17) +27.3 +% +11,343,359 +88.7 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 17, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. The principal business office of FMR LLC +(“FMR”) and its subsidiary and related funds as set +forth below are located at 82 Devonshire Street, Boston, +Massachusetts, 02109. FMR filed as a parent holding company. +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR and an +investment adviser registered under the Investment Advisers Act +of 1940, beneficially owns 4,129,625 shares of Class A +Common Stock. Various persons are reported to have the right to +receive or the power to direct the receipt of dividends from, or +the proceeds from the sale of, the Class A Common Stock. +The interest of one person, Fidelity Low Priced Stock Fund, an +investment company registered under the Investment Company Act +of 1940, amounted to 2,750,025 shares of Class A +Common Stock. Edward C. Johnson 3d, Chairman of FMR, and FMR, +through its control of Fidelity, and Fidelity’s funds each +has sole power to dispose of the 4,129,625 shares owned by +such funds. Neither FMR nor Mr. Johnson has the sole power +to vote or direct the voting of the shares owned directly by +Fidelity’s funds, which power resides with the funds’ +Boards of Trustees. Strategic Advisers, Inc., a wholly-owned +subsidiary of FMR, is the beneficial owner of 2,575 shares +of Class A Common Stock. Pyramis Global Advisors, LLC +(“PGALLC”), an indirect wholly-owned subsidiary of +FMR, is the beneficial owner of 78,700 shares of +Class A Common Stock. Mr. Johnson and FMR, through its +control of PGALLC, each has sole dispositive power over the +78,700 shares and sole power to vote or to +21 +Table of Contents +direct the voting of the +78,700 shares. Pyramis Global Advisors Trust Company +(“PGATC”), an indirect wholly-owned subsidiary of FMR, +is the beneficial owner of 256,770 shares of Class A +Common Stock. Mr. Johnson and FMR, through its control of +PGATC, each has sole dispositive power over the +256,770 shares and sole power to vote or to direct the +voting of the 256,770 shares. Fidelity International +Limited (“FIL”) is the beneficial owner of +1,900 shares of Class A Common Stock. Partnerships +controlled predominantly by members of the family of +Mr. Johnson, or trusts for their benefit, own shares of FIL +voting stock with the right to cast approximately 47% of the +total votes that may be cast by all holders of FIL voting stock. +FMR and FIL are separate and independent corporate entities with +Boards of Directors generally composed of different individuals. +FMR and FIL are of the view that the shares held by the other +corporation need not be aggregated for purposes of +Section 13(d). However, FMR filed the Schedule 13G on +a voluntary basis as if all of the shares are beneficially owned +by FMR and FIL on a joint basis. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 5, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. Barclays Global Investors, NA. has sole +voting power with respect to 534,203 shares and sole +dispositive power with respect to 652,826 shares. Barclays +Global Fund Advisors has sole voting power with respect to +1,065,784 shares and sole dispositive power with respect to +1,443,786 shares. Barclays Global Investors, Ltd has sole +voting power with respect to 885 shares and sole +dispositive power with respect to 22,127 shares. The +principal business offices of Barclays Global Investors, NA. and +Barclays Global Fund Advisors are located at 400 Howard +Street, San Francisco, California 94105, and the principal +business office of Barclays Global Investors, Ltd is located at +Murray House, 1 Royal Mint Court, London EC3N 4HH, England. +(3) +Information is based on a +Schedule 13G filed with the SEC on February 12, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. Burgundy Asset Management Ltd. +(“Burgundy”) has sole voting power and sole +dispositive power with respect to 1,732,550 shares. The +principal business office of Burgundy is located at 181 Bay +Street, Suite 4510, Toronto, Ontario M5J 2T3, Canada. +(4) +Includes 9,968,534 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis. +Beneficial ownership of these shares is described in greater +detail in note 5 below. +(5) +Represents 9,968,534 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(6) +Includes 749,991 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis, +37,500 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2009 and 43,752 shares of Class A +Common Stock beneficially owned by Michael Greenberg, our +President and a member of our Board of Directors, indirectly +through his wife, Wendy Greenberg, and their children. +Mr. Greenberg disclaims beneficial ownership of these +43,752 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +749,991 shares of Class B Common Stock is described in +greater detail in note 7 below. +(7) +Represents 698,691 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(8) +Includes 624,834 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis and +47,260 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2009. Also includes 7,034 shares of +Class A Common Stock held by the Chloe July Greenberg 2004 +Trust and 7,034 shares of Class A Common Stock held by +the Catherine Elle Greenberg 2006 Trust that Mr. Greenberg +is deemed to beneficially own as trustee of such trusts. +Beneficial ownership of the 624,834 shares of Class B +Common Stock is described in greater detail in note 9 below. +(9) +Represents 540,074 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust. Also represents 36,476 shares of Class B Common +Stock held by the Chloe July Greenberg 2004 Trust and +30,000 shares of Class B Common Stock held by the +Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is +deemed to beneficially own as trustee of such trusts, and +10,792 shares of Class B Common Stock held by the +Chloe July Greenberg custodial account and 7,492 shares of +Class B Common Stock held by the Catherine Elle Greenberg +custodial account, for which one of his siblings acts as +custodian. These trust accounts and custodial accounts are for +Mr. Greenberg’s two daughters who are minors, and he +disclaims beneficial ownership of the 18,284 shares held in +the two custodial accounts except to the extent of his pecuniary +interest therein. +(10) +Includes 98,900 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Executive Vice President and a member of our +Board of Directors, is deemed to beneficially own as sole +trustee of The David Weinberg Trust dated September 7, +2000, and 171,453 shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of March 31, 2009. +(11) +Includes 124,018 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2009. +(12) +Includes 40,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2009, 15,000 shares held by the Schneider Limited +Partnership that Frederick Schneider, our Chief Financial +Officer, is deemed to beneficially own as its general partner +and 14,628 shares held by The Schneider CA Partnership that +Mr. Schneider is deemed to beneficially own as its general +partner. +(13) +Includes 15,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2009. +(14) +Includes 7,500 shares of +Class A Common Stock held by The Erlich Family Trust that +Morton D. Erlich, a member of our Board of Directors, is deemed +to beneficially own as a trustee of such trust. +(15) +Includes 35,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2009. +(16) +Includes 75,000 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, +2009. +(17) +Includes 545,231 shares of +Class A Common Stock underlying options that are +exercisable currently or within 60 days of March 31, 2009 +by our executive officers and Board of Directors. +22 +Table of Contents +COMPLIANCE +WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF +1934 +Section 16(a) of the Exchange Act requires our officers, +directors and persons who own more than ten percent of a +registered class of our securities, to file with the SEC reports +of initial ownership (Form 3’s) and reports of changes +in ownership (Form 4’s and 5’s) of our +securities. Officers, directors and greater than ten percent +stockholders are required by the SEC’s regulations to +furnish us with copies of all Section 16(a) forms that they +file. Based on our review of copies of Form 3’s, +4’s and 5’s furnished to us as well as communications +with our officers, directors and greater than ten percent +stockholders, we believe that all of them complied with the +filing requirements of Section 16(a) and we are not aware +of any late or missed filings of such reports for the 2008 +fiscal year. +TRANSACTIONS +WITH RELATED PERSONS +Policies +and Procedures +As provided in our Audit Committee Charter, the Audit Committee +shall review (i) at least annually a summary of +directors’ and executive officers’ related party +transactions and potential conflicts of interest and our +policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), +(ii) past and proposed transactions between our company, on +the one hand, and any of our directors or executive officers, on +the other hand, and (iii) policies and procedures as well +as audit results associated with directors’ and executive +officers’ expense accounts and perquisites, including the +use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the +“Policy”), which was adopted by the Board of Directors +as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or +relationships, (including any indebtedness or guarantee of +indebtedness) in which (i) the aggregate amount involved +will or may be expected to exceed $100,000 in any calendar year, +(ii) we are a participant, and (iii) any Related +Person has or will have a direct or indirect interest (other +than solely as a result of being a director or a less than ten +percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the +beginning of the last fiscal year for which we have filed a +Form 10-K +and proxy statement, even if they do not presently serve in that +role) an executive officer, director or nominee for election as +a director of Skechers, (b) greater than five percent +beneficial owner of our Class A or Class B Common +Stock or (c) immediate family member of either of the +foregoing. +Certain categories of transactions with Related Persons (such as +transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit +Committee shall review the material facts of all other +transactions with Related Persons that require the +Committee’s approval. If advance approval by the Audit +Committee of a transaction with a Related Person is not +feasible, then the transaction shall be considered and, if the +Committee determines it to be appropriate, ratified at the +Committee’s next regularly scheduled meeting. Factors that +the Audit Committee will take into account include whether the +transaction with a Related Person is on terms no less favorable +than terms generally available to an unaffiliated third-party +under the same or similar circumstances and the extent of the +Related Person’s interest in the transaction. No Audit +Committee member shall participate in any discussion or approval +of a transaction with a Related Person pursuant to which he is a +Related Person except for providing material information +concerning the transaction. For those transactions with a +Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing +relationships with the Related Person to determine that the +Related Person remains appropriate. +The following list of transactions with Related Persons includes +all such transactions that took place since January 1, +2008, which were identified by the Audit Committee, and each of +these transactions was reviewed, and approved or ratified by the +Audit Committee, pursuant to the policies and procedures +discussed herein. +Related +Person Transactions +As of March 31, 2009, Robert Greenberg, who is our Chairman +of the Board and Chief Executive Officer, his children and the +Greenberg Family Trust, collectively, beneficially own 99.2% of +our Class B Common Stock and approximately 79.0% of the +combined voting power of our Class A and Class B +Common Stock. Robert Greenberg, +23 +Table of Contents +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 61.8% of the combined voting +power of our Class A and Class B Common Stock. As a +result, Robert Greenberg is a “control person” of +Skechers within the meaning of the rules and regulations +promulgated under the Securities Act of 1933, as amended, and we +are considered a “Controlled Company” under the NYSE +Rules and are thereby exempt from certain listing requirements +and regulations as set forth in the NYSE Rules. Michael +Greenberg, who is our President, and Jeffrey Greenberg, both of +whom are members of our Board of Directors, are each +beneficiaries of the Greenberg Family Trust, which influences +the election of Robert Greenberg, Michael Greenberg and Jeffrey +Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in +Manhattan Inn Operating Company, LLC (“MIOC”), the +primary business of which is to own and operate the Shade Hotel +in Manhattan Beach, California. Michael Greenberg, David +Weinberg, who is our Chief Operating Officer, Executive Vice +President and a member of our Board of Directors, and Michael +Greenberg’s brothers Jeffrey Greenberg, who is a director +of Skechers, and Jason and Joshua Greenberg, all of whom are +senior vice presidents of Skechers, own in aggregate a 17% +beneficial ownership interest in MIOC. During 2008, we paid +approximately $183,000 to the Shade Hotel for lodging, food and +events that were held there including our annual holiday party. +Our company also purchased an automobile at fair market value +for $140,000 from Michael Greenberg in 2008. +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg, who are +the children of Robert Greenberg and also the siblings of +Michael Greenberg, are non-executive employees of Skechers, and +they earned total compensation of $595,250, $614,289 and +$598,810, respectively, in 2008. Also, on January 18, 2008, +Jeffrey Greenberg, Jason Greenberg and Joshua Greenberg were +each issued 8,892 restricted shares of Class A Common +Stock, of which 50% vested on March 1, 2009 and the +remaining 50% will vest on March 1, 2010. Jeffrey Greenberg +was also a member of our Board of Directors in 2008, but did not +earn any additional compensation for services provided as a +director. +24 +Table of Contents +NOMINATIONS +AND STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING +Stockholder proposals intended to be presented at our next +Annual Meeting of Stockholders to be held in 2010 must be +received at our principal executive offices no later than +December 31, 2009 to be considered for inclusion in the +proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular +Rule 14a-8 +under the Exchange Act, to be included in our proxy materials. +Stockholders who wish to submit a proposal for consideration at +our 2010 Annual Meeting of Stockholders, but who do not wish to +submit a proposal for inclusion in our proxy statement, must, in +accordance with our bylaws, deliver a copy of their proposal no +later than the close of business on the 60th day nor +earlier than the close of business on the 90th day in +advance of such meeting. In either case, proposals should be +delivered to Skechers U.S.A., Inc., 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266, Attention: Michael +Greenberg, President. To avoid controversy and establish timely +receipt by our company, it is suggested that stockholders send +their proposals by certified mail, return receipt requested. +STOCKHOLDER +COMMUNICATION WITH THE BOARD OF DIRECTORS +Stockholders and other interested parties who wish to contact +our Presiding Independent Director, Morton D. Erlich, or any of +our other directors either individually or as a group may do so +by writing to them +c/o Philip +Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 +Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Each writing interested party should specify whether the +communication is directed to our entire Board of Directors, to +only the non-management directors or to a particular director. +Our personnel will review the communications and screen improper +and irrelevant communications such as solicitations. +OTHER +BUSINESS +Our Board of Directors does not know of any other matter to be +acted upon at the meeting. However, if any other matter shall +properly come before the meeting, the proxyholders named in the +proxy accompanying this proxy statement will have authority to +vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, +Corporate Secretary +Dated: April 30, 2009 +Manhattan Beach, California +25 +Table of Contents +ANNUAL MEETING OF STOCKHOLDERS OF +SKECHERS U.S.A., INC. +Important Notice Regarding the Availability of Proxy Materials for the Stockholder +Meeting to Be Held on May 28, 2009 +The Notice of Annual Meeting, Proxy Statement, 2008 Annual Report and other SEC filings are +available at the investor relations page of our corporate information website at +http://www.skx.com/investor.jsp . +Please date, sign and mail +your proxy card in the +envelope provided as soon +as possible. +â Please detach +along perforated line and mail in the envelope provided. â +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE +NOMINEES LISTED IN PROPOSAL +1. PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. PLEASE MARK +YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE. x +1. +Election of Directors +FOR ALL THE NOMINEES +WITHHOLD AUTHORITY +FOR ALL EXCEPT +NOMINEES: +FOR ALL +NOMINEES +(See instructions +below) +o +o +o +¡ Robert Greenberg +¡ Morton D. Erlich +INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark +“FOR ALL EXCEPT” and mark the box next to each nominee you wish to withhold, as shown here: +l +Each of the persons named as +proxies herein are +authorized, in such person’s +discretion, to vote upon such +other matters as may properly +come before the Annual +Meeting of Stockholders, or +any adjournments thereof. +To change the address on +your account, please fill in +the box at right and indicate +your new address in the +address space above. Please +note that changes to the +registered name(s) on the +account may not be submitted +via this +method. o +Please +check here if you plan to attend the meeting. o +Signature +of +Stockholder: +Date: +Signature +of +Stockholder: +Date: +Note: +Please sign exactly as your name or names appear on this Proxy. +When shares are held jointly, each holder should sign. When signing +as executor, administrator, attorney, trustee or guardian, please +give full title as such. If the signer is a corporation, please +sign full corporate name by duly authorized officer, giving full +title as such. If signer is a partnership, please sign in +partnership name by authorized person. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 28, 2009 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware +corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 30, 2009, and hereby appoints Michael Greenberg and David Weinberg and each of them, +with full power of substitution, as attorneys-in-fact and proxies for, and in the name and place +of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares +which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers U.S.A., +Inc. to be held at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, +California 90266, on Thursday, May 28, 2009, at 10:00 a.m. Pacific time, and at any adjournments +thereof, upon the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy +Statement, receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found +by going to the annual meeting section of the investor relations page of our corporate information +website at www.skx.com/investor.jsp . +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A +TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON +ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950134-09-008879/proxy_rpt.txt b/raw/proxies/0001065837/0000950134-09-008879/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..a6399a9e5859d5cc600244454e59228f6e168473 --- /dev/null +++ b/raw/proxies/0001065837/0000950134-09-008879/proxy_rpt.txt @@ -0,0 +1,276 @@ +entitled “Transactions with Related Persons” in +this proxy statement for a description of transactions between +the Greenberg Family Trust, of which Robert Greenberg is a +trustee, Michael Greenberg and our company. To our knowledge, +unless otherwise indicated in the footnotes to this table and +subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect +to the shares of Class A and Class B Common Stock set +forth opposite such person’s name. Unless otherwise +indicated in the footnotes below, the address of each beneficial +owner listed below is +c/o Skechers +U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan +Beach, California 90266. +Number of +Percentage of +Number of +Percentage of +Class A Shares +Class A Shares +Class B Shares +Class B Shares +Name of Beneficial Owner +Beneficially Owned +Beneficially Owned +Beneficially Owned +Beneficially Owned +5% stockholders: +FMR LLC +4,469,570 +(1) +13.3 +% +— +— +Barclays Global Investors, NA +2,118,739 +(2) +6.3 +Burgundy Asset Management Ltd. +1,732,550 +(3) +5.2 +— +— +Named Executive Officers and directors: +Robert Greenberg +9,983,353 +(4) +22.9 +9,968,534 +(5) +78.0 +% +Michael Greenberg +864,006 +(6) +2.5 +749,991 +(7) +5.9 +Jeffrey Greenberg +759,969 +(8) +2.2 +624,834 +(9) +4.9 +David Weinberg +288,216 +(10) +* +— +— +Mark Nason +137,684 +(11) +* +— +— +Frederick Schneider +74,592 +(12) +* +— +— +Philip Paccione +20,130 +(13) +* +—— +Morton D. Erlich +12,500 +(14) +* +— +— +Geyer Kosinski +39,500 +(15) +* +— +— +Richard Siskind +93,833 +(16) +* +— +— +All current directors and executive officers as a group +(10 persons) +12,273,783 +(17) +27.3 +% +11,343,359 +88.7 +% +* +Less than 1.0% +(1) +Information is based on a +Schedule 13G filed with the SEC on February 17, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. The principal business office of FMR LLC +(“FMR”) and its subsidiary and related funds as set +forth below are located at 82 Devonshire Street, Boston, +Massachusetts, 02109. FMR filed as a parent holding company. +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR and an +investment adviser registered under the Investment Advisers Act +of 1940, beneficially owns 4,129,625 shares of Class A +Common Stock. Various persons are reported to have the right to +receive or the power to direct the receipt of dividends from, or +the proceeds from the sale of, the Class A Common Stock. +The interest of one person, Fidelity Low Priced Stock Fund, an +investment company registered under the Investment Company Act +of 1940, amounted to 2,750,025 shares of Class A +Common Stock. Edward C. Johnson 3d, Chairman of FMR, and FMR, +through its control of Fidelity, and Fidelity’s funds each +has sole power to dispose of the 4,129,625 shares owned by +such funds. Neither FMR nor Mr. Johnson has the sole power +to vote or direct the voting of the shares owned directly by +Fidelity’s funds, which power resides with the funds’ +Boards of Trustees. Strategic Advisers, Inc., a wholly-owned +subsidiary of FMR, is the beneficial owner of 2,575 shares +of Class A Common Stock. Pyramis Global Advisors, LLC +(“PGALLC”), an indirect wholly-owned subsidiary of +FMR, is the beneficial owner of 78,700 shares of +Class A Common Stock. Mr. Johnson and FMR, through its +control of PGALLC, each has sole dispositive power over the +78,700 shares and sole power to vote or to +21 +Table of Contents +direct the voting of the +78,700 shares. Pyramis Global Advisors Trust Company +(“PGATC”), an indirect wholly-owned subsidiary of FMR, +is the beneficial owner of 256,770 shares of Class A +Common Stock. Mr. Johnson and FMR, through its control of +PGATC, each has sole dispositive power over the +256,770 shares and sole power to vote or to direct the +voting of the 256,770 shares. Fidelity International +Limited (“FIL”) is the beneficial owner of +1,900 shares of Class A Common Stock. Partnerships +controlled predominantly by members of the family of +Mr. Johnson, or trusts for their benefit, own shares of FIL +voting stock with the right to cast approximately 47% of the +total votes that may be cast by all holders of FIL voting stock. +FMR and FIL are separate and independent corporate entities with +Boards of Directors generally composed of different individuals. +FMR and FIL are of the view that the shares held by the other +corporation need not be aggregated for purposes of +Section 13(d). However, FMR filed the Schedule 13G on +a voluntary basis as if all of the shares are beneficially owned +by FMR and FIL on a joint basis. +(2) +Information is based on a +Schedule 13G filed with the SEC on February 5, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. Barclays Global Investors, NA. has sole +voting power with respect to 534,203 shares and sole +dispositive power with respect to 652,826 shares. Barclays +Global Fund Advisors has sole voting power with respect to +1,065,784 shares and sole dispositive power with respect to +1,443,786 shares. Barclays Global Investors, Ltd has sole +voting power with respect to 885 shares and sole +dispositive power with respect to 22,127 shares. The +principal business offices of Barclays Global Investors, NA. and +Barclays Global Fund Advisors are located at 400 Howard +Street, San Francisco, California 94105, and the principal +business office of Barclays Global Investors, Ltd is located at +Murray House, 1 Royal Mint Court, London EC3N 4HH, England. +(3) +Information is based on a +Schedule 13G filed with the SEC on February 12, 2009 +and represents the number of shares beneficially owned as of +December 31, 2008. Burgundy Asset Management Ltd. +(“Burgundy”) has sole voting power and sole +dispositive power with respect to 1,732,550 shares. The +principal business office of Burgundy is located at 181 Bay +Street, Suite 4510, Toronto, Ontario M5J 2T3, Canada. +(4) +Includes 9,968,534 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis. +Beneficial ownership of these shares is described in greater +detail in note 5 below. +(5) +Represents 9,968,534 shares of +Class B Common Stock held by the Greenberg Family Trust +(the “Trust”) that Robert Greenberg, our Chief +Executive Officer and Chairman of the Board, is deemed to +beneficially own as a trustee of the Trust. His wife, Susan +Greenberg, is also a trustee of the Trust and is also deemed to +beneficially own all shares held by the Trust. +(6) +Includes 749,991 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis, +37,500 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2009 and 43,752 shares of Class A +Common Stock beneficially owned by Michael Greenberg, our +President and a member of our Board of Directors, indirectly +through his wife, Wendy Greenberg, and their children. +Mr. Greenberg disclaims beneficial ownership of these +43,752 shares except to the extent of his pecuniary +interest therein. Beneficial ownership of the +749,991 shares of Class B Common Stock is described in +greater detail in note 7 below. +(7) +Represents 698,691 shares of +Class B Common Stock held by the Michael and Wendy +Greenberg Family Trust that Michael Greenberg is deemed to +beneficially own as trustee of such trust, and +51,300 shares of Class B Common Stock held in various +trust accounts for Mr. Greenberg’s minor children and +of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of these 51,300 shares +except to the extent of his pecuniary interest therein. +(8) +Includes 624,834 shares of +Class B Common Stock that are convertible at any time into +shares of Class A Common Stock on a one-for-one basis and +47,260 shares of Class A Common Stock underlying +options that are exercisable currently or within 60 days of +March 31, 2009. Also includes 7,034 shares of +Class A Common Stock held by the Chloe July Greenberg 2004 +Trust and 7,034 shares of Class A Common Stock held by +the Catherine Elle Greenberg 2006 Trust that Mr. Greenberg +is deemed to beneficially own as trustee of such trusts. +Beneficial ownership of the 624,834 shares of Class B +Common Stock is described in greater detail in note 9 below. +(9) +Represents 540,074 shares of +Class B Common Stock held by the Jeffrey and Lori Greenberg +Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such +trust. Also represents 36,476 shares of Class B Common +Stock held by the Chloe July Greenberg 2004 Trust and +30,000 shares of Class B Common Stock held by the +Catherine Elle Greenberg 2006 Trust that Mr. Greenberg is +deemed to beneficially own as trustee of such trusts, and +10,792 shares of Class B Common Stock held by the +Chloe July Greenberg custodial account and 7,492 shares of +Class B Common Stock held by the Catherine Elle Greenberg +custodial account, for which one of his siblings acts as +custodian. These trust accounts and custodial accounts are for +Mr. Greenberg’s two daughters who are minors, and he +disclaims beneficial ownership of the 18,284 shares held in +the two custodial accounts except to the extent of his pecuniary +interest therein. +(10) +Includes 98,900 shares of +Class A Common Stock that David Weinberg, our Chief +Operating Officer, Executive Vice President and a member of our \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-01-500494/proxy.txt b/raw/proxies/0001065837/0000950148-01-500494/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..ef30026a797e486f8c845e5138a6485505b33005 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-01-500494/proxy.txt @@ -0,0 +1,1251 @@ +DEF 14A +1 +v71748ddef14a.txt +DEFINITIVE PROXY STATEMENT +1 +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) +OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) +Filed by the Registrant [X] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] Preliminary Proxy Statement +[ ] Confidential, for Use of the Commission Only (as permitted by +Rule 14a-6(e)(2)) +[X] Definitive Proxy Statement +[ ] Definitive Additional Materials +[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 +SKECHERS U.S.A., INC. +-------------------------------------------------------------------------------- +(Name of Registrant as Specified In Its Charter) +-------------------------------------------------------------------------------- +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[X] No fee required. +[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) Title of each class of securities to which transaction applies: +--------------------------------------------------------------------- +(2) Aggregate number of securities to which transaction applies: +--------------------------------------------------------------------- +(3) Per unit price or other underlying value of transaction computed +pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the +filing fee is calculated and state how it was determined): +--------------------------------------------------------------------- +(4) Proposed maximum aggregate value of transaction: +--------------------------------------------------------------------- +(5) Total fee paid: +--------------------------------------------------------------------- +[ ] Fee paid previously with preliminary materials. +[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule +0-11(a)(2) and identify the filing for which the offsetting fee was paid +previously. Identify the previous filing by registration statement number, +or the Form or Schedule and the date of its filing. +(1) Amount Previously Paid: +--------------------------------------------------------------------- +(2) Form, Schedule or Registration Statement No.: +--------------------------------------------------------------------- +(3) Filing Party: +--------------------------------------------------------------------- +(4) Date Filed: +--------------------------------------------------------------------- +2 +[SKECHERS LOGO] +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +You are cordially invited to attend the Annual Meeting of Stockholders of +SKECHERS U.S.A., INC., a Delaware corporation (the "Company"), to be held at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina Del Rey, CA 90292 on +June 1, 2001, at 10:00 a.m., Pacific Time. +The Annual Meeting of the Stockholders of the Company is being held for the +following purposes: +1. To elect three members to the Board of Directors to serve for a +three-year term as Class II Directors; +2. To approve an amendment to the Company's 1998 Stock Option, Deferred +Stock and Restricted Stock Plan increasing the number of shares of Class +A Common Stock authorized for issuance under the Stock Option Plan; +3. To ratify the appointment of KPMG LLP as the independent accountants of +the Company for the year ending December 31, 2001; and +4. To transact such other business as may properly come before the meeting +or any adjournments thereof. +The Board of Directors has fixed the close of business on April 20, 2001 as +the record date for determining those stockholders who will be entitled to vote +at the meeting. +Your proxy is enclosed. You are cordially invited to attend the meeting, +but if you do not expect to attend, or if you plan to attend, but desire the +proxy holders to vote your shares, please date and sign your proxy and return it +in the enclosed postage paid envelope. The giving of this proxy will not affect +your right to vote in person in the event you find it convenient to attend. +Please return the proxy promptly to avoid the expense of additional proxy +solicitation. +Dated: May 1, 2001 +FOR THE BOARD OF DIRECTORS +/s/ Phillip Paccione +Philip G. Paccione, Corporate Secretary +3 +[SKECHERS LOGO] +SKECHERS U.S.A., INC. +------------------------ +PROXY STATEMENT +FOR ANNUAL MEETING TO BE HELD +JUNE 1, 2001, AT 10:00 A.M. PACIFIC TIME +This proxy statement is delivered to you by Skechers U.S.A., Inc. (the +"Company" or "Skechers"), a Delaware corporation, in connection with the Annual +Meeting of Stockholders of the Company to be held on June 1, 2001 at 10:00 a.m. +Pacific Time at The Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina Del +Rey, CA 90292 (the "Meeting"). The approximate mailing date for this proxy +statement and the enclosed proxy is May 1, 2001. If a proxy in the accompanying +form is duly executed and returned, the shares represented by the proxy will be +voted as directed. If no direction is given, the shares represented by the proxy +will be voted for the election of the nominees for director named herein, the +amendment to the Company's 1998 Stock Option, Deferred Stock and Restricted +Stock Plan (the "Stock Option Plan") to increase of the number of shares +reserved for issuance under the Stock Option Plan and for the ratification of +the appointment of KPMG LLP as the Company's independent accountants for the +year ending December 31, 2001. Any proxy given may be revoked at any time prior +to its exercise by notifying the Corporate Secretary of the Company in writing +of such revocation, by duly executing and delivering another proxy bearing a +later date, or by attending and voting in person at the Meeting. The Company's +principal executive office is located at 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +The cost of this solicitation of proxies will be borne by the Company. +Solicitations will be made by mail. In addition, the officers and regularly +engaged employees of the Company may, in a limited number of instances, solicit +proxies personally or by telephone. The Company will reimburse banks, brokerage +firms, other custodians, nominees and fiduciaries for reasonable expenses +incurred in sending proxy materials to beneficial owners of common stock of the +Company. +The Company's Annual Report to Stockholders for the year ended December 31, +2000, is concurrently being provided to each stockholder. +Holders of Class A Common Stock and Class B Common Stock of record at the +close of business on April 20, 2001 will be entitled to vote at the Meeting. +There were 12,612,771 shares of Class A Common Stock and 23,465,451 shares of +Class B Common Stock outstanding at that date. Each share of Class A Common +Stock is entitled to one vote and each share of Class B Common Stock is entitled +to ten votes, and the presence in person or by proxy of holders of a majority of +the outstanding shares of Class A Common Stock and Class B Common Stock is +necessary to constitute a quorum for the Meeting. The affirmative vote of a +plurality of all of the votes cast at a meeting at which a quorum is present is +necessary for the election of each of the nominees for director. For purposes of +the election of directors, abstentions and broker non-votes will not be counted +as votes cast and will have no effect on the result of the vote, although they +will count toward the presence of a quorum. The amendment to the Company's Stock +Option Plan increasing the number of shares of common stock authorized for +issuance under the Stock Option Plan by an additional 3,000,000 shares requires +the affirmative vote of a majority of all of the shares entitled to vote +thereon. For purposes of the vote on this matter, abstentions will be counted as +votes cast against the proposal, whereas broker non-votes will not be counted as +votes cast and will have no effect on the result of the vote, although they will +count toward the presence of a quorum. Broker non-votes occur when a broker +holding a customer's securities in street name has not received voting +instructions from the customer on certain matters. The affirmative vote of a +majority of all votes cast at a meeting at which a quorum is present is +necessary for the ratification of the appointment of KPMG LLP as the Company's +independent accountants. For purposes of the vote on this matter, abstentions +will be counted as votes cast against the proposal, whereas broker non-votes +will not be counted as votes cast and will have no effect on the result of the +vote, although they will count toward the presence of a quorum. +4 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company's Board of Directors is divided into three classes, with each +class serving a three-year term and thereafter until their successors are duly +elected and qualified or until death, resignation or removal. One class of +directors is elected annually at the Annual Meeting of Stockholders. The +Company's Bylaws currently provide for a variable Board of Directors with a +range of between five and nine members. The Company currently has seven members +on its Board of Directors. The Company's Bylaws give the Board of Directors the +authority to establish, increase or decrease the number of directors. +Unless otherwise directed by stockholders within the limits set forth in +the Bylaws, the proxy holders will vote all shares represented by proxies held +by them for the election of Michael Greenberg, Jeffrey Greenberg and David +Weinberg who are currently members of the Company's Board of Directors. The +Company has been advised by Michael Greenberg, Jeffrey Greenberg and David +Weinberg of their availability and willingness to serve if elected. In the event +that Michael Greenberg, Jeffrey Greenberg or David Weinberg becomes unavailable +or unable to serve as a member of the Company's Board of Directors prior to the +voting, the proxyholders will refrain from voting for him or will vote for a +substitute nominee in the exercise of their best judgment. +INFORMATION CONCERNING NOMINEES +The following table sets forth certain information with respect to the +nominees to the Board of Directors of the Company. +CLASS AND YEAR +IN WHICH TERM +NAME AGE WILL EXPIRE POSITION +---- --- --------------- -------- +Michael Greenberg.. 38 Class II (2004) President and Director +David Weinberg..... 50 Class II (2004) Executive Vice President, +Chief Financial Officer and +Director +Jeffrey Greenberg.. 33 Class II (2004) Vice President of Electronic +Media and Director +Michael Greenberg has been the President and a member of the Board of +Directors of the Company since its inception in 1992, and from June 1992 to +October 1993, he was Chairman of the Board. From 1989 to 1992, Mr. Greenberg was +the National Sales Manager of L.A. Gear. Previously, from 1986 to 1989, he was +the Regional Sales Manager of L.A. Gear for the West Coast, and from 1984 to +1986, he was an account representative for the West Coast at L.A. Gear. +David Weinberg has been Chief Financial Officer of the Company since +October 1993 and Executive Vice President and a member of the Board of Directors +since July 1998. From June 1989 to September 1992, Mr. Weinberg was Vice +President, Credit/Collection at L.A. Gear. +Jeffrey Greenberg has been a member of the Board of Directors of the +Company since September 2000 and Vice President of Electronic Media of the +Company since January 1998. Previously, Mr. Greenberg was Chief Operating +Officer, Secretary and a member of the Board of Directors of the Company from +June 1992 to July 1998, and Chief Executive Officer from June 1992 to October +1993. +2 +5 +DIRECTORS NOT STANDING FOR ELECTION +The members of the Board of Directors who are not standing for election at +this year's Annual Meeting of Stockholders are set forth below. +CLASS AND YEAR +IN WHICH TERM +NAME AGE WILL EXPIRE POSITION +---- --- ---------------- -------- +John Quinn(1)(2)....... 50 Class III (2002) Director +Richard Siskind(1)(2).. 55 Class III (2002) Director +Robert Greenberg....... 61 Class I (2003) Chairman of the Board +and Chief Executive +Officer +Robert Siegel.......... 64 Class I (2003) Director +--------------- +(1) Member of the Compensation Committee +(2) Member of the Audit Committee +John Quinn has been a member of the Board of Directors of the Company since +June 1999. Since January 1995, Mr. Quinn has been a principal of the law firm of +Riordan & McKinzie, a professional corporation, and before that, since 1987, he +was a partner at the law firm of Kelley Drye & Warren. +Richard Siskind has been a member of the Board of Directors of the Company +since June 1999. Mr. Siskind has been President, Chief Executive Officer and a +member of the Board of Directors of Stage II Apparel Corp. (AMEX:SA) since May +1998. In 1991, Mr. Siskind founded R. Siskind & Company, a business which +purchases brand name men's and women's apparel and accessories and redistributes +those items to off-price retailers, and he is its sole shareholder, Chief +Executive Officer, President and sole member of its Board of Directors. +Robert Greenberg has been the Chairman of the Board and Chief Executive +Officer of the Company since October 1993. From 1979 to 1992, Mr. Greenberg was +the Chairman of the Board and President of L.A. Gear, Inc. ("L.A. Gear"), an +athletic and casual footwear and apparel company. Mr. Greenberg is a member of +the Board of Directors of Stage II Apparel Corp. (AMEX:SA). +Robert Siegel has been a member of the Board of Directors of the Company +since September 2000. From January 2000 to the present, Mr. Siegel has served as +managing director for Kurt Salmon and Associates. From December 1993 to December +1998, Mr. Siegel served as Chief Executive Officer and President of Stride Rite +Corporation (NYSE: SRR), and from December 1986 to December 1993, Mr. Siegel +served as President of the Dockers division of Levi Strauss & Co. Since March +1999, Mr. Siegel has served as a member of the Board of Directors of McNaughton +Apparel Group (NASD:MAGI) and since 1998, Mr. Siegel has served a member of the +Board of Directors of the Bon-Ton Stores, Inc. (NASD:BONT) +COMPENSATION OF DIRECTORS +The Company pays its non-employee directors annual compensation of $15,000 +for their services, which is paid quarterly. In addition, non-employee directors +receive a fee of $1,000 for each meeting attended. Non-employee directors +attending any committee meeting receive an additional fee of $750 for each +committee meeting attended, unless the committee meeting is held on the day of a +meeting of the Board of Directors, in which case they receive no additional +compensation for the committee meeting. Non-employee directors are also +reimbursed for reasonable costs and expenses incurred for attending any director +or committee meetings. Officers of the Company who are members of the Board of +Directors are not paid any directors' fees. +COMMITTEES AND ATTENDANCE AT BOARD MEETINGS +Two meetings of the Board of Directors were held in 2000. Each director +attended all meetings held by (i) the Board of Directors and (ii) those +committees of the Board of Directors on which such director served. +3 +6 +The Audit Committee, established by the Board of Directors on June 3, 1999, +reviews the scope of auditing activities performed by the Company's independent +accountants. The purpose of the Audit Committee is to recommend engagement of +the Company's independent auditors, to approve the services performed by such +auditors, to consult with such auditors and review with them the results of +their examination, to review and approve any material accounting policy changes +affecting the Company's operating results and to review the Company's control +procedures and personnel. The Audit Committee met four times during 2000. +The Compensation Committee was also established by the Board of Directors +on June 3, 1999. The purpose of the Compensation Committee is to review and +approve the compensation benefits and severance arrangements for the Company's +officers and other employees, administer the Company's stock option and stock +purchase plans and make recommendations to the Board of Directors regarding such +matters. The Compensation Committee met once during 2000. The Board of Directors +does not presently have a nominating committee. +EXECUTIVE OFFICERS +The following table sets forth certain information with respect to the +executive officer of the Company who is not also a director. For information +concerning Michael Greenberg and David Weinberg, see "Election of +Directors -- Information Concerning Nominees." For information concerning Robert +Greenberg, see "Election of Directors -- Directors Not Standing for Election." +NAME AGE POSITION +---- --- -------- +Philip G. Paccione.... 39 General Counsel; Vice President, Business +Affairs; Corporate Secretary +Philip Paccione has been Vice President, Business Affairs since February +2000, Corporate Secretary since July 1998, and General Counsel of the Company +since May 1998. Before joining the Company and since June 1997, Mr. Paccione was +an attorney at the law firm of Riordan & McKinzie, in Los Angeles, and from May +1996 to June 1997 he was a sole practitioner of law. Mr. Paccione also practiced +law at the law firm of Gartner & Young from December 1994 to May 1996 and at the +law firm of Kelley, Drye & Warren from June 1991 to December 1994. +Robert Greenberg is the father of Michael Greenberg and Jeffrey Greenberg; +other than the foregoing, no family relationships exist between any of the +directors or executive officers of the Company. +4 +7 +EXECUTIVE COMPENSATION +The following table sets forth information concerning the annual and +long-term compensation earned by the Company's Chief Executive Officer and each +of the other executive officers whose annual salary and bonus during 1998, 1999 +and 2000 exceeded $100,000 (the "Named Executive Officers"). +SUMMARY COMPENSATION TABLE +LONG-TERM +COMPENSATION +---------------------- +ANNUAL COMPENSATION AWARDS PAYOUTS +------------------------------------ ---------- --------- +OTHER ANNUAL SECURITIES LTIP ALL OTHER +COMPENSATION UNDERLYING PAYOUTS COMPENSATION +NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(2) ($) +--------------------------- ---- --------- --------- ------------ ---------- --------- ------------ +Robert Greenberg(3).............. 2000 500,000 500,000 -- -- -- 6,240(5) +Chairman of the Board; 1999 250,000 -- 33,596 -- -- 5,161(5) +Chief Executive Officer 1998 -- 2,079,943 14,518 -- -- 5,038(5) +Michael Greenberg................ 2000 350,000 516,000 10,800 60,000 -- 13,779(6) +President 1999 350,000 165,000 11,745 -- -- 12,303(6) +1998 300,000 -- 11,744 -- 1,013,769 11,859(6) +David Weinberg................... 2000 250,000 456,992 -- 70,000 -- 11,301(7) +Executive Vice President; 1999 250,000 150,000 9,108 -- -- 12,303(7) +Chief Financial Officer 1998 177,800 -- 2,000 278,142 259,180 9,838(7) +Philip Paccione(4)............... 2000 165,000 125,217 -- 30,000 -- 7,910(8) +General Counsel; Vice 1999 154,538 50,000 -- 22,650 -- 4,800(8) +President, Business Affairs; +and Corporate Secretary +--------------- +(1) Represents the amount of an automobile lease for the benefit of each +executive officer. With respect to Robert Greenberg in 1999, represents +purchase of an automobile owned by the Company for use by Mr. Greenberg. +With respect to Robert Greenberg and David Weinberg, excludes rental +payments of $16,200 and $48,000, respectively, in 2000 and $12,000 and +$18,000, respectively, in each of 1999 and 1998, made by the Company +directly to landlords regarding properties used primarily for corporate +purposes but which are leased under the individuals' names. +(2) Represents payment of bonuses to Michael Greenberg and David Weinberg under +the Company's 1996 Incentive Compensation Plan based on 0.4% and 0.1%, +respectively, of the increase of the Company's net sales from 1996 to 1998. +(3) Did not receive any salary for 1999 prior to the employment agreement being +entered into on June 14, 1999. +(4) Did not receive annual salary and bonus in excess of $100,000 prior to 1999. +(5) Represents health and life insurance payments for 2000, 1999, and 1998, +respectively. +(6) Represents health and life insurance payments of $8,679, $7,503, and $7,059 +and contributions of $5,100, $4,800, and $4,800 by the Company under its +401(k) Plan for 2000, 1999, and 1998, respectively. +(7) Represents health and life insurance payments of $6,201, $7,503, and $5,038 +and contributions of $5,100, $4,800, and $4,800 by the Company under its +401(k) Plan for 2000, 1999, and 1998, respectively. +(8) Represents health and life insurance payments of $2,810 for 2000 and +contributions of $5,100 and $4,800 by the Company under its 401(k) Plan for +2000 and 1999, respectively. +EMPLOYMENT AGREEMENTS +Each of Robert Greenberg, Michael Greenberg and David Weinberg entered into +an employment agreement with the Company, which was effective as of June 14, +1999. The employment agreements each have an initial term expiring three years +from the effective date of each such agreement. Each officer is entitled to an +annual base salary and an annual bonus based on certain objective performance +criteria of the Company. The annual base salary for Robert Greenberg, Michael +Greenberg and David Weinberg is +5 +8 +$500,000, $350,000 and $250,000, respectively. For calendar year 2000, each +officer received an annual bonus based on certain objective performance criteria +of the Company. The annual bonus for calendar year 2000 for each of Robert +Greenberg, Michael Greenberg and David Weinberg was $500,000, $516,000 and +$456,992, respectively. +Each of Robert Greenberg, Michael Greenberg and David Weinberg entered into +an amendment to their respective employment agreements with the Company on +February 29, 2000. For calendar year 1999, each executive officer agreed to +forego his annual bonus based on the Company's return on equity, and in lieu +thereof, Michael Greenberg and David Weinberg agreed to annual cash bonuses of +$165,000 and $150,000, respectively. Robert Greenberg did not receive an annual +cash bonus for calendar year 1999. +Each of the three executive officers agrees not to compete, directly or +indirectly, with the Company or disclose confidential information regarding the +Company during the term of their respective agreements; provided that each of +them may own less than 5% of the stock of a public company that competes with +the Company. The employment agreements entitle the executive officers to +participate in the Company's Stock Option Plan and to receive certain insurance +and other employee benefits established by the Company for its employees. +If an executive officer's amended employment agreement is terminated by the +officer without good reason, by mutual agreement, upon death of the officer, or +for cause, which includes any dishonest act, commission of a crime, material +injury to the Company's financial condition or business reputation or +malfeasance, misfeasance or non-feasance, then the officer will receive, through +the date of termination, (i) his base salary, (ii) any bonus due and (iii) any +benefits under the agreement. If the executive officer is terminated without +cause or the officer terminates the employment agreement for good reason, which +includes the Company's breach of a material term without cure or diminution of +the officer's duties without his consent, then the officer will receive, for the +remainder term of the agreement, (i) his base salary, (ii) performance-based +bonus and (iii) any benefits under the agreement. During a period of total +disability, the executive officer will receive his base salary, less any amounts +paid under insurance policies provided by the Company, for the remaining term of +the employment agreement. The Company has agreed that upon any merger, +reorganization, sale or disposition of assets or otherwise, the successor +company will be required to assume each awarded employment agreement. +STOCK OPTION PLAN +In January 1998, the Company's Board of Directors and stockholders adopted +the Stock Option Plan, which provides for the grant of qualified incentive stock +options ("ISOs") that meet the requirements of Section 422 of the Internal +Revenue Code of 1986, as amended (the "Code"), stock options not so qualified +("NQSOs"), deferred stock and restricted stock awards ("Awards"). The Stock +Option Plan may be administered by either the Board of Directors or a committee +of directors appointed by the Board of Directors (the "Committee"). ISOs may be +granted to the officers and key employees of the Company or any of its +subsidiaries. The exercise price for any ISO granted under the Stock Option Plan +may not be less than 100% (or 110% in the case of ISOs granted to an employee +who is deemed to own in excess of 10% of the outstanding Class A Common Stock) +of the fair market value of the shares of Class A Common Stock at the time the +option is granted. The exercise price for any NQSO granted under the Stock +Option Plan may not be less than 85% of the fair market value of the shares of +Class A Common Stock at the time the option is granted. The purpose of the Stock +Option Plan is to provide a means of performance-based compensation in order to +attract and retain qualified personnel and to provide an incentive to those +whose job performance affects the Company. +The Stock Option Plan authorizes the grant of options to purchase, and +Awards of, an aggregate of up to 5,215,154 shares of the Company's Class A +Common Stock. By action at the Annual Meeting of Stockholders, the number of +shares of Class A Common Stock authorized for issuance under the Stock Option +Plan would be increased by an additional 3,000,000 shares. The number of shares +reserved for issuance under the Stock Option Plan is subject to anti-dilution +provisions for stock splits, stock dividends and similar events. If an option +granted under the Stock Option Plan expires or terminates, or an Award is +forfeited, the +6 +9 +shares subject to any unexercised portion of such option or Award will again +become available for the issuance of further options or Awards under the Stock +Option Plan. +Under the Stock Option Plan, the Company may make loans available to stock +option holders, subject to the Committee's approval, in connection with the +exercise of stock options granted under the Stock Option Plan. If shares of +Class A Common Stock are pledged as collateral for such indebtedness, such +shares may be returned to the Company in satisfaction of such indebtedness. If +so returned, such shares shall again be available for issuance in connection +with future stock options and Awards under the Stock Option Plan. +No options or Awards may be granted under the Stock Option Plan after +January 14, 2008, provided that the Company's Board of Directors does not +otherwise amend or terminate the Stock Option Plan prior to such date. +Options granted under the Stock Option Plan will become exercisable +according to the terms of the grant made by the Board of Directors or the +Committee. Awards will be subject to the terms and restrictions of the award +made by the Board of Directors or the Committee. The Board of Directors and the +Committee have discretionary authority to select participants from among +eligible persons and to determine at the time an option or Award is granted, and +in the case of options, whether it is intended to be an ISO or a NQSO, and when +and in what increments shares covered by the option may be purchased. Under +current law, ISOs may not be granted to any individual who is not also an +officer or employee of the Company or any subsidiary. +The exercise price of any option granted under the Stock Option Plan is +payable in full (i) in cash, (ii) by surrender of shares of the Company's Class +A Common Stock already owned by the option holder having a market value equal to +the aggregate exercise price of all shares to be purchased, (iii) by +cancellation of indebtedness owed by the Company to the option holder, (iv) by a +full recourse promissory note executed by the option holder, (v) by arrangement +with a broker or (vi) by any combination of the foregoing. The terms of any +promissory note may be changed from time to time by the Board of Directors to +comply with applicable Internal Revenue Service or Securities and Exchange +Commission regulations or other relevant pronouncements. +The Board of Directors may from time to time revise or amend the Stock +Option Plan and may suspend or discontinue it at any time. However, no such +revision or amendment may impair the rights of any participant under any +outstanding stock option or Awards without such participant's consent or may, +without stockholder approval, increase the number of shares subject to the Stock +Option Plan or decrease the exercise price of a stock option to less than 100% +of fair market value on the date of grant (with the exception of adjustments +resulting from changes in capitalization), materially modify the class of +participants eligible to receive options or Awards under the Stock Option Plan, +materially increase the benefits accruing to participants under the Stock Option +Plan or extend the maximum option term under the Stock Option Plan. +In the event of a change of control, all outstanding stock options and +Awards will fully vest and any indebtedness incurred in connection with the +Stock Option Plan will be forgiven. A "change of control" occurs when (i) any +person becomes the beneficial owner, directly or indirectly, of 50% or more of +the combined voting power of the Company's securities, (ii) during any +consecutive two-year period, individuals who at the beginning of such period +constitute the Board of Directors, and any new director, with certain +exceptions, who was approved by at least two-thirds of the directors still in +office who either were directors at the beginning of the period or whose +election or nomination for election was previously so approved, cease for any +reason to constitute at least a majority of the Board of Directors, (iii) in +some circumstances, the stockholders approve a merger or consolidation, or (iv) +the stockholders approve the complete liquidation, sale or disposition of all or +substantially all of the Company's assets. +As of March 31, 2001, options to purchase 3,779,333 shares of Class A +Common Stock were outstanding at a per share exercise price ranging from $2.78 +to $27.28. The Company has 550,436 shares of Class A Common Stock underlying +options available for grant. +7 +10 +OPTIONS GRANTED IN 2000 +The following table sets forth information concerning individual grants of +stock options in 2000 to the Named Executive Officers: +OPTIONS GRANTED IN 2000 +------------------------------------------------------------------------------ +INDIVIDUAL GRANTS POTENTIAL REALIZABLE +----------------------------------------------------- VALUE AT ASSUMED +NUMBER OF PERCENT OF ANNUAL RATES OF STOCK +SECURITIES TOTAL PRICE APPRECIATION FOR +UNDERLYING OPTIONS EXERCISE OR OPTION TERM(5) +OPTIONS GRANTED TO BASE PRICE EXPIRATION ---------------------- +NAME GRANTED(#) EMPLOYEES(2) ($/SH)(3) DATE(4) 5%($) 10%($) +---- ----------- ------------ ----------- ---------- --------- --------- +Robert Greenberg.............. -- -- -- -- -- -- +Michael Greenberg............. 10,000(1) 0.7% 3.94 2/01/10 180,144 275,043 +50,000(1) 3.3% 13.00 7/06/10 198,883 309,844 +David Weinberg................ 20,000(1) 1.3% 3.94 2/01/10 360,288 550,086 +50,000(1) 3.3% 13.00 7/06/10 198,883 309,844 +Philip Paccione............... 10,000(1) 0.7% 3.94 2/01/10 180,144 275,043 +20,000(1) 1.3% 13.00 7/06/10 79,553 123,938 +--------------- +(1) Twenty-five percent of the options vested immediately on the date of grant +and the remaining options vest 25% per year on each anniversary of the date +of grant. +(2) The total number of options granted to the Company's employees (not +including 40,000 shares underlying options granted to non-employee +directors) during 2000 was 1,492,695. +(3) The exercise price per share of options granted represents the fair market +value of the underlying shares of Common Stock on the date the options were +granted. +(4) Such stock options expire ten years from the date of grant or earlier upon +termination of employment. +(5) In order to comply with the rules of the Securities and Exchange Commission, +the Company is including the gains or "option spreads" that would exist for +the respective options the Company granted to the Named Executive Officers. +The Company calculated these gains by assuming an annual compound stock +price appreciation of 5% and 10% from the date of the option grant until the +termination date of the option. These gains do not represent the Company's +estimate or projection of the future price of the Class A Common Stock. +AGGREGATED OPTION EXERCISES IN 2000 AND 2000 YEAR-END OPTION VALUES +The following table sets forth the outstanding stock options of the Named +Executive Officers as of December 31, 2000. +YEAR-END OPTION VALUES +------------------------------------------------------------------------------------------------- +NUMBER OF SECURITIES VALUE OF UNEXERCISED +UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS +SHARES AT DECEMBER 31, 2000 AT DECEMBER 31, 2000(1) +ACQUIRED ON VALUE --------------------------------- --------------------------------- +NAME EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($) +---- ----------- ----------- -------------- ---------------- -------------- ---------------- +Robert Greenberg..... -- -- -- -- -- -- +Michael Greenberg.... -- -- 15,000 45,000 60,156 180,469 +David Weinberg....... 20,000 249,400 136,571 191,571 1,603,646 2,036,171 +Philip Paccione...... -- -- 12,030 40,620 61,791 205,759 +--------------- +(1) The value of the unexercised "in-the-money" options is based on the fair +market value of $15.50 as of December 31, 2000, minus the exercise price, +multiplied by the numbers of shares underlying the option. +EMPLOYEE STOCK PURCHASE PLAN +The Company's 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") +was adopted by the Company's Board of Directors and stockholders in July 1998 +and amended by its Board of Directors in June 2000. The 1998 Purchase Plan, +which is intended to qualify under Section 423 of the Code, contains +8 +11 +consecutive, overlapping, twelve month offering periods. Each offering period +includes two six-month purchase periods. The offering periods generally start on +the first trading day on or after January 1 and July 1 of each year. The initial +offering period commenced on July 1, 1999. A total of 2,781,415 shares of Class +A Common Stock was initially reserved for issuance under the 1998 Purchase Plan, +which is adjusted annually for increases equal to the lesser of (i) 1,000,000 +shares, (ii) 1% of the outstanding shares of Class A Common Stock on such date, +or (iii) such lesser amount as may be determined by the Company's Board of +Directors. +Employees are eligible to participate if they are customarily employed by +the Company or any designated subsidiary for at least 20 hours per week and more +than five months in any calendar year. However, any employee who (i) immediately +after the grant of a stock purchase right owns stock possessing 5% or more of +the total combined voting power or value of all classes of the capital stock of +the Company or (ii) whose rights to purchase stock under all employee stock +purchase plans of the Company accrue at a rate which exceeds $25,000 worth of +stock for each calendar year may not be granted an option to purchase stock +under the 1998 Purchase Plan. +The 1998 Purchase Plan permits participants to purchase Class A Common +Stock through payroll deductions of up to 15% of the participant's +"compensation." Compensation is defined as the participant's base straight time +gross earnings, including commissions, payments for overtime, incentive bonuses +and performance bonuses. Amounts deducted and accumulated by the participant are +used to purchase shares of Class A Common Stock at the end of each purchase +period. The price of stock purchased under the 1998 Purchase Plan is 85% of the +lower of the fair market value of the Class A Common Stock at the beginning of +the offering period or at the end of the purchase period. The maximum number of +shares a participant may purchase during a single offering period is determined +by dividing $25,000 by the fair market value of a share of the Company's Class A +Common Stock on the first day of the offering period. Participants may end their +participation at any time during an offering period, and they will be paid their +payroll deductions to date. Participation ends automatically upon termination of +employment with the Company. +Rights granted under the 1998 Purchase Plan are not transferable by a +participant other than by will, the laws of descent and distribution, or as +otherwise provided under the 1998 Purchase Plan. +The 1998 Purchase Plan provides that, in the event of a merger of the +Company with or into another corporation or a sale of all or substantially all +of the Company's assets, each outstanding stock purchase right may be assumed or +substituted for by the successor corporation. If the successor corporation +refuses to assume or substitute for the outstanding stock purchase right, the +offering period then in progress will be shortened and a new purchase date will +be set so that shares of Class A Common Stock are purchased with the +participant's accumulated payroll deductions prior to the effective date of such +transaction. +The Board of Directors has the authority to amend or terminate the 1998 +Purchase Plan, except that no such action may adversely affect any outstanding +rights to purchase stock under the 1998 Purchase Plan, provided that the Board +of Directors may terminate an offering period on any exercise date if the Board +determines that the termination of the 1998 Purchase Plan is in the best +interests of the Company and its stockholders. Notwithstanding anything to the +contrary, the Board of Directors may in its sole discretion amend the 1998 +Purchase Plan to the extent necessary and desirable to avoid unfavorable +financial accounting consequences by altering the purchase price for any +offering period, shortening any offering period or allocating remaining shares +among the participants. Unless terminated sooner by the Board of Directors, the +1998 Purchase Plan will terminate on June 30, 2008. +As of March 31, 2001, 357,778 shares of the Company's Class A Common Stock +had been purchased by the Company's employees at the average price of $3.73 per +share which was an aggregate purchase price of $1,334,000. +401(k) PLAN +The Company has in place a contributory retirement plan (the "401(k) Plan") +for all full time employees age 21 and older with at least 12 months of service, +which is designed to be tax deferred in accordance with the provisions of +Section 401(k) of the Code. The 401(k) Plan provides that each participant +9 +12 +may contribute up to 15% of his or her salary and the Company may make a +contribution equal to a percentage of salary contributed by the participant to +his or her plan account at the end of each plan year. Under the 401(k) Plan, +employees may elect to enroll on January 1 and July 1 of any plan year, provided +that they have been employed by the Company for at least one year. +Subject to the rules for maintaining the tax status of the 401(k) Plan, an +additional Company contribution may be made at the Company's discretion. Company +matching contributions are made at the discretion of the Company. The Company's +contributions to the 401(k) Plan in 2000, 1999 and 1998 were $500,000, $259,000, +and $242,000, respectively. +COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION +The Company's Compensation Committee consists of Messrs. Quinn and Siskind. +Robert Greenberg serves on the board of directors and the compensation committee +of Stage II Apparel Corp., whose President and Chief Executive Officer is +Richard Siskind. Other than as described above, none of the executive officers +of the Company has served on the board of directors or on the compensation +committee of any other entity, which had officers who served on the Company's +Board of Directors or on the Company's Compensation Committee. +REPORT OF THE AUDIT COMMITTEE +The Audit Committee of the Company's Board of Directors (the "Audit +Committee") is currently comprised of two independent directors and acts under a +written Audit Committee Charter adopted by the Board of Directors on May 31, +2000. Each of the members of the Audit Committee is independent, as defined by +the Audit Committee Charter and listing standards of the New York Stock +Exchange. A copy of the current Audit Committee Charter, which is subject to +change from time to time by the Company's Board of Directors, is attached as an +Appendix to this Proxy Statement. +The Audit Committee has reviewed and discussed the Company's audited +financial statements with the Company. The Audit Committee has discussed with +the independent auditors the matters required to be discussed by Statement on +Audit Standards No. 61, as may be modified or supplemented. In addition, the +Audit Committee has received from the independent auditors the written +disclosures required by the Independence Standards Board Standard No. 1, which +requires the written disclosure of all relationships between the Company and its +independent auditors that, in the independent auditor's professional judgment, +may reasonably be thought to bear on independence and confirmation that, in its +professional judgment, it is independent of the company that it is auditing. +During the fiscal year ended December 31, 2000, the Company retained KPMG +LLP to provide services as follows: +FINANCIAL INFORMATION SYSTEMS DESIGN +AUDIT FEES AND IMPLEMENTATION FEES ALL OTHER FEES +---------- ------------------------------------ -------------- +$227,500.00 $0 $623,827 +The Audit Committee has considered whether the independent auditors' provision +of services other than audit services is compatible with maintaining auditor +independence and has concluded it has. +Based on review and the discussions referred to above, the Audit Committee +recommended to the Company's Board of Directors that the audited financial +statements be included in the Company's Annual Report on Form 10-K for the +fiscal year ended December 31, 2000 for filing with the Securities and Exchange +Commission. +Respectfully submitted, +John Quinn +Richard Siskind +10 +13 +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee of the Company's Board of Directors administers +the policies governing the Company's executive compensation program. All issues +pertaining to executive compensation are reviewed by the Compensation Committee +and approved by the Company's Board of Directors. The Compensation Committee is +comprised solely of two non-employee directors. +The Compensation Committee believes that executive compensation should +reward sustained earnings and long-term value created for stockholders and +reflect the business strategies and long-range plans of the Company. The guiding +principles affecting executive compensation are to: (1) attract and retain key +high caliber executives; (2) provide levels of compensation competitive with +those offered by the Company's competitors; and (3) motivate executives to +enhance earnings and long-term stockholder value by linking stock performance on +a total returns basis with long-term incentive compensation. +The Company's executive compensation philosophy is to set base salary at a +conservative market rate and then to provide performance-based variable +compensation which allows total compensation to fluctuate according to the +Company's earnings as well as to value received by its stockholders. Targeted +levels of executive compensation are set at levels consistent with others in the +Company's industry, determined after comparison, with such compensation +increasingly weighted towards programs contingent upon the Company's level of +annual and long-term performance. +Each executive officer's compensation is comprised of up to three principal +components: base salary, bonus and any stock options or Awards granted pursuant +to the Company's Stock Option Plan. Base salary and bonus are determined by the +executive officer's employment agreement or executive management and are +reviewed at least annually by the Compensation Committee. See "Executive +Compensation" for a description of the allocation of base salary and bonus. +Robert Greenberg, Michael Greenberg, David Weinberg and Philip Paccione each +received an annual bonus based on certain objective performance criteria of the +Company for 2000 of $500,000, $516,000, $456,992 and $125,217, respectively. The +Compensation Committee believes that the total compensation package of the +executive officers should be linked to certain objective performance criteria of +the Company and to the total return of the Company's stock, both on an absolute +basis and relative to similar companies. The Company uses stock options to align +the long-range interest of its executive officers with the interest of +stockholders. The amount of stock options that may be granted to each executive +officer is determined by taking into consideration the officer's position with +the Company, overall individual performance, the Company's performance and an +estimate of the long-term value of the award considering current base salary and +any cash bonus awarded. +The Compensation Committee applies the foregoing principles and policies in +examining the compensation of Robert Greenberg, the Company's Chief Executive +Officer. The Compensation Committee believes that Mr. Greenberg, as Chief +Executive Officer, significantly and directly influences the Company's overall +performance. Pursuant to his amended employment agreement with the Company, the +Chief Executive Officer's compensation for 2000 consisted of a base salary of +$500,000. +Section 162(m) was added to the Code as part of the Omnibus Budget +Reconciliation Act of 1993. Section 162(m) limits the deduction for compensation +paid to the Chief Executive Officer and the other Named Executive Officers to +the extent that compensation of a particular executive exceeds $1,000,000, +unless such compensation was based upon performance goals determined by a +compensation committee consisting solely of two or more outside directors, the +material terms of which are approved by a majority vote of the stockholders +prior to the payment of such remuneration, or paid pursuant to a binding +contract that was in effect on February 17, 1993. While the tax impact of any +compensation arrangement is one factor to be considered, such impact is +evaluated in light of the Compensation Committee's overall compensation +philosophy. The Compensation Committee intends to establish executive officer +compensation programs that will maximize the Company's tax deduction if the +Compensation Committee determines that such actions are consistent with its +philosophy and in the best interests of the Company and its stockholders. +However, from time to time, the Compensation Committee may award compensation +which is not fully deductible if the Compensation Committee determines that such +award is consistent with its philosophy and in the best interest of the Company +and it stockholders. +11 +14 +The Compensation Committee will review the Company's existing compensation +program to determine the deductibility of the future compensation paid or +awarded pursuant thereto and will seek guidance with respect to changes to the +Company's existing compensation program that will enable the Company to continue +to attract and retain key individuals while optimizing the deductibility to the +Company of amounts paid as compensation. +The Compensation Committee believes that its overall executive compensation +program will be successful in providing competitive compensation appropriate to +attract and retain highly qualified executives and also to encourage increased +performance from the executive group which will create added stockholder value. +Respectfully submitted, +John Quinn +Richard Siskind +12 +15 +STOCKHOLDER RETURN PERFORMANCE PRESENTATION +The following graph demonstrates from June 9, 1999 to December 31, 2000, a +comparison of cumulative total returns for Skechers' Class A Common Stock, the +Standard & Poor's 500 Stock Index, and the Standard & Poor's Shoes Index. The +graph assumes an investment of $100 on June 9, 1999 in each of the Company's +Class A Common Stock, and on May 31, 1999 in the stocks comprising the Standard +& Poor's 500 Stock Index and the Standard & Poor's Shoes Index. Each of the +indices assumes that all dividends were reinvested. +COMPARISON OF 19 MONTH CUMULATIVE TOTAL RETURN +AMONG SKECHERS USA, INC., THE S & P 500 INDEX +AND THE S & P FOOTWEAR INDEX +[PERFORMANCE GRAPH] +The Standard & Poor's Shoes Index consists of NIKE and Reebok +International. The Standard & Poor's Shoe Index includes companies in one major +line of business in which the Company competes. The index does not encompass all +of the Company's competitors, nor all product categories and lines of business +in which the Company is engaged. +The stock performance of the Company's Class A Common Stock shown on the +graph above is not necessarily indicative of future performance. The Company +will not make nor endorse any predictions as to its future stock performance. +-------------------------------------------------------------------------------------------------------- +COMPANY/ INDEX/ MARKET 6/9/99 6/30/99 9/30/99 12/31/99 3/30/00 6/30/00 9/30/00 12/31/00 +-------------------------------------------------------------------------------------------------------- +SKECHERS USA, INC. $100.00 $ 95.45 $43.18 $ 34.66 $ 64.21 $143.75 $137.50 $140.91 +S & P 500 100.00 105.55 98.96 113.68 116.29 113.20 112.11 103.33 +S & P FOOTWEAR 100.00 106.46 91.27 79.37 64.48 67.08 68.55 96.06 +-------------------------------------------------------------------------------------------------------- +ASSUMES $100 INVESTED ON 6/9/99 IN STOCK OR ON 5/31/99 IN INDEX -- INCLUDING +REINVESTMENT OF DIVIDENDS. +13 +16 +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Act of 1934 (the "Exchange Act") requires +the Company's officers, directors and persons who own more than ten percent of a +registered class of the Company's securities, to file with the Securities and +Exchange Commission initial reports of ownership and reports of changes in +ownership of Securities of the Company. Officers, directors and greater than ten +percent stockholders are required by the Securities and Exchange Commission's +regulations to furnish the Company with copies of all Section 16(a) forms they +file. +To the Company's knowledge, based solely on review of the copies of such +reports furnished to the Company during the fiscal year which ended December 31, +2000, all Section 16(a) filing requirements applicable to its officers, +Directors and greater than ten percent stockholders were satisfied by such +persons. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Shares of Class A Common Stock issuable upon conversion of shares of Class +B Common Stock held by the Greenberg Family Trust and Michael Greenberg, +President of the Company, are subject to certain registration rights. The +Company entered into a registration rights agreement with the Greenberg Family +Trust and Michael Greenberg pursuant to which the Company agreed that it will, +on up to two separate occasions per year, register up to one-third of the shares +of Class A Common Stock issuable upon conversion of their Class B Common Stock +beneficially owned as of the closing of the Company's initial public offering of +its Class A Common Stock by each such stockholder in any one year, provided, +among other conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such registration. The Company +also agreed that, if it shall cause to be filed with the Securities and Exchange +Commission a registration statement, each such stockholder shall have the right +to include up to one-third of the shares of Class A Common Stock issuable upon +conversion of their Class B Common Stock beneficially owned as of the closing of +the Company's initial public offering of its Class A Common Stock by each of +them in such registration statement provided, among other conditions, that the +underwriters of any such offering have the right to limit the number of shares +included in such registration. All expenses of such registrations shall be at +the Company's expense. +John Quinn, a director of the Company, is a principal of the law firm of +Riordan & McKinzie which provides legal services to the Company. During 2000, +the Company was charged $181,111 by Riordan & McKinzie for providing legal +services. +The Company has entered into employment agreements with certain executive +officers. See "Executive Compensation -- Employment Agreements." +The Company believes that all of the foregoing transactions were on terms +no less favorable than those that could have been received from unrelated third +parties. +14 +17 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the beneficial +ownership of the Company's Class A Common Stock and Class B Common Stock by (i) +each director and nominated director of the Company, (ii) each of the Named +Executive Officers, (iii) each person known to the Company to be beneficial +owner of more than 5% of either class of the Common Stock and (iv) all directors +and executive officers of the Company as a group. +SHARES BENEFICIALLY OWNED(2) +------------------------------------------------- +NUMBER OF NUMBER OF PERCENT OF PERCENT OF +CLASS A CLASS B CLASS A CLASS B +NAME OF BENEFICIAL OWNER(1) SHARES SHARES(3) SHARES SHARES +--------------------------- --------- ---------- ---------- ---------- +Robert Greenberg(4)................................ -- 17,049,198 -- 72.6% +Michael Greenberg.................................. 17,500(5) 1,869,421 * 7.9 +Jeffrey Greenberg.................................. 17,500(5) 1,129,208 * 4.8 +David Weinberg..................................... 104,536(6) -- * -- +Philip Paccione.................................... 7,030(7) -- * -- +John Quinn......................................... 22,500(8) -- * -- +Richard Siskind.................................... 22,500(8) -- * -- +Robert Siegel...................................... 2,500(9) -- * -- +All directors, director nominees and executive +officers as a group (8 persons).................. 194,066 20,047,827 1.5% 85.4% +--------------- +* Less than 1.0% +(1) To the Company's knowledge, except as set forth in the footnotes to this +table and subject to applicable community property laws, each person named +in the table has sole voting and investment power with respect to the shares +of Common Stock set down opposite such person's name. Each of such persons +may be reached at 228 Manhattan Beach Boulevard, Manhattan Beach, California +90266. +(2) The percentage of total voting power is calculated using 12,612,771 shares +of Class A Common Stock and 23,465,451 shares of Class B Common Stock that +were outstanding on April 20, 2001. Beneficial ownership is determined in +accordance with the rules of the Securities and Exchange Commission and +generally includes voting or investment power with respect to the +securities. In computing the number of shares beneficially owned by a person +and the percentage ownership of that person, shares of Class A Common Stock +subject to options held by that person that are currently exercisable or +exercisable within 60 days of April 20, 2001 are deemed outstanding. Such +shares, however, are not deemed outstanding for the purposes of computing +the percentage ownership of each other person. +(3) The Class B Common Stock is convertible at any time into shares of the Class +A Common Stock on a share-for-share basis. See "Certain Relationships and +Related Transactions" for a description of transactions between the +Greenberg Family Trust and the Company. +(4) Includes shares of Class B Common Stock which Robert Greenberg, Chief +Executive Officer and Chairman of the Board of the Company is deemed to +beneficially own as a Trustee of the Greenberg Family Trust. M. Susan +Greenberg, Robert Greenberg's wife, is also a trustee of the Greenberg +Family Trust and is also deemed to beneficially own all shares held by the +Greenberg Family Trust. +(5) Represents shares of Class A Common Stock underlying options which are +currently exercisable. +(6) Represents 35,000 shares of Class A Common Stock underlying options, which +are currently exercisable, and 69,536 shares of Class A Common Stock +underlying options, which will be exercisable within sixty days. +15 +18 +(7) Represents 2,500 shares of Class A Common Stock underlying options which are +currently exercisable, and 4,530 shares of Class A Common Stock underlying +options, which will be exercisable within sixty days. +(8) Represents options to purchase 12,500 shares of Class A Common Stock which +are currently exercisable and 10,000 share of Class A Common Stock which +will be exercisable within sixty days. +(9) Represents 2,500 shares of Class A Common Stock underlying options which are +currently exercisable. +As of April 20, 2001, Robert Greenberg, his children, and the Greenberg +Family Trust beneficially own all of the Class B Common Stock and approximately +94.9% of the combined voting power of the Company's capital stock. By virtue of +this stock ownership, Robert Greenberg may be deemed to be a "control person" of +the Company within the meaning of the rules and regulations promulgated under +the Securities Act of 1933, as amended, and the Greenberg Family Trust +influences the election of Robert Greenberg. Michael Greenberg, the Company's +President, and Jeffrey Greenberg, both of whom are members of the Board of +Directors of the Company, are each beneficiaries of the Greenberg Family Trust. +PROPOSAL NO. 2 +APPROVAL OF AMENDMENT TO 1998 STOCK OPTION, DEFERRED +STOCK AND RESTRICTED STOCK PLAN +The stockholders are being asked to vote on a proposal to approve an +amendment to increase the number of shares of Class A Common Stock authorized +for issuance under the Stock Option Plan by an additional 3,000,000 shares. The +amendment to the Stock Option Plan was approved by the Board of Directors on +April 20, 2001, subject to stockholder approval. The proposed amendment would +increase the authorized number of shares of Class A Common Stock issuable under +the Stock Option Plan by 3,000,000 shares and would reserve the additional +shares for issuance under the Stock Option Plan, bringing the total number of +shares of Class A Common Stock subject to the Stock Option Plan to 8,215,154. +The Company's Board of Directors believes it is in the best interests of the +Company to increase the share reserve so that the Company can continue to +attract and retain the services of those persons essential to the Company's +growth and financial success. The Stock Option Plan was originally approved by +the Board of Directors and stockholders in January 1998. +SUMMARY OF STOCK OPTION PLAN +For a description of the Stock Option Plan, please see "Executive +Compensation -- Stock Option Plan." +FEDERAL INCOME TAX CONSEQUENCES +Incentive Stock Options. There is no taxable income to an employee of the +Company when an incentive stock option is granted or when that option is +exercised; however, generally the amount by which the fair market value of the +shares at the time of exercise exceeds the option price will be included in the +optionee's alternative minimum taxable income upon exercise. If the shares of +Class A Common Stock received upon exercise of the incentive stock option are +disposed of in the same year the option was exercised, and the amount realized +is less than the Class A Common Stock's fair market value at the time of +exercise, the amount includable in the alternative minimum taxable income will +be the amount realized upon the sale or exchange of the shares, less the +optionee's basis in the shares of Class A Common Stock. Gain realized by an +optionee upon the sale of shares of Class A Common Stock issued upon exercise of +an incentive stock option is taxable as long -- term capital gain, in accordance +with the applicable holding periods, and no tax deduction is available to the +Company, unless the optionee disposed of the shares of Class A Common Stock of +the Company within two years after the date of grant of the option or within one +year after the date of exercise. In such event, the difference between the +option exercise price and the fair market value of the Class A Common Stock on +the date of the optionee's exercise will be taxed at ordinary income rates, and, +subject to Section 162(m) of the Code, the Company will be entitled to a +deduction to the extent the optionee must recognize ordinary income. +16 +19 +Nonqualified Stock Options. The recipient of a nonqualified stock option +will not realize taxable income upon the grant of the option, nor will the +Company be entitled to take any deduction. Upon the exercise of a nonqualified +stock option, the optionee will realize ordinary income and, subject to Section +162(m) of the Code, the Company will be entitled to a deduction in an amount +equal to the difference between the option exercise price and the fair market +value of the Class A Common Stock on the date of exercise. The Company may be +required to withhold taxes on the ordinary income realized by an optionee upon +exercise of nonqualified stock options in order to be entitled to the tax +deduction. An optionee's basis for the shares of Class A Common Stock for +purposes of determining gain or loss on any subsequent disposition of the shares +generally will be the fair market value of the Class A Common Stock on the date +of exercise of the nonqualified stock options. +Restricted Stock. The receipt of restricted stock will not cause a +recipient to realize taxable income until the expiration of any repurchase +rights retained by the Company with respect to such stock, unless the recipient +makes an election under Section 83(b) of the Code to be taxed as of the date of +such purchase. If no repurchase rights are retained or if a Section 83(b) +election is made, the participant will recognize ordinary income in an amount +equal to the difference between the purchase price paid for the shares of Class +A Common Stock and the fair market value of such shares on the date of purchase. +If no Section 83(b) election is made or if repurchase rights are retained, the +recipient will realize taxable income on each date that the recipient's +ownership rights vest (when the Company no longer has the right to repurchase +all or a portion of the shares). The recipient will recognize ordinary income, +and, subject to Section 162(m) of the Code, the Company will be entitled to a +deduction on each date shares of Class A Common Stock vest in an amount equal to +the excess of the fair market value of such shares on that date over the +purchase price paid for such shares. However, if the recipient is subject to +Section 16(b) of the Exchange Act and if no Section 83(b) election was made at +the time of purchase, the date that ordinary income is recognized for shares +which vest within six months of purchase dates shall be deferred to six months +from the date of purchase. +The foregoing summary is not a complete description of the U.S. Federal +income tax aspects of the Stock Option Plan. Moreover, the foregoing summary +relates only to Federal income taxes; there may also be Federal estate and gift +tax consequences associated with the Stock Option Plan, as well as foreign, +state and local tax consequences. +PROPOSAL NO. 3 +RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS +For the 2000 fiscal year, KPMG LLP provided audit services which included +examination of the Company's annual consolidated financial statements. Upon the +recommendation of the Audit Committee, the Company's Board of Directors has +selected KPMG LLP to provide audit services to the Company and its subsidiaries +for the fiscal year ending December 31, 2001. The stockholders are being +requested to ratify such selection at the Annual Meeting of Stockholders. A +representative of KPMG LLP will attend the Annual Meeting to make any statements +he or she may desire and to respond to appropriate stockholder questions. +STOCKHOLDERS' PROPOSALS +Stockholders' proposals intended to be presented at the Company's next +Annual Meeting of Stockholders to be held in 2002 must be received at the +Company's principal executive offices no later than January 1, 2002, in order to +be considered for inclusion in the proxy statement and form of proxy relating to +that meeting. Proposals must comply with the proxy rules relating to stockholder +proposals, in particular Rule 14a-8 under the Exchange Act, to be included in +the Company's proxy materials. Stockholders who wish to submit a proposal for +consideration at the Company's 2002 Annual Meeting of Stockholders, but who do +not wish to submit a proposal for inclusion in the Company's Proxy Statement, +must, in accordance with the Company's bylaws, deliver a copy of their proposal +no later than the close of business on April 2, 2002 nor earlier than March 4, +2002. In either case, proposals should be delivered to Skechers U.S.A., Inc., +228 Manhattan Beach Blvd., Manhattan Beach, California 90266, Attention: Michael +Greenberg, President. To avoid controversy +17 +20 +and establish timely receipt by the Company, it is suggested that stockholders +send their proposals by certified mail, return receipt requested. +OTHER BUSINESS +The Board of Directors does not know of any other matter to be acted upon +at the meeting. However, if any other matter shall properly come before the +meeting, the proxyholders named in the proxy accompanying this Proxy Statement +will have authority to vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +/s/ PHILLIP PACCIONE +Philip G. Paccione, Corporate +Secretary +Dated: May 1, 2001 +Manhattan Beach, California +18 +21 +EXHIBIT +SKECHERS USA, INC. +AUDIT COMMITTEE CHARTER +STATEMENT OF POLICY +The Audit Committee is appointed by the Board of Directors to assist the +Board in monitoring (1) the integrity of the financial statements and financial +reporting processes of SKECHERS, USA (the "Company"), (2) the compliance by the +Company with legal and regulatory requirements and (3) the independence and +performance of the Company's internal and external auditors. In so doing, the +Committee will maintain free and open communications with the Company's internal +and independent auditors and management. In discharging its oversight role, the +Committee is empowered to investigate any matter brought to its attention with +full access to all books, records, facilities and personnel of the Company and +the power to retain outside counsel, or other experts, for this purpose. +The Committee, in carrying out its responsibilities, believes that its +policies and procedures should remain flexible in order to best react to +changing conditions and circumstances. The Committee will endeavor to direct the +overall corporate goals of maintaining quality financial reporting, sound +business risk practices and ethical behavior. +ORGANIZATION +The composition of the Audit Committee shall meet the independence and +experience requirements of the New York Stock Exchange. The members of the Audit +Committee shall be appointed by the Board. +The Audit Committee shall have the authority to retain special outside +legal, accounting or other consultants to advise and assist the Committee. The +Audit Committee may request any officer or employee of the Company or the +Company's outside counsel or independent auditor to attend a meeting of the +Committee or to meet with any members of, or consultants to, the Committee. +MEETINGS +The Committee may hold regular meetings on such days as it shall determine. +Other meetings of the Committee shall be held at the request of the Chairperson +of the Committee or any two other Committee members. Minutes of the meetings of +the Committee shall be regularly kept by a person appointed by the Committee to +do so. +The Audit Committee shall make reports to the Board no less than 4 times a +year, and at least once immediately prior to and subsequent to completion of the +year end independent audit. +The Audit Committee shall: +1. In consultation with counsel and the independent auditors, review +and reassess the adequacy of this Charter annually and recommend any +proposed changes to the Board for approval; +2. Review the annual audited financial statements with management, +including any major issues regarding accounting and auditing principles and +practices as well as the adequacy of internal controls that could +significantly affect the Company's financial statements; +3. Review an analysis prepared by management and the independent +auditor of significant financial reporting issues and judgments made in +connection with the preparation of the Company's financial statements; +4. Review with management and the independent auditor the Company's +quarterly financial statements prior to the filing of its Form 10-Q and +10-K; +22 +5. Meet periodically with management to review the Company's major +financial risk exposures and the steps management has taken to monitor and +control such exposures; +6. Review major changes to the Company's auditing and accounting +principles and practices as suggested by the independent auditor, internal +auditors or management; +7. Recommend to the Board the appointment of the independent auditor, +which firm is ultimately accountable to the Audit Committee and the Board; +8. Approve the fees to be paid to the independent auditor; +9. Receive periodic reports from the independent auditor regarding the +auditor's independence, discuss such reports with the auditor without +representatives of the Company's management present, and if so determined +by the Audit Committee, recommend that the Board take appropriate action to +satisfy itself of the independence of the auditor; +10. Evaluate together with the Board the performance of the +independent auditor and, if so determined by the Audit Committee, recommend +that the Board replace the independent auditor; +11. Review the appointment and replacement of the senior internal +auditing executive; +12. Review the significant reports to management prepared by the +internal auditing department and management's responses; +13. Meet with the independent auditor prior to the audit to review the +planning, scope and staffing of the audit; +14. Obtain from the independent auditor assurance that Section 10A of +the Securities Exchange Act of 1934 has not been implicated; +15. Obtain reports from management, the Company's senior internal +auditing executive and the independent auditor that the Company's +subsidiary/foreign affiliated entities are in conformity with applicable +legal requirements and the Company's Code of Conduct; +16. Discuss with the independent auditor the matters required to be +discussed by Statement on Auditing Standards No. 61 relating to the conduct +of the audit; +17. Review with the independent auditor any problems or difficulties +the auditor may have encountered and any management letter provided by the +auditor and the Company's response to that letter. Such review should +include: +(a) Any difficulties encountered in the course of the audit work, +including any restrictions on the scope of activities or access to +required information; +(b) Any changes required in the planned scope of the internal +audit; and +(c) The internal audit department responsibilities, budget and +staffing. +18. Prepare the report required by the rules of the Securities and +Exchange Commission to be included in the Company's annual proxy statement; +19. Advise the Board with respect to the Company's policies and +procedures regarding compliance with applicable laws and regulations and +with the Company's Code of Conduct; +20. Review with the Company's General Counsel legal matters that may +have a material impact on the financial statements, the Company's +compliance policies and any material reports or inquiries received from +regulators or governmental agencies; and +21. Meet at least annually with the chief financial officer, the +senior internal auditing executive and the independent auditor in separate +executive sessions. +22. Maintain a clear understanding with the Company's management and +its independent auditors regarding the ultimate accountability of the +independent auditors to the Committee and to the full Board. +2 +23 +23. Otherwise meet with and request and obtain reports and information +from such Company officers, employees, suppliers and others as the +Committee shall determine to be necessary and desirable in carrying out its +duties as set forth in this Charter. +PROCEDURE +The Committee may adopt rules for its meeting and other activities. In the +absence of such rules, the Committee shall be governed by the Company's Bylaws +in force at the time of such actions and by applicable law. In all cases, a +quorum of the Committee shall be a majority of persons then serving as members +of the Committee. +ATTENDANCE +Such officers and other employees of the Company as the Committee may +regularly or from time-to-time designate shall attend meetings of the Committee. +While the Audit Committee has the responsibilities and powers set forth in +this Charter, it is not the duty of the Audit Committee to plan or conduct +audits or to determine that the Company's financial statements are complete and +accurate and are in accordance with generally accepted accounting principles. +This is the responsibility of management and the independent auditor. Nor is it +the duty of the Audit Committee to conduct investigations, to resolve +disagreements, if any, between management and the independent auditor or to +assure compliance with laws and regulations and the Company's Code of Conduct. +CHARTER APPROVED AND ADOPTED AND +RECOMMENDED TO THE BOARD BY: +/s/ JOHN QUINN +John Quinn +Outside Director, Board and +Audit Committee Member +/s/ RICHARD SISKIND +Richard Siskind +Outside Director, Board and +Audit Committee Member +3 +24 +SKECHERS U.S.A. INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON JUNE 1, 2001 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undesigned stockholder(s) of Skechers U.S.A., Inc. a Delaware +corporation, hereby acknowledges receipt of the Notice of Annual Meeting of +Stockholders and Proxy Statement, each dated May 1, 2001, and hereby appoints +Michael Greenberg and David Weinberg and each of them, with full power of +substitution, as attorneys-in-fact and proxies for, and in the name and place +of, the undersigned, and hereby authorizes each of them to represent and to vote +all of the shares which the undersigned is entitled to vote at the Annual +Meeting of Stockholders Skechers U.S.A., Inc. to be held at the Ritz-Carlton +Hotel, 4375 Admiralty Way, Marina Del Ray, California 90292, on Friday, June 1, +2001, at 10:00 a.m. Pacific time, and at any adjournments thereof, upon the +matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy +Statement, receipt of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE +VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER +DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, +THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR +APPROVAL OF PROPOSAL 2 AS DESCRIBED IN THE PROXY, FOR APPROVAL OF PROPOSAL 3 AS +DESCRIBED IN THE PROXY, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED +AS PROXIES HEREIN, ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL +MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED +ENVELOPE. +(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE) +25 +PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED +------------------------------------------------------------------------------ +THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOUR VOTE FOR THE NOMINEES +LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3. +PLEASE MARK YOUR +A [x] VOTES AS IN THIS +EXAMPLE +FOR all the nominees WITHHOLD +listed at right AUTHORITY +(except as marked to to vote for +the contrary below) the nominees +Nominees: Michael Greenberg +1. Election [ ] [ ] David Weinberg +of Directors Jeffrey Greenberg +INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike +a line through that nominee's name from the list at right. +FOR AGAINST ABSTAIN +2. Ratify the amendment to the 1998 Stock Option, +Deferred Stock and Restricted Stock Plan [ ] [ ] [ ] +increasing the number of shares of Class A +Common Stock authorized for issuance under +the Stock Option Plan. +3. Ratify the appointment of KPMG LLP as [ ] [ ] [ ] +independent accountants for the year +ending December 31, 2001 +4. Each of the persons named as proxies herein are authorized, in such person's +discretion, to vote upon such other matters as may properly come before the +Annual Meeting, of any adjournments thereof. +PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS HEREON, DATE AND RETURN THIS PROXY +CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ] +MARK HERE FOR CHANGE OF ADDRESS AND VOTE AT LEFT [ ] +Signature: Signature, if hold jointly Dated: , 2001 +------------- ----------- ------- +NOTE: Please date this Proxy and sign it exactly as your name(s) appears hereon. +When shares are held by joint tenants, both should sign. When signing as +an attorney, executor, administrator, trustee, guardian or other +fiduciary, please indicate your capacity. If you sign for a corporation, +please print full corporate name and indicate capacity of duty authorized +officer executing on behalf of the corporation. If you sign for a +partnership, please print full partnership name and indicate capacity of +duty authorized person executing on behalf of the partnership. \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-01-500494/proxy_rpt.txt b/raw/proxies/0001065837/0000950148-01-500494/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc8153f7aed3867d795818a3539a7ee40f7af071 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-01-500494/proxy_rpt.txt @@ -0,0 +1,32 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Shares of Class A Common Stock issuable upon conversion of shares of Class +B Common Stock held by the Greenberg Family Trust and Michael Greenberg, +President of the Company, are subject to certain registration rights. The +Company entered into a registration rights agreement with the Greenberg Family +Trust and Michael Greenberg pursuant to which the Company agreed that it will, +on up to two separate occasions per year, register up to one-third of the shares +of Class A Common Stock issuable upon conversion of their Class B Common Stock +beneficially owned as of the closing of the Company's initial public offering of +its Class A Common Stock by each such stockholder in any one year, provided, +among other conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such registration. The Company +also agreed that, if it shall cause to be filed with the Securities and Exchange +Commission a registration statement, each such stockholder shall have the right +to include up to one-third of the shares of Class A Common Stock issuable upon +conversion of their Class B Common Stock beneficially owned as of the closing of +the Company's initial public offering of its Class A Common Stock by each of +them in such registration statement provided, among other conditions, that the +underwriters of any such offering have the right to limit the number of shares +included in such registration. All expenses of such registrations shall be at +the Company's expense. +John Quinn, a director of the Company, is a principal of the law firm of +Riordan & McKinzie which provides legal services to the Company. During 2000, +the Company was charged $181,111 by Riordan & McKinzie for providing legal +services. +The Company has entered into employment agreements with certain executive +officers. See "Executive Compensation -- Employment Agreements." +The Company believes that all of the foregoing transactions were on terms +no less favorable than those that could have been received from unrelated third +parties. +14 +17 \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-02-001127/proxy.txt b/raw/proxies/0001065837/0000950148-02-001127/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..62a6a7017bdeebdcb0920d795718ba720d02e749 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-02-001127/proxy.txt @@ -0,0 +1,1632 @@ +DEF 14A +1 +v80961def14a.htm +DEF 14A +Skechers U.S.A., Inc., DEF 14A +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant [ ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[X] +Definitive Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[ ] +Fee not required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +TABLE OF CONTENTS +PROPOSAL NO. 1 ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +Stockholder Return Performance Presentation +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +PROPOSAL NO. 2 +RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS +STOCKHOLDERS’ PROPOSALS +OTHER BUSINESS +Table of Contents +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +You are cordially invited to attend the Annual +Meeting of Stockholders of SKECHERS U.S.A., INC., a Delaware +corporation (the “Company”), to be held at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina Del +Rey, CA 90292 on May 31, 2002, at 10:00 a.m., Pacific +Time. +The Annual Meeting of the Stockholders of the +Company is being held for the following purposes: +1. +To elect two members to the Board of Directors to +serve for a three-year term as Class III Directors; +2. +To ratify the appointment of KPMG LLP as the +independent accountants of the Company for the year ending +December 31, 2002; and +3. +To transact such other business as may properly +come before the meeting or any adjournments thereof. +The Board of Directors has fixed the close of +business on April 19, 2002 as the record date for +determining those stockholders who will be entitled to vote at +the meeting. +Your proxy is enclosed. You are cordially invited +to attend the meeting, but if you do not expect to attend, or if +you plan to attend, but desire the proxy holders to vote your +shares, please date and sign your proxy and return it in the +enclosed postage paid envelope. The giving of this proxy will +not affect your right to vote in person in the event you find it +convenient to attend. Please return the proxy promptly to avoid +the expense of additional proxy solicitation. +Dated: April 30, 2002 +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Table of Contents +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be Held +May 31, 2002, at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by +Skechers U.S.A., Inc. (the “Company” or +“Skechers”), a Delaware corporation, in connection +with the Annual Meeting of Stockholders of the Company to be +held on May 31, 2002 at 10:00 a.m. Pacific Time at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina Del +Rey, CA 90292 (the “Meeting”). The approximate mailing +date for this proxy statement and the enclosed proxy is +May 1, 2002. If a proxy in the accompanying form is duly +executed and returned, the shares represented by the proxy will +be voted as directed. If no direction is given, the shares +represented by the proxy will be voted for the election of the +nominees for director named herein and for the ratification of +the appointment of KPMG LLP as the Company’s independent +accountants for the year ending December 31, 2002. Any +proxy given may be revoked at any time prior to its exercise by +notifying the Corporate Secretary of the Company in writing of +such revocation, by duly executing and delivering another proxy +bearing a later date, or by attending and voting in person at +the Meeting. The Company’s principal executive office is +located at 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +The cost of this solicitation of proxies will be +borne by the Company. Solicitations will be made by mail. In +addition, the officers and regularly engaged employees of the +Company may, in a limited number of instances, solicit proxies +personally or by telephone. The Company will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of common stock of the Company. +The Company’s Annual Report to Stockholders +for the year ended December 31, 2001, is concurrently being +provided to each stockholder. +Holders of Class A Common Stock and +Class B Common Stock of record at the close of business on +April 19, 2002 will be entitled to vote at the Meeting. +There were 15,717,005 shares of Class A Common Stock and +21,246,777 shares of Class B Common Stock outstanding at +that date. Each share of Class A Common Stock is entitled +to one vote and each share of Class B Common Stock is +entitled to ten votes, and the presence in person or by proxy of +holders of a majority of the outstanding shares of Class A +Common Stock and Class B Common Stock is necessary to +constitute a quorum for the Meeting. The affirmative vote of a +plurality of all of the votes cast at a meeting at which a +quorum is present is necessary for the election of each of the +nominees for director. For purposes of the election of +directors, abstentions and broker non-votes will not be counted +as votes cast and will have no effect on the result of the vote, +although they will count toward the presence of a quorum. The +affirmative vote of a majority of all votes cast at a meeting at +which a quorum is present is necessary for the ratification of +the appointment of KPMG LLP as the Company’s independent +accountants. For purposes of the vote on this matter, +abstentions will be counted as votes cast against the proposal, +whereas broker non-votes will not be counted as votes cast and +will have no effect on the result of the vote, although they +will count toward the presence of a quorum. +Table of Contents +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Board of Directors is divided +into three classes, with each class serving a three-year term +and thereafter until their successors are duly elected and +qualified or until death, resignation or removal. One class of +directors is elected annually at the Annual Meeting of +Stockholders. The Company’s Bylaws currently provide for a +variable Board of Directors with a range of between five and +nine members. The Company currently has seven members on its +Board of Directors. The Company’s Bylaws give the Board of +Directors the authority to establish, increase or decrease the +number of directors. +Unless otherwise directed by stockholders within +the limits set forth in the Bylaws, the proxy holders will vote +all shares represented by proxies held by them for the election +of Richard Siskind and Geyer Kosinski who are currently members +of the Company’s Board of Directors. The Company has been +advised by Richard Siskind and Geyer Kosinski of their +availability and willingness to serve if elected. In the event +that Richard Siskind or Geyer Kosinski becomes unavailable or +unable to serve as a member of the Company’s Board of +Directors prior to the voting, the proxy holders will refrain +from voting for them or will vote for a substitute nominee in +the exercise of their best judgment. +Information Concerning Nominees +The following table sets forth certain +information with respect to the nominees to the Board of +Directors of the Company. +Class and Year +in Which Term +Name +Age +Will Expire +Position +Richard Siskind(1) +56 +Class III (2002 +) +Director +Geyer Kosinski(1) +35 +Class III (2002 +) +Director +(1) +Member of the Audit and Compensation Committees +Richard Siskind has +served as a member of the Board of Directors of the Company +since June 1999. Since May 1998, Mr. Siskind has served as +President, Chief Executive Officer and a member of the Board of +Directors of Stage II Apparel Corp. (AMEX:SA), which +changed its name to JKC Group, Inc. (AMEX:JKC) in April 2002. In +1991, Mr. Siskind founded R. Siskind & +Company, a business that purchases brand name men’s and +women’s apparel and accessories and redistributes those +items to off-price retailers, and he is its sole shareholder, +Chief Executive Officer, President and sole member of its Board +of Directors. +Geyer Kosinski has +served as a member of the Board of Directors since November +2001. Since 1997, Mr. Kosinski has been a Managing Partner +and co-owner of Industry Entertainment, a talent management and +production company that promotes feature films and television +shows and manages over 100 actors, writers and directors. From +1992 to 1997, Mr. Kosinski was an agent at The William +Morris Agency, representing talent including George Clooney, +Robert Downey, Jr., Kevin Spacey, Angelina Jolie and Billy Bob +Thornton, and packaging such movies as Sling Blade and +Albino Alligator . +2 +Table of Contents +Directors Not Standing for Election +The members of the Board of Directors who are not +standing for election at this year’s Annual Meeting of +Stockholders are set forth below. +Class and Year +in Which Term +Name +Age +Will Expire +Position +Robert Greenberg +62 +Class I (2003) +Chairman of the Board and Chief Executive Officer +Thomas J. Poletti(1) +44 +Class I (2003) +Director +Michael Greenberg +39 +Class II (2004) +President and Director +Jeffrey Greenberg +34 +Class II (2004) +Vice President of Electronic Media and Director +David Weinberg +51 +Class II (2004) +Executive Vice President, Chief Financial Officer +and Director +(1) +Member of the Audit and Compensation Committees +Robert Greenberg has +served as the Chairman of the Board and Chief Executive Officer +of the Company since October 1993. From 1979 to 1992, +Mr. Greenberg was the Chairman of the Board and President +of L.A. Gear, Inc. (“L.A. Gear”), an athletic and +casual footwear and apparel company. +Thomas J. +Poletti has served as a member of the +Board of Directors since January 2002. Mr. Poletti is a +partner at the law firm of Kirkpatrick & Lockhart LLP +and has practiced law at Kirkpatrick & Lockhart LLP and +its Los Angeles-based predecessor, Freshman, Marantz, Orlanski, +Cooper & Klein since 1984 where he has served as a +partner for the last 14 years. +Michael Greenberg +has served as the President and a member of the Board of +Directors of the Company since its inception in 1992, and from +June 1992 to October 1993, he was Chairman of the Board. From +1989 to 1992, Mr. Greenberg was the National Sales Manager +of L.A. Gear. Previously, from 1986 to 1989, he was the Regional +Sales Manager of L.A. Gear for the West Coast, and from 1984 to +1986, he was an account representative for the West Coast at +L.A. Gear. +Jeffrey Greenberg +has served as a member of the Board of Directors of the Company +since September 2000 and Vice President of Electronic Media of +the Company since January 1998. Previously, Mr. Greenberg +served as Chief Operating Officer, Secretary and a member of the +Board of Directors of the Company from June 1992 to July 1998 +and as Chief Executive Officer from June 1992 to October 1993. +David Weinberg has +served as Chief Financial Officer of the Company since October +1993 and Executive Vice President and a member of the Board of +Directors since July 1998. From June 1989 to September 1992, +Mr. Weinberg served as Vice President, Credit and +Collections at L.A. Gear. +Compensation of Directors +The Company pays its non-employee directors +annual compensation of $15,000 for their services, which is paid +quarterly. In addition, non-employee directors receive a fee of +$1,000 for each meeting attended. Non-employee directors +attending any committee meeting receive an additional fee of +$750 for each committee meeting attended, unless the committee +meeting is held on the day of a meeting of the Board of +Directors, in which case they receive no additional compensation +for the committee meeting. Non-employee directors are also +reimbursed for reasonable costs and expenses incurred for +attending any director or committee meetings. Officers of the +Company who are members of the Board of Directors are not paid +any directors’ fees. +3 +Table of Contents +Committees and Attendance at Board +Meetings +One meeting of the Board of Directors was held in +2001. Each director attended all meetings held by (i) the +Board of Directors and (ii) those committees of the Board +of Directors on which such director served. Mr. Kosinski +was appointed to the Board of Directors on October 2, 2001 +to replace John Quinn who resigned from the Board of Directors +on that date. Mr. Poletti was appointed to the Board of +Directors on January 1, 2002 to replace Robert Siegel who +resigned from the Board of Directors on that date. +The Audit Committee, established by the Board of +Directors on June 3, 1999, reviews the scope of auditing +activities performed by the Company’s independent +accountants. The purpose of the Audit Committee is to recommend +engagement of the Company’s independent auditors, to +approve the services performed by such auditors, to consult with +such auditors and review with them the results of their +examination, to review and approve any material accounting +policy changes affecting the Company’s operating results +and to review the Company’s control procedures and +personnel. The Audit Committee met 4 times during 2001. +The Compensation Committee was also established +by the Board of Directors on June 3, 1999. The purpose of +the Compensation Committee is to review and approve the +compensation benefits and severance arrangements for the +Company’s officers and other employees, administer the +Company’s stock option and stock purchase plans and make +recommendations to the Board of Directors regarding such +matters. The Compensation Committee met once during 2001. +The Board of Directors does not presently have a +nominating committee. +Executive Officers +The following table sets forth certain +information with respect to the executive officer of the Company +who is not also a director. For information concerning Robert +Greenberg, Michael Greenberg and David Weinberg, see +“Election of Directors — Directors Not Standing +for Election.” +Name +Age +Position +Philip G. Paccione +40 +General Counsel; Executive Vice President, +Business Affairs; Corporate Secretary +Mark Nason +40 +Executive Vice President, Merchandising +Joe Phillips +50 +Executive Vice President, Domestic Sales +Philip G. +Paccione has served as Executive Vice +President, Business Affairs since February 2000, Corporate +Secretary since July 1998, and General Counsel of the Company +since May 1998. Before joining the Company and since June 1997, +Mr. Paccione was an attorney at the law firm of +Riordan & McKinzie, in Los Angeles, and from May 1996 +to June 1997 he was a sole practitioner of law. +Mr. Paccione also practiced law at the law firm of +Gartner & Young from December 1994 to May 1996 and at +the law firm of Kelley, Drye & Warren from June 1991 to +December 1994. +Mark Nason has +served as our Executive Vice President, Merchandising since +March 2002. From January 1998 to March 2002, Mr. Nason +served as our Vice President, Retail and Merchandising, and from +December 1993 to January 1998, he served as our Director of +Merchandising and Retail Development. From January 1981 through +November 1993, Mr. Nason was employed in various +capacities, including General Merchandising Manager, Director of +Visual Merchandising and Buyer at Track ‘n Trail. +Joe Phillips has +served as our Executive Vice President, Domestic Sales since +March 2002, and from January 2001 to March 2002, he served as +our Vice President, Sales. From 2000 to 2001, Mr. Phillips +served as President and Chief Executive Officer at Jeremy’s +Microbatch Ice Creams (OTC:JMIC), where he was brought in to +restructure and stabilize the company, and from 1999 to 2000, he +served as a general management consultant for Life Is Good. From +1994 to 1998, Mr. Phillips served as Senior Vice President +of Sales and General Manager at Champion Products, Inc. +Robert Greenberg is the father of Michael +Greenberg and Jeffrey Greenberg; other than the foregoing, no +family relationships exist between any of the directors or +executive officers of the Company. +4 +Table of Contents +EXECUTIVE COMPENSATION +The following table sets forth information +concerning the annual and long-term compensation earned by the +Company’s Chief Executive Officer and each of the other +executive officers whose annual salary and bonus during 1999, +2000 and 2001 exceeded $100,000 (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Awards +Other Annual +Securities +All Other +Compensation +Underlying +Compensation +Name and Principal Position +Year +Salary($) +Bonus($) +(1) +Options(#) +($) +Robert Greenberg(2) +2001 +500,000 +500,109 +7,822 +— +7,082(3) +Chairman of the Board; +2000 +500,000 +500,000 +— +— +6,240(3) +Chief Executive Officer +1999 +250,000 +— +33,596 +— +5,161(3) +Michael Greenberg +2001 +350,000 +1,162,895 +16,692 +— +12,866(4) +President +2000 +350,000 +516,000 +10,800 +60,000 +13,779(4) +1999 +350,000 +165,000 +11,745 +— +12,303(4) +David Weinberg +2001 +250,000 +987,895 +20,782 +110,000 +9,832(5) +Executive Vice President; +2000 +250,000 +456,992 +— +70,000 +11,301(5) +Chief Financial Officer +1999 +250,000 +150,000 +9,108 +— +12,303(5) +Philip Paccione +2001 +165,000 +165,107 +— +40,000 +6,427(6) +General Counsel; Executive +2000 +165,000 +125,217 +— +30,000 +7,910(6) +Vice President, Business Affairs; and Corporate +Secretary +1999 +154,538 +50,000 +— +22,650 +4,800(6) +(1) +Represents the amount of an automobile lease for +the benefit of each executive officer. With respect to Robert +Greenberg in 1999, represents purchase of an automobile owned by +the Company for use by Mr. Greenberg. With respect to +Robert Greenberg, excludes rental payments of $16,200 in 2000 +and $12,000 in 1999 made by the Company directly to landlord +regarding property used primarily for corporate purposes but +which is leased under the individual’s name. With respect +to David Weinberg, excludes rental payments of $48,000 in each +of 2001 and 2000 and $18,000 in 1999 made by the Company +directly to landlord as regarding property used primarily for +corporate purposes but which is leased under the +individual’s name. +(2) +Did not receive any salary for 1999 prior to the +employment agreement being entered into on June 14, 1999. +(3) +Represents health and life insurance payments for +2001, 2000 and 1999, respectively. +(4) +Represents health and life insurance payments of +$9,828, $8,679 and $7,503, and contributions of $3,038, $5,100 +and $4,800 by the Company under its 401(k) Plan for 2001, 2000 +and 1999, respectively. +(5) +Represents health and life insurance payments of +$6,794, $6,201 and $7,503, and contributions of $3,038, $5,100 +and $4,800 by the Company under its 401(k) Plan for 2001, 2000 +and 1999, respectively. +(6) +Represents health and life insurance payments of +$3,389 and $2,810 for 2001 and 2000, respectively, and +contributions of $3,038, $5,100 and $4,800 by the Company under +its 401(k) Plan for 2001, 2000 and 1999, respectively. +Employment Agreements +Each of Robert Greenberg, Michael Greenberg and +David Weinberg entered into an employment agreement with the +Company, which was effective as of June 14, 1999. The +employment agreements each have an initial term expiring three +years from the effective date of each such agreement. Each +officer is entitled to an annual base salary and an annual bonus +based on certain objective performance criteria of the Company. +The annual base salary for Robert Greenberg, Michael Greenberg +and David Weinberg is +5 +Table of Contents +$500,000, $350,000 and $250,000, respectively. +For calendar year 2001, each officer received an annual bonus +based on certain objective performance criteria of the Company. +The annual bonus for calendar year 2001 for each of Robert +Greenberg, Michael Greenberg and David Weinberg was $500,109, +$1,162,895 and $987,895, respectively. +Each of Robert Greenberg, Michael Greenberg and +David Weinberg entered into an amendment to their respective +employment agreements with the Company on February 29, +2000. For calendar year 1999, each executive officer agreed to +forego his annual bonus based on the Company’s return on +equity, and in lieu thereof, Michael Greenberg and David +Weinberg agreed to annual cash bonuses of $165,000 and $150,000, +respectively. Robert Greenberg did not receive an annual cash +bonus for calendar year 1999. +Each of the three executive officers agrees not +to compete, directly or indirectly, with the Company or disclose +confidential information regarding the Company during the term +of their respective agreements; provided that each of them may +own less than 5% of the stock of a public company that competes +with the Company. The employment agreements entitle the +executive officers to participate in the Company’s Stock +Option Plan and to receive certain insurance and other employee +benefits established by the Company for its employees. +If an executive officer’s amended employment +agreement is terminated by the officer without good reason, by +mutual agreement, upon death of the officer, or for cause, which +includes any dishonest act, commission of a crime, material +injury to the Company’s financial condition or business +reputation or malfeasance, misfeasance or non-feasance, then the +officer will receive, through the date of termination, +(i) his base salary, (ii) any bonus due and +(iii) any benefits under the agreement. If the executive +officer is terminated without cause or the officer terminates +the employment agreement for good reason, which includes the +Company’s breach of a material term without cure or +diminution of the officer’s duties without his consent, +then the officer will receive, for the remainder term of the +agreement, (i) his base salary, (ii) performance-based +bonus and (iii) any benefits under the agreement. During a +period of total disability, the executive officer will receive +his base salary, less any amounts paid under insurance policies +provided by the Company, for the remaining term of the +employment agreement. The Company has agreed that upon any +merger, reorganization, sale or disposition of assets or +otherwise, the successor company will be required to assume each +awarded employment agreement. +Stock Option Plan +In January 1998, the Company’s Board of +Directors and stockholders adopted the Stock Option Plan, which +provides for the grant of qualified incentive stock options +(“ISOs”) that meet the requirements of +Section 422 of the Internal Revenue Code of 1986, as +amended (the “Code”), stock options not so qualified +(“NQSOs”), deferred stock and restricted stock awards +(“Awards”). The Stock Option Plan may be administered +by either the Board of Directors or a committee of directors +appointed by the Board of Directors (the “Committee”). +ISOs may be granted to the officers and key employees of the +Company or any of its subsidiaries. The exercise price for any +ISO granted under the Stock Option Plan may not be less than +100% (or 110% in the case of ISOs granted to an employee who is +deemed to own in excess of 10% of the outstanding Class A +Common Stock) of the fair market value of the shares of +Class A Common Stock at the time the option is granted. The +exercise price for any NQSO granted under the Stock Option Plan +may not be less than 85% of the fair market value of the shares +of Class A Common Stock at the time the option is granted. +The purpose of the Stock Option Plan is to provide a means of +performance-based compensation in order to attract and retain +qualified personnel and to provide an incentive to those whose +job performance affects the Company. +The Stock Option Plan originally authorized the +grant of options to purchase, and Awards of, an aggregate of up +to 5,215,154 shares of the Company’s Class A +Common Stock. By action at the Annual Meeting of Stockholders on +June 1, 2001, the number of shares of Class A Common +Stock authorized for issuance under the Stock Option Plan was +increased by an additional 3,000,000 shares so that the +Stock Option Plan authorizes the grant of options to purchase +and awards of an aggregate of up to 8,215,154 shares of the +Company’s Class A Common Stock. The number of shares +reserved for issuance under the Stock +6 +Table of Contents +Option Plan is subject to anti-dilution +provisions for stock splits, stock dividends and similar events. +If an option granted under the Stock Option Plan expires or +terminates, or an Award is forfeited, the shares subject to any +unexercised portion of such option or Award will again become +available for the issuance of further options or Awards under +the Stock Option Plan. +Under the Stock Option Plan, the Company may make +loans available to stock option holders, subject to the +Committee’s approval, in connection with the exercise of +stock options granted under the Stock Option Plan. If shares of +Class A Common Stock are pledged as collateral for such +indebtedness, such shares may be returned to the Company in +satisfaction of such indebtedness. If so returned, such shares +shall again be available for issuance in connection with future +stock options and Awards under the Stock Option Plan. +No options or Awards may be granted under the +Stock Option Plan after January 14, 2008, provided that the +Company’s Board of Directors does not otherwise amend or +terminate the Stock Option Plan prior to such date. +Options granted under the Stock Option Plan will +become exercisable according to the terms of the grant made by +the Board of Directors or the Committee. Awards will be subject +to the terms and restrictions of the award made by the Board of +Directors or the Committee. The Board of Directors and the +Committee have discretionary authority to select participants +from among eligible persons and to determine at the time an +option or Award is granted, and in the case of options, whether +it is intended to be an ISO or a NQSO, and when and in what +increments shares covered by the option may be purchased. Under +current law, ISOs may not be granted to any individual who is +not also an officer or employee of the Company or any subsidiary. +The exercise price of any option granted under +the Stock Option Plan is payable in full (i) in cash, +(ii) by surrender of shares of the Company’s +Class A Common Stock already owned by the option holder +having a market value equal to the aggregate exercise price of +all shares to be purchased, (iii) by cancellation of +indebtedness owed by the Company to the option holder, +(iv) by a full recourse promissory note executed by the +option holder, (v) by arrangement with a broker or +(vi) by any combination of the foregoing. The terms of any +promissory note may be changed from time to time by the Board of +Directors to comply with applicable Internal Revenue Service or +Securities and Exchange Commission regulations or other relevant +pronouncements. +The Board of Directors may from time to time +revise or amend the Stock Option Plan and may suspend or +discontinue it at any time. However, no such revision or +amendment may impair the rights of any participant under any +outstanding stock option or Awards without such +participant’s consent or may, without stockholder approval, +increase the number of shares subject to the Stock Option Plan +or decrease the exercise price of a stock option to less than +100% of fair market value on the date of grant (with the +exception of adjustments resulting from changes in +capitalization), materially modify the class of participants +eligible to receive options or Awards under the Stock Option +Plan, materially increase the benefits accruing to participants +under the Stock Option Plan or extend the maximum option term +under the Stock Option Plan. +In the event of a change of control, all +outstanding stock options and Awards will fully vest and any +indebtedness incurred in connection with the Stock Option Plan +will be forgiven. A “change of control” occurs when +(i) any person becomes the beneficial owner, directly or +indirectly, of 50 or more of the combined voting power of the +Company’s securities, (ii) during any consecutive +two-year period, individuals who at the beginning of such period +constitute the Board of Directors, and any new director, with +certain exceptions, who was approved by at least two-thirds of +the directors still in office who either were directors at the +beginning of the period or whose election or nomination for +election was previously so approved, cease for any reason to +constitute at least a majority of the Board of Directors, +(iii) in some circumstances, the stockholders approve a +merger or consolidation, or (iv) the stockholders approve +the complete liquidation, sale or disposition of all or +substantially all of the Company’s assets. +As of March 31, 2002, options to purchase +4,426,657 shares of Class A Common Stock were +outstanding at a per share exercise price ranging from $2.78 to +$29.45. The Company has 2,212,266 shares of Class A +Common Stock underlying options available for grant. +7 +Table of Contents +Options Granted in 2001 +The following table sets forth information +concerning individual grants of stock options in 2001 to the +Named Executive Officers: +Options Granted in 2001 +Individual Grants +Potential Realizable Value +Number of +at Assumed Annual Rates +Securities +Percent of +of Stock Price Appreciation +Underlying +Total Options +Exercise or +for Option Term(5) +Options +Granted to +Base Price +Expiration +Name +Granted(#) +Employees(2)(%) +($/Sh)(3) +Date(4) +5%($) +10%($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +— +— +— +— +David Weinberg +50,000(1) +2.33 +15.50 +1/1/11 +487,393 +1,235,150 +30,000(1) +1.40 +24.00 +4/1/11 +452,804 +1,147,494 +30,000(1) +1.40 +10.58 +11/6/11 +199,611 +505,854 +Philip Paccione +10,000(1) +0.47 +15.50 +1/1/11 +97,479 +247,030 +10,000(1) +0.47 +24.00 +4/1/11 +150,935 +382,498 +20,000(1) +0.93 +10.58 +11/6/11 +133,074 +337,236 +(1) +Twenty-five percent of the options vested +immediately on the date of grant and the remaining options vest +25% per year on each anniversary of the date of grant. +(2) +The total number of options granted to the +Company’s employees (not including 30,000 shares +underlying options granted to non-employee directors) during +2001 was 2,147,880. +(3) +The exercise price per share of options granted +represents the fair market value of the underlying shares of +Class A Common Stock on the date the options were granted. +(4) +Such stock options expire ten years from the date +of grant or earlier upon termination of employment. +(5) +In order to comply with the rules of the +Securities and Exchange Commission, the Company is including the +gains or “option spreads” that would exist for the +respective options that the Company granted to the Named +Executive Officers. The Company calculated these gains by +assuming an annual compound stock price appreciation of 5% and +10% from the date of the option grant until the termination date +of the option. These gains do not represent the Company’s +estimate or projection of the future price of the Class A +Common Stock. +Aggregated Option Exercises in 2001 and 2001 +Year-End Option Values +The following table sets forth the outstanding +stock options of the Named Executive Officers as of +December 31, 2001. +Year End Option Values +Number of Securities +Value of Unexercised +Underlying Unexercised Options +In-The-Money Options +Shares +at December 31, 2001 +at December 31, 2001(1) +Acquired on +Value +Name +Exercise(#) +Realized($) +Exercisable(#) +Unexercisable(#) +Exercisable($) +Unexercisable($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +17,500 +465,313 +12,500 +30,000 +20,250 +93,913 +David Weinberg +190,042 +4,839,232 +61,064 +187,036 +447,948 +1,061,531 +Philip Paccione +19,530 +387,400 +14,530 +58,590 +44,699 +179,408 +(1) +The value of the unexercised +“in-the-money” options is based on the fair market +value of $14.62 as of December 31, 2001, minus the exercise +price, multiplied by the numbers of shares underlying the option. +8 +Table of Contents +Employee Stock Purchase Plan +The Company’s 1998 Employee Stock Purchase +Plan (the “1998 Purchase Plan”) was adopted by the +Company’s Board of Directors and stockholders in July 1998 +and amended by its Board of Directors in June 2000. The 1998 +Purchase Plan, which is intended to qualify under +Section 423 of the Code, contains consecutive, overlapping, +twelve month offering periods. Each offering period includes two +six-month purchase periods. The offering periods generally start +on the first trading day on or after January 1 and July 1 of +each year. The initial offering period commenced on July 1, +1999. A total of 2,781,415 shares of Class A Common +Stock was initially reserved for issuance under the 1998 +Purchase Plan, which is adjusted annually for increases equal to +the lesser of (i) 1,000,000 shares, (ii) 1% of +the outstanding shares of Class A Common Stock on such +date, or (iii) such lesser amount as may be determined by +the Company’s Board of Directors. +Employees are eligible to participate if they are +customarily employed by the Company or any designated subsidiary +for at least 20 hours per week and more than five months in +any calendar year. However, any employee who +(i) immediately after the grant of a stock purchase right +owns stock possessing 5% or more of the total combined voting +power or value of all classes of the capital stock of the +Company or (ii) whose rights to purchase stock under all +employee stock purchase plans of the Company accrue at a rate +which exceeds $25,000 worth of stock for each calendar year may +not be granted an option to purchase stock under the 1998 +Purchase Plan. +The 1998 Purchase Plan permits participants to +purchase Class A Common Stock through payroll deductions of +up to 15% of the participant’s “compensation.” +Compensation is defined as the participant’s base straight +time gross earnings, including commissions, payments for +overtime, incentive bonuses and performance bonuses. Amounts +deducted and accumulated by the participant are used to purchase +shares of Class A Common Stock at the end of each purchase +period. The price of stock purchased under the 1998 Purchase +Plan is 85% of the lower of the fair market value of the +Class A Common Stock at the beginning of the offering +period or at the end of the purchase period. The maximum number +of shares a participant may purchase during a single offering +period is determined by dividing $25,000 by the fair market +value of a share of the Company’s Class A Common Stock +on the first day of the offering period. Participants may end +their participation at any time during an offering period, and +they will be paid their payroll deductions to date. +Participation ends automatically upon termination of employment +with the Company. +Rights granted under the 1998 Purchase Plan are +not transferable by a participant other than by will, the laws +of descent and distribution, or as otherwise provided under the +1998 Purchase Plan. +The 1998 Purchase Plan provides that, in the +event of a merger of the Company with or into another +corporation or a sale of all or substantially all of the +Company’s assets, each outstanding stock purchase right may +be assumed or substituted for by the successor corporation. If +the successor corporation refuses to assume or substitute for +the outstanding stock purchase right, the offering period then +in progress will be shortened and a new purchase date will be +set so that shares of Class A Common Stock are purchased +with the participant’s accumulated payroll deductions prior +to the effective date of such transaction. +The Board of Directors has the authority to amend +or terminate the 1998 Purchase Plan, except that no such action +may adversely affect any outstanding rights to purchase stock +under the 1998 Purchase Plan, provided that the Board of +Directors may terminate an offering period on any exercise date +if the Board determines that the termination of the 1998 +Purchase Plan is in the best interests of the Company and its +stockholders. Notwithstanding anything to the contrary, the +Board of Directors may in its sole discretion amend the 1998 +Purchase Plan to the extent necessary and desirable to avoid +unfavorable financial accounting consequences by altering the +purchase price for any offering period, shortening any offering +period or allocating remaining shares among the participants. +Unless terminated sooner by the Board of Directors, the 1998 +Purchase Plan will terminate on June 30, 2008. +As of March 31, 2002, 493,378 shares of +the Company’s Class A Common Stock had been purchased +by the Company’s employees at the average price of +$6.13 per share, which was an aggregate purchase price of +$3,023,000. +9 +Table of Contents +401(k) Plan +The Company has in place a contributory +retirement plan (the “401(k) Plan”) for all full time +employees age 21 and older with at least 12 months of +service, which is designed to be tax deferred in accordance with +the provisions of Section 401(k) of the Code. The 401(k) +Plan provides that each participant may contribute up to 15% of +his or her salary and the Company may make a contribution equal +to a percentage of salary contributed by the participant to his +or her plan account at the end of each plan year. Under the +401(k) Plan, employees may elect to enroll on January 1 and July +1 of any plan year, provided that they have been employed by the +Company for at least one year. The 401(k) Plan was amended in +April 2001 to allow employees to enroll after six months of +service. +Subject to the rules for maintaining the tax +status of the 401(k) Plan, an additional Company contribution +may be made at the Company’s discretion. Company matching +contributions are made at the discretion of the Company. The +Company’s contributions to the 401(k) Plan in 2001, 2000 +and 1999 were $703,000, $500,000 and $259,000, respectively. As +its contribution to the 401(k) Plan in 2001, the Company issued +48,072 shares of its Class A common stock, which +contain certain restrictions regarding the subsequent sale of +those shares. +Compensation Committee Interlocks and Insider +Participation +The Company’s Compensation Committee +consists of Messrs. Kosinski, Poletti and Siskind. Until +April 16, 2002, Robert Greenberg served on the board of +directors and the compensation committee of Stage II +Apparel Corp., whose President and Chief Executive Officer is +Richard Siskind. Other than as described above, none of the +executive officers of the Company serves on the board of +directors or on the compensation committee of any other entity, +which has officers who serve on the Company’s Board of +Directors or on the Company’s Compensation Committee. +Report of the Audit Committee +The Audit Committee of the Company’s Board +of Directors (the “Audit Committee”) is currently +comprised of three independent directors and acts under a +written Audit Committee Charter adopted by the Board of +Directors on May 31, 2000. Each of the members of the Audit +Committee is independent, as defined by the Audit Committee +Charter and listing standards of the New York Stock +Exchange. +The Audit Committee has reviewed and discussed +the Company’s audited financial statements with the +Company. The Audit Committee has discussed with the independent +auditors the matters required to be discussed by Statement on +Audit Standards No. 61, as may be modified or supplemented. +In addition, the Audit Committee has received from the +independent auditors the written disclosures required by the +Independence Standards Board Standard No. 1, which requires +the written disclosure of all relationships between the Company +and its independent auditors that, in the independent +auditor’s professional judgment, may reasonably be thought +to bear on independence and confirmation that, in its +professional judgment, it is independent of the company that it +is auditing. +During the fiscal year ended December 31, +2001, the Company retained KPMG LLP to provide services as +follows: +Financial Information Systems Design +Audit Fee +and Implementation Fee +All Other Fees +$279,000 +$ +0 +$ +1,252,000 +The Audit Committee has considered whether the +independent auditors’ provision of services other than +audit services is compatible with maintaining auditor +independence and has concluded it has. +10 +Table of Contents +Based on review and the discussions referred to +above, the Audit Committee recommended to the Company’s +Board of Directors that the audited financial statements be +included in the Company’s Annual Report on Form 10-K +for the fiscal year ended December 31, 2001 for filing with +the Securities and Exchange Commission. +Respectfully submitted, +Geyer Kosinski +Thomas J. Poletti +Richard Siskind +Report of the Compensation Committee +The Compensation Committee of the Company’s +Board of Directors administers the policies governing the +Company’s executive compensation program. All issues +pertaining to executive compensation are reviewed by the +Compensation Committee and approved by the Company’s Board +of Directors. The Compensation Committee is comprised solely of +three independent directors. +The Compensation Committee believes that +executive compensation should reward sustained earnings and +long-term value created for stockholders and reflect the +business strategies and long-range plans of the Company. The +guiding principles affecting executive compensation are to: +(1) attract and retain key high caliber executives; +(2) provide levels of compensation competitive with those +offered by the Company’s competitors and (3) motivate +executives to enhance earnings and long-term stockholder value +by linking stock performance on a total returns basis with +long-term incentive compensation. +The Company’s executive compensation +philosophy is to set base salary at a conservative market rate +and then to provide performance-based variable compensation +which allows total compensation to fluctuate according to the +Company’s earnings as well as to value received by its +stockholders. Targeted levels of executive compensation are set +at levels consistent with others in the Company’s industry, +determined after comparison, with such compensation increasingly +weighted towards programs contingent upon the Company’s +level of annual and long-term performance. +Each executive officer’s compensation is +comprised of up to three principal components: base salary, +bonus and any stock options or Awards granted pursuant to the +Company’s Stock Option Plan. Base salary and bonus are +determined by the executive officer’s employment agreement +or executive management and are reviewed at least annually by +the Compensation Committee. See “Executive +Compensation” for a description of the allocation of base +salary and bonus. Robert Greenberg, Michael Greenberg, David +Weinberg and Philip Paccione each received an annual bonus based +on certain objective performance criteria of the Company for +2001 of $500,109, $1,162,895, $987,895 and $165,107, +respectively. The Compensation Committee believes that the total +compensation package of the executive officers should be linked +to certain objective performance criteria of the Company and to +the total return of the Company’s stock, both on an +absolute basis and relative to similar companies. The Company +uses stock options to align the long-range interests of its +executive officers with the interests of stockholders. The +amount of stock options that may be granted to each executive +officer is determined by taking into consideration the +officer’s position with the Company, overall individual +performance, the Company’s performance and an estimate of +the long-term value of the award considering current base salary +and any cash bonus awarded. +The Compensation Committee applies the foregoing +principles and policies in examining the compensation of Robert +Greenberg, the Company’s Chief Executive Officer. The +Compensation Committee believes that Mr. Greenberg, as +Chief Executive Officer, significantly and directly influences +the Company’s overall performance. Pursuant to his amended +employment agreement with the Company, the Chief Executive +Officer’s compensation for 2001 consisted of a base salary +of $500,109. +Section 162(m) was added to the Code as part +of the Omnibus Budget Reconciliation Act of 1993. +Section 162(m) limits the deduction for compensation paid +to the Chief Executive Officer and the other Named Executive +Officers to the extent that compensation of a particular +executive exceeds $1,000,000, +11 +Table of Contents +unless such compensation was based upon +performance goals determined by a compensation committee +consisting solely of two or more outside directors, the material +terms of which are approved by a majority vote of the +stockholders prior to the payment of such remuneration, or paid +pursuant to a binding contract that was in effect on +February 17, 1993. While the tax impact of any compensation +arrangement is one factor to be considered, such impact is +evaluated in light of the Compensation Committee’s overall +compensation philosophy. The Compensation Committee intends to +establish executive officer compensation programs that will +maximize the Company’s tax deduction if the Compensation +Committee determines that such actions are consistent with its +philosophy and in the best interests of the Company and its +stockholders. However, from time to time, the Compensation +Committee may award compensation which is not fully deductible +if the Compensation Committee determines that such award is +consistent with its philosophy and in the best interest of the +Company and its stockholders. +The Compensation Committee will review the +Company’s existing compensation program to determine the +deductibility of the future compensation paid or awarded +pursuant thereto and will seek guidance with respect to changes +to the Company’s existing compensation program that will +enable the Company to continue to attract and retain key +individuals while optimizing the deductibility to the Company of +amounts paid as compensation. +The Compensation Committee believes that its +overall executive compensation program will be successful in +providing competitive compensation appropriate to attract and +retain highly qualified executives and also to encourage +increased performance from the executive group which will create +added stockholder value. +Respectfully submitted, +Geyer Kosinski +Thomas J. Poletti +Richard Siskind +12 +Table of Contents +Stockholder Return Performance +Presentation +The following graph demonstrates from +June 9, 1999 to December 31, 2001, a comparison of +cumulative total returns for Skechers’ Class A Common +Stock, the Standard & Poor’s 500 Stock Index, and +the Standard & Poor’s Shoes Index. The graph +assumes an investment of $100 on June 9, 1999 in each of +the Company’s Class A Common Stock, and on +May 31, 1999 in the stocks comprising the +Standard & Poor’s 500 Stock Index and the +Standard & Poor’s Shoes Index. Each of the indices +assumes that all dividends were reinvested. +COMPARISON OF 31 MONTH CUMULATIVE TOTAL +RETURN +AMONG SKECHERS USA, INC., THE S & P +500 INDEX +AND THE S & P FOOTWEAR +INDEX +The Standard & Poor’s Shoes Index +consists of NIKE and Reebok International. The +Standard & Poor’s Shoe Index includes companies in +one major line of business in which the Company competes. The +index does not encompass all of the Company’s competitors +nor all product categories and lines of business in which the +Company is engaged. +The stock performance of the Company’s +Class A Common Stock shown on the graph above is not +necessarily indicative of future performance. The Company will +not make nor endorse any predictions as to its future stock +performance. +Company/Index/ +Market +6/9/99 +6/30/99 +9/30/99 +12/31/99 +3/31/00 +6/30/00 +9/30/00 +12/31/00 +3/31/01 +6/30/01 +9/30/01 +12/31/01 +SKECHERS USA, INC. +$ +100.00 +$ +95.45 +$ +43.18 +$ +34.66 +$ +64.21 +$ +143.75 +$ +137.50 +$ +140.91 +$ +218.18 +$ +265.73 +$ +106.18 +$ +132.91 +S & P 500 +100.00 +105.55 +98.96 +113.68 +116.29 +113.20 +112.11 +103.33 +91.08 +96.41 +82.26 +91.05 +S & P FOOTWEAR +100.00 +106.46 +91.27 +79.37 +64.48 +67.08 +68.55 +96.06 +71.76 +76.58 +80.52 +97.49 +ASSUMES $100 INVESTED ON 6/9/99 IN STOCK OR ON +5/31/99 IN INDEX — INCLUDING +REINVESTMENT OF DIVIDENDS. +13 +Table of Contents +COMPLIANCE WITH SECTION 16(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Act of 1934 +(the “Exchange Act”) requires the Company’s +officers, directors and persons who own more than ten percent of +a registered class of the Company’s securities, to file +with the Securities and Exchange Commission initial reports of +ownership and reports of changes in ownership of Securities of +the Company. Officers, directors and greater than ten percent +stockholders are required by the Securities and Exchange +Commission’s regulations to furnish the Company with copies +of all Section 16(a) forms they file. +To the Company’s knowledge, based solely on +review of the copies of such reports furnished to the Company +during the fiscal year which ended December 31, 2001, all +Section 16(a) filing requirements applicable to its +officers, Directors and greater than ten percent stockholders +were satisfied by such persons. +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a director of the +Company, is a partner of the law firm of Kirkpatrick & +Lockhart, LLP which provides legal services to the Company. The +Company paid $252,000 to Kirkpatrick & Lockhart, LLP +for legal services that were provided to the Company in 2001. +The Company has entered into employment +agreements with certain executive officers. See “Executive +Compensation — Employment Agreements.” +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +14 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain +information regarding the beneficial ownership of the +Company’s Class A Common Stock and Class B Common +Stock as of April 3, 2002 by (i) each director and +nominated director of the Company, (ii) each of the Named +Executive Officers, (iii) each person known to the Company +to be beneficial owner of more than 5% of either class of the +Common Stock and (iv) all directors and executive officers +of the Company as a group. +Shares Beneficially Owned(2) +Number of +Number of +Percent of +Percent of +Class A +Class B +Class A +Class B +Name of Beneficial Owner(1) +Shares +Shares(3) +Shares +Shares +Robert Greenberg +— +15,947,366(4) +— +75.1 +% +Michael Greenberg +15,000(6) +1,455,579(5) +* +6.9 +Jeffrey Greenberg +32,500(6) +954,208 +* +4.5 +David Weinberg +86,064(6) +— +* +— +Philip Paccione +22,030(6) +— +* +— +Geyer Kosinski +10,000(6) +— +* +— +Richard Siskin +25,000(6) +— +* +— +Thomas J. Poletti +10,000(6) +— +* +— +Kennedy Capital Management, Inc. +1,746,250(7) +— +11.1 +% +— +All directors, director nominees and executive +officers as a group (10 persons) +277,978(6) +18,357,153 +1.8 +% +86.4 +% +* +Less than 1.0% +(1) +To the Company’s knowledge, except as set +forth in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole +voting and investment power with respect to the shares of Common +Stock set down opposite such person’s name. With the +exception of Kennedy Capital Management, Inc., each of such +persons may be reached at 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +(2) +The percentage of total voting power is +calculated using 15,685,687 shares of Class A Common +Stock and 21,246,777 shares of Class B Common Stock +that were outstanding on April 3, 2002. Beneficial +ownership is determined in accordance with the rules of the +Securities and Exchange Commission and generally includes voting +or investment power with respect to the securities. In computing +the number of shares beneficially owned by a person and the +percentage ownership of that person, shares of Class A +Common Stock subject to options held by that person that are +currently exercisable or exercisable within 60 days of +April 3, 2002 are deemed outstanding. Such shares, however, +are not deemed outstanding for the purposes of computing the +percentage ownership of each other person. +(3) +The Class B Common Stock is convertible at +any time into shares of the Class A Common Stock on a +share-for-share basis. See “Certain Relationships and +Related Transactions” for a description of transactions +between the Greenberg Family Trust and the Company. +(4) +Includes shares of Class B Common Stock +which Robert Greenberg, Chief Executive Officer and Chairman of +the Board of the Company is deemed to beneficially own as a +Trustee of the Greenberg Family Trust. M. Susan Greenberg, +Robert Greenberg’s wife, is also a trustee of the Greenberg +Family Trust and is also deemed to beneficially own all shares +held by the Greenberg Family Trust. +(5) +Includes shares of Class B Common Stock +which Michael Greenberg, President and a Director of the +Company, is deemed to beneficially own as Trustee of the Michael +and Wendy Greenberg Family Trust. +(6) +Represents shares of Class A Common Stock +underlying options that are currently exercisable. +(7) +Information is based on a Schedule 13G filed +with the SEC on February 15, 2002. Principal business +office of Kennedy Capital Management, Inc. is located at 10829 +Olive Blvd., St. Louis, MO 63141. +15 +Table of Contents +As of April 3, 2002, Robert Greenberg, his +children, and the Greenberg Family Trust beneficially own all of +the Class B Common Stock and approximately 93.1% of the +combined voting power of the Company’s capital stock. By +virtue of this stock ownership, Robert Greenberg may be deemed +to be a “control person” of the Company within the +meaning of the rules and regulations promulgated under the +Securities Act of 1933, as amended, and the Greenberg Family +Trust influences the election of Robert Greenberg. Michael +Greenberg, the Company’s President, and Jeffrey Greenberg, +both of whom are members of the Board of Directors of the +Company, are each beneficiaries of the Greenberg Family Trust. +PROPOSAL NO. 2 +RATIFICATION OF APPOINTMENT OF INDEPENDENT +ACCOUNTANTS +For the 2001 fiscal year, KPMG LLP provided audit +services which included examination of the Company’s annual +consolidated financial statements. Upon the recommendation of +the Audit Committee, the Company’s Board of Directors has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2002. The stockholders are being requested to ratify such +selection at the Annual Meeting of Stockholders. A +representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +STOCKHOLDERS’ PROPOSALS +Stockholders’ proposals intended to be +presented at the Company’s next Annual Meeting of +Stockholders to be held in 2003 must be received at the +Company’s principal executive offices no later than +January 1, 2003, in order to be considered for inclusion in +the proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular Rule 14a-8 under the +Exchange Act, to be included in the Company’s proxy +materials. Stockholders who wish to submit a proposal for +consideration at the Company’s 2003 Annual Meeting of +Stockholders, but who do not wish to submit a proposal for +inclusion in the Company’s Proxy Statement, must, in +accordance with the Company’s bylaws, deliver a copy of +their proposal no later than the close of business on +April 2, 2003 nor earlier than March 3, 2003. In +either case, proposals should be delivered to Skechers U.S.A., +Inc., 228 Manhattan Beach Blvd., Manhattan Beach, California +90266, Attention: Michael Greenberg, President. To avoid +controversy and establish timely receipt by the Company, it is +suggested that stockholders send their proposals by certified +mail, return receipt requested. +OTHER BUSINESS +The Board of Directors does not know of any other +matter to be acted upon at the meeting. However, if any other +matter shall properly come before the meeting, the proxyholders +named in the proxy accompanying this Proxy Statement will have +authority to vote all proxies in accordance with their +discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate +Secretary +Dated: April 30, 2002 +Manhattan Beach, California +16 +Table of Contents +Please date, sign and mail your proxy card +back as soon as possible! +Annual Meeting of Stockholders +SKECHERS U.S.A., INC. +May 31, 2002 +â Please Detach +and Mail in the Envelope +Provided â +A +x +Please mark your +votes as in this +example. +The Board of Directors unanimously recommends +that you vote FOR the nominees listed in Proposal 1 and FOR +Proposal 2. +1. Election of Directors +FOR all the nominees listed at right (except as marked to the contrary below) +WITHHOLD AUTHORITY +to vote for the nominees +Nominees: +Richard Siskind +Geyer Kosinski +o +o +2. +Ratify the appointment of KPMG LLP as independent +accountants for the year ending December 31, 2002. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Each of the persons named as proxies herein are +authorized, in such person’s discretion, to vote upon such +other matters as may properly come before the Annual Meeting, or +any adjournments thereof. +PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS +HEREON, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED +ENVELOPE. +MARK HERE IF YOU PLAN TO ATTEND THE +MEETING o +MARK HERE FOR CHANGE OF ADDRESS AND NOTE AT +LEFT o +Signature: _________________________________________ +Signature, if held jointly +_________________________________________ +Dated: _____________, 2002 +NOTE: +Please date this Proxy and sign it exactly as +your name(s) appears hereon. When shares are held by joint +tenants, both should sign. When signing as an attorney, +executor, administrator, trustee, guardian or other fiduciary, +please indicate your capacity. If you sign for a corporation, +please print full corporate name and indicate capacity of duly +authorized officer executing on behalf of the corporation. If +you sign for a partnership, please print full partnership name +and indicate capacity of duly authorized person executing on +behalf of the partnership. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 31, 2002 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware corporation, hereby +acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each +dated April 30, 2002, and hereby appoints Michael Greenberg and David Weinberg and each of them, +with full power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, +the undersigned, and hereby authorizes each of them to represent and to vote all of the shares +which the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skechers +U.S.A., Inc. to be held at the Ritz-Carlton Hotel, 4375 Admiralty Way, Marina Del Rey, California +90292, on Friday, May 31, 2002, at 10:00 a.m., Pacific time, and at any adjournments thereof, upon +the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, +receipt of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE +ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES +LISTED IN PROPOSAL 1, FOR APPROVAL OF PROPOSAL 2 AS DESCRIBED IN THE PROXY, AND IN ACCORDANCE +WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY +COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-02-001127/proxy_rpt.txt b/raw/proxies/0001065837/0000950148-02-001127/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..69a13d02efbdbe71f1a8b2c934d033260300ff27 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-02-001127/proxy_rpt.txt @@ -0,0 +1,41 @@ +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a director of the +Company, is a partner of the law firm of Kirkpatrick & +Lockhart, LLP which provides legal services to the Company. The +Company paid $252,000 to Kirkpatrick & Lockhart, LLP +for legal services that were provided to the Company in 2001. +The Company has entered into employment +agreements with certain executive officers. See “Executive +Compensation — Employment Agreements.” +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +14 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-03-001083/proxy.txt b/raw/proxies/0001065837/0000950148-03-001083/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..353f1fc56b46b947735a83efb2d2ef96a6a95801 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-03-001083/proxy.txt @@ -0,0 +1,1849 @@ +DEF 14A +1 +v89524ddef14a.htm +DEF 14A +Skechers Definitive Proxy Statement +Table of Contents +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant [ ] +Filed by a Party other than the Registrant [ ] +Check the appropriate box: +[ ] +Preliminary Proxy Statement +[ ] +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +[X] +Definitive Proxy Statement +[ ] +Definitive Additional Materials +[ ] +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +[ ] +Fee not required. +[ ] +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction +applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the amount on +which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +[ ] +Fee paid previously with preliminary materials. +[ ] +Check box if any part of the fee is offset as provided by Exchange +Act Rule 0-11(a)(2) and identify the filing for which the offsetting +fee was paid previously. Identify the previous filing by +registration statement number, or the Form or Schedule and the date +of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +You are cordially invited to attend the Annual +Meeting of Stockholders of SKECHERS U.S.A., INC., a +Delaware corporation (the “Company”), to be held +at The Ritz-Carlton Hotel located at 4375 Admiralty Way, +Marina Del Rey, CA 90292 on May 30, 2003, at +10:00 a.m., Pacific Time. +The Annual Meeting of the Stockholders of the +Company is being held for the following purposes: +1. +To elect two members to the Board of Directors to +serve for a three-year term as Class I Directors; +2. +To approve an amendment to the Company’s +1998 Stock Option, Deferred Stock and Restricted Stock Plan +increasing the number of shares of Class A Common Stock +authorized for issuance under the Stock Option Plan; +3. +To ratify the appointment of KPMG LLP as the +independent accountants of the Company for the year ending +December 31, 2003; and +4. +To transact such other business as may properly +come before the meeting or any adjournments thereof. +The Board of Directors has fixed the close of +business on April 18, 2003 as the record date for +determining those stockholders who will be entitled to vote at +the meeting. +Your proxy is enclosed. You are cordially invited +to attend the meeting, but if you do not expect to attend, or if +you plan to attend, but desire the proxy holders to vote your +shares, please date and sign your proxy and return it in the +enclosed postage paid envelope. The giving of this proxy will +not affect your right to vote in person in the event you find it +convenient to attend. Please return the proxy promptly to avoid +the expense of additional proxy solicitation. +Dated: April 30, 2003 +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +TABLE OF CONTENTS +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +PROPOSAL NO. 2 +APPROVAL OF AMENDMENT TO 1998 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN +PROPOSAL NO. 3 +RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS +STOCKHOLDERS’ PROPOSALS +OTHER BUSINESS +Table of Contents +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be Held +May 30, 2003, at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by +Skechers U.S.A., Inc. (the “Company” or +“Skechers”), a Delaware corporation, in connection +with the Annual Meeting of Stockholders of the Company to be +held on May 30, 2003 at 10:00 a.m. Pacific Time at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina +Del Rey, CA 90292 (the “Meeting”). The +approximate mailing date for this proxy statement and the +enclosed proxy is May 1, 2003. If a proxy in the +accompanying form is duly executed and returned, the shares +represented by the proxy will be voted as directed. If no +direction is given, the shares represented by the proxy will be +voted for the election of the nominees for director named herein +and for the ratification of the appointment of KPMG LLP as +the Company’s independent accountants for the year ending +December 31, 2003. Any proxy given may be revoked at any +time prior to its exercise by notifying the Corporate Secretary +of the Company in writing of such revocation, by duly executing +and delivering another proxy bearing a later date, or by +attending and voting in person at the Meeting. The +Company’s principal executive office is located at +228 Manhattan Beach Boulevard, Manhattan Beach, California +90266. +The cost of this solicitation of proxies will be +borne by the Company. Solicitations will be made by mail. In +addition, the officers and regularly engaged employees of the +Company may, in a limited number of instances, solicit proxies +personally or by telephone. The Company will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of common stock of the Company. +The Company’s Annual Report to Stockholders +for the year ended December 31, 2002, is concurrently being +provided to each stockholder. +Holders of Class A Common Stock and +Class B Common Stock of record at the close of business on +April 18, 2003 will be entitled to vote at the Meeting. +There were 18,571,133 shares of Class A Common Stock and +19,206,561 shares of Class B Common Stock outstanding at +that date. Each share of Class A Common Stock is entitled +to one vote and each share of Class B Common Stock is +entitled to ten votes, and the presence in person or by proxy of +holders of a majority of the outstanding shares of Class A +Common Stock and Class B Common Stock is necessary to +constitute a quorum for the Meeting. The affirmative vote of a +plurality of all of the votes cast at a meeting at which a +quorum is present is necessary for the election of each of the +nominees for director. For purposes of the election of +directors, abstentions and broker non-votes will not be counted +as votes cast and will have no effect on the result of the vote, +although they will count toward the presence of a quorum. The +affirmative vote of a majority of all votes cast at a meeting at +which a quorum is present is necessary for the ratification of +the appointment of KPMG LLP as the Company’s +independent accountants. For purposes of the vote on this +matter, abstentions and broker non-votes will not be counted as +votes cast and will have no effect on the result of the vote +although they will count toward the presence of a quorum. The +affirmative vote of a majority of all votes cast and entitled to +vote at a meeting at which a quorum is present is necessary for +the approval of the amendment to the Company’s 1998 Stock +Option, Deferred Stock and Restricted Stock Plan increasing the +number of shares of Class A Common Stock authorized for +issuance. For purposes of the vote on this matter, abstentions +will be counted as votes cast against the proposal, whereas +broker non-votes will not be counted as votes cast and will have +no effect on the result of the vote, although they will count +toward the presence of a quorum. +Table of Contents +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Board of Directors is divided +into three classes, with each class serving a three-year term +and thereafter until their successors are duly elected and +qualified or until death, resignation or removal. One class of +directors is elected annually at the Annual Meeting of +Stockholders. The Company’s Bylaws currently provide for a +variable Board of Directors with a range of between five and +nine members. The Company currently has seven members on its +Board of Directors. The Company’s Bylaws give the Board of +Directors the authority to establish, increase or decrease the +number of directors. +Unless otherwise directed by stockholders within +the limits set forth in the Bylaws, the proxy holders will vote +all shares represented by proxies held by them for the election +of Robert Greenberg and Thomas J. Poletti who are currently +members of the Company’s Board of Directors. The Company +has been advised by Robert Greenberg and Thomas J. Poletti of +their availability and willingness to serve if elected. In the +event that Robert Greenberg or Thomas J. Poletti becomes +unavailable or unable to serve as a member of the Company’s +Board of Directors prior to the voting, the proxy holders will +refrain from voting for them or will vote for a substitute +nominee in the exercise of their best judgment. +Information Concerning Nominees +The following table sets forth certain +information with respect to the nominees to the Board of +Directors of the Company. +Class and Year +in Which Term +Name +Age +Will Expire +Position +Robert Greenberg +63 +Class I (2003 +) +Chairman of the Board and Chief Executive Officer +Thomas J. Poletti(1) +45 +Class I (2003 +) +Director +(1) +Member of the Audit Committee +Robert Greenberg has +served as the Chairman of the Board and Chief Executive Officer +of the Company since October 1993. From 1979 to 1992, +Mr. Greenberg was the Chairman of the Board and President +of L.A. Gear, Inc. (“L.A. Gear”), an athletic and +casual footwear and apparel company. +Thomas J. Poletti +has served as a member of the Board of +Directors since January 2002. Mr. Poletti is a partner +at the law firm of Kirkpatrick & Lockhart LLP and has +practiced law at Kirkpatrick & Lockhart LLP and its Los +Angeles-based predecessor, Freshman, Marantz, Orlanski, +Cooper & Klein since 1984 where he has served as a +partner for the last 15 years. +Directors Not Standing for Election +The members of the Board of Directors who are not +standing for election at this year’s Annual Meeting of +Stockholders are set forth below. +Class and Year +in Which Term +Name +Age +Will Expire +Position +Michael Greenberg +40 +Class II (2004) +President and Director +Jeffrey Greenberg +35 +Class II (2004) +Vice President of Electronic Media and Director +David Weinberg +52 +Class II (2004) +Executive Vice President, Chief Financial Officer +and Director +Richard Siskind(1) +57 +Class III (2005) +Director +Geyer Kosinski(1) +36 +Class III (2005) +Director +(1) +Member of the Audit Committee +2 +Table of Contents +Michael Greenberg +has served as the President and a +member of the Board of Directors of the Company since its +inception in 1992, and from June 1992 to October 1993, +he was Chairman of the Board. From 1989 to 1992, +Mr. Greenberg was the National Sales Manager of +L.A. Gear. Previously, from 1986 to 1989, he was the +Regional Sales Manager of L.A. Gear for the West Coast, and +from 1984 to 1986, he was an account representative for the West +Coast at L.A. Gear. +Jeffrey Greenberg +has served as a member of the Board of +Directors of the Company since September 2000 and Vice +President of Electronic Media of the Company since +January 1998. Previously, Mr. Greenberg served as +Chief Operating Officer, Secretary and a member of the Board of +Directors of the Company from June 1992 to July 1998 +and as Chief Executive Officer from June 1992 to +October 1993. +David Weinberg has +served as Chief Financial Officer of the Company since October +1993 and Executive Vice President and a member of the Board of +Directors since July 1998. From June 1989 to +September 1992, Mr. Weinberg served as Vice President, +Credit and Collections at L.A. Gear. +Richard Siskind has +served as a member of the Board of Directors of the Company +since June 1999. Since November 2002, Mr. Siskind has +served as President and a member of the Board of Directors of +Magic Lantern Group, Inc. (AMEX: GML), which changed its +name from JKC Group, Inc. From May 1998 to November +2002, Mr. Siskind served as President, Chief Executive +Officer and a member of the Board of Directors of Stage II +Apparel Corp. (AMEX:SA), which changed its name to +JKC Group, Inc. (AMEX:JKC) in April 2002. In 1991, +Mr. Siskind founded R. Siskind & Company, a +business that purchases brand name men’s and women’s +apparel and accessories and redistributes those items to +off-price retailers, and he is its sole shareholder, Chief +Executive Officer, President and sole member of its Board of +Directors. +Geyer Kosinski has +served as a member of the Board of Directors since November +2001. Since 1997, Mr. Kosinski has been a Managing Partner +and co-owner of Industry Entertainment, a talent management and +production company that promotes feature films and television +programming and manages over 100 actors, writers and directors. +From 1992 to 1997, Mr. Kosinski was an agent at The William +Morris Agency, representing talent including George Clooney, +Robert Downey, Jr., Kevin Spacey, Angelina Jolie and Billy +Bob Thornton, and packaging such movies as Sling Blade +and Albino Alligator . +Compensation of Directors +The Company pays its non-employee directors +annual compensation of $15,000 for their services, which is paid +annually. In addition, non-employee directors receive a fee of +$1,000 for each meeting attended. Non-employee directors +attending any committee meeting receive an additional fee of +$750 for each committee meeting attended, unless the committee +meeting is held on the day of a meeting of the Board of +Directors, in which case they receive no additional compensation +for the committee meeting. Non-employee directors are also +reimbursed for reasonable costs and expenses incurred for +attending any director or committee meetings. Officers of the +Company who are members of the Board of Directors are not paid +any directors’ fees. +Committees and Attendance at Board +Meetings +One meeting of the Board of Directors was held in +2002. Except for Geyer Kosinski, each director attended the +meeting. +The Audit Committee, established by the Board of +Directors on June 3, 1999, reviews the scope of auditing +activities performed by the Company’s independent +accountants. The purpose of the Audit Committee is to recommend +engagement of the Company’s independent auditors, to +approve the services performed by such auditors, to consult with +such auditors and review with them the results of their +examination, to review and approve any material accounting +policy changes affecting the Company’s operating results +and to review the Company’s control procedures and +personnel. The Audit Committee met four times during 2002. Each +Audit Committee member attended all of the meetings, except +Geyer Kosinski who did not attend two meetings. +3 +Table of Contents +A Compensation Committee was also established by +the Board of Directors on June 3, 1999. The purpose of the +Compensation Committee is to review and approve the compensation +benefits and severance arrangements for the Company’s +officers and other employees, administer the Company’s +stock option and stock purchase plans and make recommendations +to the Board of Directors regarding such matters. The +Compensation Committee did not meet during 2002. The Board of +Directors intends to review the functions of the Compensation +Committee and re-establish the members to serve on the +Compensation Committee. +The Board of Directors does not presently have a +nominating committee. +Executive Officers +The following table sets forth certain +information with respect to the executive officers of the +Company who are not also directors. For information concerning +Michael Greenberg and David Weinberg, see “Election of +Directors — Directors Not Standing for Election.” +Name +Age +Position +Philip G. Paccione +41 +General Counsel; Executive Vice President, +Business Affairs; Corporate Secretary +Mark Nason +41 +Executive Vice President, Merchandising +Joe Phillips +51 +Executive Vice President, Domestic Sales +Philip G. Paccione +has served as Executive Vice +President, Business Affairs since February 2000, Corporate +Secretary since July 1998, and General Counsel of the +Company since May 1998. Before joining the Company and +since June 1997, Mr. Paccione was an attorney at the +law firm of Riordan & McKinzie, in Los Angeles, and +from May 1996 to June 1997 he was a sole practitioner +of law. Mr. Paccione also practiced law at the law firm of +Gartner & Young from December 1994 to +May 1996 and at the law firm of Kelley, Drye & +Warren from June 1991 to December 1994. +Mark Nason has +served as our Executive Vice President, Merchandising since +March 2002. From January 1998 to March 2002, +Mr. Nason served as our Vice President, Retail and +Merchandising, and from December 1993 to January 1998, +he served as our Director of Merchandising and Retail +Development. From January 1981 through November 1993, +Mr. Nason was employed in various capacities, including +General Merchandising Manager, Director of Visual Merchandising +and Buyer at Track ’n Trail. +Joe Phillips has +served as our Executive Vice President, Domestic Sales since +March 2002, and from January 2001 to March 2002, +he served as our Vice President, Sales. From 2000 to 2001, +Mr. Phillips served as President and Chief Executive +Officer at Jeremy’s Microbatch Ice Creams (OTC:JMIC), where +he was brought in to restructure and stabilize the company, and +from 1999 to 2000, he served as a general management consultant +for Life Is Good. From 1994 to 1998, Mr. Phillips served as +Senior Vice President of Sales and General Manager at Champion +Products, Inc. +Robert Greenberg is the father of Michael +Greenberg and Jeffrey Greenberg; other than the foregoing, no +family relationships exist between any of the directors or +executive officers of the Company. +4 +Table of Contents +EXECUTIVE COMPENSATION +The following table sets forth information +concerning the annual and long-term compensation earned by the +Company’s Chief Executive Officer and each of the other +executive officers whose annual salary and bonus during 2000, +2001 and 2002 exceeded $100,000 (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Annual Compensation +Awards +Other Annual +Securities +All Other +Compensation +Underlying +Compensation +Name and Principal Position +Year +Salary($) +Bonus($) +($)(1) +Options(#) +($) +Robert Greenberg +2002 +500,102 +— +8,603 +— +10,192(2) +Chairman of the Board; +2001 +500,000 +500,109 +7,822 +— +7,082(2) +Chief Executive Officer +2000 +500,000 +500,000 +— +— +6,240(2) +Michael Greenberg +2002 +584,616 +108,122 +16,703 +50,000 +19,273(3) +President +2001 +350,000 +1,162,895 +16,692 +— +12,866(3) +2000 +350,000 +516,000 +10,800 +60,000 +13,779(3) +David Weinberg +2002 +494,231 +108,122 +24,210 +50,000 +15,848(4) +Executive Vice President; +2001 +250,000 +987,895 +20,782 +110,000 +9,832(4) +Chief Financial Officer +2000 +250,000 +456,992 +— +70,000 +11,301(4) +Mark Nason(7) +2002 +493,077 +86,518 +— +50,000 +13,687(5) +Executive Vice President, Merchandising +Joe Phillips(8) +2002 +395,062 +21,706 +— +25,000 +13,701(6) +Executive Vice President, +Domestic Sales +(1) +Represents the amount of an automobile lease for +the benefit of each executive officer. With respect to Robert +Greenberg, excludes rental payments of $16,200 in 2000 made by +the Company directly to landlord regarding property used +primarily for corporate purposes but which is leased under the +individual’s name. With respect to David Weinberg, excludes +rental payments of $48,000 in each of 2002, 2001 and 2000 and +made by the Company directly to landlord regarding property used +primarily for corporate purposes but which is leased under the +individual’s name. +(2) +Represents health and life insurance payments for +2002, 2001 and 2000, respectively. +(3) +Represents health and life insurance payments of +$13,773, $9,828 and $8,679, and contributions of $5,500, $3,038 +and $5,100 by the Company under its 401(k) Plan for 2002, 2001 +and 2000, respectively. +(4) +Represents health and life insurance payments of +$9,848, $6,794 and $6,201, and contributions of $6,000, $3,038 +and $5,100 by the Company under its 401(k) Plan for 2002, 2001 +and 2000, respectively. +(5) +Represents health and life insurance payments of +$13,557 and contributions of $130 by the Company under its +401(k) Plan for 2002. +(6) +Represents health and life insurance payments. +(7) +Mr. Nason began serving as an executive +officer of the Company in March 2002. +(8) +Mr. Phillips began serving as an executive +officer of the Company in March 2002. +Stock Option Plan +In January 1998, the Company’s Board of +Directors and stockholders adopted the 1998 Stock Option, +Deferred Stock and Restricted Stock Plan (the “Stock Option +Plan”), which provides for the grant of qualified incentive +stock options (“ISOs”) that meet the requirements of +Section 422 of the Internal Revenue Code of 1986, as +amended (the “Code”), stock options not so qualified +(“NQSOs”), deferred stock and restricted stock awards +(“Awards”). The Stock Option Plan may be administered +by either the Board of +5 +Table of Contents +Directors or a committee of directors appointed +by the Board of Directors (the “Committee”). ISOs may +be granted to the officers and key employees of the Company or +any of its subsidiaries. The exercise price for any ISO granted +under the Stock Option Plan may not be less than 100% (or 110% +in the case of ISOs granted to an employee who is deemed to own +in excess of 10% of the outstanding Class A Common Stock) +of the fair market value of the shares of Class A Common +Stock at the time the option is granted. The exercise price for +any NQSO granted under the Stock Option Plan may not be less +than 85% of the fair market value of the shares of Class A +Common Stock at the time the option is granted. The purpose of +the Stock Option Plan is to provide a means of performance-based +compensation in order to attract and retain qualified personnel +and to provide an incentive to those whose job performance +affects the Company. +The Stock Option Plan originally authorized the +grant of options to purchase, and Awards of, an aggregate of up +to 5,215,154 shares of the Company’s Class A +Common Stock. By action at the Annual Meeting of Stockholders on +June 1, 2001, the number of shares of Class A Common +Stock authorized for issuance under the Stock Option Plan was +increased by 3,000,000 shares so that the Stock Option Plan +authorizes the grant of options to purchase and awards of an +aggregate of up to 8,215,154 shares of the Company’s +Class A Common Stock. By action at the Annual Meeting of +Stockholders to be held on May 30, 2003, the number of +shares of Class A Common Stock authorized for issuance +under the Stock Option Plan would be increased by an additional +3,000,000 shares. The number of shares reserved for +issuance under the Stock Option Plan is subject to anti-dilution +provisions for stock splits, stock dividends and similar events. +If an option granted under the Stock Option Plan expires or +terminates, or an Award is forfeited, the shares subject to any +unexercised portion of such option or Award will again become +available for the issuance of further options or Awards under +the Stock Option Plan. +Under the Stock Option Plan, the Company may make +loans available to stock option holders, subject to the +Committee’s approval, in connection with the exercise of +stock options granted under the Stock Option Plan. If shares of +Class A Common Stock are pledged as collateral for such +indebtedness, such shares may be returned to the Company in +satisfaction of such indebtedness. If so returned, such shares +shall again be available for issuance in connection with future +stock options and Awards under the Stock Option Plan. +No options or Awards may be granted under the +Stock Option Plan after January 14, 2008, provided that the +Company’s Board of Directors does not otherwise amend or +terminate the Stock Option Plan prior to such date. +Options granted under the Stock Option Plan will +become exercisable according to the terms of the grant made by +the Board of Directors or the Committee. Awards will be subject +to the terms and restrictions of the award made by the Board of +Directors or the Committee. The Board of Directors and the +Committee have discretionary authority to select participants +from among eligible persons and to determine at the time an +option or Award is granted, and in the case of options, whether +it is intended to be an ISO or a NQSO, and when and in what +increments shares covered by the option may be purchased. Under +current law, ISOs may not be granted to any individual who is +not also an officer or employee of the Company or any subsidiary. +The exercise price of any option granted under +the Stock Option Plan is payable in full (i) in cash, +(ii) by surrender of shares of the Company’s Class A +Common Stock already owned by the option holder having a market +value equal to the aggregate exercise price of all shares to be +purchased, (iii) by cancellation of indebtedness owed by +the Company to the option holder, (iv) by a full recourse +promissory note executed by the option holder, (v) by +arrangement with a broker or (vi) by any combination of the +foregoing. The terms of any promissory note may be changed from +time to time by the Board of Directors to comply with applicable +Internal Revenue Service or Securities and Exchange Commission +regulations or other relevant pronouncements. +The Board of Directors may from time to time +revise or amend the Stock Option Plan and may suspend or +discontinue it at any time. However, no such revision or +amendment may impair the rights of any participant under any +outstanding stock option or Awards without such +participant’s consent or may, without stockholder approval, +increase the number of shares subject to the Stock Option Plan +or decrease the exercise price of a stock option to less than +100% of fair market value on the date of grant (with the +exception of adjustments resulting from changes in +capitalization), materially modify the class of participants +eligible to +6 +Table of Contents +receive options or Awards under the Stock Option +Plan, materially increase the benefits accruing to participants +under the Stock Option Plan or extend the maximum option term +under the Stock Option Plan. +In the event of a change of control, all +outstanding stock options and Awards will fully vest and any +indebtedness incurred in connection with the Stock Option Plan +will be forgiven. A “change of control” occurs when +(i) any person becomes the beneficial owner, directly or +indirectly, of 50 percent or more of the combined voting +power of the Company’s securities, (ii) during any +consecutive two-year period, individuals who at the beginning of +such period constitute the Board of Directors, and any new +director, with certain exceptions, who was approved by at least +two-thirds of the directors still in office who either were +directors at the beginning of the period or whose election or +nomination for election was previously so approved, cease for +any reason to constitute at least a majority of the Board of +Directors, (iii) in some circumstances, the stockholders +approve a merger or consolidation, or (iv) the stockholders +approve the complete liquidation, sale or disposition of all or +substantially all of the Company’s assets. +As of March 31, 2003, options to purchase +5,437,079 shares of Class A Common Stock were +outstanding at a per share exercise price ranging from $2.78 to +$29.45. The Company has 615,186 shares of Class A +Common Stock underlying options available for grant. +Options Granted in 2002 +The following table sets forth information +concerning individual grants of stock options in 2002 to the +Named Executive Officers: +Options Granted in 2002 +Individual Grants +Potential Realizable +Value at Assumed Annual +Number of +Rates of Stock Price +Securities +Percent of +Appreciation for Option +Underlying +Total Options +Exercise or +Term(5) +Options +Granted to +Base Price +Expiration +Name +Granted(1)(#) +Employees(2)(%) +($/Sh)(3) +Date(4) +5%($) +10%($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +50,000 +3.1 +6.95 +10/09/12 +218,541 +553,826 +David Weinberg +50,000 +3.1 +6.95 +10/09/12 +218,541 +553,826 +Joe Phillips +25,000 +1.6 +6.95 +10/09/12 +109,270 +276,913 +Mark Nason +50,000 +3.1 +6.95 +10/09/12 +218,541 +553,826 +(1) +25% of the options vested immediately on the date +of grant and the remaining options vest 25% per year on each +anniversary of the date of grant. +(2) +The total number of options granted to the +Company’s employees (not including 80,653 shares +underlying options granted to non-employee directors) during +2002 was 1,608,942. +(3) +The exercise price per share of options granted +represents the fair market value of the underlying shares of +Class A Common Stock on the date the options were granted. +(4) +Such stock options expire ten years from the date +of grant or earlier upon termination of employment. +(5) +In order to comply with the rules of the +Securities and Exchange Commission, the Company is including the +gains or “option spreads” that would exist for the +respective options that the Company granted to the Named +Executive Officers. The Company calculated these gains by +assuming an annual compound stock price appreciation of 5% and +10% from the date of the option grant until the termination date +of the option. These gains do not represent the Company’s +estimate or projection of the future price of the Class A +Common Stock. +7 +Table of Contents +Aggregated Option Exercises in 2002 and 2002 +Year-End Option Values +The following table sets forth the outstanding +stock options of the Named Executive Officers as of +December 31, 2002. +Year End Option Values +Number of Securities +Value of Unexercised +Underlying Unexercised Options +In-The-Money Options +Shares +at December 31, 2002 +at December 31, 2002(1) +Acquired on +Value +Name and Principal Position +Exercise(#) +Realized($) +Exercisable(#) +Unexercisable(#) +Exercisable($) +Unexercisable($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +40,000 +52,500 +30,631 +69,131 +David Weinberg +74,535 +1,458,571 +113,565 +110,000 +210,906 +80,513 +Mark Nason +10,000 +201,460 +89,768 +85,000 +183,438 +80,513 +Joe Phillips +12,500 +122,100 +21,250 +48,750 +9,625 +28,875 +(1) +The value of the unexercised +“in-the-money” options is based on the fair market +value of $8.49 as of December 31, 2002, minus the exercise +price, multiplied by the numbers of shares underlying the option. +Securities Authorized for Issuance Under +Equity Compensation Plans +The following table provides information as of +December 31, 2002 regarding compensation plans (including +individual compensation arrangements) under which equity +securities of Skechers are authorized for issuance. +Number of Securities +Number of securities remaining +to be issued upon +Weighted-average +available for future issuance +exercise of +exercise price of +under equity compensation +outstanding options, +outstanding options, +plans (excluding securities +Plan Category +warrants and rights +warrants and rights +reflected in column(a) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +5,429,383 +(1) +$ +10.89 +2,742,950 +(2) +Equity compensation plans not approved by +security holders +— +— +— +Total +5,429,383 +2,742,950 +(1) +Represents stock options outstanding under the +Company’s 1998 Stock Option, Deferred Stock and Restricted +Stock Plan (“1998 Plan”). Amount does not include +shares available under the Company’s Employee Stock +Purchase Plan (“ESPP Plan”), which has a shareholder +approved reserve of 2,112,939 shares. +(2) +Represents 630,011 shares available for +future issuance under the 1998 Plan and 2,112,939 shares +available for future issuance under the ESPP Plan. Under the +ESPP Plan, each eligible employee may purchase a limited number +of shares of Class A common stock at semi-annual intervals +each year at a purchase price per share equal to 85% of the fair +market value of the Company’s Class A common stock as +of either the beginning or ending date of the semi-annual +purchase period. +Employee Stock Purchase Plan +The Company’s 1998 Employee Stock Purchase +Plan (the “1998 Purchase Plan”) was adopted by the +Company’s Board of Directors and stockholders in July 1998 +and amended by its Board of Directors in June 2000. The 1998 +Purchase Plan is intended to qualify under Section 423 of +the Code. Each twelve-month offering period includes two +consecutive six-month purchase periods. The offering periods +generally start on the first trading day on or after +January 1 and July 1 of each year. The initial +offering period commenced on July 1, 1999. A total of +2,781,415 shares of Class A Common Stock was initially +reserved for issuance under the 1998 Purchase Plan, which is +adjusted annually for increases equal to the lesser of +(i) 1,000,000 shares, +8 +Table of Contents +(ii) 1% of the outstanding shares of +Class A Common Stock on such date, or (iii) such +lesser amount as may be determined by the Company’s Board +of Directors. +Employees are eligible to participate if they are +customarily employed by the Company or any designated subsidiary +for at least 20 hours per week and more than five months in +any calendar year. However, any employee who +(i) immediately after the grant of a stock purchase right +owns stock possessing 5% or more of the total combined voting +power or value of all classes of the capital stock of the +Company or (ii) whose rights to purchase stock under all +employee stock purchase plans of the Company accrue at a rate +which exceeds $25,000 worth of stock for each calendar year may +not be granted an option to purchase stock under the 1998 +Purchase Plan for that year. +The 1998 Purchase Plan permits participants to +purchase Class A Common Stock through payroll deductions of +up to 15% of the participant’s “compensation.” +Compensation is defined as the participant’s base straight +time gross earnings, including commissions, payments for +overtime, incentive bonuses and performance bonuses. Amounts +deducted and accumulated by the participant are used to purchase +shares of Class A Common Stock at the end of each purchase +period. The price of stock purchased under the 1998 Purchase +Plan is 85% of the lower of the fair market value of the +Class A Common Stock as of either the beginning or ending +date of the semi-annual purchase period. The maximum number of +shares a participant may purchase during a single offering +period is determined by dividing $25,000 by the fair market +value of a share of the Company’s Class A Common Stock +on the first day of the offering period. Participants may end +their participation at any time during an offering period, and +they will be paid their payroll deductions to date. +Participation ends automatically upon termination of employment +with the Company. +Rights granted under the 1998 Purchase Plan are +not transferable by a participant other than by will, the laws +of descent and distribution, or as otherwise provided under the +1998 Purchase Plan. +The 1998 Purchase Plan provides that, in the +event of a merger of the Company with or into another +corporation or a sale of all or substantially all of the +Company’s assets, each outstanding stock purchase right may +be assumed or substituted for by the successor corporation. If +the successor corporation refuses to assume or substitute for +the outstanding stock purchase right, the offering period then +in progress will be shortened and a new purchase date will be +set so that shares of Class A Common Stock are purchased +with the participant’s accumulated payroll deductions prior +to the effective date of such transaction. +The Board of Directors has the authority to amend +or terminate the 1998 Purchase Plan, except that no such action +may adversely affect any outstanding rights to purchase stock +under the 1998 Purchase Plan, provided that the Board of +Directors may terminate an offering period on any exercise date +if the Board of Directors determines that the termination of the +1998 Purchase Plan is in the best interests of the Company and +its stockholders. Notwithstanding anything to the contrary, the +Board of Directors may in its sole discretion amend the 1998 +Purchase Plan to the extent necessary and desirable to avoid +unfavorable financial accounting consequences by altering the +purchase price for any offering period, shortening any offering +period or allocating remaining shares among the participants. +Unless terminated sooner by the Board of Directors, the 1998 +Purchase Plan will terminate on June 30, 2008. +As of March 31, 2003, 668,476 shares of +the Company’s Class A Common Stock had been purchased +by the Company’s employees at the average price of $7.18 +per share, which was an aggregate purchase price of $4,800,000. +401(k) Plan +The Company has in place a contributory +retirement plan (the “401(k) Plan”) for all full time +employees age 21 and older with at least 12 months of +service, which is designed to be tax deferred in accordance with +the provisions of Section 401(k) of the Code. The 401(k) +Plan provides that each participant may contribute up to 15% of +his or her salary and the Company may make a contribution equal +to a percentage of salary contributed by the participant to his +or her plan account at the end of each plan year. Under the +401(k) Plan, employees may elect to enroll on January 1 and +July 1 of any plan year, provided that +9 +Table of Contents +they have been employed by the Company for at +least one year. The 401(k) Plan was amended in April 2001 to +allow employees to enroll after six months of service. +Subject to the rules for maintaining the tax +status of the 401(k) Plan, an additional Company contribution +may be made at the Company’s discretion. Company matching +contributions are made at the discretion of the Company. The +Company’s contributions to the 401(k) Plan in 2002, 2001 +and 2000 were $788,000, $702,000 and $500,000, respectively. As +its contribution to the 401(k) Plan for 2002, the Company issued +83,351 shares of its Class A common stock in March +2003, which contain certain restrictions regarding the +subsequent sale of those shares. +Compensation Committee Interlocks and Insider +Participation +There were no meetings of a Compensation +Committee during 2002. Robert Greenberg, the Company’s +Chief Executive Officer, Michael Greenberg, the Company’s +President, and David Weinberg, the Company’s Executive Vice +President and Chief Financial Officer, reviewed and discussed +the compensation of the executive officers for 2002. The 2002 +executive compensation was approved by the Company’s Board +of Directors, including the non-employee directors. See +“Certain Relationships and Related Transactions” +regarding arrangements between the Company and the Greenberg +Family Trust, of which Robert Greenberg is a trustee, and +Michael Greenberg. Until April 16, 2002, Robert Greenberg +served on the board of directors and the compensation committee +of Stage II Apparel Corp., whose President and Chief +Executive Officer is Richard Siskind. Other than as described +above, none of the executive officers of the Company serves on +the board of directors or on the compensation committee of any +other entity, which has officers who serve on the Company’s +Board of Directors. +Report of the Audit Committee +The Audit Committee of the Company’s Board +of Directors (the “Audit Committee”) is currently +comprised of three independent directors and acts under a +written Audit Committee Charter adopted by the Board of +Directors on May 31, 2000. Each of the members of the Audit +Committee is independent, as defined by the Audit Committee +Charter and listing standards of the New York Stock Exchange. +The Audit Committee has reviewed and discussed +the Company’s audited financial statements with the +Company. The Audit Committee has discussed with the independent +auditors the matters required to be discussed by Statement on +Audit Standards No. 61, as may be modified or supplemented. +In addition, the Audit Committee has received from the +independent auditors the written disclosures required by the +Independence Standards Board Standard No. 1, which requires +the written disclosure of all relationships between the Company +and its independent auditors that, in the independent +auditor’s professional judgment, may reasonably be thought +to bear on independence and confirmation that, in its +professional judgment, it is independent of the company that it +is auditing. +During the fiscal year ended December 31, +2002, the Company retained KPMG LLP to provide services as +follows: +Audit Fees +Audit Related Fees +Tax Fees +All Other Fees +$527,000 +$103,000 +$943,000 +$ +208,000 +The Audit Committee has considered whether the +independent auditors’ provision of services other than +audit services is compatible with maintaining auditor +independence and has concluded it is. +10 +Table of Contents +Based on review and the discussions referred to +above, the Audit Committee recommended to the Company’s +Board of Directors that the audited financial statements be +included in the Company’s Annual Report on Form 10-K +for the fiscal year ended December 31, 2002 for filing with +the Securities and Exchange Commission. +Respectfully submitted, +Geyer Kosinski +Thomas J. Poletti +Richard Siskind +Board Report on Executive +Compensation +Typically, the Compensation Committee of the +Company’s Board of Directors administers the policies +governing the Company’s executive compensation program, +however, there were no meetings of a Compensation Committee +during 2002. All issues pertaining to executive compensation +were reviewed and approved by the Company’s Board of +Directors. +The Board of Directors believes that executive +compensation should reward sustained earnings and long-term +value created for stockholders and reflect the business +strategies and long-range plans of the Company. The guiding +principles affecting executive compensation are to: +(1) attract and retain key high caliber executives; +(2) provide levels of compensation competitive with those +offered by the Company’s competitors and (3) motivate +executives to enhance earnings and long-term stockholder value +by linking stock performance on a total returns basis with +long-term incentive compensation. +The Company’s executive compensation +philosophy is to set base salary at a conservative market rate +and then to provide performance-based variable compensation +which allows total compensation to fluctuate according to the +Company’s earnings as well as to value received by its +stockholders. Targeted levels of executive compensation are set +at levels consistent with others in the Company’s industry, +determined after comparison, with such compensation increasingly +weighted towards programs contingent upon the Company’s +level of annual and long-term performance. +Each executive officer’s compensation is +comprised of up to three principal components: base salary, +bonus and any stock options or restricted stock awards granted +pursuant to the Company’s 1998 Stock Option, Deferred Stock +and Restricted Stock Plan. Base salary and bonus are determined +by executive management and are reviewed at least annually by a +Compensation Committee or the Board of Directors. See +“Executive Compensation” for a description of the +allocation of base salary and bonus. Michael Greenberg, David +Weinberg, Mark Nason and Joe Phillips each received an annual +bonus based on certain objective performance criteria of the +Company for 2002 of $108,122, $108,122, $86,518 and $21,706, +respectively. The Management and the Board of Directors believe +that the total compensation package of the executive officers +should be linked to certain objective performance criteria of +the Company and to the total return of the Company’s stock, +both on an absolute basis and relative to similar companies. The +Company uses stock options to align the long-range interests of +its executive officers with the interests of stockholders. The +amount of stock options that may be granted to each executive +officer is determined by taking into consideration the +officer’s position with the Company, overall individual +performance, the Company’s performance and an estimate of +the long-term value of the award considering current base salary +and any cash bonus awarded. +The foregoing principles and policies are applied +in examining the compensation of Robert Greenberg, the +Company’s Chief Executive Officer. The Board of Directors +believes that Mr. Greenberg, as Chief Executive Officer, +significantly and directly influences the Company’s overall +performance. Pursuant to his amended employment agreement with +the Company, the Chief Executive Officer’s compensation for +2002 consisted of a base salary of $500,000. +Section 162(m) was added to the Code as part +of the Omnibus Budget Reconciliation Act of 1993. +Section 162(m) limits the deduction for compensation paid +to the Chief Executive Officer and the other Named Executive +Officers to the extent that compensation of a particular +executive exceeds $1,000,000, +11 +Table of Contents +unless such compensation was based upon +performance goals determined by a compensation committee +consisting solely of two or more outside directors, the material +terms of which are approved by a majority vote of the +stockholders prior to the payment of such remuneration, or paid +pursuant to a binding contract that was in effect on +February 17, 1993. While the tax impact of any compensation +arrangement is one factor to be considered, such impact is +evaluated in light of the Compensation Committee’s overall +compensation philosophy. The Company intends to establish +executive officer compensation programs that will maximize the +Company’s tax deduction if the Compensation Committee +determines that such actions are consistent with its philosophy +and in the best interests of the Company and its stockholders. +However, from time to time, the Company may award compensation +that is not fully deductible if it is determined that such award +is consistent with its philosophy and in the best interest of +the Company and its stockholders. +A Compensation Committee or the Board of +Directors will review the Company’s existing compensation +program to determine the deductibility of the future +compensation paid or awarded pursuant thereto and will seek +guidance with respect to changes to the Company’s existing +compensation program that will enable the Company to continue to +attract and retain key individuals while optimizing the +deductibility to the Company of amounts paid as compensation. +The Board of Directors believes that its overall +executive compensation program will be successful in providing +competitive compensation appropriate to attract and retain +highly qualified executives and also to encourage increased +performance from the executive group which will create added +stockholder value. +Respectfully submitted, +Robert Greenberg +Michael Greenberg +Jeffrey Greenberg +David Weinberg +Geyer Kosinski +Thomas J. Poletti +Richard Siskind +12 +Table of Contents +Stockholder Return Performance +Presentation +The following graph demonstrates from +June 9, 1999 to December 31, 2002, a comparison of +cumulative total returns for Skechers’ Class A Common +Stock, the Standard & Poor’s 500 Stock Index, and +the Standard & Poor’s Shoes Index. The graph +assumes an investment of $100 on June 9, 1999 in each of +the Company’s Class A Common Stock, and on +May 31, 1999 in the stocks comprising the +Standard & Poor’s 500 Stock Index and the +Standard & Poor’s Shoes Index. Each of the indices +assumes that all dividends were reinvested. +COMPARISON OF 43 MONTH CUMULATIVE TOTAL +RETURN* +AMONG SKECHERS USA, INC., THE S & P +500 INDEX +AND THE S & P FOOTWEAR +INDEX +* Assumes $100 invested on 6/9/99 in stock +or on 5/31/99 in index — including reinvestment of +dividends. Fiscal year ending December 31. +The Standard & Poor’s Shoes Index +consists of NIKE and Reebok International. The Standard & +Poor’s Shoe Index includes companies in one major line of +business in which the Company competes. The index does not +encompass all of the Company’s competitors nor all product +categories and lines of business in which the Company is engaged. +The stock performance of the Company’s +Class A Common Stock shown on the graph above is not +necessarily indicative of future performance. The Company will +not make nor endorse any predictions as to its future stock +performance. +Company/Market/ +Index +6/9/99 +6/30/99 +9/30/99 +12/31/99 +3/31/00 +6/30/00 +9/30/00 +12/31/00 +3/31/01 +6/30/01 +9/30/01 +12/31/01 +3/31/02 +6/30/02 +9/30/02 +12/31/02 +SKECHERS USA, INC. +$ +100.00 +$ +95.45 +$ +43.18 +$ +34.66 +$ +64.21 +$ +143.75 +$ +137.50 +$ +140.91 +$ +218.18 +$ +265.73 +$ +106.18 +$ +132.91 +$ +171.91 +$ +196.45 +$ +86.73 +$ +77.18 +S & P 500 +100.00 +105.55 +98.96 +113.68 +116.29 +113.20 +112.11 +103.33 +91.08 +96.41 +82.26 +91.05 +91.30 +79.07 +65.41 +70.93 +S & P FOOTWEAR +100.00 +106.46 +91.27 +79.42 +64.48 +67.15 +68.64 +96.21 +71.76 +76.58 +80.52 +97.49 +103.95 +94.98 +77.10 +80.91 +13 +Table of Contents +COMPLIANCE WITH SECTION 16(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Act of 1934 +(the “Exchange Act”) requires the Company’s +officers, directors and persons who own more than ten percent of +a registered class of the Company’s securities, to file +with the Securities and Exchange Commission initial reports of +ownership and reports of changes in ownership of Securities of +the Company. Officers, directors and greater than ten percent +stockholders are required by the Securities and Exchange +Commission’s regulations to furnish the Company with copies +of all Section 16(a) forms they file. +Based solely on the Company’s review of the +copies of such reports furnished to the Company, management +believes that all officers, directors and greater than ten +percent stockholders complied with the filing requirements of +Section 16(a) for the fiscal years ended December 31, +2001 and 2002, except that Robert Greenberg filed one report +late with respect to six transactions that were inadvertently +omitted from a report filed in June 2001. +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a director of the Company, is +a partner of the law firm of Kirkpatrick & Lockhart, LLP +which provides legal services to the Company. The Company paid +$592,000 to Kirkpatrick & Lockhart, LLP for legal services +that were provided to the Company in 2002. +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +14 +Table of Contents +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain +information regarding the beneficial ownership of the +Company’s Class A Common Stock and Class B Common +Stock as of April 18, 2003 by (i) each director and +nominated director of the Company, (ii) each of the Named +Executive Officers, (iii) each person known to the Company +to be beneficial owner of more than 5% of either class of the +Common Stock and (iv) all directors and executive officers +of the Company as a group. +Shares Beneficially Owned +Number +of +Number of +Percent of +Percent of +Class A +Class B +Class A +Class B +Name of Beneficial Owner(1) +Shares +Shares(2) +Shares(3) +Shares(3) +Robert Greenberg +— +14,824,366 +(4) +— +77.2 +% +Michael Greenberg +55,059 +(5) +1,176,419 +(6) +* +6.1 +Jeffrey Greenberg +63,325 +(7) +759,208 +* +4.0 +David Weinberg +214,484 +(8) +— +1.1 +% +— +Geyer Kosinski +13,750 +(9) +— +* +— +Richard Siskind +41,250 +(9) +— +* +— +Thomas J. Poletti +23,750 +(9) +— +* +— +Mark Nason +106,391 +(10) +— +* +— +Joe Phillips +31,250 +(9) +— +* +— +Caxton Associates, LLC +994,400 +(11) +— +5.4 +— +All directors and executive officers as a group +(10 persons) +575,509 +(12) +16,759,993 +3.0 +87.3 +* +Less than 1.0% +(1) +To the Company’s knowledge, except as set +forth in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole +voting and investment power with respect to the shares of Common +Stock set down opposite such person’s name. With the +exception of Caxton Associates, LLC, each of such persons may be +reached at 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. +(2) +The Class B Common Stock is convertible at +any time into shares of the Class A Common Stock on a +share-for-share basis. See “Certain Relationships and +Related Transactions” for a description of transactions +between the Greenberg Family Trust, of which Robert Greenberg is +a trustee, Michael Greenberg and the Company. +(3) +The percentage ownership is calculated using +18,571,133 shares of Class A Common Stock and +19,206,561 shares of Class B Common Stock that were +outstanding on April 18, 2003. Beneficial ownership is +determined in accordance with the rules of the Securities and +Exchange Commission and generally includes voting or investment +power with respect to the securities. In computing the number of +shares beneficially owned by a person and the percentage +ownership of that person, shares of Class A Common Stock +subject to options held by that person that are currently +exercisable or exercisable within 60 days of April 18, +2003 are deemed outstanding. Such shares, however, are not +deemed outstanding for the purposes of computing the percentage +ownership of each other person. +(4) +Includes 13,957,666 shares of Class B +Common Stock that Robert Greenberg, Chief Executive Officer and +Chairman of the Board of the Company, is deemed to beneficially +own as a trustee of the Greenberg Family Trust. Susan Greenberg, +Robert Greenberg’s wife, is also a trustee of the Greenberg +Family Trust and is also deemed to beneficially own all shares +held by the Greenberg Family Trust. +(5) +Includes 42,500 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 18, 2003, and includes +9,234 shares of Class A Common Stock beneficially +owned by Michael Greenberg, President and a Director of the +Company, indirectly through his wife, +15 +Table of Contents +Wendy Greenberg, and their children. Michael +Greenberg disclaims beneficial ownership of the 9,234 shares +except to the extent of his pecuniary interest therein. +(6) +Represents 1,176,419 shares of Class B +Common Stock that Michael Greenberg, President and a Director of +the Company, is deemed to beneficially own as a trustee of the +Michael and Wendy Greenberg Family Trust. Wendy Greenberg, +Michael Greenberg’s wife, is a trustee of the Michael and +Wendy Greenberg Family Trust and is also deemed to beneficially +own all shares held by the Michael and Wendy Greenberg Family +Trust. +(7) +Includes 60,000 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 18, 2003. +(8) +Includes 138,565 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 18, 2003. +(9) +Represents shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of April 18, 2003. +(10) +Includes 104,768 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 18, 2003. +(11) +Information is based on a Schedule 13G filed +with the SEC on January 17, 2003. Principal business office +of Caxton Associates, LLC is located at Princeton Plaza, +Building 2, 731 Alexander Road, Princeton, NJ 08540. +Bruce S. Kovner is the Chairman of Caxton Associates and +the Chairman and sole owner of Caxton Corporation. Caxton +Corporation is the Managing Member and majority owner of Caxton +Associates. Caxton Associates is the trading advisor to GDK and, +as such, has voting and dispositive power with respect to the +investments made by GDK. Mr. Kovner may be deemed +beneficiary to own these shares that are the investment of GDK. +(12) +Includes 482,083 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 18, 2003. +As of April 18, 2003, Robert Greenberg, his +children, and the Greenberg Family Trust beneficially own all of +the Class B Common Stock and approximately 91.2% of the +combined voting power of the Company’s Class A and +Class B Common Stock. By virtue of this stock ownership, +Robert Greenberg may be deemed to be a “control +person” of the Company within the meaning of the rules and +regulations promulgated under the Securities Act of 1933, as +amended, and the Greenberg Family Trust influences the election +of Robert Greenberg. Michael Greenberg, the Company’s +President, and Jeffrey Greenberg, both of whom are members of +the Board of Directors of the Company, are each beneficiaries of +the Greenberg Family Trust. +PROPOSAL NO. 2 +APPROVAL OF AMENDMENT TO 1998 STOCK OPTION, +DEFERRED +STOCK AND RESTRICTED STOCK PLAN +The stockholders are being asked to vote on a +proposal to approve an amendment to increase the number of +shares of Class A Common Stock authorized for issuance +under the Stock Option Plan by an additional +3,000,000 shares. The amendment to the Stock Option Plan +was approved by the Board of Directors on April 1, 2003, +subject to stockholder approval. The proposed amendment would +increase the authorized number of shares of Class A Common +Stock issuable under the Stock Option Plan by +3,000,000 shares and would reserve the additional shares +for issuance under the Stock Option Plan, bringing the total +number of shares of Class A Common Stock subject to the +Stock Option Plan to 11,215,154. The Company’s Board of +Directors believes it is in the best interests of the Company to +increase the share reserve so that the Company can continue to +attract and retain the services of those persons essential to +the Company’s growth and financial success. The Stock +Option Plan was originally approved by the Board of Directors +and stockholders in January 1998. +16 +Table of Contents +SUMMARY OF STOCK OPTION PLAN +For a description of the Stock Option Plan, +please see “Executive Compensation — Stock Option +Plan.” +FEDERAL INCOME TAX CONSEQUENCES +Incentive Stock Options +There is no taxable income to an employee of the +Company when an incentive stock option is granted or when that +option is exercised; however, generally the amount by which the +fair market value of the shares at the time of exercise exceeds +the option price will be included in the optionee’s +alternative minimum taxable income upon exercise. If the shares +of Class A Common Stock received upon exercise of the +incentive stock option are disposed of in the same year the +option was exercised, and the amount realized is less than the +Class A Common Stock’s fair market value at the time +of exercise, the amount includable in the alternative minimum +taxable income will be the amount realized upon the sale or +exchange of the shares, less the optionee’s basis in the +shares of Class A Common Stock. Gain realized by an +optionee upon the sale of shares of Class A Common Stock +issued upon exercise of an incentive stock option is taxable as +long — term capital gain, in accordance with the +applicable holding periods, and no tax deduction is available to +the Company, unless the optionee disposed of the shares of +Class A Common Stock of the Company within two years after +the date of grant of the option or within one year after the +date of exercise. In such event, the difference between the +option exercise price and the fair market value of the +Class A Common Stock on the date of the optionee’s +exercise will be taxed at ordinary income rates, and, subject to +Section 162(m) of the Code, the Company will be entitled to +a deduction to the extent the optionee must recognize ordinary +income. +Nonqualified Stock Options +The recipient of a nonqualified stock option will +not realize taxable income upon the grant of the option, nor +will the Company be entitled to take any deduction. Upon the +exercise of a nonqualified stock option, the optionee will +realize ordinary income and, subject to Section 162(m) of +the Code, the Company will be entitled to a deduction in an +amount equal to the difference between the option exercise price +and the fair market value of the Class A Common Stock on +the date of exercise. The Company may be required to withhold +taxes on the ordinary income realized by an optionee upon +exercise of nonqualified stock options in order to be entitled +to the tax deduction. An optionee’s basis for the shares of +Class A Common Stock for purposes of determining gain or +loss on any subsequent disposition of the shares generally will +be the fair market value of the Class A Common Stock on the +date of exercise of the nonqualified stock options. +Restricted Stock +The receipt of restricted stock will not cause a +recipient to realize taxable income until the expiration of any +repurchase rights retained by the Company with respect to such +stock, unless the recipient makes an election under +Section 83(b) of the Code to be taxed as of the date of +such purchase. If no repurchase rights are retained or if a +Section 83(b) election is made, the participant will +recognize ordinary income in an amount equal to the difference +between the purchase price paid for the shares of Class A +Common Stock and the fair market value of such shares on the +date of purchase. If no Section 83(b) election is made or +if repurchase rights are retained, the recipient will realize +taxable income on each date that the recipient’s ownership +rights vest (when the Company no longer has the right to +repurchase all or a portion of the shares). The recipient will +recognize ordinary income, and, subject to Section 162(m) +of the Code, the Company will be entitled to a deduction on each +date shares of Class A Common Stock vest in an amount equal +to the excess of the fair market value of such shares on that +date over the purchase price paid for such shares. However, if +the recipient is subject to Section 16(b) of the Exchange +Act and if no Section 83(b) election was made at the time +of purchase, the date that ordinary income is recognized for +shares which vest within six months of purchase dates shall be +deferred to six months from the date of purchase. +The foregoing summary is not a complete +description of the U.S. Federal income tax aspects of the +Stock Option Plan. Moreover, the foregoing summary relates only +to Federal income taxes; there may also be +17 +Table of Contents +Federal estate and gift tax consequences +associated with the Stock Option Plan, as well as foreign, state +and local tax consequences. +PROPOSAL NO. 3 +RATIFICATION OF APPOINTMENT OF INDEPENDENT +ACCOUNTANTS +For the 2002 fiscal year, KPMG LLP provided audit +services which included examination of the Company’s annual +consolidated financial statements. Upon the recommendation of +the Audit Committee, the Company’s Board of Directors has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2003. The stockholders are being requested to ratify such +selection at the Annual Meeting of Stockholders. A +representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +STOCKHOLDERS’ PROPOSALS +Stockholders’ proposals intended to be +presented at the Company’s next Annual Meeting of +Stockholders to be held in 2004 must be received at the +Company’s principal executive offices no later than +January 1, 2004, in order to be considered for inclusion in +the proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular Rule 14a-8 under the +Exchange Act, to be included in the Company’s proxy +materials. Stockholders who wish to submit a proposal for +consideration at the Company’s 2004 Annual Meeting of +Stockholders, but who do not wish to submit a proposal for +inclusion in the Company’s Proxy Statement, must, in +accordance with the Company’s bylaws, deliver a copy of +their proposal no later than the close of business on +April 2, 2004 nor earlier than March 3, 2004. In +either case, proposals should be delivered to Skechers U.S.A., +Inc., 228 Manhattan Beach Blvd., Manhattan Beach, California +90266, Attention: Michael Greenberg, President. To avoid +controversy and establish timely receipt by the Company, it is +suggested that stockholders send their proposals by certified +mail, return receipt requested. +OTHER BUSINESS +The Board of Directors does not know of any other +matter to be acted upon at the meeting. However, if any other +matter shall properly come before the meeting, the proxyholders +named in the proxy accompanying this Proxy Statement will have +authority to vote all proxies in accordance with their +discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2003 +Manhattan Beach, California +18 +Table of Contents +Please date, sign and mail your proxy card back as soon as possible! +Annual Meeting of Stockholders +SKECHERS U.S.A., INC. +May 30, 2003 +â Please Detach and Mail in the Envelope Provided â +A x Please mark your votes as in this example. +The Board of Directors unanimously recommends that you vote FOR the nominees +listed in Proposal 1 and FOR Proposal 2 and Proposal 3. +1. +Election of +Nominees +FOR all the nominees +listed at right (except +as marked to the contrary +below) +WITHHOLD AUTHORITY to +vote for the nominees +Nominees: +Robert Greenberg +Thomas J. Poletti +o +o +2. +Ratify the amendment to the 1998 Stock Option, Deferred Stock and +Restricted Stock Plan increasing the number of shares of Class A Common +Stock authorized for issuance under the Stock Option Plan. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Ratify the appointment of KPMG LLP as independent accountants for the year +ending December 31, 2003. +FOR +AGAINST +ABSTAIN +o +o +o +4. +Each of the persons named as proxies herein are authorized, in such +person’s discretion, to vote upon such other matters as may properly come +before the Annual Meeting, or any adjournments thereof. +PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS HEREON, DATE AND RETURN THIS PROXY +CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +MARK HERE FOR CHANGE OF ADDRESS AND NOTE AT LEFT +o +Signature: +Signature, if held jointly +Dated: +,2003 +NOTE: +Please date this Proxy and sign it exactly as your name(s) appears +hereon. When shares are held by joint tenants, both should sign. When +signing as an attorney, executor, administrator, trustee, guardian or +other fiduciary, please indicate your capacity. If you sign for a +corporation, please print full corporate name and indicate capacity of +duly authorized officer executing on behalf of the corporation. If you +sign for a partnership, please print full partnership name and indicate +capacity of duly authorized person executing on behalf of the partnership. +Table of Contents +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 30, 2003 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware +corporation, hereby acknowledges receipt of the Notice of Annual Meeting of +Stockholders and Proxy Statement, each dated April 30, 2003, and hereby +appoints Michael Greenberg and David Weinberg and each of them, with full power +of substitution, as attorneys-in-fact and proxies for, and in the name and +place of, the undersigned, and hereby authorizes each of them to represent and +to vote all of the shares which the undersigned is entitled to vote at the +Annual Meeting of Stockholders of Skechers U.S.A., Inc. to be held at the +Ritz-Carlton Hotel, 4375 Admiralty Way, Marina Del Rey, California 90292, on +Friday, May 30, 2003, at 10:00 a.m., Pacific time, and at any adjournments +thereof, upon the matters as set forth in the Notice of Annual Meeting of +Stockholders and Proxy Statement, receipt of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL +BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER +DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, +THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR +APPROVAL OF PROPOSAL 2 and PROPOSAL 3 AS DESCRIBED IN THE PROXY, AND IN +ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY +OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-03-001083/proxy_rpt.txt b/raw/proxies/0001065837/0000950148-03-001083/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..51aeb4780f9fd8cb8a10d72cbe7ae6af0f3bfc90 --- /dev/null +++ b/raw/proxies/0001065837/0000950148-03-001083/proxy_rpt.txt @@ -0,0 +1,38 @@ +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a director of the Company, is +a partner of the law firm of Kirkpatrick & Lockhart, LLP +which provides legal services to the Company. The Company paid +$592,000 to Kirkpatrick & Lockhart, LLP for legal services +that were provided to the Company in 2002. +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +14 +Table of Contents \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-04-000823/proxy.txt b/raw/proxies/0001065837/0000950148-04-000823/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..7fff42fe1a5be5d9127fc45017b66b114e0f674a --- /dev/null +++ b/raw/proxies/0001065837/0000950148-04-000823/proxy.txt @@ -0,0 +1,2023 @@ +DEF 14A +1 +v98521def14a.htm +DEFINITIVE PROXY STATEMENT +Skechers U.S.A., Inc. +SCHEDULE 14A INFORMATION +PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +(AMENDMENT NO.___) +Filed by the Registrant +x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +o +Fee not required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction +computed pursuant to Exchange Act Rule 0-11 (set forth the +amount on which the filing fee is calculated and state how it +was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the +filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +You are cordially invited to attend the Annual +Meeting of Stockholders of SKECHERS U.S.A., INC., a Delaware +corporation (the “Company”), to be held at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina +Del Rey, CA 90292 on May 28, 2004, at 10:00 a.m., +Pacific Time. +The Annual Meeting of the Stockholders of the +Company is being held for the following purposes: +1. +To elect three members to the Board of Directors +to serve for a three-year term as Class II Directors; +2. +To ratify the appointment of KPMG LLP as the +independent accountants of the Company for the year ending +December 31, 2004; and +3. +To transact such other business as may properly +come before the meeting or any adjournments thereof. +The Board of Directors has fixed the close of +business on April 21, 2003 as the record date for +determining those stockholders who will be entitled to vote at +the meeting. +Your proxy is enclosed. You are cordially invited +to attend the meeting, but if you do not expect to attend, or if +you plan to attend, but desire the proxy holders to vote your +shares, please date and sign your proxy and return it in the +enclosed postage paid envelope. The giving of this proxy will +not affect your right to vote in person in the event you find it +convenient to attend. Please return the proxy promptly to avoid +the expense of additional proxy solicitation. +Dated: April 29, 2004 +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be Held +May 28, 2004, at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by +Skechers U.S.A., Inc. (the “Company” or +“Skechers”), a Delaware corporation, in connection +with the Annual Meeting of Stockholders of the Company to be +held on May 28, 2004 at 10:00 a.m. Pacific Time at The +Ritz-Carlton Hotel located at 4375 Admiralty Way, Marina +Del Rey, CA 90292 (the “Meeting”). The +approximate mailing date for this proxy statement and the +enclosed proxy is May 7, 2004. If a proxy in the +accompanying form is duly executed and returned, the shares +represented by the proxy will be voted as directed. If no +direction is given, the shares represented by the proxy will be +voted for the election of the nominees for director named herein +and for the ratification of the appointment of KPMG LLP as the +Company’s independent accountants for the year ending +December 31, 2004. Any proxy given may be revoked at any +time prior to its exercise by notifying the Corporate Secretary +of the Company in writing of such revocation, by duly executing +and delivering another proxy bearing a later date, or by +attending and voting in person at the Meeting. The +Company’s principal executive office is located at +228 Manhattan Beach Boulevard, Manhattan Beach, California +90266. +The cost of this solicitation of proxies will be +borne by the Company. Solicitations will be made by mail. In +addition, the officers and regularly engaged employees of the +Company may, in a limited number of instances, solicit proxies +personally or by telephone. The Company will reimburse banks, +brokerage firms, other custodians, nominees and fiduciaries for +reasonable expenses incurred in sending proxy materials to +beneficial owners of common stock of the Company. +The Company’s Annual Report to Stockholders +for the year ended December 31, 2003 is concurrently being +provided to each stockholder. +Holders of Class A Common Stock and +Class B Common Stock of record at the close of business on +April 21, 2004 will be entitled to vote at the Meeting. +There were 20,581,068 shares of Class A Common Stock +and 17,771,189 shares of Class B Common Stock +outstanding at that date. Each share of Class A Common +Stock is entitled to one vote and each share of Class B +Common Stock is entitled to ten votes, and the presence in +person or by proxy of holders of a majority of the outstanding +shares of Class A Common Stock and Class B Common +Stock is necessary to constitute a quorum for the Meeting. The +affirmative vote of a plurality of all of the votes cast at a +meeting at which a quorum is present is necessary for the +election of each of the nominees for director. For purposes of +the election of directors, abstentions and broker non-votes will +not be counted as votes cast and will have no effect on the +result of the vote, although they will count toward the presence +of a quorum. The affirmative vote of a majority of all votes +cast at a meeting at which a quorum is present is necessary for +the ratification of the appointment of KPMG LLP as the +Company’s independent accountants. For purposes of the vote +on this matter, abstentions and broker non-votes will not be +counted as votes cast and will have no effect on the result of +the vote although they will count toward the presence of a +quorum. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Company’s Board of Directors is divided +into three classes, with each class serving a three-year term +and thereafter until their successors are duly elected and +qualified or until death, resignation or removal. One class of +directors is elected annually at the Annual Meeting of +Stockholders. The Company’s Bylaws currently provide for a +variable Board of Directors with a range of between five and +nine members. The Company currently has seven members on its +Board of Directors. The Company’s Bylaws give the Board of +Directors the authority to establish, increase or decrease the +number of directors. +Unless otherwise directed by stockholders within +the limits set forth in the Bylaws, the proxy holders will vote +all shares represented by proxies held by them for the election +of Michael Greenberg, Jeffrey Greenberg and David Weinberg who +are currently members of the Company’s Board of Directors. +The Company has been advised by Michael Greenberg, Jeffrey +Greenberg and David Weinberg of their availability and +willingness to serve if elected. In the event that Michael +Greenberg, Jeffrey Greenberg and David Weinberg becomes +unavailable or unable to serve as a member of the Company’s +Board of Directors prior to the voting, the proxy holders will +refrain from voting for them or will vote for a substitute +nominee in the exercise of their best judgment. +Information Concerning Director +Nominees +Class and Year +in Which Term +Name +Age +Will Expire +Position +Michael Greenberg +41 +Class II (2007) +President and Director +Jeffrey Greenberg +36 +Class II (2007) +Vice President of Electronic Media and Director +David Weinberg +53 +Class II (2007) +Executive Vice President, Chief Financial Officer +and Director +Michael Greenberg +has served as the President and a +member of the Board of Directors of the Company since its +inception in 1992, and from June 1992 to October 1993, he was +Chairman of the Board. From 1989 to 1992, Mr. Greenberg was +the National Sales Manager of L.A. Gear, Inc. (“L.A. +Gear”), an athletic and casual footwear and apparel +company. Previously, from 1986 to 1989, he was the Regional +Sales Manager of L.A. Gear for the West Coast, and from 1984 to +1986, he was an account representative for the West Coast at +L.A. Gear. +Jeffrey Greenberg +has served as a member of the Board of +Directors of the Company since September 2000 and Vice President +of Electronic Media of the Company since January 1998. +Previously, Mr. Greenberg served as Chief Operating +Officer, Secretary and a member of the Board of Directors of the +Company from June 1992 to July 1998 and as Chief Executive +Officer from June 1992 to October 1993. +David Weinberg has +served as Chief Financial Officer of the Company since October +1993 and Executive Vice President and a member of the Board of +Directors since July 1998. From June 1989 to September 1992, +Mr. Weinberg served as Vice President, Credit and +Collections at L.A. Gear. +2 +Directors Not Standing for Election +The members of the Board of Directors who are not +standing for election at this year’s Annual Meeting of +Stockholders are set forth below. +Class and Year +in Which Term +Name +Age +Will Expire +Position +Robert Greenberg +64 +Class I (2006) +Chairman of the Board and Chief Executive Officer +Frederick H. Schneider(1) +47 +Class I (2006) +Director +Richard Siskind(1) +58 +Class III (2005) +Director +Geyer Kosinski(1) +37 +Class III (2005) +Director +(1) +Member of the Audit Committee +Robert Greenberg has +served as the Chairman of the Board and Chief Executive Officer +of the Company since October 1993. From 1979 to 1992, +Mr. Greenberg was the Chairman of the Board and President +of L.A. Gear. +Frederick H. Schneider +has served as a member of the Board of +Directors since February 2004. Mr. Schneider currently is +an independent private equity investor and consultant. Since May +2000, he has served as a Director and a member of the Audit +Committee for Sport Chalet, Inc. (NASDAQ:SPCH). From September +1994 to January 1998, he served as Chief Financial Officer and +Principal of Leonard Green & Partners, L.P., a merchant +banking firm specializing in leveraged buyouts, where he played +a key role in various acquisitions as well as dealing with +investors. From June 1978 to September 1994, he was with KPMG +Peat Marwick, including as an Audit and Due Diligence Partner +from June 1989 to September 1994. +Richard Siskind has +served as a member of the Board of Directors of the Company +since June 1999. Since November 2002, Mr. Siskind has +served as President and a member of the Board of Directors of +Magic Lantern Group, Inc. (AMEX: GML), which changed its name +from JKC Group, Inc. From May 1998 to November 2002, +Mr. Siskind served as President, Chief Executive Officer +and a member of the Board of Directors of Stage II Apparel +Corp. (AMEX:SA), which changed its name to JKC Group, Inc. +(AMEX:JKC) in April 2002. In 1991, Mr. Siskind founded +R. Siskind & Company, a business that purchases +brand name men’s and women’s apparel and accessories +and redistributes those items to off-price retailers, and he is +its sole shareholder, Chief Executive Officer, President and +sole member of its Board of Directors. +Geyer Kosinski has +served as a member of the Board of Directors since November +2001. Since 1997, Mr. Kosinski has been a Managing Partner +and co-owner of Industry Entertainment, a talent management and +production company that produces feature films and television +programming and manages over 100 actors, writers and +directors. From 1992 to 1997, Mr. Kosinski was an agent at +The William Morris Agency, representing talent including George +Clooney, Robert Downey, Jr., Kevin Spacey, Angelina Jolie +and Billy Bob Thornton, and packaging such movies as Sling +Blade and Albino Alligator. +Executive Officers +The following table sets forth certain +information with respect to the executive officers of the +Company who are not also directors. For information concerning +Robert Greenberg, Michael Greenberg and David Weinberg, see +“Election of Directors,” above. +Name +Age +Position +Philip G. Paccione +42 +General Counsel; Executive Vice President, +Business Affairs Corporate Secretary +Mark Nason +42 +Executive Vice President, Merchandising +Philip G. Paccione +has served as Executive Vice +President, Business Affairs since February 2000, Corporate +Secretary since July 1998, and General Counsel of the Company +since May 1998. Before joining the Company and since June 1997, +Mr. Paccione was an attorney at the law firm of +Riordan & McKinzie, in +3 +Los Angeles, and from May 1996 to June 1997 he +was a sole practitioner of law. Mr. Paccione also practiced +law at the law firm of Gartner & Young from December +1994 to May 1996 and at the law firm of Kelley, Drye & +Warren from June 1991 to December 1994. +Mark Nason has +served as our Executive Vice President, Merchandising since +March 2002. From January 1998 to March 2002, Mr. Nason +served as our Vice President, Retail and Merchandising, and from +December 1993 to January 1998, he served as our Director of +Merchandising and Retail Development. From January 1981 through +November 1993, Mr. Nason was employed in various +capacities, including General Merchandising Manager, Director of +Visual Merchandising and Buyer at Track ’n Trail. +Robert Greenberg is the father of Michael +Greenberg and Jeffrey Greenberg; other than the foregoing, no +family relationships exist between any of the directors or +executive officers of the Company. +CORPORATE GOVERNANCE AND BOARD +MATTERS +Compensation of Directors +The Company pays its non-employee directors +annual compensation of $15,000 for their services. Frederick +Schneider is paid an additional $10,000 annually for his role as +Chairman of the Audit Committee. All compensation is paid +annually. In addition, non-employee directors receive a fee of +$1,000 for each board meeting attended. Non-employee directors +attending any committee meeting receive an additional fee of +$750 for each committee meeting attended, unless the committee +meeting is held on the day of a meeting of the Board of +Directors, in which case they receive no additional compensation +for the committee meeting. Non-employee directors are also +reimbursed for reasonable costs and expenses incurred for +attending any director or committee meetings. Officers of the +Company who are members of the Board of Directors are not paid +any directors’ fees. Directors are eligible to receive, +from time to time, grants of options to purchase shares of +Common Stock under the 1998 Stock Option, Deferred Stock and +Restricted Stock Plan as determined by the Board of Directors. +During 2003, no options were granted to any of the directors. +Committees and Attendance at Board and Annual +Meetings +The Board of Directors met two times in 2003. All +of the directors attended each of the Board meetings. The +Company does not have a policy requiring its directors to attend +the Annual Meeting of Stockholders. In 2003, all but one of the +directors attended the Annual Meeting of Stockholders. +Under the New York Stock Exchange +(“NYSE”) Listed Company Manual, the Company is +considered a “Controlled Company” because Robert +Greenberg, both directly and indirectly, owns 65.1% of the +voting power in the Company (see “Security Ownership of +Certain Beneficial Owners and Management”). As a Controlled +Company, the Company is exempt from certain NYSE listing +standards, including the requirements to maintain a majority of +independent directors and to have a nominating or compensation +committee. The Company does not presently require the Board of +Directors to consist of a majority of independent directors, nor +does the Company have a nominating committee or compensation +committee. +Audit Committee +The Audit Committee is responsible for overseeing +(1) the quality and integrity of the Company’s +financial statements, (2) the appointment, compensation, +independence and performance of the independent auditors, +(3) the Company’s compliance with legal and regulatory +requirements, and (4) the performance of internal audit and +controls function. The Audit Committee is currently comprised of +Chairman Frederick H. Schneider, Geyer Kosinski and Richard +Siskind, each of whom is independent under NYSE independence +standards. In February 2004, Frederick H. Schneider replaced +Thomas Poletti who previously served as Chairman of the Audit +Committee The Audit Committee met four times during 2003. Each +Audit Committee member attended all of the meetings, except +Geyer Kosinski who was unable to attend two of the meetings. +4 +The Audit Committee currently acts under a +written Audit Committee Charter adopted by the Board of +Directors on May 31, 2000. A copy of the current Audit +Committee Charter, which is subject to change from time to time +by the Company’s Board of Directors, is attached as an +Appendix to this Proxy Statement. The Board of Directors is +currently reviewing a new charter for the Audit Committee that +complies with the new corporate governance rules of the NYSE and +will have a new charter approved and effective at the time of +the Annual Meeting of Stockholders. The new Audit Committee +Charter will be published in the corporate governance section of +the investor relations page of our website located at +www.skechers.com . +Audit Committee Financial Expert +Frederick H. Schneider, who serves as the +Chairman on the Audit Committee, is an “audit committee +financial expert” as defined under Item 401(h) of +Regulation S-K. Mr. Schneider is an independent member +of the Audit Committee under NYSE independence standards. +Director Nominations +As a Controlled Company under the NYSE rules, the +Company is not required to and currently does not have a +nominating committee. The Chairman of the Board, in consultation +with the President and Chief Financial Officer, performs the +functions of a nominating committee, including the +identification and evaluation of director candidates. Nominees +for directors are identified and recommended by the Chairman of +the Board and presented to the full Board of Directors. +Qualifications and skills that the Board of Directors require in +directors are set forth in the Company’s Corporate +Governance Guidelines, which will be adopted and published in +the corporate governance section of the investor relations page +of our website located at www.skechers.com by the +time of the Annual Meeting of Stockholders. The Board seeks +members from diverse professional and personal backgrounds who +combine a broad spectrum of experience and expertise with a +reputation for integrity. Factors considered in evaluating a +director candidate include the evaluation of diversity, age, +skills and experience in the context of the needs of the Board. +Additionally, directors should not serve on more than two boards +of public companies in addition to the Board. The Board of +Directors believes that the functions of nominating committee +are more than adequately performed by the Chairman of the Board +and the Board of Directors as a whole. +Pursuant to the Company’s bylaws, a +stockholder may nominate a person for election as a director at +an annual meeting of stockholders only if written notice of such +stockholder’s intent to make such nomination has been given +to the Secretary of the Company not later than ninety +(90) days in advance of the meeting or, if later, the +seventh day following the first public announcement of the date +of the meeting. Each notice is required to set forth certain +information, including (1) the name and address of the +stockholder and of the person or persons to be nominated, +(2) a description of all arrangements or understandings +between the stockholder and each nominee pursuant to which the +nomination is to be made, (3) information regarding each +nominee as would be required to be included in a proxy statement +filed pursuant to the proxy rules of the United States +Securities and Exchange Commission had the nominee been +nominated, or intended to be nominated, by the Board, and +(4) the consent of each nominee to serve as a director if +so elected. The stockholder must also promptly provide any other +information reasonably requested by the Company. +Stockholder Communication with the Board of +Directors +Stockholders who wish to contact any of our +directors either individually or as a group may do so by writing +to them c/o Philip G. Paccione, Secretary, SKECHERS U.S.A., +INC., 228 Manhattan Beach Boulevard, Manhattan Beach, +California 90266. Each writing stockholder should specify +whether the communication is directed to the entire Board of +Directors or to a particular director. Company personnel will +review the communications and screen improper and irrelevant +communications such as solicitations. +Code of Business Conduct and Ethics +The Code of Business Conduct and Ethics, which +will apply to all directors, officers and employees, is +currently being reviewed by the Board of Directors and will be +adopted no later than the date of the Annual +5 +Meeting of Stockholders. The purpose of the Code +will be to promote honest and ethical conduct. The Code will be +published in the corporate governance section of the investor +relations page of our website located at +www.skechers.com no later than the date of the +Annual Meeting of Stockholders, and will be available in print, +without charge, upon written request to the Secretary at +SKECHERS U.S.A., INC., 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. The Company intends to +promptly post any amendments to or waivers of the Code on the +Company’s website. +6 +EXECUTIVE COMPENSATION +The following table sets forth information +concerning the annual and long-term compensation earned by the +Company’s Chief Executive Officer and each of the other +named executive officers whose annual salary and bonus during +2001, 2002 and 2003 exceeded $100,000 (the “Named Executive +Officers”). +Summary Compensation Table +Long-Term +Compensation +Awards +Annual Compensation +Securities +Other Annual +Underlying +All Other +Name and Principal Position +Year +Salary($) +Bonus($) +Compensation($) +Options(#) +Compensation($) +Robert Greenberg +2003 +986,538 +— +— +(1) +— +11,157 +(3) +Chairman of the Board; +2002 +500,102 +— +8,603 +(2) +— +10,192 +(3) +Chief Executive Officer +2001 +500,000 +500,109 +7,822 +(2) +— +7,082 +(3) +Michael Greenberg +2003 +745,961 +— +19,774 +(2) +— +21,296 +(4) +President +2002 +584,616 +108,122 +16,703 +(2) +50,000 +19,273 +(4) +2001 +350,000 +1,162,895 +16,692 +(2) +— +12,866 +(4) +David Weinberg +2003 +674,307 +— +23,611 +(2) +— +17,109 +(5) +Executive Vice President; +2002 +494,231 +108,122 +24,210 +(2) +50,000 +15,848 +(5) +Chief Financial Officer +2001 +250,000 +987,895 +20,782 +(2) +110,000 +9,832 +(5) +Mark Nason(6) +2003 +645,961 +— +— +— +14,960 +(7) +Executive Vice President, +2002 +493,077 +86,518 +— +50,000 +13,687 +(7) +Merchandising +Philip G. Paccione +2003 +307,709 +— +— +— +9,806 +(8) +General Counsel; Executive +2002 +248,039 +21,706 +— +25,000 +8,764 +(8) +Vice President, Business +2001 +165,000 +165,107 +— +40,000 +6,427 +(8) +Affairs; Corporate Secretary +Joe Phillips(9) +2003 +364,009 +— +— +— +158,300 +(10) +Former Executive Vice +2002 +395,062 +21,706 +— +25,000 +13,701 +(11) +President, Domestic Sales +(1) +Excludes the purchase of a car for $66,594 by the +Company that is owned by the Company and used by +Mr. Greenberg. +(2) +Represents the amount of an automobile lease for +the benefit of each executive officer. With respect to David +Weinberg, excludes rental payments of $32,000 in 2003 and +$48,000 in each of 2002 and 2001 made by the Company directly to +landlord regarding property used primarily for corporate +purposes but which is leased under the individual’s name. +(3) +Represents health and life insurance payments for +2003, 2002 and 2001, respectively. +(4) +Represents health and life insurance payments of +$15,296, $13,773 and $9,828, and contributions of $6,000, $5,500 +and $3,038 by the Company under its 401(k) Plan for 2003, 2002 +and 2001, respectively. +(5) +Represents health and life insurance payments of +$11,109, $9,848 and $6,794, and contributions of $6,000, $6,000 +and $3,038 by the Company under its 401(k) Plan for 2003, 2002 +and 2001, respectively. +(6) +Mr. Nason began serving as an executive +officer of the Company in March 2002. +(7) +Represents health and life insurance payments of +$14,830 and $13,557 and contributions of $130 and $130 by the +Company under its 401(k) Plan for 2003 and 2002, respectively. +(8) +Represents health and life insurance payments of +$3,806, $3,264 and $3,389, and contributions of $6,000, $5,500 +and $3,038 by the Company under its 401(k) Plan for 2003, 2002 +and 2001, respectively. +7 +(9) +Mr. Phillips’ service as an executive +officer of the Company began in March 2002 and ended in July +2003. Mr. Phillips continued his employment at the Company +as a non-executive employee from July through October 2003, at +which point Mr. Phillips ceased to be employed by the +Company. +(10) +Includes health and life insurance payments of +$15,142 and contributions of $3,453 by the Company under its +401(k) Plan. Includes payments made in connection with the +severance package provided to Mr. Phillips, including +$101,653 as salary for the remainder of the year after +Mr. Phillips’ departure in October 2003, $34,614 in +accrued vacation time, and $3,438 in COBRA payments. +(11) +Represents health and life insurance payments. +Stock Option Plan +In January 1998, the Company’s Board of +Directors and stockholders adopted the 1998 Stock Option, +Deferred Stock and Restricted Stock Plan (the “Stock Option +Plan”), which provides for the grant of qualified incentive +stock options (“ISOs”) that meet the requirements of +Section 422 of the Internal Revenue Code of 1986, as +amended (the “Code”), stock options not so qualified +(“NQSOs”), deferred stock and restricted stock awards +(“Awards”). The Stock Option Plan may be administered +by either the Board of Directors or a committee of directors +appointed by the Board of Directors (the “Committee”). +ISOs may be granted to the officers and key employees of the +Company or any of its subsidiaries. The exercise price for any +ISO granted under the Stock Option Plan may not be less than +100% (or 110% in the case of ISOs granted to an employee who is +deemed to own in excess of 10% of the outstanding Class A +Common Stock) of the fair market value of the shares of +Class A Common Stock at the time the option is granted. The +exercise price for any NQSO granted under the Stock Option Plan +may not be less than 85% of the fair market value of the shares +of Class A Common Stock at the time the option is granted. +The purpose of the Stock Option Plan is to provide a means of +performance-based compensation in order to attract and retain +qualified personnel and to provide an incentive to those whose +job performance affects the Company. +The Stock Option Plan originally authorized the +grant of options to purchase, and Awards of, an aggregate of up +to 5,215,154 shares of the Company’s Class A +Common Stock. By action at the Annual Meeting of Stockholders on +June 1, 2001, the number of shares of Class A Common +Stock authorized for issuance under the Stock Option Plan was +increased by 3,000,000 shares, and by action at the Annual +Meeting of Stockholders held on May 30, 2003, the number +was increased by an additional 3,000,000 shares, so that +the Stock Option Plan authorizes the grant of options to +purchase and awards of up to an aggregate of +11,215,154 shares of the Company’s Class A Common +Stock. The number of shares reserved for issuance under the +Stock Option Plan is subject to anti-dilution provisions for +stock splits, stock dividends and similar events. If an option +granted under the Stock Option Plan expires or terminates, or an +Award is forfeited, the shares subject to any unexercised +portion of such option or Award will again become available for +the issuance of further options or Awards under the Stock Option +Plan. +Under the Stock Option Plan, the Company may make +loans available to stock option holders, other than officers and +directors of the Company, subject to the Committee’s +approval, in connection with the exercise of stock options +granted under the Stock Option Plan. If shares of Class A +Common Stock are pledged as collateral for such indebtedness, +such shares may be returned to the Company in satisfaction of +such indebtedness. If so returned, such shares shall again be +available for issuance in connection with future stock options +and Awards under the Stock Option Plan. +No options or Awards may be granted under the +Stock Option Plan after January 14, 2008, provided that the +Company’s Board of Directors does not otherwise amend or +terminate the Stock Option Plan prior to such date. +Options granted under the Stock Option Plan will +become exercisable according to the terms of the grant made by +the Board of Directors or the Committee. Awards will be subject +to the terms and restrictions of the award made by the Board of +Directors or the Committee. The Board of Directors and the +Committee have discretionary authority to select participants +from among eligible persons and to determine at the time an +option or Award is granted, and in the case of options, whether +it is intended to be an ISO or a NQSO, and +8 +when and in what increments shares covered by the +option may be purchased. Under current law, ISOs may not be +granted to any individual who is not also an officer or employee +of the Company or any subsidiary. +The exercise price of any option granted under +the Stock Option Plan is payable in full (i) in cash, +(ii) by surrender of shares of the Company’s +Class A Common Stock already owned by the option holder +having a market value equal to the aggregate exercise price of +all shares to be purchased, (iii) by cancellation of +indebtedness owed by the Company to the option holder, +(iv) by a full recourse promissory note executed by the +option holder, (v) by arrangement with a broker or +(vi) by any combination of the foregoing. The terms of any +promissory note may be changed from time to time by the Board of +Directors to comply with applicable Internal Revenue Service or +Securities and Exchange Commission regulations or other relevant +pronouncements. +The Board of Directors may from time to time +revise or amend the Stock Option Plan and may suspend or +discontinue it at any time. However, no such revision or +amendment may impair the rights of any participant under any +outstanding stock option or Awards without such +participant’s consent or may, without stockholder approval, +increase the number of shares subject to the Stock Option Plan +or decrease the exercise price of a stock option to less than +100% of fair market value on the date of grant (with the +exception of adjustments resulting from changes in +capitalization), materially modify the class of participants +eligible to receive options or Awards under the Stock Option +Plan, materially increase the benefits accruing to participants +under the Stock Option Plan or extend the maximum option term +under the Stock Option Plan. +In the event of a change of control, all +outstanding stock options and Awards will fully vest and any +indebtedness incurred in connection with the Stock Option Plan +will be forgiven. A “change of control” occurs when +(i) any person becomes the beneficial owner, directly or +indirectly, of 50 percent or more of the combined voting +power of the Company’s securities, (ii) during any +consecutive two-year period, individuals who at the beginning of +such period constitute the Board of Directors, and any new +director, with certain exceptions, who was approved by at least +two-thirds of the directors still in office who either were +directors at the beginning of the period or whose election or +nomination for election was previously so approved, cease for +any reason to constitute at least a majority of the Board of +Directors, (iii) in some circumstances, the stockholders +approve a merger or consolidation, or (iv) the stockholders +approve the complete liquidation, sale or disposition of all or +substantially all of the Company’s assets. +As of March 31, 2004, options to +purchase 5,735,230 shares of Class A Common Stock +were outstanding at a per share exercise price ranging from +$2.78 to $24.00. The Company has 3,071,772 shares of +Class A Common Stock underlying options available for grant. +Options Granted in 2003 +The Company did not grant options to any of its +Named Executive Officers in 2003. +Aggregated Option Exercises in 2003 and +2003 Year-End Option Values +The following table sets forth the outstanding +stock options of the Named Executive Officers as of +December 31, 2003. +Year End Option Values +Number of Securities +Value of Unexercised +Underlying Unexercised Options +In-The-Money Options +Shares +at December 31, 2003 +at December 31, 2003(1) +Acquired on +Value +Name +Exercise(#) +Realized($) +Exercisable(#) +Unexercisable(#) +Exercisable($) +Unexercisable($) +Robert Greenberg +— +— +— +— +— +— +Michael Greenberg +— +— +67,500 +25,000 +51,063 +30,000 +David Weinberg +— +— +171,065 +52,500 +231,307 +30,000 +Mark Nason +— +— +132,268 +42,500 +205,129 +30,000 +Philip G. Paccione +2,500 +9,056 +44,530 +27,030 +15,000 +15,000 +Joe Phillips +— +— +42,500 +— +15,000 +— +9 +(1) +The value of the unexercised +“in-the-money” options is based on the fair market +value of $8.15 as of December 31, 2003, minus the exercise +price, multiplied by the numbers of shares underlying the option. +Securities Authorized for Issuance Under +Equity Compensation Plans +The following table provides information as of +December 31, 2003 regarding compensation plans (including +individual compensation arrangements) under which equity +securities of Skechers are authorized for issuance. +Number of Securities +Weighted-average +Number of Securities Remaining +to be Issued Upon +Exercise Price of +Available for Future Issuance +Exercise of +Outstanding +Under Equity Compensation +Outstanding Options, +Options, Warrants +Plans (excluding securities +Plan Category +Warrants and Rights +and Rights +reflected in column (a) +(a) +(b) +(c) +Equity compensation plans approved by security +holders +5,232,487 +(1) +$ +10.75 +5,708,470 +(2) +Equity compensation plans not approved by +security holders +— +— +— +Total +5,232,487 +5,708,470 +(1) +Represents stock options outstanding under the +Company’s 1998 Stock Option, Deferred Stock and Restricted +Stock Plan (the “1998 Plan”). Amount does not include +shares available under the Company’s Employee Stock +Purchase Plan (the “ESPP Plan”), which has a +shareholder approved reserve of 1,917,046 shares. +(2) +Represents 3,791,424 shares available for +future issuance under the 1998 Plan and 1,917,046 shares +available for future issuance under the ESPP Plan. Under the +ESPP Plan, each eligible employee may purchase a limited number +of shares of Class A common stock at semi-annual intervals +each year at a purchase price per share equal to 85% of the fair +market value of the Company’s Class A common stock as +of either the beginning or ending date of the semi-annual +purchase period. +Employee Stock Purchase Plan +The Company’s 1998 Employee Stock Purchase +Plan (the “1998 Purchase Plan”) was adopted by the +Company’s Board of Directors and stockholders in July 1998 +and amended by its Board of Directors in June 2000. The 1998 +Purchase Plan is intended to qualify under Section 423 of +the Code. Each twelve-month offering period includes two +consecutive six-month purchase periods. The offering periods +generally start on the first trading day on or after +January 1 and July 1 of each year. The initial +offering period commenced on July 1, 1999. A total of +2,781,415 shares of Class A Common Stock was initially +reserved for issuance under the 1998 Purchase Plan, which may be +adjusted annually for increases equal to the lesser of +(i) 2,781,415 shares, (ii) 1% of the outstanding +shares of Class A Common Stock on such date, or +(iii) such lesser amount as may be determined by the +Company’s Board of Directors. +Employees are eligible to participate if they are +customarily employed by the Company or any designated subsidiary +for at least 20 hours per week and more than five months in +any calendar year. However, any employee who +(i) immediately after the grant of a stock purchase right +owns stock possessing 5% or more of the total combined voting +power or value of all classes of the capital stock of the +Company or (ii) whose rights to purchase stock under all +employee stock purchase plans of the Company accrue at a rate +which exceeds $25,000 worth of stock for each calendar year may +not be granted an option to purchase stock under the 1998 +Purchase Plan for that year. +The 1998 Purchase Plan permits participants to +purchase Class A Common Stock through payroll deductions of +up to 15% of the participant’s “compensation.” +Compensation is defined as the participant’s base straight +time gross earnings, including commissions, payments for +overtime, incentive bonuses and performance bonuses. Amounts +deducted and accumulated by the participant are used to purchase +shares of Class A +10 +Common Stock at the end of each purchase period. +The price of stock purchased under the 1998 Purchase Plan is 85% +of the lower of the fair market value of the Class A Common +Stock as of either the beginning or ending date of the +semi-annual purchase period. The maximum number of shares a +participant may purchase during a single offering period is +determined by dividing $25,000 by the fair market value of a +share of the Company’s Class A Common Stock on the +first day of the offering period. Participants may end their +participation at any time during an offering period, and they +will be paid their payroll deductions to date. Participation +ends automatically upon termination of employment with the +Company. +Rights granted under the 1998 Purchase Plan are +not transferable by a participant other than by will, the laws +of descent and distribution, or as otherwise provided under the +1998 Purchase Plan. +The 1998 Purchase Plan provides that, in the +event of a merger of the Company with or into another +corporation or a sale of all or substantially all of the +Company’s assets, each outstanding stock purchase right may +be assumed or substituted for by the successor corporation. If +the successor corporation refuses to assume or substitute for +the outstanding stock purchase right, the offering period then +in progress will be shortened and a new purchase date will be +set so that shares of Class A Common Stock are purchased +with the participant’s accumulated payroll deductions prior +to the effective date of such transaction. +The Board of Directors has the authority to amend +or terminate the 1998 Purchase Plan, except that no such action +may adversely affect any outstanding rights to purchase stock +under the 1998 Purchase Plan, provided that the Board of +Directors may terminate an offering period on any exercise date +if the Board of Directors determines that the termination of the +1998 Purchase Plan is in the best interests of the Company and +its stockholders. Notwithstanding anything to the contrary, the +Board of Directors may in its sole discretion amend the 1998 +Purchase Plan to the extent necessary and desirable to avoid +unfavorable financial accounting consequences by altering the +purchase price for any offering period, shortening any offering +period or allocating remaining shares among the participants. +Unless terminated sooner by the Board of Directors, the 1998 +Purchase Plan will terminate on June 30, 2008. +As of March 31, 2004, 864,369 shares of +the Company’s Class A Common Stock had been purchased +by the Company’s employees at the average price of +$7.08 per share, which was an aggregate purchase price of +$6,119,000. +401(k) Plan +The Company has in place a contributory +retirement plan (the “401(k) Plan”) for all employees +age 21 and older with at least 12 months of service, +which is designed to be tax deferred in accordance with the +provisions of Section 401(k) of the Code. The 401(k) Plan +provides that each participant may contribute up to 15% of his +or her salary, but not exceeding the IRS statutory limits, and +the Company may make a discretionary contribution equal to a +percentage of salary contributed by the participant to his or +her plan account by the end of the first quarter of the +following year. Under the 401(k) Plan, employees may elect to +enroll on the first day of any month of any plan year, provided +that they have been employed by the Company for at least one +year. The 401(k) Plan was amended in April 2001 to allow +employees to enroll after six months of service. +Subject to the rules for maintaining the tax +status of the 401(k) Plan, a Company contribution may be made at +the Company’s discretion. The Company’s contributions +to the 401(k) Plan in 2003, 2002 and 2001 were $764,000, +$709,000 and $702,000, respectively. As its contribution to the +401(k) Plan for 2003, the Company issued 93,692 shares of +its Class A common stock in March 2004. +Compensation Committee Interlocks and Insider +Participation +The Company, as a Controlled Company under the +NYSE listing standards, is not required to and currently does +not have a compensation committee. Robert Greenberg, the +Company’s Chief Executive Officer, Michael Greenberg, the +Company’s President, and David Weinberg, the Company’s +Executive Vice President and Chief Financial Officer, reviewed +and discussed the compensation of the executive officers for +2003. See “Certain Relationships and Related +Transactions” regarding arrangements between the Company +11 +and the Greenberg Family Trust, of which Robert +Greenberg is a trustee, and Michael Greenberg. None of the +executive officers of the Company serves on the board of +directors or on the compensation committee of any other entity, +which has officers who serve on the Company’s Board of +Directors. +Report of the Audit Committee +The Audit Committee of the Company’s Board +of Directors (the “Audit Committee”) is currently +comprised of three independent directors and acts under a +written Audit Committee Charter adopted by the Board of +Directors. Each of the members of the Audit Committee is +independent, as defined by the Audit Committee Charter and +listing standards of the New York Stock Exchange. +The Audit Committee has reviewed and discussed +the Company’s audited financial statements with the +Company. The Audit Committee has discussed with the independent +auditors the matters required to be discussed by Statement on +Audit Standards No. 61, as may be modified or supplemented. +In addition, the Audit Committee has received from the +independent auditors the written disclosures required by the +Independence Standards Board Standard No. 1, which requires +the written disclosure of all relationships between the Company +and its independent auditors that, in the independent +auditor’s professional judgment, may reasonably be thought +to bear on independence and confirmation that, in its +professional judgment, it is independent of the company that it +is auditing. +During the fiscal years ended December 31, +2003, the Company retained KPMG LLP to provide services as +follows: +For the Year Ended +December 31, +2003 +2002 +Audit fees +$ +581,000 +$ +527,000 +Audit-related fees(1) +14,000 +103,000 +Tax fees(2) +1,157,000 +943,000 +All other fees(3) +21,000 +208,000 +Total audit and non-audit fees +$ +1,773,000 +$ +1,781,000 +(1) +Includes fees for services reasonably related to +the performance of the audit or review of the Company’s +financial statements and not reported under Audit Fees. +(2) +Includes fees for services related to tax +compliance, tax advice and tax planning. +(3) +Includes fees for services other than those +reported above as Audit, Audit-Related and Tax Fees. +All audit fees, audit related fees, tax fees and +all other fees were pre-approved by the Audit Committee. The +Audit Committee has considered whether the independent +auditors’ provision of services other than audit services +is compatible with maintaining auditor independence and has +concluded it is. All audit and permitted non-audit services +provided by the independent auditors are reviewed and +pre-approved by the Audit Committee. +Based on review and the discussions referred to +above, the Audit Committee recommended to the Company’s +Board of Directors that the audited financial statements be +included in the Company’s Annual Report on Form 10-K +for the fiscal year ended December 31, 2003 for filing with +the Securities and Exchange Commission. +Respectfully submitted, +Geyer Kosinski +Frederick H. Schneider +Richard Siskind +12 +Board Report on Executive +Compensation +The Company is considered a Controlled Company +under NYSE listing standards, and, as a result, is not required +to and currently does not have a compensation committee. Robert +Greenberg, Michael Greenberg, and David Weinberg are the +directors that primarily administered the policies governing the +Company’s executive compensation program in 2003. +The Board of Directors believes that executive +compensation should reward sustained earnings and long-term +value created for stockholders and reflect the business +strategies and long-range plans of the Company. The guiding +principles affecting executive compensation are to: +(1) attract and retain key high caliber executives; +(2) provide levels of compensation competitive with those +offered by the Company’s competitors and (3) motivate +executives to enhance earnings and long-term stockholder value +by linking stock performance on a total returns basis with +long-term incentive compensation. +The Company’s executive compensation +philosophy is to set base salary at a competitive market rate +and then to provide performance-based variable compensation +which allows total compensation to fluctuate according to the +Company’s earnings as well as to value received by its +stockholders. Targeted levels of executive compensation are set +at levels consistent with others in the Company’s industry, +determined after comparison, with such compensation increasingly +weighted towards programs contingent upon the Company’s +level of annual and long-term performance. +Each executive officer’s compensation is +comprised of up to three principal components: base salary, +bonus and any stock options or restricted stock awards granted +pursuant to the Company’s 1998 Stock Option, Deferred Stock +and Restricted Stock Plan. Base salary and bonus are determined +by executive management and are reviewed at least annually by +the Board of Directors. See “Executive Compensation” +for a description of the allocation of base salary and bonus. In +2003, no bonuses were granted to any of the executive officers. +The decision to not award bonuses was based on certain objective +performance criteria of the Company. The Management and the +Board of Directors believe that the total compensation package +of the executive officers should be linked to certain objective +performance criteria of the Company and to the total return of +the Company’s stock, both on an absolute basis and relative +to similar companies. The Company uses stock options to align +the long-range interests of its executive officers with the +interests of stockholders. The amount of stock options that may +be granted to each executive officer is determined by taking +into consideration the officer’s position with the Company, +overall individual performance, the Company’s performance +and an estimate of the long-term value of the award considering +current base salary and any cash bonus awarded. +The foregoing principles and policies are applied +in examining the compensation of Robert Greenberg, the +Company’s Chief Executive Officer. The Board of Directors +believes that Mr. Greenberg, as Chief Executive Officer, +significantly and directly influences the Company’s overall +performance. The Chief Executive Officer’s compensation for +2003 consisted of a base salary of $986,538. +Section 162(m) was added to the Code as part +of the Omnibus Budget Reconciliation Act of 1993. +Section 162(m) limits the deduction for compensation paid +to the Chief Executive Officer and the other Named Executive +Officers to the extent that compensation of a particular +executive exceeds $1,000,000, unless such compensation was based +upon performance goals determined by a compensation committee +consisting solely of two or more outside directors, the material +terms of which are approved by a majority vote of the +stockholders prior to the payment of such remuneration, or paid +pursuant to a binding contract that was in effect on +February 17, 1993. While the tax impact of any compensation +arrangement is one factor to be considered, such impact is +evaluated in light of the Company’s overall compensation +philosophy. The Company intends to establish executive officer +compensation programs that will maximize the Company’s tax +deduction if the Board of Directors determines that such actions +are consistent with its philosophy and in the best interests of +the Company and its stockholders. However, from time to time, +the Company may award compensation that is not fully deductible +if it is determined that such award is consistent with its +philosophy and in the best interest of the Company and its +stockholders. +The Board of Directors will review the +Company’s existing compensation program to determine the +deductibility of the future compensation paid or awarded +pursuant thereto and will seek guidance with respect +13 +to changes to the Company’s existing +compensation program that will enable the Company to continue to +attract and retain key individuals while optimizing the +deductibility to the Company of amounts paid as compensation. +The Board of Directors believes that its overall +executive compensation program will be successful in providing +competitive compensation appropriate to attract and retain +highly qualified executives and also to encourage increased +performance from the executive group which will create added +stockholder value. +Respectfully submitted, +Robert Greenberg +Michael Greenberg +Jeffrey Greenberg +David Weinberg +Geyer Kosinski +Richard Siskind +14 +Stockholder Return Performance +Presentation +The following graph demonstrates from +June 9, 1999 to December 31, 2003, a comparison of +cumulative total returns for Skechers’ Class A Common +Stock, the Standard & Poor’s 500 Stock Index, and +the Standard & Poor’s Shoes Index. The graph +assumes an investment of $100 in each of the following: on +June 9, 1999 the Company’s Class A Common Stock, +and on May 31, 1999 in the stocks comprising the +Standard & Poor’s 500 Stock Index and the +Standard & Poor’s Footwear Index. Each of the +indices assumes that all dividends were reinvested. +COMPARISON OF 55 MONTH CUMULATIVE TOTAL +RETURN* +AMONG SKECHERS USA, INC., THE S & P +500 INDEX +AND THE S & P FOOTWEAR +INDEX +* +$100 invested on 6/9/99 in stock or on 5/31/99 in +index — including reinvestment of dividends. +Copyright® 2002, Standard & +Poor’s, a division of The McGraw-Hill Companies, Inc. All +rights reserved. +The Standard & Poor’s Footwear +Index consists of NIKE and Reebok International. The +Standard & Poor’s Footwear Index includes +companies in one major line of business in which the Company +competes. The index does not encompass all of the Company’s +competitors nor all product categories and lines of business in +which the Company is engaged. +The stock performance of the Company’s +Class A Common Stock shown on the graph above is not +necessarily indicative of future performance. The Company will +not make nor endorse any predictions as to its future stock +performance. +Company/Market/ +Index +6/9/99 +6/30/99 +12/31/99 +6/30/00 +12/31/00 +6/30/01 +12/31/01 +6/30/02 +12/31/02 +6/30/03 +12/31/03 +SKECHERS USA, INC. +$ +100.00 +$ +95.45 +$ +34.66 +$ +143.75 +$ +140.91 +$ +265.73 +$ +132.91 +$ +196.45 +$ +77.18 +$ +67.27 +$ +74.09 +S & P 500 +100.00 +105.55 +113.68 +113.2 +103.33 +96.41 +91.05 +79.07 +70.93 +79.27 +91.28 +S & P FOOTWEAR +100.00 +103.48 +79.42 +67.15 +96.21 +76.58 +97.49 +94.98 +80.91 +97.15 +123.68 +15 +COMPLIANCE WITH SECTION 16(a) OF THE +SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Act of 1934 +(the “Exchange Act”) requires the Company’s +officers, directors and persons who own more than ten percent of +a registered class of the Company’s securities, to file +with the Securities and Exchange Commission initial reports of +ownership and reports of changes in ownership of Securities of +the Company. Officers, directors and greater than ten percent +stockholders are required by the Securities and Exchange +Commission’s regulations to furnish the Company with copies +of all Section 16(a) forms they file. +Based solely on the Company’s review of the +copies of such reports furnished to the Company, management +believes that all officers, directors and greater than ten +percent stockholders complied with the filing requirements of +Section 16(a) for the fiscal year ended December 31, +2003. +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a former director of the +Company, is a partner of the law firm of Kirkpatrick & +Lockhart, LLP which provides legal services to the Company. In +February 2003, Mr. Poletti resigned as a director of the +Company. During 2003, the Company paid $214,564 to +Kirkpatrick & Lockhart, LLP for legal services that +were provided to the Company. +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +16 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL +OWNERS AND MANAGEMENT +The following table sets forth certain +information regarding the beneficial ownership of the +Company’s Class A Common Stock and Class B Common +Stock as of April 21, 2004 by (i) each director and +nominated director of the Company, (ii) each of the Named +Executive Officers, (iii) each person known to the Company +to be beneficial owner of more than 5% of either class of the +Common Stock and (iv) all directors and executive officers +of the Company as a group. +Number of +Number of +Percent of +Percent of +Class A +Class B +Class A +Class B +Name of Beneficial Owner(1) +Shares +Shares(2) +Shares(3) +Shares(3) +Robert Greenberg +— +12,904,366 +(4) +— +72.6 +% +Michael Greenberg +97,207 +(5) +1,449,991 +(6) +* +8.2 +Jeffrey Greenberg +89,937 +(7) +804,208 +* +4.5 +David Weinberg +284,012 +(8) +— +1.4 +% +— +Geyer Kosinski +32,500 +(9) +— +* +— +Richard Siskind +52,500 +(9) +— +* +— +Frederick H. Schneider +20,000 +(10) +— +* +— +Mark Nason +171,788 +(11) +— +* +— +Philip G. Paccione +58,172 +(12) +— +* +— +Joe Phillips +— +— +— +— +FMR Corp. +2,659,500 +(13) +— +14.1 +(13) +— +National City Corp. +1,348,228 +(14) +— +7.5 +(14) +— +Lord, Abbett & Co. +1,310,334 +(15) +— +6.95 +(15) +— +All current directors, director nominees and +executive officers as a group (9 persons) +806,116 +(16) +15,158,565 +3.8 +% +85.3 +% +* +Less than 1.0% +(1) +To the Company’s knowledge, except as set +forth in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole +voting and investment power with respect to the shares of +Class A and Class B Common Stock set down opposite +such person’s name. With the exception of FMR Corp., +National City Corp and Lord, Abbett & Co., each of such +persons may be reached at 228 Manhattan Beach Boulevard, +Manhattan Beach, California 90266. +(2) +The Class B Common Stock is convertible at +any time into shares of the Class A Common Stock on a +share-for-share basis. See “Certain Relationships and +Related Transactions” for a description of transactions +between the Greenberg Family Trust, of which Robert Greenberg is +a trustee, Michael Greenberg and the Company. +(3) +The percentage ownership is calculated using +20,581,068 shares of Class A Common Stock and +17,771,189 shares of Class B Common Stock that were +outstanding on April 21, 2004. Beneficial ownership is +determined in accordance with the rules of the Securities and +Exchange Commission and generally includes voting or investment +power with respect to the securities. In computing the number of +shares beneficially owned by a person and the percentage +ownership of that person, shares of Class A Common Stock +subject to options held by that person that are currently +exercisable or exercisable within 60 days of April 21, +2004 are deemed outstanding. Such shares, however, are not +deemed outstanding for the purposes of computing the percentage +ownership of each other person. +(4) +Includes 12,037,666 shares of Class B +Common Stock that Robert Greenberg, Chief Executive Officer and +Chairman of the Board of the Company, is deemed to beneficially +own as a trustee of the Greenberg Family Trust. Susan Greenberg, +Robert Greenberg’s wife, is also a trustee of the Greenberg +Family Trust and is also deemed to beneficially own all shares +held by the Greenberg Family Trust. +(5) +Includes 67,500 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004, and includes +22,650 shares of Class A Common Stock beneficially +17 +owned by Michael Greenberg, President and a +Director of the Company, indirectly through his wife, Wendy +Greenberg, and their children. Michael Greenberg disclaims +beneficial ownership of the 22,650 shares except to the +extent of his pecuniary interest therein. +(6) +Includes 1,259,641 shares of Class B +Common Stock that Michael Greenberg, President and a Director of +the Company, is deemed to beneficially own as a trustee of the +Michael and Wendy Greenberg Family Trust. Wendy Greenberg, +Michael Greenberg’s wife, is a trustee of the Michael and +Wendy Greenberg Family Trust and is also deemed to beneficially +own all shares held by the Michael and Wendy Greenberg Family +Trust. Also includes 190,350 shares of Class B Common +Stock held in trust for Mr. Greenberg’s minor children +and of which a third party acts as trustee. Mr. Greenberg +disclaims beneficial ownership of the 190,350 shares except +to the extent of his pecuniary interest therein. +(7) +Includes 85,000 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004. +(8) +Includes 203,565 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004. +(9) +Represents shares of Class A Common Stock +underlying options that are exercisable currently or within +60 days of April 21, 2004. +(10) +Includes 10,000 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004, and includes +10,000 shares of Class A Common Stock beneficially +owned by Frederick Schneider, Director of the Company, +indirectly through the Schneider General Partnership. +(11) +Includes 167,268 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004. +(12) +Includes 56,560 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004. +(13) +Information is based on a Schedule 13G filed +with the SEC on February 17, 2004. Principal business +office of FMR Corp. and its subsidiary and related funds as set +forth below are located at 82 Devonshire Street, Boston, +Massachusetts, 02109. Number of and shares of Class A +Common Stock owned is reported as of December 31, 2003. FMR +Corp. filed as a parent holding company. Each of FMR Corp., +Edward C. Johnson, III and Abigail P. Johnson are reported +to beneficially own the 2,659,500 shares of Class A +Common Stock. Various persons are reported to have the right to +receive or the power to direct the receipt of dividends from, or +the proceeds from the sale of, the Class A Common Stock. +Fidelity Management & Research Company +(“Fidelity”), a wholly-owned subsidiary of FMR Corp. +and an investment adviser registered under the Investment +Advisers Act of 1940, is the beneficial owner of +2,453,200 shares or 13.0% of the Class A Common Stock. +Edward C. Johnson, 3d, FMR Corp. (through its control of +Fidelity) and the funds each has sole power to dispose of the +2,453,200 shares owned by the funds. The interest of one +person, Fidelity Low Priced Stock Fund in the Class A +Common Stock, amounted to 1,872,300 shares or 9.9% of the +total outstanding Class A Common Stock. Neither FMR Corp. +nor Edward C. Johnson 3d has the sole power to vote or direct +the voting of the shares owned directly by the Fidelity Funds, +which power resides with the Funds’ Boards of Trustees. +Fidelity Management Trust Company, a wholly-owned subsidiary of +FMR Corp. is the beneficial owner of 206,300 shares or 1.1% +of the Class A Common Stock outstanding. Edward C. Johnson +and FMR Corp., through its control of Fidelity Management Trust +Company, each has sole dispositive power over +206,300 shares and sole power to vote or to direct the +voting of 206,300 shares. +(14) +Information is based on a Schedule 13G filed +with the SEC on February 27, 2004. Principal business +office of National City Corp. is located at 1900 East Ninth +Street, Cleveland, Ohio 44114. Number of and shares of +Class A Common Stock owned is reported as of +December 31, 2003. +(15) +Information is based on a Schedule 13G filed +with the SEC on February 4, 2004. Principal business office +of Lord, Abbett & Co. is located at 909 Hudson +Street, Jersey City, New Jersey 07302. Lord, Abbett & +Co is an investment adviser registered under Section 203 of +the Investment Advisers Act of +18 +1940 and is reported to beneficially own +1,310,334 shares of the outstanding Class A Common +Stock, or 6.95%. +(16) +Includes 674,893 shares of Class A +Common Stock underlying options that are exercisable currently +or within 60 days of April 21, 2004. +As of April 21, 2004, Robert Greenberg, his +children, and the Greenberg Family Trust beneficially own all of +the Class B Common Stock and approximately 89.6% of the +combined voting power of the Company’s Class A and +Class B Common Stock. By virtue of this stock ownership, +Robert Greenberg may be deemed to be a “control +person” of the Company within the meaning of the rules and +regulations promulgated under the Securities Act of 1933, as +amended, and the Greenberg Family Trust influences the election +of Robert Greenberg. Michael Greenberg, the Company’s +President, and Jeffrey Greenberg, both of whom are members of +the Board of Directors of the Company, are each beneficiaries of +the Greenberg Family Trust. Additionally, Robert Greenberg, both +directly and indirectly through the Greenberg Family Trust, +beneficially owns approximately 65.1% of the combined voting +power of the Company’s Class A and Class B Common +Stock. As a result, the Company is considered a “Controlled +Company” under the New York Stock Exchange rules and +is thereby exempt from certain rules and regulations as set +forth by the NYSE rules. +PROPOSAL NO. 2 +RATIFICATION OF APPOINTMENT OF INDEPENDENT +ACCOUNTANTS +For the 2003 fiscal year, KPMG LLP provided audit +services which included examination of the Company’s annual +consolidated financial statements. Upon the recommendation of +the Audit Committee, the Company’s Board of Directors has +selected KPMG LLP to provide audit services to the Company and +its subsidiaries for the fiscal year ending December 31, +2004. The stockholders are being requested to ratify such +selection at the Annual Meeting of Stockholders. A +representative of KPMG LLP will attend the Annual Meeting to +make any statements he or she may desire and to respond to +appropriate stockholder questions. +STOCKHOLDERS’ PROPOSALS FOR 2005 ANNUAL +MEETING +Stockholders’ proposals intended to be +presented at the Company’s next Annual Meeting of +Stockholders to be held in 2005 must be received at the +Company’s principal executive offices no later than +January 8, 2005, in order to be considered for inclusion in +the proxy statement and form of proxy relating to that meeting. +Proposals must comply with the proxy rules relating to +stockholder proposals, in particular Rule 14a-8 under the +Exchange Act, to be included in the Company’s proxy +materials. Stockholders who wish to submit a proposal for +consideration at the Company’s 2005 Annual Meeting of +Stockholders, but who do not wish to submit a proposal for +inclusion in the Company’s Proxy Statement, must, in +accordance with the Company’s bylaws, deliver a copy of +their proposal no later than the close of business on the +ninetieth (90th) day in advance of such meeting or, if later, +the seventh day following the first public announcement of the +date of such meeting. In either case, proposals should be +delivered to Skechers U.S.A., Inc., 228 Manhattan Beach Blvd., +Manhattan Beach, California 90266, Attention: Michael Greenberg, +President. To avoid controversy and establish timely receipt by +the Company, it is suggested that stockholders send their +proposals by certified mail, return receipt requested. +19 +OTHER BUSINESS +The Board of Directors does not know of any other +matter to be acted upon at the meeting. However, if any other +matter shall properly come before the meeting, the proxyholders +named in the proxy accompanying this Proxy Statement will have +authority to vote all proxies in accordance with their +discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 29, 2004 +Manhattan Beach, California +20 +APPENDIX +SKECHERS USA, INC. AUDIT COMMITTEE +CHARTER +STATEMENT OF POLICY +The Audit Committee is appointed by the Board of +Directors to assist the Board in monitoring (1) the +integrity of the financial statements and financial reporting +processes of SKECHERS, USA (the “Company”), +(2) the compliance by the Company with legal and regulatory +requirements and (3) the independence and performance of +the Company’s internal and external auditors. In so doing, +the Committee will maintain free and open communications with +the Company’s internal and independent auditors and +management. In discharging its oversight role, the Committee is +empowered to investigate any matter brought to its attention +with full access to all books, records, facilities and personnel +of the Company and the power to retain outside counsel, or other +experts, for this purpose. +The Committee, in carrying out its +responsibilities, believes that its policies and procedures +should remain flexible in order to best react to changing +conditions and circumstances. The Committee will endeavor to +direct the overall corporate goals of maintaining quality +financial reporting, sound business risk practices and ethical +behavior. +ORGANIZATION +The composition of the Audit Committee shall meet +the independence and experience requirements of the +New York Stock Exchange. The members of the Audit Committee +shall be appointed by the Board. +The Audit Committee shall have the authority to +retain special outside legal, accounting or other consultants to +advise and assist the Committee. The Audit Committee may request +any officer or employee of the Company or the Company’s +outside counsel or independent auditor to attend a meeting of +the Committee or to meet with any members of, or consultants to, +the Committee. +MEETINGS +The Committee may hold regular meetings on such +days as it shall determine. Other meetings of the Committee +shall be held at the request of the Chairperson of the Committee +or any two other Committee members. Minutes of the meetings of +the Committee shall be regularly kept by a person appointed by +the Committee to do so. +The Audit Committee shall make reports to the +Board no less than 4 times a year, and at least once immediately +prior to and subsequent to completion of the year end +independent audit. +The Audit Committee shall: +1. In consultation with counsel and the +independent auditors, review and reassess the adequacy of this +Charter annually and recommend any proposed changes to the Board +for approval; +2. Review the annual audited financial +statements with management, including any major issues regarding +accounting and auditing principles and practices as well as the +adequacy of internal controls that could significantly affect +the Company’s financial statements; +3. Review an analysis prepared by management +and the independent auditor of significant financial reporting +issues and judgments made in connection with the preparation of +the Company’s financial statements; +4. Review with management and the +independent auditor the Company’s quarterly financial +statements prior to the filing of its Form 10-Q and 10-K; +5. Meet periodically with management to +review the Company’s major financial risk exposures and the +steps management has taken to monitor and control such exposures; +21 +6. Review major changes to the +Company’s auditing and accounting principles and practices +as suggested by the independent auditor, internal auditors or +management; +7. Recommend to the Board the appointment of +the independent auditor, which firm is ultimately accountable to +the Audit Committee and the Board; +8. Approve the fees to be paid to the +independent auditor; +9. Receive periodic reports from the +independent auditor regarding the auditor’s independence, +discuss such reports with the auditor without representatives of +the Company’s management present, and if so determined by +the Audit Committee, recommend that the Board take appropriate +action to satisfy itself of the independence of the auditor; +10. Evaluate together with the Board the +performance of the independent auditor and, if so determined by +the Audit Committee, recommend that the Board replace the +independent auditor; +11. Review the appointment and replacement +of the senior internal auditing executive; +12. Review the significant reports to +management prepared by the internal auditing department and +management’s responses; +13. Meet with the independent auditor prior +to the audit to review the planning, scope and staffing of the +audit; +14. Obtain from the independent auditor +assurance that Section 10A of the Securities Exchange Act +of 1934 has not been implicated; +15. Obtain reports from management, the +Company’s senior internal auditing executive and the +independent auditor that the Company’s subsidiary/foreign +affiliated entities are in conformity with applicable legal +requirements and the Company’s Code of Conduct; +16. Discuss with the independent auditor the +matters required to be discussed by Statement on Auditing +Standards No. 61 relating to the conduct of the audit; +17. Review with the independent auditor any +problems or difficulties the auditor may have encountered and +any management letter provided by the auditor and the +Company’s response to that letter. Such review should +include: +(a) Any difficulties encountered in the +course of the audit work, including any restrictions on the +scope of activities or access to required information; +(b) Any changes required in the planned +scope of the internal audit; and +(c) The internal audit department +responsibilities, budget and staffing. +18. Prepare the report required by the rules +of the Securities and Exchange Commission to be included in the +Company’s annual proxy statement; +19. Advise the Board with respect to the +Company’s policies and procedures regarding compliance with +applicable laws and regulations and with the Company’s Code +of Conduct; +20. Review with the Company’s General +Counsel legal matters that may have a material impact on the +financial statements, the Company’s compliance policies and +any material reports or inquiries received from regulators or +governmental agencies; and +21. Meet at least annually with the chief +financial officer, the senior internal auditing executive and +the independent auditor in separate executive sessions. +22. Maintain a clear understanding with the +Company’s management and its independent auditors regarding +the ultimate accountability of the independent auditors to the +Committee and to the full Board. +22 +23. Otherwise meet with and request and +obtain reports and information from such Company officers, +employees, suppliers and others as the Committee shall determine +to be necessary and desirable in carrying out its duties as set +forth in this Charter. +PROCEDURE +The Committee may adopt rules for its meeting and +other activities. In the absence of such rules, the Committee +shall be governed by the Company’s Bylaws in force at the +time of such actions and by applicable law. In all cases, a +quorum of the Committee shall be a majority of persons then +serving as members of the Committee. +ATTENDANCE +Such officers and other employees of the Company +as the Committee may regularly or from time-to-time designate +shall attend meetings of the Committee. +While the Audit Committee has the +responsibilities and powers set forth in this Charter, it is not +the duty of the Audit Committee to plan or conduct audits or to +determine that the Company’s financial statements are +complete and accurate and are in accordance with generally +accepted accounting principles. This is the responsibility of +management and the independent auditor. Nor is it the duty of +the Audit Committee to conduct investigations, to resolve +disagreements, if any, between management and the independent +auditor or to assure compliance with laws and regulations and +the Company’s Code of Conduct. +CHARTER APPROVED AND ADOPTED AND +RECOMMENDED TO THE BOARD BY: +/s/ JOHN QUINN +John Quinn +Outside Director, Board and Audit +Committee Member +/s/ RICHARD SISKIND +Richard Siskind +Outside Director, Board and Audit +Committee Member +23 +Please date, sign and mail your proxy card back as soon as possible! +Annual Meeting of Stockholders +SKECHERS U.S.A., INC. +May 28, 2004 +â Please Detach and Mail in the Envelope Provided â +A x Please mark your votes as in this example. +The Board of Directors unanimously recommends that you vote FOR the nominees +listed in Proposal 1 and FOR Proposal 2. +1. +Election of Nominees +FOR all the nominees listed +at right (except as marked to +the contrary below) +WITHHOLD +AUTHORITY to vote +for the nominees +Nominees: +Michael Greenberg +Jeffrey Greenberg +David Weinberg +o +o +2. +Ratify the appointment of KPMG LLP as independent accountants for the year ending December 31, 2004. +FOR +AGAINST +ABSTAIN +o +o +o +3. +Each of the persons named as proxies herein are authorized, in such person’s discretion, to vote upon such other matters as may properly come before the Annual Meeting, +or any adjournments thereof. +PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS HEREON, DATE AND RETURN THIS PROXY +CARD PROMPTLY USING THE ENCLOSED ENVELOPE. +MARK HERE IF YOU PLAN TO ATTEND THE MEETING +o +MARK HERE FOR CHANGE OF ADDRESS AND NOTE AT LEFT +o +Signature: +Signature, if held +jointly +Dated: +,2004 +NOTE: +Please date this Proxy and sign it exactly as your name(s) appears hereon. When shares are held by joint +tenants, both should sign. When signing as an attorney, executor, administrator, trustee, guardian or other +fiduciary, please indicate your capacity. If you sign for a corporation, please print full corporate name and +indicate capacity of duly authorized officer executing on behalf of the corporation. If you sign for a +partnership, please print full partnership name and indicate capacity of duly authorized person executing on +behalf of the partnership. +SKECHERS U.S.A., INC. +PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS +TO BE HELD ON MAY 28, 2004 +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware +corporation, hereby acknowledges receipt of the Notice of Annual Meeting of +Stockholders and Proxy Statement, each dated April 29, 2004, and hereby +appoints Michael Greenberg and David Weinberg and each of them, with full power +of substitution, as attorneys-in-fact and proxies for, and in the name and +place of, the undersigned, and hereby authorizes each of them to represent and +to vote all of the shares which the undersigned is entitled to vote at the +Annual Meeting of Stockholders of Skechers U.S.A., Inc. to be held at the +Ritz-Carlton Hotel, 4375 Admiralty Way, Marina Del Rey, California 90292, on +Friday, May 28, 2004, at 10:00 a.m., Pacific time, and at any adjournments +thereof, upon the matters as set forth in the Notice of Annual Meeting of +Stockholders and Proxy Statement, receipt of which is hereby acknowledged. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL +BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER +DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, +THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1 AND +FOR APPROVAL OF PROPOSAL 2 AS DESCRIBED IN THE PROXY, AND IN ACCORDANCE WITH +THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT +MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE +ENCLOSED ENVELOPE. +(continued, and to be signed and dated, on reverse side) \ No newline at end of file diff --git a/raw/proxies/0001065837/0000950148-04-000823/proxy_rpt.txt b/raw/proxies/0001065837/0000950148-04-000823/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..32081d02117ea1c104e1eb8d8955a71f8992ba4a --- /dev/null +++ b/raw/proxies/0001065837/0000950148-04-000823/proxy_rpt.txt @@ -0,0 +1,39 @@ +CERTAIN RELATIONSHIPS AND RELATED +TRANSACTIONS +Shares of Class A Common Stock issuable upon +conversion of shares of Class B Common Stock held by the +Greenberg Family Trust and Michael Greenberg, President of the +Company, are subject to certain registration rights. The Company +entered into a registration rights agreement with the Greenberg +Family Trust and Michael Greenberg pursuant to which the Company +agreed that it will, on up to two separate occasions per year, +register up to one-third of the shares of Class A Common +Stock issuable upon conversion of their Class B Common +Stock beneficially owned as of the closing of the Company’s +initial public offering of its Class A Common Stock by each +such stockholder in any one year, provided, among other +conditions, that the underwriters of any such offering have the +right to limit the number of shares included in such +registration. The Company also agreed that, if it shall cause to +be filed with the Securities and Exchange Commission a +registration statement, each such stockholder shall have the +right to include up to one-third of the shares of Class A +Common Stock issuable upon conversion of their Class B +Common Stock beneficially owned as of the closing of the +Company’s initial public offering of its Class A +Common Stock by each of them in such registration statement +provided, among other conditions, that the underwriters of any +such offering have the right to limit the number of shares +included in such registration. All expenses of such +registrations shall be at the Company’s expense. +Thomas J. Poletti, a former director of the +Company, is a partner of the law firm of Kirkpatrick & +Lockhart, LLP which provides legal services to the Company. In +February 2003, Mr. Poletti resigned as a director of the +Company. During 2003, the Company paid $214,564 to +Kirkpatrick & Lockhart, LLP for legal services that +were provided to the Company. +The Company believes that all of the foregoing +transactions were on terms no less favorable than those that +could have been received from unrelated third parties. +16 \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-12-192932/proxy.txt b/raw/proxies/0001065837/0001193125-12-192932/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f53588da14d7604fe79b08962557d60f673c0f70 --- /dev/null +++ b/raw/proxies/0001065837/0001193125-12-192932/proxy.txt @@ -0,0 +1,1432 @@ +DEF 14A +1 +d335185ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, For Use of the Commission Only (as permitted by 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional materials +¨ +Soliciting Material Pursuant to § 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified in Its Charter) +Payment of filing fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials: +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, schedule or registration statement no.: +(3) +Filing party: +(4) +Date filed: +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +Important Notice Regarding the +Availability of Proxy Materials for the Stockholder +Meeting to Be Held on Thursday, May 24, 2012 +Dear Stockholder: +You are +cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of Skechers U.S.A., Inc., a Delaware corporation, to be held at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, +California 90266 on Thursday, May 24, 2012 at 10:00 a.m. Pacific Time. +Our Annual Meeting is being held to elect +three members to the Board of Directors to serve for a three-year term as Class I Directors and to transact such other business as may properly come before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on March 30, 2012 as the record date for determining those stockholders who +will be entitled to vote at the Annual Meeting. The following proxy statement and enclosed proxy card are being sent to each stockholder as of the record date, and our 2011 annual report is enclosed with this notice to our stockholders. +Important Notice Regarding the Availability of Proxy Materials for the 2012 Stockholder Meeting to Be Held on May 24, 2012: The +proxy statement and 2011 annual report are available in the SEC filings section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if you plan to attend the Annual Meeting in person, you may find directions +by going to the annual meeting of stockholders section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . If you do not expect to attend, or if you plan to attend but desire the proxy holders to +vote your shares, please date and sign your proxy card and return it in the enclosed postage-paid envelope. Returning a signed proxy card will not affect your right to vote in person in the event you find it convenient to attend. Please return the +proxy card promptly to avoid the expense of additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2012 +Manhattan Beach, California +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting to be Held +May 24, 2012 at 10:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., Inc., a Delaware corporation (“we,” “us,” “our,” “our company” or “Skechers”), in connection +with our Annual Meeting of Stockholders to be held on May 24, 2012 at 10:00 a.m. Pacific Time at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266 (the “Annual Meeting”). The +approximate mailing date for this proxy statement and the enclosed proxy is April 30, 2012. If a proxy in the accompanying form is duly executed and returned, the shares represented by the proxy will be voted as directed. If no direction is +given, the shares represented by the proxy will be voted for the election of the nominees for director named herein. Any proxy given pursuant to this solicitation may be revoked at any time prior to its exercise by notifying our Corporate Secretary, +Philip Paccione, in writing of such revocation, by duly executing and delivering another proxy bearing a later date, or by attending and voting in person at the Annual Meeting. If your shares are held in street name and you want to change your vote, +please contact your broker, bank or other nominee to find out how to do so. We will incur the cost of this solicitation of proxies that will be made by mail. In addition, our officers and other regularly engaged employees may, in a limited number of +instances, solicit proxies personally or by telephone. We will reimburse banks, brokerage firms, other custodians, nominees and fiduciaries for reasonable expenses incurred in sending proxy materials to beneficial owners of our Class A Common +Stock and Class B Common Stock. +Holders of our Class A Common Stock and Class B Common Stock of record at the close +of business on March 30, 2012 will be entitled to vote at the Annual Meeting. There were 38,722,923 shares of Class A Common Stock and 11,274,090 shares of Class B Common Stock outstanding on that date. Each share of Class A +Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes, and the presence in person or by proxy of holders of a majority of the combined voting interest of the outstanding shares of Class A +Common Stock and Class B Common Stock is necessary to constitute a quorum for the Annual Meeting. A quorum must be established to consider any matter. The three candidates for director receiving the most votes of the votes entitled to be voted +at the Annual Meeting will become directors of Skechers. Stockholders may not cumulate their votes. Any other proposals require the affirmative “for” vote of a majority of the shares present in person or represented by proxy and entitled +to vote on those proposals at the Annual Meeting. If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Generally, broker non-votes occur on a +matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not +considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained, and will not be counted in determining whether there is a quorum. A +properly executed proxy marked “Abstain” with respect to any such proposal will not be voted, although it will be counted for purposes of determining whether there is a quorum. Because directors are elected by a plurality of the votes +cast, proxies marked “Abstain” as to Proposal No. 1 will not have any effect on the election of directors as long as one vote is cast for each director nominee. +Our principal executive office is located at 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Our Board of Directors is divided into three +classes, with each director serving a three-year term and until their successors are duly elected and qualified or until their death, resignation or removal. One class of directors is elected annually at our annual meeting of stockholders. Our +bylaws provide for a variable Board of Directors with between five and nine members. We currently have nine members on our Board of Directors. Our bylaws give the Board of Directors the authority to increase or decrease the number of directors +without the approval of our stockholders, and our bylaws also give our stockholders the authority to increase or decrease the size of our Board of Directors. +Unless otherwise directed by stockholders, within the limits set forth in our bylaws, the proxy holders will vote all shares represented by proxies held by them for the election of Robert Greenberg, +Morton Erlich and Thomas Walsh who are director nominees and are currently members of the Board of Directors. We have been advised by Robert Greenberg, Morton Erlich and Thomas Walsh of their availability and willingness to serve if re-elected. In +the event that any of Robert Greenberg, Morton Erlich and Thomas Walsh becomes unavailable or unable to serve as a member of the Board of Directors prior to the voting, the proxy holders will refrain from voting for them or will vote for a +substitute nominee in the exercise of their best judgment. +The Board of Directors recommends a vote FOR these +director-nominees. +2 +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +Information Concerning Director Nominees +Name +Age +Class and Year +in Which Term Will +Expire if Re-elected +Position +Robert Greenberg +72 +Class I (2015) +Chairman of the Board and +Chief Executive Officer +Morton Erlich +67 +Class I (2015) +Director +Thomas Walsh +70 +Class I (2015) +Director +Robert Greenberg has served as our Chairman of the Board and Chief Executive Officer since October +1993. +As our founder, leader and largest stockholder since our inception in 1992 and the driving force behind our brand and +our products, Mr. Greenberg is uniquely qualified to serve on and lead our Board of Directors. +Morton Erlich has +served as a member of our Board of Directors since January 2006 and has been an independent investor and consultant since September 2004. Mr. Erlich worked for 34 years at KPMG LLP including 24 years as an audit partner until retiring in +September 2004. His last position at KPMG LLP was office managing partner of the office in Woodland Hills, California. +Mr. Erlich’s qualifications to serve on our Board include 34 years of accounting and finance experience at KPMG LLP and being +licensed as a certified public accountant (inactive) in California since 1974. While a partner with KPMG LLP, Mr. Erlich served as lead audit partner for numerous companies in a variety of industries including companies in consumer markets, +manufacturing, distribution and retail sectors. His accounting and finance experience includes expertise with various types of transactions such as bank lines of credit, debt financings, equity financings including public offerings, and mergers and +acquisitions. +Thomas Walsh has served as a member of our Board of Directors since September 2010. From May 1993 until +retiring in November 2006, Mr. Walsh served as senior vice president and portfolio manager with Colbie Pacific Capital, which is a factoring and asset-based lender located in Southern California. +Mr. Walsh’s qualifications to serve on our Board include over 40 years of experience in managing and providing guidance to +companies, the majority of which were in the apparel business, regarding debt financing options, issues with collateral on existing debt and action plans for companies with respect to distressed customers. His qualifications also include a +background in accounting and extensive experience in evaluating businesses and evaluating their financial information. +3 +Directors Not Standing for Election +The members of the Board of Directors who are continuing and not standing for election at this year’s Annual Meeting are set forth +below. +Name +Age +Class and Year in Which +Term Will Expire +Position +Michael Greenberg +49 +Class II (2013) +President and Director +David Weinberg +61 +Class II (2013) +Executive Vice President; Chief Operating Officer; Chief Financial Officer; and Director +Jeffrey Greenberg +44 +Class II (2013) +Senior Vice President, Active Electronic Media and Director +Geyer Kosinski +46 +Class III (2014) +Director +Richard Rappaport +52 +Class III (2014) +Director +Richard Siskind +66 +Class III (2014) +Director +Michael Greenberg has served as our President and a member of our Board of Directors since our +company’s inception in 1992, and from June 1992 to October 1993, he served as our Chairman of the Board. +Mr. Greenberg’s qualifications to serve on our Board include over 25 years of experience in the footwear industry, specifically +in sales, including his leadership as President of our company for the last 20 years. +David Weinberg has served as our +Chief Operating Officer since January 2006, as our Chief Financial Officer since September 2009 and from October 1993 to January 2006, and as Executive Vice President and a member of our Board of Directors since July 1998. +Mr. Weinberg’s qualifications to serve on our Board include more than 20 years of experience in the footwear industry, +specifically in finance and operations, including 14 years as our Chief Financial Officer and six years as our Chief Operating Officer. +Jeffrey Greenberg has served as our Senior Vice President, Active Electronic Media since June 2005 and as a member of our Board of Directors since September 2000. From January 1998 to June 2005, +Mr. Greenberg served as our Vice President, Active Electronic Media. Previously, Mr. Greenberg served as our Chief Operating Officer, Secretary and a member of our Board of Directors from June 1992 to July 1998, and as our Chief Executive +Officer from June 1992 to October 1993. +Mr. Greenberg’s qualifications to serve on our Board include over 20 years +of experience in the footwear industry, specifically in marketing and operations, including his role on our management team during our early years of growth following our company’s inception in 1992. +Geyer Kosinski has served as a member of our Board of Directors since November 2001. Since July 2004, Mr. Kosinski has been +the Chairman and Chief Executive Officer of Media Talent Group, a talent management and production company that produces feature films and television programming and manages over 50 actors, writers and directors. From April 1997 to June 2004, +Mr. Kosinski was a Managing Partner and co-owner of Industry Entertainment, a talent management and production company that produced feature films and television programming and managed over 100 actors, writers and directors. +Mr. Kosinski’s qualifications to serve on our Board include 19 years of leadership and transactional experience, specifically +managing the careers of actors, writers and directors and developing and producing numerous feature films and television series in the entertainment industry. +4 +Richard Rappaport has served as a member of our Board of Directors since September +2010. In 1999, Mr. Rappaport founded WestPark Capital, a full service investment banking and securities brokerage firm that serves the needs of both private and public companies worldwide, as well as individual and institutional investors, and +he is its Chief Executive Officer. Mr. Rappaport received his B.S. in Business Administration from the University of California at Berkeley, and his M.B.A. from the University of California at Los Angeles. +In August 2004, Mr. Rappaport entered into a settlement agreement with the NASD (the “Settlement Agreement”) to settle +claims that Mr. Rappaport failed in his capacity as Chief Compliance Officer of WestPark Capital to properly supervise the preparation of the six research reports released by WestPark Capital between July 2001 and October 2002 regarding public +companies with speculative securities which WestPark Capital and Mr. Rappaport knew or had reason to know were misleading in light of certain omissions and exaggerated, unwarranted and misleading statements. Under the terms of the Settlement +Agreement, and without admitting or denying any liability, Mr. Rappaport voluntarily surrendered his Series 24 license to act as a general securities principal on behalf of WestPark Capital for a period of 30 days restricting +Mr. Rappaport’s participation in principal activities (the “Temporary Principal Suspension”), was required to requalify his Series 24 license and paid a fine of $50,000. Despite his good faith efforts to comply with the +terms of the Temporary Principal Suspension and his reliance on the advice of legal counsel regarding the scope of the restricted activities, the NASD determined that certain of the activities that Mr. Rappaport engaged in during the Temporary +Principal Suspension were considered “principal activities.” In September 2006, Mr. Rappaport entered into a letter of acceptance, waiver and consent (the “Consent”) with the NASD in connection with the violation of the +Temporary Principal Suspension. Under the terms of the Consent, and without admitting or denying any liability, Mr. Rappaport voluntarily surrendered his Series 7 and 24 licenses for a second 30-day period and paid an additional fine of +$10,000. Mr. Rappaport fully complied with the terms of the Consent to the satisfaction of the NASD. +Mr. Rappaport’s qualifications to serve on our Board include 24 years of experience in business development and corporate +finance, specifically in the United States and international small cap investment banking and securities markets; he has completed over 50 public offerings of issuers’ stock and numerous private financing and M&A transactions. During his +career, he has helped companies plan and implement their financial and business development strategies. +Richard Siskind +has served as a member of our Board of Directors since June 1999. In 1991, Mr. Siskind founded R. Siskind & Company, a business that purchases brand name men’s and women’s apparel and accessories and redistributes those +items to off-price retailers. R. Siskind & Company also controls other companies that have licenses and distribution agreements for various brands, and he is its Chief Executive Officer and a member of its Board of Directors. From November +2002 to June 2006, Mr. Siskind served as a member of the Board of Directors of Magic Lantern Group, Inc. (AMEX:GML), which changed its name from JKC Group, Inc. +Mr. Siskind’s qualifications to serve on our Board include over 35 years of experience as chief executive officer of various companies in the consumer retail sector, including four years as +Chief Executive Officer and six years as a Board member of Magic Lantern Group, a publicly traded apparel company, and 20 years as founder, majority shareholder and leader of R. Siskind & Company. Mr. Siskind’s experience with +consumer retail businesses includes expertise with business planning, operations, finance, inventory control, acquisitions and licenses. +5 +Executive Officers +The following table sets forth certain information with respect to our executive officers who are not also members of our Board of Directors. For information concerning Robert Greenberg, Michael Greenberg +and David Weinberg, see “ Directors Not Standing for Election ” above. +Name +Age +Position +Philip Paccione +50 +General Counsel; Executive Vice President, Business Affairs; and Corporate Secretary +Mark Nason +50 +Executive Vice President, Product Development +Philip Paccione has served as our Executive Vice President, Business Affairs since February 2000, +as our Corporate Secretary since July 1998 and as our General Counsel since May 1998. +Mark Nason has served as our +Executive Vice President, Product Development since March 2002. From January 1998 to March 2002, Mr. Nason served as our Vice President, Retail and Merchandising, and from December 1993 to January 1998, he served as our Director of +Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey Greenberg; other than +the foregoing, no family relationships exist between any of our executive officers or directors. +6 +CORPORATE GOVERNANCE AND BOARD MATTERS +Board of Directors, Committees of the Board and Attendance at Meetings +Our Corporate Governance Guidelines were adopted by our Board of Directors as of April 28, 2004 to assist the Board in the exercise of its responsibilities. The Corporate Governance Guidelines +reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management levels, with a view to enhancing long-term stockholder value. The Corporate Governance Guidelines are posted in the +corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . The information found on, or otherwise accessible through, our website is not incorporated into, and does +not form a part of, this proxy statement. +Our Board of Directors met four times in 2011, and all directors attended at least +75% of the combined total of (i) all Board meetings and (ii) all meetings of committees of the Board of which the director was a member. While we do not have a policy requiring our directors to attend our Annual Meeting of Stockholders, +all of the directors attended the Annual Meeting of Stockholders held in 2011. +The Board has an Audit Committee, a +Compensation Committee and a Nominating and Governance Committee. The table below provides current membership and meeting information for 2011 for each of the committees. Each of the members of these committees is independent as defined by +Section 303A of the New York Stock Exchange (“NYSE”) Listed Company Manual (collectively, the “NYSE Rules”), and each member of the Audit Committee is independent as defined by Section 10A(m)(3) of, and Rule 10A-3(b) +under, the Securities Exchange Act. All committee meetings were attended by all respective committee members in 2011. +Name +Audit Committee +Compensation +Committee +Nominating and +Governance Committee +Morton Erlich +X* +X +X* +Geyer Kosinski +X +Richard Siskind +X +X* +X +Total Meetings in 2011 +6 +7 +3 +* +Committee Chairman +Each of +these committees acts under a written charter that complies with the applicable NYSE Rules and Securities and Exchange Commission (“SEC”) rules. The functions performed by the committees are summarized below and are set forth in greater +detail in their respective charters. The complete text of the charter for each committee can be found in the corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp , +and copies are available in print, without charge, upon written request to our Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. The information found on, or otherwise accessible through, +our website is not incorporated into, and does not form a part of, this proxy statement. +Director Independence +Our Board of Directors has nine members including six non-management directors, which are those directors who are not also serving as one +of our executive officers. Our Board of Directors has affirmatively determined that the Board has five members who are independent as defined by Section 303A.02 of the NYSE Rules. These directors are Morton Erlich, Geyer Kosinski, Richard +Rappaport, Richard Siskind and Thomas Walsh. The Board of Directors made this affirmative determination regarding these directors’ independence based on discussions with the directors and on its review of the directors’ responses to a +questionnaire regarding employment and compensation history; affiliations, family and other relationships; and transactions with our company, its subsidiaries and affiliates. The Board considered relationships and transactions between each director +or any member of his immediate family and our company and its subsidiaries and affiliates, including +7 +those reported in the section entitled “ Transactions with Related Persons ” in this proxy statement. The purpose of the Board’s review with respect to each director was to +determine whether any such relationships or transactions were inconsistent with a determination that the director is independent under the NYSE Rules. +Board Leadership Structure +Robert Greenberg currently serves as both +Chairman of the Board and Chief Executive Officer of our company. We believe combining the roles of Chairman and Chief Executive Officer is currently the appropriate leadership model for our company as it provides for clear accountability and +efficient and effective leadership of our business. Mr. Greenberg’s knowledge regarding our operations and the industries and markets in which we compete positions him to best identify matters for Board review and deliberation. The dual +role serves as a bridge between management and the Board of Directors that enables Mr. Greenberg to provide his insight and direction on important strategic initiatives to both groups, ensuring that they act with a common purpose. As our +founder and our largest stockholder, with beneficial ownership of approximately 31.7% of the aggregate number of votes eligible to be cast by our stockholders and the ability to exert significant influence over matters requiring approval by our +stockholders, we believe Mr. Greenberg is the appropriate person to lead both our Board of Directors and the management of our company. +To further strengthen our corporate governance structure and provide independent oversight of our company, our Board of Directors appointed Morton Erlich as our Lead Independent Director. As Lead +Independent Director, Mr. Erlich acts as a liaison between the non-management directors on our Board and Robert Greenberg and the other members of our management team, chairs regularly held executive sessions without our management present, and +performs other functions as requested by the non-management directors. Executive sessions are typically held in conjunction with regularly scheduled Audit Committee meetings and Board meetings, and additional sessions may be called by the Lead +Independent Director in his own discretion or at the request of the Board of Directors. +Role of Board in Risk Oversight +Our Board of Directors is responsible for the oversight of risk management. The Board of Directors delegates much of this responsibility +to the various committees of the Board. The Audit Committee is responsible for inquiring of management, our Director of Internal Audit and our independent registered public accounting firm about our financial reporting processes, internal controls +and policies with respect to financial risk assessment and management. The Chairman of the Audit Committee has periodic discussions with our Director of Internal Audit about the adequacy and effectiveness of steps taken to monitor, control and +report financial risk exposures, and the Director of Internal Audit also presents the Audit Committee with formal periodic status reports as well. The Compensation Committee oversees risks related to our compensation programs and the Nominating and +Governance Committee is responsible for reviewing regulatory and other corporate compliance risks. The Board is advised by the committees of significant risks and management’s response via periodic updates. +Stockholder Communications with the Board of Directors +Stockholders and other interested parties who wish to contact our Presiding Independent Director, Morton Erlich, or any of our other directors either individually or as a group may do so by writing to +them c/o Philip Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. Each writing interested party should specify whether the communication is directed to our entire Board of +Directors, to only the non-management directors or to a particular director. +Audit Committee +Our Board of Directors has determined Morton Erlich, who is the Chairman of the Audit Committee, is an “audit committee financial +expert” as that term is defined in Item 407(d)(5) of Regulation S-K. The Audit +8 +Committee is responsible for overseeing and evaluating (i) the quality and integrity of our financial statements, (ii) the performance of our internal audit and internal controls +functions in addition to financial risk assessment and management applicable to our company, (iii) our policies and procedures regarding transactions with related persons, as described in greater detail below in the section entitled +“ Transactions with Related Persons, ” (iv) the appointment, compensation, independence and performance of our independent registered public accounting firm, and (v) our compliance with legal and regulatory requirements. +Compensation Committee +The Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to compensation of our executive officers, (ii) overseeing the administration of our +executive compensation plans, (iii) reviewing and discussing with our management the Compensation Discussion and Analysis required by the applicable SEC rules and recommending to the Board whether such disclosure should be included in our proxy +statement and (iv) overseeing risks related to our compensation programs and (v) producing a report on executive compensation for inclusion in our proxy statement in accordance with the applicable rules of the SEC. This includes reviewing +and approving the annual compensation of our Chief Executive Officer and other executive officers, reviewing and making recommendations to the Board with respect to executive compensation plans, including incentive compensation and equity-based +compensation, and reviewing and approving performance goals and objectives with respect to the compensation of our Chief Executive Officer and other executive officers consistent with our executive compensation plans. +Neither of the members of our Compensation Committee has ever been an employee or officer of our company or any of its subsidiaries. None +of our executive officers has served or currently serves on the board of directors or on the compensation committee of any other entity, which has officers who served on our Board of Directors or Compensation Committee during the fiscal year ended +December 31, 2011. +Nominating and Governance Committee +The Nominating and Governance Committee is responsible for (i) developing and recommending to our Board of Directors the criteria for selecting directors and assessing director independence, +(ii) identifying individuals qualified to become members of our Board of Directors and recommending candidates as director nominees for election to the Board, (iii) considering and making recommendations to the Board regarding its size and +composition, director assignments to the other Board committees and the appointment of a chairperson for each of the other Board committees, (iv) overseeing the evaluation of our management, the Board and its committees, (v) evaluating and +recommending to the Board changes to the corporate governance guidelines applicable to our company, and (vi) reviewing regulatory and other corporate compliance risks applicable to us. +Director Nominations +The Nominating and Governance Committee recommends to +our Board of Directors candidates to fill vacancies or for election or re-election to the Board. In the event of a vacancy on our Board of Directors, the process followed by the Nominating and Governance Committee to identify and evaluate director +candidates includes requests to our Board members, management and others for recommendations, meeting from time to time to evaluate biographical information and qualifications relating to potential candidates and interviews of selected candidates by +members of the committee and other directors. In considering whether to recommend any particular candidate for inclusion in the Board’s slate of recommended director nominees, the Nominating and Governance Committee applies the criteria set +forth in our Corporate Governance Guidelines. The committee also considers the statutory requirements applicable to the composition of the Board and its committees, including independence requirements of the NYSE. Our Board of Directors ultimately +determines the director nominees approved for inclusion on the proxy card for each annual meeting of stockholders. +9 +Our Nominating and Governance Committee does not have a formal policy with regard to the +consideration of diversity in identifying director nominees. Consistent with the committee’s charter, when identifying director nominees, the committee considers general principles of diversity and does so in the broadest sense. The committee +evaluates the abilities and skills, age and education, industry and professional background, and accounting and financial experience of all potential director nominees. We believe that the backgrounds and qualifications of our directors, considered +as a group, should provide a diverse mix of background, experience, knowledge and skills that will best allow our Board to fulfill its responsibilities including oversight of our business. +The Nominating and Governance Committee will consider candidates recommended by stockholders for nomination for election as directors. +The committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying the same criteria, as it follows for candidates recommended by our Board members, management and others. Stockholders wishing to +submit recommendations must provide the following information by written notice to the attention of our General Counsel by certified or registered mail: +• +As to each person whom the stockholder proposes to nominate for election as a director: +• +the name, age, business address and residential address of the candidate; +• +the principal occupation or employment of the person; +• +the class and number of shares of our stock that are beneficially owned by the candidate; and +• +the candidate’s consent to be named in the proxy statement as a nominee and to serve as a director if elected. +• +As to the stockholder recommending a candidate for director: +• +the name and address, as they appear on our stock transfer books, of the stockholder and of the beneficial owners, if any, of the stock registered in +the stockholder’s name and the name and address of other stockholders known by the stockholder to be supporting the nominee; and +• +the class and number of shares of our stock beneficially owned (i) by the stockholder and the beneficial owners, if any, and (ii) by any +other stockholders known by the stockholder to be supporting such candidates. +To be considered by the +Nominating and Governance Committee for the 2013 Annual Meeting of Stockholders, nominations for director candidates must be received at our principal office within the time period set forth below under the section “ Nominations and +Stockholder Proposals for 2013 Annual Meeting ” in this proxy statement. +Code of Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all directors, officers and employees, was adopted by our Board of Directors as +of April 28, 2004 and amended by the Board as of January 15, 2007. The purpose of the Code of Business Conduct and Ethics is to promote honest and ethical conduct. The Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . We intend to promptly post any amendments to or waivers of the Code of Business Conduct and Ethics on our website. The +information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement. +10 +Compensation of Directors +The following table sets forth information concerning the compensation earned by our non-employee directors during 2011. Robert Greenberg, Michael Greenberg, David Weinberg and Jeffrey Greenberg are not +included because as employee directors, they did not earn any additional compensation for services provided as members of our Board of Directors. +Name +Fees Earned or Paid in Cash ($)(1) +Total Compensation ($) +Morton Erlich +85,000 +85,000 +Geyer Kosinski +45,000 +45,000 +Richard Rappaport +34,500 +34,500 +Richard Siskind +70,000 +70,000 +Thomas Walsh +36,000 +36,000 +(1) +This column reports the amount of cash compensation earned in 2011 for Board and committee service. +Non-Employee Directors . We paid each of our non-employee directors annual compensation of $30,000 for serving on the Board of +Directors in 2011. Our Audit Committee Chairman, Compensation Committee Chairman and Nominating and Governance Committee Chairman were paid additional annual fees of $15,000, $10,000 and $10,000, respectively, in 2011. Non-employee directors also +received fees of $1,500 for each Board and committee meeting attended during 2011. Non-employee directors are reimbursed for reasonable costs and expenses incurred for attending any of our Board or committee meetings. Compensation, fees, and +reimbursable costs and expenses are paid quarterly. During 2011, non-employee directors were eligible to receive awards of restricted shares of Class A Common Stock, grants of options to purchase shares of Class A Common Stock and other +equity-based compensation under the 2007 Incentive Award Plan (the “2007 Plan”) as determined by the Board of Directors. In 2011, our non-employee directors were not issued any restricted shares of Class A Common Stock nor granted any +options to purchase shares of Class A Common Stock. +Employee Directors . As of December 31, 2011, Robert +Greenberg, Michael Greenberg and David Weinberg were the only Named Executive Officers serving on our Board of Directors, and Jeffrey Greenberg was the only non-executive employee serving on our Board of Directors. Employees of Skechers who are +members of the Board of Directors are not paid any directors’ fees. Compensation of Robert Greenberg, Michael Greenberg and David Weinberg earned in 2011 is set forth under “ Executive Compensation .” Compensation of Jeffrey +Greenberg earned in 2011 is described in the section entitled “ Transactions with Related Persons ” in this proxy statement. During the 2011 fiscal year, employee directors were eligible to receive awards of shares of Class A +Common Stock, grants of options to purchase shares of Class A Common Stock and other equity-based compensation under the 2007 Plan as determined by the Board of Directors. In 2011, our employee directors were not issued any restricted shares of +Class A Common Stock nor granted any options to purchase shares of Class A Common Stock. +11 +COMPENSATION DISCUSSION AND ANALYSIS +The following discussion and analysis of compensation arrangements of our Named Executive Officers for 2011 should be read together with +the compensation tables and related disclosures set forth below. The Named Executive Officers are those executive officers listed in the table captioned Summary Compensation Table in this proxy statement: Robert Greenberg, Chief Executive +Officer; Michael Greenberg, President; David Weinberg, Chief Operating Officer and Chief Financial Officer; Mark Nason, Executive Vice President of Product Development; and Philip Paccione, General Counsel and Corporate Secretary. This discussion +contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned +programs as summarized in this discussion. +Role of Compensation Committee +Our executive compensation program is administered by or under the direction of the Compensation Committee of our Board of Directors. +Under the terms of its Charter, the Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to compensation of our executive officers, (ii) overseeing the administration of our executive +compensation plans, (iii) reviewing and discussing with Skechers’ management this Compensation Discussion and Analysis required by the applicable SEC rules and recommending to the Board its inclusion in this proxy statement and +(iv) producing the annual report on executive compensation included elsewhere in this proxy statement in accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the services of outside advisors, experts and other consultants to assist in the evaluation of the compensation of the Chief Executive Officer, the +other executive officers and the Board of Directors. Neither we nor our Compensation Committee retained a compensation consultant in 2011 to review policies and procedures with respect to executive compensation or to advise us on compensation +matters. For 2011, the Compensation Committee reviewed management’s compensation recommendations and then discussed these recommendations with management. These recommendations were then approved by the Compensation Committee. +Role of Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and Chief Operating Officer, annually makes recommendations to the Compensation Committee regarding (i) annual base salary and bonuses to be +paid to executive officers, (ii) the formation and modification of our equity-based and incentive compensation plans for executive officers, (iii) awards to be granted under our equity-based compensation plan and (iv) performance +metrics to be used to calculate incentive compensation that executive officers may earn under our incentive compensation plan. Management also meets periodically with the Compensation Committee to discuss these recommendations, which are based on +management’s assessment of the base salary, equity-based compensation and incentive compensation opportunities that are competitive within our industry and within the geographical labor markets in which we participate. The Compensation +Committee has the authority to adopt, modify or reject any of these recommendations. +Compensation Objectives +The basic compensation philosophy of our management and the Compensation Committee is to provide competitive salaries and incentives to +executive officers in order to promote superior financial performance. The Compensation Committee believes that compensation paid to executive officers should be closely aligned with our performance on both a short-term and long-term basis, linked +to specific, measurable results intended to create value for stockholders, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success. +12 +Our executive compensation policies are designed to achieve four primary objectives: +• +attract and motivate well-qualified individuals with the ability and talent to enable us to achieve our business objectives and corporate strategies; +• +provide incentives to achieve specific short-term individual and corporate goals by rewarding achievement of those goals at established financial +performance levels; +• +provide incentives to achieve longer-term financial goals and reinforce sense of ownership through award opportunities that can result in ownership of +stock; and +• +promote retention of key executives and align the interests of management with those of the stockholders to reinforce achievement of continuing +increases in stockholder value. +Consistent with our performance-based philosophy, the Compensation +Committee reviews and approves our compensation programs to effectively balance executive officers’ salaries with incentive compensation that is performance-based as well as to reward annual performance while maintaining a focus on longer-term +objectives. We believe that it serves the needs of our stockholders and key executives to provide incentives commensurate with individual management responsibilities and past and future contributions to corporate objectives. The mix of compensation +elements varies based on an executive officer’s position and responsibilities within Skechers. +To maximize stockholder +value, we believe that it is necessary to deliver consistent, long-term sales and earnings growth. Accordingly, the Compensation Committee reviews not only the individual compensation elements, but the mix of individual compensation elements that +make up the aggregate compensation and attempts to balance the total compensation package between short-term, long-term and currently paid cash and equity compensation in a way that meets the objectives set forth above. +Elements of Compensation +Our executive compensation consists of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Plan. +These components, individually and in the aggregate, are designed to accomplish one or more of the four compensation objectives described above. +Base Salary +Base salaries for our Named Executive Officers are established +based on the scope of their respective responsibilities, taking into account market compensation paid by competitors within our industry and other companies of similar type, size and financial performance for individuals in similar positions. We set +base compensation for our Named Executive Officers at levels that we believe enable us to hire and retain individuals in a competitive environment, and to reward satisfactory performance at an acceptable level based upon contributions to our overall +business objectives. +Base salaries are generally reviewed annually, but may be adjusted from time to time to realign salaries +with market levels. In reviewing base salaries, we consider various factors, including (i) each individual’s level of responsibilities, performance and results achieved, and professional experience, (ii) a comparison to base salaries +paid to employees in comparable positions by our competitors and companies of similar type, size and financial performance and (iii) cost of living increases. +13 +The 2011 annual base salaries of the Named Executive Officers were not increased from their +2010 levels. Mr. Paccione’s base salary, as reported in the Summary Compensation Table, was less in 2010 because he received a raise of $100,000 during early 2010 that was not retroactive to the beginning of the year. As reported in the +Summary Compensation Table, the total compensation of each Named Executive Officers earned in 2011 was significantly less than the prior year, primarily due to our financial performance declining in 2011, which resulted in lower incentive +compensation earned by the Named Executive Officers. +Annual Incentive Compensation +The 2006 Plan is intended to advance our interests and those of our stockholders and to assist us in attracting and retaining executive +officers by providing incentives and financial rewards to such executives who, because of the extent of their responsibilities can make significant contributions to our success through their ability, industry expertise, loyalty and exceptional +services. +The 2006 Plan provides executive employees including the Named Executive Officers with the opportunity to earn +bonuses based on our financial performance by linking incentive award opportunities to the achievement of our performance goals. The 2006 Plan allows us to set annual performance criteria and goals that are flexible and change with the needs of our +business. The Compensation Committee annually approves the performance criteria and goals that will be used in formulae to calculate our Named Executive Officers’ incentive compensation on a quarterly basis for each fiscal year. By determining +performance criteria and setting goals at the beginning of each fiscal year, our Named Executive Officers understand our goals and priorities during the current fiscal year. Following the conclusion of each quarter during the current fiscal year, +the Compensation Committee certifies the amount of the award for each participant for each such quarter. The amount of an award actually paid to a participant each quarter may, in the sole discretion of the Compensation Committee, be reduced to less +than the amount payable to the participant based on attainment of the performance goals for each such quarter. +The +Compensation Committee approved the performance goals during the first quarter of 2011 for fiscal 2011. The business criteria used in the formulae to calculate the incentive compensation of our Chief Executive Officer, President, Chief Operating +Officer and Executive Vice President of Product Development for 2011 were our EBITDA (earnings before interest, taxes, depreciation and amortization) and net sales because the Compensation Committee believes that they provide an accurate and +comprehensive measure of our annual performance. For our General Counsel, who was the only other Named Executive Officer, our net sales were used to calculate his incentive compensation for 2011. +The potential payments of incentive compensation to our Named Executive Officers are performance-driven and therefore completely at risk. +The payment of any incentive compensation for a fiscal year under the 2006 Plan is conditioned on our company achieving at least certain threshold performance levels of the business criteria approved by the Compensation Committee, and no payments +will be made to our Named Executive Officers if the threshold performance levels are not met. Any incentive compensation to be paid to the Named Executive Officers in excess of the threshold amounts is based on the Compensation Committee’s +pre-approved business criteria and formulae for the respective Named Executive Officers. The following table sets forth the two sets of performance criteria used to determine the Named Executive Officers’ annual incentive compensation on a +quarterly basis, either or both of which may be earned depending on our company’s financial performance: +Name of Executive +Quarterly incentive compensation +earned if a positive EBITDA is +achieved +for either the applicable quarter or the +last four quarters combined ($) +Quarterly incentive compensation earned +equals amount by which net sales for +the +applicable quarter exceeds net sales for the +corresponding quarter in the previous year +multiplied by the listed +percentage (%) +Robert Greenberg +187,500 +0.500 +Michael Greenberg +125,000 +0.175 +David Weinberg +50,000 +0.150 +Mark Nason +25,000 +0.125 +Philip Paccione +N/A +0.050 +14 +If positive EBITDA is achieved by our company for either the applicable quarter or the last +four quarters combined, then each Named Executive Officer will earn a quarterly bonus equal to the amount set forth in the table above with respect to such quarter. If net sales for the applicable quarter exceed net sales for the corresponding +quarter in the previous year, then the executive will earn a quarterly bonus equal to the amount of such excess multiplied by the percentage set forth in the table above with respect to such quarter. The pre-approved bonus amounts and percentages +for 2011 were identical to those in 2010. The Compensation Committee did not place a maximum limit on the incentive compensation that could have been earned by the Named Executive Officers in 2011, although the maximum amount of incentive +compensation that any Named Executive Officer may earn in a 12-month period under the 2006 Plan is $5,000,000. +The Named +Executive Officers were generally targeted to receive from 10% to 50% of their non-equity compensation for 2011 in annual incentive compensation, which was determined to be competitive in the marketplace for similar positions. These percentages were +also identical to the targeted percentages for 2010. In determining these percentages, the Compensation Committee considered each Named Executive Officer’s position, responsibilities and prospective contribution to the attainment of our +performance goals. The percentage of total compensation represented by incentive awards is generally higher for more senior executives to reflect their greater influence on profits and sales and to put a larger percentage of their total potential +cash compensation “at risk.” Accordingly, our Chief Executive Officer, Robert Greenberg, was at the top end of the range. +Based on our financial performance and the performance goals previously set by the Compensation Committee for each Named Executive Officer for 2011, the actual incentive compensation earned by each Named +Executive Officer for 2011 was $562,500 for Robert Greenberg, which represented 35% of his total compensation; $375,000 for Michael Greenberg, which represented 26% of his total compensation; $150,000 for David Weinberg, which represented 12% of his +total compensation, $75,0000 for Mark Nason, which represented 7% of his total compensation; and $0 for Philip Paccione. These percentages, ranging from approximately 0% to 35%, were lower than the targeted percentages of 10% to 50% due to our +financial performance declining in 2011. +Incentive compensation awarded under the 2006 Plan complements the approach of our +equity compensation program described below, which is focused on our long-term achievements for earnings per share and total stockholder return. +Equity-Based Compensation +Awards of restricted stock, stock options and +other forms of equity-based compensation under the 2007 Plan are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees for building stockholder value; and +• +encourage long-term investment in Skechers by participating Named Executive Officers. +The Compensation Committee believes that stock ownership by management has been demonstrated to be beneficial to all stockholders and +equity-based compensation awards have historically been granted by Skechers to executive officers and other employees for the foregoing reasons and as further discussed below. Certain executive employees, including all of the Named Executive +Officers other than Robert Greenberg, were awarded shares of restricted stock in September 2009 under the 2007 Plan as a component of their total compensation for the 2009 fiscal year. We have not granted any stock options to the Named Executive +Officers as part of their annual compensation since February 2004. +Our employees, including the Named Executive Officers, are +eligible to receive, from time to time, issuances of restricted stock, grants of stock options and other equity-based compensation under the 2007 Plan. +15 +Restricted Stock +Historically, awards of restricted stock made to our Named Executive Officers are subject to certain restrictions that generally lapse +over a period of two to four years from the date of the award depending on the specific award. This vesting schedule promoted retention and encouraged long-term investment in our company by the Named Executive Officers, especially those who did not +already hold shares of our Class A or Class B Common Stock. This also provided a reasonable time frame to align the Named Executive Officers’ compensation with stockholder interests since any appreciation of our stock price will benefit +both management and stockholders. An additional advantage of restricted stock is that, in comparison to stock options, fewer shares are required to deliver the same economic value. This may result in lower stockholder dilution than granting stock +options. The Compensation Committee awarded restricted stock to the Named Executive Officers, except for Robert Greenberg, on September 4, 2009 as part of their total compensation for the 2009 fiscal year in part due to these advantages. These +restricted stock awards are scheduled to vest in three equal installments, with one-third having vested on each of November 1, 2010 and 2011 and one-third scheduled to vest on November 1, 2012. Robert Greenberg did not receive an award of +restricted stock in 2009 because the Compensation Committee determined that it was in his best interests to maintain his targeted non-equity incentive compensation for 2010, 2011 and 2012 at rates similar to 2009 rather than receive an award of +restricted stock in lieu of lower targeted non-equity compensation for those years as did the other Named Executive Officers. +Employment +Agreements, Severance Benefits and Change of Control Provisions +We do not have any employment, severance or +change-of-control agreements in effect with any of our Named Executive Officers. +The restricted stock awards granted under +our 2007 Plan provide that in the event of a change of control, all outstanding unvested shares will vest in full. +A +“change of control” is generally defined in the 2007 Plan, including the equity award agreements thereunder, as (i) the acquisition by certain persons of our securities representing 50% or more of the combined voting power of our +outstanding securities; (ii) a change during any two-year period in a majority of the Board of Directors unless each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the +beginning of the period, or whose election or nomination was so approved; (iii) approval by our stockholders of a merger or consolidation (except with certain permitted entities); or (iv) approval by our stockholders of a complete +liquidation of our company or the sale or disposition of all or substantially all of our assets. +The Compensation Committee +believes that our change of control policy is consistent with the objectives of providing the highest possible return to stockholders by allowing the Named Executive Officers to be able to effectively participate equally with stockholders in +evaluating alternatives in the event of a change of control transaction, without compelling the Named Executive Officer to remain employed under new ownership. +Equity Award Practices +As described under the Equity Compensation section, +equity-based awards are a significant component of our overall executive compensation program. We do not backdate grants of awards nor do we coordinate the grant of awards with the release of material information that might result in favorable +pricing. New hire grants of awards to executive officers and other new employees are generally based on the date of hire. It is our practice that the per share exercise price for all grants of stock options be equal to the closing price of a share +of our Class A Common Stock on the New York Stock Exchange on the date of grant, and we have never re-priced any grants. +16 +Perquisites and Other Benefits +We provide our Named Executive Officers with perquisites and other benefits that are reflected in the “All Other Compensation” +column in the table captioned Summary Compensation Table in this proxy statement, which we believe are reasonable, competitive and consistent with our overall executive compensation program. The costs of these benefits constitute only a small +percentage of each Named Executive Officer’s total compensation and include the following: +Aircraft usage . We +have an agreement with an aircraft operator for use of its aircraft for business travel. Each Named Executive Officer may also use the aircraft for personal use. If we are not reimbursed for costs associated with personal use of the aircraft, such +costs are considered taxable income to the Named Executive Officer. During 2011, there was no personal use of the aircraft by any of the Named Executive Officers for which we were not reimbursed in full. +Automobile usage . During 2011, automobiles that we purchased at our sole cost were used by Robert Greenberg, Michael Greenberg and +David Weinberg. We also paid on their behalf the automobile insurance premiums related to their use of these automobiles. +Health Club Dues . During 2011, we paid health club membership fees for David Weinberg and Philip Paccione. +Impact of Regulatory Requirements +Tax Deductibility of Compensation +Section 162(m) of the Code places a +limit of $1,000,000 on the annual amount of compensation (other than compensation that qualifies as “qualified performance-based compensation”) that publicly held companies may deduct for federal income tax purposes for certain executive +officers. +The Compensation Committee believes that tax deductibility is a factor to be considered in evaluating a +compensation program. The Compensation Committee generally seeks to structure compensation in a manner that is intended to avoid the disallowance of deductions under Section 162(m) of the Code. Nevertheless, when warranted due to competitive +and other factors, the Compensation Committee may in certain circumstances award compensation that exceeds the deductibility limit under Section 162(m) of the Code or otherwise pay non-deductible compensation. +Internal Revenue Code Section 409A +Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the +timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested +compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and programs for all of our employees and other service providers, including the Named Executive +Officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Code. +Accounting +Standards +FASB ASC Topic 718 requires us to recognize an expense for the fair value of equity-based compensation awards. +Grants of restricted stock and stock options under the 2007 Plan are accounted for under FASB ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant +17 +compensation decisions, especially in connection with decisions that relate to equity compensation awards. As accounting standards change, we may revise certain programs to appropriately align +accounting expenses of our equity awards with our overall executive compensation philosophy and objectives. +Other Tax, +Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules affect the +delivery of executive compensation and are generally taken into consideration as programs are developed. Our goal is to create and maintain plans that are efficient and in full compliance with these requirements. +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (set forth above) with the management of Skechers, and, based on such review and discussion, the Compensation +Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and, through incorporation by reference from this proxy statement, in Skechers’ Annual Report on Form 10-K for +the year ended December 31, 2011. +Respectfully submitted, +Richard Siskind, Chairman +Morton Erlich +18 +EXECUTIVE COMPENSATION +The following table sets forth selected +information concerning the compensation earned by our Principal Executive Officer, Principal Financial Officer, and each of our three most highly compensated executive officers who served in positions other than Principal Executive Officer and +Principal Financial Officer at the end of the last completed fiscal year (the “Named Executive Officers”). +Summary Compensation Table +Name and +Principal Position +Year +Salary ($) +Stock +Awards +($)(1) +Non-Equity +Incentive Plan +Compensation ($)(2) +All Other +Compensation ($) +Total ($) +Robert Greenberg +2011 +1,000,000 +— +562,500 +24,477 +(3) +1,586,977 +Chairman of the Board and +2010 +1,000,000 +— +3,602,143 +34,977 +4,637,120 +Chief Executive Officer +2009 +1,038,462 +— +1,148,471 +34,766 +2,221,699 +Michael Greenberg +2011 +1,000,000 +— +375,000 +68,381 +(4) +1,443,381 +President and Director +2010 +1,000,000 +— +1,498,250 +60,144 +2,558,394 +2009 +1,038,462 +5,403,000 +778,930 +62,377 +7,282,769 +David Weinberg +2011 +1,000,000 +— +150,000 +73,579 +(5) +1,223,579 +Executive Vice President; +2010 +1,000,000 +— +1,055,643 +84,521 +2,140,164 +Chief Operating Officer, Chief +Financial Officer and Director +2009 +1,038,462 +2,251,250 +439,083 +66,462 +3,795,257 +Mark Nason +2011 +1,000,000 +— +75,000 +22,380 +(6) +1,097,380 +Executive Vice President, +2010 +1,000,000 +— +813,036 +22,359 +1,835,405 +Product Development +2009 +1,038,462 +1,350,750 +299,236 +21,656 +2,710,104 +Philip Paccione +2011 +500,000 +— +— +17,000 +(7) +517,000 +Executive Vice President, +2010 +473,077 +— +285,214 +23,377 +745,668 +Business Affairs; General +Counsel and Corporate Secretary +2009 +415,385 +1,350,750 +78,033 +23,304 +1,867,472 +(1) +Represents the aggregate grant date fair value of stock awards granted during the applicable fiscal year, as calculated in accordance with FASB ASC Topic 718. The fair +value was calculated using the closing price of our Class A Common Stock on the grant dates for the shares awarded. +(2) +Represents the cash awards that the Named Executive Officers earned under our 2006 Plan. Incentive compensation is paid quarterly based on performance levels that our +company achieved in the prior quarter. The amounts listed for each year exclude any bonuses earned by the Named Executive Officers in the previous year that were paid in the indicated year and include incentive compensation earned in the fourth +quarter of the indicated year that was paid in the following year. Additional information regarding the 2006 Plan is described in the section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +(3) +Represents health and life insurance payments of $15,566, and costs of $8,911 related to automobiles purchased by us for use by Mr. Greenberg for 2011. The +aggregate incremental costs of automobile usage are based on depreciation expense for an automobile purchased in 2006 and the automobile insurance premiums paid by us on behalf of Mr. Greenberg. +(4) +Represents health and life insurance payments of $22,380, costs of $46,001 related to automobiles purchased by us for use by Mr. Greenberg and automobile insurance +premiums paid by us on behalf of Mr. Greenberg. The aggregate incremental costs of automobile usage are based on depreciation expense for automobiles purchased in 2008 and 2010, and the automobile insurance premiums paid by us on behalf of +Mr. Greenberg. +(5) +Represents health and life insurance payments of $22,380, an annual payment of health club membership fees $1,092, costs of $50,107 related to automobiles leased or +purchased by us for use by Mr. Weinberg. The aggregate incremental costs of automobile usage are based on depreciation expense for an automobile purchased in 2010, and the automobile insurance premiums paid by us on behalf of Mr. Weinberg. +(6) +Represents health and life insurance payments. +(7) +Represents health and life insurance payments of $15,908 and an annual payment of health club membership fees of $1,092. +19 +Grants of Plan-Based Awards in Fiscal 2011 +The following table provides information about plan-based awards granted to the Named Executive Officers in 2011: the grant date and the +estimated future payouts under non-equity incentive plan awards, which consist of potential payouts under the 2006 Plan that were awarded in 2011 for the performance period covering fiscal 2011. The Named Executive Officers did not receive any other +stock awards or option awards in 2011. +Estimated Future Payments Under +Non-Equity Incentive Plan Awards (1) +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +Robert Greenberg +1/17/11 +0 +750,000 +5,000,000 +Michael Greenberg +1/17/11 +0 +500,000 +5,000,000 +David Weinberg +1/17/11 +0 +200,000 +5,000,000 +Mark Nason +1/17/11 +0 +100,000 +5,000,000 +Philip Paccione +1/17/11 +0 +0 +5,000,000 +(1) +These columns are intended to show the potential value of the payments for each Named Executive Officer under the 2006 Plan if the threshold, target or maximum goals +are satisfied for the performance measures. The potential payments are performance-driven and therefore completely at risk. Incentive compensation is conditioned on our company achieving a minimum or threshold performance level, and no payments are +made to the Named Executive Officers if the threshold performance levels are not met. The Compensation Committee approved the performance goals during the first quarter of 2011 for fiscal 2011. Additional information regarding the business +measurements and performance goals for determining the payments are described in the section entitled “ Compensation Discussion and Analysis—Annual Incentive Compensation ” in this proxy statement. The target amounts presented in +this table represent the annual amount payable to each of our Named Executive Officers for fiscal 2011, one-quarter of which is determined on a quarterly basis if positive EBITDA is achieved by our company for either the applicable quarter or the +last four quarters combined under the 2006 Plan. There are no specific target amounts that can be determined with respect to the net sales component of incentive compensation under the 2006 Plan for fiscal 2011 because any amounts payable are +determined on a quarterly basis based on pre-approved percentages for each Named Executive Officer multiplied by the amount, if any, that net sales for the applicable quarter exceed net sales for the corresponding quarter in the previous year. When +determining the performance goals, the Compensation Committee did not place a limit on the non-equity incentive compensation that could be earned by the Named Executive Officers in fiscal 2011; however, the maximum amount of incentive compensation +that any Named Executive Officer may earn in a 12-month period under the 2006 Plan is $5,000,000. +Options Exercised and +Stock Vested in Fiscal 2011 +The following table provides information for the Named Executive Officers regarding stock +options exercised in 2011, including the number of shares acquired upon exercise and the value realized, and the number of shares acquired in 2011 upon the vesting of restricted stock awards and the value realized, each before payment of any +applicable withholding tax and broker commissions. +Option Awards +Stock Awards +Name of Executive +Number of Shares +Acquired on Exercise (#) +Value Realized on +Exercise ($)(1) +Number of Shares +Acquired on Vesting (#) +Value Realized on +Vesting ($)(2) +Robert Greenberg +— +— +— +— +Michael Greenberg +— +— +100,000 +1,450,000 +David Weinberg +30,000 +269,991 +41,667 +604,172 +Mark Nason +10,247 +108,809 +25,000 +362,500 +Philip Paccione +— +— +25,000 +362,500 +(1) +Amounts are calculated by multiplying the number of shares of the Company’s Class A Common Stock acquired on exercise of the related option awards by the +difference between the fair market value of the shares acquired at the time of exercise and the exercise price of the stock options. +(2) +Amounts are calculated by multiplying the number of shares acquired on vesting of the related stock awards by the closing price per share of the Company’s +Class A Common Stock on the date of vesting. +20 +Outstanding Equity Awards at 2011 Fiscal Year-End +The following table provides information on the stock awards held by the Named Executive Officers as of December 31, 2011. This table +includes unvested shares of restricted stock. Each equity award is shown separately for each Named Executive Officer. The market value of the stock award is based on the closing price of our Class A Common Stock as of December 31, 2011, +which was $12.12. None of the Named Executive Officers held any outstanding stock option awards as of December 31, 2011. For additional information about option awards and stock awards, see the description of equity-based compensation in the +section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +Stock Awards +Name of Executive +Number of Shares +or +Units of Stock That +Have Not Vested (#)(1) +Market Value of Shares or +Units of Stock That Have +Not Vested ($) +Robert Greenberg +— +— +Michael Greenberg +100,000 +1,212,000 +David Weinberg +41,666 +505,004 +Mark Nason +25,000 +303,000 +Philip Paccione +25,000 +303,000 +(1) +Shares of restricted stock scheduled to vest on November 1, 2012. +Change of Control Benefits +Upon a “change of control” under the +2007 Plan, Michael Greenberg, David Weinberg, Mark Nason and Philip Paccione would be entitled to full vesting of their outstanding restricted stock valued at $1,212,000, $505,004, $303,000 and $303,000, respectively, based on the closing price of +our Class A Common Stock on December 31, 2011, which was $12.12 per share. Robert Greenberg did not hold any shares of restricted stock on December 31, 2011. As of December 31, 2011, the Named Executive Officers did not hold any +shares of restricted stock or unvested stock options under our Amended and Restated 1998 Stock Option, Deferred Stock and Restricted Stock Plan (the “1998 Stock Plan”) or any unvested stock options under the 2007 Plan. +For additional information about change of control terms under the 2007 Plan, see the description provided in the section entitled +“ Compensation Discussion and Analysis ” in this proxy statement. +21 +Securities Authorized for Issuance Under Equity Compensation Plans +The following table provides information as of December 31, 2011 regarding compensation plans (including individual compensation +arrangements) under which our equity securities are authorized for issuance. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options, +warrants and rights +Weighted-average +exercise price of +outstanding options, +warrants and +rights +Number of securities +remaining available for +future issuance +under equity +compensation plans +(excluding securities +reflected in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +206,400 +$ +7.62 +— +2007 Plan +— +— +5,116,881 +2008 ESPP +— +— +2,396,653 +Total plans approved by security holders +206,400 +(1) +$ +7.62 +7,513,534 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +206,400 +7,513,534 +(1) +Amount does not include an additional 740,493 shares of restricted stock, which were awarded under the 2007 Plan, that were outstanding with a weighted-average grant +date fair value of $19.02. +(2) +The shares available for issuance under the 2007 Plan are available for issuance as restricted stock and other forms of equity-based compensation in addition to stock +options, warrants and rights. The number of shares available for future issuance under the 2008 Employee Stock Purchase Plan (the “2008 ESPP”) may be adjusted annually on January 1 for increases equal to the least of 500,000 shares, +1% of the outstanding shares of our capital stock on such date or a lesser amount as may be determined by our Board of Directors. The 1998 Stock Plan and the Amended and Restated 1998 Employee Stock Purchase Plan were terminated and no additional +granting of awards or rights under those plans was permitted after December 31, 2007. +Relationship of Risk to +Compensation Policies and Practices +In April 2012, our company’s management and Compensation Committee reviewed our +compensation programs and identified the potential pay risks related to our compensation policies and practices for executives and other employees. The Compensation Committee discussed these potential pay risks with management, and we determined +that any such pay risks are not reasonably likely to have a material adverse effect on our company. Base salaries are fixed in amount and thus do not encourage risk taking. While maximum bonus opportunities under our annual incentive compensation +plan for executives, including our Named Executive Officers, are based on our net sales, we concluded that with the internal controls that we have over financial reporting, one or more participating employees would not be reasonably likely to be +able to directly and materially affect such financial criteria. Equity awards of restricted stock make up a significant portion of each of our executive’s total compensation opportunity and these awards align executives’ interests with +those of our stockholders. We believe that these awards do not encourage unnecessary or excessive risk taking because the ultimate value of the awards is tied to our stock price, and the awards are subject to long-term vesting schedules to help +ensure that executives always have significant value tied to long-term stock price performance. Potential risks are also mitigated by the significant amounts of our Class B Common Stock that are beneficially owned by Robert Greenberg and other +members of the Greenberg family who are employed by us. +22 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who are independent under the standards adopted by the Board of Directors +and applicable NYSE Rules and SEC standards. The Audit Committee is responsible for oversight and evaluation of (i) the quality and integrity of Skechers’ financial statements, (ii) the performance of Skechers’ internal audit and +internal controls functions in addition to financial risk assessment and management applicable to Skechers, (iii) Skechers’ policies and procedures regarding transactions with related persons, (iv) the appointment, compensation, +independence and performance of Skechers’ registered public accounting firm, KPMG LLP, and (v) Skechers’ compliance with legal and regulatory requirements. +The Audit Committee has reviewed and discussed with Skechers’ management, internal finance staff, internal auditors and KPMG LLP, with and without management present, Skechers’ audited financial +statements for the fiscal year ended December 31, 2011, management’s assessment of the effectiveness of Skechers’ internal controls over financial reporting and KPMG LLP’s evaluation of Skechers’ internal controls over +financial reporting. The Audit Committee has also discussed with KPMG LLP the results of its examinations and the judgments concerning the quality, as well as the acceptability, of Skechers’ accounting principles and such other matters that +Skechers is required to discuss with its independent registered public accounting firm under applicable rules, regulations and U.S. generally accepted auditing standards (including Statement on Auditing Standards No. 61, as amended, and adopted +by the Public Company Accounting Oversight Board in Rule 3200T). In addition, the Audit Committee has received from KPMG LLP the written disclosures and the letter from Skechers’ independent registered public accounting firm required by +applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with KPMG LLP their +independence from Skechers and management, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the fees paid to KPMG LLP during the year. +Based on our review and the discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited +financial statements for the year ended December 31, 2011 be included in Skechers’ Annual Report on Form 10-K for the year ended December 31, 2011 for filing with the SEC. +Respectfully submitted, +Morton Erlich, Chairman +Geyer Kosinski +Richard Siskind +23 +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Fees to Independent Registered Public Accounting Firm for Fiscal Years 2011 and 2010 +We retained KPMG LLP to provide services for fiscal years 2011 and 2010 in the categories and amounts as follows: +Service +2011 +2010 +Audit fees (1) +$ +1,705,000 +$ +1,654,000 +Audit-related fees (2) +— +30,000 +Tax fees (3) +403,000 +335,000 +All other fees +— +— +Total audit and non-audit fees +$ +2,108,000 +$ +2,019,000 +(1) +These are fees for the audit of our annual financial statements and the review of our annual report on Form 10-K, the review of financial statements included in our +quarterly reports on Form 10-Q, the attestation of the effectiveness of internal controls under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and consultations regarding financial accounting and reporting, as well as for services +that are normally provided in connection with statutory and regulatory filings or engagements. +(2) +These are fees for assurance, accounting research and services related to the audit or a review of our financial statements that are not reported as “Audit” +fees. +(3) +These are fees for U.S. federal, state and international tax compliance and tax consulting. +Pre-Approval Policy +The Audit Committee’s Pre-Approval Policy +provides for pre-approval of specifically described audit, audit-related, tax and all other services by the Audit Committee in order to ensure that the provision of such services does not impair the independent registered public accounting +firm’s independence. The Pre-Approval Policy also provides a list of prohibited non-audit services. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, the requested +service will require specific pre-approval by the Audit Committee. The term of any pre-approved services is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will +periodically review and may revise the list of pre-approved services, based on subsequent determinations. Pre-approval fee levels for all services to be provided by the independent registered public accounting firm are established annually by the +Audit Committee after the independent registered public accounting firm’s appointment for the then current fiscal year has been approved by the Audit Committee. Any fees for proposed services exceeding these levels will also require specific +pre-approval by the Audit Committee. All services provided by our independent registered public accounting firm in 2011 were pre-approved in accordance with the Audit Committee’s pre-approval requirements. +Attendance at Annual Meeting +A representative of KPMG LLP will attend the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +24 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the beneficial ownership of Class A Common Stock and Class B +Common Stock as of March 30, 2012 by (i) each of our directors, (ii) each of our Named Executive Officers, (iii) each person that we know to be a beneficial owner of more than 5% of either class of our Common Stock and +(iv) all of our directors and executive officers as a group. +Each stockholder’s percentage of ownership in the +following table is based upon 38,722,923 shares of Class A Common Stock and 11,274,090 shares of Class B Common Stock outstanding as of March 30, 2012. Our Class B Common Stock is convertible at any time into shares of Class A +Common Stock on a one-for-one basis. Beneficial ownership is determined in accordance with SEC rules and regulations. In computing the number of shares of our Class A Common Stock beneficially owned by a person and the percentage of beneficial +ownership of that person, shares of Class A Common Stock underlying notes, options or shares of Class B Common Stock held by that person that are convertible or exercisable, as the case may be, within 60 days of March 30, 2012 are +included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. See the section entitled “ Transactions with Related Persons ” in this proxy statement for a +description of transactions between the Greenberg Family Trust, of which Robert Greenberg is a trustee, Michael Greenberg and our company. To our knowledge, unless otherwise indicated in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole voting and investment power with respect to the shares of Class A and Class B Common Stock set forth opposite such person’s name. Unless otherwise indicated in the footnotes +below, the address of each beneficial owner listed below is c/o Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Name of Beneficial Owner +Number +of +Class A Shares +Beneficially Owned +Percentage of +Class +A Shares +Beneficially Owned +Number +of +Class B Shares +Beneficially Owned +Percentage of +Class +B Shares +Beneficially Owned +5% stockholders: +FMR LLC +6,096,103 +(1) +15.7 +% +— +— +Artisan Partners Holdings LP +3,109,100 +(2) +8.0 +— +— +BlackRock, Inc. +2,818,817 +(3) +7.3 +— +— +Wellington Management Company, LLP +2,699,812 +(4) +7.0 +— +— +Pzena Investment Management, LLC +2,453,066 +(5) +6.3 +— +— +The Vanguard Group, Inc. +1,951,738 +(6) +5.0 +— +— +Gil Schwartzberg +4,641,162 +(7) +10.7 +4,641,162 +(8) +41.2 +% +Named Executive Officers and directors: +Robert Greenberg +4,810,985 +(9) +11.1 +4,801,754 +(10) +42.6 +% +Michael Greenberg +818,239 +(11) +2.1 +540,341 +(12) +4.8 +Jeffrey Greenberg +685,600 +(13) +1.8 +403,209 +(14) +3.6 +David Weinberg +174,467 +(15) +* +— +— +Mark Nason +41,570 +* +— +— +Philip Paccione +25,480 +* +— +— +Morton Erlich +21,000 +(16) +* +— +— +Geyer Kosinski +7,850 +* +— +— +Richard Rappaport +11,000 +* +— +— +Richard Siskind +61,333 +(17) +* +— +— +Thomas Walsh +2,600 +* +— +— +All current directors and executive officers as a group (11 persons) +6,660,124 +(18) +15.0 +% +5,745,304 +51.0 +% +* +Less than 1.0% +(1) +Information is based on a Schedule 13G filed with the SEC on February 14, 2012 and represents the number of shares beneficially owned as of +December 31, 2011. Fidelity Management & Research Company +25 +(“Fidelity”), a wholly-owned subsidiary of FMR LLC (“FMR”) and an investment adviser registered under the Investment Advisers Act of 1940, beneficially owns 6,096,103 shares +of Class A Common Stock. The ownership of one investment company registered under the Investment Company Act of 1940, Fidelity Advisor Small Cap Fund, amounted to 2,236,704 shares of Class A Common Stock. The ownership of one investment +company registered under the Investment Company Act of 1940, Fidelity Low-Priced Stock Fund, amounted to 3,859,399 shares of Class A Common Stock. Edward C. Johnson 3d, Chairman of FMR, and FMR, through its control of Fidelity, and +Fidelity’s funds each has sole power to dispose of the 6,096,103 shares owned by such funds. Neither FMR nor Mr. Johnson has the sole power to vote or direct the voting of the shares owned directly by Fidelity’s funds, which power +resides with the funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds’ Boards of Trustees. The principal business office of FMR, Fidelity and the noted funds is located +at 82 Devonshire Street, Boston, Massachusetts 02109. +(2) +Information is based on a Schedule 13G filed with the SEC on February 6, 2012 and represents the number of shares reported as beneficially owned as of +December 31, 2011. Andrew and Carlene Ziegler (the “Zieglers”) are the principal stockholders of ZFIC, Inc. (“ZFIC”), which is the sole stockholder of Artisan Investment Corporation (“Artisan Corp.”), which is the +general partner of Artisan Partners Holdings LP (“Artisan Holdings”), which is the sole limited partner of Artisan Partners Limited Partnership (“Artisan Partners”), and Artisan Investments GP LLC (“Artisan +Investments”) is the general partner of Artisan Partners, which is an investment adviser registered under the Investment Advisors Act of 1940. Artisan Partners Funds, Inc. (“Artisan Funds”) is an investment company registered under +the Investment Company Act of 1940. Artisan Partners holds 3,109,100 shares, including 2,056,500 shares on behalf of Artisan Funds. Artisan Holdings has shared voting power with respect to 2,973,100 shares and shared dispositive power with respect +to 3,109,100 shares. The principal business office of Artisan Corp., Artisan Holdings, Artisan Partners, Artisan Investments, ZFIC, the Zeiglers and Artisan Funds is located at 875 East Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202. +(3) +Information is based on a Schedule 13G filed with the SEC on February 10, 2012 and represents the number of shares beneficially owned as of +December 31, 2011. BlackRock, Inc. (“BlackRock”) has sole voting power and sole dispositive power with respect to 2,818,817 shares held by the following subsidiaries: BlackRock Japan Co. Ltd., BlackRock Institutional Trust Company, +N.A., BlackRock Fund Advisors, BlackRock Asset Management Canada Limited, BlackRock Asset Management Australia Limited, BlackRock Advisors, LLC and BlackRock Asset Management Ireland Limited. The principal business office of BlackRock is located at +40 East 52 nd Street, New York, New York 10022. +(4) +Information is based on a Schedule 13G filed with the SEC on February 14, 2012 and represents the number of shares reported as beneficially owned as of +December 31, 2011. Wellington Management Company, LLP (“Wellington”), in its capacity as investment adviser, may be deemed to beneficially own 2,699,812 shares that are held of record by its clients. Wellington has shared voting power +with respect to 1,868,112 of the shares that it beneficially owns and shared dispositive power with respect to all of the shares that it beneficially owns. The principal business office of Wellington is located at 280 Congress Street, Boston, +Massachusetts 02210. +(5) +Information is based on a Schedule 13G filed with the SEC on February 10, 2012 and represents the number of shares beneficially owned as of +December 31, 2011. Pzena Investment Management, LLC (“Pzena”), in its capacity as investment advisor, has sole voting power with respect to 2,034,391 shares and sole dispositive power with respect to 2,453,066 shares. The principal +business office of Pzena is located at 120 West 45 th +Street, 20 th Floor, New York, New York 10036. +(6) +Information is based on a Schedule 13G filed with the SEC on February 8, 2012 and represents the number of shares beneficially owned as of December 31, +2011. The Vanguard Group, Inc. (“Vanguard”) has sole voting power with respect to 54,449 shares held by its wholly-owned subsidiary, Vanguard Fiduciary Trust Company, as a result of serving as investment manager of collective trust +accounts. Vanguard has sole dispositive power with respect to 1,897,289 shares and shared dispositive power with respect to 54,449 shares. The principal business office of Vanguard is located at 100 Vanguard Blvd., Malvern, Pennsylvania 19355. +26 +(7) +Represents 4,641,162 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial +ownership of these shares is described in greater detail in note 8 below. +(8) +Represents 320,581 shares of Class B Common Stock held by the Robert Y. Greenberg 2010 Annuity Trust, 320,581 shares of Class B Common Stock held by the M. Susan +Greenberg 2010 Annuity Trust, 1,000,000 shares of Class B Common Stock held by the Robert Y. Greenberg 2011 Annuity Trust, 1,000,000 shares of Class B Common Stock held by the M. Susan Greenberg 2011 Annuity Trust, 1,000,000 shares of +Class B Common Stock held by the Robert Y. Greenberg 2012 Annuity Trust and 1,000,000 shares of Class B Common Stock held by the M. Susan Greenberg 2012 Annuity Trust. Gil Schwartzberg may be deemed to beneficially own these shares as sole +trustee of the trusts, and Mr. Schwartzberg has sole voting power and sole dispositive power with respect to the shares held by these trusts. Mr. Schwartzberg disclaims beneficial ownership of any of these shares except to the extent of +his pecuniary interest therein. The principal business office of Mr. Schwartzberg is located at 269 S. Beverly Drive, Suite 1315, Beverly Hills, California 90212. +(9) +Includes 4,801,754 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial ownership +of these shares is described in greater detail in note 10 below. +(10) +Represents 4,801,754 shares of Class B Common Stock held by the Greenberg Family Trust (the “Trust”) that Robert Greenberg, our Chief Executive Officer +and Chairman of the Board, is deemed to beneficially own as a trustee of the Trust. His wife, Susan Greenberg, is also a trustee of the Trust and is also deemed to beneficially own all shares held by the Trust. +(11) +Includes 540,341 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, and 56,502 shares of +Class A Common Stock beneficially owned by Michael Greenberg, our President and a member of our Board of Directors, indirectly through his wife, Wendy Greenberg, and their children. Mr. Greenberg disclaims beneficial ownership of these +56,502 shares except to the extent of his pecuniary interest therein. Beneficial ownership of the 540,341 shares of Class B Common Stock is described in greater detail in note 12 below. +(12) +Represents 489,041 shares of Class B Common Stock held by the Michael and Wendy Greenberg Family Trust that Michael Greenberg is deemed to beneficially own as +trustee of such trust, and 51,300 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s minor children and of which a third party acts as trustee. Mr. Greenberg disclaims beneficial ownership of these +51,300 shares except to the extent of his pecuniary interest therein. +(13) +Includes 403,209 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, 62,740 shares of +Class A Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, which is for the benefit of his two daughters who are minors, and 22,568 shares of +Class A Common Stock held in various trust accounts for Mr. Greenberg’s two daughters who are minors and of which Mr. Greenberg is deemed to beneficially own as trustee of such trusts. Mr. Greenberg disclaims beneficial +ownership of the 62,740 shares held in the annuity trust except to the extent of his pecuniary interest therein. Beneficial ownership of the 403,209 shares of Class B Common Stock is described in greater detail in note 14 below. +(14) +Represents 26,849 shares of Class B Common Stock held by the Jeffrey and Lori Greenberg Family Trust that Jeffrey Greenberg, a member of our Board of +Directors, is deemed to beneficially own as trustee of such trust, and 287,260 shares of Class B Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, +which is for the benefit of his two daughters who are minors. Also represents 70,816 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s two daughters who are minors and of which Mr. Greenberg is deemed +to beneficially own as he or his wife is trustee of such trusts, and 10,792 shares of Class B Common Stock held by the Chloe July Greenberg custodial account and 7,492 shares of Class B Common Stock held by the Catherine Elle Greenberg custodial +account, for which one of his siblings acts as custodian. These custodial accounts are for the benefit of Mr. Greenberg’s two daughters who are minors, and he disclaims +27 +beneficial ownership of the 287,260 shares held in the annuity trust and the 18,284 shares held in the two custodial accounts except to the extent of his pecuniary interest therein. +(15) +Includes 132,800 shares of Class A Common Stock that David Weinberg, our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of +our Board of Directors, is deemed to beneficially own as sole trustee of The David Weinberg Trust dated September 7, 2000. +(16) +Includes 17,500 shares of Class A Common Stock held by The Erlich Family Trust that Morton Erlich, a member of our Board of Directors, is deemed to beneficially +own as a trustee of such trust. +(17) +Includes 35,000 shares of Class A Common Stock underlying options that are currently exercisable. +(18) +Includes 35,000 shares of Class A Common Stock underlying options that are currently exercisable by our executive officers and Board of Directors. +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Securities Exchange Act requires our officers, directors and persons who own more than ten percent of a +registered class of our securities, to file with the SEC reports of initial ownership (Form 3’s) and reports of changes in ownership (Form 4’s and 5’s) of our securities. Officers, directors and greater than ten percent stockholders +are required by the SEC’s regulations to furnish us with copies of all Section 16(a) forms that they file. Based on our review of copies of Form 3’s, 4’s and 5’s furnished to us as well as communications with our officers, +directors and greater than ten percent stockholders, we believe that all of them complied with the filing requirements of Section 16(a) and we are not aware of any late or missed filings of such reports for the 2011 fiscal year. +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the +Audit Committee shall review (i) at least annually a summary of directors’ and executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures +as well as audit results associated with directors’ and executive officers’ expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or relationships, (including any indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar +year, (ii) we are a participant, and (iii) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the beginning of the last fiscal year for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for +election as a director of Skechers, (b) greater than five percent beneficial owner of our Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. +Certain categories of transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a +transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee +will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally available to an unaffiliated +28 +third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or +approval of a transaction with a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. +The following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2011, which were identified by the Audit +Committee, and each of these transactions was reviewed, and approved or ratified by the Audit Committee, pursuant to the policies and procedures discussed herein. +Related Person Transactions +As of March 30, 2012, Robert Greenberg, +who is our Chairman of the Board and Chief Executive Officer, his children and the Greenberg Family Trust, collectively, beneficially own 58.2% of our Class B Common Stock and approximately 44.2% of the combined voting power of our Class A +and Class B Common Stock. Robert Greenberg, directly and indirectly through the Greenberg Family Trust, beneficially owns approximately 31.7% of the combined voting power of our Class A and Class B Common Stock. As a result, Robert +Greenberg is a “control person” of Skechers within the meaning of the rules and regulations promulgated under the Securities Act of 1933, as amended, and we are considered a “Controlled Company” under the NYSE Rules and are +thereby exempt from certain listing requirements and regulations as set forth in the NYSE Rules. Michael Greenberg, who is our President, and Jeffrey Greenberg, both of whom are members of our Board of Directors, are each beneficiaries of the +Greenberg Family Trust, which influences the election of Robert Greenberg, Michael Greenberg and Jeffrey Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary business of which is to own and operate the Shade Hotel in Manhattan +Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, +and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2011, we paid approximately $188,000 to the Shade Hotel for lodging, food and events that were +held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the +“Foundation”), which is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in +the Foundation. However, two officers and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the +Foundation. During the year ended December 31, 2011, we contributed $1,250,000 to the Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of +Skechers, and they earned total compensation of $318,623, $547,007, $528,639 and $241,696, respectively, in 2011. Jeffrey Greenberg was also a member of our Board of Directors in 2011, but did not earn any additional compensation for services +provided as a director. +Andrew Weinberg, who is the child of David Weinberg, is a non-executive employee of Skechers, and he +earned total compensation of $203,408 in 2011. +29 +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING +Stockholder proposals intended to be presented at our next Annual Meeting of Stockholders to be held in 2013 must be +received at our principal executive offices no later than December 31, 2012 to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. Proposals must comply with the proxy rules relating to stockholder +proposals, in particular Rule 14a-8 under the Securities Exchange Act, to be included in our proxy materials. Stockholders who wish to submit a proposal for consideration at our 2013 Annual Meeting of Stockholders, but who do not wish to submit +a proposal for inclusion in our proxy statement, must, in accordance with our bylaws, deliver a copy of their proposal no later than the close of business on the 60 th day nor earlier than the close of business on the 90 th day in advance of such meeting. In either case, proposals should be sent by certified or registered mail, return +receipt requested, to Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266, Attention: General Counsel. +OTHER BUSINESS +Our Board of Directors does not know of any other matter +to be acted upon at the meeting. However, if any other matter shall properly come before the meeting, the proxyholders named in the proxy accompanying this proxy statement will have authority to vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2012 +Manhattan Beach, California +30 +SKECHERS U.S.A., INC. +228 MANHATTAN BEACH BLVD. +MANHATTANBEACH, CA 90266 +ATTN: TED WEITZMAN +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in +hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail +or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have +your proxy card in hand when you call and then follow the instructions. +VOTE BY MAIL +Mark, sign and date your +proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW +IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION +FOR YOUR RECORDS +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION +ONLY +For +All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark +“For All Except” and write the number(s) of the nominee(s) on the line below. +The Board of Directors recommends you vote FOR the following: +¨ +¨ +¨ +1. +Election of Directors +Nominees +01 Robert +Greenberg 02 Morton +Erlich 03 Thomas Walsh +NOTE: Each of the person’s named as +proxies herein are authorized, in such person’s discretion, to vote upon such other matters as may properly come before the Annual Meeting of Stockholders, or any adjournments thereof. +For address change/comments, mark here. +¨ +(see reverse for instructions) +Yes +No +Please indicate if you plan to attend this +meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) +hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or +partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, +Notice & Proxy Statement is/are available at www.proxyvote.com . +SKECHERS +U.S.A., INC. +Annual Meeting of Stockholders +Thursday May 24, 2012 10:00 AM +This proxy is solicited by the Board +of Directors +The undersigned stockholder(s) of Skechers +U.S.A., Inc. a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 30, 2012, and hereby appoints David Weinberg and Richard Siskind and each of them, with full +power of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares which the undersigned is entitled to vote at the Annual Meeting +of Stockholders of Skechers U.S.A., Inc. to be held at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266, on Thursday, May 24, 2012, at 10:00 a.m. Pacific time, and at any adjournments thereof, +upon the matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to the annual meeting section of the investor +relations page of our corporate information website at www.skx.com/investor.jsp. +THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). +IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL +MEETING. +Address change/comments: +__________________________________________________________________________________________ +___________________________________________________________________________________________ +___________________________________________________________________________________________ +(If you noted any Address Changes and/or Comments above, please mark +corresponding box on the reverse side.) +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-12-192932/proxy_rpt.txt b/raw/proxies/0001065837/0001193125-12-192932/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..2279cf6bbf30cb2d7d010edd1e5c61668e7840c4 --- /dev/null +++ b/raw/proxies/0001065837/0001193125-12-192932/proxy_rpt.txt @@ -0,0 +1,42 @@ +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the +Audit Committee shall review (i) at least annually a summary of directors’ and executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest +(which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures +as well as audit results associated with directors’ and executive officers’ expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or +relationship, or series of similar transactions, arrangements or relationships, (including any indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar +year, (ii) we are a participant, and (iii) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related +Person” is any (a) person who is or was (since the beginning of the last fiscal year for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for +election as a director of Skechers, (b) greater than five percent beneficial owner of our Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. +Certain categories of transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and +pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a +transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee +will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally available to an unaffiliated +28 +third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or +approval of a transaction with a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at +least an annual basis, shall review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. +The following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2011, which were identified by the Audit +Committee, and each of these transactions was reviewed, and approved or ratified by the Audit Committee, pursuant to the policies and procedures discussed herein. +Related Person Transactions +As of March 30, 2012, Robert Greenberg, +who is our Chairman of the Board and Chief Executive Officer, his children and the Greenberg Family Trust, collectively, beneficially own 58.2% of our Class B Common Stock and approximately 44.2% of the combined voting power of our Class A +and Class B Common Stock. Robert Greenberg, directly and indirectly through the Greenberg Family Trust, beneficially owns approximately 31.7% of the combined voting power of our Class A and Class B Common Stock. As a result, Robert +Greenberg is a “control person” of Skechers within the meaning of the rules and regulations promulgated under the Securities Act of 1933, as amended, and we are considered a “Controlled Company” under the NYSE Rules and are +thereby exempt from certain listing requirements and regulations as set forth in the NYSE Rules. Michael Greenberg, who is our President, and Jeffrey Greenberg, both of whom are members of our Board of Directors, are each beneficiaries of the +Greenberg Family Trust, which influences the election of Robert Greenberg, Michael Greenberg and Jeffrey Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary business of which is to own and operate the Shade Hotel in Manhattan +Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, +and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2011, we paid approximately $188,000 to the Shade Hotel for lodging, food and events that were +held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the +“Foundation”), which is a 501(c)(3) non-profit entity that does not have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in +the Foundation. However, two officers and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the +Foundation. During the year ended December 31, 2011, we contributed $1,250,000 to the Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of +Skechers, and they earned total compensation of $318,623, $547,007, $528,639 and $241,696, respectively, in 2011. Jeffrey Greenberg was also a member of our Board of Directors in 2011, but did not earn any additional compensation for services +provided as a director. +Andrew Weinberg, who is the child of David Weinberg, is a non-executive employee of Skechers, and he +earned total compensation of $203,408 in 2011. +29 \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-13-187130/proxy.txt b/raw/proxies/0001065837/0001193125-13-187130/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..66caa5f47ac865245ffd57fd1ff0b43df67479ca --- /dev/null +++ b/raw/proxies/0001065837/0001193125-13-187130/proxy.txt @@ -0,0 +1,2170 @@ +DEF 14A +1 +d523125ddef14a.htm +DEFINITIVE PROXY STATEMENT +Definitive Proxy Statement +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, For Use of the Commission Only (as permitted by 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional materials +¨ +Soliciting Material Pursuant to § 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified in Its Charter) +Payment of filing fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials: +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, schedule or registration statement no.: +(3) +Filing party: +(4) +Date filed: +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +Important Notice Regarding the +Availability of Proxy Materials for the Annual +Meeting of Stockholders to Be Held on Wednesday, May 29, 2013 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of Skechers U.S.A., Inc., a Delaware corporation, to be held at our corporate offices located +at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266 on Wednesday, May 29, 2013 at 11:00 a.m. Pacific Time. +Our Annual Meeting is being held to elect three members to the Board of Directors to serve for a three-year term as Class II Directors, to approve the Skechers U.S.A., Inc. 2007 Incentive Award Plan, and +to transact such other business as may properly come before the meeting or any adjournments thereof. The nominees for election to our Board of Directors are Michael Greenberg, David Weinberg and Jeffrey Greenberg. +The Board of Directors has set the close of business on April 1, 2013 as the record date for determining those stockholders who will +be entitled to vote at the Annual Meeting. The following proxy statement and enclosed proxy card are being sent to each stockholder as of the record date, and our 2012 annual report is enclosed with this notice to our stockholders. Regarding the +annual report for 2012, please note that, on April 8, 2013, KPMG LLP notified Skechers that it was withdrawing its audit reports for 2011 and 2012 due to insider trading by KPMG’s lead engagement partner on the Skechers account, which +impaired KPMG’s independence for those years. KPMG stated that it had no reason to believe the Skechers financial statements for those years were materially misstated, and management and the Audit Committee believe those financial statements +may continue to be relied upon. Accordingly, Skechers has included unaudited financial statements for 2011 and 2012 in the 2012 annual report. We have included an explanatory note in the 2012 annual report that provides further information. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on +May 29, 2013: The proxy statement and 2012 annual report are available in the SEC filings section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if you plan to attend the Annual Meeting in person, you may find directions +by going to the annual meeting of stockholders section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . If you do not expect to attend, or if you plan to attend but desire the proxy holders to +vote your shares, please date and sign your proxy card and return it in the enclosed postage-paid envelope. Returning a signed proxy card will not affect your right to vote in person in the event you find it convenient to attend. Please return the +proxy card promptly to avoid the expense of additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2013 +Manhattan Beach, +California +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting of Stockholders to be Held +May 29, 2013 at 11:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or “Skechers”), in connection with our Annual Meeting of Stockholders to be held on May 29, 2013 at 11:00 a.m. Pacific Time at our corporate offices located at 330 South Sepulveda +Boulevard, Manhattan Beach, California 90266 (the “Annual Meeting”). The Board of Directors of Skechers (the “Board”) is soliciting proxies to be voted at the Annual Meeting. The approximate mailing date for this proxy statement +and the enclosed proxy is April 30, 2013. If a proxy in the accompanying form is duly executed and returned, the shares represented by the proxy will be voted as directed. If no direction is given, the shares represented by the proxy will be +voted for the election of the nominees for director named herein. Any proxy given pursuant to this solicitation may be revoked at any time prior to its exercise by notifying our Corporate Secretary, Philip Paccione, in writing of such +revocation, by duly executing and delivering another proxy bearing a later date, or by attending and voting in person at the Annual Meeting. If your shares are held in street name and you want to change your vote, please contact your broker, bank or +other nominee to find out how to do so. We will incur the cost of this solicitation of proxies that will be made by mail. In addition, our officers and other regularly engaged employees may, in a limited number of instances, solicit proxies +personally or by telephone. We will reimburse banks, brokerage firms, other custodians, nominees and fiduciaries for reasonable expenses incurred in sending proxy materials to beneficial owners of our Class A Common Stock and Class B Common +Stock. +Holders of our Class A Common Stock and Class B Common Stock of record at the close of business on +April 1, 2013 will be entitled to vote at the Annual Meeting. There were 39,336,834 shares of Class A Common Stock and 11,257,854 shares of Class B Common Stock outstanding on that date. Each share of Class A Common Stock is +entitled to one vote and each share of Class B Common Stock is entitled to ten votes, and the presence in person or by proxy of holders of a majority of the combined voting interest of the outstanding shares of Class A Common Stock and +Class B Common Stock is necessary to constitute a quorum for the Annual Meeting. A quorum must be established to consider any matter. The three candidates for director receiving the most votes of the votes entitled to be voted at the Annual +Meeting will become directors of Skechers. Stockholders may not cumulate their votes. If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” +Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares +that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained, and will not be counted in +determining whether there is a quorum. A properly executed proxy marked “Abstain” with respect to any such proposal will not be voted, although it will be counted for purposes of determining whether there is a quorum. Because directors are +elected by a plurality of the votes cast, proxies marked “Abstain” as to Proposal No. 1 will not have any effect on the election of directors as long as one vote is cast for each director nominee. +The approval of Proposal No. 2, regarding the approval of the Skechers U.S.A., Inc. 2007 Incentive Award Plan, is governed by the +New York Stock Exchange (“NYSE”) listing standards, which require that to be approved, the plan receive the affirmative vote of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock cast on such +proposal, in person or by proxy; provided that the votes cast on +1 +the proposal represent over 50% of the total outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote on the proposal. Under this standard, votes “for” +and “against” and abstentions count as votes cast, while broker non-votes do not count as votes cast. All outstanding shares on the record date, including shares resulting in broker non-votes, count as shares entitled to vote. Thus, the +total sum of votes “for,” votes “against” and abstentions, which sum is referred to as the NYSE Votes Cast, must be greater than 50% of the total outstanding shares of common stock. Once satisfied, the number of votes +“for” the proposal must be greater than 50% of the NYSE Votes Cast. Abstentions on Proposal No. 2 will have the effect of a vote against Proposal No. 2. The approval of an equity plan is a matter on which brokers are not entitled +to vote in the absence of voting instructions from the beneficial owner. Thus, broker non-votes can result from Proposal No. 2 and may make it difficult to satisfy the NYSE Votes Cast requirement. +The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that permit companies and intermediaries such as +banks and brokers to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, +which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. This year, a number of banks and brokers with account holders who are our stockholders will be +householding our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your bank or +broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to +receive separate copies of our proxy statement and annual report, please notify your bank or broker, direct your written request to Investor Relations, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266, or +contact our investor relations advisory firm, Addo Communications, by telephone at (310) 829-5400. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their +communications should contact their bank or broker. +Our principal executive office is located at 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Our Board of Directors is divided into three +classes, with each director serving a three-year term and until their successors are duly elected and qualified or until their death, resignation or removal. One class of directors is elected annually at our annual meeting of stockholders. Our +bylaws provide for a variable Board of Directors with between five and nine members. We currently have nine members on our Board of Directors. Our bylaws give the Board of Directors the authority to increase or decrease the number of directors +without the approval of our stockholders, and our bylaws also give our stockholders the authority to increase or decrease the size of our Board of Directors. The nominees for election to our Board of Directors are Michael Greenberg, David Weinberg +and Jeffrey Greenberg. +Unless otherwise directed by stockholders, within the limits set forth in our bylaws, the proxy +holders will vote all shares represented by proxies held by them for the election of Michael Greenberg, David Weinberg and Jeffrey Greenberg who are director nominees and are currently members of the Board of Directors. We have been advised by +Michael Greenberg, David Weinberg and Jeffrey Greenberg of their availability and willingness to serve if re-elected. In the event that any of Michael Greenberg, David Weinberg and Jeffrey Greenberg becomes unavailable or unable to serve as a member +of the Board of Directors prior to the voting, the proxy holders will refrain from voting for them or will vote for a substitute nominee in the exercise of their best judgment. +The Board of Directors recommends a vote FOR these director-nominees. +3 +PROPOSAL NO. 2 +APPROVAL OF THE SKECHERS U.S.A., INC. 2007 INCENTIVE AWARD PLAN +We are +asking our stockholders to approve the Skechers U.S.A., Inc. 2007 Incentive Award Plan (the “2007 Plan”) to satisfy the stockholder approval requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the +“Internal Revenue Code”). The 2007 Plan, which was adopted by our Board of Directors and approved by our stockholders in 2007, generally provides for the grant of cash and equity-based awards to eligible employees, consultants and +directors of our company and our qualifying subsidiaries. The 2007 Plan authorizes, but does not require, the grant of awards intended to constitute “qualified performance-based compensation” within the meaning of Section 162(m) of +the Internal Revenue Code (“Section 162(m)”). A copy of the 2007 Plan is attached hereto as Appendix A . +Section 162(m) generally limits the deductibility of compensation paid to certain executive officers of a publicly-held corporation +to $1,000,000 in any taxable year of the corporation. Certain types of compensation, including “qualified performance-based compensation,” are exempt from this deduction limitation. In order to qualify for the exemption for qualified +performance-based compensation, Section 162(m) generally requires that: +• +The compensation must be paid solely upon account of the attainment of one or more pre-established objective performance goals; +• +The performance goals must be established by a compensation committee comprised solely of two or more “outside directors”; +• +The material terms of the performance goals (including the maximum amount of compensation that could be paid to the employee) must be disclosed to and +approved by the stockholders; and +• +The compensation committee of “outside directors” must certify that the performance goals have been met prior to payment. +To qualify for the exemption for qualified performance-based compensation, the stockholders must generally +re-approve the material terms of the performance goals every five years. For purposes of Section 162(m), the material terms include (a) the employees eligible to receive compensation, (b) a description of the business criteria on +which the performance goals may be based and (c) the maximum amount of compensation that can be paid to an employee under the performance goals. Each of these aspects of the 2007 Plan is discussed below. Our stockholders last approved the +material terms of the 2007 Plan’s performance goals when the 2007 Plan was initially approved by our stockholders at our 2007 annual meeting of stockholders on May 24, 2007. We are now re-submitting for approval in 2013 the material terms +of the 2007 Plan’s performance goals, which have not changed from those that were included in the terms of the 2007 Plan as approved by our stockholders in 2007. Stockholder approval of the 2007 Plan under this Proposal No. 2 will be +deemed to constitute approval of the material terms of the performance goals under the 2007 Plan for purposes of the stockholder approval requirements of Section 162(m). +Stockholder approval of the material terms of the performance goals under the 2007 Plan is only one of several requirements under Section 162(m) that must be satisfied for amounts paid under the 2007 +Plan to qualify for the “performance-based” compensation exemption under Section 162(m), and submission of the material terms of the 2007 Plan’s performance goals for stockholder approval should not be viewed as a guarantee that +we will be able to deduct any or all compensation under the 2007 Plan. Nothing in this proposal precludes us or our Compensation Committee from making any payment or granting awards that are not intended to qualify for tax deductibility under +Section 162(m). +If our stockholders do not approve the 2007 Plan pursuant to this Proposal No. 2, we will not make +any further grants under the 2007 Plan to Section 162(m) covered employees or pay any compensation under the 2007 Plan to Section 162(m) covered employees (other than pursuant to awards granted prior to the date of the Annual Meeting). The +2007 Plan will, however, remain in effect with respect to individuals other than covered +4 +employees and we may continue to grant performance-vesting and other awards under the 2007 Plan to such individuals, subject to the terms and conditions of the 2007 Plan. In addition, all +previously granted awards will continue to be subject to the 2007 Plan. +Summary Description of the 2007 Plan +The 2007 Plan is intended to promote the success and enhance the value of our company by continuing to link the personal interest of +participants to those of our stockholders and by providing participants with an incentive for outstanding performance. A summary of the principal provisions of the 2007 Plan is set forth below. This summary is qualified in its entirety by reference +to the 2007 Plan itself, which is included as Appendix A . +Shares Available for Awards +Subject to certain adjustments set forth in the plan, the maximum number of shares of our Class A Common Stock that was issuable +under the 2007 Plan when it was approved by our stockholders on May 24, 2007 was 7,500,000 shares. As of April 1, 2013, the number of shares remaining available for issuance pursuant to awards granted under the 2007 Plan was 4,868,881 +shares. +To the extent that an award terminates, expires, lapses for any reason, or is settled in cash, any shares of +Class A Common Stock subject to the award again be available for the grant of an award pursuant to the 2007 Plan. Any shares of Class A Common Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation +with respect to any award are available for subsequent grant under the 2007 Plan. For purposes of calculating the number of shares available for issuance under the 2007 Plan, to the extent that a stock appreciation right is settled in Class A +Common Stock, the full number of shares subject to such stock appreciation right would be counted, regardless of the actual number of shares issued upon settlement. +Awards +The 2007 Plan provides for the grant of incentive stock options, +nonqualified stock options, restricted stock, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units, performance bonus awards, and performance-based +awards to eligible individuals. Except as otherwise provided by the plan administrator, no award granted under the 2007 Plan may be assigned, transferred or otherwise disposed of by the grantee, except to our company, or by will or the laws of +descent and distribution or pursuant to beneficiary designation procedures approved from time to time by the plan administrator. The plan administrator may, however, permit an award to be transferred without consideration to certain persons or +entities related to the participant or who are otherwise approved, provided that no transfer of an incentive stock option will be permitted to the extent that the transfer would cause the option to fail to qualify as an “incentive stock +option” under the Internal Revenue Code. +The maximum number of shares of our Class A Common Stock which may be +subject to awards granted to any one participant during any calendar year is 750,000 shares and the maximum amount that may be paid to a participant in cash during any calendar year with respect to one or more cash-based performance awards is +$5,000,000. +Awards under the 2007 Plan are evidenced by a written award agreement that sets forth the terms, conditions and +limitations for each award, as determined by the plan administrator. +Stock Options +Stock options, including incentive stock options, as defined under Section 422 of the Internal Revenue Code, and nonqualified stock +options, may be granted pursuant to the 2007 Plan. The option exercise price of all stock options granted pursuant to the plan may not be less than 100% of the fair market value of our Class A +5 +Common Stock on the date of grant. No incentive stock option may be granted to a grantee who owns more than 10% of the total combined voting power of all classes of our capital stock on the date +of grant unless the exercise price is at least 110% of the fair market value at the time of grant. For purposes of the 2007 Plan, provided that our Class A Common Stock continues to be traded on the New York Stock Exchange or another exchange, +the “fair market value” of the Class A Common Stock on any given date is the closing price of a share as reported in the Wall Street Journal (or such other source as we may deem reliable) for that date, or if no sale occurred +on that date, the first trading day immediately prior to such date during which a sale occurred. On April 1, 2013, the closing price of our Class A Common Stock as reported on the New York Stock Exchange was $21.00. +Notwithstanding whether an option is designated as an incentive stock option, to the extent that the aggregate fair market value of the +shares with respect to which such option is exercisable for the first time by any optionee during any calendar year exceeds $100,000, such excess is treated as a nonqualified stock option. +The plan administrator determines the methods of payment of the exercise price of an option, including, without limitation, cash, shares +of our Class A Common Stock with a fair market value on the date of delivery equal to the exercise price of the option or exercised portion thereof (including shares issuable upon exercise of the option) or other property acceptable to the plan +administrator (including the delivery of a notice that the participant has placed a market sell order with a broker with respect to shares then issuable upon exercise of the option, and that the broker has been directed to pay a sufficient portion +of the net proceeds of the sale to us in satisfaction of the option exercise price, provided that payment of such proceeds is then made to us not later than settlement of such sale). However, no participant who is a director or an executive officer +of our company within the meaning of Section 13(k) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is permitted to pay the exercise price of an option in any method which would violate Section 13(k) of +the Exchange Act. +Stock options may be exercised as determined by the plan administrator, but in no event after the tenth +anniversary of the date of grant. However, in the case of an incentive stock option granted to a person who owns more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, such term may not exceed 5 +years. +Restricted Stock +Eligible employees, consultants and directors may be issued restricted stock in such amounts and on such terms and conditions as determined by the plan administrator. Restricted stock is evidenced by a +written restricted stock agreement. The restricted stock agreement contains restrictions on transferability and other such restrictions as the plan administrator may determine, including, without limitation, limitations on the right to vote +restricted stock or the right to receive dividends on the restricted stock. These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the plan administrator +determines at the time of grant of the award or thereafter. +Stock Appreciation Rights +A stock appreciation right (or a “SAR”) is the right to receive payment of an amount equal to the excess of the fair market +value of a share of our Class A Common Stock on the date of exercise of the SAR over the per share exercise price of the SAR, which exercise price may not be less than the fair market value of a share of our Class A Common Stock on the +date of grant of the SAR. The plan administrator may issue SARs in such amounts and on such terms and conditions as it may determine, consistent with the terms of the 2007 Plan. SARs may be exercised as determined by the plan administrator, but in +no event after the tenth anniversary of the date of grant. The plan administrator may elect to pay SARs in cash, in our Class A Common Stock or in a combination of cash and our Class A Common Stock. +6 +Other Awards under the Plan +The 2007 Plan provides that the plan administrator may also grant or issue performance shares, performance stock units, dividend +equivalents, stock payments, deferred stock, restricted stock units, performance bonus awards, and performance-based awards or any combination thereof to eligible employees, consultants and directors. The terms of each such grant or issuance are set +by the plan administrator in its discretion. The plan administrator may establish the exercise price or purchase price, if any, of any such award, provided that such price may not be less than the par value of a share of our Class A Common +Stock, unless otherwise permitted by applicable state law. +Any such award may only vest or be exercisable or payable while +the participant is an employee, consultant or director of our company or our qualifying corporate subsidiaries, provided that the plan administrator, in its sole and absolute discretion, may provide that any such award may vest or be exercised or +paid subsequent to a termination of employment or service, as applicable, or following a change in control (as defined in the 2007 Plan) of our company, or because of the participant’s retirement, death or disability, or otherwise. However, to +the extent required to preserve the tax deductibility under Section 162(m) of the Internal Revenue Code, any such provision with respect to awards that are intended to constitute “qualified performance-based compensation” within the +meaning of Section 162(m) of the Internal Revenue Code are subject to the requirements of Section 162(m) of the Internal Revenue Code that apply to such “qualified performance-based compensation.” +Payments with respect to any such award may be made in cash, in our Class A Common Stock or a combination of both, as determined by +the plan administrator. +Performance Shares . Awards of performance shares are denominated in a number of shares +of our Class A Common Stock and may be linked to any one or more performance criteria determined appropriate by the plan administrator, in each case on a specified date or dates or over any period or periods determined by the plan +administrator. +Performance Stock Units . Awards of performance stock units are denominated in unit equivalent of +shares of our Class A Common Stock and/or units of value, including dollar value of shares of our Class A Common Stock, and may be linked to any one or more performance criteria determined appropriate by the plan administrator, in each +case on a specified date or dates or over any period or periods determined by the plan administrator. +Dividend +Equivalents . Dividend equivalents are rights to receive the equivalent value (in cash or our Class A Common Stock) of dividends paid on our Class A Common Stock. They represent the value of the dividends per share paid by us, +calculated with reference to the number of shares that are subject to any award held by the participant. +Stock +Payments . Stock payments include payments in the form of our Class A Common Stock or options or other rights to purchase our Class A Common Stock, in each case made in lieu of all or any portion of the compensation that would +otherwise be paid to the participant. The number of shares is determined by the plan administrator and may be based upon specific performance criteria determined appropriate by the plan administrator, determined on the date such stock payment is +made or on any date thereafter. +Deferred Stock . Deferred stock may be awarded to participants and may be linked +to any performance criteria determined to be appropriate by the plan administrator. The Class A Common Stock underlying a deferred stock award may not be issued until the deferred stock award has vested, pursuant to a vesting schedule or upon +the satisfaction of performance criteria set by the plan administrator, and unless otherwise provided by the plan administrator, a recipient of deferred stock generally has no rights as a stockholder with respect to such deferred stock until the +time the vesting conditions are satisfied and the Class A Common Stock underlying the deferred stock award has been issued. +7 +Restricted Stock Units . Restricted stock units may be granted to any +participant in such amounts and subject to such terms and conditions as determined by the plan administrator. At the time of grant, the plan administrator specifies the date or dates on which the restricted stock units will become fully vested and +nonforfeitable, and may specify such conditions to vesting as it deems appropriate. At the time of grant, the plan administrator specifies the maturity date applicable to each grant of restricted stock units, which will be no earlier than the +vesting date or dates of the award and may be determined at the election of the participant. On the maturity date, we will transfer to the participant one unrestricted, fully transferable share of our Class A Common Stock for each restricted +stock unit scheduled to be paid out on such date and not previously forfeited. The plan administrator will specify the purchase price, if any, to be paid by the participant to us for such shares of our Class A Common Stock. +Performance Bonus Awards . Any participant selected by the plan administrator may be granted a cash bonus payable upon the +attainment of performance goals that are established by the plan administrator and relate to any one or more performance criteria determined appropriate by the plan administrator on a specified date or dates or over any period or periods determined +by the plan administrator. Any such cash bonus paid to a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code may be a performance-based award as described below. +Performance-Based Awards +If the 2007 Plan is approved by our stockholders under this Proposal No. 2, the plan administrator may grant awards to employees who +are or may be “covered employees,” as defined in Section 162(m) of the Internal Revenue Code, that are intended to be performance-based awards within the meaning of Section 162(m) of the Internal Revenue Code in order to preserve +the deductibility of these awards for federal income tax purposes. Participants are only entitled to receive payment for a performance-based award for any given performance period to the extent that pre-established performance goals set by the plan +administrator for the period are satisfied. These pre-established performance goals must be based on one or more of the following performance criteria: net earnings (either before or after interest, taxes, depreciation and amortization), economic +value-added, sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on +shareholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price +per share, and market share. These performance criteria may be measured in absolute terms or as compared to performance in an earlier period or as compared to any incremental increase or as compared to results of a peer group, industry index or +other companies. With regard to a particular performance period, the plan administrator has the discretion to select the length of the performance period, the type of performance-based awards to be granted, and the goals that will be used to measure +the performance for the period. In determining the actual size of an individual performance-based award for a performance period, the plan administrator may reduce or eliminate (but not increase) the award. Generally, a participant will have to be +employed by our company on the date the performance-based award is paid to be eligible for a performance-based award for any period. Because we determined not to submit the 2007 Plan to our stockholders for re-approval in 2012 (the expiration of the +original Section 162(m) five-year period for the 2007 Plan), the 2007 Plan does not currently enable our Compensation Committee to grant performance-based awards that will constitute “qualified performance-based compensation” under +Section 162(m). If our stockholders approve the 2007 Plan under this Proposal No. 2, the Compensation Committee would be able to, in its discretion, grant performance-based awards under the 2007 Plan that qualify under Section 162(m). +Administration +The 2007 Plan is administered by a committee consisting of at least two directors, each of whom qualifies as a non-employee director pursuant to Rule 16b-3 of the Exchange Act, an “outside +director” pursuant to Section 162(m) of the Internal Revenue Code and an independent director under the rules of the principal +8 +securities market on which our shares are traded. Our Compensation Committee is currently the administrator of the 2007 Plan. However, our full Board of Directors administers the plan with +respect to awards granted to our non-employee directors. In addition, our Board may at any time exercise any rights and duties of the Compensation Committee as they relate to the 2007 Plan except with respect to matters which under Rule 16b-3 of the +Exchange Act or Section 162(m) of the Internal Revenue Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Compensation Committee. +The governance of the Compensation Committee is subject to its charter as approved by our Board of Directors. Any action taken by the +Compensation Committee under the 2007 Plan is valid and effective, whether or not its members at the time of such action are later determined not to have satisfied the requirements for membership provided in the 2007 Plan or the charter of the +Compensation Committee. +The plan administrator has the exclusive authority to administer the plan, including, but not limited +to, the power to determine eligibility, the types and sizes of awards, the price and timing of awards and the acceleration or waiver of any vesting or forfeiture restriction, provided that the plan administrator does not have the authority to +accelerate vesting or waive the forfeiture of any performance-based awards under Section 162(m) of the Internal Revenue Code. +Eligibility +Employees, +consultants and directors of our company and our qualifying corporate subsidiaries are eligible to be granted non-qualified stock options, restricted stock, stock appreciation rights, performance share awards, performance stock units, dividend +equivalents, stock payments, deferred stock, restricted stock units, and performance bonus awards under the 2007 Plan. Only employees of our company and our qualifying corporate subsidiaries are eligible to be granted options that are intended to +qualify as “incentive stock options” under Section 422 of the Internal Revenue Code. As of January 31, 2013, we and our subsidiaries had 5,666 employees and consultants worldwide and our board consisted of five non-employee +directors who were eligible to participate in the 2007 Plan. +Adjustments +If there is any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than +normal cash dividends) of our assets to stockholders, or any other change affecting the shares of our Class A Common Stock or the share price of our Class A Common Stock other than an equity restructuring (as defined in the 2007 Plan), the +plan administrator would make such proportionate adjustments, if any, as the plan administrator in its discretion may deem appropriate to reflect such change with respect to (i) the aggregate number and type of shares that may be issued under +the 2007 Plan (including, but not limited to, adjustments of the number of shares available under the plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the plan during any calendar year), +(ii) the terms and conditions of any outstanding awards (including, without limitation, any applicable performance targets or criteria with respect thereto), and (iii) the grant or exercise price per share for any outstanding awards under +the plan. If there is any equity restructuring, (i) the number and type of securities subject to each outstanding award and the grant or exercise price per share for each outstanding award, if applicable, would be proportionately adjusted, and +(ii) the plan administrator would make proportionate adjustments to reflect such equity restructuring with respect to the aggregate number and type of shares that may be issued under the 2007 Plan (including, but not limited to, adjustments of +the number of shares available under the plan and the maximum number of shares which may be subject to one or more awards to a participant pursuant to the plan during any calendar year). Adjustments in the event of an equity restructuring would not +be discretionary. Any adjustment affecting an award intended as “qualified performance-based compensation” would be made consistent with the requirements of Section 162(m) of the Internal Revenue Code. The plan administrator also has +the authority under the 2007 Plan to take certain other actions with respect to outstanding awards in the event of a corporate transaction, including provision for the cash-out, termination, assumption or substitution of such awards. +9 +Change in Control +Except as may otherwise be provided in any written agreement between the participant and us, in the event of a change in control (as defined in the 2007 Plan) of our company in which awards are not +converted, assumed, or replaced by the successor, such awards would become fully exercisable and all forfeiture restrictions on such awards would lapse. Upon, or in anticipation of, a change in control, the plan administrator may cause any and all +awards outstanding under the 2007 Plan to terminate at a specific time in the future and would give each participant the right to exercise such awards during a period of time as the plan administrator, in its sole and absolute discretion, would +determine. +Termination or Amendment +With the approval of our Board of Directors, the plan administrator may terminate, amend, or modify the 2007 Plan at any time. However, stockholder approval would be required for any amendment to the +extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, to increase the number of shares available under the plan, to permit the grant of options or SARs with an exercise price below fair market value on +the date of grant, or to extend the exercise period for an option or SAR beyond ten years from the date of grant. In addition, absent stockholder approval, no option or SAR may be amended to reduce the per share exercise price of the shares subject +to such option or SAR below the per share exercise price as of the date the option or SAR was granted and, except to the extent permitted by the plan in connection with certain changes in capital structure, no option or SAR may be granted in +exchange for, or in connection with, the cancellation or surrender of an option or SAR having a higher per share exercise price. +No award may be granted pursuant to the 2007 Plan after the tenth anniversary of the effective date of the plan, which was May 24, 2007, and no awards that are intended to be incentive stock options +may be granted under the plan after the tenth anniversary of the date the plan was adopted by our Board of Directors, which was April 16, 2007. Any awards that are outstanding on the tenth anniversary of the effective date will remain in force +according to the terms of the 2007 Plan and the applicable award agreement. +Section 409A of the Internal Revenue Code +To the extent that the plan administrator determines that any award granted under the 2007 Plan is subject to Section 409A of the +Internal Revenue Code (“Section 409A”), the award agreement evidencing such award shall incorporate the terms and conditions required by Section 409A. In the event that the plan administrator determines that any award may be subject +to Section 409A, the 2007 Plan and any applicable awards may be modified to exempt the awards from Section 409A or comply with the requirements of Section 409A. +Federal Income Tax Consequences +The federal income tax consequences of the +2007 Plan under current federal income tax law are summarized in the following discussion which deals with the general tax principles applicable to the 2007 Plan and is intended for general information only. The following discussion of federal +income tax consequences does not purport to be a complete analysis of all of the potential tax effects of the 2007 Plan. It is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and +local tax laws, and estate and gift tax considerations are not discussed, and may vary depending on individual circumstances and from locality to locality. +Stock Options. +With respect to nonqualified stock options, we are +generally entitled to deduct and the optionee recognizes taxable income in an amount equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. A participant receiving incentive stock +options will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not +10 +recognize taxable income at the time of exercise. However, the excess of the fair market value of the shares received over the option price is an item of tax preference income potentially subject +to the alternative minimum tax. If Class A Common Stock acquired upon exercise of an incentive stock option is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal +to the difference between the fair market value on the date of sale and the exercise price) upon disposition of the Class A Common Stock will be treated as a long-term capital gain or loss, and we will not be entitled to any deduction. If the +holding period requirements are not met, the incentive stock option will be treated as one which does not meet the requirements of the Internal Revenue Code for incentive stock options and the tax consequences described for nonqualified stock +options apply. +Other Awards. +The current federal income tax consequences of other awards authorized under the 2007 Plan generally follow certain basic patterns: SARs are taxed and deductible in substantially the same manner as +nonqualified stock options; nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value over the price paid, if any, only at the time the restrictions lapse +(unless the recipient elects to accelerate recognition as of the date of grant); stock-based performance awards, dividend equivalents and other types of awards are generally subject to tax at the time of payment. Compensation otherwise effectively +deferred is taxed when paid. In each of the foregoing cases, we would generally have a corresponding deduction at the time the participant recognizes ordinary income, subject to Section 162(m) of the Internal Revenue Code with respect to +covered employees. +Section 162(m) of the Internal Revenue Code +As described above, in general, Section 162(m) of the Internal Revenue Code denies a deduction to any publicly held corporation for +compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to awards under the 2007 Plan, when combined with +all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year. +The Section 162(m) deduction limitation does not apply to “qualified performance-based compensation” that satisfies the requirements discussed above. +Section 162(m) also contains a special rule for stock options and SARs which provides that stock options and SARs will satisfy the +“qualified performance-based compensation” exemption if (i) the awards are made by a qualifying compensation committee, (ii) the plan sets the maximum number of shares that can be granted to any person within a specified period, +and (iii) the compensation is based solely on an increase in the stock price after the grant date. +The 2007 Plan has +been designed to permit the compensation committee to grant awards which will qualify as “qualified performance-based compensation.” If the 2007 Plan is approved by our stockholders, the compensation committee may, but is not obligated to, +grant awards under the 2007 Plan that constitute qualified performance based compensation under Section 162(m). If our stockholders do not approve the 2007 Plan, we will not make any further grants under the 2007 Plan to Section 162(m) +covered employees or pay any compensation under the 2007 Plan to Section 162(m) covered employees (other than pursuant to awards granted prior to the date of our Annual Meeting). +Section 409A of the Internal Revenue Code. +Certain types of awards under the 2007 Plan may constitute, or provide for, a deferral of compensation under Section 409A of the Internal Revenue Code. Unless certain requirements set forth in +Section 409A are complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of +11 +vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and, potentially, certain interest penalties). To the extent applicable, the 2007 Plan and awards +granted under the 2007 Plan are intended to be structured and interpreted to comply with, or satisfy an exemption from, Section 409A and the Department of Treasury regulations and other interpretive guidance that may be issued pursuant to +Section 409A. +Other Considerations. +Awards that are granted, accelerated or enhanced upon the occurrence of a change in control may give rise, in whole or in part, to excess parachute payments within the meaning of Section 280G of the +Internal Revenue Code to the extent that such payments, when aggregated with other payments subject to Section 280G, exceed the limitations contained in that provision. Such excess parachute payments are not deductible by our company and are +subject to a 20% excise tax payable by the recipient. +The 2007 Plan is not subject to any provision of the Employee +Retirement Income Security Act of 1974, as amended, and is not qualified under Section 401(a) of the Internal Revenue Code. +Plan +Benefits +Any awards that our executive officers, other employees or directors may receive under the 2007 Plan for 2013 and +future years are subject to the discretion of the plan administrator, and no determination has been made as to the types or amounts of awards that may be granted in the future to specific individuals pursuant to the 2007 Plan as of the date of this +proxy statement. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the 2007 Plan, although certain tables below under the general heading “ Executive Compensation ,” +including the Summary Compensation Table and the Options Exercised and Stock Vested in Fiscal 2012 Table, and the discussion under “ Compensation Discussion and Analysis—Equity-Based Compensation ” set forth information with +respect to prior awards granted to our Named Executive Officers under the 2007 Plan. In addition, the following table provides information with respect to awards granted under the 2007 Plan to our Named Executive Officers, directors and employees as +of April 1, 2013. +Plan Benefits Under the Skechers U.S.A., Inc. 2007 Incentive Award Plan(1) +Name and Position +Shares of +Restricted +Stock Awarded +Robert Greenberg—Chairman of the Board and Chief Executive Officer +29,638 +Michael Greenberg—President and Director-Nominee +320,747 +David Weinberg—Executive Vice President, Chief Operating Officer, Chief Financial Officer and +Director-Nominee +142,783 +Mark Nason—Executive Vice President, Product Development +89,819 +Philip Paccione—Executive Vice President, Business Affairs; General Counsel and Corporate Secretary +80,928 +All current executive officers as a group +663,915 +All current directors who are not executive officers as a group +263,892 +Jeffrey Greenberg—Director-Nominee +208,892 +All employees who are not executive officers as a group +2,050,631 +(1) +Future benefits under the 2007 Plan are not determinable at this time. Amounts shown represent shares of restricted stock awarded to such individual or group since the +2007 Plan was approved by our stockholders on May 24, 2007. We have not awarded any options under the 2007 Plan. +12 +Vote Required +This Proposal No. 2 regarding the approval of the 2007 Plan is governed by the New York Stock Exchange (“NYSE”) listing standards, which require that to be approved, the plan receives the +affirmative vote of the holders of a majority of the shares of Class A Common Stock and Class B Common Stock cast on such proposal, in person or by proxy, provided that the votes cast on the proposal represent over 50% of the total outstanding +shares of Class A Common Stock and Class B Common Stock entitled to vote on the proposal. Under this standard, votes “for” and “against” and abstentions count as votes cast, while broker non-votes do not count as votes cast. +All outstanding shares on the record date, including shares resulting in broker non-votes, count as shares entitled to vote. Thus, the total sum of votes “for,” votes “against” and abstentions, which sum is referred to as the +NYSE Votes Cast, must be greater than 50% of the total outstanding shares of Class A and Class B Common Stock. Once satisfied, the number of votes “for” the proposal must be greater than 50% of the NYSE Votes Cast. Abstentions on +Proposal No. 2 will have the effect of a vote against Proposal No. 2. The approval of an equity plan is a matter on which brokers are not entitled to vote in the absence of voting instructions from the beneficial owner. Thus, broker +non-votes can result from Proposal No. 2 and may make it difficult to satisfy the NYSE Votes Cast requirement. +The +Board of Directors recommends a vote FOR approval of the 2007 Plan. +13 +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +Information Concerning Director Nominees +Name +Age +Class and Year +in Which Term Will +Expire if Re-elected +Position +Michael Greenberg +50 +Class II (2016) +President and Director +David Weinberg +62 +Class II (2016) +Executive Vice President, Chief Operating Officer, +Chief Financial Officer and Director +Jeffrey Greenberg +45 +Class II (2016) +Senior Vice President of +Active Electronic Media and Director +Michael Greenberg has served as our President and a member of our Board of Directors since our +company’s inception in 1992, and from June 1992 to October 1993, he served as our Chairman of the Board. +Mr. Greenberg’s qualifications to serve on our Board include over 25 years of experience in the footwear industry, specifically +in sales, including his leadership as President of our company for the last 20 years. +David Weinberg has served as our +Chief Operating Officer since January 2006, as our Chief Financial Officer since September 2009 and from October 1993 to January 2006, and as Executive Vice President and a member of our Board of Directors since July 1998. +Mr. Weinberg’s qualifications to serve on our Board include more than 20 years of experience in the footwear industry, +specifically in finance and operations, including 14 years as our Chief Financial Officer and six years as our Chief Operating Officer. +Jeffrey Greenberg has served as our Senior Vice President, Active Electronic Media since June 2005 and as a member of our Board of Directors since September 2000. From January 1998 to June 2005, +Mr. Greenberg served as our Vice President, Active Electronic Media. Previously, Mr. Greenberg served as our Chief Operating Officer, Secretary and a member of our Board of Directors from June 1992 to July 1998, and as our Chief +Executive Officer from June 1992 to October 1993. +Mr. Greenberg’s qualifications to serve on our Board include over +20 years of experience in the footwear industry, specifically in marketing and operations, including his role on our management team during our early years of growth following our company’s inception in 1992. +Directors Not Standing for Election +The members of the Board of Directors who are continuing and not standing for election at this year’s Annual Meeting are set forth below. +Name +Age +Class and Year in Which +Term Will Expire +Position +Robert Greenberg +73 +Class I (2015) +Chairman of the Board and +Chief Executive Officer +Morton Erlich +68 +Class I (2015) +Director +Thomas Walsh +71 +Class I (2015) +Director +Geyer Kosinski +47 +Class III (2014) +Director +Richard Rappaport +53 +Class III (2014) +Director +Richard Siskind +67 +Class III (2014) +Director +14 +Robert Greenberg has served as our Chairman of the Board and Chief Executive Officer +since October 1993. +As our founder, leader and largest stockholder since our inception in 1992 and the driving force behind +our brand and our products, Mr. Greenberg is uniquely qualified to serve on and lead our Board of Directors. +Morton +Erlich has served as a member of our Board of Directors since January 2006 and has been an independent investor and consultant since September 2004. Mr. Erlich worked for 34 years at KPMG LLP including 24 years as an audit partner until +retiring in September 2004. His last position at KPMG LLP was office managing partner of the office in Woodland Hills, California. +Mr. Erlich’s qualifications to serve on our Board include 34 years of accounting and finance experience at KPMG LLP and being licensed as a certified public accountant (currently inactive) in +California since 1974. While a partner with KPMG LLP, Mr. Erlich served as lead audit partner for numerous companies in a variety of industries including companies in consumer markets, manufacturing, distribution and retail sectors. His +accounting and finance experience includes expertise with various types of transactions such as bank lines of credit, debt financings, equity financings including public offerings, and mergers and acquisitions. +Thomas Walsh has served as a member of our Board of Directors since September 2010. From May 1993 until retiring in November 2006, +Mr. Walsh served as senior vice president and portfolio manager with Colbie Pacific Capital, which is a factoring and asset-based lender located in Southern California. +Mr. Walsh’s qualifications to serve on our Board include over 40 years of experience in managing and providing guidance to +companies, the majority of which were in the apparel business, regarding debt financing options, issues with collateral on existing debt and action plans for companies with respect to distressed customers. His qualifications also include a +background in accounting and extensive experience in evaluating businesses and evaluating their financial information. +Geyer Kosinski has served as a member of our Board of Directors since November 2001. Since July 2004, Mr. Kosinski has been +the Chairman and Chief Executive Officer of Media Talent Group, a talent management and production company that produces feature films and television programming and manages over 50 actors, writers and directors. +Mr. Kosinski’s qualifications to serve on our Board include over 20 years of leadership and transactional experience, +specifically managing the careers of actors, writers and directors and developing and producing numerous feature films and television series in the entertainment industry. +Richard Rappaport has served as a member of our Board of Directors since September 2010. In 1999, Mr. Rappaport founded WestPark Capital, a full service investment banking and securities +brokerage firm that serves the needs of both private and public companies worldwide, as well as individual and institutional investors, and he is its Chief Executive Officer. Mr. Rappaport received his B.S. in Business Administration from the +University of California at Berkeley, and his M.B.A. from the University of California at Los Angeles. +In August 2004, +Mr. Rappaport entered into a settlement agreement with the NASD (the “Settlement Agreement”) to settle claims that Mr. Rappaport failed in his capacity as Chief Compliance Officer of WestPark Capital to properly supervise the +preparation of the six research reports released by WestPark Capital between July 2001 and October 2002 regarding public companies with speculative securities which WestPark Capital and Mr. Rappaport knew or had reason to know were misleading +in light of certain omissions and exaggerated, unwarranted and misleading statements. Under the terms of the Settlement Agreement, and without admitting or denying any liability, Mr. Rappaport voluntarily surrendered his Series 24 license to +act as a general securities principal on behalf of WestPark Capital for a period of 30 days restricting Mr. Rappaport’s participation in principal activities (the “Temporary Principal Suspension”), was required to requalify his +Series 24 license and +15 +paid a fine of $50,000. Despite his good faith efforts to comply with the terms of the Temporary Principal Suspension and his reliance on the advice of legal counsel regarding the scope of +the restricted activities, the NASD determined that certain of the activities that Mr. Rappaport engaged in during the Temporary Principal Suspension were considered “principal activities.” In September 2006, Mr. Rappaport +entered into a letter of acceptance, waiver and consent (the “Consent”) with the NASD in connection with the violation of the Temporary Principal Suspension. Under the terms of the Consent, and without admitting or denying any liability, +Mr. Rappaport voluntarily surrendered his Series 7 and 24 licenses for a second 30-day period and paid an additional fine of $10,000. Mr. Rappaport fully complied with the terms of the Consent to the satisfaction of the NASD. +Mr. Rappaport’s qualifications to serve on our Board include 25 years of experience in business development and corporate +finance, specifically in the United States and international small cap investment banking and securities markets; he has completed over 50 public offerings of issuers’ stock and numerous private financing and M&A transactions. During his +career, he has helped companies plan and implement their financial and business development strategies. +Richard Siskind +has served as a member of our Board of Directors since June 1999. In 1991, Mr. Siskind founded R. Siskind & Company, a business that purchases brand name men’s and women’s apparel and accessories and redistributes those +items to off-price retailers. R. Siskind & Company also controls other companies that have licenses and distribution agreements for various brands, and he is its Chief Executive Officer and a member of its Board of Directors. +Mr. Siskind’s qualifications to serve on our Board include over 35 years of experience as chief executive officer of various +companies in the consumer retail sector, including four years as Chief Executive Officer and six years as a Board member of Magic Lantern Group, a publicly traded apparel company, and over 20 years as founder, majority shareholder and leader of R. +Siskind & Company. Mr. Siskind’s experience with consumer retail businesses includes expertise with business planning, operations, finance, inventory control, acquisitions and licenses. +Executive Officers +The +following table sets forth certain information with respect to our executive officers who are not also members of our Board of Directors. For information concerning Michael Greenberg and David Weinberg, see “ Information Concerning Director +Nominees ” above, and for information concerning Robert Greenberg, see “ Directors Not Standing for Election ” above. +Name +Age +Position +Philip Paccione +51 +Executive Vice President of Business Affairs, General Counsel and Corporate Secretary +Mark Nason +51 +Executive Vice President of Product +Development +Philip Paccione has served as our Executive Vice President, Business Affairs since February 2000, +as our Corporate Secretary since July 1998 and as our General Counsel since May 1998. +Mark Nason has served as our +Executive Vice President, Product Development since March 2002. From January 1998 to March 2002, Mr. Nason served as our Vice President, Retail and Merchandising, and from December 1993 to January 1998, he served as our Director of +Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey Greenberg; other than +the foregoing, no family relationships exist among any of our executive officers or directors. +16 +CORPORATE GOVERNANCE AND BOARD MATTERS +Board of Directors, Committees of the Board and Attendance at Meetings +Our Corporate Governance Guidelines were adopted by our Board of Directors as of April 28, 2004 to assist the Board in the exercise of its responsibilities. The Corporate Governance Guidelines +reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management levels, with a view to enhancing long-term stockholder value. The Corporate Governance Guidelines are posted in the +corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . The information found on, or otherwise accessible through, our website is not incorporated into, and does +not form a part of, this proxy statement. +Our Board of Directors met four times in 2012, and all directors attended at least +75% of the combined total of (i) all Board meetings and (ii) all meetings of committees of the Board of which the director was a member. While we do not have a policy requiring our directors to attend our Annual Meeting of Stockholders, +all of the directors attended the Annual Meeting of Stockholders held in 2012. +The Board has an Audit Committee, a +Compensation Committee and a Nominating and Governance Committee. The table below provides current membership and meeting information for 2012 for each of the committees. Each of the members of these committees is independent as defined by +Section 303A of the New York Stock Exchange (“NYSE”) Listed Company Manual (collectively, the “NYSE Rules”), and each member of the Audit Committee is independent as defined by Section 10A(m)(3) of, and Rule +10A-3(b) under, the Exchange Act. All committee meetings were attended by all respective committee members in 2012. +Name +Audit Committee +Compensation +Committee +Nominating and +Governance Committee +Morton Erlich +X* +X +X* +Geyer Kosinski +X +Richard Siskind +X +X* +X +Total Meetings in 2012 +6 +6 +3 +* +Committee Chairman +Each of +these committees acts under a written charter that complies with the applicable NYSE Rules and SEC rules. The functions performed by the committees are summarized below and are set forth in greater detail in their respective charters. The complete +text of the charter for each committee can be found in the corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp , and copies are available in print, without +charge, upon written request to our Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. The information found on, or otherwise accessible through, our website is not incorporated into, +and does not form a part of, this proxy statement. +Director Independence +Our Board of Directors has nine members including six non-management directors, which are those directors who are not also serving as one +of our executive officers. Our Board of Directors has affirmatively determined that the Board has five members who are independent as defined by Section 303A.02 of the NYSE Rules. These directors are Morton Erlich, Geyer Kosinski, Richard +Rappaport, Richard Siskind and Thomas Walsh. The Board of Directors made this affirmative determination regarding these directors’ independence based on discussions with the directors and on its review of the directors’ responses to a +questionnaire regarding employment and compensation history; affiliations, family and other relationships; and transactions with our company, its subsidiaries and affiliates. The Board considered relationships and transactions between each director +or any member of his immediate family and our company and its subsidiaries +17 +and affiliates, including those reported in the section entitled “ Transactions with Related Persons ” in this proxy statement. The purpose of the Board of Director’s review +with respect to each director was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent under the NYSE Rules. +Board Leadership Structure +Robert Greenberg currently serves as both +Chairman of the Board and Chief Executive Officer of our company. We believe combining the roles of Chairman and Chief Executive Officer is currently the appropriate leadership model for our company as it provides for clear accountability and +efficient and effective leadership of our business. Mr. Greenberg’s knowledge regarding our operations and the industries and markets in which we compete positions him to best identify matters for Board review and deliberation. The dual +role serves as a bridge between management and the Board of Directors that enables Mr. Greenberg to provide his insight and direction on important strategic initiatives to both groups, ensuring that they act with a common purpose. As our +founder and our largest stockholder, with beneficial ownership of approximately 43.8% of the aggregate number of votes eligible to be cast by our stockholders and the ability to exert significant influence over matters requiring approval by our +stockholders, we believe Mr. Greenberg is the appropriate person to lead both our Board of Directors and the management of our company. +To further strengthen our corporate governance structure and provide independent oversight of our company, our Board of Directors appointed Morton Erlich as our Lead Independent Director. As Lead +Independent Director, Mr. Erlich acts as a liaison between the non-management directors on our Board and Robert Greenberg and the other members of our management team, chairs regularly held executive sessions without our management present, and +performs other functions as requested by the non-management directors. Executive sessions are typically held in conjunction with regularly scheduled Audit Committee meetings and Board meetings, and additional sessions may be called by the Lead +Independent Director in his own discretion or at the request of the Board of Directors. +Role of Board in Risk Oversight +Our Board of Directors is responsible for the oversight of risk management. The Board of Directors delegates much of this responsibility +to the various committees of the Board. The Audit Committee is responsible for inquiring of management, our Director of Internal Audit and our independent registered public accounting firm about our financial reporting processes, internal controls +and policies with respect to financial risk assessment and management. The Chairman of the Audit Committee has periodic discussions with our Director of Internal Audit about the adequacy and effectiveness of steps taken to monitor, control and +report financial risk exposures, and the Director of Internal Audit also presents the Audit Committee with formal periodic status reports as well. The Compensation Committee oversees risks related to our compensation programs and the Nominating and +Governance Committee is responsible for reviewing regulatory and other corporate compliance risks. The Board is advised by the committees of significant risks and management’s response via periodic updates. +Stockholder Communications with the Board of Directors +Stockholders and other interested parties who wish to contact our Presiding Independent Director, Morton Erlich, or any of our other directors either individually or as a group may do so by writing +to them c/o Philip Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. Each writing interested party should specify whether the communication is directed to our entire +Board of Directors, to only the non-management directors or to a particular director. +Audit Committee +Our Board of Directors has determined Morton Erlich, who is the Chairman of the Audit Committee, is an “audit committee financial +expert” as that term is defined in Item 407(d)(5) of Regulation S-K. The Audit Committee is responsible for overseeing and evaluating (i) the quality and integrity of our financial statements, +18 +(ii) the performance of our internal audit and internal controls functions in addition to financial risk assessment and management applicable to our company, (iii) our policies and +procedures regarding transactions with related persons, as described in greater detail below in the section entitled “ Transactions with Related Persons, ” (iv) the appointment, compensation, independence and performance of our +independent registered public accounting firm, and (v) our compliance with legal and regulatory requirements. +Compensation Committee +The Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to +compensation of our executive officers, (ii) overseeing the administration of our executive compensation plans, (iii) reviewing and discussing with our management the Compensation Discussion and Analysis required by the applicable SEC +rules and recommending to the Board whether such disclosure should be included in our proxy statement and (iv) overseeing risks related to our compensation programs and (v) producing a report on executive compensation for inclusion in our +proxy statement in accordance with the applicable rules of the SEC. This includes reviewing and approving the annual compensation of our Chief Executive Officer and other executive officers, reviewing and making recommendations to the Board with +respect to executive compensation plans, including incentive compensation and equity-based compensation, and reviewing and approving performance goals and objectives with respect to the compensation of our Chief Executive Officer and other executive +officers consistent with our executive compensation plans. For additional information on the role of our Chief Executive Officer in recommending the form or amount of executive compensation, see “ Compensation Discussion and +Analysis—Role of Management in Compensation Decisions .” +Neither of the members of our Compensation Committee +has ever been an employee or officer of our company or any of its subsidiaries. None of our executive officers has served or currently serves on the board of directors or on the compensation committee of any other entity, which has officers who +served on our Board of Directors or Compensation Committee during the fiscal year ended December 31, 2012. +Nominating and Governance +Committee +The Nominating and Governance Committee is responsible for (i) developing and recommending to our Board of +Directors the criteria for selecting directors and assessing director independence, (ii) identifying individuals qualified to become members of our Board of Directors and recommending candidates as director nominees for election to the Board, +(iii) considering and making recommendations to the Board regarding its size and composition, director assignments to the other Board committees and the appointment of a chairperson for each of the other Board committees, (iv) overseeing +the evaluation of our management, the Board and its committees, (v) evaluating and recommending to the Board changes to the corporate governance guidelines applicable to our company, and (vi) reviewing regulatory and other corporate +compliance risks applicable to us. +Director Nominations +The Nominating and Governance Committee recommends to our Board of Directors candidates to fill vacancies or for election or re-election to the Board. In the event of a vacancy on our Board of Directors, +the process followed by the Nominating and Governance Committee to identify and evaluate director candidates includes requests to our Board members, management and others for recommendations, meeting from time to time to evaluate biographical +information and qualifications relating to potential candidates and interviews of selected candidates by members of the committee and other directors. In considering whether to recommend any particular candidate for inclusion in the Board’s +slate of recommended director nominees, the Nominating and Governance Committee applies the criteria set forth in our Corporate Governance Guidelines. The committee also considers the statutory requirements applicable to the composition of the Board +and its committees, including independence requirements of the NYSE. Our Board of Directors ultimately determines the director nominees approved for inclusion on the proxy card for each annual meeting of stockholders. +19 +Our Nominating and Governance Committee does not have a formal policy with regard to the +consideration of diversity in identifying director nominees. Consistent with the committee’s charter, when identifying director nominees, the committee considers general principles of diversity and does so in the broadest sense. The committee +evaluates the abilities and skills, age and education, industry and professional background, and accounting and financial experience of all potential director nominees. We believe that the backgrounds and qualifications of our directors, considered +as a group, should provide a diverse mix of background, experience, knowledge and skills that will best allow our Board to fulfill its responsibilities including oversight of our business. +The Nominating and Governance Committee will consider candidates recommended by stockholders for nomination for election as directors. +The committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying the same criteria, as it follows for candidates recommended by our Board members, management and others. Stockholders wishing to +submit recommendations must provide the following information by written notice to the attention of our General Counsel by certified or registered mail: +• +As to each person whom the stockholder proposes to nominate for election as a director: +• +the name, age, business address and residential address of the candidate; +• +the principal occupation or employment of the person; +• +the class and number of shares of our stock that are beneficially owned by the candidate; and +• +the candidate’s consent to be named in the proxy statement as a nominee and to serve as a director if elected. +• +As to the stockholder recommending a candidate for director: +• +the name and address, as they appear on our stock transfer books, of the stockholder and of the beneficial owners, if any, of the stock registered in +the stockholder’s name and the name and address of other stockholders known by the stockholder to be supporting the nominee; and +• +the class and number of shares of our stock beneficially owned (i) by the stockholder and the beneficial owners, if any, and (ii) by any +other stockholders known by the stockholder to be supporting such candidates. +To be considered by the +Nominating and Governance Committee for the 2014 Annual Meeting of Stockholders, nominations for director candidates must be received at our principal office within the time period set forth below under the section “ Nominations and +Stockholder Proposals for 2014 Annual Meeting ” in this proxy statement. +Code of Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all directors, officers and employees, was adopted by our Board of Directors as +of April 28, 2004 and amended by the Board as of January 15, 2007. The purpose of the Code of Business Conduct and Ethics is to promote honest and ethical conduct. The Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . We intend to promptly post any amendments to or waivers of the Code of Business Conduct and Ethics on our website. The +information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement. +20 +Compensation of Directors +The following table sets forth information concerning the compensation earned by our non-employee directors during 2012. Robert Greenberg, Michael Greenberg, David Weinberg and Jeffrey Greenberg are not +included because as employee directors, they did not earn any additional compensation for services provided as members of our Board of Directors. +Name +Fees Earned or Paid in Cash ($)(1) +Total Compensation ($) +Morton Erlich +83,500 +83,500 +Geyer Kosinski +45,000 +45,000 +Richard Rappaport +34,500 +34,500 +Richard Siskind +68,500 +68,500 +Thomas Walsh +36,000 +36,000 +(1) +This column reports the amount of cash compensation earned in 2012 for Board and committee service. +Non-Employee Directors . We paid each of our non-employee directors annual compensation of $30,000 for serving on the Board of +Directors in 2012. Our Audit Committee Chairman, Compensation Committee Chairman and Nominating and Governance Committee Chairman were paid additional annual fees of $15,000, $10,000 and $10,000, respectively, in 2012. Non-employee directors also +received fees of $1,500 for each Board and committee meeting attended during 2012. Non-employee directors are reimbursed for reasonable costs and expenses incurred for attending any of our Board or committee meetings. Compensation, fees, and +reimbursable costs and expenses are paid quarterly. During 2012, non-employee directors were eligible to receive awards of restricted shares of Class A Common Stock, grants of options to purchase shares of Class A Common Stock and other +equity-based compensation under the 2007 Plan as determined by the Board of Directors. In 2012, our non-employee directors were not issued any restricted shares of Class A Common Stock nor granted any options to purchase shares of Class A +Common Stock. Richard Siskind holds an exercisable stock option to purchase 20,000 shares of Class A Common Stock at an exercise price of $8.35 per share, which expires on February 5, 2014. Except for this fully vested option, none of our +non-employee directors held any outstanding equity awards as of December 31, 2012. +Employee Directors . As of +December 31, 2012, Robert Greenberg, Michael Greenberg and David Weinberg were the only Named Executive Officers serving on our Board of Directors, and Jeffrey Greenberg was the only non-executive employee serving on our Board of Directors. +Employees of Skechers who are members of the Board of Directors are not paid any directors’ fees. Compensation of Robert Greenberg, Michael Greenberg and David Weinberg earned in 2012 is set forth under “ Executive +Compensation .” Compensation of Jeffrey Greenberg earned in 2012 is described in the section entitled “ Transactions with Related Persons ” in this proxy statement. During the 2012 fiscal year, employee directors were +eligible to receive awards of shares of Class A Common Stock, grants of options to purchase shares of Class A Common Stock and other equity-based compensation under the 2007 Plan as determined by the Board of Directors. In 2012, our +employee directors were not issued any restricted shares of Class A Common Stock nor granted any options to purchase shares of Class A Common Stock. None of our employee directors held any outstanding equity awards as of December 31, +2012. +21 +COMPENSATION DISCUSSION AND ANALYSIS +The following discussion and analysis describes our compensation strategy, philosophy, policies, programs and practices for our Named +Executive Officers for 2012 should be read together with the compensation tables and related disclosures set forth below. The Named Executive Officers are those executive officers listed in the table captioned Summary Compensation Table in +this proxy statement: Robert Greenberg, Chief Executive Officer; Michael Greenberg, President; David Weinberg, Chief Operating Officer and Chief Financial Officer; Mark Nason, Executive Vice President of Product Development; and Philip Paccione, +General Counsel and Corporate Secretary. This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs +that we may adopt in the future may differ materially from the compensation strategy, philosophy, policies, programs and practices summarized in this discussion. +Role of Compensation Committee +Our executive compensation program is +administered by or under the direction of the Compensation Committee of our Board of Directors. Under the terms of its Charter, the Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to +compensation of our executive officers, (ii) overseeing the administration of our executive compensation plans, (iii) reviewing and discussing with our management this Compensation Discussion and Analysis required by the applicable SEC +rules and recommending to the Board its inclusion in this proxy statement and (iv) producing the annual report on executive compensation included elsewhere in this proxy statement in accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the services of outside advisors, experts and other consultants to assist in the +evaluation of the compensation of the Chief Executive Officer, the other executive officers and the Board of Directors. Neither our management nor the Compensation Committee retained a compensation consultant in 2012 to review policies and +procedures with respect to executive compensation or to advise us on compensation matters. For 2012, the Compensation Committee reviewed management’s compensation recommendations and then discussed these recommendations with management. These +recommendations were then approved by the Compensation Committee in January 2012. +Role of Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and Chief Operating Officer, annually makes recommendations to +the Compensation Committee regarding (i) annual base salary and bonuses to be paid to executive officers, (ii) the formation and modification of our equity-based and incentive compensation plans for executive officers, (iii) awards to +be granted under our equity-based compensation plan and (iv) performance metrics to be used to calculate incentive compensation that executive officers may earn under our incentive compensation plan. Management also meets periodically with the +Compensation Committee to discuss these recommendations, which are based on management’s assessment of the base salary, equity-based compensation and incentive compensation opportunities that are competitive within our industry and within the +geographical labor markets in which we participate. The Compensation Committee has the authority to adopt, modify or reject any of these recommendations. +Compensation Objectives +The basic compensation philosophy of our +management and the Compensation Committee is to provide competitive salaries and incentives to executive officers in order to promote superior financial performance. The Compensation Committee has believed in past years that compensation paid to +executive officers should be closely aligned with our performance on both a short-term and long-term basis, linked to specific, measurable results intended to create value for stockholders, and that such compensation should assist us in attracting +and retaining key executives critical to our long-term success. However, following the decline in our company’s +22 +financial performance in 2011, our executive compensation policies for 2012 focused primarily on retaining our executives to enable us to achieve our business objectives and corporate strategies +that are critical to improving our company’s financial performance. The Compensation Committee determined that placing a greater emphasis on executive officers’ base salaries as a component of total compensation in 2012 was necessary to +satisfy this retention objective. The Compensation Committee also approved challenging performance goals under our incentive compensation program for 2012 that were designed to reward our executive officers for achieving specific short-term +individual and corporate goals. +Elements of Compensation +Our executive compensation has historically consisted of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Plan. +These components, individually and in the aggregate, are designed to accomplish one or more of the compensation objectives described above. While our executive officers were not provided all of these +components for 2012, we annually reassess the total compensation of our executive officers to ensure that our overall compensation objectives are met. As our company’s financial performance continues to improve, our executive compensation +policies and the underlying objectives that they are designed to achieve will continue to change. We expect that besides any changes to total compensation in the future, the allocation of total compensation among these components may also be changed +to satisfy our then-current compensation objectives. +Base Salary +Base salaries for our Named Executive Officers are established based on the scope of their respective responsibilities, taking into +account market compensation paid by competitors within our industry and other companies of similar type, size and financial performance for individuals in similar positions. We set base compensation for our Named Executive Officers at levels that we +believe enable us to hire and retain individuals in a competitive environment, and to reward satisfactory performance at an acceptable level based upon contributions to our overall business objectives. +Base salaries are generally reviewed annually, but may be adjusted from time to time to realign salaries with market levels. In reviewing +base salaries, we consider various factors, including (i) each individual’s level of responsibilities, performance and results achieved, and professional experience, (ii) a comparison to base salaries paid to employees in comparable +positions by our competitors and companies of similar type, size and financial performance and (iii) cost of living increases. +The 2012 annual base salaries of three of the Named Executive Officers, Robert Greenberg, Michael Greenberg and David Weinberg, were increased from their 2011 levels by $750,000, $500,000 and $250,000, +respectively. Robert Greenberg and Michael Greenberg had not received any increases to their base salaries since 2005, and David Weinberg had not received an increase to his base salary since 2007. Based on conversations between our management and +the Compensation Committee, and following the recommendation of our Chief Executive Officer, Robert Greenberg, the Compensation Committee determined that it was appropriate to increase these three Named Executive Officers’ base salaries to +levels comparable with officers at competitors within our industry. +Annual Incentive Compensation +The 2006 Plan is intended to advance our interests and those of our stockholders and to assist us in attracting and retaining executive +officers by providing incentives and financial rewards to such executives who, because of the extent of their responsibilities can make significant contributions to our success through their ability, industry expertise, loyalty and exceptional +services. +23 +The 2006 Plan provides executive employees, including the Named Executive Officers, with the +opportunity to earn bonuses based on our financial performance by linking incentive award opportunities to the achievement of our performance goals. The 2006 Plan allows us to set annual performance criteria and goals that are flexible and change +with the needs of our business. The Compensation Committee annually approves the performance criteria and goals that will be used in formulae to calculate our Named Executive Officers’ incentive compensation on a quarterly basis for each fiscal +year. By determining performance criteria and setting goals at the beginning of each fiscal year, our Named Executive Officers understand our goals and priorities during the current fiscal year. Following the conclusion of each quarter during the +current fiscal year, the Compensation Committee certifies the amount of the award for each participant for each such quarter. The amount of an award actually paid to a participant each quarter may, in the sole discretion of the Compensation +Committee, be reduced to less than the amount payable to the participant based on attainment of the performance goals for each such quarter. +The Compensation Committee approved the performance goals in January 2012 for fiscal 2012. The business criteria used in the formulae to calculate the incentive compensation of the Named Executive +Officers for 2012 was our net sales growth because the Compensation Committee believes that it provides an accurate measure of our annual performance. While in past years, the formulae used each quarter to determine if any incentive compensation was +earned was based on quarterly net sales in the current year compared to the corresponding quarter in the immediately preceding year, our management recommended and the Compensation Committee determined that such a policy in 2012 was not appropriate +following our decline in financial performance in 2011. Instead our management recommended and the Compensation Committee adopted a policy for 2012 pursuant to which quarterly net sales in 2012 would be compared to the corresponding quarter in 2010 +when our net sales performance was stronger to determine whether any incentive compensation was earned each quarter. +The +potential payments of incentive compensation to our Named Executive Officers are performance-driven and therefore completely at risk. The following table sets forth the set of performance criteria used to determine the Named Executive Officers’ +annual incentive compensation on a quarterly basis, which may be earned depending on our company’s financial performance: +Name of Executive +Quarterly incentive compensation earned +equals amount by which net sales for the +applicable quarter exceeds net sales for the +corresponding quarter in the 2010 fiscal +year +multiplied by the listed percentage (%) +Robert Greenberg +0.500 +Michael Greenberg +0.175 +David Weinberg +0.150 +Mark Nason +0.125 +Philip Paccione +0.050 +If net sales for the applicable quarter exceed net sales for the corresponding quarter in the 2010 fiscal +year, then the executive will earn a quarterly bonus equal to the amount of such excess multiplied by the percentage set forth in the table above with respect to such quarter. The Compensation Committee did not place a maximum limit on the incentive +compensation that could have been earned by the Named Executive Officers in 2012, although the maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month period under the 2006 Plan is $5,000,000. While our net +sales performance in the third and fourth quarters of 2012 improved in comparison to the corresponding periods in 2011, quarterly net sales in 2012 did not reach net sales levels for any quarter in 2010. Based on our financial performance and the +performance goals previously set by the Compensation Committee for each Named Executive Officer for 2012, none of the Named Executive Officers earned any incentive compensation for 2012. +24 +Equity-Based Compensation +Our employees, including the Named Executive Officers, are eligible to receive, from time to time, awards of restricted stock, grants of stock options and other equity-based compensation under the 2007 +Plan that are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees for building stockholder value; and +• +encourage long-term investment in our company by participating Named Executive Officers. +The Compensation Committee believes that stock ownership by management has been demonstrated to be beneficial to all stockholders and +equity-based compensation awards have historically been granted by our company to executive officers and other employees for the foregoing reasons and as further discussed below. Certain executive employees, including all of the Named Executive +Officers other than Robert Greenberg, were awarded shares of restricted stock in September 2009 under the 2007 Plan as a component of their total compensation for the 2009 fiscal year. We have not awarded any restricted stock to the Named Executive +Officers since then, and we have not granted any stock options to them since February 2004, but we may do so again in the future. +Restricted Stock +Historically, awards of restricted stock made to our +Named Executive Officers are subject to certain restrictions that generally lapse over a period of two to four years from the date of the award depending on the specific award. This vesting schedule promoted retention and encouraged long-term +investment in our company by the Named Executive Officers, especially those who did not already hold shares of our Class A or Class B Common Stock. This also provided a reasonable time frame to align the Named Executive Officers’ +compensation with stockholder interests since any appreciation of our stock price will benefit both management and stockholders. An additional advantage of restricted stock is that, in comparison to stock options, fewer shares are required to +deliver the same economic value. This may result in lower stockholder dilution than granting stock options. The Compensation Committee awarded restricted stock to the Named Executive Officers, except for Robert Greenberg, on September 4, 2009 +as part of their total compensation for the 2009 fiscal year in part due to these advantages. These restricted stock awards were scheduled to vest in three equal installments, with one-third having vested on each of November 1, 2010, 2011 and +2012. +Employment Agreements, Severance Benefits and Change of Control Provisions +We do not have any employment, severance or change-of-control agreements in effect with any of our Named Executive Officers. +The restricted stock awards granted under our 2007 Plan provide that in the event of a change of control, all outstanding unvested shares +will vest in full. None of our Named Executive Officers currently holds any awards of restricted stock that are not fully vested. +A “change of control” is generally defined in the 2007 Plan, including the equity award agreements thereunder, as (i) the acquisition by certain persons of our securities representing 50% +or more of the combined voting power of our outstanding securities; (ii) a change during any two-year period in a majority of the Board of Directors unless each new director was approved by a vote of at least two-thirds of the directors then +still in office who were directors at the beginning of the period, or whose election or nomination was so approved; (iii) approval by our stockholders of a merger or consolidation (except with certain permitted entities); or (iv) approval +by our stockholders of a complete liquidation of our company or the sale or disposition of all or substantially all of our assets. +25 +The Compensation Committee believes that our change of control policy is consistent with the +objectives of providing the highest possible return to stockholders by allowing the Named Executive Officers to be able to effectively participate equally with stockholders in evaluating alternatives in the event of a change of control transaction, +without compelling the Named Executive Officer to remain employed under new ownership. +Equity Award Practices +As described under the Equity Compensation section, equity-based awards are a significant component of our overall executive compensation +program. We do not backdate grants of awards nor do we coordinate the grant of awards with the release of material information that might result in favorable pricing. New hire grants of awards to executive officers and other new employees are +generally based on the date of hire. It is our practice that the per share exercise price for all grants of stock options be equal to the closing price of a share of our Class A Common Stock on the New York Stock Exchange on the date of grant, +and we have never re-priced any grants. +Perquisites and Other Benefits +We provide our Named Executive Officers with perquisites and other benefits that are reflected in the “All Other Compensation” +column in the table captioned Summary Compensation Table in this proxy statement, which we believe are reasonable, competitive and consistent with our overall executive compensation program. The costs of these benefits constitute only a small +percentage of each Named Executive Officer’s total compensation and include the following: +Aircraft usage . We +have an agreement with an aircraft operator for use of its aircraft for business travel. Each Named Executive Officer may also use the aircraft for personal use. If we are not reimbursed for costs associated with personal use of the aircraft, such +costs are considered taxable income to the Named Executive Officer. During 2012, there was no personal use of the aircraft by any of the Named Executive Officers for which we were not reimbursed in full. +Automobile usage . During 2012, automobiles that we purchased at our sole cost were used by Robert Greenberg, Michael Greenberg and +David Weinberg. We also paid on their behalf the automobile insurance premiums related to their use of these automobiles. +Health Club Dues . During 2012, we paid health club membership fees for David Weinberg and Philip Paccione. +Impact of Regulatory Requirements +Tax Deductibility of Compensation +Section 162(m) of the Code places a +limit of $1,000,000 on the annual amount of compensation (other than compensation that qualifies as “qualified performance-based compensation”) that publicly held companies may deduct for federal income tax purposes for certain executive +officers. +The Compensation Committee believes that tax deductibility is a factor to be considered in evaluating a +compensation program. The Compensation Committee generally seeks to structure compensation in a manner that is intended to avoid the disallowance of deductions under Section 162(m) of the Code. Nevertheless, when warranted due to competitive +and other factors, the Compensation Committee may award compensation that exceeds the deductibility limit under Section 162(m) of the Code or otherwise pay non-deductible compensation. +Internal Revenue Code Section 409A +Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the +timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and +26 +other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention +to design and administer our compensation and benefits plans and programs for all of our employees and other service providers, including the Named Executive Officers, so that they are either exempt from, or satisfy the requirements of, +Section 409A of the Code. +Accounting Standards +Financial Accounting Standards Board (“FASB”) ASC Topic 718 requires us to recognize an expense for the fair value of +equity-based compensation awards. Grants of restricted stock and stock options under the 2007 Plan are accounted for under FASB ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant compensation +decisions, especially in connection with decisions that relate to equity compensation awards. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive +compensation philosophy and objectives. +Other Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules affect the delivery of executive compensation and are generally taken +into consideration as programs are developed. Our goal is to create and maintain plans that are efficient and in full compliance with these requirements. +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee has +reviewed and discussed the Compensation Discussion and Analysis (set forth above) with the management of Skechers, and, based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation +Discussion and Analysis be included in this proxy statement and, through incorporation by reference from this proxy statement, in Skechers’ Annual Report on Form 10-K for the year ended December 31, 2012. +Respectfully submitted, +Richard Siskind, Chairman +Morton Erlich +27 +EXECUTIVE COMPENSATION +The following table sets forth selected information concerning the compensation earned by our Principal Executive Officer, Principal +Financial Officer, and each of our three most highly compensated executive officers who served in positions other than Principal Executive Officer and Principal Financial Officer at the end of the last completed fiscal year (the “Named +Executive Officers”). +Summary Compensation Table +Name and +Principal Position +Year +Salary ($) +Non-Equity +Incentive Plan +Compensation ($)(1) +All Other +Compensation ($) +Total ($) +Robert Greenberg +2012 +1,750,000 +— +34,042 +(2) +1,784,042 +Chairman of the Board and +2011 +1,000,000 +562,500 +24,477 +1,586,977 +Chief Executive Officer +2010 +1,000,000 +3,602,143 +34,977 +4,637,120 +Michael Greenberg +2012 +1,500,000 +— +70,003 +(3) +1,570,003 +President and Director +2011 +1,000,000 +375,000 +68,381 +1,443,381 +2010 +1,000,000 +1,498,250 +60,144 +2,558,394 +David Weinberg +2012 +1,250,000 +— +73,794 +(4) +1,323,794 +Executive Vice President, +2011 +1,000,000 +150,000 +73,579 +1,223,579 +Chief Operating Officer, Chief +Financial Officer and Director +2010 +1,000,000 +1,055,643 +84,521 +2,140,164 +Mark Nason +2012 +1,000,000 +— +14,321 +(5) +1,014,321 +Executive Vice President of +2011 +1,000,000 +75,000 +22,380 +1,097,380 +Product Development +2010 +1,000,000 +813,036 +22,359 +1,835,395 +Philip Paccione +2012 +500,000 +— +17,203 +(6) +517,203 +Executive Vice President of +2011 +500,000 +— +17,000 +517,000 +Business Affairs, General +Counsel and Corporate Secretary +2010 +473,077 +285,214 +23,377 +781,668 +(1) +Represents the cash awards that the Named Executive Officers earned under our 2006 Plan. Incentive compensation is paid quarterly based on performance levels that our +company achieved in the prior quarter. The amounts listed for each year exclude any bonuses earned by the Named Executive Officers in the previous year that were paid in the indicated year and include incentive compensation earned in the fourth +quarter of the indicated year that was paid in the following year. Additional information regarding the 2006 Plan is described in the section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +(2) +Represents health and life insurance payments of $15,577, and costs of $18,465 related to automobiles purchased by us for use by Mr. Greenberg. The aggregate +incremental costs of automobile usage are based on depreciation expense for automobiles purchased in 2006 and 2012 and the automobile insurance premiums paid by us on behalf of Mr. Greenberg. +(3) +Represents health and life insurance payments of $22,399, costs of $47,704 related to automobiles purchased by us for use by Mr. Greenberg and automobile insurance +premiums paid by us on behalf of Mr. Greenberg. The aggregate incremental costs of automobile usage are based on depreciation expense for automobiles purchased in 2008 and 2010, and the automobile insurance premiums paid by us on behalf of +Mr. Greenberg. +(4) +Represents health and life insurance payments of $22,399, an annual payment of health club membership fees $1,284, costs of $50,111 related to automobiles purchased by +us for use by Mr. Weinberg. The aggregate incremental costs of automobile usage are based on depreciation expense for an automobile purchased in 2012, and the automobile insurance premiums paid by us on behalf of Mr. Weinberg. +(5) +Represents health and life insurance payments. +(6) +Represents health and life insurance payments of $15,919 and an annual payment of health club membership fees of $1,284. +28 +Grants of Plan-Based Awards in Fiscal 2012 +The following table provides information about plan-based awards granted to the Named Executive Officers in 2012: the grant date and the +estimated future payouts under non-equity incentive plan awards, which consist of potential payouts under the 2006 Plan that were awarded in 2012 for the performance period covering fiscal 2012. The Named Executive Officers did not receive any other +stock awards or option awards in 2012. +Estimated Future Payments Under +Non-Equity Incentive Plan Awards(1) +Name of Executive +Grant Date +Threshold ($) +Target ($) +Maximum ($) +Robert Greenberg +1/9/12 +0 +0 +5,000,000 +Michael Greenberg +1/9/12 +0 +0 +5,000,000 +David Weinberg +1/9/12 +0 +0 +5,000,000 +Mark Nason +1/9/12 +0 +0 +5,000,000 +Philip Paccione +1/9/12 +0 +0 +5,000,000 +(1) +These columns are intended to show the potential value of the payments for each Named Executive Officer under the 2006 Plan if the threshold, target or maximum goals +are satisfied for the performance measures. The potential payments are performance-driven and therefore completely at risk. There are no specific target amounts that can be determined with respect to any payouts of incentive compensation under the +2006 Plan for fiscal 2012 because any amounts payable are determined on a quarterly basis based on pre-approved percentages for each Named Executive Officer multiplied by the amount, if any, that net sales for the applicable quarter exceed net sales +for the corresponding quarter in the 2010 fiscal year. The Compensation Committee approved the performance goals in January 2012 for fiscal 2012. Additional information regarding the business measurements and performance goals for determining the +payments are described in the section entitled “ Compensation Discussion and Analysis—Annual Incentive Compensation ” in this proxy statement. When determining the performance goals, the Compensation Committee did not place a +limit on the non-equity incentive compensation that could be earned by the Named Executive Officers in fiscal 2012; however, the maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month period under the 2006 +Plan is $5,000,000. +Options Exercised and Stock Vested in Fiscal 2012 +The following table provides information for the Named Executive Officers regarding the number of shares acquired in 2012 upon the vesting +of restricted stock awards and the value realized, each before payment of any applicable withholding tax and broker commissions. None of the Named Executive Officers exercised any stock options in 2012. +Stock Awards +Name of Executive +Number of Shares +Acquired on Vesting (#) +Value Realized on +Vesting ($)(1) +Robert Greenberg +— +— +Michael Greenberg +100,000 +1,730,000 +David Weinberg +41,666 +720,822 +Mark Nason +25,000 +432,500 +Philip Paccione +25,000 +432,500 +(1) +Amounts are calculated by multiplying the number of shares acquired on vesting of the related stock awards by the closing price per share of the Company’s +Class A Common Stock on the date of vesting. +Outstanding Equity Awards at 2012 Fiscal Year-End +None of the Named Executive Officers held any outstanding equity awards as of December 31, 2012. For additional information about +equity awards, see the description of equity-based compensation in the section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +29 +Change of Control Benefits +As of December 31, 2012, none of the Named Executive Officers held any shares of restricted stock or unvested stock options under our Amended and Restated 1998 Stock Option, Deferred Stock and +Restricted Stock Plan (the “1998 Stock Plan”) or the 2007 Plan, so they would not be entitled to receive any benefits upon a “change of control” under either of these plans. In addition, the Named Executive Officers would not be +entitled to any severance or other benefits in the event of their termination or a change of control. For additional information about change of control terms under the 2007 Plan, see the description provided in the section entitled +“ Compensation Discussion and Analysis ” in this proxy statement. +Securities Authorized for Issuance Under Equity +Compensation Plans +The following table provides information as of December 31, 2012 regarding compensation plans +(including individual compensation arrangements) under which our equity securities are authorized for issuance. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options, +warrants and rights +Weighted-average +exercise price of +outstanding options, +warrants and +rights +Number of securities +remaining available for +future issuance +under equity +compensation plans +(excluding securities +reflected in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +52,696 +$ +9.34 +— +2007 Plan +— +— +4,868,881 +2008 ESPP +— +— +2,210,454 +Total plans approved by security holders +52,696 +(1) +$ +9.34 +7,079,335 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +52,696 +7,079,335 +(1) +Amount does not include an additional 284,333 shares of restricted stock, which were awarded under the 2007 Plan, that were outstanding with a weighted-average grant +date fair value of $17.69. +(2) +The shares available for issuance under the 2007 Plan are available for issuance as restricted stock and other forms of equity-based compensation in addition to stock +options, warrants and rights. The number of shares available for future issuance under the 2008 Employee Stock Purchase Plan (the “2008 ESPP”) may be adjusted annually on January 1 for increases equal to the least of 500,000 shares, +1% of the outstanding shares of our capital stock on such date or a lesser amount as may be determined by our Board of Directors. The 1998 Stock Plan and the Amended and Restated 1998 Employee Stock Purchase Plan were terminated and no additional +granting of awards or rights under those plans was permitted after December 31, 2007. +Relationship of Risk to +Compensation Policies and Practices +In April 2013, our company’s management and Compensation Committee reviewed our +compensation policies and practices to determine whether any potential risks related to our compensation policies and practices for executives and other employees could encourage decision making that could expose our company to unreasonable risks of +material adverse consequences to our financial condition, results of operations or cash flows. The Compensation Committee discussed these potential pay risks with management and determined that any such pay risks do not expose our company to +unreasonable risks of material adverse consequences to our financial condition, results of operations or cash flows. +30 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who are independent under the standards adopted by the Board of Directors +and applicable NYSE Rules and SEC standards. The Audit Committee is responsible for oversight and evaluation of (i) the quality and integrity of Skechers’ financial statements, (ii) the performance of Skechers’ internal audit and +internal controls functions in addition to financial risk assessment and management applicable to Skechers, (iii) Skechers’ policies and procedures regarding transactions with related persons, (iv) the appointment, compensation, +independence and performance of Skechers’ independent registered public accounting firm, and (v) Skechers’ compliance with legal and regulatory requirements. +On April 8, 2013, KPMG LLP (“KPMG”) notified Skechers that KPMG was resigning, effective immediately, as Skechers’ independent registered public accounting firm. KPMG stated it had +concluded it was not independent because of alleged insider trading in Skechers’ securities by one of KPMG’s former partners who was the KPMG engagement partner on the Skechers audit for the 2011 and 2012 fiscal years. KPMG advised +Skechers it resigned as Skechers’ independent accountant solely due to the impairment of KPMG’s independence resulting from its now former partner’s alleged unlawful activities and not for any reason related to the Skechers financial +statements, its accounting practices, the integrity of Skechers management or for any other reason. +None of KPMG’s audit +reports on Skechers’ financial statements for the fiscal years ended December 31, 2011 and 2012 or KPMG’s audit reports on the effectiveness of internal control over financial reporting as of December 31, 2011 and 2012 contained +an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles. In addition, at no point during the two fiscal years ended December 31, 2012 and the +subsequent interim period through April 8, 2013 were there any (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreement(s), if not +resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its reports, or (2) “reportable events” as such term is defined in Item 304(a)(1)(v) of +Regulation S-K. +The Audit Committee has reviewed and discussed with Skechers’ management, internal finance staff and +internal auditors Skechers’ audited financial statements for the fiscal year ended December 31, 2012 and management’s assessment of the effectiveness of Skechers’ internal control over financial reporting. Prior to KPMG’s +resignation and withdrawal of its audit opinions, the Audit Committee did the following: +• +it reviewed and discussed with KPMG, with and without management present, Skechers’ audited financial statements for the fiscal year ended +December 31, 2012, management’s assessment of the effectiveness of Skechers’ internal control over financial reporting, and KPMG’s evaluation of Skechers’ internal control over financial reporting; +• +it discussed with KPMG the results of its examinations and the judgments concerning the quality, as well as the acceptability, of Skechers’ +accounting principles and such other matters that Skechers is required to discuss with its independent registered public accounting firm under applicable rules, regulations and U.S. generally accepted auditing standards (including Statement on +Auditing Standards No. 61, as amended, and adopted by the Public Company Accounting Oversight Board in Rule 3200T); and +• +it received from KPMG the written disclosures and the letter from Skechers’ independent registered public accounting firm required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and discussed with KPMG its independence from Skechers +and management, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the fees paid to KPMG during the year. +31 +Based on our review and the discussions referred to above, and prior to KPMG’s +resignation and withdrawal of its audit opinions, the Audit Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 2012 be included in Skechers’ Annual Report on Form 10-K for +the year ended December 31, 2012 for filing with the SEC. +Respectfully submitted, +Morton Erlich, Chairman +Geyer Kosinski +Richard Siskind +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Fees to Independent Registered Public Accounting Firm for Fiscal Years 2012 and 2011 +We retained KPMG LLP to provide services for fiscal years 2012 and 2011 in the categories and amounts as follows: +Service +2012 +2011 +Audit fees (1) +$ +1,750,000 +(4) +$ +1,705,000 +Audit-related fees (2) +— +— +Tax fees (3) +686,000 +403,000 +All other fees +— +— +Total audit and non-audit fees +$ +2,436,000 +$ +2,108,000 +(1) +These are fees for the audit of our annual financial statements and the review of our annual report on Form 10-K, the review of financial statements included in +our quarterly reports on Form 10-Q, the attestation of the effectiveness of internal controls under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and consultations regarding financial accounting and reporting, as well as for +services that are normally provided in connection with statutory and regulatory filings or engagements. +(2) +These are fees for assurance, accounting research and services related to the audit or a review of our financial statements that are not reported as “Audit” +fees. +(3) +These are fees for U.S. federal, state and international tax compliance and tax consulting. +(4) +Of this amount, $490,000 remains unpaid as of April 30, 2013. +Pre-Approval Policy +The Audit Committee’s Pre-Approval Policy +provides for pre-approval of specifically described audit, audit-related, tax and all other services by the Audit Committee in order to ensure that the provision of such services does not impair the independent registered public accounting +firm’s independence. The Pre-Approval Policy also provides a list of prohibited non-audit services. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, the requested +service will require specific pre-approval by the Audit Committee. The term of any pre-approved services is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will +periodically review and may revise the list of pre-approved services, based on subsequent determinations. Pre-approval fee levels for all services to be provided by the independent registered public accounting firm are established annually by the +Audit Committee after the independent registered public accounting firm’s appointment for the then current fiscal year has been approved by the Audit Committee. Any fees for proposed services exceeding these levels will also require specific +pre-approval by the Audit Committee. All services provided by our independent registered public accounting firm in 2012 were pre-approved in accordance with the Audit Committee’s pre-approval requirements. +32 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the beneficial ownership of Class A Common Stock and Class B +Common Stock as of April 1, 2013 by (i) each of our directors, (ii) each of our Named Executive Officers, (iii) each person that we know to be a beneficial owner of more than 5% of either class of our Common Stock and +(iv) all of our directors and executive officers as a group. +Each stockholder’s percentage of ownership in the +following table is based upon 39,336,834 shares of Class A Common Stock and 11,257,854 shares of Class B Common Stock outstanding as of March 30, 2012. Our Class B Common Stock is convertible at any time into shares of Class A +Common Stock on a one-for-one basis. Beneficial ownership is determined in accordance with SEC rules and regulations. In computing the number of shares of our Class A Common Stock beneficially owned by a person and the percentage of beneficial +ownership of that person, shares of Class A Common Stock underlying notes, options or shares of Class B Common Stock held by that person that are convertible or exercisable, as the case may be, within 60 days of April 1, 2013 are +included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. See the section entitled “ Transactions with Related Persons ” in this proxy statement for a +description of transactions between the Greenberg Family Trust, of which Robert Greenberg is a trustee, Michael Greenberg and our company. To our knowledge, unless otherwise indicated in the footnotes to this table and subject to applicable +community property laws, each person named in the table has sole voting and investment power with respect to the shares of Class A and Class B Common Stock set forth opposite such person’s name. Unless otherwise indicated in the footnotes +below, the address of each beneficial owner listed below is c/o Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Name of Beneficial Owner +Number of +Class A Shares +Beneficially Owned +Percentage of +Class +A Shares +Beneficially Owned +Number of +Class B +Shares +Beneficially Owned +Percentage of +Class +B Shares +Beneficially Owned +5% stockholders: +FMR LLC +5,480,029 +( 1 ) +13.9 +% +— +— +BlackRock, Inc. +2,941,662 +( 2 ) +7.5 +— +— +Dimensional Fund Advisors LP +2,757,161 +( 3 ) +7.0 +— +— +The Vanguard Group, Inc. +2,274,528 +( 4 ) +5.8 +— +— +Artisan Partners Holdings LP +2,136,200 +( 5 ) +5.4 +— +— +Gil Schwartzberg +2,773,044 +( 6 ) +6.6 +2,773,044 +( 7 ) +24.6 +% +Named Executive Officers and directors: +Robert Greenberg +6,662,867 +( 8 ) +14.5 +6,653,636 +( 9 ) +59.1 +% +Michael Greenberg +688,297 +(10) +1.7 +540,341 +(1 1 ) +4.8 +Jeffrey Greenberg +668,893 +(12) +1.7 +403,209 +(13) +3.6 +David Weinberg +134,984 +( 14 ) +* +— +— +Mark Nason +15,658 +* +— +— +Philip Paccione +6,988 +* +— +— +Morton Erlich +21,000 +( 15 ) +* +— +— +Geyer Kosinski +7,850 +* +— +— +Richard Rappaport +11,000 +* +— +— +Richard Siskind +61,333 +( 16 ) +* +— +— +Thomas Walsh +1,250 +* +— +— +All current directors and executive +officers as a group (11 persons) +8,280,120 +( 17 ) +17.6 +% +7,597,186 +67.5 +% +* +Less than 1.0% +(1) +Information is based on a Schedule 13G filed with the SEC on February 14, 2013 and represents the number of shares beneficially owned as of +December 31, 2012. Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC (“FMR”) and an investment adviser registered under +33 +the Investment Advisers Act of 1940, beneficially owns 5,479,500 shares of Class A Common Stock. The ownership of one investment company registered under the Investment Company Act of 1940, +Fidelity Advisor Small Cap Fund, amounted to 2,100,000 shares of Class A Common Stock. The ownership of one investment company registered under the Investment Company Act of 1940, Fidelity Low-Priced Stock Fund, amounted to 2,000,000 shares of +Class A Common Stock. Edward C. Johnson 3d, Chairman of FMR, and FMR, through its control of Fidelity, and Fidelity’s funds each has sole power to dispose of the 5,479,500 shares owned by such funds. Neither FMR nor Mr. Johnson has +the sole power to vote or direct the voting of the shares owned directly by Fidelity’s funds, which power resides with the funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the +funds’ Boards of Trustees. The principal business office of FMR, Fidelity and the noted funds is located at 82 Devonshire Street, Boston, Massachusetts 02109. +(2) +Information is based on a Schedule 13G filed with the SEC on February 8, 2013 and represents the number of shares beneficially owned as of +December 31, 2012. BlackRock, Inc. (“BlackRock”) has sole voting power and sole dispositive power with respect to 2,941,662 shares held by the following subsidiaries: BlackRock Advisors, LLC, BlackRock Investment Management, LLC, +BlackRock Asset Management Australia Limited, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Advisors (UK) Limited, BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., BlackRock +Japan Co. Ltd. and BlackRock Investment Management (UK) Limited. The principal business office of BlackRock is located at 40 East 52 nd Street, New York, New York 10022. +(3) +Information is based on a Schedule 13G filed with the SEC on February 11, 2013 and represents the number of shares beneficially owned as of December 31, +2012. Dimensional Fund Advisors LP (“Dimensional”), in its capacity as investment advisor, has sole voting power with respect to 2,705,901 shares and sole dispositive power with respect to 2,757,161 shares. The principal business office of +Dimensional is located at Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746. +(4) +Information is based on a Schedule 13G filed with the SEC on February 12, 2013 and represents the number of shares beneficially owned as of December 31, +2012. The Vanguard Group, Inc. (“Vanguard”) has sole voting power with respect to 56,277 shares, of which 54,677 shares are held by its wholly-owned subsidiary, Vanguard Fiduciary Trust Company, for which Vanguard serves as investment +manager of collective trust accounts, and 1,600 shares are held by its wholly-owned subsidiary, Vanguard Investments Australia, Ltd., for which Vanguard serves as investment manager of Australian investment offerings. Vanguard has sole dispositive +power with respect to 2,219,851 shares and shared dispositive power with respect to 54,677 shares. The principal business office of Vanguard is located at 100 Vanguard Blvd., Malvern, Pennsylvania 19355. +(5) +Information is based on a Schedule 13G filed with the SEC on February 7, 2013 and represents the number of shares reported as beneficially owned as of +December 31, 2012. Andrew and Carlene Ziegler (the “Zieglers”) are the principal stockholders of ZFIC, Inc. (“ZFIC”), which is the sole stockholder of Artisan Investment Corporation (“Artisan Corp.”), which is the +general partner of Artisan Partners Holdings LP (“Artisan Holdings”), which is the sole limited partner of Artisan Partners Limited Partnership (“Artisan Partners”), and Artisan Investments GP LLC (“Artisan +Investments”) is the general partner of Artisan Partners, which is an investment adviser registered under the Investment Advisors Act of 1940. Artisan Partners Funds, Inc. (“Artisan Funds”) is an investment company registered under +the Investment Company Act of 1940. Artisan Partners holds 2,136,200 shares, including 1,385,700 shares on behalf of Artisan Funds. Artisan Holdings has shared voting power with respect to 2,021,100 shares and shared dispositive power with respect +to 2,136,200 shares. The principal business office of Artisan Corp., Artisan Holdings, Artisan Partners, Artisan Investments, ZFIC, the Zeiglers and Artisan Funds is located at 875 East Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin +53202. +(6) +Represents shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial ownership of +these shares is described in greater detail in note 7 below. +(7) +Represents 651,018 shares of Class B Common Stock held by the Robert Y. Greenberg 2011 Annuity Trust, 651,018 shares of Class B Common Stock +held by the M. Susan Greenberg 2011 Annuity Trust, 735,504 shares of Class B Common Stock held by the Robert Y. Greenberg 2012 Annuity Trust and +34 +735,504 shares of Class B Common Stock held by the M. Susan Greenberg 2012 Annuity Trust. Gil Schwartzberg may be deemed to beneficially own these shares as sole trustee of the trusts, and +Mr. Schwartzberg has sole voting power and sole dispositive power with respect to the shares held by these trusts. Mr. Schwartzberg disclaims beneficial ownership of any of these shares except to the extent of his pecuniary interest +therein. The principal business office of Mr. Schwartzberg is located at 269 S. Beverly Drive, Suite 1315, Beverly Hills, California 90212. +(8) +Includes 6,653,636 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial ownership +of these shares is described in greater detail in note 9 below. +(9) +Represents shares of Class B Common Stock held by the Greenberg Family Trust (the “Trust”) that Robert Greenberg, our Chief Executive Officer and +Chairman of the Board, is deemed to beneficially own as a trustee of the Trust. His wife, Susan Greenberg, is also a trustee of the Trust and is also deemed to beneficially own all shares held by the Trust. +(10) +Includes 540,341 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, and 60,930 shares of +Class A Common Stock beneficially owned by Michael Greenberg, our President and a member of our Board of Directors, indirectly through his wife, Wendy Greenberg, and their children. Mr. Greenberg disclaims beneficial ownership of these +60,930 shares except to the extent of his pecuniary interest therein. Beneficial ownership of the 540,341 shares of Class B Common Stock is described in greater detail in note 11 below. +(11) +Represents 489,041 shares of Class B Common Stock held by the Michael and Wendy Greenberg Family Trust that Michael Greenberg is deemed to beneficially own as +trustee of such trust, and 51,300 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s minor children and of which a third party acts as trustee. Mr. Greenberg disclaims beneficial ownership of these +51,300 shares except to the extent of his pecuniary interest therein. +(12) +Includes 403,209 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, 62,740 shares of +Class A Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, which is for the benefit of his two daughters who are minors, 1,448 shares of +Class A Common Stock held by the Jeffrey and Lori Greenberg Family Trust that are his wife’s separate property, and 32,632 shares of Class A Common Stock held in various trust accounts for Mr. Greenberg’s two daughters who +are minors and of which Mr. Greenberg is deemed to beneficially own as trustee of such trusts. Mr. Greenberg disclaims beneficial ownership of the 1,448 shares that are his wife’s separate property and the 62,740 shares held in the +annuity trust except to the extent of his pecuniary interest therein. Beneficial ownership of the 403,209 shares of Class B Common Stock is described in greater detail in note 13 below. +(13) +Represents 134,278 shares of Class B Common Stock held by the Jeffrey and Lori Greenberg Family Trust that Jeffrey Greenberg, a member of our Board of Directors, is +deemed to beneficially own as trustee of such trust, and 179,831 shares of Class B Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, which is for +the benefit of his two daughters who are minors. Also represents 70,816 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s two daughters who are minors and of which Mr. Greenberg is deemed to +beneficially own as he or his wife is trustee of such trusts, and 10,792 shares of Class B Common Stock held by the Chloe July Greenberg custodial account and 7,492 shares of Class B Common Stock held by the Catherine Elle Greenberg custodial +account, for which one of his siblings acts as custodian. These custodial accounts are for the benefit of Mr. Greenberg’s two daughters who are minors, and he disclaims beneficial ownership of the 179,831 shares held in the annuity trust +and the 18,284 shares held in the two custodial accounts except to the extent of his pecuniary interest therein. +(14) +Represents shares of Class A Common Stock that David Weinberg, our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of +our Board of Directors, is deemed to beneficially own as sole trustee of The David Weinberg Trust dated September 7, 2000. +(15) +Represents shares of Class A Common Stock held by The Erlich Family Trust that Morton Erlich, a member of our Board of Directors, is deemed to beneficially own as +a trustee of such trust. +35 +(16) +Includes 20,000 shares of Class A Common Stock underlying options that are currently exercisable. +(17) +Includes 20,000 shares of Class A Common Stock underlying options that are currently exercisable by our executive officers and Board of Directors. +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than ten percent of a registered class +of our securities, to file with the SEC reports of initial ownership (Form 3’s) and reports of changes in ownership (Form 4’s and 5’s) of our securities. Officers, directors and greater than ten percent stockholders are required by +the SEC’s regulations to furnish us with copies of all Section 16(a) forms that they file. Based on our review of copies of Form 3’s, 4’s and 5’s furnished to us as well as communications with our officers, directors and +greater than ten percent stockholders, we believe that all of them complied with the filing requirements of Section 16(a) and we are not aware of any late or missed filings of such reports for the 2012 fiscal year, except that Jeffrey Greenberg +filed one late report on Form 4 on April 16, 2013 with respect to one gift that he made to his wife in 2008 and two gifts received by his children’s trusts in 2012, and Michael Greenberg filed one late report on Form 4 on March 8, +2013 with respect to three gifts received by his children’s trusts in 2012. +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the Audit Committee shall review (i) at least annually a summary of directors’ and executive officers’ related party transactions and potential +conflicts of interest and our policies relating to the avoidance of conflicts of interest (which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed transactions between our company, on the one hand, and any of our +directors or executive officers, on the other hand, and (iii) policies and procedures as well as audit results associated with directors’ and executive officers’ expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the “Policy”), which was adopted by the Board of +Directors as of March 8, 2007, covers any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, (including any indebtedness or guarantee of indebtedness) in which (i) the aggregate +amount involved will or may be expected to exceed $100,000 in any calendar year, (ii) we are a participant, and (iii) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or a +less than ten percent beneficial owner of another entity). A “Related Person” is any (a) person who is or was (since the beginning of the last fiscal year for which we have filed a Form 10-K and proxy statement, even if they do not +presently serve in that role) an executive officer, director or nominee for election as a director of Skechers, (b) greater than five percent beneficial owner of our Class A or Class B Common Stock or (c) immediate family member of +either of the foregoing. +Certain categories of transactions with Related Persons (such as transactions involving competitive +bids) have been reviewed and pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with Related Persons that require the Committee’s approval. If advance approval by +the Audit Committee of a transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors +that the Audit Committee will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent +of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or approval of a transaction with a Related Person pursuant to which he is a Related Person except for providing material +information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at least an annual basis, shall review and assess ongoing relationships with the Related Person to determine that the +Related Person remains appropriate. +36 +The following list of transactions with Related Persons includes all such transactions equal +to or greater than $120,000 that took place since January 1, 2012, which were identified by the Audit Committee, and each of these transactions was reviewed, and approved or ratified by the Audit Committee, pursuant to the policies and +procedures discussed herein. +Related Person Transactions +As of April 1, 2013, Robert Greenberg, who is our Chairman of the Board and Chief Executive Officer, his children and the Greenberg Family Trust, collectively, beneficially own 74.7% of our +Class B Common Stock and approximately 56.2% of the combined voting power of our Class A and Class B Common Stock. Robert Greenberg, directly and indirectly through the Greenberg Family Trust, beneficially owns approximately 43.8% of +the combined voting power of our Class A and Class B Common Stock. As a result, Robert Greenberg is a “control person” of Skechers within the meaning of the rules and regulations promulgated under the Securities Act of 1933, as +amended, and we are considered a “Controlled Company” under the NYSE Rules and are thereby exempt from certain listing requirements and regulations as set forth in the NYSE Rules. Michael Greenberg, who is our President, and Jeffrey +Greenberg, both of whom are members of our Board of Directors, are each beneficiaries of the Greenberg Family Trust, which influences the election of Robert Greenberg, Michael Greenberg and Jeffrey Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary +business of which is to own and operate the Shade Hotel in Manhattan Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael +Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2012, we paid +approximately $162,000 to the Shade Hotel for lodging, food and events that were held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not +have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in the Foundation. However, two officers and directors of Skechers, Michael +Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the Foundation. During the year ended December 31, 2012, we contributed $1,000,000 to the +Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg +Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of Skechers, and they earned total compensation of $250,605, $945,888, $528,455 and $244,113, respectively, in 2012. Jeffrey +Greenberg was also a member of our Board of Directors in 2012, but did not earn any additional compensation for services provided as a director. +Andrew Weinberg, who is the son of David Weinberg, is a non-executive employee of Skechers, and he earned total compensation of $239,930 in 2012. +37 +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2013 ANNUAL MEETING +Stockholder proposals intended to be presented at our next Annual Meeting of Stockholders to be held in 2014 must be +received at our principal executive offices no later than December 31, 2013 to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. Proposals must comply with the proxy rules relating to stockholder +proposals, in particular Rule 14a-8 under the Exchange Act, to be included in our proxy materials. Stockholders who wish to submit a proposal for consideration at our 2014 Annual Meeting of Stockholders, but who do not wish to submit a proposal +for inclusion in our proxy statement, must, in accordance with our bylaws, deliver a copy of their proposal no later than the close of business on the 60 th day nor earlier than the close of business on the 90 th day in advance of the first anniversary of the preceding year’s annual meeting; provided, however, that in the +event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice must be delivered not earlier than the close of business on the 90 th day prior to such annual meeting and not later than the close of +business on the later of the 60 th day prior to such annual +meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Company. In either case, proposals should be sent by certified or registered mail, return receipt requested, to Skechers U.S.A., +Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266, Attention: General Counsel. +OTHER BUSINESS +Our Board of Directors does not know of any other matter to be acted upon at the meeting. However, if any other matter +shall properly come before the meeting, the proxyholders named in the proxy accompanying this proxy statement will have authority to vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2013 +Manhattan Beach, California +38 +APPENDIX A +SKECHERS U.S.A., INC. +2007 INCENTIVE AWARD PLAN +ARTICLE 1 +PURPOSE +The purpose of the Skechers U.S.A., Inc. 2007 Incentive Award Plan (the “ Plan ”) is to promote the success and enhance +the value of Skechers U.S.A., Inc. (the “ Company ”) by linking the personal interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for +outstanding performance to generate superior returns to Company stockholders. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of members of the Board, Employees, and +Consultants upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent. +ARTICLE 2. +DEFINITIONS AND CONSTRUCTION +Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates +otherwise. The singular pronoun shall include the plural where the context so indicates. +2.1 “ Award ” means +an Option, a Restricted Stock award, a Stock Appreciation Right award, a Performance Share award, a Performance Stock Unit award, a Dividend Equivalents award, a Stock Payment award, a Deferred Stock award, a Restricted Stock Unit award, a +Performance Bonus Award, or a Performance-Based Award granted to a Participant pursuant to the Plan. +2.2 “ Award +Agreement ” means any written agreement, contract, or other instrument or document evidencing an Award, including through electronic medium. +2.3 “ Board ” means the Board of Directors of the Company. +2.4 +“ Change in Control ” means and includes each of the following: +(a) A transaction or series of transactions +(other than an offering of Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in +Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, any member of the Greenberg Group, an employee benefit plan maintained by the Company or any of its subsidiaries or a “person” that, prior +to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the +Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or +(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who +shall have entered into an agreement with the Company to effect a transaction described in Section 2.4(a) or Section 2.4(c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote +of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority +thereof; or +A-1 +(c) The consummation by the Company (whether directly involving the Company or indirectly +involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single +transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: +(i) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting +securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business +of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the +transaction, and +(ii) After which no person or group (other than any member of the Greenberg Group) beneficially owns voting +securities representing 50% or more of the combined voting power of the Successor Entity; provided, however , that no person or group shall be treated for purposes of this Section 2.4(c)(ii) as beneficially owning 50% or more of combined +voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or +(d) The Company’s stockholders approve a liquidation or dissolution of the Company. +The +Committee shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, and the date of the occurrence of such +Change in Control and any incidental matters relating thereto. +2.5 “ Code ” means the Internal Revenue Code of +1986, as amended. +2.6 “ Committee ” means the committee of the Board described in Article 12. +2.7 “ Company ” means Skechers U.S.A., Inc., a Delaware corporation, or any successor thereto. +2.8 “ Consultant ” means any consultant or adviser if: (a) the consultant or adviser renders bona fide services to +the Company or any Subsidiary; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for +the Company’s securities; and (c) the consultant or adviser is a natural person. +2.9 “ Covered +Employee ” means an Employee who is, or could be, a “covered employee” within the meaning of Section 162(m) of the Code. +2.10 “ Deferred Stock ” means a right to receive a specified number of shares of Stock during specified time periods pursuant to Section 8.5. +2.11 “ Director ” means a member of the Board, or as applicable, a member of the board of directors of a Subsidiary. +2.12 “ Disability ” means that the Participant qualifies to receive long-term disability payments under the +Company’s long-term disability insurance program, as it may be amended from time to time. +2.13 “ Dividend +Equivalents ” means a right granted to a Participant pursuant to Section 8.3 to receive the equivalent value (in cash or Stock) of dividends paid on Stock. +2.14 “ Effective Date ” shall have the meaning set forth in Section 13.1. +A-2 +2.15 “ Eligible Individual ” means any person who is an Employee, a +Consultant or an Independent Director, as determined by the Committee. +2.16 “ Employee ” means any officer or +other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Subsidiary. +2.17 +“ Equity Restructuring ” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash +dividend, that affects the shares of Stock (or other securities of the Company) or the share price of Stock (or other securities) and causes a change in the per share value of the Stock underlying outstanding Awards. +2.18 “ Exchange Act ” means the Securities Exchange Act of 1934, as amended. +2.19 “ Fair Market Value ” means, as of any given date, (a) if Stock is traded on any established stock exchange, the +closing price of a share of Stock as reported in the Wall Street Journal (or such other source as the Company may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first trading date immediately prior to +such date during which a sale occurred; or (b) if Stock is not traded on an exchange but is quoted on a national market or other quotation system, the last sales price on such date, or if no sales occurred on such date, then on the date +immediately prior to such date on which sales prices are reported; or (c) if Stock is not publicly traded, the fair market value established by the Committee acting in good faith. +2.20 “ Greenberg Group ” means Robert Greenberg, M. Susan Greenberg, any member of their family, the Greenberg Family +Trust, or any entity controlled by any of the foregoing. +2.21 “ Incentive Stock Option ” means an Option that +is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. +2.22 +“ Independent Director ” means a Director of the Company who is not an Employee. +2.23 “ Non-Employee +Director ” means a Director of the Company who qualifies as a “Non-Employee Director” as defined in Rule 16b-3(b)(3) under the Exchange Act or any successor rule. +2.24 “ Non-Qualified Stock Option ” means an Option that is not intended to be an Incentive Stock Option or that is +intended to be an Incentive Stock Option but fails to qualify as such. +2.25 “ Option ” means a right granted +to a Participant pursuant to Article 5 of the Plan to purchase a specified number of shares of Stock at a specified price during specified time periods. An Option may be either an Incentive Stock Option or a Non-Qualified Stock Option. +2.26 “ Participant ” means any Eligible Individual who, as a member of the Board, Consultant or Employee, has been granted +an Award pursuant to the Plan. +2.27 “ Performance-Based Award ” means an Award, other than an Option or SAR, +granted to selected Covered Employees which the Committee determines shall be subject to the terms and conditions set forth in Article 9. All Performance-Based Awards are intended to qualify as Qualified Performance-Based Compensation. +2.28 “ Performance Bonus Award ” has the meaning set forth in Section 8.7. +2.29 “ Performance Criteria ” means the criteria that the Committee selects for purposes of establishing the Performance +Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria that will be used to establish Performance Goals are limited to the following: net earnings (either before or after +A-3 +interest, taxes, depreciation and amortization), economic value-added, sales or revenue, net income (either before or after taxes), operating earnings, cash flow (including, but not limited to, +operating cash flow and free cash flow), cash flow return on capital, return on net assets, return on stockholders’ equity, return on assets, return on capital, stockholder returns, return on sales, gross or net profit margin, productivity, +expense, margins, operating efficiency, customer satisfaction, working capital, earnings per share, price per share of Stock, and market share, any of which may be measured either in absolute terms, by comparison to performance in an earlier period +or periods, or as compared to any incremental increase or as compared to results of a peer group, industry index, or other company or companies. The Committee shall define in an objective fashion the manner of calculating the Performance Criteria it +selects to use for such Performance Period for such Participant. +2.30 “ Performance Goals ” means, for a +Performance Period, the goals established in writing by the Committee for the Performance Period based upon the Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be +expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Committee, in its discretion, may, within the time prescribed by Section 162(m) of the Code, adjust or modify the +calculation of Performance Goals for such Performance Period in order to prevent the dilution or enlargement of the rights of Participants (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, +event, or development, or (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable +laws, regulations, accounting principles, or business conditions. +2.31 “ Performance Period ” means the one or +more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the +payment of, a Performance-Based Award. +2.32 “ Performance Share ” means a right granted to a Participant +pursuant to Section 8.1, to receive Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee. +2.33 “ Performance Stock Unit ” means a right granted to a Participant pursuant to Section 8.2 hereof, to receive +Stock, the payment of which is contingent upon achieving certain Performance Goals or other performance-based targets established by the Committee. +2.34 “ Plan ” means this Skechers U.S.A., Inc. 2007 Incentive Award Plan, as it may be amended from time to time. +2.35 “ Qualified Performance-Based Compensation ” means any compensation that is intended to qualify as “qualified performance-based compensation” as described in +Section 162(m)(4)(C) of the Code. +2.36 “ Restricted Stock ” means Stock awarded to a Participant pursuant +to Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture. +2.37 “ Restricted Stock +Unit ” means an Award granted pursuant to Section 8.6. +2.38 “ Securities Act ” shall mean the +Securities Act of 1933, as amended. +2.39 “ Stock ” means the Class A Common Stock of the Company, $0.001 +par value per share, and such other securities that may be substituted for Stock pursuant to Article 11. +2.40 “ Stock +Appreciation Right ” or “ SAR ” means a right granted pursuant to Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Stock on the date the SAR is exercised over the +exercise price of the SAR as set forth in the applicable Award Agreement, which per share exercise price shall not be less than the Fair Market Value of a share of Stock on the date the SAR is granted. +A-4 +2.41 “ Stock Payment ” means (a) a payment in the form of shares of +Stock, or (b) an option or other right to purchase shares of Stock, as part of any bonus, deferred compensation or other arrangement, made in lieu of all or any portion of the compensation, granted pursuant to Section 8.4. +2.42 “ Subsidiary ” means any “subsidiary corporation” as defined in Section 424(f) of the Code and any +applicable regulations promulgated thereunder or any other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. +ARTICLE 3. +SHARES SUBJECT TO THE PLAN +3.1 Number of Shares . +(a) Subject to Article 11 and Section 3.1(b), +the aggregate number of shares of Stock which may be issued or transferred pursuant to Awards under the Plan is 7,500,000. +(b) To the extent that an Award terminates, expires, or lapses for any reason, or is settled in cash, any shares of Stock subject to the +Award shall again be available for the grant of an Award pursuant to the Plan. Additionally, any shares of Stock tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any Award shall again be available +for the grant of an Award pursuant to the Plan. To the extent permitted by applicable law or any exchange rule, shares of Stock issued in assumption of, or in substitution for, any outstanding awards of any entity acquired in any form of combination +by the Company or any Subsidiary shall not be counted against shares of Stock available for grant pursuant to this Plan. To the extent that a SAR is exercised for, or settled in, Stock, the full number of shares subject to such SAR shall be counted +for purposes of calculating the aggregate number of shares of Stock available for issuance under the Plan as set forth in Section 3.1(a), regardless of the actual number of shares issued upon such exercise or settlement. The payment of Dividend +Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no shares of Stock may again be optioned, +granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code. +3.2 Stock Distributed . Any Stock distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Stock, treasury Stock or Stock purchased on the open market. +3.3 Limitation on Number of Shares Subject to Awards . Notwithstanding any provision in the Plan to the contrary, and +subject to Article 11, the maximum number of shares of Stock with respect to one or more Awards that may be granted to any one Participant during any calendar year shall be 750,000 and the maximum amount that may be paid in cash to any one +Participant during any calendar year with respect to one or more Performance-Based Awards not denominated in Stock or otherwise for which the foregoing limitation would not be an effective limitation shall be $5,000,000. +ARTICLE 4. +ELIGIBILITY AND PARTICIPATION +4.1 Eligibility . Each Eligible Individual shall be eligible to be granted one or more Awards pursuant to the Plan. +4.2 Participation . Subject to the provisions of the Plan, the Committee may, from time to time, select from among all Eligible Individuals, those to whom Awards shall be granted and shall determine +the nature and amount of each Award. No Eligible Individual shall have any right to be granted an Award pursuant to this Plan. +A-5 +4.3 Foreign Participants . Notwithstanding any provision of the Plan to the contrary, +in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have Eligible Individuals, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries +shall be covered by the Plan; (ii) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Individuals outside the +United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such subplans and/or modifications shall +be attached to this Plan as appendices); provided, however , that no such subplans and/or modifications shall increase the share limitations contained in Sections 3.1 and 3.3; and (v) take any action, before or after an Award is made, +that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that +would violate the Exchange Act, the Code, any securities law or governing statute or any other applicable law. +ARTICLE 5. +STOCK OPTIONS +5.1 General . The Committee is authorized to grant Options to Eligible Individuals on the following terms and conditions: +(a) Exercise Price . The exercise price per share of Stock subject to an Option shall be determined by the Committee and set forth in the Award Agreement; provided that the per share exercise price +for any Option shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant. +(b) Time and +Conditions of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part; provided that the term of any Option granted under the Plan shall not exceed ten years. The Committee shall also +determine the performance or other conditions, if any, that must be satisfied before all or part of an Option may be exercised. +(c) Payment . The Committee shall determine the methods by which the exercise price of an Option may be paid, the form of payment +including, without limitation: (i) cash, (ii) shares of Stock held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences to the Company and having a Fair Market Value on the date of +delivery equal to the aggregate exercise price of the Option or exercised portion thereof, including shares that would otherwise be issuable or transferable upon exercise of the Option, or (iii) other property acceptable to the Committee +(including through the delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient +portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company at such time as may be required by the Company not later than the settlement of +such sale). The Committee shall also determine the methods by which shares of Stock shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an +“executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the exercise price of an Option, or continue any extension of credit with respect to the exercise price of an Option +with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act. +(d) +Evidence of Grant . All Options shall be evidenced by an Award Agreement between the Company and the Participant. The Award Agreement shall include such additional provisions as may be specified by the Committee. +5.2 Incentive Stock Options . Incentive Stock Options may be granted only to employees of the Company or any “parent +corporation” or “subsidiary corporation” of the Company within the meaning of Section 424(e) and 424(f), respectively, of the Code, and the terms of any Incentive Stock Options granted pursuant to the Plan, in addition to the +requirements of Section 5.1, must comply with the provisions of this Section 5.2. +A-6 +(a) Dollar Limitation . The aggregate Fair Market Value (determined as of the time the +Option is granted) of all shares of Stock with respect to which Incentive Stock Options are first exercisable by a Participant in any calendar year may not exceed $100,000 or such other limitation as imposed by Section 422(d) of the Code or any +successor provision. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options. +(b) Ten Percent Owners . An Incentive Stock Option may not be granted to any individual who, at the date of grant, owns stock +possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company or any “parent corporation” or “subsidiary corporation” of the Company within the meaning of Section 424(e) +and 424(f), respectively, of the Code, unless such Option is granted at a price that is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for no more than five years from the date of grant. +(c) Notice of Disposition . The Participant shall give the Company prompt notice of any disposition of shares of Stock acquired by +exercise of an Incentive Stock Option within (i) two years from the date of grant of such Incentive Stock Option or (ii) one year after the transfer of such shares of Stock to the Participant. +(d) Right to Exercise . During a Participant’s lifetime, an Incentive Stock Option may be exercised only by the Participant. +(e) Failure to Meet Requirements . Any Option (or portion thereof) purported to be an Incentive Stock Option, which, +for any reason, fails to meet the requirements of Section 422 of the Code shall be considered a Non-Qualified Stock Option. +5.3 Granting of Options to Independent Directors . The Board may from time to time, in its sole discretion, and subject to the limitations of the Plan: +(a) Select from among the Independent Directors (including Independent Directors who have previously been granted Options under the Plan) +such of them as in its opinion should be granted Options; +(b) Subject to Section 3.3, determine the number of shares of +Stock that may be purchased upon exercise of the Options granted to such selected Independent Directors; and +(c) Subject to +the provisions of this Article 5, determine the terms and conditions of such Options, consistent with the Plan. +Options granted to +Independent Directors shall be Non-Qualified Stock Options. +ARTICLE 6. +RESTRICTED STOCK AWARDS +6.1 Grant of Restricted Stock . The Committee is authorized to make Awards of Restricted Stock to any Eligible Individual selected by the Committee in such amounts and subject to such terms and +conditions as determined by the Committee. All Awards of Restricted Stock shall be evidenced by an Award Agreement. +6.2 +Issuance and Restrictions . Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the +right to receive dividends on the Restricted Stock). These restrictions may lapse separately or in combination at such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee determines at the time of the grant of +the Award or thereafter. +A-7 +6.3 Forfeiture . Except as otherwise determined by the Committee at the time of the +grant of the Award or thereafter, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited; provided, however , that the Committee may +(a) provide in any Restricted Stock Award Agreement that restrictions or forfeiture conditions relating to Restricted Stock will lapse in whole or in part in the event of terminations resulting from specified causes, and (b) provide in +other cases for the lapse in whole or in part of restrictions or forfeiture conditions relating to Restricted Stock. +6.4 +Certificates for Restricted Stock . Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing shares of Restricted Stock are registered in the name of the +Participant, certificates must bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, at its discretion, retain physical possession of the certificate until such time +as all applicable restrictions lapse. +ARTICLE 7. +STOCK APPRECIATION RIGHTS +7.1 Grant of Stock Appreciation Rights . +(a) A Stock Appreciation Right +may be granted to any Eligible Individual selected by the Committee. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement. +(b) A Stock Appreciation Right shall entitle the Participant (or other person entitled to exercise the Stock Appreciation +Right pursuant to the Plan) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount equal to the product of (i) the excess of +(A) the Fair Market Value of the Stock on the date the Stock Appreciation Right is exercised over (B) the per share exercise price of the Stock Appreciation Right, which exercise price shall not be less than the Fair Market Value of the +Stock on the date the Stock Appreciation Right was granted and (ii) the number of shares of Stock with respect to which the Stock Appreciation Right is exercised, subject to any limitations the Committee may impose. The Committee shall +determine the time or times at which a Stock Appreciation Right may be exercised in whole or in part; provided that the term of any Stock Appreciation Right granted under the Plan shall not exceed ten years. +7.2 Payment and Limitations on Exercise . +(a) Subject to Section 7.2(b), payment of the amounts determined under Section 7.1(b) above shall be in cash, in Stock (based on its Fair Market Value as of the date the Stock Appreciation Right +is exercised) or a combination of both, as determined by the Committee in the Award Agreement. +(b) To the extent any payment +under Section 7.1(b) is effected in Stock, it shall be made subject to satisfaction of all provisions of Article 5 above pertaining to Options. +ARTICLE 8. +OTHER TYPES OF AWARDS +8.1 Performance Share Awards . Any Eligible Individual selected by the Committee may be granted one or more Performance Share +awards which shall be denominated in a number of shares of Stock and which may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date +or dates or over any period or periods determined +A-8 +by the Committee. In making such determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, +responsibilities and other compensation of the particular Participant. +8.2 Performance Stock Units . Any Eligible +Individual selected by the Committee may be granted one or more Performance Stock Unit awards which shall be denominated in unit equivalent of shares of Stock and/or units of value including dollar value of shares of Stock and which may be linked to +any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. In making such +determinations, the Committee shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant. +8.3 Dividend Equivalents . +(a) Any Eligible Individual selected by the Committee may be granted Dividend Equivalents based on the dividends declared on the shares of Stock that are subject to any Award, to be credited as of +dividend payment dates, during the period between the date the Award is granted and the date the Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Stock +by such formula and at such time and subject to such limitations as may be determined by the Committee. +(b) Dividend +Equivalents granted with respect to Options or SARs that are intended to be Qualified Performance-Based Compensation shall be payable, with respect to pre-exercise periods, regardless of whether such Option or SAR is subsequently exercised. +8.4 Stock Payments . Any Eligible Individual selected by the Committee may receive Stock Payments in the manner +determined from time to time by the Committee; provided that unless otherwise determined by the Committee, such Stock Payments shall be made in lieu of base salary, bonus, or other cash compensation otherwise payable to such Participant. The +number of shares shall be determined by the Committee and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, determined on the date such Stock Payment is made or on any date +thereafter. +8.5 Deferred Stock . Any Eligible Individual selected by the Committee may be granted an award of Deferred +Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the Performance Criteria or other specific performance criteria determined to be +appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a +vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Participant awarded Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the +Deferred Stock Award has vested and the Stock underlying the Deferred Stock Award has been issued. +8.6 Restricted Stock +Units . The Committee is authorized to make Awards of Restricted Stock Units to any Eligible Individual selected by the Committee in such amounts and subject to such terms and conditions as determined by the Committee. At the time of grant, the +Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate. At the time of grant, the Committee shall specify the +maturity date applicable to each grant of Restricted Stock Units which shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the grantee. On the maturity date, the Company shall, subject to +Section 10.5(b), transfer to the Participant one unrestricted, fully transferable share of Stock for each Restricted Stock Unit scheduled to be paid out on such date and not previously forfeited. +A-9 +8.7 Performance Bonus Awards . Any Eligible Individual selected by the Committee may +be granted a cash bonus (a “ Performance Bonus Award ”) payable upon the attainment of Performance Goals that are established by the Committee and relate to one or more of the Performance Criteria or other specific performance +criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such Performance Bonus Award paid to a Covered Employee may be a Performance-Based Award +and be based upon objectively determinable bonus formulas established in accordance with Article 9. +8.8 Term . Except +as otherwise provided herein, the term of any Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock or Restricted Stock Units shall be set by the Committee in its discretion. +8.9 Exercise or Purchase Price . The Committee may establish the exercise or purchase price, if any, of any Award of Performance +Shares, Performance Stock Units, Deferred Stock, Stock Payments or Restricted Stock Units; provided, however, that such price shall not be less than the par value of a share of Stock on the date of grant, unless otherwise permitted by applicable +state law. +8.10 Exercise upon Termination of Employment or Service . An Award of Performance Shares, Performance Stock +Units, Dividend Equivalents, Deferred Stock, Stock Payments and Restricted Stock Units shall only vest or be exercisable or payable while the Participant is an Employee, Consultant or Director, as applicable; provided, however , that the +Committee in its sole and absolute discretion may provide that an Award of Performance Shares, Performance Stock Units, Dividend Equivalents, Stock Payments, Deferred Stock or Restricted Stock Units may be exercised or paid subsequent to a +termination of employment or service, as applicable, or following a Change in Control of the Company, or because of the Participant’s retirement, death or Disability, or otherwise; provided, however , that, to the extent required to +preserve tax deductibility under Section 162(m) of the Code, any such provision with respect to Performance Shares or Performance Stock Units that are intended to constitute Qualified Performance-Based Compensation shall be subject to the +requirements of Section 162(m) of the Code that apply to Qualified Performance-Based Compensation. +8.11 Form of +Payment . Payments with respect to any Awards granted under this Article 8 shall be made in cash, in Stock or a combination of both, as determined by the Committee. +ARTICLE 9. +PERFORMANCE-BASED AWARDS +9.1 Purpose . The purpose of this Article 9 is to provide the Committee the ability to qualify Awards other than Options and SARs +and that are granted pursuant to Articles 6 and 8 as Qualified Performance-Based Compensation. If the Committee, in its discretion, decides to grant a Performance-Based Award to a Covered Employee, the provisions of this Article 9 shall control over +any contrary provision contained in Articles 6 or 8; provided, however, that the Committee may in its discretion grant Awards to Covered Employees that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements +of this Article 9. +9.2 Applicability . This Article 9 shall apply only to those Covered Employees selected by the +Committee to receive Performance-Based Awards. The designation of a Covered Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive an Award for the period. Moreover, designation of a Covered +Employee as a Participant for a particular Performance Period shall not require designation of such Covered Employee as a Participant in any subsequent Performance Period and designation of one Covered Employee as a Participant shall not require +designation of any other Covered Employee as a Participant in such Performance Period or in any other Performance Period. +A-10 +9.3 Procedures with Respect to Performance-Based Awards . To the extent necessary to +comply with the Qualified Performance-Based Compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles 6 or 8 which may be granted to one or more Covered Employees, no later than ninety +(90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in +writing, (a) designate one or more Covered Employees, (b) select the Performance Criteria applicable to the Performance Period, (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for +such Performance Period, and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the +completion of each Performance Period, the Committee shall certify in writing whether the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned by a Covered Employee, the Committee shall have +the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the +Performance Period. +9.4 Payment of Performance-Based Awards . Unless otherwise provided in the applicable Award +Agreement, a Participant must be employed by the Company or a Subsidiary on the day a Performance-Based Award for such Performance Period is paid to the Participant. Furthermore, a Participant shall be eligible to receive payment pursuant to a +Performance-Based Award for a Performance Period only if the Performance Goals for such period are achieved. In determining the amount earned under a Performance-Based Award, the Committee may reduce or eliminate the amount of the Performance-Based +Award earned for the Performance Period, if in its sole and absolute discretion, such reduction or elimination is appropriate. +9.5 Additional Limitations . Notwithstanding any other provision of the Plan, any Award which is granted to a Covered Employee and +is intended to constitute Qualified Performance-Based Compensation shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings +issued thereunder that are requirements for qualification as qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such +requirements. +ARTICLE 10. +PROVISIONS APPLICABLE TO AWARDS +10.1 Stand-Alone and Tandem +Awards . Awards granted pursuant to the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other +Awards may be granted either at the same time as or at a different time from the grant of such other Awards. +10.2 Award +Agreement . Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award, as determined by the Committee, and which may include the term of an Award, the provisions applicable in +the event the Participant’s employment or service terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award. +10.3 Limits on Transfer . No right or interest of a Participant in any Award may be pledged, encumbered, or hypothecated to or in +favor of any party other than the Company or a Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee, no +Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved from time to time by the Committee (or the Board in +the case of Awards granted to +A-11 +Independent Directors). The Committee by express provision in the Award or an amendment thereto may permit an Award to be transferred to, exercised by and paid to certain persons or entities +related to the Participant, including but not limited to members of the Participant’s family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant’s family and/or +charitable institutions, or to such other persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish; provided, however, that no such transfer of an Incentive Stock +Option shall be permitted to the extent that such transfer would cause the Incentive Stock Option to fail to qualify as an “incentive stock option” under Section 422 of the Code. Any permitted transfer shall be subject to the +condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a “blind trust” in connection with the Participant’s termination of employment or service +with the Company or a Subsidiary to assume a position with a governmental, charitable, educational or similar non-profit institution) and on a basis consistent with the Company’s lawful issue of securities. +10.4 Beneficiaries . Notwithstanding Section 10.3, a Participant may, in the manner determined by the Committee, designate a +beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to +the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or +appropriate by the Committee. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary with respect to more than 50% of the +Participant’s interest in the Award shall not be effective without the prior written consent of the Participant’s spouse. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled +thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is filed with the +Committee. +10.5 Stock Certificates; Book Entry Procedures . +(a) Notwithstanding anything herein to the contrary, the Company shall not be required to record, issue or deliver any certificates +evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Board has determined, with advice of counsel, that the recordation, issuance and delivery of such shares or certificates is in compliance with all applicable +laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed or traded. All Stock certificates delivered pursuant to the Plan are subject to any stop-transfer orders and +other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of any national securities exchange or automated quotation system +on which the Stock is listed, quoted, or traded. The Committee may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Board may require that a +Participant make such reasonable covenants, agreements, and representations as the Board, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. The Committee shall have the right to require any +Participant to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Committee. +(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule +or regulation, the Company shall not deliver to any Participant certificates evidencing shares of Stock issued in connection with any Award and instead such shares of Stock shall be recorded in the books of the Company (or, as applicable, its +transfer agent or stock plan administrator). +10.6 Paperless Administration . In the event that the Company establishes, +for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or +exercise of Awards by a Participant may be permitted through the use of such an automated system. +A-12 +ARTICLE 11. +CHANGES IN CAPITAL STRUCTURE +11.1 Adjustments . +(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution +(other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of Stock or the share price of the Stock other than an Equity Restructuring, the Committee shall make such proportionate adjustments, if +any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (a) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in +Sections 3.1 and 3.3); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per share for any +outstanding Awards under the Plan. Any adjustment affecting an Award intended as Qualified Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code. +(b) In the event of any transaction or event described in Section 11.1(a) or any unusual or nonrecurring transactions or events +affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, in its sole and absolute discretion, and on such +terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any +one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to +any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: +(i) To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization +of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 11.1, the Committee determines in good faith that no amount would have been attained +upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in +its sole discretion; +(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or +subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and +prices; +(iii) To make adjustments in the number and type of shares of Stock (or other securities or property) subject to +outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and +options, rights and awards which may be granted in the future; +(iv) To provide that such Award shall be exercisable or +payable or fully vested with respect to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Award Agreement; and +(v) To provide that the Award cannot vest, be exercised or become payable after such event. +A-13 +(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding +anything to the contrary in Sections 11.1(a) and 11.1(b): +(i) The number and type of securities subject to each outstanding +Award and the exercise price or grant price thereof, if applicable, will be proportionately adjusted. The adjustments provided under this Section 11.1(c)(i) shall be nondiscretionary and shall be final and binding on the affected Participant +and the Company; and +(ii) The Committee shall make such proportionate adjustments, if any, as the Committee in its +discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 3.1 and 3.3). +11.2 Acceleration Upon a Change in Control . Notwithstanding Section 11.1, and except as may otherwise be provided +in any applicable Award Agreement or other written agreement entered into between the Company and a Participant, if a Change in Control occurs and a Participant’s Awards are not converted, assumed, or replaced by a successor entity, then +immediately prior to the Change in Control any such outstanding Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse. Upon, or in anticipation of, a Change in Control, the Committee may cause any and all +Awards outstanding hereunder to terminate at a specific time in the future, including but not limited to the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Committee, +in its sole and absolute discretion, shall determine. +11.3 No Other Rights . Except as expressly provided in the Plan, +no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, +merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible +into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to an Award or the grant or exercise price of any Award. +ARTICLE 12. +ADMINISTRATION +12.1 Committee . Unless and until the Board +delegates administration of the Plan to a Committee as set forth below, the Plan shall be administered by the full Board, and for such purposes the term “Committee” as used in this Plan shall be deemed to refer to the Board. The Board, at +its discretion or as otherwise necessary to comply with the requirements of Section 162(m) of the Code, Rule 16b-3 promulgated under the Exchange Act or to the extent required by any other applicable rule or regulation, may delegate +administration of the Plan to a Committee consisting of two or more members of the Board. Unless otherwise determined by the Board, the Committee shall consist solely of two or more members of the Board each of whom is an “outside +director,” within the meaning of Section 162(m) of the Code, a Non-Employee Director and an “independent director” under the rules of the New York Stock Exchange (or other principal securities market on which shares of Stock are +traded, if any). Any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this +Section 12.1 or otherwise provided in any charter of the Committee. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to all +Awards granted to Independent Directors and for purposes of such Awards the term “Committee” as used in this Plan shall be deemed to refer to the Board and (b) the Committee may delegate its authority hereunder to the extent permitted +by Section 12.5. In its sole discretion, the +A-14 +Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act or +Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. The governance of the Committee shall be subject to the charter of the Committee as approved by +the Board. +12.2 Action by the Committee . Each member of the Committee is entitled to, in good faith, rely or act upon +any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional +retained by the Company to assist in the administration of the Plan. +12.3 Authority of Committee . Subject to any +specific designation in the Plan, the Committee has the exclusive power, authority and discretion to: +(a) Designate +Participants to receive Awards; +(b) Determine the type or types of Awards to be granted to each Participant; +(c) Determine the number of Awards to be granted and the number of shares of Stock to which an Award will relate; +(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, +grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, any +provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines; provided, however, that the Committee shall not have the authority to accelerate +the vesting or waive the forfeiture of any Performance-Based Awards; +(e) Determine whether, to what extent, and pursuant to +what circumstances an Award may be settled in, or the exercise price of an Award may be paid in, cash, Stock, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; +(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant; +(g) Decide all other matters that must be determined in connection with an Award; +(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; +(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and +(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or +advisable to administer the Plan. +12.4 Decisions Binding . The Committee’s interpretation of the Plan, any Awards +granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. +12.5 Delegation of Authority . To the extent permitted by applicable law, the Board may from time to time delegate to a committee +of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards to Participants other than (a) Employees who are subject to Section 16 of the Exchange Act, (b) Covered Employees, or +(c) officers of the Company (or Directors) to whom authority to grant +A-15 +or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Board specifies at the time of such delegation, and the Board may +at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 12.5 shall serve in such capacity at the pleasure of the Board. +ARTICLE 13. +EFFECTIVE AND EXPIRATION DATE +13.1 Effective Date . The Plan is +effective as of the date the Plan is approved by the Company’s stockholders (the “ Effective Date ”). The Plan will be deemed to be approved by the stockholders if it is approved either: +(a) By a majority of the votes cast at a duly held stockholders meeting at which a quorum representing a majority of outstanding voting +stock is, either in person or by proxy, present and voting on the Plan; or +(b) By a method and in a degree that would be +treated as adequate under Delaware law in the case of an action requiring stockholder approval. +13.2 Expiration Date . +The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth anniversary of the Effective Date, except that no Incentive Stock Options may be granted under the Plan after the tenth anniversary of the date the Plan is +adopted by the Board. Any Awards that are outstanding on the tenth anniversary of the Effective Date shall remain in force according to the terms of the Plan and the applicable Award Agreement. +ARTICLE 14. +AMENDMENT, MODIFICATION, AND TERMINATION +14.1 Amendment, Modification, +and Termination . Subject to Section 15.14, with the approval of the Board, at any time and from time to time, the Committee may terminate, amend or modify the Plan; provided, however , that (a) to the extent necessary and +desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required, and (b) stockholder approval shall be +required for any amendment to the Plan that (i) increases the number of shares available under the Plan (other than any adjustment as provided by Article 11), (ii) permits the Committee to grant Options or SARs with an exercise price that +is below Fair Market Value on the date of grant, or (iii) permits the Committee to extend the exercise period for an Option or SAR beyond ten years from the date of grant. Notwithstanding any provision in this Plan to the contrary, absent +approval of the stockholders of the Company, no Option or SAR may be amended to reduce the per share exercise price of the shares subject to such Option or SAR below the per share exercise price as of the date the Option or SAR is granted and, +except as permitted by Article 11, no Option or SAR may be granted in exchange for, or in connection with, the cancellation or surrender of an Option or SAR having a higher per share exercise price. +14.2 Awards Previously Granted . Except with respect to amendments made pursuant to Section 15.14, no termination, amendment, +or modification of the Plan shall adversely affect in any material way any Award previously granted pursuant to the Plan without the prior written consent of the Participant. +ARTICLE 15. +GENERAL PROVISIONS +15.1 No Rights to Awards . No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the +Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Participants or any other persons uniformly. +A-16 +15.2 No Stockholders Rights . Except as otherwise provided herein, a Participant shall +have none of the rights of a stockholder with respect to shares of Stock covered by any Award until the Participant becomes the record owner of such shares of Stock. +15.3 Withholding . The Company or any Subsidiary shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy +federal, state, local and foreign taxes (including the Participant’s employment tax obligations) required by law to be withheld with respect to any taxable event concerning a Participant arising as a result of this Plan. The Committee may in +its discretion and in satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold shares of Stock otherwise issuable under an Award (or allow the return of shares of Stock) having a Fair Market Value equal to +the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the +Participant of such Award within six months (or such other period as may be required by the Committee in order to avoid adverse accounting consequences to the Company) after such shares of Stock were acquired by the Participant from the Company) in +order to satisfy the Participant’s federal, state, local and foreign income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market +Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such +supplemental taxable income. +15.4 No Right to Employment or Services . Nothing in the Plan or any Award Agreement shall +interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment or services at any time, nor confer upon any Participant any right to continue in the employ or service of the Company or +any Subsidiary. +15.5 Unfunded Status of Awards . The Plan is intended to be an “unfunded” plan for incentive +compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the +Company or any Subsidiary. +15.6 Indemnification . To the extent allowable pursuant to applicable law, each member of +the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, +suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in +such action, suit, or proceeding against him or her; provided he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The +foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any +power that the Company may have to indemnify them or hold them harmless. +15.7 Relationship to Other Benefits . No +payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent +otherwise expressly provided in writing in such other plan or an agreement thereunder. +15.8 Expenses . The expenses of +administering the Plan shall be borne by the Company and its Subsidiaries. +15.9 Titles and Headings . The titles and +headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. +A-17 +15.10 Fractional Shares . No fractional shares of Stock shall be issued and the +Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate. +15.11 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan, the Plan, and any Award +granted or awarded to any Participant who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any +amendment to Rule 16b-3 under the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent +necessary to conform to such applicable exemptive rule. +15.12 Government and Other Regulations . The obligation of the +Company to make payment of awards in Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by government agencies as may be required. The Company shall be under no obligation to register pursuant +to the Securities Act, as amended, any of the shares of Stock paid pursuant to the Plan. If the shares paid pursuant to the Plan may in certain circumstances be exempt from registration pursuant to the Securities Act, as amended, the Company may +restrict the transfer of such shares in such manner as it deems advisable to ensure the availability of any such exemption. +15.13 Governing Law . The Plan and all Award Agreements shall be construed in accordance with and governed by the laws of the State +of Delaware. +15.14 Section 409A . To the extent that the Committee determines that any Award granted under the +Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and Award Agreements shall be +interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the +Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Award may be subject to Section 409A of the Code and related Department of Treasury +guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, +policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the +benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section. +* * * * * +I hereby certify +that the foregoing Plan was duly adopted by the Board of Directors of Skechers U.S.A., Inc. on April 16, 2007. +* * * * * +I hereby certify that the foregoing Plan was approved by the stockholders of Skechers U.S.A., Inc. on May 24, 2007. +Executed on this 24 th day of May, 2007. +/s/ Philip G. Paccione +Corporate Secretary +A-18 +SKECHERS U.S.A., INC. +228 MANHATTAN BEACH BLVD. +MANHATTAN BEACH, CA 90266 +ATTN: TED +WEITZMAN +VOTE BY INTERNET - www.proxyvote.com +Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the +cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. +ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy +materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, +when prompted, indicate that you agree to receive or access proxy materials electronically in future years. +VOTE BY PHONE - 1-800-690-6903 +Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then +follow the instructions. +VOTE BY MAIL +Mark, sign and date your proxy card and return it in the postage-paid envelope we +have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. +TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: +KEEP THIS PORTION FOR YOUR +RECORDS +DETACH AND RETURN THIS PORTION ONLY +THIS PROXY CARD IS +VALID ONLY WHEN SIGNED AND DATED. +The Board of Directors recommends you vote +FOR the following: +For +All +Withhold +All +For All Except +To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. +1. +Election of Directors +¨ +¨ +¨ +Nominees +01 Michael +Greenberg 02 David +Weinberg 03 Jeffrey Greenberg +The Board of Directors recommends you vote FOR +the following proposal: +For +Against +Abstain +2 +Approval of the Skechers U.S.A, Inc. 2007 Incentive +Award Plan. +¨ +¨ +¨ +NOTE: Each of the person’s named as +proxies herein are authorized, in such person’s discretion, to vote upon such other matters as may properly come before the Annual Meeting of Stockholders, or any adjournments thereof. +For address change/comments, mark here. +(see reverse for instructions) +¨ +Yes +No +Please indicate if you plan to attend this +meeting +¨ +¨ +Please sign exactly as your name(s) appear(s) +hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or +partnership name, by authorized officer. +Signature [PLEASE SIGN WITHIN BOX] +Date +Signature (Joint Owners) +Date +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, +Notice & Proxy Statement is/are available at www.proxyvote.com . +SKECHERS U.S.A., INC. Annual Meeting +of Stockholders Wednesday May 29, +2013 11:00 AM +This proxy is solicited by the Board of Directors +The undersigned stockholder(s) of Skechers U.S.A., Inc. a Delaware +corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 30, 2013, and hereby appoints Morton Erlich and Richard Siskind and each of them, with full power of substitution, as +attorneys-in-fact and proxies for, and in the name and place of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares which the undersigned is entitled to vote at the Annual Meeting of Stockholders of +Skechers U.S.A., Inc. to be held at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266, on Wednesday, May 29, 2013, at 11:00 a.m. Pacific time, and at any adjournments thereof, upon the matters as +set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to the annual meeting section of the investor relations page of our +corporate information website at www.skx.com/investor.jsp. +THIS PROXY, +WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR +ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR APPROVAL OF PROPOSAL 2, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. +Address change/comments: +___________________________________________________________________________________________ +___________________________________________________________________________________________ +___________________________________________________________________________________________ +(If you +noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) +Continued and to be signed on reverse side \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-13-187130/proxy_rpt.txt b/raw/proxies/0001065837/0001193125-13-187130/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b3710107a94bafedf8db6061dd9622cc9643406f --- /dev/null +++ b/raw/proxies/0001065837/0001193125-13-187130/proxy_rpt.txt @@ -0,0 +1,41 @@ +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the Audit Committee shall review (i) at least annually a summary of directors’ and executive officers’ related party transactions and potential +conflicts of interest and our policies relating to the avoidance of conflicts of interest (which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed transactions between our company, on the one hand, and any of our +directors or executive officers, on the other hand, and (iii) policies and procedures as well as audit results associated with directors’ and executive officers’ expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person Transactions (the “Policy”), which was adopted by the Board of +Directors as of March 8, 2007, covers any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, (including any indebtedness or guarantee of indebtedness) in which (i) the aggregate +amount involved will or may be expected to exceed $100,000 in any calendar year, (ii) we are a participant, and (iii) any Related Person has or will have a direct or indirect interest (other than solely as a result of being a director or a +less than ten percent beneficial owner of another entity). A “Related Person” is any (a) person who is or was (since the beginning of the last fiscal year for which we have filed a Form 10-K and proxy statement, even if they do not +presently serve in that role) an executive officer, director or nominee for election as a director of Skechers, (b) greater than five percent beneficial owner of our Class A or Class B Common Stock or (c) immediate family member of +either of the foregoing. +Certain categories of transactions with Related Persons (such as transactions involving competitive +bids) have been reviewed and pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with Related Persons that require the Committee’s approval. If advance approval by +the Audit Committee of a transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors +that the Audit Committee will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent +of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or approval of a transaction with a Related Person pursuant to which he is a Related Person except for providing material +information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at least an annual basis, shall review and assess ongoing relationships with the Related Person to determine that the +Related Person remains appropriate. +36 +The following list of transactions with Related Persons includes all such transactions equal +to or greater than $120,000 that took place since January 1, 2012, which were identified by the Audit Committee, and each of these transactions was reviewed, and approved or ratified by the Audit Committee, pursuant to the policies and +procedures discussed herein. +Related Person Transactions +As of April 1, 2013, Robert Greenberg, who is our Chairman of the Board and Chief Executive Officer, his children and the Greenberg Family Trust, collectively, beneficially own 74.7% of our +Class B Common Stock and approximately 56.2% of the combined voting power of our Class A and Class B Common Stock. Robert Greenberg, directly and indirectly through the Greenberg Family Trust, beneficially owns approximately 43.8% of +the combined voting power of our Class A and Class B Common Stock. As a result, Robert Greenberg is a “control person” of Skechers within the meaning of the rules and regulations promulgated under the Securities Act of 1933, as +amended, and we are considered a “Controlled Company” under the NYSE Rules and are thereby exempt from certain listing requirements and regulations as set forth in the NYSE Rules. Michael Greenberg, who is our President, and Jeffrey +Greenberg, both of whom are members of our Board of Directors, are each beneficiaries of the Greenberg Family Trust, which influences the election of Robert Greenberg, Michael Greenberg and Jeffrey Greenberg to our Board of Directors. +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary +business of which is to own and operate the Shade Hotel in Manhattan Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael +Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2012, we paid +approximately $162,000 to the Shade Hotel for lodging, food and events that were held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not +have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in the Foundation. However, two officers and directors of Skechers, Michael +Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the Foundation. During the year ended December 31, 2012, we contributed $1,000,000 to the +Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg +Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of Skechers, and they earned total compensation of $250,605, $945,888, $528,455 and $244,113, respectively, in 2012. Jeffrey +Greenberg was also a member of our Board of Directors in 2012, but did not earn any additional compensation for services provided as a director. +Andrew Weinberg, who is the son of David Weinberg, is a non-executive employee of Skechers, and he earned total compensation of $239,930 in 2012. +37 \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-14-172215/proxy.txt b/raw/proxies/0001065837/0001193125-14-172215/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..4a30eddd8a66db5940bd6611524952bbf97cf402 --- /dev/null +++ b/raw/proxies/0001065837/0001193125-14-172215/proxy.txt @@ -0,0 +1,1539 @@ +DEF 14A +1 +d712379ddef14a.htm +DEF 14A +DEF 14A +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +(Rule 14a-101) +INFORMATION REQUIRED IN PROXY STATEMENT +SCHEDULE 14A INFORMATION +Proxy Statement Pursuant to Section 14(a) of the +Securities Exchange Act of 1934 +Filed by the +Registrant x Filed by a +Party other than the Registrant ¨ +Check the +appropriate box: +¨ +Preliminary Proxy Statement +¨ +Confidential, For Use of the Commission Only (as permitted by 14a-6(e)(2)) +x +Definitive Proxy Statement +¨ +Definitive Additional materials +¨ +Soliciting Material Pursuant to § 240.14a-12 +SKECHERS U.S.A., INC. +(Name of Registrant as Specified in Its Charter) +Payment of filing fee (Check the appropriate box): +x +No fee required. +¨ +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which +the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +¨ +Fee paid previously with preliminary materials: +¨ +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. +Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. +(1) +Amount previously paid: +(2) +Form, schedule or registration statement no.: +(3) +Filing party: +(4) +Date filed: +SKECHERS U.S.A., INC. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +Important Notice Regarding the +Availability of Proxy Materials for the Annual +Meeting of Stockholders to Be Held on Thursday, May 22, 2014 +Dear Stockholder: +You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of Skechers U.S.A., Inc., a Delaware corporation, to be held at our corporate offices located +at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266 on Thursday, May 22, 2014 at 11:00 a.m. Pacific Time. +Our Annual Meeting is being held for the following purposes: +1. +To elect three members to the Board of Directors to serve for a three-year term as Class III Directors; +2. +To conduct a non-binding advisory vote to approve the compensation of our Named Executive Officers; +3. +To consider a stockholder proposal to eliminate the classification of the Board of Directors, if properly presented at the meeting; +4. +And to transact such other business as may properly come before the meeting or any adjournments thereof. +The Board of Directors has set the close of business on March 31, 2014 as the record date for determining those stockholders who +will be entitled to vote at the Annual Meeting. The following proxy statement and enclosed proxy card are being sent to each stockholder as of the record date, and our 2013 annual report is enclosed with this notice to our stockholders. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 22, 2014: +The proxy statement and 2013 annual report are available in the SEC filings section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . +You are cordially invited to attend the Annual Meeting, and if you plan to attend the Annual Meeting in person, you may find directions +by going to the annual meeting of stockholders section of the investor relations page of our corporate information website at www.skx.com/investor.jsp . If you do not expect to attend, or if you plan to attend but desire the proxy holders to +vote your shares, please date and sign your proxy card and return it in the enclosed postage-paid envelope. Returning a signed proxy card will not affect your right to vote in person in the event you find it convenient to attend. Please return the +proxy card promptly to avoid the expense of additional proxy solicitation. +FOR THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2014 +Manhattan Beach, +California +SKECHERS U.S.A., INC. +PROXY STATEMENT +For Annual Meeting of Stockholders to be Held +May 22, 2014 at 11:00 a.m. Pacific Time +This proxy statement is delivered to you by Skechers U.S.A., Inc., a Delaware corporation (“we,” “us,” +“our,” “our company” or “Skechers”), in connection with our Annual Meeting of Stockholders to be held on May 22, 2014 at 11:00 a.m. Pacific Time at our corporate offices located at 330 South Sepulveda +Boulevard, Manhattan Beach, California 90266 (the “Annual Meeting”). The Board of Directors of Skechers (the “Board”) is soliciting proxies to be voted at the Annual Meeting. The approximate mailing date for this proxy statement +and the enclosed proxy is April 30, 2014. If a proxy in the accompanying form is duly executed and returned, the shares represented by the proxy will be voted as directed. If no direction is given, the shares represented by the proxy will be +voted FOR the election of the nominees for director named herein, FOR the approval of the compensation of our Named Executive Officers and AGAINST the stockholder proposal. Any proxy given pursuant to this solicitation may be revoked at any time +prior to its exercise by notifying our Corporate Secretary, Philip Paccione, in writing of such revocation, by duly executing and delivering another proxy bearing a later date, or by attending and voting in person at the Annual Meeting. If your +shares are held in street name and you want to change your vote, please contact your broker, bank or other nominee to find out how to do so. We will incur the cost of this solicitation of proxies that will be made by mail. In addition, our officers +and other regularly engaged employees may, in a limited number of instances, solicit proxies personally or by telephone. We will reimburse banks, brokerage firms, other custodians, nominees and fiduciaries for reasonable expenses incurred in sending +proxy materials to beneficial owners of our Class A Common Stock and Class B Common Stock. +Holders of our Class A +Common Stock and Class B Common Stock of record at the close of business on March 31, 2014 will be entitled to vote at the Annual Meeting. There were 40,234,743 shares of Class A Common Stock and 10,859,398 shares of Class B +Common Stock outstanding on that date. Each share of Class A Common Stock is entitled to one vote and each share of Class B Common Stock is entitled to ten votes, and the presence in person or by proxy of holders of a majority of the +combined voting interest of the outstanding shares of Class A Common Stock and Class B Common Stock is necessary to constitute a quorum for the Annual Meeting. A quorum must be established to consider any matter. +Pursuant to Proposal No. 1, the three candidates for director receiving the most votes of the votes entitled to be voted at the +Annual Meeting will become directors of Skechers. Stockholders may not cumulate their votes. Proposal No. 2 is a non-binding advisory proposal to approve the compensation of our Named Executive Officers, and Proposal No. 3 is a non-binding +stockholder proposal on whether to declassify the Board of Directors. Each of Proposal Nos. 2 and 3 will be considered as having passed if it receives an the affirmative “for” vote of a majority of the shares present in person or +represented by proxy and entitled to vote on each such proposal at the Annual Meeting. +If you hold shares beneficially in +street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions +from the beneficial owner and instructions are not given. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal. Thus, broker non-votes will not +affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained, but will be counted in determining whether there is a +1 +quorum. A properly executed proxy marked “Abstain” with respect to any such proposal will not be voted, although it will be counted for purposes of determining whether there is a +quorum. Because directors are elected by a plurality of the votes cast, proxies marked “Abstain” as to Proposal No. 1 will not have any effect on the election of directors as long as one vote is cast for each director nominee. +Proposal Nos. 2 and 3 will be determined by a majority of the votes present and entitled to vote, and proxies marked “Abstain” as to Proposal Nos. 2 and/or 3 will have the same effect as a vote cast against the respective proposals. +The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that permit companies and intermediaries +such as banks and brokers to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This +process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. This year, a number of banks and brokers with account holders who are our stockholders will be +householding our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your bank or +broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to +receive separate copies of our proxy statement and annual report, please notify your bank or broker, direct your written request to Investor Relations, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266, or +contact our investor relations advisory firm, Addo Communications, by telephone at (310) 829-5400. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their +communications should contact their bank or broker. +Our principal executive office is located at 228 Manhattan Beach +Boulevard, Manhattan Beach, California 90266. +2 +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +Our Board of Directors is divided into three +classes, with each director serving a three-year term and until their successors is duly elected and qualified or until their death, resignation or removal. One class of directors is elected annually at our annual meeting of stockholders. Our bylaws +provide for a variable Board of Directors with between five and nine members. We currently have nine members on our Board of Directors. Our bylaws give the Board of Directors the authority to increase or decrease the number of directors without the +approval of our stockholders, and our bylaws also give our stockholders the authority to increase or decrease the size of our Board of Directors. The nominees for election to our Board of Directors are Geyer Kosinski, Richard Rappaport and Richard +Siskind. +Unless otherwise directed by stockholders, within the limits set forth in our bylaws, the proxy holders will vote +all shares represented by proxies held by them for the election of Geyer Kosinski, Richard Rappaport and Richard Siskind, who are director nominees and are currently members of the Board of Directors. We have been advised by Geyer Kosinski, Richard +Rappaport and Richard Siskind of their availability and willingness to serve if re-elected. In the event that any of Geyer Kosinski, Richard Rappaport and Richard Siskind becomes unavailable or unable to serve as a member of the Board of Directors +prior to the voting, the proxy holders will refrain from voting for them or will vote for a substitute nominee in the exercise of their best judgment. +The Board of Directors recommends a vote FOR each of these director-nominees. +3 +PROPOSAL NO. 2 +ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS +As required by +Section 14A of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are seeking stockholder approval on an advisory, +non-binding basis of the compensation of our Named Executive Officers as disclosed in the section of this proxy statement titled “ Executive Compensation .” In this Proposal No. 2, stockholders are being asked to vote on the +following advisory resolution: +“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the +Company’s Named Executive Officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2014 Annual +Meeting of Stockholders.” +Stockholders are urged to read the Compensation Discussion and Analysis section of this Proxy +Statement, which discusses in detail how our compensation policies and procedures implement our compensation philosophy, and to refer to the related executive compensation tables. The compensation of our Named Executive Officers is based on a design +that ties a substantial percentage of an executive’s compensation to our attainment of financial and other performance measures that, our Board of Directors believes, promote the creation of long-term +stockholder value and position our company for long-term success. As described more fully in the Compensation Discussion and Analysis, the mix of fixed- and performance-based compensation, as well as the terms of restricted stock awards, are +designed to enable our company to attract and maintain top talent while, at the same time, creating a close relationship between our company’s performance and overall stockholder return and the Named Executive Officers’ compensation. Our +Compensation Committee and Board of Directors believe that the design of the program, and hence the compensation awarded to Named Executive Officers under the current program, fulfills this objective. +Although the vote is advisory and non-binding, our Board of Directors and Compensation Committee value the opinions that our stockholders +express in their votes and will consider the voting results in connection with their ongoing evaluation of our compensation program. Our Board of Directors has determined to hold an advisory vote on the compensation of our Named Executive Officers +every three years. Unless our Board of Directors modifies its determination on the frequency of such future advisory votes, the next advisory vote on the compensation of our named executive officers will be held at the 2017 annual meeting of +stockholders. +The Board of Directors recommends a vote FOR the advisory, non-binding resolution +approving the compensation of our Named Executive Officers. +4 +PROPOSAL NO. 3 +NON-BINDING STOCKHOLDER PROPOSAL REGARDING +DECLASSIFICATION OF THE BOARD +OF DIRECTORS +The Comptroller of the State of New York, Thomas P. DiNapoli, trustee of the New York State Common +Retirement Fund and administrative head of the New York State and Local Retirement System, a beneficial owner of at least $2,000 worth of our Class A Common Stock, submits the following resolution to stockholders for approval at the Annual +Meeting, if properly presented. We will provide the proponent’s address to any stockholder promptly upon request. The text of the proponent’s resolution and supporting statement appear below, printed verbatim from its submission. We +disclaim all responsibility for the content of the proposal and the supporting statement, including sources referenced therein. +The stockholder’s proposal follows: +“RESOLVED, that shareholders of Skechers U.S.A., Inc. urge the Board of Directors to take all necessary steps (other than any steps that must be taken by shareholders) to eliminate the classification +of the Board of Directors, and to require that all directors elected at or after the annual meeting held in 2015 stand for elections on an annual basis. Implementation of this proposal should not affect the unexpired terms of any directors elected +to the Board of Directors at or prior to the annual meeting of the company held in 2014. +SUPPORTING STATEMENT +We believe that the ability to elect directors is the single most important use of the shareholder franchise. +Accordingly, directors should be accountable to shareholders on an annual basis. The election of directors by classes, for three-year terms, in our opinion, minimizes accountability and precludes the full exercise of the rights of shareholders to +approve or disapprove annually the performance of a director or directors. +In addition, since only one-third of the Board of +Directors is elected annually, we believe that classified boards could frustrate, to the detriment of long-term shareholder interest, the efforts of a bidder to acquire control or a challenger to engage successfully in a proxy contest. A staggered +board has been found to be one of six entrenching mechanisms that are associated with lower firm valuation. See “What Matters in Corporate Governance?” Lucian Bebchuk, Alma Cohen & Allen Ferrell, Review of Financial Studies, Vol. +22, Issue 2, 783 (2009). +The New York State Common Retirement Fund urges you to join us in voting to declassify the election +of directors, as a powerful tool for management incentive and accountability. We urge your support FOR this proposal.” +************************* +BOARD OF DIRECTORS OPPOSITION STATEMENT +Our Board of Directors has +considered the most effective structure for the term of each director and has determined, for the reasons set forth below, that the current classified structure of the Board continues to be in the best long-term interests of our company and its +stockholders. +Stability, Continuity and Experience . In accordance with our amended and restated +certificate of incorporation, the Board is divided into three classes, with each class serving a staggered three-year term. This classified structure provides the Board stability and continuity, enhancing long-term strategic planning by the Board. +This classified structure also ensures that, at any given time, the Board is comprised of experienced directors who are intimately familiar with our business, strategic goals, history and culture. +5 +Accountability . All directors, regardless of the length of their term +of office, are required to act in their capacity as a director in a manner that complies with their fiduciary duties to our company and its stockholders. The Board believes that the experience of individual directors is more important to effective +board governance than annual elections. The classified structure of the Board strengthens our ability to attract and retain high quality directors who are willing to make the significant commitment of time and effort to our company and its +stockholders that effective board service requires. +Enhancement of Stockholders’ Long-Term +Interests . Electing directors to three-year terms enhances the focus of non-management directors on the long-term interests of stockholders by providing them with a longer term of office. The longer term reduces the potential +influence of special and single interest stockholder groups who might have a short-term agenda to take action that is not in the long-term interests of our company and its stockholders. As a result, non-management directors are able to function with +greater independence and long-term perspective, which is critical to the non-management directors making decisions that are in the best interests of our company and its stockholders. +Stockholder approval of this proposal would not in itself declassify the Board. Under Delaware law, the state where our company is +incorporated, to change the classified structure of the Board, the Board must first authorize an amendment to our amended and restated certificate of incorporation. Stockholders would then have to approve the amendment with an affirmative vote of +not less than a majority of the total voting power of all outstanding shares of our common stock entitled to vote on the amendment. +After careful consideration of this proposal, the Board believes that the retention of a classified structure for the Board remains in the best long-term interests of our company and its stockholders. +The Board of Directors recommends a vote AGAINST the non-binding stockholder proposal regarding declassification of the +Board of Directors. +6 +BOARD OF DIRECTORS AND EXECUTIVE OFFICERS +Information Concerning Director Nominees +Name +Age +Class and Year +in Which Term Will +Expire if Re-elected +Position +Geyer Kosinski +48 +Class III (2017) +Director +Richard Rappaport +54 +Class III (2017) +Director +Richard Siskind +68 +Class III (2017) +Director +Geyer Kosinski has served as a member of our Board of Directors since November 2001. Since July +2004, Mr. Kosinski has been the Chairman and Chief Executive Officer of Media Talent Group, a talent management and production company that produces feature films and television programming and manages over 50 actors, writers and directors. +Mr. Kosinski’s qualifications to serve on our Board include over 20 years of leadership and transactional +experience, specifically managing the careers of actors, writers and directors and developing and producing numerous feature films and television series in the entertainment industry. +Richard Rappaport has served as a member of our Board of Directors since September 2010. In 1999, Mr. Rappaport founded +WestPark Capital, a full service investment banking and securities brokerage firm that serves the needs of both private and public companies worldwide, as well as individual and institutional investors, and he is its Chief Executive Officer. +Mr. Rappaport received his B.S. in Business Administration from the University of California at Berkeley, and his M.B.A. from the University of California at Los Angeles. +In August 2004, Mr. Rappaport entered into a settlement agreement with the NASD (the “Settlement Agreement”) to settle claims that Mr. Rappaport failed in his capacity as Chief +Compliance Officer of WestPark Capital to properly supervise the preparation of the six research reports released by WestPark Capital between July 2001 and October 2002 regarding public companies with speculative securities which WestPark Capital +and Mr. Rappaport knew or had reason to know were misleading in light of certain omissions and exaggerated, unwarranted and misleading statements. Under the terms of the Settlement Agreement, and without admitting or denying any liability, +Mr. Rappaport voluntarily surrendered his Series 24 license to act as a general securities principal on behalf of WestPark Capital for a period of 30 days restricting Mr. Rappaport’s participation in principal activities (the +“Temporary Principal Suspension”), was required to requalify his Series 24 license and paid a fine of $50,000. Despite his good faith efforts to comply with the terms of the Temporary Principal Suspension and his reliance on the +advice of legal counsel regarding the scope of the restricted activities, the NASD determined that certain of the activities that Mr. Rappaport engaged in during the Temporary Principal Suspension were considered “principal +activities.” In September 2006, Mr. Rappaport entered into a letter of acceptance, waiver and consent (the “Consent”) with the NASD in connection with the violation of the Temporary Principal Suspension. Under the terms of the +Consent, and without admitting or denying any liability, Mr. Rappaport voluntarily surrendered his Series 7 and 24 licenses for a second 30-day period and paid an additional fine of $10,000. Mr. Rappaport fully complied with the terms of the +Consent to the satisfaction of the NASD. +Mr. Rappaport’s qualifications to serve on our Board include over 25 years +of experience in business development and corporate finance, specifically in the United States and international small cap investment banking and securities markets; he has completed over 50 public offerings of issuers’ stock and numerous +private financing and M&A transactions. During his career, he has helped companies plan and implement their financial and business development strategies. +Richard Siskind has served as a member of our Board of Directors since June 1999. In 1991, Mr. Siskind founded R. Siskind & Company, a business that purchases brand name men’s +and women’s apparel and +7 +accessories and redistributes those items to off-price retailers. R. Siskind & Company also controls other companies that have licenses and distribution agreements for various brands, +and he is its Chief Executive Officer and a member of its Board of Directors. +Mr. Siskind’s qualifications to serve +on our Board include over 35 years of experience as chief executive officer of various companies in the consumer retail sector, including four years as Chief Executive Officer and six years as a Board member of Magic Lantern Group, a publicly traded +apparel company, and over 20 years as founder, majority shareholder and leader of R. Siskind & Company. Mr. Siskind’s experience with consumer retail businesses includes expertise with business planning, operations, finance, +inventory control, acquisitions and licenses. +Directors Not Standing for Election +The members of the Board of Directors who are continuing and not standing for election at this year’s Annual Meeting are set forth +below. +Name +Age +Class and Year in Which +Term Will Expire +Position +Robert Greenberg +74 +Class I (2015) +Chairman of the Board and +Chief Executive Officer +Morton Erlich +69 +Class I (2015) +Director +Thomas Walsh +72 +Class I (2015) +Director +Michael Greenberg +51 +Class II (2016) +President and Director +David Weinberg +63 +Class II (2016) +Executive Vice President; Chief Operating Officer; Chief Financial Officer; and Director +Jeffrey Greenberg +46 +Class II (2016) +Senior Vice President, Active Electronics Media and Director +Robert Greenberg has served as our Chairman of the Board and Chief Executive Officer since +October 1993. +Mr. Greenberg is uniquely qualified to serve on and lead our Board of Directors with over 30 years of +experience in the footwear industry, primarily in branding and product design, including 22 years as our founder, leader and largest stockholder since our inception in 1992. +Morton Erlich has served as a member of our Board of Directors since January 2006 and has been an independent investor and consultant since September 2004. Since October 2013, Mr. Erlich has +served as a member of the board of directors of American Vanguard Corporation (NYSE:AVD). Mr. Erlich worked for 34 years at KPMG LLP including 24 years as an audit partner until retiring in September 2004. His last position at KPMG LLP was +office managing partner of the office in Woodland Hills, California. +Mr. Erlich’s qualifications to serve on our +Board include 34 years of accounting and finance experience at KPMG LLP and being licensed as a certified public accountant (currently inactive) in California since 1974. While a partner with KPMG LLP, Mr. Erlich served as lead audit partner +for numerous companies in a variety of industries including companies in consumer markets, manufacturing, distribution and retail sectors. His accounting and finance experience includes expertise with various types of transactions such as bank lines +of credit, debt financings, equity financings including public offerings, and mergers and acquisitions. +Thomas Walsh +has served as a member of our Board of Directors since September 2010 and as a private investor and consultant since November 2006. From May 1993 until retiring in November 2006, Mr. Walsh served as senior vice president and portfolio manager +with Colbie Pacific Capital, which is a factoring and asset-based lender located in Southern California. +8 +Mr. Walsh’s qualifications to serve on our Board include over 40 years of +experience in managing and providing guidance to companies, the majority of which were in the apparel business, regarding debt financing options including securitization and action plans for companies with respect to distressed customers. His +qualifications also include a background in accounting and extensive experience in evaluating businesses and evaluating their financial information. +Michael Greenberg has served as our President and a member of our Board of Directors since our company’s inception in 1992, and from June 1992 to October 1993, he served as our Chairman of the +Board. +Mr. Greenberg’s qualifications to serve on our Board include over 25 years of experience in the footwear +industry, specifically in sales, including his leadership as President of our company for more than 20 years. +David +Weinberg has served as our Chief Operating Officer since January 2006, as our Chief Financial Officer since September 2009 and from October 1993 to January 2006, and as Executive Vice President and a member of our Board of Directors since July +1998. +Mr. Weinberg’s qualifications to serve on our Board include over 20 years of experience in the footwear +industry, specifically in finance and operations, including 15 years as our Chief Financial Officer and seven years as our Chief Operating Officer. +Jeffrey Greenberg has served as our Senior Vice President, Active Electronic Media since June 2005 and as a member of our Board of Directors since September 2000. From January 1998 to June 2005, +Mr. Greenberg served as our Vice President, Active Electronic Media. Previously, Mr. Greenberg served as our Chief Operating Officer, Secretary and a member of our Board of Directors from June 1992 to July 1998, and as our Chief Executive +Officer from June 1992 to October 1993. +Mr. Greenberg’s qualifications to serve on our Board include over 20 years +of experience in the footwear industry, specifically in marketing and operations, including his role on our management team during our early years of growth following our company’s inception in 1992. +Executive Officers +The +following table sets forth certain information with respect to our executive officers who are not also members of our Board of Directors. For information concerning Robert Greenberg, Michael Greenberg and David Weinberg, see “ Directors Not +Standing for Election ” above. +Name +Age +Position +Philip Paccione +52 +Executive Vice President of Business Affairs, General Counsel and Corporate Secretary +Mark Nason +52 +Executive Vice President of Product Development +Philip Paccione has served as our Executive Vice President, Business Affairs since February 2000, +as our Corporate Secretary since July 1998 and as our General Counsel since May 1998. +Mark Nason has served as our +Executive Vice President, Product Development since March 2002. From January 1998 to March 2002, Mr. Nason served as our Vice President, Retail and Merchandising, and from December 1993 to January 1998, he served as our Director of +Merchandising and Retail Development. +Robert Greenberg is the father of Michael Greenberg and Jeffrey Greenberg; other than +the foregoing, no family relationships exist among any of our executive officers or directors. +9 +CORPORATE GOVERNANCE AND BOARD MATTERS +Board of Directors, Committees of the Board and Attendance at Meetings +Our Corporate Governance Guidelines were adopted by our Board of Directors as of April 28, 2004 to assist the Board in the exercise of its responsibilities. The Corporate Governance Guidelines +reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management levels, with a view to enhancing long-term stockholder value. The Corporate Governance Guidelines are posted in the +corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . The information found on, or otherwise accessible through, our website is not incorporated into, and does +not form a part of, this proxy statement. +Our Board of Directors met four times in 2013, and all directors attended at least +75% of the combined total of (i) all Board meetings and (ii) all meetings of committees of the Board on which the director served. While we do not have a policy requiring our directors to attend our Annual Meeting of Stockholders, all of +the directors attended the Annual Meeting of Stockholders held in 2013. +The Board has an Audit Committee, a Compensation +Committee and a Nominating and Governance Committee. The table below provides current membership and meeting information for 2013 for each of the committees. Each of the members of these committees is independent as defined by Section 303A of +the New York Stock Exchange (“NYSE”) Listed Company Manual (collectively, the “NYSE Rules”), and each member of the Audit Committee is independent as defined by Section 10A(m)(3) of, and Rule 10A-3(b) under, the Exchange +Act. All committee meetings were attended by all respective committee members in 2013, except that Geyer Kosinski and Richard Siskind were each unable to attend one meeting of the Audit Committee. +Name +Audit Committee +Compensation +Committee +Nominating and +Governance Committee +Morton Erlich +X* +X +X* +Geyer Kosinski +X +Richard Siskind +X +X* +X +Total Meetings in 2013 +9 +6 +3 +* +Committee Chairman +Each of +these committees acts under a written charter that complies with the applicable NYSE Rules and SEC rules. The functions performed by the committees are summarized below and are set forth in greater detail in their respective charters. The complete +text of the charter for each committee can be found in the corporate governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp , and copies are available in print, without +charge, upon written request to our Corporate Secretary at Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. The information found on, or otherwise accessible through, our website is not incorporated into, and +does not form a part of, this proxy statement. +Director Independence +Our Board of Directors has nine members including six non-management directors, which are those directors who are not also serving as one +of our executive officers. Our Board of Directors has affirmatively determined that the Board has five members who are independent as defined by Section 303A.02 of the NYSE Rules. These directors are Morton Erlich, Geyer Kosinski, Richard +Rappaport, Richard Siskind and Thomas Walsh. The Board of Directors made this affirmative determination regarding these directors’ independence based on discussions with the directors and on its review of the directors’ responses to a +questionnaire regarding employment and compensation history; affiliations, family and other relationships; and transactions with our company, its subsidiaries and affiliates. The Board considered relationships and transactions between each director +or any member of his immediate family and our company and its subsidiaries and affiliates, including +10 +those reported in the section entitled “ Transactions with Related Persons ” in this proxy statement. The purpose of the Board of Director’s review with respect to each +director was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent under the NYSE Rules. +Board Leadership Structure +Robert Greenberg currently serves as both +Chairman of the Board and Chief Executive Officer of our company. We believe combining the roles of Chairman and Chief Executive Officer is currently the appropriate leadership model for our company as it provides for clear accountability and +efficient and effective leadership of our business. Mr. Greenberg’s knowledge regarding our operations and the industries and markets in which we compete positions him to best identify matters for Board review and deliberation. The dual +role serves as a bridge between management and the Board of Directors that enables Mr. Greenberg to provide his insight and direction on important strategic initiatives to both groups, ensuring that they act with a common purpose. As our +founder and our largest stockholder, with beneficial ownership of approximately 29.0% of the aggregate number of votes eligible to be cast by our stockholders and the ability to exert significant influence over matters requiring approval by our +stockholders, we believe Mr. Greenberg is the appropriate person to lead both our Board of Directors and the management of our company. +To further strengthen our corporate governance structure and provide independent oversight of our company, our Board of Directors appointed Morton Erlich as our Lead Independent Director. As Lead +Independent Director, Mr. Erlich acts as a liaison between the non-management directors on our Board and Robert Greenberg and the other members of our management team, chairs and presides over regularly held executive sessions without our +management present, and performs other functions as requested by the non-management directors. Executive sessions are typically held in conjunction with regularly scheduled Audit Committee meetings and Board +meetings, and additional sessions may be called by the Lead Independent Director in his own discretion or at the request of the Board of Directors. +Role of Board in Risk Oversight +Our Board of Directors is responsible for +the oversight of risk management. The Board of Directors delegates much of this responsibility to the various committees of the Board. The Audit Committee is responsible for inquiring of management, our Director of Internal Audit and our independent +registered public accounting firm about our financial reporting processes, internal controls and policies with respect to financial risk assessment and management. The Chairman of the Audit Committee has periodic discussions with our Director of +Internal Audit about the adequacy and effectiveness of steps taken to monitor, control and report financial risk exposures, and the Director of Internal Audit also presents the Audit Committee with formal periodic status reports as well. The +Compensation Committee oversees risks related to our compensation programs and the Nominating and Governance Committee is responsible for reviewing regulatory and other corporate compliance risks. The Board is advised by the committees of +significant risks and management’s response via periodic updates. +Stockholder Communications with the Board of Directors +Stockholders and other interested parties who wish to contact our Presiding Independent Director, Morton Erlich, or any of +our other directors either individually or as a group may do so by writing to them c/o Philip Paccione, Corporate Secretary, Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. Each writing interested party +should specify whether the communication is directed to our entire Board of Directors, to only the non-management directors or to a particular director. Copies of written communications received at such address will be provided to the Board of +Directors or the relevant director unless such communications are considered, in the reasonable judgment of our Corporate Secretary, to be inappropriate for submission to the intended recipient(s). Examples of communications that would be considered +inappropriate for submission to the Board of Directors include, without limitation, customer complaints, +11 +solicitations, communications that do not relate directly or indirectly to the Company’s business or communications that relate to improper or irrelevant topics. The Corporate Secretary may +analyze and prepare a response to the information contained in communications received and may deliver a copy of the communication to other Company staff members or agents who are responsible for analyzing or responding to complaints or requests. +Audit Committee +Our Board of Directors has determined Morton Erlich, who is the Chairman of the Audit Committee, is an “audit committee financial expert” as that term is defined in Item 407(d)(5) of +Regulation S-K. The Audit Committee is responsible for overseeing and evaluating (i) the quality and integrity of our financial statements, (ii) the performance of our internal audit and internal controls functions in addition to financial +risk assessment and management applicable to our company, (iii) our policies and procedures regarding transactions with related persons, as described in greater detail below in the section entitled “ Transactions with Related +Persons, ” (iv) the appointment, compensation, independence and performance of our independent registered public accounting firm, and (v) our compliance with legal and regulatory requirements. +Compensation Committee +The Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to compensation of our +executive officers, (ii) overseeing the administration of our executive compensation plans, (iii) reviewing and discussing with our management the Compensation Discussion and Analysis required by the applicable SEC rules and recommending +to the Board whether such disclosure should be included in our proxy statement and (iv) overseeing risks related to our compensation programs and (v) producing a report on executive compensation for inclusion in our proxy statement in +accordance with the applicable rules of the SEC. This includes reviewing and approving the annual compensation of our Chief Executive Officer and other executive officers, reviewing and making recommendations to the Board with respect to executive +compensation plans, including incentive compensation and equity-based compensation, and reviewing and approving performance goals and objectives with respect to the compensation of our Chief Executive Officer and other executive officers consistent +with our executive compensation plans. For additional information on the role of our Chief Executive Officer in recommending the form or amount of executive compensation, see “ Compensation Discussion and Analysis—Role of Management in +Compensation Decisions .” +Neither of the members of our Compensation Committee has ever been an employee or officer +of our company or any of its subsidiaries. None of our executive officers has served or currently serves on the board of directors or on the compensation committee of any other entity, which has officers who served on our Board of Directors or +Compensation Committee during the fiscal year ended December 31, 2013. +Nominating and Governance Committee +The Nominating and Governance Committee is responsible for (i) developing and recommending to our Board of Directors the criteria for +selecting directors and assessing director independence, (ii) identifying individuals qualified to become members of our Board of Directors and recommending candidates as director nominees for election to the Board, (iii) considering and +making recommendations to the Board regarding its size and composition, director assignments to the other Board committees and the appointment of a chairperson for each of the other Board committees, (iv) overseeing the evaluation of our +management, the Board and its committees, (v) evaluating and recommending to the Board changes to the corporate governance guidelines applicable to our company, and (vi) reviewing regulatory and other corporate compliance risks applicable +to us. +12 +Director Nominations +The Nominating and Governance Committee recommends to our Board of Directors candidates to fill vacancies or for election or re-election to the Board. In the event of a vacancy on our Board of Directors, +the process followed by the Nominating and Governance Committee to identify and evaluate director candidates includes requests to our Board members, management and others for recommendations, meeting from time to time to evaluate biographical +information and qualifications relating to potential candidates and interviews of selected candidates by members of the committee and other directors. In considering whether to recommend any particular candidate for inclusion in the Board’s +slate of recommended director nominees, the Nominating and Governance Committee applies the criteria set forth in our Corporate Governance Guidelines. The committee also considers the statutory requirements applicable to the composition of the Board +and its committees, including independence requirements of the NYSE. Our Board of Directors ultimately determines the director nominees approved for inclusion on the proxy card for each annual meeting of stockholders. +Our Nominating and Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying +director nominees. Consistent with the committee’s charter, when identifying director nominees, the committee considers general principles of diversity and does so in the broadest sense. The committee evaluates the abilities and skills, age and +education, gender and ethnicity, industry and professional background, and accounting and financial experience of all potential director nominees. We believe that the backgrounds and qualifications of our directors, considered as a group, should +provide a diverse mix of background, experience, knowledge and skills that will best allow our Board to fulfill its responsibilities including oversight of our business. +The Nominating and Governance Committee will consider candidates recommended by stockholders for nomination for election as directors. The committee will evaluate stockholder-recommended candidates by +following substantially the same process, and applying the same criteria, as it follows for candidates recommended by our Board members, management and others. Stockholders wishing to submit recommendations must provide the following information by +written notice to the attention of our General Counsel by certified or registered mail: +• +As to each person whom the stockholder proposes to nominate for election as a director: +• +the name, age, business address and residential address of the candidate; +• +the principal occupation or employment of the person; +• +the class and number of shares of our stock that are beneficially owned by the candidate; and +• +the candidate’s consent to be named in the proxy statement as a nominee and to serve as a director if elected. +• +As to the stockholder recommending a candidate for director: +• +the name and address, as they appear on our stock transfer books, of the stockholder and of the beneficial owners, if any, of the stock registered in +the stockholder’s name and the name and address of other stockholders known by the stockholder to be supporting the nominee; and +• +the class and number of shares of our stock beneficially owned (i) by the stockholder and the beneficial owners, if any, and (ii) by any +other stockholders known by the stockholder to be supporting such candidates. +To be considered by the +Nominating and Governance Committee for the 2015 Annual Meeting of Stockholders, nominations for director candidates must be received at our principal office within the time period set forth below under the section “ Nominations and +Stockholder Proposals for 2015 Annual Meeting ” in this proxy statement. +13 +Code of Business Conduct and Ethics +Our Code of Business Conduct and Ethics, which applies to all directors, officers and employees, was adopted by our Board of Directors as +of April 28, 2004 and amended by the Board as of January 15, 2007. The purpose of the Code of Business Conduct and Ethics is to promote honest and ethical conduct. The Code of Business Conduct and Ethics is posted in the corporate +governance section of the investor relations page of our corporate information website located at www.skx.com/investor.jsp . We intend to promptly post any amendments to or waivers of the Code of Business Conduct and Ethics on our website. The +information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement. +Compensation of Directors +The following table sets forth information concerning the compensation earned by our non-employee directors during 2013. Robert Greenberg, +Michael Greenberg, David Weinberg and Jeffrey Greenberg are not included because as employee directors, they did not earn any additional compensation for services provided as members of our Board of Directors. +Name +Fees Earned or Paid in Cash ($)(1) +Total Compensation ($) +Morton Erlich +99,250 +99,250 +Geyer Kosinski +51,750 +51,750 +Richard Rappaport +38,250 +38,250 +Richard Siskind +79,000 +79,000 +Thomas Walsh +39,750 +39,750 +(1) +This column reports the amount of cash compensation earned in 2013 for Board and committee service. +Non-Employee Directors . We paid each of our non-employee directors annual compensation of $7,500 for serving on the Board of +Directors during the first quarter of 2013, which was increased in the second quarter to $8,750 per quarter for the duration of 2013. Our Audit Committee Chairman, Compensation Committee Chairman and Nominating and Governance Committee Chairman were +paid additional quarterly fees of $3,750, $2,500 and $2,500, respectively, during the first quarter of 2013, which were increased in the second quarter to $5,000, $3,750 and $3,750, respectively, per quarter for the duration of 2013. Non-employee +directors also received fees of $1,500 for each Board and committee meeting attended during 2013. Non-employee directors are reimbursed for reasonable costs and expenses incurred for attending any of our Board or committee meetings. Compensation, +fees, and reimbursable costs and expenses are paid quarterly. During 2013, non-employee directors were eligible to receive awards of restricted shares of Class A Common Stock, grants of options to purchase shares of Class A Common Stock +and other equity-based compensation under the 2007 Annual Incentive Award (the “2007 Plan”) as determined by the Board of Directors. In 2013, none of our non-employee directors were issued any restricted shares of Class A Common Stock +or granted any options to purchase shares of Class A Common Stock. As of December 31, 2013, our non-employee directors did not hold any outstanding equity awards. +Employee Directors . As of December 31, 2013, Robert Greenberg, Michael Greenberg and David Weinberg were the only Named Executive Officers serving on our Board of Directors, and Jeffrey +Greenberg was the only non-executive employee serving on our Board of Directors. Employees of Skechers who are members of the Board of Directors are not paid any directors’ fees. Compensation of Robert Greenberg, Michael Greenberg and David +Weinberg earned in 2013 is set forth under “ Executive Compensation .” Compensation of Jeffrey Greenberg earned in 2013 is described in the section entitled “ Transactions with Related Persons ” in this proxy statement. +During the 2013 fiscal year, employee directors were eligible to receive awards of shares of Class A Common Stock, grants of options to purchase shares of Class A Common Stock and other equity-based compensation under the 2007 Plan as +determined by the Board of Directors. In 2013, none of our employee directors were issued any restricted shares of Class A Common Stock or granted any options to purchase shares of Class A Common Stock. As of December 31, 2013, our +employee directors did not hold any outstanding equity awards. +14 +COMPENSATION DISCUSSION AND ANALYSIS +The following discussion and analysis describes our compensation strategy, philosophy, policies, programs and practices for our Named +Executive Officers for 2013 and should be read together with the compensation tables and related disclosures set forth below. The Named Executive Officers are those executive officers listed in the table captioned Summary Compensation Table +in this proxy statement: Robert Greenberg, Chief Executive Officer; Michael Greenberg, President; David Weinberg, Chief Operating Officer and Chief Financial Officer; Mark Nason, Executive Vice President of Product Development; and Philip Paccione, +General Counsel and Corporate Secretary. This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs +that we may adopt in the future may differ materially from the compensation strategy, philosophy, policies, programs and practices summarized in this discussion. +Role of Compensation Committee +Our executive compensation program is +administered by or under the direction of the Compensation Committee of our Board of Directors. Under the terms of its Charter, the Compensation Committee is responsible for (i) discharging the Board’s responsibilities relating to +compensation of our executive officers, (ii) overseeing the administration of our executive compensation plans, (iii) reviewing and discussing with our management this Compensation Discussion and Analysis required by the applicable SEC +rules and recommending to the Board its inclusion in this proxy statement and (iv) producing the annual report on executive compensation included elsewhere in this proxy statement in accordance with the applicable SEC rules. +The Compensation Committee has the authority to retain the services of outside advisors, experts and other consultants to assist in the +evaluation of the compensation of the Chief Executive Officer, the other executive officers and the Board of Directors. Neither our management nor the Compensation Committee retained a compensation consultant in 2013 to review policies and +procedures with respect to executive compensation or to advise us on compensation matters. For 2013, the Compensation Committee reviewed and considered management’s compensation recommendations and then discussed these recommendations with +management. +Role of Management in Compensation Decisions +Management, led by our Chief Executive Officer, President and Chief Operating Officer, annually makes recommendations to the Compensation Committee regarding (i) annual base salary and bonuses to be +paid to executive officers, (ii) the formation and modification of our equity-based and incentive compensation plans for executive officers, (iii) awards to be granted under our equity-based compensation plan and (iv) performance +metrics to be used to calculate incentive compensation that executive officers may earn under our incentive compensation plan. Management also meets periodically with the Compensation Committee to discuss these recommendations, which are based on +management’s assessment of the base salary, equity-based compensation and incentive compensation opportunities that are competitive within our industry and within the geographical labor markets in which we participate. The Compensation +Committee may adopt, modify or reject any of these recommendations. +Compensation Objectives +The basic compensation philosophy of the Compensation Committee is to provide competitive salaries and incentives to executive officers in +order to promote superior financial performance. The Compensation Committee has believed in past years that compensation paid to executive officers should be closely aligned with our performance, linked to specific, measurable results intended to +create value for stockholders, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success. +15 +Following our company’s improved financial performance including a return to +profitability in 2012, the Compensation Committee re-focused on executive compensation policies that have historically been designed to achieve the following four objectives: +• +attract and motivate well-qualified individuals with the ability and talent to enable us to achieve our business objectives and corporate strategies; +• +provide incentives to achieve specific short-term individual and corporate goals by rewarding achievement of those goals at established financial +performance levels; +• +provide incentives to achieve longer-term financial goals and reinforce sense of ownership through award opportunities that can result in ownership of +stock; and +• +promote retention of key executives and align the interests of management with those of the stockholders to reinforce achievement of continuing +increases in stockholder value. +Consistent with our performance-based philosophy, the Compensation +Committee reviewed and approved our compensation programs for 2013 to effectively balance executive officers’ salaries with incentive compensation that was performance-based. We believe that it served the needs of our stockholders and key +executives to provide incentives commensurate with individual management responsibilities and past and future contributions to corporate objectives. The mix of compensation elements varied among the executive officers based on each executive +officer’s position, responsibilities and performance with Skechers. +Elements of Compensation +Our executive compensation has historically consisted of three primary components: +• +base salary and benefits; +• +performance-based compensation, if any, under the 2006 Annual Incentive Compensation Plan (the “2006 Plan”); and +• +equity compensation awarded under the 2007 Plan. +These components, individually and in the aggregate, are designed to accomplish one or more of the compensation objectives described above. While our executive officers were not provided all of these +components for 2013, we annually reassess the total compensation of our executive officers to ensure that our overall compensation objectives are met, as evidenced by the award of equity compensation to our Named Executive Officers in January 2014 +for the 2014 fiscal year. +Base Salary +Base salaries for our Named Executive Officers are established based on the scope of their respective responsibilities, taking into account market compensation paid by competitors within our industry and +other companies of similar type, size and financial performance for individuals in similar positions. We set base compensation for our Named Executive Officers at levels that we believe enable us to hire and retain individuals in a competitive +environment, and to reward satisfactory performance at an acceptable level based upon contributions to our overall business objectives. +Base salaries are generally reviewed annually, but may be adjusted from time to time to realign salaries with market levels. In reviewing base salaries, we consider various factors, including +(i) each individual’s level of responsibilities, performance and results achieved, and professional experience, (ii) a comparison to base salaries paid to employees in comparable positions by our competitors and companies of similar +type, size and financial performance and (iii) cost of living increases. +16 +The 2013 annual base salaries of three of the Named Executive Officers, Robert Greenberg, +David Weinberg and Philip Paccione, were increased from their 2012 levels by $250,000, $75,000 and $50,000, respectively. Based on conversations that the members of the Compensation Committee had amongst themselves and with management, and following +the recommendation of our Chief Executive Officer, Robert Greenberg, the Compensation Committee determined that it was appropriate to increase these three Named Executive Officers’ base salaries on the basis of its review of their individual +contributions to our improved financial performance in 2012. The base salaries of the remaining Named Executive Officers were not increased in 2013. +Annual Incentive Compensation +The 2006 Plan is intended to advance our +interests and those of our stockholders and to assist us in attracting and retaining executive officers by providing incentives and financial rewards to such executives who, because of the extent of their responsibilities can make significant +contributions to our success through their ability, industry expertise, loyalty and exceptional services. +The 2006 Plan +provides executive employees, including the Named Executive Officers, with the opportunity to earn bonuses based on our financial performance by linking incentive award opportunities to the achievement of our performance goals. The 2006 Plan allows +us to set performance periods equal to fiscal quarters, fiscal years or such other period that the Compensation Committee may establish up to five years in length, and determine performance criteria and goals for such performance periods that are +flexible and change with the needs of our business. The Compensation Committee annually approves the performance criteria and goals that will be used in formulae to calculate our Named Executive Officers’ incentive compensation on a quarterly +basis for each fiscal year. By determining performance criteria and setting goals at the beginning of each fiscal year, our Named Executive Officers understand our goals and priorities during the current fiscal year. Following the conclusion of each +quarter during the current fiscal year, the Compensation Committee certifies the amount of the award for each participant for each such quarter. The amount of an award actually paid to a participant each quarter may, in the sole discretion of the +Compensation Committee, be reduced to less than the amount payable to the participant based on attainment of the performance goals for each such quarter. +The Compensation Committee approved the performance goals in January 2013 for fiscal 2013. The business criteria used in the formulae to calculate the incentive compensation of the Named Executive +Officers for 2013 was our net sales growth because the Compensation Committee believes that it provides an accurate measure of our annual performance. While in past years, the formulae used each quarter to determine if any incentive compensation was +earned was based on quarterly net sales in the current year compared to the corresponding quarter in the immediately preceding year, our management recommended and the Compensation Committee determined that such a policy was not appropriate for 2012 +following our decline in financial performance in 2011. Instead, for 2012, our management recommended and the Compensation Committee adopted a policy pursuant to which quarterly net sales in 2012 would be compared to the corresponding quarter in +2010 when our net sales performance was stronger to determine whether any incentive compensation was earned each quarter. For 2013, following our company’s improved financial performance in 2012, the Compensation Committee adopted +management’s recommendation to revert back to the policy of comparing quarterly net sales for 2013 to the corresponding quarter in the immediately preceding year, 2012, for the purpose of calculating any incentive compensation to be earned in +2013. +17 +The potential payments of incentive compensation to our Named Executive Officers are +performance-driven and therefore completely at risk. The payment of any incentive compensation for a fiscal year under the 2006 Plan is conditioned on our company achieving at least certain threshold performance levels of the business criteria +approved by the Compensation Committee, and no payments will be made to our Named Executive Officers if the threshold performance levels are not met. Any incentive compensation to be paid to the Named Executive Officers in excess of the threshold +amounts is based on the Compensation Committee’s pre-approved business criteria and formulae for the respective Named Executive Officers. The following table sets forth the set of performance criteria used to determine the Named Executive +Officers’ annual incentive compensation on a quarterly basis, which they may earn depending on our company’s financial performance and their individual contributions: +Name of Executive +Quarterly incentive compensation equals amount by +which net sales for the applicable +quarter exceeds net +sales for the corresponding quarter in the 2012 fiscal +year multiplied by the listed percentage (%) +Robert Greenberg +0.500 +Michael Greenberg +— +David Weinberg +0.150 +Mark Nason +0.125 +Philip Paccione +0.050 +If net sales for the applicable quarter exceed net sales for the corresponding quarter in the 2012 fiscal +year, then the executive will earn a quarterly bonus equal to the amount of such excess multiplied by the percentage set forth in the table above with respect to such quarter. The Compensation Committee did not place a maximum limit on the incentive +compensation that could have been earned by the Named Executive Officers in 2013, although the maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month period under the +2006 Plan is $5,000,000. +Based on the performance goals that the Compensation Committee approved in January 2013, the Named +Executive Officers, except for Michael Greenberg, were eligible to receive incentive compensation targeted from 10% to 50% of their total compensation for 2013, which was determined to be competitive in the marketplace for similar positions. These +percentages were also consistent with the targeted percentages for 2012. In determining the potential awards that computed into these percentages, the Compensation Committee considered each Named Executive Officer’s position, responsibilities +and prospective contribution to the attainment of our performance goals. The percentage of total compensation represented by incentive awards is generally higher for more senior executives to reflect their greater influence on profits and sales and +to put a larger percentage of their total potential cash compensation “at risk.” Accordingly, our Chief Executive Officer, Robert Greenberg, was at the top end of the range. +Based on our financial performance and the performance goals previously set by the Compensation Committee for each Named Executive +Officer for 2013, the actual incentive compensation earned by each Named Executive Officer for 2013 was $1,428,448 for Robert Greenberg, which represented 41% of his Non-Equity Compensation; $428,536 for David +Weinberg, which represented 23% of his Non-Equity Compensation, $357,113 for Mark Nason, which represented 26% of his Non-Equity Compensation; and $214,269 for Philip Paccione, which represented 27% of his Non-Equity Compensation. These percentages, +ranging from approximately 20% to 40%, other than for Michael Greenberg, were within the targeted percentages of 10% to 50% due to our financial performance in 2013 being commensurate with expectations. Michael Greenberg was not eligible to receive +incentive compensation for 2013 because the Compensation Committee was aware that his time and attention spent focused on our company would continue to be limited in 2013, following the second half of 2012 when his contributions to our company were +limited as he attended to personal matters. +18 +Incentive compensation awarded under the 2006 Plan complements the approach of our equity +compensation program described below, which is focused on our long-term achievements for earnings per share and total stockholder return. +Equity-Based Compensation +Our employees, including the Named Executive Officers, are eligible to receive, from time to time, awards of restricted stock, grants of +stock options and other equity-based compensation under the 2007 Plan that are designed to: +• +closely align management and stockholder interests; +• +promote retention and reward executives and other key employees for building stockholder value; and +• +encourage long-term investment in our company by participating Named Executive Officers. +The Compensation Committee believes that stock ownership by management has been demonstrated to be beneficial to all stockholders and +equity-based compensation awards have historically been granted by our company to executive officers and other employees for the foregoing reasons and as further discussed below. We did not grant any awards of restricted stock, stock options or +other equity-based compensation to any Named Executive Officers in 2013, but we did award shares of restricted stock to certain Named Executive Officers and other executive employees in January 2014, as described below. +Restricted Stock +Historically, awards of restricted stock made to our Named Executive Officers are subject to certain restrictions that generally lapse over a period of two to four years from the date of the award +depending on the specific award. This vesting schedule promoted retention and encouraged long-term investment in our company by the Named Executive Officers, especially those who did not already hold shares of our Class A or Class B Common +Stock. This also provided a reasonable time frame to align the Named Executive Officers’ compensation with stockholder interests since any appreciation of our stock price will benefit both management and stockholders. An additional advantage of +restricted stock is that, in comparison to stock options, fewer shares are required to deliver the same economic value. This may result in lower stockholder dilution than granting stock options. On January 22, 2014, the Compensation Committee +awarded shares of restricted stock to the Named Executive Officers, except for Michael Greenberg, as part of their total compensation for the 2014 fiscal year. These restricted stock awards are scheduled to vest in two equal installments, with +one-half vesting on each of March 1, 2015 and 2016. +Employment Agreements, Severance Benefits and Change of Control Provisions +We do not have any employment, severance or change-of-control agreements in effect with any of our Named Executive +Officers. +The restricted stock awards granted under our 2007 Plan provide that in the event of a change of control, all +outstanding unvested shares will vest in full. +A “change of control” is generally defined in the 2007 Plan, +including the equity award agreements thereunder, as (i) the acquisition by certain persons of our securities representing 50% or more of the combined voting power of our outstanding securities; (ii) a change during any two-year period in +a majority of the Board of Directors unless each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period, or whose election or nomination was so approved; +(iii) approval by our stockholders of a merger or consolidation (except with certain permitted entities); or (iv) approval by our stockholders of a complete liquidation of our company or the sale or disposition of all or substantially all +of our assets. +19 +The Compensation Committee believes that our change of control policy is consistent with the +objectives of providing the highest possible return to stockholders by allowing the Named Executive Officers to be able to effectively participate equally with stockholders in evaluating alternatives in the event of a change of control transaction, +without compelling the Named Executive Officer to remain employed under new ownership. +Equity Award Practices +As described under the Equity Compensation section, equity-based awards are a significant component of our overall executive compensation +program. We do not backdate grants of awards nor do we coordinate the grant of awards with the release of material information that might result in favorable pricing. New hire grants of awards to executive officers and other new employees are +generally based on the date of hire. It is our practice that the per share exercise price for all grants of stock options be equal to the closing price of a share of our Class A Common Stock on the New York Stock Exchange on the date of grant, +and we have never re-priced any grants. +Perquisites and Other Benefits +We provide our Named Executive Officers with perquisites and other benefits that are reflected in the “All Other Compensation” +column in the table captioned Summary Compensation Table in this proxy statement, which we believe are reasonable, competitive and consistent with our overall executive compensation program. The costs of these benefits constitute only a small +percentage of each Named Executive Officer’s total compensation and include the following: +Aircraft usage . We +have an agreement with an aircraft operator for use of its aircraft for business travel. Each Named Executive Officer may also use the aircraft for personal use. If we are not reimbursed for costs associated with personal use of the aircraft, such +costs are considered taxable income to the Named Executive Officer. During 2013, there was no personal use of the aircraft by any of the Named Executive Officers for which we were not reimbursed in full. +Automobile usage . During 2013, automobiles that we purchased at our sole cost were used by Robert Greenberg, Michael Greenberg and +David Weinberg. We also paid on their behalf the automobile insurance premiums related to their use of these automobiles. +Country club dues and health club fees . During 2013, we paid country club membership dues and/or health club membership fees for +David Weinberg and Philip Paccione. +Deferred Compensation Plan +In May 2013, we commenced the Skechers U.S.A., Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), effective as +of May 1, 2013. We are maintaining the Deferred Compensation Plan primarily for the purpose of providing a means for deferral of compensation to a select group of employees, including all of our Named Executive Officers, who are limited in +their participation under our 401(k) profit sharing plan. Pursuant to the Deferred Compensation Plan, participants may defer receipt of a portion of their respective cash compensation and elect to have such amounts paid to them (or their +beneficiaries in the event of death) upon retirement, termination of employment, death, disability or some other date chosen by the respective participants, in each case, consistent with the terms of the Deferred Compensation Plan. We are not +funding the Deferred Compensation Plan, and we will make payments under the Deferred Compensation Plan to each participant as permitted by law and in accordance with the participant’s election decisions. In addition to providing a means to +defer compensation for payment at a later date, the Deferred Compensation Plan also provides for us to make discretionary contributions to the participants. The amounts, timing and vesting of any such discretionary contributions will be determined +in the sole discretion of the Compensation Committee, as the administrator of the Deferred Compensation Plan. A description of the material terms of the Deferred Compensation Plan can be found in the section entitled “Executive +Compensation—Non-qualified Deferred Compensation Plan” in this proxy statement. +20 +Impact of Regulatory Requirements +Tax Deductibility of Compensation +Section 162(m) of the Code places a limit of $1,000,000 on the annual amount of compensation (other than compensation that qualifies as “qualified performance-based compensation”) that +publicly held companies may deduct for federal income tax purposes for certain executive officers. +The Compensation Committee +believes that tax deductibility is a factor to be considered in evaluating a compensation program. The Compensation Committee generally seeks to structure compensation in a manner that is intended to avoid the disallowance of deductions under +Section 162(m) of the Code. Nevertheless, when warranted due to competitive and other factors, the Compensation Committee may award compensation that exceeds the deductibility limit under Section 162(m) of the Code or otherwise pay +non-deductible compensation. +Internal Revenue Code Section 409A +Section 409A of the Code requires that “non-qualified deferred compensation” be deferred and paid under plans or +arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to +accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and programs for all +of our employees and other service providers, including the Named Executive Officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Code. +Accounting Standards +Financial Accounting Standards Board (“FASB”) ASC Topic 718 requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of restricted stock and stock +options under the 2007 Plan are accounted for under FASB ASC Topic 718. The Compensation Committee regularly considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to equity +compensation awards. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives. +Other Tax, Accounting and Regulatory Considerations +Many other Code provisions, SEC regulations and accounting rules affect the delivery of executive compensation and are generally taken into consideration as programs are developed. Our goal is to create +and maintain plans that are efficient and in full compliance with these requirements. +REPORT OF THE COMPENSATION COMMITTEE +The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (set forth above) with the +management of Skechers, and, based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and, through incorporation by +reference from this proxy statement, in Skechers’ Annual Report on Form 10-K for the year ended December 31, 2013. +Respectfully submitted, +Richard Siskind, Chairman +Morton Erlich +21 +EXECUTIVE COMPENSATION +The following table provides selected information concerning the compensation earned by our Principal Executive Officer, Principal +Financial Officer, and each of our three most highly compensated executive officers who served in positions other than Principal Executive Officer and Principal Financial Officer at the end of the last completed fiscal year (the “Named +Executive Officers”). +Summary Compensation Table +Name and +Principal Position +Year +Salary ($) +Non-Equity +Incentive Plan +Compensation ($)(1) +All Other +Compensation ($) +Total ($) +Robert Greenberg +2013 +2,000,000 +1,428,448 +50,747 +(2) +3,479,195 +Chairman of the Board and +2012 +1,750,000 +— +34,042 +1,784,042 +Chief Executive Officer +2011 +1,000,000 +562,500 +24,477 +1,586,977 +Michael Greenberg +2013 +1,500,000 +— +65,998 +(3) +1,565,998 +President and Director +2012 +1,500,000 +— +70,003 +1,570,003 +2011 +1,000,000 +375,000 +68,381 +1,443,381 +David Weinberg +2013 +1,325,000 +428,536 +81,688 +(4) +1,835,224 +Executive Vice President, +2012 +1,250,000 +— +73,794 +1,323,794 +Chief Operating Officer, Chief +Financial Officer and Director +2011 +1,000,000 +150,000 +73,579 +1,223,579 +Mark Nason +2013 +1,000,000 +357,113 +14,714 +(5) +1,371,826 +Executive Vice President of +2012 +1,000,000 +— +14,321 +1,014,321 +Product Development +2011 +1,000,000 +75,000 +22,380 +1,097,380 +Philip Paccione +2013 +550,000 +214,269 +23,564 +(6) +787,833 +Executive Vice President of +2012 +500,000 +— +17,203 +517,203 +Business Affairs, General +Counsel and Corporate Secretary +2011 +500,000 +— +17,000 +517,000 +(1) +Represents the cash awards that the Named Executive Officers earned under our 2006 Plan. Incentive compensation is paid quarterly based on performance levels that our +company achieved in the prior quarter. The amounts listed for each year exclude any bonuses earned by the Named Executive Officers in the previous year that were paid in the indicated year and include incentive compensation earned in the fourth +quarter of the indicated year that was paid in the following year. Additional information regarding the 2006 Plan is described in the section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +(2) +Represents health and life insurance payments of $17,078, and costs of $33,669 related to automobiles purchased by us for use by Mr. Greenberg. The aggregate +incremental costs of automobile usage are based on depreciation expense for an automobile purchased in 2012 and the automobile insurance premiums paid by us on behalf of Mr. Greenberg. +(3) +Represents health and life insurance payments of $23,203, costs of $42,797 related to automobiles purchased by us for use by Mr. Greenberg and automobile insurance +premiums paid by us on behalf of Mr. Greenberg. The aggregate incremental costs of automobile usage are based on depreciation expense for an automobile purchased in 2010, and the automobile insurance premiums paid by us on behalf of +Mr. Greenberg. +(4) +Represents health and life insurance payments of $22,005, monthly payments of country club membership dues equal to a total of $8,520, monthly payments of health club +membership fees equal to a total of $1,284, costs of $49,879 related to an automobile purchased by us for use by Mr. Weinberg. The aggregate incremental costs of automobile usage are based on depreciation expense for an automobile purchased in +2012, and the automobile insurance premiums paid by us on behalf of Mr. Weinberg. +(5) +Represents health and life insurance payments. +(6) +Represents health and life insurance payments of $22,280 and monthly payments of health club membership fees equal to a total of $1,284. +22 +Grants of Plan-Based Awards in Fiscal 2013 +The following table provides information about the estimated future payouts under non-equity incentive plan awards granted to the Named +Executive Officers in 2013, which consist of potential payouts under the 2006 Plan for the performance period covering fiscal 2013. The Named Executive Officers did not receive any other stock awards or option awards in 2013. +Estimated Future Payments Under +Non-Equity Incentive Plan Awards(1) +Name of Executive +Threshold ($) +Target ($) +Maximum ($) +Robert Greenberg +(1 +) +(1 +) +5,000,000 +Michael Greenberg +— +— +— +David Weinberg +(1 +) +(1 +) +5,000,000 +Mark Nason +(1 +) +(1 +) +5,000,000 +Philip Paccione +(1 +) +(1 +) +5,000,000 +(1) +These columns are intended to show the potential value of the payments for each Named Executive Officer under the 2006 Plan if the threshold, target or maximum goals +are satisfied for the performance measures. The potential payments are performance-driven and therefore completely at risk. There are no specific threshold or target amounts that can be determined with respect to any payouts of incentive +compensation under the 2006 Plan for fiscal 2013 because any amounts payable are determined on a quarterly basis based on pre-approved percentages for each Named Executive Officer multiplied by the amount, if any, that net sales for the applicable +quarter exceed net sales for the corresponding quarter in the previous year. Additional information regarding the business measurements and performance goals for determining the payments are described in the section entitled “ Compensation +Discussion and Analysis—Annual Incentive Compensation ” in this proxy statement. When determining the performance goals, the Compensation Committee did not place a limit on the non-equity incentive compensation that could be earned by +the Named Executive Officers in fiscal 2013; however, the maximum amount of incentive compensation that any Named Executive Officer may earn in a 12-month period under the 2006 Plan is $5,000,000. +Options Exercised and Stock Vested in Fiscal 2013 +During 2013, none of the Named Executive Officers acquired any shares upon the exercise of stock options or held any shares of restricted stock that vested. For additional information about equity awards, +see the description of equity-based compensation in the section entitled “ Compensation Discussion and Analysis ” in this proxy statement. +Outstanding Equity Awards at 2013 Fiscal Year-End +None of the Named +Executive Officers held any outstanding equity awards as of December 31, 2013. For additional information about equity awards, see the description of equity-based compensation in the section entitled “ Compensation Discussion and +Analysis ” in this proxy statement. +23 +Non-qualified Deferred Compensation Plan +The following table provides information about contributions to, aggregate earnings and account balances under, our Deferred Compensation +Plan, as more fully described below, in 2013. Other than David Weinberg, none of the other Named Executive Officers participated in our Deferred Compensation Plan during 2013. +Name of Executive +Executive +Contributions +in Last Fiscal +Year ($)(1) +Registrant +Contributions +in Last Fiscal +Year ($) +Aggregate +Earnings in +Last Fiscal +Year ($)(2) +Aggregate +Withdrawals/ +Distributions ($) +Aggregate Balance at +December 31, 2013 ($)(3) +David Weinberg +254,172 +— +18,400 +— +272,572 +(1) +The amount of the contributions made by the Named Executive Officer, as reported above, is also included in the Named Executive Officer’s compensation reported in +the Summary Compensation Table either as “Salary” or “Non-Equity Incentive Plan Compensation.” +(2) +The amount in this column represents the gains and losses by funds in which investments were made under the Deferred Compensation Plan. The aggregate earnings are not +reported in the Summary Compensation Table. +(3) +The aggregate balance at December 31, 2013, as reported above, reflects amounts that are currently reported as compensation in the Summary Compensation Table for +2013, except for the aggregate earnings on deferred compensation. +Under the Deferred Compensation Plan, +eligible employees, including our Named Executive Officers, are permitted to defer receipt of up to 75% of their base salary and 100% of their commissions and bonuses. A participant’s deferrals are deemed 100% vested at all times and are +credited to an account balance. This account balance represents a participant’s entire interest under the Deferred Compensation Plan. The Deferred Compensation Plan provides the opportunity for us to contribute additional discretionary +contributions to an eligible employee’s account if authorized by the Compensation Committee and subject to such terms and conditions as provided by the Compensation Committee. At present, however, the Compensation Committee has not authorized +any such contributions. +A participant shall receive his or her account balance following the first to occur of: (i) a +separation from service, (ii) a specified date elected by the participant, (iii) disability, (iv) death (with account balance distributed to a designated beneficiary) or (v) an unforeseeable emergency (as determined at the sole +discretion of the Compensation Committee). Generally, the account balance will be distributed in a single lump sum regardless of the payment event. If, however, a participant separates from service within two years following a change in control of +our company, or separates from service with five years of service and the sum of his or her age and years of employment is at least 65 years, payment of the participant’s account balance under the Deferred Compensation Plan may be made in a +series of payments over a period of two to ten years instead of a single lump sum (subject to a timely participant election). Similarly, if a participant has established one or more specified dates upon which to receive a distribution of his or her +account balance (or a portion thereof) or becomes disabled, payment of the participant’s account balance under the Deferred Compensation Plan may be made in a series of payments over a period of two to five years instead of a single lump sum +(subject to a timely participant election). +The Deferred Compensation Plan is an unfunded plan for tax purposes and for +purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. A “rabbi trust” has been established to satisfy our obligations under the plan. The Deferred Compensation Plan provides investment options, or fund +media, amongst which participants make investment allocations that provide the basis on which gains and losses are attributed to account balances under the plan, and such options may change from time to time. In 2013, the Deferred Compensation Plan +permitted participants to choose from among 36 investment options. The rates of return for the period from the plan’s effective date of May 1, 2013 to December 31, 2013 ranged from -10.13% to 30.71%. +24 +The investment options under the Deferred Compensation Plan and their rates of return for +the period from the plan’s effective date of May 1, 2013 to December 31, 2013 are provided in the following table. +Name of Investment Option +Rate of Return +May +1, 2013 – December 31, 2013 (%) +American Century VP Mid Cap Value - Class I Shares +15.26 +DWS Small Cap Index VIP - Class A Shares +23.79 +Davis Financial +15.82 +Fidelity VIP Balanced - Service Class 2 +11.22 +Fidelity VIP Contrafund - Service Class 2 +19.30 +Fidelity VIP Freedom 2005 - Service Class 2 +4.99 +Fidelity VIP Freedom 2010 - Service Class 2 +7.12 +Fidelity VIP Freedom 2015 - Service Class 2 +7.77 +Fidelity VIP Freedom 2020 - Service Class 2 +8.61 +Fidelity VIP Freedom 2025 - Service Class 2 +11.05 +Fidelity VIP Freedom 2030 - Service Class 2 +12.24 +Fidelity VIP Freedom 2035 - Service Class 2 +14.11 +Fidelity VIP Freedom 2040 - Service Class 2 +14.40 +Fidelity VIP Freedom 2045 - Service Class 2 +14.78 +Fidelity VIP Freedom 2050 - Service Class 2 +14.94 +Fidelity VIP Freedom Income - Service Class 2 +2.44 +Great-West MFS International Value +11.19 +Great-West T. Rowe Price Mid Cap Growth +21.61 +Invesco V.I. High Yield - Series I Shares +2.27 +Invesco V.I. International Growth - Series I Shares +12.96 +Invesco V.I. Utilities - Series I Shares +-5.07 +Janus Aspen Series Global Technology - Instl Shares +26.35 +MFS VIT Global Equity - Initial Class +15.80 +PIMCO VIT Real Return - Admin Class +-10.13 +PIMCO VIT Total Return - Admin Class +-3.57 +T. Rowe Price Health Sciences +27.11 +T. Rowe Price New America Growth +26.31 +Van Eck VIP Emerging Markets - Initial Class +2.90 +Van Eck VIP Global Hard Assets - Initial Class +12.55 +Vanguard VIF Diversified Value +14.70 +Vanguard VIF Equity Index +17.32 +Vanguard VIF International +16.65 +Vanguard VIF Mid-Cap Index +17.61 +Vanguard VIF Money Market +0.07 +Vanguard VIF Short-Term Investment-Grade +0.28 +Vanguard VIF Small Company Growth +30.71 +Vanguard VIF Total Bond Market Index +-3.14 +Change of Control Benefits +As of December 31, 2013, none of the Named Executive Officers held any shares of restricted stock or unvested stock options under our Amended and Restated 1998 Stock Option, Deferred Stock and +Restricted Stock Plan (the “1998 Stock Plan”) or the 2007 Plan, so they would not be entitled to receive any benefits upon a “change of control” under either of these plans. In addition, the Named Executive Officers would not be +entitled to any severance or other benefits in the event of their termination or a change of control. For additional information about change of control terms under the 2007 Plan, see the description provided in the section entitled +“ Compensation Discussion and Analysis ” in this proxy statement. +25 +Securities Authorized for Issuance Under Equity Compensation Plans +The following table provides information as of December 31, 2013 regarding compensation plans (including individual compensation +arrangements) under which our equity securities are authorized for issuance. +Plan Category +Number of securities to be +issued upon exercise of +outstanding +options, +warrants and rights +Weighted-average +exercise price +of +outstanding options, +warrants and rights +Number of securities +remaining available for +future issuance under equity +compensation +plans +(excluding securities +reflected in column (a)) +(a) +(b) +(c) +Equity compensation plans approved by security holders: +1998 Stock Plan +15,000 +$ +10.60 +— +2007 Plan +— +— +4,801,381 +2008 ESPP +— +— +2,061,197 +Total plans approved by security holders +15,000 +(1) +$ +10.60 +6,862,578 +(2) +Equity compensation plans not approved by security holders +— +— +— +Total +15,000 +6,862,578 +(1) +Amount does not include an additional 276,166 shares of restricted stock, which were awarded under the 2007 Plan, that were outstanding with a weighted-average grant +date fair value of $20.05. +(2) +The shares available for issuance under the 2007 Plan are available for issuance as restricted stock and other forms of equity-based compensation in addition to stock +options, warrants and rights. The number of shares available for future issuance under the 2008 Employee Stock Purchase Plan (the “2008 ESPP”) may be adjusted annually on January 1 for increases equal to the least of 500,000 shares, +1% of the outstanding shares of our capital stock on such date or a lesser amount as may be determined by our Board of Directors. The 1998 Stock Plan and the Amended and Restated 1998 Employee Stock Purchase Plan were terminated and no additional +granting of awards or rights under those plans was permitted after December 31, 2007. +Relationship of Risk to +Compensation Policies and Practices +In March 2014, our company’s management and Compensation Committee reviewed our +compensation policies and practices to determine whether any potential risks related to our compensation policies and practices for executives and other employees could encourage decision making that could expose our company to unreasonable risks of +material adverse consequences to our financial condition, results of operations or cash flows. The Compensation Committee discussed these potential pay risks with management and determined that any such pay risks do not expose our company to +unreasonable risks of material adverse consequences to our financial condition, results of operations or cash flows. +26 +REPORT OF THE AUDIT COMMITTEE +The Audit Committee consists of three non-employee directors who are independent under the standards adopted by the Board of Directors +and applicable NYSE Rules and SEC standards. The Audit Committee is responsible for oversight and evaluation of (i) the quality and integrity of Skechers’ financial statements, (ii) the performance of Skechers’ internal audit and +internal controls functions in addition to financial risk assessment and management applicable to Skechers, (iii) Skechers’ policies and procedures regarding transactions with related persons, (iv) the appointment, compensation, +independence and performance of Skechers’ independent registered public accounting firm, BDO USA, LLP (“BDO”), and (v) Skechers’ compliance with legal and regulatory requirements. +The Audit Committee has done the following: +• +it reviewed and discussed with Skechers’ management, internal finance staff, internal auditors and BDO, with and without management present, +Skechers’ audited financial statements for the fiscal year ended December 31, 2013, management’s assessment of the effectiveness of Skechers’ internal control over financial reporting, and BDO’s evaluation of Skechers’ +internal control over financial reporting; +• +it discussed with BDO the results of its examinations and the judgments concerning the quality, as well as the acceptability, of Skechers’ +accounting principles and such other matters that Skechers is required to discuss with its independent registered public accounting firm under applicable rules, regulations and U.S. generally accepted auditing standards (including Statement on +Auditing Standards 16, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board; and +• +it received from BDO the written disclosures and the letter from Skechers’ independent registered public accounting firm required by applicable +requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and discussed with BDO its independence from Skechers +and management, including a consideration of the compatibility of non-audit services with their independence, the scope of the audit and the fees paid to BDO during the year. +Based on our review and the discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited +financial statements for the year ended December 31, 2013 be included in Skechers’ Annual Report on Form 10-K for the year ended December 31, 2013 for filing with the SEC. +Respectfully submitted, +Morton Erlich, Chairman +Geyer Kosinski +Richard Siskind +INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Changes in Independent Registered Public Accounting Firm +On April 8, 2013, KPMG LLP (“KPMG”) notified us that KPMG was resigning, effective immediately, as our independent accountant. KPMG stated it had concluded it was not independent because of +alleged insider trading in our securities by one of KPMG’s former partners who was the KPMG engagement partner on our audit for the 2011 and 2012 fiscal years. KPMG advised us that it resigned as our independent accountant solely due to the +impairment of KPMG’s independence resulting from its now former partner’s alleged unlawful activities and not for any reason related to our financial statements, our accounting practices, the integrity of our management or for any other +reason. +27 +None of KPMG’s audit reports on our financial statements for the fiscal years ended +December 31, 2011 and 2012 or KPMG’s audit reports on the effectiveness of internal control over financial reporting as of December 31, 2011 and 2012 contained an adverse opinion or a disclaimer of opinion, nor was any such report +qualified or modified as to uncertainty, audit scope or accounting principles. In addition, at no point during the two fiscal years ended December 31, 2012 and the subsequent interim period through April 8, 2013 were there any +(1) disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreement(s), if not resolved to the satisfaction of KPMG, would have caused it to make +reference to the subject matter of the disagreement(s) in connection with its reports, or (2) “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K. +We provided KPMG with a copy of the disclosure set forth in Item 4.01 of the current report on Form 8-K that was filed with the SEC +on April 10, 2013 and requested that KPMG furnish us with a letter addressed to the SEC stating whether or not it agreed with the statements made therein, each as required by applicable SEC rules. A copy of the letter was filed as +Exhibit 16.1 with the current report on Form 8-K that was filed with the SEC on April 17, 2013. +Effective on +April 24, 2013, our Audit Committee approved the appointment of BDO USA, LLP (“BDO”) as our new independent registered public accounting firm to perform independent audit services for the fiscal year ended December 31, 2013, and +the re-audit our financial statements for the fiscal years ended December 31, 2011 and 2012 and the attestation of the effectiveness of our internal control over financial reporting as of December 31, 2012 under Section 404 of the +Sarbanes-Oxley Act of 2002, as amended (the “Re-audit”). During the fiscal years ended December 31, 2011 and 2012, and through April 24, 2013, neither our company, nor anyone on its behalf, consulted BDO regarding either +(i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered with respect to our consolidated financial statements, and no written report or oral +advice was provided to us by BDO that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a “disagreement” (as defined +in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K). +Fees to Independent Registered Public Accounting Firm for Fiscal Years 2013 and 2012 +BDO provided services for the fiscal years ended December 31, 2013 and 2012 in the categories and amounts as follows: +Service +2013 +2012 +Audit fees +$ +1,354,000 +(1) +$ +966,000 +(2) +Audit-related fees +— +— +Tax fees +93,000 +(3) +— +All other fees +— +— +Total audit and non-audit fees +$ +1,447,000 +$ +966,000 +(1) +These are fees for the audit of our annual financial statements and the review of our annual report on Form 10-K, the review of financial statements included in +our quarterly reports on Form 10-Q, the attestation of the effectiveness of internal controls under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and consultations regarding financial accounting and reporting, as well as for +services that are normally provided in connection with statutory and regulatory filings or engagements. +(2) +These are fees for the services provided in 2013 in connection with the Re-audit and the review of quarterly financial statements for 2012. This amount includes +$104,000 in additional fees that BDO requested and the Audit Committee approved in August 2013 for services that were provided in connection with the Re-audit, which were not included in the audit fees for the fiscal year ended December 31, +2012 that were originally disclosed in our amended annual report on Form 10-K/A filed with the SEC on July 31, 2013. +(3) +These are fees for U.S. federal, state and international tax compliance and tax consulting. +28 +KPMG provided services for the fiscal year ended December 31, 2013 and 2012 in the +categories and amounts as follows: +Service +2013 +2012 +Audit fees +— +$ +1,772,000 +(1) +Audit-related fees +— +— +Tax fees +80,000 +(2) +686,000 +(3) +All other fees +— +— +Total audit and non-audit fees +$ +80,000 +$ +2,458,000 +(1) +These are fees for the audit of our annual financial statements and the review of our annual report on Form 10-K, the review of financial statements included in +our quarterly reports on Form 10-Q, the attestation of the effectiveness of internal controls under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and consultations regarding financial accounting and reporting, as well as for +services that are normally provided in connection with statutory and regulatory filings or engagements. This amount also includes fees of $22,000 for services that were provided in 2013 to complete international statutory filings in connection with +the Re-audit. Of this amount, $490,000 remains unpaid as of April 30, 2014. +(2) +These are fees for services that were provided regarding international tax compliance. +(3) +These are fees for U.S. federal, state and international tax compliance and tax consulting. +Pre-Approval Policy +The Audit Committee’s Pre-Approval Policy +provides for pre-approval of specifically described audit, audit-related, tax and all other services by the Audit Committee in order to ensure that the provision of such services does not impair the independent registered public accounting +firm’s independence. The Pre-Approval Policy also provides a list of prohibited non-audit services. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, the requested +service will require specific pre-approval by the Audit Committee. The term of any pre-approved services is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will +periodically review and may revise the list of pre-approved services, based on subsequent determinations. Pre-approval fee levels for all services to be provided by the independent registered public accounting firm are established annually by the +Audit Committee after the independent registered public accounting firm’s appointment for the then current fiscal year has been approved by the Audit Committee. Any fees for proposed services exceeding these levels will also require specific +pre-approval by the Audit Committee. All services provided by our independent registered public accounting firms in 2013 were pre-approved in accordance with the Audit Committee’s pre-approval requirements. +Attendance at Annual Meeting +A representative of BDO will attend the Annual Meeting to make any statements he or she may desire and to respond to appropriate stockholder questions. +29 +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +The following table sets forth certain information regarding the beneficial ownership of Class A Common Stock and Class B +Common Stock as of March 31, 2014 by (i) each of our directors, (ii) each of our Named Executive Officers, (iii) each person that we know to be a beneficial owner of more than 5% of either class of our Common Stock and +(iv) all of our directors and executive officers as a group. +Each stockholder’s percentage of ownership in the +following table is based upon 40,234,743 shares of Class A Common Stock and 10,859,398 shares of Class B Common Stock outstanding as of March 31, 2014. Our Class B Common Stock is convertible at any time into shares of Class A +Common Stock on a one-for-one basis. Beneficial ownership is determined in accordance with SEC rules and regulations. In computing the number of shares of our Class A Common Stock beneficially owned by a person and the percentage of beneficial +ownership of that person, shares of Class A Common Stock underlying notes, options or shares of Class B Common Stock held by that person that are convertible or exercisable, as the case may be, within 60 days of March 31, 2014 are +included. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. To our knowledge, unless otherwise indicated in the footnotes to this table and subject to applicable community +property laws, each person named in the table has sole voting and investment power with respect to the shares of Class A and Class B Common Stock set forth opposite such person’s name. Unless otherwise indicated in the footnotes below, the +address of each beneficial owner listed below is c/o Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266. +Name of Beneficial Owner +Number of +Class A +Shares +Beneficially Owned +Percentage of +Class A +Shares +Beneficially Owned +Number of +Class B +Shares +Beneficially Owned +Percentage of +Class B +Shares +Beneficially Owned +5% stockholders: +FMR LLC +7,096,220 +(1) +17.6 +% +— +— +BlackRock, Inc. +3,434,659 +(2) +8.5 +— +— +Dimensional Fund Advisors LP +3,340,950 +(3) +8.3 +— +— +The Vanguard Group, Inc. +2,345,822 +(4) +5.8 +— +— +Gil Schwartzberg +4,804,636 +(5) +10.7 +4,804,636 +(6) +44.2 +% +Named Executive Officers and directors: +Robert Greenberg +4,350,979 +(7) +9.8 +4,311,748 +(8) +39.7 +% +Michael Greenberg +691,105 +(9) +1.7 +540,341 +(10) +5.0 +Jeffrey Greenberg +672,082 +(11) +1.7 +403,209 +(12) +3.7 +David Weinberg +141,290 +(13) +* +— +— +Mark Nason +26,382 +* +— +— +Philip Paccione +14,475 +* +— +— +Morton Erlich +10,500 +(14) +* +— +— +Geyer Kosinski +7,850 +* +— +— +Richard Rappaport +9,000 +* +— +— +Richard Siskind +61,333 +* +— +— +Thomas Walsh +— +— +— +— +All current directors and executive officers as a group (11 persons) +5,984,996 +13.2 +% +5,255,298 +48.4 +% +* +Less than 1.0% +(1) +Information is based on a Schedule 13G filed with the SEC on February 14, 2014 and represents the number of shares beneficially owned as of +December 31, 2013. Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR LLC (“FMR”) and an investment adviser registered under the Investment Advisers Act of 1940, beneficially owns +6,855,300 shares of Class A Common Stock. The ownership of one investment company registered under the Investment Company Act of 1940, Fidelity Growth Company Fund, amounted to 3,326,500 shares of Class A Common Stock. Edward C. Johnson +3d, Chairman of FMR, and FMR, through its control of Fidelity, and Fidelity’s funds each has sole power to +30 +dispose of the 6,855,300 shares owned by such funds. Neither FMR nor Mr. Johnson has the sole power to vote or direct the voting of the shares owned directly by Fidelity’s funds, which +power resides with the funds’ Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds’ Boards of Trustees. The principal business office of FMR, Fidelity and the noted funds is +located at 245 Summer Street, Boston, Massachusetts 02210. +(2) +Information is based on a Schedule 13G filed with the SEC on February January 30, 2014 and represents the number of shares beneficially owned +as of December 31, 2013. BlackRock, Inc. (“BlackRock”) has sole voting power with respect to 3,322,016 shares and sole dispositive power with respect to 3,434,659 shares held by the following subsidiaries: BlackRock Advisors (UK) +Limited, BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Asset +Management (Australia) Limited, BlackRock Investment Management (UK) Ltd and BlackRock Investment Management, LLC. The principal business office of BlackRock is located at 40 East 52 nd Street, New York, New York 10022. +(3) +Information is based on a Schedule 13G filed with the SEC on February 10, 2014 and represents the number of shares beneficially owned as of December 31, +2013. Dimensional Fund Advisors LP (“Dimensional”), in its capacity as an investment advisor under the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of +1940, and serves as investment manager to certain other commingled group trusts and separate accounts (collectively, the “Funds”). Dimensional has sole voting power with respect to 3,280,248 shares owned by the Funds and sole dispositive +power with respect to 3,340,950 shares owned by the Funds. The principal business office of Dimensional is located at Palisades West, Building One, 6300 Bee Cave Road, Austin, Texas 78746. +(4) +Information is based on a Schedule 13G filed with the SEC on February 11, 2014 and represents the number of shares beneficially owned as of December 31, +2013. The Vanguard Group, Inc. (“Vanguard”) has sole voting power with respect to 56,030 shares, of which 53,630 shares are held by its wholly-owned subsidiary, Vanguard Fiduciary Trust Company, for which Vanguard serves as investment +manager of collective trust accounts, and 2,400 shares are held by its wholly-owned subsidiary, Vanguard Investments Australia, Ltd., for which Vanguard serves as investment manager of Australian investment offerings. Vanguard has sole dispositive +power with respect to 2,292,192 shares and shared dispositive power with respect to 53,630 shares. The principal business office of Vanguard is located at 100 Vanguard Blvd., Malvern, Pennsylvania 19355. +(5) +Represents shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial ownership of these shares is described in greater detail in note 6 below. +(6) +Represents 364,366 shares of Class B Common Stock held by the Robert Y. Greenberg 2011 Annuity Trust, 364,366 shares of Class B Common Stock held by the M. Susan +Greenberg 2011 Annuity Trust, 537,952 shares of Class B Common Stock held by the Robert Y. Greenberg 2012 Annuity Trust, 537,952 shares of Class B Common Stock held by the M. Susan Greenberg 2012 Annuity Trust, 1,500,000 shares of Class B +Common Stock held by the Robert Y. Greenberg 2014 Annuity Trust, 1,500,000 shares of Class B Common Stock held by the M. Susan Greenberg 2014 Annuity Trust. Gil Schwartzberg may be deemed to beneficially own these shares as sole trustee of the +trusts, and Mr. Schwartzberg has sole voting power and sole dispositive power with respect to the shares held by these trusts. Mr. Schwartzberg disclaims beneficial ownership of any of these shares except to the extent of his pecuniary +interest therein. The principal business office of Mr. Schwartzberg is located at 269 S. Beverly Drive, Suite 1315, Beverly Hills, California 90212. +(7) +Includes 4,311,748 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis. Beneficial ownership of these shares is described in greater detail in note 8 below. +(8) +Represents shares of Class B Common Stock held by the Greenberg Family Trust (the “Trust”) that Robert Greenberg, our Chief Executive Officer and +Chairman of the Board, is deemed to beneficially own as a trustee of the Trust. His wife, Susan Greenberg, is also a trustee of the Trust and is also deemed to beneficially own all shares held by the Trust. +31 +(9) +Includes 540,341 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, and 63,738 shares of Class A Common Stock beneficially owned by Michael Greenberg, our President and a member of our Board of Directors, indirectly through his wife, Wendy Greenberg, +and their children. Mr. Greenberg disclaims beneficial ownership of these 63,738 shares except to the extent of his pecuniary interest therein. Beneficial ownership of the 540,341 shares of Class B Common Stock is described in greater detail in +note 10 below. +(10) +Represents 489,041 shares of Class B Common Stock held by the Michael and Wendy Greenberg Family Trust that Michael Greenberg is deemed to beneficially own as +trustee of such trust, and 51,300 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s minor children and of which a third party acts as trustee. Mr. Greenberg disclaims beneficial ownership of these +51,300 shares except to the extent of his pecuniary interest therein. +(11) +Includes 403,209 shares of Class B Common Stock that are convertible at any time into shares of Class A Common Stock on a one-for-one basis, 62,740 shares of Class A Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, which +is for the benefit of his two daughters who are minors, 1,448 shares of Class A Common Stock held by the Jeffrey and Lori Greenberg Family Trust that are his wife’s separate property, and 36,376 shares of Class A Common Stock held in +various trust accounts for Mr. Greenberg’s two daughters who are minors and of which Mr. Greenberg is deemed to beneficially own as trustee of such trusts. Mr. Greenberg disclaims beneficial ownership of the 1,448 shares that are +his wife’s separate property and the 62,740 shares held in the annuity trust except to the extent of his pecuniary interest therein. Beneficial ownership of the 403,209 shares of Class B Common Stock is described in greater detail in note 13 +below. +(12) +Represents 209,937 shares of Class B Common Stock held by the Jeffrey and Lori Greenberg Family Trust that Jeffrey Greenberg, a member of our Board of Directors, is +deemed to beneficially own as trustee of such trust, and 104,172 shares of Class B Common Stock held by the Jeffrey Greenberg 2012 GRAT that Mr. Greenberg is deemed to beneficially own as his wife is trustee of such annuity trust, which is for +the benefit of his two daughters who are minors. Also represents 70,816 shares of Class B Common Stock held in various trust accounts for Mr. Greenberg’s two daughters who are minors and of which Mr. Greenberg is deemed to +beneficially own as he or his wife is trustee of such trusts, and 10,792 shares of Class B Common Stock held by the Chloe July Greenberg custodial account and 7,492 shares of Class B Common Stock held by the Catherine Elle Greenberg custodial +account, for which one of his siblings acts as custodian. These custodial accounts are for the benefit of Mr. Greenberg’s two daughters who are minors, and he disclaims beneficial ownership of the 104,172 shares held in the annuity trust +and the 18,284 shares held in the two custodial accounts except to the extent of his pecuniary interest therein. +(13) +Includes 111,290 shares of Class A Common Stock that David Weinberg, our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of +our Board of Directors, is deemed to beneficially own as sole trustee of The David Weinberg Trust dated September 7, 2000. +(14) +Represents shares of Class A Common Stock held by The Erlich Family Trust that Morton Erlich, a member of our Board of Directors, is deemed to beneficially own as +a trustee of such trust. +COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 +Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than ten percent of a registered class +of our securities, to file with the SEC reports of initial ownership (Form 3’s) and reports of changes in ownership (Form 4’s and 5’s) of our securities. Officers, directors and greater than ten percent stockholders are required by +the SEC’s regulations to furnish us with copies of all Section 16(a) forms that they file. Based on our review of copies of Form 3’s, 4’s and 5’s furnished to us as well as communications with our officers, directors and +greater than ten percent stockholders, we believe that all of them complied with the filing requirements of Section 16(a) and we are not aware of any late or missed filings of such reports for the 2013 fiscal year, except that Richard Rappaport +filed a report on Form 4 on September 24, 2013, which was one business day late, with respect to a sale of shares, and Richard Siskind filed a report on Form 4 on December 17, 2013, which was one business day late, with respect to an +exercise of stock options. +32 +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the Audit Committee shall review (i) at least annually a summary of directors’ and +executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest (which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed +transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures as well as audit results associated with directors’ and executive officers’ +expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person +Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, (including any +indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (ii) we are a participant, and (iii) any Related Person has or will have a direct +or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related Person” is any (a) person who is or was (since the beginning of the last fiscal year +for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of Skechers, (b) greater than five percent beneficial owner of our +Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. +Certain categories of +transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with +Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be +appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or approval of a transaction with +a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at least an annual basis, shall +review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. +The +following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2013. Each of these transactions was reviewed, and approved or ratified by the Audit +Committee, pursuant to the policies and procedures discussed herein. +Related Person Transactions +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary +business of which is to own and operate the Shade Hotel in Manhattan Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael +Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2013, we paid +approximately $178,000 to the Shade Hotel for lodging, food and events that were held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not +have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in the Foundation. However, two officers +33 +and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the +Foundation. During the year ended December 31, 2013, we contributed $1,101,500 to the Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of +Skechers, and they earned total compensation of $247,356, $1,275,836, $724,485 and $233,255, respectively, during 2013. Jeffrey Greenberg was also a member of our Board of Directors in 2013, but did not earn any additional compensation for services +provided as a director. +Andrew Weinberg, who is the son of David Weinberg, is a non-executive employee of Skechers, and he +earned total compensation of $279,750 in 2013. +34 +NOMINATIONS AND STOCKHOLDER PROPOSALS FOR 2013 ANNUAL MEETING +Stockholder proposals intended to be presented at our next Annual Meeting of Stockholders to be held in 2015 must be +received at our principal executive offices no later than December 31, 2014 to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. Proposals must comply with the proxy rules relating to stockholder +proposals, in particular Rule 14a-8 under the Exchange Act, to be included in our proxy materials. Stockholders who wish to submit a proposal for consideration at our 2015 Annual Meeting of Stockholders, but who do not wish to submit a proposal +for inclusion in our proxy statement, must, in accordance with our bylaws, deliver a copy of their proposal no later than March 23, 2015, the close of business on the 60 th day, nor earlier than February 21, 2015, the close of business on the 90 th day in advance of the first anniversary of the preceding year’s +annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice must be delivered not earlier than the close of business on +the 90 th day prior to such annual meeting and not later +than the close of business on the later of the 60 th day +prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Company. In either case, proposals should be sent by certified or registered mail, return receipt +requested, to Skechers U.S.A., Inc., 228 Manhattan Beach Boulevard, Manhattan Beach, California 90266, Attention: General Counsel. +OTHER BUSINESS +Our Board of Directors does not know of any other matter +to be acted upon at the meeting. However, if any other matter shall properly come before the meeting, the proxyholders named in the proxy accompanying this proxy statement will have authority to vote all proxies in accordance with their discretion. +BY ORDER OF THE BOARD OF DIRECTORS +Philip G. Paccione, Corporate Secretary +Dated: April 30, 2014 +Manhattan Beach, California +35 +THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, +MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date To withhold authority to vote for any individual nominee(s), mark ?For All Except? and write the number(s) of the nominee(s) on +the line below. 0000212179_1 R1.0.0.51160 For Withhold For All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Geyer Kosinski 02 Richard Rappaport 03 Richard Siskind SKECHERS U.S.A., INC. 228 +MANHATTAN BEACH BLVD. MANHATTAN BEACH, CA 90266 ATTN: TED WEITZMAN VOTE BY INTERNET—www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day +before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS +If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic +delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE—1-800-690-6903 Use any touch-tone telephone +to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and +return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR the following proposal: For Against Abstain 2 Advisory Vote +on Compensation of Named Executive Officers. The Board of Directors recommends you vote AGAINST the following proposal: For Against Abstain 3 Stockholder Proposal to Eliminate Classification of Board of Directors. NOTE: Each of the person’s +named as proxies herein are authorized, in such person’s discretion, to vote upon such other matters as may properly come before the Annual Meeting of Stockholders, or any adjournments thereof. Please sign exactly as your name(s) appear(s) +hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or +partnership name, by authorized officer. For address change/comments, mark here. (see reverse for instructions) Yes No Please indicate if you plan to attend this meeting +0000212179_2 R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, +Notice & Proxy Statement is/ are available at www.proxyvote.com . SKECHERS U.S.A., INC. Annual Meeting of Stockholders Thursday May 22, 2014 11:00 AM This proxy is solicited by the Board of Directors The undersigned stockholder(s) of Skechers +U.S.A., Inc. a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 30, 2014, and hereby appoints Morton Erlich and Richard Siskind and each of them, with full power +of substitution, as attorneys-in-fact and proxies for, and in the name and place of, the undersigned, and hereby authorizes each of them to represent and to vote all of the shares which the undersigned is entitled to vote at the Annual Meeting of +Stockholders of Skechers U.S.A., Inc. to be held at our corporate offices located at 330 South Sepulveda Boulevard, Manhattan Beach, California 90266, on Wednesday, May 22, 2014, at 11:00 a.m. Pacific time, and at any adjournments thereof, upon the +matters as set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement, receipt of which is hereby acknowledged. Directions to the Annual Meeting may be found by going to the annual meeting section of the investor relations page of +our corporate information website at www.skx.com/investor.jsp. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED +STOCKHOLDER(S). IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1, FOR APPROVAL OF PROPOSAL 2, AGAINST APPROVAL OF PROPOSAL 3, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES +HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING. (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Address change/comments: Continued and to be signed on reverse +side \ No newline at end of file diff --git a/raw/proxies/0001065837/0001193125-14-172215/proxy_rpt.txt b/raw/proxies/0001065837/0001193125-14-172215/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..671cc7b30873bd640014b208e10165f4052714d1 --- /dev/null +++ b/raw/proxies/0001065837/0001193125-14-172215/proxy_rpt.txt @@ -0,0 +1,38 @@ +TRANSACTIONS WITH RELATED PERSONS +Policies and Procedures +As provided in our Audit Committee Charter, the Audit Committee shall review (i) at least annually a summary of directors’ and +executive officers’ related party transactions and potential conflicts of interest and our policies relating to the avoidance of conflicts of interest (which is discussed in our Code of Business Conduct and Ethics), (ii) past and proposed +transactions between our company, on the one hand, and any of our directors or executive officers, on the other hand, and (iii) policies and procedures as well as audit results associated with directors’ and executive officers’ +expense accounts and perquisites, including the use of corporate assets. +Our Policies and Procedures for Related Person +Transactions (the “Policy”), which was adopted by the Board of Directors as of March 8, 2007, covers any transaction, arrangement or relationship, or series of similar transactions, arrangements or relationships, (including any +indebtedness or guarantee of indebtedness) in which (i) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (ii) we are a participant, and (iii) any Related Person has or will have a direct +or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity). A “Related Person” is any (a) person who is or was (since the beginning of the last fiscal year +for which we have filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director of Skechers, (b) greater than five percent beneficial owner of our +Class A or Class B Common Stock or (c) immediate family member of either of the foregoing. +Certain categories of +transactions with Related Persons (such as transactions involving competitive bids) have been reviewed and pre-approved by the Audit Committee under the Policy. The Audit Committee shall review the material facts of all other transactions with +Related Persons that require the Committee’s approval. If advance approval by the Audit Committee of a transaction with a Related Person is not feasible, then the transaction shall be considered and, if the Committee determines it to be +appropriate, ratified at the Committee’s next regularly scheduled meeting. Factors that the Audit Committee will take into account include whether the transaction with a Related Person is on terms no less favorable than terms generally +available to an unaffiliated third-party under the same or similar circumstances and the extent of the Related Person’s interest in the transaction. No Audit Committee member shall participate in any discussion or approval of a transaction with +a Related Person pursuant to which he is a Related Person except for providing material information concerning the transaction. For those transactions with a Related Person that are ongoing, the Audit Committee, on at least an annual basis, shall +review and assess ongoing relationships with the Related Person to determine that the Related Person remains appropriate. +The +following list of transactions with Related Persons includes all such transactions equal to or greater than $120,000 that took place since January 1, 2013. Each of these transactions was reviewed, and approved or ratified by the Audit +Committee, pursuant to the policies and procedures discussed herein. +Related Person Transactions +Michael Greenberg owns a 12% beneficial ownership interest in Manhattan Inn Operating Company, LLC (“MIOC”), the primary +business of which is to own and operate the Shade Hotel in Manhattan Beach, California. David Weinberg, who is our Chief Operating Officer, Chief Financial Officer, Executive Vice President and a member of our Board of Directors, and Michael +Greenberg’s brothers Jeffrey Greenberg, who is a director of Skechers, and Jason and Joshua Greenberg, all of whom are senior vice presidents of Skechers, own in aggregate a 17% beneficial ownership interest in MIOC. During 2013, we paid +approximately $178,000 to the Shade Hotel for lodging, food and events that were held there including our annual holiday party. +On July 29, 2010, we formed Skechers Foundation (the “Foundation”), which is a 501(c)(3) non-profit entity that does not +have any shareholders or members. The Foundation is not a subsidiary of and is not otherwise affiliated with Skechers, and Skechers does not have a financial interest in the Foundation. However, two officers +33 +and directors of Skechers, Michael Greenberg who is our President and David Weinberg who is our Chief Operating Officer and Chief Financial Officer, are also officers and directors of the +Foundation. During the year ended December 31, 2013, we contributed $1,101,500 to the Foundation to use for various charitable causes. +Jeffrey Greenberg, Jason Greenberg, Joshua Greenberg and Jennifer Greenberg Messer, who are the children of Robert Greenberg and also the siblings of Michael Greenberg, are non-executive employees of +Skechers, and they earned total compensation of $247,356, $1,275,836, $724,485 and $233,255, respectively, during 2013. Jeffrey Greenberg was also a member of our Board of Directors in 2013, but did not earn any additional compensation for services +provided as a director. +Andrew Weinberg, who is the son of David Weinberg, is a non-executive employee of Skechers, and he +earned total compensation of $279,750 in 2013. +34 \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-03-012961/proxy.txt b/raw/proxies/0001168054/0001047469-03-012961/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..8f765be83b184034192336d2aec34281c76ebaf3 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-03-012961/proxy.txt @@ -0,0 +1,1589 @@ +DEF 14A +1 +a2107841zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +SCHEDULE 14A INFORMATION +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement +number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +CIMAREX ENERGY CO. +707 Seventeenth Street, Suite 3300 +Denver, Colorado 80202-3404 +April 21, 2003 +Fellow +stockholders: +We +invite you to attend our annual meeting on May 28, 2003, in Denver, Colorado. Following the meeting, we will report on our operations and you will have a chance to meet the +directors and officers. +This +booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about the agenda and procedures for the meeting. It also describes how +the Board operates and gives personal information about our director candidates. +We +are sure that you, like most people, lead a busy life and are tempted to put this proxy aside for another day. Please don't delay. Even if you only own a few shares, we want your +shares to be represented at the meeting. Also, when stockholders do not return their proxies, we incur additional expenses to pay for follow-up mailings and telephone calls. +Please +take a few minutes today to review this proxy statement and record your vote. To make voting easier, you may vote by telephone or on the Internet by following the instructions +that appear on the enclosed proxy card. +If +you have any questions regarding the issues to be voted on or need assistance in recording your vote, please call us at 303-295-3995. You may also call our +proxy solicitor, Georgeson Shareholder Communications, Inc. toll-free at 866-288-2196. Thank you for investing in Cimarex and for your continuing support. +Sincerely yours, +F.H. Merelli +Chairman, President and +Chief Executive Officer +CIMAREX ENERGY CO. +707 Seventeenth Street, Suite 3300 +Denver, Colorado 80202-3404 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 28, 2003 +To the Stockholders of Cimarex Energy Co.: +The +Annual Meeting of Stockholders of Cimarex Energy Co., a Delaware corporation, will be held at 2:00 p.m., Mountain Daylight Time, on Wednesday, May 28, 2003, at the +Denver Marriott City Center, located at 1701 California Street, Denver, Colorado, to consider and act upon the following proposals: +1. To +elect three members of the Board of Directors of Cimarex as Class I directors with terms expiring at the Annual Meeting of Stockholders to be held in 2006. +2. To +ratify and approve the Cimarex Energy Co. 2002 Stock Incentive Plan in order for Cimarex to obtain the federal income tax deduction benefits under Section 162(m) of the +Internal Revenue Code, as amended. +3. To +transact such other business as may properly come before the Annual Meeting or any adjournment thereof. +Only +stockholders of record at the close of business on April 11, 2003 are entitled to notice of and to vote at the Annual Meeting. All stockholders are cordially invited to +attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, you are urged to vote in one of the following ways whether or not you plan to attend the Annual +Meeting: (1) by completing, signing and dating the accompanying proxy card and returning it in the postage-prepaid envelope enclosed for that purpose, (2) by completing your proxy using +the toll free number listed on the proxy card, or (3) by completing your proxy on the Internet at the address listed on your proxy card. You may revoke your proxy in the manner described in the +accompanying Proxy Statement at any time before it has been +voted at the Annual Meeting. Any stockholder attending the Annual Meeting may vote in person even if he or she has returned a proxy. +By Order of the Board of Directors, +Mary K. Rohrer +Assistant Corporate Secretary +CIMAREX ENERGY CO. +707 Seventeenth Street, Suite 3300 +Denver, Colorado 80202-3404 +PROXY STATEMENT +FOR ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 28, 2003 +The Board of Directors of Cimarex Energy Co. is soliciting proxies to be used at the 2003 Annual Meeting. This proxy statement and form of proxy will be mailed to +stockholders on approximately April 21, 2003. +ATTENDANCE AND VOTING MATTERS +THE MEETING +Date: +May 28, 2003 +Time: +2:00 p.m., Mountain Daylight Time +Place: +Denver Marriott City Center +1701 California Street +Denver, Colorado +Purpose: +• +To elect three (3) directors (Proposal No. 1); +• +To ratify and approve the Cimarex Energy Co. 2002 Stock Incentive Plan (Proposal No. 2) in order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue Code; and +• +To conduct other business if properly raised. +WHO MAY VOTE +Stockholders of record as of April 11, 2003, may vote at the meeting. +HOW TO VOTE +We provide several options to make it easier for you to cast your vote. You may vote on matters presented at the meeting in any one of the following four ways: +• You +may vote by telephone by following the instructions on either the enclosed proxy card or voting instruction form; or +• You +may vote on the Internet by following the instructions on the enclosed proxy card; or +• You +may vote by signing and returning the enclosed proxy card in the postage paid envelope provided; or +• You +may come to the Annual Meeting and cast your vote there. +We +recommend you vote by proxy even if you plan to attend the meeting. You may always change your vote at the meeting. +Each +share of Cimarex Energy Co. common stock you own as of the April 11, 2003 record date entitles you to one vote. The number of shares you own is shown on your proxy card +beneath and to the right of your name. As of April 1, 2003, there were 41,518,214 shares of Cimarex Energy Co. common stock outstanding. +HOW PROXIES WORK +Our Board of Directors is asking for your proxy. When you execute and deliver your proxy to us, you authorize us to vote your shares at the meeting in the manner +you direct. With respect to Proposal 1, Election of Directors, you may vote for all, some or none of our director candidates. With respect to Proposal 2, Ratification and Approval of the +2002 Stock Incentive Plan, you may vote in favor of, against or abstain from voting. +If +you sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of our director candidates and for ratification and approval of the +Cimarex Energy Co. 2002 Stock Incentive Plan in order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue Code, as amended. +You +may receive more than one proxy or voting card depending on how you hold your shares. If you hold shares through someone else, such as a stockbroker, you may receive material from +them asking how you want to vote your shares. Please vote each proxy you receive. +PROXY SOLICITATION +The enclosed proxy is solicited by the Board of Directors. This proxy material is being mailed to the holders of common stock on or about April 21, 2003. +In addition to solicitation by mail, solicitation of proxies may be made by certain officers and regular employees of Cimarex by mail, telephone or in person. Cimarex also has retained Georgeson +Shareholder to aid in the solicitation of brokers, banks, intermediaries, and other institutional holders in the United States for a fee not to exceed $10,000 plus +out-of-pocket expenses. All costs of the solicitation of proxies will be borne by Cimarex. Cimarex also reimburses brokerage firms and others for their expenses in forwarding +proxy materials to beneficial owners of common stock. +REVOKING A PROXY +You may revoke your proxy before it is voted by submitting a new proxy with a later date (either by telephone, on the Internet, or by returning a new proxy card), +by voting in person at the meeting, or by notifying our Assistant Corporate Secretary in writing at the address listed on the front of this booklet. +THE QUORUM REQUIREMENT +In order to conduct business at the meeting, we must have a quorum. This means that at least a majority (greater than 50%) of the outstanding shares of common +stock as of the record date must be represented in person or by proxy at the meeting. Abstentions and broker non-votes are counted as present for establishing a quorum. Broker +non-votes occur when a broker returns a proxy but does not have authority to vote on a particular proposal. If a quorum is not present at the meeting, a vote for adjournment will be taken +among the stockholders present or represented by proxy. If a majority of the stockholders present or represented by proxy vote for adjournment, it is our intention to adjourn the meeting until a later +date and to vote proxies at such adjourned meeting. +VOTES NEEDED +Directors will be elected by a plurality of the votes. A "plurality" means that the three director nominees receiving the most "FOR" votes will be elected as +Class I directors. The proposal authorizing the ratification and approval of the Cimarex Energy Co. 2002 Stock Incentive Plan will be approved if a majority of the shares present and entitled +to vote are voted in favor of the proposal. Broker non-votes count for quorum purposes but not for voting purposes. Abstentions have the effect of votes cast against the proposal. You are +not allowed to cumulate votes in the election of directors. +2 +TABULATION OF VOTES +Continental Stock Transfer & Trust Company, New York, New York, our stock transfer agent, will receive proxies and ballots, tabulate the vote, determine +whether a quorum exists and serve as inspector of election at the meeting. +CIMAREX 401(k) PARTICIPANTS +If you are a participant in the Cimarex Energy Co. 401(k) Plan, you will receive a proxy card for the Cimarex shares you own through the +401(k) Plan. That proxy card will serve as a voting instruction card for the trustee of the 401(k) Plan, and your 401(k) Plan shares will be voted as you instruct. If you do not sign and +return your proxy card to indicate your instructions, the 401(k) Plan trustee will vote your 401(k) Plan shares in the same proportion as the shares were voted by other +401(k) Plan participants. +HISTORY OF CIMAREX +Cimarex is an independent oil and gas exploration and production company. Cimarex was formed in February 2002 as a wholly owned subsidiary of +Helmerich & Payne, Inc. In July 2002, Helmerich & Payne contributed its oil and gas exploration and production operations and the common stock of its wholly owned gas +marketing subsidiary to Cimarex. On September 30, 2002, Helmerich & Payne distributed in the form of a dividend to its stockholders approximately 26.6 million shares of common +stock. As a result, Cimarex was spun-off and became a stand-alone company. +Also +on September 30, 2002, Cimarex acquired 100 percent of the outstanding common stock of Key Production Company, Inc. in a tax-free reorganization. +Each of the 14.1 million shares of Key common stock outstanding immediately prior to the reorganization was converted into the right to receive Cimarex common stock on a +one-for-one basis. Key continues to conduct exploration and development activities as a wholly owned subsidiary of Cimarex. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS +AND MANAGEMENT +We currently have one class of voting securities outstanding. On April 1, 2003, there were 41,518,214 shares of our common stock outstanding, with each +such share being entitled to one vote. +Management +The following table shows, as of April 1, 2003, the number of shares of our common stock beneficially owned by each director and nominee, each of the +executive officers named in the Summary +3 +Compensation Table set forth under the caption "Executive Compensation," and all directors and executive officers as a group. +Name of Beneficial Owner +Shares +Owned(1) +Restricted +Stock(2)(3) +Option +Shares(4) +Beneficial +Ownership +Total +Percent of +Class +F.H. Merelli +233,251 +211,200 +375,000 +819,451 +2.0 +% +Glenn A. Cox +3,186 +— +— +3,186 +* +Cortlandt S. Dietler +103,500 +— +42,500 +146,000 +* +Hans Helmerich +107,976 +(5) +— +— +107,976 +(5) +* +David A. Hentschel +2,000 +— +— +2,000 +* +Paul D. Holleman +2,000 +— +45,000 +47,000 +* +L.F. Rooney, III +17,537 +— +— +17,537 +* +Michael J. Sullivan +— +— +— +— +* +L. Paul Teague +44,170 +— +6,667 +50,837 +* +Steven Shaw +15,872 +45,500 +435,830 +497,202 +1.2 +% +Paul Korus +8,048 +45,500 +65,000 +118,548 +* +Thomas E. Jorden +7,369 +45,500 +59,000 +111,869 +* +Joseph R. Albi +5,901 +45,500 +59,000 +110,401 +* +Stephen P. Bell +4,767 +45,500 +62,500 +112,767 +* +All directors and executive officers as a group (15 persons) +555,577 +453,900 +1,150,497 +2,159,974 +5.1 +% +(1) Includes +equivalent shares of common stock held by the trustee for the benefit of employee participants in the Cimarex Energy Co. 401(k) Plan. Participants in this plan instruct the +trustee as to how the participant's equivalent shares should be voted. Excludes restricted stock and shares issuable upon the exercise of options. +(2) Restricted +shares of common stock awarded under the Cimarex Energy Co. 2002 Stock Incentive Plan. These shares may be voted, but are subject to risk of forfeiture. +(3) Cimarex +has offered to its executive officers and other holders of restricted stock the option to exchange their restricted stock awards for stock units. The offer to exchange covers +659,800 shares of restricted stock. Any exchange for stock units will reduce the number of outstanding shares of common stock by the number of shares of restricted stock exchanged. +(4) Shares +of common stock that could be purchased by the exercise of stock options as of April 1, 2003, under the Cimarex Energy Co. 2002 Stock Incentive Plan. +(5) Includes +11,450 shares held by Mr. Helmerich's spouse and 7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee. +Mr. Helmerich disclaims beneficial ownership of these shares. +* Less +than one percent of the outstanding shares of Cimarex stock. +4 +Principal Holders of Securities +As of December 31, 2002, the only stockholders who owned beneficially more than 5% of the outstanding shares of our common stock, based on Schedules 13G +filed by the reporting person with the Securities and Exchange Commission, were as follows: +Voting Authority +Dispositive Authority +Name and Address +Total Amount of +Beneficial +Ownership +Percent of +Class +Sole +Shared +Sole +Shared +Wellington Management Company, LLP +75 State Street +Boston, MA 02109 +— +2,720,574 +— +3,323,540 +3,323,540 +8.0 +% +Perkins, Wolf, McDonnell & Company +310 S. Michigan Ave. Suite 2600 +Chicago, IL 60604 +20,900 +2,517,651 +20,900 +2,517,651 +2,538,551 +6.1 +% +State Farm Mutual Automobile Insurance Company +One State Farm Plaza +Bloomington, IL 61710 +2,194,205 +— +2,194,205 +— +2,194,205 +5.3 +% +PROPOSAL NO. 1 +ELECTION OF DIRECTORS +The Board of Directors and its committees oversee the management of Cimarex on your behalf and review our long-term strategic plans. Three directors +are to be elected at the Annual Meeting. Our Certificate of Incorporation provides for a classified Board of Directors divided into three classes: Class I, Class II and Class III, +the terms of office of which are currently scheduled to expire, respectively, on the dates of our Annual Meeting of Stockholders to be held in 2003, 2004 and 2005. +The +terms of the three Class I directors, F.H. Merelli, Paul D. Holleman and Michael J. Sullivan, will expire at the 2003 Annual Meeting. Messrs. Merelli, Holleman and +Sullivan have each been nominated to stand for reelection at the meeting to hold office until our 2006 Annual Meeting and thereafter until their respective successors are duly elected and qualified. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class I nominees named above to serve for three years or until their successors are +duly elected and qualified. If, prior to the Annual Meeting, one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted +for the remaining nominees and for any substitute nominee or nominees designated by our Board of Directors or its Governance Committee. As of the mailing of these proxy materials, the Board of +Directors knows of no reason why any director nominee would not be available to serve as a director. +Information +concerning the nominees selected by our Board of Directors, as well as each of our other current directors, is set forth below: +CLASS I DIRECTOR—NOMINEES +F.H. MERELLI , 67, was elected Chairman of the Board, Chief Executive Officer, President and a director of Cimarex +on September 30, 2002. Mr. Merelli had been with Key since September 9, 1992. During his tenure at Key, he continuously held the offices of Chairman and Chief Executive Officer. +From March 2002 until September 30, 2002, and prior to September 1999, he also held the office of President. From July 1991 to September 1992, Mr. Merelli was +engaged as a private consultant in the oil and gas industry. Mr. Merelli was President and Chief Operating Officer of Apache Corporation and President, Chief Operating Officer and a director of +Key from June 1988 to July 1991, at which +5 +time he resigned from those positions in both companies. He was President of Terra Resources, Inc. from 1979 to 1988. Mr. Merelli has been a director of Apache Corporation since +July 1997. +PAUL D. HOLLEMAN , 72, was elected a director of Cimarex on September 30, 2002 and is a member of the Audit Committee. +Mr. Holleman served as a director of Key from April 2001 through September 30, 2002. He retired in 2000 from his position as senior partner of Holme Roberts & Owen LLP, a +Denver law firm. At Holme Roberts he served as legal counsel to Key and other oil and gas companies. Other positions in his 40 years with Holme Roberts included Chairman of the Natural +Resources Department and member of the Executive Committee. He was President of Inter-American Petroleum Corporation in 1970 and 1971 and was a director of Janus Fund in those same years. He is +past Chairman of the Mineral Law Section of the Colorado Bar Association, past Chairman of the Rocky Mountain Mineral Law Institute and past Chairman of the American Bar Association Public +Lands Committee of the Natural Resources Section. +MICHAEL J. SULLIVAN , 63, was elected a director of Cimarex on September 30, 2002, and is a member of the Audit Committee. +Mr. Sullivan has been Special Counsel with Rothgerber Johnson & Lyons LLP since 2001. From 1998 until 2001, Mr. Sullivan served as the United States Ambassador to Ireland. From +1964 to 1986 and from 1995 until 1998, Mr. Sullivan practiced law with the firm of Brown, Drew, Apostolos, Massey & Sullivan. During 1987 through 1995, Mr. Sullivan served as +Governor of the State of Wyoming. Mr. Sullivan also serves as a director of Allied Irish Bank Group and AllFirst Bank. +A plurality of the votes represented at the Annual Meeting by shares of our common stock entitled to vote is required to elect the Class I nominees as +directors. +Our Board of Directors Recommends You Vote FOR these nominees. +CLASS II DIRECTORS SERVING UNTIL 2004 +Cortlandt S. Dietler , 81, was elected a director of Cimarex on September 30, 2002 and was elected chairman +of the Audit Committee in December 2002. Mr. Dietler was a member of the Board of Directors of Key from September 9, 1992 through September 30, 2002. He has been the +Chairman of the Board of TransMontaigne, Inc. since April 1995. Mr. Dietler was Chief Executive Officer of TransMontaigne from April 1995 through September 1999. The +principal business of TransMontaigne, Inc. (through its various operating subsidiaries) is to provide refined petroleum product, terminaling and storage services and the bulk purchase and sale +and wholesale marketing of refined petroleum products. Mr. Dietler was the founder, Chairman and Chief Executive Officer of Associated Natural Gas Corporation prior to its 1994 merger with +Panhandle Eastern Corporation (now Duke Energy Corporation). He also serves as a director of Hallador Petroleum Company, Forest Oil Corporation and Carbon Energy Corporation. Mr. Dietler is a +member of the National Petroleum Council and a director of the American Petroleum Institute and was a director of Independent Petroleum Association of America and a director, past President and life +member of the Rocky Mountain Oil & Gas Association. +Hans Helmerich , 44, was elected a director of Cimarex on February 14, 2002. Mr. Helmerich has been a member of the board of +directors of Helmerich & Payne since 1987. Mr. Helmerich has served as the President and Chief Executive Officer of Helmerich & Payne since 1989. Mr. Helmerich also serves +as a director of Atwood Oceanics, Inc. +L.F. Rooney, III , 49, was elected a director of Cimarex on September 30, 2002 and is a member of the Governance Committee. +Mr. Rooney has been Chairman of the Board and Chief Executive Officer of Rooney Brothers Co. since 1984. Mr. Rooney has been Chairman of the Board of Manhattan Construction Company since +1994 and served as its Chief Executive Officer from 1982 to 1994. Mr. Rooney also serves as a director of Helmerich & Payne, BOK Financial Corp. and Bank of Oklahoma, N.A., of which he +is also a member of the Compensation Committee. +6 +CLASS III DIRECTORS SERVING UNTIL 2005 +Glenn A. Cox , 73, was elected a director of Cimarex on September 30, 2002 and is a member of the Audit +Committee. Mr. Cox was President and Chief Operating Officer of Phillips Petroleum Company from June 1985 until his retirement in 1991. From June 1980 to May 1985, +Mr. Cox served as Chief Financial Officer of Phillips Petroleum Company, with responsibility for all corporate financial matters. This area of responsibility included treasury, comptrollers, +computing, insurance, operations analysis and control and financial relations. From January 1974 to June 1980, he served as Vice President, Management Information and Control with his +area of responsibility including comptrollers, computing and operations analysis and control. Mr. Cox has previously served on the Audit Committees of The Williams Companies and Union Texas +Petroleum. Mr. Cox currently serves as a director and a member of the Audit Committee of Helmerich & Payne. +David A. Hentschel , 69, was elected a director of Cimarex on September 30, 2002 and is a member of the Governance Committee. +Mr. Hentschel served as Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until his retirement in 1999, at which time he was retained as a consultant to the +company. From 1995 until 1997, Mr. Hentschel served as President and Chief Executive Officer of Canadian Occidental Petroleum Ltd., since renamed Nexen Inc. Mr. Hentschel +also serves as a director of Nexen Inc. +L. Paul Teague , 68, was elected a director of Cimarex on September 30, 2002 and was elected Chairman of the Governance Committee in +December 2002. Mr. Teague was a member of the board of directors of Key from August 20, 1996 through September 30, 2002. He retired in 1994 from his position as Vice +President, Western Region, Texaco Exploration & Producing Inc. in Denver. Other positions in his 35 years with Texaco included Division Manager of the New Orleans Division, +Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. His industry affiliations include: Chairman +of the API Executive Committee on Drilling and Production Practices; President of the Colorado Petroleum Association; director and Executive Committee member of the Rocky Mountain Oil & Gas +Association; and Executive Committee member of the Louisiana Oil & Gas Association. +Committees of the Board of Directors +The Board of Directors of Cimarex currently has an Audit Committee and a Governance Committee. The Audit Committee and the Governance Committee are comprised +entirely of independent directors who are not also employees of Cimarex. +Audit Committee. The Audit Committee was formed on September 30, 2002, and consists of four directors: Glenn A. Cox, +Cortlandt S. Dietler, Paul D. Holleman and Michael J. Sullivan. Mr. Dietler serves as Chairman of the Audit Committee. Each of the members of the Audit Committee are independent as that term is +defined in the New York Stock Exchange listing standards. The Audit Committee recommends to the Board of Directors the independent public accountants to act as auditors for Cimarex, reviews our +financial statements and earnings press releases, confers with the independent auditors with respect to the scope and results of their audit of our financial statements and reports thereon, reviews +our accounting policies and internal controls, and reports regularly to the Cimarex Board of Directors the results of Audit Committee meetings. The Audit Committee also reviews non-audit +services furnished to Cimarex by the independent auditors. The Audit Committee operates under the Audit Committee Charter, approved by the Board of Directors on September 30, 2002, a copy of +which is included as Appendix A to this proxy statement. The report of the Audit Committee is included in this Proxy Statement under the caption "Report of Audit Committee." +Governance Committee. The Governance Committee was formed on September 30, 2002, and consists of three independent +directors: David A. Hentschel, L.F. Rooney, III and L. Paul Teague. +7 +Mr. Teague serves as Chairman of the Governance Committee. During 2002, there were no Governance Committee interlocks with any other entity. +The +Governance Committee proposed to the Board of Directors the slate of directors to be elected at the Annual Meeting. The Governance Committee did not receive any additional +nominations from any stockholder prior to the printing and distribution of this proxy statement. No additional nominations will be considered by the Governance Committee for the 2003 Annual Meeting. +The +time period for submission by stockholders of nominations for directors to be elected at the 2004 Annual Meeting is provided under the caption "Stockholder Proposals" in this proxy +statement. +The +Governance Committee operates under the Governance Committee Charter that was approved by the Board of Directors in 2002. The Governance Committee has two principal functions: +(i) nominating and governance and (ii) compensation. The principal purpose of the nominating and governance function is to ensure that the Board of Directors is appropriately constituted +to meet its fiduciary obligations to stockholders. The principal purpose of the compensation function is to assist the Board of Directors in discharging its responsibilities in respect of compensation +of our executive officers and +to produce an annual report on executive compensation. The report of the Governance Committee on executive compensation is included in this proxy statement under the caption "Governance Committee +Report on Executive Compensation." +Meetings of the Board and Committees +During the period September 30, 2002 through December 31, 2002, the Board of Directors, the Audit Committee and the Governance Committee each held +two meetings which were attended by all directors and members of the respective Committees. +Compensation of Directors +Board members who are not employees receive $20,000 per year for serving on the Board, $1,500 for each Board meeting attended and $1,000 for each committee +meeting attended. A Board member who serves as Chairman of a committee receives an additional $5,000 annual fee. Board members are reimbursed for their actual expenses related to attending Board +meetings. Non-employee directors also receive director compensation in the form of stock options granted under the Cimarex Energy Co. 2002 Stock Incentive Plan. In October 2002, +Cimarex granted options to each of the non-employee directors to acquire 10,000 shares of Cimarex stock at an exercise price of $17.22 per share. +Officer and Director Indemnification +Cimarex's by-laws provide for the indemnification of its officers and directors and the advancement to them of expenses in connection with any +proceedings and claims, to the fullest extent permitted by applicable law. The by-laws include related provisions to facilitate the indemnitee's receipt of such benefits. These provisions +cover, among other things: +• specification +of the method of determining entitlement to indemnification and the selection of independent counsel that will in some cases make such +determination; +• specification +of certain time periods by which certain payments or determinations must be made and actions must be taken; and +• establishment +of presumptions in favor of an indemnitee. +In +addition, Cimarex has obtained insurance coverage for directors' and officers' liability. +8 +Section 16(a) Reporting Compliance +For the fiscal year ended December 31, 2002, all reports were filed on a timely basis with the Securities and Exchange Commission. In making this +disclosure, Cimarex has relied upon a review of copies of such reports and written representations of its directors and executive officers. +PROPOSAL NO. 2 +APPROVAL OF THE CIMAREX ENERGY CO. +2002 STOCK INCENTIVE PLAN +Our Board of Directors recommends that the stockholders ratify and approve the Cimarex Energy Co. 2002 Stock Incentive Plan, as amended and restated. The sole +reason for requesting our stockholders to approve the Plan is to ensure that compensation resulting from options granted under the Plan will be deductible to Cimarex without regard to the limitations +otherwise imposed by Section 162(m) of the Internal Revenue Code. +Prior +to the spinoff and reorganization, the Cimarex Board of Directors and Helmerich & Payne, the then sole stockholder of Cimarex, adopted the Cimarex Energy Co. 2002 Stock +Incentive Plan. On March 3, 2003, the Board of Directors of Cimarex Energy Co. adopted an amendment to the Plan, providing for the ability of Cimarex to issue stock units. +The +amended Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock, stock units and other stock grants to all eligible +employees and directors of Cimarex and its affiliates. As of December 31, 2002, we had approximately 250 eligible employees and eight non-employee directors. Pursuant to the terms of the +Helmerich & Payne spinoff and the Key merger, Cimarex exchanged options and restricted stock granted by Helmerich & Payne and Key for Cimarex options and restricted stock. These options +and restricted stock are subject to the terms of the Plan. As of December 31, 2002, stock options and restricted stock had been granted to 51 employees and eight non-employee directors. +The +Stock Incentive Plan was established to create incentives that are designed to motivate participants to put forth maximum effort toward the success and growth of Cimarex and to +enable Cimarex to +attract and retain experienced individuals who by their position, ability and diligence are able to make important contributions to the success of Cimarex. +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify and approve the Cimarex Energy Co. 2002 Stock Incentive +Plan. +Your Board of Directors Recommends You Vote FOR Ratification and Approval of the +Cimarex Energy Co. 2002 Stock Incentive Plan. +SUMMARY OF CIMAREX ENERGY CO. 2002 STOCK INCENTIVE PLAN +Administration of the Plan. The Governance Committee of Cimarex (the "Committee"), comprised solely +of non-employee directors, administers the Stock Incentive Plan. +The +Committee has the exclusive power to select the participants to be granted awards, determines the time or times when awards will be made, and determines the form of an award, the +number of shares of common stock of Cimarex subject to the award, all the terms, conditions (including performance requirements), restrictions and/or limitations, if any, of awards, including the time +and conditions of exercise or vesting with the following exceptions: (1) the maximum number of shares subject to one or more options that may be granted during any calendar year to any +participant is 1,000,000 shares of common stock; (2) the maximum number of shares that may be awarded to +9 +participants as restricted stock awards is 1,000,000 shares of common stock; and (3) the maximum number of shares that may be issued under the Plan is 7,000,000 shares of common stock. +The +Plan provides that the Committee may delegate authority to specified officers of Cimarex to grant awards under the Plan, provided no grants of awards may be granted to any eligible +employee who is covered by Section 16(b) of the Securities Exchange Act of 1934. Pursuant to that authority, on December 6, 2002, the Committee delegated authority to Mr. Merelli +to grant restricted stock awards to employees (other than employees covered by Section 16(b)) who he deems, in his sole discretion, to have made significant contributions to Cimarex. The +restricted stock awards that Mr. Merelli may grant vest on the fifth anniversary of the date of grant, and the shares may not be sold before the eighth anniversary of the date of grant. +Mr. Merelli may determine, in his sole discretion, the number of shares +that may be granted to each employee. The aggregate maximum number of shares subject to Mr. Merelli's discretion is 100,000. He may make only one grant to an employee. His discretionary +authority terminates on December 6, 2007. +Shares Subject to the Plan. There are 7,000,000 shares of common stock reserved for the grant of +awards under the Plan. At September 30, 2002, stock options held by former Helmerich & Payne and Key employees who became Cimarex employees, and Key non-employee directors +were converted into Cimarex stock options exercisable for 2,415,770 shares of common stock. Additional options exercisable for 1,290,800 shares of common stock were granted in December 2002. At +December 31, 2002, 674,973 shares of restricted stock were outstanding. After considering exercises and forfeitures under the Plan, there were 2,586,207 shares of common stock available for +grant under the Plan as of December 31, 2002. On April 1, 2003, the closing price of a share of common stock on the New York Stock Exchange was $19.72. +Adjustment of Shares. The number of shares available under and subject to the Plan, and each share +reserved for issuance under the Plan, are subject to adjustment on account of stock splits, stock dividends, recapitalizations and other dilutive changes in common stock, except that an adjustment +will only be made if the event would require an increase or decrease of at least 1% in the number of shares available under the Plan or to which any award relates. Any adjustment representing a change +of less than 1% will be carried forward and made as soon as such adjustment together with other adjustments would result in a change of more than 1%. Any shares of common stock related to awards that +terminate by expiration, forfeiture, cancellation or otherwise or are exchanged for awards not involving common stock and any shares withheld for the payment of taxes will be available again for grant +under the Plan. +No Repricing of Options. The Committee may at any time unilaterally amend the terms of any award +agreement, provided that any such amendment which is adverse to the participant shall require the participant's consent. The Committee shall not, without the approval of the stockholders, cancel any +outstanding option and replace it with a new option with a lower option price where the economic effect would be the same as reducing the option price of the cancelled option or take any other action +with respect to an option that would be treated as a "repricing" under applicable accounting rules or under the rules of the Securities and Exchange Commission. +Exercise of Options. The Committee determines the exercise price for each option but no option will +be granted at an exercise price that is less than the fair market value of the common stock on the date of grant. An option holder may exercise an option by written notice and payment of the exercise +price in cash or by check, bank, draft or money order payable to the order of Cimarex, by delivering mature shares of common stock having a fair market value on the date of payment equal to the amount +of the exercise price (but only to the extent the delivery of shares would not result in an accounting compensation charge), or a combination of the foregoing. In addition, any option may be exercised +by a broker-dealer acting on behalf of the participant if the broker-dealer has received from the participant a notice of exercise and adequate provision has been made with respect to the payment +10 +of any withholding taxes due upon such exercise. Option holders may elect to satisfy the minimum required income tax withholding obligation through the withholding of a portion of the common stock to +be received upon exercise of the option. +Option Term. The Committee determines the period and the conditions of exercisability, the minimum +periods during which participants must be employed by Cimarex or must hold options before they may be exercised, the minimum periods during which shares acquired upon exercise must be held before +sale, conditions under which such options or shares may be subject to forfeiture, the frequency of exercise or the minimum or maximum number of shares that may be acquired at any one time, the +achievement by Cimarex of specified performance criteria and non-compete and protection of business matters. Incentive stock options granted shall expire no later than 10 years from +the date of grant. If a participant's employment terminates on or after his 62 nd birthday, death or disability, the participant will be entitled to purchase all or any part of the shares +subject to any vested incentive stock option for a period of up to three months from the date of termination (one year in the case of death or disability) and vested nonqualified stock option during +the remaining term of the option. +Restoration Grant. At the time an option is granted, the Committee may provide that if the option +holder pays the option exercise price by surrendering mature shares of common stock or if the option holder pays the required minimum tax withholding with shares of common stock, the option holder +will be granted an option (a "Restoration Option") as of the date the original option was exercised. This Restoration Option will be for the same number of shares that are surrendered (or withheld) to +pay the exercise price and/or required withholding, and will have an exercise price equal to the fair market value of common stock on the date the original option was exercised and will have the same +terms and conditions as the original option. A Restoration Option will be granted only if there is at least six months remaining in the term of the original option. Restoration Options will be +non-qualified options, will expire at the same time as the original option or earlier if the option holder terminates employment and will vest six months from the date the +Restoration Option was granted. These options will only be exercisable if the option holder is employed on the date of exercise, and has been employed continuously by Cimarex or an affiliate since the +date the Restoration Option was granted. The Committee also has the discretion to set additional policies and procedures related to the exercise of a Restoration Option. +Restricted Stock. The Committee may grant a participant a number of shares of restricted stock as +determined by the Committee in its sole discretion. In addition to any vesting conditions determined by the Committee, vesting of each award will require the holder to remain in the employment of +Cimarex for such period of time as determined by the Committee, but in no event less than three years. The Committee may also, in its sole discretion, accelerate the vesting under such +circumstances as it deems appropriate. The restricted stock agreements provide that, during the vesting period, if Cimarex pays a dividend on its common stock, the grantees will be entitled to receive +such dividend. Cimarex does not currently intend to pay dividends on its common stock. +Stock Units. The Committee may grant stock units to participants. Each stock unit is a measurement +unit that is equal to the fair market value of one share of common stock on the date the stock unit is granted. The Committee determines the number of stock units to be granted, the vesting conditions +and other restrictions, if any, the time and manner of payment, and any other terms and conditions of +the stock units. The Committee may also, in its sole discretion, accelerate vesting and waive other restrictions and conditions under such circumstances as it deems appropriate. +Nontransferability. Except as may otherwise be provided by the Committee at the time of a grant, an +option will not be transferable except by will or pursuant to the laws of descent and distribution or incident to a divorce pursuant to a property settlement agreement between spouses or a final order +of a court. The holder of a restricted stock award may not sell, transfer, pledge, exchange, hypothecate or +11 +otherwise dispose of the shares of common stock represented by the restricted stock award during the applicable restriction period. +Amendment and Termination. The Board of Directors may alter, suspend or terminate the Plan at any +time and may, from time to time, amend the Plan in any manner, but may not without stockholder approval adopt any amendment that would increase the aggregate number of shares of common stock available +under the Plan or modify any provision of the Plan that would materially increase the benefit or rights of any participant in the Plan. +Change of Control. Awards (options, restricted stock or stock units) granted under the Plan to any +participant will be immediately and automatically vested, fully earned and exercisable upon the occurrence of a change of control, as defined in the Plan. The Committee may provide that any awards +that are outstanding at the time of the change of control will expire at the time of the closing so long as the participants are provided with at least 45 days advance notice of such +expiration. +Federal Income Tax Consequences of the Grant and Exercise of Options. Certain of the federal income +tax consequences applicable to the grant and exercise of non-qualified stock options and incentive stock options are as follows: +Non-Qualified Stock Options. There are no income tax consequences to the participant or to Cimarex when the +non-qualified stock option is granted. When a non-qualified stock option is exercised, in general, the participant recognizes compensation, subject to wage withholding, equal +to the excess of the fair market value of common stock on the date of exercise over the exercise price. Cimarex is generally entitled to a deduction equal to the compensation recognized by the +participant, assuming that the compensation satisfies the ordinary and necessary and reasonable compensation requirements for deductibility and that the deduction is not limited by +Section 162(m) of the Code. +Incentive Stock Options. When an incentive stock option is granted, there are no income tax consequences for the participant +or Cimarex. When an incentive stock option is exercised, the participant does not recognize income and Cimarex does not receive a deduction. The participant, however, must treat the excess of the fair +market value of the common stock on the date of exercise over the exercise price as an item of adjustment for purposes of the alternative minimum tax. If the +participant makes a "disqualifying disposition" of the common stock (described below) in the same taxable year the incentive stock option was exercised, there are no alternative minimum tax +consequences. +If +the participant disposes of common stock after the participant has held the common stock for at least two years after the incentive stock option was granted and at least one +year after the incentive stock option was exercised, the amount the participant receives upon the disposition over the exercise price is treated as capital gain. Cimarex is not entitled to a +deduction. If the participant makes a "disqualifying disposition" of common stock by disposing of common stock before it has been held for at least two years after the date the incentive stock +option was granted and at least one year after the date the incentive stock option was exercised, the participant recognizes compensation income equal to the excess of (1) the fair market value +of common stock on the date the incentive stock option was exercised or, if less, the amount received on the disposition over (2) the exercise price. At present, Cimarex is not required to +withhold income or other taxes. Cimarex is generally entitled to a deduction equal to the compensation recognized by the participant, assuming that the compensation satisfies the ordinary and +necessary and reasonable compensation requirements for deductibility and that the deduction is not limited by Section 162(m) of the Code. +12 +New Plan Benefits +The following table sets forth stock options granted and restricted stock awards made during the period September 30, 2002 through December 31, +2002: +Name and Position +Number of Shares +Underlying Options +Number of Shares of +Restricted Stock +F.H. Merelli, Chairman, Chief Executive Officer and President; Director Nominee +422,400 +211,200 +Steven Shaw, Executive Vice President +91,000 +45,500 +Paul Korus, Vice President, Chief Financial Officer and Treasurer +91,000 +45,500 +Thomas E. Jorden, Vice President—Exploration +91,000 +45,500 +Joseph R. Albi, Vice President—Engineering +91,000 +45,500 +Stephen P. Bell, Senior Vice President—Business Development and Land +91,000 +45,500 +All Current Executive Officers as a Group +907,700 +453,900 +Paul D. Holleman, Director Nominee +10,000 +— +Michael J. Sullivan, Director Nominee +10,000 +— +All Other Non-Employee Directors +60,000 +— +All Employees as a Group, excluding Executive Officers +303,100 +189,900 +The +following table summarizes the stock options and restricted stock that were issued by Cimarex, effective September 30, 2002, in exchange for Helmerich & Payne and Key +options and shares of restricted stock: +Name and Position +Number of Shares +Underlying Options +Number of Shares of +Restricted Stock +F.H. Merelli, Chairman, Chief Executive Officer and President; Director Nominee +375,000 +— +Steven Shaw, Executive Vice President +595,280 +— +Paul Korus, Vice President, Chief Financial Officer and Treasurer +85,000 +— +Thomas E. Jorden, Vice President-Exploration +59,000 +— +Joseph R. Albi, Vice President-Engineering +61,500 +— +Stephen P. Bell, Senior Vice President-Business Development and Land +62,500 +— +All Current Executive Officers as a Group +1,238,280 +— +Paul D. Holleman, Director Nominee +45,000 +— +Michael J. Sullivan, Director Nominee +— +— +All Other Non-Employee Directors +94,167 +— +All Employees as a Group, excluding Executive Officers +1,038,323 +66,612 +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +Independent Auditors +The audit committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2003. KPMG has been our independent auditors since +October 1, 2002. A KPMG representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +The +following table presents fees for professional audit services rendered by KPMG for the audit of our annual financial statements for 2002, and fees billed for other services rendered +by KPMG. The +13 +Audit Committee has reviewed the services provided by KPMG for non-audit services and concluded that the provision of such services is compatible with maintaining KPMG's independence. +Audit fees(1) +$ +233,538 +Non-audit services(2) +$ +7,041 +(1) Audit +fees include $81,770 paid to KPMG for the audit as of and for the three months ended December 31, 2001. +(2) Non-audit +services include general income tax compliance and consulting. +The +Board of Directors and the Audit Committee of Cimarex approved the dismissal of Ernst & Young LLP as Cimarex's independent auditors effective October 1, 2002. +Ernst & +Young served as Cimarex's independent auditor for the fiscal years ended September 30, 2001 and 2000. Ernst & Young's reports for the years +ended September 30, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During +the two most recent fiscal years and the subsequent interim period through October 1, 2002, there were no disagreements with Ernst & Young within the meaning of Instruction 4 of +Item 304 of Regulation S-K on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved +to Ernst & Young's satisfaction would have caused Ernst & Young to make reference to the subject matter of the disagreements in connection with its report. During the term of +Ernst & Young's engagement, there were no "reportable events" (as such term is defined in Item 304(a)(1)(v) of Regulation S-K). +The +Board of Directors appointed KPMG to serve as Cimarex's independent auditor as of and for the three-month transition period (as such term is defined in Regulation 13A) ended +December 31, 2001 and as of and for the year ended December 31, 2002. KPMG's engagement commenced effective October 1, 2002. During Cimarex's two most recent fiscal years +ended September 30, 2001, and the subsequent interim periods, prior to engagement, Cimarex did not consult with KPMG regarding any of the matters or events set forth in Item +304(a)(2)(i) or (ii) of Regulation S-K. +As +part of the registration process for Cimarex, there was discussion among management of Cimarex and Key and their auditors, Ernst & Young and KPMG, respectively. The discussion +related to the initial selection of alternative accounting methods associated with accounting for oil and gas properties. Ernst & Young, as Cimarex's independent auditors, and KPMG, as Key's +independent auditors, were each consulted as to the matter and each agreed with the conclusion that the full cost method of accounting is an acceptable alternative for accounting for oil and gas +properties. +Report of Audit Committee +The Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its +financial reporting and the independence and performance of Cimarex's independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is attached as +Appendix A to this Proxy Statement. +Management +has the primary responsibility for the financial statements and the overall reporting process of Cimarex, including Cimarex's system of internal controls. The independent +auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial statements fairly present the consolidated financial position, results of +operations and cash flows of Cimarex and its subsidiaries in conformity with generally accepted accounting principles, and discuss with us any issues they believe should be raised. +14 +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2002 and met with both management and KPMG, Cimarex's independent +auditors, to discuss those financial statements. Management has represented to us that the financial statements were prepared in accordance with generally accepted accounting principles. +We +have received from KPMG the written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and +discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required to be discussed by Statement on Auditing Standards +No. 61, Communication with Audit Committees. +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2002. +THE AUDIT COMMITTEE +Cortlandt S. Dietler, Chairman +Glenn A. Cox +Paul D. Holleman +Michael J. Sullivan +The foregoing report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under +the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not +otherwise be deemed filed under such Acts. +GOVERNANCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION +The Governance Committee serves a nominating and governance function and a compensation function. The Governance Committee administers Cimarex's executive +compensation program and establishes the salaries of our executive officers. The Governance Committee consists of only non-employee directors who are appointed by the Board of Directors. +The +Governance Committee's objective is to provide Cimarex executive officers with a comprehensive compensation package that is designed to encourage recipients to identify and take +actions that will achieve Cimarex's short- and long-term objectives. The compensation policies and programs utilized by the Governance Committee have been reviewed by independent +compensation consultants and endorsed by the Board of Directors and generally consist of the following: +• Provide +executive officer total compensation in relation to the performance of Cimarex; +• Provide +a compensation program competitive with that received by executives of comparable companies in the oil and gas industry in order to attract, motivate +and retain qualified personnel; +• Provide +a management tool for focusing and directing the energies of key executives toward achieving individual and corporate objectives; and +• Provide +long-term incentive compensation in the form of stock options, restricted stock and stock unit awards to link individual success to that +of Cimarex. +Cimarex's +executive compensation consists of three key components: base salary, annual incentive compensation in the form of cash bonuses, and long-term incentive +compensation in the form of equity based compensation, each of which is intended to complement the others and, collectively, satisfy Cimarex's compensation objectives. The Governance Committee's +policies with respect to each of the three components are discussed below. +15 +Base Salary. Each fiscal year the Governance Committee, along with the Chief Executive Officer, reviews and approves the +annual salaries for our executive officers. Many factors are included in determining base salaries, such as the responsibilities borne by the executive officer, a comparison of the compensation of the +executive with the compensation of other executives in comparable industries with similar responsibilities, the scope of the position and corporate and individual performance. +Cash Bonuses. The Governance Committee provides annual incentives to Cimarex executive officers in the form of cash bonuses. +Criteria that determine bonuses include company performance compared to external benchmarks, operational and financial performance and internally set objectives. +Equity-Based Compensation. The primary objective of the equity-based program is to link the interests of executive officers +and other selected employees with the stockholders. The Cimarex Energy Co. 2002 Stock Incentive Plan authorizes us to grant both incentive and non-qualified stock options, restricted stock +and stock units to officers and other employees meeting certain criteria. Subject to general limits prescribed by the Stock Incentive Plan, the Governance Committee has the authority to determine the +individuals to whom equity compensation is awarded, the terms of the awards and the number of shares of common stock subject to the awards. The size of any particular award is based upon the +employee's position with Cimarex and individual performance. +Chief Executive Officer's Compensation. As discussed under "Employment Agreements," Cimarex is a party to an employment +agreement with Mr. Merelli. The salary determined by the Governance Committee for Mr. Merelli was based upon the additional duties assumed by Mr. Merelli following the +spin-off transaction, the compensation paid to chief executive officers of comparable companies and the Governance Committee's recognition of Mr. Merelli's continued leadership of +Cimarex. +THE COMPENSATION COMMITTEE +L. Paul Teague, Chairman +David A. Hentschel +L.F. Rooney, III +The foregoing report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under +the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not +otherwise be deemed filed under such Acts. +EXECUTIVE COMPENSATION +Information regarding the compensation of the persons who serve as the chief executive officer and the five most highly compensated executive officers of Cimarex +(collectively, the named executive officers) +is set forth below. With respect to Messrs. Merelli, Korus, Jorden, Albi and Bell, compensation for the period January 1, 2002 through September 30, 2002, and the +fiscal years 2001 and 2000 was paid by Key, and with respect to Mr. Shaw, compensation for the period January 1, 2002 through September 30, 2002, and the +fiscal years 2001 and 2000 was paid by Helmerich & Payne. All compensation from October 1, 2002 to December 31, 2002 was paid by Cimarex. +Summary Compensation Table. The summary compensation table set forth below contains information regarding compensation paid +to each of the named executive officers for services rendered +16 +to Cimarex, Key and Helmerich & Payne, as applicable, in all capacities during the last three fiscal years. +Annual Compensation +Long Term Compensation +Name and Principal Position +Year +Salary +Bonus +Other +Annual +Compensation(1) +Restricted +Stock +Awards(2) +Securities +Underlying +Options +All Other +Compensation +F.H. Merelli, +Chairman, Chief Executive Officer, President +2002 +2001 +2000 +$ +$ +$ +321,000 +306,328 +265,041 +$ +$ +$ +300,000 +238,537 +167,000 +— +— +— +$ +3,516,480 +— +— +422,400 +— +125,000 +(4) +$ +$ +$ +8,844 +8,420 +12,838 +(3) +Steven R. Shaw +Executive Vice President +2002 +2001 +2000 +$ +$ +$ +319,300 +304,750 +286,000 +$ +$ +$ +310,000 +120,000 +200,000 +$ +$ +$ +544 +543 +479 +(5) +$ +757,575 +— +— +91,000 +106,300 +106,300 +(7) +(7) +$ +$ +$ +28,811 +8,500 +8,000 +(6) +Paul Korus +Vice President, Chief Financial Officer and Treasurer +2002 +2001 +2000 +$ +$ +$ +187,251 +178,776 +157,750 +$ +$ +$ +113,000 +100,000 +141,975 +— +— +— +$ +757,575 +— +— +91,000 +— +— +$ +$ +$ +9,695 +6,800 +6,277 +(8) +Thomas E. Jorden +Vice President—Exploration +2002 +2001 +2000 +$ +$ +$ +178,000 +168,995 +154,833 +$ +$ +$ +130,000 +60,000 +139,350 +— +— +— +$ +757,575 +— +— +91,000 +— +— +$ +$ +$ +10,282 +12,440 +7,758 +(9) +Joseph R. Albi +Vice President—Engineering +2002 +2001 +2000 +$ +$ +$ +166,000 +157,728 +144,541 +$ +$ +$ +110,000 +60,000 +130,087 +— +— +— +$ +757,575 +— +— +91,000 +— +— +$ +$ +$ +9,972 +6,800 +7,169 +(10) +Stephen P. Bell +Senior Vice President—Business Development and Land +2002 +2001 +2000 +$ +$ +$ +165,000 +157,436 +144,541 +$ +$ +$ +99,000 +60,000 +130,087 +— +— +— +$ +757,575 +— +— +91,000 +— +— +$ +$ +$ +11,096 +11,535 +7,169 +(11) +(1) The +aggregate amount of perquisites and other personal benefits was less than either $50,000 or ten percent of the total annual salary and bonus reported for each of the named +executive officers. +(2) The +value of the restricted stock awards is calculated in accordance with the Cimarex Energy Co. 2002 Stock Incentive Plan and represents the average of the high and low market price +as of December 6, 2002, the date of grant ($16.65). The value of the restricted stock awards disclosed in this table represents the aggregate restricted stock awards owned by each of the named +executive officers. As of December 31, 2002, the named executive officers held the following shares of restricted stock: Mr. Merelli, 211,200 shares; Messrs. Shaw, Korus, Jorden, +Albi and Bell, 45,500 shares each. The restricted stock agreements provide that, during the vesting period, if Cimarex pays a dividend on its common stock, the grantees will be entitled to receive +such dividend. Cimarex does not currently intend to pay dividends on its common stock. +(3) Includes +Key's matching contribution to Key's 401(k) plan in the form of Key stock from January 1, 2002 through September 30, 2002 valued at $8,000. Also includes +the one-year term cost of life insurance provided for Mr. Merelli of $844 paid by Cimarex on behalf of Mr. Merelli. +(4) Represents +shares of common stock underlying non-qualified options granted by Cimarex in substitution for non-qualified options granted by Key to +Mr. Merelli. +(5) Represents +the payment of estimated tax liability with respect to health and retirement benefits. +(6) Includes +Helmerich & Payne's matching contributions of $17,000 and $10,000 to the Helmerich & Payne Supplemental Plan and the 401(k) Thrift Plan, respectively. +Also includes $1,811 for the cost of life insurance provided by Helmerich & Payne for Mr. Shaw. +(7) Represents +shares of common stock underlying non-qualified options granted by Cimarex pursuant to the Employee Benefits Agreement between Helmerich & Payne and +Cimarex (Employee Benefits Agreement) in substitution for options granted to Mr. Shaw by Helmerich & Payne. +(8) Includes +Key's matching contribution to the Key 401(k) plan in the form of Key stock from January 1, 2002 through September 30, 2002 valued at $8,000. +17 +(9) Includes +Key's matching contribution to the Key 401(k) plan in the form of Key stock from January 1, 2002 through September 30, 2002 valued at $7,742 and +Cimarex's cash matching contribution to the Cimarex 401(k) plan for the period September 30, 2002 through December 31, 2002 of $2,225. +(10) Includes +Key's matching contribution to the Key 401(k) plan in the form of Key stock from January 1, 2002 through September 30, 2002 valued at $7,582 and +Cimarex's cash matching contribution to the Cimarex 401(k) plan for the period September 30, 2002 through December 31, 2002 of $2,075. +(11) Includes +Key's matching contribution to the Key 401(k) plan in the form of Key stock from January 1, 2002 through September 30, 2002 valued at $7,382 and +Cimarex's cash matching contribution to the Cimarex 401(k) plan for the period September 30, 2002 through December 31, 2002 of $2,079. +OPTION GRANTS IN LAST FISCAL YEAR +The following table sets forth option grants made by Cimarex during the period October 1, 2002 through December 31, 2002. The table does not include +replacement grants resulting from the Helmerich & Payne spinoff and the Key reorganization. These grants are described under the New Benefits +Table provided in this Proxy Statement. +Potential Realizable Value +Options +Granted +Percent of +Total Granted +Option +Price +Expiration +Date +0% +5% +10% +F.H. Merelli +422,400 +32.72 +% +$ +16.65 +12-06-12 +$ +0 +$ +4,422,991 +$ +11,208,727 +Steven R. Shaw +91,000 +7.05 +% +$ +16.65 +12-06-12 +$ +0 +$ +952,870 +$ +2,414,759 +Paul Korus +91,000 +7.05 +% +$ +16.65 +12-06-12 +$ +0 +$ +952,870 +$ +2,414,759 +Thomas E. Jorden +91,000 +7.05 +% +$ +16.65 +12-06-12 +$ +0 +$ +952,870 +$ +2,414,759 +Joseph R. Albi +91,000 +7.05 +% +$ +16.65 +12-06-12 +$ +0 +$ +952,870 +$ +2,414,759 +Stephen P. Bell +91,000 +7.05 +% +$ +16.65 +12-06-12 +$ +0 +$ +952,870 +$ +2,414,759 +AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002 +AND FISCAL YEAR 2002 YEAR-END OPTION VALUES +Number of Securities +Underlying Unexercised Options at 2002 Year End +Value of Unexercised +In-the-Money Options +at 2002 Year End +Number of +Shares +Acquired on +Exercise +Name +Value +Realized +Exercisable +Unexercisable +Exercisable(1) +Unexercisable(1) +F.H. Merelli +— +— +375,000 +422,400 +$ +2,110,937 +$ +422,400 +Steve R. Shaw +— +— +435,830 +250,450 +$ +2,119,473 +$ +671,292 +Paul Korus +— +— +85,000 +91,000 +$ +676,813 +$ +91,000 +Thomas E. Jorden +— +— +59,000 +91,000 +$ +469,788 +$ +91,000 +Joseph R. Albi +— +— +61,500 +91,000 +$ +489,694 +$ +91,000 +Stephen P. Bell +— +— +62,500 +91,000 +$ +489,694 +$ +91,000 +(1) Amount +represents the market price (average of the daily high and low prices) of Cimarex common stock on December 31, 2002 ($17.65) on the New York Stock Exchange, less the +exercise price multiplied by the number of exercisable/unexercisable stock options at December 31, 2002 for options that had an exercise price less than $17.65. +18 +Equity Compensation Plan Information +(As of December 31, 2002) +Plan category +(a) +Number of securities to be +issued upon exercise of +outstanding options, +warrants and rights(1) +(b) +Weighted-average exercise price of outstanding options, warrants and rights(1) +(c) +Number of securities +remaining available for +future issuance under +equity compensation plans +(excluding securities +reflected in column (a)) +Equity compensation plans approved by security holders +3,632,087 +$ +14.14 +2,586,207 +Equity compensation plans not approved by security holders +— +— +— +Total +3,632,087 +$ +14.14 +2,586,207 +(1) The +number of securities to be issued upon exercise does not include the 674,973 shares that represent restricted stock awards, as these securities are issued and outstanding. This +amount includes options covering 1,630,269 and 785,501 shares that were issued in the spin-off from Helmerich & Payne and the Key reorganization, respectively. +Employment Agreements and Change in Control Arrangements with Named Executive Officers +F. H. Merelli. Mr. Merelli entered into an employment agreement with Key pursuant to which he agreed to serve as the +President and Chief Executive Officer of Key for an indefinite term. Following the Key reorganization, Cimarex assumed the employment agreement. Pursuant to the agreement, Mr. Merelli currently +receives a base salary of $350,000 annually which is subject to annual adjustment by the Board of Directors and may be increased, but not decreased, on the basis of such review. Mr. Merelli is +also entitled to receive an annual incentive bonus under any plan or program implemented for executives. Cimarex also purchased a $500,000 life insurance policy for Mr. Merelli. +Cimarex +may terminate Mr. Merelli's employment at any time for cause (as defined in the agreement) or after 30 days' notice if not for cause, and Mr. Merelli may +terminate his employment at any time for any reason. Upon (i) Mr. Merelli's termination of employment by Cimarex without cause or due to his death or disability or +(ii) Mr. Merelli's resignation for good reason (as such term is described in the agreement), he will be entitled to receive continuation of his base salary for two years and the +maximum incentive compensation payable pursuant to any plan or program established by Cimarex. Mr. Merelli also participates in the Income Continuance Plan described below, which provides for +continuation of his salary and benefits upon certain terminations of employment following the Key reorganization. Any payment made to Mr. Merelli pursuant to the agreement will be deducted from +the benefits to which he is otherwise entitled pursuant to the Income Continuance Plan described below. +During +the period of his employment and for three years thereafter, Mr. Merelli is required under the agreement to keep confidential any information about Cimarex or its +business that is not generally available to the public. Cimarex is also obligated under the agreement to indemnify Mr. Merelli to the maximum extent permissible under applicable law governing +the indemnification of officers and directors. +Steven R. Shaw. Mr. Shaw is party to an agreement with Helmerich & Payne that Cimarex has assumed. If Cimarex +terminates Mr. Shaw's employment within 24 months after the spin-off other than for cause, disability, death or the occurrence of a substantial downturn, or if +Mr. Shaw terminates his employment for good reason within 24 months after the spin-off (as such terms are defined in the agreement), any options or restricted stock granted +to Mr. Shaw under a plan adopted by Cimarex will vest in full and Cimarex will be required to pay or provide Mr. Shaw: (i) a lump-sum payment equal to +19 +two times his base salary and annual bonus, (ii) 24 months of benefit continuation, (iii) a prorated annual bonus, and (iv) up to $5,000 for outplacement counseling +services, provided that the lump-sum payment and prorated annual bonus shall be payable only if Mr. Shaw executes and does not revoke a release of claims in the form attached to the +agreement (as it may be modified in respect of changes in law or applicable regulations). In addition, if Mr. Shaw remains employed with Cimarex for 18 months after the +spin-off, he may terminate his employment for any reason during the following thirty days and be entitled to full vesting of any options or restricted stock that had been granted to +him before the spin-off. In the event that any benefits payable to Mr. Shaw as a result of the spin-off or reorganization (including without limitation any benefits +provided under the agreement) are subject to the "golden parachute" excise tax under Section 4999 of the Internal Revenue Code, Mr. Shaw will be entitled to receive the greater of +(i) such benefits reduced by any applicable excise taxes and (ii) a reduction in his benefits so that no excise taxes are applicable. During the period of his employment, Mr. Shaw +is prohibited from divulging any confidential information of Helmerich & Payne and Cimarex, and following his termination of employment, he will be permitted to do so only with the prior +written consent of Helmerich & Payne and/or Cimarex, as the case may be. Cimarex has agreed to indemnify Mr. Shaw in the same manner as any other key management employees and, during the +term of the agreement and for the five-year period following his termination of employment, Cimarex has agreed to maintain director and officer liability insurance covering +Mr. Shaw, provided that the indemnity and insurance shall be maintained at a level no less than that in effect immediately prior to the spin-off. +Messrs. Korus, Jorden, Albi and Bell. Each of Messrs. Korus, Jorden, Albi and Bell entered into an employment +agreement with Key that has since expired. However, each agreement provided that, if the executive continues as an employee after the term of the agreement (as each executive has done) and is +terminated without cause following a change in control (as those terms are defined in the agreement), the executive will be entitled to a lump-sum payment equal to two times the +executive's base salary at the time of the change in control. Cimarex assumed this obligation following the Key reorganization. Accordingly, if Cimarex terminates the executive's employment without +cause following the Key reorganization, Cimarex will be obligated to make a lump-sum payment to the executive equal to two times his base salary at the time of the Key reorganization. Any +payments made to these executives pursuant to these agreements will be deducted from the benefits to which the executive is otherwise entitled pursuant to the Income Continuance Plan described below. +Income Continuance Plan +Key maintained an Income Continuance Plan that was assumed by Cimarex at the time of the reorganization. Pursuant to the terms of the Plan, the Plan may not be +amended following the reorganization, and the Plan may not be terminated during the thirty-month period following the +reorganization. The Plan covers only former officers and employees of Key who are currently employed by Cimarex and who fall within one of the following categories: +• Officers +(including Messrs. Merelli, Korus, Jorden, Albi, Bell and); +• Employees +who are at least 40 years old; +• Employees +who were continuously employed by Key for at least 10 years; and +• Certain +other employees with special skills or experience, as determined by the Key board of directors prior to the reorganization. +The +Key reorganization constituted a change of control as defined in the Income Continuance Plan. Accordingly, if, following the reorganization a participating employee is terminated without cause (as +such term is described in the Plan) or resigns due to changed circumstances (including, without +20 +limitation, a significant change in title, duties, authority or compensation or a greater than 50-mile change in the employee's regular work place), the employee is entitled to the +following benefits: +• Employees +of Key who had at least 48 months continuous service with Key and officers of Key are entitled to receive continuation of their base +compensation (as defined in the Plan, including all salary, incentive compensation and bonuses) for 24 months following their termination of employment. +• Employees +of Key (other than officers) who have less than 48 months continuous service with Key are entitled to receive continuation of their base +compensation (as defined in the plan) for a period equal to 50% of their aggregate months of service; provided, however, that the Key board of directors may extend this period to a maximum of +24 months in its sole discretion. +• All +participating employees will receive health and life insurance continuation for so long as they receive salary continuation as well as reimbursement of +any expenses, including legal fees incurred in enforcing the employee's right to receive benefits pursuant to the Plan. +In +general, the benefits paid pursuant to the Plan are in addition to, and not in lieu of, any benefits that the participants are otherwise entitled to pursuant to a plan, program or +contract. However, if an +employee is entitled to receive a payment based on annual salary pursuant to the terms of an employment agreement, the benefits paid pursuant to the Plan shall be offset by the benefits paid pursuant +to the employment agreement. +The +Key reorganization constituted a change in control under the Plan. As a result, each of Messrs. Merelli, Korus, Jorden, Albi and Bell are entitled to receive continuation of +his base compensation and health and life insurance benefits for 24 months if his employment is terminated without cause or if he resigns due to changed circumstances following the effective +time of the reorganization. As discussed above, each of Messrs. Merelli, Korus, Jorden, Albi and Bell is also party to an agreement that provides for salary continuation payments upon a +termination without cause or (in the case of Mr. Merelli) resignation for good reason following a change in control. Any payment received pursuant to these agreements would be deducted from the +payments to which these executives are entitled under the Plan. +Certain Relationships and Related Party Transactions +Prior to September 30, 2002, Cimarex was operated as a division of Helmerich & Payne. Current management was put into place on September 30, +2002. As a result, all activity prior to September 30, 2002 was conducted using employees of Helmerich & Payne and resources of Helmerich & Payne. Upon the spin-off +from Helmerich & Payne, Cimarex was owed approximately $819,000, all of which had been repaid as of December 31, 2002. +Helmerich & +Payne provides to Cimarex contract drilling services through its wholly owned subsidiary, Helmerich & Payne International Drilling Company. Drilling costs of +approximately $1.4 million were incurred by Cimarex related to such services for the year ended December 31, 2002. +21 +Stock Performance Graph +The following graph shows the total stockholder return through December 31, 2002 of an investment of $100 in cash on September 30, 2002 (the date of +the spin-off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. +Oil Companies Secondary Index. Historic stock price performance is not indicative of future stock price performance. +Cumulative Total Return +9/02 +10/02 +11/02 +12/02 +CIMAREX ENERGY +100.00 +92.17 +87.65 +103.77 +S&P 500 +100.00 +108.80 +115.21 +108.44 +DOW JONES US OIL COMPANIES, SECONDARY +100.00 +100.47 +101.16 +104.58 +STOCKHOLDER PROPOSALS +Any stockholder wishing to submit a proposal to the vote of the stockholders at Cimarex's 2004 Annual Meeting must submit such proposal or proposals in writing to +Cimarex no later than December 21, 2003. Proposals should be sent to the attention of the Assistant Corporate Secretary at 707 Seventeenth Street, Suite 3300, Denver, Colorado 80202. We +are not required to include in our proxy statement a form of proxy or stockholder proposal that is received after that date or otherwise fails to meet the requirements for stockholder proposals +established by regulations of the Securities and Exchange Commission. +In +addition, under Cimarex's By-Laws, stockholders must give advance notice of nominations for a director at the 2004 Annual Meeting during the period February 18 +through February 28, 2004. The +advance notice must be delivered to the attention of the Assistant Corporate Secretary at 707 Seventeenth Street, Suite 3300, Denver, Colorado 80202 and must comply with the requirements of +Cimarex's By-Laws. +22 +Appendix A +CIMAREX ENERGY CO. +AUDIT COMMITTEE CHARTER +Article I. ORGANIZATION +The Cimarex Energy Co. (the "Company") Audit Committee shall be appointed by the Company's Board of Directors (the "Board"), and shall have at least three +members, including a designated chairperson. +QUALIFICATIONS +• All +members of the Audit Committee shall meet the independence, experience and financial literacy requirements of the New York Stock Exchange, the +Sarbanes-Oxley Act of 2002 and any rules or regulations promulgated by the Securities and Exchange Commission (the "SEC"). +• When +required by the SEC, at least one member of the Audit Committee shall be a "financial expert," as the SEC defines such term. +• At +least one member (who may also be the "financial expert" referred to above) shall have accounting or related financial management expertise, as required +by the New York Stock Exchange. +• No +member of the Audit Committee may simultaneously serve on the audit committee of more than three public companies. +Article II. PURPOSE +The Audit Committee shall assist the Board in monitoring: +• The +integrity of the Company's financial statements; +• The +independent auditors' qualifications and independence; +• The +performance of the Company's internal audit function and independent auditors; +• The +appropriateness of the Company's accounting policies; +• The +adequacy of the Company's internal controls; and +• The +Company's compliance with legal and regulatory requirements. +TERM +Each of the elected members of the Audit Committee shall be elected for a one year term and shall serve until a successor has been duly elected and qualified. +INDEPENDENT AUDITORS AND OTHER AUDIT FUNCTIONS +The Audit Committee shall: +• Have +sole authority for the appointment (subject, if applicable, to stockholder ratification), termination, compensation and oversight of the independent +auditors (including resolution of disagreements with Company management), and to approve any significant non-audit relationship with the independent auditors; +• Have +sole authority for the terms of the engagement of the independent auditors, including the scope of their audit and qualifications; +A-1 +• Periodically +review and discuss information necessary to satisfy itself of the independence of the independent auditors, including ensuring that the +independent auditors submit at least annually a formal written statement regarding its relationships and services which may affect independence, including all relationships with the Company; +• At +least annually, obtain and review a report by the independent auditors describing: (i) the firm's internal quality control procedures; and +(ii) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, +within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; +• Discuss +earnings press releases (including any use of "pro forma" or "adjusted" non-GAAP information), as well as financial information and +earnings guidance provided to analysts and rating agencies; +• Discuss +policies and guidelines to govern the process by which the Company's exposure to risk is assessed and managed; +• Meet +separately, periodically, with management, with internal auditors (or other personnel responsible for the internal audit function) and with independent +auditors; +• Set +clear hiring policies for employees or former employees of the independent auditors; +• Review +with the independent auditors and the Company's management the results of the independent auditors' year-end audit; +• Review +with the independent auditors any audit problems or difficulties that may have been encountered during the performance of its duties and management's +response; +• Review +(i) major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company's +selection or application of accounting principles, and major issues as to the adequacy of the Company's internal controls and any special audit steps adopted in light of material control deficiencies; +(ii) analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial +statements, including analyses of the effects of alternative GAAP methods on the financial statements; and (iii) the effect of regulatory and accounting initiatives, as well as +off-balance sheet structures, on the Company's financial statements; +• Receive +and review required communications from the independent auditors, who shall report directly to the Audit Committee; and +• Report +regularly to the Board the results of the Audit Committee meetings. +MATTERS PERTAINING TO SEC FILINGS +The Audit Committee shall: +• Review +with the independent auditors and the Company's management the Company's audited financial statements, including the Company's disclosures under +"Management's Discussion and Analysis of Financial Condition and Results of Operations," and, if satisfied, recommend approval by the Board of the Company's Form 10-K for filing +with the SEC; +• Review +the Company's quarterly financial results with the independent auditors and the Company's management, including the Company's disclosures under +"Management's Discussion and Analysis of Financial Condition and Results of Operations," and, if satisfied, recommend approval by the Board of the Company's Form 10-Q for filing +with the SEC; +A-2 +• Be +responsible for the preparation of the Audit Committee report required by SEC rules to be included in the Company's annual proxy statement; and +• Review +with the Company's management the Company's proxy statement and related materials, and, if satisfied, recommend their approval by the Board for filing +with the SEC and distributing to the stockholders. +LEGAL MATTERS +The Audit Committee shall review with the Company's General Counsel material litigation, if any, and other legal matters as appropriate. The Audit Committee shall +have the authority and appropriate funding (as determined by the Audit Committee) to engage independent counsel and other advisors or consultants as appropriate to carry out its duties. +Article III. COMPLAINT PROCEDURES +The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal +accounting controls or auditing matters, including the confidential and anonymous submission of complaints by employees. +Article IV. FEES +An Audit Committee member may not receive any compensation from the Company other than director's fees. +OTHER MATTERS +In order to carry out its obligations, the Audit Committee has the authority, as it deems necessary, to confer with the Company's independent auditors and +officers and employees and to conduct or authorize investigations into any matters within the scope of the Audit Committee's responsibilities. +CHARTER REVIEW +The Audit Committee shall reassess the adequacy of this charter annually and recommend any proposed changes to the Board for approval. The Audit Committee shall +formally present its charter to the Board for approval at least once every three years. +SCOPE OF COMMITTEE DUTIES +While the Audit Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Audit Committee to plan or conduct audits or to +determine that the Company's financial statements are complete and accurate and are in accordance with GAAP. This is the responsibility of the Company's management and the independent auditors. Nor is +it the duty of the Audit Committee to conduct investigations or to assure compliance with laws and regulations. +DISCLOSURE OF CHARTER +This Charter will be made available on the Company's website at www.cimarex.com. +A-3 +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and +authorizes them to represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned +would possess if present at the Annual Meeting of Stockholders to be held May 28, 2003, or any adjournment thereof. +(Continued, and to be marked, dated and signed, on the other side) +FOLD +AND DETACH HERE +Your opinion is important to us. Please cast your vote today. +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Please mark your votes like this. +ý +The Board of Directors recommends a vote FOR Proposals 1 and 2. +FOR +WITHHELD FOR ALL +FOR +AGAINST +ABSTAIN +PROPOSAL 1 — ELECTION OF DIRECTORS +o +o +PROPOSAL 2 — RATIFICATION AND APPROVAL OF THE 2002 STOCK INCENTIVE PLAN +o +o +o +Nominees: +01 – F.H. Merelli +02 – Paul D. Holleman +03 – Michael J. Sullivan +WITHHELD FOR (Write that nominee's name in the space provided below.) +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS BELOW +COMPANY NUMBER: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature(s) +Signature(s) +Date +NOTE: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give full title as such. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +VOTE BY TELEPHONE OR INTERNET +QUICK *** EASY *** IMMEDIATE +CIMAREX ENERGY CO. +• You +can now vote your shares electronically through the Internet or the telephone. +• This +eliminates the need to return the proxy card. +• Your +electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. +TO VOTE YOUR PROXY BY INTERNET +www. continentalstock.com +Have your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an +electronic ballot. Follow the prompts to vote your shares. +TO VOTE YOUR PROXY BY MAIL +Mark, sign and date your proxy card above, detach it and return it in the postage-paid envelope provided. +TO VOTE YOUR PROXY BY PHONE +1-800-293-8533 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy +number and account number. Follow voting instructions to vote your shares. +PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY. +QuickLinks +ATTENDANCE AND VOTING MATTERS +HISTORY OF CIMAREX +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT +PROPOSAL NO. 1 ELECTION OF DIRECTORS +PROPOSAL NO. 2 APPROVAL OF THE CIMAREX ENERGY CO. 2002 STOCK INCENTIVE PLAN +SUMMARY OF CIMAREX ENERGY CO. 2002 STOCK INCENTIVE PLAN +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +GOVERNANCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION +EXECUTIVE COMPENSATION +OPTION GRANTS IN LAST FISCAL YEAR +AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002 AND FISCAL YEAR 2002 YEAR-END OPTION VALUES +Equity Compensation Plan Information (As of December 31, 2002) +STOCKHOLDER PROPOSALS +Appendix A \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-03-012961/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-03-012961/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..291cacf6a3739bbb735eed7902b906b24f670303 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-03-012961/proxy_rpt.txt @@ -0,0 +1,17 @@ +Certain Relationships and Related Party Transactions +Prior to September 30, 2002, Cimarex was operated as a division of Helmerich & Payne. Current management was put into place on September 30, +2002. As a result, all activity prior to September 30, 2002 was conducted using employees of Helmerich & Payne and resources of Helmerich & Payne. Upon the spin-off +from Helmerich & Payne, Cimarex was owed approximately $819,000, all of which had been repaid as of December 31, 2002. +Helmerich & +Payne provides to Cimarex contract drilling services through its wholly owned subsidiary, Helmerich & Payne International Drilling Company. Drilling costs of +approximately $1.4 million were incurred by Cimarex related to such services for the year ended December 31, 2002. +21 +Stock Performance Graph +The following graph shows the total stockholder return through December 31, 2002 of an investment of $100 in cash on September 30, 2002 (the date of +the spin-off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. +Oil Companies Secondary Index. Historic stock price performance is not indicative of future stock price performance. +Cumulative Total Return +9/02 +10/02 +11/02 +12/02 \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-04-012086/proxy.txt b/raw/proxies/0001168054/0001047469-04-012086/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..0fde014a0ed0278075e5ca8deca0334964cb4025 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-04-012086/proxy.txt @@ -0,0 +1,1168 @@ +DEF 14A +1 +a2132183zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +CIMAREX ENERGY CO. +707 Seventeenth Street, Suite 3300 +Denver, Colorado 80202-3404 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 19, 2004 +To the Stockholders of Cimarex Energy Co.: +The +annual meeting of stockholders of Cimarex Energy Co. will be held on Wednesday, May 19, 2004, at 2:00 p.m., Central Time, at the Adam's Mark Hotel, 100 East Second +Street, Tulsa, Oklahoma 74103, for the following purposes: +1. To +elect three directors to serve until the 2007 annual meeting. +2. To +transact any other business that may be properly brought before the annual meeting. +Only +stockholders of record at the close of business on March 26, 2004 are entitled to notice of and to vote at the annual meeting. All stockholders are invited to attend the +annual meeting in person. To ensure your representation at the annual meeting, you are urged to vote in one of the following ways: (1) by completing, signing and dating the accompanying proxy +card and returning it in the enclosed postage-prepaid envelope, (2) by completing your proxy using the toll free number listed on the proxy card, or (3) by completing your proxy on the +Internet at the address listed on your proxy card. You may revoke your proxy in the manner described in the accompanying Proxy Statement at any time before it has been voted. Any stockholder attending +the annual meeting may vote in person even if he or she has returned a proxy. +By order of the Board of Directors, +Mary K. Rohrer +Assistant Corporate Secretary +Date: +April 16, 2004 +CIMAREX ENERGY CO. +707 Seventeenth Street, Suite 3300 +Denver, Colorado 80202-3404 +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +May 19, 2004 +INTRODUCTION +The Board of Directors of Cimarex is soliciting proxies to be used at the 2004 annual meeting of stockholders and at any adjournment or postponement of the +meeting. This proxy statement and form of proxy will be mailed to stockholders on approximately April 16, 2004. Stockholders of record as of the close of business on March 26, 2004 may +vote at the meeting. +Each +share of common stock you own as of the March 26, 2004 record date entitles you to one vote. The number of shares you own is shown on your proxy card beneath and to the right +of your name. As of March 15, 2004, there were 41,365,563 shares of Cimarex Energy Co. common stock outstanding. +We +provide several options for you to cast your vote. You may attend the meeting and vote in person or you can vote in any one of the following three ways: +• by +telephone by following the instructions on either the enclosed proxy card or voting instruction form; or +• on +the Internet by following the instructions on the enclosed proxy card; or +• by +signing and returning the proxy card in the enclosed postage paid envelope. +We +recommend you vote by proxy even if you plan to attend the meeting. You may always change your vote at the meeting. If you hold shares through a bank, broker or other nominee and +would like to attend the annual meeting and vote in person, you will need to bring an account statement as of the close of business on March 26, 2004. Alternatively, you may contact the person +in whose name your shares are registered and obtain a proxy and bring it to the annual meeting. +The Proxy +When you execute and deliver your proxy, you authorize us to vote your shares at the meeting in the manner you direct. You may vote for all, some or none of our +director candidates. If you sign and return the enclosed proxy card but do not specify how to vote, we will vote your shares in favor of our director candidates. +You +may receive more than one proxy or voting card depending on how you hold your shares. If you hold shares through someone else, such as a stockbroker, you may receive material from +them asking how you want to vote your shares. Please vote each proxy you receive. +In +addition to solicitation by mail, solicitation of proxies may be made by certain officers and regular employees of Cimarex by mail, telephone or in person. All costs of the +solicitation of proxies, including reimbursements to brokerage firms and others for their expenses in forwarding proxy materials, will be borne by us. +You +may revoke your proxy before it is voted by submitting a new proxy with a later date (either by telephone, on the Internet, or by returning a new proxy card), by voting in person at +the meeting, or by notifying our Assistant Corporate Secretary in writing at the address listed on the front of this booklet. +Quorum and Voting Requirements +Quorum +In order to conduct business at the meeting, we must have a majority quorum. This means that greater than 50% of the outstanding shares of common stock as of the +close of business on March 26, 2004 must be represented in person or by proxy at the meeting. Abstentions and broker non-votes are counted as present for establishing a quorum. +Broker non-votes occur when a broker returns a proxy but does not have authority to vote on a particular proposal. If a quorum is not present at the meeting, a vote for adjournment will be +taken among the stockholders present or represented by proxy. If a majority of the stockholders present or represented by proxy vote for adjournment, it is our intention to adjourn the meeting until a +later date and to vote proxies at such adjourned meeting. +Voting Requirements +Election of Directors. Directors will be elected by a plurality of the votes. A "plurality" means that the three director +nominees receiving the most "FOR" votes will be elected as Class II directors. Broker non-votes count for quorum purposes but not for voting purposes. +Tabulation of Votes. Continental Stock Transfer & Trust Company, New York, New York, our stock transfer agent, will +receive proxies and ballots, tabulate the vote, determine whether a quorum exists and serve as inspector of election at the meeting. +Cimarex 401(k) Participants. If you are a participant in the Cimarex Energy Co. 401(k) Plan, you will receive a +proxy card for the Cimarex shares you own through the 401(k) Plan. That proxy card will serve as a voting instruction card for the trustee of the 401(k) Plan, and your 401(k) Plan +shares will be voted as you instruct. If you do not sign and return your voting instruction card to indicate your instructions, the 401(k) Plan trustee will vote your 401(k) Plan shares +in the same proportion as the shares were voted by other Plan participants. +ELECTION OF DIRECTORS +Our Board of Directors consists of nine members and is divided into three classes: Class I, Class II and Class III directors. At each annual +meeting, a class of directors is elected generally for a term expiring at the annual meeting in the third year following the year of election. Each director holds office until his successor is elected +and qualifies. +The +terms of the three current Class II directors, Cortlandt S. Dietler, Hans Helmerich and L. F. Rooney, III, will expire at the 2004 annual meeting. Messrs. Dietler, +Helmerich and Rooney have each been nominated to stand for reelection at the meeting to hold office until our 2007 annual meeting. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class II nominees named above to serve for three years or until his successor is +elected and qualifies. If, prior to the annual meeting, one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the +remaining nominees and for any substitute nominee or nominees designated by our Board of Directors or its Governance Committee. As of the mailing of these proxy materials, the Board of Directors knows +of no reason why any director nominee would not be available to serve as a director. +We +encourage our directors to attend annual meetings. Board of Directors and committee meetings are scheduled to coincide with the dates of our annual meetings. All of our directors +attended last year's annual meeting held on May 28, 2003. +Information +concerning the nominees selected by our Board of Directors, as well as each of our continuing directors, is set forth below: +Nominees for Election for Three-Year Terms Expiring in 2007 +Cortlandt S. Dietler, age 82 +Director Since 2002 +Chairman +of the Board of TransMontaigne, Inc. since April 1995. Chief Executive Officer of TransMontaigne from April 1995 through September 1999. Director of +Hallador Petroleum Company and Forest Oil Corporation. Member of audit committee and nominating and corporate governance committee of Forest Oil. +Hans Helmerich, age 45 +Director Since 2002 +Director +of Helmerich & Payne since 1987. President and Chief Executive Officer of Helmerich & Payne since 1989. Director of Atwood Oceanics, Inc. +L. F. Rooney, III, age 50 +Director Since 2002 +Chairman +of the Board and Chief Executive Officer of Rooney Brothers Co. since 1984. Chairman of the Board of Manhattan Construction Company since 1994 and Chief Executive Officer from +1982 to 1994. Director of Helmerich & Payne, BOK Financial Corp. and Bank of Oklahoma N.A. Member of compensation committee of Bank of Oklahoma. +Directors' Recommendation +The Board of Directors recommends a vote "FOR" the election of Messrs. Dietler, Helmerich and Rooney as Class II directors. A plurality of the votes +represented at the annual meeting by shares of our common stock entitled to vote is required to elect the Class II directors. +Directors Continuing in Office—Terms Expiring in 2006 +F. H. Merelli, age 68 +Director Since 2002 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from +September 1992 to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of +audit committee of Apache Corporation. +Paul D. Holleman, age 72 +Director Since 2002 +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. Other positions in his 40 years with Holme Roberts included Chairman of the +Natural Resources Department and member of the executive committee. +Michael J. Sullivan, age 64 +Director Since 2002 +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner of the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, director and +member of audit committee of Allied Irish Bank Group and director and member of compensation, governance and executive committee of First Interstate BancSystem. +Directors Continuing in Office—Terms Expiring in 2005 +Glenn A. Cox, age 74 +Director Since 2002 +President +and Chief Operating Officer of Phillips Petroleum Company from June 1985 until his retirement in 1991. Chief Financial Officer of Phillips Petroleum Company from +June 1980 to May 1985. Director and member of audit committee of Helmerich & Payne, and previous director and member of audit committees of The Williams Companies and Union Texas +Petroleum. +David A. Hentschel, age 70 +Director Since 2002 +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. Since 1999, consultant to Occidental. President and Chief Executive +Officer of Canadian Occidental Petroleum, Ltd, now known as Nexen, from 1995 until 1997. Director of Nexen Inc. +L. Paul Teague, age 69 +Director Since 2002 +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New +Orleans Division, Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +Independence of Directors +The Board of Directors has determined that Messrs. Cox, Dietler, Hentschel, Holleman, Rooney, Sullivan and Teague are independent within the meaning of the +rules of the Securities and Exchange Commission, the listing standards of the New York Stock Exchange and the Corporate Governance Guidelines of Cimarex. Messrs. Merelli and Helmerich are not +independent because Mr. Merelli is an executive officer of Cimarex, and Mr. Helmerich was an executive officer of Cimarex. There are no family relationships among any directors or +executive officers of Cimarex. +Board of Directors' Meetings and Committees +During 2003, the Board of Directors held four meetings. Each incumbent director attended at least 75% of all meetings of the Board of Directors. +The +Board of Directors has an Audit Committee and a Governance Committee. All members of each Committee are independent within the meaning of the rules of the Securities and Exchange +Commission, the listing standards of the New York Stock Exchange and our Corporate Governance Guidelines of Cimarex. The members of these committees are: +Audit Committee +Governance Committee +Cortlandt S. Dietler, Chairman +L. Paul Teague, Chairman +Glenn A. Cox +David A. Hentschel +Paul D. Holleman +L. F. Rooney, III +Michael J. Sullivan +Audit Committee. The primary purposes of our Audit Committee are to assist the Board in monitoring (i) the integrity +of our financial statements, appropriateness of our accounting policies and adequacy of our internal controls, (ii) qualifications and independence of our independent auditors, +(iii) performance of our internal audit function, and (iv) compliance with legal and regulatory requirements. +The +Audit Committee operates in accordance with a Charter which has been approved by the Board of Directors. A copy of the charter was appended to the proxy statement for our annual +meeting held in 2003, and is available on our website at www.cimarex.com. +During +2003, the Audit Committee held eight meetings, which were attended by each member of the Committee. The Audit Committee and our Board have established a procedure whereby +complaints or concerns with respect to accounting, internal controls and auditing matters may be submitted to the Committee, which is described under "Complaint and Reporting Procedures" in this proxy +statement. +Our Board has determined that each member of the Audit Committee is financially literate, and that each of Messrs. Cox and Dietler has accounting or related financial management expertise, as +such qualifications are defined under the rules of the New York Stock Exchange, and is a "financial expert" within the meaning of the rules of the Securities and Exchange Commission. Mr. Cox is +a former chief financial officer of Phillips Petroleum Company, and Mr. Dietler, in his positions as Chairman of the Board and Chief Executive Officer of TransMontaigne, has supervised +principal financial officers or persons performing similar functions. The report of the Audit Committee is included in this proxy statement. +Governance Committee. The Governance Committee operates under the Governance Committee Charter which has been approved by the +Board of Directors. A copy of the charter is available on our website at www.cimarex.com. The Governance Committee has two principal functions: (i) nominating and governance and +(ii) compensation. +The +primary purposes of the nominating and governance function are to (a) recommend individuals to the Board Directors for nomination, election or appointment as members of the +Board of Directors and its committees, consistent with the criteria included in our Corporate Governance Guidelines, (b) oversee the evaluation of the performance of the Board of Directors and +its committees and our chief executive officer, and (c) take a leadership role in shaping the corporate governance of Cimarex. In identifying and recommending nominees for positions on the +Board of Directors, the Committee places emphasis on the criteria set forth in our Corporate Governance Guidelines, namely: (a) high personal and professional ethics, (b) integrity and +values, (c) commitment to the long-term interest of the stockholders and (d) a mix of characteristics and diverse experiences, perspectives and skills appropriate to our +business. The Committee does not set specific, minimum qualifications that nominees must meet, but rather believes that each nominee should be evaluated based on his or her individual merits, taking +into account the business and needs of Cimarex and the composition of the Board of Directors. The Governance Committee will consider nominees recommended by stockholders. The Governance Committee did +not receive nominations from a stockholder prior to February 28, 2004, the deadline for stockholder nominations. Stockholders who wish to submit a nominee for consideration by the Governance +Committee for election at our 2005 annual meeting of Stockholders may do so during the period February 11, 2005 to February 21, 2005, by submitting in writing such nominees' name, in +compliance with the procedures and along with the other information required by our By-laws, to our Assistant Corporate Secretary, Cimarex Energy Co., 707 Seventeenth Street, +Suite 3300, Denver, Colorado 80202. +The +primary purposes of the compensation function are to determine and approve the compensation of our chief executive officer, to make recommendations to the Board with respect to other +executive officer compensation and incentive compensation plans and to prepare a report on executive compensation. The Governance Committee Report on Executive Compensation is included in this proxy +statement. +During +2003, the Governance Committee held four meetings. Each member of the Committee attended at least 75% of all meetings. There are no Governance Committee interlocks with any other +entity. +Non-Management Directors' Meetings +In addition to the meetings of the committees of the Board of Directors described above, commencing with the Board meeting held on December 8, 2003, our +non-management directors meet in executive session following each Board meeting. Only independent directors attend the executive session held the date of the annual meeting. At the +December 8, 2003 meeting, the non-management directors chose Mr. Cox to act as the presiding director, to serve until the December 2004 Board meeting, at which time a +new presiding director will be chosen. +Compensation of Directors +For fiscal 2003, non-management director compensation consisted of the following annual retainer and committee and meeting fees: +Annual Retainer +$ +20,000 +Committee Chair +$ +5,000 +Attendance at Board Meeting +$ +1,500 +Attendance at Committee Meeting +$ +1,000 +We +reimburse Board members for their actual expenses related to attending Board meetings. Directors who are also employees of Cimarex receive no compensation for serving as a director. +On +March 9, 2004, upon the recommendation of the Governance Committee, the Board voted to provide additional compensation to the non-management directors effective +May 19, 2004. The additional compensation is a result of a review of the levels of compensation paid to directors of other companies of similar size and complexity. Non-management +directors will be entitled to receive a number of shares of restricted stock determined by dividing $50,000 by the average of the highest and lowest sales prices of Cimarex common stock as reported by +the New York Stock Exchange on May 19, 2004. The restricted stock will vest at the rate of one-third per year on May 19, 2005, 2006 and 2007. +EXECUTIVE COMPENSATION +Information regarding the compensation of the persons who serve as the chief executive officer and the five most highly compensated executive officers of Cimarex +is set forth below. With respect to Messrs. Merelli, Jorden, Korus, Albi and Bell, compensation for the period January 1, 2002 through September 30, 2002, and the fiscal year 2001 +was paid by Key, and with respect to Mr. Shaw, compensation for the period January 1, 2002 through September 30, 2002, and the fiscal year 2001 was paid by Helmerich & +Payne. All compensation from October 1, 2002 to December 31, 2002 and for fiscal year 2003 was paid by Cimarex. +Summary Compensation Table. The summary compensation table set forth below contains information regarding compensation paid +to each of the named executive officers for services rendered to Cimarex, Key and Helmerich & Payne, as applicable, in all capacities during the last three fiscal years. +Annual Compensation +Long Term Compensation +Name and Principal Position +Year +Salary +Bonus +Other +Annual +Compensation(1) +Restricted +Stock +Awards(2) +Securities +Underlying +Options +All Other +Compensation +F.H. Merelli, +Chairman, Chief Executive Officer, President +2003 +2002 +2001 +$ +$ +$ +350,000 +321,000 +306,328 +$ +$ +$ +375,000 +300,000 +238,537 +$ +22,701 +— +— +(3) +$ +— +3,516,480 +— +— +422,400 +— +$ +$ +$ +31,430 +8,844 +8,420 +(4) +Steven R. Shaw +Executive Vice President—Operations +2003 +2002 +2001 +$ +$ +$ +319,300 +319,300 +304,750 +$ +$ +$ +160,000 +310,000 +120,000 +$ +$ +— +544 +543 +(6) +(6) +$ +— +757,575 +— +— +91,000 +106,300 +$ +$ +$ +23,107 +28,811 +8,500 +(5) +Thomas E. Jorden +Executive Vice President—Exploration +2003 +2002 +2001 +$ +$ +$ +192,000 +178,000 +168,995 +$ +$ +$ +192,000 +130,000 +60,000 +— +— +— +$ +— +757,575 +— +— +91,000 +— +$ +$ +$ +18,614 +10,282 +12,440 +(7) +Paul Korus +Vice President, Chief Financial Officer, Treasurer and Corporate Secretary +2003 +2002 +2001 +$ +$ +$ +200,000 +187,251 +178,776 +$ +$ +$ +160,000 +113,000 +100,000 +— +— +— +$ +— +757,575 +— +— +91,000 +— +$ +$ +$ +15,158 +9,695 +6,800 +(8) +Joseph R. Albi +Senior Vice President—Corporate Engineering +2003 +2002 +2001 +$ +$ +$ +178,000 +166,000 +157,728 +$ +$ +$ +151,300 +110,000 +60,000 +— +— +— +$ +— +757,575 +— +— +91,000 +— +$ +$ +$ +29,319 +9,972 +6,800 +(9) +Stephen P. Bell +Senior Vice President—Business Development and Land +2003 +2002 +2001 +$ +$ +$ +177,000 +165,000 +157,436 +$ +$ +$ +141,600 +99,000 +60,000 +— +— +— +$ +— +757,575 +— +— +91,000 +— +$ +$ +$ +38,246 +11,096 +11,535 +(10) +(1) The +aggregate amount of perquisites and other personal benefits was less than either $50,000 or ten percent of the total annual salary and bonus reported for each of the named +executive officers. +(2) The +value of the restricted stock awards represents the fair market value of common stock on December 6, 2002, the date of grant ($16.65), times the number of shares awarded to +each of the named executive officers. Effective December 1, 2003, each of the named individuals exchanged his shares of restricted stock for stock units which represent the right to receive, on +a specified payment date, a like number of shares. +(3) Represents +the payment of estimated tax liability associated with the vesting of stock units. +(4) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $21,430, respectively. +(5) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $13,107, respectively. +(6) Represents +the payment of estimated tax liability with respect to health and retirement benefits. +(7) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $5,758, respectively and a payment of $2,856 for unused vacation. +(8) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $5,158, respectively +(9) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $4,690, respectively and a payment of $14,629 for unused vacation.. +(10) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,000 and $4,253, respectively and a payment of $23,993 for unused vacation. +Option Grants in 2003 +No options were granted by Cimarex to any of the named executive officers during fiscal year 2003. +Aggregated Option Exercises in 2003 and Fiscal Year 2003 Year-End Option Values +Number of Securities Underlying Unexercised Options at 2003 Year End +Value of Unexercised In-the-Money Options at 2003 +Year End +Number of +Shares +Acquired on +Exercise +Name +Value +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +F.H. Merelli +— +— +459,480 +337,920 +$ +6,583,452 +$ +3,565,056 +Steve R. Shaw +— +— +533,755 +152,525 +$ +7,556,618 +$ +1,788,122 +Thomas E. Jorden +15,000 +$ +235,416 +62,200 +72,800 +$ +962,560 +$ +768,040 +Paul Korus +26,000 +$ +271,580 +77,200 +72,800 +$ +1,225,248 +$ +768,040 +Joseph R. Albi +19,500 +$ +252,224 +60,200 +72,800 +$ +927,535 +$ +768,040 +Stephen P. Bell +30,000 +$ +504,375 +50,700 +72,800 +$ +761,166 +$ +768,040 +Equity Compensation Plan Information (as of December 31, 2003) +Plan category +(a) +Number of securities to be +issued upon exercise of +outstanding options, +warrants and rights(1) +(b) +Weighted-average exercise +price of outstanding +options, warrants and +rights +(c) +Number of securities +remaining available for +future issuance under +equity compensation plans +(excluding securities +reflected in column (a)) +Equity compensation plans approved by security holders +3,321,299 +$ +14.39 +2,961,014 +Equity compensation plans not approved by security holders +0 +0 +0 +Total +3,321,299 +$ +14.39 +2,961,014 +(1) The +number of securities to be issued upon exercise does not include restricted stock awards representing 29,087 shares, as these securities are issued and outstanding, or awards of +stock units representing the right to acquire 688,600 shares. +Stock Units +In December 2003, certain employees elected to exchange an aggregate of 688,600 shares of restricted stock for restricted stock units, in accordance with +the provisions of our Stock Incentive Plan. The shares of restricted stock were then cancelled. The restrictions related to these stock units include continuous employment for one to five years +from the date of the original grant of the related restricted stock, at which time the units will vest, provided that the units will not be payable until the eighth anniversary of the date of grant. +The holders of stock units are entitled to cash payments equal +to any cash dividends paid on our stock. We do not currently intend to pay dividends on our common stock. +Employment Agreements and Change in Control Arrangements with Named Executive Officers +F. H. Merelli. Mr. Merelli serves under an employment agreement that provides for annual reviews by the Governance +Committee. Mr. Merelli's salary may be increased as a result of the review but may not be +decreased. Mr. Merelli is also entitled to receive an annual incentive bonus under any plan or program implemented for executives. The agreement has an indefinite term. +Cimarex +may terminate Mr. Merelli's employment at any time for cause or after 30 days' notice if not for cause. Mr. Merelli may terminate his employment at any time +for any reason. If Mr. Merelli's employment is terminated without cause or because of death or disability, or he resigns for good reason, he will receive his base salary for two years +and the maximum incentive compensation payable pursuant to any Cimarex plan or program. Mr. Merelli also participates in the Income Continuance Plan described below, which provides for +continuation of his salary and benefits upon certain terminations of employment following the Key reorganization. Any payment made to Mr. Merelli under his employment agreement will be deducted +from the benefits under the Income Continuance Plan. +While +he is with Cimarex and for three years after he leaves Cimarex, Mr. Merelli must keep confidential any information about Cimarex or its business that is not generally +available to the public. Cimarex has indemnified Mr. Merelli to the maximum extent permissible under applicable law. +Steven R. Shaw. Mr. Shaw serves pursuant to an agreement that provides that if Cimarex terminates Mr. Shaw's +employment prior to September 30, 2004, other than for cause, disability, death or the occurrence of a substantial downturn, or if Mr. Shaw terminates his employment for good reason +prior to September 30, 2004, any options or restricted stock granted to Mr. Shaw will vest in full, he will receive a lump-sum payment equal to two times his base salary and +annual bonus, 24 months of benefit continuation and a prorated annual bonus. In order to receive such benefits, Mr. Shaw must execute a release of claims. Mr. Shaw may terminate +his employment for any reason during the period April 1 to April 30, 2004 and be entitled to full vesting of any options or restricted stock that had been granted to him before +September 30, 2002. In the event that any benefits payable to Mr. Shaw are subject to the "golden parachute" excise tax under Section 4999 of the Internal Revenue Code, +Mr. Shaw will be entitled to receive the greater of (i) such benefits reduced by any applicable excise taxes and (ii) a reduction in his benefits so that no excise taxes are +applicable. During the period of his employment, Mr. Shaw is prohibited from divulging any confidential information of Helmerich & Payne and Cimarex, and following his termination of +employment, he will be permitted to do so only with the prior written consent of Helmerich & Payne and/or Cimarex, as the case may be. Cimarex has agreed to indemnify Mr. Shaw in the +same manner as any other key management employees. During the term of the agreement and for the five-year period following his termination of employment, Cimarex will maintain director and +officer liability insurance covering Mr. Shaw, provided that the indemnity and insurance must be maintained at a level no less than that in effect immediately prior to September 30, +2002. +Messrs. Jorden, Korus, Albi and Bell. Each of Messrs. Jorden, Korus, Albi and Bell serve under employment +agreements that have expired. However, each agreement provided that, if the executive continues as an employee after the term of the agreement (as each executive has done) and is terminated without +cause following a change in control, the executive will be entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Cimarex +assumed this obligation following the Key reorganization. Accordingly, if Cimarex terminates the executive's employment without cause after September 30, 2002, Cimarex is obligated to make a +lump-sum payment to the executive equal to two times his base salary at September 30, 2002. Any +payments made to these executives pursuant to these agreements will be deducted from the benefits to which the executive is otherwise entitled pursuant to the Income Continuance Plan described below. +Income Continuance Plan +As a result of the September 30, 2002, acquisition and reorganization of Key Production Company, Inc., Cimarex is a party to an Income Continuance +Plan. The Plan may not be amended nor may it be terminated prior to March 31, 2005. The Plan covers former officers and employees of Key who are currently employed by Cimarex and who fall +within one of the following categories: +• Officers +(including Messrs. Merelli, Jorden, Korus, Albi, Bell); +• Employees +who are at least 40 years old; +• Employees +who were continuously employed by Key for at least 10 years; and +• Certain +other employees with special skills or experience, as determined by the Key board of directors prior to the reorganization. +The +Key acquisition constituted a change of control as defined in the Income Continuance Plan. Accordingly, if a participating employee is terminated without cause (as such term is described in the +Plan) or resigns due to changed circumstances (including, without limitation, a significant change in title, duties, authority or compensation or a greater than 50-mile change in the +employee's regular work place), the employee is entitled to the following benefits: +• Key's +former officers and employees who had at least 48 months' continuous service with Key and officers of Key are entitled to receive continuation of their base +compensation (as defined in the Plan, including all salary, incentive compensation and bonuses) for 24 months following their termination of employment. +• Employees +(other than officers) who have less than 48 months continuous service are entitled to receive continuation of their base compensation (as defined in the +plan) for a period equal to 50% of their aggregate months of service. +• All +participating employees will receive health and life insurance continuation for so long as they receive salary continuation as well as reimbursement of any expenses, +including legal fees incurred in enforcing the employee's right to receive benefits pursuant to the Plan. +In +general, the benefits paid pursuant to the Plan are in addition to, and not in lieu of, any benefits that the participants are otherwise entitled to pursuant to a plan, program or +contract. However, if an employee is entitled to receive a payment based on annual salary pursuant to the terms of an employment agreement, the benefits paid pursuant to the Plan shall be offset by +the benefits paid pursuant to the employment agreement. +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Drilling costs of approximately $4.6 million were incurred by Cimarex related to +such services for the year ended December 31, 2003. In addition, a non-cash purchase price adjustment of $100,000 was made for the benefit of Helmerich & Payne in connection +with the September 30, 2002 spin off of Cimarex. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +Stock Price Performance +The following graph shows the total stockholder return through December 31, 2003 of an investment of $100 in cash on September 30, 2002 (the date of +the spin off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. Oil Companies, +Secondary index. Historic stock price performance is not indicative of future stock price performance. +Cumulative Total Return +9/02 +10/02 +11/02 +12/02 +1/03 +2/03 +3/03 +4/03 +5/03 +6/03 +7/03 +8/03 +9/03 +10/03 +11/03 +12/03 +CIMAREX ENERGY CO. +100.00 +92.17 +87.65 +103.77 +108.29 +115.25 +112.75 +114.20 +126.09 +137.68 +116.58 +126.09 +113.62 +118.55 +134.03 +154.72 +S & P 500 +100.00 +108.80 +115.21 +108.44 +105.60 +104.01 +105.02 +113.67 +119.66 +121.19 +123.33 +125.73 +124.40 +131.43 +132.59 +139.54 +DOW JONES US OIL COMPANIES, SECONDARY +100.00 +100.47 +101.16 +104.58 +102.93 +106.79 +107.16 +104.55 +116.93 +115.65 +109.05 +116.63 +115.54 +118.47 +121.78 +137.06 +Governance Committee Report on Executive Compensation +The Governance Committee performs nominating, corporate governance and compensation functions. The Committee administers Cimarex's executive compensation program +and establishes the salaries of our executive officers. The Committee consists of only non-management directors who are appointed by the Board of Directors. +The +Committee's objective is to provide Cimarex executive officers with a comprehensive compensation package that is designed to encourage recipients to identify and take actions that +will achieve short-and long-term objectives. The compensation policies and programs utilized by the +Governance Committee have been reviewed by independent compensation consultants and endorsed by the Board of Directors and generally consist of the following: +• Provide +executive officer total compensation in relation to the performance of Cimarex; +• Provide +a compensation program competitive with that received by executives of comparable companies in the oil and gas industry in order to attract, motivate and retain +qualified personnel; +• Provide +a management tool for focusing and directing the energies of key executives toward achieving individual and corporate objectives; and +• Provide +long-term incentive compensation in the form of stock options, restricted stock and stock unit awards to link individual success to that of Cimarex. +Cimarex's +executive compensation consists of three key components: base salary, annual incentive compensation in the form of cash bonuses, and long-term incentive +compensation in the form of equity based compensation, each of which is intended to complement the others and, collectively, satisfy Cimarex's compensation objectives. The Governance Committee's +policies with respect to each of the three components are discussed below. +Base Salary. Each fiscal year the Governance Committee, along with the Chief Executive Officer, reviews and approves the +annual salaries for our executive officers. Many factors are included in determining base salaries, such as the responsibilities borne by the executive officer, a comparison of the compensation of the +executive with the compensation of other executives in comparable industries with similar responsibilities, the scope of the position and corporate and individual performance. +Cash Bonuses. The Governance Committee provides annual incentives to Cimarex executive officers in the form of cash bonuses. +Criteria that determine bonuses include company performance compared to external benchmarks, operational and financial performance and internally set objectives. +Equity-Based Compensation. The primary objective of the equity-based program is to link the interests of executive officers +and other selected employees with the stockholders. The Cimarex Energy Co. 2002 Stock Incentive Plan authorizes the Committee to grant incentive and non-qualified stock options, restricted +stock and stock units to officers and other employees meeting certain criteria. Subject to general limits prescribed by the Stock Incentive Plan, the Governance Committee has the authority to +determine the individuals to whom equity compensation is awarded, the terms of the awards and the number of shares of common stock subject to the awards. The size of any particular award is based upon +the employee's position with Cimarex and individual performance. +Chief Executive Officer's Compensation. As discussed under "Employment Agreements," Cimarex is a party to an employment +agreement with Mr. Merelli. The salary determined by the Governance Committee for Mr. Merelli was based upon the compensation paid to chief executive officers of comparable companies and +the Governance Committee's recognition of Mr. Merelli's continued leadership of Cimarex. +THE COMPENSATION COMMITTEE +L. Paul Teague, Chairman +David A. Hentschel +L.F. Rooney, III +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +Independent Auditors +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2004. KPMG has been our independent auditors since +October 1, 2002. A KPMG representative will be at the annual meeting to answer appropriate questions and to make a statement if he or she desires. +The +following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to Cimarex: +Years Ended December 31, +2003 +2002 +Audit Fees +$ +165,476 +$ +232,050 +(1) +Audit-Related Fees +$ +0 +$ +0 +Tax Fees +$ +134,656 +$ +9,561 +(1) Audit +fees include $81,770 paid to KPMG for the audit as of and for the three months ended December 31, 2001. +The +Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a +specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the Securities and Exchange Commission may not +be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The audit services, audit-related services and tax services performed by our independent +auditor during fiscal 2003 were pre-approved by the Audit Committee. +The +Board of Directors and the Audit Committee approved the dismissal of Ernst & Young LLP as Cimarex's independent auditors effective October 1, 2002. Ernst & Young +served as our independent auditor for the fiscal year ended September 30, 2001. Ernst & Young's reports for the year ended September 30, 2001 did not contain an adverse opinion or +disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal year ended September 30, 2001 and the subsequent interim +period through October 1, 2002, there were no disagreements with Ernst & Young within the meaning of Instruction 4 of Item 304 of Regulation S-K on any matter of +accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Ernst & Young's satisfaction would have caused +Ernst & Young to make reference to the subject matter of the disagreements in connection with its report. During the term of Ernst & Young's engagement, there were no "reportable events" +(as such term is defined in Item 304(a)(1)(v) of Regulation S-K). +The +Board of Directors appointed KPMG to serve as our independent auditor as of and for the three-month transition period (as such term is defined in Regulation 13A) ended +December 31, 2001 and as of and for the years ended December 31, 2002 and 2003. KPMG's engagement commenced effective October 1, 2002. During the two fiscal years +ended September 30, 2001, and the subsequent interim periods, prior to engagement, Cimarex did not consult with KPMG regarding any of the matters or events set forth in Item +304(a)(2)(i) or (ii) of Regulation S-K. +As +part of the registration process for Cimarex, there was discussion among management of Cimarex and Key and their auditors, Ernst & Young and KPMG, respectively. The discussion +related to the initial selection of alternative accounting methods associated with accounting for oil and gas properties. Ernst & Young, as Cimarex's independent auditors, and KPMG, as Key's +independent +auditors, were each consulted as to the matter and each agreed with the conclusion that the full cost method of accounting is an acceptable alternative for accounting for oil and gas properties. +Report of Audit Committee +The Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its +financial reporting and the independence and performance of Cimarex's independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which was attached +to the Proxy Statement for the 2003 annual meeting of stockholders and is available on our website at www.cimarex.com. +Management +has the primary responsibility for the financial statements and the overall reporting process of Cimarex, including Cimarex's system of internal controls. The independent +auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial statements fairly present the consolidated financial position, results of +operations and cash flows of Cimarex and its subsidiaries in conformity with generally accepted accounting principles, and discuss with management any issues they believe should be raised. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2003 and met with both management and KPMG, Cimarex's independent +auditors, to discuss those financial statements. Management has represented to us that the financial statements were prepared in accordance with generally accepted accounting principles. +We +have received from KPMG the written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with +Audit Committees , and discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required to be discussed +by Statement on Auditing Standards No. 61, Communication with Audit Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2003. +THE AUDIT COMMITTEE +Cortlandt S. Dietler, Chairman +Glenn A. Cox +Paul D. Holleman +Michael J. Sullivan +BENEFICIAL OWNERSHIP +Cimarex has one class of voting securities outstanding. On March 15, 2004, there were 41,365,563 shares of common stock outstanding, with each share +entitled to one vote. +Directors and Executive Officers +Common Stock. The following table shows, as of March 15, 2004, the number of shares of common stock beneficially owned +by each director and nominee, each of the executive officers named in the Summary Compensation Table set forth under the caption "Executive Compensation," and all directors and executive officers as a +group. +Name of Beneficial Owner +Shares +Owned(1) +Option +Shares(2) +Beneficial Ownership Total +Percent of +Class +F.H. Merelli +233,462 +459,480 +692,942 +1.7 +% +Glenn A. Cox +3,186 +3,333 +6,519 +* +Cortlandt S. Dietler +103,500 +45,833 +149,333 +* +Hans Helmerich +97,976 +(3) +3,333 +101,309 +(3) +* +David A. Hentschel +2,000 +3,333 +5,333 +* +Paul D. Holleman +2,000 +28,333 +30,333 +* +L.F. Rooney, III +17,537 +3,333 +20,870 +* +Michael J. Sullivan +2,500 +3,333 +5,833 +* +L. Paul Teague +44,170 +10,000 +54,170 +* +Thomas E. Jorden +6,453 +44,900 +51,353 +* +Steven Shaw +16,610 +358,755 +375,365 +* +Paul Korus +8,567 +67,200 +75,767 +* +Joseph R. Albi +5,669 +54,200 +59,869 +* +Stephen P. Bell +— +50,700 +50,700 +* +All directors and executive officers as a group (16 persons) +544,527 +1,154,266 +1,698,793 +4.0 +% +(1) Includes +equivalent shares of common stock held by the trustee for the benefit of employee participants in the Cimarex Energy Co. 401(k) Plan. Participants in this plan instruct the +trustee as to how the participant's equivalent shares should be voted. +(2) Shares +of common stock that could be purchased by the exercise of stock options within the 60-day period following March 15, 2004 under the Cimarex Energy Co. 2002 +Stock Incentive Plan. +(3) Includes +11,450 shares held by Mr. Helmerich's spouse and 7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee. +Mr. Helmerich disclaims beneficial ownership of these shares. +* Less +than one percent of the outstanding shares of Cimarex stock. +Stock Units. Until December 1, 2003, each of our executive officers owned shares of restricted stock, and these shares +were reported under beneficial ownership in the proxy statement for our 2003 annual meeting. On December 1, each of these individuals exchanged their restricted stock for restricted stock units +that are not payable in shares of common stock until the eighth anniversary of the date of grant. The following table shows as of March 15, 2004, the number of stock units owned by each of the +executive officers named in the Summary Compensation Table set forth under the caption "Executive Compensation," and all executive officers as a group. The stock units do not have voting +rights, but the holders of the units are entitled to receive cash payments equal to any cash dividends and other distributions paid in cash on our common stock. +Name of Unit Holder +Number of Units Owned +F. H. Merelli +211,200 +Thomas E. Jorden +45,500 +Steven R. Shaw +45,500 +Paul Korus +45,500 +Joseph R. Albi +45,500 +Stephen P. Bell +45,500 +All executive officers as a group (8 persons) +496,200 +Beneficial Owners of More than Five Percent +The following table lists those stockholders who beneficially own more than five percent of the outstanding shares of our common stock. This information is based +on filings by the reporting persons with the Securities and Exchange Commission. +Voting Authority +Dispositive Authority +Name and Address +Total Amount +of Beneficial +Ownership +Percent of +Class +Sole +Shared +Sole +Shared +Neuberger Berman Inc. +605 Third Ave. +NY, NY 10158-3698 +440,493 +1,526,547 +0 +2,688,974 +2,688,974 +6.5 +% +State Farm Mutual Automobile Insurance +One State Farm Plaza +Bloomington, IL 61710 +2,194,205 +9,547 +2,194,205 +9,547 +2,203,752 +5.3 +% +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common +stock, to file reports of ownership of, and transactions in, our common stock with the SEC. The reports by such persons are published on our website at http://www.cimarex.com. Based on a review of +such reports, and on written representations from our reporting persons, we believe that all reports were timely filed in 2003, except for the late filing of the initial reports on Form 3 of +Messrs. Dinkins and Shonsey. +Incorporation by Reference +To the extent that this Proxy Statement is incorporated by reference into any other filing by Cimarex under the Securities Act of 1933 or the Securities Exchange +Act of 1934, the sections of this Proxy Statement entitled "Governance Committee Report on Executive Compensation," and "Report of the Audit Committee" and "Stock Price Performance" will not be +deemed incorporated, unless specifically provided otherwise in such filing. +Other Matters +There are no other matters that the Board of Directors intends to present, or has reason to believe others will present, at the annual meeting. If other matters +come before the annual meeting, +the persons named in the accompanying form of proxy will vote in accordance with their best judgment with respect to such matters. +Stockholder Proposals for 2005 Annual Meeting +Any stockholder wishing to submit a proposal for the vote of the stockholders at Cimarex's 2005 annual meeting must submit such proposal or proposals in writing +to Cimarex no later than December 21, 2004. Proposals should be sent to the attention of the Assistant Corporate Secretary at 707 Seventeenth Street, Suite 3300, Denver, Colorado 80202. +We are not required to include in our proxy statement a form of proxy or stockholder proposal that is received after that date or otherwise fails to meet the requirements for stockholder proposals +established by regulations of the Securities and Exchange Commission. +As +required by our By-laws, a stockholder must give timely notice of a nomination for election as a director. A notice is timely if received no earlier than +February 11, 2005 and no later than February 21, 2005. The advance notice must be delivered to the attention of the Assistant Corporate Secretary at 707 Seventeenth Street, +Suite 3300, Denver, Colorado 80202 and must comply with the requirements of Cimarex's By-Laws. +Complaint and Reporting Procedures +We have established complaint and reporting procedures, which are posted on our website at www.cimarex.com. Any person, whether or not an employee, who has a +concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern +by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with the presiding +non-management director or with our non-management directors as a group, also may call the confidential hotline. The hotline is available 24 hours a day, seven days a +week +and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +VOTE BY TELEPHONE OR INTERNET +QUICK • EASY • IMMEDIATE +CIMAREX ENERGY CO. +• You +can now vote your shares electronically through the Internet or the telephone. +• This +eliminates the need to return the proxy card. +• Your +electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. +TO VOTE YOUR PROXY BY INTERNET +www.continentalstock.com +Have +your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an electronic ballot. Follow the prompts to +vote your shares. +TO VOTE YOUR PROXY BY MAIL +Mark, +sign and date your proxy card above, detach it and return it in the postage-paid envelope provided. +TO VOTE YOUR PROXY BY PHONE +1-800-293-8533 +Use +any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy number and account number. Follow the +voting instructions to vote your shares. +PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +Please mark +your votes +like this +ý +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSAL. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +The Board of Directors recommends a vote FOR Proposal 1. +PROPOSAL 1— +ELECTION OF DIRECTORS +FOR +o +WITHHELD +FOR ALL +o +Nominees: +Cortlandt S. Dietler, Hans Helmerich, L.F. Rooney, III +WITHHELD FOR (Write that nominee's name in the space provided below.) +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE +INSTRUCTIONS ABOVE. +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature(s) +Signature(s) +Date +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or +guardian, please give full title as such. +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 19, 2004, or any adjournment thereof. +(Continued, and to be marked, dated and signed, on the reverse side) +QuickLinks +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To be Held on May 19, 2004 +INTRODUCTION +ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +BENEFICIAL OWNERSHIP +OTHER MATTERS \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-04-012086/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-04-012086/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..13309e9f75de1ef01b68bb3f8d961807efe48d76 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-04-012086/proxy_rpt.txt @@ -0,0 +1,25 @@ +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Drilling costs of approximately $4.6 million were incurred by Cimarex related to +such services for the year ended December 31, 2003. In addition, a non-cash purchase price adjustment of $100,000 was made for the benefit of Helmerich & Payne in connection +with the September 30, 2002 spin off of Cimarex. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +Stock Price Performance +The following graph shows the total stockholder return through December 31, 2003 of an investment of $100 in cash on September 30, 2002 (the date of +the spin off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. Oil Companies, +Secondary index. Historic stock price performance is not indicative of future stock price performance. +Cumulative Total Return +9/02 +10/02 +11/02 +12/02 +1/03 +2/03 +3/03 +4/03 +5/03 +6/03 +7/03 +8/03 +9/03 +10/03 +11/03 +12/03 \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-05-007935/proxy.txt b/raw/proxies/0001168054/0001047469-05-007935/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..95be15ded74b47595d649c69d98405854bd16698 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-05-007935/proxy.txt @@ -0,0 +1,1165 @@ +DEF 14A +1 +a2154428zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 18, 2005 +To +the Stockholders of Cimarex Energy Co.: +The +annual meeting of stockholders of Cimarex Energy Co. will be held on Wednesday, May 18, 2005, at 9:30 a.m., Mountain Time, in the Hershner Room, 1700 Lincoln Street, +Denver, Colorado, for the following purposes: +1. Elect +three directors to serve until the 2008 annual meeting. +2. Ratify +the Audit Committee's appointment of KPMG LLP as Cimarex's independent auditors for the year ending December 31, 2005. +3. Transact +any other business that may be properly brought before the annual meeting. +Only +stockholders of record at the close of business on March 25, 2005 are entitled to notice of and to vote at the annual meeting. All stockholders are invited to attend the +annual meeting in person. To ensure your representation at the annual meeting, you are urged to vote in one of the following ways: (1) by completing, signing and dating the accompanying proxy +card and returning it in the enclosed postage-prepaid envelope, (2) by completing your proxy using the toll free number listed on the proxy card, or (3) by completing your proxy on the +Internet at the address listed on your proxy card. You may revoke your proxy in the manner described in the accompanying Proxy Statement at any time before it has been voted. Any stockholder attending +the annual meeting may vote in person even if he or she has returned a proxy. +By order of the Board of Directors, +/s/ MARY K. ROHRER +Mary K. Rohrer +Assistant Corporate Secretary +Date: +April 8, 2005 +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +May 18, 2005 +VOTING +Record Date and Mailing Date +Stockholders of record as of the close of business on March 25, 2005 may vote at the meeting. This proxy statement and form of proxy will be mailed to +stockholders on approximately April 8, 2005. +Methods of Voting +Stockholders of record (you own shares in your own name) may vote by mail, by telephone, on the Internet or in person, as described below. Street name +stockholders (you own shares held in the name of a bank, broker or other holder), please refer to the proxy card or information you receive from your bank, broker or other holder of your stock for +voting instructions. +Voting by Mail. Complete, sign, date and return the enclosed proxy card in the +postage-paid envelope provided. If you fail to sign your proxy card, your vote cannot be counted. If you sign your proxy card but do not indicate how you want to vote, then your proxy will +be voted as recommended by the Board of Directors. +Voting by Telephone. You may vote by telephone by using the toll-free number listed on +the proxy card and following the instructions on the proxy card. +Voting on the Internet. You may vote on the Internet. The web site for Internet voting is www.continentalstock.com . Follow the instructions on the proxy card. +Voting in Person. Even if you plan to attend the meeting, the Board recommends that you vote using +one of the other voting methods. You are permitted, however, to vote in person at the meeting. If your shares are held in street name, you must obtain a proxy, executed in your favor, from your bank, +broker or other holder to be able to vote in person at the meeting. +Revoking your Proxy +You may revoke your proxy at any time before the vote is taken by (i) delivering to the Assistant Corporate Secretary of Cimarex a proxy with a later date, +(ii) voting again by Internet or telephone, (iii) delivering to the Assistant Corporate Secretary a written revocation prior to the meeting or (iv) voting in person at the +meeting. +Shares Entitled to Vote +Each share of common stock that you held on March 25, 2005, entitles you to one vote at the meeting. As of March 25, 2005, there were 44,774,841 +shares of Cimarex Energy Co. common stock outstanding, which are entitled to vote at the meeting. +Vote Required +Election of Directors. Directors will be elected by a plurality of the votes. A "plurality" means +that the three director nominees receiving the most "FOR" votes will be elected as Class III directors. Neither abstentions nor broker non-votes will have an effect on the votes for +or against the election of a director. +Ratify KPMG LLP as Cimarex's Independent Auditors for 2005. The affirmative vote of a majority of the +shares present and entitled to vote, in person or by proxy, at the Annual Meeting is required to ratify the Audit Committee's appointment of KPMG LLP as Cimarex's independent auditors for 2005. +Proxies +will be solicited by mail and may be solicited by certain officers and regular employees of Cimarex by mail, telephone or in person. We will pay for all solicitation costs, +including reimbursements to brokerage firms and others for their expenses in forwarding proxy materials. +Quorum +In order to conduct business at the meeting, we must have a majority quorum. This means that greater than 50% of the outstanding shares of common stock as of the +close of business on March 25, 2005 must be represented in person or by proxy at the meeting. Abstentions and broker non-votes are counted as present for establishing a quorum. +Broker non-votes occur when a broker returns a proxy but does not have authority to vote on a particular proposal. If a quorum is not present at the meeting, a vote for adjournment will be +taken among the stockholders present or represented by proxy. If a majority of the stockholders present or represented by proxy vote for adjournment, it is our intention to adjourn the meeting until a +later date and to vote proxies at such adjourned meeting. +Tabulation of Votes +Continental Stock Transfer & Trust Company, New York, New York, our stock transfer agent, will receive proxies and ballots, tabulate the vote, determine +whether a quorum exists and serve as inspector of election at the meeting. +Cimarex 401(k) Participants +Participants in the Cimarex Energy Co. 401(k) Plan who have shares of Cimarex stock credited to their Plan account as of March 25, 2005 will receive +a proxy card. Participants have the right to instruct the Trustee of the Plan (Vanguard) how to vote the shares. The proxy card serves as a voting instruction card, and the Trustee will vote the +shares in accordance with the instructions on the card. If you do not sign and return the proxy card to indicate your instructions, the Trustee will vote your 401(k) Plan shares in the same +proportion as shares were voted by other Plan participants. +Householding +Some banks, brokers and other nominee record holders may be participating in the practice of "householding" proxy statements and annual reports. This means that +only one copy of the proxy statement may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of this document to you if you call or write us at the +following address or phone number: 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, phone 303-295-3995, Attention: Mary Kay Rohrer. If you +prefer to receive separate copies of our proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your +bank, broker or other nominee holder, or you may contact us at the above address and phone number. +2 +ELECTION OF DIRECTORS +Our Board of Directors consists of nine members and is divided into three classes: Class I, Class II and Class III directors. At each annual +meeting, a class of directors is elected for a term expiring at the annual meeting in the third year following the year of election. Each director holds office until his successor is elected and +qualifies. +The +terms of the three current Class III directors, Glenn A. Cox, David A. Hentschel and L. Paul Teague, will expire at the 2005 annual meeting. Messrs. Cox, Hentschel and +Teague have each been nominated to stand for reelection at the meeting to hold office until our 2008 annual meeting. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class III nominees named above to serve for three years or until his successor is +elected and qualifies. If, prior to the annual meeting, one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the +remaining nominees and for any substitute nominee or nominees designated by our Board of Directors or its Governance Committee. As of the mailing of these proxy materials, the Board of Directors knows +of no reason why any director nominee would not be available to serve as a director. +We +encourage our directors to attend annual meetings. All but one of our directors attended last year's annual meeting held on May 19, 2004. +Information +concerning the nominees selected by our Board of Directors, as well as each of our continuing directors, is set forth below: +Nominees for Election for Three-Year Terms Expiring in 2008 +Glenn A. Cox, age 75 +Director Since 2002 +President +and Chief Operating Officer of Phillips Petroleum Company from June 1985 until his retirement in 1991. Chief Financial Officer of Phillips Petroleum Company from +June 1980 to May 1985. Director and chairman of audit committee of Helmerich & Payne, and previous director and member of audit committees of The Williams Companies and Union +Texas Petroleum. +David A. Hentschel, age 71 +Director Since 2002 +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. President and Chief Executive Officer of Canadian Occidental +Petroleum, Ltd, now known as Nexen, from 1995 until 1997. Director of Nexen Inc. +L. Paul Teague, age 70 +Director Since 2002 +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New +Orleans Division, Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +Directors' Recommendation +The Board of Directors recommends a vote "FOR" the election of Messrs. Cox, Hentschel and Teague as Class III directors. A plurality of the votes +represented at the annual meeting by shares of our common stock entitled to vote is required to elect the Class III directors. +3 +Class I Directors Continuing in Office—Terms Expiring in 2006 +F. H. Merelli, age 69 +Director Since 2002 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from +September 1992 to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of +audit committee of Apache Corporation. +Paul D. Holleman, age 73 +Director Since 2002 +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. Other positions in his 40 years with Holme Roberts included Chairman of the +Natural Resources Department and member of the executive committee. +Michael J. Sullivan, age 65 +Director Since 2002 +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner of the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, director and +member of audit committee and governance committee of Allied Irish Bank Group and director and member of compensation, governance and executive committees of First Interstate BancSystem. +Class II Directors Continuing in Office—Terms Expiring in 2007 +Cortlandt S. Dietler, age 83 +Director Since 2002 +Chairman +of the Board of TransMontaigne, Inc. since April 1995. Chief Executive Officer of TransMontaigne from April 1995 through September 1999. Director of +Hallador Petroleum Company and Forest Oil Corporation. Chairman of the nominating and corporate governance committee and the compensation committee of Forest Oil. +Hans Helmerich, age 46 +Director Since 2002 +Director +of Helmerich & Payne since 1987. President and Chief Executive Officer of Helmerich & Payne since 1989. Director of Atwood Oceanics, Inc. +L. F. Rooney, III, age 51 +Director Since 2002 +Chairman +of the Board and Chief Executive Officer of Rooney Brothers Co. since 1984. Chairman of the Board of Manhattan Construction Company since 1994 and Chief Executive Officer from +1982 to 1994. Director of Helmerich & Payne, BOK Financial Corp. and Bank of Oklahoma N.A. Chairman of the nominating and governance committee and member of the audit committee of +Helmerich & Payne, and member of the credit committee of Bank of Oklahoma. +Cimarex +has agreed pursuant to the terms of an Agreement and Plan of Merger with Magnum Hunter Resources, Inc. to select, upon the effective date of the merger, one then existing +member of Magnum Hunter's Board of Directors to be elected to the Cimarex Board. (See the Form S-4 Registration Statement (No. 333-123019) of Cimarex filed with +the Securities and Exchange Commission on February 25, 2005, for additional information regarding the merger.) +Independence of Directors +The Board of Directors has determined that Messrs. Cox, Dietler, Hentschel, Holleman, Rooney, Sullivan and Teague are independent within the meaning of the +rules of the Securities and Exchange Commission, the listing standards of the New York Stock Exchange and the Corporate Governance Guidelines of Cimarex. Messrs. Merelli and Helmerich are not +independent because Mr. Merelli is an +4 +executive +officer of Cimarex, and Mr. Helmerich was an executive officer of Cimarex. There are no family relationships among any directors or executive officers of Cimarex. +Board of Directors' Meetings and Committees +During 2004, the Board of Directors held four meetings. Each incumbent director attended at least 75% of all meetings of the Board of Directors, except +Mr. Rooney who attended 50% of the meetings. +The +Board of Directors has an Audit Committee and a Governance Committee. All members of each Committee are independent within the meaning of the rules of the Securities and Exchange +Commission, the listing standards of the New York Stock Exchange and the Corporate Governance Guidelines of Cimarex. The members of these committees are: +Audit Committee +Governance Committee +Cortlandt S. Dietler, Chairman +L. Paul Teague, Chairman +Glenn A. Cox +David A. Hentschel +Paul D. Holleman +L. F. Rooney, III +Michael J. Sullivan +Audit Committee. The primary purposes of our Audit Committee are to assist the Board in monitoring (i) the integrity +of our financial statements, appropriateness of our accounting policies and adequacy of our internal controls, (ii) qualifications and independence of our independent auditors, +(iii) performance of our internal audit function, and (iv) compliance with legal and regulatory requirements. +The +Audit Committee operates in accordance with a Charter which has been approved by the Board of Directors. A copy of the charter was appended to the proxy statement for our annual +meeting held in 2003, and is available on our website at www.cimarex.com . +During +2004, the Audit Committee held eight meetings. Each member of the Committee attended at least 75% of all meetings. The members of the Audit Committee meet in executive session at +the end of each non-telephonic meeting. The Audit Committee and our Board have established a procedure whereby complaints or concerns with respect to accounting, internal controls and +auditing matters may be submitted to the Committee, which is described under "Complaint and Reporting +Procedures" in this proxy statement. Our Board has determined that each member of the Audit Committee is financially literate, and that each of Messrs. Cox and Dietler has accounting or related +financial management expertise, as such qualifications are defined under the rules of the New York Stock Exchange, and is an "audit committee financial expert" within the meaning of the rules of the +Securities and Exchange Commission. Mr. Cox is a former chief financial officer of Phillips Petroleum Company, and Mr. Dietler, in his positions as Chairman of the Board and Chief +Executive Officer of TransMontaigne, has supervised principal financial officers or persons performing similar functions. The report of the Audit Committee is included in this proxy statement. +Governance Committee. The Governance Committee operates under the Governance Committee Charter which has been approved by the +Board of Directors. A copy of the charter is available on our website at www.cimarex.com . The Governance Committee has two principal functions: +(i) nominating and governance and (ii) compensation. +The +primary purposes of the nominating and governance function are to (a) recommend individuals to the Board Directors for nomination, election or appointment as members of the +Board of Directors and its committees, consistent with the criteria included in our Corporate Governance Guidelines, (b) oversee the evaluation of the performance of the Board of Directors and +its committees and our chief executive officer, and (c) take a leadership role in shaping the corporate governance of Cimarex. In identifying and recommending nominees for positions on the +Board of Directors, the +5 +Committee +places emphasis on the criteria set forth in our Corporate Governance Guidelines, namely: (a) high personal and professional ethics, (b) integrity and values, +(c) commitment to the long-term interest of the stockholders and (d) a mix of characteristics and diverse experiences, perspectives and skills appropriate to our business. +The Committee does not set specific, minimum qualifications that nominees must meet, but rather believes that each nominee should be evaluated based on his or her individual merits, taking into +account the business and needs of Cimarex and the composition of the Board of Directors. The Governance Committee will consider nominees recommended by stockholders. The Governance Committee did not +receive nominations from a stockholder prior to February 21, 2005, the deadline for stockholder nominations. Stockholders who wish to submit a nominee for consideration by the Governance +Committee for election at our 2006 annual meeting of stockholders may do so during the period February 10, 2006 to February 20, 2006, by submitting in writing such nominee's name, in +compliance with the procedures and along with the other information required by our By-laws, to our Assistant Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, +Suite 1800, Denver, Colorado 80203. +The +primary purposes of the compensation function are to determine and approve the compensation of our chief executive officer, to make recommendations to the Board with respect to other +executive officer compensation and incentive compensation plans and to prepare a report on executive compensation. The Governance Committee Report on Executive Compensation is included in this proxy +statement. +During +2004, the Governance Committee held four meetings. Each member of the Committee attended at least 75% of all meetings, except Mr. Rooney who attended 50% of the meetings. +Compensation Committee Interlocks +There are no Governance Committee interlocks with any other entity. +Non-Management Directors' Meetings +In addition to the meetings of the committees of the Board of Directors described above, our non-management directors meet in executive session +following each Board meeting. Only independent directors attend the executive session held the date of the annual meeting. At the December 7, 2004 meeting, the non-management +directors chose Mr. Dietler to act as the presiding director, to serve until the December 2005 Board meeting, at which time a new presiding director will be chosen. +Compensation of Directors +For fiscal 2004, non-management director compensation consisted of the following annual retainer and committee and meeting fees: +Annual Retainer +$ +20,000 +Committee Chair +$ +5,000 +Attendance at Board Meeting +$ +1,500 +Attendance at Committee Meeting +$ +1,000 +On +May 19, 2004, 1,829 shares of restricted stock were issued to each non-management director. The restricted stock vests at the rate of one-third per year +on May 19, 2005, 2006 and 2007. The number of shares issued was determined by dividing $50,000 by the average of the highest and lowest sales prices of Cimarex common stock as reported by the +New York Stock Exchange on May 19, 2004. Three of the directors elected to exchange their restricted stock for a like number of deferred compensation units payable on the date specified in the +director's election form. +6 +On +March 10, 2005, upon the recommendation of the Governance Committee, the Board voted to provide increased compensation to the non-management directors effective +May 18, 2005. The additional compensation consists of an annual retainer of $40,000, an additional annual retainer of $10,000 to each non-management director who serves as a +chairman of a committee, and a number of shares of restricted stock determined by dividing $70,000 by the average of the highest and lowest sales prices of Cimarex common stock as reported by the New +York Stock Exchange on May 18, 2005. The recommendation was based upon a review of the levels of compensation paid to directors of other companies of similar size and complexity. +We +reimburse Board members for their actual expenses related to attending Board meetings. Directors who are also employees of Cimarex receive no compensation for serving as a director. +EXECUTIVE COMPENSATION +Information regarding the compensation of the persons who serve as the chief executive officer and the five most highly compensated executive officers of Cimarex +is set forth below. With respect to Messrs. Merelli, Jorden, Korus, Albi and Bell, compensation for the period January 1, 2002 through September 30, 2002 was paid by Key, and with +respect to Mr. Shaw, compensation for the period January 1, 2002 through September 30, 2002 was paid by Helmerich & Payne. All compensation from October 1, 2002 to +December 31, 2004 was paid by Cimarex. +Effective +February 28, 2005, Mr. Shaw resigned as Executive Vice President—Operations, and effective March 1, 2005, Mr. Albi was elected Executive +Vice President—Operations. +Summary Compensation Table. The summary compensation table set forth below contains information regarding compensation paid +to each of the named executive officers for services rendered to Cimarex, Key and Helmerich & Payne, as applicable, in all capacities during the last three fiscal years. +Annual Compensation +Long Term Compensation +Name and Principal Position +Year +Salary +Bonus +Other +Annual +Compensation(1) +Restricted +Stock +Awards(2) +Securities +Underlying +Options +All Other +Compensation +F.H. Merelli, +Chairman, Chief Executive Officer, President +2004 +2003 +2002 +$ +$ +$ +426,667 +350,000 +321,000 +$ +$ +$ +700,000 +375,000 +300,000 +$ +33,472 +22,701 +— +(3) +(3) +$ +— +— +3,516,480 +— +— +422,400 +$ +$ +$ +30,216 +31,430 +8,844 +(4) +Steven R. Shaw(5) +Executive Vice President—Operations +2004 +2003 +2002 +$ +$ +$ +319,300 +319,300 +319,300 +$ +$ +$ +250,000 +160,000 +310,000 +$ +— +— +544 +(7) +$ +— +— +757,575 +— +— +91,000 +$ +$ +$ +15,965 +23,107 +28,811 +(6) +Thomas E. Jorden +Executive Vice President—Exploration +2004 +2003 +2002 +$ +$ +$ +250,496 +192,000 +178,000 +$ +$ +$ +499,374 +192,000 +130,000 +— +— +— +$ +— +— +757,575 +— +— +91,000 +$ +$ +$ +22,131 +18,614 +10,282 +(8) +Paul Korus +Vice President, Chief Financial Officer, Treasurer and Corporate Secretary +2004 +2003 +2002 +$ +$ +$ +242,500 +200,000 +187,251 +$ +$ +$ +363,750 +160,000 +113,000 +— +— +— +$ +— +— +757,575 +— +— +91,000 +$ +$ +$ +20,173 +15,158 +9,695 +(9) +Joseph R. Albi(5) +Senior Vice President—Corporate Engineering +2004 +2003 +2002 +$ +$ +$ +238,815 +178,000 +166,000 +$ +$ +$ +341,250 +151,300 +110,000 +— +— +— +$ +— +— +757,575 +— +— +91,000 +$ +$ +$ +19,505 +29,319 +9,972 +(10) +Stephen P. Bell +Senior Vice President—Business Development and Land +2004 +2003 +2002 +$ +$ +$ +222,283 +177,000 +165,000 +$ +$ +$ +321,875 +141,600 +99,000 +— +— +— +$ +— +— +757,575 +— +— +91,000 +$ +$ +$ +18,212 +38,246 +11,096 +(11) +(1) The +aggregate amount of perquisites and other personal benefits was less than either $50,000 or ten percent of the total annual salary and bonus reported for each of the named +executive officers. +7 +(2) The +value of the restricted stock awards represents the fair market value of common stock on December 6, 2002, the date of grant ($16.65), times the number of shares awarded to +each of the named executive officers. Effective December 1, 2003, each of the named individuals exchanged his shares of restricted stock for stock units which represent the right to receive, on +a specified payment date, a like number of shares. +(3) Represents +the payment of estimated tax liability associated with the vesting of stock units. +(4) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $19,966, respectively. +(5) Effective +February 28, 2005, Mr. Shaw resigned as Executive Vice President-Operations, and effective March 1, 2005, Mr. Albi was elected Executive Vice +President—Operations. +(6) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $5,715, respectively. +(7) Represents +the payment of estimated tax liability with respect to health and retirement benefits. +(8) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $11,881, respectively. +(9) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $9,923, respectively. +(10) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $9,255, respectively. +(11) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,250 and $7,962, respectively. +Option Grants in 2004 +No options were granted by Cimarex to any of the named executive officers during fiscal year 2004. +Aggregated Option Exercises in 2004 and Fiscal Year 2004 Year-End Option Values +Number of Securities Underlying +Unexercised Options +at 2004 Year End +Value of Unexercised +In-the-Money Options +at 2004 Year End +Number of +Shares +Acquired on +Exercise +Name +Value +Realized +Exercisable +Unexercisable +Exercisable +Unexercisable +F.H. Merelli +— +$ +— +543,960 +253,440 +$ +13,278,769 +$ +5,377,997 +Steven R. Shaw +200,000 +$ +2,934,960 +405,105 +81,175 +$ +10,161,267 +$ +1,792,745 +Thomas E. Jorden +62,200 +$ +1,371,859 +18,200 +54,600 +$ +386,204 +$ +1,158,612 +Paul Korus +41,000 +$ +939,949 +54,400 +54,600 +$ +1,279,693 +$ +1,158,612 +Joseph R. Albi +39,700 +$ +893,512 +38,700 +54,600 +$ +894,320 +$ +1,158,612 +Stephen P. Bell +32,500 +$ +883,319 +36,400 +54,600 +$ +772,408 +$ +1,158,612 +8 +Equity Compensation Plan Information (as of December 31, 2004) +Plan category +(a) +Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) +(b) +Weighted-average exercise price of outstanding options, warrants and rights +(c) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +Equity compensation plans approved by security holders +2,657,082 +$ +14.95 +2,436,521 +Equity compensation plans not approved by security holders +0 +0 +0 +Total +2,657,082 +$ +14.95 +2,436,521 +(1) The +number of securities to be issued upon exercise does not include restricted stock awards representing 19,145 shares, as these securities are issued and outstanding, or awards of +stock units representing the right to acquire 770,300 shares or awards of deferred compensation units representing the right to acquire 5,487 shares. +Employment Agreement and Change in Control Arrangements with Named Executive Officers +F. H. Merelli. Mr. Merelli serves under an employment agreement that provides for annual compensation reviews by the +Governance Committee. Mr. Merelli's salary may be increased as a result of the review +but may not be decreased. Mr. Merelli is also entitled to receive an annual incentive bonus under any plan or program implemented for executives. The agreement has an indefinite term. +Cimarex +may terminate Mr. Merelli's employment at any time for cause or after 30 days' notice if not for cause. Mr. Merelli may terminate his employment at any time +for any reason. If Mr. Merelli's employment is terminated without cause or because of death or disability, or he resigns for good reason, he will receive his base salary for two years +and the maximum incentive compensation payable pursuant to any Cimarex plan or program. Mr. Merelli also participates in the Change in Control Plan described below, which provides for +continuation of his salary and benefits upon a Change of Control, as that term is defined in the Plan. Any payment made to Mr. Merelli under his employment agreement will be deducted from the +benefits under the Change in Control Plan. +While +he is with Cimarex and for three years after he leaves Cimarex, Mr. Merelli must keep confidential any information about Cimarex or its business that is not generally +available to the public. Cimarex has indemnified Mr. Merelli to the maximum extent permissible under applicable law. +Messrs. Jorden, Korus, Albi and Bell. Each of Messrs. Jorden, Korus, Albi and Bell serve under employment +agreements that have expired. However, each agreement provided that, if the executive continues as an employee after the term of the agreement (as each executive has done) and is terminated without +cause following a change in control, the executive will be entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Cimarex +assumed this obligation following the Key reorganization. Accordingly, if Cimarex terminates the executive's employment without cause after September 30, 2002, Cimarex is obligated to make a +lump-sum payment to the executive equal to two times his base salary at September 30, 2002. +Change in Control Severance Plan. On March 10, 2005, the Board of Directors adopted a +Change-in-Control Severance Plan covering each employee who is actively employed by Cimarex on the date of a Change in Control, as such term is defined in the Plan. If a +participant's employment is terminated by Cimarex for any reason other than Cause, death or Disability (as defined in the Plan) or by the participant for Good Reason (as defined in the Plan, including +a reduction in base salary, a +9 +material +reduction in annual incentive compensation opportunity, relocation greater than 50 miles from previous office location, the failure to provide comparable benefits), the participant shall be +entitled to: +1. An +amount equal to (a) in the case of a participant with three or more years of service, two times the participant's annual two-year average cash +compensation (salary and bonus) or (b) in the case of a participant who has less than three years of service, 1/24 th of such participant's annual average cash compensation +(salary and bonus) for each month of service earned by the participant at the date of termination, not to exceed 1.5 times the participant's annual average cash compensation (salary and bonus). +2. A +pro rata portion of the annual cash incentive bonus that would otherwise be payable in the year of termination; and +3. Medical, +dental, disability and life insurance benefits for the participant and his or her family during the period of time in which cash payments are payable, as if the +participant's employment had not been terminated. +If +a participant is entitled to separation benefits under the Plan and is also entitled to benefits under any other severance pay plan or policy of Cimarex, or any other agreement, +including an employment agreement, benefits from this Plan will be offset by the amount of the benefits received under or payable in accordance with such other agreement or plan. +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Drilling costs of approximately $10.4 million were incurred by Cimarex related +to such services for the year ended December 31, 2004. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +10 +Stock Price Performance +The following graph shows the total stockholder return through December 31, 2004 of an investment of $100 in cash on September 30, 2002 (the date of +the spin off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. Exploration +and Production index. Historic stock price performance is not indicative of future stock price performance. +COMPARISON OF 27 MONTH CUMULATIVE TOTAL RETURN* +AMONG CIMAREX ENERGY CO., THE S & P 500 INDEX +AND THE DOW JONES US EXPLORATION & PRODUCTION INDEX +* $100 +invested on 9/30/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. +Copyright © 2002, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. +All rights reserved. www.researchdatagroup.com/S&P.htm +Cimarex Energy—NYSE +Cumulative Total Return +9/02 +12/02 +12/03 +12/04 +CIMAREX ENERGY CO. +100.00 +103.77 +154.72 +219.71 +S & P 500 +100.00 +108.44 +139.54 +154.73 +DOW JONES US EXPLORATION & PRODUCTION +100.00 +104.58 +137.06 +194.45 +11 +Governance Committee Report on Executive Compensation +The Governance Committee performs nominating, corporate governance and compensation functions. The Committee administers Cimarex's executive compensation program +and establishes the salaries of our executive officers. The Committee consists of only non-management directors who are appointed by the Board of Directors. +The +Committee's objective is to provide Cimarex executive officers with a comprehensive compensation package that is designed to encourage recipients to identify and take actions that +will achieve short-and long-term objectives. The compensation policies and programs utilized by the Governance Committee have been reviewed by independent compensation consultants and +endorsed by the Board of Directors and generally consist of the following: +• Provide +executive officer total compensation in relation to the performance of Cimarex; +• Provide +a compensation program competitive with that received by executives of comparable companies in the oil and gas industry in order to attract, motivate and retain +qualified personnel; +• Provide +a management tool for focusing and directing the energies of key executives toward achieving individual and corporate objectives; and +• Provide +long-term incentive compensation in the form of stock options, restricted stock and stock unit awards to link individual success to that of Cimarex. +Cimarex's +executive compensation consists of three key components: base salary, annual incentive compensation in the form of cash bonuses, and long-term incentive +compensation in the form of equity based compensation, each of which is intended to complement the others and, collectively, satisfy Cimarex's compensation objectives. The Governance Committee's +policies with respect to each of the three components are discussed below. +Base Salary. Each fiscal year the Governance Committee reviews and approves the annual salary of the Chief Executive Officer; +and the Committee, along with the Chief Executive Officer, reviews and recommends for Board approval the annual salaries for our executive officers. Many factors are included in determining base +salaries, such as the responsibilities borne by the executive officer, a comparison of the compensation of the executive with the compensation of other executives in comparable industries with similar +responsibilities, the scope of the position and corporate and individual performance. +Cash Bonuses. The Governance Committee provides annual incentives to Cimarex executive officers in the form of cash bonuses. +Criteria that determine bonuses include company performance compared to external benchmarks, operational and financial performance and internally set objectives. +Equity-Based Compensation. The primary objective of the equity-based program is to link the interests of executive officers +and other selected employees with the stockholders. The Cimarex Energy Co. 2002 Stock Incentive Plan authorizes the Committee to grant incentive and non-qualified stock options, restricted +stock and stock units to officers and other employees meeting certain criteria. Subject to general limits prescribed by the Stock Incentive Plan, the Governance Committee has the authority to +determine the individuals to whom equity compensation is awarded, the terms of the awards and the number of shares of common stock subject to the awards. The size of any particular award is based upon +the employee's position with Cimarex and individual performance. +Chief Executive Officer's Compensation. As discussed under "Employment Agreements," Cimarex is a party to an employment +agreement with Mr. Merelli. The salary determined by the Governance Committee for Mr. Merelli was based upon the compensation paid to chief executive officers of +12 +comparable +companies and the Governance Committee's recognition of Mr. Merelli's continued leadership of Cimarex. +THE COMPENSATION COMMITTEE +L. Paul Teague, Chairman +David A. Hentschel +L.F. Rooney, III +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +Independent Auditors +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2005. KPMG has been our independent auditors since +October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG as independent auditors. If stockholders fail to ratify the appointment of KPMG, the Audit Committee may reconsider this +appointment. A KPMG representative will be at the annual meeting to answer appropriate questions and to make a statement if he or she desires. +The +following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to Cimarex: +Years Ended December 31, +2004 +2003 +Audit Fees +$ +655,401 +$ +165,476 +Audit-Related Fees +$ +0 +$ +0 +Tax Fees +$ +77,713 +* +$ +134,656 +All Other Fees, including Financial Information Systems Design and Implementation Fees +$ +0 +$ +0 +* Includes +review of Federal and state tax returns, Federal and state tax compliance issues and consultation related to treatment of state franchise tax issues. +The +Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a +specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the Securities and Exchange Commission may not +be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described above and the related fees were pre-approved by the Audit +Committee in 2003 and 2004. +Report of Audit Committee +The Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its +financial reporting and the independence and performance of Cimarex's independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which was attached +to the Proxy Statement for the 2003 annual meeting of stockholders and is available on our website at www.cimarex.com . +Management +has the primary responsibility for the financial statements and the overall reporting process of Cimarex, including Cimarex's system of internal controls. The independent +auditors audit the +13 +annual +financial statements prepared by management, express an opinion as to whether those financial statements fairly present the consolidated financial position, results of operations and cash flows +of Cimarex and its subsidiaries in conformity with generally accepted accounting principles. +The +independent auditors also audit the effectiveness of the Company's internal control over financial reporting, based on the criteria established in Internal Control-Integrated +Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission, and express an opinion on management's assessment of, and the effective operation of, internal control +over financial reporting. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2004 and met with both management and KPMG, Cimarex's independent +auditors, to discuss those financial statements and the effectiveness of the Company's internal control over financial reporting. Management has represented to us that the financial statements were +prepared in accordance with generally accepted accounting principles, and that the Company's internal controls over financial reporting are effective in both design and operation. KPMG has informed us +that their opinions regarding both Cimarex's financial statements and the effectiveness of the Company's internal control over financial reporting are unqualified. +We +have received from KPMG the communication required by Independence Standards Board Standard No. 1, Independence Discussions with Audit +Committees , and discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required to be discussed by +Statement on Auditing Standards No. 61, Communication with Audit Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2004. +THE AUDIT COMMITTEE +Cortlandt S. Dietler, Chairman +Glenn A. Cox +Paul D. Holleman +Michael J. Sullivan +BENEFICIAL OWNERSHIP +Cimarex has one class of voting securities outstanding. On March 15, 2005, there were 41,774,841 shares of common stock outstanding, with each share +entitled to one vote. +Directors and Executive Officers +Common Stock. The following table shows, as of March 15, 2005, the number of shares of common stock beneficially owned +by each director and nominee, each of the executive officers named +14 +in +the Summary Compensation Table set forth under the caption "Executive Compensation," and all directors and executive officers as a group. +Name of Beneficial Owner +Shares +Owned(1) +Option +Shares(2) +Beneficial +Ownership Total +Percent of +Class +F.H. Merelli +234,247 +543,960 +778,207 +1.8 +% +Glenn A. Cox +5,015 +6,667 +11,682 +<1.0 +% +Cortlandt S. Dietler +105,329 +49,167 +154,496 +<1.0 +% +Hans Helmerich +97,976 +(3) +6,667 +104,643 +(3) +<1.0 +% +David A. Hentschel +3,829 +6,667 +10,496 +<1.0 +% +Paul D. Holleman +3,829 +31,667 +35,496 +<1.0 +% +L.F. Rooney, III +19,366 +6,667 +26,033 +<1.0 +% +Michael J. Sullivan +2,500 +6,667 +9,167 +<1.0 +% +L. Paul Teague +44,170 +13,334 +57,504 +<1.0 +% +Thomas E. Jorden +10,497 +18,200 +28,697 +<1.0 +% +Paul Korus +7,866 +54,400 +62,266 +<1.0 +% +Joseph R. Albi +7,197 +38,700 +45,897 +<1.0 +% +Stephen P. Bell +— +36,400 +36,400 +<1.0 +% +All directors and executive officers as a group (16 persons) +551,027 +842,163 +1,393,190 +3.3 +% +(1) Includes +equivalent shares of common stock held by the trustee for the benefit of employee participants in the Cimarex Energy Co. 401(k) Plan. Participants in this plan instruct the +trustee as to how the participant's equivalent shares should be voted. +(2) Shares +of common stock that could be purchased by the exercise of stock options within the 60-day period following March 15, 2005 under the Cimarex Energy Co. 2002 +Stock Incentive Plan. +(3) Includes +11,450 shares held by Mr. Helmerich's spouse and 7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee. +Mr. Helmerich disclaims beneficial ownership of these shares. +Stock Units. Executive officers own restricted stock units that are not payable in shares of common stock until the eighth +anniversary of the date of grant. The following table shows as of March 15, 2005, the number of stock units owned by each of the executive officers named in the Summary Compensation Table set +forth under the caption "Executive Compensation," and all executive officers as a group. The stock units do not have voting rights, but the holders of the units are entitled to receive cash payments +equal to any cash dividends and other distributions paid in cash on our common stock. +Name of Unit Holder +Number of Units Owned +F. H. Merelli +211,200 +Thomas E. Jorden +45,500 +Paul Korus +45,500 +Joseph R. Albi +45,500 +Stephen P. Bell +45,500 +All executive officers as a group (8 persons) +467,700 +Messrs. Helmerich, +Sullivan and Teague, directors of Cimarex, each hold 1,829 deferred compensation units that represent the right to receive one share of Cimarex common stock at +the time provided in the director's deferred compensation election. The deferred compensation units do not have voting rights, but the holders of the units are entitled to receive cash payments equal +to any cash dividends paid on Cimarex common stock. +15 +Beneficial Owners of More than Five Percent +The following table lists those stockholders who beneficially own more than five percent of the outstanding shares of our common stock. This information is based +on filings by the reporting persons with the Securities and Exchange Commission. +Voting Authority +Dispositive Authority +Name and Address +Total Amount +of Beneficial +Ownership +Percent +of Class +Sole +Shared +Sole +Shared +Barclays Global +Investors and affiliates +45 Fremont Street +San Francisco, CA 94105 +2,330,750 +0 +2,586,883 +0 +2,586,883 +6.2 +% +Neuberger Berman Inc. +605 Third Ave. +NY, NY 10158-3698 +440,493 +1,526,547 +0 +2,688,974 +2,688,974 +6.5 +% +Royce & Associates LLC +1414 Avenue of the Americas +New York, NY 10019 +2,708,010 +0 +2,708,010 +0 +2,708,010 +6.5 +% +State Farm Mutual +Automobile Insurance +One State Farm Plaza +Bloomington, IL 61710 +2,194,205 +9,346 +2,194,205 +9,346 +2,203,551 +5.3 +% +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common +stock, to file reports of ownership of, and transactions in, our common stock with the SEC. The reports by such persons are published on our website at http://www.cimarex.com . Based on a review of such +reports, and on written representations from our reporting persons, we believe that all reports were +timely filed in 2004, except forms reporting the exchange by Messrs. Helmerich, Sullivan and Teague of 1,829 shares of restricted stock for a like number of deferred compensation units were not +timely filed. +Incorporation by Reference +To the extent that this Proxy Statement is incorporated by reference into any other filing by Cimarex under the Securities Act of 1933 or the Securities Exchange +Act of 1934, the sections of this Proxy Statement entitled "Governance Committee Report on Executive Compensation," and "Report of the Audit Committee" and "Stock Price Performance" will not be +deemed incorporated, unless specifically provided otherwise in such filing. +Other Matters +There are no other matters that the Board of Directors intends to present, or has reason to believe others will present, at the annual meeting. If other matters +come before the annual meeting, the persons named in the accompanying form of proxy will vote in accordance with their best judgment with respect to such matters. +16 +Stockholder Proposals for 2006 Annual Meeting +Any stockholder wishing to submit a proposal for the vote of the stockholders at Cimarex's 2006 annual meeting must submit such proposal or proposals in writing +to Cimarex no later than December 21, 2005. Proposals should be sent to the attention of the Assistant Corporate Secretary at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. We +are not required to include in our proxy statement a form of proxy or stockholder proposal that is received after that date or otherwise fails to meet the requirements for stockholder proposals +established by regulations of the Securities and Exchange Commission. +As +required by our By-laws, a stockholder must give timely notice of a nomination for election as a director. A notice is timely if received no earlier than +February 10, 2006 and no later than February 20, 2006. The advance notice must be delivered to the attention of the Assistant Corporate Secretary at 1700 Lincoln Street, +Suite 1800, Denver, Colorado 80203, and must comply with the requirements of Cimarex's By-Laws. +Complaint and Reporting Procedures +We have established complaint and reporting procedures, which are posted on our website at www.cimarex.com . Any +person, whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential +or anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to +communicate directly with the presiding non-management director or with our non-management directors as a group, also may call the confidential hotline. The hotline is +available 24 hours a day, seven days a week +and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +17 +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 18, 2005, or any adjournment thereof. +(Continued, and to be marked, dated and signed, on the reverse side) +VOTE BY TELEPHONE OR INTERNET +QUICK *** EASY *** IMMEDIATE +CIMAREX ENERGY CO. +• You +can now vote your shares electronically through the Internet or the telephone. +• This +eliminates the need to return the proxy card. +• Your +electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. +TO VOTE YOUR PROXY BY INTERNET +www.continentalstock.com +Have your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an +electronic ballot. Follow the prompts to vote your shares. +TO VOTE YOUR PROXY BY MAIL +Mark, sign and date your proxy card above, detach it and return it in the postage-paid envelope provided. +TO VOTE YOUR PROXY BY PHONE +1-800-293-8533 +Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy +number and account number. Follow the voting instructions to vote your shares. +PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY +PROXY BY MAIL +Please mark your votes like this ý +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSAL. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +The Board of Directors recommends a vote FOR Proposal 1. +FOR +WITHHELD FOR ALL +PROPOSAL 1—ELECTION OF DIRECTORS +o +o +Nominees: +Glenn +A. Cox, David A. Hentschel, L. Paul Teague +WITHHELD +FOR (Write that nominee's name in the space provided below.) +FOR +AGAINST +ABSTAIN +PROPOSAL 2—RATIFICATION OF KPMG LLP AS INDEPENDENT AUDITORS FOR 2005 +o +o +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE +INSTRUCTIONS ABOVE. +Signature(s) +Signature(s) +Date +NOTE: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give full title as such. +QuickLinks +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To be Held on May 18, 2005 +PROXY STATEMENT +VOTING +ELECTION OF DIRECTORS +EXECUTIVE COMPENSATION +COMPARISON OF 27 MONTH CUMULATIVE TOTAL RETURN* AMONG CIMAREX ENERGY CO., THE S & P 500 INDEX AND THE DOW JONES US EXPLORATION & PRODUCTION INDEX +INDEPENDENT AUDITORS AND REPORT OF AUDIT COMMITTEE +BENEFICIAL OWNERSHIP +OTHER MATTERS \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-05-007935/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-05-007935/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..d3dab4f229f1400d85e66ef4ae9b77363e920ca1 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-05-007935/proxy_rpt.txt @@ -0,0 +1,8 @@ +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Drilling costs of approximately $10.4 million were incurred by Cimarex related +to such services for the year ended December 31, 2004. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +10 +Stock Price Performance +The following graph shows the total stockholder return through December 31, 2004 of an investment of $100 in cash on September 30, 2002 (the date of +the spin off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. Exploration +and Production index. Historic stock price performance is not indicative of future stock price performance. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-06-004095/proxy.txt b/raw/proxies/0001168054/0001047469-06-004095/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..b20aa0b43e3f128ee8115ef2b0f7141e37448c11 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-06-004095/proxy.txt @@ -0,0 +1,1904 @@ +DEF 14A +1 +a2168568zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 17, 2006 +To +the Stockholders of Cimarex Energy Co.: +The +annual meeting of stockholders of Cimarex Energy Co. will be held on Wednesday, May 17, 2006, at 9:30 a.m., Central Time, at the Doubletree Hotel, 616 West +Seventh Street, Tulsa, Oklahoma 74127, for the following purposes: +1. Elect +four directors for terms expiring in 2009. +2. Approve +the performance goals applicable to awards of restricted stock in order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue +Code. +3. Ratify +the appointment of the independent auditors for 2006. +4. Transact +any other business that may be properly brought before the annual meeting. +Stockholders +of record at the close of business on March 24, 2006 are entitled to notice of and to vote at the meeting. During the period May 5 through May 16, 2006, +you may examine the stockholders' list at our offices. The stockholders' list will also be available at the meeting. +IMPORTANT +Your proxy is important to assure a quorum at the meeting. Whether or not you expect to attend the meeting, please vote in any one of the +following ways: +• By phone, call 1-866-894-0537 +• On the internet, log on to www.continentalstock.com +• By mail, mark, sign, date and promptly return the proxy card in the postage-prepaid envelope. +BY +ORDER OF THE BOARD OF DIRECTORS +Mary +Kay Rohrer +Corporate Secretary +Date: +April 17, 2006 +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +VOTING +Who is Entitled to Vote +How to Vote +Voting by Mail +Voting by Telephone +Voting on the Internet +Voting in Person +Cimarex 401(k) Participants +How to Change Your Vote +Shares Entitled to Vote +Quorum +Tabulation of Votes +Votes Needed +Proposal 1—Election of Directors +Proposal 2—Approve Performance Goals +Proposal 3—Ratification of Independent Auditors +The Effect on Voting of Broker Non-Votes and Abstentions +Proxy Solicitation and Expenses +Multiple Stockholders Sharing the Same Address +CORPORATE GOVERNANCE +Board of Directors +Committees +Director Independence +Presiding Director +Communications with Directors +Governance Committee Interlocks +Compensation of Directors +Non-Employee Director Compensation Earned in Fiscal 2005 +PROPOSAL 1—ELECTION OF DIRECTORS +Nominees for Election as Class I Directors +Class II Directors Continuing in Office +Class III Directors Continuing in Office +PROPOSAL 2—APPROVAL OF PERFORMANCE GOALS +Performance Goals +Other Terms of the Awards +Tax Considerations +PROPOSAL 3—RATIFICATION OF INDEPENDENT AUDITORS +Independent Auditors +Fees +Report of Audit Committee +EXECUTIVE COMPENSATION +i +Governance Committee Report on Executive Compensation +Compensation +Option Grants in 2005 +Option Exercises in 2005 and Value Realized +2005 Year-End Option and Restricted Stock Unit Values +Equity Compensation Plan Information +Stock Price Performance +Employment Agreement and Change in Control Arrangements with Named Officers +Certain Relationships and Related Party Transactions +STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS +Equity and Equity-Related Interests Held by Executive Officers and Directors +Beneficial Ownership by Executive Officers and Directors +Beneficial Owners of More than Five Percent +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Other Matters +Stockholder Proposals for 2007 Annual Meeting +Complaint and Reporting Procedures +ii +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +PROXY STATEMENT +ANNUAL MEETING OF STOCKHOLDERS +May 17, 2006 +VOTING +Who is Entitled to Vote +Stockholders of record as of the close of business on March 24, 2006 may vote at the meeting. This proxy statement and form of proxy will be mailed to +stockholders on approximately April 17, 2006. +How to Vote +If you own shares in your name, you may vote by mail, by telephone, on the Internet or in person, as described below. If your shares are held in the name of a +bank, broker or other holder, please refer to the proxy card or information you receive from the holder of your stock for voting instructions. +Voting by Mail. Complete, sign, date and return the enclosed proxy card in the postage-prepaid envelope. If you don't +sign your proxy card, your vote will not be counted. If you +sign your proxy card but do not indicate how you want to vote, your proxy will be voted as recommended by the Board of Directors. +Voting by Telephone. Call the toll-free number listed on the proxy card and follow the instructions on the proxy card. +Voting on the Internet. The web site for Internet voting is www.continentalstock.com. Follow the instructions on the +proxy card. +Voting in Person. Even if you plan to attend the meeting, the Board recommends that you vote using one of the above +voting methods. You may also vote in person at the meeting. If +your shares are held in the name of a bank, broker or other holder, you must bring to the meeting a proxy, executed in your favor, from your bank, broker or other holder. +Cimarex 401(k) Participants +Cimarex Energy Co. 401(k) Plan participants who have shares of Cimarex stock credited to their Plan account as of March 24, 2006, will receive a proxy card +which serves as a voting instruction card. You may instruct Vanguard, the Trustee, how to vote your shares, and the Trustee will vote your shares in accordance with your instructions. If you do not +sign and return the proxy card to indicate your instructions, the Trustee will vote your shares in the same proportion as shares were voted by other Plan participants. +How to Change Your Vote +You can revoke your proxy at any time before the vote is taken by submitting a new proxy with a later date (by mail, telephone or Internet), by voting at the +meeting, or by filing a written revocation with Cimarex's Corporate Secretary, 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. +1 +Shares Entitled to Vote +Each share of common stock that you held on March 24, 2006, entitles you to one vote at the meeting. As of March 24, 2006, there were 82,649,166 +shares of Cimarex Energy Co. common stock outstanding and entitled to vote. +Quorum +We must have a majority quorum to conduct business at the meeting. This means that greater than 50% of the outstanding shares of stock as of the close of business +on March 24, 2006 must be represented in person or by proxy at the meeting. If a quorum is not present at the meeting, a vote for +adjournment will be taken. If a majority of the stockholders vote for adjournment, it is our intention to adjourn the meeting until a later date and to vote proxies at such adjourned meeting. +Tabulation of Votes +Continental Stock Transfer & Trust Company, New York, New York, our stock transfer agent, will receive proxies and ballots, tabulate the vote, determine +whether a quorum exists and serve as inspector of election at the meeting. +Votes Needed +Proposal 1—Election of Directors. Directors will be elected by a plurality of the +votes. This means that the four director nominees receiving the most "FOR" votes will be elected as Class I +directors. +Proposal 2—Approve Material Terms of Performance Goals Applicable to Certain Restricted Stock Awards. The +affirmative vote of a majority of the shares present and entitled to vote is required to approve Proposal 2. +Proposal 3—Ratify Appointment of KPMG LLP as Independent Auditors. The affirmative vote of a majority of the +shares present and entitled to vote is required to ratify the appointment of KPMG LLP as Cimarex's independent auditors. +The Effect on Voting of Broker Non-Votes and Abstentions +A broker non-vote occurs when the broker does not receive voting instructions from his customer and does not have discretionary authority to vote on a +proposal. An abstention occurs when the "ABSTAIN" box on the proxy card is checked. The following summarizes the effect of broker non-votes and abstentions: +• Shares +represented by abstentions and broker non-votes count for purposes of determining a quorum. +• Shares +represented by abstentions and broker non-votes are not considered in tabulating votes for the election of directors (Proposal 1). +• Shares +represented by abstentions are included in the total shares voted on Proposal 2 and Proposal 3. Since abstentions are not a vote "FOR," abstentions have +the same effect as votes against Proposal 2 and Proposal 3. +• Broker +non-votes are not counted for purposes of determining whether Proposal 2 or Proposal 3 has been approved. +2 +Proxy Solicitation and Expenses +Proxies will be solicited by mail and may be solicited by certain officers and regular employees of Cimarex by mail, telephone or in person. Cimarex will pay for +all solicitation costs, including reimbursement to brokerage firms and others for their expenses in forwarding proxy materials. +Multiple Stockholders Sharing the Same Address +Some banks, brokers and other nominee record holders may be participating in the practice of "householding" proxy statements and annual reports. This means that +only one copy of the proxy statement may have been sent to multiple stockholders in your household. If you wish a separate copy of this document, call or write us at the following address or phone +number: 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, phone 303-295-3995, Attention: Mary Kay Rohrer, Corporate Secretary. If +you prefer to receive separate copies of our proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your +bank, broker or other nominee holder. +CORPORATE GOVERNANCE +Board of Directors +Our Board of Directors met seven times during 2005. Nine of the ten incumbent directors attended at least 75% of all Board meetings. Mr. Dietler recused +himself from participation in three meetings because of a potential conflict of interest related to the purpose of those meetings. All directors, except one, attended the 2005 Annual Meeting. Our +independent directors meet in executive session following each Board meeting. +The +Board is governed by our Certificate of Incorporation, Bylaws, Corporate Governance Guidelines, Audit and Governance Committee charters and Delaware law. The Audit and Governance +Committee charters are available on our website at www.cimarex.com. In addition to these documents, our Code of Business Conduct and Ethics and Code of Ethics for the Chief Executive Officer, Chief +Financial Officer and Chief Accounting Officer can also be found on Cimarex's website. Copies of our corporate governance documents may also be obtained by contacting our Corporate Secretary, Mary Kay +Rohrer. +3 +Committees +The Board of Directors has the following committees: +Committee and Members +Functions of Committee +Audit +Cortlandt S. Dietler, Chairman† +• +Appoints independent auditors +Glenn A. Cox† +• +Approves nature and scope of services of independent +Paul D. Holleman +auditors and reviews range of fees for such services +Monroe W. Robertson† +• +Oversees Cimarex's internal audit function +• +Reviews qualification and independence of independent auditors +• +Monitors integrity of Cimarex's financial statements +• +Monitors compliance with legal and regulatory requirements +†Financial Expert +Governance +Compensation Functions +L. Paul Teague, Chairman +• +Determines and approves CEO compensation +Jerry Box +• +Makes recommendations to Board regarding executive +Hans Helmerich +officer cash and incentive compensation +David A. Hentschel +• +Recommends director compensation +Michael J. Sullivan +• +Prepares report on executive compensation +• +Determines amount and terms of equity awards +• +Periodically reviews and approves long-term incentive plans +Nominating and Governance Functions +• +Recommends individuals to Board for nomination, election or appointment as members of the Board and its committees +• +Oversees evaluation of performance of the Board and its committees and the CEO +• +Oversees corporate governance +• +Develops plans for managerial succession +During +2005, the Audit Committee held eight meetings, and each member of the Audit Committee attended at least 75% of all meetings. Mr. Sullivan transferred from the Audit +Committee to the Governance Committee in September 2005. Prior to his transfer, he attended all Audit Committee meetings. Mr. Robertson joined the Audit Committee in December 2005 +and attended the December meeting. The Board has determined that each member of the Audit Committee is independent and financially literate. +During +2005, the Governance Committee held seven meetings. Messrs. Hentschel and Teague attended all seven meetings. Mr. Rooney, who resigned from the Board and the +Committee in October 2005, due to his appointment as Ambassador to the Holy See, attended fewer than 75% of the meetings prior to his resignation. Messrs. Box, Helmerich and Sullivan +were appointed to the Committee in June, December and September, 2005, respectively, and attended 100% of the meetings following their appointments to the Committee. +In +identifying and recommending nominees for positions on the Board of Directors, the Governance Committee places emphasis on the criteria set forth in our Corporate Governance +Guidelines, including: (a) high personal and professional ethics, (b) integrity and values, (c) commitment to the long-term interest of the stockholders and +(d) a mix of characteristics and +4 +diverse +experiences, perspectives and skills appropriate to our business. The Committee does not set specific, minimum qualifications that nominees must meet, but rather believes that each nominee +should be evaluated based on his or her individual merits, taking into account the business and needs of Cimarex and the composition of the Board of Directors. The Governance Committee will consider +nominees recommended by stockholders. The Governance Committee did not receive nominations from a stockholder prior to the deadline for stockholder nominations. Stockholders who wish to submit a +nominee for consideration by the Governance Committee for election at our 2007 annual meeting of stockholders may do so during the period February 6, 2007 to February 16, 2007, by +submitting in writing such nominee's name, in compliance with the procedures and along with the other information required by our By-laws, to our Corporate Secretary, Cimarex Energy Co., +1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. +All +of the nominees to serve as Class I directors, except Jerry Box, are standing for re-election by the stockholders. In June 2005, Cimarex acquired Magnum +Hunter Resources, Inc. As part of the negotiated transaction, Cimarex agreed to select one director from the Board of Directors of Magnum Hunter to serve on its Board. The Cimarex Board of +Directors, upon the recommendation of the Chief Executive Officer, determined that Mr. Box met the criteria for nominees provided in the Corporate Governance Guidelines, and elected +Mr. Box on June 7, 2005 as a Class I director to serve until the 2006 annual meeting of Cimarex. +Director Independence +Our Board of Directors is comprised of nine outside directors and one inside director. The Board has determined that all of the outside directors are independent +within the meaning of the rules of the Securities and Exchange Commission, the listing standards of the New York Stock Exchange and the Cimarex Corporate Governance Guidelines. Mr. Helmerich, +as a result of being a former executive officer of Cimarex, and Mr. Robertson, as a result of being a former executive officer of Key Production Company, Inc., a subsidiary of Cimarex, +are not "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. This means that they must refrain from voting on performance-based compensation resolutions. F. H. +Merelli, the sole management director, serves as Chairman of the Board of Directors and is our Chief Executive Officer. There are no family relationships among any directors or executive officers of +Cimarex. +Presiding Director +The Board has a presiding director whose primary responsibility is to preside over the executive sessions of the independent members of the Board The presiding +director also performs such other duties that the Board may from time to time delegate. +Cortlandt +Dietler served as the presiding director from December 2004 until the December 2005 meeting of the Board, at which time Hans Helmerich was appointed presiding +director to serve until the December 2006 Board meeting. +Communications with Directors +Anyone who has a concern about Cimarex may communicate that concern directly to the presiding director. Communications may be mailed to the Corporate Secretary or +may be communicated to the Cimarex Energy Co. Confidential Hotline (1-866-519-1898). All communications will be forwarded to the presiding director for his review. +The presiding director may take any action deemed appropriate or necessary, including the retention of independent or outside counsel, accountants or other advisors, with respect to any such +communication addressed to him. No adverse action will be taken against any individual making any such communication to the presiding director. +5 +Governance Committee Interlocks +Hans Helmerich, a member of Cimarex's Governance Committee, was an executive officer of Cimarex from February 14, 2002 until September 30, 2002. +Cimarex was originally formed as a wholly owned subsidiary of Helmerich & Payne, Inc. in connection with the spinoff by Helmerich & Payne of its oil and gas exploration and +production business. Helmerich & Payne provides Cimarex with contract drilling services. In 2005, drilling costs of approximately $13.8 million were incurred by Cimarex related to such +services, which represented 2% of Cimarex's total exploration and development costs. +Compensation of Directors +Mr. Merelli, the sole management director, receives no compensation for serving as a director. During 2005, each non-management director was +entitled to receive the following compensation for his services: +Annual Retainer +$ +40,000 +Equity Retainer +$ +50,000 +Committee Chair +$ +10,000 +Attendance at Board Meeting +$ +1,500 +Attendance at Committee Meeting +$ +1,000 +The +equity retainer was in the form of restricted stock that vests at the rate of one-third per year on each anniversary of the date of the grant. The number of shares issued +was determined by dividing $50,000 by the average of the highest and lowest sales prices of Cimarex common stock as reported by the New York Stock Exchange on May 18, 2005, the date of grant. +Cimarex +reimburses non-management directors for actual expenses related to attending Board meetings, and some non-management directors may, on occasion, use +Cimarex's aircraft for travel to and from Board meetings. +The +following table provides information on fiscal 2005 compensation for non-employee directors who served during fiscal 2005. +Non-Employee Director Compensation Earned in Fiscal 2005 +Name +Total ($) +Fees +earned or +paid in +cash ($) +Stock +Awards ($) +Option +Awards ($) +Non-Stock +Incentive +Plan +Comp. ($) +All Other +Comp. ($) +Jerry Box +$ +94,000 +$ +44,000 +$ +50,000 +$ +— +$ +— +$ +— +Glenn A. Cox +$ +108,500 +$ +58,500 +$ +50,000 +$ +— +$ +— +$ +— +Cortlandt S. Dietler +$ +114,000 +$ +64,000 +$ +50,000 +$ +— +$ +— +$ +— +Hans Helmerich +$ +101,500 +$ +51,500 +$ +50,000 +$ +— +$ +— +$ +— +David A. Hentschel +$ +107,500 +$ +57,500 +$ +50,000 +$ +— +$ +— +$ +— +Paul D. Holleman +$ +107,000 +$ +57,000 +$ +50,000 +$ +— +$ +— +$ +— +Monroe W. Robertson(1) +$ +57,500 +$ +22,500 +$ +35,000 +$ +— +$ +— +$ +— +L. F. Rooney(1) +$ +99,500 +$ +49,500 +$ +50,000 +$ +— +$ +— +$ +— +Michael J. Sullivan +$ +108,500 +$ +58,500 +$ +50,000 +$ +— +$ +— +$ +— +L. Paul Teague +$ +116,000 +$ +66,000 +$ +50,000 +$ +— +$ +— +$ +— +(1) Mr. Rooney +resigned from the Board of Directors, effective October 27, 2005, and Mr. Robertson was elected to fill the vacancy. +6 +PROPOSAL 1 +ELECTION OF DIRECTORS +Our Board of Directors consists of ten members and is divided into three classes: Class I, Class II and Class III directors. At each annual +meeting, a class of directors is elected for a term expiring at the annual meeting in the third year following the year of election. Each director holds office until his successor is elected and +qualifies. +The +terms of the four Class I directors, Jerry Box, Paul D. Holleman, F. H. Merelli, and Michael J. Sullivan, will expire at the 2006 annual meeting. Messrs., Box, Holleman, +Merelli and Sullivan have each been nominated to stand for election at the meeting to hold office until our 2009 annual meeting. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class I nominees named above to serve for three years or until his successor is elected +and qualifies. If, prior to the annual meeting, one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the +remaining nominees and for any substitute nominee or nominees designated by our Board of Directors or its Governance Committee. As of the mailing of these proxy materials, the Board of Directors knows +of no reason why any director nominee would not be available to serve as a director. +We +encourage our directors to attend annual meetings. All of our current directors, except Mr. Box and Mr. Robertson, who were not directors at the time of the annual +meeting, attended last year's annual meeting held on June 6, 2005. +Information +concerning the nominees selected by our Board of Directors, as well as each of our continuing directors, is set forth below: +Nominees for Election as Class I Directors for Three-Year Terms Expiring in 2009 +Jerry Box, age 67 +Director Since June 2005 +Chairman +of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter Resources from March 1999 to June 2005. +Mr. Box was with Oryx Energy Company from December 1994 through March 1999, at which time he retired. Mr. Box served as president, chief operating officer and a director +from February 1998 to March 1999, executive vice president and chief operating officer from December 1995 to February 1998 and executive vice president, exploration and +production from December 1994 to November 1995. Director and chairman of the compensation committee and member of the nominating and governance committee of Newpark +Resources, Inc., Metairie, Louisiana, an oilfield service company traded on the NYSE. +Paul D. Holleman, age 74 +Director Since 2002 +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. At Holme Roberts, he served as legal counsel to Key Production Company, Inc., a +company acquired by Cimarex in 2002, and other oil and gas companies. Other positions in his 40 years with Holme Roberts included Chairman of the Natural Resources Department and member of the +executive committee. +F. H. Merelli, age 70 +Director Since 2002 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from +September 1992 to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of +audit committee of Apache Corporation, Houston, Texas, an exploration and production company traded on the NYSE. +7 +Michael J. Sullivan, age 66 +Director Since 2002 +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner of the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, a global food +and food ingredients producer headquartered in Tralee, Ireland; director and member of audit committee and governance committee of Allied Irish Bank Group, Dublin, Ireland; and director and member of +the governance committee of First Interstate BancSystem, Billings, Montana. +Directors will be elected by a plurality of the votes. The Board of Directors recommends a vote "FOR" each of the nominees for election to the Board. +Class II Directors Continuing in Office—Terms Expiring in 2007 +Cortlandt S. Dietler, age 84 +Director Since 2002 +Chairman +of the Board of TransMontaigne, Inc. since April 1995. Chief Executive Officer of TransMontaigne from April 1995 through September 1999. Director of +Hallador Petroleum Company, a Denver, Colorado exploration and production company, and Forest Oil Corporation, a Denver, Colorado exploration and production company traded on the NYSE. Chairman of the +nominating and corporate governance committee and the compensation committee of Forest Oil. +Hans Helmerich, age 47 +Director Since 2002 +Director +of Helmerich & Payne since 1987. President and Chief Executive Officer of Helmerich & Payne since 1989. Director of Atwood Oceanics, Inc., Houston, Texas, +an international offshore drilling company, and Trustee of Northwestern Mutual. +Monroe W. Robertson, age 56 +Director Since 2005 +Currently +a private investor. Mr. Robertson was with Key Production Company, Inc. for 10 years until retirement in March 2002. He held the positions of +President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. +Class III Directors Continuing in Office—Terms Expiring in 2008 +Glenn A. Cox, age 76 +Director Since 2002 +President +and Chief Operating Officer of Phillips Petroleum Company from June 1985 until his retirement in 1991. Chief Financial Officer of Phillips Petroleum Company from +June 1980 to May 1985. Director and chairman of audit committee of Helmerich & Payne, Tulsa, Oklahoma, and previous director and member of audit committees of The Williams +Companies, a gas gathering and exploration and production company located in Tulsa, Oklahoma, and Union Texas Petroleum, an exploration and production company located in Houston, Texas. +David A. Hentschel, age 72 +Director Since 2002 +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. President and Chief Executive Officer of Canadian Occidental +Petroleum, Ltd, now known as Nexen, from 1995 until 1997. Director of Nexen Inc., a global energy company located in Calgary, Alberta, Canada. +L. Paul Teague, age 71 +Director Since 2002 +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New +Orleans Division, Eastern Producing +8 +Department; +Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +PROPOSAL 2 +APPROVAL OF PERFORMANCE GOALS +The Board requests that stockholders approve the material terms of performance goals applicable to awards of restricted stock granted under the Cimarex 2002 Stock +Incentive Plan to the Chief Executive Officer and certain other executive officers. The Plan was initially approved by stockholders at Cimarex's 2003 annual meeting, and the shares of common stock +that may be issued under the Plan have been registered with the SEC on Form S-8 Registration Statements. +In +December 2005, Cimarex's Board of Directors approved the grant, effective the first trading day of January, of restricted stock to certain executive officers, which included +the Named Officers. The awards are subject to vesting and the satisfaction of performance goals. The performance goals applicable to these awards were not included in the Plan originally approved by +the stockholders. +Section 162(m) +limits the compensation deduction that Cimarex may take on its federal income tax return to $1 million of compensation paid to each of the Named Officers. +The deduction limit does not apply to "qualified performance-based compensation" as defined by Section 162(m). Awards of restricted stock with performance goals do not qualify as +performance-based compensation unless the material terms of the performance goals have been approved by the stockholders. It is for this reason that the Board requests that the stockholders approve +the following material terms of the performance goals: +Performance Goals +• The +"Performance Period" commences with the first trading day in January of each year and ends on the last trading day of the year prior to the third anniversary. For +example, the initial Performance Period begins on January 3, 2006 and ends on December 31, 2008. +• The +number of unrestricted shares to be issued upon vesting at the end of the Performance Period will be based upon Cimarex's stock price performance relative to that of a +peer group comprised of companies within the Dow Jones US Exploration & Production Index that are not principally engaged in refining and marketing (Peer Group) as of the last day of the +Performance Period. In order to determine Cimarex's relative performance percentile, the following calculations are made: +• Determine +the calculated percentage difference between the average per share closing price of the common stock of Cimarex and of each company in the Peer Group +(i) over 30 trading days preceding the beginning of the Performance Period and (ii) over 30 trading days preceding the end of the Performance Period. +• Rank +Cimarex and each company in the Peer Group from the highest percentage to the lowest percentage. +• Subtract +Cimarex's absolute rank from the total number of companies in the Peer Group and divide the result by the total number of companies in the Peer Group to determine +Cimarex's relative performance percentile. +• Cimarex's +relative performance percentile will determine the number of shares of restricted stock that will vest at the end of the Performance Period. The percentage of +shares that will vest will range from 50% to 100%. A performance percentile of 75% or greater will result in achievement of 100% vesting, and a performance percentile of 25% or below will result in +achievement of 50% vesting. For example, with respect to the award of 60,000 restricted shares +9 +to +the Chief Executive Officer, if Cimarex performs at the 75% or greater percentile, the Chief Executive Officer shall be entitled to 100% of the award, or 60,000 shares. If Cimarex performs at the +25% or less percentile, the Chief Executive Officer shall be entitled to 50% of the award, or 30,000 shares. For stock price performance between the top and bottom quartiles, the number of shares +vested is linearly scaled between 50% and 100%. +Other Terms of the Awards +If the holder terminates employment on account of death or disability prior to the end of the Performance Period, the holder will receive the number of shares +calculated in accordance with the foregoing paragraphs, except that the end of the Performance Period shall be the date of death or disability. If the holder terminates employment for any other reason +prior to the end of the Performance Period, the shares subject to the award shall be forfeited. +Prior +to the end of the Performance Period, the holder shall be entitled to voting rights and the right to receive ordinary cash dividends. Unless otherwise determined by the Board, the +awards are intended to be annual awards for the number of shares determined by the Governance Committee. +The +following table shows the maximum number of shares that may be issued to executive officers if the performance goals are achieved at the highest levels. +Name +Position +Target Award +F. H. Merelli +Chief Executive Officer, President +60,000 +Joseph R. Albi +Executive Vice President +30,000 +Stephen P. Bell +Sr. Vice President +30,000 +Thomas A. Jorden +Executive Vice President +30,000 +Paul Korus +Vice President, Chief Financial Officer, Treasurer +30,000 +Executive Group +48,000 +Non-Executive Director Group +-0- +Non-Executive Officer Employee Group +-0- +Tax Considerations +The recipient of a restricted stock award has no taxable event at the time of grant, but will realize ordinary income at the time the award is settled in an +amount equal to the cash and/or the fair market value of the shares received, and Cimarex will be entitled to a corresponding deduction. +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify and approve the performance goals that apply to target awards of restricted +stock under the Cimarex Energy Co. 2002 Stock Incentive Plan. The Board of Directors recommends a vote "FOR" Ratification and Approval of the Performance Goals. +PROPOSAL 3 +RATIFICATION OF INDEPENDENT AUDITORS +Independent Auditors +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2006. KPMG has been our independent auditors +since October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG as independent auditors. If stockholders fail to ratify the appointment of KPMG, the Audit Committee may reconsider this +appointment. A KPMG representative will be at the annual meeting to answer appropriate questions and to make a statement if he or she desires. +10 +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of KPMG LLP as Cimarex's independent auditors for 2006. +The Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for 2006. +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to Cimarex: +Years Ended December 31, +2005 +2004 +Audit Fees +$ +992,500 +$ +655,000 +Audit-Related Fees +$ +70,000 +* +$ +0 +Tax Fees +$ +125,037 +** +$ +77,713 +All Other Fees, including Financial Information Systems Design and Implementation Fees +$ +0 +$ +0 +* Review +of accounting related to acquisition of Magnum Hunter Resources, Inc. +** Includes +review of Federal and state tax returns, Federal and state tax compliance issues, consultation related to treatment of state franchise tax issues and tax audit +assistance. +The +Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a +specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the Securities and Exchange Commission may not +be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described above and the related fees were pre-approved by the Audit +Committee in 2004 and 2005. +Report of Audit Committee +The Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its +financial reporting and the independence and performance of Cimarex's independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which was attached +to the Proxy Statement for the 2003 annual meeting of stockholders and is available on our website at www.cimarex.com. +Management +has the primary responsibility for the financial statements and the overall reporting process of Cimarex, including Cimarex's system of internal controls. The independent +auditors audit the annual financial statements prepared by management, express an opinion as to whether those financial statements fairly present the consolidated financial position, results of +operations and cash flows of Cimarex and its subsidiaries in conformity with generally accepted accounting principles. +The +independent auditors also audit the effectiveness of the Company's internal control over financial reporting, based on the criteria established in the Internal Control-Integrated +Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission, and express an opinion on management's assessment of, and the effective operation of, internal control +over financial reporting. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2005 and met with both management and KPMG, Cimarex's independent +11 +auditors, +to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. Management has represented to us that the financial statements were +prepared in accordance with generally accepted accounting principles, and that Cimarex's internal controls over financial reporting are effective in both design and operation. KPMG has informed us +that their opinions regarding both Cimarex's financial statements and the effectiveness of Cimarex's internal control over financial reporting are unqualified. +We +have received from KPMG the communication required by Independence Standards Board Standard No. 1, Independence Discussions with Audit +Committees , and discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required to be discussed by +Statement on Auditing Standards No. 61, Communication with Audit Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2005. +THE +AUDIT COMMITTEE +Cortlandt S. Dietler, Chairman +Glenn A. Cox +Paul D. Holleman +Monroe W. Robertson +EXECUTIVE COMPENSATION +Governance Committee Report on Executive Compensation +The Governance Committee establishes and administers Cimarex's executive compensation program. The Committee is directly responsible to the Board of Directors and +shareholders for the Chief Executive Officer's compensation and for all stock-based compensation. The Committee recommends for approval by the Board the cash compensation for each of the other +executive officers. +The +five directors on the Committee are independent. They are not employees of Cimarex. +The +Governance Committee is also responsible for corporate governance, nomination of directors, succession planning, and director compensation. +Compensation Philosophy +The Governance Committee policy is to clearly and comprehensively disclose all aspects of executive compensation so shareholders will understand how much the +Cimarex officers are paid and why. +Cimarex's +business is to profitably discover and produce oil and gas reserves with a return on investment that is competitive and attractive to investors. +The +objective of the Cimarex executive compensation program is to protect and enhance shareholder value. To do this the compensation program must attract, retain, and motivate executives +with the talent to thrive in the competitive environment in which Cimarex operates. Executive retention and management continuity are essential for the protection and enhancement of shareholder value. +Accordingly, the compensation program must provide significant retention motivation. +The +compensation program must be reasonable, fair and competitive. In addition, the program must properly balance short and long-term corporate performance incentives without +undue emphasis or pressure for short-term results at the expense of long-term prosperity. The compensation program +12 +also +strives to maintain reasonable internal pay equity. It must encourage and reward only performance that meets high ethical standards. +It +is the explicit policy of Cimarex to compensate officers primarily with cash and equity with minimal use of perquisites. +Cimarex +does not permit personal use of its corporate aircraft. Cimarex does not provide country club memberships, hunting and fishing facilities, company vehicles, sporting complex +boxes or tickets for sporting events for its officers. +The +few perquisites provided to Cimarex officers include luncheon club and fitness club memberships and limited legal assistance with estate planning. In 2005, the total cost to Cimarex +for all the officers combined for these perquisites was less than $15,000. +The +Governance Committee uses an outside consulting firm (Deloitte Consulting, LLP) for research and advice on executive compensation. The Vice President—Human Resources and +the Governance Committee have jointly engaged this consulting firm. For officer and director compensation advice, starting in 2006, Deloitte Consulting will be engaged by and report directly to the +Governance Committee. Deloitte may do additional compensation work for the Vice President—Human Resources. +Compensation Program and Methodology +The Cimarex executive compensation program consists of these three elements: +• Base +Pay +• Cash +Bonus +• Restricted +Stock Awards +Base Pay. The target for base pay for the Chief Executive Officer and other officers is approximately the +75 th percentile of base pay for similar officers +within Cimarex's peer group. The Committee uses a customized peer group of exploration and production companies for the base pay comparisons. +Companies +in the Dow Jones U. S. Exploration & Production Index with revenue and market capitalizations similar to that of Cimarex are used for the customized peer group. +Executive compensation tends to increase with market capitalization and revenue for most companies. +The +peer group base pay information comes from public information and industry surveys. The reported compensation data are usually historical. The data can be several months old and not +reflective of increases that will be made in the current year. With the help of the compensation consultant, the Committee forecasts what the competitor base pay compensation will be for the current +year. This forecast of current peer group base pay is used as the basis for the compensation percentile determinations. +The +peer group data may also be adjusted for the different compensation philosophies of companies. Total compensation paid by the peer companies is considered when the base salaries are +determined. +Base +salaries are reviewed annually with the intent to make adjustments effective June 1 of each year. The 75 th percentile target is not an entitlement nor is it a +cap. Depending on performance and time in a position, actual base pay may exceed or be less than the 75th percentile. +Cash Bonus. A performance-based cash pool is used for the cash bonus element. The target is a cash bonus pool equal to +100% of the base salaries of the officers in the pool. +13 +The +base salaries in effect at the end of the year for which the cash bonuses are awarded are used to calculate the cash bonus pool. The cash bonus pool is based on Cimarex's actual cash +flow compared to a cash flow target. This, in effect, reflects Cimarex's ability to pay. +Each +year Cimarex sets the annual cash flow target using forecasts of production, expenses, capital investments, and commodity prices. The monthly futures contract trading prices on the +New York Mercantile Exchange at the time the target is set are used to forecast oil and gas prices. +If +the cash flow target is achieved, a cash bonus pool equal to 100% of the base salaries of the officers in the pool is established. The amount of the pool is adjusted upward or +downward based on specific performance factors and actual cash flow. If the cash flow target is exceeded, the size of the potential pool is increased. If the cash flow target is not achieved, the size +of the potential pool is decreased accordingly. +The +cash bonus pool is calculated as follows: +• CBPF = +TOBP ÷ CFT +Where: +CBPF += +Cash Bonus Pool Factor +TOBP += +Total year end base pay of the officers +CFT += +Cash flow target +• Using +the Cash Bonus Pool Factor, the actual cash flow is used to calculate a Potential Cash Flow Bonus Pool using this equation: +PCBP = CBPF × ACF +Where: +PCBP += +Potential Cash Bonus Pool +CBPF += +Cash Bonus Pool Factor +ACF += +Actual cash flow +• The +Potential Cash Bonus Pool is adjusted by the following three weighted performance factors which measure and reward performance that directly affects shareholder value: +• Growth +in oil and gas production—50% weighting factor +• Growth +in proved reserves—20% weighting factor +• Peer +group stock price performance—30% weighting factor +At +the beginning of each calendar year, the Governance Committee, in conjunction with the Chief Executive Officer, set the targets for the performance factors. If the target is exceeded, the factor is +proportionally increased. If the target is not achieved, the factor is decreased. +The +Peer Stock Price Factor is determined by Cimarex's relative stock price performance compared to the companies in the Dow Jones US Exploration & Production Index. +14 +Using +the weighted performance factors, the amount of the Earned Cash Bonus Pool is calculated with this equation: +ECBP = PGF +(0.50 × PCBP) + RGF (0.20 × PCBP) + PSPF +(0.30 × PCBP) +Where: +ECBP += +Earned Cash Bonus Pool +PCBP += +Potential Cash Bonus Pool +PGF += +Production Growth Factor +RGF += +Reserves Growth Factor +PSPF += +Peer Stock Price Factor +The +total Earned Cash Bonus Pool is limited to no more than 150% of the total of the year end base pay of the officers (TOBP). If the calculated Earned Cash Bonus Pool exceeds this 150% cap, the pool +is reduced to an amount equal to 150% of the base salaries of the officers in the pool. +The +entire cash bonus pool is at risk. There is no floor on the size of the Earned Cash Bonus Pool. It can be zero. All of the Earned Cash Bonus Pool does not have to be awarded. +Carry-over to the next year is not permitted if all of the pool is not used. +For +2005, oil and gas prices were higher than forecast. Production increased 63%. Proved reserves increased 210%. Stock price performance was in the bottom quartile of the peer group +resulting in a Peer Stock Price Factor of zero. +The +production increase, reserves increase, and higher cash flow more than offset the Peer Stock Price performance. This resulted in an Earned Cash Bonus Pool of more than 150% of the +base salaries. This triggered the cap. The result was an actual Earned Cash Bonus Pool of 150% equal to the sum of the base salaries. +Using +the Earned Cash Bonus Pool, the Chief Executive Officer, on the basis of performance evaluation of each participant, recommends the individual officer Cash Bonus awards. Individual +awards may exceed base salaries by more than 150%, but the total of the cash bonus awards is limited to amount of the Earned Cash Bonus Pool. After reconciling any differences with the Chief Executive +Officer's recommendations, the Committee approves and submits the recommendations for review and adoption by the entire Board. +The +Governance Committee determines the cash bonus for the Chief Executive Officer using the relationship of his base salary to the highest base salary of his direct reports and the +performance factors used to determine the Earned Cash Bonus Pool for the other officers. The Governance Committee, based on its performance appraisal of the Chief Executive Officer, determines the +actual Cash Bonus for him. Internal pay equity is considered in determining the Cash Bonus. +Restricted Stock Awards. When Cimarex Energy Co. was formed in 2002 by the spin off and merger of Helmerich & +Payne's oil and gas assets with Key Production Company, restricted +stock awards and stock option grants were made to six officers, including the Chief Executive Officer, F. H. Merelli. +Mr. Merelli's +restricted stock awards vest 20% each year. The other officers' awards vest on the fifth anniversary of the award. The terms of the awards further preclude +Mr. Merelli and the other officers from selling their restricted stock until the eighth anniversary of the awards. +Because +these awards were front-end loaded to focus management on the tasks of combining the two companies and building a foundation for future growth, no restricted units, +stock, or stock option awards were made to the officers in 2003, 2004 or 2005. +15 +When Magnum Hunter was acquired in 2005, Cimarex's market capitalization and management responsibilities significantly increased. In recognition of these changes and the increased +competition for oil and gas industry executives, in December 2005 the Board approved a new restricted stock awards program. This new program includes a substantial retention incentive combined +with a performance-based component. The program was developed with the assistance of our compensation consultant. +Executive +stock ownership helps align the interests of management with those of the shareholders. The restricted stock awards program emphasizes and facilitates executive stock +ownership. +The +restricted stock awards are intended to be annual recurring awards. Changes (up or down) to the number of restricted shares granted each year may be made to keep the total +compensation program competitive with Cimarex's peer group. +One-half +of the restricted shares cliff vest on the third anniversary of the award. The other half of the award may also vest in three years, depending on Cimarex's stock +price performance relative to peers. The peer group consists of those companies in the Dow Jones US Exploration & Production Index that are primarily engaged in oil and gas exploration and +production. +The +recurring restricted stock award program combined with three-year cliff vesting gives each officer a laddered portfolio of vesting common stock and is intended to be a +significant retention incentive. +In +January 2006, the Committee made its initial grants under the new program. The following table summarizes those awards. +Restricted +Shares +Awarded +Minimum Number +of Shares +that will Vest +Maximum Number +of Shares +that will Vest +CEO +60,000 +30,000 +60,000 +Executive Officer +30,000 +15,000 +30,000 +The +"Performance Period" commenced with the first trading day in January of 2006 and ends on December 31, 2008. The total number of unrestricted shares to be issued upon vesting +at the end of the Performance Period will be based upon Cimarex's relative stock price performance percentile, determined as follows: +• Determine +the calculated percentage difference between the average per share closing price of the common stock of Cimarex and each company in the Peer Group (i) over +30 trading days preceding the beginning of the Performance Period and (ii) over 30 trading days preceding the end of the Performance Period. +• Rank +Cimarex and each company in the Peer Group from the highest percentage to the lowest percentage. +• Subtract +Cimarex's absolute rank from the total number of companies in the Peer Group and divide the result by the total number of companies in the Peer Group to determine +Cimarex's relative performance percentile. +As +shown in the above table, the percentage of restricted shares awarded that will vest will range from 50% to 100%. If the Peer Group performance percentile is 75% or greater, 100% of +the restricted shares will vest. If the performance percentile is 25% or lower, only 50% of the restricted shares will vest. +For +example, the Chief Executive Officer was awarded 60,000 restricted shares to the Chief Executive Officer. If the Cimarex stock performance is at the 75% or greater percentile, the +CEO will +16 +receive +100% of the award, which is 60,000 shares. If the Cimarex stock performance is at the 25% or less percentile, the CEO will only receive 50% of the award, which is 30,000 shares. +For +stock price performance between the top and bottom quartiles, the number of shares awarded is linearly scaled between 50% and 100%. +If +an executive dies or is disabled before the end of the Performance Period, the vesting will be accelerated to the date of death or disability. The number of shares that vest will be +determined using the same methodology, except the stock price performance will be based on the reduced Performance Period. If employment is terminated for any other reason before the end of the +Performance Period, all unvested restricted stock is forfeited. +Prior +to the end of the Performance Period, the executive will receive ordinary cash dividends (if any) and have voting rights for the Restricted Stock. +The +three elements of the Cimarex executive compensation program are a long-range plan. To keep the program competitive, the Governance Committee, with the assistance of its +compensation consultant, reviews peer-group and industry compensation policies at least once a year. Changes necessary to keep the compensation program competitive are made by the +Governance Committee. +The +integrity of the compensation program is a critical factor in its design and implementation. The performance factors used are objective and verifiable. The production, proved +reserves, and peer group stock price measures are all based on published values. The reserve numbers used are reviewed by independent reserve consultants and the Cimarex Audit Committee. +Although +outstanding stock option grants were made in past years, the Governance Committee at this time has no plans for granting additional stock options. Cimarex does not and has not +re-priced stock options. +Retirement Benefits. Cimarex officers are eligible to participate in the Cimarex 401(k) defined contribution retirement +plan. This plan is open to participation by all Cimarex +full-time employees after 90 days of employment. Under the plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to 5% of the +employee's cash compensation, subject to limits imposed by Internal Revenue Service rules. +Cimarex +also sponsors a Supplemental Savings Plan which is a non-qualified deferred compensation plan that permits executives to make contributions (and to receive matching +contributions) in excess of the Internal Revenue Service limitations. +Cimarex +does not have a defined benefit pension plan nor does it provide post-retirement benefits to its executives. +Severance Pay. The Governance Committee considers stability and continuity of executive management during periods of +uncertainty to be in the best interests of shareholders. The +loss of key employees can have a detrimental effect on the performance of Cimarex. The Change-in Control Severance Plan may help minimize +the loss of key personnel during a period of uncertainty. +The +Board adopted a Change-in-Control Severance Plan after evaluating the severance policies of peer companies. +Details of the plan are disclosed in this proxy statement under the caption " Employment Agreement and Change in Control Arrangements With Named +Officers ." +Mr. Merelli, +the Chairman, President and Chief Executive Officer of Cimarex, serves under an employment agreement. If Cimarex terminates Mr. Merelli without cause or +because of death or disability or he resigns for good reason, he will receive his base salary for two years and the maximum incentive compensation that would have been payable. Any payments to +Mr. Merelli under the employment agreement will be deducted from any benefits payable under the severance plan. Cimarex may terminate Mr. Merelli's employment at any time for cause or +after 30 days notice if not for cause. +17 +Director Compensation. The Governance Committee is responsible for evaluating director compensation and making +compensation recommendations to the full Board. The Board can accept, +modify or reject the recommendations. +The +Governance Committee is sensitive to the potential conflict of interest involved in making recommendations that affects their compensation. To minimize this potential conflict of +interest, the committee is provided with recommendations from the Chief Executive Officer that are based upon peer group public information and may also seek specific compensation recommendations from +its compensation consultant. +To +attract, retain, and fairly compensate Board members, the Governance Committee policy is for director compensation similar to that of its peer companies. Peer company benchmarking is +used to confirm that the compensation is reasonable and not excessive. +Cimarex +does not provide perquisites for its directors. Nor does Cimarex, because of any relationship a director may have, make charitable or other contributions to any organizations. +Mr. Merelli, +the Chairman, is the only director who is an employee of Cimarex. He receives no compensation for being a director. Non-employee director compensation, +consisting of an annual retainer, restricted stock awards and board and committee meeting fees, is disclosed in this proxy statement under the caption " Compensation of +Directors ." +Review of all Components of Executive and Director Compensation. The Governance Committee reviewed all components of +compensation for the Chief Executive Officer and the four other most highly compensated executive officers. +This review included salary, bonus, equity compensation, accumulated realized and unrealized stock option and restricted stock unit gains, the dollar value to the executive and cost to Cimarex of +perquisites and other personal benefits, company matching contributions under Cimarex's 401(k) plan and 401(k) supplemental savings plan, and possible payments under several potential severance and +change-in-control scenarios. +To +facilitate the review of all these compensation components, a tally sheet showing all elements of compensations is maintained. +The +Committee also reviewed all elements of compensation of the directors. +The +Governance Committee finds the total compensation of Cimarex's Chief Executive Officer, the four other most highly compensated officers, and the directors to be reasonable. +Succession Planning +One of the most important functions of the Governance Committee and the Board is the planning for officer succession. The Cimarex succession plan emphasizes +internal development and promotion. This is important to assure continuity of the Cimarex corporate culture and operating philosophy. +The +Chairman, President and Chief Executive Officer positions are currently vested in a single individual. At this stage in the maturity of the organization, this makes for a leaner and +more efficient organization with fewer levels of review. The result is an organization that can expeditiously make and execute decisions. +At +least once each year, the succession plan is formally updated and reviewed by the Governance Committee and the Board. +Deductibility of Compensation Under Internal Revenue Code Section 162(m) +Section 162(m) of the Internal Revenue Code, adopted in 1993, imposes a $1 million cap, subject to certain exceptions, on the deductibility to a +company of compensation paid to the five executive officers named in such company's proxy statement. The stockholders voted at the 2003 Annual Meeting +18 +of +Shareholders to approve the 2002 Stock Incentive Plan to enable options granted under that Plan to qualify as deductible performance-based compensation (under Section 162(m)) so that any +compensation from the exercise of stock options would not be affected by Section 162(m). +Proposal 2 +in this Proxy Statement is a request for the shareholders of Cimarex to approve the performance goals of the restricted stock awards program so that awards under the +program may be deductible to the fullest extent allowed under Section 162(m). +The +Governance Committee continues to consider other steps that might be in Cimarex's best interest to comply with Section 162(m), while reserving the right to award future +compensation that would not comply with the Section 162(m) requirements for nondeductibility if the Governance Committee concludes that this is in Cimarex's best interests. +THE +GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +Michael J. Sullivan +Compensation +Summary Compensation Table. The summary compensation table set forth below contains information regarding compensation paid +to each of the Named Officers for services rendered during the last three fiscal years. +Long Term +Compensation Awards +Annual Compensation +Shares +Underlying +Option +Grants +Year +Salary +Bonus(1) +Other Annual +Compensation(2) +Restricted +Stock +Awards +All Other +Compensation +Total +F.H. Merelli, +Chairman, Chief Executive Officer, President +2005 +2004 +2003 +$ +$ +$ +537,500 +426,667 +350,000 +$ +$ +$ +1,000,000 +700,000 +375,000 +$ +36,018 +33,472 +22,701 +(3) +(3) +(3) +— +— +— +— +— +— +$ +$ +$ +34,937 +30,216 +31,430 +(4) +$ +$ +$ +1,608,455 +1,190,355 +779,131 +Thomas E. Jorden +Executive Vice President—Exploration +2005 +2004 +2003 +$ +$ +$ +297,260 +250,496 +192,000 +$ +$ +$ +625,000 +499,374 +192,000 +— +— +— +— +— +— +— +— +— +$ +$ +$ +25,488 +22,131 +18,614 +(5) +$ +$ +$ +947,748 +772,001 +402,614 +Joseph R. Albi +Executive Vice President—Operations +2005 +2004 +2003 +$ +$ +$ +287,328 +238,815 +178,000 +$ +$ +$ +510,000 +341,250 +151,300 +— +— +— +— +— +— +— +— +— +$ +$ +$ +31,429 +19,505 +29,319 +(6) +$ +$ +$ +828,757 +599,570 +358,619 +Paul Korus +Vice President, Chief Financial Officer, and Treasurer +2005 +2004 +2003 +$ +$ +$ +302,175 +242,500 +200,000 +$ +$ +$ +445,000 +363,750 +160,000 +— +— +— +— +— +— +— +— +— +$ +$ +$ +32,005 +20,173 +15,158 +(7) +$ +$ +$ +779,180 +626,423 +375,158 +Stephen P. Bell +Senior Vice President—Business Development and Land +2005 +2004 +2003 +$ +$ +$ +257,861 +222,283 +177,000 +$ +$ +$ +400,000 +321,875 +141,600 +— +— +— +— +— +— +— +— +— +$ +$ +$ +28,435 +18,212 +38,246 +(8) +$ +$ +$ +686,296 +562,370 +356,846 +(1) Bonus +reported for the year earned. +(2) The +aggregate amount of perquisites and other personal benefits was less than $10,000 for each of the Named Officers. Generally, perquisites include payment or reimbursement by +Cimarex for the benefit of the Named Officers of parking fees and athletic club memberships. +(3) Represents +the payment of estimated tax liability associated with the vesting of stock units. +19 +(4) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,500 and $24,437, respectively. +(5) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,500 and $14,988, respectively. +(6) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,500 and $20,929, respectively. +(7) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,500 and $21,505, respectively. +(8) Includes +matching contributions by Cimarex to its 401(k) plan and deferred compensation plan of $10,500 and $17,935, respectively. +Option Grants in 2005 +No options were granted by Cimarex to any of the named executive officers during fiscal year 2005 +Aggregated Option Exercises in 2005 and Value Realized +Name +Number of +Shares +Acquired on +Exercise +Value Realized +F.H. Merelli +— +$ +— +Thomas E. Jorden +— +$ +— +Joseph R. Albi +4,000 +$ +121,828 +Paul Korus +18,000 +$ +547,475 +Stephen P. Bell +— +$ +— +2005 Year-End Option and Restricted Stock Unit Values +2005 Year-End +Restricted Stock Unit Values +2005 Year-End Option Values +Number of Securities +Underlying Restricted +Stock Units +at 2005 Year-End +Number of Securities +Underlying Unexercised +Options at 2005 Year-End +Value of Unexercised +In-the-Money Options +at 2005 Year-End +Value of Restricted +Stock Units +at 2005 Year-End +Name +Exercisable +Unexercisable +Exercisable +Unexercisable +Vested +Unvested +Vested +Unvested +F. H. Merelli +628,440 +168,960 +$ +18,210,492 +$ +4,429,286 +126,720 +84,480 +$ +5,431,853 +$ +3,621,235 +Thomas Jorden +36,400 +36,400 +$ +954,226 +$ +954,226 +— +45,500 +$ +— +$ +1,950,358 +Joseph Albi +52,900 +36,400 +$ +1,432,030 +$ +954,226 +— +45,500 +$ +— +$ +1,950,358 +Paul Korus +54,600 +36,400 +$ +1,431,339 +$ +954,226 +— +45,500 +$ +— +$ +1,950,358 +Stephen Bell +54,600 +36,400 +$ +1,431,339 +$ +954,226 +— +45,500 +$ +— +$ +1,950,358 +20 +Equity Compensation Plan Information (as of December 31, 2005) +Plan category +(a) +Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) +(b) +Weighted-average exercise price of outstanding options, warrants and rights +(c) +Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) +Equity compensation plans approved by security holders +1,932,754 +$ +15.64 +5,284,234 +(2) +Equity compensation plans not approved by security holders +0 +0 +0 +Total +1,932,754 +$ +15.64 +5,284,234 +(2) +(1) The +number of securities to be issued upon exercise does not include restricted stock awards representing 266,153 shares, as these securities are issued and outstanding, or awards of +stock units representing the right to acquire 687,937 shares or awards of deferred compensation units representing the right to acquire 5,487 shares. +(2) Each +share of restricted stock issued under the Plan counts as two shares against the shares available for future issuance under the Plan. +21 +Stock Price Performance +The following graph shows the total stockholder return through December 31, 2005 of an investment of $100 in cash on September 30, 2002 (the date of +the spin off transaction with Helmerich & Payne) (i) in Cimarex Energy Co.'s common stock (XEC), (ii) the S & P 500 Index and (iii) the Dow Jones U.S. Exploration +and Production index. Historic stock price performance is not indicative of future stock price performance. +COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN* +AMONG THE CIMAREX ENERGY CO., THE S & P 500 INDEX +AND THE DOW JONES US EXPLORATION & PRODUCTION INDEX +* $100 +invested on 9/30/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31. +Copyright +© 2006, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved. +www.researchdatagroup.com/S&P.htm +Employment Agreement and Change in Control Arrangements with Named Officers +Employment Agreement with Mr. Merelli. F. H. Merelli has an employment agreement that provides the following: +• Indefinite +term +• Annual +performance and compensation reviews by Governance Committee; no decrease in salary permitted +22 +• Annual +incentive bonus +• May +be terminated for cause +• May +be terminated on 30 days' notice if not for cause +• Termination +without cause, because of death or disability, or for good reason: +• Two +times base salary +• Incentive +compensation for the year of termination +Agreements with Messrs. Albi, Bell, Jorden and Korus. Each of Messrs. Albi, Bell, Jorden and Korus were parties +to employment agreements with a company acquired by Cimarex on September 30, 2002. In that acquisition, Cimarex assumed the change-in-control and severance obligations +under each employment agreement that require a lump-sum payment, in the event of termination without cause, equal to two times base salary at September 30, 2002. +Change-in-Control Severance Plan. In March 2005 the Board adopted a +Change-in-Control Severance Plan covering Cimarex employees. In the event of a Change-in-Control, as defined in the Plan, if a Named Officer is +terminated for any reason other than Cause (as defined in the Plan), each Named Officer would be entitled to: +• Sum +of the prior two years' cash compensation (salary and bonus) +• Pro +rata portion of annual cash incentive bonus otherwise payable in year of termination +• Medical, +dental, disability and life insurance benefits for two years +• Benefits +payable under any other severance plan will offset benefits payable under the Change-in-Control Severance Plan +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Cimarex incurred approximately $13.8 million of costs related to such services +for the year ended December 31, 2005. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +23 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 24, 2006, there were 82,649,166 shares of common stock outstanding, with each share +entitled to one vote. +Equity and Equity-Related Interests Held by Executive Officers and Directors +The following table shows, as of March 24, 2006, vested and unvested equity interests and common stock held by each of the executive officers set forth in +the Summary Compensation Table (Named Officers), the directors and all of the executive officers and directors as a group: +Restricted Stock Units/ +Deferred Comp +Units(3)(4) +Shares Underlying +Stock Options +Unvested +Restricted +Stock(1)(2) +Common +Stock +Vested +Unvested +Vested +Unvested +401(k) +Total +Named Officers +F. H. Merelli (also director) +60,000 +126,720 +84,480 +375,000 +168,960 +12,989 +222,400 +1,050,549 +Joseph Albi +30,000 +— +45,500 +52,900 +36,400 +5,057 +2,259 +172,116 +Stephen Bell +30,000 +— +45,500 +54,600 +36,400 +— +3,500 +170,000 +Thomas Jorden +30,000 +— +45,500 +36,400 +36,400 +7,177 +3,822 +159,299 +Paul Korus +30,000 +— +45,500 +54,600 +36,400 +4,565 +6,000 +177,065 +Directors +Jerry Box +1,743 +— +— +— +— +— +6,681 +8,424 +Glenn Cox +3,198 +— +— +10,000 +— +— +3,797 +16,995 +Cortlandt Dietler +3,198 +— +— +52,500 +— +— +104,110 +159,808 +Hans Helmerich +1,979 +610 +1,219 +10,000 +— +— +97,976 +111,784 +David Hentschel +3,198 +— +— +10,000 +— +— +2,610 +15,808 +Paul Holleman +3,198 +— +— +35,000 +— +— +2,610 +40,808 +Monroe Robertson +833 +— +— +— +— +— +2,552 +3,385 +Michael Sullivan +1,979 +610 +1,219 +10,000 +— +— +2,500 +16,308 +L. Paul Teague +1,979 +610 +1,219 +16,667 +— +— +44,211 +64,686 +All executive officers & directors as a group (17 persons) +256,305 +128,550 +351,887 +763,667 +365,360 +32,283 +511,576 +2,409,728 +(1) The +restricted stock held by the executive officers is subject to three-year cliff vesting and the satisfaction of performance goals. See Proposal 2 in this proxy +statement. +(2) The +restricted stock held by the directors vests in three equal annual installments, beginning with the first anniversary from the grant date. +(3) The +restricted stock units vest five years from the date of grant and are payable in shares of common stock on the eighth anniversary of the date of grant. +(4) The +deferred compensation units held by certain directors vest in three equal annual installments and represent the right to receive one share of Cimarex common stock at the time +provided in the director's deferred compensation election. +24 +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 24, 2006, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned(1) +Option +Shares(2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +295,389 +628,440 +923,829 +1 +% +Joseph R. Albi +37,316 +52,900 +90,143 +<1 +% +Stephen P. Bell +33,500 +54,600 +88,100 +<1 +% +Thomas E. Jorden +40,999 +36,400 +77,399 +<1 +% +Paul Korus +40,565 +54,600 +95,165 +<1 +% +Directors +Jerry Box +8,424 +— +8,424 +<1 +% +Glenn A. Cox +6,995 +10,000 +16,995 +Cortlandt S. Dietler +107,308 +52,500 +159,808 +<1 +% +Hans Helmerich +99,955 +(3) +10,000 +109,955 +(3) +<1 +% +David A. Hentschel +5,808 +10,000 +15,808 +<1 +% +Paul D. Holleman +5,808 +35,000 +40,808 +<1 +% +Monroe W. Robertson +3,385 +— +3,385 +<1 +% +Michael J. Sullivan +4,479 +10,000 +14,479 +<1 +% +L. Paul Teague +46,190 +16,667 +62,857 +<1 +% +All executive officers and directors as a group (17 persons) +800,264 +998,907 +1,799,171 +2 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the benefit of the named individual in the +Cimarex Energy Co. 401(k) Plan. Does not include restricted stock units held by executive officers or deferred compensation units held by some directors. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following March 24, 2006 under the Cimarex Energy +Co. 2002 Stock Incentive Plan. +(3) Includes +11,450 shares held by Mr. Helmerich's spouse, 7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee and 2,000 +shares held by a custodian for the benefit of Mr. Helmerich's children. Mr. Helmerich disclaims beneficial ownership of these shares. +Beneficial Owners of More than Five Percent +No stockholders beneficially owned more than five percent of the outstanding shares of our common stock. This information is based on filings by the reporting +persons with the Securities and Exchange Commission. +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, +to file reports of ownership of, and transactions in, our common stock with the SEC. The reports by such persons are published on our website at http://www.cimarex.com. Based on a review of such +reports, and on written representations +25 +from +our reporting persons, we believe that all reports were timely filed in 2005, except that reports reporting the exchange in June 2004 by Messrs. Helmerich, Sullivan and Teague of +shares of restricted stock for deferred compensation units were not timely filed. +Other Matters +There are no other matters that the Board of Directors intends to present, or has reason to believe others will present, at the annual meeting. If other matters +come before the annual meeting, the persons named in the accompanying form of proxy will vote in accordance with their best judgment with respect to such matters. +Stockholder Proposals for 2007 Annual Meeting +Any stockholder wishing to submit a proposal for the vote of the stockholders at Cimarex's 2007 annual meeting must submit such proposal or proposals in writing +to Cimarex no later than January 10, 2007. Proposals should be sent to the attention of the Corporate Secretary at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. We are not required +to include in our proxy statement a form of proxy or stockholder proposal that is received after that date or otherwise fails to meet the requirements for stockholder proposals established by +regulations of the Securities and Exchange Commission. +As +required by our By-laws, a stockholder must give timely notice of a nomination for election as a director. A notice is timely if received no earlier than +February 6, 2007 and no later than February 16, 2007. The advance notice must be delivered to the attention of the Corporate Secretary at 1700 Lincoln Street, Suite 1800, +Denver, Colorado 80203, and must comply with the requirements of Cimarex's By-Laws. +Complaint and Reporting Procedures +We have established complaint and reporting procedures, which are posted on our website at www.cimarex.com. Any person, whether or not an employee, who has a +concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern +by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with the presiding +non-management director or with our non-management directors as a group, also may call the confidential hotline. The hotline is available 24 hours a day, seven days a +week and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +26 +VOTE BY TELEPHONE OR INTERNET +QUICK • EASY • IMMEDIATE +CIMAREX ENERGY CO. +• You +can now vote your shares electronically through the Internet or the telephone. +• This +eliminates the need to return the proxy card. +• Your +electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. +TO VOTE YOUR PROXY BY INTERNET +www.continentalstock.com +Have +your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an electronic ballot. Follow the prompts to +vote your shares. +TO VOTE YOUR PROXY BY MAIL +Mark, +sign and date your proxy card above, detach it and return it in the postage-paid envelope provided. +TO VOTE YOUR PROXY BY PHONE +1-800-293-8533 +Use +any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy number and account number. Follow the +voting instructions to vote your shares. +PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +Please mark +your votes +like this +ý +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSAL. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +The Board of Directors recommends a vote FOR Proposals 1, 2 and 3 +1. +Election of four Class I directors: (01) Jerry Box, (02) Paul D. Holleman, (03) F. H. Merelli, (04) Michael J. Sullivan +Vote FOR all nominees +listed to the left (except +as marked to the +Vote WITHHELD +from all nominees +listed to the left +(Instruction: To withhold authority to vote for any individual nominee, write the number(s) of the nominee(s) in the space provided below.) +contrary below) +o +o +2. +Approve the performance goals applicable to awards of restricted stock in order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue Code. +FOR +o +AGAINST +o +ABSTAIN +o +3. +Ratify appointment of KPMG LLP as independent auditors for 2006. +FOR +o +AGAINST +o +ABSTAIN +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE +INSTRUCTIONS ABOVE. +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature(s) +Signature(s) +Date +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or +guardian, please give full title as such. +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 17, 2006, or any adjournment thereof. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-06-004095/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-06-004095/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..802a1191d132540684034321e1e429cbce2397be --- /dev/null +++ b/raw/proxies/0001168054/0001047469-06-004095/proxy_rpt.txt @@ -0,0 +1,4 @@ +Certain Relationships and Related Party Transactions +Helmerich & Payne provides Cimarex with contract drilling services. Cimarex incurred approximately $13.8 million of costs related to such services +for the year ended December 31, 2005. Hans Helmerich, a director of Cimarex, is President and Chief Executive Officer of Helmerich & Payne. +23 \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-07-002341/proxy.txt b/raw/proxies/0001168054/0001047469-07-002341/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..5010f0eeee9cd186c55775f250e7522b169438ff --- /dev/null +++ b/raw/proxies/0001168054/0001047469-07-002341/proxy.txt @@ -0,0 +1,3140 @@ +DEF 14A +1 +a2176669zdef14a.htm +DEF 14A +QuickLinks +-- Click here to rapidly navigate through this document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 16, 2007 +To the Stockholders of Cimarex Energy Co.: +The +Annual Meeting of stockholders of Cimarex Energy Co. will be held on Wednesday, May 16, 2007, at 9:30 a.m., Mountain Time, at the Brown Palace Hotel, +321 Seventeenth Street, Denver, Colorado, for the following purposes: +1. Elect +three directors for terms expiring in 2010. +2. Ratify +the appointment of the independent auditors for 2007. +3. Transact +any other business that may be properly brought before the Annual Meeting. +Stockholders +of record at the close of business on March 21, 2007 are entitled to notice of and to vote at the meeting. During the period May 4 through May 15, 2007, +you may examine the stockholders' list at our offices. The stockholders' list will also be available at the meeting. +IMPORTANT +Your proxy is important to assure a quorum at the meeting. Whether or not you expect to attend the meeting, please vote in any one of the following +ways: +• By phone, call 1-866-894-0537 • On the internet, log on to www.continentalstock.com • By mail, mark, sign, date and promptly return the proxy card in the postage-prepaid envelope. +BY ORDER OF THE BOARD OF DIRECTORS +Mary Kay Rohrer +Corporate Secretary +Date: +April 6, 2007 +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +GENERAL INFORMATION ABOUT THE ANNUAL MEETING +1-4 +I. +CORPORATE GOVERNANCE +4 +Corporate Governance Guidelines +4 +Independence of Board Members +4 +Executive Sessions of the Board of Directors +5 +Charters of Committees of the Board of Directors +5 +Board/Committee Evaluations +5 +Director Education +5 +Service on Boards of Other Public Companies +5 +Code of Ethics +6 +Web Access +6 +Process for Stockholder Communication with the Board +6 +Director Attendance at Annual Meeting +6 +II. +INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES +6 +Audit Committee +7 +Compensation and Governance Committee +8 +III. +PROPOSAL 1—ELECTION OF DIRECTORS +9 +Nominees for Election as Class II Directors +10 +Directors Continuing in Office +11 +IV. +COMPENSATION DISCUSSION AND ANALYSIS +12 +Compensation Philosophy & Objectives +12 +Elements of Executive Compensation Program +13 +Base Pay +14 +Cash Incentive Awards +14 +Long-Term Incentive Awards +18 +Internal Pay Equity +19 +Other Compensation +20 +Perquisites +20 +Retirement Benefits +20 +Potential Benefits Assuming Various Termination Events +20 +Change-in-Control Severance Plan +20 +2002 Stock Incentive Plan +21 +Employment Agreement with Mr. Merelli +21 +Employment Agreements with Messrs. Albi, Bell, Jorden and Korus +22 +Supplemental Savings Plan +22 +Maximum Benefits Payable Upon Termination or Change-in-Control +22 +Transactions with Related Persons +24 +Stock Ownership Guidelines +24 +Report of Compensation and Governance Committee +24 +i +V. +COMPENSATION TABLES +25 +Summary Compensation Table +25 +2006 Grants of Plan-Based Awards +26 +Outstanding Equity Awards at 12/31/06 +27 +Option Exercises and Stock Vested Table +27 +Nonqualified Deferred Compensation Table +28 +VI. +DIRECTOR COMPENSATION +28 +2006 Director Compensation +29 +Deferred Compensation Plan for Nonemployee Directors +31 +Acceleration of Vesting of Awards +31 +VII. +PROPOSAL 2—RATIFICATION OF INDEPENDENT AUDITORS +32 +Independent Auditors +32 +Fees +32 +Report of Audit Committee +32 +VIII. +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS +34 +Beneficial Ownership by Executive Officers and Directors +34 +Beneficial Owners of More than Five Percent +35 +Equity and Equity-Related Interests Held by Executive Officers and Directors +35 +IX. +OTHER MATTERS +36 +Section 16(a) Beneficial Ownership Reporting Compliance +36 +Complaint and Reporting Procedures +36 +ii +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +PROXY STATEMENT +2007 ANNUAL MEETING OF STOCKHOLDERS—May 16, 2007 +We provide you with this proxy statement to solicit your vote at our 2007 Annual Meeting of Stockholders. The Annual Meeting will be held at the Brown Palace +Hotel, 321 Seventeenth Street, Denver, Colorado on Wednesday, May 16, 2007, at 9:30 a.m. (Mountain Time). The proxies also may be voted at any adjournments or postponements of the Annual +Meeting. +The +proxy materials will be mailed to stockholders on or about April 6, 2007. All properly executed and delivered written proxies will be voted at the Annual Meeting. If you are a +stockholder of record at the close of business on March 21, 2007, the record date, you may vote at the Annual Meeting, or at adjournments or postponements of the Annual Meeting. +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +1. Who can vote? +Stockholders holding shares of our common stock as of the close of business on the record date, March 21, 2007, may vote at the Annual Meeting, or any +adjournments or postponements of the Annual Meeting. You have one vote for each share of common stock held as of the record date, that may be voted on each proposal presented at the Annual Meeting. +2. What is the record date and what does it mean? +The record date for the Annual Meeting is March 21, 2007. The record date was established by our Board of Directors as required by our By-laws +and Delaware law. Owners of record of our common stock at the close of business on the record date are entitled to: +A. Receive +notice of the Annual Meeting; and +B. Vote +at the Annual Meeting, and any adjournments or postponements of the Annual Meeting. +3. How many shares of Cimarex common stock were outstanding on the record date? +At the close of business on the record date, there were 83,444,376 shares of common stock outstanding and entitled to vote at the Annual Meeting. Common stock is +the only class of stock entitled to vote. +4. How do I vote? +You can vote in person at the Annual Meeting or by proxy. If you directly own your shares, you have three ways to vote by proxy: +A. Connect +to the Internet at www.continentalstock.com ; +B. Call +1-866-894-0537; or +C. Complete, +sign and date the proxy card and mail it back to us. +Complete +instructions for voting your shares can be found on your proxy card. +If +you change your mind on any issue, you may revoke your proxy at any time before the close of voting at the Annual Meeting. +1 +There +are four ways to revoke your proxy: +A. Connect +to the Internet at www.continenalstock.com ; +B. Call +1-866-894-0537; +C. Write +our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518; or +D. Give +notice of revocation to the Inspector of Election at the Annual Meeting. +5. How do I vote if my shares are held in street name? +If your shares are held in the name of your broker, a bank, or other nominee, only your broker, bank or other nominee may execute a proxy and vote your shares. +Please sign, date and promptly return the instruction card you received from your broker, bank or other nominee, in accordance with the instructions on the card. You may vote by the Internet or +telephone if your bank or broker makes those methods available, in which case you can follow the instructions on the card. If you wish to vote your "street name" shares directly, you will need to +obtain a document known as a "legal proxy" from your broker, bank or other nominee. Please contact your bank, broker, or other nominee if you wish to do so. +6. What happens if I do not specify a choice for a proposal when returning a proxy? +You should specify your choice for each proposal on the proxy card. If you do not specify your choice and sign the proxy card, your shares will be voted "FOR" the +election of Cimarex director nominees and ratification of independent auditors and "AGAINST" any stockholder proposal. +7. How do I vote shares held in my 401(k) account? +401(k) Plan participants who have shares of Cimarex stock credited to their Plan account as of March 21, 2007, will receive a proxy card that serves as a +voting instruction card. You may instruct the Trustee how to vote your shares, and the Trustee will vote your shares in accordance with your instructions. If you do not sign and return the proxy card +to indicate your instructions, the Trustee will vote your shares in the same proportion as shares were voted by other Plan participants. +8. What happens if other matters come up at the Annual Meeting? +We do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, F. H. Merelli, +Cimarex's Chairman of the Board, Chief Executive Officer and President, and Paul Korus, Cimarex's Vice President, Chief Financial Officer and Treasurer, will vote your shares at their discretion. +9. Who will count the votes? +A representative of Continental Stock Transfer & Trust Company, an independent tabulator appointed by the Board of Directors, will count the votes and act +as the Inspector of Election. The Inspector of Election will have the authority to receive, inspect, electronically tally and determine the validity of the proxies received. +10. What is a "quorum"? +A "quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting shares of common +stock present in person at the Annual Meeting or represented by proxy. If you submit a properly executed proxy, you will be considered part of the quorum even if you abstain from voting. Shares that +brokers do not have the +2 +authority +to vote in the absence of timely instructions from the beneficial owners ("broker non-votes") are treated as present for the purposes of determining a quorum. +11. Who can attend the Annual Meeting? +Admission to the Annual Meeting is limited to stockholders of Cimarex, persons holding validly executed proxies from stockholders who held Cimarex common stock on +March 21, 2007, and invited guests of Cimarex. +12. How many votes must each proposal receive to be adopted? +• With +respect to Proposal 1, the election of directors, the three nominees who receive the most "FOR" votes at the Annual Meeting will be elected. +• Proposal +2 for the ratification of independent auditors must receive the affirmative vote of a majority of the shares present and entitled to vote. +13. How are votes counted? +Votes are counted in accordance with Cimarex's By-laws and Delaware law. A broker non-vote counts in determining a quorum but does not +count in electing the directors or on Proposal 2. If a stockholder returns an executed proxy card but does not indicate how his or her shares are to be voted, the shares covered by such proxy card +will be included in determining if there is a quorum and will also be counted as votes "FOR" the election of Cimarex's director nominees and ratification of independent auditors and "AGAINST" any +stockholder proposal. Shares will not be voted at the Annual Meeting if a properly executed proxy card covering those shares has not been received and the holder does not vote in person at the Annual +Meeting. +14. Do I have to vote? +No. However, we strongly urge you to vote. You may vote for all, some or none of Cimarex's director nominees. You may abstain from voting or vote "FOR" or +"AGAINST" Proposal 2. +15. How can I view the stockholder list? +You may view a stockholder list at the Annual Meeting or at our offices at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 during ordinary business hours +during the period May 4 through May 15, 2007. +16. Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex does. In addition to sending you these materials, some of our directors and management may contact you by telephone, mail, e-mail or in +person. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials. +17. If I want to submit a stockholder proposal for the 2008 Annual Meeting, when is it due? +If you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in +writing to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 +and facsimile (303) 295-3494. Cimarex must receive your proposal on or before December 18, 2007. Cimarex will consider only proposals meeting the requirements of the +applicable rules of the SEC. +If +a stockholder wants to bring any matter before the 2008 Annual Meeting that is not included in the 2008 Proxy Statement, the stockholder must provide written notice of a matter to be +brought before +3 +the +2008 Annual Meeting between February 6, 2008 and February 16, 2008. If the 2008 Annual Meeting is held more than 30 days before or after May 16, 2008, then the +stockholder's written notice must be received not later than the close of business on the tenth day following the day on which the notice of the date of the 2008 Annual Meeting was mailed or public +disclosure of the date of the Annual Meeting was made, whichever first occurs. +18. How can I obtain a copy of the Annual Report on Form 10-K? +A copy of Cimarex's 2006 Annual Report on Form 10-K is included in Cimarex's annual report to stockholders that is being mailed with this proxy +statement. If you do not receive a copy, you may obtain one free of charge by writing or calling our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado +80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. +I. +CORPORATE GOVERNANCE +Prudent corporate governance is critical for the trust and confidence of investors, employees, suppliers, business partners, and stockholders. Cimarex corporate +governance is based on high ethical standards and the awareness—at all times—that our actions must be based on the best interests of the stockholders. +Corporate Governance Guidelines +The Corporate Governance Guidelines and Board committee charters provide the framework for effective governance. The Corporate Governance Guidelines address +matters such as qualifications of directors, standards for independence of directors, election of directors, responsibilities of directors, limitation of service on other public company boards, number +and structure of Board committees, conduct and frequency of Board and committee meetings, Board evaluation, management succession, director access to management, counsel and advisors, and board +orientation and education. +The +Board of Directors, either directly or through the Compensation and Governance Committee, reviews and revises as necessary the Corporate Governance Guidelines. Our Corporate +Governance Guidelines may be found on our website at www.cimarex.com . A printed copy may be obtained by contacting our Corporate Secretary, Cimarex +Energy Co., 1700 Lincoln Street, Suite 1800, Denver, CO 80203-4518, telephone (303) 295-3995. +Independence of Board Members +Our Corporate Governance Guidelines require that a majority of our Board of Directors must be independent as defined by applicable laws, rules, regulations and +listing standards. We comply with all criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based upon NYSE +standards, all Board members are independent, except the Chairman of the Board who is also our Chief Executive Officer and President. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, +the Board determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of +management and free from any relationship that would interfere with the director's independent judgment. +4 +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively +determined by the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +The +Board of Directors is aware of the contract drilling services provided to us by Helmerich & Payne, Inc. Hans Helmerich, one of our directors, is a director and Chief +Executive Officer and President of Helmerich & Payne. Management obtains drilling services from Helmerich & Payne in the same manner as it obtains services from other companies that +provide similar services. In 2006, the cost of the services provided by Helmerich & Payne when compared to our total drilling costs is not material. The Board is not involved in the selection +and award of contract drilling services. The Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when compared to +Cimarex's total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) Mr. Helmerich's relationship with Helmerich & +Payne, Inc. does not interfere with his independent judgment. +The +Board has determined that Jerry Box, Glenn A. Cox, Cortlandt S. Dietler, Hans Helmerich, David A. Hentschel, Paul D. Holleman, Monroe W. Robertson Michael J. Sullivan and L. Paul +Teague are independent. Thus, nine of ten (90%) of Cimarex's directors are independent. Cimarex's Audit and Compensation and Governance Committees are comprised entirely of independent directors. +Executive Sessions of the Board of Directors +Cimarex holds regular executive sessions of non-management directors, and each year the directors select a lead director to preside over executive +sessions. Mr. Helmerich served as Lead Director during 2006. On December 12, 2006, the Board selected Mr. Hentschel to serve as Lead Director for 2007. During 2006, the +non-management members of the Board met in executive session four times, and members of the Audit Committee met in executive session four times. The purpose of these executive sessions is +to promote open and candid discussion among the non-management directors. +Charters of Committees of the Board of Directors +The Board of Directors has adopted charters for the Audit Committee and for the Compensation and Governance Committee that comply with the corporate governance +rules adopted by the SEC and the NYSE listing standards. These charters may be found on our website at www.cimarex.com . A printed copy of each charter +may be obtained by contacting our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, CO 80203-4518, telephone (303) 295-3995. +Board/Committee Evaluations +During 2006, the Board of Directors and each committee participated in a self-assessment or evaluation of the effectiveness of the Board and its +committees. +Director Education +Cimarex encourages director participation in seminars and conferences and other opportunities for director education. In 2006, a majority of its directors +attended an educational program designed by National Association of Corporate Directors, a nationally recognized board educational organization. Each of our directors is a member of that organization. +We subscribe and make available to our Committee members various informational and educational newsletters and online services. +Service on Boards of Other Public Companies +Cimarex does not prevent non-management directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines +recommend that (i) the Chief Executive +5 +Officer +serve on the Board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the Board of no more than five public companies, including Cimarex. +All directors comply with this guideline. +Code of Ethics +Cimarex has adopted a code of ethics, known as the "Code of Business Conduct," that applies to all directors, officers and employees. The Code of Business Conduct +affirms Cimarex's policy and is a guideline to the highest ethical standards and compliance with the law. The Code of Business Conduct is a guideline to promote honest and ethical conduct, maintain a +corporate climate in which integrity and dignity of each individual is valued, assure compliance with laws and assure proper use of Cimarex's assets. A copy of our Code of Business Conduct is +available on our website at www.cimarex.com. A printed copy may be obtained by contacting our Corporate Secretary, Cimarex +Energy Co., 1700 Lincoln Street, Suite 1800, Denver, CO 80203-4518, telephone (303) 295-3995. Cimarex will post on its website all waivers to or amendments to its Code +of Business Conduct that are required to be disclosed by applicable law and rules of the NYSE listing standards. Currently, Cimarex does not have nor does it anticipate any waivers to or amendments of +its Code of Business Conduct. +Web Access +Cimarex provides access through its website (www.cimarex.com) to current information relating to corporate governance, including a copy of each of the Board's +standing committee charters, our Corporate Governance Guidelines, the Code of Business Conduct, biographical information regarding our directors and executive officers and complaint and reporting +procedures. +Process for Stockholder Communication with the Board +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline +(1-866-519-1898). All communications will be forwarded to the lead director for his review. The lead director may take any action deemed appropriate or necessary, +including retaining independent or outside counsel, accountants or other advisors. No adverse action will be taken against any individual making any such communication to the lead director. +Director Attendance at Annual Meeting +The Board encourages all directors to attend the Annual Meeting. Nine of Cimarex's ten directors attended Cimarex's 2006 Annual Meeting. +II. +INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES +The Board of Directors held four meetings during 2006. Each director attended at least 75 percent of the Board meetings and the meetings of each committee +on which he served. The Board of Directors has established two standing committees to assist the Board in carrying out its duties: the Audit Committee and the Compensation and Governance Committee. +6 +Audit Committee +Members +Functions of Committee +Monroe W. Robertson, Chairman† +• +Appoints independent auditors +Glenn A. Cox† +• +Approves nature and scope of services of +Cortlandt S. Dietler† +independent auditors and reviews range of fees +Paul D. Holleman +for such services +• +Oversees Cimarex's internal audit function +• +Reviews qualification and independence of independent auditors +• +Monitors integrity of Cimarex's financial statements +• +Monitors compliance with legal and regulatory requirements +† Financial +Expert +The +Audit Committee held eight meetings during 2006. The Audit Committee consists of four non-employee directors who meet the NYSE standards of independence. The Board of +Directors has determined that each member of the Audit Committee meets the financial literacy standard required by the NYSE, and three of four members of the Committee qualify as a "financial expert" +as defined by the Securities and Exchange Commission. No Audit Committee member serves on more than three audit committees of public companies, including Cimarex's Audit Committee. Cimarex maintains +an Internal Audit Department to provide management and the Audit Committee with ongoing assessments of Cimarex's risk management processes and system of internal controls. +Cimarex's +independent auditor reports directly to the Audit Committee. The Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor +and the Board. Interested parties may contact the Audit Committee members by following the process outlined in the Corporate Governance section of this proxy statement. +7 +Compensation and Governance Committee +Members +Functions of Committee +Compensation Functions +L. Paul Teague, Chairman +• +Recommends CEO compensation for approval +Jerry Box +by Board +Hans Helmerich +• +Recommends executive officer cash and +David A. Hentschel +incentive compensation for approval by Board +Michael J. Sullivan +• +Recommends director compensation +• +Reviews and recommends Compensation Discussion and Analysis disclosures +• +Determines amount and terms of equity awards +• +Reviews and approves long-term incentive plans +Nominating and Governance Functions +• +Recommends individuals to Board for nomination, election or appointment as members of the Board and its committees +• +Oversees evaluation of performance of the Board, its committees and the CEO +• +Oversees corporate governance +• +Develops plans for managerial succession +The +Compensation and Governance Committee held four meetings during 2006. The Committee consists of five independent, non-employee directors. The Chairman of the Committee +regularly communicates and meets with the Vice President—Human Resources and the Corporate Secretary regarding Committee matters. +Four +of the five Committee members have extensive executive experience in administering compensation for oil and gas exploration and producing companies. The fifth member has managed +compensation matters as a state governor, U.S. ambassador, and a law firm partner. +Compensation Function. The Committee establishes and administers our executive compensation program. The Committee recommends +for approval by the independent directors compensation to be paid or delivered to the Chief Executive Officer (CEO) and the executive officers named in the Summary Compensation +Table in this proxy statement (referred to throughout this document as the Named Executive Officers or NEOs). The outside directors of the Committee approve performance +standards for the plans. From time to time, the Committee engages the services of Deloitte Consulting LLP, an independent compensation consultant, for research and advice regarding the form of +executive officer and director compensation. In 2006, the Committee decided that Deloitte Consulting LLP would perform executive compensation services only at the request of the Committee and should +not perform like services on behalf of management. Our Vice President—Human Resources also reviews and analyzes the compensation practices of peer group companies and presents this +information to the Committee. Our Chief Executive Officer communicates with the Committee regarding performance of the Named Executive Officers and makes recommendations regarding base pay and annual +cash incentive awards (see Compensation Discussion and Analysis) . +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an +executive officer of Cimarex from February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & +Payne, Inc. for the purpose of facilitating the spinoff by Helmerich & Payne of its oil and +8 +gas +exploration and production business to Cimarex. Cimarex became a publicly-held company on September 30, 2002, at which time Mr. Helmerich resigned as an executive +officer. +Governance and Nominating Functions. The Committee develops and recommends to the Board corporate governance principles. The +Committee oversees the process of annual performance evaluations for the Board and each committee, reviews and makes recommendations regarding Cimarex's Corporate Governance Guidelines and provides +recommendations regarding director educational programs. +The +Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired qualifications, including (a) high personal and professional +ethics, (b) integrity +and values, (c) commitment to the long-term interest of the stockholders, (d) a mix of characteristics and diverse experiences, perspectives and skills appropriate to our +business and (e) familiarity or experience in the oil and gas exploration and production business. The Committee does not set specific, minimum qualifications that nominees must meet, but +believes that each nominee should be evaluated based on his or her individual merits, taking into account the business and needs of Cimarex and the composition of the Board of Directors. All of our +directors have extensive oil and gas exploration and production experience—either as company executives or attorneys. +The +Committee will consider nominees recommended by stockholders. For the 2007 Annual Meeting, the Committee did not receive nominations from a stockholder prior to the deadline for +stockholder nominations. Stockholders who wish to nominate persons for election as directors at the 2008 Annual Meeting must submit in writing a timely +notice complying with Cimarex's By-laws to Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile +(303) 295-3494. To be timely, the stockholder's written notice must be received between February 6, 2008 and February 16, 2008. If the 2008 Annual Meeting is held more +than 30 days before or after May 16, 2008, the written notice must be received no later than the close of business on the tenth day after we mail Notice of the Annual Meeting to our +stockholders. +III. +PROPOSAL 1—ELECTION OF DIRECTORS +Our Board of Directors consists of ten members and is divided into three classes: Class I, Class II and Class III directors. At each Annual +Meeting, a class of directors is elected for a term expiring at the Annual Meeting in the third year following the year of election. Each director holds office until his successor is elected and +qualifies. +The +terms of the three Class II directors, Cortlandt S. Dietler, Hans Helmerich and Monroe W. Robertson, will expire at the 2007 Annual Meeting. Messrs. Dietler, Helmerich +and Robertson have each been nominated to stand for reelection at the meeting to hold office until our 2010 Annual Meeting. Each of the nominees standing for reelection has extensive experience in the +oil and gas exploration and production business. +9 +Unless instructed otherwise, the proxies will be voted "FOR" the election of each of the Class II nominees named above to serve for three years or until his successor is elected +and qualifies. If prior to the Annual Meeting one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining +nominees and for any substitute nominee or nominees designated by our Board of Directors or its Compensation and Governance Committee. As of the mailing of these proxy materials, the Board of +Directors knows of no reason why any director nominee would not be available to serve as a director. +Information +concerning the nominees selected by our Board of Directors, as well as each of our continuing directors, is set forth below: +Nominees for Election as Class II Directors for Three-Year Terms Expiring in 2010 +Cortlandt S. Dietler +Owner, Poison Spider Oil Company LLC +Denver, Colorado +Age—85 +Director Since 2002 +Member—Audit Committee +Currently +the owner of Poison Spider Oil Company LLC. From April 1995 through September 1, 2006, Chairman of the Board of TransMontaigne, Inc. Chief Executive +Officer of TransMontaigne from April 1995 through September 1999. Director of Hallador Petroleum Company, a Denver, Colorado +exploration and production company traded on the OTC Bulletin Board, and Forest Oil Corporation, a Denver, Colorado exploration and production company traded on the NYSE. Chairman of the nominating +and corporate governance committee and the compensation committee of Forest Oil. +Hans Helmerich +President, CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age—48 +Director Since 2002 +Member—Compensation and Governance Committee +Director +of Helmerich & Payne since 1987. President and Chief Executive Officer of Helmerich & Payne since 1989. Director of Atwood Oceanics, Inc., Houston, Texas, +an international offshore drilling company, and Trustee of The Northwestern Mutual Life Insurance Company. +Monroe W. Robertson +Private investor +Age—57 +Director Since 2005 +Chairman—Audit Committee +Currently +a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in +March 2002. He held the positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. +Directors will be elected by a plurality of the votes. The Board of Directors recommends a vote "FOR" each of the nominees for election to the +Board. +10 +Directors Continuing in Office +Class III Directors—Terms Expiring in 2008 +Glenn A. Cox +Retired President and COO +Phillips Petroleum Company +Age—77 +Director Since 2002 +Member—Audit Committee +President +and Chief Operating Officer of Phillips Petroleum Company from June 1985 until his retirement in 1991. Chief Financial Officer of Phillips Petroleum Company from +June 1980 to May 1985. Director and chairman of audit committee of Helmerich & Payne, Tulsa, Oklahoma, and previous director and member of audit committees of The Williams +Companies, a gas gathering and exploration and production company located in Tulsa, Oklahoma, and Union Texas Petroleum, an exploration and production company located in Houston, Texas. +David A. Hentschel +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age—73 +Director Since 2002 +Member—Compensation and Governance Committee +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. President and Chief Executive Officer of Canadian Occidental +Petroleum, Ltd, now known as Nexen, from 1995 until 1997. Director of Nexen Inc., a global energy company located in Calgary, Alberta, Canada. +L. Paul Teague +Retired Executive +Texaco USA +Age—72 +Director Since 2002 +Member—Compensation and Governance Committee +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New +Orleans Division, Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +Class I Directors—Terms Expiring in 2009 +Jerry Box +Retired President and COO +Oryx Energy Company +Age—68 +Director Since 2005 +Member—Compensation and Governance Committee +Chairman +of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter Resources from March 1999 to June 2005. +Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a +11 +number +of managerial and executive positions with Oryx Energy and its predecessor company, Sun Oil Company. Currently, director and chairman of the compensation committee and member of the nominating +and governance committee of Newpark Resources, Inc., a Houston, Texas based oilfield services company traded on the NYSE. +Paul D. Holleman +Retired Partner +Holme Roberts & Owen LLP +Age—75 +Director Since 2002 +Member—Audit Committee +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. At Holme Roberts, he served as legal counsel to Key Production Company, Inc. and +other oil and gas companies. Other positions in his 40 years with Holme Roberts included Chairman of the Natural Resources Department and member of the executive committee. +F. H. Merelli +Chairman of the Board, CEO, President +Cimarex Energy Co. +Denver, Colorado +Age—71 +Director Since 2002 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from +September 1992 to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of +audit committee of Apache Corporation, Houston, Texas, an exploration and production company traded on the NYSE. +Michael J. Sullivan +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age—67 +Director Since 2002 +Member—Compensation and Governance Committee +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner of the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, a global food +and food ingredients producer headquartered in Tralee, Ireland; director and member of audit committee and governance committee of Allied Irish Bank Group, Dublin, Ireland; director and member of the +governance committee of First Interstate BancSystem, Billings, Montana and director and member of the governance and audit committee of Slatten Construction, Inc., Great Falls, Montana. +IV. +COMPENSATION DISCUSSION AND ANALYSIS +Compensation Philosophy & Objectives +Cimarex's principal business objective is to achieve consistent profitable growth in proved reserves and production. The objective of the compensation program is +to protect and enhance stockholder value by encouraging and rewarding performance that supports this business objective. +12 +The +program seeks to align the interests of the stockholders and executives with a balance of short-and long-term incentives. Executive compensation is a mix of base pay, +annual cash incentive award payments and long-term incentive awards, with minimal use of perquisites. +The +compensation program rewards performance that results in growth in proved reserves and production, better-than-average relative stock price performance, and +annual cash flow in excess of a pre-established target. A significant part of the annual cash incentive award and long-term incentive awards are "at risk" depending on the +achievement of specific performance measures. The annual cash incentive awards are based on short-term and long-term performance incentive factors—production, cash +flow, reserve replacement and stock price performance. Production, cash flow and stock price are primarily indicative of current performance. Reserve replacement is an essential determinant of the +long-term performance and success of Cimarex. +For +the cash incentive awards, the stock price performance is based on a one-year period. The long-term incentive awards emphasize a three-year stock +price performance period. +The +compensation program is deliberately structured to focus only on performance that is relevant to the achievement of Cimarex's primary objectives. The program does not include factors +that are not essential for the achievement of these objectives. +The +compensation program is designed to attract, retain, and motivate executives in the competitive environment in which Cimarex operates. Management continuity is critical to +achievement of Cimarex's long-term corporate objectives. Further, the program must encourage and reward performance that is consistent with the highest ethical standards. +The +Compensation and Governance Committee establishes and administers the executive compensation program as a representative of the stockholders. The Committee recommends for approval by +the full Board overall executive compensation that is competitive, reasonable, fair, and not excessive. The Committee supports the disclosure of all aspects of executive compensation so stockholders +will clearly understand how much the Cimarex officers are paid and why. +The +Committee reviews all components of compensation for the Chief Executive Officer and each Named Executive Officer. This review encompasses base salary, annual cash incentive awards, +long-term equity compensation, realized and unrealized stock option and restricted stock gains, perquisites and other personal benefits, company matching contributions under Cimarex's +401(k) plan and supplemental savings plan, and possible payments under potential severance and change-in-control scenarios. +The +Committee considers and compares Cimarex executive compensation and practices to those of peer companies. The Committee also reviews, evaluates and considers internal pay equity +between its Chief Executive Officer and the other executive officers. The Committee may engage its independent compensation consultant, Deloitte Consulting LLP, to conduct research and provide advice +on compensation matters. +See Committees of the Board of Directors for information regarding the composition of the Compensation and Governance Committee, +qualifications of members and process and procedures. +Elements of Executive Compensation Program +Our executive compensation program consists of three primary elements: +• Base +Pay +• Annual +Cash Incentive Awards +• Long-Term +Incentive Awards +13 +We routinely review total compensation for each executive. We do not designate specific percentages to be assigned to each element of compensation. +To +ensure the integrity of our annual cash incentive awards and long-term incentive awards, we use performance measures that are objective, measurable and verifiable. Based +on management's recommendation and the Compensation and Governance Committee's determination of relevance to stockholder interests, the program currently awards performance related to growth in proved +reserves and production, relative stock price performance and actual versus forecasted cash flow. +We +consider, and when appropriate, we attempt to maximize the tax deductibility of compensation paid to executives under Section 162(m) of the Internal Revenue Code. Our +stockholders have approved our 2002 Stock Incentive Plan and the performance goals applicable to our long-term incentive awards. +Base Pay +Our goal is to pay base salaries that are competitive with those paid for similar executive positions by other companies in our industry with revenue and market +capitalizations comparable to ours. For retention and competitive reasons, the Committee has established a base pay target of the 75th percentile of base pay among peers. Because the public +information on base salaries is historical, it is not reflective of actual current pay. That is why the Committee, with the assistance of its compensation consultant, adjusts the historical pay +information based on forecasts of current actual compensation. The peer group data is also adjusted for the different compensation philosophies of companies in the peer group. The total compensation +paid is also considered in evaluating the base pay of the competitive peer companies. +The +base pay target is not an entitlement, nor is it a cap. Other factors such as performance and time in position may be considered in making the final base pay determination. In 2006, +our peer group consisted of: +Cabot Oil & Gas Corp. +Forest Oil Corp. +Newfield Exploration Co. +Pioneer Natural Resources Co. +Pogo Producing Co. +Southwest Energy Resources Inc. +Whiting Petroleum Corp. +Denbury Resources, Inc. +Houston Exploration Co. +Noble Energy Inc. +Plains Exploration & Production Co. +Range Resources Corp. +St Mary Land & Exploration Co. +The +Committee reviews and recommends base salary adjustments for the Chief Executive Officer and each Named Executive Officer to the Board for final approval. The Chief Executive Officer +does not participate in the review, discussion or recommendations with respect to his salary. The Chief Executive Officer provides the Committee with subjective executive performance information for +the each Named Executive Officer. This information may include results achieved by the executives, their future potential, scope of responsibilities and experience. +Cash Incentive Awards +The cash awards are intended to provide incentive to achieve specific performance targets. Cash incentives are awarded from a performance-based cash pool. The +target cash incentive pool is equal to 100% of base salaries. +The +actual performance-based cash incentive pool is calculated as described below and generally is based upon the relationship of our actual cash flow to a predetermined cash flow +target, production growth, proved reserve growth and relative stock price performance among peers. +14 +The +entire cash incentive pool is at risk and is limited to 150% of the year-end base pay of the officers in the pool. There is no floor on the size of the pool; it can be +zero. The entire cash incentive pool amount does not have to be awarded, and there is no carry-over of amounts to future years if the total pool is not awarded. +Calculation of Cash Incentive Pool and Recommendation of Cash Incentive Award for the Chief Executive Officer. The Committee +calculates the cash incentive pool for the Chief Executive Officer and recommends a cash incentive award for approval by the Board of Directors. The method of calculation of the Chief Executive +Officer's cash incentive pool is the same method used for the Named Executive Officers, except the cash incentive pool factor is based only on the Chief Executive Officer's base salary. The cash +incentive award may not exceed 200% of the Chief Executive Officer's base salary. The cash incentive award must also be consistent with our internal pay guidelines. +Calculation of Cash Incentive Pool and Recommendation of Cash Incentive Awards for Executive Officers. The Committee +calculates the total cash incentive pool available for awards. The Chief Executive Officer, based on subjective performance evaluations of each participant, recommends individual cash incentive awards +within the limits of the total cash incentive pool. After consideration of the Chief Executive Officer's recommendations, the Committee submits its award recommendations for approval by the Board of +Directors. +The +actual cash incentive pool is determined as follows: +• Management +recommends for Committee consideration and approval an annual cash flow target based upon forecasts of production, revenues, expenses, capital investments and +commodity prices. The monthly futures contract trading prices on the New York Mercantile Exchange at the time the target is set are used to forecast oil and gas prices. In 2006, the cash flow target +was $1 billion. +• After +year-end, management provides the Committee with actual cash flow (a non-GAAP financial measure that represents net cash provided by operating +activities adjusted for changes in operating assets and liabilities). In 2006, actual cash flow was $918 million. +• The +cash incentive pool factor is determined by dividing total year-end base pay of executive officers (not including CEO) by the cash flow target (See Table 1 +below). +• Calculate +potential cash incentive pool by multiplying the cash incentive pool factor by actual cash flow. (See Table 2 below). +• Determine +the production growth factor. In 2006, production grew 27%, resulting in a production growth factor of 488%. (See Table 3 below) +• Determine +the reserve growth factor. In 2006, proved reserves grew 4%, resulting in a reserve growth factor of 90%. (See Table 4 below) +• Determine +the peer stock performance factor based on Cimarex's stock price performance relative to performance of our peer group. For purposes of determining peer group +stock price performance, companies in the Dow Jones U.S. Exploration & Production Index with comparable revenue and market capitalization are used (See Table 5 below). In 2006, our stock price +increased by 0%, and our performance rank was in the bottom quartile, resulting in a 0% peer stock performance factor (See Table 6 below). +• Targets +for production growth, reserve growth and peer stock price performance factors are reviewed by the Committee each year. In determining the factors, the Committee +considers the +15 +size +of the reserve base, production levels, past peer group stock price performance, capital budget, forecast production and reserve volumes, commodity price outlook, industry conditions, competitive +outlook, effect on performance motivation, management retention, difficulty in achieving the target and other information. The factors used for 2006 were unchanged from the factors used in 2005. +• In +December 2005, the Committee established the following weighting for each performance factor for 2006 compensation, and the weights were unchanged from the prior +year: +production growth factor: +50 +% +reserve growth factor: +20 +% +peer stock performance factor: +30 +% +• Calculate +the actual cash incentive pool by totaling the following (see Table 7): +potential +cash incentive pool multiplied by weighted production growth factor +potential +cash incentive pool multiplied by weighted reserve growth factor +potential +cash incentive pool multiplied by weighted peer stock performance factor +• If +the actual cash incentive pool does not exceed either the potential cash incentive pool or 150% of the total year-end base pay of executive officers, then the +Actual Cash Incentive Pool is available for awards to the participants. +• The +Chief Executive Officer provides the Committee with a performance evaluation and award recommendation for each officer, and the Committee then recommends individual +awards for approval by the independent members of the Board. +• Their +cash incentive award is not limited to a specified percent of base salary for the individual, but the total cash awarded may not exceed the Actual Cash Incentive Pool. +The +calculation of the 2006 Actual Cash Incentive Pool for the Chief Executive Officer was $644,000. The Committee recommended and the Board approved a 2006 cash award for the Chief +Executive Officer of $140,000, representing 21.7% of the pool amount and 20% of current base pay. +The +calculation of the 2006 Actual Cash Incentive Pool for the other executive officers, including the Named Executive Officers, equaled 92% of their aggregate base pay. The Committee +recommended and the independent directors approved 2006 total cash awards to the Named Executive Officers of 28% of each Officer's current base pay. See the Summary +Compensation Table for 2006 individual cash awards for each Named Executive Officer reported in the Non-Equity Incentive +Plan column. +16 +COMPUTATION OF CASH BONUS TABLES +Table 1 +Cash Incentive Pool Factor +Table 2 +Potential Cash Incentive Pool +CIPF += +BPP ÷ CFT +PCIP += +CIPF X ACF +Where: +Where: +CIPF += +Cash Incentive Pool Factor +PCIP += +Potential Cash Incentive Pool +BPP += +Base Pay Pool defined as year-end base salary +CIPF += +Cash Incentive Pool Factor +CFT += +Cash Flow Target +ACF += +Actual Cash Flow +Table 3 +Production Growth Factor +AVERAGE DAILY +PRODUTION +GROWTH % +% OF +PRODUCTION +GROWTH FACTOR +EARNED +<0 +0 +0 +12 +3 +65 +6 +118 +9 +171 +12 +224 +15 +276 +18 +329 +21 +382 +24 +435 +27 +488 +Table 4 +Reserve Growth Factor +RESERVE +GROWTH % +% OF RESERVE +GROWTH FACTOR +EARNED +<0 +0 +0 +50 +1 +60 +2 +70 +3 +80 +4 +90 +5 +100 +6 +110 +7 +120 +8 +130 +9 +140 +10 +150 +11 +160 +12 +170 +Table 5 +Stock Performance Factor Peer Group +Anadarko Petroleum Corporation +Meridian Resource Corp. +Apache Corporation +Newfield Exploration Company +Cabot Oil & Gas Corporation +Occidental Petroleum Corporation +Chesapeake Energy Corporation +Pioneer Natural Resources Co. +Devon Energy Corp. +Pogo Producing Company +EOG Resources Inc. +Stone Energy Corporation +Forest Oil Corp. +XTO Energy Inc. +Table 6 +Peer Stock Performance Factor +CIMAREX +QUARTILE +RANK +% OF PEER +GROUP +PERFORMANCE +FACTOR +EARNED +1st +100 +2nd +75 +3rd +0 +4th +0 +Table 7 +Actual Cash Incentive Pool +CALCULATION OF +ACTUAL CASH INCENTIVE POOL +ACIP += +PCIP (0.50 X PGF) + PCIP (0.20 X RGF) + PCIP (0.30 X PSPF) +Where: +ACIP += +Actual Cash Incentive Pool +PCIP += +Potential Cash Incentive Pool +PGF += +Production Growth Factor +RGF += +Reserve Growth Factor +PSPF += +Peer Stock Performance Factor +17 +Long-Term Incentive Awards +The third primary element consists of long-term incentive awards to the Chief Executive Officer and Named Executive Officers. The equity awards are +intended to encourage executive retention and to reward above-average long-term corporate performance. +Restricted Stock Units and Options. On December 6, 2002, shortly following our September 2002 reorganization as +Cimarex Energy Co., we awarded the Chief Executive Officer and Named Executive Officers restricted stock and stock options. In 2003, we exchanged the restricted stock for a like number of restricted +stock units. +• The +Chief Executive Officer's restricted stock units vest 20% on each December 6 until fully vested, and the Named Executive Officers' restricted stock units vest on +December 6, 2007. The restricted stock units are not payable in shares of stock until December 6, 2010. +• The +options vest 20% each December 6 until fully vested. If the Chief Executive Officer or any Named Executive Officer elects to exercise all or a portion of his +vested option, he must hold until December 6, 2010 one-half of the shares remaining after delivering shares in payment of the exercise price and any taxes due upon exercise. +The +restricted stock units and options automatically vest in their entirety in the event of death, disability or a change-in-control event (all as defined in the Cimarex 2002 +Stock Incentive Plan). +Performance Awards. No restricted stock units, restricted stock, or stock option awards were made to the executive officers +during 2003, 2004 or 2005. When we acquired Magnum Hunter Resources, Inc. in 2005, our market capitalization and management responsibilities significantly increased. In recognition of these +changes and the increased competition for oil and gas industry executives, in December 2005 the Board approved a new performance award program that provides for awards of restricted stock. The +recurring restricted stock award program combines a three-year vesting period with +a stock price performance measurement. The program delivers to each officer a laddered portfolio of vesting common stock, is intended to be a significant retention incentive and facilitates executive +stock ownership. The program was developed with the assistance of the Compensation Committee's independent compensation consultant. +• Following +is a summary of the material terms of the awards: +• The +awards of restricted stock are designated as "performance awards." +• The +performance period commences with the first trading day in January of the year of the award and ends on the December 31 immediately preceding the +third-year anniversary of the award. Awards vest on the third anniversary of the date of grant. +• The +number of shares that vest depends on our stock price performance relative to our peers as of the date of vesting at the end of the performance period. The peer group +consists of companies in the Dow Jones U.S. Exploration & Production Index with similar market capitalization and revenue. +• Vesting +accelerates in the event of death, disability or a change-in-control event as defined in our 2002 Stock Incentive Plan, and the number of +shares to which the forfeiture restrictions lapse is based upon the reduced performance period resulting from the event. If employment is terminated for any other reason prior to the end of the +vesting period, all unvested shares are forfeited. +• Prior +to vesting, ordinary cash dividends (if any) will be paid on the shares of restricted stock. The executive also has voting rights on these shares. +18 +• Determine +total number of shares that vest at the end of the performance period as follows: +• Calculate +the percentage difference between the average per share closing price of Cimarex and each company in our peer group (i) over the 30 trading days immediately +preceding the beginning of the performance period and (ii) over the 30 trading days immediately preceding the end of the performance period. +• Rank +Cimarex and each company in our peer group from the highest percentage to the lowest percentage of stock price performance. +• Subtract +Cimarex's absolute rank from total number of companies in the peer group and divide result by total number of companies in the peer group to determine Cimarex's +relative performance percentile. +• The +number of shares that vest is scaled between 50% and 100% of the shares awarded. If our stock price performance is greater than that of 75% of our peers, 100% of the +award is achieved. For each percentage less than 75%, one percent less of the award has been achieved, except that a minimum of 50% of the award vests based upon continued service during the +performance period. For example, stock price performance of 74% would equal a 99% award, performance of 55% would result in an 80% award, performance of 35% would equal a 60% award and performance of +25% or less would result in an award of 50% of the target. +The +restricted stock awards are intended to be annual recurring awards. The Compensation Committee determines each year the number of shares to be awarded, if any. In making awards, the +Compensation Committee compares our total compensation program with the programs of companies in our peer group. +In +January 2006, the Compensation Committee made its initial grants under the new program, and in January 2007, the Committee made additional grants. The following table +summarizes those awards. +Restricted Shares +Awarded +Minimum Number of +Shares that will Vest +Maximum Number of +Shares that will Vest +CEO +2006 +2007 +60,000 +60,000 +30,000 +30,000 +60,000 +60,000 +CFO and each NEO +2006 +2007 +30,000 +30,000 +15,000 +15,000 +30,000 +30,000 +Section 162(m) +limits the compensation deduction that Cimarex may take on its federal income tax return to $1 million of compensation paid to the Chief Executive Officer +and each Named Executive Officer. The deduction is not available for performance-based compensation unless the performance goals are approved by Cimarex's stockholders, and the award satisfies tax law +requirements. The performance goals were approved by Cimarex's stockholders at its 2006 Annual Meeting in order that the awards may be deductible to the fullest extent allowed under +Section 162(m). +Although +stock option grants were made in past years, the Committee at this time has no plans for granting additional stock options. Cimarex does not and has not re-priced or +backdated stock options. +Internal Pay Equity +Our internal pay equity guidelines provide that the Chief Executive Officer's base salary shall not be more than three times the base salary of the next highest +base salary, and the Chief Executive Officer's cash incentive award should not be more than three times the cash incentive award of the next highest cash incentive award. Our Board must approve any +deviation from these guidelines. +19 +Other Compensation +Perquisites. We provide limited perquisites to our executive officers, and they are not a meaningful component of our overall +compensation program. Perquisites that we do provide include athletic and dining club memberships, a financial planning allowance and medical reimbursement insurance. We do not provide personal use of +our corporate aircraft, automobile allowances, security services or dwellings for personal use. In 2006, the total cost of perquisites provided to all of our Named Executive Officers and our Chief +Executive Officer was $15,196, and no executive officer's perquisites exceeded $10,000. +Retirement Benefits. The Chief Executive Officer and Named Executive Officers are eligible to participate in the Cimarex +401(k) defined contribution retirement plan. This plan is open to participation by all Cimarex full-time employees after 90 days of employment. Under the plan, Cimarex matches +dollar-for-dollar employee contributions to the plan up to 5% of the employee's cash compensation, subject to limits imposed by Internal Revenue Service rules. +We +also sponsor a Supplemental Savings Plan which is a non-qualified deferred compensation plan that permits participants, including the Chief Executive Officer and the Named +Executive Officers, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Service limitations. +Cimarex's +matching contributions to the 401(k) Plan and Supplemental Savings Plan are included in the Summary Compensation Table. +We +do not have a defined benefit pension plan, and we do not provide post-retirement health or welfare benefits. +Potential Benefits Assuming Various Termination Events +The Chief Executive Officer and each Named Executive Officer are entitled to certain benefits under various agreements in the event of death, disability or the +occurrence of a change-in-control event. +Change in Control Severance Plan +Effective April 1 2005, we adopted a Change in Control Severance Plan that provides for the payment of severance benefits to all active employees in the +event of a "change in control." A change in control under the Change in Control Severance Plan includes the events summarized below (see 2002 Stock Incentive +Plan below for the definition of "change in control"). +In +the event of a change in control, if an employee is terminated for any reason other than cause within two years following a change in control, each employee would be entitled to: +• Cash +severance payments of up to two years' compensation (salary and cash incentive award) +• A +pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination +• Continued +medical, dental, disability and life insurance benefits for two years +• Additional +payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and related income taxes, interest and penalties +Benefits +payable under any other severance plan or agreement offset benefits payable under the Change in Control Severance Plan. +20 +2002 Stock Incentive Plan +Our 2002 Stock Incentive Plan provides for the grant to certain employees of stock options, restricted stock units and restricted stock. The plan is administered +by the Compensation and Governance Committee. The plan grants the Committee the authority to accelerate vesting of any award. The Committee has authorized acceleration of vesting in the event of +death, disability or the occurrence of a "change-in-control event" in all agreements awarding non-qualified stock options, restricted stock units, restricted stock +and performance awards. The plan includes a definition of "change-in-control event." In summary, a "change-in-control event" means any of the following: +• Acquisition +of 15% or more of the shares of our outstanding common stock or the combined voting power of voting securities of Cimarex without prior approval by the Board of +Directors. +• Members +of our Board of Directors cease to constitute a majority of the directors. +• A +reorganization, share exchange or merger unless (i) the stockholders prior to the reorganization or merger continue to own more than 70% of the outstanding common +stock and combined voting power of the resulting corporation following the reorganization or merger, (ii) no person owns 15% or more of the shares of common stock or combined voting power of +the surviving corporation except to the extent that such ownership existed prior to the event, and (iii) at least a majority of the members of the board of directors of the corporation +resulting from the merger or reorganization were members of the board of directors at the time of executing the agreement to reorganize or merger. +• The +complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +Employment Agreement with Mr. Merelli +In September 2002 we assumed Mr. Merelli's employment agreement with Key Production Company, Inc., when Cimarex combined with Key Production. +His employment agreement is for an indefinite term and includes the following terms: +• A +base salary that may be adjusted by the Board of Directors, but may not be decreased from the base salary, as adjusted +• Annual +cash incentive award opportunity +• Reimbursement +for business expenses +• Life +insurance coverage in the face amount of $500,000 +• Club +dues and covered parking fees +• Participation +in employee benefit plans adopted by the employer for the benefit of senior executive officers and their families +• Termination +on 30 days' notice without cause +• If +terminated without cause or because of death or disability: +• Continuation +of base salary for 24 months (reduced by long-term disability benefits, if applicable) +• Incentive +compensation for the year of termination +Termination +of employment "without cause" includes resignation by Mr. Merelli upon a change in Mr. Merelli's place of employment from Denver, Colorado, without his consent. +Mr. Merelli shall not reveal any trade secret or confidence not generally available to the public and upon termination of +21 +employment, +he must surrender all information containing trade secrets or confidences. The confidentiality requirements of his employment agreement survive for three years after the end of his +employment. +Employment Agreements with Messrs. Albi, Bell, Jorden and Korus +Each of Messrs. Albi, Bell, Jorden and Korus were parties to employment agreements with Key Production Company, Inc., which was acquired by Cimarex +in September 2002. Each agreement provided that, if the executive continued as an employee after the term of the agreement (as each executive has done) and is terminated without cause following +a change-in-control event (as defined in the agreement), the executive is entitled to a lump-sum payment equal to two times executive's base salary at the time of +the change in control. The employment agreements have expired, but at the time we acquired Key Production, we assumed the change-in-control provisions of these employment +agreements. +As +a practical matter, the "change in control" benefits payable under the employment agreements only benefit these executives if the Change in Control Severance Plan described above has +been terminated. +The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. The percentage of voting securities that must be +acquired in order to trigger a change-in-control event is less under the Change in Control Severance Plan than it is under the Employment Agreements. +A +"change in control" under each employment agreement means any of the following: +• Acquisition +by stockholders representing 25% or more of the voting power of Cimarex without prior approval by at least two-thirds of directors not affiliated +with the acquiring person. +• During +any period of 24 consecutive months, individuals who at the beginning of the 24-month period cease to constitute two-thirds of the total +number of directors nominated by majority of directors in office immediately prior to period. +• A +merger or consolidation unless (i) at least two-thirds of the directors of the surviving entity are continuing Cimarex directors or (ii) Cimarex +securities continue to represent or are converted into securities representing 80% of the combined voting power of the surviving entity. +• The +adoption of any plan or proposal to liquidate or dissolve Cimarex. +Supplemental Savings Plan +This plan is a non-qualified deferred compensation plan that permits executives to make contributions (and to receive matching contributions) in +excess of the Internal Revenue Service limitations. The Compensation and Governance Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid +upon termination of employment in a cash lump sum or in annual installments over a period not longer than 15 years, as the employee elects. In the event of a "change in control," each employee +receives a cash lump sum payment of the amount allocated to his/her account as of the last day of the month immediately preceding the date of the change in control. A change in control under the +Supplemental Savings Plan includes the events summarized under the 2002 Stock Incentive Plan. +Maximum Benefits Payable Upon Termination or Change-in-Control +The potential payments described below represent the estimated maximum incremental amounts payable upon the occurrence of a termination or +change-in-control event as provided under any contract or agreement with the executive officer. The computation of the payments assumes that the termination or +change-in-control event occurred on December 31, 2006, and the price of Cimarex common stock is $36.50, the closing market price on December 29, 2006. +22 +Actual +payments may be more or less than the amounts described below. In addition, Cimarex may from time to time enter into new arrangements or modify these arrangements. +Name +Benefit +Termination +w/o Cause +(no change +in control) +Death or +Disability +Change in +Control Only +(no termination +w/o cause)(1) +Termination +w/o Cause +Following Change +in Control(1) +F. H. Merelli, CEO +Severance +$ +1,430,000 +$ +1,430,000 +$ +0 +$ +2,904,583 +Current Year Bonus +$ +657,800 +$ +657,800 +$ +0 +$ +657,800 +Restricted Stock and Stock Units +$ +0 +$ +2,811,960 +$ +2,811,960 +$ +2,811,960 +Options +$ +0 +$ +1,676,928 +$ +1,676,928 +$ +1,676,928 +Employee Benefits +$ +316,850 +$ +316,850 +$ +0 +$ +328,870 +Excise Tax Gross Up +$ +NA +$ +NA +$ +0 +$ +1,821,117 +Total Benefits +$ +2,404,650 +$ +6,893,538 +$ +4,488,888 +$ +10,201,258 +Paul Korus, CFO +Severance +$ +0 +$ +0 +$ +0 +$ +1,429,167 +Current Year Bonus +$ +0 +$ +0 +$ +0 +$ +279,833 +Restricted Stock and Stock Units +$ +0 +$ +2,295,850 +$ +2,295,850 +$ +2,295,850 +Options +$ +0 +$ +913,100 +$ +361,270 +$ +361,270 +Employee Benefits +$ +54,505 +$ +54,505 +$ +0 +$ +80,927 +Excise Tax Gross Up +$ +NA +$ +NA +$ +0 +$ +947,277 +Total Benefits +$ +54,505 +$ +3,263,455 +$ +2,657,120 +$ +4,447,047 +Thomas E. Jorden +Severance +$ +0 +$ +0 +$ +0 +$ +1,774,374 +Current Year Bonus +$ +0 +$ +0 +$ +0 +$ +279,833 +Restricted Stock and Stock Units +$ +0 +$ +2,295,850 +$ +2,295,850 +$ +2,295,850 +Options +$ +0 +$ +361,270 +$ +361,270 +$ +361,270 +Employee Benefits +$ +216,054 +$ +216,054 +$ +0 +$ +259,067 +Excise Tax Gross Up +$ +NA +$ +NA +$ +496,274 +$ +1,143,991 +Total Benefits +$ +216,054 +$ +2,873,174 +$ +3,153,394 +$ +6,114,386 +Joseph R. Albi +Severance +$ +0 +$ +0 +$ +0 +$ +1,472,917 +Current Year Bonus +$ +0 +$ +0 +$ +0 +$ +279,833 +Restricted Stock and Stock Units +$ +0 +$ +2,295,850 +$ +2,295,850 +$ +2,295,850 +Options +$ +0 +$ +361,270 +$ +361,270 +$ +361,270 +Employee Benefits +$ +69,637 +$ +69,937 +$ +0 +$ +91,199 +Excise Tax Gross Up +$ +NA +$ +NA +$ +536,024 +$ +1,052,330 +Total Benefits +$ +69,937 +$ +2,727,057 +$ +3,193,144 +$ +5,553,399 +Stephen P. Bell +Severance +$ +0 +$ +0 +$ +0 +$ +1,249,792 +Current Year Bonus +$ +0 +$ +0 +$ +0 +$ +279,833 +Restricted Stock and Stock Units +$ +0 +$ +2,295,850 +$ +2,295,850 +$ +2,295,850 +Options +$ +0 +$ +361,270 +$ +361,270 +$ +361,270 +Employee Benefits +$ +184,216 +$ +184,216 +$ +0 +$ +13,112 +Excise Tax Gross Up +$ +NA +$ +NA +$ +542,486 +$ +974,452 +Total Benefits +$ +184,216 +$ +2,841,336 +$ +3,199,606 +$ +5,174,309 +(1) The +Cimarex change-in-control plan is available to all regular employees. +23 +In addition to the amounts described above, the named executive officer may also be entitled to earned but unpaid salary, cash incentive awards, +benefits under the supplemental savings plan, vested options, and other benefits for services performed prior to termination. Under the terms of the executive's option agreement, the vested portion of +any unexercised option will expire three months following termination. The vested portion of the executive's outstanding option is disclosed in the Outstanding Equity Awards at +12/31/06 table in the Number of Securities Underlying Unexercised Options, Exercisable column. Benefits that are payable under +the executive's supplemental savings plan are disclosed in the Nonqualified Deferred Compensation table. +Transactions with Related Persons +During 2006, no related person had a direct or indirect material interest in any transaction with Cimarex. See Corporate Governance, +Independence of Board Members for information regarding Cimarex's policies with respect to conflicts of interest. +Stock Ownership Guidelines +Our Board of Directors is committed to director and executive officer stock ownership. Cimarex's stock ownership guidelines provide that (i) each director +should own Cimarex stock with a value of three times his annual cash retainer within a three-year time period following his initial election to the Board, (ii) the Chief Executive +Officer should own Cimarex stock with a value of five times his annual base salary, and (iii) each executive officer should own Cimarex stock with a value of at least two times his base salary +within a three-year time period following initial election to that position. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in +calculating ownership, but shares subject to options are not counted. +Report of Compensation and Governance Committee +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The Compensation and +Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the Compensation and +Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +Michael J. Sullivan +24 +V. +COMPENSATION TABLES +Summary Compensation Table +The following table describes 2006 compensation to our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three other most highly +compensated executive officers (the "Named Executive Officers" or "NEOs"). +Year +Salary +Bonus +Stock +Awards(1) +Option +Awards(2) +Non-Equity +Incentive Plan +Comp.(3) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp.(4) +Total +F.H. Merelli, +Chairman, Chief Executive Officer, President (CEO) +2006 +$ +667,083 +$ +— +$ +1,449,726 +$ +690,286 +$ +140,000 +$ +— +$ +214,088 +$ +3,161,183 +Paul Korus +Vice President, Chief Financial Officer, and Treasurer (CFO) +2006 +$ +333,333 +$ +— +$ +524,730 +$ +148,712 +$ +98,000 +$ +— +$ +46,699 +$ +1,151,474 +Thomas E. Jorden +Executive Vice President—Exploration +2006 +$ +355,000 +$ +— +$ +524,730 +$ +148,712 +$ +106,400 +$ +— +$ +38,923 +$ +1,173,765 +Joseph R. Albi +Executive Vice President—Operations +2006 +$ +333,333 +$ +— +$ +524,730 +$ +148,712 +$ +98,000 +$ +— +$ +49,340 +$ +1,154,115 +Stephen P. Bell +Senior Vice President—Business Development and Land +2006 +$ +279,583 +$ +— +$ +524,730 +$ +148,712 +$ +81,200 +$ +— +$ +57,812 +$ +1,092,037 +(1) See +Footnote 9 to the Annual Report on Form 10-K for year ended December 31, 2006. The table below lists the expense associated with each stock award grant +to the named executive officer. +F. H. +Merelli +Paul +Korus +Thomas +Jorden +Joseph +Albi +Stephen +Bell +2002 Grant +$ +703,296 +$ +151,515 +$ +151,515 +$ +151,515 +$ +151,515 +2006 Grant +$ +746,430 +$ +373,215 +$ +373,215 +$ +373,215 +$ +373,215 +Total +$ +1,449,726 +$ +524,730 +$ +524,730 +$ +524,730 +$ +524,730 +(2) See +Footnote 9 to the Annual Report on Form 10-K for year ended December 31, 2006. +(3) Amount +reported for the year earned. +25 +(4) Description +of Items Included in All Other Compensation: +No individual's +perquisites exceeded $10,000. +F. H. +Merelli +Paul +Korus +Thomas +Jorden +Joseph +Albi +Stephen +Bell +Other Compensation: +Paid Unused Vacation +$ +91,537 +$ +8,358 +$ +— +$ +— +$ +14,279 +Company contribution to 401(k) and supplemental savings plans +$ +47,931 +$ +29,501 +$ +30,083 +$ +40,500 +$ +34,693 +Dividends +$ +33,792 +$ +7,280 +$ +7,280 +$ +7,280 +$ +7,280 +Tax Reimbursement +$ +39,678 +$ +— +$ +— +$ +— +$ +— +Life Insurance Premiums +$ +1,150 +$ +1,560 +$ +1,560 +$ +1,560 +$ +1,560 +Total Other Compensation +$ +214,008 +$ +46,699 +$ +38,923 +$ +49,340 +$ +57,812 +2006 GRANTS OF PLAN-BASED AWARDS +Estimated Future +Payouts Under +Non-Equity +Incentive Plan +Estimated Future Payouts Under Equity Incentive Plan Awards +Grant +Date +Board +Approval +Date +Target +($) +Maximum +($) +Award +Grant +Date +Comp +Comm +Grant +Date +Threshold(3) +(#) +Target(4) +(#) +Maximum +(#) +Grant Date +Fair Value of +Stock +Performance +Awards ($) +F.H. Merelli +CEO +3/1/07 +2/27/07 +$ +140,000 +(1) +$ +140,000 +(1) +1/3/06 +12/13/05 +30,000 +30,000 +60,000 +$ +2,692,200 +Paul Korus +CFO +3/1/07 +2/27/07 +$ +98,000 +(2) +$ +98,000 +(2) +1/3/06 +12/13/05 +15,000 +15,000 +30,000 +$ +1,346,100 +Thomas E. Jorden +3/1/07 +2/27/07 +$ +106,400 +(2) +$ +106,400 +(2) +1/3/06 +12/13/05 +15,000 +15,000 +30,000 +$ +1,346,100 +Joseph R. Albi +3/1/07 +2/27/07 +$ +98,000 +(2) +$ +98,000 +(2) +1/3/06 +12/13/05 +15,000 +15,000 +30,000 +$ +1,346,100 +Stephen P. Bell +3/1/07 +2/27/07 +$ +81,200 +(2) +$ +81,200 +(2) +1/3/06 +12/13/05 +15,000 +15,000 +30,000 +$ +1,346,100 +(1) The +annual cash incentive pool from which Mr. Merelli's award is distributed equals 100% of his base salary. Mr. Merelli's annual cash incentive award may not exceed +200% of his year-end base salary. The amount reported is the actual 2006 cash incentive award for Mr. Merelli. This amount is also reported in the Summary +Compensation Table . See the description of the annual cash incentive award in the Compensation Discussion and Analysis, Elements of Compensation, Cash +Incentive Awards . +(2) The +annual cash incentive pool does not include specific individual target amounts payable for each officer. The amount reported represents the actual 2006 cash incentive award for +the executive, which is also reported in the Summary Compensation Table . The entire cash incentive award pool is limited to 150% of the +year-end base pay of all of the officers included in the pool. See the description of the annual cash incentive award pool in the Compensation Discussion and +Analysis, Elements of Compensation, Cash Incentive Awards . +(3) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(4) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock price performance relative to its peers and +is not computed until the third anniversary of the award. See Long-Term Incentive Awards, Performance Awards for the method of computing the +number of shares that vest. The actual number of shares that vest is not determinable until January 2009 (the third anniversary of the award). The shares disclosed in this column represent the +shares the executive would have been entitled to (based upon December 2006 stock prices), had the award vested on January 3, 2007. +26 +See Elements of Executive Compensation Program, Cash Incentive Awards for a description of the cash incentive award program and the +formula used to determine the cash incentive pool available for award to the Chief Executive Officer and Named Executive Officers. See Long-Term Incentive Awards, +Performance Awards for a description of the material terms of the performance awards. Ordinary cash dividends will be paid on the shares subject to the performance awards. +OUTSTANDING EQUITY AWARDS AT 12/31/06 +Option Awards +Stock Awards +Market +Value of +Unearned +Units +($) +Market +Value of +Unearned +Shares(5) +($) +No. of +Units +(#) +No. of +Shares +(#) +Exercisable +(#) +Unexercisable +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +Name +Number of Securities +Underlying +Unexercised Options +Restricted Stock +Units That +Have Not Vested +Equity Incentive +Plan Awards That +Have Not Vested +F.H. Merelli, +CEO +250,000 +125,000 +337,920 +(1) +(1) +(2) +0 +0 +84,480 +(2) +$ +$ +$ +11.375 +13.3125 +16.65 +1/27/2007 +5/25/2010 +12/06/2012 +42,240 +(3) +$ +1,541,760(5) +60,000(6) +$ +2,190,000(5) +Paul Korus, +CFO +27,800 +(2) +18,200 +(2) +$ +16.65 +12/06/2012 +45,500 +(4) +$ +1,660,750(5) +30,000(6) +$ +1,095,000(5) +Thomas E. Jorden +54,600 +(2) +18,200 +(2) +$ +16.65 +12/06/2012 +45,500 +(4) +$ +1,660,750(5) +30,000(6) +$ +1,095,000(5) +Joseph R. Albi +6,500 +64,600 +(1) +(2) +0 +18,200 +(2) +$ +$ +9.6875 +16.65 +9/6/2009 +12/06/2012 +45,500 +(4) +$ +1,660,750(5) +30,000(6) +$ +1,095,000(5) +Stephen P. Bell +72,800 +(2) +18,200 +(2) +$ +16.65 +12/06/2012 +45,500 +(4) +$ +1,660,750(5) +30,000(6) +$ +1,095,000(5) +(1) Vested +9/30/02 +(2) Vests +20% each year commencing 12/6/2003. +(3) Vests +20% each year commencing 12/6/2003, but not payable in shares until 12/6/2010 +(4) Vests +12/6/2007, but not payable in shares until 12/6/2010 +(5) The +amount in this column reflects the closing market price of the stock as of 12/29/06 times the number of shares reported in the previous column. +(6) Vests +1/3/2009 +OPTION EXERCISES AND STOCK VESTED +Option Awards +Stock Awards +Name +Number of +Shares Acquired +on Exercise +(#) +Value Realized +on Exercise +($) +Number of +Shares Acquired +on Vesting +(#) +Value Realized +on Vesting +($) +F. H. Merelli, CEO +— +$ +— +42,240 +$ +1,604,698 +Paul Korus, CFO +45,000 +$ +882,383 +— +$ +— +Thomas E. Jorden +— +$ +— +— +$ +— +Joseph R. Albi +— +$ +— +— +$ +— +Stephen P. Bell +— +$ +— +— +$ +— +27 +NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY(1) +($) +Registrant +Contributions +in Last FY(1) +($) +Aggregate +Earnings in +Last FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance +at Last FYE +($) +F. H. Merelli CEO +$ +32,931 +$ +36,931 +$ +37,027 +$ +— +$ +316,850 +Paul Korus CFO +$ +14,501 +$ +18,501 +$ +4,935 +$ +— +$ +54,505 +Thomas E. Jorden +$ +30,167 +$ +19,083 +$ +8,767 +$ +— +$ +216,054 +Joseph R. Albi +$ +25,500 +$ +29,500 +$ +6,192 +$ +— +$ +69,937 +Stephen P. Bell +$ +32,485 +$ +23,693 +$ +5,827 +$ +— +$ +184,216 +(1) The +amounts included in this column are also included in the executive's salary reported in the Summary Compensation Table and +footnotes thereto. +The +Cimarex supplemental savings plan provides that the executive officer may defer a maximum of 50% of his total annual cash compensation from Cimarex. Cimarex matches 100% of the +officer's contributions up to 5% of the officer's total annual cash compensation. Each of the Chief Executive Officer and Named Executive Officers are 100% vested in all matching contributions. The +earnings amount for each year is determined by investment of the contributions in mutual funds available for investment under the Cimarex 401(k) Plan. The officer selects the funds for investment by +providing advisory investment direction to Cimarex. The benefits are payable following termination of service, death or disability. Benefits are payable in a cash lump sum or annual installments, as +elected by the officer. In the event of a change in control of Cimarex, the benefits are paid to the officer in an immediate cash lump sum payment. +VI. +DIRECTOR COMPENSATION +The Compensation and Governance Committee evaluates director compensation and makes recommendations for director compensation to the full Board. The Board may +accept, modify, or reject the recommendations. +The +Committee is sensitive to the potential for a perceived conflict of interest in making recommendations that affect director compensation. To minimize this potential conflict of +interest, the Committee engages a compensation consultant (Deloitte Consulting, LLP) to evaluate and recommend director compensation. +The +Cimarex policy is for director compensation to be similar to that paid by peer exploration and production companies with similar market capitalization and revenue. As a general +guide, director compensation is targeted at the 50th percentile of that paid by peer companies. See Base Pay under Elements of +Executive Compensation Program for a list of the peer companies. Benchmarking is used to confirm that the compensation is reasonable and fair. +The +Committee reviews the compensation consultant recommendations with the CEO and the Vice President—Human Resources. +Industry +director compensation has significantly increased in the last few years. Cimarex director compensation was increased (based on recommendations by the compensation consultant) in +2005 and 2006. +28 +In +2006, the Committee decided to continue to monitor director pay on an annual basis, but indicated that it intends not to make adjustments more often than every two years, if +necessary, to bring compensation in line with our peer group. Any changes in director compensation will be made after consideration of recommendations by the Committee's compensation consultant. +Cimarex +does not provide perquisites for its directors. Cimarex does not make charitable or other contributions on the basis of any relationships the directors may have. The +non-management directors are reimbursed for reasonable transportation and accommodation expenses to attend Board and Committee meetings. In lieu of reimbursement, some +non-management directors may occasionally travel to or from Board and Committee meetings on the Cimarex aircraft. +Annual +director compensation is designed to be approximately two-thirds equity and one-third cash. In 2006, Cimarex directors adopted stock ownership guidelines +for directors and executive officers. See Stock Ownership Guidelines for a summary of these guidelines. +Mr. Merelli, +the sole management director, receives no compensation for serving as a director. During 2006, each non-management director was paid the following +compensation for his services: +Annual Cash Retainer +$ +40,000 +Equity Retainer +$ +100,000 +Committee Chair +$ +10,000 +Attendance at Board Meeting +$ +1,500 +Attendance at Committee Meeting +$ +1,000 +The +equity retainer was in the form of restricted stock that vests at the rate of one-third per year on each anniversary of the date of the grant. The number of shares issued +was determined by dividing $100,000 by the average of the highest and lowest sales prices of Cimarex common stock as reported by the New York Stock Exchange on May 17, 2006, the date of grant. +At +the September 2006 Board meeting, the Board of Directors agreed that the lead director will be paid $1,000 for presiding at each executive session of the Board of Directors. +2006 DIRECTOR COMPENSATION +Name +Fees Earned +or Paid in +Cash +($) +Stock +Awards(1)(2)(3) +($) +Option +Awards(3) +($) +All Other +Comp.(4) +($) +Total +($) +Jerry Box +$ +51,500 +$ +44,118 +$ +— +$ +232 +$ +95,850 +Glenn A. Cox +$ +55,500 +$ +60,788 +$ +— +$ +410 +$ +116,698 +Cortlandt S. Dietler +$ +54,000 +$ +60,788 +$ +— +$ +410 +$ +115,198 +Hans Helmerich +$ +53,500 +$ +60,788 +$ +— +$ +556 +$ +114,844 +David A. Hentschel +$ +51,500 +$ +60,788 +$ +— +$ +410 +$ +112,698 +Paul D. Holleman +$ +55,500 +$ +60,788 +$ +— +$ +410 +$ +116,698 +Monroe W. Robertson +$ +65,500 +$ +32,464 +$ +— +$ +133 +$ +98,097 +Michael J. Sullivan +$ +50,500 +$ +60,788 +$ +— +$ +556 +$ +111,844 +L. Paul Teague +$ +61,500 +$ +60,788 +$ +— +$ +556 +$ +122,844 +(1) See +Footnote 9 to the Annual Report on Form 10-K for year ended December 31, 2006. The table below lists the 2006 expense associated with each stock award +grant to the named director. +29 +(1) Continued +Jerry +Box +Glenn +Cox +Cortlandt +Dietler +Hans +Helmerich +David +Hentschel +Paul +Holleman +Monroe +Robertson +Michael +Sullivan +L. Paul +Teague +2004 Grant +$ +— +$ +16,667 +$ +16,667 +$ +16,667 +$ +16,667 +$ +16,667 +$ +— +$ +16,667 +$ +16,667 +2005 Grant +$ +23,333 +$ +23,336 +$ +23,336 +$ +23,336 +$ +23,336 +$ +23,336 +$ +11,679 +$ +23,336 +$ +23,336 +2006 Grant +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +$ +20,785 +Total +$ +44,118 +$ +60,788 +$ +60,788 +$ +60,788 +$ +60,788 +$ +60,788 +$ +32,464 +$ +60,788 +$ +60,788 +(2) GRANT DATE FAIR VALUE OF STOCK AWARDS +Director +Grant Date +No. of +Shares +(#) +Grant Date +Fair Value +($) +Jerry Box +6/7/2005 +1,743 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +Glenn A. Cox +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +100,000 +Cortlandt S. Dietler +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +Hans Helmerich +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +David A. Hentschel +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +Paul D. Holleman +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +Monroe W. Robertson +12/13/2005 +833 +$ +35,000 +5/17/2006 +2,477 +$ +100,000 +Michael J. Sullivan +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +L. Paul Teague +5/19/2004 +1,829 +$ +50,000 +5/18/2005 +1,979 +$ +70,000 +5/17/2006 +2,477 +$ +100,000 +30 +(3) OUTSTANDING STOCK AWARDS AND OPTION AWARDS AT 12/31/06 +Director +Stock +Awards +Option +Awards +Jerry Box +3,639 +0 +Glenn A. Cox +4,406 +10,000 +Cortlandt A. Dietler +4,406 +52,500 +Hans Helmerich +4,406 +10,000 +David A. Hentschel +4,406 +10,000 +Paul D. Holleman +4,406 +35,000 +Monroe W. Robertson +3,032 +0 +Michael J. Sullivan +4,406 +10,000 +L. Paul Teague +4,406 +16,667 +(4) Represents +dividends on restricted stock awards not factored into the grant date fair value of the stock. +Deferred Compensation Plan for Nonemployee Directors +In May 2004, we adopted a deferred compensation plan for nonemployee directors. The plan provides that a director may defer all or any portion of his +compensation paid in cash or restricted stock for services as a director. +All +cash amounts deferred shall bear interest through the date paid. The rate of interest earned for a calendar quarter shall be based on the average 10-year U.S. Treasury +note rate for the immediately preceding calendar quarter, plus one percent. Cash dividends shall be paid on deferred restricted stock. +Deferred +compensation is distributed upon the earlier of the date specified by the director in his election, termination of service as a director or termination of the plan. In addition, +if Cimarex amends the plan following a change-in-control event, all account balances shall be fully vested and paid in a single lump sum within 30 days. The definition +of a change-in-control event is the same as the definition under the Cimarex 2002 Stock Incentive Plan (see Potential Benefits Assuming Various +Termination Events, 2002 Stock Incentive Plan ). +Acceleration of Vesting of Awards +The agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a +change-in-control event, as defined in the 2002 Stock Incentive Plan (see Potential Benefits Assuming Various Termination Events, 2002 Stock Incentive +Plan ). +31 +VII. +PROPOSAL 2—RATIFICATION OF INDEPENDENT AUDITORS +Independent Auditors +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2007. KPMG has been our independent auditors since +October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG as independent auditors. If stockholders fail to ratify the appointment of KPMG, the Audit Committee may reconsider this +appointment. A KPMG representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of KPMG LLP as Cimarex's independent auditors for 2007. The +Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for 2007. +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to Cimarex: +Years Ended December 31, +2006 +2005 +Audit Fees +$ +989,500 +$ +992,500 +Audit-Related Fees* +$ +0 +$ +70,000 +Tax Fees** +$ +429,022 +$ +125,037 +All Other Fees +$ +0 +$ +0 +* Review +of accounting related to acquisition of Magnum Hunter Resources, Inc. +** Includes +review of Federal and state tax returns, Federal and state tax compliance issues, consultation related to treatment of state franchise tax issues and tax audit assistance. +The +Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a +specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the Securities and Exchange Commission may not +be performed by our independent auditor. The Audit Committee may delegate +pre-approval authority to one or more of its members. In the event of any such delegation, any pre-approved decisions will be reported to the Audit Committee at its next +scheduled meeting. The services described above and the related fees were pre-approved by the Audit Committee in 2005 and 2006. +Report of Audit Committee +The Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its +financial reporting and the independence and performance of Cimarex's independent auditors. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available +on our website at www.cimarex.com . +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. +The +32 +Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing +standards and issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2006 and met with both management and KPMG, Cimarex's independent +registered public accounting firm, to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. In addition, we have received from KPMG the +communication required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees , and discussed with KPMG +their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit +Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2006. +THE +AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Glenn A. Cox +Cortlandt S. Dietler +Paul D. Holleman +33 +VIII. +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 21, 2007, there were 83,444,376 shares of common stock outstanding, with each share +entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 21, 2007, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned(1) +Option +Shares(2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +511,029 +462,920 +973,949 +1 +% +Joseph R. Albi +67,371 +71,100 +138,471 +<1 +% +Stephen P. Bell +64,500 +72,800 +137,300 +<1 +% +Thomas E. Jorden +71,130 +54,600 +125,730 +<1 +% +Paul Korus +83,515 +0 +83,515 +<1 +% +Directors +Jerry Box +10,901 +— +10,901 +<1 +% +Glenn A. Cox +9,472 +10,000 +19,472 +<1 +% +Cortlandt S. Dietler +132,285 +30,000 +162,285 +<1 +% +Hans Helmerich +84,670 +(3) +10,000 +94,670 +(3) +<1 +% +David A. Hentschel +8,285 +10,000 +18,285 +<1 +% +Paul D. Holleman +8,285 +35,000 +43,285 +<1 +% +Monroe W. Robertson +5,862 +— +5,862 +<1 +% +Michael J. Sullivan +4,479 +10,000 +14,479 +<1 +% +L. Paul Teague +48,667 +16,667 +65,334 +<1 +% +All executive officers and directors as a group (17 persons) +1,233,099 +852,087 +2,085,186 +2 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the benefit of the named individual in the +Cimarex Energy Co. 401(k) Plan. Does not include restricted stock units held by executive officers or deferred compensation units held by some directors. See Equity-Related +Interests table below. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following March 21, 2007 under the Cimarex Energy +Co. 2002 Stock Incentive Plan. +(3) Includes +7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee and 1,072 shares held by a family trust of which +Mr. Helmerich is a co-trustee. Also includes 11,450 shares owned by Mr. Helmerich's wife, and Mr. Helmerich disclaims beneficial ownership of these shares. +34 +Beneficial Owners of More than Five Percent +Third Avenue Management LLC is the only stockholder who beneficially owns more than five percent of our outstanding shares of common stock. The following table +provides information regarding Third Avenue Management's stock ownership and is based on its filing with the Securities and Exchange Commission. +Voting Authority +Dispositive Authority +Total +Amount of +Beneficial +Ownership +Name and Address +Percent of +Class +Sole +Shared +Sole +Shared +Third Avenue Management LLC +622 Third Avenue +New York, NY 10017 +4,587,179 +0 +4,608,879 +0 +4,608,879 +5.56% +Equity and Equity-Related Interests Held by Executive Officers and Directors +The following table shows, as of March 21, 2007, vested and unvested equity interests and common stock held by each of the executive officers set forth in +the Summary Compensation Table , the directors and all of the executive officers and directors as a group: +Unvested +Restricted +Stock(1)(2) +Restricted Stock Units/ +Deferred Comp +Units(3)(4) +Shares Underlying +Stock Options +401(k) +Common +Stock +Total +Vested +Unvested +Vested +Unvested +Named Officers +F. H. Merelli (also director) +120,000 +168,960 +42,240 +462,920 +84,480 +13,400 +377,629 +1,269,366 +Joseph R. Albi +60,000 +— +45,500 +71,100 +18,200 +5,112 +2,259 +202,171 +Stephen P. Bell +60,000 +— +45,500 +72,800 +18,200 +— +4,500 +201,000 +Thomas E. Jorden +60,000 +— +45,500 +54,600 +18,200 +7,308 +3,822 +189,430 +Paul Korus +60,000 +— +45,500 +0 +18,200 +0 +23,515 +147,215 +Directors +Jerry Box +3,639 +— +— +— +— +— +7,262 +10,901 +Glenn A. Cox +4,406 +— +— +10,000 +— +— +5,066 +19,472 +Cortlandt S. Dietler +4,406 +— +— +30,000 +— +— +127,879 +162,285 +Hans Helmerich +1,319 +1,219 +3,087 +10,000 +— +— +83,351 +98,976 +David A. Hentschel +4,406 +— +— +10,000 +— +— +3,879 +18,285 +Paul D. Holleman +4,406 +— +— +35,000 +— +— +3,879 +43,285 +Monroe W. Robertson +3,302 +— +— +— +— +— +2,830 +5,862 +Michael J. Sullivan +1,319 +1,219 +3,087 +10,000 +— +— +3,160 +18,785 +L. Paul Teague +3,796 +1,219 +610 +16,667 +— +— +44,871 +67,163 +All executive officers & directors as a group (17 persons) +507,459 +172,617 +312,774 +852,087 +185,080 +28,387 +697,233 +2,755,657 +(1) The +restricted stock held by the executive officers is subject to three-year cliff vesting and the satisfaction of performance goals. See COMPENSATION AND DISCUSSION ANALYSIS, Elements of Cimarex Executive Compensation Program, +Long-Term Incentive Awards in this proxy statement. +(2) The +restricted stock held by the directors vests in three equal annual installments, beginning with the first anniversary from the grant date. +(3) The +restricted stock units vest five years from the date of grant and are payable in shares of common stock on the eighth anniversary of the date of grant. +(4) The +deferred compensation units held by certain directors vest in three equal annual installments and represent the right to receive one share of Cimarex common stock at the time +provided in the director's deferred compensation election. +35 +IX. +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, +to file reports of ownership of, and transactions in, our common stock with the SEC. The reports by such persons are published on our website at http://www.cimarex.com . +Based on a review of such reports, and on written representations from our reporting persons, we believe that all reports were timely filed in 2006. +Complaint and Reporting Procedures +We have established complaint and reporting procedures, which are posted on our website at www.cimarex.com . Any person, whether or +not an employee, who has a concern about the conduct of +Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern by calling our confidential +hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with the presiding non-management director +or with our non-management directors as a group, also may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. +Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +36 +VOTE BY TELEPHONE OR INTERNET +QUICK • EASY • IMMEDIATE +CIMAREX ENERGY CO. +• You +can now vote your shares electronically through the Internet or the telephone. +• This +eliminates the need to return the proxy card. +• Your +electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. +TO VOTE YOUR PROXY BY INTERNET +www.continentalstock.com +Have +your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy number and account number to create an electronic ballot. Follow the prompts to +vote your shares. +TO VOTE YOUR PROXY BY MAIL +Mark, +sign and date your proxy card above, detach it and return it in the postage-paid envelope provided. +TO VOTE YOUR PROXY BY PHONE +1-866-894-0537 +Use +any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. You will be prompted to enter the company number, proxy number and account number. Follow the +voting instructions to vote your shares. +PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +Please mark +your votes +like this +ý +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSAL. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +The Board of Directors recommends a vote FOR Proposals 1 and 2 +1. +Election of three Class II directors: (01) Cortlandt S. Dietler, (02) Hans Helmerich, (03) Monroe W. Robertson +Vote FOR all nominees +listed to the left (except +as marked to the +Vote WITHHELD +from all nominees +listed to the left +(Instruction: To withhold authority to vote for any individual nominee, write the number(s) of the nominee(s) in the space provided below.) +contrary below) +o +o +2. +Ratify appointment of KPMG LLP as independent auditors for 2007. +FOR +o +AGAINST +o +ABSTAIN +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE +INSTRUCTIONS ABOVE. +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature(s) +Signature(s) +Date +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or +guardian, please give full title as such. +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 16, 2007, or any adjournment thereof. +(Continued, and to be marked, dated and signed, on the reverse side) +QuickLinks +CIMAREX ENERGY CO. 1700 Lincoln Street, Suite 1800 Denver, Colorado 80203-4518 +PROXY STATEMENT 2007 ANNUAL MEETING OF STOCKHOLDERS—May 16, 2007 +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +I. CORPORATE GOVERNANCE +II. INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES +III. PROPOSAL 1—ELECTION OF DIRECTORS +IV. COMPENSATION DISCUSSION AND ANALYSIS Compensation Philosophy & Objectives +Elements of Executive Compensation Program +COMPUTATION OF CASH BONUS TABLES +Transactions with Related Persons +Stock Ownership Guidelines +Report of Compensation and Governance Committee +V. COMPENSATION TABLES +Summary Compensation Table +VI. DIRECTOR COMPENSATION +2006 DIRECTOR COMPENSATION +VII. PROPOSAL 2—RATIFICATION OF INDEPENDENT AUDITORS +VIII. STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS +IX. OTHER MATTERS \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-07-002341/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-07-002341/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..3975a3bc4fce6baa1e0a441e245b5ac2f3f81f50 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-07-002341/proxy_rpt.txt @@ -0,0 +1,13 @@ +Transactions with Related Persons +During 2006, no related person had a direct or indirect material interest in any transaction with Cimarex. See Corporate Governance, +Independence of Board Members for information regarding Cimarex's policies with respect to conflicts of interest. +Stock Ownership Guidelines +Our Board of Directors is committed to director and executive officer stock ownership. Cimarex's stock ownership guidelines provide that (i) each director +should own Cimarex stock with a value of three times his annual cash retainer within a three-year time period following his initial election to the Board, (ii) the Chief Executive +Officer should own Cimarex stock with a value of five times his annual base salary, and (iii) each executive officer should own Cimarex stock with a value of at least two times his base salary +within a three-year time period following initial election to that position. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in +calculating ownership, but shares subject to options are not counted. +Report of Compensation and Governance Committee +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The Compensation and +Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the Compensation and +Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-08-004189/proxy.txt b/raw/proxies/0001168054/0001047469-08-004189/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1f855d88663720211bde97ed16f72aa3dcfc3e71 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-08-004189/proxy.txt @@ -0,0 +1,3454 @@ +DEF 14A +1 +a2184475zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant o +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or +Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 21, 2008 +To +the Stockholders of Cimarex Energy Co.: +The +Annual Meeting of stockholders of Cimarex Energy Co. will be held on Wednesday, May 21, 2008, at 9:30 a.m. Central Time, at the Doubletree Hotel, 616 West Seventh Street, +Tulsa, Oklahoma 74127, for the following purposes: +1. Elect +three directors for terms expiring in 2011. +2. Ratify +the appointment of the independent auditors for 2008. +3. Transact +any other business as may properly come before the meeting. +Stockholders +of record at the close of business on March 26, 2008 are entitled to notice of and to vote at the meeting. During the period May 9 through May 20, 2008, you may +examine the stockholders' list at our offices. The stockholders' list will also be available at the meeting. +IMPORTANT +Your proxy is important to assure a quorum at the meeting. Whether or not you expect to attend the meeting, please vote in any one of the following +ways: +• By phone, call 1-866-894-0537 • On the internet, log on to +www.continentalstock.com • By mail, mark, sign, date and promptly return the proxy card in the postage-prepaid envelope. +BY ORDER OF THE BOARD OF DIRECTORS +Mary K. Rohrer +Corporate Secretary +Date: +April 11, 2008 +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +GENERAL INFORMATION +1 +PROPOSAL 1. ELECTION OF DIRECTORS +4 +Nominees for Directors +5 +Continuing Directors +6 +PROPOSAL 2. RATIFICATION OF INDEPENDENT AUDITORS +7 +CORPORATE GOVERNANCE +8 +Independence of Board Members +8 +Meetings and Executive Sessions of the Board of Directors and its Committees +8 +Director Attendance at the Annual Meeting +9 +Board Committees +9 +Audit Committee +9 +Compensation and Governance Committee +10 +Nominating Committee +11 +Board/Committee Evaluations +11 +Director Education +11 +Service on Boards of Other Public Companies +12 +Director and Management Stock Ownership +12 +Corporate Governance Guidelines and Code of Ethics +12 +Web Access +12 +Process for Communication with the Board +12 +DIRECTOR COMPENSATION +13 +Overview +13 +Non-Management Director Compensation +13 +Determination of Director Compensation +14 +2007 Director Compensation +14 +Outstanding Stock Awards and Options at December 31, 2007 +16 +Deferred Compensation Plan for Nonemployee Directors +16 +Acceleration of Vesting of Awards +16 +EXECUTIVE COMPENSATION +16 +COMPENSATION DISCUSSION AND ANALYSIS +16 +Overview +16 +Roles and Responsibilities +17 +Structure and Purpose of our Executive Compensation Program +18 +Comparison Groups +18 +Key Elements of our Compensation Program +19 +Base Salary +19 +Annual Cash Incentive Awards +20 +Long-Term Equity Incentive Awards +22 +Other Compensation +23 +Total Compensation +24 +Tax Considerations +24 +Internal Pay Equity +24 +i +Report of Compensation and Governance Committee +25 +COMPENSATION TABLES +26 +Summary Compensation Table +26 +2007 Grants of Plan-Based Awards +27 +Outstanding Equity Awards at December 31, 2007 +29 +2007 Option Exercises and Stock Vested +29 +Nonqualified Deferred Compensation +30 +Potential Payments Upon Change-in-Control or Termination +30 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS +35 +Beneficial Ownership by Executive Officers and Directors +35 +Beneficial Owners of More than Five Percent +35 +Equity and Equity-Related Interests Held by Executive Officers and Directors +36 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +37 +Policy for Approval of Audit, Audit-Related and Tax Services +37 +Fees +37 +Report of Audit Committee +37 +OTHER MATTERS +38 +Transactions with Related Persons +38 +Section 16(a) Beneficial Ownership Reporting Compliance +38 +Complaint and Reporting Procedures +38 +ii +PROXY STATEMENT +2008 ANNUAL MEETING OF STOCKHOLDERS—May 21, 2008 +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +We +provide you with this proxy statement to solicit your vote at our 2008 Annual Meeting of Stockholders. This proxy statement and our annual report to stockholders are also available at +www.cimarex.com . +The +Annual Meeting will be held at at 9:30 a.m. Central Time, at the Doubletree Hotel, 616 West Seventh Street, Tulsa, Oklahoma 74127. The proxies also may be voted at any adjournments or +postponements of the Annual Meeting. +The +proxy materials will be mailed to stockholders on or about April 11, 2008. All properly executed and delivered written proxies will be voted at the Annual Meeting. If you are a stockholder +of record at the close of business on March 26, 2008, the record date, you may vote at the Annual Meeting, or at adjournments or postponements of the Annual Meeting. +GENERAL INFORMATION +1. Who can vote? +Stockholders +holding shares of our common stock as of the close of business on March 26, 2008, may vote at the Annual Meeting, or at any adjournment or postponement. You have one vote for each +share of common stock held as of the record date that may be voted on each proposal presented at the Annual Meeting. +2. What is the record date and what does it mean? +The +record date established by our Board of Directors for the Annual Meeting is March 26, 2008. Owners of record of our common stock at the close of business on the record date are entitled to: +• receive +notice of the Annual Meeting; and +• vote +at the Annual Meeting and at any adjournment or postponement. +3. How many shares of Cimarex common stock were outstanding on the record date? +At +the close of business on March 26, 2008, the record date, there were 83,049,326 shares of common stock outstanding and entitled to vote at the Annual Meeting. Common stock is the only class +of stock entitled to vote. +4. How do I vote? +You +can vote in person at the Annual Meeting or by proxy. If you directly own your shares, you have three ways to vote by proxy: +• connect +to the Internet at www.continentalstock.com ; +• call +1-866-894-0537; or +• complete, +sign and date the proxy card and mail it back to us. +Complete +instructions for voting your shares can be found on your proxy card. +1 +If +you change your mind on any issue, you may revoke your proxy at any time before the close of voting at the Annual Meeting. +There +are four ways to revoke your proxy: +• connect +to the Internet at www.continenalstock.com ; +• call +1-866-894-0537; +• write +our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518; or +• deliver +a notice of revocation to the Inspector of Election at the Annual Meeting. +5. How do I vote if my shares are held in street name? +If +your shares are held in the name of your broker, a bank, or other nominee, only your broker, bank or other nominee may execute a proxy and vote your shares. Please sign, date and promptly return +the instruction card you received from your broker, bank or other nominee, in accordance with the instructions on the card. You may vote by the Internet or telephone if your bank or broker makes those +methods available, in which case you can follow the instructions on the card. If you wish to vote your "street name" shares directly, you will need to obtain a document known as a "legal proxy" from +your broker, bank or other nominee. Please contact your bank, broker, or other nominee if you wish to do so. +6. What happens if I do not specify a choice for a proposal when returning a proxy? +You +should specify your choice for each proposal on the proxy card. If you do not specify your choice and sign the proxy card, your shares will be voted "FOR" the election of Cimarex director nominees +and ratification of independent auditors and "AGAINST" any stockholder proposal. +7. How do I vote shares held in my 401(k) account? +401(k) +Plan participants who have shares of Cimarex stock credited to their Plan account as of March 26, 2008, will receive a proxy card that serves as a voting instruction card. You may +instruct the Trustee how to vote your shares, and the Trustee will vote your shares in accordance with your instructions. If you do not sign and return the proxy card to indicate your instructions, +the Trustee will vote your shares in the same proportion as shares were voted by other Plan participants. +8. What happens if other matters come up at the Annual Meeting? +We +do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, F. H. Merelli, Cimarex's Chairman of the +Board, Chief Executive Officer and President, and Paul Korus, Cimarex's Vice President, Chief Financial Officer and Treasurer, will vote your shares at their discretion. +9. Who will count the votes? +A +representative of Continental Stock Transfer & Trust Company, an independent tabulator appointed by the Board of Directors, will count the votes and act as the Inspector of Election. +10. What is a "quorum"? +A +"quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting shares of common stock present in person at the Annual +Meeting or represented by proxy. If you submit a properly executed proxy, you will be +2 +considered +part of the quorum even if you abstain from voting. Shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners ("broker +non-votes") are treated as present for the purposes of determining a quorum. +11. Who can attend the Annual Meeting? +Admission +to the Annual Meeting is limited to stockholders of Cimarex, persons holding validly executed proxies from stockholders who held Cimarex common stock on March 26, 2008, and invited +guests of Cimarex. +12. How many votes must each proposal receive to be adopted? +• With +respect to Proposal 1, the election of directors, each nominee will be elected if the votes cast for the nominee exceed the votes cast against the nominee. Votes cast +will not include broker non-votes or abstentions. +• Proposal +2 for the ratification of independent auditors must receive the affirmative vote of a majority of the shares present and entitled to vote. +13. How are votes counted? +Votes +are counted in accordance with our By-laws and Delaware law. A broker non-vote counts in determining a quorum but does not count in electing the directors or on Proposal +2. If a stockholder returns an executed proxy card but does not indicate how his or her shares are to be voted, the shares covered by such proxy card will be included in determining if there is a +quorum and will also be counted as votes "FOR" the election of our director nominees and ratification of independent auditors and "AGAINST" any stockholder proposal. Shares will not be voted at the +Annual Meeting if a properly executed proxy card covering those shares has not been received and the holder does not vote in person at the Annual Meeting. +14. Do I have to vote? +No. +However, we strongly urge you to vote. You may vote for all, some or none of Cimarex's director nominees. You may abstain from voting or vote "FOR" or "AGAINST" Proposal 2. +15. How can I view the stockholder list? +You +may view a stockholder list at the Annual Meeting or at our offices at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 during ordinary business hours during the period May 9 +through May 20, 2008. +16. Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex +does. In addition to sending you these materials, some of our directors and management may contact you by telephone, mail, e-mail or in person. We will also reimburse banks, +nominees, fiduciaries, brokers and other custodians for their costs of sending the proxy materials. +17. If I want to submit a stockholder proposal for the 2009 Annual Meeting, when is it due? +If +you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in writing to the Corporate Secretary, +Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. +Cimarex must receive your proposal on or before December 7, 2008. Cimarex will consider only proposals meeting the requirements of the applicable rules of the SEC. +3 +If +a stockholder wants to bring any matter before the 2009 Annual Meeting that is not included in the 2009 Proxy Statement, the stockholder must provide written notice of a matter to be brought before +the 2009 Annual Meeting between February 10, 2009 and February 20, 2009. If the 2009 Annual Meeting is held more than 30 days before or after May 21, 2009, then the +stockholder's written notice must be received not later than the close of business on the tenth day following the day on which the notice of the date of the 2009 Annual Meeting was mailed or public +disclosure of the date of the Annual Meeting was made, whichever first occurs. +18. How can I obtain a copy of the Annual Report on Form 10-K? +A +copy of Cimarex's 2007 Annual Report on Form 10-K is included in Cimarex's annual report to stockholders that is being mailed with this proxy statement. If you do not receive a +copy, you may obtain one free of charge by writing, calling or faxing our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado +80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. +PROPOSAL 1. ELECTION OF DIRECTORS +Our +current Board of Directors consists of 10 members and is divided into three classes: Class I, Class II and Class III directors. At each annual meeting, a class of directors is +elected for a term expiring at the annual meeting in the third year following the year of election. Each director holds office until his successor is elected and qualifies. +The +terms of the three Class III directors, Glenn A. Cox, David A. Hentschel and L. Paul Teague, will expire at the 2008 Annual Meeting. Mr. Cox has notified the Board of Directors that +he does not intend to stand for re-election. At its February 28, 2008 meeting, the Board of Directors decided not to nominate a candidate to fill the vacancy, resulting in nine +members on the Board of Directors apportioned as follows: four Class I directors, three Class II directors and two Class III directors. Our Certificate of Incorporation provides +that if the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in +no case will a decrease shorten the term of any incumbent director. +As +a result, our Nominating Committee recommended that F. H. Merelli, currently one of the four Class I directors, run for re-election at the 2008 annual meeting as a +Class III director. If Mr. Merelli is not elected as a Class III director, in compliance with our Certificate of Incorporation which provides that his term shall not be shortened, +he will remain a Class I director whose term expires in 2009. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class III nominees to serve for three years or until his successor is elected and qualifies. If prior to +the Annual Meeting one or more of the nominees becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any +substitute nominee or nominees designated by our Board of Directors or its Nominating Committee. As of the mailing of these proxy materials, the Board of Directors knows of no reason why any director +nominee would not be available to serve as a director. +4 +Information +concerning the nominees recommended by our Nominating Committee and nominated by our Board of Directors, as well as each of our continuing directors, is set forth below: +NOMINEES FOR DIRECTORS +Class III Directors—Terms Expiring 2011 +David A. Hentschel +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age—74 +Director Since 2002 +Member—Compensation and Governance Committee +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. President and Chief Executive Officer of Canadian Occidental Petroleum, Ltd, +now known as Nexen, from 1995 until 1997. Director of Nexen Inc., a global energy company located in Calgary, Alberta, Canada. +F. H. Merelli +Chairman of the Board, CEO, President +Cimarex Energy Co. +Denver, Colorado +Age—72 +Director Since 2002 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from September 1992 +to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of audit committee of Apache Corporation, +Houston, Texas, an exploration and production company traded on the NYSE. +L. Paul Teague +Retired Executive +Texaco USA +Age—73 +Director Since 2002 +Member—Compensation and Governance Committee +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New Orleans Division, +Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +Each director will be elected if he receives more "FOR" votes than "AGAINST" votes. Our Board of Directors recommends a vote "FOR" all nominees. +5 +CONTINUING DIRECTORS +Class I Directors—Terms Expiring in 2009 +Jerry Box +Retired President and COO +Oryx Energy Company +Age—69 +Director Since 2005 +Member—Compensation and Governance Committee +Chairman +of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter Resources from March 1999 to June 2005. Mr. Box served as President, COO and +a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy and its predecessor company, Sun Oil Company. +Currently, director and chairman of the board of Newpark Resources, Inc., The Woodlands, Texas, an oilfield services company traded on the NYSE. +Paul D. Holleman +Retired Partner +Holme Roberts & Owen LLP +Age—76 +Director Since 2002 +Member—Audit Committee +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. At Holme Roberts, he served as legal counsel to Key Production Company, Inc. and other +oil and gas companies. Other positions in his 40 years with Holme Roberts included Chairman of the Natural Resources Department and member of the executive committee. +Michael J. Sullivan +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age—68 +Director Since 2002 +Member—Compensation and Governance Committee +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner of the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, a global +food and food ingredients producer headquartered in Tralee, Ireland; director and member of CSR committee and governance committee of Allied Irish Bank Group, Dublin, Ireland; director and member of +the governance +committee of First Interstate BancSystem, Billings, Montana and director and member of the compensation and governance and audit committee of Slatten Construction, Inc., Great Falls, Montana. +6 +Class II Directors—Terms Expiring in 2010 +Cortlandt S. Dietler +Owner, Poison Spider Oil Company LLC +Denver, Colorado +Age—86 +Director Since 2002 +Member—Audit Committee +Founded +TransMontaigne Inc. in 1995 and served as its chairman, president and chief executive officer until September 1999 and chairman until its sale to Morgan Stanley Capital Group in 2006. +Founder, chairman and chief executive officer of Associated Natural Gas Corporation which was sold to Panhandle Eastern Corporation (PanEnergy) in 1994 and advisory director to the PanEnergy Board +prior to its merger with Duke Energy Corporation in 1997. Founder of Western Crude Oil, Inc., which was sold to Reserve Oil and Gas Company in 1977, which was then sold to Getty Oil Company in +1981. Founder of Western Crude Marketers, Inc. which was sold to Permian Corporation, which was sold to Occidental Petroleum Corporation in 1960. Recently founded Poison Spider Oil +Company LLC. Currently director of Hallador Petroleum Company (HPCO.OB), Ellora Energy and Nytis Exploration Company, chairman of National Energy Acquisition Co. and former director of +Forest Oil Corporation (NYSE:FST), all oil and gas exploration and production companies. +Hans Helmerich +President, CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age—49 +Director Since 2002 +Member—Compensation and Governance Committee +Director +of Helmerich & Payne, Inc. since 1987. President and Chief Executive Officer of Helmerich & Payne, Inc. since 1989. Director of Atwood Oceanics, Inc., +Houston, Texas, an international offshore drilling company, and Trustee of The Northwestern Mutual Life Insurance Company. +Monroe W. Robertson +Private investor +Age—58 +Director Since 2005 +Chairman—Audit Committee +Currently +a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in March 2002. He held the +positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Director, chairman of the audit committee and member of the compensation and nominating +committee of Basic Earth Science System, Denver, Colorado, an independent exploration and production company. +PROPOSAL 2. RATIFICATION OF INDEPENDENT AUDITORS +The +Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2008. KPMG has been our independent auditors since October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG as independent auditors. If stockholders fail to ratify the appointment of KPMG, the Audit Committee may reconsider this appointment. A +KPMG representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +7 +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of KPMG LLP as Cimarex's independent auditors for 2008. +The Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for 2008. +See Independent Registered Public Accountants for information regarding auditor fees and services and the Audit Committee Report. +CORPORATE GOVERNANCE +Prudent +corporate governance is critical for the trust and confidence of investors, employees, suppliers, business partners, and stockholders. Cimarex corporate governance is based on high ethical +standards and the awareness that our actions must be based on the best interests of the stockholders. +Independence of Board Members +Our +Corporate Governance Guidelines require that a majority of our Board of Directors must be independent as defined by applicable laws, rules, regulations and listing standards. We comply with all +criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based upon NYSE standards, all Board members are independent, +except the Chairman of the Board who is also our Chief Executive Officer and President. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, the Board +determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of management +and free from any relationship that would interfere with the director's independent judgment. +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively determined by +the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +Applying +our Corporate Governance Guidelines and our Code of Business Conduct, the Board has affirmatively determined that each of our current directors, with the exception of our Chairman and Chief +Executive Officer, F. H. Merelli, has no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is independent under our Corporate +Governance Guidelines, Code of Business Conduct and the listing standards of the NYSE. Our Audit, Compensation and Governance, and Nominating Committees are comprised entirely of independent +directors. +Meetings and Executive Sessions of the Board of Directors and its Committees +During +2007, our Board of Directors held four meetings. Our Board has an Audit, a Compensation and Governance and a Nominating Committee. During 2007, the Audit Committee met eight times and the +Compensation and Governance Committee met four times. The Nominating Committee was formed as a separate committee in September 2007 and did not meet during 2007. Each director attended at least +75 percent of the Board meetings and the meetings of each committee on which he served. +The +non-management members of the Board and its Committees meet from time to time in executive session. The purpose of these executive sessions is to promote open and candid discussion +among the non-management directors. During 2007 the non-management directors met four times in executive session, the non-management members of the Audit Committee +met in executive session four times, and the non-management members of the Compensation and Governance Committee met in executive session two times. +8 +Each +year the directors select a lead director to preside over Board executive sessions. Mr. Hentschel served as lead director during 2007. On December 11, 2007, the Board selected +Mr. Holleman to serve as lead director for 2008. +Director Attendance at the Annual Meeting +The +Board encourages all directors to attend the Annual Meeting, and all of our directors attended our 2007 Annual Meeting. +Board Committees +The +Board of Directors has established three standing committees to assist in carrying out its duties: the Audit Committee, the Compensation and Governance Committee and the Nominating Committee. Each +committee has adopted a charter that complies with the corporate governance rules adopted by +the SEC and the NYSE listing standards. These charters may be found on our website at www.cimarex.com . A printed copy of +each charter may be obtained by contacting our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, CO 80203-4518, telephone +(303) 295-3995. +Audit Committee +Members +Functions of Committee +Monroe W. Robertson, Chairman† +• +Appoints independent auditors +Glenn A. Cox† +• +Approves nature and scope of services of +Cortlandt S. Dietler† +independent auditors and reviews range of fees +Paul D. Holleman +for such services +• +Oversees Cimarex's internal audit function +† Financial Expert +• +Reviews qualification and independence of independent auditors +• +Monitors integrity of Cimarex's financial statements +• +Monitors compliance with legal and regulatory requirements +The +Audit Committee consists of four non-employee directors who meet the NYSE standards of independence and financial literacy, and three of four members of the Committee qualify as a +"financial expert" as defined by the Securities and Exchange Commission. No Audit Committee member serves on more than three audit committees of public companies, including Cimarex's Audit Committee. +Cimarex maintains an internal audit department to provide management and the Audit Committee with ongoing assessments of Cimarex's system of internal controls. +Cimarex's +independent auditor reports directly to the Audit Committee. The Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor and the +Board. Interested parties may contact the Audit Committee members by following the process outlined under Process for Communication with the Board in +this Corporate Governance section. +9 +Compensation and Governance Committee +Members +Functions of Committee +L. Paul Teague, Chairman +Compensation Functions +Jerry Box +• +Recommends CEO compensation for approval +Hans Helmerich +by Board +David A. Hentschel +• +Recommends executive officer compensation +Michael J. Sullivan +for approval by Board +• +Recommends director compensation +• +Reviews and recommends Compensation Discussion and Analysis disclosures +• +Determines amount and terms of equity awards +• +Reviews and approves long-term incentive plans +Governance Functions +• +Oversees evaluation of performance of the Board, its committees and the CEO +• +Oversees corporate governance +• +Develops plans for managerial succession +The +Committee consists of five independent, non-employee directors. Four of the five Committee members have extensive executive experience in administering compensation for oil and gas +exploration and production companies. The fifth member has managed compensation matters as a state governor, U.S. ambassador, and a law firm partner. +Compensation Functions. The Committee establishes and administers our executive compensation program. The Committee recommends for approval +by the independent directors compensation to be paid or delivered to the Chief Executive Officer (CEO) and the executive officers named in the Summary Compensation +Table in this proxy statement (referred to throughout this document as the Named Executive Officers or NEOs). The outside directors of the Committee approve performance +standards for the plans. +The +Committee uses the services of a compensation consultant for research and advice regarding the form and amount of executive and director compensation. Our Vice President of Human Resources also +reviews and analyzes the compensation practices of peer group companies and presents this information to the Committee. The CEO communicates with the Committee regarding performance of +the NEOs and makes recommendations regarding base salary, annual cash incentive awards and long-term equity incentive awards (see Compensation Discussion and +Analysis) . +The +Committee's compensation consultant performs executive compensation services only at the request of the Committee and does not perform services for management. In 2007, the Committee used Deloitte +Consulting LLP. For 2008, the Committee has engaged Longnecker & Associates as its compensation consultant. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive +officer of Cimarex from February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & Payne, Inc. +for the purpose of facilitating the spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly-held company on +September 30, 2002, at which time Mr. Helmerich resigned as an executive officer. +Governance Functions. The Committee develops and recommends to the Board corporate governance principles. The Committee oversees the +process of annual performance evaluations for the Board and +10 +each +committee, reviews and makes recommendations regarding Cimarex's Corporate Governance Guidelines and provides recommendations regarding director educational programs. +Nominating Committee +Members +Functions of Committee +Paul D. Holleman, Chairman +• +Determine desired board skills and attributes. +Jerry Box +• +Recommends individuals to Board for +Glenn Cox +nomination, election or appointment as +Cortlandt Dietler +members of the Board and its committees +Hans Helmerich +• +Recommend candidates to serve on the Board +David A. Hentschel +and to stand for election at annual meeting +Monroe W. Robertson +of stockholders or to fill vacancy occurring +Michael J. Sullivan +between meetings +L. Paul Teague +• +Recommend Committee appointments +• +Sole authority to retain and terminate any search firm to identify director candidates +The +Nominating Committee was formed as a separate Committee on September 18, 2007 and is comprised of all independent directors. Previously the nominating functions were performed by the +Compensation and Governance Committee. The Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired qualifications, including +(a) personal and professional ethics, (b) integrity and values, (c) commitment to the long-term interest of the stockholders, (d) a mix of characteristics and +diverse experiences, perspectives and skills appropriate to our business and (e) familiarity or experience in the oil and gas exploration and production business. +Each +director nominee is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas +experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with an +important capacity to execute its duty of oversight and guidance. +The +Committee will consider nominees recommended by stockholders. For the 2008 Annual Meeting, the Committee did not receive nominations from a stockholder prior to the deadline for stockholder +nominations. Stockholders who wish to nominate persons for election as directors at the 2009 Annual Meeting must submit a timely written notice complying with Cimarex's By-laws to +Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the +stockholder's written notice must be received between February 10, 2009 and February 20, 2009. If the 2009 Annual Meeting is held more than 30 days before or after May 21, +2009, the written notice must be received no later than the close of business on the tenth day after we mail Notice of the Annual Meeting to our stockholders. +Board/Committee Evaluations +During +2007, the Board of Directors and each committee participated in a self-assessment or evaluation of the effectiveness of the Board and its committees. +Director Education +Cimarex +encourages director participation in seminars and conferences and other opportunities for director education. In 2008, a majority of our directors attended an educational program designed by +National Association of Corporate Directors, a nationally recognized board educational organization. +11 +Each +of our directors is a member of that organization. We subscribe and make available to our Committee members various informational and educational newsletters and online services. +Service on Boards of Other Public Companies +Cimarex +does not prevent directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines recommend that (i) the Chief Executive Officer serve on the +Board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the Board of no more than five public companies, including Cimarex. All directors comply +with this guideline. +Director and Management Stock Ownership +The +Corporate Governance Guidelines provide that each non-management director is required to own Cimarex stock in an amount equal to three times his annual Board cash retainer, the Chief +Executive Officer is expected to own stock in an amount equal to five times his annual base salary, and each executive officer who reports to the Chief Executive Officer is expected to own three times +his annual base salary. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership, but shares subject to options are not +counted. +Corporate Governance Guidelines and Code of Ethics +The +Corporate Governance Guidelines address matters such as qualifications of directors, standards for independence of directors, election of directors, responsibilities of directors, limitation of +service on other public company boards, number and structure of Board committees, conduct and frequency of Board and committee meetings, Board evaluation, management succession, director access to +management, counsel and advisors, and board orientation and education. The Board of Directors, both directly or through the Compensation and Governance Committee, reviews and revises as necessary the +Corporate Governance Guidelines. +Cimarex +has adopted a code of ethics, known as the "Code of Business Conduct," that applies to all directors, officers and employees. The Code of Business Conduct is a guideline to promote honest and +ethical conduct, maintain a corporate climate in which integrity and dignity of each individual is valued, assure compliance with laws and assure proper use of Cimarex's assets. Cimarex will post on +its website all waivers to or amendments to its Code of Business Conduct that are required to be disclosed by applicable law and rules of the NYSE listing standards. Currently, Cimarex does not have +nor does it anticipate any waivers to or amendments of its Code of Business Conduct. +Copies +of our Corporate Governance Guidelines and Code of Business Conduct are available on our website at www.cimarex.com . Printed copies of these documents may be +obtained by contacting our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, CO 80203-4518, telephone (303) 295-3995 +Web Access +Cimarex +provides access through its website ( www.cimarex.com ) to current information relating to corporate governance, including a copy of each of the Board's standing +committee charters, our Corporate Governance Guidelines, the Code of Business Conduct, biographical information regarding our directors and executive officers and complaint and reporting procedures. +Process for Communication with the Board +Interested +parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline (1-866-519-1898). All +communications will be forwarded to the lead +12 +director +for his review. The lead director may take any action deemed appropriate or necessary, including retaining independent or outside counsel, accountants or other advisors. No adverse action +will be taken against any individual making any such communication to the lead director. +DIRECTOR COMPENSATION +Overview +Our +Board has extensive experience in the oil and gas industry. There is intensive competition for directors who are knowledgeable about our industry. To retain and continue to attract directors with +this experience, our director compensation must be competitive with that paid by peer companies. +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") administers our director compensation program. Director compensation is designed to be near the +50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing director +compensation as we use in reviewing executive base salary. See Comparison Groups under Compensation Discussion and +Analysis for a list of the companies and the methodology followed in selecting the companies. +Non-Management Director Compensation +To +align the interest of shareholders and our directors, total annual non-management director compensation is approximately two-thirds equity awards and one-third +cash. The following represents the annual retainer and fee structure applicable to 2007 director compensation: +Equity Retainer +$ +100,000 +Annual Cash Retainer +$ +40,000 +Committee Chair +$ +10,000 +Attendance at Board Meeting +$ +1,500 +Attendance at Committee Meeting +$ +1,000 +Lead Director per Meeting Fee +$ +1,000 +The +equity retainer is in the form of restricted stock that vests over three years in one-third increments. All non-management directors annually receive a number of shares of +restricted stock based on a fixed cash value, currently $100,000. The number of shares is determined by dividing $100,000 by the average of the highest and lowest prices of Cimarex stock on the date +of grant. +The +cash compensation is principally in the form of an annual retainer fee. We also pay board and committee meeting attendance fees and committee chair and lead director service fees. Directors +receive quarterly dividend payments on their non-vested restricted stock. +During +2007, we paid or awarded our directors the following compensation: +Name +Annual Cash +Retainer and +Meeting Fees +Stock Awards +(Grant Date +Fair Value) +Jerry Box +$ +50,000 +$ +100,000 +Glenn A. Cox +$ +53,000 +$ +100,000 +Cortlandt S. Dietler +$ +54,000 +$ +100,000 +Hans Helmerich +$ +50,000 +$ +100,000 +David A. Hentschel +$ +54,000 +$ +100,000 +Paul D. Holleman +$ +54,000 +$ +100,000 +Monroe W. Robertson +$ +64,000 +$ +100,000 +Michael J. Sullivan +$ +50,000 +$ +100,000 +L. Paul Teague +$ +60,000 +$ +100,000 +13 +Determination of Director Compensation +Our +Committee is sensitive to the potential for a perceived conflict of interest in setting director compensation. To minimize the potential for perceived conflict of interest, the Committee uses a +compensation consultant to evaluate and recommend director compensation. From 2002 to 2007, the Committee used Deloitte Consulting LLP. In 2008, the Committee engaged Longnecker & +Associates to review director compensation. +Within +general guidelines provided by the Committee, the compensation consultant reviews director compensation every other year and recommends appropriate changes. The Committee, after reviewing the +consultant's recommendations with the CEO and Vice President of Human Resources, recommends director compensation for Board consideration and approval at the annual May board meeting. The Committee +did not review or make adjustments to director compensation in 2007. +The +bi-annual review of director compensation is principally based on public information about comparison group compensation. For additional reference, the Committee also compares director +compensation with companies that are not in the oil and gas business, but with similar market capitalization. +We +reimburse our non-management directors for reasonable transportation and accommodation expenses to attend Board and committee meetings. In lieu of reimbursement of travel expenses, some +non-management directors may occasionally travel to or from Board and Committee meetings on the Cimarex aircraft. +In +compliance with Securities and Exchange Commission regulations, the following table reports compensation paid to non-management directors during 2007: +2007 DIRECTOR COMPENSATION +Name +Annual Cash Retainer and Meeting Fees (1) +Stock Awards (2) +Dividends on Restricted Stock +Total +Jerry Box +$ +50,000 +$ +71,128 +$ +575 +$ +121,703 +Glenn A. Cox +$ +53,000 +$ +77,532 +$ +643 +$ +131,175 +Cortlandt S. Dietler +$ +54,000 +$ +77,532 +$ +643 +$ +132,175 +Hans Helmerich +$ +50,000 +$ +77,532 +$ +953 +$ +128,485 +David A. Hentschel +$ +54,000 +$ +77,532 +$ +643 +$ +132.175 +Paul D. Holleman +$ +54,000 +$ +77,532 +$ +643 +$ +132,175 +Monroe W. Robertson +$ +64,000 +$ +59,464 +$ +525 +$ +123,989 +Michael J. Sullivan +$ +50,000 +$ +77,532 +$ +953 +$ +128,485 +L. Paul Teague +$ +60,000 +$ +77,532 +$ +887 +$ +138,419 +(1) The +following table provides additional information regarding annual cash retainer and meeting fees for 2007: +Name +Annual +Cash +Retainer +Board Meeting Attendance Fees +Audit Committee Meeting and Chair Fees +Compensation and Governance Committee Meeting and Chair Fees +Lead +Director +Fees +Jerry Box +$ +40,000 +$ +6,000 +$ +— +$ +4,000 +$ +— +Glenn A. Cox +$ +40,000 +$ +6,000 +$ +7,000 +$ +— +$ +— +Cortlandt S. Dietler +$ +40,000 +$ +6,000 +$ +8,000 +$ +— +$ +— +Hans Helmerich +$ +40,000 +$ +6,000 +$ +— +$ +4,000 +$ +— +David A. Hentschel +$ +40,000 +$ +6,000 +$ +— +$ +4,000 +$ +4,000 +Paul D. Holleman +$ +40,000 +$ +6,000 +$ +8,000 +$ +— +$ +— +Monroe W. Robertson +$ +40,000 +$ +6,000 +$ +18,000 +$ +— +$ +— +Michael J. Sullivan +$ +40,000 +$ +6,000 +$ +— +$ +4,000 +$ +— +L. Paul Teague +$ +40,000 +$ +6,000 +$ +— +$ +14,000 +$ +— +14 +(2) The +dollar amounts reported in this column reflect the expense recognized for financial statement reporting purposes in accordance with SFAS 123(R) and thus include amounts +from awards granted in and prior to 2007. The assumptions utilized in the calculation of these amounts are set forth in footnote 9 to our consolidated financial statements included in the Annual +Report on Form 10-K for the year-ended December 31, 2007. +The +amounts reported in this column are derived from the following grants and their respective grant date fair value: +Director +Grant Date +No. of +Shares +Grant Date +Fair Value +Jerry Box +6/7/2005 +5/17/2006 +9/18/2007 +1,743 +2,477 +2,637 +$ +$ +$ +70,000 +100,000 +100,000 +Glenn A. Cox +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +Cortlandt S. Dietler +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +Hans Helmerich +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +David A. Hentschel +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +Paul D. Holleman +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +Monroe W. Robertson +12/13/2005 +5/17/2006 +9/18/2007 +833 +2,477 +2,637 +$ +$ +$ +35,000 +100,000 +100,000 +Michael J. Sullivan +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +L. Paul Teague +5/19/2004 +5/18/2005 +5/17/2006 +9/18/2007 +1,829 +1,979 +2,477 +2,637 +$ +$ +$ +$ +50,000 +70,000 +100,000 +100,000 +15 +The +following table discloses the aggregate number of stock awards and option awards outstanding at December 31, 2007. +OUTSTANDING STOCK AWARDS AND OPTIONS AT DECEMBER 31, 2007 +Director +Stock Awards +Option Awards +Jerry Box +4,869 +— +Glenn A. Cox +4,948 +10,000 +Cortlandt S. Dietler +4,948 +30,000 +Hans Helmerich +4,948 +10,000 +David A. Hentschel +4,948 +10,000 +Paul D. Holleman +4,948 +35,000 +Monroe W. Robertson +4,566 +— +Michael J. Sullivan +4,948 +10,000 +L. Paul Teague +4,948 +16,667 +Deferred Compensation Plan for Nonemployee Directors +In +May 2004, we adopted a deferred compensation plan for nonemployee directors. The plan provides that a director may defer all or any portion of his compensation paid in cash or restricted stock for +services as a director. +All +cash amounts deferred earn interest through the date paid. The rate of interest earned for a calendar quarter shall be based on the average 10-year U.S. Treasury note rate for the +immediately preceding calendar quarter, plus one percent. Cash dividends are paid on deferred restricted stock. +Deferred +compensation is distributed upon the earlier of the date specified by the director in his election, termination of service as a director or termination of the plan. In addition, if Cimarex +amends the plan following a change-in-control event, all account balances will be fully vested and paid in a single lump sum within 30 days. The definition of a +change-in-control event is the same as the definition under the Cimarex 2002 Stock Incentive Plan. See Potential Payments upon +Change-in-Control or Termination . +Acceleration of Vesting of Awards +The +agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a change-in-control event, as defined +in the 2002 Stock Incentive Plan. See Potential Payments upon Change-in-Control or Termination . +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Cimarex +Energy Co. is an independent oil and gas exploration company. Our principal business objective is to consistently and profitably grow our proved reserves and production. Our executive +compensation program is designed to retain the experienced professionals that we need to attain our business objective and to align their interests with our stockholders. +Overview +Our +executive compensation program focuses on three principal elements: +• Base +salary +• Annual +cash incentive awards +• Long-term +equity incentive awards +16 +We +strive to pay a base salary and total compensation that are competitive with our peers. Annual cash incentive awards are at risk and are dependent upon growth in annual proved reserves and +production and better than average relative stock price performance when compared to peers. Our long-term equity awards are intended to be retentive, encourage executive stock ownership +and reward executives for three-year relative stock price performance that is above the 50 th percentile when compared to peers. We do not specifically allocate between +cash and equity-based compensation or between annual and long-term incentive compensation. +We +provide a 401(k) defined contribution plan and supplemental savings plan that are also available to non-executive employees. These benefits are not considered material elements of our +executive compensation program. +We +do not consider perquisites or post-termination benefits in analysis of total compensation because (i) we provide limited perquisites and (ii) except for the CEO, NEO +post-termination benefits are the same benefits available to all full-time employees. The CEO's employment agreement provides for additional benefits in the event of death, +disability or termination without cause. These additional benefits are described under Potential Payments upon Change-in-Control or +Termination . +Roles and Responsibilities +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") designs, implements and administers our executive compensation program. More specifically, the Committee develops +the overall philosophy, objectives, structure and pay guidelines and, for elements that are dependent upon quantifiable measures, develops formulas to determine the awards. The Committee uses the +services of an outside consultant to help carry out its responsibilities, especially in the area of program design. From 2002-2007, the Committee used Deloitte Consulting LLP as its +compensation consultant. For 2008 the Committee has engaged Longnecker & Associates. Neither consultant performs services for management. The Committee also receives and reviews information +provided by the Vice President of Human Resources. +The +CEO plays a significant role in the compensation process. Because the CEO has close day-to-day association with the other NEOs and operation of the company, the Committee +considers the CEO's involvement essential. The CEO provides the Committee with an oral annual assessment of Cimarex's overall financial and operational performance. He evaluates individual NEO +performance and recommends base salary adjustments, annual cash incentive awards and long-term equity incentive awards. The CEO considers subjective factors that may include scope of +responsibility, contribution to company performance, technical competence, managerial skills, time-in-position and future potential. The Committee has discretion to accept, +reject or modify the CEO's recommendations. +The +Committee's final recommendations of executive compensation are based upon: (i) review of competitive data; (ii) review of the results of the calculation for the annual cash +incentive pool for distribution, (iii) informal, subjective and confidential review of the CEO's performance; (iii) review of the CEO's recommendations regarding compensation for the +NEOs; and (iv) consideration of internal pay equity. The Committee relies upon its collective judgment and considers subjective information including credentials, length of service, experience, +consistent performance and available competitive alternatives for our executive officers. The Committee, through its Chairman, delivers its final recommendations for approval by the independent +members of the Board of Directors. +17 +Structure and Purpose of our Executive Compensation Program +Our +program provides a competitive compensation package, promotes our pay-for-performance philosophy and aligns the interests of our executives and stockholders. +• Offering competitive compensation. We pay a base salary and total compensation that are +competitive with compensation practices of companies that we compete with for talent. +• Rewarding company performance. We align our annual cash incentive awards with company +performance by tying a significant portion of these awards to growth in proved reserves and production. Our program design does not include designated individual personal performance objectives. +• Aligning the interests of our executives with those of our stockholders. Our annual cash +incentive awards are designed to reward our executives for relative stock price performance, and our long-term equity incentive awards encourage executive stock ownership and reward +executives for above-average relative stock price performance. +Comparison Groups +We +use comparison group information as a resource in reviewing and making annual base salary adjustments and as a point of reference when reviewing total compensation. We also use a second comparison +group to determine the peer stock performance factor in computing the annual cash incentive pool and in determining the number of performance shares that vest under our long-term incentive +awards. The Compensation Committee reviews and approves of both comparison groups. +Our +base salary and total compensation group consists of companies in our industry with market capitalization and revenue similar to ours. In 2007, the companies selected had market capitalizations +ranging from $1 billion to $6 billion and/or revenue ranging from $500 million to $1.5 billion. Our 2007 base salary comparison group was comprised of: +Berry Petroleum Co. +Pioneer Natural Resources Co. +Cabot Oil & Gas Corp. +Plains Exploration & Production Co. +Comstock Resources Inc. +Pogo Producing Co. +Denbury Resources Inc. +Southwestern Energy Co. +Encore Acquisition Co. +St. Mary Land & Exploration Co. +Forest Oil Corp. +Stone Energy Corp. +Mariner Energy Inc. +Swift Energy Co. +Newfield Exploration Co. +Unit Corp. +Penn Virginia Corp. +Whiting Petroleum Corp. +The +following companies were added to our 2007 base salary group because their market capitalization grew to a level similar to ours: +Berry Petroleum Co. +Penn Virginia Corp. +Comstock Resources Inc. +Stone Energy Corp. +Encore Acquisition Co. +Swift Energy Co. +Mariner Energy Inc. +Unit Corp. +Houston +Exploration Co. and Range Resources Corp., companies included in our 2006 comparison group, were not included in 2007. Houston Exploration was sold to one of the members of the +comparison group. Range Resources' market capitalization grew to a level much larger than ours. +We +use a second comparison group comprised of companies in the Dow Jones U.S. Exploration & Production Index to determine our relative stock price performance. We use this comparison group +18 +because +the companies are selected by an external party, resulting in an objective assessment of our relative stock price performance. In 2007 this group consisted of: +Anadarko Petroleum Corporation +Meridian Resource Corp. +Apache Corporation +Newfield Exploration Company +Cabot Oil & Gas Corporation +Occidental Petroleum Corporation +Chesapeake Energy Corporation +Pioneer Natural Resources Co. +Devon Energy Corp. +Stone Energy Corporation +EOG Resources Inc. +XTO Energy Inc. +Forest Oil Corp. +Key Elements of our Compensation Program +Base Salary +We +strive to pay base salaries that are competitive with those paid for similar executive positions by other companies in our base salary comparison group. See Comparison +Groups above for a list of the companies in our 2007 comparison group. Our Vice President of Human Resources compiles comparative data for presentation to the Compensation +Committee and provides the information to the compensation consultant for review and analysis. In May of each year, the Committee recommends to the independent members of the Board for their approval +base salary adjustments to be effective on June 1. +The +salary range information is historical and is obtained from information in publicly-filed proxy statements and surveys. We compare like positions in our comparison group companies, but in many +cases we use discretion and judgment because positions are not clearly aligned with our executive positions. Because the salary ranges are based upon historical information, we also adjust the ranges +to estimate current salaries. +While +the comparison market data provides guidance in making decisions on base salary adjustments, the Committee does not set compensation based on market data alone. The Committee also considers the +CEO's recommendations and subjective information including credentials, length of service, experience, consistent performance and available competitive alternatives for our executive officers. +CEO Base Salary Adjustment. The Committee considers whether the CEO's compensation is comparable to that of other CEOs in the base salary +comparison group. Material factors that the Committee considers in its CEO compensation decisions include the CEO's 47 years of experience in the industry, his entrepreneurship, management +development capabilities, Cimarex's history of profitable growth in proved reserves and production and any extraordinary transactions occurring or challenges faced during the year. +In +2007, the Committee and the independent members of the Board approved an approximate 7% increase in Mr. Merelli's salary to $766,000 from $715,000. The CEO's base salary complies with our +internal pay equity guidelines that provide that the CEO's base salary will not exceed three times the base salary of the next highest salary. +2007 NEO Base Salary Adjustments. The Committee considers comparison group information and the CEO's recommendations. The CEO orally +provides the Committee with subjective executive performance information for each NEO. The CEO considers time-in-position, contribution to company goals, future potential, +managerial skills, technical competence, area of responsibility and the overall performance of the company in making his base salary recommendations to the Committee. The Committee considers the CEO's +recommendations and then exercises its judgment and discretion in making base salary recommendations to the independent members of the Board of Directors. +19 +In +May 2007, the Committee recommended and the Board approved base salary increases effective June 1, 2007 for the NEOs approximating 7%. Mr. Albi's salary was increased to $375,000 from +$350,000; Mr. Bell's salary was increased to $310,000 from $290,000; Mr. Jorden's salary was increased to $407,000 from $380,000; and Mr. Korus' salary was increased to $375,000 +from $350,000. +We +estimate that our CEO and other NEO 2007 base salaries ranged from the 57 th to 82 nd percentile when compared to similar positions at companies in our base +salary comparison group. In general, the greater the responsibility within the company, the greater the base salary. +Annual Cash Incentive Awards +The +cash awards are designed to encourage attainment of specific company performance objectives: growth in proved reserves and production and better than average relative stock price performance. We +award cash incentives from a company performance-based cash pool with a target that equals 100% of year-end annualized base salaries of participants in the pool. The targeted incentive +cash bonus is attained when production and proved reserves grow by 5% and relative stock price performance is in the first quartile. The size of the pool is increased or decreased based upon the +relationship of actual cash flow to targeted cash flow. +The +entire potential cash incentive pool is at risk. There is no floor on the size of the cash incentive; it can be zero. The maximum amount of the CEO cash incentive pool is 200% of the CEO's year +end annualized base salary, and the maximum amount of the NEO's cash incentive pool is 150% of the year-end annualized base salaries of participants in the pool. The Committee may not +award more than the calculated cash incentive pool. However, the Committee may exercise its discretion and award less than the entire amount of the pool. There is no carry-over of amounts +to future years if the total amount of the pool is not awarded. +The +Committee and management selected the designated performance objectives because these objectives are the most direct indicators of Cimarex's growth and the objectives are easily verifiable. The +Committee determines the levels of achievement for the growth in production and reserve factors and for stock price performance. In determining the levels achieved, the Committee considers the size of +the reserve base, production levels, past peer group stock price performance, capital budget, +forecasted production and reserve volumes, commodity price outlook, industry conditions, competitive outlook, effect on performance motivation, management retention and difficulty in achieving the +goals. +The +factors approved by the Committee in December 2006 for 2007 performance were: +Production Growth +Reserve Growth +% Increase +% Earned +% Increase +% Earned +0 +% +30 +% +0 +% +30 +% +1 +% +40 +% +1 +% +40 +% +2 +% +50 +% +2 +% +50 +% +3 +% +65 +% +3 +% +65 +% +4 +% +80 +% +4 +% +80 +% +5 +% +100 +% +5 +% +100 +% +10 +% +200 +% +10 +% +200 +% +11 +% +220 +% +11 +% +220 +% +12 +% +240 +% +12 +% +240 +% +20 +Stock Price Performance +Quartile +% Earned +1 +100 +% +2 +75 +% +3 +0 +% +4 +0 +% +Each +year the Committee reviews and approves weighting of the production, reserve and stock performance achievement factors based upon the Committee's assessment of their relative importance in +influencing stockholder value. The weightings approved in 2006 for 2007 cash incentive awards were: +Weighting +Production growth +50 +% +Reserve growth +20 +% +Stock price +30 +% +Our +annual cash incentive award program also takes into account the relationship of actual cash flow provided by operations (before changes in operating assets and liabilities) to a +pre-determined forecast of cash flow. If actual cash flow exceeds the target, the total incentive pool available for distribution will be adjusted upwards. Similarly, if actual cash flow +falls below forecast, the incentive pool will be reduced. +The +cash flow forecast for 2007 determined in February 2007 was $859 million and was based on year-end 2006 monthly contract futures prices for oil and gas on the New York +Mercantile Exchange. The forecast utilizes numerous other estimates, including production volumes, operating cost structure, financing costs and income taxes. +For +2007, the calculation of the cash incentive pool was as follows: +Performance Factor +Achievement +Performance +Factor Earned +Weighting +Weighted Factor +Production growth +1% +40 +% +50 +% +20 +% +Reserve growth +11% +220 +% +20 +% +44 +% +Stock price +31 st percentile +0 +% +30 +% +0 +% +Total: +64 +% +Relationship of actual cash flow to targeted cash flow +1.15 +Incentive pool as a % of salaries +73 +% +2007 Awards. As shown on the table above, in 2007 production grew by 1% resulting in a 40% earned production growth factor. Reflecting very +positive results from the company's exploration and development program, proved reserves (adjusted for asset sales) grew by 11% resulting in a 220% reserve growth factor. Our stock price increased by +16.5% during 2007, but our relative stock price performance was below the comparison group median resulting in a 0% factor. Combined with their respective relative weightings, these achievements +resulted in an amount equal to 64% of base salaries available for distribution to executives. Mostly because oil prices increased significantly above our beginning of year projection, actual 2007 cash +flow of $986 million exceeded forecasted cash flow by 15%, resulting in an increase in the potential bonus pool to 73% of aggregate base salaries of the participants. +21 +The Committee recommended and the independent directors approved a 2007 incentive cash award for the CEO of $520,000, representing 68% of the CEO's annualized 2007 base salary of $766,000. The +Committee also recommended and the independent directors approved 2007 total cash awards to the NEOs of approximately 70% of current aggregate base salaries. See the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table for 2007 +individual NEO cash awards. +In +general, the greater the executive's scope of responsibility and contribution to achievement of growth in production and reserves, the greater the cash incentive awards. The CEO's cash incentive +award complies with our internal equity guidelines because it does not exceed three times the next highest incentive cash award. +2008 Performance Factors and Weightings. In December 2007, the Committee reviewed the performance factors and the weightings applicable to +those factors for 2008 cash incentive awards. The Committee elected to use the same factors and weightings for 2008 that were used in 2007. +2008 Target Cash Flow. At its February 2008 meeting, the Committee set the 2008 target cash flow at $1.143 billion. The forecast was +prepared by management and was based on current estimates for production volumes and cost structure. The forecast also used oil and gas price assumptions based on year-end 2007 closing +monthly contract futures prices on the New York Mercantile Exchange. +Long-Term Equity Incentive Awards +Our +long-term equity incentive awards are designed to encourage executive retention and stock ownership and reward above-average long-term stock price performance. +Current Program. In 2005, our market capitalization and management responsibilities significantly increased as a result of a large +acquisition. In recognition of these changes and the increased competition for oil and gas industry executives, in December 2005 the Board approved a new long-term equity incentive +program. The program provides for recurring annual awards of restricted stock. One-half of the restricted shares are subject to three-year time of service vesting, and the +second half are subject to vesting based on three-year relative stock price performance. The program's objectives are to deliver to each executive a laddered portfolio of vesting common +stock that provides a retention incentive, facilitates executive stock ownership and rewards better than average stock price performance. +The +number of shares that vest based on our relative stock price performance can range from 0% to 100%. The comparison group used to determine relative stock price performance consists of companies in +the Dow Jones U.S. Exploration & Production Index. See Comparison Groups above for a list of the companies in our comparison group. +The +Committee determines relative performance by calculating the percentage difference between the 30-day average per share closing price of Cimarex and each company preceding the date of +grant and 30 trading days preceding the third anniversary of the grant. The Committee ranks Cimarex and calculates its relative performance percentile. The number of shares that vest is scaled between +0% and 100% of the performance shares awarded. For performance between the 50 th and 75 th percentile, 50-75% of the shares vest. For relative +performance below the 50 th percentile, none of the performance shares vest. +In +December of each year the Committee recommends the number of shares to be awarded the following year. As part of its determination, the Committee compares our total compensation program with the +programs of companies in our base salary comparison group. The Committee also takes into account that one-half of the shares are "at-risk" and subject to the satisfaction of +the performance criteria. The Committee determines the number of shares to be awarded to the CEO and the number of shares to be awarded to each other executive officer. Following a +team-based management approach, each executive officer, other than the CEO, is awarded the same number of shares. +22 +In +January 2006, the Compensation Committee made its initial grants under the new program, and in January 2007 and 2008, the Committee made additional grants. No awards have yet vested. The following +table summarizes both the performance and time-based portion of the awards. +Restricted Stock Awards +Grant +Date +Vesting +Date +Restricted Shares +Awarded +Minimum Number +of Shares that will +Vest +Maximum Number +of Shares that will +Vest +CEO +2006 +2007 +2008 +1/3/2009 +1/2/2010 +1/2/2011 +60,000 +60,000 +60,000 +30,000 +30,000 +30,000 +60,000 +60,000 +60,000 +CFO and each NEO +2006 +2007 +2008 +1/3/2009 +1/2/2010 +1/2/2011 +30,000 +30,000 +30,000 +15,000 +15,000 +15,000 +30,000 +30,000 +30,000 +At +its September and December 2007 meetings, the Committee reviewed, in consultation with its compensation consultant, long-term equity incentive compensation and its relationship to total +executive compensation. The Committee did not make any adjustments to the long-term equity incentive program. +2002 Restricted Stock Unit and Option Awards. In December 2002 shortly following our September 2002 reorganization as Cimarex +Energy Co., we awarded the CEO and NEOs restricted stock units and stock options. These awards were issued to retain executives and promote stock ownership. The restricted stock units fully +vested in December 2007, but are not payable in shares until December 2010. The options fully vested in December 2007. If the CEO or any NEO elects to exercise vested options, he must hold until +December 6, 2010 one-half of the shares remaining after delivering shares in payment of the exercise price and net taxes due upon exercise. +Other Compensation +Perquisites +We +provide limited perquisites to our executive officers, and they are not a meaningful component of our overall compensation program. Perquisites that we do provide include athletic and dining club +memberships, a financial planning allowance and medical reimbursement insurance. In 2007, the total cost of perquisites provided our CEO and NEOs was $16,013, and no executive officer's perquisites +exceeded $10,000. +Retirement Benefits +The +CEO and NEOs are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. This plan is open to participation by all Cimarex full-time employees. Under the +plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to 5% of the employee's cash compensation, subject to limits imposed by Internal Revenue Service +rules. Beginning in 2008, Cimarex increased its matching contribution from 5% to 7% and activated the profit-sharing contribution feature under its 401(k) Plan. +Supplemental Savings Plan +We +also sponsor a Supplemental Savings Plan, a non-qualified deferred compensation plan that permits participants, including the CEO and NEOs, to make contributions (and to receive +matching contributions) in excess of the Internal Revenue Service limitations. Participants may defer a maximum +23 +of +50% of total annual cash compensation. In 2007, Cimarex matched 100% of the participants' contributions up to 5% of the participant's total annual cash compensation. Beginning in 2008, Cimarex +increased its matching contribution from 5% to 7%. +Each +of the CEO and the NEOs are 100% vested in all matching contributions. Contributions are invested in mutual funds available for investment under the Cimarex 401(k) Plan. The officer selects the +funds for investment by providing advisory investment direction to Cimarex. +The +Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a +period not longer than 15 years, as the participant elects. In the event of a change in control, each participant receives a cash lump sum payment of the amount allocated to his/her account as +of the last day of the month immediately preceding the date of the change in control. A change in control under the Supplemental Savings Plan is the same as the definition of a "change in control +event" in our 2002 +Stock Incentive Plan. See Potential Payments upon Change in Control or Termination for a summary of the definition of a +"change-in-control event." +Cimarex's +matching contributions to the 401(k) Plan and Supplemental Savings Plan are included in footnote 4 to the Summary Compensation Table. +Participant and Cimarex contributions to the Supplemental Savings Plan are included in the Nonqualified Deferred Compensation table. +Total Compensation +The +Committee periodically reviews total executive compensation. The three elements of compensation—base salary, annual cash incentive awards and long-term equity incentive +awards—are the elements included in the Committee's review of total compensation. Post-termination benefits that are available to all full-time employees are not +included in analysis of executive total compensation. +In +its review of total compensation, the Committee believes that the level of compensation should increase in relation to an officer's increased responsibility. The more senior the job, the more the +senior officer can affect results either positively or negatively. For example, our CEO's total annual cash compensation of base salary and an annual cash incentive award is approximately 90% higher +than the next highest officer's base salary and annual cash incentive award. +Tax Considerations +Section 162(m) +of the Code limits the amount of compensation deduction that the company may deduct on its federal income tax return for compensation paid to certain executive officers to no +more than $1 million per year. This limitation does not apply to "qualified performance based" compensation as defined under the federal tax laws if the performance goals are approved by the +stockholders and other requirements for deductibility are met. At our 2006 Annual Meeting our stockholders approved performance goals for our restricted stock awards to enable performance-based +restricted stock awards to qualify for the exemptions from the deduction limit, provided the other requirements are satisfied. +The +Compensation Committee attempts to preserve the deductibility of compensation paid to an executive officer but does not limit executive compensation to amounts deductible under +Section 162(m). +Internal Pay Equity +The +purpose of our internal pay equity program is to ensure that the use of benchmarks to assist the company in establishing competitive pay levels does not result in excessive pay for the CEO +relative to other officers. Our internal pay equity guidelines provide that the CEO's base salary will not be more than three times the base salary of the next highest base salary, and the CEO's cash +incentive award should not be more than three times the cash incentive award of the next highest cash incentive award. +24 +Our +Board must approve any deviation from these guidelines. For 2007, our CEO's base salary and annual cash incentive award complied with our internal equity guidelines. +REPORT OF COMPENSATION AND GOVERNANCE COMMITTEE +The +Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The Compensation and Governance Committee reviewed and +discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the Compensation and Governance Committee recommended +to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +Michael J. Sullivan +25 +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The +following table describes 2007 and 2006 compensation of our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three other most highly compensated executive officers (the +"Named Executive Officers" or "NEOs"). Only our CEO has an employment agreement. See Potential Payments Upon Change-in-Control or +Termination for information about his employment agreement. +Name and +Principal Position +Year +Salary +Bonus +Stock Awards (1) +Option Awards (1) +Non-Equity Incentive Plan Comp. (2) +Change in Pension Value and Nonqualified Deferred Comp. Earnings +All Other Comp. (3) +Total +F. H. Merelli, +Chairman, Chief Executive Officer, President +(CEO) +2007 +2006 +$ +$ +744,750 +667,083 +$ +$ +— +— +$ +$ +1,888,670 +1,449,726 +$ +$ +643,006 +690,286 +$ +$ +520,000 +140,000 +$ +$ +— +— +$ +$ +161.603 +214,088 +$ +$ +3,958,029 +3,161,183 +Paul Korus +Vice President, +Chief Financial +Officer, and +Treasurer +(CFO) +2007 +2006 +$ +$ +364,583 +333,333 +$ +$ +— +— +$ +$ +758,190 +524,730 +$ +$ +138,526 +148,712 +$ +$ +243,750 +98,000 +$ +$ +— +— +$ +$ +95,642 +46,699 +$ +$ +1,600,691 +1,151,474 +Thomas E. Jorden +Executive Vice President—Exploration +2007 +2006 +$ +$ +395,750 +355,000 +$ +$ +— +— +$ +$ +758,190 +524,730 +$ +$ +138,526 +148,712 +$ +$ +272,690 +106,400 +$ +$ +— +— +$ +$ +94,870 +38,923 +$ +$ +1,659,936 +1,173,765 +Joseph R. Albi +Executive Vice President—Operations +2007 +2006 +$ +$ +364,583 +333,333 +$ +$ +— +— +$ +$ +758,190 +524,730 +$ +$ +138,526 +148,712 +$ +$ +251,250 +98,000 +$ +$ +— +— +$ +$ +98,176 +49,340 +$ +$ +1,610,725 +1,154,115 +Stephen P. Bell +Senior Vice President—Business Development and +Land +2007 +2006 +$ +$ +301,667 +279,583 +$ +$ +— +— +$ +$ +758,190 +524,730 +$ +$ +138,526 +148,712 +$ +$ +238,700 +81,200 +$ +$ +— +— +$ +$ +109,907 +57,812 +$ +$ +1,546,990 +1,092,037 +(1) The +dollar amounts reported in this column reflect the expense recognized for financial statement reporting purposes in accordance with SFAS 123(R) and thus include amounts +from awards granted in and prior to 2007. The assumptions utilized in the calculation of these amounts are set forth in footnote 9 to our consolidated financial statements included in the Annual +Report on Form 10-K for the year-ended December 31, 2007. +(2) Amount +reported for the year earned. +26 +(3) No +individual's perquisites exceeded $10,000. There was no personal use of corporate aircraft. Following is a description of the items included in All Other Compensation: +Executive Officer +Unused Vacation +Company Contributions to Retirement Plans +Dividends +Tax +Reimbursement (1) +Life Insurance Premiums +Total Other Compensation +F. H. Merelli +2007 +2006 +$ +$ +— +91,537 +$ +$ +50,550 +47,931 +$ +$ +68,198 +33,792 +$ +$ +41,295 +39,678 +$ +$ +1,560 +1,150 +$ +$ +161,603 +214,008 +Paul Korus +2007 +2006 +$ +$ +2,706 +8,358 +$ +$ +30,014 +29,501 +$ +$ +16,880 +7,280 +$ +$ +44,482 +— +$ +$ +1,560 +1,560 +$ +$ +95,642 +46,699 +Thomas E. Jorden +2007 +2006 +$ +$ +— +— +$ +$ +31,858 +30,083 +$ +$ +16,880 +7,280 +$ +$ +44,482 +— +$ +$ +1,560 +1,560 +$ +$ +94,780 +38,923 +Joseph R. Albi +2007 +2006 +$ +$ +8,104 +— +$ +$ +27,150 +40,500 +$ +$ +16,880 +7,280 +$ +$ +44,482 +— +$ +$ +1,560 +1,560 +$ +$ +98,176 +49,340 +Stephen P. Bell +2007 +2006 +$ +$ +20,087 +14,279 +$ +$ +26,898 +34,693 +$ +$ +16,880 +7,280 +$ +$ +44,482 +— +$ +$ +1,560 +1,560 +$ +$ +109,907 +57,812 +(1) The +amounts in this column represent Medicare taxes due on restricted stock units that vested on December 6, 2007. The units are not payable in shares of common stock until +December 6, 2010. Cimarex reimbursed each holder of restricted stock units, including the CEO and other NEOs, for this tax obligation resulting from vesting. +2007 GRANTS OF PLAN-BASED AWARDS +Non-Equity Incentive Plan +Our +annual cash incentive awards were made from a company performance-based pool. The entire pool is at risk and there is no threshold. The CEO's pool target is 100% of his year-end +annualized salary, and his pool is limited to 200% of his salary. Our plan does not provide for individual targets for other executive officers, including the NEOs. Rather our plan provides for a pool +target of 100% of combined year-end annualized base salaries of all participants in the pool. The aggregate maximum awards to all participants, including the NEOs, may not exceed 150% of +total combined year-end annualized base salaries. See the description of the our annual cash incentive award plan in Compensation Discussion and +Analysis, under Elements of Compenstion Program, Annual Cash Incentive Awards . +The +following table is presented in compliance with Securities and Exchange Commission regulations. However, the information required by the table does not accurately reflect the terms of our annual +cash incentive plan because, except for the CEO, our plan does not provide for individual targets or individual maximum awards. Despite these limitations, the table sets forth target and maximum +amounts for the NEOs as if they were determined on an individual basis instead of on a pool-based approach. +27 +The +amounts listed in the Target column represent 100% of the year-end annualized base salary. The amounts listed in the Maximum column represent, with respect +to the CEO, 200% of his year-end annualized base salary and for each NEO, 150% of his annualized base +salary. +Estimated Future Payouts Under Non-Equity Incentive Plan +Actual Award Paid on 3/1/2008 +Name +Threshhold +Target +Maximum +F. H. Merelli +CEO +$ +0 +$ +766,000 +$ +1,532,000 +$ +520,000 +Paul Korus +CFO +$ +0 +$ +375,000 +$ +562,500 +$ +243,750 +Thomas E. Jorden +$ +0 +$ +407,000 +$ +610,500 +$ +272,690 +Joseph R. Albi +$ +0 +$ +375,000 +$ +562,500 +$ +251,250 +Stephen P. Bell +$ +0 +$ +310,000 +$ +465,000 +$ +238,700 +Equity Incentive Plan Awards +The +following table provides information regarding the annual awards of restricted stock made to the CEO and other NEOs. See Compensation Discussion and Analysis, +Long-Term Equity Incentive Awards for a complete description of these awards. +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date Fair Value of Stock Perf. Awards +Award Grant Date +Comp Comm. Grant Date +Name +Threshold (2) +Target (2) +Maximum +F. H. Merelli +CEO +1/2/07 +12/11/06 +30,000 +30,000 +60,000 +$ +2,190,000 +Paul Korus +CFO +1/2/07 +12/11/06 +15,000 +15,000 +30,000 +$ +1,095,000 +Thomas E. Jorden +1/2/07 +12/11/06 +15,000 +15,000 +30,000 +$ +1,095,000 +Joseph R. Albi +1/2/07 +12/11/06 +15,000 +15,000 +30,000 +$ +1,095,000 +Stephen P. Bell +1/2/07 +12/11/06 +15,000 +15,000 +30,000 +$ +1,095,000 +(1) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(2) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock price performance relative to its peers and +is not computed until the third anniversary of the award. See Long-Term Equity Incentive Awards for the method of computing the number of +shares that vest. The actual number of shares that vest is not determinable until January 2, 2010 (the third anniversary of the award). The shares disclosed in this column represent the shares +the executive would have been entitled to (based upon December 2007 stock prices), had the award vested on January 2, 2008. Ordinary cash dividends are paid on the shares during the vesting +period. +28 +The following table provides information about all outstanding options and unvested stock awards held by each NEO as of December 31, 2007: +OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007 +OPTION AWARDS +STOCK AWARDS +Number of Securities +Underlying Unexercised +Options +Vested Restricted Stock Units Not Yet Payable (3) +Equity Incentive Plan Awards That Have Not Vested +Name +Exercisable +Unexercisable +Option +Exercise +Price +Option +Expiration +Date +No. of Units +Market +Value of +Unearned +Units (4) +No. of +Shares +Market +Value of +Unearned +Shares (5)(4) +F. H. Merelli CEO +125,000 +422,400 +(1) +(2) +0 +0 +$ +$ +13.3125 +16.65 +5/25/2010 +12/06/2012 +211,200 +$ +8,982,336 +120,000 +(5) +$ +5,103,600 +Paul Korus CFO +18,200 +(2) +0 +$ +16.65 +12/06/2012 +45,500 +$ +1,935,115 +60,000 +(5) +$ +2,551,800 +Thomas Jorden +72,800 +(2) +0 +$ +16.65 +12/06/2012 +45,500 +$ +1,935,115 +60,000 +(5) +$ +2,551,800 +Joseph Albi +82,800 +(2) +0 +$ +16.65 +12/06/2012 +45,500 +$ +1,935,115 +60,000 +(5) +$ +2,551,800 +Stephen Bell +91,000 +(2) +0 +$ +16.65 +12/06/2012 +45,500 +$ +1,935,115 +60,000 +(5) +$ +2,551,800 +(1) Vested +September 30, 2002 +(2) Vested +December 6, 2007 +(3) Vested +December 6, 2007, but not payable in shares until December 6, 2010 +(4) The +amount in this column reflects the closing market price of the stock as of December 31, 2007 ($42.53) times the number of shares reported in the previous column. +(5) One-half +vests January 3, 2009 and the remaining half vests January 3, 2010 +The +following table provides information about the stock options exercised by our CEO and NEOs and restricted stock units that vested during 2007. +2007 OPTION EXERCISES AND STOCK VESTED +OPTION AWARDS +STOCK AWARDS +Name +Number of Shares +Acquired on Exercise +Value Realized on +Exercise +Number of Shares +Acquired on Vesting +Value Realized on +Vesting +F. H. Merelli, CEO +250,000 +$ +6,281,250 +42,240 +(1) +$ +1,701,850 +(1) +Paul Korus, CFO +27,800 +(2) +$ +551,830 +45,500 +(3) +$ +1,833,195 +(3) +Thomas E. Jorden +— +$ +— +45,500 +(3) +$ +1,833,195 +(3) +Joseph R. Albi +6,500 +$ +202,556 +45,500 +(3) +$ +1,833,195 +(3) +Stephen P. Bell +— +$ +— +45,500 +(3) +$ +1,833,195 +(3) +(1) The +terms of Mr. Merelli's Restricted Stock Unit Agreement provide that the restricted stock units vest 20% each year beginning with the first anniversary of the date of grant +(December 6, 2003) and are fully vested five years from the date of grant (December 6, 2007) but the units are not payable in shares of common stock until December 6, 2010. +(2) The +terms of the Option Agreement required Mr. Korus to retain one-half of the shares remaining after delivering shares in payment of the exercise price and any +taxes due upon exercise. +29 +(3) The +terms of each NEO's Restricted Stock Unit Agreement provide that the restricted stock units vest five years from the date of grant (the units vested on December 6, 2007) +but the units are not payable in shares of common stock until December 6, 2010. +The +following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in 2007. +NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY(1) +Registrant +Contributions +in Last FY(2) +Aggregate +Earnings in +Last FY +Aggregate +Withdrawals/ +Distributions +Aggregate +Balance at Last +FYE +F. H. Merelli +CEO +2007 +2006 +$ +$ +28,300 +32,931 +$ +$ +32,550 +36,931 +$ +$ +27,665 +37,027 +$ +$ +— +— +$ +$ +404,893 +316,850 +Paul Korus +CFO +2007 +2006 +$ +$ +17,354 +14,501 +$ +$ +12,014 +18,501 +$ +$ +8,250 +4,935 +$ +$ +— +— +$ +$ +91,949 +54,505 +Thomas E. Jorden +2007 +2006 +$ +$ +43,882 +30,167 +$ +$ +13,858 +19,083 +$ +$ +12,422 +8,767 +$ +$ +— +— +$ +$ +286,014 +216,054 +Joseph R. Albi +2007 +2006 +$ +$ +4,900 +25,500 +$ +$ +9,150 +29,500 +$ +$ +5,473 +6,192 +$ +$ +— +— +$ +$ +89,327 +69,937 +Stephen P. Bell +2007 +2006 +$ +$ +7,935 +32,485 +$ +$ +8,898 +23,693 +$ +$ +5,112 +5,827 +$ +$ +— +— +$ +$ +206,032 +184,216 +(1) The +amounts included in this column are also included in the Salary column in the Summary Compensation +Table . +(2) The +amounts reported in this column are included in the Other Compensation column and footnote thereto in the Summary Compensation Table . +POTENTIAL PAYMENTS UPON CHANGE-IN-CONTROL OR TERMINATION +We +do not consider post-termination benefits as a material element of executive compensation because, except for our CEO, NEO post-termination benefits are the same benefits +available to all full-time employees. Post-termination benefits are not included in the Compensation Committee's analysis of total compensation. +We +are obligated to make certain potential payments to our named executive officers or to accelerate the vesting of their equity awards upon a change-in-control, death, disability or termination of +employment pursuant to the following plans and agreements: +• change-in-control +severance plan that covers all full-time employees, including the named executive officers; +• 2002 +Stock Incentive Plan; +• employment +agreement with Mr. Merelli +30 +• change-in-control +provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +• Supplemental +Savings Plan +We +currently do not pay severance benefits or accelerate equity awards upon the retirement of the CEO or other NEOs. Individual performance assessments, compensation arising from our annual +compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +The +following tables provide the estimated compensation and present value of benefits potentially payable to the CEO and each other NEO upon a change-in-control of Cimarex or termination of +employment. The amounts shown assume that the termination or change-in-control occurred on December 31, 2007. The actual amounts to be paid can only be determined at the time of the executive's +actual separation from Cimarex or the occurrence of a change-in-control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements +or modify these arrangements, from time to time. +Please +see the narrative following the tables below for a discussion of the agreements providing for the payments required upon termination or a change-in-control. +Potential Payments upon Change-in-Control +Change-in-Control—Termination Without Cause +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock +Units (2) +Options +Employee +Benefits (3) +280G Tax +Gross Up (4) +Total +Benefits +F. H. Merelli +$ +2,101,583 +$ +559,180 +$ +3,215,268 +$ +— +$ +421,680 +$ +1,238,036 +$ +7,535,748 +Paul Korus +$ +1,054,250 +$ +273,750 +$ +1,607,634 +$ +— +$ +321,094 +$ +— +$ +3,256,728 +Thomas E. Jorden +$ +1,145,590 +$ +297,110 +$ +1,607,634 +$ +— +$ +321,094 +$ +696,281 +$ +4,067,709 +Joseph R. Albi +$ +1,061,750 +$ +273,750 +$ +1,607,634 +$ +— +$ +116,860 +$ +648,829 +$ +3,708,823 +Stephen P. Bell +$ +912,817 +$ +226,300 +$ +1,607,634 +$ +— +$ +222,818 +$ +629,972 +$ +3,599,541 +(1) Amounts +represent two years' base salary and cash incentive award based upon each executive officer's base salary at December 31, 2007 and the cash incentive award paid to each +executive officer in 2008 for 2007 services, as provided in the Change in Control Severance Plan. The 2007 base salary and cash incentive award for each named executive officer appear in the Summary Compensation +Table . +(2) Amounts +for acceleration of restricted stock were computed based upon the closing price of our common stock as of December 31, 2007 of $42.53 per share. +(3) Amounts +represent estimated payments under the Supplemental Savings Plan and the estimated value of continued medical, dental, disability and life insurance benefits for two years. +(4) Amounts +represent estimated additional payments to pay any applicable excise tax imposed by Section 4999 of the Code and related income taxes. +31 +Change-in-Control—No Termination +Name +Restricted +Stock and +Stock Units (1) +Options +280G Tax +Gross Up +Total +Benefits +F. H. Merelli, CEO +$ +3,215,268 +$ +— +$ +— +$ +3,215,268 +Paul Korus, CFO +$ +1,607,634 +$ +— +$ +— +$ +1,607,634 +Thomas E. Jorden +$ +1,607,634 +$ +— +$ +— +$ +1,607,634 +Joseph R. Albi +$ +1,607,634 +$ +— +$ +— +$ +1,607,634 +Stephen P. Bell +$ +1,607,634 +$ +— +$ +— +$ +1,607,634 +(1) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of December 31, 2007 of $42.53 per share +Benefits Upon Change-in-Control—Termination without Cause +Change in Control Severance Plan +Our +Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of a "change-in-control." The definition of a +"change-in-control" under the plan is the same as the definition of a "change-in-control event" summarized below. See Benefits Upon a Change +in Control—No Termination . +In +the event of a change-in-control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a +change-in-control, each employee would be entitled to: +• Cash +severance payments of up to two years' salary and cash incentive award. +• A +pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +• Continued +medical, dental, disability and life insurance benefits for two years. +• Additional +payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and related income taxes, interest and penalties. +Benefits +payable under any other severance plan or agreement offset benefits payable under the Change in Control Severance Plan. +Assumed Change in Control Employment Provisions for Messrs. Albi, Bell, Jorden and Korus +We +assumed the change-in-control provisions from the now expired employment agreements between each of Messrs. Albi, Bell, Jorden and Korus and a predecessor company. +Each agreement provides that if the executive is terminated without cause following a change-in-control event (as defined in the agreement), the executive is entitled to a +lump-sum payment equal to two times executive's base salary at the time of the change in control. +As +a practical matter, the "change-in-control" benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described +above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. The percentage of voting +securities that must be acquired in order to trigger a change-in-control event is less under the Change in Control Severance Plan than it is under the employment agreements. +A +"change-in-control" under each employment agreement means any of the following: +• Acquisition +by stockholders representing 25% or more of the voting power of Cimarex without prior approval by at least two-thirds of directors not affiliated +with the acquiring person. +32 +• During +any period of 24 consecutive months, individuals who at the beginning of the 24-month period cease to constitute two-thirds of the total +number of directors nominated by majority of directors in office immediately prior to period. +• A +merger or consolidation unless (i) at least two-thirds of the directors of the surviving entity are continuing Cimarex directors or (ii) Cimarex +securities continue to represent or are converted into securities representing 80% of the combined voting power of the surviving entity. +• The +adoption of any plan or proposal to liquidate or dissolve Cimarex. +Benefits Payable Upon a Change-in-Control—No Termination +The +Compensation and Governance Committee has the authority to accelerate vesting of any award made under our 2002 Stock Incentive Plan. The Committee has authorized acceleration of vesting in the +event of a "change-in-control event" in all equity award agreements. The 2002 Stock Incentive Plan includes a definition of "change-in-control +event." In summary, a "change-in-control event" means any of the following: +• Acquisition +of 15% or more of the shares of our outstanding common stock or the combined voting power of voting securities of Cimarex without prior approval by the Board of +Directors. +• Members +of our Board of Directors cease to constitute a majority of the directors. +• A +reorganization, share exchange or merger unless (i) the stockholders prior to the reorganization or merger continue to own more than 70% of the outstanding common +stock and combined voting power of the resulting corporation following the reorganization or merger, (ii) no person owns 15% or more of the shares of common stock or combined voting power of +the surviving corporation except to the extent that such ownership existed prior to the event, and (iii) at least a majority of the members of the board of directors of the corporation +resulting from the merger or reorganization were members of the board of directors at the time of executing the agreement to reorganize or merger. +• The +complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +Potential Payments upon Termination—No Change-in-Control +Death or Disability +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock +Units (2) +Options +Employee +Benefits (3) +Total Benefits +F. H. Merelli +$ +1,532,000 +$ +559,180 +$ +3,215,268 +$ +— +$ +404,893 +$ +5,711,341 +Paul Korus +$ +— +$ +— +$ +1,607,634 +$ +— +$ +91,949 +$ +1,699,583 +Thomas E. Jorden +$ +— +$ +— +$ +1,607,634 +$ +— +$ +286,014 +$ +1,893,648 +Joseph R. Albi +$ +— +$ +— +$ +1,607,634 +$ +— +$ +89,326 +$ +1,696,980 +Stephen P. Bell +$ +— +$ +— +$ +1,607,634 +$ +— +$ +206,031 +$ +1,813,665 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term disability benefits, if applicable) and +incentive compensation for the year of termination if he is terminated without cause or because of death or disability. "Without cause" includes resignation by Mr. Merelli upon a change in his +place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of Mr. Merelli's base salary at December 31, 2007, and the maximum bonus +earned by Mr. Merelli for 2007 services. +33 +(2) Amounts +represent two years' base salary and cash incentive award based upon each executive officer's base salary at December 31, 2007 and the cash incentive award paid to each +executive officer in 2008 for 2007 services, as provided in the Change in Control Severance Plan. The 2007 base salary and cash incentive award for each named executive officer appear in the Summary Compensation +Table . +(3) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +Termination Without Cause +Name +Severance +Cash Incentive +Employee +Benefits (2) +Total +Benefits +F. H. Merelli, CEO +$ +1,532,000 +(1) +$ +559,180 +(1) +$ +404,893 +$ +2,496,073 +Paul Korus, CFO +$ +— +$ +— +$ +91,949 +$ +91,949 +Thomas E. Jorden +$ +— +$ +— +$ +286,014 +$ +286,014 +Joseph R. Albi +$ +— +$ +— +$ +89,326 +$ +89,326 +Stephen P. Bell +$ +— +$ +— +$ +206,031 +$ +206,031 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term disability benefits, if applicable) and +incentive compensation for the year of termination if he is terminated without cause or because of death or disability. "Without cause" includes resignation by Mr. Merelli upon a change in his +place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of Mr. Merelli's base salary at December 31, 2007, and the maximum bonus +earned by Mr. Merelli for 2007 services. +(2) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +Benefits Upon Death or Disability +Mr. Merelli +or his heirs are entitled under his employment agreement to 24 months of his base salary and incentive compensation in the event of his death or disability. +The +Committee has authorized acceleration of vesting of all equity awards in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or disability. +Benefits Upon Termination Without Cause +In +September 2002 we assumed Mr. Merelli's employment agreement from a predecessor company. His agreement is for an indefinite term. The agreement provides that if Mr. Merelli's +employment is terminated because of (i) death or disability or (ii) without cause, he is entitled to continuation of his base salary for 24 months (reduced by +long-term disability benefits, if applicable) and incentive compensation for the year of termination. "Without cause" includes a resignation by Mr. Merelli upon a change in his +place of employment from Denver, Colorado without his consent. Mr. Merelli agreed not to reveal any trade secret or confidence and to surrender all information containing trade secrets or +confidences. The confidentiality requirements of his employment agreement survive for three years following termination of employment. +Benefits +under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +34 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex +has one class of voting securities outstanding. On March 26, 2008, there were 83,049,326 shares of common stock outstanding, with each share entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The +following table shows, as of March 26, 2008, the number of shares of common stock "beneficially owned," as determined in accordance with Rule 13d-3 under the Securities +Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned (1) +Option +Shares (2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F. H. Merelli (also director) +557,629 +547,400 +1,119,640 +1 +% +Joseph R. Albi +92,259 +82,800 +180,303 +<1 +% +Stephen P. Bell +94,500 +91,000 +185,500 +<1 +% +Thomas E. Jorden +93,822 +72,800 +174,603 +<1 +% +Paul Korus +102,757 +18,200 +120,957 +<1 +% +Directors +Jerry Box +10,538 +— +10,538 +<1 +% +Glenn A. Cox +12,109 +10,000 +22,109 +<1 +% +Cortlandt S. Dietler +134,922 +30,000 +164,922 +<1 +% +Hans Helmerich +72,760 +(3) +10,000 +82,760 +<1 +% +David A. Hentschel +10,922 +10,000 +20,922 +<1 +% +Paul D. Holleman +10,922 +35,000 +45,922 +<1 +% +Monroe W. Robertson +8,499 +— +8,499 +<1 +% +Michael J. Sullivan +3,819 +10,000 +13,819 +<1 +% +L. Paul Teague +49,819 +10,000 +59,819 +<1 +% +All executive officers and directors as a group (17 persons) +1,465,224 +978,400 +2,443,624 +3 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the benefit of the named individual in the +Cimarex Energy Co. 401(k) Plan. Does not include restricted stock units held by executive officers or deferred compensation units held by some directors. See Equity-Related Interests table below. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following March 26, 2008 under the Cimarex +Energy Co. 2002 Stock Incentive Plan. +(3) Includes +7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee and 1,072 shares held by a family trust of which +Mr. Helmerich is a co-trustee. Also includes 11,450 shares owned by Mr. Helmerich's wife, and Mr. Helmerich disclaims beneficial ownership of these shares. +Beneficial Owners of More than Five Percent +Third +Avenue Management LLC and Artisan Partners LP are the only stockholders who beneficially own five percent or more of our outstanding shares of common stock. The following table +provides +35 +information +regarding their stock ownership and is based on filings with the Securities and Exchange Commission. +Voting Authority +Dispositive Authority +Total +Amount of +Beneficial +Ownership +Percent of +Class +Name and Address +Sole +Shared +Sole +Shared +Third Avenue +Management LLC +622 Third Avenue +New York, NY 10017 +8,393,163 +0 +8,476,288 +0 +8,476,288 +10.28 +% +Artisan Partners LP +Limited Partnership +875 East Wisconsin Ave., +Suite 800 +Milwaukee, WI 53202 +0 +3,956,800 +0 +4,155,900 +4,155,900 +5.0 +% +Equity and Equity-Related Interests Held by Executive Officers and Directors +The +following table shows, as of March 26, 2008, vested and unvested equity interests and common stock held by each of the executive officers set forth in the Summary +Compensation Table , the directors and all of the executive officers and directors as a group: +Unvested +Restricted +Stock (1)(2) +Restricted Stock +Units/ Deferred +Comp Units (3)(4) +Shares Underlying +Stock Options +401(k) +Common +Stock +Total +Vested +Unvested +Vested +Unvested +Named Officers +F. H. Merelli (also director) +180,000 +211,200 +0 +547,400 +0 +14,611 +557,629 +1,510,840 +Joseph R. Albi +90,000 +45,500 +0 +82,800 +0 +5,244 +2,259 +225,803 +Stephen P. Bell +90,000 +45,500 +0 +91,000 +0 +0 +4,500 +231,000 +Thomas E. Jorden +90,000 +45,500 +0 +72,800 +0 +7,981 +3,822 +220,103 +Paul Korus +90,000 +45,500 +0 +18,200 +0 +0 +12,757 +166,457 +Directors +Jerry Box +4,869 +— +— +— +— +— +5,669 +10,538 +Glenn A. Cox +4,948 +— +— +10,000 +0 +— +7,161 +22,109 +Cortlandt S. Dietler +4,948 +— +— +30,000 +0 +— +99,974 +134,922 +Hans Helmerich +660 +2,655 +4,288 +10,000 +0 +— +72,760 +90,363 +David A. Hentschel +4,948 +— +— +10,000 +0 +— +5,974 +20,922 +Paul D. Holleman +4,948 +— +— +35,000 +0 +— +5,974 +45,922 +Monroe W. Robertson +4,566 +— +— +— +— +— +3,933 +8,499 +Michael J. Sullivan +660 +2,655 +4,288 +10,000 +0 +— +3,819 +21,422 +L. Paul Teague +4,948 +1,829 +0 +10,000 +0 +— +44,871 +61,648 +All executive officers & directors as a group (17 persons) +745,245 +457,839 +32,826 +983,200 +4,800 +31,114 +840,185 +3,095,209 +(1) The +restricted stock held by the executive officers is subject to three-year cliff vesting and the satisfaction of performance goals. See COMPENSATION AND DISCUSSION ANALYSIS, Elements of Cimarex Executive Compensation Program, +Long-Term Incentive Awards in this proxy +statement. +(2) The +restricted stock held by the directors vests in three equal annual installments, beginning with the first anniversary from the grant date. +(3) The +restricted stock units vest five years from the date of grant and are payable in shares of common stock on the eighth anniversary of the date of grant. +36 +(4) The +deferred compensation units held by certain directors vest in three equal annual installments and represent the right to receive one share of Cimarex common stock at the time +provided in the director's deferred compensation election. +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Policy for Approval of Audit, Audit-Related and Tax Services +The +Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a specified range +of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the Securities and Exchange Commission may not be performed by +our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any pre-approved decisions +will be reported to the Audit Committee at its next scheduled meeting. The services described below and the related fees were pre-approved by the Audit Committee in 2006 and 2007. +Fees +The +following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to Cimarex: +Years Ended December 31, +2007 +2006 +Audit Fees +$ +975,500 +$ +989,500 +Audit-Related Fees +$ +282,100 +(1) +$ +— +Tax Fees +$ +472,212 +(2) +$ +429,022 +(2) +All Other Fees +$ +— +$ +— +(1) Fees +related to a review of filings performed during the year related to a debt offering and a comfort letter and (b) services related to the divestiture of various oil and gas +properties. +(2) Includes +review of federal and state tax returns and compliance issues. +Report of Audit Committee +The +Audit Committee oversees Cimarex's financial reporting process on behalf of the Board of Directors, including Cimarex's internal controls, the quality of its financial reporting and the +independence and performance of Cimarex's independent auditors. The Board of Directors has +adopted a written charter for the Audit Committee, a copy of which is available on our website at www.cimarex.com . +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and +issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2007 and met with both management and KPMG, Cimarex's independent registered public +accounting firm, to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. In addition, we have received from KPMG the communication required +by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees , and discussed with KPMG their independence from +Cimarex and its management. The +37 +Audit +Committee also discussed with KPMG any matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit +Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2007. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Glenn A. Cox +Cortlandt S. Dietler +Paul D. Holleman +OTHER MATTERS +Transactions with Related Persons +The +Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board regarding related party transactions required to be +disclosed pursuant to SEC Regulations for potential conflict of interest situations and any relationships that may adversely affect the independent judgment of a director. Our Code of Business Conduct +also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During 2007, we contracted for +drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of business in the same manner as we obtain services from other +companies that provide similar services. In 2007, we paid Helmerich & Payne, Inc. $21,763,352 for drilling rigs and services, which represented less than 2% of Helmerich & +Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions +with Helmerich & Payne, Inc. are proper and are not material when compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the +transactions and (iii) his relationship with Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) +of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, to file reports of ownership of, and +transactions in, our common stock with the SEC. The reports by such persons are published on our website at http://www.cimarex.com . Based on a review of such reports, and +on written representations +from our reporting persons, we believe that all reports were timely filed in 2007, except a report for James H. Shonsey, Vice President and Controller, relating to the grant of shares of restricted +stock, was filed late. +Complaint and Reporting Procedures +We +have established complaint and reporting procedures, which are posted on our website at www.cimarex.com . Any person, whether or not an employee, who has a concern about +the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern by calling our +confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with the presiding +non-management director or with our non-management directors as a group, also may call the confidential hotline. The hotline is available 24 hours a day, seven days a +week and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +38 +CIMAREX ENERGY CO. +VOTE BY INTERNET OR TELEPHONE +QUICK *** EASY *** IMMEDIATE +As a stockholder of Cimarex Energy Co., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return +the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically +over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 20, 2008. +[ICON] +[ICON] +[ICON] +Vote Your Proxy on the Internet: +Vote Your Proxy by Phone: +Vote Your Proxy by mail: +Call 1 (866) 894-0537 +Go to www.continentalstock.com +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +OR +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +OR +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE +VOTING ELECTRONICALLY OR BY PHONE +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +Please +mark your votes like this ý +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +The Board of Directors recommends a vote FOR Proposals 1 and 2. +1. +Election of three Class III directors: +FOR +AGAINST +ABSTAIN +(01) David A. Hentschel +o +o +o +FOR +AGAINST +ABSTAIN +(02) F. H. Merelli +o +o +o +FOR +AGAINST +ABSTAIN +(03) L. Paul Teague +o +o +o +FOR +AGAINST +ABSTAIN +2. +Ratify appointment of KPMG LLP as independent auditors for 2008. +o +o +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS ABOVE. +Label Area 4" × 1 1 / 2 " +PRINT AUTHORIZATION (THIS BOXED AREA DOES NOT PRINT) +To commence printing on this proxy card please sign, date and fax this card to this number: 212-691-9013 or email us your approval. +SIGNATURE: +DATE: +TIME: +Registered Quantity +Broker Quantity +Note: +SCOTTI to Email final approved copy for Electronic Voting website setup: Yes o +UPON FINAL APPROVAL +FORWARD INTERNET & +TELEPHONE VOTING +TO +SUNGUARD +WITHOUT THE YELLOW +BOX, BLUE BOX & CROP +MARKS +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature +Signature +Date +, 2008. +Note: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give title as such. +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 21, 2008, or any adjournment thereof. +For +participants in the Cimarex 401(k) Plans, this proxy, when properly executed, will be voted in the manner directed by the undersigned. If no direction is given, if the card is not +signed, or if the card is not received by May 18, 2008, the Plan's Trustee will vote your shares held in the Plan in the same proportion as shares were voted by other Plan participants. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-08-004189/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-08-004189/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..92358fe0a24ca02e1eaa9010883d5e556cebe240 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-08-004189/proxy_rpt.txt @@ -0,0 +1,13 @@ +Transactions with Related Persons +The +Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board regarding related party transactions required to be +disclosed pursuant to SEC Regulations for potential conflict of interest situations and any relationships that may adversely affect the independent judgment of a director. Our Code of Business Conduct +also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During 2007, we contracted for +drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of business in the same manner as we obtain services from other +companies that provide similar services. In 2007, we paid Helmerich & Payne, Inc. $21,763,352 for drilling rigs and services, which represented less than 2% of Helmerich & +Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions +with Helmerich & Payne, Inc. are proper and are not material when compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the +transactions and (iii) his relationship with Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-09-003778/proxy.txt b/raw/proxies/0001168054/0001047469-09-003778/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..dde9e3477ac5d8bb86507fe68742618cbfa3ac6a --- /dev/null +++ b/raw/proxies/0001168054/0001047469-09-003778/proxy.txt @@ -0,0 +1,3357 @@ +DEF 14A +1 +a2191707zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +CIMAREX ENERGY CO. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 20, 2009 +9:30 a.m. Mountain Time +Sheraton Denver Downtown Hotel +1550 Court Place, Denver, Colorado 80202 +AGENDA: +1. Elect +three Class I directors for terms expiring in 2012. +2. Ratify +the appointment of KPMG LLP as the independent auditors for 2009. +We +will also transact any other business as may properly come before the meeting or any adjournments thereof. +Stockholders +of record at the close of business on March 24, 2009 are entitled to notice of and to vote at the meeting. +YOUR VOTE IS IMPORTANT +Please take the time to vote by following the Internet or telephone voting instructions provided in this proxy statement. If you received a paper +copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. +You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Mary Kay Rohrer +Corporate Secretary +Date: +April 9, 2009 +Table of Contents +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +1 +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +1 +PROPOSAL 1. ELECTION OF DIRECTORS +4 +Nominees for Directors +5 +Continuing Directors +6 +PROPOSAL 2. RATIFICATION OF INDEPENDENT +AUDITORS +7 +CORPORATE GOVERNANCE +8 +Independence of Board Members +8 +Meetings and Executive Sessions of the Board of Directors and its +Committees +8 +Director Attendance at the Annual Meeting +9 +Board Committees +9 +Audit Committee +9 +Compensation and Governance Committee +9 +Nominating Committee +10 +Board/Committee Evaluations +11 +Director Education +11 +Service on Boards of Other Public Companies +11 +Director and Management Stock Ownership +11 +Corporate Governance Guidelines and Code of Ethics +11 +Web Access +12 +Process for Communication with the Board +12 +OUTSIDE DIRECTOR COMPENSATION +12 +Overview +12 +Determination of Director Compensation +12 +Director Compensation +13 +2008 Director Compensation +13 +Deferred Compensation Plan for Outside Directors +14 +Acceleration of Vesting of Awards +14 +EXECUTIVE COMPENSATION +15 +COMPENSATION DISCUSSION AND ANALYSIS +15 +Overview +15 +Roles and Responsibilities +15 +Objectives of our Executive Compensation Program +16 +Comparison Groups +16 +Key Elements of our Compensation Program +18 +Base Salary +18 +Annual Cash Incentive Awards +19 +Long-Term Equity Incentive Awards +22 +Total Compensation +24 +Other Compensation +24 +Perquisites +24 +Retirement Benefits +24 +i +Table of Contents +Page +Supplemental Savings Plan +24 +Tax Considerations +25 +Internal Pay Equity +25 +Report of Compensation and Governance Committee +25 +COMPENSATION TABLES +26 +Summary Compensation Table +26 +2008 Grants of Plan-Based Awards +27 +Non-Equity Incentive Plan +27 +Equity Incentive Plan Awards +28 +Outstanding Equity Awards at December 31, 2008 +29 +2008 Option Exercises +29 +Nonqualified Deferred Compensation +30 +Potential Payments upon Change in Control or Termination +30 +Potential Payments upon Change in Control +31 +Change in Control – Termination without +Cause +32 +Change in Control – No Termination +33 +Potential Payments upon Termination – No Change in +Control +33 +Potential Payments upon Death or Disability +33 +Potential Payments upon Termination without Cause +34 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL +OWNERS +35 +Beneficial Ownership by Executive Officers and Directors +35 +Beneficial Owners of More than Five Percent +36 +Equity and Equity-Related Interests Held by Executive Officers and +Directors +36 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +37 +Policy for Approval of Audit, Audit-Related and Tax Services +37 +Fees +37 +Report of Audit Committee +37 +OTHER MATTERS +38 +Transactions with Related Persons +38 +Section 16(a) Beneficial Ownership Reporting Compliance +38 +Complaint and Reporting Procedures +39 +ii +Table of Contents +PROXY STATEMENT +2009 ANNUAL MEETING OF STOCKHOLDERS – May 20, 2009 +CIMAREX ENERGY CO. +1700 Lincoln Street, Suite 1800 +Denver, Colorado 80203-4518 +We provide you with this proxy statement to solicit your vote at our 2009 Annual Meeting of Stockholders. +The +Annual Meeting will be held at at 9:30 a.m. Mountain Time, at the Sheraton Denver Downtown Hotel, 1550 Court Place, Denver, Colorado. +The +proxy materials will be furnished to stockholders on or about April 9, 2009. All properly completed and delivered proxies will be voted at the Annual Meeting and at any adjournments or +postponements of the Meeting. If you are a stockholder of record at the close of business on March 24, 2009, the record date, you may vote at the Annual Meeting, or at adjournments or +postponements of the Meeting. +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +As permitted by the U.S. Securities and Exchange Commission (the "SEC"), we have elected to provide our stockholders with access to our proxy +materials on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials, or the Notice, was mailed to most of our stockholders on or about April 9, 2009. Stockholders will +have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of proxy materials to be sent to them, by following the instructions in the Notice. +The +Notice will also provide instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future +proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to +receive proxy materials by e-mail or printed form will remain in effect until you terminate it. +Choosing +to receive future proxy materials by e-mail will allow us to provide you with the information you need in a more timely manner and will save us the cost of printing and mailing +documents to you. +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +Who can vote? +Stockholders holding shares of our common stock as of the close of business on March 24, 2009, may vote at the Annual Meeting, or at any +adjournment or postponement of the Meeting. You have one vote for each share of common stock held as of the record date that may be voted on each proposal presented at the Annual Meeting. +How many shares of Cimarex common stock were outstanding on the record date? +At the close of business on March 24, 2009, the record date, there were 83,319,457 shares of common stock outstanding and entitled to +vote at the Annual Meeting. Common stock is the only class of stock entitled to vote. +1 +Table of Contents +How do I vote? +You may vote by any of the following methods: +• Vote on the Internet at the website for Internet voting. Simply follow the instructions on the Notice, or if you received +a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of +future proxy materials. +• Vote by telephone by following the instructions on the Notice, or if you received a proxy card, by following the +instructions on the proxy card. +• If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the +pre-addressed, postage-paid envelope provided. +• You may attend and vote at the Annual Meeting. The Board recommends that you vote using one of the methods described +above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. +If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card? +No. +If I vote by mail, telephone or Internet, may I still attend the Annual Meeting? +Yes. +Can I change my vote? +If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following +methods: +• Voting at a later time by Internet or telephone; +• Voting in person at the Annual Meeting; +• Delivering to our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, +Denver, Colorado 80203-4518 a proxy with a later date or a written revocation of your proxy; or +• Giving notice of revocation to the Inspector of Election at the Annual Meeting. +How do I vote if my shares are held in street name? +If your shares are held in the name of your broker, a bank, or other nominee, only your broker, bank or other nominee may execute a proxy and vote +your shares. Please follow the instructions on the form you receive from your broker, bank or other nominee. You may vote by the Internet, in person or by telephone if your bank or broker makes those +methods available in accordance with the instructions on the form. If you wish to vote your "street name" shares in person, you will need to obtain a document known as a "legal proxy" from your +broker, bank or other nominee. Please contact your bank, broker, or other nominee if you wish to do so. +What happens if I do not specify a choice for a proposal? +You should specify your choice for each proposal, whether voting on the Internet, by telephone or on the proxy card. If you do not specify your +choice, your shares will be voted "FOR" the election of +2 +Table of Contents +Cimarex +director nominees and ratification of independent auditors and "AGAINST" any stockholder proposal. +How do I vote shares held in my 401(k) account? +Participants in the Cimarex 401(k) Plan ("401(k) Plan") who have shares of common stock credited to their plan account as of the record date will +have the right to direct the 401(k) Plan trustee regarding how to vote those shares. The trustee will vote the shares in a participant's 401(k) Plan account in accordance with the participant's +instructions or, if no instructions are received prior to May 18, 2009, the shares credited to that participant's account will be voted by the trustee in the same proportion as it votes shares +for which it did receive timely instructions. Information as to how participants voted the shares credited to their 401(k) Plan account will not be disclosed to Cimarex. +What happens if other matters come up at the Annual Meeting? +We do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, F. H. +Merelli, Cimarex's Chairman of the Board, Chief Executive Officer and President, and Paul Korus, Cimarex's Vice President, Chief Financial Officer and Treasurer, will vote your shares at their +discretion. +Who will count the votes? +A representative of Continental Stock Transfer & Trust Company, our stock transfer agent, will act as the independent tabulator appointed by +the Board of Directors and will count the votes and act as the Inspector of Election. +What is a "quorum"? +A "quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting +shares of common stock present in person at the Annual Meeting or represented by proxy. If you submit a properly completed proxy, you will be considered part of the quorum even if you abstain from +voting. Shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners ("broker non-votes") are treated as present for the purposes +of determining a quorum. +Who can attend the Annual Meeting? +Admission to the Annual Meeting is limited to stockholders of Cimarex, persons holding proxies from stockholders who held Cimarex common stock on +March 24, 2009, and invited guests of Cimarex. +How many votes must each proposal receive to be adopted? +• With respect to Proposal 1, the election of directors, each nominee will be elected if the votes cast for the nominee +exceed the votes cast against the nominee. Votes cast will not include broker non-votes or abstentions. +• Proposal 2 for the ratification of independent auditors must receive the affirmative vote of a majority of the shares +present and entitled to vote. +How are votes counted? +Votes are counted in accordance with our By-laws and Delaware law. A broker non-vote counts in determining a quorum but does +not count in electing the directors or on Proposal 2. If a stockholder delivers a properly completed proxy but does not indicate how his or her shares are to be voted, the shares covered by such proxy +will be included in determining if there is a quorum and will also be +3 +Table of Contents +counted +as votes "FOR" the election of our director nominees and ratification of independent auditors and "AGAINST" any stockholder proposal. Shares will not be voted at the Annual Meeting if a +properly completed proxy covering those shares has not been received and the holder does not vote in person at the Annual Meeting. +How can I view the stockholder list? +You may view a stockholder list at the Annual Meeting or at our offices at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 during +ordinary business hours during the period May 10 through May 19, 2009. +Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex does. In addition to sending you these materials, some of our directors and management may contact you by telephone, mail, e-mail +or in person. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of distributing the proxy materials. +If I want to submit a stockholder proposal for the 2010 Annual Meeting, when is it due? +If you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in +writing to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone +(303) 295-3995 and facsimile (303) 295-3494. Cimarex must receive your proposal on or before December 5, 2009. Cimarex will consider only proposals meeting +the requirements of the applicable rules of the SEC. +If +a stockholder wants to bring any matter before the 2010 Annual Meeting that is not included in the 2010 Proxy Statement, the stockholder must provide written notice of the matter between +February 9, 2010 and February 19, 2010. If the 2010 Annual Meeting is held more than 30 days before or after May 20, 2010, then the stockholder's written notice must be +received not later than the close of business on the tenth day following the day on which the notice of the date of the 2010 Annual Meeting was mailed or public disclosure of the date of the Annual +Meeting was made, whichever first occurs. +PROPOSAL 1. ELECTION OF DIRECTORS +Our current Board of Directors consists of nine members. The Board has noted with sadness the passing in July 2008 of +Cortlandt S. Dietler, a Class II director who had been a director of Cimarex since its inception and prior to that was a director of one of Cimarex's predecessor companies since its inception. +The +Board is divided into three classes: Class I, Class II and Class III directors. At each annual meeting, a class of directors is elected for a term expiring at the annual +meeting in the third year following the year of election. Each director holds office until his successor is elected and qualifies. +The +terms of the three Class I directors, Jerry Box, Paul D. Holleman and Michael J. Sullivan, will expire at the 2009 Annual Meeting. +Unless +instructed otherwise, the proxies will be voted "FOR" the election of each of the Class I nominees to serve for three years or until his successor is elected and qualifies. If prior to +the Annual +Meeting a nominee becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute nominee or nominees +designated by our Board of Directors or its Nominating Committee. As of the mailing of these proxy materials, the Board of Directors knows of no reason why any director nominee would not be available +to serve as a director. +Information +concerning the nominees recommended by our Nominating Committee and nominated by our Board of Directors, as well as each of our continuing directors, is set forth below. +4 +Table of Contents +NOMINEES FOR DIRECTORS +Class I Directors – Terms Expiring in 2009 +Jerry Box +Director Since 2005 +Retired President and COO +Oryx Energy Company +Age – 70 +Member – +Compensation and Governance Committee +Chairman +of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter Resources from March 1999 to June 2005. Mr. Box served as President, COO and +a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy and its predecessor company, Sun Oil Company. +Currently, director and chairman of the board of Newpark Resources, Inc., The Woodlands, Texas, an oilfield services company traded on the New York Stock Exchange (NYSE). +Paul D. Holleman +Director Since 2002 +Retired Partner +Holme Roberts & Owen LLP +Age – 77 +Member – +Audit Committee +Senior +partner of Holme Roberts & Owen LLP, a Denver law firm, until 2000, when he retired. At Holme Roberts, he served as legal counsel to Key Production Company, Inc., a +predecessor to Cimarex, and other oil and gas companies. Other positions in his 40 years with Holme Roberts included Chairman of the Natural Resources Department and member of the executive +committee. +Michael J. Sullivan +Director Since 2002 +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age – 69 +Lead +Director +Member – Audit Committee +Member +of the Denver law firm, Rothgerber Johnson & Lyons LLP, since 2001, most recently as partner in the Casper office. United States Ambassador to Ireland from 1998 until 2001. +Practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Governor of Wyoming from 1987 through 1995. Director of Kerry Group plc, a global +food and food ingredients +producer headquartered in Tralee, Ireland; director and member of Corporate Social Responsibility committee and governance committee of Allied Irish Bank Group, Dublin, Ireland; director and member of +the governance committee of First Interstate BancSystem, Billings, Montana and director and member of the compensation and governance and audit committee of Slatten Construction, Inc., Great +Falls, Montana. +Each director will be elected if he receives more "FOR" votes than "AGAINST" votes. Our Board of Directors recommends a vote "FOR" all nominees. +5 +Table of Contents +CONTINUING DIRECTORS +Class II Directors – Terms Expiring in 2010 +Hans Helmerich +Director Since 2002 +President, CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age – 50 +Member – +Compensation and Governance Committee +Director +of Helmerich & Payne, Inc. since 1987. President and Chief Executive Officer of Helmerich & Payne, Inc. since 1989. Director of Atwood Oceanics, Inc., +Houston, Texas, an international offshore drilling company, and Trustee of The Northwestern Mutual Life Insurance Company. +Harold R. Logan, Jr. +Director Since March 2009 +Co-Founder, Director +Basic Materials and Services LLC +Denver, Colorado +Age – 64 +Member – +Audit Committee +Co-Founder +and director of Basic Materials and Services LLC (Denver, Colorado), a privately held company founded in 2007 that invests in companies providing specialized services for +the pipeline construction and sand/silica industries. Mr. Logan was a Co-Founder of TransMontaigne (Denver, Colorado) in 1995 and Chief Financial Officer, Executive Vice President, +Treasurer and a director through 2002. From 1987 to 1995, he was Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that +Mr. Logan was with Dillon Read & Co. Inc. and Rothschild, Inc. Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane +Partners, L.P. and as a director of Graphic Packaging Corporation, +both NYSE companies. He is also a director of Hart Energy Publishing LLC, a private company that publishes the Oil & Gas Investor magazine and other energy publications. +Monroe W. Robertson +Director Since 2005 +Private investor +Age – 59 +Chairman – +Audit Committee +Currently +a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in March 2002. While with +Key, he held the positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Director, +chairman of the audit committee and member of the compensation and nominating committee of Basic Earth Science System, Denver, Colorado, an independent exploration and production company. +6 +Table of Contents +Class III Directors – Terms Expiring 2011 +David A. Hentschel +Director Since 2002 +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age – 75 +Member – +Compensation and Governance Committee +Chairman +and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. President and Chief Executive Officer of Canadian Occidental Petroleum, Ltd, +now known as Nexen, from 1995 until 1997. Director of Nexen Inc., a global energy company located in Calgary, Alberta, Canada. +F. H. Merelli +Director Since 2002 +Chairman of the Board, CEO, President +Cimarex Energy Co. +Denver, Colorado +Age – 73 +Chairman +of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. Chairman and Chief Executive Officer of Key Production Company, Inc. from September 1992 +to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to September 1999. Director and member of audit committee of Apache Corporation, +Houston, Texas, an exploration and production company traded on the NYSE. +L. Paul Teague +Director Since 2002 +Retired Executive +Texaco USA +Age – 74 +Chairman – +Compensation and Governance Committee +With +Texaco Exploration & Producing Inc. for 35 years until retirement in 1994. Held the positions of Vice President, Western Region; Division Manager of the New Orleans Division, +Eastern Producing Department; Vice President, New Orleans Producing Division of Texaco USA; and Vice President, Producing Department, Texaco USA in Houston. +PROPOSAL 2. RATIFICATION OF INDEPENDENT AUDITORS +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2009. +KPMG LLP has been our independent auditors since October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG LLP as independent auditors. If stockholders fail to ratify the appointment of KPMG LLP, the Audit Committee may reconsider +this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +A majority of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of KPMG LLP as Cimarex's independent auditors for 2009. +The Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for 2009. +See +Independent Registered Public Accountants for information regarding auditor fees and services and the Audit Committee Report. +7 +Table of Contents +CORPORATE GOVERNANCE +Prudent corporate governance is critical for the trust and confidence of employees, suppliers, business partners, and stockholders. +Cimarex corporate governance is based on high ethical standards and the awareness that our actions must be based on the best interests of the stockholders. +Independence of Board Members +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, +regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based +upon NYSE standards, all Board members are independent, except the Chairman of the Board, who is also our Chief Executive Officer and President. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, the Board +determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of management +and free from any relationship that would interfere with the director's independent judgment. +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively determined by +the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +Applying +our Corporate Governance Guidelines and our Code of Business Conduct, the Board has affirmatively determined that each of our current directors, with the exception of our Chairman and Chief +Executive Officer, F. H. Merelli, has no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is independent under our Corporate Governance +Guidelines, Code of Business Conduct and the listing standards of the NYSE. Our Audit, Compensation and Governance, and Nominating Committees are comprised entirely of independent directors. +Meetings and Executive Sessions of the Board of Directors and its Committees +During 2008, our Board of Directors held four meetings. Our Board has an Audit, a Compensation and Governance and a Nominating Committee. During +2008, the Audit Committee met nine times and the Compensation and Governance Committee met four times. The Nominating Committee met once in 2008. Each director attended at least 75 percent of +the Board meetings and the meetings of each committee on which he served. +The +non-management members of the Board and its Committees meet from time to time in executive session. The purpose of these executive sessions is to promote open and candid discussion +among the non-management directors. During 2008 the non-management directors met four times in executive session, the non-management members of the Audit Committee +met in executive session four times, and the non-management members of the Compensation and Governance Committee met in executive session four times. +Each +year the directors select a lead director to preside over Board executive sessions. The lead director may not be the chairman of either the Audit Committee or the Compensation and Governance +Committee. Mr. Holleman served as lead director during 2008. On December 5, 2008, the Board selected Mr. Sullivan to serve as lead director for 2009. +8 +Table of Contents +Director Attendance at the Annual Meeting +The Board encourages all directors to attend the Annual Meeting, and all of our directors attended our 2008 Annual Meeting. +Board Committees +The Board of Directors has established three standing committees to assist in carrying out its duties: the Audit Committee, the Compensation and +Governance Committee and the Nominating Committee. Each committee has adopted a charter that complies with the corporate governance rules adopted by the SEC and the NYSE listing standards. +Audit Committee +Members +Functions of Committee +Monroe W. Robertson, Chairman† +• +Appoints independent auditors +Paul D. Holleman +Harold R. Logan, Jr.† +• +Approves nature and scope of services of independent +auditors and reviews range of fees for such services +Michael J. Sullivan +• +Oversees Cimarex's internal audit function +†Financial Expert +• +Reviews qualification and independence of independent auditors +• +Monitors integrity of Cimarex's financial statements +• +Monitors compliance with legal and regulatory requirements +The +Audit Committee consists of three non-employee directors who meet the NYSE standards of independence and financial literacy, and the chairman of the Committee qualifies as a "financial +expert" as defined by the SEC. No Audit Committee member serves on more than three audit committees of public companies, including Cimarex's Audit Committee. Cimarex maintains an internal audit +department to provide management and the Audit Committee with ongoing assessments of Cimarex's system of internal controls. +Cimarex's +independent auditor reports directly to the Audit Committee. The Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor and the +Board. Interested parties may contact the Audit Committee members by following the process outlined under Process for Communication with the Board in +this Corporate Governance section. +Compensation and Governance Committee +Members +Functions of Committee +L. Paul Teague, Chairman +Compensation Functions +Jerry Box +Hans Helmerich +• +Recommends CEO and executive officer compensation for +approval by Board +David A. Hentschel +• +Recommends director compensation for approval by Board +• +Reviews and recommends to the Board for approval the Compensation Discussion and Analysis disclosure +• +Determines amount and terms of equity awards +• +Reviews and approves long-term incentive plans +Governance Functions +• +Oversees evaluation of performance of the Board, its committees and the CEO +• +Oversees corporate governance +• +Develops plans for managerial succession +9 +Table of Contents +The +Committee consists of four independent, non-employee directors. All of the Committee members have extensive executive experience in administering compensation for oil and gas +exploration and production companies. +Compensation Functions. The Committee establishes and administers our executive compensation program. The Committee recommends for approval by the independent +directors compensation to be paid or delivered to the CEO and the executive officers named in the Summary Compensation Table in this proxy statement +(referred to throughout this document as the "NEOs"). The outside directors (as defined by Internal Revenue Code (IRC) §162(m)) of the Committee approve performance standards for the +plans. +The +Committee uses the services of a compensation consultant for research and advice regarding the form and amount of executive and director compensation. Our Vice President of Human Resources also +reviews and analyzes the compensation practices of peer group companies and presents this information to the Committee. The CEO communicates with the Committee regarding performance of the NEOs and +makes recommendations regarding base salary, annual cash incentive awards and long-term equity incentive awards (see Compensation Discussion and +Analysis) . +The +Committee's compensation consultant performs executive compensation services only at the request of the Committee and does not perform services for management. In 2008, the Committee engaged +Longnecker & Associates as its compensation consultant. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from +February 14, 2002 until +September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of facilitating the spinoff by +Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly-held company on September 30, 2002, at which time Mr. Helmerich +resigned as an executive officer. +Governance Functions. The Committee develops and recommends to the Board corporate governance principles. The Committee oversees the process of annual performance +evaluations for the Board and each committee, reviews and makes recommendations regarding Cimarex's Corporate Governance Guidelines and provides recommendations regarding director education programs. +Nominating Committee +Members +Functions of Committee +Michael J. Sullivan, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +• +Determines desired board skills and attributes. Recommends individuals to Board for nomination, election or appointment as members of the Board and its committees +Paul D. Holleman +Harold R. Logan, Jr. +Monroe W. Robertson +Michael J. Sullivan +• +Recommends candidates to serve on the Board and to stand for election at annual meeting of stockholders or to fill vacancy occurring between meetings +L. Paul Teague +• +Recommends Committee appointments +• +Sole authority to retain and terminate any search firm to identify director candidates +The +Nominating Committee is comprised of all independent directors. The Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired +qualifications, including (a) personal and professional ethics, (b) integrity and values, (c) commitment +10 +Table of Contents +to +the long-term interest of the stockholders, (d) a mix of characteristics and diverse experiences, perspectives and skills appropriate to our business and (e) familiarity +or experience in the oil and gas exploration and production business. +Each +director nominee is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas +experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with an +important capacity to execute its duty of oversight and guidance. +The +Committee will consider nominees recommended by stockholders. For the 2009 Annual Meeting, the Committee did not receive nominations from any stockholder prior to the deadline for stockholder +nominations. Stockholders who wish to nominate persons for election as directors at the 2010 Annual Meeting must submit a timely written notice complying with Cimarex's By-laws to +Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the +stockholder's written notice must be received between February 9, 2010 and February 19, 2010. If the 2010 Annual Meeting is held more than 30 days before or after May 20, +2010, the written notice must be received no later than the close of business on the tenth day after we mail Notice of the Annual Meeting to our stockholders. +Board/Committee Evaluations +During 2008, the Board of Directors and each committee participated in a self-assessment or evaluation of the effectiveness of the Board +and its committees. +Director Education +Cimarex encourages director participation in seminars and conferences and other opportunities for director education. In 2008, a majority of our +directors attended an educational program designed by National Association of Corporate Directors, a nationally recognized board educational organization. Each of our directors is a member of that +organization. We subscribe and make available to our Committee members various informational and educational newsletters and online services. +Service on Boards of Other Public Companies +Cimarex does not prevent directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines recommend that +(i) the CEO serve on the Board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the Board of no more than five public companies, including +Cimarex. All directors comply with this guideline. +Director and Management Stock Ownership +The Corporate Governance Guidelines provide that each non-management director is expected to own Cimarex stock in an amount equal to +three times his annual Board cash retainer, the CEO is expected to own stock in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to +own stock in an amount equal to three times his annual base salary. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership, +but shares subject to options are not counted. +Corporate Governance Guidelines and Code of Ethics +The Corporate Governance Guidelines address matters such as qualifications of directors, standards for independence of directors, election of +directors, responsibilities of directors, limitation of service on other public company boards, number and structure of Board committees, conduct and frequency of +11 +Table of Contents +Board +and committee meetings, Board evaluation, management succession, director access to management, counsel and advisors, and board orientation and education. The Board of Directors, both directly +or through the Compensation and Governance Committee, reviews and revises as necessary the Corporate Governance Guidelines. +Cimarex +has adopted a code of ethics, known as the "Code of Business Conduct," that applies to all directors, officers and employees. The Code of Business Conduct is a guideline that promotes honest +and ethical conduct, maintains a corporate climate in which integrity and dignity of each individual is valued, assures compliance with laws and assures proper use of Cimarex's assets. Cimarex will +post on its website all waivers to or amendments to its Code of Business Conduct that are required to be disclosed by applicable law and rules of the NYSE listing standards. Currently, Cimarex does +not have nor does it anticipate any waivers to or amendments of its Code of Business Conduct. +Web Access +Cimarex provides access through its website ( www.cimarex.com ) to the following information: +• Audit, Compensation and Governance, and Nominating Committee charters +• Corporate Governance Guidelines +• Code of Business Conduct +• Complaint and Reporting Procedures +• Section 16 reports +• Biographical information of our directors and executive officers +Process for Communication with the Board +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline +(1-866-519-1898). All communications will be forwarded to the 2009 lead director, Michael J. Sullivan, for his review. The lead director may take any action deemed +appropriate or necessary, including retaining independent or outside counsel, accountants or other advisors. No adverse action will be taken against any individual making any such communication to the +lead director. +OUTSIDE DIRECTOR COMPENSATION +Overview +Our director compensation program is designed to attract and retain individuals who are experienced and knowledgeable in the oil and gas industry. +Director compensation is only paid to outside (non-management) directors. +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") administers our director compensation program. Director compensation is designed to be near the +50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing director +compensation as we use in reviewing executive base salary and total compensation. See Comparison Groups under Compensation +Discussion and Analysis for a list of the companies and the methodology followed in selecting the companies. +Determination of Director Compensation +Our Committee is sensitive to the potential for a perceived conflict of interest in setting director compensation. To minimize the potential for a +perceived conflict of interest, the Committee uses a compensation consultant to evaluate and recommend director compensation. In 2008, the Committee engaged Longnecker & Associates to review +director compensation. +12 +Table of Contents +Within general guidelines provided by the Committee, the compensation consultant reviews director compensation each year and recommends appropriate changes. The review of +director compensation is principally based on public information about comparison group compensation. +The +Committee, after reviewing the consultant's recommendations with the CEO and Vice President of Human Resources, recommends director compensation for Board consideration and approval at the annual +May board meeting. Director compensation is determined and paid for the 12-month period beginning with the date of Cimarex's annual meeting and ending on the following annual meeting date. +Director Compensation +To align the interest of stockholders and our directors, total annual director compensation consists of approximately two-thirds equity +awards and one-third cash retainer. The following represents the annual retainer and fee structure set at the 2008 annual meeting: +Equity Retainer +$ +135,000 +Annual Cash Retainer +$ +50,000 +Committee Chair +$ +18,750 +Attendance at Board Meeting +$ +1,800 +Attendance at Committee Meeting +$ +1,500 +Lead Director per Meeting Fee +$ +1,500 +The +equity retainer is in the form of restricted stock that vests over three years in one-third increments. Directors annually receive a number of shares of restricted stock based on a +fixed cash value, currently $135,000. The number of shares is determined by dividing $135,000 by the average of the highest and lowest prices of Cimarex stock on the date of grant. +We +reimburse directors for reasonable transportation and accommodation expenses to attend Board and committee meetings. In lieu of reimbursement of travel expenses, some directors may occasionally +travel to or from Board and Committee meetings on the Cimarex aircraft. +2008 Director Compensation +The following table sets forth compensation paid in 2008 to all individuals who served as directors in 2008. +Name +Annual Cash +Retainer and +Meeting Fees (1) +Stock +Awards (2)(3) +Dividends on +Restricted +Stock +Total +Jerry Box +$ +63,400 +$ +110,803 +$ +1,122 +$ +175,315 +Glenn A. Cox (4) +$ +5,500 +$ +222,229 +$ +594 +$ +228,323 +Cortlandt S. Dietler (5) +$ +56,000 +$ +274,006 +$ +594 +$ +330,600 +Hans Helmerich +$ +63,400 +$ +109,534 +$ +1,973 +$ +174,907 +David A. Hentschel +$ +63,400 +$ +109,534 +$ +1,131 +$ +174,065 +Paul D. Holleman +$ +75,400 +$ +109,534 +$ +1,131 +$ +186,065 +Monroe W. Robertson +$ +88,650 +$ +111,784 +$ +1,119 +$ +201,553 +Michael J. Sullivan +$ +64,600 +$ +109,534 +$ +1,973 +$ +176,107 +L. Paul Teague +$ +82,150 +$ +109,534 +$ +1.570 +$ +193,254 +(1) Represents +fees earned for services as a director during 2008, including the annual cash retainer fee, Board and Committee meeting attendance +fees, chairmanship fees and lead director fee. +(2) Represents +the amounts recognized for financial reporting purposes in accordance with SFAS No. 123R for the year ended +December 31, 2008, related to restricted stock awards made pursuant +13 +Table of Contents +to +our 2002 Stock Incentive Plan. These amounts include awards granted during and before 2008 and reflect the proportionate amount of compensation for 2008 based on the time vesting terms of the +awards and the fair market value of the awards on the date of grant. Further discussion regarding the underlying awards is included in Note 8 to Cimarex's audited financial statements included +in the Annual Report on Form 10-K for the year ended December 31, 2008. +The +grant date fair value calculated in accordance with SFAS No. 123R of the 1,895 shares of restricted stock granted to each of the named directors, except Glenn A. Cox who did not stand for +re-election in 2008, was $135,000. +(3) The +following table discloses the aggregate number of stock awards and option awards outstanding at December 31, 2008. +Director +Stock Awards +Option Awards +Jerry Box +4,479 +0 +Glenn A. Cox +0 +10,000 +Cortlandt S. Dietler +0 +0 +Hans Helmerich +8,838 +* +10,000 +David A. Hentschel +4,479 +10,000 +Paul D. Holleman +4,479 +20,000 +Monroe W. Robertson +4,479 +0 +Michael J. Sullivan +8,838 +* +10,000 +L. Paul Teague +6,308 +* +10,000 +* Messrs. Helmerich +and Sullivan's holdings consist of deferred compensation units, and Mr. Teague's holdings include 1,829 deferred compensation +units. +(4) Mr. Cox +did not run for re-election at Cimarex's May 2008 annual meeting. +(5) Mr. Dietler +died in July 2008. +Deferred Compensation Plan for Outside Directors +In May 2004, we adopted a deferred compensation plan for outside directors. The plan provides that a director may defer all or any portion of his +compensation paid in +cash or restricted stock for services as a director. In addition, a director may elect to defer accelerated vesting of restricted stock. +All +deferred cash amounts earn interest through the date paid. The rate of interest earned for a calendar quarter is based on the average 10-year U.S. Treasury note rate for the +immediately preceding calendar quarter, plus one percent. Cash dividends are paid on deferred compensation units. +Deferred +compensation is distributed on the date specified by the director in his election. Upon a "change of control" within the meaning of Internal Revenue Code Section 409A, all account +balances will be fully vested and paid in a single lump sum within 30 days. Otherwise, account balances shall be paid in accordance with a director's election. The definition of a +change-in-control event is the same as the definition under the Cimarex 2002 Stock Incentive Plan. See Potential Payments upon Change in Control or +Termination . +Acceleration of Vesting of Awards +The agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a +change-in-control event, as defined in the 2002 Stock Incentive Plan. The 2002 Stock Incentive Plan also grants the Compensation and Governance Committee the authority to +accelerate the vesting or payment of an award. In May 2008, the Committee, in recognition of Mr. Cox's service to the Board and to the Audit Committee, accelerated the vesting of 2,584 shares +of +14 +Table of Contents +unvested +restricted stock upon his retirement from the Board. Upon Mr. Dietler's death in July 2008, 4,479 shares of unvested restricted stock vested in accordance with the terms of his +restricted stock award agreements. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Our principal business objective is to profitably grow our proved reserves and production for the long-term benefit of our investors. The +executive compensation program is designed to retain the experienced professionals that we need to attain our business objectives and to align their interests with our stockholders. +Overview +Our executive compensation program focuses on three principal elements: +• Base salary +• Annual cash incentive awards +• Long-term equity incentive awards +We +strive to pay a base salary and total compensation that are competitive with our peers. Annual cash incentive awards are at risk and are intended to reward overall financial and operational +performance. Our long-term equity awards are intended to be retentive, encourage executive stock ownership and reward executives for three-year relative stock price +performance. +We +do not consider benefits under our 401(k) defined contribution plan, non-qualified supplemental savings plan, perquisites or post-termination benefits as principal elements +of our executive compensation program. See Other Compensation and Potential Payments upon Change in Control or +Termination for more discussion regarding these benefits and why they are not a material +part of executive compensation decisions. We do not specifically allocate a fixed portion of compensation between cash and equity-based compensation or between annual and long-term +incentive compensation. We do not have a policy for recovery of performance-based compensation if we were required to restate our financial statements. +Roles and Responsibilities +Our Compensation and Governance Committee ("Compensation Committee" or "Committee") designs and administers our executive compensation program. The +Committee develops the overall philosophy, objectives, structure and pay guidelines and, for elements that are dependent upon quantifiable measures, develops formulas to determine the awards. The +Committee uses the services of an outside consultant, Longnecker & Associates, to help carry out its responsibilities, especially in the area of program design and compensation levels. +Longnecker does not perform services for management. Our Vice President of Human Resources also assists the Committee with the design and implementation of our compensation program. +Our +CEO plays a significant role in the executive compensation process. Because the CEO has close day-to-day association with the other NEOs and operation of Cimarex, the +Committee considers the CEO's involvement essential. The CEO provides the Committee with an oral annual assessment of Cimarex's overall financial and operational performance. He evaluates individual +NEO performance and recommends base salary adjustments, annual cash incentive awards and long-term equity incentive awards. The CEO considers subjective factors that may include scope of +responsibility, contribution to company performance, technical competence, managerial skills, and advancement potential. The Committee has discretion to accept, reject or modify the CEO's +recommendations. +15 +Table of Contents +The +Committee's final recommendations of executive compensation are based upon: +• review of competitive data; +• review of factors deemed relevant by the Committee to determine an annual cash incentive pool available for distribution; +• informal, subjective and confidential review of the CEO's performance; +• review of the CEO's recommendations regarding compensation for the NEOs; and +• consideration of internal pay equity. +The +Committee relies upon its collective judgment and considers length of service and subjective information including experience, consistent performance and available competitive alternatives for our +executive officers. The Committee, through its Chairman, delivers its final recommendations for approval by the independent members of the Board of Directors. +Objectives of our Executive Compensation Program +Our program provides a competitive compensation package, promotes our pay-for-performance philosophy and aligns the interests +of our executives and stockholders by: +• Offering competitive compensation. We pay a base salary and total +compensation that are competitive with compensation practices of companies that we compete with for talent. +• Rewarding company performance. We align our annual cash incentive awards +with company performance. Our program design does not include designated individual personal performance objectives. +• Aligning the interests of our executives with those of our stockholders. Our long-term equity incentive awards encourage executive stock +ownership and reward executives for above-average relative stock price performance. +Comparison Groups +We use comparison group information as a resource in reviewing and making annual base salary adjustments and as a point of reference when reviewing +total compensation. We use a second comparison group to determine the peer stock performance factor in determining the number of performance shares that vest under our long-term incentive +awards and, for the years 2006 through 2008, in determining Cimarex's relative stock price performance in calculating the annual cash incentive pool. The Compensation Committee reviews and approves +both comparison groups. +Our +base salary and total compensation peer group ("Compensation Peer Group") consists of companies in our industry with market capitalization and revenue similar to ours. In 2008, the companies +selected had market capitalizations ranging from $1 billion to $13 billion and/or revenue ranging from $700 million to $3 billion. Each year, the Committee, with the +assistance of its +16 +Table of Contents +compensation +consultant, reviews the Compensation Peer Group. Our 2008 Compensation Peer Group was comprised of: +2008 Compensation Peer Group +Cabot Oil & Gas Corp. +Pioneer Natural Resources Co. +Denbury Resources Inc. +Quicksilver Resources Corp. +EXCO Resources, Inc. +Range Resources Corp. +Newfield Exploration Co. +Southwestern Energy Co. +Noble Energy, Inc. +St. Mary Land & Exploration Co. +Petrohawk Energy Corporation +Whiting Petroleum Corp. +We +use a second comparison group to determine our relative stock price performance in determining the number of shares of performance awards to be made to our CEO and NEOs ("Stock Performance Peer +Group"). At the December 2008 Committee meeting, the Committee made a change in the index used to determine the companies in the Stock Performance Peer Group. The Stock Performance Peer Group for the +2006, 2007 and 2008 performance awards was comprised of companies in the Dow Jones U.S. Exploration & Production Index. The Committee determined that this index no longer consisted of a +sufficient number of representative companies and that a larger and more representative group of companies was needed for purposes of calculating Cimarex's relative stock price performance under the +awards granted on January 2, 2009. For these performance awards, the companies listed on the S&P 400 Oil and Gas Exploration index and the S&P 500 Oil and Gas Exploration index +will constitute the Stock Performance Peer Group. Cimarex is one of the companies listed in the S&P 400 Oil and Gas Exploration index. +The +peer companies applicable for calculating relative stock price performance for performance awards made in 2006, 2007 and 2008 consisted of: +2006, 2007 and 2008 Stock Performance Peer Group +Anadarko Petroleum Corporation +Meridian Resource Corp. +Apache Corporation +Newfield Exploration Company +Cabot Oil & Gas Corporation +Occidental Petroleum Corporation +Chesapeake Energy Corporation +Pioneer Natural Resources Co. +Devon Energy Corp. +Stone Energy Corporation +EOG Resources Inc. +XTO Energy Inc. +Forest Oil Corp. +17 +Table of Contents +The +peer companies applicable for calculating relative stock price performance for the performance awards made in 2009 consisted of: +2009 Stock Performance Peer Group +S&P 400 Oil and Gas Exploration Index: +S&P 500 Oil and Gas Exploration Index: +Bill Barrett Corp. +Anadarko Petroleum Corp. +Comstock Resources Inc. +Apache Corp. +Denbury Resources Inc. +Cabot Oil & Gas Corp. +Encore Acquisition Co. +Chesapeake Energy Corp. +Forest Oil Corp. +Devon Energy Corp. +Mariner Energy Inc. +EOG Resources Inc. +Newfield Exploration Co. +Noble Energy Inc. +Plains Exploration & Production Co. +Pioneer Natural Resources Co. +Quicksilver Resources Corp. +Range Resources Corp. +Southwestern Energy Co. +XTO Energy Inc. +Key Elements of our Compensation Program +Base Salary +Our goal is to pay base salaries that are competitive with those paid for similar executive positions by other companies in our Compensation Peer +Group. See Comparison Groups above for a list of the companies in our 2008 Compensation Peer Group. The Committee's consultant compiles comparative +salary data for presentation to the Compensation Committee. In May of each year, the Committee recommends to the independent members of the Board for their approval base salary adjustments to be +effective on June 1. +The +salary range information is historical and is obtained from information in publicly-filed proxy statements and surveys. We analyze positions in companies in the Compensation Peer Group that have +responsibilities similar to each of Cimarex's executive positions. We also use compensation rank order as part of the analysis. Because the data is about twelve months old at the time it is available, +we also ask the consultant to adjust the data to estimate current compensation for the Compensation Peer Group companies. +While +the comparison market data provides guidance in making decisions on base salary adjustments, the Committee does not set compensation based on market data alone. The Committee also considers the +CEO's recommendations, length of service and subjective information including experience, consistent performance and available competitive alternatives for our executive officers. +2008 CEO Base Salary Adjustment. The Committee considers whether the CEO's compensation is comparable to that of other CEOs in the Compensation Peer Group. +Material factors that the Committee considers in its CEO compensation decisions include the CEO's industry experience, management development capabilities, Cimarex's history of growth in proved +reserves and production and any extraordinary transactions occurring or challenges faced during the year. +In +May 2008, the Committee and the independent members of the Board approved an approximate 11% increase in Mr. Merelli's salary to $850,000 from $766,000. The CEO's base salary is consistent +with our internal pay equity guidelines that provide that the CEO's base salary should not exceed three times the base salary of the next highest compensated NEO. +2008 NEO Base Salary Adjustments. The Committee considers comparison group information and the CEO's recommendations. The CEO orally provides the Committee with +subjective executive +18 +Table of Contents +performance +information for each NEO. The CEO considers contribution to company goals, advancement potential, managerial skills, technical competence, scope of responsibility and the overall +performance of the company in making his base salary recommendations to the Committee. The Committee considers the CEO's recommendations and then exercises its judgment and discretion in making base +salary recommendations to the independent members of the Board of Directors. +In +May 2008, the Committee recommended and the Board approved base salary increases effective June 1, 2008 for the NEOs approximating 12 to 15%. Mr. Albi's salary was increased to +$431,000 from $375,000; Mr. Bell's salary was increased to $357,000 from $310,000; Mr. Jorden's salary was increased to $468,000 from $407,000; and Mr. Korus' salary was increased +to $420,000 from $375,000. +We +estimate that our CEO's and other NEOs' 2008 base salaries ranged from the 74 th to 83rd percentile when compared to similar positions at companies in our Compensation +Peer Group. In general, an executive's salary reflects his area of responsibility. +Annual Cash Incentive Awards +On March 2, 2009, we paid the CEO a cash incentive award of 35% of his annualized base salary and the NEOs cash incentive awards of 35% of +their annualized base salaries for 2008 performance. (See the Summary Compensation Table for the amounts of the individual awards.) The amounts of these +awards were based upon consideration of the following factors: +• The calculation of the amount available for distribution resulted in potential pools equal to 129% of the CEO's annualized +base salary and 129% of the annualized base salaries of the executive officers in the pool. These amounts were based on 8% growth in production, 2 nd quartile relative stock price +performance and actual cash flow that was 1.26 times forecasted cash flow. +• We reported a net loss of $902 million and our stock price fell by 37%. +In +light of the negative developments noted above, the CEO recommended and the Committee and Board concurred that the awards be reduced to 35% of annualized base salary compared to the 129% calculated +under our incentive award plan. See Calculation of 2008 Annual Cash Incentive Awards below for the method of the calculation. +For +2008 and prior years, our annual cash incentive award program was designed to encourage the attainment of specific company performance objectives, principally a targeted cash flow, growth in +proved reserves and production and better than average stock price performance compared to the companies in the Stock Performance Peer Group. The ability to attain the specific performance objectives +assumed our ability to accurately target cash flow and to readily access the capital market and, as a result, to plan for the year's capital investment, which is the principal driver of growth in +production and reserves. +At +its December 2008 meeting, the Committee addressed the fact that the oil and gas industry is faced with a changed economic environment characterized by volatile and declining commodity prices and +uncertainty about access to capital markets. The Committee concluded that at its February 2009 meeting it would decide whether to approve a program that did not establish specific performance targets +at the beginning of the year. +At +its February 2009 meeting, the Committee determined that, due to volatile and decreasing oil and gas prices, lagging field service cost adjustments, credit availability concerns and the difficulty +of accurately forecasting cash flow, the previously adopted formula for calculating the pool for distribution of annual cash incentive awards cannot accurately measure the economic and operational +performance of Cimarex for 2009. The Board, upon the Committee's recommendation, approved a more flexible awards program based upon an end-of-the-year assessment of +Cimarex's corporate results. +19 +Table of Contents +2009 Annual Cash Incentive Award Program. The Commmittee recommended and the Board concurred that incentive award determinations will be based on an overall +retrospective evaluation of Cimarex's corporate results, taking into account a wide range of measures and financial and operational results that are not determined until the year has concluded. Any +measure that might be considered to determine whether or not an oil and gas company had a good year (or other measures of success or failure) is a possible consideration by the Committee. +The +CEO will provide the Committee prior to its February 2010 meeting with a recommendation of the amount of the cash incentive pool, if any, and the recommended amounts of individual cash awards. The +CEO will also provide the Committee with information that documents the specific considerations and evaluation of several factors that formed the basis for the award recommendations. The factors to be +considered, and in most cases measured, include, but are not limited to: +• oil and gas industry economic and operational conditions +• relative performance compared to peer companies +• 2009 cash flow +• the competitive environment +• reserve replacement +• changes in oil and gas production +• cost control and expense management +• personnel safety record and +• environmental and regulatory compliance +Based +upon these recommendations and its overall assessment of corporate performance, the Committee will recommend for approval by the Board the CEO's and executive officer annual cash incentive +awards. +Following +its determination of the 2009 awards, the Committee will determine whether a continuation of this approach for determining annual cash incentive awards is advisable. +Calculation of 2008 Annual Cash Incentive Awards. Under the annual cash incentive award plan in place during 2008 and prior years, a discretionary pool is created +for the CEO and a second discretionary pool is created for executive officers (including NEOs) reporting directly to the CEO. The maximum amount of the CEO's pool is 200% of his year-end +annualized base salary, and the maximum amount of the officers' pool is 150% of the year-end annualized base salaries of the officers in the pool. The discretionary pools are calculated in +accordance with the formula described below. The target for both pools is 100% of year-end annualized base salaries of participants in the pool. The targeted incentive cash bonus is +attained when production and proved reserves grow by 5% and relative stock price performance is in the first quartile. The size of the pool is increased or decreased based upon the relationship of +actual cash flow to targeted cash flow. The Committee may not award more than the calculated pool but may exercise discretion and award less than the entire amount of the pool. +In +December 2007, the Committee determined the levels of achievement for the growth in production and reserve factors and for stock price performance that would be applicable in determining cash +incentive awards for 2008. In making these determinations, the Committee considered the size of the reserve base, production levels, past peer group stock price performance, capital budget, forecasted +production and reserve volumes, commodity price outlook, industry conditions, competitive outlook, +20 +Table of Contents +effect +on performance motivation, management retention and difficulty in achieving the goals. The factors approved by the Committee were: +Production Growth +Reserve Growth +% Increase +% Earned +% Increase +% Earned +<0% +0% +<0% +0% +0% +30% +0% +30% +1% +40% +1% +40% +2% +50% +2% +50% +3% +65% +3% +65% +4% +80% +4% +80% +6% +120% +5% +100% +7% +140% +6% +120% +8% +160% +7% +140% +Stock Price Performance +Quartile +% Earned +1 +100% +2 +75% +3 +0% +4 +0% +In +December 2007, the Committee reviewed and approved the following weightings of the production, reserve and stock price performance achievement factors for 2008 cash incentive awards: +Weighting +Production growth +50% +Reserve growth +20% +Stock price +30% +The +total incentive pool was adjusted by the relationship of actual 2008 cash flow provided by operations (before changes in operating assets and liabilities) of $1.443 billion to the cash flow +forecasted in February 2008 of $1.143 billion, which was based on year-end 2007 monthly contract futures prices for oil and gas on the New York Mercantile Exchange. The +forecast also considered other estimates, including production volumes, operating cost structure, financing costs and income taxes. +21 +Table of Contents +For 2008, the calculation of the cash incentive pool was as follows: +Performance +Factor +Achievement +Performance +Factor Earned +Weighting +Weighted Factor +Production growth +8% +160% +50% +80% +Reserve growth +<0% +0% +20% +0% +Stock price +2 nd quartile +75% +30% +22.5% +Total: +102.5% +Relationship of actual cash flow to targeted cash flow +126% +Incentive pool as a % of base salaries +129% +As +shown on the table above, in 2008 production grew by 8% resulting in a 160% earned production growth factor. Proved reserves (adjusted for asset sales) decreased by 8.8% resulting in a 0% reserve +growth factor. During 2008 our relative stock price performance was in the second quartile of comparative performance among the Stock Performance Peer Group, resulting in a 75% factor. Combined with +their respective relative weightings, these achievements resulted in an amount equal to 102.5% of base salaries available for distribution to executives. When the amount available for distribution is +adjusted by the relationship of 2008 actual cash flow of $1.443 million compared to targeted cash flow of $1.143 million, the result is an incentive pool of 129% of base salaries. +Long-Term Equity Incentive Awards +In December 2005, the Board approved a long-term equity incentive program. The program's objectives are to deliver to each executive a +laddered portfolio for vesting of restricted stock awards that provides a retention incentive, facilitates executive stock ownership and aligns the interests of executives with our stockholders. +The +program provides for recurring annual awards of restricted stock. One-half of the restricted shares are subject to three-year time of service vesting, and the second half +are subject to vesting based on three-year relative stock price performance. +The +number of shares that vest based on our relative stock price performance can range from 0% to 100%. For awards granted from January 2006 through January 2008, the Stock Performance Peer Group used +to determine relative stock price performance consists of companies in the Dow Jones U.S. Exploration & Production Index. At its December 2008 meeting, the Committee changed the 2009 Stock +Performance Peer Group to companies in the S&P 400 and 500 Oil and Gas Exploration Indices. See Comparison Groups above for a list of the +companies in this peer group. +The +Committee determines relative stock price performance by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in our Stock +Performance Peer Group for the 30 trading days preceding the date of grant and the 30 trading days preceding the third anniversary of the grant. The Committee ranks Cimarex and calculates its relative +performance percentile. If our relative stock price performance is 25% or less, no performance-based shares vest. For each relative stock price performance percentile increase above 25%, 2% of the +22 +Table of Contents +performance-based +award vests. For example, assuming an initial award of 15,000 performance-based shares: +Relative Stock Price +Performance Percentile +% of Performance-Based +Shares Earned +# of Performance-Based +Shares Vested +25% or less +0 +% +0 +50% +50 +% +7,500 +75% +100 +% +15,000 +In +December of each year, the Committee recommends the number of shares to be awarded the following year. As part of its determination, the Committee compares our total compensation program with the +programs of companies in our Compensation Peer Group. The Committee also takes into account that one-half of the shares are "at-risk" and subject to satisfaction of the +performance criteria. The Committee determines the number of shares to be awarded to the CEO and the number of shares to be awarded to each other executive officer. Following a team-based +management approach, each NEO is awarded the same number of shares. +The +following table represents the awards granted to date and the first vesting that occurred on January 2, 2009: +Grant Date +Time-Based +Vesting +Subject to +Relative Stock +Performance +Vesting +Vesting +Date +Total +Vested +CEO +1/2006 +30,000 +30,000 +1/2009 +40,800 +(1) +1/2007 +30,000 +30,000 +1/2010 +0 +1/2008 +30,000 +30,000 +1/2011 +0 +1/2009 +30,000 +30,000 +1/2012 +0 +Each NEO +1/2006 +15,000 +15,000 +1/2009 +20,400 +(1) +1/2007 +15,000 +15,000 +1/2010 +0 +1/2008 +15,000 +15,000 +1/2011 +0 +1/2009 +15,000 +15,000 +1/2012 +0 +(1) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be issued to the CEO and the NEOs. +Cimarex's relative stock performance was 8 th out of 14 companies in the peer group or the 43 rd percentile, resulting in each executive receiving 68% of the +award (all of the time-vested portion of the award and 36% of the performance-based portion of the award). +2002 Restricted Stock Unit and Option Awards. In December 2002 shortly following our September 2002 reorganization as Cimarex Energy Co., we awarded the CEO +and NEOs restricted stock units and stock options. These awards were issued to retain executives and promote stock ownership. The restricted stock units fully vested in December 2007, but are not +payable in shares until December 2010. The options fully vested in December 2007. If the CEO or any NEO elects to exercise vested options, he must hold until December 6, 2010 +one-half of the shares remaining after delivering shares in payment of the exercise price and net taxes due upon exercise. +23 +Table of Contents +Total Compensation +The Committee periodically reviews total executive compensation. The three elements of compensation – base salary, annual cash +incentive awards and long-term equity incentive awards – are the elements included in the Committee's review of total compensation. +In +its review of total compensation, the Committee believes that the level of compensation should increase in relation to an officer's increased responsibility. The more senior the job, the more the +senior officer can affect results either positively or negatively. For example, our CEO's total annual cash compensation of base salary and an annual cash incentive award is approximately 2.25 times +the next highest officer's base salary and annual cash incentive award. +Other Compensation +We do not consider the following compensation as material elements of our executive compensation program because (i) we provide limited +perquisites and (ii) benefits available under our 401(k) plan and supplemental savings plan are also available to non-executive employees. +Perquisites +We provide executive officers with limited perquisites. Perquisites that we do provide include a medical expense reimbursement program, athletic and +dining club memberships and a financial planning allowance. In 2008, the total cost of perquisites provided to our CEO and NEOs was $27,833. +Retirement Benefits +The CEO and NEOs are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. This plan is open to participation by all +Cimarex full-time employees. Under the plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to 5% of the employee's cash compensation, +subject to limits imposed by Internal Revenue Service rules. Beginning in 2008, Cimarex increased its matching contribution from 5% to 7%. In December 2007 the Committee elected to activate the +profit-sharing contribution feature under the 401(k) Plan and to determine at each meeting following availability of fiscal year-end financial results the amount, if any, of the +profit-sharing contribution. +At +the Committee's February 2008 meeting, the Committee recommended and the Board authorized a profit-sharing contribution of 3% of the gross pay of eligible participants under the 401(k) Plan. At its +February 2009 meeting, based upon 2008 year-end financial results, the Committee recommended and the Board concurred that no profit-sharing contribution would be made under the +401(k) Plan. +Supplemental Savings Plan +We also sponsor a Supplemental Savings Plan, a non-qualified deferred compensation plan that permits participants, including the CEO and +NEOs, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Service limitations. Participants may defer a maximum of 50% of total annual cash compensation. In +2008, Cimarex matched 100% of the participants' contributions up to 7% of the participant's total annual cash compensation. +Each +of the CEO and the NEOs are 100% vested in all matching contributions. Contributions are invested in mutual funds available for investment under the Cimarex 401(k) Plan. The officer selects the +funds for investment by providing advisory investment direction to Cimarex. +The +Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a +period not longer than 15 years, as the participant elects. In the event of a change in control, each +24 +Table of Contents +participant +receives a cash lump sum payment of the amount allocated to his/her account as of the last day of the month immediately preceding the date of the change in control. A change in control +under the Supplemental Savings Plan is the same as the definition of a "change in control event" in our 2002 Stock Incentive Plan. See Potential Payments upon Termination or +Change in Control for a summary of the definition of a "change-in-control event." +Cimarex's +matching contributions to the 401(k) Plan and Supplemental Savings Plan are included in footnote 4 to the Summary Compensation Table. +Participant and Cimarex contributions to the Supplemental Savings Plan are included in the Nonqualified Deferred Compensation table. +Tax Considerations +Section 162(m) of the Code limits the amount of compensation that the company may deduct on its federal income tax return for compensation +paid to certain executive officers to no more than $1 million per year. This limitation does not apply to "qualified performance based" compensation as defined under the federal tax laws if the +performance goals are approved by the stockholders and other requirements for deductibility are met. At our 2006 Annual Meeting our stockholders approved performance goals for our restricted stock +awards to enable performance-based restricted stock awards to qualify for the exemptions from the deduction limit, provided the other requirements are satisfied. +The +Compensation Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under +Section 162(m). +Internal Pay Equity +The purpose of our internal pay equity program is to ensure that the use of comparisons to assist the Company in establishing competitive pay levels +does not result in excessive +pay for the CEO relative to other officers. Our internal pay equity guidelines provide that the CEO's base salary should not be more than three times the base salary of the next highest compensated +NEO, and the CEO's cash incentive award should not be more than three times the cash incentive award of the next highest cash incentive award. Our Board must approve any deviation from these +guidelines. For 2008, our CEO's base salary and annual cash incentive award are consistent with our internal pay equity guidelines. +REPORT OF COMPENSATION AND GOVERNANCE COMMITTEE +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The +Compensation and Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the +Compensation and Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND +GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +25 +Table of Contents +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The following table describes 2008, 2007 and 2006 compensation of our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three +other most highly compensated executive officers (the "Named Executive Officers" or "NEOs"). Only our CEO has an employment agreement. See Potential Payments Upon Change in +Control or Termination for information about his employment agreement. +Name and +Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards (1) +Non-Equity +Incentive +Plan Comp. (2) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp. (3) +Total +F.H. Merelli, +2008 +$ +815,000 +$ +– +$ +1,801,012 +$ +– +$ +297,000 +$ +– +$ +159,661 +$ +3,072,673 +Chairman, Chief +2007 +$ +744,750 +$ +– +$ +1,888,670 +$ +643,006 +$ +520,000 +$ +– +$ +161,603 +$ +3,958,029 +Executive Officer, President (CEO) +2006 +$ +667,083 +$ +– +$ +1,449,726 +$ +690,286 +$ +140,000 +$ +– +$ +214,088 +$ +3,161,183 +Paul Korus +2008 +$ +401,250 +$ +– +$ +900,506 +$ +– +$ +147,000 +$ +– +$ +79,830 +$ +1,528,586 +Vice President, +2007 +$ +364,583 +$ +– +$ +758,190 +$ +138,526 +$ +243,750 +$ +– +$ +95,642 +$ +1,600,691 +Chief Financial +2006 +$ +333,333 +$ +– +$ +524,730 +$ +148,712 +$ +98,000 +$ +– +$ +46,699 +$ +1,151,474 +Officer, and Treasurer (CFO) +Thomas E. Jorden +2008 +$ +442,584 +$ +– +$ +900,506 +$ +– +$ +163,800 +$ +– +$ +84,749 +$ +1,591,639 +Executive Vice +2007 +$ +395,750 +$ +– +$ +758,190 +$ +138,526 +$ +272,690 +$ +– +$ +94,780 +$ +1,659,936 +President-Exploration +2006 +$ +355,000 +$ +– +$ +524,730 +$ +148,712 +$ +106,400 +$ +– +$ +38,923 +$ +1,173,765 +Joseph R. Albi +2008 +$ +407,667 +$ +– +$ +900,506 +$ +– +$ +150,850 +$ +– +$ +85,954 +$ +1,544,977 +Executive Vice +2007 +$ +364,583 +$ +– +$ +758,190 +$ +138,526 +$ +251,250 +$ +– +$ +98,176 +$ +1,610,725 +President-Operations +2006 +$ +333,333 +$ +– +$ +524,730 +$ +148,712 +$ +98,000 +$ +– +$ +49,340 +$ +1,154,115 +Stephen P. Bell +2008 +$ +337,417 +$ +– +$ +900,506 +$ +– +$ +124,950 +$ +– +$ +93,519 +$ +1,456,392 +Senior Vice +2007 +$ +301,667 +$ +– +$ +758,190 +$ +138,526 +$ +238,700 +$ +– +$ +109,907 +$ +1,546,990 +President-Business Development and Land +2006 +$ +279,583 +$ +– +$ +524,730 +$ +148,712 +$ +81,200 +$ +– +$ +57,812 +$ +1,092,037 +(1) The +dollar amounts reported in this column reflect the expense recognized for financial statement reporting purposes in accordance with SFAS +No. 123(R) and thus include amounts from awards granted in and prior to 2008. The assumptions utilized in the calculation of these amounts are set forth in footnote 8 to our consolidated +financial statements included in the Annual Report on Form 10-K for the year-ended December 31, 2008. +(2) Amount +reported for the year earned. +26 +Table of Contents +(3) The +following describes all other items of compensation and any perquisite to an executive officer that exceeds $10,000. +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Dividends +Tax +Reimbursement +Life +Insurance +Premiums +Total +Other +Compensation +F. H. Merelli, CEO +2008 +$ +– +$ +63,613 +$ +93,888 +$ +– +$ +2,160 +$ +159,661 +2007 +$ +– +$ +50,550 +$ +68,198 +$ +41,295 +$ +1,560 +$ +161,603 +2006 +$ +91,537 +$ +47,931 +$ +33,792 +$ +39,678 +$ +1,150 +$ +214,088 +Paul Korus +2008 +$ +– +$ +45,150 +$ +32,520 +$ +– +$ +2,160 +$ +79,830 +2007 +$ +2,706 +$ +30,014 +$ +16,880 +$ +44,482 +$ +1,560 +$ +95,642 +2006 +$ +8,358 +$ +29,501 +$ +7,280 +$ +– +$ +1,560 +$ +46,699 +Thomas E. Jorden +2008 +$ +– +$ +50,069 +$ +32,520 +$ +– +$ +2,160 +$ +84,749 +2007 +$ +– +$ +31,858 +$ +16,880 +$ +44,482 +$ +1,560 +$ +94,780 +2006 +$ +– +$ +30,083 +$ +7,280 +$ +– +$ +1,560 +$ +38,923 +Joseph R. Albi +2008 +$ +4,341 +$ +31,558 +$ +32,520 +$ +– +$ +2,160 +$ +85,954 +(a) +2007 +$ +8,104 +$ +27,150 +$ +16,880 +$ +44,482 +$ +1,560 +$ +98,176 +2006 +$ +– +$ +40,500 +$ +7,280 +$ +– +$ +1,560 +$ +49,340 +Stephen P. Bell +2008 +$ +17,300 +$ +41,539 +$ +32,520 +$ +– +$ +2,160 +$ +93,519 +2007 +$ +20,087 +$ +26,898 +$ +16,880 +$ +44,482 +$ +1,560 +$ +109,907 +2006 +$ +14,279 +$ +34,693 +$ +7,280 +$ +– +$ +1,560 +$ +57,812 +(a) Mr. Albi's +total compensation includes medical reimbursements in the total amount of $15,375. No other executive officer's perquisites +exceeded $10,000. +2008 GRANTS OF PLAN-BASED AWARDS +Non-Equity Incentive Plan +Our annual cash incentive awards were made from a company performance-based pool. The entire pool is at risk and there is no threshold. The CEO's +pool target is 100% of his year-end annualized salary, and his pool is limited to 200% of his salary. Our plan does not provide for individual targets for other executive officers, +including the NEOs. Rather our plan provides for a pool target of 100% of combined year-end annualized base salaries of all participants in the pool. The aggregate maximum awards to all +participants, including the NEOs, may not exceed 150% of total combined year-end annualized base salaries. See the description of the our annual cash incentive award plan in Compensation Discussion and Analysis, +under Elements of Compenstion Program, Annual Cash Incentive +Awards . +The +following table is presented in compliance with Securities and Exchange Commission regulations. However, the information required by the table is not consistent with the actual terms of our annual +cash incentive plan because, except for the CEO, our plan does not provide for individual targets or individual maximum awards. Despite these limitations, the table sets forth target and maximum +amounts for the NEOs as if they were determined on an individual basis instead of on a pool-based approach. +27 +Table of Contents +The +amounts listed in the Target column represent 100% of the year-end annualized base salary. The amounts listed in the Maximum column represent, with respect +to the CEO, 200% of his year-end annualized base salary and for each NEO, 150% of his annualized base +salary. +Estimated Future Payouts Under +Non-Equity Incentive Plan +Name +Threshhold +Target +($) +Maximum +($) +Actual +Award +Paid in +March 2009 +($) +F. H. Merelli, CEO +$ +0 +$ +850,000 +$ +1,700,000 +$ +297,000 +Paul Korus +$ +0 +$ +420,000 +$ +630,000 +$ +147,000 +Thomas E. Jorden +$ +0 +$ +468,000 +$ +702,000 +$ +163,800 +Joseph R. Albi +$ +0 +$ +431,000 +$ +646,500 +$ +150,850 +Stephen P. Bell +$ +0 +$ +357,000 +$ +535,500 +$ +124,950 +Equity Incentive Plan Awards +The following table provides information regarding the annual awards of restricted stock made to the CEO and other NEOs. See Compensation Discussion and Analysis, Long-Term Equity Incentive +Awards for a complete description of these awards. +Estimated Future Payouts Under Equity +Incentive Plan Awards +Name +Award +Grant +Date +Comp +Comm. +Grant +Date +Threshold (1) +(#) +Target (2) +(#) +Maximum +(#) +Grant Date +Fair Value +of Stock +Perf. +Awards +($) +F.H. Merelli, CEO +1/2/08 +12/11/07 +30,000 +40,800 +60,000 +$ +1,729,800 +Paul Korus +1/2/08 +12/11/07 +15,000 +20,400 +30,000 +$ +864,900 +Thomas E. Jorden +1/2/08 +12/11/07 +15,000 +20,400 +30,000 +$ +864,900 +Joseph R. Albi +1/2/08 +12/11/07 +15,000 +20,400 +30,000 +$ +864,900 +Stephen P. Bell +1/2/08 +12/11/07 +15,000 +20,400 +30,000 +$ +864,900 +(1) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(2) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock +price performance relative to its peers and is not computed until the third anniversary of the award. See Long-Term Equity Incentive Awards +for the method of computing the number of shares that vest. The actual number of shares that vest is not determinable until January 2, 2012 (the third anniversary of the award). The shares +disclosed in this column represent the shares the executive would have been entitled to (based upon December 2008 stock prices), had the award vested on January 2, 2009. Ordinary cash dividends +are paid on the shares during the vesting period. +28 +Table of Contents +The following table provides information about all outstanding options and unvested stock awards held by the CEO and each NEO as of December 31, 2008: +OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008 +OPTION AWARDS +STOCK AWARDS +Number of Securities +Underlying Unexercised +Options +Vested Restricted +Stock Units Not +Yet Payable (1) +Equity Incentive Plan +Awards That Have +Not Vested +Name +Exercisable +(#) +Unexercisable +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +No. of +Units +(#) +Market +Value of +Unearned +Units (2) +($) +No. of +Shares +(#) +Market +Value of +Unearned +Shares (2) +($) +F.H. Merelli, CEO +125,000 +0 +$ +13.3125 +5/25/2010 +211,200 +$ +5,655,936 +180,000 +(3) +$ +4,820,400 +422,400 +0 +$ +16.65 +12/06/2012 +Paul Korus +0 +0 +12/06/2012 +45,500 +$ +1,218,490 +90,000 +(3) +$ +2,410,200 +Thomas Jorden +0 +0 +12/06/2012 +45,500 +$ +1,218,490 +90,000 +(3) +$ +2,410,200 +Joseph Albi +55,800 +0 +$ +16.65 +12/06/2012 +45,500 +$ +1,218,490 +90,000 +(3) +$ +2,410,200 +Stephen Bell +0 +0 +12/06/2012 +45,500 +$ +1,218,490 +90,000 +(3) +$ +2,410,200 +(1) Vested +December 6, 2007, but not payable in shares until December 6, 2010 +(2) The +amount in this column reflects the closing market price of the stock as of December 31, 2008 ($26.78) times the number of shares +reported in the previous column. +(3) One-third +of these shares vests on each of January 3, 2009, January 2, 2010 and January 2, 2011. +The following table provides information about the stock options exercised by our CEO and NEOs during 2008: +2008 OPTION EXERCISES +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +F. H. Merelli, CEO +– +$ +– +Paul Korus +18,200 +(1) +$ +933,387 +Thomas E. Jorden +72,800 +(1) +$ +3,717,896 +Joseph R. Albi +27,000 +(1) +$ +1,380,780 +Stephen P. Bell +91,000 +(1) +$ +3,723,720 +(1) The +terms of the Option Agreement require the NEO to retain one-half of the shares remaining after delivering shares in payment of +the exercise price and any taxes due upon exercise. +The +following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in each of the last three fiscal years. +29 +Table of Contents +NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions +in Last FY (2) +($) +Aggregate +Earnings in +Last FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +F. H. Merelli, CEO +2008 +$ +48,113 +$ +48,113 +$ +(100,300 +) +$ +– +$ +400,122 +2007 +$ +28,300 +$ +32,550 +$ +27,665 +$ +– +$ +404,893 +2006 +$ +32,931 +$ +36,931 +$ +37,027 +$ +– +$ +316,850 +Paul Korus +2008 +$ +39,681 +$ +29,650 +$ +(21,195 +) +$ +– +$ +139,655 +2007 +$ +17,354 +$ +12,014 +$ +8,250 +$ +– +$ +91,949 +2006 +$ +14,501 +$ +18,501 +$ +4,935 +$ +– +$ +54,505 +Thomas E. Jorden +2008 +$ +64,744 +$ +34,569 +$ +9,221 +$ +– +$ +394,047 +2007 +$ +43,882 +$ +13,858 +$ +12,422 +$ +– +$ +286,014 +2006 +$ +30,167 +$ +19,083 +$ +8,767 +$ +– +$ +216,054 +Joseph R. Albi +2008 +$ +16,058 +$ +16,058 +$ +(29,209 +) +$ +– +$ +85,631 +2007 +$ +4,900 +$ +9,150 +$ +5,473 +$ +– +$ +89,327 +2006 +$ +25,500 +$ +29,500 +$ +6,192 +$ +– +$ +69,937 +Stephen P. Bell +2008 +$ +27,087 +$ +26,039 +$ +6,374 +$ +– +$ +265,154 +2007 +$ +7,935 +$ +8,898 +$ +5,112 +$ +– +$ +206,032 +2006 +$ +32,485 +$ +23,693 +$ +5,827 +$ +– +$ +184,216 +(1) The +amounts included in this column are also included in the Salary column in the Summary Compensation Table . +(2) The +amounts reported in this column are included in the All Other Compensation column and +footnote thereto in the Summary Compensation Table . +POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION +We do not consider post-termination benefits as a material element of executive compensation because, except for our CEO, NEO +post-termination benefits are the same benefits available to all full-time employees. Post-termination benefits are not included in the Compensation Committee's +analysis of total compensation. +We +are obligated to make certain payments to our CEO and NEOs or to accelerate the vesting of their equity awards upon a change in control, death, disability or termination of employment pursuant to +the following plans and agreements: +• change in control severance plan that covers all full-time employees, including the NEOs +• 2002 Stock Incentive Plan +• employment agreement with Mr. Merelli +30 +Table of Contents +• change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +• Supplemental Savings Plan +We +currently do not pay severance benefits or accelerate equity awards upon the retirement of the CEO or other NEOs. Individual performance assessments, compensation arising from our annual +compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +The +following tables provide the estimated compensation and present value of benefits potentially payable to the CEO and each other NEO upon a change in control of Cimarex or termination of +employment. The amounts shown assume that the termination or change in control occurred on December 31, 2008. The actual amounts to be paid can only be determined at the time of the executive's +actual separation from Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements +or modify these arrangements, from time to time. +Please +see the narrative following the tables below for a discussion of the agreements providing for the payments required upon termination or a change in control. +Potential Payments upon Change in Control +Cimarex is obligated under certain agreements to pay benefits upon a "change in control" event. +Cimarex's definition of "change in control" as used in its 2002 Stock Incentive Plan, its Change in Control Severance Plan and the Employment Agreements +with each NEO is the same. In summary, a "change-in-control" event means any of the following: +• Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities +of Cimarex by an individual or group. +• Members of our Board of Directors cease to constitute a majority of the directors. +• A reorganization, share exchange or merger unless (i) the stockholders prior to the reorganization or merger +continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the +members of the board of directors of the corporation resulting from the merger or reorganization were members of the board of directors at the time of executing the agreement to reorganize or merge. +• The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +31 +Table of Contents +The +following describes potential payments to the CEO and NEOs in the event of a change-in-control event coupled with termination of employment without cause: +Change in Control – Termination without Cause +Name +Annual Average +Cash +Compensation (1) +Cash +Incentive (2) +Restricted +Stock and +Stock +Units (3) +Options +Employee +Benefits (4) +280G Tax +Gross Up +Total +Benefits +F. H. Merelli, CEO +$ +2,377,250 +$ +559,180 +$ +2,185,248 +$ +– +$ +421,680 +$ +– +$ +5,543,358 +Paul Korus +$ +1,156,583 +$ +273,750 +$ +1,092,624 +$ +– +$ +321,094 +$ +– +$ +2,844,051 +Thomas E. Jorden +$ +1,274,824 +$ +297,110 +$ +1,092,624 +$ +– +$ +321,094 +$ +– +$ +2,985,652 +Joseph R. Albi +$ +1,174,350 +$ +273,750 +$ +1,092,624 +$ +– +$ +116,860 +$ +– +$ +2,657,583 +Stephen P. Bell +$ +1,047,727 +$ +226,300 +$ +1,092,624 +$ +– +$ +222,818 +$ +– +$ +2,589,469 +(1) Amount +represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2007 and 2008, as +provided in the Change in Control Severance Plan. +(2) Amount +represents the average incentive bonus as provided in the Change in Control Severance Plan. +(3) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2008 of $26.78 per share. +(4) Amounts +represent estimated payments under the Supplemental Savings Plan and the estimated value of continued medical, dental, disability and +life insurance benefits for two years. +The following is a summary of those agreements that provide for payment to the CEO and the NEOs in the event of a change-in-control +event coupled with termination of employment without cause: +Change in Control Severance Plan +Our Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of a "change in control." In +the event of a change in control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a change in control, each employee would be +entitled to: +• Cash severance payments of up to two years' salary and cash incentive award. +• A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +• Continued medical, dental, disability and life insurance benefits for two years. +• Additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and +related income taxes, interest and penalties. +Assumed Change-in-Control Employment Provisions for Messrs. Albi, Bell, Jorden and Korus +We assumed the change-in-control provisions from the now expired employment agreements between each of Messrs. Albi, +Bell, Jorden and Korus and a predecessor company. Each agreement provides that if the executive is terminated without cause following a change-in-control event (as defined in +the agreement), the executive is entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Benefits payable under these agreements +are forfeited if the NEO receives benefits under any other change-in-control plan, including the Cimarex Energy Co. Change in Control Severance Plan. +32 +Table of Contents +As +a practical matter, the "change-in-control" benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described +above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. +Change in Control – No Termination +The following describes potential payments to the CEO and NEOs in the event of a change-in-control event without employment +termination: +Name +Restricted +Stock and +Stock Units (1) +Options +Total +Benefits +F. H. Merelli, CEO +$ +2,185,248 +$ +– +$ +2,185,248 +Paul Korus +$ +1,092,624 +$ +– +$ +1,092,624 +Thomas E. Jorden +$ +1,092,624 +$ +– +$ +1,092,624 +Joseph R. Albi +$ +1,092,624 +$ +– +$ +1,092,624 +Stephen P. Bell +$ +1,092,624 +$ +– +$ +1,092,624 +(1) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2008 of $26.78 per share. +The +Compensation and Governance Committee has the authority to accelerate vesting of any award made under our 2002 Stock Incentive Plan. The Committee has authorized acceleration of vesting in the +event of a change in control in all equity award agreements. +Potential Payments upon Termination – No Change in Control +Potential Payments upon Death or Disability +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock +Unit (2) +Options +Employee +Benefits (3) +Total Benefits +F. H. Merelli, CEO +$ +1,700,000 +$ +297,000 +$ +2,185,248 +$ +– +$ +400,122 +$ +4,582,370 +Paul Korus +$ +– +$ +– +$ +1,092,624 +$ +– +$ +139,655 +$ +1,232,279 +Thomas E. Jorden +$ +– +$ +– +$ +1,092,624 +$ +– +$ +394,047 +$ +1,486,671 +Joseph R. Albi +$ +– +$ +– +$ +1,092,624 +$ +– +$ +85,630 +$ +1,178,254 +Stephen P. Bell +$ +– +$ +– +$ +1,092,624 +$ +– +$ +265,154 +$ +1,357,778 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2008, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2008 services. +33 +Table of Contents +(2) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2008 of $26.78 per share. +(3) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +Mr. Merelli +or his heirs are entitled under his employment agreement to 24 months of his base salary and incentive compensation in the event of his death or disability. +The +Committee has authorized acceleration of vesting of all equity awards in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or disability. +Potential Payments upon Termination Without Cause +Name +Severance +Cash Incentive +Employee +Benefits (2) +Total +Benefits +F. H. Merelli, CEO +$ +1,700,000 +(1) +$ +297,000 +(1) +$ +400,122 +$ +2,397,122 +Paul Korus +$ +– +$ +– +$ +139,655 +$ +139,655 +Thomas E. Jorden +$ +– +$ +– +$ +394,047 +$ +394,047 +Joseph R. Albi +$ +– +$ +– +$ +85,630 +$ +85,630 +Stephen P. Bell +$ +– +$ +– +$ +265,154 +$ +265,154 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2008, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2008 services. +(2) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +In +September 2002 we assumed Mr. Merelli's employment agreement from a predecessor company. His agreement is for an indefinite term. The agreement provides that if Mr. Merelli's +employment is terminated because of (i) death or disability or (ii) without cause, he is entitled to continuation of his base salary for 24 months (reduced by +long-term disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan. "Without cause" includes a resignation by +Mr. Merelli upon a change in his place of employment from Denver, Colorado without his consent. Mr. Merelli agreed not to reveal any trade secret or confidence and to surrender all +information containing trade secrets or confidences. The confidentiality requirements of his employment agreement survive for three years following termination of employment. +Benefits +under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +34 +Table of Contents +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 24, 2009, there were 83,319,457 shares of common stock +outstanding, with each share entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 24, 2009, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial +Owner +Shares +Owned (1) +Option +Shares (2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +597,869 +547,400 +1,145,269 +1 +% +Joseph R. Albi +116,334 +55,800 +172,134 +<1 +% +Stephen P. Bell +144,395 +0 +144,395 +<1 +% +Thomas E. Jorden +130,747 +0 +130,747 +<1 +% +Paul Korus +118,589 +0 +118,589 +<1 +% +Directors +Jerry Box +12,433 +– +12,433 +<1 +% +Hans Helmerich +82,445 +(3) +10,000 +92,445 +<1 +% +David A. Hentschel +12,817 +10,000 +22,817 +<1 +% +Paul D. Holleman +11,479 +20,000 +31,479 +<1 +% +Harold R. Logan, Jr. +0 +– +0 +0 +% +Monroe W. Robertson +10,394 +– +10,394 +<1 +% +Michael J. Sullivan +8,012 +10,000 +18,012 +<1 +% +L. Paul Teague +51,714 +10,000 +61,714 +<1 +% +All executive officers and directors as a group (17 persons) +1,531,545 +687,200 +2,218,745 +3 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the +benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include restricted stock units held by executive officers or deferred compensation units held by some directors. +See Equity-Related Interests table below. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following +March 24, 2009 under the Cimarex Energy Co. 2002 Stock Incentive Plan. +(3) Includes +7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee and 1,072 shares held by a +family trust of which Mr. Helmerich is a co-trustee. Also includes 11,450 shares owned by Mr. Helmerich's wife, 5,545 shares held by Mr. Helmerich's son and 4,140 +shares held by Mr. Helmerich's daughter; Mr. Helmerich disclaims beneficial ownership of these shares. +35 +Table of Contents +Beneficial Owners of More than Five Percent +Third Avenue Management LLC is the only stockholder who beneficially owns five percent or more of our outstanding shares of common stock. The +following table provides information regarding its stock ownership and is based on its filing with the Securities and Exchange Commission. +Voting +Authority +Dispositive +Authority +Total +Amount of +Beneficial +Ownership +Percent of +Class +Name and Address +Sole +Shared +Sole +Shared +Third Avenue Management LLC +622 Third Avenue +New York, NY 10017 +6,871,780 +0 +6,979,905 +0 +6,979,905 +8.38 +% +Equity and Equity-Related Interests Held by Executive Officers and Directors +The following table shows, as of March 24, 2009, vested and unvested equity interests and common stock held by each of the executive officers +set forth in the Summary Compensation Table , the directors and all of the executive officers and directors as a group: +Unvested +Restricted +Stock (1)(2) +Common +Stock with +Hold (3) +Restricted Stock +Units/Deferred +Comp Units (4)(5) +Shares Underlying +Stock Options +401(k) +Common +Stock +Total +Vested +Unvested +Vested +Unvested +Named Officers +F. H. Merelli (also director) +180,000 +– +211,200 +0 +547,400 +0 +16,437 +401,432 +1,356,469 +Joseph R. Albi +90,000 +7,460 +45,500 +0 +55,800 +0 +5,490 +12,584 +216,834 +Stephen P. Bell +90,000 +19,055 +45,500 +0 +0 +0 +0 +35,340 +189,895 +Thomas E. Jorden +90,000 +19,896 +45,500 +0 +0 +0 +8,967 +11,884 +176,247 +Paul Korus +90,000 +16,805 +45,500 +0 +0 +0 +0 +11,784 +164,089 +Directors +Jerry Box +4,479 +– +– +– +– +– +– +7,954 +12,433 +Hans Helmerich +– +– +4,359 +4,479 +10,000 +0 +– +82,445 +101,283 +David A. Hentschel +4,479 +– +– +– +10,000 +0 +– +8,338 +22,817 +Paul D. Holleman +4,479 +– +– +– +20,000 +0 +– +7,000 +31,479 +Harold R. Logan, Jr. +— +— +— +— +— +— +— +0 +0 +Monroe W. Robertson +4,479 +– +– +– +– +– +– +5,915 +10,394 +Michael J. Sullivan +– +– +826 +4,779 +10,000 +0 +– +8,012 +23,317 +L. Paul Teague +4,479 +– +1,829 +– +10,000 +0 +– +47,235 +63,543 +All executive officers & directors as a group (17 persons) +753,145 +80,418 +469,714 +13,958 +687,200 +0 +34,319 +660,863 +2,701,617 +(1) The +restricted stock held by the executive officers is subject to three-year cliff vesting and the satisfaction of performance +goals. See Compensation Discussion and Analysis, Elements of Cimarex Executive Compensation Program, Long-Term Incentive Awards in this proxy +statement. +(2) The +restricted stock held by the directors vests in three equal annual installments, beginning with the first anniversary from the grant date. +(3) Represents +shares acquired upon the exercise of an option that must be held until December 6, 2010. The terms of the options require +that, upon exercise, the holder is required to retain 50% of the profit shares for eights years from the date of grant (December 6, 2010). +36 +Table of Contents +(4) The +restricted stock units vest five years from the date of grant and are payable in shares of common stock on the eighth anniversary of the +date of grant. +(5) The +deferred compensation units held by certain directors vest in three equal annual installments and represent the right to receive one share +of Cimarex common stock at the time provided in the director's deferred compensation election. +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our +independent auditor, subject to a specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the SEC may +not be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described below and the related fees were pre-approved by the Audit +Committee in 2006 and 2007. +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to +Cimarex: +Years Ended December 31, +2008 +2007 +Audit Fees +$ +1,016,500 +$ +975,500 +Audit-Related Fees +$ +0 +$ +282,100 +Tax Fees +$ +259,160 +(1) +$ +472,212 +All Other Fees +$ +0 +$ +0 +(1) Includes +review of federal and state tax returns and compliance issues. +Report of Audit Committee +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company's financial reporting; (ii) the +independent auditor's qualifications and independence; and (iii) the performance of the Company's internal auditors and independent auditor. In so doing, it is the responsibility of the +Committee to maintain free and open communication between the directors, the independent auditor and the management of the Company. The Board of Directors has adopted a written charter for the Audit +Committee, a copy of which is available on our website at www.cimarex.com . +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and +issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes and uses internal audit to assist with these responsibilities. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2008 and met with both management and KPMG, Cimarex's independent registered +37 +Table of Contents +public +accounting firm, to discuss those financial statements and the effectiveness Cimarex's internal control over financial reporting. In addition, we have received from KPMG the communication +required by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Concerning Independence , and +discussed with KPMG their independence from +Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by Statement on Auditing Standards No. 61, Communication with Audit +Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2008. +THE AUDIT COMMITTEE* +Monroe W. Robertson, Chairman +Paul D. Holleman +Michael J. Sullivan +* Mr. Logan +was appointed to the Audit Committee on March 20, 2009. He did not participate in the review of the materials discussed in this +Report. +OTHER MATTERS +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2008, we contracted for drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of +business in the same manner as we obtain services from other companies that provide similar services. From October 1, 2007 through September 30, 2008, we paid Helmerich & +Payne, Inc. $34,337,533 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the +selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when +compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with Helmerich & +Payne, Inc. does not interfere with his independent business judgment while serving on our Board. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our +common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we +believe that all reports were timely filed in 2008, except a report for Hans Helmerich, a director, relating to the sale of 10,000 shares, was filed late. +38 +Table of Contents +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com . Any person, +whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or +anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to +communicate directly with the presiding non-management director or with our non-management directors as a group, also may call the confidential hotline. The hotline is +available 24 hours a day, seven days a week and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +39 +Table of Contents +CIMAREX ENERGY CO. +VOTE BY INTERNET OR TELEPHONE +QUICK *** EASY *** IMMEDIATE +As a stockholder of Cimarex Energy Co., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return +the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically +over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 19, 2009. +[Computer Icon] +[Phone Icon] +[Mail Icon] +Vote Your Proxy on the Internet: +Vote Your Proxy by Phone: +Call 1 (866) 894-0537 +Vote Your Proxy by mail: +Go to www.continentalstock.com +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +OR +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +OR +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE +VOTING ELECTRONICALLY OR BY PHONE +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" THE PROPOSALS. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Please mark +your votes +like this +ý +The Board of Directors recommends a vote FOR Proposals 1 and 2. +1. +Election of three Class I directors: +FOR +AGAINST +ABSTAIN +(01) Jerry Box +o +o +o +FOR +AGAINST +ABSTAIN +(02) Paul D. Holleman +o +o +o +FOR +AGAINST +ABSTAIN +(03) Michael J. Sullivan +o +o +o +FOR +AGAINST +ABSTAIN +2. +Ratify appointment of KPMG LLP as independent auditors for 2009. +o +o +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS ABOVE. +Label Area 4" × 1 1 / 2 " +PRINT AUTHORIZATION +(THIS BOXED AREA DOES NOT PRINT) +To commence printing on this proxy card please sign, date and fax this card to this number: 212-691-9013 or email us your approval. +SIGNATURE: +DATE: +TIME: +Registered Quantity +Broker Quantity +Note: SCOTTI to Email final approved copy for Electronic Voting website setup: Yes o +UPON FINAL APPROVAL +FORWARD INTERNET & +TELEPHONE VOTING +TO +SUNGUARD +WITHOUT THE YELLOW +BOX, BLUE BOX & CROP +MARKS +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature +Signature +Date +, 2009. +Note: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give title as such. +Table of Contents +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 20, 2009, or any adjournment thereof. +For +participants in the Cimarex 401(k) Plans, this proxy, when properly executed, will be voted in the manner directed by the undersigned. If no direction is given, if the card is not +signed, or if the card is not received by May 18, 2009, the Plan's Trustee will vote your shares held in the Plan in the same proportion as shares were voted by other Plan participants. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-09-003778/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-09-003778/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..91c72c11b658618a51b5d99b523695d180088862 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-09-003778/proxy_rpt.txt @@ -0,0 +1,13 @@ +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2008, we contracted for drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of +business in the same manner as we obtain services from other companies that provide similar services. From October 1, 2007 through September 30, 2008, we paid Helmerich & +Payne, Inc. $34,337,533 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the +selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when +compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with Helmerich & +Payne, Inc. does not interfere with his independent business judgment while serving on our Board. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-10-003133/proxy.txt b/raw/proxies/0001168054/0001047469-10-003133/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..232dea84207ee8144cc9b919faae157629775611 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-10-003133/proxy.txt @@ -0,0 +1,3504 @@ +DEF 14A +1 +a2197339zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +CIMAREX ENERGY CO. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 19, 2010 +9:00 a.m. Central Time +Doubletree Hotel, 616 West Seventh Street, Tulsa, OK +AGENDA: +1. Elect +three Class II directors for terms expiring in 2013. +2. In +order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue Code, approve a revision to the maximum +number of shares that may be issued under Cimarex's performance awards. +3. Ratify +the appointment of KPMG LLP as the independent auditors for 2010. +We +will also transact any other business as may properly come before the meeting or any adjournments thereof. +Stockholders +of record at the close of business on March 23, 2010 are entitled to notice of and to vote at the meeting. +YOUR VOTE IS IMPORTANT +Please take the time to vote by following the Internet or telephone voting instructions provided in this proxy statement. If you received a paper +copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. +You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Mary Kay Rohrer +Corporate Secretary +Date: +April 6, 2010 +Table of Contents +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +1 +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +1 +PROPOSAL 1. ELECTION OF DIRECTORS +4 +Nominees +5 +Continuing Directors +6 +PROPOSAL 2. 162(m) APPROVAL OF REVISION TO THE MAXIMUM NUMBER OF +SHARES ISSUABLE UNDER PERFORMANCE AWARDS +9 +PROPOSAL 3. RATIFICATION OF INDEPENDENT +AUDITORS +9 +CORPORATE GOVERNANCE +10 +Independence of Board Members +10 +Meetings and Executive Sessions of the Board of Directors and its +Committees +10 +Director Attendance at the Annual Meeting +11 +Board Committees +11 +Audit Committee +11 +Compensation and Governance Committee +12 +Nominating Committee +13 +Board Leadership Structure +14 +Risk Oversight +14 +Board/Committee Evaluations +15 +Director Education +15 +Service on Boards of Other Public Companies +15 +Director and Management Stock Ownership +15 +Corporate Governance Guidelines and Code of Ethics +15 +Web Access +16 +Process for Communication with the Board +16 +DIRECTOR COMPENSATION +16 +Overview +16 +Determination of Director Compensation +17 +Director Compensation +17 +2009 Director Compensation +18 +Deferred Compensation Plan for Non-Employee Directors +18 +Acceleration of Vesting of Awards +19 +EXECUTIVE COMPENSATION +19 +COMPENSATION DISCUSSION AND ANALYSIS +19 +Background +19 +Objectives of our Executive Compensation Program +19 +Principal Elements of Executive Compensation +20 +How We Make Compensation Decisions +20 +Elements of Total Executive Compensation +23 +Base Salary +24 +Annual Cash Incentive Awards +25 +i +Table of Contents +Page +Long-Term Equity Incentive Awards +26 +Other Compensation +28 +Perquisites +28 +Retirement Benefits +29 +Supplemental Savings Plan +29 +Report of Compensation and Governance Committee +29 +COMPENSATION TABLES +30 +Summary Compensation Table +30 +2009 Grants of Plan-Based Awards +31 +Non-Equity Incentive Plan +31 +Equity Incentive Plan Awards +32 +Outstanding Equity Awards at December 31, 2009 +33 +2009 Option Exercises and Restricted Stock Vested +33 +Nonqualified Deferred Compensation +34 +Potential Payments upon Change in Control or Termination +35 +Potential Payments upon Change in Control +35 +Change in Control – Termination without +Cause +36 +Change in Control – No Termination +37 +Potential Payments upon Termination – No Change in +Control +37 +Potential Payments upon Death or Disability +37 +Potential Payments upon Termination without Cause +38 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL +OWNERS +39 +Beneficial Ownership by Executive Officers and Directors +39 +Beneficial Owners of More than Five Percent +40 +Equity and Equity-Related Interests Held by Executive Officers and +Directors +41 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +41 +Policy for Approval of Audit, Audit-Related and Tax Services +41 +Fees +42 +Report of Audit Committee +42 +OTHER MATTERS +43 +Transactions with Related Persons +43 +Section 16(a) Beneficial Ownership Reporting Compliance +43 +Complaint and Reporting Procedures +43 +ii +Table of Contents +PROXY STATEMENT +2010 ANNUAL MEETING OF STOCKHOLDERS – May 19, 2010 +CIMAREX ENERGY CO. +Doubletree Hotel, 616 West Seventh Street, Tulsa, OK +We provide you with this proxy statement to solicit your vote at our 2010 Annual Meeting of Stockholders. +The +Annual Meeting will be held at 9:00 a.m. Central Time, at the Doubletree Hotel, 616 West Seventh Street, Tulsa, Oklahoma 74127. +The +proxy materials will be furnished to stockholders on or about April 6, 2010. All properly completed and delivered proxies will be voted at the Annual Meeting and at any adjournments or +postponements of the Meeting. If you are a stockholder of record at the close of business on March 23, 2010, the record date, you may vote at the Annual Meeting, or at adjournments or +postponements of the Meeting. +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +As permitted by the U.S. Securities and Exchange Commission (the "SEC"), we have elected to provide our stockholders with access to our proxy +materials on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials, or the Notice, was mailed to most of our stockholders on or about April 6, 2010. Stockholders will +have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of proxy materials to be sent to them, by following the instructions in the Notice. +The +Notice will also provide instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future +proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to +receive proxy materials by e-mail or printed form will remain in effect until you terminate it. +Choosing +to receive future proxy materials by e-mail will allow us to provide you with the information you need in a more timely manner and will save us the cost of printing and mailing +documents to you. +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +Who can vote? +Stockholders holding shares of our common stock as of the close of business on March 23, 2010, may vote at the Annual Meeting, or at any +adjournment or postponement of the Meeting. You have one vote for each share of common stock held as of the record date that may be voted on each proposal presented at the Annual Meeting. +Who can attend the Annual Meeting? +Admission to the Annual Meeting is limited to stockholders of Cimarex, persons holding proxies from stockholders who held Cimarex common stock on +March 23, 2010, and invited guests of Cimarex. +1 +Table of Contents +How many shares of Cimarex common stock were outstanding on the record date? +At the close of business on March 23, 2010, the record date, there were 83,879,288 shares of common stock outstanding and entitled to vote at +the Annual Meeting. Common stock is the only class of stock entitled to vote. +How do I vote? +You may vote by any of the following methods: +• Vote on the Internet at the website for Internet voting. Simply follow the instructions on the Notice, or if you received +a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of +future proxy materials. +• Vote by telephone by following the instructions on the Notice, or if you received a proxy card, by following the +instructions on the proxy card. +• If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the +pre-addressed, postage-paid envelope provided. +• You may attend and vote at the Annual Meeting. The Board recommends that you vote using one of the methods described +above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. +If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card? +No. +If I vote by mail, telephone or Internet, may I still attend the Annual Meeting? +Yes. +Can I change my vote? +If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following +methods: +• Voting at a later time by Internet or telephone; +• Voting in person at the Annual Meeting; +• Delivering to our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, +Denver, Colorado 80203-4518 a proxy with a later date or a written revocation of your proxy; or +• Giving notice of revocation to the Inspector of Election at the Annual Meeting. +How do I vote if my shares are held in street name? +If your shares are held in the name of your broker, a bank, or other nominee, only your broker, bank or other nominee may execute a proxy and vote +your shares. Please follow the instructions on the form you receive from your broker, bank or other nominee. You may vote by the Internet, in person or by telephone if your bank or broker makes those +methods available in accordance with the instructions on the form. If you wish to vote your "street name" shares in person, you will need to obtain a document known as a "legal proxy" from your +broker, bank or other nominee. Please contact your bank, broker, or other nominee if you wish to do so. +2 +Table of Contents +How do I vote shares held in my 401(k) account? +Participants in the Cimarex 401(k) Plan ("401(k) Plan") who have shares of common stock credited to their plan account as of the record date will +have the right to direct the 401(k) Plan trustee regarding how to vote those shares. The trustee will vote the shares in a participant's 401(k) Plan account in accordance with the participant's +instructions or, if no instructions are received prior to 5 pm Eastern Time on May 14, 2010, the shares credited to that participant's account will be voted by the trustee in the same +proportion as it votes shares for which it did receive timely instructions. Information as to how participants voted the shares credited to their 401(k) Plan account will not be disclosed to Cimarex. +What happens if other matters come up at the Annual Meeting? +We do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, F. H. +Merelli, Cimarex's Chairman of the Board, Chief Executive Officer and President, and Paul Korus, Cimarex's Vice President, Chief Financial Officer and Treasurer, will vote your shares at their +discretion. +Who will count the votes? +A representative of Continental Stock Transfer & Trust Company, our stock transfer agent, will act as the independent tabulator appointed by +the Board of Directors and will count the votes and act as the Inspector of Election. +What is a "quorum"? +A "quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting +shares of common stock present in person at the Annual Meeting or represented by proxy. If you submit a properly completed proxy, you will be considered part of the quorum even if you abstain from +voting. Shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners ("broker non-votes") are treated as present for the purposes +of determining a quorum. +How many votes must each proposal receive to be adopted? +• With respect to Proposal 1, the election of directors, each nominee will be elected if the votes cast for the nominee +exceed the votes cast against the nominee. +• Proposal 2 for the approval of a revision to the maximum number of shares of restricted stock issuable under the +performance share awards must receive an affirmative majority of the votes cast on the Proposal. +• Proposal 3 for the ratification of independent auditors must receive the affirmative vote of a majority of the shares +present and entitled to vote. +How are votes counted and what is the effect of broker non-votes? +Votes are counted in accordance with our Bylaws, Delaware law and the rules of the New York Stock Exchange. If a stockholder delivers a properly +completed proxy but does not indicate how his or her shares are to be voted, the shares covered by such proxy will be included in determining if there is a quorum and will also be counted as votes +"FOR" Proposal 1, Proposal 2 and Proposal 3 and against any stockholder proposal. Shares will not be voted at the Annual Meeting if a properly completed proxy covering those shares has not been +received and the holder does not vote in person or at the Annual Meeting. +3 +Table of Contents +The +New York Stock Exchange ("NYSE") precludes brokers from exercising voting discretion on certain proposals without specific instructions from the beneficial owner. Under the current NYSE rules, +brokers do not have discretion to vote on Proposal 1 (election of directors) or Proposal 2, but do have discretion to vote on Proposal 3. +As +to Proposal 1 (election of directors) and Proposal 2, abstentions and broker non-votes are counted as not voted and do not have an effect on the outcome of either Proposal. +How can I view the stockholder list? +You may view a stockholder list at the Annual Meeting or at our offices at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 during +ordinary business hours during the period May 9 through May 18, 2010. +Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex does. In addition to sending you these materials, some of our directors and management may contact you by telephone, mail, e-mail +or in person. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of distributing the proxy materials. +If I want to submit a stockholder proposal for the 2011 Annual Meeting, when is it due? +If you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in +writing to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone +(303) 295-3995 and facsimile (303) 295-3494. Cimarex must receive your proposal on or before December 9, 2010. Cimarex will consider only proposals meeting +the requirements of the applicable rules of the SEC. +If +a stockholder wants to bring any matter before the 2011 Annual Meeting that is not included in the 2011 Proxy Statement, the stockholder must provide written notice of the matter between +February 8, 2011 and February 18, 2011. If the 2011 Annual Meeting is held more than 30 days before or after May 19, 2011, then the stockholder's written notice must be +received not later than the close of business on the tenth day following the day on which the notice of the date of the 2011 Annual Meeting was mailed or public disclosure of the date of the Annual +Meeting was made, whichever first occurs. +PROPOSAL 1. ELECTION OF DIRECTORS +Our current Board of Directors consists of nine members. The Board is divided into three classes: Class I, Class II and +Class III directors. At each annual meeting, a class of directors is elected for a term expiring at the annual meeting in the third year following the year of election. Each director holds +office until his successor is elected and qualifies. +The +terms of the three Class II directors, Hans Helmerich, Harold R. Logan, Jr. and Monroe W. Robertson, will expire at the 2010 Annual Meeting. +If +prior to the Annual Meeting a nominee becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute +nominee or nominees designated by our Board of Directors or its Nominating Committee. As of the mailing of these proxy materials, the Board of Directors knows of no reason why any director nominee +would not be available to serve as a director. +A +nominee is elected if the votes cast for his election exceed the votes cast against his election. Each director who is nominated below has tendered an irrevocable resignation that is effective upon +his failure to receive the required vote and the Board's acceptance of such resignation. If a nominee fails +4 +Table of Contents +to +receive more favorable votes than votes cast against him, the Nominating Committee will act on an expedited basis following the Annual Meeting to determine whether to recommend that the Board +accept the director's resignation. The Committee and the Board may consider any factors they deem relevant in deciding whether to accept the director's resignation, and the director whose resignation +is under consideration must abstain from participating in any decision regarding his resignation. The Board will publicly disclose its decision regarding acceptance of resignation within +90 days after the results of the election are certified. If the resignation is not accepted, the director will continue to serve as a director until his successor is elected and qualified. If +the Board accepts the resignation, then the Board may fill the vacancy in accordance with the Bylaws or may decrease the size of the Board in compliance with the Certificate of Incorporation. +Information +concerning the nominees recommended by our Nominating Committee and nominated by our Board of Directors, as well as each of our continuing directors, is set forth below. +NOMINEES +Class II Directors – Terms Expiring in 2010 +Hans Helmerich +Director Since 2002 +President, CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age – 51 +Member +– Compensation and Governance Committee +Mr. Helmerich +has been the President and Chief Executive Officer of Helmerich & Payne, Inc., a publicly held company located in Tulsa, Oklahoma, since 1989 and has served as a +director of that company since 1987. Helmerich & Payne is primarily engaged in contract drilling of oil and gas wells for exploration and production companies and is one of the major land and +offshore platform drilling contractors in the world. Cimarex acquired Helmerich & Payne's exploration and production business in 2002. Mr. Helmerich's background with the exploration and +production business acquired by Cimarex, as well as his over 25 years executive experience with Helmerich & Payne, provide a strong background for his service on Cimarex's Board and on +the Compensation and Governance Committee. In addition, Mr. Helmerich's service as a director of two other public companies provides him with additional expertise and skills to serve as a +director. +Harold R. Logan, Jr. +Director Since March 2009 +Co-Founder, Director +Basic Materials and Services LLC +Denver, Colorado +Age – 65 +Member – +Audit Committee +Mr. Logan +is the Co-Founder and director of Basic Materials and Services LLC (Denver, Colorado), a privately held company founded in 2007 that invests in companies providing +specialized services for the pipeline construction and sand/silica industries. Mr. Logan was a Co-Founder of TransMontaigne (Denver, Colorado) in 1995 and Chief Financial Officer, +Executive Vice President, Treasurer and a director through 2002. He served as a director of TransMontaigne and chairman of its finance committee from 2002-2006. From 1987 to 1995, he was +Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that Mr. Logan was with Dillon Read & Co. Inc. and +Rothschild, Inc. +5 +Table of Contents +Over the past 39 years, Mr. Logan's education, investment banking/venture capital experience and business/financial management experience have provided him with a +comprehensive understanding of business and finance. Mr. Logan's expertise and experience have been relevant to his responsibilities of providing oversight and advice to the management of +public companies, and is of particular benefit in his role as a member of the Audit Committee of Cimarex. Since 1998, Mr. Logan has been a director of nine public companies and has served on +audit, compensation and governance committees. Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane Partners, L.P. and as a director of Graphic +Packaging Corporation, both NYSE companies. He is also a director of Hart Energy Publishing LLC, a private company that publishes the Oil & Gas Investor magazine and other energy +publications. +Monroe W. Robertson +Director Since 2005 +Private Investor +Age – 60 +Chairman +– Audit Committee +Mr. Robertson +is currently a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in +March 2002. While with Key, he held the positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Mr. Robertson has served in executive capacities +with three other public energy companies, Apache Corp., Gulf Oil Corporation and Terra Resources. Mr. Robertson has comprehensive knowledge of the financial and operational sides of the +exploration and production business, which is of considerable value in his service as Chairman of the Company's Audit Committee. He currently serves as a director, chairman of the audit committee and +member of the compensation and nominating committee of Basic Earth Science System, Denver, Colorado, an independent exploration and production company. +Each director will be elected if he receives more "FOR" votes than "AGAINST" votes. Our Board of Directors recommends a vote "FOR" all nominees. +CONTINUING DIRECTORS +Class I Directors – Terms Expiring in 2012 +Jerry Box +Director Since 2005 +Retired President and COO +Oryx Energy Company +Age – 71 +Member +– Compensation and Governance Committee +Mr. Box +was Chairman of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter Resources from March 1999 to June 2005. He retired in June 2005 +at the time of the acquisition by Cimarex of Magnum Hunter. Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a +number of managerial and executive positions with Oryx Energy from February 1998 to March 1999, and its predecessor company, Sun Oil Company. Mr. Box holds undergraduate and graduate degrees in +geology. He has served for several years in an executive capacity with public and private companies. Mr. Box has served on numerous oil and gas committees and task forces and as a President and +Treasurer of the Dallas Petroleum Club. Mr. Box serves as a non-management director and Chairman of the Board of NewPark Resources, Inc. of The Woodlands, Texas, an oilfield +services company traded on the New York Stock Exchange. His extensive experience as an executive for companies in the energy business makes his service on the Compensation and Governance Committee +particularly valuable. +6 +Table of Contents +Paul D. Holleman +Director Since 2002 +Retired Partner +Holme Roberts & Owen LLP +Age – 78 +Member +– Audit Committee +Mr. Holleman +was a senior partner with Holme Roberts & Owen LLP, a Denver-based law firm, until 2000, when he retired. While at Holme Roberts, he served as Chairman of the Natural +Resources Department, and was a member of the firm's executive committee. Mr. Holleman was legal counsel to Key Production Company, Inc., a predecessor to Cimarex, and other oil and gas +companies. Mr. Holleman was president of Inter-American Petroleum Corporation and a director of Janus Funds. He is a past chairman of the Mineral Law Section of the Colorado Bar Association, +past chairman of the Rocky Mountain Mineral Law Institute and past chairman of the American Bar Association Public Lands Committee of the Natural Resources Section. Mr. Holleman's legal +expertise and significant experience representing energy companies provide a diverse background on the Board of Directors, and his involvement in the management of a large diverse law firm provides +valuable experience in his role on the Audit Committee. +Michael J. Sullivan +Director Since 2002 +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age – 70 +Lead +Director +Member – Audit Committee +Mr. Sullivan +has been a senior partner of the Denver-based law firm, Rothgerber Johnson & Lyons LLP since 2001, and the managing partner of the Casper office of that firm. +Mr. Sullivan practiced law with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Mr. Sullivan brings a wealth of experience and a diverse +background to Cimarex's Board. In addition to his Juris Doctor degree, he has an undergraduate degree in petroleum engineering, years of governmental service as the Governor of Wyoming +(1987-1995) and Ambassador to Ireland (1998-2001), and 35 years' experience practicing law in the areas of natural resources, mediation and business. As Governor he was +involved in the process of reviewing and administering Wyoming's budget. This experience is particularly relevant in his service on the Audit Committee. +Mr. Sullivan +is a director of Kerry Group plc, a global food and food ingredients producer headquartered in Tralee, Ireland; director and member of the governance committee of First +Interstate BancSystem, Billings, Montana and director and member of the compensation and governance and audit committee of Sletten Construction, Inc., Great Falls, Montana. From 2001 to May +2009 he served as a director and member of the corporate social responsibility committee and governance committee of Allied Irish Bank Group, Dublin, Ireland. +7 +Table of Contents +Class III Directors – Terms Expiring in 2011 +David A. Hentschel +Director Since 2002 +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age – 76 +Member +– Compensation and Governance Committee +Mr. Hentschel +was Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation from 1997 until 1999, when he retired. He also served as President and Chief Executive Officer of +Canadian Occidental Petroleum, Ltd, now known as Nexen, from 1995 until 1997. Mr. Hentschel brings considerable executive experience in the domestic and international oil and gas +industry to the Board. He was in charge of the worldwide exploration and production operations for Cities Service, Occidental Oil and Gas Corporation for the last 20 years of his +40-year career. He was a director of Occidental Petroleum from 1987-1993 and of Canadian Occidental or Nexen from 1985-2009. During his service as a director of +Nexen, he was chair of the audit committee and a member of the compensation committee and various other committees. He was also a director of the Bank of Oklahoma from 1984-1995. +Mr. Hentschel's extensive leadership background and his service on Nexen's audit and compensation committees provide strong skills and experience for his service on our Compensation and +Governance Committee. +F. H. Merelli +Director Since 2002 +Chairman of the Board, CEO, President +Cimarex Energy Co. +Denver, Colorado +Age – 74 +Mr. Merelli +has been Chairman of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. He was Chairman and Chief Executive Officer of Key Production +Company, Inc. (acquired by Cimarex in September 2002) from September 1992 to September 30, 2002 and President from March 2002 until September 30, 2002 and from September 1992 to +September 1999. Mr. Merelli has spent over 35 years in key executive positions in the oil and gas industry. Mr. Merelli is the creator of several management and incentive systems +currently employed by Cimarex. Mr. Merelli is a director and member of the audit committee of Apache Corporation, Houston, Texas, an exploration and production company traded on the NYSE. +L. Paul Teague +Director Since 2002 +Retired Executive +Texaco USA +Age – 75 +Chairman +– Compensation and Governance Committee +Mr. Teague +served 35 years with Texaco Inc. He retired in 1994 as Vice President, Western Exploration & Producing Region of Texaco USA in Denver, Colorado. +Mr. Teague held various positions with Texaco USA, including Vice President-Producing in Houston, Texas, Vice President of the New Orleans Producing Division, Division Manager, New Orleans and +General Superintendent of the Offshore Division in New Orleans. Mr. Teague holds a degree in Petroleum Engineering from Louisiana Tech University and is a graduate of the University of Southern +California Executive Program. He has several industry affiliations, including the former Chairman of the API Executive Committee on Drilling and Production Practices, former President of the Colorado +Petroleum Association, a 50-year Legion of Honor Member of the Society of Petroleum Engineers and a member +8 +Table of Contents +of +the Rocky Mountain Oil & Gas Hall of Fame. He brings his executive experience with a major oil and gas company to bear on corporate governance and executive compensation issues in his role +as chairman of our Compensation and Governance Committee. +PROPOSAL 2 – 162(m) APPROVAL OF REVISION TO THE MAXIMUM NUMBER +OF SHARES ISSUABLE UNDER PERFORMANCE AWARDS +At the 2006 Annual Meeting, the stockholders approved the material terms of performance goals applicable to awards of restricted +stock granted under the Cimarex 2002 Stock Incentive Plan ("Plan") to the Chief Executive Officer and certain other executive officers. The Plan was initially approved by stockholders at Cimarex's +2003 annual meeting. +The +material terms of the performance goals included a maximum number of shares that may be issued to the executive officers if the performance goals are achieved at the highest levels. (See Executive Compensation, Long-Term +Equity Awards, for a detailed description of the performance awards and goals.) In December 2009, the +Compensation and Governance Committee approved an increase in the maximum number of shares that may be issued to each executive officer. The other material terms of the performance awards were not +changed. +Section 162(m) +of the Internal Revenue Code limits the compensation deduction that Cimarex may take on its federal income tax return to $1 million of compensation paid to each executive +officer. The deduction limit does not apply to "qualified performance-based compensation" as defined by Section 162(m). Awards of restricted stock with performance goals do not qualify as +performance-based compensation unless the material terms of the performance goals have been approved by the stockholders. The maximum number of shares that may be issued to an executive is a material +term of the performance goals. It is for this reason that Cimarex requests that the stockholders approve the following maximum number of shares that may be issued to each executive officer if the +performance goals are achieved at the highest levels. However, it is important to note that the awards have been previously granted and will remain outstanding even if the stockholders do not approve +Proposal 2. +Name +Position +Previously Approved +Maximum Shares +to be Issued +Amended Maximum +Number of Shares +to be Issued +F. H. Merelli +CEO, President +60,000 +100,000 +Joseph R. Albi +Executive VP +30,000 +50,000 +Stephen P. Bell +Sr. VP +30,000 +50,000 +Thomas E. Jorden +Executive VP +30,000 +50,000 +Paul Korus +VP, CFO, Treasurer +30,000 +50,000 +An affirmative majority of the votes cast on the Proposal at the Annual Meeting is required to ratify and approve Proposal 2. The Board of Directors recommends a vote "FOR" +Proposal 2. +PROPOSAL 3. RATIFICATION OF INDEPENDENT AUDITORS +The Audit Committee of the Board of Directors has appointed KPMG LLP to audit our financial statements for 2010. +KPMG LLP has been our independent auditors since October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG LLP as independent auditors. If stockholders fail to ratify the appointment of KPMG LLP, the Audit Committee may reconsider +this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +9 +Table of Contents +The affirmative vote of a majority of the shares present and entitled to vote at the Annual Meeting is required to ratify the appointment of KPMG LLP as Cimarex's +independent auditors for 2010. The Board of Directors recommends a vote "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for 2010. +See Independent Registered Public Accountants for information regarding auditor fees and services and the Audit Committee Report. +CORPORATE GOVERNANCE +Prudent corporate governance is critical for the trust and confidence of stockholders, employees, suppliers and business partners. +Cimarex corporate governance is based on high ethical standards and the awareness that our actions must be based on the best interests of the stockholders. +Independence of Board Members +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, +regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based +upon NYSE standards, all Board members are independent except the Chairman of the Board, who is also our Chief Executive Officer and President. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, the Board +determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of management +and free from any relationship that would interfere with the director's independent judgment. +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively determined by +the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +Applying +our Corporate Governance Guidelines and our Code of Business Conduct, the Board has affirmatively determined that each of our current directors, with the exception of our Chairman and Chief +Executive Officer, F. H. Merelli, has no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is independent under our Corporate Governance +Guidelines, Code of Business Conduct and the listing standards of the NYSE. Our Audit, Compensation and Governance, and Nominating Committees are comprised entirely of independent directors. +Meetings and Executive Sessions of the Board of Directors and its Committees +During 2009, our Board of Directors held four meetings. Our Board has Audit, Compensation and Governance, and Nominating Committees. During 2009, the +Audit Committee met eight times and the Compensation and Governance Committee met five times. The +Nominating Committee met once in 2009. Each director attended at least 75 percent of the Board meetings and the meetings of each committee on which he served. +The +independent members of the Board and its Committees meet at each in-person meeting in executive session. The purpose of these executive sessions is to promote open and candid +discussion among the independent directors. During 2009 the independent directors met four times in executive session, the independent members of the Audit Committee met in executive session four +times, and the independent members of the Compensation and Governance Committee met in executive session four times. +10 +Table of Contents +Each year the directors select a lead director to preside over Board executive sessions. Mr. Sullivan currently serves as lead director. During the February 25, +2010 executive session, the independent directors determined to elect a lead director at the May 2010 meeting. The Nominating Committee will present one or more nominations to the directors at the May +meeting for consideration. +Director Attendance at the Annual Meeting +The Board encourages all directors to attend the Annual Meeting, and all of our directors except Mr. Sullivan, who was out of the country at +the time of the Annual Meeting, attended our 2009 Annual Meeting. +Board Committees +The Board of Directors has established three standing committees to assist in carrying out its duties: the Audit Committee, the Compensation and +Governance Committee and the Nominating Committee. Each committee has adopted a charter that complies with the corporate governance rules adopted by the SEC and the NYSE listing standards. +Audit Committee +Members +Functions of Committee +Monroe W. Robertson, Chairman† +• Appoints independent auditors +Harold R. Logan, Jr.† +Paul D. Holleman +• Approves nature and scope of services of independent +auditors and reviews range of fees for such services +Michael J. Sullivan +• Oversees Cimarex's internal audit function +†Financial Expert +• Reviews qualification and independence of +auditors +• Monitors integrity of Cimarex's financial +statements +• Monitors compliance with legal and regulatory +requirements +• Risk oversight +The +Audit Committee consists of four directors who meet the NYSE standards of independence and financial literacy. The chairman and one other member of the Committee qualify as a "financial expert" as +defined by the SEC. No Audit Committee member serves on more than three audit committees of public companies, including Cimarex's Audit Committee. Cimarex maintains an internal audit department to +provide management and the Audit Committee with ongoing assessments of Cimarex's system of internal controls. +Cimarex's +independent auditor reports directly to the Audit Committee. The Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor and the +Board. Interested parties may contact the Audit Committee members by following the process outlined under Process for Communication with the Board in +this Corporate Governance section. +11 +Table of Contents +Compensation and Governance Committee +Members +Functions of Committee +L. Paul Teague, Chairman +Compensation Functions +Jerry Box +Hans Helmerich +• Recommends CEO and executive officer cash compensation +for +approval by Board +David A. Hentschel +• Recommends director compensation for approval by +Board +• Reviews and recommends to the Board for approval the +Compensation Discussion and Analysis disclosure +• Determines amount and terms of equity awards +• Reviews and approves long-term incentive plans +• Reviews relationship of compensation to risk +Governance Functions +• Oversees evaluation of performance of the Board, its +committees and the CEO +• Oversees corporate governance +• Develops plans for managerial succession +The +Committee consists of four independent directors. All of the Committee members have extensive executive experience in administering compensation for oil and gas exploration and production +companies. +Compensation Functions. The Committee establishes and administers our executive compensation program. The Committee approves equity awards and recommends for +approval by the independent directors cash compensation to be paid or delivered to the CEO and the other executive officers named in the Summary Compensation +Table in this proxy statement (referred to throughout this document as the "NEOs"). The outside directors (as defined by Internal Revenue Code (IRC) §162(m)) of the +Committee approve performance standards for the plans. +The +Committee uses the services of a compensation consultant for research and advice regarding the form and amount of executive and director compensation. Our Vice President of Human Resources also +reviews and analyzes the compensation practices of peer group companies and presents this information to the Committee. The CEO communicates with the Committee regarding performance of the NEOs and +makes recommendations regarding base salary, annual cash incentive awards and long-term equity incentive awards (see Compensation Discussion and +Analysis) . +The +Committee's compensation consultant performs executive compensation services only at the request of the Committee and does not perform services for management. In 2009, the Committee engaged +Longnecker & Associates as its compensation consultant. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from +February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of +facilitating the spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly-held company on September 30, 2002, at which +time Mr. Helmerich resigned as an executive officer. +Governance Functions. The Committee develops and recommends to the Board corporate governance principles. The Committee oversees the process of annual performance +evaluations for the Board and each committee, reviews and makes recommendations regarding Cimarex's Corporate Governance Guidelines and provides recommendations regarding director education programs. +12 +Table of Contents +Nominating Committee +Members +Functions of Committee +Michael J. Sullivan, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +Paul D. Holleman +Harold R. Logan, Jr. +Monroe W. Robertson +L. Paul Teague +• Determines desired board skills and attributes +• Recommends candidates to serve on the Board and to stand for +election at annual meeting of stockholders or to fill vacancy occurring between meetings +• Recommends Committee appointments +• Sole authority to retain and terminate any search firm to +identify director candidates +The +Nominating Committee is comprised of all independent directors. The Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired +qualifications, including judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the candidate's experiences with the experience of other directors +and the extent to which the candidate would be a desirable addition to the Board and any of its committees. In December 2009, we amended our Nominating Committee charter to include specifically in the +list of desirable attributes sought in our Board composition diversity of gender and ethnic background. In considering candidates for future openings on our Board, we expect to search for and consider +candidates who meet the qualifications set out in the Nominating Committee charter. +Each +director nominee is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas +experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with an +important capacity to execute its duty of oversight and guidance. +The +Committee will consider nominees recommended by stockholders. For the 2010 Annual Meeting, the Committee did not receive nominations from any stockholder prior to the deadline for stockholder +nominations. Stockholders who wish to nominate persons for election as directors at the 2011 Annual Meeting must submit a timely written notice complying with Cimarex's Bylaws to Corporate Secretary, +Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the stockholder's written notice +must be received between February 8, 2011 and February 18, 2011. If the 2011 Annual Meeting is held more than 30 days before or after May 19, 2011, the written notice must +be received no later than the close of business on the tenth day following the day on which the notice of the date of the 2011 Annual Meeting was mailed or public disclosure of the date of the Annual +Meeting was made, whichever first occurs. +13 +Table of Contents +Board Leadership Structure +As specified in our Bylaws, our Chief Executive Officer also serves as our Chairman of the Board. We also have a Lead Director, who is chosen +annually from our independent directors. The functions of the Chairman of the Board and the Lead Director are set out below: +Duties and Responsibilities of +Chairman of the Board +Duties and Responsibilities of +Lead Director +Preside over Board meetings +Preside over executive sessions of the Board +Call special meetings of the Board +Act as Chairman of the Nominating Committee +Approve agenda for Board meetings +Serve as liaison between the Chairman of the Board and the other Board members +Preside over stockholder meetings +Facilitate and participate in formal and informal communications with and among directors +The +Board considers the combination of the roles of Chairman of the Board and Chief Executive Officer an efficient and effective way to conduct the Board's business. The Board also believes that the +combined role of the Chairman of the Board and Chief Executive Officer, together with an independent lead director having the duties described above, serve the interests of our stockholders because +this structure provides an appropriate balance between strategy development and independent oversight of management. +F. +H. Merelli has served as Cimarex's Chief Executive Officer and Chairman of the Board since our inception in September 2002. He brings to the position of Chairman of the Board considerable knowledge +and experience gained through his position as Chief Executive Officer. This allows him to focus the activities of the Board on matters most relevant to the success of Cimarex. +Our +board structure is designed to avoid any undue influence by the CEO on the Board. The Compensation and Governance Committee, which recommends the compensation of the CEO to the full Board and +makes grants to the CEO under our long-term incentive program, is comprised entirely of independent directors. When the Board acts on the Compensation and Governance Committee's +recommendation for compensation of the CEO, it acts without the CEO being present. The Board meets in executive session from time-to-time without the CEO present. During 2009, +four executive sessions were held. During those sessions, the independent Board members are able to freely critique the performance of the CEO and Cimarex's other officers. +The +substantial experience and background of our independent Board members ensure their active and knowledgeable involvement in Board matters. This involvement, and the presence and involvement of our +Lead Director, provide the Board with a strong independent point of view. +Risk Oversight +The Board of Directors has overall responsibility for risk oversight for Cimarex. Management provides the Board with overviews of Cimarex's +operations, financial results and other aspects of its business at quarterly meetings. Significant strategic considerations, such as material acquisitions or mergers, are brought to the Board for +deliberation and, as appropriate, decisions. +14 +Table of Contents +As required by the New York Stock Exchange, in addition to its specific responsibilities with respect to Cimarex's financial statements and reporting, the Audit Committee is +involved in considering Cimarex's policies and guidelines that govern the process by which Cimarex's exposure to risk is assessed and managed. This responsibility has been further delineated in a +recent revision to the Audit Committee's charter that provides for the Audit Committee to discuss with management and report to the Board with respect to: +• the processes Cimarex has taken to mitigate corporate risks; +• the guidelines and processes pertaining to financial risk assessment; +• the steps management has taken to measure, monitor and control such financial risk exposures; and +• management's conclusion as to the effectiveness of the guidelines and processes utilized to mitigate such corporate and +financial risks and exposures. +Cimarex's +Compensation and Governance Committee reviews the compensation policies and practices of Cimarex for its executive and non-executive employees to determine whether the policies +and practices encourage excessive risk taking among the affected employees and reports its findings to the Board. +Board/Committee Evaluations +During 2009, the Board of Directors and each Committee participated in a self-assessment or evaluation of the effectiveness of the Board +and its Committees. +Director Education +Cimarex encourages director participation in seminars and conferences and other opportunities for director education. In 2008, a majority of our +directors attended an educational program designed by National Association of Corporate Directors, a nationally recognized board educational organization. A director education program has been +scheduled for May 18, 2010. We subscribe to and make available to our Committee members various informational and educational newsletters and online services. +Service on Boards of Other Public Companies +Cimarex does not prevent directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines recommend that +(i) the CEO serve on the board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the board of no more than five public companies, including +Cimarex. All directors comply with this guideline. +Director and Management Stock Ownership +The Corporate Governance Guidelines provide that each independent director is expected to own Cimarex stock in an amount equal to three times his +annual Board cash retainer, the CEO is expected to own stock in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to own stock in an +amount equal to three times his annual base salary. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership, but shares +subject to options are not counted. +Corporate Governance Guidelines and Code of Ethics +The Corporate Governance Guidelines address matters such as qualifications of directors, standards for independence of directors, election of +directors, responsibilities of directors, limitation of service on other public company boards, number and structure of Board committees, conduct and frequency of +15 +Table of Contents +Board +and committee meetings, Board evaluation, management succession, director access to management, counsel and advisors, and board orientation and education. The Board of Directors, both directly +or through the Compensation and Governance Committee, reviews and revises as necessary the Corporate Governance Guidelines. +Cimarex +has adopted a code of ethics known as the "Code of Business Conduct," that applies to all directors, officers and employees. The Code of Business Conduct is a guideline that promotes honest +and ethical conduct, maintains a corporate climate in which integrity and dignity of each individual is valued, assures compliance with laws and assures proper use of Cimarex's assets. Cimarex will +post on its website all waivers to or amendments to its Code of Business Conduct that are required to be disclosed by applicable law and rules of the NYSE listing standards. Currently, Cimarex does +not have nor does it anticipate any waivers to or amendments of its Code of Business Conduct. +Web Access +Cimarex provides access through its website ( www.cimarex.com ) to the following information: +• Audit, Compensation and Governance, and Nominating Committee charters +• Corporate Governance Guidelines +• Code of Business Conduct +• Complaint and Reporting Procedures +• Section 16 reports +• Biographical information about our directors and executive officers +Process for Communication with the Board +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline +(1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The Lead Director may take any action deemed appropriate or necessary, +including retaining independent or outside counsel, accountants or other advisors. No adverse action will be taken against any individual making any such communication to the Lead Director. +DIRECTOR COMPENSATION +Overview +Our director compensation program is designed to attract and retain individuals who possess the desired board skills and attributes, taking into +account all factors including, without limitation, judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the experiences with the experience of +other directors, and diversity of gender and ethnic background. Director compensation is only paid to non-employee directors. +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") administers our director compensation program. Director compensation is designed to be near the +50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing director +compensation as we use in reviewing executive base salary and total compensation. See 2009 Compensation Peer Group under Compensation Discussion and Analysis for a list of the companies and the methodology followed in selecting the companies. +16 +Table of Contents +Determination of Director Compensation +Our Committee is sensitive to the potential for a perceived conflict of interest in setting director compensation. To minimize the potential for a +perceived conflict of interest, the Committee uses a compensation consultant to evaluate and recommend director compensation. In 2009, the Committee engaged Longnecker & Associates to review +director compensation. +Within +general guidelines provided by the Committee, the compensation consultant reviews director compensation each year and recommends appropriate changes. The review of director compensation is +principally based on public information about comparison group compensation. +The +Committee, after reviewing the consultant's recommendations with the CEO and Vice President of Human Resources, recommends director compensation for Board consideration and approval at the annual +May board meeting. Director compensation is determined and paid for the 12-month period beginning with the date of Cimarex's Annual Meeting and ending on the following Annual Meeting date. +Director Compensation +To align the interest of stockholders and our directors, total annual director compensation consists of approximately two-thirds equity +awards and one-third cash retainer. The following represents the annual retainer and fee structure set at the 2008 annual meeting. +Equity Retainer +$ +135,000 +Annual Cash Retainer +$ +50,000 +Committee Chair +$ +18,750 +Attendance at Board Meeting +$ +1,800 +Attendance at Committee Meeting +$ +1,500 +Lead Director per Meeting Fee +$ +1,500 +The +equity retainer is in the form of restricted stock that vests over three years in one-third increments. Directors annually receive a number of shares of restricted stock based on a +fixed cash value, currently $135,000. The number of shares is determined by dividing $135,000 by the average of the highest and lowest prices of Cimarex stock on the date of grant. +Based +upon data published in 2009 reporting 2008 director compensation, in February 2009 the Committee determined that director total compensation is near the 50 th percentile of +that paid by companies in the 2009 Compensation Peer Group, and no changes were made in 2009 to director compensation. +We +reimburse directors for reasonable transportation and accommodation expenses to attend Board and committee meetings. In lieu of reimbursement of travel expenses, some directors may occasionally +travel to or from Board and Committee meetings on the Cimarex aircraft. +17 +Table of Contents +2009 Director Compensation +The following table sets forth compensation paid in 2009 to all individuals who served as non-employee directors in 2009. +Name +Annual Cash +Retainer and +Meeting Fees (1) +Stock +Awards (2)(3) +Total +Jerry Box +$ +68,300 +$ +135,000 +$ +203,300 +Hans Helmerich +$ +68,300 +$ +135,000 +$ +203,300 +David A. Hentschel +$ +68,300 +$ +135,000 +$ +203,300 +Paul D. Holleman +$ +69,500 +$ +135,000 +$ +204,500 +Harold R. Logan, Jr. +$ +66,200 +$ +135,000 +$ +201,200 +Monroe W. Robertson +$ +91,550 +$ +135,000 +$ +226,550 +Michael J. Sullivan +$ +75,500 +$ +135,000 +$ +210,500 +L. Paul Teague +$ +87,050 +$ +135,000 +$ +222,050 +(1) Represents +fees earned for services as a director during 2009, including the annual cash retainer fee, Board and Committee meeting attendance +fees, chairmanship fees and lead director fee. +(2) Represents +the grant date fair value of the 4,280 shares of restricted stock granted to each of the named directors in 2009. +(3) The +following table discloses the aggregate number of stock awards and option awards outstanding at December 31, 2009. +Director +Stock Awards +Option Awards +Jerry Box +6,422 +0 +Hans Helmerich +13,118 +* +10,000 +David A. Hentschel +6,422 +10,000 +Paul D. Holleman +6.422 +20,000 +Harold R. Logan, Jr. +4,280 +0 +Monroe W. Robertson +6,422 +0 +Michael J. Sullivan +7,249 +** +10,000 +L. Paul Teague +6,422 +10,000 +* Mr. Helmerich's +holdings include 8,838 deferred compensation units. +** Mr. Sullivan's +holdings include 2,969 deferred compensation units. +Deferred Compensation Plan for Non-Employee Directors +In May 2004, we adopted a deferred compensation plan for non-employee directors. The plan provides that a director may defer all or any +portion of his compensation paid in cash or restricted stock for services as a director. In addition, a director may elect to defer accelerated vesting of restricted stock. +All +deferred cash amounts earn interest through the date paid. The rate of interest earned for a calendar quarter is based on the average 10-year U.S. Treasury note rate for the +immediately preceding calendar quarter, plus one percent. Cash dividends are paid on deferred compensation units. +Deferred +compensation is distributed on the date specified by the director in his election. Upon a "change of control" within the meaning of Internal Revenue Code Section 409A, all account +balances will be fully vested and paid in a single lump sum within 30 days. The definition of a change-in-control +18 +Table of Contents +event +is the same as the definition under the Cimarex 2002 Stock Incentive Plan. See Potential Payments upon Change in Control or Termination . +Acceleration of Vesting of Awards +The agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a +change-in-control event, as defined in the 2002 Stock Incentive Plan. The 2002 Stock Incentive Plan also grants the Compensation and Governance Committee the authority to +accelerate the vesting or payment of an award. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Our principal business objective is to profitably grow our proved reserves and production for the long-term benefit of our investors. The +executive compensation program is designed to retain the experienced professionals that we need to attain our business objectives and to align their interests with our stockholders. +Background +The Compensation and Governance Committee ("Committee") considers Cimarex performance as an integral part of its compensation decisions. In making +decisions regarding 2009 executive compensation, the Committee was mindful of the following economic and operational highlights. During the latter half of 2008 and continuing into 2009, the oil and +gas industry experienced unforeseen decreases in commodity prices, lagging service cost adjustments, credit availability concerns and difficulty in forecasting cash flow. During 2009, Cimarex was +successful in effectively reducing its capital expenditure program, transforming the focus of its exploration program, redirecting its capital and renegotiating its bank line of credit. Despite +continuing weaknesses in natural gas prices, Cimarex experienced significant success in its Gulf Coast exploration program, continued to successfully develop its Mid-Continent Cana +prospects and experienced good results in its Permian Basin region. Even though exploration and development expenditures during 2009 were $524 million versus $1.4 billion during 2008, +proved reserves increased 15% year-over-year, and average daily 2010 production is expected to exceed average daily 2009 production by 20%. During 2009, Cimarex reduced its +bank debt from $220 million to $25 million. Cimarex was able to effectively transform and retool its operations in 2009 due to the performance and efforts of its executives and their +teams. +Objectives of our Executive Compensation Program +Our program provides a competitive compensation package, promotes our pay-for-performance philosophy and aligns the interests +of our executives and stockholders by: +• Offering competitive +compensation. We pay a base salary and total compensation that are competitive to ensure we attract and retain highly qualified talent. +• Rewarding company +performance. We align our annual cash incentive awards with company performance. Our program design does not include specified +individual personal performance objectives. +• Aligning the interests of our executives with those of our +stockholders. Our long-term equity incentive awards are designed to promote retention, encourage executive stock ownership +and reward executives for above-average relative stock price performance. +19 +Table of Contents +Principal Elements of Executive Compensation +Our executive compensation program focuses on three principal elements: +• Base salary +• Annual cash incentive awards +• Long-term equity incentive awards +We +do not consider benefits under our 401(k) defined contribution plan, non-qualified supplemental savings plan, perquisites or post-termination benefits as principal elements +of our executive compensation program. See Other Compensation and Potential Payments upon Change in Control or +Termination for more discussion regarding these benefits and why they are not a material part of executive compensation decisions. We do not specifically allocate a fixed +portion of compensation between cash and equity-based compensation or between annual and long-term incentive compensation. We do not currently have a policy for recovery of +performance-based compensation if we were required to restate our financial statements. The Committee annually reviews the elements of its executive compensation program to ensure that they continue +to provide appropriate incentives to executives in Cimarex's economic environment. +How We Make Compensation Decisions +Philosophy +The Committee believes that executive interests should be aligned with stockholder interests; executive compensation should be structured to provide +appropriate incentives and reasonable rewards for the contributions made and performance achieved; and a competitive compensation program is important to retain Cimarex's experienced, talented +executives. +Design Principles +Cimarex's compensation programs are designed to adhere to the following principles: +• a majority of total compensation should be in the form of equity compensation; +• a meaningful portion of total compensation should be tied to achievement of goals and objectives related to Cimarex's +financial and operating performance; +• a significiant component of performance-based compensation should relate to long-term relative performance +measures that emphasize an increase in stockholder value over time; +• executives should hold substantial equity ownership; +• to encourage retention, a substantial portion of compensation should be forfeitable upon voluntary termination; and +• executives should be motivated to contribute as team members to Cimarex's overall success, as opposed to merely achieving +specific individual objectives. +Resources and Other Considerations Used in the Compensation Decision-Making Process +The Committee utilizes various resources in reviewing elements of executive compensation and making compensation decisions. The Committee develops +the overall philosophy, objectives, structure and pay guidelines. +Compensation Consultant. The Committee uses the services of an outside consultant, Longnecker & Associates, to help carry out its responsibilities, +especially in the area of program design and +20 +Table of Contents +determination +of compensation levels. Longnecker does not perform services for management. During 2009, the Committee engaged Longnecker & Associates to provide the following +services: +• Review existing executive compensation programs including total direct compensation comprised of base salary, annual +incentive and long-term incentive compensation, assess competitiveness of executive compensation and provide conclusions and recommendations. +• Determine market competitive board of director compensation levels and develop suggestions and alternatives for +consideration. +Benchmarking. We use comparison group information as a resource in reviewing and making annual base salary determinations and long-term equity +incentive awards and as a point of reference when reviewing total compensation. Generally, we target executive base salaries and long-term incentive awards at the +75 th percentile when compared to executives holding similar positions with companies in our compensation peer group. We also use the 75 th percentile as a +point of reference in reviewing total compensation. +Peer Groups +Our base salary, long-term equity and total compensation peer group ("Compensation Peer Group") consists of companies in our industry +with market capitalization and revenue similar to ours. Each year the Committee, with the assistance of its compensation consultant, reviews the Compensation Peer Group. Our 2009 Compensation Peer +Group was comprised of: +2009 Compensation Peer Group +Cabot Oil & Gas Corp. +Pioneer Natural Resources Co. +Denbury Resources Inc. +Quicksilver Resources Corp. +EXCO Resources, Inc. +Range Resources Corp. +Newfield Exploration Co. +Southwestern Energy Co. +Noble Energy, Inc. +St. Mary Land & Exploration Co. +Petrohawk Energy Corporation +Whiting Petroleum Corp. +We +use a second comparison group to determine our relative stock price performance in determining the number of shares of performance awards to be awarded to our CEO and NEOs ("Stock Performance Peer +Group"). The Stock Performance Peer Group is comprised of companies listed on the S&P 400 Oil and Gas Exploration index and the S&P 500 Oil and Gas Exploration index. Cimarex is one of +the companies listed in the S&P 400 Oil and Gas Exploration index. +21 +Table of Contents +The +peer companies applicable for calculating relative stock price performance for the performance awards made in 2009 and 2010 consisted of: +2009-2010 Stock Performance Peer Group +S&P 400 Oil and Gas Exploration Index: +S&P 500 Oil and Gas Exploration Index: +Bill Barrett Corp. +Anadarko Petroleum Corp. +Comstock Resources Inc. +Apache Corp. +Denbury Resources Inc. +Cabot Oil & Gas Corp. +Encore Acquisition Co. +Chesapeake Energy Corp. +Forest Oil Corp. +Devon Energy Corp. +Mariner Energy Inc. +EOG Resources Inc. +Newfield Exploration Co. +Noble Energy Inc. +Plains Exploration & Production Co. +Pioneer Natural Resources Co. +Quicksilver Resources Corp. +Range Resources Corp. +Southwestern Energy Co. +XTO Energy Inc. +Total Compensation and Internal Pay Equity. Each time the Committee reviews an element of compensation, the Committee is provided with total compensation data. In +addition, the Committee periodically reviews total executive compensation and the relationship of the CEO's compensation to the compensation of the other NEOs. +The +purpose of our internal pay equity guidelines is to ensure that the use of comparisons to assist the Company in establishing competitive pay levels do not result in excessive pay for the CEO +relative to other officers. Our internal pay equity guidelines provide that the CEO's base salary should not be more than three times the base salary of the next highest compensated NEO, and the CEO's +cash incentive award should not be more than three times the cash incentive award of the next highest cash incentive award. Our Board must approve any deviation from these guidelines. For 2009, our +CEO's base salary and annual cash incentive award were consistent with our internal pay equity guidelines. +Role of CEO and Other Executive Officers in Determining Executive Compensation. Our CEO plays a significant role in the executive compensation decision-making +process. Because the CEO has close day-to-day association with the other NEOs and operation of Cimarex, the Committee considers the CEO's involvement essential. The CEO +provides the Committee with an oral annual assessment of Cimarex's overall financial and operational performance. He evaluates individual NEO performance and recommends base salary adjustments, annual +cash incentive awards and long-term equity incentive awards. The CEO considers subjective factors that may include scope of responsibility, contribution to company performance, technical +competence, managerial skills, and advancement potential. The Committee has discretion to accept, reject or modify the CEO's recommendations. Our Vice President of Human Resources regularly provides +survey and data analysis regarding executive compensation and assists the Committee with the design and implementation of our executive compensation program. +Other Considerations. In addition to the above resources, the Committee relies upon its collective judgment and considers length of service and subjective +information including experience, consistent performance and available competitive alternatives for our executive officers. +Stock Ownership Guidelines. Our Corporate Governance Guidelines provide that our CEO maintain stock ownership of five times his base salary and that each other +executive officer maintain stock ownership of three times his base salary. Our CEO and each executive officer exceeds these guidelines. +22 +Table of Contents +Regulatory Requirements. Cimarex and the Committee carefully review and take into account current tax, accounting and securities regulations as they relate to the +design of the executive compensation programs. +Section 162(m). Section 162(m) of the Internal Revenue Code (IRC) limits the amount of compensation that Cimarex may deduct on its federal income tax +return for compensation paid to certain executive officers to no more than $1 million per year. This limitation does not apply to "qualified performance based" compensation as defined under the +federal tax laws if the performance goals are approved by the stockholders and other requirements for deductibility are met. +At +our 2006 Annual Meeting, our stockholders approved performance goals for our restricted stock awards to enable performance-based restricted stock awards to qualify for the exemptions from the +deduction limit, provided the other requirements are satisfied. At its December 2009 meeting, the +Committee approved an increase in the maximum number of shares that may be awarded annually to each executive. Because the maximum number of shares that may be issued under the performance-based plan +is a material term of the performance goals, in order for the performance-based awards to continue to qualify for the exemptions from the deduction limit, we are requesting that the stockholders +approve the performance goals as revised to include an increase in the maximum number of shares that may be issued under the performance awards. +The +Compensation Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under +Section 162(m). +Section 409A. Section 409A of the IRC provides that all amounts deferred under a non-qualified deferred compensation plan are currently +included in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or amended +our plans and programs with the intent to make them exempt from Section 409A or, if subject to Section 409A, to be in compliance with applicable regulations to properly allow deferral. +Elements of Total Executive Compensation +Our executive compensation program includes the elements that are described in the tables below. We believe that a majority of executive compensation +should be performance-based, but we do not have a specific formula that dictates the overall weighting of each element as a part of total compensation. The Committee determines total compensation +based on a review of competitive compensation data, consistency with our overall compensation philosophy and its judgment as a committee. +The +table below identifies each element of direct compensation and the primary purpose for using each element. The level of each element of direct compensation is generally targeted at the +75 th percentile of +23 +Table of Contents +our +industry peer group. When making decisions on each of these elements, the Committee takes into consideration the multiple factors discussed above in " How We Make +Compensation Decisions ." +Compensation Element +Primary Purposes +Fixed +Base Salary +• Provides a fixed level of income to compensate executives +for their level of responsibility, relative expertise and experience +Variable/Performance-Based +Performance Awards of Restricted Stock +• Recognizes Cimarex's relative total shareholder return +compared to its industry peer group +• Aligns the interests of executives with our stockholders +by emphasizing stock price appreciation +• Provides a forfeitable ownership stake to encourage +executive retention +Annual Cash Incentive +• Rewards executives for achieving short-term objectives +aligned with value creation +The +following is a discussion of each element and the specific actions taken by the Committee in 2009 related to each element. Each of these elements is reviewed on an annual basis, and may be +reviewed upon the occurrence of a significant event or a change in market conditions. The same design principles and factors are applied in a consistent manner to all named executive officers. +Material differences in the amount of compensation generally reflects the differences in the individual responsibility and experience of each officer and the differences in the amounts of compensation +paid to officers in comparable positions in our industry peer group. +Base Salary +Our goal is to pay base salaries that are competitive with those paid for similar executive positions by other companies in our Compensation Peer +Group. See Benchmarking above for a list of the companies in our 2009 Compensation Peer Group. +The +Committee's consultant compiles comparative salary data for presentation to the Compensation Committee. In May of each year, the Committee recommends to the independent members of the Board for +their approval base salary adjustments to be effective on June 1. +The +Compensation Peer Group data is historical and is obtained from information in publicly-filed proxy statements and surveys. We analyze positions in companies in the Compensation Peer Group that +have responsibilities similar to each of Cimarex's executive positions. We also use compensation rank order as part of the analysis. Because the data is about twelve months old at the time it is +available, we also ask the consultant to adjust the data to estimate current compensation for the Compensation Peer Group companies. +While +the comparison market data provides guidance in making decisions on base salary adjustments, the Committee does not set compensation based on market data alone. The Committee also considers the +CEO's recommendations and a subjective evaluation of other data such as length of service, experience, consistent performance and available competitive alternatives for our executive officers. +In +May 2009, the Committee's compensation consultant provided the Committee with a comparison of the CEO's and the other NEOs' base salary in comparison to the market (using companies in the +Compensation Peer Group). Cimarex's base salary philosophy is to compensate its executives at the market 75 th percentile. Based upon the compensation consultant's analysis and +management's analysis of compensation surveys, the Committee concluded that the base salaries of the executives were at or near the 75 th percentile, which aligns with the base +salary philosophy to remain competitive with other +24 +Table of Contents +companies +in the Compensation Peer Group. In addition, the consultant indicated that due to the uncertain economics of the industry, it would be difficult to project competitors' 2009 base salary +decisions. Therefore, the Committee determined that no changes would be made in 2009 to the base salaries of our executive officers. +Annual Cash Incentive Awards +The annual cash incentive awards paid to each of the named executive officers on March 1, 2010 for services performed in 2009 are shown in the +table below and are reflected in the " Non-Equity Incentive Plan Compensation " column of the Summary Compensation Table. +Name +Cash Incentive Award +% of Base Salary +F. H. Merelli +$ +1,700,000 +200 +% +Paul Korus +$ +630,000 +150 +% +Thomas E. Jorden +$ +936,000 +200 +% +Joseph R. Albi +$ +862,000 +200 +% +Stephen P. Bell +$ +535,500 +150 +% +At +its February 2009 meeting, the Committee determined that, due to volatile and decreasing oil and gas prices, lagging field service cost adjustments, credit availability concerns and the difficulty +of accurately forecasting cash flow, the previously adopted formula for calculating the pool for distribution of annual cash incentive awards would not accurately measure the economic and operational +performance of Cimarex for 2009. The Board, upon the Committee's recommendation, approved a more flexible awards program based upon an end-of-the-year assessment +that would include industry conditions, relative stock performance compared to peer companies, cash flow, the competitive environment, reserve replacement, oil and gas production changes, cost control +and management of expenses, personnel safety record and environmental and regulatory compliance. While the Committee determined not to use a formulaic calculation, the Committee elected to continue to +(i) target the cash incentive awards at 100% of the CEO's base salary and 100% of the aggregate annualized base salaries of the other executives eligible for awards, (ii) limit the +maximum amount of the CEO's cash incentive award to 200% of his year-end annualized base salary and (iii) provide for no minimum award, i.e., the award can be zero. At the +same meeting, the Committee increased the maximum amount of cash incentive awards from 150% to 200% of the aggregate year-end annualized base salaries of the executives (other than the +CEO) eligible for awards. +At +its February 2010 meeting, the Committee reviewed the following information in its deliberation on the 2009 annual cash incentive awards: +• Cash flow from operations +• Change (increase/decrease) in production +• Change (increase/decrease) in reserves +• Relative total shareholder return for the period 12/31/2008 through 12/31/2009 +• Acquisitions and divestitures +• Net income +• Exploration Management System (rate of return) results +• Base property production compared to plan +• Significant actions taken that created a "step-change" in Cimarex's overall condition +• Safety +25 +Table of Contents +The +following were primary factors that influenced the Committee's final awards decision: +• Despite a reduction in exploration and development expenditures from $1.4 billion in 2008 to $524 million in +2009, Cimarex's average daily 2009 production declined only 5% compared to 2008, and average daily 2010 production is expected to exceed average daily 2009 production by 20%. +• Cimarex's reserves increased by 15%; 312 Bcfe (billion cubic feet equivalent) of proved reserves were added from +extensions, discoveries and improved recovery, replacing 185% of production. +• Drilling costs were reduced, and well performance was improved. +• Cimarex's Total Shareholder Return was in the 80 th percentile when compared to companies in its +2009-2010 Compensation Peer Group. +• Borrowings outstanding were reduced by $195 million, with a new debt to total capitalization rate of 16%. +In +determining individual awards, the Committee considered the significant contributions by the executive officers in the following 2009 accomplishments: (i) a 15% increase in reserves; +(ii) refocus of the exploration program resulting in achieving excellent economic results with significantly less capital; (iii) reduction in drilling costs and improvement in well +performance; (iv) stable production during 2009 at a time of decreased commodity prices resulting in a significant reduction in the employment of drilling rigs, (v) significant +production increases during the fourth-quarter of 2009 setting up substantial +2010 production increases; (vi) successful refinancing of bank debt in a difficult lending market, hedging production in a volatile commodity market and maintaining cash flow to permit +continued capital investment, (vii) prudent litigation management, (viii) acquisitions of properties that enhanced core operational areas, and (ix) divestiture of properties with +high economic burdens permitting economic savings that could be used to enhance capital investment. +Long-Term Equity Incentive Awards +Cimarex grants to the CEO and the other NEOs annual performance awards of restricted stock. Since the inception of the long-term equity +incentive program in 2006, Cimarex has taken a "team based" approach to long-term incentive awards made to its executives. Currently the executives are divided into three tiers, with the +CEO in tier 1, the other NEOs in tier 2, and the remaining executives in tier 3. Each executive officer in a tier receives an equal number of performance awards. +Each +award is subject to three-year time-of-service vesting. The number of shares that vest is based on our relative stock price performance and ranges from 50% to +100% of the award. For the awards granted in January 2009 and January 2010, the stock performance peer group consisted of companies in the S&P 400 and 500 Oil and Gas Exploration Indices. See +" Peer Groups " above for a list of the companies in this Stock Performance Peer Group. +The +Committee determines relative stock price performance by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in our Stock +Performance Peer Group for the 30 trading days preceding the first day of the year of the grant and the 30 trading days preceding the last day of the year immediately preceding the third anniversary +of the grant. The Committee ranks Cimarex and calculates its relative performance percentile. If our relative stock price performance is 25% or less, 50% of the award vests. For each relative stock +price performance percentile increase above 25%, an additional 1% of the award vests. The following table presents an example of various performance percentiles and the percentage of the total award +earned: +Performance Percentile +75% & above +60% +50% +40% +25% & less +Payout as % of Target +100 +% +85 +% +75 +% +65 +% +50 +% +26 +Table of Contents +The +below example (based upon an actual award on January 2, 2007 of 30,000 shares of restricted stock, with a vesting date of January 2, 2010) illustrates the calculation of actual +shares earned: +Total Award +Relative TSR +Ranking for the +Performance +Periods +Relative +Performance +Percentile (1) +Payout % (2) +Actual Shares +Earned +Timing of +Payout +30,000 shares of restricted stock +4 th +71.4 +% +96 +% +28,400 +Paid after end of three-year vesting period +(1) Calculated +by subtracting Cimarex's absolute rank from the total number of companies in the Stock Performance Peer Group and dividing the +result by the total number of companies in the Stock Performance Peer Group. In this example, there were 14 companies in the peer group. +(2) For +each relative stock price percentile increase above 25%, 1% of the award vests. +In +December of each year, the Committee recommends the number of shares to be awarded the following year. As part of its determination, the Committee compares our total compensation program with the +programs of companies in our peer group. The Committee also considers that one-half of the shares are "at-risk" and are subject to Cimarex's relative stock performance The +Committee determines the number of shares to be awarded to the CEO and the number of shares to be awarded to each other executive officer. +At +its September 2009 meeting, the Committee reviewed an analysis of the executive long-term equity incentive program prepared by Cimarex's Vice President of Human Resources, together with +proposed changes to the program. The analysis indicated that the value of the equity awards were less than the awards paid to executives with comparable positions at peer companies and were below the +targeted 75 th percentile. At that meeting, the Committee requested that its independent compensation consultant review the analysis and the proposed changes to the program and +provide its recommendation at the December meeting. The Committee held two meetings in December for the purpose of reviewing the long-term equity incentive program. Its independent +consultant advised the Committee that, based upon the value of the awards at the time of its analysis, the total value of the awards proposed by management for the executive positions were reasonable. +The Committee determined to increase the CEO's 2010 annual performance awards from 60,000 shares to 100,000 shares and to increase the 2010 annual awards to the NEOs from 30,000 shares to 50,000 +shares. Following deliberations, including conversation with its compensation consultant, the Committee elected to continue the existing long-term equity incentive program, including the +"team based" approach. +27 +Table of Contents +The +following table represents the performance share awards granted to date and the vestings that occurred on January 2, 2009 and 2010: +Grant Date +Time-Based +Vesting +Subject to +Relative Stock +Performance +Vesting +Vesting +Date +Total +Vested +CEO +1/2006 +30,000 +30,000 +1/2009 +40,800 +(1) +1/2007 +30,000 +30,000 +1/2010 +57,600 +(2) +1/2008 +30,000 +30,000 +1/2011 +0 +1/2009 +30,000 +30,000 +1/2012 +0 +1/2010 +50,000 +50,000 +1/2013 +0 +Each NEO +1/2006 +15,000 +15,000 +1/2009 +20,400 +(1) +1/2007 +15,000 +15,000 +1/2010 +28,800 +(2) +1/2008 +15,000 +15,000 +1/2011 +0 +1/2009 +15,000 +15,000 +1/2012 +0 +1/2010 +25,000 +25,000 +1/2013 +0 +(1) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be issued to the CEO and the NEOs. +Cimarex's relative stock performance was 8 th out of 14 companies in the peer group or the 43 rd percentile, resulting in each executive receiving 68% of the +award (all of the time-vested portion of the award and 36% of the performance-based portion of the award). +(2) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be issued to the CEO and the NEOs. +Cimarex's relative stock performance was 4 th out of 14 companies in the peer group or the 71 st percentile, resulting in each executive receiving 96% of the +award (all of the time-vested portion of the award and 92% of the performance-based portion of the award). +When +compared with the value of long-term equity awards made to executives during the past three years with comparable positions by companies in the Compensation Peer Group, Cimarex's +executive long-term equity awards for the same years were below the targeted 75 th percentile. +2002 Restricted Stock Unit and Option Awards. In December 2002 shortly following our September 2002 reorganization as Cimarex Energy Co., we awarded the CEO +and NEOs restricted stock units and stock options. These awards were issued to retain executives and promote stock ownership. The restricted stock units fully vested in December 2007, but are not +payable in shares until December 2010. The options fully vested in December 2007. If the CEO or any NEO elects to exercise vested options, he must hold until December 6, 2010 +one-half of the shares remaining after delivering shares in payment of the exercise price and net taxes due upon exercise. +Other Compensation +We do not consider the following compensation as material elements of our executive compensation program because (i) we provide limited +perquisites and (ii) benefits available under our 401(k) plan and supplemental savings plan are also available to non-executive employees. +Perquisites +We provide executive officers with limited perquisites. Perquisites that we do provide include a medical expense reimbursement program, athletic and +dining club memberships and a financial planning allowance. In 2009, the total cost of perquisites provided to our CEO and NEOs was $24,980. +28 +Table of Contents +Retirement Benefits +The CEO and other NEOs are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. This plan is open to participation by +all Cimarex full-time employees. Under the plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to 7% of the employee's cash compensation, +subject to limits imposed by Internal Revenue Service rules. In December 2007 the Board elected to activate the profit-sharing contribution feature under the 401(k) Plan and to determine at each +meeting following availability of fiscal year-end financial results the amount, if any, of the profit-sharing contribution. +At +the Committee's February 2010 meeting, the Committee recommended and the Board authorized a profit-sharing contribution of 2% of the gross pay of eligible participants under the 401(k) Plan. +Supplemental Savings Plan +We also sponsor a Supplemental Savings Plan, a non-qualified deferred compensation plan that permits participants, including the CEO +and other NEOs, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Service limitations. Participants may defer a maximum of 50% of total annual cash +compensation. In 2009, Cimarex matched 100% of the participants' contributions up to 7% of the participant's total annual cash compensation. +Each +of the CEO and other NEOs are 100% vested in all matching contributions. Contributions are invested in mutual funds available for investment under the Cimarex 401(k) Plan. The officer selects the +funds for investment by providing advisory investment direction to Cimarex. +The +Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a +period not longer than 15 years, as the participant elects. In the event of a change in control, each participant receives a cash lump sum payment of the amount allocated to his/her account as +of the last day of the month immediately preceding the date of the change in control. A change in control under the Supplemental Savings Plan is the same as the definition of a "change in control +event" in our 2002 Stock Incentive Plan. See Potential Payments upon Termination or Change in Control for a summary of the definition of a +"change-in-control event." +Cimarex's +matching contributions to the 401(k) Plan and Supplemental Savings Plan are included in footnote 3 to the Summary Compensation Table. +Participant and Cimarex contributions to the Supplemental Savings Plan are included in the Nonqualified Deferred Compensation table. +REPORT OF COMPENSATION AND GOVERNANCE COMMITTEE +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The +Compensation and Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the +Compensation and Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND +GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +29 +Table of Contents +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The following table describes 2009, 2008 and 2007 compensation of our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three +other most highly compensated executive officers (the "Named Executive Officers" or "NEOs"). Only our CEO has an employment agreement. See Potential Payments Upon Change in +Control or Termination for information about his employment agreement. +Name and +Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards +Non-Equity +Incentive +Plan Comp. (2) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp. (3) +Total +F.H. Merelli, +2009 +$ +850,000 +$ +– +$ +1,435,734 +$ +– +$ +1,700,000 +$ +– +$ +41,140 +$ +4,026,874 +Chairman, Chief +2008 +$ +815,000 +$ +– +$ +1,684,020 +$ +– +$ +297,000 +$ +– +$ +65,773 +$ +2,861,793 +Executive Officer, President (CEO) +2007 +$ +744,750 +$ +– +$ +1,467,300 +$ +– +$ +520,000 +$ +– +$ +93,405 +$ +2,285,455 +Paul Korus +2009 +$ +420,000 +$ +– +$ +717,867 +$ +– +$ +630,000 +$ +– +$ +49,522 +$ +1,817,389 +Vice President, +2008 +$ +401,250 +$ +– +$ +842,010 +$ +– +$ +147,000 +$ +– +$ +47,310 +$ +1,437,570 +Chief Financial Officer, and Treasurer (CFO) +2007 +$ +364,583 +$ +– +$ +733,650 +$ +– +$ +243,750 +$ +– +$ +78,762 +$ +1,420,745 +Thomas E. Jorden +2009 +$ +468,000 +$ +– +$ +717,867 +$ +– +$ +936,000 +$ +– +$ +40,933 +$ +2,162,800 +Executive Vice +2008 +$ +442,584 +$ +– +$ +842,010 +$ +– +$ +163,800 +$ +– +$ +52,229 +$ +1,500,623 +President-Exploration +2007 +$ +395,750 +$ +– +$ +733,650 +$ +– +$ +272,690 +$ +– +$ +77,900 +$ +1,479,990 +Joseph R. Albi +2009 +$ +431,000 +$ +– +$ +717,867 +$ +– +$ +862,000 +$ +– +$ +54,663 +$ +2,065,530 +Executive Vice +2008 +$ +407,667 +$ +– +$ +842,010 +$ +– +$ +150,850 +$ +– +$ +53,434 +$ +1,453,961 +President-Operations +2007 +$ +364,583 +$ +– +$ +733,650 +$ +– +$ +251,250 +$ +– +$ +81,296 +$ +1,430,779 +Stephen P. Bell +2009 +$ +357,000 +$ +– +$ +717,867 +$ +– +$ +535,500 +$ +– +$ +63,211 +$ +1,673,578 +Senior Vice +2008 +$ +337,417 +$ +– +$ +842,010 +$ +– +$ +124,950 +$ +– +$ +60,999 +$ +1,365,376 +President-Business Development and Land +2007 +$ +301,667 +$ +– +$ +733,650 +$ +– +$ +238,700 +$ +– +$ +93,027 +$ +1,367,044 +(1) Represents +the grant date fair value based on the probable outcome of the performance conditions. The following represents the maximum +potential value of each award, which is consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under ASC 718. +Executive Officer +2009 Award +2008 Award +2007 Award +F. H. Merelli +$ +1,729,800 +$ +2,590,800 +$ +2,190,000 +Paul Korus +$ +864,900 +$ +1,295,400 +$ +1,095,000 +Thomas E. Jorden +$ +864,900 +$ +1,295,400 +$ +1,095,000 +Joseph R. Albi +$ +864,900 +$ +1,295,400 +$ +1,095,000 +Stephen P. Bell +$ +864,900 +$ +1,295,400 +$ +1,095,000 +(2) Amount +reported for the year earned. +30 +Table of Contents +(3) The +following describes the components of other items of compensation, including any perquisite in excess of $10,000. Certain amounts in +prior years have been adjusted to conform to the 2009 presentation. +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Tax +Reimbursement +Life +Insurance +Premiums +Total +Other +Compensation +F. H. Merelli, CEO +2009 +$ +– +$ +37,900 +$ +– +$ +3,240 +$ +41,140 +2008 +$ +– +$ +63,613 +$ +– +$ +2,160 +$ +65,773 +2007 +$ +– +$ +50,550 +$ +41,295 +$ +1,560 +$ +93,405 +Paul Korus +2009 +$ +8,900 +$ +37,900 +$ +$ +2,722 +$ +49,522 +2008 +$ +– +$ +45,150 +$ +– +$ +2,160 +$ +47,310 +2007 +$ +2,706 +$ +30,014 +$ +44,482 +$ +1,560 +$ +78,762 +Thomas E. Jorden +2009 +$ +– +$ +37,900 +$ +– +$ +3,033 +$ +40,933 +2008 +$ +– +$ +50,069 +$ +– +$ +2,160 +$ +52,229 +2007 +$ +– +$ +31,858 +$ +44,482 +$ +1,560 +$ +77,900 +Joseph R. Albi +2009 +$ +– +$ +37,900 +$ +– +$ +2,793 +$ +54,663 +(a) +2008 +$ +4,341 +$ +31,558 +$ +– +$ +2,160 +$ +53,434 +2007 +$ +8,104 +$ +27,150 +$ +44,482 +$ +1,560 +$ +81,296 +Stephen P. Bell +2009 +$ +22,998 +$ +37,900 +$ +– +$ +2,313 +$ +63,211 +2008 +$ +17,300 +$ +41,539 +$ +– +$ +2,160 +$ +60,999 +2007 +$ +20,087 +$ +26,898 +$ +44,482 +$ +1,560 +$ +93,027 +(a) Mr. Albi's +total compensation includes medical reimbursements in the total amount of $13,970. No other executive officer's perquisites +exceeded $10,000. +2009 GRANTS OF PLAN-BASED AWARDS +Non-Equity Incentive Plan +Our annual cash incentive awards were made from a company performance-based pool. The entire pool is at risk and there is no threshold. The CEO's +pool target is 100% of his year-end annualized salary, and his pool is limited to 200% of his salary. Our plan does not provide for individual targets for other executive officers, +including the NEOs. Rather our plan provides for a pool target of 100% of combined year-end annualized base salaries of all participants in the pool. The aggregate maximum awards to all +participants, including the NEOs, may not exceed 200% of total combined year-end annualized base salaries. See the description of the our annual cash incentive award plan in Compensation Discussion and Analysis, +under Elements of Compenstion Program, Annual Cash Incentive +Awards . +The +following table is presented in compliance with SEC regulations. However, the information required by the table is not consistent with the actual terms of our annual cash incentive plan because, +except for the CEO, our plan does not provide for individual targets or individual maximum awards. Despite these limitations, the table sets forth target and maximum amounts for the NEOs as if they +were determined on an individual basis instead of on a pool-based approach. +31 +Table of Contents +The amounts listed in the Target column represent 100% of the year-end annualized base salary. The amounts listed in +the Maximum column represent 200% of the annualized base salary. +Estimated Future Payouts Under +Non-Equity Incentive Plan +Name +Threshhold +Target +($) +Maximum +($) +Actual +Award +Paid in +March 2010 +($) +F. H. Merelli, CEO +$ +0 +$ +850,000 +$ +1,700,000 +$ +1,700,000 +Paul Korus +$ +0 +$ +420,000 +$ +840,000 +$ +630,000 +Thomas E. Jorden +$ +0 +$ +468,000 +$ +936,000 +$ +936,000 +Joseph R. Albi +$ +0 +$ +431,000 +$ +862,000 +$ +862,000 +Stephen P. Bell +$ +0 +$ +357,000 +$ +714,000 +$ +535,500 +Equity Incentive Plan Awards +The following table provides information regarding the annual awards of restricted stock made to the CEO and other NEOs in 2009. See Compensation Discussion and Analysis, Long-Term Equity Incentive +Awards for a complete description of these awards. +Estimated Future Payouts Under Equity +Incentive Plan Awards +Name +Award +Grant +Date +Comp +Comm. +Action +Date +Threshold (1) +(#) +Target (2) +(#) +Maximum +(#) +Grant Date +Fair Value +of Stock +Perf. +Awards (3) +($) +F.H. Merelli, CEO +1/2/09 +12/5/08 +30,000 +42,600 +60,000 +$ +1,729,800 +Paul Korus +1/2/09 +12/5/08 +15,000 +21,300 +30,000 +$ +864,900 +Thomas E. Jorden +1/2/09 +12/5/08 +15,000 +21,300 +30,000 +$ +864,900 +Joseph R. Albi +1/2/09 +12/5/08 +15,000 +21,300 +30,000 +$ +864,900 +Stephen P. Bell +1/2/09 +12/5/08 +15,000 +21,300 +30,000 +$ +864,900 +(1) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(2) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock +price performance relative to its peers and is not computed until the third anniversary of the award. See Long-Term Equity Incentive Awards +for the +32 +Table of Contents +method +of computing the number of shares that vest. The actual number of shares that vest is not determinable until January 2, 2012 (the third anniversary of the award). The shares disclosed in +this column represent the shares the executive would have been entitled to (based upon December 2009 stock prices), had the award vested on January 2, 2010. Ordinary cash dividends are paid on +the shares during the vesting period. +(3) Represents +the grant date fair value based upon maximum performance. +The +following table provides information about all outstanding options and unvested stock awards held by the CEO and each NEO as of December 31, 2009: +OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009 +OPTION AWARDS +STOCK AWARDS +Number of Securities +Underlying Unexercised +Options +Vested Restricted +Stock Units Not +Yet Payable (1) +Equity Incentive Plan +Awards That Have +Not Vested +Name +Exercisable +(#) +Unexercisable +(#) +Option +Exercise +Price +($) +Option +Expiration +Date +No. of +Units +(#) +Market +Value of +Unearned +Units (2) +($) +No. of +Shares +(#) +Market +Value of +Unearned +Shares (2) +($) +F.H. Merelli, CEO +125,000 +0 +$ +13.3125 +5/25/2010 +211,200 +$ +11,187,264 +180,000 +(3) +$ +9,534,600 +422,400 +0 +$ +16.65 +12/06/2012 +Paul Korus +0 +0 +12/06/2012 +45,500 +$ +2,410,135 +90,000 +(3) +$ +4,767,300 +Thomas Jorden +0 +0 +12/06/2012 +45,500 +$ +2,410,135 +90,000 +(3) +$ +4,767,300 +Joseph Albi +20,000 +0 +$ +16.65 +12/06/2012 +45,500 +$ +2,410,135 +90,000 +(3) +$ +4,767,300 +Stephen Bell +0 +0 +12/06/2012 +45,500 +$ +2,410,135 +90,000 +(3) +$ +4,767,300 +(1) Vested +December 6, 2007, but not payable in shares until December 6, 2010. +(2) The +amount in this column reflects the closing market price of the stock as of December 31, 2009 ($52.97) times the number of shares +reported in the previous column. +(3) One-third +of these shares vests on each of January 2, 2010, January 2, 2011 and January 2, 2012. +The following table provides information about the stock options exercised by our CEO and NEOs during 2009: +2009 OPTION EXERCISES AND RESTRICTED STOCK VESTED +2009 OPTION EXERCISES +2009 STOCK VESTING +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +on Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized +on Vesting +($) +F. H. Merelli, CEO +– +$ +– +40,800 +$ +1,176,264 +Paul Korus +– +$ +– +20,400 +$ +588,132 +Thomas E. Jorden +– +$ +– +20,400 +$ +588,132 +Joseph R. Albi +35,800 +(1) +$ +1,087,790 +(1) +20,400 +$ +588,132 +Stephen P. Bell +– +$ +– +20,400 +$ +588,132 +33 +Table of Contents +(1) Of +the 35,800 shares exercised, Mr. Albi has retained 6,813 shares; the terms of his Option Agreement require him to retain +one-half of the shares remaining after payment of the exercise price and any taxes due upon exercise. The value realized includes the value of the retained shares as well as the value of +shares that were either sold or cancelled in payment of the exercise price and taxes. +The +following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in each of the last three fiscal years. +NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions +in Last FY (2) +($) +Aggregate +Earnings in +Last FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +F. H. Merelli, CEO +2009 +$ +16,500 +$ +16,500 +$ +96,467 +$ +– +$ +529,351 +2008 +$ +48,113 +$ +48,113 +$ +(100,300 +) +$ +– +$ +400,122 +2007 +$ +28,300 +$ +32,550 +$ +27,665 +$ +– +$ +404,893 +Paul Korus +2009 +$ +26,790 +$ +16,500 +$ +35,366 +$ +– +$ +218,072 +2008 +$ +39,681 +$ +29,650 +$ +(21,195 +) +$ +– +$ +139,655 +2007 +$ +17,354 +$ +12,014 +$ +8,250 +$ +– +$ +91,949 +Thomas E. Jorden +2009 +$ +32,880 +$ +16,500 +$ +2,179 +$ +– +$ +445,367 +2008 +$ +64,744 +$ +34,569 +$ +9,221 +$ +– +$ +394,047 +2007 +$ +43,882 +$ +13,858 +$ +12,422 +$ +– +$ +286,014 +Joseph R. Albi +2009 +$ +24,043 +$ +16,500 +$ +29,789 +$ +– +$ +155,723 +2008 +$ +16,058 +$ +16,058 +$ +(29,209 +) +$ +– +$ +85,631 +2007 +$ +4,900 +$ +9,150 +$ +5,473 +$ +– +$ +89,327 +Stephen P. Bell +2009 +$ +22,748 +$ +16,500 +$ +7,583 +$ +– +$ +311,745 +2008 +$ +27,087 +$ +26,039 +$ +6,374 +$ +– +$ +265,154 +2007 +$ +7,935 +$ +8,898 +$ +5,112 +$ +– +$ +206,032 +(1) The +amounts included in this column are also included in the Salary column in the Summary Compensation Table . +(2) The +amounts reported in this column are included in the All Other Compensation column and +footnote thereto in the Summary Compensation Table . +34 +Table of Contents +POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION +We do not consider post-termination benefits as a material element of executive compensation because, except for our CEO, NEO +post-termination benefits are the same benefits available to all full-time employees. Post-termination benefits are not included in the Compensation Committee's +analysis of total compensation. +We +are obligated to make certain payments to our CEO and NEOs or to accelerate the vesting of their equity awards upon a change in control, death, disability or termination of employment pursuant to +the following plans and agreements: +• change in control severance plan that covers all full-time employees, including the NEOs +• 2002 Stock Incentive Plan +• employment agreement with Mr. Merelli +• change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +• Supplemental Savings Plan +We +currently do not pay severance benefits or accelerate equity awards upon the retirement of the CEO or other NEOs. Individual performance assessments, compensation arising from our annual +compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +The +following tables provide the estimated compensation and present value of benefits potentially payable to the CEO and each other NEO upon a change in control of Cimarex or termination of +employment. The amounts shown assume that the termination or change in control occurred on December 31, 2009. The actual amounts to be paid can only be determined at the time of the executive's +actual separation from Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements +or modify these arrangements, from time to time. +Please +see the narrative following the tables below for a discussion of the agreements providing for the payments required upon termination or a change in control. +Potential Payments upon Change in Control +Cimarex is obligated under certain agreements to pay benefits upon a "change in control" event. +Cimarex's definition of "change in control" as used in its 2002 Stock Incentive Plan, its Change in Control Severance Plan and the change in control +provisions that survived certain expired employment agreements with each NEO is the same. In summary, a "change-in-control" +event means any of the following: +• Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities +of Cimarex by an individual or group. +• Members of our Board of Directors cease to constitute a majority of the directors. +• A reorganization, share exchange or merger unless (i) the stockholders prior to the reorganization or merger +continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the +members of the board of directors of the corporation resulting from the merger or reorganization were members of the board of directors at the time of executing the agreement to reorganize or merge. +35 +Table of Contents +• The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +The +following describes potential payments to the CEO and NEOs in the event of a change-in-control event coupled with termination of employment without cause: +Change in Control – Termination without Cause +Name +Annual Average +Cash +Compensation (1) +Cash +Incentive (2) +Restricted +Stock and +Stock +Units (3) +Options +Employee +Benefits (4) +280G Tax +Gross Up +Total +Benefits +F. H. Merelli, CEO +$ +3,662,500 +$ +1,326,000 +$ +11,187,264 +$ +– +$ +540,562 +$ +3,594,116 +$ +20,310,442 +Paul Korus +$ +1,598,250 +$ +655,200 +$ +5,593,632 +$ +– +$ +240,147 +$ +1,777,266 +$ +9,864,495 +Thomas E. Jorden +$ +2,010,384 +$ +730,080 +$ +5,593,632 +$ +– +$ +467,017 +$ +1,905,875 +$ +10,706,988 +Joseph R. Albi +$ +1,851,517 +$ +672,360 +$ +5,593,632 +$ +– +$ +173,206 +$ +1,839,431 +$ +10,130,146 +Stephen P. Bell +$ +1,354,860 +$ +556,920 +$ +5,593,632 +$ +– +$ +321,844 +$ +1,680,367 +$ +9,507,623 +(1) Amount +represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2008 and 2009, as +provided in the Change in Control Severance Plan. +(2) Amount +represents the average incentive bonus as provided in the Change in Control Severance Plan. +(3) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2009 of $52.97 per share. +(4) Amounts +represent estimated payments under the Supplemental Savings Plan and the estimated value of continued medical, dental, disability and +life insurance benefits for two years. +The following is a summary of those agreements that provide for payment to the CEO and the NEOs in the event of a change-in-control +event coupled with termination of employment without cause: +Change in Control Severance Plan +Our Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of a "change in control." In +the event of a change in control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a change in control, each employee would be +entitled to: +• Cash severance payments of up to two years' salary and cash incentive award. +• A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +• Continued medical, dental, disability and life insurance benefits for two years. +• Additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and +related income taxes, interest and penalties. +Assumed Change-in-Control Employment Provisions for Messrs. Albi, Bell, Jorden and Korus +We assumed the change-in-control provisions from the now expired employment agreements between each of Messrs. Albi, +Bell, Jorden and Korus and a predecessor company. Each agreement provides that if the executive is terminated without cause following a change-in-control event (as defined in +the agreement), the executive is entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Benefits payable under these agreements +are forfeited if the +36 +Table of Contents +NEO +receives benefits under any other change-in-control plan, including the Cimarex Energy Co. Change in Control Severance Plan. +As +a practical matter, the "change-in-control" benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described +above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. +Change in Control – No Termination +The following describes potential payments to the CEO and NEOs in the event of a change-in-control event without employment +termination: +Name +Restricted +Stock and +Stock Units (1) +Options +280G Tax +Gross Up +Total +Benefits +F. H. Merelli, CEO +$ +11,187,264 +$ +– +$ +– +$ +11,187,264 +Paul Korus +$ +5,593,632 +$ +– +$ +1,079,059 +$ +6,672,691 +Thomas E. Jorden +$ +5,593,632 +$ +– +$ +– +$ +5,593,632 +Joseph R. Albi +$ +5,593,632 +$ +– +$ +1,084,248 +$ +6,677,880 +Stephen P. Bell +$ +5,593,632 +$ +– +$ +1,054,952 +$ +6,648,584 +(1) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2009 of $52.97 per share. +The +Compensation and Governance Committee has the authority to accelerate vesting of any award made under our 2002 Stock Incentive Plan. The Committee has authorized acceleration of vesting in the +event of a change in control in all equity award agreements. +Potential Payments upon Termination – No Change in Control +Potential Payments upon Death or Disability +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock +Unit (2) +Options +Employee +Benefits (3) +Total +Benefits +F. H. Merelli, CEO +$ +1,700,000 +$ +1,700,000 +$ +11,187,264 +$ +– +$ +529,351 +$ +15,116,615 +Paul Korus +$ +– +$ +– +$ +5,593,632 +$ +– +$ +218,072 +$ +5,811,704 +Thomas E. Jorden +$ +– +$ +– +$ +5,593,632 +$ +– +$ +445,367 +$ +6,038,999 +Joseph R. Albi +$ +– +$ +– +$ +5,593,632 +$ +– +$ +155,723 +$ +5,749,355 +Stephen P. Bell +$ +– +$ +– +$ +5,593,632 +$ +– +$ +311,745 +$ +5,905,377 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent +37 +Table of Contents +24 months +of Mr. Merelli's base salary at December 31, 2009, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2009 services. +(2) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of our common stock as of +December 31, 2009 of $52.97 per share. +(3) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +The +Committee has authorized acceleration of vesting of all equity awards in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or disability. +Potential Payments upon Termination Without Cause +Name +Severance +Cash +Incentive +Employee +Benefits (2) +Total +Benefits +F. H. Merelli, CEO +$ +1,700,000 +$ +1,700,000 +$ +529,351 +$ +3,929,351 +Paul Korus +$ +– +$ +– +$ +218,072 +$ +218,072 +Thomas E. Jorden +$ +– +$ +– +$ +445,367 +$ +445,367 +Joseph R. Albi +$ +– +$ +– +$ +155,723 +$ +155,723 +Stephen P. Bell +$ +– +$ +– +$ +311,745 +$ +311,745 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2009, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2009 services. +(2) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +In +September 2002 we assumed Mr. Merelli's employment agreement from a predecessor company. His agreement is for an indefinite term. The agreement provides that if Mr. Merelli's +employment is terminated because of (i) death or disability or (ii) without cause, he is entitled to continuation of his base salary for 24 months (reduced by +long-term disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan. "Without cause" includes a resignation by +Mr. Merelli upon a change in his place of employment from Denver, Colorado without his consent. Mr. Merelli agreed not to reveal any trade secret or confidence and to surrender all +information containing trade secrets or confidences. The confidentiality requirements of his employment agreement survive for three years following termination of employment. +Benefits +under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +38 +Table of Contents +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 15, 2010, there were 83,869,288 shares of common stock +outstanding, with each share entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 15, 2010, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial +Owner +Shares +Owned (1) +Option +Shares (2) +Beneficial +Ownership +Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +672,263 +547,400 +1,219,663 +1 +% +Joseph R. Albi +161,401 +10,000 +171,401 +<1 +% +Stephen P. Bell +176,240 +0 +176,240 +<1 +% +Thomas E. Jorden +165,875 +0 +165,875 +<1 +% +Paul Korus +149,934 +0 +149,934 +<1 +% +Directors +Jerry Box +15,340 +– +15,340 +<1 +% +Hans Helmerich +76,725 +(3) +10,000 +86,725 +<1 +% +David A. Hentschel +17,097 +10,000 +27,097 +<1 +% +Paul D. Holleman +15,759 +15,759 +<1 +% +Harold R. Logan, Jr. +4,280 +– +4,280 +0 +% +Monroe W. Robertson +14,674 +– +14,674 +<1 +% +Michael J. Sullivan +12,628 +10,000 +22,628 +<1 +% +L. Paul Teague +57,823 +10,000 +67,823 +<1 +% +All executive officers and directors as a group (17 persons) +1,844,526 +597,400 +2,441,926 +3 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the +benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include restricted stock units held by executive officers or deferred compensation units held by some directors. +See Equity-Related Interests table below. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following +March , 2010 under the Cimarex Energy Co. 2002 Stock Incentive Plan. +(3) Includes +7,865 shares held for various trusts for immediate family members of which Mr. Helmerich is trustee and 1,072 shares held by a +family trust of which Mr. Helmerich is a co-trustee. Also includes 11,450 shares owned by Mr. Helmerich's wife, 5,545 shares held by Mr. Helmerich's son and 4,140 +shares held by Mr. Helmerich's daughter; Mr. Helmerich disclaims beneficial ownership of these shares. +39 +Table of Contents +Beneficial Owners of More than Five Percent +The following stockholders beneficially own five percent or more of our outstanding shares of common stock. The following table provides information +regarding its stock ownership and is based on its filing with the Securities and Exchange Commission. +Voting +Authority +Dispositive +Authority +Total +Amount of +Beneficial +Ownership +Percent of +Class +Name and Address +Sole +Shared +Sole +Shared +Artisan Partners Holdings LP +Artisan Investment Corporation +Artisan Partners Limited Partnership +Artisan Investments GP LLC +ZFIC, Inc. +Andrew A. Ziegler +Carlene M. Ziegler +875 East Wisconsin Ave., +Suite 800 +Milwaukee, WI 53202 +0 +4,662,390 +0 +4,758,490 +4,758,490 +5.7 +% +AXA Assurances I.A.R.D. Mutuelle +26, rue Drouot +75009 Paris, France +7,249,122 +0 +9,362,435 +0 +9,362,435 +11.2 +% +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +5,451,033 +0 +5,451,033 +0 +5,451,033 +6.53 +% +Third Avenue Management LLC +622 Third Avenue, 32 nd Floor, +NY, NY 10017 +5,295,474 +0 +5,391,049 +0 +5,391,049 +6.46 +% +40 +Table of Contents +Equity and Equity-Related Interests Held by Executive Officers and Directors +The following table shows, as of March 15, 2010, vested and unvested equity interests and common stock held by each of the executive officers +set forth in the Summary Compensation Table , the directors and all of the executive officers and directors as a group: +Unvested +Restricted +Stock (1)(2) +Common +Stock with +Hold (3) +Restricted Stock +Units/Deferred +Comp Units (4)(5) +Shares Underlying +Stock Options +401(k) +Common +Stock +Total +Vested +Unvested +Vested +Unvested +Named Officers +F. H. Merelli (also director) +220,000 +– +211,200 +0 +547,400 +0 +17,017 +435,246 +1,430,863 +Joseph R. Albi +110,000 +16,425 +45,500 +0 +10,000 +0 +5,547 +29,429 +216,901 +Stephen P. Bell +110,000 +19,055 +45,500 +0 +0 +0 +0 +47,185 +221,740 +Thomas E. Jorden +110,000 +19,896 +45,500 +0 +0 +0 +9,250 +26,729 +211,375 +Paul Korus +110,000 +16,805 +45,500 +0 +0 +0 +0 +23,129 +195,434 +Directors +Jerry Box +6,422 +– +– +– +– +– +– +8,918 +15,340 +Hans Helmerich +4,280 +– +6,695 +2,143 +10,000 +0 +– +12,445 +95,563 +David A. Hentschel +6,422 +– +– +– +10,000 +0 +– +10,675 +27,097 +Paul D. Holleman +6,422 +– +– +– +– +– +9,377 +15,799 +Harold R. Logan, Jr. +4,280 +– +– +– +– +– +– +0 +4,280 +Monroe W. Robertson +6,422 +– +– +– +– +– +– +8,252 +14,674 +Michael J. Sullivan +4,280 +– +826 +2,143 +10,000 +0 +– +8,348 +25,597 +L. Paul Teague +6,422 +– +– +– +10,000 +0 +– +51,401 +67,823 +All executive officers & directors as a group (17 persons) +947,700 +94,117 +475,221 +4,286 +597,400 +0 +35,273 +767,436 +2,921,433 +(1) The +restricted stock held by the executive officers is subject to three-year cliff vesting and the satisfaction of performance +goals. See Compensation Discussion and Analysis, Elements of Cimarex Executive Compensation Program, Long-Term Incentive Awards in this proxy +statement. +(2) The +restricted stock held by the directors vests in three equal annual installments, beginning with the first anniversary from the grant date. +(3) Represents +shares acquired upon the exercise of an option that must be held until December 6, 2010. The terms of the options require +that, upon exercise, the holder is required to retain 50% of the profit shares for eights years from the date of grant (December 6, 2010). +(4) The +restricted stock units vest five years from the date of grant and are payable in shares of common stock on the eighth anniversary of the +date of grant. +(5) The +deferred compensation units held by certain directors vest in three equal annual installments and represent the right to receive one share +of Cimarex common stock at the time provided in the director's deferred compensation election. +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our +independent auditor, subject to a specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the SEC may +not be performed by our independent auditor. The Audit Committee may delegate +41 +Table of Contents +pre-approval +authority to one or more of its members. In the event of any such delegation, any pre-approved decisions will be reported to the Audit Committee at its +next scheduled meeting. The services described below and the related fees were pre-approved by the Audit Committee in 2008 and 2009. +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to +Cimarex: +Years Ended +December 31, +2009 +2008 +Audit Fees +$ +910,000 +$ +1,016,500 +Audit-Related Fees +$ +32,000 +$ +0 +Tax Fees +$ +248,510 +(1) +$ +259,160 +(1) +All Other Fees +$ +0 +$ +0 +(1) Includes +review of federal and state tax returns and compliance issues. +Report of Audit Committee +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company's financial reporting; (ii) the +independent auditor's qualifications and independence; and (iii) the performance of the Company's internal auditors and independent auditor. In so doing, it is the responsibility of the +Committee to maintain free and open communication between the directors, the independent auditor and the management of the Company. The Board of Directors has adopted a written charter for the Audit +Committee, a copy of which is available on our website at www.cimarex.com . +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and +issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes and uses internal audit to assist with these responsibilities. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2009 and met with both management and KPMG, Cimarex's independent registered public +accounting firm, to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. In addition, we have received from KPMG the communication required +by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Concerning Independence , and discussed with +KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by Statement on Auditing Standards No. 61, Communication with Audit Committees . +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2009. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Paul D. Holleman +Harold R. Logan, Jr. +Michael J. Sullivan +42 +Table of Contents +OTHER MATTERS +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2009, we contracted for drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of +business in the same manner as we obtain services from other companies that provide similar services. From October 1, 2008 through September 30, 2009, we paid Helmerich & +Payne, Inc. $25,130,234 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the +selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when +compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with +Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our +common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we +believe that all reports were timely filed in 2009, except Forms 4 reporting the May 20, 2009 grants of 4,280 shares of restricted stock to each of our independent directors were filed +late. +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com . Any person, +whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or +anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to +communicate directly with non-management directors may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. +Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +43 +Table of Contents +CIMAREX ENERGY CO. +VOTE BY INTERNET OR TELEPHONE +QUICK *** EASY *** IMMEDIATE +As a stockholder of Cimarex Energy Co., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return +the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically +over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 18, 2010. +[Computer Icon] +[Phone Icon] +[Mail Icon] +Vote Your Proxy on the Internet: +Vote Your Proxy by Phone: +Call 1 (866) 894-0537 +Vote Your Proxy by mail: +Go to www.continentalstock.com +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +OR +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +OR +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE +VOTING ELECTRONICALLY OR BY PHONE +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" ALL THE NOMINEES LISTED AND FOR PROPOSALS 2 AND 3. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Please mark +your votes +like this +ý +The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3. +1. +Election of three Class II directors: +FOR +AGAINST +ABSTAIN +(01) Hans Helmerich +o +o +o +FOR +AGAINST +ABSTAIN +(02) Harold R. Logan, Jr. +o +o +o +FOR +AGAINST +ABSTAIN +(03) Monroe W. Robertson +o +o +o +FOR +AGAINST +ABSTAIN +2. +In order to obtain the federal income tax deduction benefits under Section 162(m) of the Internal Revenue Code, approve a revision to the maximum number of shares that may be issued under the performance +awards. +o +o +o +FOR +AGAINST +ABSTAIN +3. +Ratify appointment of KPMG LLP as independent auditors for 2010. +o +o +o +IF YOU WISH TO VOTE ELECTRONICALLY PLEASE READ THE INSTRUCTIONS ABOVE. +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature +Signature +Date +, 2010. +Note: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give title as such. +Table of Contents +YOUR VOTE IS IMPORTANT TO US. +PLEASE CAST YOUR VOTE TODAY. +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 19, 2010, or any adjournment thereof. +For +participants in the Cimarex 401(k) Plans, this proxy, when properly executed, will be voted in the manner directed by the undersigned. If no direction is given, if the card is not +signed, or if the card is not received prior to 5 pm Eastern Time on May 14, 2010, the Plan's Trustee will vote your shares held in the Plan in the same proportion as shares were voted +by other Plan participants. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-10-003133/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-10-003133/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..60e51fe049aab2b5bcf212fea4fc3fa4b81773ed --- /dev/null +++ b/raw/proxies/0001168054/0001047469-10-003133/proxy_rpt.txt @@ -0,0 +1,13 @@ +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2009, we contracted for drilling rigs and services with Helmerich & Payne, Inc. in arms' length transactions and as part of our ordinary course of +business in the same manner as we obtain services from other companies that provide similar services. From October 1, 2008 through September 30, 2009, we paid Helmerich & +Payne, Inc. $25,130,234 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the +selection and award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when +compared to our total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with +Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-11-002551/proxy.txt b/raw/proxies/0001168054/0001047469-11-002551/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..f2d03fe6af31e965f3c13c55e62cd6a86c58c796 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-11-002551/proxy.txt @@ -0,0 +1,4213 @@ +DEF 14A +1 +a2202843zdef14a.htm +DEF 14A +Use these links to rapidly review the document +TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material under §240.14a-12 +Cimarex Energy Co. +(Name of Registrant as Specified In Its Charter) +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +CIMAREX ENERGY CO. +NOTICE OF ANNUAL MEETING OF STOCKHOLDERS +To be Held on May 18, 2011 +9:00 a.m. Mountain Time +Brown Palace Hotel, 321 17 th Street, Denver, Colorado +AGENDA: +1. Elect +three management nominees as Class III directors for terms expiring in 2014. +2. Advisory +vote on executive compensation. +3. Advisory +vote on the frequency of advisory vote on executive compensation. +4. Approve +the Cimarex Energy Co. 2011 Equity Incentive Plan. +5. Ratify +the appointment of KPMG LLP as our independent auditors for 2011. +We +will also transact any other business as may properly come before the meeting or any adjournments thereof. +Stockholders +of record at the close of business on March 22, 2011 are entitled to notice of and to vote at the meeting. +YOUR VOTE IS IMPORTANT +Please take the time to vote by following the Internet or telephone voting instructions provided in this proxy statement. If you received a paper +copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. +You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Mary Kay Rohrer +Corporate Secretary +Date: +April 5, 2011 +Table of Contents +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +1 +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +1 +PROPOSAL 1. ELECTION OF DIRECTORS +5 +Nominees +6 +Continuing Directors +7 +PROPOSAL 2. ADVISORY VOTE ON EXECUTIVE +COMPENSATION +9 +PROPOSAL 3. ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON +EXECUTIVE COMPENSATION +10 +PROPOSAL 4. APPROVE THE CIMAREX ENERGY CO. 2011 EQUITY +INCENTIVE PLAN +11 +PROPOSAL 5. RATIFICATION OF INDEPENDENT +AUDITORS +18 +CORPORATE GOVERNANCE +18 +Independence of Board Members +18 +Meetings and Executive Sessions of the Board of +Directors and its Committees +18 +Director Attendance at the Annual +Meeting +19 +Board Committees +19 +Audit Committee +19 +Compensation and Governance +Committee +20 +Nominating Committee +21 +Board Leadership Structure +22 +Risk Oversight +22 +Board/Committee Evaluations +23 +Director Education +23 +Service on Boards of Other Public +Companies +23 +Director and Management Stock Ownership +23 +Corporate Governance Guidelines and Code of +Ethics +23 +Web Access +24 +Process for Communication with the Board +24 +DIRECTOR COMPENSATION +24 +Overview +24 +Determination of Director Compensation +24 +Director Compensation +25 +2010 Director Compensation +26 +Deferred Compensation Plan for Non-Employee +Directors +26 +Acceleration of Vesting of Awards +27 +EXECUTIVE COMPENSATION +27 +COMPENSATION DISCUSSION AND ANALYSIS +27 +Executive Summary +27 +Objectives of our +Executive Compensation Program +27 +Principal Elements of +Executive Compensation +28 +i +Table of Contents +Page +How We Make Compensation +Decisions +28 +Elements of Total Executive +Compensation +31 +Base Salary +32 +Annual Cash +Incentive Awards +33 +Long-Term Equity Incentive Awards +34 +Other Compensation +37 +Perquisites +38 +Retirement +Benefits +38 +Supplemental Savings +Plan +38 +Termination +Benefits +38 +Report of Compensation +and Governance Committee +39 +COMPENSATION +TABLES +40 +Summary Compensation Table +40 +2010 Grants of Plan-Based +Awards +42 +Non-Equity Incentive +Plan +42 +Equity Incentive +Plan Awards +43 +Outstanding Equity Awards +at December 31, 2010 +44 +2010 Option Exercises +and Restricted Stock Vested +44 +Nonqualified Deferred +Compensation +45 +Potential Payments upon Change in +Control or Termination +45 +Potential Payments upon Change in Control +46 +Change in Control – Termination without Cause +47 +Change in +Control – No Termination +48 +Potential Payments upon +Termination – No Change in Control +49 +Potential Payments upon Death or Disability +49 +Potential Payments upon Termination without Cause +49 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL +OWNERS +50 +Beneficial Ownership by Executive Officers and +Directors +50 +Beneficial Owners of More than Five +Percent +51 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +51 +Policy for Approval of Audit, Audit-Related and Tax +Services +51 +Fees +51 +Report of Audit Committee +51 +OTHER MATTERS +52 +Transactions with Related Persons +52 +Section 16(a) Beneficial Ownership Reporting +Compliance +53 +Complaint and Reporting Procedures +53 +Householding +53 +CIMAREX ENERGY CO. 2011 EQUITY INCENTIVE PLAN +A-1 +ii +Table of Contents +PROXY STATEMENT +2011 ANNUAL MEETING OF STOCKHOLDERS – May 18, 2011 +CIMAREX ENERGY CO. +Brown Palace Hotel, 321 17 th Street, Denver, Colorado +We provide you with this proxy statement to solicit your vote at our 2011 Annual Meeting of Stockholders. +The +Annual Meeting will be held on Wednesday, May 18, 2011, at 9:00 a.m. Mountain Time, at the Brown Palace Hotel, 321 17 th Street, Denver, Colorado. +The +proxy materials will be furnished to stockholders on or about April 5, 2011. All properly completed and delivered proxies will be voted at the Annual Meeting and at any adjournments or +postponements of the Meeting. If you are a stockholder of record at the close of business on March 22, 2011, the record date, you may vote at the Annual Meeting, or at adjournments or +postponements of the Meeting. +INTERNET AND ELECTRONIC AVAILABILITY OF PROXY MATERIALS +As permitted by the U.S. Securities and Exchange Commission (the "SEC"), we have elected to provide our stockholders with access to our proxy +materials on the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials, or the Notice, was mailed to most of our stockholders on or about April 5, 2011. Stockholders will +have the ability to access the proxy materials on a website referred to in the Notice or request a printed set of proxy materials to be sent to them by following the instructions in the Notice. +The +Notice will also provide instructions on how to inform us to send future proxy materials to you electronically by e-mail or in printed form by mail. If you choose to receive future +proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to +receive proxy materials by e-mail or printed form will remain in effect until you terminate it. +Choosing +to receive future proxy materials by e-mail will allow us to timely provide you with the information you need and will save us the cost of printing and mailing documents to you. +GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING +Who can vote? +Stockholders holding shares of our common stock as of the close of business on March 22, 2011, may vote at the Annual Meeting, or at any +adjournment or postponement of the Meeting. You have one vote for each share of common stock held as of the record date that may be voted on each proposal presented at the Annual Meeting. +Who can attend the Annual Meeting? +Admission to the Annual Meeting is limited to stockholders of Cimarex, persons holding proxies from stockholders who held Cimarex common stock on +March 22, 2011, and invited guests of Cimarex. +1 +Table of Contents +How many shares of Cimarex common stock were outstanding on the record date? +At the close of business on March 22, 2011, the record date, there were 85,532,997 shares of common stock outstanding and entitled to vote at +the Annual Meeting. Common stock is the only class of stock entitled to vote. +How do I vote? +You may vote by any of the following methods: +• Vote on the Internet at the website for Internet voting. Simply follow the instructions on the Notice, or if you received +a proxy card by mail, follow the instructions on the proxy card and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of +future proxy materials. +• Vote by telephone by following the instructions on the Notice, or if you received a proxy card, by following the +instructions on the proxy card. +• If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the +pre-addressed, postage-paid envelope provided. +• You may attend and vote at the Annual Meeting. The Board recommends that you vote using one of the methods described +above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. +If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card? +No. +If I vote by mail, telephone or Internet, may I still attend the Annual Meeting? +Yes. +Can I change my vote? +If you are a stockholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting, by the following +methods: +• Voting at a later time by Internet or telephone; +• Voting in person at the Annual Meeting; +• Delivering to our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, +Denver, Colorado 80203-4518 a proxy with a later date or a written revocation of your proxy; or +• Giving notice of revocation to the Inspector of Election at the Annual Meeting. +How do I vote if my shares are held in street name? +If your shares are held in the name of your broker, a bank, or other nominee, only your broker, bank or other nominee may execute a proxy and vote +your shares. Please follow the instructions on the form you receive from your broker, bank or other nominee. You may vote by the Internet, in person or by telephone if your bank or broker or other +nominee makes those methods available in accordance with the instructions on the form. If you wish to vote your "street name" shares in person, you will need to obtain a document known as a "legal +proxy" from your broker, bank or other nominee. Please contact your broker, bank or other nominee if you wish to do so. +2 +Table of Contents +How do I vote shares held in my 401(k) account? +Participants in the Cimarex 401(k) Plan ("401(k) Plan") who have shares of common stock credited to their plan account as of the record date will +have the right to direct the 401(k) Plan trustee regarding how to vote those shares. The trustee will vote the shares in a participant's 401(k) Plan account in accordance with the participant's +instructions or, if no instructions are received prior to 5 p.m. Eastern Time on May 13, 2011, the shares credited to that participant's account will be voted by the trustee in the same +proportion as it votes shares for which it did receive timely instructions. Information as to how participants voted the shares credited to their 401(k) Plan account will not be disclosed to Cimarex. +What happens if other matters come up at the Annual Meeting? +We do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, F. H. +Merelli, Cimarex's Chairman of the Board, Chief Executive Officer and President, and Paul Korus, Cimarex's Sr. Vice President and Chief Financial Officer, will vote your shares at their discretion. +Who will count the votes? +A representative of Continental Stock Transfer & Trust Company, our stock transfer agent, will act as the independent tabulator appointed by +the Board of Directors and will count the votes and act as the Inspector of Election. +What is a "quorum"? +A "quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting +shares of common stock present in person at the Annual Meeting or represented by proxy. If you submit a properly completed proxy, you will be considered part of the quorum even if you abstain from +voting. Shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners ("broker non-votes") are treated as present for the purposes +of determining a quorum. +How many votes must each proposal receive to be adopted? +• With respect to Proposal 1, the election of directors, each nominee will be elected if the votes cast for the nominee +exceed the votes cast against the nominee. +• Proposal 2 for an advisory vote on executive compensation (the "say-on-pay vote") must receive an +affirmative majority of the shares present and entitled to vote on the Proposal. +• Proposal 3 affords stockholders the opportunity to cast an advisory vote on the frequency of holding the +say-on-pay vote. Under Proposal 3, stockholders may vote to hold the say-on-pay vote every one, two or three years or abstain from voting. +• Proposal 4 to approve the 2011 Equity Incentive Plan must receive the affirmative vote of a majority of the shares present +and entitled to vote. Under applicable NYSE rules, the total vote cast on the Proposal must represent over 50% in interest of all shares entitled to vote on the Proposal. +• Proposal 5 for the ratification of independent auditors must receive the affirmative vote of a majority of the shares +present and entitled to vote. +3 +Table of Contents +What are the Board's voting recommendations? +The Cimarex Board of Directors recommends that you vote: +• "FOR" each of the named nominees for director (Proposal 1); +• "FOR" the proposal regarding an advisory vote on executive compensation (Proposal 2); +• "FOR" "every three years" for the proposal regarding an advisory vote on the frequency of the advisory vote on executive +compensation (Proposal 3); +• "FOR" approval of the 2011 Equity Incentive Plan (Proposal 4); and +• "FOR" the ratification of KPMG LLP as Cimarex's independent auditors for the year ending December 31, 2011 +(Proposal 5). +How are votes counted and what is the effect of broker non-votes and abstentions? +Votes are counted in accordance with our Bylaws, Delaware law and the rules of the New York Stock Exchange ("NYSE"). If a stockholder delivers a +properly completed proxy but does not indicate how his or her shares are to be voted, the shares covered by such proxy will be included in determining if there is a quorum and will also be counted as +votes "FOR" each named nominee for director (Proposal 1), "FOR" Proposals 2, 4 and 5 and "FOR" every three years (Proposal 3) and against any stockholder proposal. Shares will not be voted at +the Annual Meeting if a properly completed proxy covering those shares has not been received and the holder does not vote in person or at the Annual Meeting. +The +NYSE precludes brokers from exercising voting discretion on "non-routine" proposals without specific instructions from the beneficial owner. Under the current NYSE rules, only Proposal +5 is considered a routine matter. +The +following summarizes how votes will be counted and the effect of broker non-votes and abstentions on each of the Proposals: +Abstentions +• With respect to Proposal 1, under our bylaws, abstentions are not considered cast in the election of directors and will +have no effect on the outcome of the Proposal. +• With respect to Proposals 2, 4 and 5, abstentions on each of these proposals will have the same effect as a vote against +the Proposal. +• With respect to Proposal 3, abstentions will have no effect on the outcome of the Proposal. +Broker Non-Votes +• With respect to Proposals 1, 2 and 3, broker non-votes will have no effect on the outcome of the Proposals. +• With respect to Proposal 4, under applicable NYSE voting standards, votes for, votes against and abstentions on the +Proposal count as votes cast, while broker non-votes do not count as votes cast. Consequently, broker non-votes can affect whether the outcome of the vote satisfies the NYSE +requirement that total votes cast represent over 50% of all shares entitled to vote on the Proposal. +• With respect to Proposal 5, because it is a routine matter on which a broker is empowered to vote, no broker +non-votes will likely result from this Proposal. +4 +Table of Contents +How can I view the stockholder list? +You may view a stockholder list at the Annual Meeting or at our offices located at 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203 +during ordinary business hours during the period May 8 through May 17, 2011. +Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex does. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of distributing the proxy materials. +In addition, we have retained DF King & Co., Inc. to act as a proxy solicitor in conjunction with the meeting. We have agreed to pay that firm $10,000, plus reasonable +out-of-pocket expenses, for proxy solicitation services. Solicitation of proxies by mail may be supplemented by telephone or +personal solicitation by our directors, officers or other regular employees. No additional compensation will be paid to directors, officers or other regular employees for such services. +If I want to submit a stockholder proposal for the 2012 Annual Meeting, when is it due? +If you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in +writing to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone +(303) 295-3995 and facsimile (303) 295-3494. Cimarex must receive your proposal on or before December 8, 2011. Cimarex will consider only proposals meeting +the requirements of the applicable rules of the SEC. +If +a stockholder wants to bring any matter before the 2012 Annual Meeting that is not included in the 2012 Proxy Statement, the stockholder must provide written notice of the matter between +February 9, 2012 and February 19, 2012. Stockholders are also advised to review our Amended and Restated Bylaws, which contain advance notice requirements, including requirements with +respect to advance notice of stockholder proposals and director nominations. +PROPOSAL 1. ELECTION OF DIRECTORS +Our current Board of Directors (the "Board") consists of eight members. The Board has noted with sadness the passing in January 2011 +of Paul D. Holleman, a Class I director who had been a director of Cimarex since its inception and prior to that was a director of Key Production Company, Inc., which was acquired by +Cimarex in 2002. The Board is divided into three classes: Class I, Class II and Class III directors. At each annual meeting, a class of directors is elected for a term expiring at +the annual meeting in the third year following the year of election. Each director holds office until his successor is elected and qualifies. +The +terms of the three Class III directors, David Hentschel, F. H. Merelli and L. Paul Teague, will expire at the 2011 Annual Meeting. +If +prior to the Annual Meeting a nominee becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute +nominee or nominees designated by our Board of Directors or its Nominating Committee. As of the +mailing of these proxy materials, the Board of Directors knows of no reason why any director nominee would not be available to serve as a director. +A +nominee is elected if the votes cast for his election exceed the votes cast against his election. Each director who is nominated below has tendered an irrevocable resignation that is effective upon +his failure to receive the required vote and the Board's acceptance of such resignation. If a nominee fails to receive more favorable votes than votes cast against him, the Nominating Committee will +act on an expedited basis following the Annual Meeting to determine whether to recommend that the Board accept the director's resignation. The Nominating Committee and the Board may consider any +factors +5 +Table of Contents +they +deem relevant in deciding whether to accept the director's resignation, and the director whose resignation is under consideration must abstain from participating in any decision regarding his +resignation. The Board will publicly disclose its decision regarding acceptance of resignation within 90 days after the results of the election are certified. If the resignation is not +accepted, the director will continue to serve as a director until his successor is elected and qualified. If the Board accepts the resignation, then the Board may fill the vacancy in accordance with +the Bylaws or may decrease the size of the Board in compliance with the Certificate of Incorporation. +Information +concerning the nominees recommended by our Nominating Committee and nominated by our Board of Directors, as well as each of our continuing directors, is set forth below. +NOMINEES +Class III Directors – Terms Expiring in 2011 +David A. Hentschel +Director Since 2002 +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age 77 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Hentschel was Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation from 1986 until 1993 and from 1997 until 1999, when he retired. He also served as President and Chief Executive Officer of Canadian Occidental Petroleum, +Ltd, now known as Nexen, from 1995 until 1997. Mr. Hentschel brings considerable executive experience in the domestic and international oil and gas industry to the Board. He was in charge of the worldwide exploration and production +operations for Cities Service, Occidental Oil and Gas Corporation for the last 20 years of his 40-year career. He was a director of Occidental Petroleum from 1987-1993 and of Canadian Occidental or Nexen from 1985-2009. During his service as a +director of Nexen, he was chair of the audit committee and a member of the compensation committee and various other committees. He was also a director of the Bank of Oklahoma from 1984-1995. Mr. Hentschel's extensive leadership background and +his service on Nexen's audit and compensation committees provide strong skills and experience for his service on our Compensation and Governance Committee. +F. H. Merelli +Director Since 2002 +Chairman of the Board, CEO, President +Cimarex Energy Co. +Denver, Colorado +Age 75 +Mr. Merelli has been Chairman of the Board, Chief Executive Officer and President of Cimarex since September 30, 2002. He was Chairman and Chief Executive Officer of Key Production Company, Inc. (acquired by Cimarex in September 2002) +from September 1992 to September 30, 2002 and President from September 1992 to September 1999 and from March 2002 until September 30, 2002. Mr. Merelli has spent over 35 years in key executive positions in the oil and gas +industry. Mr. Merelli is the creator of several management and incentive systems currently employed by Cimarex. Mr. Merelli is a director and member of the audit committee of Apache Corporation, Houston, Texas, an exploration and production +company traded on the NYSE. +6 +Table of Contents +L. Paul Teague +Director Since 2002 +Retired Executive +Texaco USA +Age 76 +Chairman – Compensation and Governance Committee +Member – Nominating Committee +Mr. Teague served 35 years with Texaco Inc. He retired in 1994 as Vice President, Western Exploration & Producing Region of Texaco USA in Denver, Colorado. Mr. Teague held various positions with Texaco USA, including Vice +President-Producing in Houston, Texas, Vice President of the New Orleans Producing Division, Division Manager, New Orleans and General Superintendent of the Offshore Division in New Orleans. Mr. Teague holds a degree in Petroleum Engineering +from Louisiana Tech University and is a graduate of the University of Southern California Executive Program. He has several industry affiliations, including the former Chairman of the API Executive Committee on Drilling and Production Practices, +former President of the Colorado Petroleum Association, a 50-year Legion of Honor Member of the Society of Petroleum Engineers and a member of the Rocky Mountain Oil & Gas Hall of Fame. He brings his executive experience with a major oil and +gas company to bear on corporate governance and executive compensation issues in his role as chairman of our Compensation and Governance Committee. +OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES. +CONTINUING DIRECTORS +Class I Directors – Terms Expiring in 2012 +Jerry Box +Director Since 2005 +Retired President and COO +Oryx Energy Company +Age 72 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Box was Chairman of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter from March 1999 to June 2005. He retired in June 2005 at the time of the acquisition by Cimarex of Magnum Hunter. +Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy from February 1998 to March 1999, and its predecessor +company, Sun Oil Company. Mr. Box holds undergraduate and graduate degrees in geology. He has served for several years in an executive capacity with public and private companies. Mr. Box has served on numerous oil and gas committees and +task forces and as a President and Treasurer of the Dallas Petroleum Club. Mr. Box serves as a non-management director and Chairman of the Board of NewPark Resources, Inc. of The Woodlands, Texas, an oilfield services company traded on the +NYSE. His extensive experience as an executive for companies in the energy business makes his service on the Compensation and Governance Committee particularly valuable. +7 +Table of Contents +Michael J. Sullivan +Director Since 2002 +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age 71 +Member – Audit Committee +Member – Nominating Committee +Mr. Sullivan has been a senior attorney, partner or special counsel of the Denver-based law firm, Rothgerber Johnson & Lyons LLP since 2001, and the managing attorney of the Casper office of that firm. Mr. Sullivan practiced +law as a partner with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Mr. Sullivan brings a wealth of experience and a diverse background to Cimarex's Board. In addition to his Juris Doctor degree, +he has an undergraduate degree in petroleum engineering, years of governmental service as the Governor of Wyoming (1987-1995) and Ambassador to Ireland (1998-2001), and 35 years' experience practicing law in the areas of natural resources, +mediation and business. As Governor he was involved in the process of reviewing and administering Wyoming's budget. This experience is particularly relevant in his service on the Audit Committee. Mr. Sullivan's education, his legal experience, +particularly in mediation and litigation, and his domestic and international government service all provide a background which is beneficial in addressing the issues coming before the Cimarex Board. +Mr. Sullivan is a director of Kerry Group plc, a global food and food ingredients producer headquartered in Tralee, Ireland; director and chairman of the governance committee and member of the compensation committee of First Interstate +BancSystem, Billings, Montana and director and member of the compensation and governance and audit committee of Sletten Construction, Inc., Great Falls, Montana. From 2001 to May 2009 he served as a director and during his tenure as a member of +the audit, corporate social responsibility committee and governance committee of Allied Irish Bank Group, Dublin, Ireland. +Class II Directors – Terms Expiring in 2013 +Hans Helmerich +Director Since 2002 +President, CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age 52 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Helmerich has been the President and Chief Executive Officer of Helmerich & Payne, Inc., a publicly held company located in Tulsa, Oklahoma, since 1989 and has served as a director of that company since 1987. +Helmerich & Payne is primarily engaged in contract drilling of oil and gas wells for exploration and production companies and is one of the major land and offshore platform drilling contractors in the world. Cimarex acquired +Helmerich & Payne's exploration and production business in 2002. Mr. Helmerich's background with the exploration and production business acquired by Cimarex, as well as his over 25 years' executive experience with +Helmerich & Payne, provide a strong background for his service on Cimarex's Board and on the Compensation and Governance Committee. In addition, Mr. Helmerich's service as a director of Atwood Oceanics, Inc., Houston, Texas, an +international offshore drilling company, and as a Trustee of The Northwestern Mutual Life Insurance Company provide him with additional expertise and skills to serve as a director. +8 +Table of Contents +Harold R. Logan, Jr. +Director Since March 2009 +Co-Founder, Director +Basic Materials and Services LLC +Denver, Colorado +Age 66 +Lead Director +Member – Audit Committee +Member – Nominating Committee +Mr. Logan is the Co-Founder and director of Basic Materials and Services LLC (Denver, Colorado), a privately held company founded in 2007 that invests in companies providing specialized services for the pipeline construction and sand/silica +industries. Mr. Logan was a Co-Founder of TransMontaigne (Denver, Colorado) in 1995 and Chief Financial Officer, Executive Vice President, Treasurer and a director through 2002. He served as a director of TransMontaigne and chairman of its +finance committee from 2002-2006. From 1987 to 1995, he was Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that Mr. Logan was with Dillon Read & Co. Inc. +and Rothschild, Inc. +Over the past 39 years, Mr. Logan's education, investment banking/venture capital experience and business/financial management experience have provided him with a comprehensive understanding of business and finance. Mr. Logan's +expertise and experience have been relevant to his responsibilities of providing oversight and advice to the management of public companies, and is of particular benefit in his role as a member of the Audit Committee of Cimarex. Since 1998, +Mr. Logan has been a director of nine public companies and has served on audit, compensation and governance committees. Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane Partners, L.P. and as a +director of Graphic Packaging Corporation, both NYSE companies. He is also a director of Hart Energy Publishing LLC, a private company that publishes the Oil & Gas Investor magazine and other energy publications. +Monroe W. Robertson +Director Since 2005 +Private Investor +Age 61 +Chairman – Audit Committee +Member – Nominating Committee +Mr. Robertson is currently a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in March 2002. While with Key, he held the positions of +President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Mr. Robertson has served in executive capacities with three other public energy companies, Apache Corp., Gulf Oil Corporation and Terra Resources. +Mr. Robertson has comprehensive knowledge of the financial and operational sides of the exploration and production business, which is of considerable value in his service as Chairman of Cimarex's Audit Committee. He currently serves as a +director, chairman of the audit committee and member of the compensation and nominating committee of Earthstone Energy, Inc. (formerly named Basic Earth Science System), Denver, Colorado, an independent exploration and production +company. +PROPOSAL 2. ADVISORY VOTE ON EXECUTIVE COMPENSATION +Cimarex is providing its stockholders with the opportunity to cast an advisory vote on executive compensation as described below. +Cimarex believes that it is appropriate to seek the views of stockholders on the design and effectiveness of its executive compensation program. The advisory vote on executive compensation described +in this proposal is referred to as a "say-on-pay" vote. +9 +Table of Contents +Cimarex's +principal business objective is to profitably grow its proved reserves and production for the long-term benefit of stockholders. Its goal for executive compensation is to retain +the experienced professionals that it needs to attain its business objective and seeks to accomplish this objective in a way that rewards performance and is aligned with its stockholders' +long-term interests. Cimarex's executive compensation program, which emphasizes long-term equity awards, satisfies this goal and is strongly aligned with the interests of its +stockholders. Cimarex's relative stock price performance measured over the past three years was ranked first in its peer group (see Compensation Discussion and Analysis, +Long-Term Equity Awards) . +The +Compensation Discussion and Analysis in this Proxy Statement describes Cimarex's compensation program and the decisions made by the Compensation and Governance Committee in 2010 in more detail. +Cimarex +believes its compensation program for the named executive officers is instrumental in helping it achieve its strong financial performance. In addition to the three-year performance +of Cimarex's stock noted above, in 2010 year-end proved reserves increased 23% to 1.88 trillion cubic feet equivalent and 2010 total average daily production grew 29% to +596 million cubic feet equivalent per day. Net income reached an all-time high of $575 million, and 2010 cash flow from operations was $1.2 billion versus +$658.5 million for 2009. +The +following non-binding resolution will be submitted for an advisory stockholder vote at the Annual Meeting: +RESOLVED, +that the compensation paid to Cimarex's named executive officers, as disclosed in Cimarex's Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation +disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is +hereby approved. +As +an advisory vote, this proposal is not binding upon Cimarex. However, the Compensation and Governance Committee, which is responsible for designing and administering Cimarex's executive +compensation program, values the opinions expressed by stockholders in their vote on this proposal and will continue to consider the outcome of the vote when making future compensation decisions for +named executive officers. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2. +PROPOSAL 3. ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION +As described in Proposal 2 above, stockholders are being provided the opportunity to cast an advisory vote on Cimarex's executive +compensation program. +This +Proposal 3 affords stockholders the opportunity to cast an advisory vote on how often Cimarex should include a say-on-pay vote (described in Proposal 2 above) in its proxy +materials for future annual stockholder meetings (or a special stockholder meeting for which Cimarex must include executive compensation information in the proxy statement for that meeting). Under +this Proposal 3, stockholders may vote to have the say-on-pay vote every year, every two years or every three years or may abstain from voting. +We +will review and consider the outcome of the stockholders' preferred frequency; however, because the vote is advisory and not binding on us or our board in any way, our Board may decide that it is +in the best interests of our stockholders to hold an advisory vote on executive compensation more or less frequently than the frequency that receives the most stockholder votes. +10 +Table of Contents +Cimarex believes that a triennial vote is consistent with its intent to create a compensation program that promotes stockholder value. Our long-term equity awards, +which constitute a material element of executive compensation, are contingent upon completion of a three-year performance period. A triennial vote will provide stockholders the ability to +evaluate our executive compensation program over the same performance period, allowing a comparison of compensation to long-term performance. We believe a three-year vote cycle +balances the interest of stockholders in providing regular input on executive compensation with the interest of Cimarex and its stockholders in allowing sufficient time to evaluate the +long-term effectiveness of our executive compensation objectives and practices. +THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR "EVERY THREE YEARS" (AS OPPOSED TO EVERY ONE OR TWO YEARS) AS THE FREQUENCY FOR AN ADVISORY VOTE ON +EXECUTIVE COMPENSATION. +PROPOSAL 4. APPROVE THE CIMAREX ENERGY CO. +2011 EQUITY INCENTIVE PLAN +Our Board of Directors recommends that the stockholders approve the Cimarex Energy Co. 2011 Equity Incentive Plan (the +"Plan"). The Plan is designed to replace the 2002 Stock Incentive Plan (the "2002 Plan"), which was approved at Cimarex's 2003 annual meeting of stockholders. The 2002 Plan will expire on +September 30, 2012, and additional authorized shares are required to maintain Cimarex's long-term equity incentive award program for executives and other key employees. Cimarex's +equity incentive program is designed to focus participants' efforts on the success and growth of Cimarex and to enable Cimarex to continue to attract and retain experienced individuals who by their +position, ability and diligence are able to make important contributions to Cimarex's success. +The +Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance stock, performance stock units and other stock awards to +all eligible employees and directors of Cimarex and its affiliates. The proposed Plan is modeled after the 2002 Plan, with two principal changes that have been made in response to concerns expressed +by corporate governance rating agencies that represent institutional investors. We have reduced the term of any option granted under the Plan from ten years to seven years, and dividends will be +accrued on all shares subject to performance awards and will only be paid at the time of vesting of the award and then only with respect to the shares that are issued upon attainment of the +performance goals. +If +the Plan is approved by Cimarex's stockholders, no new grants will be made under the 2002 Plan, and the reservation for any shares available for awards under the 2002 Plan will terminate. The +reservation will continue to be available for shares subject to outstanding awards granted under the 2002 Plan. +The +proposed Plan contains numerous features that reflect our commitment to effective corporate governance and our intention to maximize the incentive effect of awards granted under the Plan. These +features include: +• administration of the Plan by our Compensation and Governance Committee, which is a committee of independent directors; +• a fungible share pool design that provides that shares available for grant under the Plan are reduced by 2.34 times the +number of shares of restricted stock or restricted stock units awarded under the Plan and are reduced by one times the number of shares subject to stock options awarded under the Plan; +• the aggregate number of shares available under the Plan will not be increased for shares that are tendered in payment of +an option, shares withheld to satisfy tax withholding obligations or shares repurchased by us with option proceeds; +11 +Table of Contents +• minimum option exercise price equal to the fair market value of our common stock on the date of grant; +• a prohibition on repricing of outstanding options without stockholder approval; +• three-year minimum full vesting for awards; +• restrictions on the fair market value of shares of our common stock that may be issued to any one individual during any +calendar year as restricted stock or restricted stock units; +• any dividend payments on performance-based stock or units are accrued until the forfeiture restrictions lapse and then +payments will only be made on the shares earned; participants do not have the right to receive dividends or dividend-equivalent payments on options; +• provisions designed to allow certain awards to qualify as performance-based compensation under Section 162(m) of +the Internal Revenue Code; and +• no material amendments without stockholder approval. +As +of December 31, 2010, we had 775 full-time employees, and approximately 175 employees and 8 non-employee directors were participants in the 2002 Plan. Upon initial +adoption of the Plan by the stockholders in 2003, 7,000,000 shares were reserved for issuance, and the stockholders approved an additional reservation of 5,700,000 shares in 2005. From the original +reservation in 2003 of 7,000,000 shares, 6,000,000 of the shares can only be granted as options and 1,000,000 shares were reserved for restricted stock or restricted stock unit awards +("full-value awards"). From the 5,700,000 shares added in 2005, each full-value award is charged against the reserve on the basis of two shares for each one share granted. The +table below presents the number of shares that were subject to outstanding awards at December 31, 2010 and March 1, 2011: +Number of Shares +Type of Award +December 31, 2010 +March 1, 2011 +Stock options +1,026,527 +997,827 +Restricted stock +1,899,511 +1,989,171 +Restricted stock units +94,807 +92,470 +Total awards outstanding +3,020,845 +3,079,468 +At +March 1, 2011, 251,891 full-value shares remain available for award, and 1,947,537 shares remain available for option awards. +For +the year ended December 31, 2010, our burn rate was 1.68%. Our average burn rate for the three-year period ended December 31, 2010 was 1.49% which is within ISS's +three-year average burn rate cap for the energy industry of 4.03%. +Our +voting power dilution at December 31, 2010 was 8.9% (calculated by dividing our 12/31/10 overhang of 3,020,845 shares plus the 5,300,000 shares requested under the proposed Plan by our +diluted outstanding shares of 93,555,566). If the Plan had been approved by our stockholders as of March 1, 2011, our voting power dilution at March 1, 2011 would also have been 8.9% +(calculated by dividing our March 1, 2011 overhang of 3,079,468 shares plus the 5,300,000 shares requested under the proposed Plan by our diluted outstanding shares of 93,900,720). +At +December 31, 2010 the weighted average price of outstanding options was $32.60, and the weighted average remaining term of the outstanding options was 5 years. At March 1, +2011, the weighted average price of outstanding options was $32.26 per share, and the weighted average remaining term of the outstanding options was 4.79 years. +12 +Table of Contents +Under +Internal Revenue Code, Section 162(m), stockholder approval of the material terms of the performance goals used for determining the number of shares to be paid to certain executive +officers under performance awards granted under the Plan is required to enable Cimarex to obtain a tax deduction. Approval of the Plan by our stockholders will also constitute approval of the material +terms of the performance goals used for determining the number of shares to be paid pursuant to the performance awards. +THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE CIMAREX ENERGY CO. 2011 EQUITY INCENTIVE +PLAN. +SUMMARY OF CIMAREX ENERGY CO. 2011 EQUITY INCENTIVE PLAN +The following summary of material terms of the 2011 Equity Incentive Plan does not purport to be complete and is subject to and qualified in its +entirety by the actual terms of the Plan, which is attached as Appendix A. +Administration of the Plan. The Compensation and Governance Committee of Cimarex (the "Committee"), comprised solely of non-employee directors, +administers the Plan. The Committee has the power to (i) select the participants to be granted awards, (ii) determine the time or times when awards will be made, (iii) determine +the form of an award, the number of shares of Cimarex common stock subject to the award, and all the terms, conditions (including performance requirements), restrictions and/or limitations, if any, of +awards, including the time and conditions of exercise or vesting, (iv) construe and interpret the Plan and awards granted under it, establish, amend and revoke rules and regulations for +administration of the Plan and correct any defect, omission or inconsistency in the Plan or any award agreement; (v) accelerate the vesting, exercise or payment of an award or the performance +period of an award; and (vi) approve forms of award agreements and amend the terms of any one or more stock awards. +The +Plan provides that, to the extent permitted by law, the Committee may delegate authority to a subcommittee of one or more management directors the authority to grant awards to eligible employees +who are not (i) executive officers within the meaning of Rule 16b-3, +(ii) "covered employees" within the meaning of Section 162(m) of the Code, or (iii) non-employee directors as defined in the 2011 Plan. +Shares Subject to the Plan. There are 5,300,000 shares of common stock reserved for issuance pursuant to awards under the Plan. Each award of an option will count +as one share for each share represented by the option, and each award of restricted stock, restricted stock unit, performance stock award or performance stock unit award will count as 2.34 shares +times each share subject to the award against the total 5,300,000 shares reserved for issuance. A maximum of 300,000 shares subject to a performance award may be granted in any calendar year to any +participant, and the maximum amount that may be paid to a participant for a cash-settled performance award during any calendar year may not exceed $5 million. The maximum aggregate +number of shares for which grants of options may be made to any participant in any calendar year may not exceed 1,000,000 shares. Not more than 2,500,000 shares may be issued pursuant to the exercise +of incentive stock options. +No Repricing of Options. The Committee may not, without the approval of the stockholders, cancel any outstanding option and replace it with a new option with a +lower exercise price where the economic effect would be the same as reducing the exercise price of the cancelled option, repurchase an option for cash or exchange an option for another type of award, +or take any other action with respect to an option that would be treated as a "repricing" under applicable accounting rules or under the rules of the SEC. +Exercise of Options. The Committee determines the exercise price for each option but no option will be granted at an exercise price that is less than the fair +market value of the common stock on the date of +13 +Table of Contents +grant +and the exercise price may never be less than the fair market value of the common stock on the date of grant within the meaning of Section 409A of the Code. An option holder may exercise +an option by written notice and payment of the exercise price (i) in cash or by check, bank, draft or money order payable to the order of Cimarex, (ii) by delivering shares of common +stock having a fair market value on the date of payment equal to the amount of the exercise price (but only to the extent the delivery of shares would not result in an accounting compensation charge), +(iii) by payment through a transaction involving a licensed broker or dealer acceptable to Cimarex acting on behalf of option holder to sell shares and deliver all or part of the sale proceeds +to Cimarex in payment of the exercise price and required tax withholding, (iv) by payment of the exercise price and required tax withholding with shares of common stock acquired pursuant to the +exercise of the option or (v) a combination of the foregoing or any other method adopted by Cimarex and approved by the Committee. +Option Term. The Committee determines the period and the conditions of exercisability, the minimum periods during which participants must be employed by Cimarex or +must hold options before they may be exercised, the minimum periods during which shares acquired upon exercise must be held before sale, conditions under which such options or shares may be subject to +forfeiture, the frequency of exercise or the minimum or maximum number of shares that may be acquired at any one time, the achievement by Cimarex of specified performance criteria and +non-compete and protection of business matters. Options granted will expire no later than 7 years from the date of grant. Upon the occurrence of a change of control event, as +defined in the Plan, or the death or disability of the participant, the unvested portion of the option will become immediately and automatically vested and payable. If a participant's employment +terminates on or after his 62 nd birthday or as a result of death or disability, the participant will be entitled to purchase all or any part of the shares subject to any vested +incentive stock option for a period of up to three months from the date of termination (one year in the case of death or disability) and vested nonqualified stock option during the remaining term of +the option. +Restricted Stock and Restricted Stock Unit Awards. The Committee may grant a participant a restricted stock award or a restricted stock unit award. In addition to +any vesting conditions determined by the Committee, vesting of each award will require the holder to remain in the employment of Cimarex for such period of time as determined by the Committee, but in +no event less than three years. Upon the occurrence of a change of control event, as defined in the Plan, or the death or disability of the participant, the restricted stock award or the restricted +stock unit award will become immediately and automatically vested and payable, provided that a restricted stock unit award will be payable only in compliance with Code Section 409A. During any +restriction period, the Committee may restrict the stockholder rights of a holder of a restricted stock award with respect to the shares, including the right to vote the shares and to receive +dividends. The Committee may grant to the holder of a restricted stock unit award the right to receive dividend equivalents; a holder of a restricted stock unit award does not have the right to vote +the shares prior to payment of the shares upon vesting of the award. +Performance Awards. The Committee may grant a performance award that may be either a performance stock award or a performance stock unit award, which will be +either a restricted stock award or a restricted stock unit award that is subject to the same restriction period and restrictions applicable to a restricted stock award or a restricted stock unit award +and, in addition, the achievement of certain performance goals determined by the Committee. Upon the occurrence of a change of control event, as defined in the Plan, or the death or disability of the +participant, the performance award will become immediately and automatically vested and payable. The Committee may in its discretion adjust the performance period to take into account the date of the +change of control event or the date of the death or disability of the participant, provided that with respect to a performance stock unit award, payment will be made only in compliance with Code +Section 409A. During any restriction period, the Committee may restrict the stockholder rights of a holder of a performance stock award, including the right to vote the shares and to receive +dividends. If the Committee grants the right to receive dividends, Cimarex will accrue dividends on the shares subject to the performance stock award for each +14 +Table of Contents +dividend +record date occurring during the performance period, provided that dividends will only be paid to the holder at the time of vesting and only with respect to the shares that are issued upon +attainment of the performance goals. A participant holding a participant stock unit award will have no rights of a stockholder with respect to the performance stock unit award. The Committee may grant +the holder of a performance stock unit award the right to receive dividend equivalents. If the Committee does so, Cimarex will accrue dividend equivalents on the shares subject to the performance +stock unit award for each dividend record date occurring during the performance period, provided that dividend equivalents will only be paid to the holder at the time of vesting and only with respect +to the shares that are issued upon attainment of the performance goals. +In +granting each performance award, the Committee will establish the applicable performance period and performance criteria to be used to establish performance goals which, when measured at the end of +the performance period, will determine the final value of the performance award to be paid. The performance criteria used to establish performance goals may be based on any one of, or combination of, +specific measures of performance such as (i) financial metrics (including earnings per share; earnings before interest, taxes, depreciation and amortization; return on equity; or return on +assets, investment or capital employed); (ii) operational metrics (including reserve replacement, increase in production or rate of return on exploration capital); or (iii) stock +performance measures (including relative total stock price performance); or (iv) to the extent that a performance award is not intended to comply with Section 162(m) of the Code, other +measures of performance selected by the Board, including individual performance measures. The Committee will, in its sole discretion, define the manner of calculating the performance criteria it +selects to use for the performance period. +Adjustment of Shares. The number and kind of shares subject to the Plan will be changed or exchanged on a fair and equivalent basis on account of a merger, +consolidation, recapitalization, reclassification, stock split or spinoff. In addition, if there is any other change in the number or kind of shares, the Committee may, in its sole discretion, make an +equitable adjustment in the shares available under the +Plan or in any award (other than a restricted stock unit or performance stock unit), such adjustment will generally only be made if the adjustment either by itself or together with other adjustments +results in an increase or decrease of at least 1%. Any adjustment of less than 1% will be carried forward. +Amendments to Awards. The Committee may at any time unilaterally amend the terms of any award agreement, provided that any such amendment that is adverse to the +participant will require the participant's consent. +Nontransferability. Except as may otherwise be provided by the Committee at the time of a grant, an option will not be transferable except by will or pursuant to +the laws of descent and distribution, and an option will only be exercisable by the participant. The holder of an award of restricted stock, performance stock, a restricted stock unit or a performance +stock unit award may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the shares of common stock represented by the award during the applicable restriction period. +Amendment and Termination. Subject to the provisions of the Plan, the Plan will terminate ten years from the date of approval of the Plan by the stockholders. The +Board of Directors may alter, suspend or terminate the Plan at any time and may, from time to time, amend the Plan in any manner, but may not without stockholder approval adopt any amendment that +would increase the aggregate number of shares of common stock available under the Plan or modify any provision of the Plan that would materially increase the benefit or rights of any participant in +the Plan. +Federal Income Tax Information. The following discussion is intended to be only a general summary of the federal income tax aspects of awards granted under the +Plan and not of state or local taxes that may apply to awards under the Plan. Tax consequences may vary depending on particular +15 +Table of Contents +circumstances, +and administrative and judicial interpretations of the application of the federal income tax laws are subject to change. +Nonqualified Stock Options. There are no income tax consequences to the participant or to Cimarex +when the non-qualified stock option is granted. When a non-qualified stock option is exercised, in general, the participant recognizes compensation, subject to wage +withholding, equal to the excess of the fair market value of common stock on the date of exercise over the exercise price. Cimarex is generally entitled to a deduction equal to the compensation +recognized by the participant, assuming that the compensation satisfies the ordinary and necessary and reasonable compensation requirements for deductibility and that the deduction is not limited by +Section 162(m) of the Code. +Incentive Stock Options. When an incentive stock option is granted, there are no income tax consequences for the participant or Cimarex. When an +incentive stock option is exercised, the participant does not recognize income and Cimarex does not receive a deduction. The participant, however, must treat the excess of the fair market value of the +common stock on the date of exercise over the exercise price as an item of adjustment for purposes of the alternative minimum tax. If the participant makes a "disqualifying disposition" of the common +stock (described below) in the same taxable year the incentive stock option was exercised, there are no alternative minimum tax consequences. +If +the participant disposes of common stock after the participant has held the common stock for at least two years after the incentive stock option was granted and at least one year +after the incentive stock option was exercised, the amount the participant receives upon the disposition over the exercise price is treated as capital gain. Cimarex is not entitled to a deduction. If +the participant makes a "disqualifying disposition" of common stock by disposing of common stock before it has been held for at least two years after the date the incentive stock option was granted +and at least one year after the date the incentive stock option was exercised, the participant recognizes compensation income equal to the excess of (1) the fair market value of common stock on +the date the incentive stock option was exercised or, if less, the amount received on the disposition over (2) the exercise price. At present, Cimarex is not required to withhold income or +other taxes. Cimarex is generally entitled to a deduction equal to the compensation recognized by the participant, assuming that the compensation satisfies the ordinary and necessary and reasonable +compensation requirements for deductibility and that the deduction is not limited by Section 162(m) of the Code. +Restricted Stock. A participant acquiring restricted stock generally will recognize ordinary income equal to the fair market value of the shares on +the "determination date." The determination date is the date on which the participant acquires the shares unless the shares are subject to a substantial risk of forfeiture and are not transferable, in +which case the determination date is the earlier of (i) the date on which the shares become transferable or (ii) the date on which the shares are no longer subject to a substantial risk +of forfeiture. If the determination date is after the date on which the participant acquires the shares, the participant may elect, pursuant to Section 83(b) of the Code, to have the date of +acquisition be the determination date by filing an election with the Internal Revenue Service no later than 30 days after the date on which the shares are acquired. If the participant is an +employee, such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of shares acquired pursuant to a restricted stock award, any gain or loss, based on the +difference between the sale price and the fair market value on the determination date, will be taxed as capital gain or loss. Cimarex is generally entitled to a deduction equal to the compensation +recognized by the participant, +assuming that the compensation satisfies the ordinary and necessary and reasonable compensation requirements for deductibility and that the deduction is not limited by Section 162(m) of the +Code. +Performance Stock Awards and Restricted Stock and Performance Stock Unit Awards. A participant generally will recognize no income upon the receipt of +a performance share, performance unit or restricted stock unit award. Upon the settlement of such an award, participants normally will recognize +16 +Table of Contents +ordinary +income in the year of receipt in an amount equal to the cash received and the fair market value of any substantially vested shares received. If the participant is an employee, such ordinary +income generally is subject to withholding of income and employment taxes. If the participant receives shares of restricted stock, the participant generally will be taxed in the same manner as +described under "Restricted Stock." Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the determination date (as +defined under "Restricted Stock"), will be taxed as capital gain or loss. Cimarex is generally entitled to a deduction equal to the compensation recognized by the participant, assuming that the +compensation satisfies the ordinary and necessary and reasonable compensation requirements for deductibility and that the deduction is not limited by Section 162(m) of the Code. +New Plan Benefits. As of the date of this proxy statement, no awards had been granted pursuant to the Plan. Awards are subject to the discretion of the Committee. +Therefore, it is not possible to determine the benefits that will be received in the future by participants in the Plan or the benefits that would have been received by such participants if the Plan +had been in effect in the year ended December 31, 2010. +Stock Plan Benefits Table. The following table presents information about outstanding options, warrants and rights and the number of shares remaining available for +future issuance under our 2002 Plan as of December 31, 2010. Upon approval of the 2011 Equity Incentive Plan, any shares remaining available for future issuance under the 2002 Plan, as set +forth column (c), will be terminated. The table does not include information about the 2011 Equity Incentive Plan. +Number of shares to +be issued upon +exercise of +outstanding options, +warrants and rights +(a) +Weighted-average +exercise price of +outstanding options, +warrants and rights +(b) +Number of shares +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in +column (a) +(c) +Plans approved by stockholders (1) +1,121,334 +(2) +$ +32.60 +(3) +1,947,537 +(4) +(1) Our +2002 Plan. Cimarex does not have any options, warrants or rights outstanding or available for issuance under any +non-stockholder approved equity compensation plans. +(2) Includes +94,807 restricted stock units. The remaining 1,026,527 consist of options outstanding at December 31, 2010. +(3) Applies +to outstanding options. Restricted stock units do not have an exercise price. +(4) The +number of shares reported in column (c) represents shares remaining available for the grant of options only. Under the terms of the +2002 Plan, awards of restricted stock or restricted stock units ("full-value" awards) may not be made from the shares reported in column (c). The number in column (c) does not +include 503,782 shares available for full-value awards as of March 1, 2011. Each share subject to a full-value award counts as two shares against the shares available +for issuance. Therefore, as of March 1, 2011, full-value awards of 251,891 shares remain available for grant under the 2002 Plan. +17 +Table of Contents +PROPOSAL 5. RATIFICATION OF INDEPENDENT AUDITORS +The Audit Committee of the Board has appointed KPMG LLP to audit our financial statements for 2011. KPMG LLP has been +our independent auditors since October 1, 2002. +We +are asking that stockholders ratify the appointment of KPMG LLP as independent auditors. If stockholders fail to ratify the appointment of KPMG LLP, the Audit Committee may reconsider +this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF KPMG LLP AS CIMAREX'S INDEPENDENT AUDITORS FOR +2011. +See +Independent Registered Public Accountants for information regarding auditor fees and services and the Audit Committee Report. +CORPORATE GOVERNANCE +Prudent corporate governance is critical in gaining the trust and confidence of stockholders, employees, suppliers and business partners. Cimarex +corporate governance is based on high ethical standards and the awareness that our actions must be based on the best interests of the stockholders. +Independence of Board Members +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, +regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based +upon NYSE standards, all Board members are independent except the Chairman of the Board, who is also our Chief Executive Officer and President. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, the Board +determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of management +and free from any relationship that would interfere with the director's independent judgment. +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively determined by +the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +Applying +our Corporate Governance Guidelines and our Code of Business Conduct, the Board has affirmatively determined that each of our current directors, with the exception of our Chairman and Chief +Executive Officer, F. H. Merelli, has no material relationship with us that would interfere with the exercise of independent judgment and, therefore, is independent under our Corporate Governance +Guidelines, Code of Business Conduct and the listing standards of the NYSE. Our Audit, +Compensation and Governance, and Nominating Committees are comprised entirely of independent directors. +Meetings and Executive Sessions of the Board of Directors and its Committees +During 2010, our Board of Directors held four meetings, an educational meeting and a strategy meeting. Our Board has Audit, Compensation and +Governance, and Nominating Committees. During 2010, the Audit Committee met eight times and the Compensation and Governance Committee met eight times. The Nominating Committee met once in 2010. Each +director attended at least 75 percent of the Board meetings and the meetings of each committee on which he served. +18 +Table of Contents +At +each in-person meeting, the independent members of the Board and its Committees meet in executive session. The purpose of these executive sessions is to promote open and candid +discussion among the independent directors. During 2010 the independent directors met four times in executive session, the independent members of the Audit Committee met in executive session four +times, and the independent members of the Compensation and Governance Committee met in executive session six times. +Each +year the directors select a lead director to preside over Board executive sessions. Michael Sullivan served as lead director until the December 8, 2010 Board meeting. During the +December 8, 2010 executive session of the Board of Directors, the independent directors reviewed the lead director position and determined that the lead director should serve a +one-year term, with the term expiring at the December meeting of the Board of Directors each year. The lead director may be reappointed by a vote of the independent directors for +additional terms but will not serve more than three consecutive terms. At the December 8, 2010 executive session, the independent directors elected Harold R. Logan, Jr. as lead director. +Director Attendance at the Annual Meeting +The Board encourages all directors to attend the Annual Meeting, and all of our directors attended our 2010 Annual Meeting. +Board Committees +The Board of Directors has established three standing committees to assist in carrying out its duties: the Audit Committee, the Compensation and +Governance Committee and the Nominating Committee. Each committee has adopted a charter that complies with the corporate governance rules adopted by the SEC and the NYSE listing standards. +Audit Committee +Members +Functions of Committee +Monroe W. Robertson, Chairman† +Harold R. Logan, Jr.† +• Appoints independent auditors +• Approves nature and scope of services of independent auditors and reviews range of fees for +such services +Michael J. Sullivan +• Oversees Cimarex's internal audit function +• Reviews qualification and independence of +auditors +†Financial Expert +• Monitors integrity of Cimarex's financial +statements +• Monitors compliance with legal and regulatory +requirements +• Oversees risk +The +Audit Committee consists of three directors who meet the NYSE standards of independence and financial literacy. The chairman and one other member of the Committee qualify as a "financial expert" +as defined by the SEC. No Audit Committee member serves on more than three audit committees of public companies, including Cimarex's Audit Committee. Cimarex maintains an internal audit department to +provide management and the Audit Committee with ongoing assessments of Cimarex's system of internal controls. +Cimarex's +independent auditor reports directly to the Audit Committee. The Audit Committee provides an open avenue of communication between the internal auditors, the independent auditor and the +Board. Interested parties may contact the Audit Committee members by following the process outlined under Process for Communication with the Board in +this Corporate Governance section. +19 +Table of Contents +Compensation and Governance Committee +Members +Functions of Committee +L. Paul Teague, Chairman +Compensation Functions +Jerry Box +• Recommends CEO and executive officer cash +Hans Helmerich +compensation for approval by Board +David A. Hentschel +• Recommends director compensation for approval by +Board +• Reviews and recommends to the Board for approval the +Compensation Discussion and Analysis disclosure +• Determines amount and terms of equity awards +• Reviews and approves long-term incentive plans +• Reviews relationship of compensation to risk +Governance Functions +• Oversees evaluation of performance of the Board, its +committees and the CEO +• Oversees corporate governance +• Develops plans for managerial succession +The +Committee consists of four independent directors. All of the Committee members have extensive executive experience in administering compensation for oil and gas exploration and production +companies. +Compensation Functions. The Committee establishes and administers our executive compensation program. The Committee approves equity awards and recommends for +approval by the independent directors cash compensation to be paid or delivered to the CEO and the other executive officers named in the Summary Compensation +Table in this proxy statement (referred to throughout this document as the "NEOs"). The outside directors (as defined by Code §162(m)) of the Committee approve +performance standards for the plans. +The +Committee utilizes the services of a compensation consultant for research and advice regarding the form and amount of executive and director compensation. Our Vice President of Human Resources +also reviews and analyzes the compensation practices of peer group companies and presents this information to the Committee. The CEO communicates with the Committee regarding performance of the NEOs +and makes recommendations regarding base salary, annual cash incentive awards and long-term equity incentive awards (see Compensation Discussion and +Analysis) . +The +Committee's compensation consultant performs executive compensation services only at the request of the Committee and does not perform services for management. In 2010, the Committee engaged +Longnecker & Associates as its compensation consultant. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from +February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of +facilitating the spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly traded company on September 30, 2002, at which time +Mr. Helmerich resigned as an executive officer. +Governance Functions. The Committee develops and recommends to the Board corporate governance principles. The Committee oversees the process of annual performance +evaluations for the Board and each committee, reviews and makes recommendations regarding Cimarex's Corporate Governance Guidelines and provides recommendations regarding director education programs. +20 +Table of Contents +Nominating Committee +Members +Functions of Committee +Harold R. Logan, Jr., Chairman +• Determines desired board skills and attributes +Jerry Box +Hans Helmerich +David A. Hentschel +• Recommends candidates to serve on the Board and to stand +for election at annual meeting of stockholders or to fill vacancy occurring between meetings +Monroe W. Robertson +• Recommends Committee appointments +Michael J. Sullivan +L. Paul Teague +• Sole authority to retain and terminate any search firm to +identify director candidates +The +Nominating Committee is comprised of all independent directors. The Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired +qualifications, including judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the candidate's experiences with the experience of other directors +and the extent to which the candidate would be a desirable addition to the Board and any of its committees. Our Nominating Committee charter specifically includes in the list of desirable attributes +sought in our Board composition diversity of gender and ethnic background. In considering candidates for future openings on our Board, we expect to search for and consider candidates who meet the +qualifications set out in the Nominating Committee charter. +Each +director nominee is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas +experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with an +important capacity to execute its duty of oversight and guidance. +The +Committee will consider nominees recommended by stockholders. For the 2011 Annual Meeting, the Committee did not receive nominations from any stockholder prior to the deadline for stockholder +nominations. Stockholders who wish to nominate persons for election as directors at the 2012 Annual Meeting must submit a timely written notice complying with Cimarex's Bylaws to Corporate Secretary, +Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the stockholder's written notice +must be received between February 9, 2012 and February 19, 2012. If the 2012 Annual Meeting is held more than 30 days before or after May 18, 2012, the written notice must +be received no later than the close of business on the tenth day following the day on which the notice of the date of the 2012 Annual Meeting was mailed or public disclosure of the date of the Annual +Meeting was made, whichever first occurs. +21 +Table of Contents +Board Leadership Structure +As specified in our Bylaws, our Chief Executive Officer also serves as our Chairman of the Board. We also have a Lead Director, who is chosen +annually from our independent directors. The functions of the Chairman of the Board and the lead director are set out below: +Duties and Responsibilities of +Chairman of the Board +Duties and Responsibilities of +Lead Director +Preside over Board meetings +Preside over executive sessions of the Board +Call special meetings of the Board +Act as Chairman of the Nominating Committee +Approve agenda for Board meetings +Serve as liaison between the Chairman of the Board and the other Board members +Preside over stockholder meetings +Serve as primary contact for communication by interested parties to the Board +Facilitate and participate in formal and informal communications with and among directors +The +Board considers the combination of the roles of Chairman of the Board and Chief Executive Officer an efficient and effective way to conduct the Board's business. The Board also believes that the +combined role of the Chairman of the Board and Chief Executive Officer, together with an independent lead director having the duties described above, serve the interests of our stockholders because +this structure provides an appropriate balance between strategy development and independent oversight of management. +F. +H. Merelli has served as Cimarex's Chief Executive Officer and Chairman of the Board since our inception in September 2002. He brings to the position of Chairman of the Board considerable knowledge +and experience gained through his position as Chief Executive Officer. This knowledge and experience allows him to focus the activities of the Board on matters most relevant to the success of Cimarex. +Our +board structure is designed to avoid any undue influence by the CEO on the Board. The Compensation and Governance Committee, which recommends the compensation of the CEO to the full Board and +makes grants to the CEO under our long-term incentive program, is comprised entirely of independent directors. When the Board acts on the Compensation and Governance Committee's +recommendation for compensation of the CEO, it acts without the CEO being present. The Board meets in executive session from time-to-time without the CEO present. During 2010, +four executive sessions were held. During those sessions, the independent Board members are able to freely critique the performance of the CEO and Cimarex's other officers. +The +substantial experience and background of our independent Board members ensure their active and knowledgeable involvement in Board matters. This involvement, and the presence and involvement of our +lead director, provide the Board with a strong independent point of view. +Risk Oversight +The Board has overall responsibility for risk oversight. Management provides the Board with overviews of Cimarex's operations, financial results and +other aspects of its business at quarterly meetings. Significant strategic considerations, such as material acquisitions or mergers, are brought to the Board for deliberation and, as appropriate, +decisions. +As +required by the NYSE, in addition to its specific responsibilities with respect to Cimarex's financial statements and reporting, the Audit Committee is involved in considering Cimarex's policies +and +22 +Table of Contents +guidelines +that govern the process by which exposure to risk is assessed and managed. This responsibility has been delineated in the Audit Committee's charter that provides for the Audit Committee to +discuss with management and report to the Board with respect to: +• the processes Cimarex has taken to mitigate corporate risks; +• the guidelines and processes pertaining to financial risk assessment; +• the steps management has taken to measure, monitor and control such financial risk exposures; and +• management's conclusion as to the effectiveness of the guidelines and processes utilized to mitigate such corporate and +financial risks and exposures. +The +Compensation and Governance Committee annually reviews the compensation policies and practices of Cimarex for its executive and non-executive employees to determine whether the +policies and practices encourage excessive risk taking among the affected employees and reports its findings to the Board. +Board/Committee Evaluations +During 2010, the Board and each Committee participated in a self-assessment or evaluation of the effectiveness of the Board and its +Committees. +Director Education +Cimarex encourages director participation in seminars and conferences and other opportunities for director education. In 2010, a majority of our +directors attended an educational program that included presentations by an economist and director of commodity sales relating to the oil and gas market outlook and presentations by the director of +the Mewbourne School of Petroleum and Geological Engineering of the University of Oklahoma. We subscribe to and make available to our Committee members various informational and educational +newsletters. +Service on Boards of Other Public Companies +Cimarex does not prevent directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines recommend that +(i) the CEO serve on the board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the board of no more than five public companies, including +Cimarex. All directors comply with this guideline. +Director and Management Stock Ownership +The Corporate Governance Guidelines provide that each independent director is expected to own Cimarex stock in an amount equal to three times his +annual Board cash retainer, the CEO is expected to own stock in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to own stock in an +amount equal to three times his annual base salary. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership, but shares +subject to options are not counted. All independent directors and executive officers comply with this guideline. +Corporate Governance Guidelines and Code of Ethics +The Corporate Governance Guidelines address matters such as qualifications of directors, standards for independence of directors, election of +directors, responsibilities of directors, limitation of service on other public company boards, number and structure of Board committees, conduct and frequency of Board and committee meetings, Board +evaluation, management succession, director access to management, counsel and advisors, and board orientation and education. The Board of Directors, both directly or through the Compensation and +Governance Committee, reviews and revises as necessary the Corporate Governance Guidelines. +23 +Table of Contents +Cimarex has adopted a code of ethics known as the "Code of Business Conduct," that applies to all directors, officers and employees. The Code of Business Conduct is a guideline +that promotes honest and ethical conduct, maintains a corporate climate in which integrity and dignity of each individual is valued, encourages compliance with laws and assures proper use of Cimarex's +assets. Cimarex will post on its website all waivers of or amendments to its Code of Business Conduct that are required to be disclosed by applicable law and the NYSE listing standards. Currently, +Cimarex does not have nor does it anticipate any waivers of or amendments to its Code of Business Conduct. +Web Access +Cimarex provides access through its website ( www.cimarex.com ) to the following information: +• Audit, Compensation and Governance, and Nominating Committee charters +• Corporate Governance Guidelines +• Code of Business Conduct +• Code of Ethics +• Complaint and Reporting Procedures +• Section 16 reports +• Biographical information about our directors and executive officers +Process for Communication with the Board +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline +(1-866-519-1898). All communications will be forwarded to the lead director for his review. The lead director may take any action deemed appropriate or necessary, +including retaining independent or outside counsel, accountants or other advisors. No adverse action will be taken against any individual making any such communication to the lead director. +DIRECTOR COMPENSATION +Overview +Our director compensation program is designed to attract and retain individuals who possess the desired board skills and attributes, taking into +account all factors including, without limitation, judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the experiences with the experience of +other directors, and diversity of gender and ethnic background. Director compensation is only paid to non-employee directors. +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") administers our director compensation program. Director compensation is designed to be near the +50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing director +compensation as we use in reviewing executive base salary and total compensation. See Resources and Other Considerations Used in the Compensation Decision Making +Process – Peer Groups, 2010 Compensation Peer Group under Compensation Discussion and Analysis for a list of +the companies and the methodology followed in selecting the companies. +Determination of Director Compensation +Our Committee is sensitive to the potential for a perceived conflict of interest in setting director compensation. To minimize the potential for a +perceived conflict of interest, the Committee uses a +24 +Table of Contents +compensation +consultant to evaluate and recommend director compensation. In 2010, the Committee engaged Longnecker & Associates to review director compensation. +Within +general guidelines provided by the Committee, the compensation consultant reviews director compensation each year and recommends appropriate changes. The review of director compensation is +principally based on public information about comparison group compensation. +The +Committee, after reviewing the consultant's recommendations with the CEO and Vice President of Human Resources, recommends director compensation for Board consideration and approval at the annual +May board meeting. Director compensation is determined and paid for the 12-month period beginning with the date of Cimarex's Annual Meeting and ending on the following Annual Meeting date. +Director Compensation +To align the interest of stockholders and our directors, total annual director compensation consists of approximately two-thirds equity +awards and one-third cash retainer. The following represents the annual retainer and fee structure set at the 2008 annual meeting. +Equity Retainer +$ +135,000 +Annual Cash Retainer +$ +50,000 +Committee Chair +$ +18,750 +Attendance at Board Meeting +$ +1,800 +Attendance at Committee Meeting +$ +1,500 +Lead Director per Meeting Fee +$ +1,500 +The +equity retainer is in the form of restricted stock that vests over three years in one-third increments. Directors annually receive a number of shares of restricted stock based on a +fixed cash value, currently $135,000. The number of shares is determined by dividing $135,000 by the average of the highest and lowest prices of Cimarex stock on the date of grant. +At +its May 2010 meeting, the Committee's compensation consultant recommended that the per meeting Board fee be increased from $1,800 per meeting to $2,000 per meeting and that the Committee consider +aligning the targeted percentile with the targeted 75 th percentile for executive compensation. The Committee did not recommend any changes in director compensation. +We +reimburse directors for reasonable transportation and accommodation expenses to attend Board and committee meetings. In lieu of reimbursement of travel expenses, some directors may occasionally +travel to or from Board and Committee meetings on the Cimarex aircraft. +25 +Table of Contents +2010 Director Compensation +The following table sets forth compensation paid in 2010 to all individuals who served as non-employee directors in 2010. +Name +Annual Cash +Retainer and +Meeting Fees (2) +Stock +Awards (3)(4) +Total +Jerry Box +$ +72,800 +$ +135,000 +$ +207,800 +Hans Helmerich +$ +72,800 +$ +135,000 +$ +207,800 +David A. Hentschel +$ +72,800 +$ +135,000 +$ +207,800 +Paul D. Holleman (1) +$ +69,500 +$ +135,000 +$ +204,500 +Harold R. Logan, Jr. +$ +71,300 +$ +135,000 +$ +206,300 +Monroe W. Robertson +$ +90,050 +$ +135,000 +$ +225,050 +Michael J. Sullivan +$ +77,300 +$ +135,000 +$ +212,300 +L. Paul Teague +$ +91,550 +$ +135,000 +$ +226,550 +(1) Mr. Holleman +passed away in January 2011. +(2) Represents +fees earned for services as a director during 2010, including the annual cash retainer fee, Board and Committee meeting attendance +fees, chairmanship fees and lead director fees. +(3) Represents +the grant date fair value of the 2,003 shares of restricted stock granted to each of the named directors on May 19, 2010, +computed in accordance with FASB ASC Topic 718. +(4) The +following table discloses the aggregate number of stock awards and option awards outstanding at December 31, 2010. +Director +Stock Awards +Option Awards +Jerry Box +5,488 +0 +Hans Helmerich +13,695 +(1) +10,000 +David A. Hentschel +5,488 +10,000 +Paul D. Holleman (2) +5,488 +0 +Harold R. Logan, Jr. +4,857 +0 +Monroe W. Robertson +5,488 +0 +Michael J. Sullivan +5,489 +(3) +10,000 +L. Paul Teague +5,488 +0 +(1) Mr. Helmerich's +holdings include 8,838 deferred compensation units. +(2) Mr. Holleman +passed away in January 2011. +(3) Mr. Sullivan's +holdings include 632 deferred compensation units. +Deferred Compensation Plan for Non-Employee Directors +In May 2004, we adopted a deferred compensation plan for non-employee directors. The plan provides that a director may defer all or any +portion of his compensation paid in cash or restricted stock for services as a director. In addition, a director may elect to defer accelerated vesting of restricted stock. +All +deferred cash amounts earn interest through the date paid. The rate of interest earned for a calendar quarter is based on the average 10-year U.S. Treasury note rate for the +immediately preceding calendar quarter, plus one percent. Cash dividends are paid on deferred compensation units. +26 +Table of Contents +Deferred +compensation is distributed on the date specified by the director in his election. Upon a "change of control" within the meaning of Internal Revenue Code Section 409A, all account +balances will be fully vested and paid in a single lump sum within 30 days. The definition of a change of control event is the same as the definition under the Cimarex 2002 Stock Incentive +Plan. See Potential Payments upon Change in Control or Termination . +Acceleration of Vesting of Awards +The agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a change of +control event, as defined in the 2002 Stock Incentive Plan. The 2002 Stock Incentive Plan also grants the Compensation and Governance Committee the authority to accelerate the vesting or payment of an +award. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +Our principal business objective is to profitably grow our proved reserves and production for the long-term benefit of our investors. The +executive compensation program is designed to retain the experienced professionals that we need to attain our business objectives and to align their interests with our stockholders. +Executive Summary +Cimarex achieved outstanding financial results in 2010. The following represent 2010 financial highlights: +• Realized record net income of $575 million, or $6.70 per share. +• Grew production 29% to an all-time high of 596 million cubic feet equivalent per day. +• Increased proved reserves 23% to 1.88 trillion cubic feet equivalent. +• Added 560 billion cubic feet equivalent of proved reserves from extensions, discoveries and revisions replacing +258% of production. +• Reduced debt $43 million, exiting the year with a debt to total capitalization ratio of 12%. +Compensation +to our CEO and other NEOs reflected Cimarex's outstanding financial results. +Annual Cash Incentive Awards. As a result of Cimarex's strong 2010 financial performance, our CEO received the maximum 200% of his annualized base salary, and the +cash incentive award pool for the other executive officers (including the other NEOs) represented the maximum 200% of the aggregate annualized base salaries of the executive officers participating in +the pool. +Annual Long-Term Equity Incentive Awards. Cimarex's relative stock price performance over the past three years resulted in each executive earning 100% +of the stock award granted in 2008. Cimarex's stock price performance is measured against each company in the Stock Performance Peer Group. The stock price performance of Cimarex stock is then ranked +and its relative performance percentile is calculated. Cimarex ranked number 1 of the companies in the peer group. +Objectives of our Executive Compensation Program +Our program provides a competitive compensation package, promotes our pay-for-performance philosophy and aligns the interests +of our executives and stockholders by: +• Offering competitive +compensation. We pay a base salary and total compensation that are competitive to ensure we attract and retain highly qualified talent. +27 +Table of Contents +• Rewarding company +performance. We align our annual cash incentive awards with company performance. Our program design does not include specified +individual personal performance objectives. +• Aligning the interests of our executives with those of our +stockholders. Our long-term equity incentive awards are designed to promote retention, encourage executive stock ownership +and reward executives for above-average relative stock price performance. +Principal Elements of Executive Compensation +Our executive compensation program focuses on three principal pay elements: +• Base salary +• Annual cash incentive awards +• Long-term equity incentive awards +We +do not consider benefits under our 401(k) defined contribution plan, non-qualified supplemental savings plan, perquisites or post-termination benefits as principal elements +of our executive compensation program. See Other Compensation and Potential Payments upon Change in Control or +Termination for additional discussion regarding these benefits and why they are not considered a material part of executive compensation decisions. We do not specifically +allocate a fixed portion of compensation between cash and equity-based compensation or between annual and long-term incentive compensation. We do not currently have a policy for recovery +of performance-based compensation if we were required to restate our financial statements. The Committee annually reviews the elements of its executive compensation program to ensure that they +continue to provide appropriate incentives to executives in Cimarex's economic environment. +How We Make Compensation Decisions +Philosophy +The Committee believes that executive interests should be aligned with stockholder interests; executive compensation should be structured to provide +appropriate incentives and reasonable rewards for the contributions made and performance achieved; and a competitive compensation program is important to retain Cimarex's experienced, talented +executives. +Design Principles +Cimarex's compensation programs are designed to adhere to the following principles: +• a majority of total compensation should be in the form of equity compensation; +• a meaningful portion of total compensation should be tied to achievement of goals and objectives related to Cimarex's +financial and operating performance; +• a significant component of performance-based compensation should relate to long-term relative performance +measures that emphasize an increase in stockholder value over time; +• executives should hold substantial equity ownership; +• to encourage retention, a substantial portion of compensation should be forfeitable upon voluntary termination; and +• executives should be encouraged to contribute as members of a team to Cimarex's overall success rather than to focus +primarily on achieving specific individual objectives. +28 +Table of Contents +Resources and Other Considerations Used in the Compensation Decision-Making Process +The Committee utilizes various resources in reviewing elements of executive compensation and making compensation decisions. The Committee develops +the overall philosophy, objectives, structure and pay guidelines. +Compensation Consultant. The Committee uses the services of an outside consultant, Longnecker & Associates, for information and advice to ensure that +program design and implementation are consistent with the overall philosophy and objectives of the compensation program. Longnecker & Associates does not perform services for management. During +2010, the Committee engaged Longnecker & Associates to provide the following services: +• Review Cimarex's and peer companies' executive compensation programs including total direct compensation comprised of base +salary, annual incentive and long-term incentive compensation, in order to assess the competitiveness of Cimarex's executive compensation and provide conclusions and recommendations. +• Determine market competitive director compensation levels and develop recommendations and alternatives for consideration. +Benchmarking. We use comparative group information as a resource in reviewing and making annual base salary determinations and determining long-term +equity incentive awards. We also use this data as a point of reference when reviewing total direct compensation. Generally, we target executive base salaries and long-term incentive awards +at the 75 th percentile when compared to executives holding similar positions with companies in our compensation peer group. We also use the 75 th percentile as +a point of reference in reviewing total compensation. +Peer Groups +Our base salary, long-term equity and total compensation peer group ("Compensation Peer Group") consists of companies in our industry +with similar market capitalization and revenue. The market capitalization of these companies ranges from $2.1 billion to $14 billion (Cimarex's market capitalization is +$9.5 billion). The revenue of these companies ranges from $586 million to $2.3 billion (Cimarex's 2010 revenue was $1.6 billion). The companies in the Compensation Peer +Group are also similar in size and scope of operations. Each year the Committee, with the assistance of its compensation consultant, reviews the Compensation Peer Group. Our 2010 Compensation Peer +Group was comprised of the following companies: +Compensation Peer Group +Cabot Oil & Gas Corp. +Pioneer Natural Resources Co. +Denbury Resources Inc. +Quicksilver Resources Corp. +EXCO Resources, Inc. +Range Resources Corp. +Forest Oil Corp. +Southwestern Energy Co. +Newfield Exploration Co. +SM Energy Company +Noble Energy, Inc. +Whiting Petroleum Corp. +Petrohawk Energy Corporation +29 +Table of Contents +We use a second comparison group to determine our relative stock price performance in determining the number of shares of performance awards to be awarded to our CEO and NEOs +("Stock Performance Peer Group"). The Stock Performance Peer Group is comprised of companies listed on the S&P 400 Oil and Gas Exploration index and the S&P 500 Oil and Gas Exploration +index. Cimarex is one of the companies listed in the S&P 400 Oil and Gas Exploration index. +The +companies included in the Stock Performance Peer Group at the time of granting the 2011 performance awards were: +Stock Performance Peer Group +S&P 400 Oil and Gas Exploration Index: +S&P 500 Oil and Gas Exploration Index: +Bill Barrett Corp. +Anadarko Petroleum Corp. +Comstock Resources Inc. +Apache Corp. +Forest Oil Corp. +Cabot Oil & Gas Corp. +Plains Exploration & Production Co. +Chesapeake Energy Corp. +Quicksilver Resources Corp. +Denbury Resources Inc. +SM Energy Company +Devon Energy Corp. +EOG Resources Inc. +EQT Corp. +Newfield Exploration Co. +Noble Energy Inc. +Pioneer Natural Resources Co. +QEP Resource, Inc. +Range Resources Corp. +Southwestern Energy Co. +These +companies were selected as the Stock Performance Peer Group because they are representative of the full range of alternatives available to investors within the exploration and production +business. +Total Compensation and Internal Pay Equity. Each time the Committee reviews an element of compensation, the Committee is provided with total compensation data. In +addition, the Committee periodically reviews the relationship of the CEO's total compensation to that of the other NEOs. +The +purpose of our internal pay equity guidelines is to ensure that the CEO's total compensation is not excessive relative to the other officers. Our internal pay equity guidelines provide that the +CEO's base salary should not be more than three times the base salary of the next highest compensated NEO, and the CEO's cash incentive award should not be more than three times the cash incentive +award of the next highest cash incentive award. Our Board must approve any deviation from these guidelines. For 2010, our CEO's base salary and annual cash incentive award were consistent with our +internal pay equity guidelines. +Role of CEO and Other Executive Officers in Determining Executive Compensation. Our CEO plays a +significant role in the executive compensation decision-making process. Because the CEO has close day-to-day association with the other NEOs and operation of Cimarex, the +Committee considers the CEO's involvement essential. The CEO provides the Committee with an annual assessment of Cimarex's overall financial and operational performance. He evaluates individual NEO +performance and recommends base salary adjustments, annual cash incentive awards and long-term equity incentive awards. The CEO considers subjective factors that may include scope of +responsibility, contribution to company performance, technical competence, managerial skills, and advancement potential. The Committee has discretion to accept, reject or modify the CEO's +recommendations. Our Vice President of Human Resources regularly provides survey and data analysis regarding executive compensation and assists the Committee with the design and implementation of our +executive compensation program. +30 +Table of Contents +Other Considerations. In addition to the above resources, the Committee relies upon its collective judgment and considers length of service and subjective +information including experience, consistent performance and available competitive alternatives for our executive officers. +Stock Ownership Guidelines. Our Corporate Governance Guidelines provide that our CEO is expected to maintain stock ownership of five times his base salary and that +each other executive officer maintain stock ownership of three times his base salary. Our CEO and each executive officer exceed these guidelines. +Regulatory Requirements. Cimarex and the Committee carefully review and take into account current tax, accounting and securities regulations as they relate to the +design of the executive compensation programs. +Section 162(m). Section 162(m) of the Code limits the amount of compensation that Cimarex may deduct on its federal income tax return for +compensation paid to certain executive officers to no more than $1 million per year. This limitation does not apply to "qualified performance based" compensation as defined under the federal +tax laws if the performance goals are approved by the stockholders and other requirements for deductibility are met. +The +Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under Section 162(m). +Section 409A. Section 409A of the Code provides that all amounts deferred under a non-qualified deferred compensation plan are currently +included in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in gross income, unless certain requirements are met. We have designed or amended +our plans and programs with the intent to make them exempt from Section 409A or, if subject to Section 409A, to be in compliance with applicable regulations to properly allow deferral. +Elements of Total Executive Compensation +We believe that a majority of executive compensation should be performance-based, but we do not have a specific formula that dictates the overall +weighting of each element as a part of total compensation. The Committee determines total compensation based on a review of competitive compensation data, consistency with our overall compensation +philosophy and its judgment as a committee. +The +table below identifies each element of direct compensation and the primary purpose for using each element. The level of each element of direct compensation is generally targeted at the +75 th percentile of +31 +Table of Contents +our +industry peer group. When making decisions on each of these elements, the Committee takes into consideration the multiple factors discussed above in How We Make +Compensation Decisions . +Compensation Element +Primary Purposes +Fixed +Base Salary +• Provides a fixed level of income to compensate executives +for their level of responsibility, relative expertise and experience +Variable/Performance-Based +Performance Awards of Restricted Stock +• Recognizes Cimarex's relative stock price performance +compared to its industry peer group +• Aligns the interests of +executives with our stockholders by emphasizing stock price appreciation +• Provides a forfeitable ownership stake to encourage executive retention +Annual Cash Incentive +• Rewards executives for achieving annual objectives +aligned with value creation +The +following is a discussion of each element and the specific actions taken by the Committee in 2010 related to each element. Each of these elements is reviewed on an annual basis, and may be +reviewed upon the occurrence of a significant event or a change in market conditions. The same design principles and factors are applied in a consistent manner to all named executive officers. +Material differences in the amount of compensation generally reflects the differences in the individual responsibility and experience of each officer and the differences in the amounts of compensation +paid to officers in comparable positions in our industry peer group. +Base Salary +Our goal is to pay base salaries that are competitive with those paid for similar executive positions by other companies in our Compensation Peer +Group. See Peer Groups above for a list of the companies in our Compensation Peer Group. +The +Committee's consultant compiles comparative salary data for presentation to the Compensation Committee. In May of each year, the Committee recommends to the independent members of the Board for +their approval base salary adjustments to be effective on June 1. +The +Compensation Peer Group data is historical and is obtained from information in publicly-filed proxy statements and surveys. We analyze positions in companies in the Compensation Peer Group that +have responsibilities similar to each of Cimarex's executive positions. We also use compensation rank order as part of the analysis. Because the data is about twelve months old at the time it is +available, we also asked the consultant to adjust the data to estimate current compensation for the companies in the Compensation Peer Group. +While +the comparison market data provides guidance in making decisions on base salary adjustments, the Committee does not set compensation based on market data alone. The Committee also considers the +CEO's recommendations and a subjective evaluation of other data such as length of service, experience, consistent performance and available competitive alternatives for our executive officers. +In +May 2010, the Committee's compensation consultant provided the Committee with a comparison of the CEO's and the other NEOs' base salary in comparison to the market (using companies in the +Compensation Peer Group). Cimarex's base salary philosophy is to compensate its executives at the market 75 th percentile. Based upon the compensation consultant's analysis and +management's analysis of compensation surveys, the Committee concluded that the base salaries of the executives were at or near the 75 th percentile, which aligns with the base +salary philosophy to remain competitive with other +32 +Table of Contents +companies +in the Compensation Peer Group. The Committee's consultant recommended an overall 3.0 to 3.5% increase in base salary levels to remain consistent with the external market. The Committee +concurred and approved a 3.5% increase in the base salary of the CEO and each of the other NEOs. +Name +Title +6/1/09 to 5/31/10 +Base Salary +6/1/10 to 5/31/11 +Base Salary +F. H. Merelli +CEO, Pres +$ +850,000 +$ +880,000 +Paul Korus +Sr. VP, CFO +$ +420,000 +$ +434,700 +Thomas E. Jorden +Ex. VP, Exploration +$ +468,000 +$ +484,500 +Joseph R. Albi +Ex. VP, Operations +$ +431,000 +$ +446,100 +Stephen P. Bell +Sr. VP, Bus. Dev./Land +$ +357,000 +$ +369,500 +Annual Cash Incentive Awards +The annual cash incentive awards paid to each of the named executive officers on March 3, 2011 for services performed in 2010 are shown in the +table below and are reflected in the " Non-Equity Incentive Plan Compensation " column of the Summary Compensation Table. +Name +Cash Incentive Award +% of Base Salary +F. H. Merelli +$ +1,760,000 +200 +% +Paul Korus +$ +865,500 +199 +% +Thomas E. Jorden +$ +1,061,600 +219 +% +Joseph R. Albi +$ +964,600 +216 +% +Stephen P. Bell +$ +770,600 +209 +% +In +2009, the Board, upon the Committee's recommendation, approved a more flexible awards program based upon an end-of-the-year assessment that would include +industry conditions, relative stock performance compared to peer companies, cash flow, the competitive environment, reserve replacement, oil and gas production changes, cost control and management of +expenses, personnel safety record and environmental and regulatory compliance. While the Committee determined not to use a formulaic calculation, the Committee elected to continue to (i) target +the cash incentive awards at 100% of the CEO's base salary and 100% of the aggregate annualized base salaries of the other executives eligible for awards, (ii) limit the maximum amount of the +CEO's cash incentive award to 200% of his year-end monthly base salary annualized and (iii) provide for no minimum award, i.e., the award can be zero. At the same meeting, +the Committee increased the maximum amount of cash incentive awards from 150% to 200% of the aggregate year-end monthly base salaries annualized of the executives (other than the CEO) +eligible for awards. +At +its February 2011 meeting, the Committee reviewed the following information in its deliberation on the 2010 annual cash incentive awards: +• Change in production +• Change in reserves +• Relative stock price performance for the 1-year and 3-year periods ending December 31, 2010 +• Property and lease acquisitions and property divestitures +• Cash flow +• Net income +• Internal management systems that measure the results of exploration and production operations +33 +Table of Contents +• Safety +• Significant actions taken that positively impacted Cimarex's overall industry position +The +following were primary factors that influenced the Committee's final award decisions: +• Production grew 29% to an all-time high of 596 million cubic feet equivalent per day. +• Proved reserves increased by 23% to 1.88 trillion cubic feet equivalent. +• Proved reserves added through extensions, discoveries and revisions totaled 560 billion cubic feet replacing 258% +of production. +• Cimarex ranked number 2 when compared to its peers in the Stock Performance Peer Group for its latest one year and +number 1 over three years. +• Realized record net income of $575 million or $6.70 per share. +• Cash flow of $1.19 billion compared to $658.5 million in 2009. +• Expanded its core acreage position in western Oklahoma and in the Permian Basin. +• Developed new geologic concepts that significantly expanded the company's future drilling inventory. +As +a result of Cimarex's strong 2010 financial performance, the Committee awarded the maximum awards permitted under the cash incentive program. That is, the CEO was paid a cash incentive award equal +to 200% of his year-end base salary, and the aggregate amount of the awards paid to the other executive officers (a group that includes the other NEOs as well as additional executive +officers) was equal to 200% of the aggregate year-end base salaries of all executives participating in the cash incentive program (the "executive officer pool"). +From +the executive officer pool, the CEO, based upon his subjective determinations, recommended individual awards to each executive officer. As permitted under the cash incentive program, certain +individual officers received in excess of 200% of their year-end base salary. The Committee concurred with the CEO's individual award recommendations. See the table above for individual +CEO and NEO cash incentive awards. +Long-Term Equity Incentive Award Program +Description of Program – Cimarex grants to the CEO and the other NEOs annual +performance awards of restricted stock. Since the inception of the long-term equity incentive program in 2006, Cimarex has taken a "team based" approach to long-term incentive +awards made to its executives. Currently the executives are divided into three tiers, with the CEO in tier 1, the other NEOs in tier 2, and the remaining executives in tier 3. The +tier 1 executive (the CEO) receives one-third of the total awards made to the CEO and the other NEOs; each tier 2 executive officer (the NEOs other than the CEO) receives +one-half of the tier 1 award, and each tier 3 executive officer receives 80% of a tier 2 award. +34 +Table of Contents +Each award is subject to three-year time-of-service vesting. Subject to the continuous service requirement, the number of shares that vest +is based on our relative stock price performance and ranges from 50% to 100% of the award. For the awards granted in January 2009, 2010 and 2011, the Stock Performance Peer Group consisted of +companies in the S&P 400 and 500 Oil and Gas Exploration Indices. See Peer Groups above for a list of the companies in the Stock Performance Peer +Group. +The +Committee determines relative stock price performance by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in our Stock +Performance Peer Group for the 30 trading days preceding the first day of the year of the grant and the 30 trading days preceding the last day of the year immediately preceding the third anniversary +of the grant. The Committee ranks Cimarex and calculates its relative performance percentile. If our relative stock price performance is 25% or less, 50% of the award vests. For each relative stock +price performance percentile increase above 25%, an additional 1% of the award vests. The following table presents an example of various performance percentiles and the percentage of the total award +earned: +Performance Percentile +75% & above +60% +50% +40% +25% & less +Payout as % of Target +100% +85% +75% +65% +50% +The +below example (based upon an actual award on January 2, 2008 of 30,000 shares of restricted stock, with a vesting date of January 2, 2011) illustrates the calculation of actual +shares earned: +Total Award +Relative Stock +Price Performance +Ranking for the +Performance +Periods +Relative +Performance +Percentile (1) +Payout % +Actual Shares +Earned +Timing of +Payout +30,000 shares of +restricted stock +1 st +92% +100% +30,000 +Paid after end +of three-year +vesting period +(1) Calculated +by subtracting Cimarex's absolute rank from the total number of companies in the Stock Performance Peer Group and dividing the +result by the total number of companies in the Stock Performance Peer Group. In this example, there were 13 companies in the Peer Group. +2010 Awards – In September 2009, the Committee reviewed an analysis of the executive long-term equity incentive program +prepared by Cimarex's Vice President of Human Resources. The analysis indicated that the value of the equity awards was less than the awards paid to executives with comparable positions at peer +companies and was below the targeted 75 th percentile and concluded that an increase in the awards was warranted. The Committee's independent compensation consultant concluded that +management's recommendation for increased awards, based upon the value at the time of the analysis of the proposed increased awards, was reasonable. The Committee increased the CEO's 2010 annual +performance awards from 60,000 shares to 100,000 shares and increased the 2010 annual awards to the other NEOs from 30,000 shares to 50,000 shares. The Committee elected to make no other changes to +the long-term equity incentive program during 2010. +35 +Table of Contents +The +following table represents the performance share awards granted through December 31, 2010 and the vesting of the awards that occurred on January 2, 2009, 2010 and 2011: +Grant Date +No. of Shares +Granted +Vesting Date +Total +Vested (1) +CEO +1/2006 +60,000 +1/2009 +40,800 +(2) +1/2007 +60,000 +1/2010 +57,600 +(3) +1/2008 +60,000 +1/2011 +60,000 +(4) +1/2009 +60,000 +1/2012 +NA +1/2010 +100,000 +1/2013 +NA +Each NEO +1/2006 +30,000 +1/2009 +20,400 +(2) +1/2007 +30,000 +1/2010 +28,800 +(3) +1/2008 +30,000 +1/2011 +30,000 +(4) +1/2009 +30,000 +1/2012 +NA +1/2010 +50,000 +1/2013 +NA +(1) A +minimum of 50% of the award vests provided that the executive officer has been continuously employed by Cimarex for three years from the +grant date. +(2) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be released to the CEO and the NEOs. +Cimarex's relative stock performance was 8 th out of 14 companies in the Peer Group or the 43 rd percentile, resulting in each executive receiving 68% of the +award. +(3) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be released to the CEO and the NEOs. +Cimarex's relative stock performance was 4 th out of 14 companies in the Peer Group or the 71 st percentile, resulting in each executive receiving 96% of the +award (all of the time-vested portion of the award and 92% of the performance-based portion of the award). +(4) The +Compensation Committee certified the calculation of the number of unrestricted shares of stock to be released to the CEO and the NEOs. +Cimarex's relative stock performance was 1 st out of 13 companies in the Peer Group or the 92 nd percentile, resulting in each executive receiving 100% of the +award (all of the time-vested portion of the award and 100% of the performance-based portion of the award). +2011 Awards. At its December 2010 meetings, the Committee conducted its annual review of the long-term equity incentive compensation program. The +Committee requested that its compensation consultant provide a market analysis of long-term incentive practices of companies in the Compensation Peer Group. The consultant reported that +Cimarex's use of relative stock price performance as the primary performance measure for vesting of performance-based stock awards is a prevalent and reasonable performance metric, and recommended +that the Committee continue the use of that performance metric for the long-term incentive program. +The +consultant recommended that the Committee begin using a "value-based" rather than a "share-based" award methodology for the purpose of determining the number of shares of time-vested +and performance-based restricted stock awards to be granted to executive officers. By value-based, the consultant meant that the Committee should decide upon a target dollar pool for +long-term awards to the NEO group and then grant shares of restricted stock with a value equal to that pool. The Committee agreed with this recommendation. The consultant was asked to +analyze the value of long-term equity awards granted to NEOs of companies in the Compensation Peer Group in order that the Committee could decide upon an appropriate target pool value +consistent with Cimarex's philosophy of targeting executive compensation at approximately the 75 th percentile. +36 +Table of Contents +In +preparing their report, the consultant gathered information from 2010 proxy statements of companies in the Compensation Peer Group. In addition, because that information was several months old, the +consultants used information derived from other SEC filings and assumptions about expected increased awards in 2011 compared to 2010. The consultant reported that companies in the Compensation Peer +Group whose expected long-term equity awards to NEOs placed them in the 75 th percentile or higher could reasonably be anticipated to issue equity awards with values +ranging from $18.4 million to $27.8 million (prior to any discount for performance shares pursuant to FASB ASC Topic 718). The consultant recommended the Committee determine a total +target pool value for Cimarex's NEOs within this range and determine the number of shares to be granted based on a share price near the date of grant. +Based +on the consultant's information, and on Cimarex' outstanding performance in 2010 and Cimarex's rank as the number one performer in relative stock price in the Stock Performance Peer Group for +the three-year period ended December 31, 2010, the Committee determined to establish a total pool value of $24.7 million. Based on the consultant's information, this would +place Cimarex in approximately the 90 th percentile of its Compensation Peer Group for long-term equity grants to its NEOs. +The +Committee determined that the number of shares to be awarded would be determined by dividing $24.7 million by Cimarex's average closing stock price over a period of 30 days preceding +the grant date. This calculation resulted in an aggregate grant of 287,179 shares based on an average price of $86.03. The following table lists the shares granted to each of the NEOs. Half of the +shares will vest on the third anniversary of the grant provided the recipient continued to be employed by Cimarex. Vesting of the remaining half will be based on Cimarex's relative stock price +performance compared to that of companies in the Stock Performance Peer Group. Historically, Cimarex has granted one-third of the total shares to Mr. Merelli, the CEO, with the +remaining two-thirds to be divided equally among the four other NEOs. The Committee decided to continue this practice based upon their intent to reinforce the team functioning of the +executive group, a practice that the Committee has adhered to for a number of years. +Name +Title +Number of Shares +Granted +F. H. Merelli +CEO, President +95,726 +Paul Korus +Sr VP, CFO +47,863 +Thomas E. Jorden +Ex VP, Exploration +47,863 +Joseph R. Albi +Ex VP, Operations +47,863 +Stephen P. Bell +Sr VP, Bus Dev/Land +47,863 +2002 Restricted Stock Unit and Option Awards – In December 2002 shortly following our September 2002 reorganization as Cimarex +Energy Co., we awarded the CEO and NEOs restricted stock units and stock options. These awards were issued to retain executives and promote stock ownership. The restricted stock units fully +vested in December 2007 and were paid in shares of common stock on December 6, 2010. The options also fully vested in December 2007. The option award included the requirement that, if the CEO +or any NEO elected to exercise vested options, he must hold until December 6, 2010, one-half of the shares remaining after delivering shares in payment of the exercise price and +required tax withholding due upon exercise. This "hold" requirement expired on December 6, 2010. +Other Compensation +We do not consider the following compensation as material elements of our executive compensation program because (i) we provide limited +perquisites and (ii) 401(k) benefits, supplemental savings plan benefits and termination benefits are also available to non-executive employees. +37 +Table of Contents +Perquisites +We provide executive officers with limited perquisites. Perquisites that we do provide include a medical expense reimbursement program, athletic and +dining club memberships and an estate- planning allowance. In 2010, the total cost of perquisites provided to our CEO and NEOs was $38,364. +Retirement Benefits +The CEO and other NEOs are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. This plan is open to participation by +all Cimarex employees who have or will have at least 1,000 hours of service. Under the plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to +7% of the employee's cash compensation, subject to limits imposed by Internal Revenue Code. In December 2007 the Board elected to activate the profit-sharing contribution feature under the 401(k) Plan +and to determine at each meeting following availability of fiscal year-end financial results the amount, if any, of the profit-sharing contribution. +At +the Committee's February 2011 meeting, the Committee recommended and the Board authorized a profit-sharing contribution of 4% of the gross pay of eligible participants under the 401(k) Plan. +Supplemental Savings Plan +We also sponsor a Supplemental Savings Plan, a non-qualified deferred compensation plan that permits eligible participants, which +includes the CEO and other NEOs, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Code limitations. See Compensation Tables, 2010 +Nonqualified Deferred Compensation, for information about contributions to the Supplemental Savings Plan. +Each +of the CEO and other NEOs are 100% vested in all matching contributions as a result of their having satisfied the service requirements. Contributions are invested in mutual funds available for +investment under the Cimarex 401(k) Plan. The officer selects the funds for investment by providing advisory investment direction to Cimarex. +The +Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a +period not longer than 15 years, as the participant elects. In the event of a change of control, each participant receives a cash lump sum payment of the amount allocated to his/her account as +of the last day of the month immediately preceding the date of the change in control. A change of control under the Supplemental Savings Plan is the same as the definition of a "change of control +event" in our 2002 Stock Incentive Plan. See Potential Payments upon Change in Control or Termination for a summary of the definition of a "change of +control event." +Termination Benefits +Cimarex's Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of a "change in +control." In the event of a change in control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a change in control, each employee +would be entitled to cash severance payments of salary and cash incentive award, pro-rata portion of annual cash incentive bonus, continued medical, dental, disability and life insurance +benefits for two years, and additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code. See Potential Payments upon Change +in Control or Termination for a more detailed description of these benefits. +38 +Table of Contents +REPORT OF COMPENSATION AND GOVERNANCE COMMITTEE +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of Directors. The +Compensation and Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and discussions, the +Compensation and Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +THE COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +39 +Table of Contents +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The following table describes 2010, 2009 and 2008 compensation of our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three +other most highly compensated executive officers (the "Named Executive Officers" or "NEOs"). Only our CEO has an employment agreement. See Potential Payments Upon Change in +Control or Termination for information about his employment agreement. +Name and +Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards +Non-Equity +Incentive +Plan Comp. (2) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp. (3) +Total +F.H. Merelli, +2010 +$ +867,500 +$ +– +$ +4,194,000 +$ +– +$ +1,760,000 +$ +– +$ +46,040 +$ +6,867,540 +Chairman, Chief +2009 +$ +850,000 +$ +– +$ +1,435,734 +$ +– +$ +1,700,000 +$ +– +$ +41,140 +$ +4,026,874 +Executive Officer, President (CEO) +2008 +$ +815,000 +$ +– +$ +1,684,020 +$ +– +$ +297,000 +$ +– +$ +65,773 +$ +2,861,793 +Paul Korus +2010 +$ +428,575 +$ +– +$ +2,097,000 +$ +– +$ +865,500 +$ +– +$ +45,617 +$ +3,436,692 +Sr Vice President, +2009 +$ +420,000 +$ +– +$ +717,867 +$ +– +$ +630,000 +$ +– +$ +49,522 +$ +1,817,389 +Chief Financial +2008 +$ +401,250 +$ +– +$ +842,010 +$ +– +$ +147,000 +$ +– +$ +47,310 +$ +1,437,570 +Officer, and Treasurer (CFO) +Thomas E. Jorden +2010 +$ +477,625 +$ +– +$ +2,097,000 +$ +– +$ +1,061,600 +$ +– +$ +56,392 +$ +3,692,617 +Ex Vice +2009 +$ +468,000 +$ +– +$ +717,867 +$ +– +$ +936,000 +$ +– +$ +40,933 +$ +2,162,800 +President – Exploration +2008 +$ +442,584 +$ +– +$ +842,010 +$ +– +$ +163,800 +$ +– +$ +52,229 +$ +1,500,623 +Joseph R. Albi +2010 +$ +439,808 +$ +– +$ +2,097,000 +$ +– +$ +964,600 +$ +– +$ +64,850 +$ +3,566,258 +Ex Vice +2009 +$ +431,000 +$ +– +$ +717,867 +$ +– +$ +862,000 +$ +– +$ +54,663 +$ +2,065,530 +President – Operations +2008 +$ +407,667 +$ +– +$ +842,010 +$ +– +$ +150,850 +$ +– +$ +53,434 +$ +1,453,961 +Stephen P. Bell +2010 +$ +364,292 +$ +– +$ +2,097,000 +$ +– +$ +770,600 +$ +– +$ +58,924 +$ +3,290,816 +Sr Vice President – +2009 +$ +357,000 +$ +– +$ +717,867 +$ +– +$ +535,500 +$ +– +$ +63,211 +$ +1,673,578 +Business Development and Land +2008 +$ +337,417 +$ +– +$ +842,010 +$ +– +$ +124,950 +$ +– +$ +60,999 +$ +1,365,376 +(1) Represents +the grant date fair value, which is consistent with the estimate of aggregate compensation cost to be recognized over the service +period determined as of the grant date under FASB ASC Topic 718. +The +following represents the potential intrinsic value of each award based upon the closing stock price on the date of grant ($55.17) times the total number of shares subject to the award: +Executive Officer +2010 Award +2009 Award +2008 Award +F. H. Merelli +$ +5,517,000 +$ +1,729,800 +$ +2,590,800 +Paul Korus +$ +2,758,500 +$ +864,900 +$ +1,295,400 +Thomas E. Jorden +$ +2,758,500 +$ +864,900 +$ +1,295,400 +Joseph R. Albi +$ +2,758,500 +$ +864,900 +$ +1,295,400 +Stephen P. Bell +$ +2,758,500 +$ +864,900 +$ +1,295,400 +(2) Amount +reported for the year earned. +40 +Table of Contents +(3) The +following describes the components of other items of compensation, including any perquisite in excess of $10,000. +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Life +Insurance +Premiums +Total +Other +Compensation +F. H. Merelli, CEO +2010 +$ +– +$ +42,800 +$ +3,240 +$ +46,040 +2009 +$ +– +$ +37,900 +$ +3,240 +$ +41,140 +2008 +$ +– +$ +63,613 +$ +2,160 +$ +65,773 +Paul Korus +2010 +$ +– +$ +42,800 +$ +2,817 +$ +45,617 +2009 +$ +8,900 +$ +37,900 +$ +2,722 +$ +49,522 +2008 +$ +– +$ +45,150 +$ +2,160 +$ +47,310 +Thomas E. Jorden +2010 +$ +– +$ +42,800 +$ +3,140 +$ +56,392 +(a) +2009 +$ +– +$ +37,900 +$ +3,033 +$ +40,933 +2008 +$ +– +$ +50,069 +$ +2,160 +$ +52,229 +Joseph R. Albi +2010 +$ +5,180 +$ +42,800 +$ +2,891 +$ +64,850 +(a) +2009 +$ +– +$ +37,900 +$ +2,793 +$ +54,663 +2008 +$ +4,341 +$ +31,558 +$ +2,160 +$ +53,434 +Stephen P. Bell +2010 +$ +13,730 +$ +42,800 +$ +2,394 +$ +58,924 +2009 +$ +22,998 +$ +37,900 +$ +2,313 +$ +63,211 +2008 +$ +17,300 +$ +41,539 +$ +2,160 +$ +60,999 +(a) Mr. Albi's +total other compensation includes medical reimbursements ($13,139) and reserved parking ($840) for total perquisites of +$13,979. Mr. Jorden's total other compensation includes medical reimbursements ($9,612) and reserved parking ($840) for total perquisites of $10,452. No other executive officer's perquisites +exceeded $10,000. +41 +Table of Contents +2010 GRANTS OF PLAN-BASED AWARDS +Non-Equity Incentive Plan +Our annual cash incentive awards were made from a company performance-based pool. The entire pool is at risk and there is no threshold. The CEO's +pool target is 100% of his year-end annualized salary, and his pool is limited to 200% of his salary. Our plan does not provide for individual targets for other executive officers, +including the NEOs. Rather our plan provides for a pool target of 100% of combined year-end annualized base salaries of all participants in the pool. The aggregate maximum awards to all +participants, including the NEOs, may not exceed 200% of total combined year-end annualized base salaries. See the description of the our annual cash incentive award plan in Compensation Discussion and Analysis, +under Elements of Total Executive Compensation, Annual Cash Incentive +Awards . +The +following table is presented in accordance with SEC rules. However, the information required by the table is not consistent with the design of our annual cash incentive plan because, except for +the CEO, our plan does not provide for individual targets or individual maximum awards. Despite these limitations, the table sets forth target and maximum amounts for the NEOs as if they were +determined on an individual basis instead of on a pool-based approach. +The +amounts listed in the Target column represent 100% of the year-end monthly base salary annualized. The amounts listed in the Maximum column represent 200% +of the year-end monthly salary annualized. +Estimated Future Payouts Under +Non-Equity Incentive Plan +Name +Threshhold +Target +Maximum +Actual +Award +Paid in +March 2011 +F. H. Merelli, CEO +$ +0 +$ +880,000 +$ +1,760,000 +$ +1,760,000 +Paul Korus +$ +0 +$ +434,700 +$ +869,400 +$ +865,500 +Thomas E. Jorden +$ +0 +$ +484,500 +$ +969,000 +$ +1,061,600 +Joseph R. Albi +$ +0 +$ +446,100 +$ +892,200 +$ +964,600 +Stephen P. Bell +$ +0 +$ +369,500 +$ +739,000 +$ +770,600 +42 +Table of Contents +Equity Incentive Plan Awards +The following table provides information regarding the annual awards of restricted stock made to the CEO and other NEOs in 2010. See Compensation Discussion and Analysis, Elements of Total Executive +Compensation, Long-Term Equity Incentive Award Program for more +information about these awards. +Estimated Future Payouts Under Equity +Incentive Plan Awards +Name +Award +Grant +Date +Comp +Comm. +Action +Date +Threshold (1) +Target (2) +Maximum +Grant Date +Fair Value +of Stock +Perf. +Awards (3) +F.H. Merelli, CEO +1/4/10 +12/11/09 +50,000 +100,000 +100,000 +$ +4,194,000 +Paul Korus +1/4/10 +12/11/09 +25,000 +50,000 +50,000 +$ +2,097,000 +Thomas E. Jorden +1/4/10 +12/11/09 +25,000 +50,000 +50,000 +$ +2,097,000 +Joseph R. Albi +1/4/10 +12/11/09 +25,000 +50,000 +50,000 +$ +2,097,000 +Stephen P. Bell +1/4/10 +12/11/09 +25,000 +50,000 +50,000 +$ +2,097,000 +(1) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(2) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock +price performance relative to its peers and is not computed until the third anniversary of the award. See Long-Term Equity Incentive Award +Program for the method of computing the number of shares that vest. The actual number of shares that vest is not determinable until January 4, 2013 (the third +anniversary of the award). The shares disclosed in this column represent the shares the executive would have been entitled to (based upon December 2010 stock prices), had the award vested on +January 4, 2011. Ordinary cash dividends are paid on the target number of shares during the vesting period. +(3) Represents +the grant date fair value based on the probable outcome of the performance conditions, which is consistent with the estimate of +aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. +43 +Table of Contents +The following table provides information about all outstanding options and unvested stock awards held by the CEO and each NEO as of December 31, 2010: +OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2010 +STOCK AWARDS +OPTION AWARDS +Number of Securities +Underlying Unexercised +Options +Equity Incentive Plan Awards That +Have Not Vested +Name +Exercisable +Unexercisable +Option +Exercise +Price +Option +Expiration +Date +No. of Shares +Market Value of +Unearned Shares (1) +F.H. Merelli, CEO +422,400 +(2) +0 +$ +16.65 +12/06/2012 +220,000 +(3) +$ +19,476,600 +Paul Korus +0 +0 +110,000 +(4) +$ +9,738,300 +Thomas Jorden +0 +0 +110,000 +(4) +$ +9,738,300 +Joseph Albi +0 +0 +110,000 +(4) +$ +9,738,300 +Stephen Bell +0 +0 +110,000 +(4) +$ +9,738,300 +(1) The +amount in this column reflects the closing market price of the stock as of December 31, 2010 ($88.53) times the number of shares +reported in the previous column. +(2) This +option fully vested on December 6, 2007. +(3) 60,000 +shares vested on January 2, 2011; 60,000 shares could vest on January 2, 2012; and 100,000 shares could vest on +January 4, 2013. +(4) 30,000 +shares vested on January 2, 2011; 30,000 shares could vest on January 2, 2012; and 50,000 shares could vest on +January 4, 2013. +The following table provides information about the stock options exercised by our CEO and NEOs during 2010: +2010 OPTION EXERCISES AND RESTRICTED STOCK VESTED +2010 OPTION EXERCISES +2010 STOCK VESTING +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($) +F. H. Merelli, CEO +125,000 +$ +6,329,688 +268,800 +$ +21,524,736 +Paul Korus +– +$ +– +74,300 +$ +5,515,338 +Thomas E. Jorden +– +$ +– +74,300 +$ +5,515,338 +Joseph R. Albi +20,000 +$ +1,001,681 +74,300 +$ +5,515,338 +Stephen P. Bell +– +$ +– +74,300 +$ +5,515,338 +The following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in each of the last three fiscal years. +Participants may defer a maximum of 50% of total annual cash compensation, provided, however, that the amount deferred may not exceed the dollar limitation on elective deferrals under the Internal +Revenue Code section 402(g) in effect on January 1 of the calendar year of deferral (2010 limitation was $16,500). In 2010, Cimarex matched 100% of the participants' contributions up to +7% of the participant's total annual cash compensation. +44 +Table of Contents +2010 NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions +in Last FY (2) +($) +Aggregate +Earnings in +Last FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +F. H. Merelli, CEO +2010 +$ +16,500 +$ +16,500 +$ +60,569 +$ +– +$ +622,681 +(3) +2009 +$ +16,500 +$ +16,500 +$ +96,467 +$ +– +$ +529,351 +2008 +$ +48,113 +$ +48,113 +$ +(100,300 +) +$ +– +$ +400,122 +Paul Korus +2010 +$ +16,500 +$ +16,500 +$ +22,500 +$ +– +$ +273,333 +(3) +2009 +$ +26,790 +$ +16,500 +$ +35,366 +$ +– +$ +218,072 +2008 +$ +39,681 +$ +29,650 +$ +(21,195 +) +$ +– +$ +139,655 +Thomas E. Jorden +2010 +$ +16,500 +$ +16,500 +$ +292 +$ +– +$ +478,420 +(3) +2009 +$ +32,880 +$ +16,500 +$ +2,179 +$ +– +$ +445,367 +2008 +$ +64,744 +$ +34,569 +$ +9,221 +$ +– +$ +394,047 +Joseph R. Albi +2010 +$ +16,500 +$ +16,500 +$ +28,241 +$ +– +$ +216,724 +(3) +2009 +$ +24,043 +$ +16,500 +$ +29,789 +$ +– +$ +155,723 +2008 +$ +16,058 +$ +16,058 +$ +(29,209 +) +$ +– +$ +85,631 +Stephen P. Bell +2010 +$ +16,500 +$ +16,500 +$ +5,742 +$ +– +$ +350,247 +(3) +2009 +$ +22,748 +$ +16,500 +$ +7,583 +$ +– +$ +311,745 +2008 +$ +27,087 +$ +26,039 +$ +6,374 +$ +– +$ +265,154 +(1) The +amounts included in this column are also included in the Salary column in the Summary Compensation Table . +(2) The +amounts reported in this column are included in the All Other Compensation column and +footnote 3 thereto in the Summary Compensation Table . +(3) The +following table sets forth amounts included in the aggregate balance at December 31, 2010 that were reported as compensation to the +named executive officer in the Summary Compensation Table for previous years. +Named Executive Officer +Amount of Previously Reported +Compensation +F. H. Merelli +$ +452,852 +Paul Korus +$ +405,535 +Thomas E. Jorden +$ +406,650 +Joseph R. Albi +$ +199,597 +Stephen P. Bell +$ +276,218 +POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION +We do not consider post-termination benefits as a material element of executive compensation because, except for our CEO, NEO +post-termination benefits are the same benefits available to all full-time +45 +Table of Contents +employees. +Post-termination benefits are not included in the Committee's analysis of total compensation. +We +are obligated to make certain payments to our CEO and NEOs or to accelerate the vesting of their equity awards upon a change in control, death, disability or termination of employment pursuant to +the following plans and agreements: +• change in control severance plan that covers all full-time employees, including the NEOs +• 2002 Stock Incentive Plan +• employment agreement with Mr. Merelli +• change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +• Supplemental Savings Plan +We +currently do not pay severance benefits or accelerate equity awards upon the retirement of the CEO or other NEOs. Individual performance assessments, compensation arising from our annual +compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +The +following tables provide the estimated compensation and present value of benefits potentially payable to the CEO and each other NEO upon a change in control of Cimarex or termination of +employment. The amounts shown assume that the termination or change in control occurred on December 31, 2010. The actual amounts to be paid can only be determined at the time of the executive's +actual separation from Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements +or modify these arrangements, from time to time. +Please +see the narrative following the tables below for a discussion of the agreements providing for the payments required upon termination or a change in control. +Potential Payments upon Change in Control +Cimarex is obligated under certain agreements to pay benefits upon a "change in control" event. +Cimarex's definition of "change in control" as used in its 2002 Stock Incentive Plan, its Change in Control Severance Plan and the change in control +provisions that survived certain expired employment agreements with each NEO is the same. In summary, a "change-in-control" +event means any of the following: +• Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities +of Cimarex by an individual or group. +• During any period of twelve months, members of our Board of Directors cease to constitute a majority of the directors. +• A reorganization, share exchange or merger unless (i) the stockholders prior to the reorganization or merger +continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the +members of the Board of the corporation resulting from the merger or reorganization were members of the Board at the time of executing the agreement to reorganize or merge. +• The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +46 +Table of Contents +The +following describes potential payments to the CEO and NEOs in the event of a change-in-control event coupled with termination of employment without cause: +Change in Control – Termination without Cause +Name +Annual Average +Cash +Compensation (1) +Cash +Incentive (2) +Restricted +Stock and +Stock +Units (3) +Options +Employee +Benefits (4) +280G Tax +Gross Up (5) +Total +Benefits +F. H. Merelli, CEO +$ +5,177,500 +$ +1,760,000 +$ +19,476,600 +$ +– +$ +540,527 +$ +– +$ +26,929,627 +Paul Korus +$ +2,344,075 +$ +857,150 +$ +9,738,300 +$ +– +$ +243,031 +$ +3,517,883 +$ +16,700,439 +Thomas E. Jorden +$ +2,943,225 +$ +955,250 +$ +9,738,300 +$ +– +$ +469,792 +$ +3,692,066 +$ +17,798,633 +Joseph R. Albi +$ +2,697,408 +$ +879,617 +$ +9,738,300 +$ +– +$ +174,324 +$ +3,511,838 +$ +17,001,486 +Stephen P. Bell +$ +2,027,392 +$ +728,583 +$ +9,738,300 +$ +– +$ +321,863 +$ +3,330,545 +$ +16,146,684 +(1) Amount +represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2009 and 2010, as +provided in the Change in Control Severance Plan. +(2) Amount +represents the average incentive bonus as provided in the Change in Control Severance Plan. +(3) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2010 of $88.53 per share. +(4) Amounts +represent estimated payments under the Supplemental Savings Plan and the estimated value of continued medical, dental, disability and +life insurance benefits for two years. +(5) The +gross-up for the excise tax is with respect to the cash severance payment, the cash incentive and the restricted stock that +becomes vested upon a change in control, and employee benefits, all assuming a change in control occurred on December 31, 2010. The 20% excise tax is triggered only if the present value of the +listed benefits is equal to or greater than three times the average of the prior five years W-2 pay. Accordingly, the amounts are shown only for the named executive officers whose benefits +trigger the 20% excise tax. To determine the appropriate gross-up for excise tax, the following tax rates were used: 35% federal, 4.6% state, 20% excise and 1.45% Medicare. +Mr. Merelli's payments would not trigger a gross-up for excise tax. +The following is a summary of those agreements that provide for payment to the CEO and the NEOs in the event of a change-in-control +event coupled with termination of employment without cause: +Change in Control Severance Plan +Our Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of a "change in control." In +the event of a change in control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a change in control, each employee would be +entitled to: +• Cash severance payments of up to two years' salary and cash incentive award. +• A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +• Continued medical, dental, disability and life insurance benefits for two years. +• Additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and +related income taxes, interest and penalties. +Assumed Change-in-Control Employment Provisions for Messrs. Albi, Bell, Jorden and Korus +We assumed the change-in-control provisions from the now expired employment agreements between each of Messrs. Albi, +Bell, Jorden and Korus and a predecessor company. Each agreement provides +47 +Table of Contents +that +if the executive is terminated without cause following a change-in-control event (as defined in the agreement), the executive is entitled to a lump-sum payment +equal to two times the executive's base salary at the time of the change in control. Benefits payable under these agreements are forfeited if the NEO receives benefits under any other +change-in-control plan, including the Cimarex Energy Co. Change in Control Severance Plan. +As +a practical matter, the "change-in-control" benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described +above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. +Change in Control – No Termination +The following describes potential payments to the CEO and NEOs in the event of a change-in-control event without employment +termination: +Name +Restricted +Stock and +Stock Units (1) +Options +280G Tax +Gross Up (2) +Total +Benefits +F. H. Merelli, CEO +$ +19,476,600 +$ +– +$ +– +$ +19,476,600 +Paul Korus +$ +9,738,300 +$ +– +$ +2,348,754 +$ +12,087,054 +Thomas E. Jorden +$ +9,738,300 +$ +– +$ +2,209,287 +$ +11,947,587 +Joseph R. Albi +$ +9,738,300 +$ +– +$ +2,238,468 +$ +11,976,768 +Stephen P. Bell +$ +9,738,300 +$ +– +$ +2,285,794 +$ +12,024,094 +(1) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2010 of $96.37 per share. +(2) The +gross-up for the excise tax is with respect to the cash severance payment, the cash incentive and the restricted stock that +becomes vested upon a change in control, and employee benefits, all assuming a change in control occurred on December 31, 2010. The 20% excise tax is triggered only if the present value of the +listed benefits is equal to or greater than three times the average of the prior five years W-2 pay. Accordingly, the amounts are shown only for the named executive officers whose benefits +trigger the 20% excise tax. To determine the appropriate gross-up for excise tax, the following tax rates were used: 35% federal, 4.6% state, 20% excise and 1.45% Medicare. +Mr. Merelli's payments would not trigger a gross-up for excise tax. +The +Committee has the authority to accelerate vesting of any award made under our 2002 Stock Incentive Plan. The Committee has authorized acceleration of vesting in the event of a change in control in +all equity award agreements. +48 +Table of Contents +Potential Payments upon Termination – No Change in Control +Potential Payments upon Death or Disability +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock +Unit (2) +Options +Employee +Benefits (3) +Total Benefits +F. H. Merelli, CEO +$ +1,760,000 +$ +1,760,000 +$ +19,476,600 +$ +– +$ +529,351 +$ +23,525,951 +Paul Korus +$ +– +$ +– +$ +9,738,300 +$ +– +$ +218,072 +$ +9,956,372 +Thomas E. Jorden +$ +– +$ +– +$ +9,738,300 +$ +– +$ +445,367 +$ +10,183,667 +Joseph R. Albi +$ +– +$ +– +$ +9,738,300 +$ +– +$ +155,723 +$ +9,894,023 +Stephen P. Bell +$ +– +$ +– +$ +9,738,300 +$ +– +$ +311,745 +$ +10,050,045 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2010, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2010 services. +(2) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2010 of $88.53 per share. +(3) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +The +Committee has authorized acceleration of vesting of all equity awards in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or disability. +Potential Payments upon Termination Without Cause +Name +Severance (1) +Cash +Incentive (1) +Employee +Benefits (2) +Total +Benefits +F. H. Merelli, CEO +$ +1,760,000 +$ +1,760,000 +$ +529,351 +$ +4,049,351 +Paul Korus +$ +– +$ +– +$ +218,072 +$ +218,072 +Thomas E. Jorden +$ +– +$ +– +$ +445,367 +$ +445,367 +Joseph R. Albi +$ +– +$ +– +$ +155,723 +$ +155,723 +Stephen P. Bell +$ +– +$ +– +$ +311,745 +$ +311,745 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2010, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2010 services. +(2) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +In +September 2002 we assumed Mr. Merelli's employment agreement from a predecessor company. His agreement is for an indefinite term. The agreement provides that if Mr. Merelli's +employment is +49 +Table of Contents +terminated +because of (i) death or disability or (ii) without cause, he is entitled to continuation of his base salary for 24 months (reduced by long-term disability +benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan. "Without cause" includes a resignation by Mr. Merelli upon a change in his +place of employment from Denver, Colorado without his consent. Mr. Merelli agreed not to reveal any trade secret or confidence and to surrender all information containing trade secrets or +confidences. The confidentiality requirements of his employment agreement survive for three years following termination of employment. +Benefits +under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 15, 2011, there were 85,532,997 shares of common stock outstanding, with each +share entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 15, 2011, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the Named Officers, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned (1) +Option +Shares (2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +786,419 +422,400 +1,208,819 +1 +% +Joseph R. Albi +198,048 +0 +198,048 +<1 +% +Stephen P. Bell +200,000 +0 +200,000 +<1 +% +Thomas E. Jorden +219,695 +0 +219,695 +<1 +% +Paul Korus +202,490 +0 +202,490 +<1 +% +Directors +Jerry Box +10,488 +0 +10,488 +<1 +% +Hans Helmerich +73,885 +(3) +10,000 +83,885 +(3) +<1 +% +David A. Hentschel +24,100 +0 +24,100 +<1 +% +Paul D. Holleman +17,762 +0 +17,762 +<1 +% +Harold R. Logan, Jr. +5,695 +0 +5,695 +<1 +% +Monroe W. Robertson +14,677 +0 +14,677 +<1 +% +Michael J. Sullivan +14,242 +10,000 +24,242 +<1 +% +L. Paul Teague +59,826 +0 +59,826 +<1 +% +All executive officers and directors as a group (17 persons) +2,153,873 +442,400 +2,596,273 +3 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the +benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include deferred compensation units held by some directors. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following +March 15, 2011 under the Cimarex Energy Co. 2002 Stock Incentive Plan. +(3) Includes +11,450 shares owned by Mr. Helmerich's wife. Mr. Helmerich disclaims beneficial ownership of the shares held by his +wife. +50 +Table of Contents +Beneficial Owners of More than Five Percent +Each of the following stockholders beneficially owns five percent or more of our outstanding shares of common stock. The following table provides +information regarding their stock ownership and is based on their filings with the SEC. +Voting Authority +Dispositive Authority +Total +Amount of +Beneficial +Ownership +Percent of +Class +Name and Address +Sole +Shared +Sole +Shared +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +6,295,850 +0 +6,295,850 +0 +6,295,850 +7.4 +% +Capitol World Investors +333 South Hope Street +Los Angeles, CA 90071 +4,540,000 +0 +4,540,000 +0 +4,540,000 +5.4 +% +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our +independent auditor, subject to a specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the SEC may +not be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described below and the related fees were pre-approved by the Audit +Committee in 2009 and 2010. +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to +Cimarex: +Years Ended December 31, +2010 +2009 +Audit Fees +$ +935,000 +$ +910,000 +Audit-Related Fees +$ +5,100 +(1) +$ +32,000 +(1) +Tax Fees +$ +239,132 +(2) +$ +248,510 +(2) +All Other Fees +$ +0 +$ +0 +(1) Services +associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with +securities offerings, e.g. comfort letters and consents, and assistance in responding to SEC comment letters. +(2) Includes +review of federal and state tax returns and compliance issues. +Report of Audit Committee +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company's financial reporting; (ii) the +independent auditor's qualifications and independence; and (iii) the +51 +Table of Contents +performance +of the Company's internal auditors and independent auditor. In so doing, it is the responsibility of the Committee to maintain free and open communication between the directors, the +independent auditor and the management of the Company. All members of the Audit Committee meet the independence, experience and financial literacy requirements of the New York Stock Exchange, the +Sarbanes Oxley Act and any rules or regulations promulgated by the Securities and Exchange Commission. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is +available on our website at www.cimarex.com . +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and +issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes and uses internal audit to assist with these responsibilities. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2010 and met with both management and KPMG, Cimarex's independent registered public +accounting firm, to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. In addition, we have received from KPMG the communication required +by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Concerning Independence , and discussed with +KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by Statement on Auditing Standards No. 114. +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2010. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Harold R. Logan, Jr. +Michael J. Sullivan +OTHER MATTERS +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2010, we contracted with Helmerich & Payne for drilling rigs and services in arms' length transactions and as part of our ordinary course of business in +the same manner as we obtain services from other companies that provide similar services. From October 1, 2009 through September 30, 2010, we paid Helmerich & Payne, Inc. +$21,525,577 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and award +of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when compared to our total +drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and +52 +Table of Contents +(iii) his +relationship with Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our +common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we +believe that all reports were timely filed in 2010, except that a Form 5 was filed in February 2011 on behalf of Mr. Sullivan, a director, to report the sale in June 2010 of 1,300 shares +of Cimarex common stock. +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com . Any person, +whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or +anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to +communicate directly with non-management directors may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. +Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +Householding +The SEC's rules permit companies and intermediaries (such as brokers) to implement a delivery procedure known as "householding." Under this +procedure, multiple Cimarex stockholders who reside at the same address may receive a single set of proxy materials, unless one or more of the stockholders has provided contrary instructions. This +procedure reduces printing costs and postage fees, and saves natural resources. +If +you hold your shares in "street name" (your shares are held in a brokerage account or by a bank or other nominee), you may revoke your consent to householding at any time by writing to Broadridge, +Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Also, you can request information about householding from your broker or bank. +If +you are a stockholder of record (your shares are held in your own name and not held in a brokerage account), if you received a household mailing this year, and if you would like to have additional +copies mailed to you or if you would like to opt out of householding for future mailings, please send your written request to Continental Stock Transfer & Trust Company, 17 Battery +Place, 8 th Floor, New York, New York 10004 (phone: 888-509-5580). +53 +Table of Contents +APPENDIX A +CIMAREX ENERGY CO. +2011 STOCK INCENTIVE PLAN +Recitals +Cimarex Energy Co. adopted its 2002 Stock Incentive Plan on September 30, 2002 (the "2002 Plan"). The 2002 Plan's term +will expire on September 30, 2012. Upon stockholder approval of this 2011 Equity Incentive Plan, the Company will cease making grants of equity awards under the 2002 Plan, and, at that time, +all Awards will be made from this 2011 Equity Incentive Plan. All awards granted under the 2002 Plan will continue to be governed by that Plan. The unused shares reserved for issuance under the 2002 +Plan that are not subject to outstanding Awards will be cancelled. +ARTICLE I +PURPOSES +This 2011 Equity Incentive Plan (the "Plan") was established by Cimarex Energy Co. (the "Company") to create incentives that are +designed to focus Participants' efforts on the success and growth of the Company and to enable the Company to attract and retain experienced individuals who by their position, ability and diligence +are able to make important contributions to the Company's success. Toward these objectives, the Plan provides for the granting of Options, Restricted Stock Awards, Restricted Stock Unit Award, +Performance Stock Awards, Performance Stock Unit Awards and Other Stock Awards to Eligible Employees and Directors subject to the conditions set forth in the Plan. +ARTICLE II +DEFINITIONS +The following terms shall have the meanings set forth below: +SECTION 2.1 "Affiliated Entity" means any partnership or limited liability company in which at least 50% thereof is +owned or controlled, directly or indirectly, by the Company or one or more of its Subsidiaries or Affiliated Entities or a combination thereof. For purposes hereof, the Company, a Subsidiary or an +Affiliated Entity shall be deemed to have an interest of at least 50% in a partnership or limited liability company if the Company, a Subsidiary or Affiliated Entity shall be allocated at least 50% of +partnership or limited liability company gains or losses of the partnership or limited liability company. For purposes of Incentive Stock Options granted pursuant to the Plan, an "Affiliated Entity" +means any current or future parent or subsidiary of the Company as defined in Section 424 of the Code. +SECTION 2.2 "Award" or "Stock Award" means, individually or +collectively, any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, Performance Stock Unit Award or Other Stock Award granted under the Plan to an Eligible Employee +or Director pursuant to terms, conditions, restrictions, and/or limitations, if any, as the Committee may establish by the Award Agreement or otherwise. +SECTION 2.3 "Award Agreement" means any written instrument that establishes the terms, conditions, restrictions, +and/or limitations applicable to an Award in addition to those established by this Plan and by the Committee's exercise of its administrative powers. +SECTION 2.4 "Board" means the Board of Directors of the Company. +A-1 +Table of Contents +SECTION 2.5 "Change of Control Event" means the occurrence of any of the following events on or after the Effective +Date of this Plan, provided that in the event that Section 409A of the Code applies to payments under this Plan, a Change of Control shall be deemed to have occurred only if the event is also a +change in control within the meaning of Section 409A of the Code and the regulations and other guidance promulgated thereunder or not inconsistent therewith. +(i) The +acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership +(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (x) the then outstanding shares of Common Stock (the "Outstanding Company +Common stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting +Securities"); provided, however , that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control +Event: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or +maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction that is described in clauses (A) and +(B) of paragraph (iii) below; or +(ii) During +any period of twelve months beginning after the Effective Date, individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease +for any reason to constitute at least a majority of the Board; provided, however , that any individual becoming a Director at the beginning of such +twelve-month period, whose election, appointment or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent +Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of +an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than +the Board; or +(iii) The +closing of a reorganization, share exchange or merger (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or +substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Voting Securities immediately prior to such +Business Combination will beneficially own, directly or indirectly, more than 40% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding +voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation +which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of +the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be and (B) at least a majority of the members of the board of directors of the corporation +resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business +Combination or were elected, appointed or nominated by the Board; or +(iv) The +closing of (1) a complete liquidation or dissolution of the Company or, (2) the sale or other disposition of all or substantially all of the assets +of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 40% of, respectively, the then outstanding shares of common stock of +such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, +directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting +Securities immediately prior to such sale or other disposition in +A-2 +Table of Contents +substantially +the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the +case may be, and (B) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, +or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board. +SECTION 2.6 "Code" means the Internal Revenue Code of 1986, as amended. References in the Plan to any section of the +Code shall be deemed to include any amendments or successor provisions to the section and any regulations under the section. +SECTION 2.7 "Committee" means the Company's Compensation and Governance Committee. If applicable, the Committee shall +be so constituted at all times as to permit the Plan and Awards made under the Plan to comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. Except as +provided in Sections 3.2 and 3.3, the Committee shall select Participants from Eligible Employees and shall determine the awards to be made pursuant to the Plan and the terms and conditions +thereof. +SECTION 2.8 "Common Stock" means the common stock, par value $0.01 per share, of the Company and other stock as may be +substituted for the common stock as provided in Article IX. +SECTION 2.9 "Company" means Cimarex Energy Co., a Delaware corporation. +SECTION 2.10 "Date of Grant" means the date on which the granting of an Award to a Participant is authorized by the +Committee or a later date as specified by the Committee in its authorization. +SECTION 2.11 "Director" means any person who is a member of the Board and is not an employee of the Company, a +Subsidiary or an Affiliated Entity. +SECTION 2.12 "Disability" means a Participant who: +(i) is +unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death +or can be expected to last for a continuous period of not less than 12 months; or +(ii) is, +by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period +of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company. +SECTION 2.13 "Effective Date" of the Plan is +, the date on which it was +approved by the stockholders of the Company. +SECTION 2.14 "Eligible Employee" means any employee (including, without limitation, officers and directors who are +also employees) of the Company or a Subsidiary or an Affiliated Entity thereof. For purposes of the Plan, an employee is any individual who provides services to the Company or any Subsidiary or +Affiliated Entity thereof as a common law employee and whose remuneration is subject to the withholding of federal income tax pursuant to section 3401 of the Code. Employee shall not include +any individual (A) who provides services to the Company or any Subsidiary or Affiliated Entity thereof under an agreement, contract, or any other arrangement pursuant to which the individual is +initially classified as an independent contractor or (B) whose remuneration for services has not been treated initially as subject to the withholding of federal income tax pursuant to +section 3401 of the Code even if the individual is subsequently reclassified as a common law employee as a result of a final decree of a court of competent jurisdiction or the settlement of an +administrative or judicial proceeding. Leased employees shall not be treated as employees under this Plan. +A-3 +Table of Contents +SECTION 2.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended. +SECTION 2.16 "Fair Market Value" means (i) during the time the Common Stock is listed upon the New York Stock +Exchange or other exchanges or the Nasdaq Stock Market, the average of the highest and lowest sales prices of the Common Stock as reported by the stock exchange or exchanges or the Nasdaq Stock Market +on the day for which the value is to be determined, or if no sale of the Common Stock shall have been made on any stock exchange or the Nasdaq Stock Market that day, on the next preceding day on which +there was a sale of the Common Stock or (ii) during any time as the Common Stock is not listed upon an established stock exchange or the Nasdaq Stock Market, the mean between dealer "bid" and +"ask" prices of the Common Stock in the over-the-counter market on the day for which the value is to be determined, as reported by the National Association of Securities +Dealers, Inc., or such other source as the Committee deems reliable. If, upon exercise of an Option, the exercise price is paid by a broker's transaction, Fair Market Value, for purposes of the +exercise, shall be the price at which the Common Stock is sold by the broker. +SECTION 2.17 " Full Value Award" means a Stock Award other than an Option. +SECTION 2.18 " Incentive Stock Option" means an Option designated as such that is intended to meet the requirements of +Section 422 of the Code. +SECTION 2.19 "Inside Director" means any person who is a member of the Board and is also an employee of the Company, a +Subsidiary or an Affiliated Entity. +SECTION 2.20 "Non-Employee Director" generally means a Director who is not (i) an officer of or +otherwise employed by the Company or one of its Subsidiaries, (ii) a Director who is engaged in a business relationship for which disclosure would be required by the rules and regulations +promulgated by the Securities and Exchange Commission or (iii) a Director who does not otherwise qualify as a Non-Employee Director under Rule 16b-3 of the +Exchange Act or any interpretations promulgated thereunder. +SECTION 2.21 "Nonqualified Stock Option" means an Option that is not an Incentive Stock Option. +SECTION 2.22 "Option" means an option to purchase one or more shares of Common Stock at a stated or formula price for +a specified period of time. An Option granted under the Plan shall be either an Incentive Stock Option or a Nonqualified Stock Option. +SECTION 2.23 "Other Stock Award" means an Award based in whole or in part by reference to the Common Stock which is +granted pursuant to Article VIII of the Plan. +SECTION 2.24 "Participant" means an Eligible Employee or Director of the Company, a Subsidiary, or an Affiliated +Entity to whom an Award has been granted by the Committee under the Plan. +SECTION 2.25 "Performance Award" means either a Performance Stock +Award or a Performance Stock Unit Award. +SECTION 2.26 "Performance Criteria" means the one or more measures of performance that the Committee shall select for +purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that shall be used to establish Performance Goals may be based on any one of, or combination of, +specific measures of performance such as (i) financial metrics (including, earnings per share; earnings before interest, taxes, depreciation and amortization; return on equity; or return on +assets, investment or capital employed); (ii) operational metrics (including, reserve replacement, increase in production, or rate of return on exploration capital); or (iii) stock +performance measures (including, relative stock price performance); or (iv) to the extent that a Stock Award is not intended to comply with Section 162(m) of the Code, other measures of +performance selected by the +A-4 +Table of Contents +Board, +including individual performance measures. Partial achievement of the specified criterion or criteria may result in payment or vesting corresponding to the degree of achievement as specified in +the Award Agreement. The Committee shall, in its sole discretion, define the manner of calculating the Performance Criteria it selects to use for the Performance Period. +SECTION 2.27 "Performance Goals" means, for a Performance Period, the one or more goals established by the Committee +for the Performance Period based upon the attainment of the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, +divisions, an Affiliate Entity, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant +indices. At the time of the grant of any Stock Award, the Committee is authorized to determine whether, when calculating the attainment of Performance Goals for a Performance Period: (i) to +exclude restructuring and/or other nonrecurring charges; (ii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; +(iii) to exclude the effects of any statutory adjustments to corporate tax rates; and (iv) to exclude the effects of any "extraordinary items" as determined under generally accepted +accounting principles. +SECTION 2.28 "Performance Period" means one or more periods of time, not to exceed ten years, which may be of varying +and overlapping duration, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to and the +payment of a Performance Award. +SECTION 2.29 "Performance Stock Award" means an Award denominated in shares of Common Stock which is granted pursuant +to Article VII of the Plan. +SECTION 2.30 "Performance Stock Unit Award" means an Award in the form of a bookkeeping entry representing a right +granted to a Participant to receive a share of Common Stock or a payment equal to the value of a share of Common Stock which is granted pursuant to Article VII of the Plan. +SECTION 2.31 "Restricted Stock Award" means an Award of shares of Common Stock which is granted to a Participant +pursuant to Article VI of the Plan and may include a Performance Stock Award as described in Article VII. +SECTION 2.32 "Restricted Stock Unit Award" means an Award in the form of a bookkeeping entry representing a right +granted to a Participant to receive a share of Common Stock or a payment equal to the value of a share of Common Stock which is granted pursuant to Article VI of the Plan and may include a +Performance Stock Unit Award as described in Article VII. +SECTION 2.33 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or +any successor to Rule 16b-3, as in effect from time to time. +SECTION 2.34 "Subsidiary" shall have the same meaning set forth in Section 424 of the Code. +ARTICLE III +PLAN ADMINISTRATION +SECTION 3.1 Administration of the Plan; the Committee. The Committee shall have +overall authority to administer the Plan. Unless otherwise provided in the by-laws of the Company or the resolutions adopted from time to time by the Board establishing the Committee, the +Board may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Committee shall determine the times and +places of its meetings. A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present or acts +reduced to or approved in writing by all of the members of the Committee shall be the valid acts of the Committee. +A-5 +Table of Contents +Subject +to the provisions of the Plan, the Committee shall have exclusive power to: +(i) Select +the Participants to be granted Awards. +(ii) Determine +the time or times when Awards will be made. +(iii) Determine +the form of an Award, the number of shares of Common Stock subject to the Award, all the terms, conditions (including performance requirements), +restrictions and/or limitations, if any, of an Award, including the time and conditions of exercise or vesting, and the terms of any Award Agreement, which may include the waiver or amendment of prior +terms and conditions. +(iv) Determine +whether Awards will be granted singly or in combination. +(v) Construe +and interpret the Plan and Awards granted under it, and establish, amend and revoke rules and regulations for administration of the Plan. The Committee, in the +exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan or +Stock Award fully effective. +(vi) Accelerate +the vesting, exercise or payment of an Award or the performance period of an Award, but not the exercise or payment of any Award that may be deemed +nonqualified deferred compensation as defined by Section 409A of the Code. +(vii) Approve +forms of Award Agreements for use under the Plan and amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide +terms more favorable than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Committee discretion; provided, +however, that the rights under any Stock Award shall not be impaired by any amendment unless the affected Participant consents to the impairment in writing. Notwithstanding the +foregoing, subject to the limitations of applicable law, if any, the Committee may amend the terms of any one or more Stock Awards without the affected Participant's consent if necessary to maintain +the qualified status of the Stock Award as an Incentive Stock Option or to bring the Stock Award into compliance with Section 409A of the Code and the related guidance thereunder. +(viii) Take +any and all other action it deems necessary or advisable for the proper operation or administration of the Plan. +SECTION 3.2 Administration of Grants to Directors. The Board shall have the +exclusive power to select the Directors who may participate in the Plan and to determine the number of shares of Common Stock subject to Nonqualified Stock Options, Restricted Stock Awards, or +Restricted Stock Unit Awards to be granted to Directors selected for participation in the Plan. The Committee shall administer all other aspects of Awards made to Directors. With respect to Awards +made by the Board to the Directors, all references in the Plan to the Committee's exercise of authority in selecting Participants and determining the number of shares subject to an Award shall be +construed to include the Board. +SECTION 3.3 Delegation to Inside Directors. To the extent permitted by law, the +Committee may delegate to a subcommittee of one or more Inside Directors the authority to grant Stock Awards to Eligible Employees who are not (i) executive officers within the meaning of +Rule 16b-3, (ii) "Covered Employees" within the meaning of Section 162(m) of the Code, or (iii) Non-Employee Directors. The Stock Awards shall be +subject to the restrictions and conditions imposed by the Committee. To the extent that the Committee has delegated the authority to determine certain terms and conditions of an Award, all references +in the Plan to the Committee's exercise of authority in determining the terms and conditions shall be construed to include the Inside Director(s) to whom the Committee has delegated the power and +authority to make the determination. +A-6 +Table of Contents +ARTICLE IV +SHARES AVAILABLE FOR THE PLAN AND AWARD LIMITS +SECTION 4.1 Share Authorization. Subject to adjustment as provided in +Article IX, the maximum aggregate number of shares of Common Stock that may be issued under this Plan shall be 5,300,000 shares. Not more than 2,500,000 shares of Common Stock may be issued +under the Plan pursuant to the exercise of Incentive Stock Options. +SECTION 4.2 Flexible Share Pool. For each share of Common Stock covered by the +grant of a Full Value Award, the number of shares of Common Stock available for grant under this Plan shall be reduced by 2.34 shares, and for each share of Common Stock covered by the grant of an +Award other than a Full Value Award, the number of shares of Common Stock available for grant under this Plan shall be reduced by one share. +SECTION 4.3 Share Usage. If any (i) Stock Award expires or otherwise +terminates, in whole or in part, without having been exercised in full, (ii) shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited to the Company because of the +failure to meet a contingency or condition required for the vesting of the shares, or (iii) Stock Award is settled in cash, then the shares of Common Stock not issued under the Stock Award, or +forfeited to the Company, shall again become available for issuance under the Plan. If any shares of Common Stock subject to a Stock Award are not delivered to a Participant because the shares are +withheld for the payment of taxes or the Stock Award is exercised through a reduction of shares subject to the Stock Award ( i.e. , "net exercised"), the +number of shares subject to the Stock Award that are not delivered to the Participant shall not be available for subsequent issuance under the Plan. If the exercise price of any Stock Award is +satisfied by tendering shares of Common Stock held by the Participant (either by actual delivery or attestation), then the number of shares so tendered shall not be available for issuance under the +Plan. To the extent there is issued a share of Common Stock pursuant to a Stock Award that counted as 2.34 shares against the number of shares available for issuance under the Plan pursuant to +Section 4.2 and this share of Common Stock again becomes available for issuance under the Plan pursuant to this Section 4.3, then the number of shares of Common Stock available for +issuance under the Plan shall increase by 2.34. +SECTION 4.4 Section 162(m) Award Limits. The following limits shall apply +to the grant of any Award if, at the time of grant, Cimarex is a "publicly held corporation" within the meaning of Section 162(m) of the Code: +(i) Options. Subject to adjustment as provided in Article IX, the maximum +aggregate number of shares of Common Stock for which grants of Options may be made to any Participant in any calendar year shall not exceed 1,000,000 shares. +(ii) Performance Awards. Subject to adjustment as provided in Article IX, the +maximum aggregate number of shares of Common Stock for which grants of Performance Awards may be made to any Participant in any calendar year shall not exceed 300,000 shares, assuming achievement at +the highest level under such Performance Award and the maximum amount that could be paid to a Participant for a cash-settled Performance Award during any calendar year shall not exceed +$5 million. +ARTICLE V +STOCK OPTIONS +SECTION 5.1 Grant of Options. The Committee may, from time to time, subject to +the provisions of the Plan and other terms and conditions as it may determine, grant Options to Eligible Employees. These Options may be Incentive Stock Options or Nonqualified Stock Options, or a +combination of both. The Board may, from time to time, subject to the terms of the Plan and other terms and conditions as it may determine, grant Nonqualified Stock Options to Directors. Each grant +A-7 +Table of Contents +of +an Option shall be evidenced by an Award Agreement delivered by the Company and accepted by the Participant, and shall contain terms and conditions and be in a form as the Committee may from time +to time approve, subject to the requirements of Section 5.2. +SECTION 5.2 Conditions of Options. Each Option so granted shall be subject to the +following terms and conditions: +(i) Term of Option. Any Option granted hereunder shall terminate as set forth in the +Award Agreement, provided, however , that no Option shall have a term that exceeds seven (7) years after the Date of +Grant, in each case, unless the Option is earlier terminated in accordance with its provisions, or the terms of the Plan. +(ii) Exercise Price. As limited by Section 5.2(vi) below, each Option shall +state the exercise price which shall be set by the Committee at the Date of Grant; provided, however, no Option shall be granted at an exercise price that is less than the Fair Market Value of the +Common Stock on the Date of Grant and further provided that the exercise price shall never be less than the Fair Market Value of the Common Stock on the Date of Grant within the meaning of +Section 409A of the Code. +(iii) Form of Payment. The exercise price of an Option may be paid (1) in cash +or by check, bank draft or money order payable to the order of the Company; (2) by delivering shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the +exercise price, but only to the extent the exercise of an Option would not result in an accounting compensation charge with respect to the shares used to pay the exercise price unless otherwise +determined by the Committee (or its designee), (3) payment through a transaction involving a licensed broker or dealer (acceptable to the Company) acting on behalf of the Option holder to sell +shares and deliver all or a part of the sales proceeds to the Company in payment of the exercise price and required tax withholding, subject to any additional requirements determined by the Committee +(or its designee), (4) payment of the exercise price and required tax withholding with shares of Common Stock acquired pursuant to the exercise of the Option (the Common Stock being valued at +Fair Market Value on the date of exercise), (5) a combination of the foregoing, or (6) any other method adopted by the Company and approved by the Committee. +(iv) Exercise of Options. Options granted under the Plan shall be exercisable, in whole +or in installments and at times, and shall expire at the time, as shall be provided by the Committee in the Award Agreement. Exercise of an Option shall be by written notice to the Company's Corporate +Secretary stating the election to exercise and the number of shares of Common Stock with respect to which the Option is being exercised. Every share of Common Stock acquired through the exercise of an +Option shall be deemed to be fully paid at the time of exercise and payment of the exercise price and applicable withholding taxes. The Committee shall make additional rules as it determines to be +necessary for the administration of the exercise of Options. +(v) Acceleration of Vesting . Upon the occurrence of a Change of +Control Event or the death or Disability of the Participant, the unvested portion of the Option shall become immediately and automatically vested. Upon a Change of Control Event, the Company or +successor or purchaser, as the case may be, may make adequate provision for the assumption of the outstanding Options or the substitution of new options for the outstanding Options on terms comparable +to the outstanding Options. The Committee may provide that any Options that are outstanding at the time the Change of Control Event is closed shall expire at the time of the closing so long as the +Participants are provided with at least 45 days advance notice of expiration. The Committee need not take the same action with respect to all outstanding Options. +(vi) Termination of Employment or Board Service. If a Participant's continuous +employment with the Company, a Subsidiary or an Affiliated Entity terminates on or after his 62nd birthday or as a result of the Participant's death or Disability, the Participant (or his +personal representative in the case +A-8 +Table of Contents +of +death) shall be entitled to purchase all or any part of the shares subject to any (i) vested Incentive Stock Option for a period of up to three months from the date of termination (one year +in the case of death or disability (as defined in Code section 22(e)(3)) in lieu of the three month period), and (ii) vested Nonqualified Stock Option during the remaining term of the +Option. If a Participant's continuous employment terminates for any other reason, the Participant shall be entitled to purchase all or any part of the shares subject to any vested Option for a period +of up to three months from the date of termination. The Committee shall determine and specify in the Award Agreement, the consequences of a termination of Board service with respect to Options granted +to Directors. In no event shall any Option be exercisable past the term of the Option. +(vii) Other Terms and Conditions . Among other conditions that may be imposed by the +Committee, if deemed appropriate, are those relating to (1) the period or periods and the conditions of exercisability of any Option; (2) the minimum periods during which Participants +must be employed by the Company, its Subsidiaries, or an Affiliated Entity, or must hold Options before they may be exercised; (3) the minimum periods during which shares acquired upon exercise +must be held before sale or transfer; (4) conditions under which the Options or shares may be subject to forfeiture; (5) the frequency of exercise or the minimum or maximum number of +shares that may be acquired at any one time; (6) the achievement by the Company of specified performance criteria; and (7) covenants relating to non-competition and +protection of business information and similar matters. +(viii) Special Restrictions Relating to Incentive Stock Options. Options issued in the +form of Incentive Stock Options shall only be granted to individuals who are Eligible Employees of the Company or a Subsidiary. Furthermore, Incentive Stock Options shall, in addition to being subject +to all applicable terms, conditions, restrictions and/or limitations established by the Committee, comply with the requirements of Section 422 of the Code, including, without limitation, the +requirement that the exercise price of an Incentive Stock Option not be less than 100% of the Fair Market Value of the Common Stock on the Date of Grant, and the requirement that the aggregate Fair +Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under +this Plan or any other plan of the Company or any Subsidiary) not exceed $100,000. Incentive Stock Options granted to a Participant who is the holder of record of 10% or more of the outstanding Common +Stock of the Company shall have an exercise price equal to or greater than 110% of the Fair Market Value of the Shares on Date of Grant of the Option, and shall not be exercisable after the expiration +of five years from the Date of Grant. +(ix) Application of Funds. The proceeds received by the Company from the sale of Common +Stock pursuant to Options will be used for general corporate purposes. +(x) Rights as a Stockholder. No Participant shall have any right as a stockholder with +respect to any share of Common Stock subject to an Option prior to purchase of the shares of Common Stock by exercise of the Option, including, but not limited to, the right to vote the shares or to +receive dividends or dividend equivalents. +SECTION 5.3 Transferability. +(i) No Lifetime Transfers. Except as provided in Section 5.3(iii), an Option +shall not be transferable by a Participant except by will or pursuant to the laws of descent and distribution. An Option shall be exercisable during the Participant's lifetime only by him or her, or +by a Participant's guardian or legal representative in the event of Disability. +During +the Participant's lifetime the Participant may not transfer an Incentive Stock Option under any circumstances. +(ii) No Assignment. No right or interest of any Participant in an Option granted +pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or +A-9 +Table of Contents +involuntarily +(e.g., a domestic relations order), or be subjected to any lien, directly or indirectly, by operation of law, or otherwise, including, execution, levy, garnishment, attachment, +pledge or bankruptcy, except as set forth above. +(iii) InterVivos Transfer to Certain Family Members. The Committee may provide at the +time of grant or thereafter that the Participant may transfer a Nonqualified Stock Option to a member of the Participant's immediate family, a trust of which members of the Participant's immediate +family are the only beneficiaries, or a partnership of which members of the Participant's immediate family or trusts for the sole benefit of the Participant's immediate family are the only partners +(the "InterVivos Transferee"). Immediate family means the Participant's spouse, issue (by birth or adoption), parents, grandparents, siblings (including half brothers and sisters and adopted siblings) +and nieces and nephews. No transfer shall be effective unless the Participant shall have notified the Company of the transfer in writing and has furnished to the Company a copy of the documents that +effect the transfer. The InterVivos Transferee shall be subject to all of the terms of this Plan and the Option, including, but not limited to, the vesting schedule, termination provisions, and the +manner in which the Option may be exercised. The Committee may require the Participant and the InterVivos Transferee to enter into an appropriate agreement with the Company providing for, among other +things, the satisfaction of required tax withholding with respect to the exercise of the transferred Option and the satisfaction of any Common Stock retention requirements applicable to the +Participant, together with other terms and conditions as may be specified by the Committee. Except to the extent provided otherwise in the agreement, the InterVivos Transferee shall have all of the +rights and obligations of the Participant under this Plan; provided that the InterVivos Transferee may not have any Common Stock withheld to +pay withholding taxes pursuant to Section 10.3 unless the agreement referred to in the preceding sentence specifically provides otherwise. The InterVivos Transferee may not exercise the Option +by using a broker's transaction. +SECTION 5.4 No Repricing. The Committee may not, without the approval of the +stockholders, cancel any outstanding option and replace it with a new option with a lower exercise price where the economic effect would be the same as reducing the exercise price of the cancelled +option, repurchase an option for cash or exchange an option for another type of award, or take any other action with respect to an option that would be treated as a "repricing" under applicable +accounting rules or under the rules of the SEC. +ARTICLE VI +RESTRICTED STOCK AWARDS AND +RESTRICTED STOCK UNIT AWARDS +SECTION 6.1 Grant of Restricted Stock Awards and Restricted Stock Unit +Awards. The Committee may, from time to time, subject to the provisions of the Plan and other terms and conditions as it may determine, grant a Restricted Stock +Award or a Restricted Stock Unit Award to any Eligible Employee. The Board may, from time to time, subject to the terms of the Plan and other terms and conditions as it may determine, grant a +Restricted Stock Award or a Restricted Stock Unit Award to Directors. Each grant shall be evidenced by an Award Agreement delivered by the Company and accepted by the Participant, and shall contain +terms and conditions and be in a form as the Committee may from time to time approve, subject to the requirements of this Article VI and may be evidenced in the manner as the Committee deems +appropriate, including, without limitation, a book-entry registration or issuance of a stock certificate or certificates. The grant shall be subject to the following terms and conditions: +A-10 +Table of Contents +(i) Restriction Period. Vesting of +each Restricted Stock Award +or Restricted Stock Unit Award shall require the holder to remain in the continuous employment (or Board service) of the Company, a Subsidiary, or an Affiliated Entity for a prescribed period (a +"Restriction Period"). The Committee shall determine the Restriction Period or Periods that shall apply to the shares of Common Stock covered by each Restricted Stock Award or Restricted Stock Unit +Award or portion thereof; provided, however , each Restricted Stock Award or Restricted Stock Unit Award granted to an Eligible Employee shall have a +minimum Restriction Period of at least three years. At the end of the Restriction Period, assuming the fulfillment of any other specified vesting conditions, the restrictions imposed by the Committee +shall lapse with respect to the shares of Common Stock covered by the Restricted Stock Award or Restricted Stock Unit Award or portion thereof. +(ii) Restrictions. The holder of a Restricted Stock Award or a Restricted Stock Unit +Award may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the shares of Common Stock represented by the Award during the applicable Restriction Period. The Committee may +impose other restrictions and conditions on any shares of Common Stock covered by the Award as it may deem advisable including, without limitation, restrictions under applicable Federal or state +securities laws and may legend any certificates representing Restricted Stock to provide appropriate notice of these restrictions. +(iii) Acceleration of Vesting. Upon the occurrence of a Change of Control Event or the +death or Disability of the Participant, the unvested portion of the Restricted Stock Award shall become immediately and +automatically vested and payable; the unvested portion of the Restricted Stock Unit Award shall become immediately and automatically vested and payable at the time provided in the following paragraph. +If +the Change of Control Event is also a "change in control" within the meaning of Section 409A of the Code, outstanding Restricted Stock Units shall be paid in full by delivery +of shares within 30 days after the closing of the transaction that constitutes the change in control. If, as a result of the Change of Control Event, the Common Stock has been changed or +exchanged for another kind of stock, Restricted Stock Units that provide for settlement in Common Stock shall be settled in the type of stock into which the Common Stock was changed or for which the +Common Stock was exchanged. If the Change of Control Event is not also a "change in control" within the meaning of Section 409A of the Code, the Company, or the successor or purchaser, as the +case may be, shall make adequate provision for the assumption of the Restricted Stock Units or the substitution of new Restricted Stock Units for the outstanding Restricted Stock Units on terms +comparable to the terms of the Award Agreement for the Restricted Stock Units. The assumed or substituted Restricted Stock Units shall be paid at the time provided in the original Award Agreement. +(iv) Rights as a Stockholder. During any Restriction Period, the Committee may, in its +discretion, restrict the stockholder rights of a holder of a Restricted Stock Award with respect to the shares, including, but not by way of limitation, the right to vote the shares and to receive +dividends. If any dividends or other distributions are paid in shares of Common Stock, all of these shares shall be subject to the same restrictions on transferability as the shares of Restricted +Stock with respect to which they were paid. +A +Participant holding a Restricted Stock Unit Award shall have no rights of a stockholder with respect to the Restricted Stock Unit Award. The Committee may provide in an Award +Agreement, in its discretion, that the holder of a Restricted Stock Unit Award shall be entitled to receive dividend equivalents, subject to, and in accordance with, the requirements of +Section 409A of the Code. +SECTION 6.2 Section 409A. All payments with respect to a Restricted Stock +Unit Award shall be made in compliance with Section 409A of the Code. +A-11 +Table of Contents +ARTICLE VII +PERFORMANCE AWARDS +SECTION 7.1 Grant of Performance Awards. The Committee may, from time to time, +subject to the provisions of the Plan and other terms and conditions as it may determine, grant a Performance Award that may be either a Performance Stock Award or a Performance Stock Unit Award. +These Awards are subject to the same Restriction Period and Restrictions as described in Section 6.1(i) and (ii) and are further subject to the additional terms and conditions described +in subparagraphs (i) through (v) of this Section 7.1. Each grant of a Performance Award shall be evidenced by an Award Agreement delivered by the Company and accepted by the +Participant, and shall contain terms and conditions and be in a form as the Committee may from time to time approve, subject to the requirements of this Article VII and may be evidenced in the +manner as the Committee deems appropriate, including, without limitation, a book-entry registration or issuance of a stock certificate or certificates. The grant shall be subject to the +following terms and conditions: +(i) Establishment of Performance Period, Performance Criteria and Performance Goals. In +granting each Performance Award, the Committee shall establish the applicable Performance Period and the Performance Criteria to be used to establish the Performance Goals which, when measured at the +end of the Performance Period, shall determine the final value of the Performance Award to be paid to the Participant. The Company shall notify each Participant granted a Performance Award of the +terms of such Award, including the Performance Period and the Performance Goals. +(ii) Qualifying Performance-Based Awards. To the extent compliance with the +requirements under Section 162(m) of the Code with respect to qualifying "performance-based compensation" is desired, the Committee or a sub-committee thereof shall be comprised +solely of two or more "outside directors" as determined under Section 162(m). The Committee shall designate the applicable business Performance Criteria and pre-establish one or +more objective Performance Goal(s) applicable to each Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance +Period or (b) the date on which 25% of the Performance Period has elapsed, and, in any event, at a time when the outcome of the Performance Goals remains substantially uncertain. Once +established, the Performance Goals shall not be changed during the Performance Period. The class of employees eligible to receive qualifying performance-based awards is all Eligible Employees, the +business criteria upon which the Performance Goals may be based are the business Performance Criteria set forth in Section 2.26(i) through (iii) of the Plan, and the maximum number of +shares and maximum amount of compensation that could be paid to an Eligible Employee during a specified period are set forth in Section 4.4 of the Plan. +(iii) Settlement of Performance Awards. As soon as practicable following the completion +of the Performance Period applicable to a Performance Award, the Committee shall certify in writing the +extent to which the applicable Performance Goals have been attained and resulting final value of the Award earned by the Participant and to be paid upon its settlement. As soon as practicable +following the Committee's determination and certification in accordance with this Section 7.1(iii), payment shall be made to each eligible Participant (or such Participant's legal +representative or other person who acquired the right to receive such payment by reason of the Participant's death) of the final value of the Participant's Performance Award. +(iv) Acceleration of Vesting. Upon the occurrence of a Change of Control Event or the +death or Disability of the Participant, the unvested portion of a Performance Stock Award shall become immediately and automatically vested and payable, and the unvested portion of a Performance Stock +Unit Award shall become immediately and automatically vested and payable at the time provided in the following paragraph. The Committee may in its discretion adjust the Performance Period to take into +account the date of the Change of Control Event or the date of the death or Disability of the Participant. Notwithstanding the foregoing, for Performance Awards intended as qualifying +A-12 +Table of Contents +performance-based +awards, any accelerated vesting or payout shall be subject to such adjustment as required by Section 162(m) of the Code. +If +the Change of Control Event is also a "change in control" within the meaning of Section 409A of the Code, outstanding Performance Stock Units shall be paid in full within +30 days after the closing of the transaction that constitutes the change in control. If, as a result of the Change of Control Event, the Common Stock has been changed or exchanged for another +kind of stock, Performance Stock Units that provide for settlement in Common Stock shall be settled in the type of stock into which the Common Stock was changed or for which the Common Stock was +exchanged. If the Change of Control Event is not also a "change in control" within the meaning of Section 409A of the Code, the Company, or the successor or purchaser, as the case may be, shall +make adequate provision for the assumption of the Performance Stock Units or the substitution of new Performance Stock Units for the outstanding Performance Stock Units on terms comparable to the +terms of the Award Agreement for the Performance Stock Units. The assumed or substituted Performance Stock Units shall be paid at the time provided in the original Award Agreement. +(v) Rights as a Stockholder. During any Restriction Period, the Committee may, in its +discretion, restrict the stockholder rights of a holder of a Performance Stock Award with respect to the shares, including, but not by way of limitation, the right to vote the shares and to receive +dividends. If the Committee grants the right to receive dividends, the Company shall accrue dividends on the shares subject to the Performance Stock Award for each dividend record date occurring +during the Performance Period; provided, however , that dividends shall only be paid to the holder at the time of vesting and only with respect to the +shares that are issued upon attainment of the Performance Goals. If any dividends or other distributions are paid in shares of Common Stock, all of these shares shall be subject to the same +restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. +A +Participant holding a Performance Stock Unit Award shall have no rights of a stockholder with respect to the Performance Stock Unit Award. The Committee may provide in an Award +Agreement, in its discretion, that the holder of a Performance Stock Unit Award shall be entitled to receive dividend equivalents, subject to, and in accordance with, the requirements of +Section 409A of the Code. If the Committee grants the right to receive dividend equivalents, the Company shall accrue dividend equivalents on the shares subject to the Performance Stock Unit +Award for each dividend record date occurring during the Performance Period; provided, however , that dividend equivalents shall only be paid to the +holder at the time of vesting and only with respect to the shares that are issued upon attainment of the Performance Goals. If any dividends or other distributions are paid in shares of Common Stock, +all of these shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. +SECTION 7.2 Section 409A. All payments with respect to Performance Stock +Units shall be made in compliance with Section 409A of the Code. +ARTICLE VIII +OTHER STOCK AWARDS +Other Stock Awards based on a share of Common Stock may be granted either alone or in addition to Options, Restricted Stock, Restricted +Stock Units and Performance Awards provided for under the Plan. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Eligible Employees to whom +and the time or times at which Other Stock Awards may be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to the Other Stock Awards and all other +terms and conditions of the Other Stock Awards. +A-13 +Table of Contents +ARTICLE IX +STOCK ADJUSTMENTS +SECTION 9.1 Adjustments for Certain Corporate Events. If the shares of Common +Stock, as presently constituted as of the Effective Date, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another +corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock split, spinoff, combination of shares or otherwise), or if the number of shares of Common Stock shall +be increased through the payment of a stock dividend, or a dividend on the shares of Common Stock or rights or warrants to purchase securities of the Company shall be issued to holders of all +outstanding Common Stock, then there shall be substituted for or added to each share available under and subject to the Plan, and each share theretofore appropriated under the Plan, the number and +kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each share shall be exchanged or to which each share shall be entitled, +as the case may be, on a fair and equivalent basis in accordance with the applicable provisions of Section 424 of the Code; provided, however , +with respect to Options, in no event will the adjustment result in a modification of any Option as defined in Section 424(h) of the Code or as otherwise permitted under Section 409A of +the Code. +SECTION 9.2 Other Adjustments. In the event there shall be any other change in +the number or kind of the outstanding shares of Common Stock, or any stock or other securities into which the Common Stock shall have been changed or for which it shall have been exchanged, then if +the Committee shall, in its sole discretion, determine that the change equitably requires an adjustment in the shares available under and subject to the Plan, or in any Award (other than a Restricted +Stock Unit or Performance Stock Unit), theretofore granted, these adjustments shall be made in accordance with the Committee's determination. Any adjustment in Options shall be made in accordance with +Section 424 of the Code. No adjustment of the number of shares of Common Stock available under the Plan or to which any Award relates that would otherwise be required (other than with respect +to Options) shall be made unless and until the adjustment either by itself or with other adjustments not previously made would require an increase or decrease of at least 1% in the number of shares of +Common Stock available under the Plan or to which any Award relates immediately prior to the making of the adjustment (the "Minimum Adjustment"). Any adjustment representing a change of less than the +minimum amount shall be carried forward and made as soon as the adjustment together with other adjustments required by this Article IX and not previously made would result in a Minimum +Adjustment. Notwithstanding the foregoing, any adjustment required by this Article IX which otherwise would not result in a Minimum Adjustment shall be made with respect to shares of Common +Stock relating to any Award immediately prior to exercise, payment or settlement of the Award. +SECTION 9.3 Fractional Shares. No fractional shares of Common Stock or units of +other securities shall be issued pursuant to an adjustment, and any fractions resulting from any adjustment shall be eliminated in each case by rounding downward to the nearest whole share. +SECTION 9.4 409A Savings Clause. No Option shall be adjusted under this +Article IX in a manner that would cause the Option to become subject to Section 409A of the Code. The provisions of Section 9.2 shall not apply to Restricted Stock Units or +Performance Stock Units. +ARTICLE X +GENERAL +SECTION 10.1 Amendment or Termination of Plan. Subject to the remaining +provisions of this Section 10.1, the Plan shall terminate ten (10) years from the date of approval of the Plan by the stockholders. The Board may alter, suspend or terminate the Plan at +any time. In addition, the Board +A-14 +Table of Contents +may, +from time to time, amend the Plan in any manner, but may not without stockholder approval adopt any amendment that would (i) increase the aggregate number of shares of Common Stock +available under the Plan (except by operation of Article IX) or (ii) modify any provision of the Plan that would materially increase the benefit or rights of any Participant in the Plan. +SECTION 10.2 Withholding Taxes. A Participant shall pay the amount of taxes +required by law to be withheld by the Company upon the exercise of an Option, vesting, lapse of restrictions, issuance of shares or payment of any kind with respect to Awards granted under the Plan in +cash or as otherwise permitted in this Section 10.2. Unless otherwise paid by the Participant, the Company shall be entitled to deduct from any payment otherwise due to a Participant, +regardless of the form of payment, the amount of all applicable federal, state, local, domestic or foreign taxes required by law to be withheld. In accordance with any applicable administrative +guidelines it establishes, the Committee may allow a Participant to pay the amount of taxes required to be withheld from an Award by (i) directing the Company to withhold from any payment of +the Award a number of shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the required withholding taxes or (ii) delivering to the Company previously +owned shares of Common Stock having a Fair Market Value on the date of payment equal to the amount of the required withholding taxes; provided, the +foregoing notwithstanding, any payment made by the Participant pursuant to either of the foregoing clauses (i) or (ii) shall not be permitted if it would result in an accounting charge +with respect to the shares used to pay the taxes unless otherwise approved by the Committee (or its delegate). +SECTION 10.3 Amendments to Awards. The Committee may at any time unilaterally +amend the terms of any Award Agreement, whether or not presently exercisable or vested, to the extent it deems appropriate; provided, however , that any +amendment that is materially adverse to the Participant shall require the Participant's consent. +SECTION 10.4 Corporate Action Constituting Grant of Stock Awards. Corporate +action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of the +corporate action, unless otherwise determined by the Committee, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or +accepted by, the Participant. +SECTION 10.5 Electronic Delivery. Any reference herein to a "written" agreement +or document shall include any agreement or document delivered electronically or posted on Participant's internet account with the brokerage firm employed by the Company. +SECTION 10.6 No Obligation to Notify. The Company has no duty or obligation to +any holder of a Stock Award to advise the holder as to the time or manner of exercising a Stock Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise the holder +of a pending termination of expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a +Stock Award to the holder of a Stock Award. +SECTION 10.7 Changes in Accounting Rules. Except as provided otherwise at the +time an Award is granted, notwithstanding any other provision of the Plan to the contrary, if, during the term of the Plan, any changes in the financial or tax accounting rules applicable to Options, +Restricted Stock Awards, Restricted Stock Unit Awards, Performance Stock Awards, Performance Stock Unit Awards or Other Stock Awards shall occur which, in the sole judgment of the Committee, may have +a material adverse effect on the reported earnings, assets or liabilities of the Company, the Committee shall have the right and power to modify as necessary, any then outstanding and unexercised +Options, outstanding Restricted Stock Awards, Restricted Stock Unit Awards, Performance Stock Awards, Performance Stock Unit Awards or Other Stock Awards as to which the applicable services or other +restrictions have not +A-15 +Table of Contents +been +satisfied, provided that no Option shall be modified in a manner that would cause it to become subject to Section 409A of the Code. +SECTION 10.8 Investment Representations. The Company may require a Participant, +as a condition of exercising an Award or receiving an Award, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that the Participant is +acquiring the Common Stock for his own account for investment and not with any present intention of selling or otherwise distributing the same, including other representations or assurances that the +Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. To the extent stock certificates may be issued, a legend evidencing these restrictions may +be placed on the stock certificate. +SECTION 10.9 Regulatory Approval and Listings. The Company shall use its best +efforts to file with the Securities and Exchange Commission as soon as practicable, and keep continuously effective, a Registration Statement on Form S-8 with respect to shares of +Common Stock subject to +Awards hereunder. Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue shares of Common Stock under this Plan prior to: +(i) the +obtaining of any approval from, or satisfaction of any waiting period or other condition imposed by, any governmental agency which the Committee shall, in its sole +discretion, determine to be necessary or advisable; +(ii) the +admission of the shares to listing on the stock exchange on which the Common Stock may be listed; and +(iii) the +completion of any registration or other qualification of the shares under any state or Federal law or ruling of any governmental body that the Committee shall, in +its sole discretion determine to be necessary or advisable. +SECTION 10.10 Right to Continued Employment. Participation in the Plan shall not +give any Participant any right to remain in the employ of the Company, any Subsidiary, or any Affiliated Entity. The Company or, in the case of employment with a Subsidiary or an Affiliated Entity, +the Subsidiary or Affiliated Entity, reserves the right to terminate the employment of any Participant at any time. Further, the adoption of this Plan shall not be deemed to give any Eligible +Employee, Director or any other individual any right to be selected as a Participant or to be granted an Award. +SECTION 10.11 Reliance on Reports. Each member of the Committee and each member +of the Board shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of the Company and its Subsidiaries and upon any other information +furnished in connection with the Plan by any person or persons other than himself or herself. In no event shall any person who is or shall have been a member of the Committee or of the Board be liable +for any determination made or other action taken or any omission to act in reliance upon any report or information or for any action taken, including the furnishing of information, or failure to act, +if in good faith. +SECTION 10.12 Section 409A Savings Clause. It is the intention of the +Company that Awards granted under this Plan not be subject to the additional tax imposed by Section 409A of the Code, and the provisions of this Plan shall be construed and administered in +accordance with this intent. To the extent these Awards could become subject to Code Section 409A, the Company shall be entitled to amend the Plan or the Award with the goal of giving the +Participants the economic benefits described herein in a manner that does not result in additional tax being imposed. +SECTION 10.13 Rule 16b-3 of the Exchange Act and Section 162(m) of the +Code. The Company's intention is that the Plan shall comply, when applicable, in all respects with the rules of any exchange on which the Common Stock is traded +and with Rule 16b-3 of the Exchange Act. In addition, the +A-16 +Table of Contents +provisions +of the Plan are intended to permit the Performance Stock Awards and Performance Stock Unit Awards to qualify as performance-based compensation under Section 162(m) of the Code. If +any Plan provision is determined not to be in compliance with the foregoing intentions, that provision shall be deemed modified as necessary to meet the requirements of any such exchange, +Rule 16b-3 and Section 162(m). +SECTION 10.14 Clawbacks. In order to comply with applicable laws, rules or +regulations, the Committee may elect to provide for the forfeiture of Awards made to Participants and may provide in an Award Agreement or otherwise that a Participant's rights, payments and benefits +with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of specified events. +SECTION 10.15 Construction. Masculine pronouns and other words of masculine +gender shall refer to both men and women. The titles and headings of the sections in the Plan are for the convenience of reference only, and in the event of any conflict, the text of the Plan, rather +than titles or headings, shall control. +SECTION 10.16. Governing Law. The validity and construction of this Plan and the +Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware, other than any conflicts or choice of law rule or principle that might otherwise refer +construction or interpretation of this Plan and the Award Agreements to the substantive laws of any other jurisdiction. +A-17 +CIMAREX ENERGY CO. +VOTE BY INTERNET OR TELEPHONE +QUICK *** EASY *** IMMEDIATE +As a stockholder of Cimarex Energy Co., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return +the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically +over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 17, 2011. +[Computer Icon] +[Phone Icon] +[Mail Icon] +Vote Your Proxy on the Internet: +Vote Your Proxy by Phone: +Call 1 (866) 894-0537 +Vote Your Proxy by mail: +Go to www.cstproxy.com +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +OR +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +OR +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE +VOTING ELECTRONICALLY OR BY PHONE +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED "FOR" ALL THE NOMINEES LISTED UNDER PROPOSAL 1, FOR PROPOSALS 2, 4 +AND 5 AND FOR "3 YEARS" UNDER PROPOSAL 3. +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Please mark +your votes +like this +ý +The Board of Directors recommends a vote FOR all the nominees listed below. +1. +Election of three Class III directors: +FOR +AGAINST +ABSTAIN +(01) Hans Helmerich +o +o +o +FOR +AGAINST +ABSTAIN +(02) Harold R. Logan, Jr. +o +o +o +FOR +AGAINST +ABSTAIN +(03) Monroe W. Robertson +o +o +o +The Board of Directors recommends you vote FOR the following proposal: +FOR +AGAINST +ABSTAIN +2. +Advisory vote to approve executive compensation +o +o +o +The Board of Directors recommends you vote for 3 Years: +1 YEAR +2 YEARS +3 YEARS +ABSTAIN +3. +Advisory vote to approve executive compensation +o +o +o +o +The Board of Directors recommends you vote FOR the following proposals: +FOR +AGAINST +ABSTAIN +4. +Approve the Cimarex Energy Co. 2011 Equity Incentive Plan +o +o +o +FOR +AGAINST +ABSTAIN +5. +Ratify the appointment of KPMG LLP as our independent Auditors for 2011 +o +o +o +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature +Signature +Date +, 2011. +Note: +Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give title as such. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY, 18, 2011. +THE PROXY STATEMENT AND OUR 2010 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT: HTTP://WWW.CSTPROXY.COM/CIMAREX/2011 +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints F.H. Merelli and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to +represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if +present at the Annual Meeting of Stockholders to be held May 18, 2011, or any adjournment thereof. +For +participants in the Cimarex 401(k) Plans, this proxy, when properly executed, will be voted in the manner directed by the undersigned. If no direction is given, if the card is not +signed, or if the card is not received prior to 5 pm Eastern Time on May 15, 2011, the Plan's Trustee will vote your shares held in the Plan in the same proportion as shares were voted +by other Plan participants. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-11-002551/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-11-002551/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..4f1735ad0abeba5ee53c3e1412fee2a67ec4ecc5 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-11-002551/proxy_rpt.txt @@ -0,0 +1,16 @@ +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the president, chief executive officer, a director and less than 2% stockholder of Helmerich & Payne, Inc. During Helmerich & Payne's +fiscal year ended September 30, 2010, we contracted with Helmerich & Payne for drilling rigs and services in arms' length transactions and as part of our ordinary course of business in +the same manner as we obtain services from other companies that provide similar services. From October 1, 2009 through September 30, 2010, we paid Helmerich & Payne, Inc. +$21,525,577 for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and award +of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when compared to our total +drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and +52 +Table of Contents +(iii) his +relationship with Helmerich & Payne, Inc. does not interfere with his independent business judgment while serving on our Board. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-12-003932/proxy.txt b/raw/proxies/0001168054/0001047469-12-003932/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..d110ad1761afa9677f80ea0392d85368860fd1c6 --- /dev/null +++ b/raw/proxies/0001168054/0001047469-12-003932/proxy.txt @@ -0,0 +1,3552 @@ +DEF 14A +1 +a2208291zdef14a.htm +DEF 14A +Use these links to rapidly review the document +CIMAREX ENERGY CO. PROXY STATEMENT TABLE OF CONTENTS +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy +Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant ý +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2)) +ý +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +ý +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration +statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +CIMAREX ENERGY CO. +NOTICE OF ANNUAL MEETING OF SHAREHOLDERS +To be Held on May 16, 2012 +9:00 a.m. Central Time +Hyatt Regency Hotel +100 East 2 nd Street +Tulsa, Oklahoma 74103 +AGENDA: +1. Elect +three management nominees as Class I directors for terms expiring in 2015. +2. Advisory +approval of our executive compensation. +3. Ratify +the appointment of KPMG LLP as our independent auditors for 2012. +We +will also transact any other business as may properly come before the meeting or any adjournments thereof. +Shareholders +of record at the close of business on March 20, 2012 are entitled to notice of and to vote at the meeting. +YOUR VOTE IS IMPORTANT +Please take the time to vote by following the Internet or telephone voting instructions provided in this proxy statement. If you received a paper +copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-prepaid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. +You may revoke your proxy at any time before the vote is taken by following the instructions in this proxy statement. +BY ORDER OF THE BOARD OF DIRECTORS +Mary Kay Rohrer +Corporate Secretary +Date: +April 5, 2012 +Table of Contents +CIMAREX ENERGY CO. +PROXY STATEMENT +TABLE OF CONTENTS +Page +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING +1 +PROPOSAL 1. ELECTION OF DIRECTORS +5 +Nominees +5 +Continuing Directors +7 +PROPOSAL 2. ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION +10 +PROPOSAL 3. RATIFICATION OF INDEPENDENT AUDITOR +11 +BOARD MEETINGS, COMMITTEES OF THE BOARD AND ATTENDANCE +11 +Attendance at Meetings +11 +Board Committees +12 +CORPORATE GOVERNANCE +13 +Board Leadership Structure +13 +Risk Oversight +14 +Board/Committee Evaluations +14 +Director Education +15 +Service on Boards of Other Public Companies +15 +Director and Management Stock Ownership +15 +Non-Hedging Policies +15 +Corporate Governance Guidelines, Code of Business Conduct and Code of +Ethics +15 +Clawback Policy +16 +Web Access +16 +Process for Communication with the Board +16 +DIRECTOR COMPENSATION +16 +Overview +16 +Determination of Director Compensation +16 +Director Compensation +17 +2011 Director Compensation +18 +Deferred Compensation Plan for Non-Employee Directors +18 +Acceleration of Vesting of Awards +19 +EXECUTIVE COMPENSATION +19 +COMPENSATION DISCUSSION AND ANALYSIS +19 +Executive Summary +19 +Compensation Program Objectives +21 +Pay-for-Performance Outcomes +22 +Compensation Determination Process +26 +Elements of Executive Compensation +28 +Base Salary +28 +Annual Cash Incentive Awards +29 +Long-Term Equity Incentive Award Program +31 +Other Compensation +34 +Report of Compensation and Governance Committee +35 +i +Table of Contents +Page +COMPENSATION TABLES +36 +Summary Compensation Table +36 +2011 Grants of Plan-Based Awards +38 +Non-Equity Incentive Plan +38 +Equity Incentive Plan Awards +39 +Outstanding Equity Awards at December 31, 2011 +40 +2011 Option Exercises and Restricted Stock Vested +40 +Nonqualified Deferred Compensation +41 +Potential Payments upon Change in Control or Termination +41 +Potential Payments upon Change in Control +42 +Change in Control – Termination without +Cause +43 +Change in Control – No Termination +44 +Potential Payments upon Termination – No Change in +Control +44 +Potential Payments upon Death or Disability +44 +Potential Payments upon Termination without Cause +45 +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS +46 +Beneficial Ownership by Executive Officers and Directors +46 +Beneficial Owners of More than Five Percent +47 +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +47 +Policy for Approval of Audit, Audit-Related and Tax Services +47 +Fees +48 +Report of Audit Committee +48 +OTHER MATTERS +49 +Transactions with Related Persons +49 +Section 16(a) Beneficial Ownership Reporting Compliance +49 +Complaint and Reporting Procedures +49 +Householding +50 +ii +Table of Contents +PROXY STATEMENT +2012 ANNUAL MEETING OF SHAREHOLDERS – May 16, 2012 +CIMAREX ENERGY CO. +Hyatt Regency Hotel +100 East 2 nd Street +Tulsa, Oklahoma 74103 +We will furnish our proxy statement and annual report to certain of our shareholders over the Internet pursuant to Securities and +Exchange Commission ("SEC") rules. On or about April 5, 2012, we will mail to certain of our shareholders a notice of Internet availability of proxy materials that describe how to access our +proxy statement and annual report online (the "eProxy Notice"). The eProxy Notice also describes how to obtain a printed copy of the proxy statement and annual report. All other shareholders will +receive a printed copy of the proxy statement and annual report, which will be mailed on or about April 5, 2012. +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING +Cimarex Energy Co. is soliciting proxies for its 2012 annual meeting of shareholders. This proxy statement and proxy card include information +about the items you will vote on at the annual meeting and about the voting process. We sometimes refer to Cimarex Energy Co. in this proxy statement as "Cimarex," "Cimarex Energy Co.," +the "company," "we" or "us." +What items will be voted on at the Annual Meeting? +Shareholders will vote on the following items at the annual meeting: +• Election to the Board of three Class I directors nominated by the Board to each serve for a three-year +term ending with the annual meeting held in 2015 (Proposal 1); +• Advisory approval of our executive compensation (Proposal 2); +• Ratification of the appointment of KPMG LLP as our independent auditors for 2012 (Proposal 3); and +• Such other business as may properly be presented at the meeting or any adjournment or postponement of the meeting. +What are the Board's voting recommendations on each item? +The Board of Directors recommends that you vote FOR Proposals 1, 2 and 3. +Who can vote? +Shareholders holding shares of our common stock as of the close of business on March 20, 2012, may vote at the Annual Meeting, or at any +adjournment or postponement of the Meeting. You have one vote for each share of common stock held as of the record date that may be voted on each proposal presented at the Annual Meeting. +What if I received an eProxy Notice of Internet Availability of Proxy Materials? +The SEC permits us to electronically distribute proxy materials to shareholders. On or about April 5, 2012, we will mail to certain of our +shareholders a notice of Internet availability of proxy materials ("eProxy Notice") with instructions about how to access our proxy statement and annual report and +1 +Table of Contents +how +to vote online. If you receive an eProxy Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you request them. The eProxy Notice instructs you on how to +submit your proxy over the Internet. If you would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the eProxy Notice. +What is the difference between holding shares as a shareholder of record and as a beneficial owner? +If your shares are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered +the "shareholder of record" of those shares. The eProxy Notice or notice of annual meeting, proxy statement and accompanying materials have been sent directly to you by Continental Stock +Transfer & Trust Company. +If +your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the "beneficial owner" of shares held in "street name." The eProxy Notice or notice of +annual meeting, proxy statement and accompanying materials have been forwarded to you by your broker, bank or other holder of record who is considered the "shareholder of record" of those shares. +How do I vote if I am a shareholder of record? +If you are a shareholder of record, you may vote your shares: +• By voting on the Internet by visiting the website and following the instructions shown on the eProxy Notice or proxy card; +• By following the instructions for telephone voting at the toll-free telephone number shown on the proxy card; +• By completing the proxy card as outlined in the instructions on the card and mailing the card in the prepaid envelope +provided; +• In person by attending the meeting; +In +the case of Internet or telephone voting, you should have your eProxy Notice or proxy card in hand and retain the card until you have completed the voting process. If you vote by Internet or +telephone, you do not need to mail back the proxy card. Even if you plan to attend the meeting, we encourage you to vote by proxy as soon as possible. +How do I vote if I am a beneficial holder of shares held in "street name"? +If your broker holds your shares in "street name," you should receive either an eProxy Notice or a voting instruction card and proxy statement. +Please follow the instructions (including the date by which your voting instructions must be received) on your eProxy Notice or instruction card in order for your shares to be voted. You may also vote +in person at the meeting if you obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot. Please contact your broker, bank or +other holder of record if you wish to do so. +How do I vote shares held in my 401(k) account? +Participants in the Cimarex 401(k) Plan ("401(k) Plan") who have shares of common stock credited to their plan account as of the record date will +have the right to provide voting instructions to the 401(k) Plan trustee. The trustee will vote the shares in a participant's 401(k) Plan account in accordance with the participant's instructions or, +if no instructions are received prior to 5 p.m. Eastern Time on May 11, 2012, the shares credited to that participant's account will be voted by the trustee in the same proportion as it +votes shares for which it did receive timely instructions. Participant voting information will not be disclosed to Cimarex. +2 +Table of Contents +Can I change my vote? +If you are a shareholder of record, you may revoke your proxy at any time before the voting polls are closed at the Annual Meeting by one of the +following methods: +• Voting at a later time by Internet or telephone; +• Delivering to our Corporate Secretary, Mary Kay Rohrer, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, +Denver, Colorado 80203-4518 a proxy with a later date or a written revocation of your proxy; +• Giving notice of revocation to the inspector of election at the Annual Meeting; or +• Voting in person at the Annual Meeting; +What happens if other matters come up at the Annual Meeting? +We do not know of any other matters that will be voted on at the Annual Meeting. If other matters are properly presented, the proxy holders, Thomas +E. Jorden, Cimarex's +Chief Executive Officer and President, or Paul Korus, Cimarex's Sr. Vice President and Chief Financial Officer, will vote your shares at their discretion. +How many shares of Cimarex common stock were outstanding on the record date? +At the close of business on March 20, 2012, the record date, there were 85,716,614 shares of common stock outstanding and entitled to vote at +the Annual Meeting. Common stock is the only class of stock entitled to vote. +Who will count the votes? +A representative of Continental Stock Transfer & Trust Company, our stock transfer agent, will act as the independent tabulator appointed by +the Board of Directors and will count the votes and act as the inspector of election. +What is a "quorum"? +A "quorum" is a majority of the outstanding shares of common stock and is required to hold the Annual Meeting. A quorum is determined by counting +shares of common stock present in person at the Annual Meeting or represented by proxy. If you submit a properly completed proxy, you will be considered part of the quorum even if you abstain from +voting. Shares that brokers do not have the authority to vote in the absence of timely instructions from the beneficial owners ("broker non-votes") are treated as present for the purpose +of determining a quorum. +How many votes must each proposal receive to be adopted? +• Proposal 1 for the election of directors – each nominee will be elected if the votes cast for the +nominee exceed the votes cast against the nominee. +• Proposal 2 for advisory approval of our executive compensation – the affirmative vote of a majority of +the shares present and entitled to vote on the Proposal. +• Proposal 3 for the ratification of independent auditors – the affirmative vote of a majority of the +shares present and entitled to vote on the Proposal. +3 +Table of Contents +How are votes counted and what is the effect of broker non-votes and abstentions? +Votes are counted in accordance with our Bylaws, Delaware law and the rules of the New York Stock Exchange ("NYSE"). If a shareholder +delivers a properly completed proxy but does not indicate how his or her shares are to be voted, the shares covered by such proxy will be included in determining if there is a quorum and will also be +counted as votes "FOR" each named nominee for director (Proposal 1), "FOR" Proposals 2 and 3 and against any shareholder proposal. Shares will not be voted at the Annual Meeting if a +properly completed proxy covering those shares has not been received or the holder does not vote in person or at the Annual Meeting. +The +NYSE precludes brokers from exercising voting discretion on "non-routine" proposals without specific instructions from the beneficial owner. Under the current NYSE rules, only Proposal +3 is considered a routine matter. +The +following summarizes how votes will be counted and the effect of broker non-votes and abstentions on each of the Proposals: +Abstentions +• With respect to Proposal 1, under our bylaws, abstentions are not considered cast in the election of directors and will +have no effect on the outcome of Proposal 1. +• With respect to Proposals 2 and 3, abstentions on each of these proposals will have the same effect as a vote against the +Proposal. +Broker Non-Votes +• With respect to Proposals 1 and 2, broker non-votes will have no effect on the outcome of the Proposals. +• With respect to Proposal 3, because it is a routine matter on which a broker is empowered to vote, no broker +non-votes will likely result from this Proposal. +How can I view the shareholder list? +You may view a shareholder list at the Annual Meeting or at our offices located at 1700 Lincoln Street, Suite 1800, Denver, +Colorado 80203 during ordinary business hours during the period May 6 through May 15, 2012. +Who can attend the Annual Meeting? +You may attend the meeting if you were a shareholder of Cimarex on March 20, 2012. +Who pays for the proxy solicitation related to the Annual Meeting? +Cimarex does. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of distributing the +proxy materials. We have retained Alliance Advisors to act as a proxy solicitor in conjunction with the meeting. We have agreed to pay that firm $6,000, plus reasonable +out-of-pocket expenses, for proxy solicitation services. Solicitation of proxies by mail may be supplemented by telephone or personal solicitation by our directors, officers or +other regular employees. No additional compensation will be paid to directors, officers or other regular employees for such services. +When are shareholder proposals due? +If you want to submit a proposal for possible inclusion in next year's proxy statement, you must submit it in writing to the +Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 and facsimile +(303) 295-3494. Cimarex must receive your proposal on or before December 7, 2012. Cimarex will consider only proposals meeting the requirements of the applicable rules of the +SEC. +4 +Table of Contents +If +a shareholder wants to bring any matter before the 2013 Annual Meeting that is not included in the 2013 Proxy Statement, the shareholder must provide written notice of the matter between +February 6, 2013 and February 16, 2013. Shareholders are also advised to review our Amended and Restated Bylaws, which contain advance notice requirements, including requirements with +respect to advance notice of shareholder proposals and director nominations. +PROPOSAL 1. ELECTION OF DIRECTORS +Our current Board of Directors (the "Board") consists of ten members. The Board is divided into three classes: Class I, +Class II and Class III directors. At each annual meeting, a class of directors is elected for a term expiring at the annual meeting in the third year following the year of election. Each +director holds office until his successor is elected and qualifies. +The +terms of the three Class I directors, Joseph R. Albi, Jerry Box and Michael J. Sullivan, will expire at the 2012 Annual Meeting. +If +prior to the Annual Meeting a nominee becomes unavailable to serve as a director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute +nominee or nominees designated by our Board or its Nominating Committee. As of the mailing of these proxy materials, the Board knows of no reason why any director nominee would not be available to +serve as a director. +A +nominee is elected if the votes cast for his election exceed the votes cast against his election. Each director who is nominated below has tendered an irrevocable resignation that is effective upon +his failure to receive the required vote and the Board's acceptance of such resignation. If a nominee fails to receive more favorable votes than votes cast against him, the Nominating Committee will +act on an expedited basis following the Annual Meeting to determine whether to recommend that the Board accept the director's resignation. The Nominating Committee and the Board may consider any +factors they deem relevant in deciding whether to accept the director's resignation, and the director whose resignation is under consideration must abstain from participating in any decision regarding +his resignation. The Board will publicly disclose its decision regarding acceptance of resignation within 90 days after the results of the election are certified. If the resignation is not +accepted, the director will continue to serve as a director until his successor is elected and qualified. If the Board accepts the resignation, then the Board may fill the vacancy in accordance with +the Bylaws or may decrease the size of the Board in compliance with the Certificate of Incorporation. +Information +concerning the nominees recommended by our Nominating Committee and nominated by our Board, as well as each of our continuing directors, is set forth below. +NOMINEES +Class I Directors – Terms Expiring in 2012 +Joseph R. Albi +Director since September 2011 +Executive Vice President, Chief Operating Officer +Cimarex Energy Co. +Age 53 +Mr. Albi has served Cimarex in various capacities since September 30, 2002. He was Vice President-Engineering from 2002 to 2003, Sr. Vice President-Corporate Engineering from 2003 to 2005, and was named Executive Vice President-Operations +in 2005. Effective September 30, 2011, Mr. Albi was named Executive Vice President and Chief Operating Officer. Mr. Albi has over 30 years of experience in the oil and gas industry. +5 +Table of Contents +Jerry Box +Director since 2005 +Retired President and COO +Oryx Energy Company +Age 73 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Box was Chairman of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter from March 1999 to June 2005. He retired in June 2005 at the time of the acquisition by Cimarex of Magnum Hunter. +Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy from February 1998 to March 1999, and its predecessor +company, Sun Oil Company. Mr. Box holds undergraduate and graduate degrees in geology. He has served for several years in an executive capacity with public and private companies. Mr. Box has served on numerous oil and gas committees and +task forces and as a President and Treasurer of the Dallas Petroleum Club. Mr. Box serves as a non-management director and Chairman of the Board of NewPark Resources, Inc. of The Woodlands, Texas, an oilfield services company traded on the +NYSE. His extensive experience as an executive for companies in the energy business makes his service on the Compensation and Governance Committee particularly valuable. +Michael J. Sullivan +Director since 2002 +Partner +Rothgerber, Johnson & Lyons LLP +Casper, Wyoming +Age 72 +Member – Audit Committee +Member – Nominating Committee +Mr. Sullivan has been a senior attorney, partner or special counsel of the Denver-based law firm, Rothgerber Johnson & Lyons LLP since 2001, and the managing attorney of the Casper office of that firm. Mr. Sullivan practiced +law as a partner with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. Mr. Sullivan brings a wealth of experience and a diverse background to Cimarex's Board. In addition to his Juris Doctor degree, +he has an undergraduate degree in petroleum engineering, years of governmental service as the Governor of Wyoming (1987-1995) and Ambassador to Ireland (1998-2001), and 37 years' experience practicing law in the areas of natural resources, +mediation and business. As Governor he was involved in the process of reviewing and administering Wyoming's budget. This experience is particularly relevant in his service on the Audit Committee. Mr. Sullivan's education, his legal experience, +particularly in mediation and litigation, and his domestic and international government service all provide a background which is beneficial in addressing the issues coming before the Cimarex Board. +Mr. Sullivan is a director and chairman of the governance committee and member of the compensation committee of First Interstate BancSystem, Billings, Montana and a director and member of the compensation and governance and audit committee of +Sletten Construction, Inc., Great Falls, Montana. From 2001 to May 2009 he served as a director and during his tenure as a member of the audit, corporate social responsibility committee and governance committee of Allied Irish Bank Group, Dublin, +Ireland. From 2003 to 2010 he served as a director of the Kerry Group Plc, a global food and food ingredients producer headquartered in Tralee Co., Kerry, Ireland. +OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES. +6 +Table of Contents +CONTINUING DIRECTORS +Class II Directors – Terms Expiring in 2013 +Hans Helmerich +Director since 2002 +Chairman and CEO, Director +Helmerich & Payne, Inc. +Tulsa, Oklahoma +Age 53 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Helmerich was elected Chairman and CEO of Helmerich & Payne, Inc., a publicly held company located in Tulsa, Oklahoma, in January 2012. Prior to this, he served as President and Chief Executive Officer since 1989 and has served +as a director of that company since 1987. Helmerich & Payne is primarily engaged in contract drilling of oil and gas wells for exploration and production companies and is one of the major land and offshore platform drilling contractors in +the world. Cimarex acquired Helmerich & Payne's exploration and production business in 2002. Mr. Helmerich's background with the exploration and production business acquired by Cimarex, as well as his over 25 years' executive +experience with Helmerich & Payne, provide a strong background for his service on Cimarex's Board and on the Compensation and Governance Committee. In addition, Mr. Helmerich's service as a director of Atwood Oceanics, Inc., +Houston, Texas, an international offshore drilling company, and as a Trustee of The Northwestern Mutual Life Insurance Company provide him with additional expertise and skills to serve as a director. +Harold R. Logan, Jr. +Director since 2009 +Co-Founder, Director +Basic Materials and Services LLC +Denver, Colorado +Age 67 +Lead Director +Member – Audit Committee +Member – Nominating Committee +Mr. Logan is the Co-Founder and director of Basic Materials and Services LLC (Denver, Colorado), a privately held company founded in 2007 that invests in companies providing specialized services for the pipeline construction and sand/silica +industries. Mr. Logan was a Co-Founder of TransMontaigne (Denver, Colorado) in 1995 and Chief Financial Officer, Executive Vice President, Treasurer and a director through 2002. He served as a director of TransMontaigne and chairman of its +finance committee from 2002-2006. From 1987 to 1995, he was Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that Mr. Logan was with Dillon Read & Co. Inc. +and Rothschild, Inc. +Over the past 39 years, Mr. Logan's education, investment banking/venture capital experience and business/financial management experience have provided him with a comprehensive understanding of business and finance. Mr. Logan's +expertise and experience have been relevant to his responsibilities of providing oversight and advice to the management of public companies, and is of particular benefit in his role as a member of the Audit Committee of Cimarex. Since 1998, +Mr. Logan has been a director of nine public companies and has served on audit, compensation and governance committees. Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane Partners, L.P. and as a +director of Graphic Packaging Corporation, both NYSE companies. +7 +Table of Contents +Monroe W. Robertson +Director since 2005 +Private Investor +Age 62 +Chairman – Audit Committee +Member – Nominating Committee +Mr. Robertson is currently a private investor. Mr. Robertson was with Key Production Company, Inc., a company acquired by Cimarex in 2002, for 10 years until retirement in March 2002. While with Key, he held the positions of +President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Mr. Robertson has served in executive capacities with three other public energy companies, Apache Corp., Gulf Oil Corporation and Terra Resources. +Mr. Robertson has comprehensive knowledge of the financial and operational sides of the exploration and production business, which is of considerable value in his service as Chairman of Cimarex's Audit Committee. He currently serves as a +director, chairman of the audit committee and member of the compensation and nominating committee of Earthstone Energy, Inc. (formerly named Basic Earth Science System), Denver, Colorado, an independent exploration and production company. +Class III Directors – Terms Expiring in 2014 +David A. Hentschel +Director since 2002 +Retired Chairman and CEO +Occidental Oil and Gas Corporation +Age 78 +Member – Compensation and Governance Committee +Member – Nominating Committee +Mr. Hentschel was Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation from 1986 until 1993 and from 1997 until 1999, when he retired. He also served as President and Chief Executive Officer of Canadian Occidental Petroleum, +Ltd, now known as Nexen, from 1995 until 1997. Mr. Hentschel brings considerable executive experience in the domestic and international oil and gas industry to the Board. He was in charge of the worldwide exploration and production +operations for Cities Service, Occidental Oil and Gas Corporation for the last 20 years of his 40-year career. He was a director of Occidental Petroleum from 1987-1993 and of Canadian Occidental or Nexen from 1985-2009. During his service as a +director of Nexen, he was chair of the audit committee and a member of the compensation committee and various other committees. He was also a director of the Bank of Oklahoma from 1984-1995. Mr. Hentschel's extensive leadership background and +his service on Nexen's audit and compensation committees provide strong skills and experience for his service on our Compensation and Governance Committee. +Thomas E. Jorden +Director since September 2011 +Chief Executive Officer and President +Cimarex Energy Co. +Age 55 +Mr. Jorden has served Cimarex in various capacities since September 30, 2002. He was Vice President-Exploration from 2002 to 2003, and Executive Vice President-Exploration from 2003 to September 30, 2011, at which time he was named +Chief Executive Officer and President. Mr. Jorden has over 30 years of experience in the oil and gas industry. +8 +Table of Contents +F. H. Merelli +Director since 2002 +Chairman of the Board +Cimarex Energy Co. +Denver, Colorado +Age 76 +Mr. Merelli has served as executive Chairman of the Board of Cimarex since September 30, 2002. From September 30, 2002 through September 30, 2011, he also served as Chief Executive Officer and President of Cimarex. Effective +September 30, 2011, he stepped down as Chief Executive Officer and President. Prior to September 30, 2001, Mr. Merelli was Chairman and Chief Executive Officer of Key Production Company, Inc. (acquired by Cimarex in September +2002). Mr. Merelli has spent over 35 years in key executive positions in the oil and gas industry. Mr. Merelli is the creator of several management and incentive systems currently employed by Cimarex. +L. Paul Teague +Director since 2002 +Retired Executive +Texaco USA +Age 77 +Chairman – Compensation and Governance Committee +Member – Nominating Committee +Mr. Teague served 35 years with Texaco Inc. He retired in 1994 as Vice President, Western Exploration & Producing Region of Texaco USA in Denver, Colorado. Mr. Teague held various positions with Texaco USA, including Vice +President-Producing in Houston, Texas, Vice President of the New Orleans Producing Division, Division Manager, New Orleans and General Superintendent of the Offshore Division in New Orleans. Mr. Teague holds a degree in Petroleum Engineering +from Louisiana Tech University and is a graduate of the University of Southern California Executive Program. He has several industry affiliations, including the former Chairman of the API Executive Committee on Drilling and Production Practices, +former President of the Colorado Petroleum Association, a 50-year Legion of Honor Member of the Society of Petroleum Engineers and a member of the Rocky Mountain Oil & Gas Hall of Fame. He brings his executive experience with a major oil and +gas company to bear on corporate governance and executive compensation issues in his role as chairman of our Compensation and Governance Committee. +Director Nomination Process and Review of Director Nominees +The Nominating Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired qualifications, +including judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the candidate's experiences with the experience of other directors and the extent to +which the candidate would be a desirable addition to the Board and any of its committees. Our Nominating Committee charter specifically includes in the list of desirable attributes sought in our Board +composition diversity of gender and ethnic background. In considering candidates for future openings on our Board, we expect to search for and consider candidates who meet the qualifications set out +in the Nominating Committee charter. +Each +director nominee is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas +experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with an +important capacity to execute its duty of oversight and guidance. +The +Committee will consider nominees recommended by shareholders. For the 2012 Annual Meeting, the Committee did not receive nominations from any shareholder prior to the deadline for shareholder +9 +Table of Contents +nominations. +Shareholders who wish to nominate persons for election as directors at the 2013 Annual Meeting must submit a timely written notice complying with Cimarex's Bylaws to Corporate Secretary, +Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the stockholder's written notice +must be received between February 6, 2013 and February 16, 2013. If the 2013 Annual Meeting is held more than 30 days before or after May 16, 2013, the written notice must +be received no later than the close of business on the tenth day following the day on which the notice of the date of the 2013 Annual Meeting was mailed or public disclosure of the date of the Annual +Meeting was made, whichever first occurs. +Independence of Directors +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, +regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. Based +upon NYSE standards, seven of our ten Board members are independent. Messrs. Merelli, Jorden and Albi are executive officers of Cimarex and are not independent. +Our +Board annually reviews the status of each director to confirm that the director meets the independence standards. If any relationship exists that is not covered by these standards, the Board +determines whether the relationship is material and whether the director should be deemed independent. The Board may determine independence if it finds that the director is independent of management +and free from any relationship that would interfere with the director's independent judgment. +Our +Code of Business Conduct includes provisions pertaining to conflicts of interest. The Code provides that no relationship involving a director that is disclosed to and affirmatively determined by +the Board of Directors to be immaterial shall be a conflict of interest within the meaning of the Code. +Applying +our Corporate Governance Guidelines and our Code of Business Conduct, the Board has affirmatively determined that Messrs. Box, Helmerich, Hentschel, Logan, Robertson, Sullivan and +Teague are independent, and have no material relationship that would interfere with their exercise of independent judgment and, therefore, are independent under our Corporate Governance Guidelines, +Code of Business Conduct and the listing standards of the NYSE. Our Audit, Compensation and Governance, and Nominating Committees are comprised entirely of independent directors. +PROPOSAL 2. ADVISORY APPROVAL OF OUR EXECUTIVE COMPENSATION +Cimarex is providing its shareholders with the opportunity to cast an advisory vote on executive compensation as described below. +Cimarex believes that it is appropriate to seek the views of shareholders on the design and effectiveness of its executive compensation program. +Our +objectives for executive compensation are to (i) align performance incentives with the long-term interests of our shareholders, (ii) provide competitive total +compensation opportunities that retain and attract executive talent, and (iii) link compensation earned to achievement of short-term and long-term financial and +strategic objectives. Our executive compensation program, which emphasizes long-term equity awards, satisfies this goal and is strongly aligned with the interests of our shareholders. +Cimarex's relative stock price performance for the period December 31, 2008 through December 31, 2010 ranked at the 82 nd percentile (see Compensation Discussion and Analysis, Long-Term Equity +Awards) . +The +Compensation Discussion and Analysis in this Proxy Statement describes Cimarex's compensation program and the decisions made by the Compensation and Governance Committee in 2011 in more detail. +10 +Table of Contents +The +following non-binding resolution will be submitted for an advisory shareholder vote at the Annual Meeting: +RESOLVED, +that the compensation paid to Cimarex's named executive officers, as disclosed in Cimarex's Proxy Statement for the 2012 Annual Meeting of Shareholders pursuant to the compensation +disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement, is +hereby approved. +As +an advisory vote, this proposal is not binding upon us. However, the Compensation and Governance Committee, which is responsible for designing and administering Cimarex's executive compensation +program, values the opinions expressed by shareholders in their vote on this proposal and will continue to consider the outcome of the vote when making future compensation decisions for named +executive officers. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2. +PROPOSAL 3. RATIFICATION OF INDEPENDENT AUDITOR +The Audit Committee of the Board has appointed KPMG LLP to audit our financial statements for 2012. KPMG LLP has been +our independent auditor since October 1, 2002. +We +are asking that shareholders ratify the appointment of KPMG LLP as independent auditor. If shareholders fail to ratify the appointment of KPMG LLP, the Audit Committee may reconsider +this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF KPMG LLP AS CIMAREX'S INDEPENDENT AUDITOR FOR +2012. +See Independent Registered Public Accountants for information regarding auditor fees and services and the Audit Committee Report. +BOARD MEETINGS, COMMITTEES OF THE BOARD AND ATTENDANCE +Attendance at Meetings. During 2011 the Board of Directors held six meetings. Each incumbent director attended 75% or more of all meetings of the Board of +Directors and committees of the Board on which he served. It is the policy and practice of the Company that nominees for election at the Annual Meeting of Shareholders attend the meeting. All of the +Board members at the time of the 2011 Annual Meeting of the Shareholders attended the meeting. +At +each in-person meeting, the independent members of the Board and its Committees meet in executive session. The purpose of these executive sessions is to promote open and candid +discussion among the independent directors. During 2011 the independent directors met five times in +executive session, the independent members of the Audit Committee met in executive session four times, and the independent members of the Compensation and Governance Committee met in executive session +four times. +Each +year the directors select a lead director to preside over Board executive sessions. Harold Logan serves as lead director. Mr. Logan was originally elected as lead director on +December 8, 2010 and was re-elected on May 18, 2011 by the independent directors for an additional one-year term ending at the May 2012 Board Meeting. The +lead director is elected for a one-year term that expires at the May Board meeting. A lead director may be reelected for additional terms but may not serve more than three consecutive +terms. +11 +Table of Contents +Board Committees. The Board of Directors has established three standing committees to assist in carrying out its duties: the Audit Committee, the Compensation and +Governance Committee and the Nominating Committee. All members of these committees are independent, as defined in the listing standards of the New York Stock Exchange and our Corporate Governance +Guidelines. Each Committee functions under a written charter adopted by the Board which is available on our website at http://www.cimarex.com . The current members of these +Committees, the functions of each Committee and the number of meetings held in 2011 are shown in the following table: +Committees of the Board of Directors +Audit Committee Members +Functions of the Committee +Meetings in 2011 +Monroe W. Robertson, Chair † +Harold R. Logan, Jr. † +Michael J. Sullivan +† Financial expert +• +appoints independent auditor +• +approves nature and scope of services +of independent auditor and reviews range of fees for such services +• +oversees internal audit function +• +reviews qualification and independence of auditor +• +monitors integrity of financial statements +• +monitors compliance with legal and regulatory requirements +• +reviews and reports to Board on corporate and financial risk +8 +Compensation and Governance +Committee Members +Functions of the Committee +Meetings in 2011 +L. Paul Teague, Chair +Jerry Box +Hans Helmerich +David Hentschel +Compensation Functions +• +recommends CEO and executive officer cash compensation for approval by Board +• +recommends director compensation for approval by Board +• +reviews and recommends for approval by Board the Compensation Discussion and Analysis disclosure +• +determines amount and terms of equity awards +• +reviews and approves long-term incentive plans +• +reviews relationship of compensation to risk +5 +Governance Functions +• +oversees corporate governance +• +develops plans for managerial succession +• +oversees annual Board and Committee evaluations +12 +Table of Contents +Nominating Committee Members +Functions of the Committee +Meetings in 2011 +Harold R. Logan, Jr., Chair +Jerry Box +Hans Helmerich +David Hentschel +Monroe Robertson +Michael Sullivan +L. Paul Teague +• +determines desired board +skills and attributes +• +recommends +candidates to serve on the Board and to stand for election at annual meeting of shareholders or to fill vacancy occurring between meetings +• +recommends Committee appointments +1 +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from +February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002 as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of +facilitating the spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly traded company on September 30, 2002, at which time +Mr. Helmerich resigned as an executive officer. +CORPORATE GOVERNANCE +Prudent corporate governance is critical in gaining the trust and confidence of shareholders, employees, suppliers and business partners. +Board Leadership Structure +Cimarex has an executive Chairman of the Board. We also have a Lead Director, who is chosen annually from our independent directors. The functions of +the Chairman of the Board and the Lead Director are set out below: +Duties and Responsibilities of +Chairman of the Board +Duties and Responsibilities of +Lead Director +Preside over Board meetings +Preside over executive sessions of the Board +Call special meetings of the Board +Act as Chairman of the Nominating Committee +Approve agenda for Board meetings +Serve as liaison between the Chairman of the Board and the other Board members +Preside over shareholder meetings +Serve as primary contact for communication by interested parties to the Board +Facilitate and participate in formal and informal communications with and among directors +The +Board believes that the role of an executive Chairman of the Board and an independent lead director having the duties described above serve the interests of our shareholders because this structure +provides an appropriate balance between strategy development and independent oversight of management. +F. +H. Merelli has served as Cimarex's executive Chairman of the Board since September 30, 2002. He also served as Chief Executive Officer and President from our inception through September +2011, at which time we implemented our CEO succession plan. He brings to the position of Chairman of the Board considerable knowledge and experience gained through his position as executive Chairman +and through September 2011, as Chief Executive Officer and President. This knowledge and experience allows him to focus the activities of the Board on matters most relevant to the success of Cimarex. +13 +Table of Contents +Our +board structure is designed to avoid any undue influence by the Chairman of the Board or the CEO on the Board. The Compensation and Governance Committee, which recommends the compensation of the +Chairman and the CEO to the full Board and makes grants to the Chairman and the CEO under our long-term incentive program, is comprised entirely of independent directors. When the Board +acts on the Compensation and Governance Committee's recommendation for compensation of the Chairman and the CEO, it acts without either the Chairman or the CEO being present. The Board meets in +executive session from time-to-time without the Chairman or the CEO being present. During 2011, five executive sessions were held. During those +sessions, the independent Board members are able to freely critique the performance of the Chairman, the CEO and Cimarex's other executive officers. +The +substantial experience and background of our independent Board members ensure their active and knowledgeable involvement in Board matters. This involvement, and the presence and involvement of our +Lead Director, provide the Board with a strong independent point of view. +Risk Oversight +Board and Audit Committee Oversight +The Board has overall responsibility for risk oversight. Management provides the Board with overviews of Cimarex's operations, financial results and +other aspects of its business at quarterly meetings. Significant strategic considerations, such as material acquisitions or mergers, are brought to the Board for deliberation and, as appropriate, +decisions. +As +required by the NYSE, in addition to its specific responsibilities with respect to Cimarex's financial statements and reporting, the Audit Committee is involved in considering Cimarex's policies +and guidelines that govern the process by which exposure to risk is assessed and managed. This responsibility has been delineated in the Audit Committee's charter that provides for the Audit Committee +to discuss with management and report to the Board with respect to: +• the processes Cimarex has taken to mitigate corporate risks; • the guidelines and processes pertaining to financial risk assessment; +• the steps management has taken to measure, monitor and control such financial risk exposures; and +• management's conclusion as to the effectiveness of the guidelines and processes utilized to mitigate such corporate and +financial risks and exposures. +The +Audit Committee, at its December 2011 meeting, reviewed, discussed and reported to the Board about corporate, operational and financial risks and Cimarex's processes for mitigation of these risks +Compensation Risk Assessment +Each year the Compensation Committee performs a compensation risk assessment. In 2011 and again in 2012, the Committee has determined that risks +arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our company. See Compensation Discussion +and Analysis for a description of the compensation risk assessment process. +Board/Committee Evaluations +During 2011, the Board and each Committee participated in a self-assessment or evaluation of the effectiveness of the Board and its +Committees. +14 +Table of Contents +Director Education +Cimarex encourages director participation in seminars and conferences and other opportunities for director education. In 2011, our directors attended +a strategy meeting that also included an educational aspect relating to new exploration and production technologies being considered or implemented by Cimarex. We subscribe to and make available to +our Committee members various informational and educational newsletters. +Service on Boards of Other Public Companies +Cimarex does not prevent directors from simultaneously serving on other public company boards. Our Corporate Governance Guidelines recommend that +(i) the CEO serve on the board of no more than three public companies, including Cimarex, and (ii) all other directors serve on the board of no more than five public companies, including +Cimarex. All directors comply with this guideline. +Director and Management Stock Ownership +The Corporate Governance Guidelines provide that each independent director is expected to own Cimarex stock in an amount equal to three times his +annual Board cash retainer, the CEO is expected to own stock in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to own stock in an +amount equal to three times his annual base salary. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership, but shares +subject to options are not counted. Each of the NEOs and directors own stock in amounts that far exceed our stock ownership guidelines. +Non-Hedging Policies +Our insider trading policy that applies to all executives, employees and directors prohibits transactions in puts, calls or other derivative +securities on an exchange or in any other organized market. Our policy also strongly discourages these individuals from engaging in certain forms of hedging or monetization transactions such as +zero-cost collars and forward sale contracts. Any person wishing to enter into such an arrangement must first pre-clear the proposed transaction with the General Counsel or +Corporate Secretary. +Corporate Governance Guidelines, Code of Business Conduct and Code of Ethics +The Corporate Governance Guidelines address matters such as qualifications, standards for independence, election and responsibilities of directors, +limitation of service on other public company boards, number and structure of Board committees, conduct and frequency of Board and committee meetings, Board evaluation, management succession, director +access to management, counsel and advisors, and board orientation and education. The Board of Directors, both directly or through the Compensation and Governance Committee, reviews and revises as +necessary the Corporate Governance Guidelines. +Cimarex +has adopted a code of ethics known as the "Code of Business Conduct" that applies to all directors, officers and employees. The Code of Business Conduct is a guideline that promotes honest and +ethical conduct, maintains a corporate climate in which integrity and dignity of each individual is valued, encourages compliance with laws and assures proper use of Cimarex's assets. Cimarex will +post on its website all waivers of or amendments to its Code of Business Conduct that are required to be disclosed by applicable law and the NYSE listing standards. Currently, Cimarex does not have +nor does it anticipate any waivers of or amendments to its Code of Business Conduct. +15 +Table of Contents +Clawback Policy +Cimarex has adopted a claw-back policy that provides that in the event of an accounting restatement due to material noncompliance with +financial reporting requirements under the U.S. federal securities laws, the Compensation and Governance Committee has the right to use reasonable efforts to recover from any of our current or former +executive officers who received incentive based compensation (including annual cash incentives, non-qualified stock options or restricted stock) during the three-year period +preceding the date on which Cimarex is required to prepare an accounting restatement any excess incentive based compensation awarded as a result of the misstatement. This policy applies to incentive +based compensation granted on or after June 1, 2012. This clawback policy will be interpreted in the best judgment of the Committee in a manner consistent with any applicable rules or +regulations adopted by the SEC or the NYSE Stock Market as contemplated by the Dodd-Frank Act. +Web Access +Cimarex provides access through its website ( www.cimarex.com ) to the following +information: +• Audit, Compensation and Governance, and Nominating Committee charters • Corporate Governance Guidelines • Code of Business Conduct • +Code of Ethics • Complaint and Reporting Procedures • Section 16 reports • Biographical information about our directors and executive officers +Process for Communication with the Board +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline +(1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The lead director may take any action deemed appropriate or necessary, +including retaining independent or outside counsel, accountants or other advisors. No adverse action will be taken against any individual making any such communication to the lead director. +DIRECTOR COMPENSATION +Overview +Our director compensation program is designed to attract and retain individuals who possess the desired board skills and attributes, including +judgment, skill, experiences with businesses and other organizations of comparable size, the interplay of the experiences with the experience of other directors, and diversity of gender and ethnic +background. Director compensation is only paid to non-employee directors. +Our +Compensation and Governance Committee ("Compensation Committee" or "Committee") administers our director compensation program. Director compensation is designed to be near the +50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing director +compensation as we use in reviewing executive base salary and total compensation. See Compensation Discussion and Analysis for a list of the companies +and the methodology followed in selecting the companies. +Determination of Director Compensation +Our Committee is sensitive to the potential for a perceived conflict of interest in setting director compensation. To minimize the potential for a +perceived conflict of interest, the Committee uses a +16 +Table of Contents +compensation +consultant to evaluate and recommend director compensation. In 2011, the Committee engaged Longnecker & Associates to review director compensation. +Within +general guidelines provided by the Committee, the compensation consultant reviews director compensation each year and recommends appropriate changes. The review of director compensation is +principally based on public information about comparison group compensation. +The +Committee, after reviewing the consultant's recommendations with the CEO and Vice President of Human Resources, recommends director compensation for Board consideration and approval at the annual +May Board meeting. Director compensation is determined and paid for the 12-month period beginning with the date of Cimarex's Annual Meeting and ending on the following Annual Meeting date. +Director Compensation +To align the interests of shareholders and our directors, total annual director compensation consists of approximately two-thirds equity +awards and one-third cash retainer. At its May 2011 meeting, the Committee and its compensation consultant agreed to the following changes in director compensation: (i) increase the +equity retainer from $135,000 to $165,000, (ii) increase the Audit Committee Chairman and Compensation and Governance Committee Chairman fees from $18,750 to $20,000; and (iii) provide +for a $20,000 annual fee for the lead director, who is also the Chairman of the Nominating Committee. Board and Committee meeting attendance fees remain the same. Beginning with the 2011 annual +meeting, the following represents our director compensation fee structure: +Equity Retainer +$ +165,000 +Annual Cash Retainer +$ +50,000 +Audit Committee Chair and Compensation and Governance Committee Chair +$ +20,000 +Lead Director/Chairman of the Nominating Committee +$ +20,000 +Attendance at Board Meeting +$ +1,800 +Attendance at Committee Meeting +$ +1,500 +The +equity retainer is in the form of restricted stock that vests over three years in one-third increments. Directors annually receive a number of shares of restricted stock based on a +fixed cash value, currently $165,000. The number of shares awarded is calculated by dividing $165,000 by the average of the highest and lowest prices of Cimarex stock on the date of grant. +We +reimburse directors for reasonable transportation and accommodation expenses to attend Board and Committee meetings. In lieu of reimbursement of travel expenses, some directors may occasionally +travel to or from Board and Committee meetings on Cimarex aircraft. +17 +Table of Contents +2011 Director Compensation +The following table sets forth compensation paid in 2011 to all individuals who served as non-employee directors in 2011. +Name +Annual Cash +Retainer and +Meeting Fees (1) +Stock +Awards (2) +Total +Jerry Box +$ +70,100 +$ +165,000 +$ +235,100 +Hans Helmerich +$ +70,100 +$ +165,000 +$ +235,100 +David A. Hentschel +$ +70,100 +$ +165,000 +$ +235,100 +Paul D. Holleman (3) +$ +1,500 +$ +0 +$ +1,500 +Harold R. Logan, Jr. +$ +97,600 +$ +165,000 +$ +262,600 +Monroe W. Robertson +$ +96,100 +$ +165,000 +$ +261,100 +Michael J. Sullivan +$ +76,100 +$ +165,000 +$ +241,100 +L. Paul Teague +$ +90,100 +$ +165,000 +$ +255,100 +(1) Represents +fees earned for services as a director during 2011, including the annual cash retainer fee, Board and Committee meeting attendance +fees, chairman fee and lead director fee. +(2) Represents +the intrinsic value of the 1,779 shares of restricted stock granted to each of the named directors on May 18, 2011. +(3) Mr. Holleman +died in January 2011. +The +following table discloses the aggregate number of outstanding unvested stock awards and vested but unexercised option awards at December 31, 2011. +Director +Stock Awards +Option Awards +Jerry Box +4,542 +0 +Hans Helmerich +13,380 +(a) +10,000 +David A. Hentschel +4,542 +0 +Harold R. Logan, Jr. +4,542 +0 +Monroe W. Robertson +4,542 +0 +Michael J. Sullivan +5,174 +(a) +10,000 +L. Paul Teague +4,542 +0 +(a) Mr. Helmerich's +holdings include 8,838 vested deferred compensation units, and Mr. Sullivan's holdings include 632 vested +deferred compensation units. +Deferred Compensation Plan for Non-Employee Directors +In May 2004, we adopted a deferred compensation plan for non-employee directors. The plan provides that a director may defer all or any +portion of his compensation paid in cash or restricted stock for services as a director. In addition, a director may elect to defer accelerated vesting of restricted stock. +All +deferred cash amounts earn interest through the date paid. The rate of interest earned for a calendar quarter is based on the average 10-year U.S. Treasury note rate for the +immediately preceding calendar quarter, plus one percent. Cash dividends are paid on deferred compensation units. +Deferred +compensation is distributed on the date specified by the director in his election. Upon a "change of control" within the meaning of Internal Revenue Code Section 409A, all account +balances will be fully vested and paid in a single lump sum within 30 days. The definition of a change of control +18 +Table of Contents +event +is the same as the definition under the 2011 Equity Incentive Plan. See Potential Payments upon Change in Control or Termination . +Acceleration of Vesting of Awards +The agreements granting stock and option awards to the directors provide for acceleration of vesting in the event of death, disability or a change of +control event, as defined in the 2011 Equity Incentive Plan. The 2002 Stock Incentive Plan and the 2011 Equity Incentive Plan also grant the Compensation and Governance Committee the authority to +accelerate the vesting or payment of an award. +EXECUTIVE COMPENSATION +COMPENSATION DISCUSSION AND ANALYSIS +EXECUTIVE SUMMARY +This Compensation Discussion and Analysis describes our Executive Compensation program as it relates to the following individuals, our named +executive officers or NEOs: +F. +H. Merelli, Chairman +Thomas E. Jorden, CEO and President +Joseph R. Albi, Ex. VP and COO +Stephen P. Bell, Sr. VP +Paul Korus, Sr. VP and CFO +2011 Implementation of CEO Succession Plan +Effective September 30, 2011, we implemented our CEO succession plan. We named Thomas E. Jorden Chief Executive Officer and President, and +Joseph R. Albi Executive Vice President and Chief Operating Officer. F. H. Merelli, who had been our CEO and President, continued as executive Chairman of the Board. The Committee will consider the +succession plan when making 2012 executive compensation decisions. +Objectives of Executive Compensation Program +• Align performance incentives with long-term interests of our shareholders; +• Provide competitive total compensation opportunities that retain and attract executive talent; and +• Link compensation earned to achievement of short-term and long-term financial and strategic +objectives. +Pay-for-Performance Outcomes +We performed an analysis of "realized compensation" of our CEO, and we believe that our CEO compensation is aligned with total shareholder return +("TSR"). Our analysis included a comparison of: +• Relative CEO realized compensation to relative total shareholder return for the period January 1, +2008-December 31, 2010; +• Cimarex CEO realized compensation to Cimarex TSR for the period January 1, 2006-December 31, 2010; +and +• Cimarex CEO 2010 realized compensation to the median CEO 2010 realized compensation of companies in our compensation peer +group. +19 +Table of Contents +Elements of Compensation +• Base Salary +• Annual cash incentive award +• Long-term equity incentive award +2011 Financial and Operational Results +Below is a brief summary of some key financial and operational results as described in our annual report on Form 10-K for the year +ended December 31, 2011: +• Net income of $530 million, or $6.15 (diluted) per share; +• Cash flow provided by operating activities of $1.3 billion; +• Increased proved reserves 9% to 2.05 trillion cubic feet equivalent; adjusted for property sales, proved reserves +increased 23%; +• Added 587 billion cubic feet equivalent of proved reserves from extensions and discoveries, replacing 272% of +production; +• Sold $229 million of non-strategic assets and reinvested proceeds in core area exploration and +development activities; +• Evaluated, de-risked and expanded our acreage position in several key long-term future drilling +projects; +• Overall production of 592 million cubic feet equivalent per day was about flat with 2010 production; and +• Exited the year with a debt-to-total capitalization ratio at December 31, 2011 of 11% down +from 12% at year-end 2010. +Results of 2011 Shareholder Advisory Vote on Executive Compensation +At our 2011 annual meeting of shareholders, our shareholders cast an advisory vote on our executive compensation, and we received an approval vote of +approximately 76%. We believe it is important for our shareholders to have an opportunity to vote on this proposal as a +means to express their views regarding our executive compensation philosophy, our compensation policies and programs, and our decisions regarding executive compensation. While we determined that no +changes in the structure of our executive compensation program were warranted at this time, we are committed to an ongoing review of the performance outcomes of our compensation program and an ongoing +review of our executive pay practices. The following actions reflect our commitment to this ongoing review: +• Performed an extensive pay-for-performance analysis of our CEO's realized compensation for 2010 +compared to our shareholder return for the same period. We also compared our CEO's relative realized compensation for the period January 1, 2008 through December 31, 2010 to the relative +total shareholder return during this period. The relative comparison included companies in our Compensation Peer Group during the applicable period. See Pay-for-Performance Outcomes below in this +Compensation Discussion and Analysis +for additional information. +• Engaged in discussions with our principal shareholders in order to better understand their concerns with our executive +compensation philosophy and programs and to determine the potential reasons for their 2011 vote. +• The Committee changed the timing of our annual equity incentive awards from January to June of each year to enable the +Committee to have more current information about equity compensation being awarded to executives in our Compensation Peer Group. +• Adopted a clawback policy. See Corporate Governance, Clawback Policy . +20 +Table of Contents +We believe that these actions demonstrate an appropriate response to our shareholder vote, better demonstrate that our executive compensation is aligned with shareholder return +and strengthens our overall compensation governance framework. Our Board of Directors recommends that you vote FOR Proposal 2. See Proposal 2, Advisory Approval of our +Executive Compensation. +Committee Compensation Decisions +• Presented for shareholder approval our new 2011 Equity Incentive Plan that replaced our 2002 Stock Incentive Plan. +• Adjusted base salaries following a review of compensation paid by peer companies. +• Authorized 2011 annual cash incentive awards based upon pre-determined performance factors. +• Implemented the CEO succession plan in September 2011. +• Revised the timing of annual executive long-term equity award grants from January of each year to June of each +year. +These +decisions are discussed in more detail below under the description of each element of executive compensation. +Compensation Risk Assessment +In 2011 and 2012 the Committee performed a compensation risk assessment and determined that risks arising from our compensation policies and +practices for our employees are not reasonably likely to have a material adverse effect on our company. See Compensation Determination Process, Compensation Discussion and +Analysis for a description of the risk assessment. +COMPENSATION PROGRAM OBJECTIVES +Our principal business objective is to profitably grow our proved oil and gas reserves and production for the long-term benefit of our +investors. The primary strategy we use to achieve this objective is to reinvest our cash flow from operations at a competitive +rate of return. Our compensation program is designed to retain and attract, when needed, the experienced professionals necessary to carry out this strategy. +To +achieve these objectives, we design and execute our executive compensation program to: +• Align performance incentives with the long-term interests of our +shareholders. +We +align the long-term interests of our shareholders with the interests of our executives by paying a substantial portion of an executive's total compensation in the form of +performance-based equity awards. The actual awards delivered are dependent upon relative total shareholder return. Also, our stock ownership guidelines encourage executives to have a meaningful +ownership stake. +• Provide competitive total compensation opportunities that retain and attract, when needed, +executive talent. +We +provide compensation opportunities to our executives at levels that are competitive with equivalent positions at companies with which we may compete for talent. In general, we reference the +75 th percentile when we review base salary, long-term equity awards and total compensation. Actual compensation earned by an executive may be above or below this level +based on company and individual performance. +21 +Table of Contents +• Link compensation earned to achievement of short-term and long-term +financial and strategic objectives. +We +provide an annual incentive cash award opportunity that is designed to reward executive efforts for achievement of company financial and strategic objectives. Our long-term equity +incentive awards are designed to reward executives for above-average relative stock price performance. +PAY FOR PERFORMANCE OUTCOMES +Our executive compensation program design is intended to be competitive and to link executive compensation earned with company performance. We define +performance by measuring relative total shareholder return ("TSR") because we believe: (i) a competitive TSR is one of the principal reasons investors buy our shares, (ii) it is a good +indicator of what management has done to create value over time, and (iii) it is a good indicator of total performance outcomes. +The +Committee recently reviewed an analysis by management of a comparison of (i) relative CEO realized compensation to relative TSR for the three-year period ended +December 31, 2010, (ii) Cimarex CEO realized compensation to Cimarex TSR for each of the years ended December 31, 2006 through 2011, and (iii) Cimarex CEO 2010 realized +compensation to the median CEO 2010 realized compensation of companies in our Compensation Peer Group, as defined below in Peer Groups in this Compensation Discussion and +Analysis . The data we used to perform this analysis was derived from publicly filed documents with the SEC by each company +in our Compensation Peer Group, including proxy statements, annual reports on Form 10-K and filings of stock ownership reports. The principal purpose of the review was to assess +whether Cimarex's performance and our CEO's compensation, relative to companies in our Compensation Peer Group, are aligned. +We +elected to measure "realized compensation" rather than compensation disclosed in the Summary Compensation Table (or "SCT"), principally because the value of long-term equity +compensation disclosed in the SCT is driven by accounting assumptions, which do not necessarily reflect compensation actually realized by the CEO in a particular year. This is especially important +when a large portion of equity grants are performance shares. For example, we measure the value of performance awards when earned rather than the value of the awards at the time of grant. +The +following table provides a comparison of SCT reported compensation to our definition of "realized compensation": +Element of Compensation +SCT Value +Realized Compensation Value +Base Salary +Salary earned +Salary earned +Non-Equity Incentive Plan Compensation +Actual incentive earned +Actual incentive earned +Time-vested restricted stock +Fair value determined as of the date of grant in accordance with accounting rules for compensation expense +Value of restricted stock granted during period measured (vested or unvested), using the stock price at the end of the period measured +Performance award of restricted stock +Fair value determined as of the date of grant in accordance with accounting rules for compensation expense +Value of the performance shares earned and vested during the period measured, using the stock price at vesting +Stock Options +Fair value determined as of the date of grant in accordance with accounting rules for compensation expense +Black Scholes value of options granted during the period measured (vested or unvested), using the stock price at the end of the period measured +22 +Table of Contents +The +following graphs illustrate the results of our pay-for-performance review and reflect that our CEO realized pay is aligned with relative total shareholder +return. +Comparison of Relative CEO Realized Pay to Relative Total Shareholder Return +for the period January 1, 2008 – December 31, 2010 +(Comparison Group = Cimarex's +Compensation Peer Group) +The +following graph represents relative alignment and plots percentiles of performance for Cimarex (•) and its Compensation Peer Group +( à ) (1) . +During +the period 2008 through 2010, our CEO's realized compensation was at the 62 nd percentile of the CEOs of companies in our Compensation Peer Group, while our relative TSR was +at the 100 th percentile when compared to the TSR of companies in the same Peer Group. +(1) Each of the following companies was in the Compensation Peer Group for the period measured: +Cabot Oil & Gas Corporation +Noble Energy, Inc. +Range Resources Corp. +Denbury Resources, Inc. +Petrohawk Energy Corporation +SM Energy Company +EXCO Resources, Inc. +Pioneer Natural Resources +Southwestern Energy Company +Forest Oil Corporation +Quicksilver Resources Inc. +Whiting Petroleum Corp. +Newfield Exploration Co. +23 +Table of Contents +Comparison of Cimarex CEO Realized Pay to Cimarex's Total Shareholder Return +(January 1, 2006 – December 31, 2010) +The following graph illustrates our CEO realized pay compared to our TSR for the years 2006 through 2010. Indexed TSR represents the cumulative total +return of Cimarex stock for a three-year fiscal period based on a $100 investment on the first year, and assumes that all dividends are reinvested. +24 +Table of Contents +Comparison of Cimarex CEO Realized Compensation to Median Realized Compensation +of Companies in Our Compensation Peer Group +for 2010 +The following graph reflects that our total 2010 CEO pay is 0.85 times the median of our peers. The ¨ +represents the median or the 50 th percentile. +25 +Table of Contents +COMPENSATION DETERMINATION PROCESS +Compensation Consultant +The Committee uses Longnecker & Associates ("Longnecker"), an independent compensation consultant, for information and advice about program +design and implementation and to ensure that the design and elements of compensation are consistent with the objectives of the program. Longnecker does not perform services for management. During +2011, the Committee engaged Longnecker to provide the following services: +• Review Cimarex and peer company executive compensation programs to assess the competitiveness and provide recommendations +to the Committee. +• Review annual cash incentive awards proposed by management. +• Determine market competitive executive base salary levels and provide recommendations. +• Determine market competitive director compensation levels and provide recommendations. +• In connection with the implementation of Cimarex's CEO succession plan, review management's proposals and recommend for +Committee discussion and approval executive officer base salary adjustments and new option awards. +• Review long-term equity incentive program and the performance metrics used. +Role of Management +Prior to implementation of our succession plan in September of 2011, our executive Chairman (formerly our CEO and President) was the principal +management resource for compensation recommendations to the Committee with respect to the other NEOs. Following implementation of the succession plan, our executive Chairman and our current CEO +jointly confer regarding executive compensation recommendations. +The +CEO (i) provides an annual assessment of Cimarex's overall financial and operational performance, and (ii) subjectively evaluates individual NEO performance and recommends individual +base salary adjustments, annual cash incentive awards and long-term equity incentive awards. His subjective evaluations generally included factors such as scope of responsibility, +contribution to company performance, technical competence, managerial skills and advancement potential. The Committee considers the CEO's recommendations in making Committee decisions regarding +executive compensation. The Committee exercises its discretion to accept, reject or modify management compensation recommendations. +Our +Vice President of Human Resources acts as an informational resource to Longnecker and the Committee and compiles survey and other compensation data for their review. The Committee, in consultation +with Longnecker, reviews this information when making executive compensation and program design decisions. +Peer Groups +The Committee uses comparative industry information as a resource in reviewing and making annual base salary adjustments and determining the value of +long-term equity incentive awards. The Committee also uses comparative information as a point of reference when reviewing total direct compensation. +Each +year the Committee, with input from Longnecker, identifies companies to be included in its comparator group (the "Compensation Peer Group"). Companies included in this Peer Group are companies in +our industry of similar size and scope of operations and similar market capitalization and +26 +Table of Contents +revenue. +In 2011, based upon information provided by Longnecker, the Committee approved the following Compensation Peer Group: +Cabot Oil & Gas Corporation +Pioneer Natural Resources +Denbury Resources Inc. +Quicksilver Resources Inc. +EXCO Resources, Inc. +Range Resources Corp. +Forest Oil Corporation +Southwestern Energy Company +Newfield Exploration Co. +SM Energy Company +Noble Energy, Inc. +Whiting Petroleum Corp. +Petrohawk Energy Corporation +The +year-end 2010 market capitalization of these companies ranged from $2.5 billion to $15.1 billion, and the 2010 revenue of these companies ranged from +$515 million to $2.9 billion. Cimarex's year-end 2010 market capitalization was $7.5 billion, and its 2010 revenue was $1.6 billion. +Generally, +we use the 75 th percentile as a reference point when reviewing executive base salaries and long-term incentive awards when comparing to executives holding +similar positions with companies in our Compensation Peer Group. We also use the 75 th percentile as a point of reference in reviewing total compensation. The +75 th percentile is a reference point; we do not automatically compensate each individual at the 75 th percentile. Several variables, including individual and +division performance, time in position, annual company performance, and three-year relative stock price performance, influence the actual executive compensation decisions. +Compensation Risk Assessment +Each year the Committee performs a compensation risk assessment. In 2011 and again in 2012, the Committee has determined that risks arising from our +compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our company. The Committee's review covers our compensation policies and practices +covering our executive and non-executive employees to determine whether the policies and practices encourage excessive risk taking by employees. The Committee reports its findings to the +Board. The review covers our incentive plans, how awards are determined, the maximum incentive to take risk, the decision-making and approval process and the systemic limitations on the ability to +take excessive risks in order to influence compensation. +Total Compensation and Internal Pay Equity Guidelines +The Committee considers the effect on total compensation at the time it makes a decision on each element of executive compensation. The Committee +also reviews the relationship of the CEO's total compensation to the total compensation of each of the other NEOs. +Our +internal pay equity guidelines provide that the CEO's base salary should not be more than three times the base salary of the next highest compensated NEO, and the CEO's cash incentive award should +not be more than three times the cash incentive award of the next highest cash incentive award. Our Board must approve any deviation from these guidelines. For 2011, our CEO's base salary and annual +cash incentive award were consistent with our internal pay equity guidelines. +Tax Law Considerations +The Committee considers the impact of applicable tax laws with respect to executive compensation. Section 162(m) of the Internal Revenue Code +of 1986, as amended limits the amount of compensation that Cimarex may deduct on its federal income tax return for compensation paid to certain executive officers to no more than $1 million per +year. There are exceptions to the $1 million limitation for performance-based compensation meeting certain requirements. The performance awards of restricted stock are the only element of +executive compensation designed to qualify for the performance-based +27 +Table of Contents +exception +to the $1 million deduction limit provided additional requirements are met. The performance award program and the performance metrics applicable to the awards were approved by Cimarex +shareholders in May 2011. The Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under +Section 162(m). +ELEMENTS OF EXECUTIVE COMPENSATION +Our executive compensation program is comprised of three principal elements: (i) base salary, (ii) annual cash incentive awards, and +(iii) long-term equity incentive awards. The other elements of compensation, which include our 401(k) defined contribution plan, non-qualified supplemental savings plan, +perquisites and post-termination benefits, are not principal elements of our executive compensation program. +We +do not specifically allocate a fixed portion of compensation between cash and equity-based compensation or between annual and long-term incentive compensation. However, executive +compensation is weighted in favor of "at-risk" compensation represented by our annual cash incentive awards and long-term performance-based incentive awards. The following +charts illustrate, both for compensation reported in the SCT and for realized compensation that (i) a significant portion of our CEO compensation is equity-based long-term +compensation that rewards the CEOs when our shareholders are rewarded and (ii) a significant portion is variable and "at risk." +Base Salary +We provide competitive executive compensation in order to retain our executives and maintain a program to attract other executives should there be a +need. The Committee makes base salary adjustment decisions at its May meeting each year, and any base salary adjustment is effective on June 1. The Committee compares each NEO's base salary +with the base salary paid for a similar executive position by companies in our Compensation Peer Group. The Committee also considers the CEO's recommendations, which is based on his subjective +evaluation of each executive officer's performance. +28 +Table of Contents +Longnecker +compiles comparative salary data derived from publicly filed proxy statements and surveys. Because publicly available data is not always current, Longnecker adjusts or updates the data to +estimate current compensation for the executives of the companies in the Compensation Peer Group. +In +May 2011, Longnecker compared the base salaries of each NEO to the base salaries of comparable NEOs for companies in the Compensation Peer Group. Longnecker's analysis indicated that our +executives' base salaries were at or near the 75 th percentile, which aligns with our base salary goal. Longnecker recommended an overall 4% increase in base salary levels to +remain consistent with the external market. The Committee recommended to the Board and the Board approved the following increases in the base salary of each NEO: +Name +Title +1/1/11 to 5/31/11 +Base Salary +After 6/1/11 +Base Salary +F. H. Merelli +Chairman* +$ +880,000 +$ +915,000 +* +Thomas E. Jorden +CEO and President* +$ +484,500 +$ +504,000 +* +Paul Korus +Sr. VP, CFO +$ +434,700 +$ +452,000 +Joseph R. Albi +Ex. VP, COO* +$ +446,100 +$ +464,000 +* +Stephen P. Bell +Sr. VP, Bus. Dev./Land +$ +369,500 +$ +385,000 +* In +September 2011, we implemented our CEO succession plan and named Thomas E. Jorden, Chief Executive Officer and President, and Joseph R. Albi, Executive +Vice President and Chief Operating Officer. F. H. Merelli, who had been the CEO and President, became our executive Chairman. At the time of the implementation of the succession plan, the Board +increased the base salaries of Messrs. Jorden and Albi to $672,000 and $500,000, respectively. +Annual Cash Incentive Awards +In 2009, the Board, upon the Committee's recommendation, determined to discontinue a rigid formula for calculating annual cash incentive awards. The +Committee approved a more flexible awards program that emphasizes certain factors that are common measurements of performance in our industry. In the year prior to performance, the Committee, after +consulting with its compensation consultant, the Vice President of Human Resources, the executive Chairman and the CEO, approves the factors to be considered in making annual cash incentive awards for +the next year. +In +2010 the Committee approved the following factors to be considered for 2011 annual cash incentive awards, to be paid in 2012: +• Industry conditions +• Relative performance compared to peer companies +• Cash flow +• Competitive environment +• Reserve replacement +• Oil and gas production changes +• Cost control and expense management +• Safety +• Environmental and regulatory compliance +The +annual cash incentive awards are made to two categories of executive officers: (i) the CEO and, beginning in 2011, the executive Chairman, and (ii) the other executive officers +(including the +29 +Table of Contents +remaining +NEOs). The awards to the executive officers (other than the executive Chairman and the CEO) are distributed from a pool. The following table illustrates the target, maximum and minimum +annual cash incentive awards for the executive Chairman, the CEO and the remaining executive officers (including the other NEOs) participating in the award pool: +Executive Officer +Target +Maximum +Minimum +CEO and Chairman +100% of individual base salary +200% of individual base salary +No minimum +Remaining Pool of Executives +100% of aggregate base salaries +200% of aggregate base salaries +No minimum pool +Individual executive officer (excluding Chairman and CEO) +100% of individual base salary +No individual maximum (within limits of pool) +No individual minimum +At +its February meeting, the Committee reviews company performance results covered by the performance factors the Committee approved the previous year. The Committee also confers with its compensation +consultant. The Committee receives recommendations for individual executive awards from the executive Chairman and the CEO. The Committee, in consultation with its compensation consultant, may accept +or modify these recommendations. The Committee then recommends for approval by the Board the pool and individual awards to executive officers (except for the executive Chairman and the CEO). The +non-management members of the Board of Directors consider and approve all annual cash incentive awards, including the awards to be made to the executive Chairman and the CEO. +At +its February 2012 meeting, the Committee considered the following results for their previously approved performance factors in recommending the annual cash incentive awards: +Change in production year over year: +2011 decrease of 0.6% from 2010 production. With adjustments for 2010 and 2011 property sales, production was about flat with 2010 production. +Change in reserves year over year: +Proved reserves increased 9%, and when adjusted for significant property dispositions, increased 23%. +Relative stock price performance over one year and three years: +12/30/10 to 12/31/11, Cimarex ranked at the 19 th percentile. +12/31/08 through 12/31/2011, Cimarex ranked at the 82 nd percentile. +Exploration activity and results: +Invested $1.58 billion in drilling; drilled 331 gross/174 net wells. +Permian and Mid-Continent proved reserves increased 26% to all-time high of 2.0 Tcfe. +Extensions and discoveries added 587 Bcfe of reserves. +Exploration replaced 272% of production. +Property sales: +Completed sale of Riley Ridge for $195 million; other miscellaneous property sales for $33 million. +30 +Table of Contents +Cash flow: +Cash flow from operations of $1.31 billion. +Base property production compared to Plan: +Actual net operating income was 96.8% of Plan (adjusted for commodity prices). +Safety: +OSHA Lost Time Incident Rate per 10,000 full-time workers: Cimarex 0; Industry 1.2. +Cimarex workers' compensation experience rate is 0.56 compared to industry rate of 1.0. +1 recorded fatality in 2011 which was an auto accident involving an employee driving home from work. +Implemented ISNetworld's contractor safety program. +Significant actions affecting 2011 performance: +Transition to new CEO and COO. +Reviewed specific regional drilling activity and opportunities. +Debt at 12/31/2011 of $405 million, consisting of $350 million of senior notes and $55 million of bank debt; debt-to-capital ratio of 11% compared to 12% at 12/31/2010. +The +Board approved the following cash incentive awards that were paid on February 28, 2012 to each of the NEOs for services performed in 2011. These awards are also listed in the Non-Equity Incentive Plan +Compensation column of the Summary Compensation Table. +Name +Cash Incentive Award +% of Base Salary +F. H. Merelli +$ +600,000 +66 +% +Thomas E. Jorden +$ +750,000 +111 +% +Joseph R. Albi +$ +400,000 +80 +% +Stephen P. Bell +$ +350,000 +91 +% +Paul Korus +$ +350,000 +77 +% +Long-Term Equity Incentive Award Program +The long-term equity incentive award program balances the short-term annual cash incentive program by focusing executive +efforts on the activities and short-term results that lead to long-term shareholder value. Each year the Committee grants annual awards to NEOs of time-vested +restricted stock and performance awards of restricted stock. The performance measure used for determining the number of shares to be delivered upon vesting is Cimarex's relative stock price +performance when compared to companies in a stock performance peer group. The stock performance peer group consists of companies in the S&P 400 and 500 Oil and Gas Exploration Indices (the +"Stock Performance Peer Group"). The companies included in the Stock Performance Peer Group at the time of granting the 2011 performance awards were: +S&P 400 Oil & Gas Exploration Index: +S&P 500 Oil & Gas Exploration Index: +Bill Barrett Corp. +Anadarko Petroleum Corp. +EQT Corp. +Comstock Resources Inc. +Apache Corp. +Newfield Exploration Co. +Forest Oil Corp. +Cabot Oil & Gas Corp. +Noble Energy Inc. +Plains Exploration & Production Co. +Chesapeake Energy Corp. +Pioneer Natural Resources Co. +Quicksilver Resources Corp. +Denbury Resources Inc. +QEP Resource, Inc. +SM Energy Company +Devon Energy Corp. +Range Resources Corp. +EOG Resources Inc. +Southwestern Energy Co. +31 +Table of Contents +Cimarex selected these forms of long-term equity awards because time-vested awards encourage executive retention, and performance awards tie a +significant portion of an executive's compensation to Cimarex's relative stock price performance over time and align the executive's interest with the long-term interests of our +shareholders. Stock price performance over time is a good indicator of long-term success. +The +time-vested and performance awards vest three years from the date of grant and are subject to a continuous service requirement. Dividends equivalent to those paid on Cimarex common +stock are paid on the shares of time-vested restricted stock. Dividends applicable to the performance awards of restricted stock are accrued. At the time of vesting of the performance +award, only dividends applicable to the shares earned are paid. The dividends accrued on the shares not earned are forfeited and returned to the company's general funds. +The +relative stock price performance is determined by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in the Stock Performance +Peer Group for the 30 trading days preceding the first day of the year of the grant and the 30 trading days preceding the last day of the year immediately preceding the third anniversary of the grant. +The Committee ranks Cimarex and calculates its relative performance percentile. If our relative stock price performance is 25% or less, none of the performance award vests. For each relative stock +price performance percentile increase above 25%, an additional 2% of the performance award vests. +The +following table shows the long-term equity awards granted from inception of the program through December 31, 2011 and the vesting of the awards that occurred in January 2009, +2010, 2011 and 2012: +Grant Date +Performance Shares Granted +Time- +Vested +Shares +Granted +Vesting +Date +Performance +Shares +Earned (1) +Time- +Vested +Awards +Issued +CEO +1/2006 +30,000 +30,000 +1/2009 +10,800 +30,000 +1/2007 +30,000 +30,000 +1/2010 +27,600 +30,000 +1/2008 +30,000 +30,000 +1/2011 +30,000 +30,000 +1/2009 +30,000 +30,000 +1/2012 +30,000 +30,000 +1/2010 +50,000 +50,000 +1/2013 +NA +NA +1/2011 +47,863 +47,863 +1/2014 +NA +NA +Each NEO +1/2006 +15,000 +15,000 +1/2009 +5,400 +15,000 +1/2007 +15,000 +15,000 +1/2010 +13,800 +15,000 +1/2008 +15,000 +15,000 +1/2011 +15,000 +15,000 +1/2009 +15,000 +15,000 +1/2012 +15,000 +15,000 +1/2010 +25,000 +25,000 +1/2013 +NA +NA +1/2011 +23,931 +23,932 +1/2014 +NA +NA +(1) The +Compensation Committee certified the calculation of the number of shares of stock to be paid to the CEO and the NEOs. The following table +provides details regarding the results of each calculation: +Vesting Date +No. of Companies in +Peer Group +Cimarex's Rank in +the Peer Group +Cimarex's Percentile +% of Performance +Award Earned +January 2009 +14 +8 +43 rd percentile +36 +% +January 2010 +14 +4 +71 st percentile +92 +% +January 2011 +13 +1 +92 nd percentile +100 +% +January 2012 +23 +5 +78 th percentile +100 +% +32 +Table of Contents +2011 Awards +In September 2010, the Committee requested Longnecker to provide a market analysis and recommendation about the continuation of Cimarex's +long-term incentive award program. Longnecker reported that Cimarex's use of relative stock price performance as the primary performance metric for vesting of performance-based stock +awards is a prevalent and reasonable performance measure, and recommended that the Committee continue the use of that performance metric for the long-term incentive program. Longnecker +further recommended that Cimarex continue to allocate its long-term incentive awards between time-vested restricted stock and performance awards. +In +December 2010, Longnecker recommended that the Committee consider a "value-based" rather than a "share-based" award methodology to determine the number of shares to be awarded to the executive +officers. With a value-based methodology, a target dollar pool is selected for long-term awards to the NEO group. The number of shares awarded depends on the stock price at the time of the +date of grant. The Committee agreed with Longnecker's recommendation. +Based +on public filings with the SEC, including proxy statements and stock ownership reports, Longnecker estimated the value of equity awards to be made by companies in the Compensation Peer Group in +2011. Longnecker reported that companies in the Compensation Peer Group whose expected long-term equity awards to NEOs placed them in the 75 th percentile or higher, +could be reasonably anticipated to issue equity awards for the NEO group with values ranging from $18.4 million to $27.8 million (prior to any discount for performance shares pursuant to +FASB ASC Topic 718). Longnecker recommended to the Committee that our long-term incentive pool for our NEO group be established within this range. +The +Committee determined that a $24.7 long-term incentive award pool, which would place Cimarex at about the 90 th percentile, was justified and appropriate because: +(i) in 2010 Cimarex delivered extraordinary financial and operational performance, and (ii) Cimarex had the best relative stock price performance of all the companies in the Stock +Performance Peer Group for the one-year and three-year periods ended on December 31, 2010. +The +Committee determined the number of shares to be awarded by dividing the total pool value of $24.7 million by Cimarex's average closing stock price over a period of 30 days preceding +the January 3, 2011 grant date ($86.03). This calculation resulted in an aggregate grant of 287,179 shares. +The +table below shows the shares granted to each of the NEOs. Fifty percent of the shares will vest on the third anniversary of the grant provided the recipient continues to be employed by Cimarex. +Vesting of the remaining fifty percent will be based on Cimarex's relative stock price performance compared to that of companies in the Stock Performance Peer Group during the period January 1, +2011 through December 31, 2013. +As +reflected in the following table, the Committee continued the practice of granting one-third of the total shares to Mr. Merelli, with the remaining two-thirds divided +equally among the four other NEOs. This practice, which has been in place for many years, is designed to reinforce the team functioning of the executive group. +Name +Title* +Time-Vested +Restricted Stock +Granted +Performance +Awards Granted +F. H. Merelli +Chairman +47,863 +47,863 +Thomas E. Jorden +CEO, President +23,931 +23,932 +Paul Korus +Sr VP, CFO +23,931 +23,932 +Joseph R. Albi +Ex. VP, COO +23,931 +23,932 +Stephen P. Bell +Sr VP, Bus Dev/Land +23,931 +23,932 +* The +listed titles reflect the titles of these executive officers following the implementation of the succession plan in September 2011. +33 +Table of Contents +September 30, 2011 Option Grants +In connection with the implementation of the succession plan, the Committee proposed option grants to each of the NEOs, other than the executive +Chairman, and Longnecker concurred with the recommendation. Effective September 30, 2011, the Committee awarded options to the following NEOs (except the executive Chairman) at an exercise +price based on the average of the high and low prices of Cimarex's common stock as reported by the NYSE on September 30, 2011 ($55.96). Each option is scheduled to vest three years from the +date of grant. +Name +No. of Shares +Subject to Option +Thomas E. Jorden +25,000 +Joseph R. Albi +25,000 +Stephen P. Bell +25,000 +Paul Korus +15,000 +December 2011 Committee Action +At its December 2011 meeting, the Committee postponed the timing of the annual NEO performance awards from January 2012 to June 2012. This change was +made because it was difficult for the Committee to obtain current peer company compensation data to determine the appropriate comparison of value for the long-term incentive awards. When +the awards are made in January, most of the peer company compensation data is over one year old. By deferring the determination of the awards until the May Board meeting, the Committee and Longnecker +will have access to more current peer group compensation information from recently filed proxy statements. The annual long-term incentive awards will now be made effective June 1 +rather than January 1. As a result of the postponement, the NEOs will forego five months of their rolling performance award program. +Other Compensation +The following compensation is not considered a material part of Cimarex's executive compensation program: +Perquisites +Perquisites that are provided to executive officers include a medical expense reimbursement program, athletic and dining club memberships and an +estate- planning allowance. Our corporate aircraft is not generally available for personal use. Our corporate aircraft, upon the approval by the CEO and President, COO or the Sr. +VP-Business Development & Land, may be used by an executive officer and a member of his family for personal medical reasons. The incremental cost for non-business use of +our corporate aircraft is disclosed in the Summary Compensation Table . In addition, we use the Standard Industry Fare Level tables published by the +Internal Revenue Service to determine the amount of compensation income that is imputed to the executive for tax purposes for personal use of corporate aircraft. +Retirement Benefits +The NEOs are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. This plan is open to participation by all Cimarex +employees who have or will have at least 1,000 hours of service. Under the plan, Cimarex matches dollar-for-dollar employee contributions to the plan up to 7% of the +employee's cash compensation, subject to limits imposed by Internal Revenue Code. In December 2007, the Board approved profit-sharing contributions under the 401(k) Plan based on fiscal +year-end financial results. +34 +Table of Contents +At +the Committee's February 2012 meeting, the Committee recommended and the Board authorized a profit-sharing contribution of 3% of the gross pay of eligible participants under the 401(k) Plan. +Supplemental Savings Plan +We also sponsor a Supplemental Savings Plan, a non-qualified deferred compensation plan that permits eligible participants, including the +NEOs, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Code limitations. See Compensation Tables , 2011 Nonqualified Deferred +Compensation, for information about contributions to the Supplemental Savings Plan. +Each +NEO is 100% vested in all matching contributions as a result of having satisfied the service requirements. Contributions are invested in mutual funds available for investment under the Cimarex +401(k) Plan. The officer selects the funds for investment by providing advisory investment direction to Cimarex. +The +Committee administers this plan and designates who may participate in the plan. Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a +period not longer than 15 years, as the participant elects. In the event of a change in control, each participant receives a cash lump sum payment of the amount allocated to his/her account as +of the last day of the month immediately preceding the date of the change of control. A change in control under the Supplemental Savings Plan is the same as the definition of a "change of control +event" in our 2011 Equity Incentive Plan. See Potential Payments upon Change in Control or Termination for a summary of the definition of a "change of +control event." +Termination Benefits +Cimarex's Change in Control Severance Plan provides that, if an employee is terminated for any reason other than "cause" (as defined in the plan) +within two years following a change in control, that employee would be entitled to cash severance payments of salary and cash incentive award, a pro-rata portion of annual cash incentive +bonus, continued medical, dental, disability and life insurance benefits for two years, and additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue +Code. Mr. Merelli has an employment agreement that provides for cash payments of 24 months of base salary and his maximum incentive bonus in the event of death, disability or termination +by Cimarex without cause. See Potential Payments upon Change in Control or Termination for a more detailed description of these benefits. +REPORT OF COMPENSATION AND GOVERNANCE COMMITTEE +The Compensation and Governance Committee oversees Cimarex's executive and director compensation program on behalf of the Board of +Directors. The Compensation and Governance Committee reviewed and discussed the Compensation Discussion and Analysis report included in this Proxy Statement with management. Based on its review and +discussions, the +Compensation and Governance Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. +COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +35 +Table of Contents +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The following table describes 2011, 2010 and 2009 compensation of our Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and the three +other most highly compensated executive officers. Only our CEO has an employment agreement. See Potential Payments Upon Change in Control or Termination +for information about his employment agreement. +Name and +Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards (2) +Non-Equity +Incentive +Plan Comp. (3) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp. (4) +Total +F.H. Merelli, +2011 +$ +900,596 +$ +– +$ +6,988,955 +$ +– +$ +600,000 +$ +– +$ +116,068 +$ +8,605,619 +Chairman of the +2010 +$ +867,500 +$ +– +$ +4,194,000 +$ +– +$ +1,760,000 +$ +– +$ +46,040 +$ +6,867,540 +Board +2009 +$ +850,000 +$ +– +$ +1,435,734 +$ +– +$ +1,700,000 +$ +– +$ +41,140 +$ +4,026,874 +Thomas E. Jorden +2011 +$ +538,621 +$ +– +$ +3,494,478 +$ +479,260 +$ +750,000 +$ +– +$ +43,590 +$ +5,305,949 +Chief Executive +2010 +$ +477,625 +$ +– +$ +2,097,000 +$ +– +$ +1,061,600 +$ +– +$ +56,392 +$ +3,692,617 +Officer and +2009 +$ +468,007 +$ +– +$ +717,867 +$ +– +$ +936,000 +$ +– +$ +40,933 +$ +2,162,800 +President (CEO) +Paul Korus +2011 +$ +444,881 +$ +– +$ +3,494,478 +$ +287,556 +$ +350,000 +$ +– +$ +56,714 +$ +4,633,629 +Sr. Vice President, +2010 +$ +428,575 +$ +– +$ +2,097,000 +$ +– +$ +865,500 +$ +– +$ +45,617 +$ +3,436,692 +Chief Financial +2009 +$ +420,000 +$ +– +$ +717,867 +$ +– +$ +630,000 +$ +– +$ +49,522 +$ +1,817,389 +Officer (CFO) +Joseph R. Albi +2011 +$ +465,772 +$ +– +$ +3,494,478 +$ +479,260 +$ +400,000 +$ +– +$ +70,276 +$ +4,909,786 +Ex Vice President – +2010 +$ +439,808 +$ +– +$ +2,097,000 +$ +– +$ +964,600 +$ +– +$ +64,850 +$ +3,566,258 +Chief Operating Officer +2009 +$ +431,000 +$ +– +$ +717,867 +$ +– +$ +862,000 +$ +– +$ +54,663 +$ +2,065,530 +Stephen P. Bell +2011 +$ +378,621 +$ +– +$ +3,494,478 +$ +479,260 +$ +350,000 +$ +– +$ +57,015 +$ +4,759,374 +Sr Vice President – +2010 +$ +364,292 +$ +– +$ +2,097,000 +$ +– +$ +770,600 +$ +– +$ +58,924 +$ +3,290,816 +Business Development +2009 +$ +357,000 +$ +– +$ +717,867 +$ +– +$ +535,500 +$ +– +$ +63,211 +$ +1,673,578 +and Land +(1) Represents +the grant date fair value, which is consistent with the estimate of aggregate compensation cost to be recognized over the service +period determined as of the grant date under FASB ASC Topic 718. +The +following represents the potential intrinsic value of each award based upon the closing stock price on the date of grant times the total number of shares subject to the award: +Executive Officer +2011 Award +2010 Award +2009 Award +F. H. Merelli +$ +8,615,340 +$ +5,517,000 +$ +1,729,800 +Thomas E. Jorden +$ +4,307,670 +$ +2,758,500 +$ +864,900 +Paul Korus +$ +4,307,670 +$ +2,758,500 +$ +864,900 +Joseph R. Albi +$ +4,307,670 +$ +2,758,500 +$ +864,900 +Stephen P. Bell +$ +4,307,670 +$ +2,758,500 +$ +864,900 +(2) Represents +the grant-date fair value utilizing the Black-Scholes option pricing model. +(3) Amount +reported for the year earned. +36 +Table of Contents +(4) The +following describes the components of other items of compensation, including any perquisite in excess of $10,000. +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Life +Insurance +Premiums +Total +Other +Compensation +F. H. Merelli, Chairman +2011 +$ +– +$ +40,350 +$ +3,240 +$ +116,068 +(a) +2010 +$ +– +$ +42,800 +$ +3,240 +$ +46,040 +2009 +$ +– +$ +37,900 +$ +3,240 +$ +41,140 +Thomas E. Jorden CEO +2011 +$ +– +$ +40,350 +$ +3,240 +$ +43,590 +2010 +$ +– +$ +42,800 +$ +3,140 +$ +56,392 +2009 +$ +– +$ +37,900 +$ +3,033 +$ +40,933 +Paul Korus, CFO +2011 +$ +– +$ +40,350 +$ +2,882 +$ +56,714 +(a) +2010 +$ +– +$ +42,800 +$ +2,817 +$ +45,617 +2009 +$ +8,900 +$ +37,900 +$ +2,722 +$ +49,522 +Joseph R. Albi +2011 +$ +– +$ +40,350 +$ +3,094 +$ +70,276 +(a) +2010 +$ +5,180 +$ +42,800 +$ +2,891 +$ +64,850 +2009 +$ +– +$ +37,900 +$ +2,793 +$ +54,663 +Stephen P. Bell +2011 +$ +14,212 +$ +40,350 +$ +2,453 +$ +57,015 +2010 +$ +13,730 +$ +42,800 +$ +2,394 +$ +58,924 +2009 +$ +22,998 +$ +37,900 +$ +2,313 +$ +63,211 +(a) Mr. Merelli's +total other compensation includes $72,253 attributable to the incremental cost of the use of corporate aircraft, and +$225 for reserved parking, for total perquisites of $72,478. +Mr. Korus' +total other compensation includes $8,059 reimbursement for estate planning costs, $3,323 payment for club dues, $1,260 for medical reimbursements and $840 for reserved parking, for +total perquisites of $13,482. +Mr. Albi's +total other compensation includes $13,763 attributable to the incremental cost of the use of corporate aircraft, $12,229 for medical reimbursements and $840 for reserved parking, for +total perquisites of $26,832. +The incremental cost of the use of corporate aircraft is based on the average variable operating costs which include fuel, repairs, catering, landing fees, +ground services and other miscellaneous variable costs divided by the annual number of hours the aircraft flew to determine the average variable cost per hour which is then multiplied by the hours +flown for personal use. The incremental costs include "deadhead" flights related to such usage. Fixed costs that do not change based on usage are not included. +37 +Table of Contents +2011 GRANTS OF PLAN-BASED AWARDS +Non-Equity Incentive Plan +Our annual cash incentive awards were made to two categories of executive officers: (the CEO and, beginning in 2011, the executive Chairman, and +(ii) the other executive officers (including the remaining NEOs). The awards to the executive officers (other than the executive Chairman and the CEO) are distributed from a pool. Awards are at +risk and there is no threshold. +• The CEO's target is 100% of his year-end annualized salary, and his award is limited to 200% of his salary. +• Except for the CEO, there are no other individual targets for the other executive officers, +including the NEOs. Our plan provides for an aggregate target of 100% of the combined year-end annualized base salaries of all other executives participating +in the incentive plan. +• The aggregate maximum awards to all executives other than the CEO but including the other NEOs, is 200% of their total +combined year-end annualized base salaries. +See +the description of the our annual cash incentive award plan in Compensation Discussion and Analysis . +The +following table is presented in accordance with SEC rules. However, the information required by the table is not consistent with the design of our annual cash incentive plan because, except for +our executive Chairman and the CEO, our plan does not provide for individual targets or individual +maximum awards. Despite these limitations, the table sets forth target and maximum amounts for the NEOs as if they were determined on an individual basis instead of on a pool-based +approach. +The +amounts listed in the Target column represent 100% of the year-end monthly base salary annualized. The amounts listed in the Maximum column represent 200% +of the year-end monthly salary annualized. +Estimated Future Payouts Under +Non-Equity Incentive Plan +Name +Threshhold +Target +Maximum +Actual +Award +Paid in +March 2012 +F. H. Merelli, Chairman +$ +0 +$ +915,000 +$ +1,830,000 +$ +600,000 +Thomas E. Jorden, CEO +$ +0 +$ +672,000 +$ +1,344,000 +$ +750,000 +Paul Korus, CFO +$ +0 +$ +452,000 +$ +904,000 +$ +350,000 +Joseph R. Albi +$ +0 +$ +500,000 +$ +1,000,000 +$ +400,000 +Stephen P. Bell +$ +0 +$ +385,000 +$ +770,000 +$ +350,000 +38 +Table of Contents +Equity Incentive Plan Awards +The following table provides information regarding the awards of restricted stock and options made to the CEO, the CFO and other NEOs in 2011. See Compensation Discussion and Analysis, Elements of Total +Executive Compensation, Long-Term Equity Incentive Award Program for more +information about these awards. +Estimated Future Payouts Under +Equity Incentive Plan Awards +Grant Date +Fair Value of +Stock & +Option +Awards (5)(6) +Name +Type of +Award (1) +Award +Grant +Date +Comp +Comm. +Action Date +Threshold (2) +Target (3) +Maximum +All Other +Option +Awards (4) +Exercise +Price of +Option +Awards +F.H. Merelli +Chairman +RSA +1/3/11 +12/21/10 +47,863 +95,726 +95,726 +– +– +$ +6,988,955 +Thomas Jorden CEO +RSA +1/3/11 +12/21/10 +23,932 +47,863 +47,863 +$ +3,494,478 +NQ +9/30/11 +8/25/11 +25,000 +$ +55.96 +$ +479,260 +Paul Korus, CFO +RSA +1/3/11 +12/21/10 +23,932 +47,863 +47,863 +$ +3,494,478 +NQ +9/30/11 +8/25/11 +15,000 +$ +55.96 +$ +287,556 +Joseph Albi +RSA +1/3/11 +12/21/10 +23,932 +47,863 +47,863 +$ +3,494,478 +NQ +9/30/11 +8/25/11 +25,000 +$ +55.96 +$ +479,260 +Stephen Bell +RSA +1/3/11 +12/21/10 +23,932 +47,863 +47,863 +$ +3,494,478 +NQ +9/30/11 +8/25/11 +25,000 +$ +55.96 +$ +479,260 +(1) RSA = +Restricted stock (time-vested and performance shares) +NQ = Nonqualified stock option +(2) Represents +one-half of the total potential award that vests on the third anniversary of the award, subject to continued service. +(3) The +terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex's stock +price performance relative to its peers and is not computed until the third anniversary of the award. See Long-Term Equity Incentive Award +Program for the method of computing the number of shares that vest. The actual number of shares that vest will not be determinable until January 3, 2014 (the third +anniversary of the award). The shares disclosed in this column represent the shares the executive would have been entitled to (based upon December 2011 stock prices), had the award vested on +January 3, 2012. Ordinary cash dividends are paid on the maximum number of shares during the vesting period. (Beginning with awards made in 2012, cash dividends will be paid on the threshold +number of shares during the vesting period and accrued during the vesting period on the remaining number of shares which are subject to measurement of relative total shareholder return upon +satisfaction of vesting.) +(4) These +grants related to the implementation of our CEO succession plan effective September 30, 2011. See Compensation Discussion and Analysis, September 30, 2011 Option Grants. +(5) For +restricted stock, represents the grant date fair value based on the probable outcome of the performance conditions, which is consistent +with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. +(6) For +stock options, represents the grant date fair value utilizing the Black-Scholes option pricing model. +39 +Table of Contents +The following table provides information about all outstanding options and unvested stock awards held by the CEO and each NEO as of December 31, 2011: +OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2011 +STOCK AWARDS +OPTION AWARDS +Number of Securities +Underlying Unexercised Options +Equity Incentive Plan Awards That +Have Not Vested +Name +Exercisable +Unexercisable +Option +Exercise +Price +Option +Expiration +Date +No. of Shares +Market Value of +Unearned Shares (1) +F.H. Merelli, Chairman +422,400 +(2) +0 +$ +16.65 +12/06/2012 +255,726 +(3) +$ +15,829,440 +Thomas E. Jorden +CEO +0 +25,000 +$ +55.96 +9/30/2018 +127,863 +(4) +$ +7,914,720 +Paul Korus, CFO +0 +15,000 +$ +55.96 +9/30/2018 +127,863 +(4) +$ +7,914,720 +Joseph R. Albi +0 +25,000 +$ +55.96 +9/30/2018 +127,863 +(4) +$ +7,914,720 +Stephen P. Bell +0 +25,000 +$ +55.96 +9/30/2018 +127,863 +(4) +$ +7,914,720 +(1) The +amount in this column reflects the closing market price of the stock as of December 31, 2011 ($61.90) times the number of shares +reported in the previous column. +(2) This +option fully vested on December 6, 2007. +(3) 60,000 +shares vested on January 2, 2012; 100,000 shares could vest on January 4, 2013; and 95,726 shares could vest on +January 3, 2014. +(4) 30,000 +shares vested on January 2, 2012; 50,000 shares could vest on January 4, 2013 and 47,863 shares could vest on +January 3, 2014. +The following table provides information about the stock awards that vested during 2011. No options were exercised by any NEO during 2011. +2011 OPTION EXERCISES AND RESTRICTED STOCK VESTED +2011 OPTION EXERCISES +2011 STOCK VESTING +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($) +F. H. Merelli, Chairman +– +$ +– +60,000 +$ +5,343,600 +Thomas E. Jorden, CEO +– +$ +– +30,000 +$ +2,671,800 +Paul Korus, CFO +– +$ +– +30,000 +$ +2,671,800 +Joseph R. Albi +– +$ +– +30,000 +$ +2,671,800 +Stephen P. Bell +– +$ +– +30,000 +$ +2,671,800 +The following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in each of the last three fiscal years. +Participants may defer a maximum of 50% of total annual cash compensation, provided, however, that the amount deferred may not exceed the dollar limitation on elective deferrals under the Internal +Revenue Code section 402(g) in effect on January 1 of the calendar year of deferral (2011 limitation was $22,000). In 2011, Cimarex matched 100% of the participants' contributions up to +7% of the participant's total annual cash compensation. +40 +Table of Contents +2011 NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions +in Last FY (2) +($) +Aggregate +Earnings in +Last FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +F. H. Merelli, Chairman +2011 +$ +16,500 +$ +16,500 +$ +23,869 +$ +– +$ +679,311 +(3) +2010 +$ +16,500 +$ +16,500 +$ +60,569 +$ +– +$ +622,681 +2009 +$ +16,500 +$ +16,500 +$ +96,467 +$ +– +$ +529,351 +Thomas E. Jorden, CEO +2011 +$ +16,500 +$ +16,500 +$ +223 +$ +– +$ +511,404 +(3) +2010 +$ +16,500 +$ +16,500 +$ +292 +$ +– +$ +478,420 +2009 +$ +32,880 +$ +16,500 +$ +2,179 +$ +– +$ +445,367 +Paul Korus, CFO +2011 +$ +16,500 +$ +16,500 +$ +(6,167 +) +$ +– +$ +299,927 +(3) +2010 +$ +16,500 +$ +16,500 +$ +22,500 +$ +– +$ +273,333 +2009 +$ +26,790 +$ +16,500 +$ +35,366 +$ +– +$ +218,072 +Joseph R. Albi +2011 +$ +16,500 +$ +16,500 +$ +(856 +) +$ +– +$ +248,629 +(3) +2010 +$ +16,500 +$ +16,500 +$ +28,241 +$ +– +$ +216,724 +2009 +$ +24,043 +$ +16,500 +$ +29,789 +$ +– +$ +155,723 +Stephen P. Bell +2011 +$ +16,500 +$ +16,500 +$ +21,880 +$ +– +$ +404,888 +(3) +2010 +$ +16,500 +$ +16,500 +$ +5,742 +$ +– +$ +350,247 +2009 +$ +22,748 +$ +16,500 +$ +7,583 +$ +– +$ +311,745 +(1) The +amounts included in this column are also included in the Salary column in the Summary Compensation Table . +(2) The +amounts reported in this column are included in the All Other Compensation column and +footnote 3 thereto in the Summary Compensation Table . +(3) The +following table sets forth amounts included in the aggregate balance at December 31, 2011 that were reported as compensation to the +named executive officer in the Summary Compensation Table for previous years. +Named Executive Officer +Amount of Previously Reported +Compensation +F. H. Merelli +$ +458,613 +Thomas E. Jorden +$ +439,411 +Joseph R. Albi +$ +232,358 +Stephen P. Bell +$ +308,978 +Paul Korus +$ +438,295 +POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION +We do not consider post-termination benefits as a material element of executive compensation because, except for our Chairman, NEO +post-termination benefits are the same benefits available to all full-time +41 +Table of Contents +employees. +Post-termination benefits are not included in the Committee's analysis of total compensation. +We +are obligated to make certain payments to all of our NEOs or to accelerate the vesting of their equity awards upon a change in control, death, disability or termination of employment pursuant to +the following plans and agreements: +• Change in Control Severance Plan that covers all full-time employees, including the NEOs +• 2002 Stock Incentive Plan and 2011 Equity Incentive Plan +• employment agreement with Mr. Merelli, our executive Chairman +• change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +• Supplemental Savings Plan +We +currently do not pay severance benefits or accelerate equity awards upon the retirement of the NEOs. Individual performance assessments, compensation arising from our annual compensation program +(except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +The +following tables provide the estimated compensation and present value of benefits potentially payable to the NEO upon a change in control of Cimarex or termination of employment. The amounts shown +assume that the termination or change in control occurred on December 31, 2011. The actual amounts to be paid can only be determined at the time of the executive's actual separation from +Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements or modify these +arrangements, from time to time. +Please +see the narrative following the tables below for a discussion of the agreements providing for the payments required upon termination or a change in control. +Potential Payments upon Change in Control +Cimarex is obligated under certain agreements to pay benefits upon a "change in control" event. +Cimarex's definition of "change in control" as used in its 2002 Stock Incentive Plan and its 2011 Equity Incentive Plan, its Change in Control Severance +Plan and the change in control provisions that survived certain expired employment agreements with each NEO is the same. In summary, a "change-in-control" event means any of the following: +• Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities +of Cimarex by an individual or group. +• During any period of twelve months, members of our Board of Directors cease to constitute a majority of the directors. +• A reorganization, share exchange or merger unless (i) the shareholders prior to the reorganization or merger +continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the +members of the Board of the corporation resulting from the merger or reorganization were members of the Board at the time of executing the agreement to reorganize or merge. +• The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +42 +Table of Contents +The following describes potential payments to the NEOs in the event of a change-in-control event coupled with termination of employment without cause: +Change in Control – Termination without Cause +Name +Annual Average +Cash +Compensation (1) +Cash +Incentive (2) +Restricted +Stock and Stock +Units (3) +Options +Employee +Benefits (4) +280G Tax +Gross Up (5) +Total +Benefits +F. H. Merelli, Chairman +$ +4,128,096 +$ +702,465 +$ +15,865,241 +$ +0 +$ +540,527 +$ +0 +$ +21,236,329 +Thomas E. Jorden, CEO +$ +2,827,846 +$ +420,124 +$ +7,932,621 +$ +152,000 +$ +469,792 +$ +2,683,908 +$ +14,486,291 +Paul Korus, CFO +$ +2,088,956 +$ +347,007 +$ +7,932,621 +$ +91,200 +$ +243,031 +$ +2,516,375 +$ +13,219,190 +Joseph R. Albi +$ +2,270,180 +$ +363,302 +$ +7,932,621 +$ +152,000 +$ +174,324 +$ +0 +$ +10,892,427 +Stephen P. Bell +$ +1,863,513 +$ +295,324 +$ +7,932,621 +$ +152,000 +$ +321,863 +$ +0 +$ +10,565,321 +(1) Amount +represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2010 and 2011, as +provided in the Change in Control Severance Plan. +(2) Amount +represents the average incentive bonus as provided in the Change in Control Severance Plan. +(3) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2011 of $61.90 per share. +(4) Amounts +represent estimated payments under the Supplemental Savings Plan and the estimated value of continued medical, dental, disability and +life insurance benefits for two years. +(5) The +gross-up for the excise tax is with respect to the cash severance payment, the cash incentive and the restricted stock that +becomes vested upon a change in control, and employee benefits, all assuming a change in control occurred on December 31, 2011. The 20% excise tax is triggered only if the present value of the +listed benefits is equal to or greater than three times the average of the prior five years W-2 pay. Accordingly, the amounts are shown only for the NEOs whose benefits trigger the 20% +excise tax. To determine the appropriate gross-up for excise tax, the following tax rates were used: 35% federal, 4.6% state, 20% excise and 1.45% Medicare. +The following is a summary of those agreements that provide for payment to the Chairman of the Board, the CEO and the other NEOs in the event of a +change-in-control event coupled with termination of employment without cause: +Change in Control Severance Plan +Our Change in Control Severance Plan provides for the payment of severance benefits to all active employees in the event of termination following a +"change in control." In the event of a change in control, if an employee is terminated for any reason other than "cause" (as defined in the plan) within two years following a change in control, each +employee would be entitled to: +• Cash severance payments of up to two years' salary and cash incentive award. +• A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +• Continued medical, dental, disability and life insurance benefits for two years. +• Additional payments to pay any applicable excise tax imposed by Section 4999 of the Internal Revenue Code and +related income taxes, interest and penalties. +Assumed Change-in-Control Employment Provisions for Messrs. Albi, Bell, Jorden and Korus +We assumed the change-in-control provisions from the now expired employment agreements between each of Messrs. Albi, +Bell, Jorden and Korus and a predecessor company. Each agreement provides that if the executive is terminated without cause following a change-in-control event (as defined in +the +43 +Table of Contents +agreement), +the executive is entitled to a lump-sum payment equal to two times the executive's base salary at the time of the change in control. Benefits payable under these agreements are +forfeited if the executive receives benefits under any other change-in-control plan, including the Cimarex Energy Co. Change in Control Severance Plan. +As +a practical matter, the "change-in-control" benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described +above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change-in-control event. +Change in Control – No Termination +The following describes potential payments to the Chairman, the CEO and other NEOs in the event of a change-in-control event +without employment termination: +Name +Restricted +Stock and +Stock Units (1) +Options +280G Tax +Gross Up (2) +Total +Benefits +F. H. Merelli, Chairman +$ +15,865,241 +$ +0 +$ +0 +$ +15,865,241 +Thomas E. Jorden, CEO +$ +7,932,621 +$ +152,000 +$ +0 +$ +8,084,621 +Paul Korus, CFO +$ +7,932,621 +$ +91,200 +$ +0 +$ +8,023,821 +Joseph R. Albi +$ +7,932,621 +$ +152,000 +$ +0 +$ +8,084,621 +Stephen P. Bell +$ +7,932,621 +$ +152,000 +$ +0 +$ +8,084,621 +(1) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2011 of $61.90 per share. +(2) The +gross-up for the excise tax is with respect to the cash severance payment, the cash incentive and the restricted stock that +becomes vested upon a change in control, and employee benefits, all assuming a change in control occurred on December 31, 2011. The 20% excise tax is triggered only if the present value of the +listed benefits is equal to or greater than three times the average of the prior five years W-2 pay. Accordingly, the amounts are shown only for the named executive officers whose benefits +trigger the 20% excise tax. To determine the appropriate gross-up for excise tax, the following tax rates were used: 35% federal, 4.6% state, 20% excise and 1.45% Medicare. +Our +2002 Stock Incentive Plan and our 2011 Equity Incentive Plan provide for acceleration of vesting in the event of a change in control. +Potential Payments upon Termination – No Change in Control +Potential Payments upon Death or Disability +Name +Severance (1) +Cash +Incentive (1) +Restricted +Stock and +Stock Unit (2) +Options +Employee +Benefits (3) +Total Benefits +F. H. Merelli, Chairman +$ +1,801,192 +$ +1,801,192 +$ +15,865,241 +$ +0 +$ +529,351 +$ +19,996,976 +Thomas E. Jorden, CEO +$ +0 +$ +0 +$ +7,932,621 +$ +152,000 +$ +445,367 +$ +8,529,988 +Paul Korus, CFO +$ +0 +$ +0 +$ +7,932,621 +$ +91,200 +$ +218,072 +$ +8,241,893 +Joseph R. Albi +$ +0 +$ +0 +$ +7,932,621 +$ +152,000 +$ +155,723 +$ +8,240,344 +Stephen P. Bell +$ +0 +$ +0 +$ +7,932,621 +$ +152,000 +$ +311,745 +$ +8,396,366 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's +44 +Table of Contents +cash +incentive award plan if he is terminated without cause or because of death or disability. "Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from +Denver, Colorado, without his consent. The amounts displayed represent 24 months of Mr. Merelli's base salary at December 31, 2011, and the maximum cash incentive award that could +have been earned by Mr. Merelli for 2011 services. +(2) Amounts +for acceleration of restricted stock and stock units were computed based upon the closing price of Cimarex's common stock as of +December 31, 2011 of $61.90 per share. +(3) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +The vesting of all equity awards accelerates in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or +disability. +Potential Payments upon Termination Without Cause +Name +Severance (1) +Cash Incentive (1) +Employee Benefits (2) +Total Benefits +F. H. Merelli, Chairman +$ +1,801,192 +$ +1,760,000 +$ +529,351 +$ +4,090,543 +Thomas E. Jorden, CEO +$ +0 +$ +0 +$ +445,367 +$ +445,367 +Paul Korus, CFO +$ +0 +$ +0 +$ +218,072 +$ +218,072 +Joseph R. Albi +$ +0 +$ +0 +$ +155,723 +$ +155,723 +Stephen P. Bell +$ +0 +$ +0 +$ +311,745 +$ +311,745 +(1) Mr. Merelli's +employment agreement provides for continuation of base salary for 24 months (reduced by long-term +disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan if he is terminated without cause or because of death or disability. +"Without cause" includes resignation by Mr. Merelli upon a change in his place in employment from Denver, Colorado, without his consent. The amounts displayed represent 24 months of +Mr. Merelli's base salary at December 31, 2011, and the maximum cash incentive award that could have been earned by Mr. Merelli for 2011 services. +(2) Amounts +represent estimated value of benefits payable under the Supplemental Savings Plan. +In September 2002 we assumed Mr. Merelli's employment agreement from a predecessor company. His agreement is for an indefinite term. The agreement +provides that if Mr. Merelli's employment is terminated because of (i) death or disability or (ii) without cause, he is entitled to continuation of his base salary for +24 months (reduced by long-term disability benefits, if applicable) and the maximum incentive compensation payable under Cimarex's cash incentive award plan. "Without cause" +includes a resignation by Mr. Merelli upon a change in his place of employment from Denver, Colorado without his consent. Mr. Merelli agreed not to reveal any trade secret or confidence +and to surrender all information containing trade secrets or confidences. The confidentiality requirements of his employment agreement survive for three years following termination of employment. +Benefits +under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +45 +Table of Contents +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT +AND CERTAIN BENEFICIAL OWNERS +Cimarex has one class of voting securities outstanding. On March 15, 2012, there were 85,725,614 shares of common stock outstanding, with each +share entitled to one vote. +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 15, 2012, the number of shares of common stock "beneficially owned," as determined in accordance with +Rule 13d-3 under the Securities Exchange Act of 1934, by the NEOs, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned (1) +Option +Shares (2) +Beneficial +Ownership Total +Percent of +Class +Named Officers +F.H. Merelli (also director) +762,088 +422,400 +1,184,488 +1.4 +% +Thomas E. Jorden (also director) +197,531 +0 +197,531 +<1 +% +Paul Korus +158,466 +0 +158,466 +<1 +% +Joseph R. Albi (also director) +165,053 +0 +165,053 +<1 +% +Stephen P. Bell +182,601 +0 +182,601 +<1 +% +Directors +Jerry Box +11,907 +0 +11,907 +<1 +% +Hans Helmerich +581,664 +(3) +10,000 +591,664 +(3) +<1 +% +David A. Hentschel +25,879 +0 +25,879 +<1 +% +Harold R. Logan, Jr. +6,522 +0 +6,522 +<1 +% +Monroe W. Robertson +14,456 +0 +14,456 +<1 +% +Michael J. Sullivan +14,653 +10,000 +24,653 +<1 +% +L. Paul Teague +57,466 +(4) +0 +57,466 +(4) +<1 +% +All executive officers and directors as a group (16 persons) +2,444,441 +442,400 +2,886,841 +3 +% +(1) Includes +restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the +benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include deferred compensation units held by some directors. +(2) Shares +of common stock that could be purchased by the exercise of vested stock options within the 60-day period following +March 15, 2012 under the Cimarex Energy Co. 2002 Stock Incentive Plan or the Cimarex 2011 Equity Incentive Plan. +(3) Includes +11,450 shares owned by Mr. Helmerich's wife. Mr. Helmerich disclaims beneficial ownership of the shares held by his +wife. Also includes 55,000 shares owned by The Helmerich Foundation, of which Mr. Helmerich is co-trustee, and 452,000 shares held by the Estate of W. H. Helmerich III, of which +Mr. Helmerich is the trustee. +(4) Includes +9,055 shares owned by Mr. Teague's wife. Mr. Teague disclaims beneficial ownership of the shares held by his wife. +46 +Table of Contents +Beneficial Owners of More than Five Percent +Each of the following shareholders beneficially owns five percent or more of our outstanding shares of common stock. The following table provides +information regarding their stock ownership and is based on their filings with the SEC. +Voting Authority +Dispositive Authority +Total +Amount of +Beneficial +Ownership +Percent of +Class +Name and Address +Sole +Shared +Sole +Shared +Artisan Partners +875 East Wisconsin Ave., #800 +Milwaukee, WI 53202 +0 +4,370,860 +0 +4,491,960 +4,491,960 +5.2 +% +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +5,268,749 +0 +5,268,749 +0 +5,268,749 +6.14 +% +Capital World Investors +333 South Hope Street +Los Angeles, CA 90071 +10,478,000 +0 +10,478,000 +0 +10,478,000 +12.2 +% +Harris Associates L.P. +Two North LaSalle St., #500 +Chicago, IL 60602-3790 +4,506,350 +0 +4,506,350 +0 +4,506,350 +5.3 +% +T. Rowe Price Associates, Inc. +100 E. Pratt Street +Baltimore, MD 21202 +4,277,750 +0 +11,340,189 +0 +11,340,189 +13.2 +% +INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our +independent auditor, subject to a specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the SEC may +not be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any +pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described below and the related fees were pre-approved by the Audit +Committee in 2010 and 2011. +47 +Table of Contents +Fees +The following table sets forth the aggregate fees and costs paid to KPMG during the last two fiscal years for professional services rendered to +Cimarex: +Years Ended December 31, +2011 +2010 +Audit Fees +$ +981,000 +$ +935,000 +Audit-Related Fees +$ +10,000 +$ +5,100 +(1) +Tax Fees +$ +197,873 +$ +239,132 +(2) +All Other Fees +$ +0 +$ +0 +(1) Services +associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities +offerings, e.g. comfort letters and consents, and assistance in responding to SEC comment letters. +(2) Includes +review of federal and state tax returns and compliance issues. +Report of Audit Committee +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company's financial reporting; (ii) the +independent auditor's qualifications and independence; and (iii) the performance of the Company's internal auditors and independent auditor. In so doing, it is the responsibility of the +Committee to maintain free and open communication between the directors, the independent auditor and the management of the Company. All members of the Audit Committee meet the independence, experience +and financial literacy requirements of the New York Stock Exchange, the Sarbanes Oxley Act and any rules or regulations promulgated by the Securities and Exchange Commission. The Board of Directors +has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.cimarex.com. +Management +is responsible for the Company's financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company's +independent registered public accounting firm is responsible for performing an independent audit of the Company's financial statements in accordance with generally accepted auditing standards and +issuing a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes and uses internal audit to assist with these responsibilities. +The +Audit Committee reviewed Cimarex's audited financial statements as of and for the year ended December 31, 2011 and met with both management and KPMG, Cimarex's independent registered public +accounting firm, to discuss those financial statements and the effectiveness of Cimarex's internal control over financial reporting. In addition, we have received from KPMG the communication required +by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Concerning Independence , and discussed with +KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by the PCAOB and Statement on Auditing Standards No. 61, Communication with Audit +Committees . +48 +Table of Contents +Based +on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex's audited financial statements be included in Cimarex's Annual Report on +Form 10-K for the fiscal year ended December 31, 2011. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Harold R. Logan, Jr. +Michael J. Sullivan +OTHER MATTERS +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the chairman, chief executive officer, a director and a shareholder of Helmerich & Payne, Inc. During Helmerich & Payne's fiscal year +ended September 30, 2011, we contracted with Helmerich & Payne for drilling rigs and services in arms' length transactions and as part of our ordinary course of business in the same +manner as we obtain services from other companies that provide similar services. From October 1, 2010 through September 30, 2011, we paid Helmerich & Payne, Inc. +$33 million for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and +award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when compared to our +total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with Helmerich & Payne, Inc. does not +interfere with his independent business judgment while serving on our Board. +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our +common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we +believe that all reports were timely filed in 2011, except reports of the annual grants of restricted stock to each of our directors, as part of their director fees, were not timely filed. +Forms 5 covering these awards have been filed. +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com . Any person, +whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or +anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to +communicate directly with non-management directors may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. +Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +49 +Table of Contents +Householding +The SEC's rules permit companies and intermediaries (such as brokers) to implement a delivery procedure known as "householding." Under this +procedure, multiple Cimarex shareholders who reside at the same address may receive a single set of proxy materials, unless one or more of the shareholders has provided contrary instructions. This +procedure reduces printing costs and postage fees, and saves natural resources. +If +you hold your shares in "street name" (your shares are held in a brokerage account or by a bank or other nominee), you may revoke your consent to householding at any time by writing to Broadridge, +Householding Department, 51 Mercedes Way, Edgewood, New York 11717. Also, you can request information about householding from your broker or bank. +If +you are a shareholder of record (your shares are held in your own name and not held in a brokerage account), and you received a household mailing this year, and if you would like to have additional +copies mailed to you or if you would like to opt out of householding for future mailings, please send your written request to Continental Stock Transfer & Trust Company, 17 Battery +Place, 8 th Floor, New York, New York 10004 (phone: 888-509-5580). +50 +CIMAREX ENERGY CO. +VOTE BY INTERNET OR TELEPHONE +Q U I C K E A S Y +I M M E D I AT E +As a stockholder of Cimarex Energy Co., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 15, 2012. +Vote Your Proxy on the Internet: +Vote Your Proxy by Phone: +Vote Your Proxy by mail: +Call 1 (866) 894-0537 +Go to www.cstproxyvote.com +Have your proxy card available when you access the above website. Follow the prompts to vote your shares. +OR +Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. +OR +Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. +PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE +VOTING ELECTRONICALLY OR BY PHONE +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY BY MAIL +THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” ALL THE NOMINEES LISTED UNDER PROPOSAL 1, “FOR” PROPOSALS 2 AND 3. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. +Please mark your votes like this +x +The Board of Directors recommends a vote FOR all the nominees listed under Proposals 1 and FOR Proposals 2 and 3. +The Board of Directors recommends a vote FOR all the nominees listed below: +1. Election of three Class I directors: +For +Against +Abstain +(01) Joseph R. Albi +o +o +o +(02) Jerry Box +o +o +o +(03) Michael J. Sullivan +o +o +o +The Board of Directors recommends you vote FOR the following proposals: +2 Advisory approval of executive compensation +o +o +o +3. Ratify the appointment of KPMG LLP as our independent auditors for 2012 +o +o +o +COMPANY ID: +PROXY NUMBER: +ACCOUNT NUMBER: +Signature +Signature +Date , 2012. +NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee or guardian, please give full title as such. +Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held May 16, 2012. +The Proxy Statement and our 2011 Annual Report to Shareholders are available at: http://www.cstproxy.com/cimarex/2012 +FOLD AND DETACH HERE AND READ THE REVERSE SIDE +PROXY +THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS +CIMAREX ENERGY CO. +The undersigned appoints Thomas E. Jorden and Paul Korus as proxies, with power to act without the other and with power of substitution, and authorizes them to represent and vote, as designated on the other side, all the shares of common stock of Cimarex Energy Co. held of record by the undersigned with all powers that the undersigned would possess if present at the Annual Meeting of Shareholders be held at the Hyatt Regency Hotel, 100 East 2nd Street, Tulsa, OK 74103, on May 16, 2012, at 9:00 a.m., Central Daylight Time, or any adjournment thereof. +For participants in the Cimarex 401(k) Plans, this proxy, when properly executed, will be voted in the manner directed by the undersigned. If no direction is given, if the card is not signed, or if the card is not received prior to 5 p.m., Eastern Time, on May 11, 2012, the Plan’s Trustee will vote your shares held in the Plan in the same proportion as shares were voted by other Plan participants. +(Continued, and to be marked, dated and signed, on the reverse side) \ No newline at end of file diff --git a/raw/proxies/0001168054/0001047469-12-003932/proxy_rpt.txt b/raw/proxies/0001168054/0001047469-12-003932/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..ae8ed7b393847c9ba03dec2bd79f307410745e9e --- /dev/null +++ b/raw/proxies/0001168054/0001047469-12-003932/proxy_rpt.txt @@ -0,0 +1,13 @@ +Transactions with Related Persons +The Compensation and Governance Committee charter provides that the Committee will annually review, report and make recommendations to the Board +regarding related party transactions required to be disclosed pursuant to SEC regulations for potential conflict of interest situations and any relationships that may adversely affect the independent +judgment of a director. Our Code of Business Conduct also provides that the Board will review potential conflicts of interest and determine independence of board members. See Corporate Governance, Independence of Board +Members. +Hans +Helmerich, a director of Cimarex, is the chairman, chief executive officer, a director and a shareholder of Helmerich & Payne, Inc. During Helmerich & Payne's fiscal year +ended September 30, 2011, we contracted with Helmerich & Payne for drilling rigs and services in arms' length transactions and as part of our ordinary course of business in the same +manner as we obtain services from other companies that provide similar services. From October 1, 2010 through September 30, 2011, we paid Helmerich & Payne, Inc. +$33 million for drilling rigs and services, which represented less than 2% of Helmerich & Payne, Inc.'s gross revenues. The Board of Directors is not involved in the selection and +award of contract drilling services. Our Board by resolution concluded that (i) the transactions with Helmerich & Payne, Inc. are proper and are not material when compared to our +total drilling costs, (ii) Mr. Helmerich does not have a material interest in the transactions and (iii) his relationship with Helmerich & Payne, Inc. does not +interfere with his independent business judgment while serving on our Board. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001104659-13-024854/proxy.txt b/raw/proxies/0001168054/0001104659-13-024854/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..1782fa3597167236aa4b55540ff6b880fb2445af --- /dev/null +++ b/raw/proxies/0001168054/0001104659-13-024854/proxy.txt @@ -0,0 +1,3079 @@ +DEF 14A +1 +a13-1568_8def14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +1700 Lincoln Street, Suite 1800 +Denver, CO 80203-4518 +NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS +TIME AND DATE +9:00 a.m. Mountain Daylight Time on Wednesday, May 15, 2013 +PLACE +Hershner Room, 1700 Lincoln Street +Denver, Colorado +ITEMS OF BUSINESS +Item 1. Election of Directors +Item 2. Advisory approval of executive compensation +Item 3. Ratification of independent auditors +Transact any other business that properly comes before the Meeting and any adjournment or postponement of the Meeting +RECORD DATE +March 19, 2013 +MATERIALS TO REVIEW +This booklet contains our Notice of 2013 Annual Meeting and Proxy Statement. Our 2012 Annual Report is available on our website at www.cimarex.com . +PROXY VOTING +It is important that your shares be represented and voted at the Meeting. You can vote your shares by following the Internet or telephone instructions on page 49 of this proxy statement. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-paid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. You may revoke your proxy at any time before the vote is taken by following the instructions on page 49 of this proxy statement. +April 1, 2013 +Mary Kay Rohrer +Corporate Secretary +Table of Contents +TABLE OF CONTENTS +Page No. +Proxy Statement Highlights +1 +Corporate Governance +4 +Board and Committee Information +5 +Our Board +5 +Criteria for Board Membership +6 +Director Independence and Related Person Transactions +6 +Board Leadership Structure +7 +Executive Sessions +7 +Risk Oversight +7 +Compensation of Non-Management Directors +8 +Committees +9 +Audit Committee +9 +Compensation and Governance Committee +10 +Nominating Committee +10 +Proposals Requiring Your Vote +10 +Item 1 – Election of Directors +10 +Nominees for Class II Directors +11 +Continuing Directors – Class I +13 +Continuing Directors – Class III +14 +Director Nomination Process and Review of Director Nominees +15 +Item 2 – Advisory Approval of Executive Compensation +16 +2012 Advisory Vote on Executive Compensation; Shareholder Outreach +16 +Item 3 – Ratification of Independent Auditors +17 +Audit and Non-Audit Fees +17 +Policy for Approval of Audit, Audit-Related and Tax Services +17 +Report of Audit Committee +17 +Executive Compensation Table of Contents +19 +Compensation Tables +37 +Summary Compensation Table +37 +2012 Grants of Plan-Based Awards +39 +2012 Non-Equity Incentive Plan +39 +Equity Incentive Plan Awards +40 +Outstanding Equity Awards at December 31, 2012 +41 +2012 Option Exercises and Restricted Stock Vested +42 +2012 Nonqualified Deferred Compensation +43 +Potential Payments upon Change in Control or Termination +44 +Stock Ownership of Directors, Management and Certain Beneficial Owners +47 +Beneficial Ownership by Executive Officers and Directors +47 +Beneficial Owners of More than Five Percent +48 +Other Matters +48 +Section 16(a) Beneficial Ownership Reporting Compliance +48 +Complaint and Reporting Procedures +48 +Shareholder Proposals +48 +Questions and Answers about the Annual Meeting and Voting +49 +Table of Contents +Proxy Statement Highlights +DATE, TIME AND PLACE OF MEETING +May 15, 2013, 9:00 a.m. +Hershner Room, 1700 Lincoln Street, Denver, Colorado 80203 +SHAREHOLDER VOTING MATTERS +VOTING MATTER +BOARD VOTING +RECOMMENDATION +SEE PAGE NUMBER +Item 1. Election of Directors +FOR +10 +Item 2. Advisory Approval of Executive Compensation +FOR +16 +Item 3. Ratification of Independent Auditor +FOR +17 +DIRECTOR NOMINEES +You are being asked to vote on the following three Director Nominees. Directors are elected by a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 11. +NAME +AGE +DIRECTOR +SINCE +POSITION +INDE- +PENDENT +AC +C/G +NOM +OTHER +PUBLIC +BOARDS +Hans Helmerich +54 +2002 +Chairman, CEO Helmerich & Payne +Yes +X +X +2 +Harold R. Logan, Jr. +68 +2009 +Chairman, Suburban Propane Partners, L.P. +Yes +X +X +2 +Monroe W. Robertson +63 +2005 +Private Investor +Yes +X +X +1 +CONTINUING DIRECTORS +The following are Cimarex’s continuing Directors. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 13. +NAME +AGE +DIRECTOR +SINCE +TERM +EXPIRES +POSITION +INDE- +PENDENT +AC +C/G +NOM +OTHER +PUBLIC +BOARDS +Joseph R. Albi +54 +2011 +2015 +COO, Exec VP Cimarex +No +0 +Jerry Box +74 +2005 +2015 +Chairman, Newpark Resources +Yes +X +X +1 +David A. Hentschel +79 +2002 +2014 +Retired Chairman, CEO Occidental Oil & Gas Corp +Yes +X +X +0 +Thomas E. Jorden +55 +2011 +2014 +Chairman, CEO Cimarex +No +0 +Floyd R. Price +64 +2012 +2014 +Retired Exec VP, Apache Corp. +Yes +X +X +1 +Michael J. Sullivan +73 +2002 +2015 +Sr. Atty, Rothgerber Johnson & Lyons +Yes +X +X +1 +L. Paul Teague +78 +2002 +2014 +Former VP Texaco USA +Yes +X +X +0 +AC +Audit Committee +C/G +Compensation and Governance Committee +NOM +Nominating Committee +1 +Table of Contents +CIMAREX 2012 COMPANY HIGHLIGHTS +· Grew production 6% to a record 626.5 MMcfe/d; combined Permian Basin and Mid-Continent production increased 20% to an all-time high of 586 MMcfe/d. +· Increased proved reserves 10% to 2.3 Tcfe, adjusted for property sales reserves increased 13%. +· Added 757 Bcfe of proved reserves from extensions and discoveries replacing 330% of production. +· Net income of $353.8 million, or $4.07 per diluted share. +· Cash flow from operating activities of $1.2 billion. +· Sold $306 million of non-strategic assets which will be reinvested in core area exploration and development activities. +· Evaluated, de-risked and expanded our acreage position in several key long-term future drilling projects. +· Ended the year with debt to total capitalization of 18%. +ALIGNMENT OF CEO COMPENSATION TO TOTAL SHAREHOLDER RETURN (TSR) +We have performed an analysis of “realizable compensation” of our CEO, on an absolute and relative basis. The following tables illustrate a strong correlation between CEO compensation and TSR. The definition of “realizable compensation” and the full analysis are depicted in charts appearing in Alignment of CEO Compensation to Total Shareholder Return, Section 1 of Compensation Discussion and Analysis . +Absolute CEO Realizable Compensation Compared to Total Shareholder Return – Years 2008-2012 +The following table illustrates our CEO realizable pay compared to our TSR for the years 2008 through 2012. Indexed TSR represents the cumulative total return of Cimarex stock for a five-year period based on a $100 investment at the start of the first year, and reinvestment of all dividends. The table shows the value of the investment at the end of each year. +2008 +2009 +2010 +2011 +2012 +Pay ($000) +$ +1,972,923 +$ +4,509,754 +$ +8,605,210 +$ +6,658,116 +$ +5,725,696 +Indexed TSR +$ +63.79 +$ +128.06 +$ +215.94 +$ +152.46 +$ +144.29 +CEO +Merelli +Merelli +Merelli +Merelli/Jorden +Jorden +Relative CEO Realizable Compensation Compared to Relative TSR – Three-Year Period (2009 to 2011) +Relative Realizable CEO Pay Percentile +24 th percentile +2009-2011 Relative TSR Percentile +74 th percentile +2012 CEO compensation for peer group companies was not available at the time of preparation of this Proxy Statement] +2 +Table of Contents +RESPONSE TO 2012 ADVISORY VOTE ON EXECUTIVE COMPENSATION +The following is a summary of Cimarex’s responses to the 2012 advisory vote on executive compensation. Detailed information about Cimarex’s responses can be found in Section 1, Compensation Discussion and Analysis. +· Initiated regular shareholder outreach to identify and discuss shareholder concerns relating to executive compensation and other matters. +· Refined our annual cash incentive program for 2013 to provide for updated specific measurable goals and objectives that align with the company’s financial and operational goals and objectives. +· Postponed the timing of long-term equity awards to December of each year. The postponement provides the Committee with a more complete picture of our actual annual results (absolute performance and performance relative to our peer group) when determining equity awards. This allows the Committee to make more informed equity award decisions that correlate to Cimarex’s objectives of executive retention and alignment of value of the awards with financial and operational performance. +· Eliminated all tax gross ups in change in control payment arrangements. +3 +Table of Contents +PROXY STATEMENT +CORPORATE GOVERNANCE +Our governance structure and processes are based on our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics. +Our Corporate Governance Guidelines and Board committee charters provide the framework for Cimarex’s governance by the Board. The Guidelines address matters such as qualifications, standards for independence, election and responsibilities of directors, limitation of service on other public company boards, number and structure of Board committees, conduct and frequency of Board and committee meetings, Board evaluation, management succession, director access to management, counsel and advisors, and board orientation and education. The Board of Directors, directly or through the Compensation and Governance Committee, reviews and revises as necessary the Corporate Governance Guidelines. +The Code of Business Conduct and Ethics applies to all directors, officers and employees. The Code is a guideline that promotes honest and ethical conduct, encourages compliance with laws and proper use of our assets. As required by the NYSE listing standards or applicable law, we will post on our website all waivers of or amendments to our Code of Business Conduct that are required to be disclosed by applicable law and the NYSE listing standards. We do not anticipate any waivers of or amendments to our Code of Business Conduct. +We have an additional Code of Ethics that applies to our CEO, CFO and Controller, and its purpose is to promote honest and ethical conduct and compliance with the law, particularly as related to the maintenance of Cimarex’s financial records and the preparation of financial statements. The obligations of the Code of Ethics supplement the Code of Business Conduct. +A summary of key governance matters are noted in the table below: +Size of Board +10 +Corporate Governance Guidelines +Yes +Number of independent directors +8 +Disclosure Committee for financial reporting +Yes +Majority voting for directors +Yes +Board and Audit Committee risk oversight +Yes +Classified Board +Yes +Compensation risk assessment +Yes +Separate Chairman and CEO +No +Review of related party transactions +Yes +Independent Lead Director +Yes +Non-Hedging and non-pledging policies +Yes +Diverse Board skills and experience +Yes +Clawback policy +Yes +Annual Board and Committee self-evaluations +Yes +Management and director stock ownership guidelines +Yes +Annual equity grants to directors +Yes +Tax Gross Ups +No +Annual Board education +Yes +Code of Business Conduct and Ethics +Yes +Cimarex provides access through its website ( www.cimarex.com ) to the following governance information: +· Corporate Governance Guidelines +· Code of Business Conduct and Ethics +· Code of Ethics +· Stock Ownership Guidelines +· Complaint and Reporting Procedures +· Board of Directors +· Board of Directors – Background and Experience +· Committee Charters +· Executive Management – Background and Experience +We will provide copies of these items without charge upon written request to our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, 18 th Floor, Denver, Colorado 80203. +4 +Table of Contents +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline (1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The Lead Director may take any action he deems appropriate or necessary, including, without limitation, forwarding the information to the Board for consideration or, with the concurrence of the Board, retaining independent or outside counsel, accountants or other advisors to address the concern. No adverse action will be taken against any individual making any such communication to the Lead Director. +Shareholder Outreach +Cimarex’s relationships with its shareholders are an important part of our corporate governance profile, and we recognize the value of taking their views into account. Engagement with shareholders helps us to understand the larger context and impact of our operations, learn about expectations for our performance, assess emerging issues that may affect our business or other aspects of our operations and shape corporate and governance policies. +Consistent with our commitment to seek and respond to shareholder input on corporate governance topics, we have considered and discussed with investors a wide variety of matters, including our executive compensation program and disclosures and have made changes in these areas. See Response to 2012 Say on Pay Vote and Shareholder Outreach, Compensation Discussion and Analysis elsewhere in this Proxy Statement. +BOARD AND COMMITTEE INFORMATION +OUR BOARD +During 2012, the Board of Directors met seven times. The Board has three Committees: the Audit Committee, the Compensation and Governance Committee and the Nominating Committee. Each of our directors attended greater than 75% of the meetings of the Board and the Board Committees on which he served during 2012. +All Board members are expected to attend the Annual Meeting. All of our Directors attended our 2012 Meeting. +NAME +AGE +DIRECTOR +SINCE +POSITION +INDEPENDENT +OTHER +PUBLIC +BOARDS +Hans Helmerich +54 +2002 +Chairman, CEO Helmerich & Payne +Yes +2 +Harold R. Logan, Jr. +68 +2009 +Chairman, Suburban Propane Partners, L.P. +Yes +2 +Monroe W. Robertson +63 +2005 +Private Investor +Yes +1 +Joseph R. Albi +54 +2011 +COO, Executive VP Cimarex +No +0 +Jerry Box +74 +2005 +Chairman, Newpark Resources +Yes +1 +David A. Hentschel +79 +2002 +Retired Chairman, CEO, Occidental Oil & Gas Corp +Yes +0 +Thomas E. Jorden +55 +2011 +Chairman, CEO Cimarex +No +0 +Floyd R. Price +64 +2012 +Retired Executive VP, Apache Corp +Yes +1 +Michael J. Sullivan +73 +2002 +Senior Attorney, Rothgerber Johnson & Lyons +Yes +1 +L. Paul Teague +78 +2002 +Former Regional VP Texaco USA +Yes +0 +5 +Table of Contents +Criteria for Board Membership +The Nominating Committee is responsible for recruiting and recommending to the full Board of Directors nominees for election as Directors. The Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired qualifications. Important general criteria for Board membership include the following: +· Members of the Board should possess certain desired qualifications, including judgment, skill and experience with businesses and other organizations of comparable size. +· The Committee considers the relationship of a candidate’s experience with the experience of existing Board members, experience building or working with a company culture similar to Cimarex and the extent to which the candidate would be a desirable addition to the Board and any of its Committees. +· The Committee considers additional attributes, including diversity of gender and ethnicity and senior management experience in the oil and gas industry in the areas of exploration, production, marketing, finance or legal. +Director Independence and Related Person Transactions +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (NYSE) listing requirements and other governing laws and regulations. +With the assistance of legal counsel, the Compensation and Governance Committee has reviewed the applicable legal and NYSE standards for Board and Committee member independence. A summary of the answers to annual questionnaires completed by each of the Directors and a report of transactions with Director-affiliated entities are also made available to the Committee. On the basis of this review, the Committee has delivered a report to the full Board of Directors, and the Board has made its independence determinations based on the Committee’s report and the supporting documents. +As a result of this review, the Board has affirmatively determined that Jerry Box, Hans Helmerich, David Hentschel, Harold Logan, Floyd Price, Monroe Robertson, Michael Sullivan and L. Paul Teague, representing eight of our ten Directors, are independent of Cimarex and its management. Thomas Jorden and Joseph Albi are not independent because of their employment as CEO and COO of Cimarex, respectively. +In making these determinations, the Board considered that in the ordinary course of business, relationships and transactions may occur between Cimarex and entities with which some of our Directors are or have been affiliated. As a result of the Committee’s review, certain relationships and transactions are not considered to be material transactions that would impair a Director’s independence, including the following: +· The Director is an employee of another company that does business with Cimarex, and our annual sales to or purchases from the other company amount to less than 2% of the annual revenues of the other company and that such sales to or purchases from the other company are part of our ordinary course of business and conducted in the same manner as we obtain services from other companies that provide similar services; or +· The Director is a director (but not an employee) of another company that does business with Cimarex. +Hans Helmerich is the Chairman of the Board and CEO of Helmerich & Payne, Inc., a company with which Cimarex engages in ordinary course of business transactions. During Helmerich & Payne’s fiscal year ended September 30, 2012, Cimarex paid Helmerich & Payne $25.3 million for drilling rigs and services in arms’ length transactions and as part of our ordinary course of business in the same manner as we obtain services from other companies that provide similar services. The aggregate amount of the payment represented 0.8% of Helmerich & Payne’s revenue during that period. The Committee reviewed these transactions and concluded that (i) the transactions are proper and not material when compared to Cimarex’s total drilling costs and with Helmerich & Payne’s total revenues; (ii) the transactions occur in the ordinary course of business and at arms’ length; (iii) the Board does not review or approve drilling service contracts or arrangements; and (iv) Mr. Helmerich’s relationship with Helmerich & Payne, Inc. does not interfere with his independent judgment as a director of Cimarex. +6 +Table of Contents +Board Leadership Structure +Cimarex has a combined Chairman of the Board and CEO. Cimarex also has a Lead Director who is chosen annually from our independent directors. Following is a summary of the functions of the Chairman of the Board/CEO and the Lead Director: +Duties and Responsibilities of +Chairman of the Board +Duties and Responsibilities of +Lead Director +Preside over Board meetings +Preside over executive sessions of the Board +Call special meetings of the Board +Act as Chairman of the Nominating Committee +Approve agenda for Board meetings +Serve as liaison between the Chairman of the Board and the other Board members +Preside over shareholder meetings +Serve as primary contact for communication by interested parties to the Board +Facilitate and participate in formal and informal communications with and among directors +The Board believes that the role of a combined Chairman/CEO and an independent Lead Director having the duties described above serve the interests of our shareholders because this structure provides an appropriate balance between strategy development and independent oversight of management. +Thomas Jorden was elected Chief Executive Officer on September 30, 2011 and Chairman of the Board on August 14, 2012. He has served as an executive officer of Cimarex since its formation in 2002. He brings to the position of Chairman of the Board considerable knowledge and experience gained through his executive positions with Cimarex and prior industry experience. This knowledge and experience allow him to focus the activities of the Board on matters most relevant to the success of Cimarex. +Our Board structure is designed to avoid any undue influence by the Chairman of the Board/CEO on the Board. The Compensation and Governance Committee, which recommends the compensation of the Chairman/CEO to the full Board and makes grants to the Chairman/CEO under our long-term equity incentive program, is comprised entirely of independent Directors. When the Board acts on the Compensation and Governance Committee’s recommendation for compensation of the Chairman/CEO, it acts without him being present. +The substantial experience and background of our independent Board members ensure their active and knowledgeable involvement in Board matters. This involvement, and the presence and involvement of our Lead Director, provide the Board with a strong, independent point of view. +Executive Sessions +The non-employee members of the Board meet in executive session at each regularly scheduled Board meeting. During 2012, four executive sessions were held, and all of the non-employee Directors attended each session. These sessions allow non-employee Directors to review the CEO’s performance and determine his compensation, to discuss issues of importance to Cimarex, including the business and affairs of Cimarex, as well as matters concerning management, without any member of management present. +Risk Oversight +Board and Committee Oversight. The Board has overall responsibility for risk oversight. In carrying out its responsibility, the Board has requested that the Audit Committee discuss with management and report to the Board with respect to: +· Processes Cimarex has taken to mitigate corporate risks; +7 +Table of Contents +· Guidelines and processes pertaining to financial risk assessment; +· Steps management has taken to measure, monitor and control such financial risk exposures; and +· Management’s conclusion as to the effectiveness of the guidelines and processes utilized to mitigate such corporate and financial risks and exposures. +In addition, each quarter management provides the Board with an overview of Cimarex’s operations, financial results and other aspects of its business. Significant strategic considerations, such as material acquisitions or mergers are brought to the Board for deliberation and, as appropriate, decisions. +The Audit Committee, at its December 2012 meeting, reviewed, discussed and reported to the Board about corporate, operational and financial risks and Cimarex’s processes for mitigation of these risks. +Compensation of Non-Management Directors +Our Compensation and Governance Committee administers our Director compensation program. Director compensation is designed to be near the 50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing Director compensation as we use in reviewing executive base salary and total compensation. See Competitive Positioning, Section 2, Compensation Discussion and Analysis for a list of the companies and the methodology followed in selecting the companies. The Committee uses its independent compensation consultant, Longnecker & Associates, to review Director compensation. The Committee, after reviewing the consultant’s recommendations with the CEO and Vice President of Human Resources, recommends Director compensation for Board consideration and approval at the annual May Board meeting. Director compensation is determined and paid for the 12-month period beginning with the date of Cimarex’s Annual Meeting and ending on the following Annual Meeting date. +Through May 15, 2012, compensation for non-employee Directors consisted of the following: +· Annual cash retainer of $50,000 +· Annual equity retainer of $165,000, comprised of restricted stock that vests in one-third increments on each anniversary of the date of grant +· Committee chairman fee of $20,000 +· Lead Director (who also acts as Nominating Committee chairman) fee of $20,000 +· Board meeting attendance fee of $1,800 per meeting +· Committee meeting attendance fee of $1,500 per meeting +At the May 16, 2012 meeting, the Committee’s independent consultant advised that Director compensation was below the 50 th percentile of director compensation paid by comparable public oil and gas companies. On May 16, 2012, the Board, on the recommendation of the Compensation and Governance Committee and in consultation with the Committee’s independent compensation consultant, based on a study of peers and market trends, made the following changes to the compensation program for non-employee Directors: +· Increased annual cash retainer to $65,000 +· Increased annual equity retainer to $180,000 +The increases brought Director compensation to approximately the 62 nd percentile. The following table sets forth 2012 compensation for our non-management Directors: +NAME +ANNUAL CASH RETAINER +AND MEETING FEES 1 +STOCK AWARDS 2 +TOTAL +Jerry Box +$ +86,900 +$ +180,000 +$ +266,900 +Hans Helmerich +$ +86,900 +$ +180,000 +$ +266,900 +David Hentschel +$ +86,900 +$ +180,000 +$ +266,900 +Harold Logan +$ +111,400 +$ +180,000 +$ +291,400 +Floyd Price (3) +$ +27,083 +$ +75,000 +$ +102,083 +Monroe Robertson +$ +109,600 +$ +180,000 +$ +289,600 +Michael Sullivan +$ +91,400 +$ +180,000 +$ +271,400 +L. Paul Teague +$ +106,900 +$ +180,000 +$ +286,900 +8 +Table of Contents +(1) Represents fees earned for services as a Director during 2012, including the annual cash retainer fee, Board and Committee meeting attendance fees, Committee Chairman fee and Lead Director fee. +(2) Represents the intrinsic value of the 3,014 shares of restricted stock granted to each of the non-employee Directors on May 16, 2012. +(3) Mr. Price was elected a director in December 2012 and received a pro rata share of the annual cash and equity retainer fees for the year May 2012-May 2013. +The following table discloses the aggregate number of outstanding unvested stock awards and the market value at December 31, 2012. (Market value is based on the closing price of $57.73 on December 31, 2012.) There were no outstanding vested but unexercised option awards as of that date. +Director +Unvested Stock Awards +Market Value +Jerry Box +4,869 +$ +281,087 +Hans Helmerich +4,869 +$ +281,087 +David Hentschel +4,869 +$ +281,087 +Harold Logan +4,869 +$ +281,087 +Floyd Price +1,301 +$ +67,300 +Monroe Robertson +4,869 +$ +281,087 +Michael Sullivan +4,869 +$ +281,087 +L. Paul Teague +4,869 +$ +281,087 +COMMITTEES +The table below provides 2012 membership and meeting information for each of the Board Committees: +NAME +AUDIT +COMP/GOV +NOMINATING +Jerry Box +X +X +Hans Helmerich +X +X +David Hentschel +X +X +Harold Logan +X +X +Floyd Price +X +X +Monroe Robertson +X +X +Michael Sullivan +X +X +L. Paul Teague +X +X +2012 Meetings Held +8 +6 +3 +Audit Committee +The Audit Committee is comprised entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Audit Committee Charter is available on our website at www.cimarex.com . Under its Charter, the Audit Committee performs the following functions: +· Appoints independent auditor. +· Approves the nature and scope of services of independent auditor and reviews range of fees for such services. +· Oversees internal audit function. +· Reviews qualification and independence of auditor. +· Reviews and discusses with independent auditors (i) the auditors’ responsibilities and management’s responsibilities in audit process, (ii) overall audit strategy, (iii) scope and timing of annual audit, and (iv) any significant risks identified during auditor’s risk assessment procedures. +· Monitors integrity of financial statements. +· Monitors compliance with legal and regulatory requirements. +· Reviews and reports to Board on corporate and financial risk. +9 +Table of Contents +The Board of Directors has determined that each of the members of the Audit Committee is financially literate and independent as defined by the rules of the SEC and the NYSE. The Board has also determined that each of Messrs. Logan, Price and Robertson is an “audit committee financial expert” as defined by the SEC’s rules. +Compensation and Governance Committee +The Compensation and Governance Committee is comprised entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Compensation and Governance Committee Charter is available on our website at www.cimarex.com . Under its Charter, the Compensation and Governance Committee performs the following functions: +Compensation Functions +· Recommends CEO and executive officer cash compensation for approval by the Board. +· Recommends director compensation for approval by the Board. +· Reviews and recommends the Compensation Discussion and Analysis disclosure for approval by the Board. +· Determines amount and terms of equity awards. +· Reviews and approves long-term incentive plans. +· Reviews relationship of compensation to risk. +· Approves the nature and scope of services of independent compensation consultant. +Governance Functions +· Oversees corporate governance. +· Develops plans for managerial succession. +· Oversees annual Board and Committee evaluations. +Each year the Compensation and Governance Committee performs a compensation risk assessment. In 2012, the Committee determined that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on Cimarex. See Compensation Discussion and Analysis for a description of the compensation risk assessment process. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002, as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of facilitating a spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly traded company on September 30, 2002, at which time Mr. Helmerich resigned as an executive officer. +Nominating Committee +The Nominating Committee is comprised of all of the independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Nominating Committee Charter is available on our website at www.cimarex.com. Under its Charter, the Nominating Committee performs the following functions: +· Determines desired Board skills and attributes +· Recommends candidates to serve on the Board and to stand for election at annual meeting of shareholders or to fill vacancy occurring between meetings +· Recommends Committee appointments +PROPOSALS REQUIRING YOUR VOTE +ITEM 1 – ELECTION OF DIRECTORS +Our current Board consists of ten members, which is the maximum number of Directors permitted by our Certificate of Incorporation. The Board is divided into three classes, Class I, Class II and Class III Directors. At each Annual Meeting a class of Directors is elected for a term expiring at the Annual Meeting in the third year following the year of election. Each Director holds office until his successor is elected and qualifies. +10 +Table of Contents +The terms of the three Class II directors, Hans Helmerich, Harold R. Logan, Jr. and Monroe W. Robertson, will expire at the 2013 Annual Meeting. The Nominating Committee, at its February 2013 meeting, nominated Messrs. Helmerich, Logan and Robertson for re-election as Class II directors, with a term expiring at the 2016 Annual Meeting. +If prior to the Annual Meeting a nominee becomes unavailable to serve as a Director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute nominee or nominees designated by our Board or its Nominating Committee. As of the mailing of these proxy materials, the Board knows of no reason why any Director nominee would not be available to serve as a Director. +A nominee is elected if the votes cast for his election exceed the votes cast against his election. Each Director who is nominated below has tendered an irrevocable resignation that is effective upon his failure to receive the required vote and the Board’s acceptance of such resignation. If a nominee fails to receive more favorable votes than votes cast against him, the Nominating Committee will act on an expedited basis following the Annual Meeting to determine whether to recommend that the Board accept the Director’s resignation. The Nominating Committee and the Board may consider any factors they deem relevant in deciding whether to accept the Director’s resignation. The Director whose resignation is under consideration must abstain from participating in any decision regarding his resignation. The Board will publicly disclose its decision regarding acceptance of his resignation within 90 days after the results of the election are certified. If the resignation is not accepted, the Director will continue to serve as a Director until his successor is elected and qualified. If the Board accepts the resignation, then the Board may fill the vacancy in accordance with the Bylaws or may decrease the size of the Board in compliance with the Certificate of Incorporation. +Information concerning the nominees recommended by our Nominating Committee and nominated by our Board, as well as each of our continuing Directors, is set forth below. +Nominees for Class II Directors +HANS HELMERICH, 54 +Position, Principal Occupation and Business Experience +Mr. Helmerich has been Chairman of Helmerich & Payne, Inc. since March 2012 and CEO since 1989. Helmerich & Payne, Inc., a publicly held company located in Tulsa, Oklahoma, designs and builds land drilling rigs. Helmerich & Payne is primarily engaged in contract drilling of oil and gas wells for exploration and production companies and is one of the major land and offshore platform drilling companies in the world. Prior to his election as Chairman and CEO in January 2012, Mr. Helmerich served as President and CEO since 1989 and has served as a director since 1987. Cimarex acquired Helmerich & Payne’s exploration and production business in 2002. +Mr. Helmerich serves as a director of Atwood Oceanics, Inc., Houston, Texas, an international offshore drilling company, and as a Trustee of The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin. +Key Attributes, Experience and Skills +Mr. Helmerich’s background with the oil and gas business and his over 25 years’ executive experience provide a strong background for his service on Cimarex’s Board and on the Compensation and Governance Committee. In addition, his service as a director of Atwood Oceanics and as a Trustee of The Northwestern Mutual Life Insurance Company provide him with additional experience and knowledge to serve as a Director. +11 +Table of Contents +HAROLD R. LOGAN, JR., 68 +Position, Principal Occupation and Business Experience +Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane Partners, L.P. and is a Director of Graphic Packaging Corporation. He is also a Director of two privately held companies – Basic Materials and Services LLC that invests in companies providing specialized services for the pipeline construction and sand/silica industries, and Hart Energy Publishing, publisher of Oil and Gas Investor and other energy publications. +Mr. Logan was a Co-Founder of TransMontaigne, Denver, Colorado, in 1995 and Chief Financial Officer, Executive Vice President, Treasurer and a director through 2002. He served as a director of TransMontaigne and chairman of its finance committee from 2002-2006. From 1987 to 1995, he was Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that, Mr. Logan was an investment banker with Dillon Read & Co. Inc. and Rothschild, Inc. +Since 1998, Mr. Logan has been a director of nine public companies and has served on audit, compensation and governance committees. +Key Attributes, Experience and Skills +Over the past 39 years, Mr. Logan’s education, investment banking/venture capital experience and business financial management experience have provided him with a comprehensive understanding of business and finance. Mr. Logan’s expertise and experience have been relevant to his responsibilities of providing oversight and advice to the management of public companies, and is of particular benefit in his role as Lead Director and as a member of the Audit Committee. +MONROE W. ROBERTSON, 63 +Position, Principal Occupation and Business Experience +Mr. Robertson is currently a private investor. Mr. Robertson retired from Key Production Company, Inc. (a company acquired by Cimarex in 2002), after serving ten years with the company. While with Key, he held the positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Mr. Robertson has served in executive capacities with three other public energy companies, Apache Corp., Gulf Oil Corporation and Terra Resources. +Mr. Robertson currently serves as a Director, Chairman of the Audit Committee and member of the Compensation and Nominating committee of Earthstone Energy, Inc. (formerly named Basic Earth Science System), Denver, Colorado, an independent exploration and production company. +Key Attributes, Experience and Skills +Mr. Robertson has comprehensive knowledge of the financial and operational sides of the exploration and production business, which is of considerable value in his service as Chairman of the Audit Committee. +The Board of Directors recommends a vote FOR all Nominees. +12 +Table of Contents +Continuing Directors – Class I – Term Expires 2015 +JOSEPH R. ALBI, 54 +Position, Principal Occupation and Business Experience +Mr. Albi was named Executive Vice President and Chief Operating Officer in 2011. He has served Cimarex in various capacities since September 2002, including Executive Vice President-Operations from 2005 to 2011, Sr. Vice President-Corporate Engineering from 2003 to 2005 and Vice President-Engineering from 2002 to 2003. +Key Attributes, Experience and Skills +Mr. Albi has over 30 years of experience in the oil and gas industry. His extensive understanding of the management of oil and gas production and drilling operations, business development, environmental and safety management and oil and gas marketing provide the Board with considerable insight about the operations of Cimarex. +JERRY BOX, 74 +Position, Principal Occupation and Business Experience +Mr. Box was Chairman of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter from March 1999 to June 2005. He retired in June 2005 at the time of the acquisition by Cimarex of Magnum Hunter. Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy and its predecessor company, Sun Oil Company. Mr. Box serves as a non-management director and Chairman of the Board of Newpark Resources, Inc. of The Woodlands, Texas, an oilfield services company traded on the NYSE. +Key Attributes, Experience and Skills +Mr. Box holds undergraduate and graduate degrees in geology. He has served for several years in an executive capacity with public and private companies. Mr. Box has served on numerous oil and gas committees and task forces and as a President and Treasurer of the Dallas Petroleum Club. His extensive experience as an executive for companies in the energy business makes his service on the Compensation and Governance Committee particularly valuable. +MICHAEL J. SULLIVAN, 73 +Position, Principal Occupation and Business Experience +Mr. Sullivan has been a senior attorney, partner or special counsel for the Denver-based law firm, Rothgerber Johnson & Lyons LLP since 2001, and the managing attorney of the Casper office of that firm. Mr. Sullivan practiced law as a partner with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. +Mr. Sullivan is a director and chairman of the governance committee and member of the compensation committee of First Interstate BancSystem, Billings, Montana and a director and member of the compensation and governance and audit committee of Sletten Construction, Inc., Great Falls, Montana (a non-public company). From 2001 to May 2009 he served as a director and during his tenure as a member of the audit, corporate social responsibility committee and governance committee of Allied Irish Bank Group, Dublin, Ireland. From 2003 to 2011 he served as a director of the Kerry Group Plc, a global food and food ingredients producer headquartered in Tralee Co., Kerry, Ireland. +Key Attributes, Experience and Skills +Mr. Sullivan brings a wealth of experience and a diverse background to our Board. In addition to his Juris Doctor degree, he has an undergraduate degree in petroleum engineering, years of governmental service as the Governor of Wyoming (1987-1995) and Ambassador to Ireland (1998-2001), and 37 years’ experience practicing law in the areas of natural resources, mediation and business. As Governor, he was involved in the process of reviewing and administering Wyoming’s budget. This experience is +13 +Table of Contents +particularly relevant in his service on the Audit Committee. Mr. Sullivan’s education, legal experience, particularly in mediation and litigation, and his domestic and international service all provide a background that is beneficial in addressing the issues coming before the Cimarex Board. +Continuing Directors – Class III – Term Expires 2014 +DAVID A. HENTSCHEL, age 79 +Position, Principal Occupation and Business Experience +Mr. Hentschel was Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation, a subsidiary of Occidental Petroleum, from 1986 until 1993 and from 1997 until 1999, when he retired. He also served as President and Chief Executive Officer of Canadian Occidental Petroleum, Ltd., now known as Nexen, from 1995 until 1997. He was in charge of the worldwide exploration and production operations for Cities Service, Occidental Oil and Gas Corporation for the last 20 years of his 40-year career. +Mr. Hentschel was a director of Occidental Petroleum from 1987-1993 and of Canadian Occidental or Nexen from 1985-2009. During his service as a director of Nexen, he was chair of the audit committee and a member of the compensation committee and various other committees. He was also a director of the Bank of Oklahoma from 1984-1995. +Key Attributes, Experience and Skills +Mr. Hentschel brings considerable executive experience in the domestic and international oil and gas industry to the Board. Mr. Hentschel’s extensive leadership background and his service on Nexen’s audit and compensation committees provide strong skills and experience for his service on our Compensation and Governance Committee. +THOMAS E. JORDEN, 55 +Position, Principal Occupation and Business Experience +Mr. Jorden is the Chairman of the Board, Chief Executive Officer and President of Cimarex. He has served Cimarex in various capacities since September 2002. He was elected CEO in 2011, from 2003 to 2011 served as Executive Vice President-Exploration and from 2002 to 2003 as Vice President-Exploration. +Key Attributes, Experience and Skills +Mr. Jorden brings to the Board over 30 years of experience in the oil and gas exploration and production industry, and as our Chief Executive Officer, a deep understanding of our business, operations and long-term strategic issues and goals. Mr. Jorden holds undergraduate and graduate degrees in geophysics and has headed the company’s exploration program since its inception. His service on the Board creates an important link between management and the Board. +FLOYD R. PRICE, 64 +Position, Principal Occupation and Business Experience +Mr. Price, a former executive officer of Apache Corp., held various positions with Apache from 1991 through 2009, including Executive Vice President and Corporate Exploration Officer; President, Apache Canada; President, Apache International; and Exploration Manager. Mr. Price serves as Chairman of the Board of Tamarack Valley Energy, a Canadian public company, and as an independent member of the Boards of Directors of Source Energy and Nemaha Oil and Gas Company, both private oil and gas companies. +14 +Table of Contents +Key Attributes, Experience and Skills +Mr. Price has over 35 years of experience in the exploration and production business. Mr. Price has considerable domestic and international experience in the oil and gas industry, and has held leadership positions with a large public oil and gas company. His experience during the past three years serving as a director of public and private companies also provide him with invaluable Board skills and experience. Mr. Price brings extensive oil and gas exploration, operations management and financial experience to Cimarex’s Audit Committee. +L. PAUL TEAGUE, 78 +Position, Principal Occupation and Business Experience +Mr. Teague served 35 years with Texaco Inc. He retired in 1994 as Vice President, Western Exploration & Producing Region of Texaco USA in Denver, Colorado. Mr. Teague held various positions with Texaco USA, including Vice President-Producing in Houston; Vice President of the New Orleans Producing Division; Division Manager, New Orleans and General Superintendent of the Offshore Division in New Orleans. +Key Attributes, Experience and Skills +Mr. Teague holds a degree in Petroleum Engineering from Louisiana Tech University and is a graduate of the University of Southern California Executive Program. He has several industry affiliations, including the former Chairman of the API Executive Committee on Drilling and Production Practices, former President of the Colorado Petroleum Association, a 50-year Legion of Honor Member of the Society of Petroleum Engineers and a member of the Rocky Mountain Oil & Gas Hall of Fame. He brings his executive experience with a major oil and gas company to bear on corporate governance and executive compensation issues in his role as Chairman of our Compensation and Governance Committee. +Director Nomination Process and Review of Director Nominees +The Nominating Committee identifies and reviews the qualifications of candidates for Board membership and determines the desired qualifications, including judgment, skill, experience with businesses and other organizations of comparable size, the relationship of the candidate’s experiences with the experience of other directors and the extent to which the candidate would be a desirable addition to the Board and any of its committees. Our Nominating Committee charter specifically includes in the list of desirable attributes sought in our Board composition diversity of gender and ethnic background. +Each director candidate is evaluated on individual merit, experience and potential to contribute to the effectiveness of the Board. Although all the current directors have extensive oil and gas experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience provides our Board with the capacity to execute its duty of oversight and guidance. +The Committee will consider nominees recommended by shareholders. The Committee did not receive nominations for the 2013 Annual Meeting from any shareholder prior to the deadline for shareholder nominations. Shareholders who wish to nominate persons for election as directors at the 2014 Annual Meeting must submit a timely written notice complying with Cimarex’s Bylaws to Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the shareholder’s written notice must be received between February 5, 2014 and February 15, 2014. If the 2014 Annual Meeting is held more than 30 days before or after May 15, 2014, the written notice must be received no later than the earlier of (i) the close of business on the tenth day following the day on which the notice of the date of the 2014 Annual Meeting was mailed or (ii) public disclosure of the date of the Annual Meeting was made. +In addition to its standard meeting in February of each year held for the purpose of nominating candidates to stand for re-election at Cimarex’s annual meeting, the Committee met in September and December of 2012 to consider a replacement director to fill the vacancy created by the death of F. H. Merelli in August 2012. At those meetings, the Committee also reviewed its charter and the desired skills for a new director, and agreed upon a process to be followed for identifying and selecting candidates to fill Board vacancies. At its December meeting, the Committee reviewed the names, resumes and qualifications of candidates submitted. Following its review, the Committee selected and recommended that the Board elect Floyd R. Price as a Class III director with a term to expire at the 2014 annual meeting and appointed him to the Audit Committee. +15 +Table of Contents +ITEM 2 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION +2012 Advisory Vote on Executive Compensation; Shareholder Outreach +At the 2012 Annual Meeting 69% of the shareholders who voted approved our executive compensation on an advisory basis. We were not satisfied with this voting result and reached out to certain large shareholders to discuss our executive compensation program and any other investor concerns. Based on input received, we believe that the 2012 voting result was largely attributable to a perceived misalignment of 2011 executive compensation compared to 2011 operational and financial performance. +The Summary Compensation Table of our proxy statement reported the accounting valuation for equity grants made the first week of January 2011. The value of these grants was primarily influenced by extraordinary 2010 financial and operational performance. Following the January 2011 grants, Cimarex experienced a relatively flat year of financial and operational performance. As reflected in our 2011 Summary Compensation Table, the equity grants represented approximately 70% of the total compensation reported for 2011, resulting in a perception of strong 2011 executive compensation aligned with moderate financial and operational performance. +We learned from these discussions that our shareholders did not unanimously agree on the preferred form of equity to deliver long-term incentive compensation. One investor indicated a preference for options over restricted stock, one investor preferred cash and yet another investor did not favor options. Almost all investors agreed they preferred a form of performance award and that relative TSR was a good performance metric. With respect to our annual short-term incentive cash award program, all investors suggested that we more specifically describe the methodology used to determine these awards. No investor advocated a non-discretionary formulaic program, but each investor requested that we better describe the methodology used to determine the final cash awards. +While the Compensation and Governance Committee believes that the January 2011 equity awards were appropriate following a year of record financial and operational performance in 2010, the Committee has become sensitive to the perception of reported compensation being compared to the comparable period of financial performance. +The following is a summary of Cimarex’s responses to the 2012 advisory vote on executive compensation. Detailed information about Cimarex’s responses can be found in Section 1, Compensation Discussion and Analysis (CD&A) later in this Proxy Statement: +· Emphasized shareholder outreach to discuss our executive compensation program and to react to other investor concerns. +· Refined our annual cash incentive program for 2013 to provide for updated specific measurable goals and objectives that align with financial and operational goals and objectives. +· Postponed the timing of long-term equity awards to December of each year beginning in 2013. The postponement provides the Committee with more fully developed peer group data and performance results, allowing the Committee to make more informed equity award decisions that correlate to Cimarex’s objectives of executive retention and alignment of the value of the awards with financial and operational performance. +· Eliminated all tax gross ups in change in control payment arrangements. +The Compensation and Governance Committee and the Board have carefully evaluated Cimarex’s executive compensation plan, including the feedback from shareholders, and believe that their actions demonstrate responsiveness to shareholders on these issues. The Board recommends that shareholders vote FOR the following resolution: +RESOLVED, that the shareholders approve, on an advisory basis, the compensation of Cimarex’s Named Executive Officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related narrative. +Because your vote is advisory, it will not be binding upon the Board. However, the Board values shareholders’ opinions, and the Committee will take into account the outcome of the vote when considering future executive compensation decisions. +The Board of Directors unanimously recommends a vote FOR the advisory vote to approve executive compensation. +16 +Table of Contents +ITEM 3 – RATIFICATION OF INDEPENDENT AUDITORS +The Audit Committee of the Board has appointed KPMG LLP to audit our financial statements for 2013. KPMG LLP has been our independent auditor since October 1, 2002. +We are asking that shareholders ratify the appointment of KPMG LLP as independent auditor. If shareholders fail to ratify the appointment, the Audit Committee may reconsider this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +The Board of Directors recommends a vote FOR the ratification of KPMG LLP +as Cimarex’s independent auditor for 2013. +Audit and Non-Audit Fees +The following table shows the fees for professional services rendered by KPMG LLP for the audit of Cimarex’s annual financial statements for the years ended December 31, 2012 and December 31, 2011, and fees billed for other services rendered by KPMG LLP during those periods: +Years Ended +December 31, +2012 +2011 +Audit Fees (1) +$ +1,056,909 +$ +981,000 +Audit-Related Fees (2) +$ +80,000 +$ +10,000 +Tax Fees (3) +$ +216,001 +$ +197,873 +All Other Fees +$ +0 +$ +0 +(1) Audit fees were principally for audit work performed on the consolidated financial statements and internal controls over financial reporting. +(2) Audit-related fees were principally for services associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities offerings, e.g. comfort letters and consents and assistance in responding to SEC comment letters. +(3) Tax fees were principally for services related to tax compliance and reporting and analysis services. +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditor, subject to a specified range of fees. The Audit Committee may also pre-approve specific services. Certain non-audit services as specified by the SEC may not be performed by our independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described in the above table were pre-approved by the Audit Committee in 2011 and 2012. +Report of Audit Committee +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company’s financial reporting; (ii) the independent auditor’s qualifications and independence; and (iii) the performance of the Company’s internal auditors and independent auditor. In so doing, it is the responsibility of the Committee to maintain free and open communication between the directors, the independent auditor and the management of the Company. All members of the Audit Committee meet the independence, experience and financial literacy requirement of the New York Stock Exchange, the Sarbanes Oxley Act and any rules or regulations promulgated by the Securities and Exchange Commission. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.cimarex.com . +17 +Table of Contents +Management is responsible for the Company’s financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and uses internal audit to assist with these responsibilities. +The Audit Committee reviewed Cimarex’s audited financial statements as of and for the year ended December 31, 2012 and met with both management and KPMG, Cimarex’s independent public accounting firm, to discuss those financial statements and the effectiveness of Cimarex’s internal control over financial reporting. In addition, we have received from KPMG the communication required by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Covering Independence, and discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by the PCAOB and Statement on Auditing Standards, No. 114, Communication with Audit Committees . +Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex’s audited financial statements be included in Cimarex’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Harold R. Logan, Jr. +Floyd R. Price +Michael J. Sullivan +The Audit Committee Report does not constitute soliciting material and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference. +18 +Table of Contents +EXECUTIVE COMPENSATION TABLE OF CONTENTS +Page No. +Executive Summary of Compensation Discussion and Analysis (“CD&A”) +20 +Compensation Discussion and Analysis +23 +Section 1 +23 +2012 Performance Overview +23 +2012 and Early 2013 Committee Actions +23 +Response to 2012 Say on Pay Vote and Shareholder Outreach +25 +Key Compensation Actions for 2012 +26 +CEO Compensation +26 +Other NEO Compensation +26 +Base Salary Determination +27 +Annual Cash Incentive Awards +27 +Long-Term Equity Incentive Award Program +28 +Alignment of CEO Compensation to Total Shareholder Return +29 +Early 2013 Compensation Actions +30 +Annual Cash Incentive Award Program +30 +Long-Term Equity Incentive Awards +31 +Elimination of Tax Gross Up Payments +31 +Section 2 +31 +Our Compensation Framework +31 +Objectives of our Executive Compensation Program +31 +Design of Executive Compensation Program +32 +Elements of Executive Compensation +32 +Competitive Positioning +32 +Role of Compensation Consultant and Management in Compensation Decisions +33 +Post-Employment Compensation +34 +Retirement Benefits +34 +Perquisites +34 +Other Compensation Policies +34 +Compensation Risk Assessment +34 +Total Pay and Internal Pay Equity Guidelines +35 +Stock Ownership and Holding Requirements +35 +Clawback Policy +35 +Non-Hedging and Non-Pledging Policies +35 +Tax Law Considerations +35 +Compensation and Governance Committee Report +36 +19 +Table of Contents +Executive Summary of Compensation Discussion & Analysis (CD&A) +NAMED EXECUTIVE OFFICERS (“NEOs”) +· Thomas E. Jorden, Chairman of the Board, Chief Executive Officer (CEO) and President +· Paul Korus, Senior Vice President, Chief Financial Officer (CFO) +· Joseph R. Albi, Executive Vice President-Operations, Chief Operating Officer +· Stephen P. Bell, Executive Vice President-Business Development +· John A. Lambuth, Vice President-Exploration +· F. H. Merelli (former Chairman of the Board, deceased August 2012) +ELEMENTS AND MIX OF EXECUTIVE COMPENSATION +Pay Elements +Pay Element Rationale +Base Salary +Retain and attract, when needed, talented executives +Annual Cash Incentive +Encourage short term operational/financial performance +Long-Term Equity Incentive +Encourage retention and above average stock price performance +Cimarex’s executive compensation program directly links a substantial portion of executive compensation to Cimarex’s performance through annual and long-term incentives. The mix of the pay elements for the CEO and other NEOs for fiscal 2012 is shown below. The compensation measured in the graph is “realizable compensation.” (See Compensation Discussion and Analysis, Section 1, Alignment of CEO Compensation to Total Shareholder Return for a definition of realizable compensation.) Eighty-eight percent of the CEO’s compensation is directly linked to Cimarex’s performance and 76% of his compensation is long-term compensation. The average compensation mix for the other NEOs is 84% performance linked and 68% is long-term compensation. +2012 Realizable Compensation +(consisting of base, annual incentive award & long-term incentives) +Chairman & CEO Compensation Mix +Other NEOs (Average) Compensation Mix +20 +Table of Contents +2012 BUSINESS AND FINANCIAL PERFORMANCE OVERVIEW +· Grew production 6% to a record 626.5 MMcfe/d; combined Permian Basin and Mid-Continent production increased 20% to an all-time high of 586 MMcfe/d. +· Increased proved reserves 10% to 2.3 Tcfe, adjusted for property sales reserves increased 13%. +· Added 757 Bcfe of proved reserves from extensions and discoveries replacing 330% of production. +· Net income of $353.8 million, or $4.07 per diluted share. +· Cash flow from operating activities of $1.2 billion. +· Sold $306 million of non-strategic assets which will be reinvested in core area exploration and development activities. +· Evaluated, de-risked and expanded our acreage position in several key long-term future drilling projects. +· Ended the year with debt to total capitalization of 18%. +2012 EXECUTIVE COMPENSATION DECISIONS +2012 Salary +2012 Annual Cash +Incentive Award +2012 Long- Term +Incentive Grant +Value +Total +% of Total +Compensation +that is +Performance- +Based +Thomas E. Jorden, CEO +$ +672,000 +$ +800,000 +$ +2,549,445 +$ +4,021,445 +83% +Paul Korus, CFO +$ +452,000 +$ +474,600 +$ +1,593,425 +$ +2,520,025 +82% +Joseph R. Albi +$ +500,000 +$ +550,000 +$ +1,912,127 +$ +2,949,314 +83% +Stephen P. Bell +$ +395,231 +$ +462,000 +$ +1,593,425 +$ +2,440,425 +84% +John A. Lambuth +$ +324,615 +$ +325,000 +$ +1,367,000 +$ +2,016,616 +84% +COMPENSATION DECISION +RATIONALE +No change to base salaries +Following comparison of base salaries to base salaries for like positions at peer companies, the Committee determined that executives were being paid at or near the targeted percentile (except the newly appointed CEO who requested that he receive no increase in base salary), and the Committee recommended no increases in base salaries. +Authorized annual cash short-term awards to the CEO of 119% of base salary (target of 100% of year-end annualized base salary) and to the other NEOs at approximately the target level of 100% of year-end annualized base salary (range from 90% to 110%). +Based on the achievement of the factors more specifically described under Key Compensation Actions for 2012 in Section 1, Compensation Discussion and Analysis , the Committee determined that Cimarex had achieved target performance during 2012 and awarded cash incentives at approximately the target level of 100% of each executive’s base salary. +Postponed timing of long-term equity award +In response to a perception by a shareholder that there was a misalignment in executive compensation to company performance in 2011, the Committee elected to change the timing of the awards to December of each year. This change was implemented in two steps: (i) January 2012 award postponed to May 2012 and (ii) the 2013 award will be postponed to December 2013. +21 +Table of Contents +Authorized long-term equity awards to NEOs (including the CEO) with a value of $9,015,422. The awards consist of 50% time-vested restricted stock and 50% performance-based restricted stock, with the actual number of shares to be delivered based upon relative total shareholder return. +Compensation consultant recommended a target value for the awards between the 50 th and 75 th percentiles when compared to 2012 awards made by peer companies. The Committee recommended awards slightly below the 65 th percentile. The value of the 2012 long-term equity awards represented a substantial reduction from the January 2011 long-term equity awards. See the Summary Compensation Table for the value of the stock awards for the last three years. +SAY ON PAY – SHAREHOLDER FEEDBACK +At the 2012 Annual Meeting 69% of the shareholders who voted approved our executive compensation on an advisory basis. We engaged in discussions with some of our largest shareholders and learned that overall our shareholders generally approved of our executive compensation program, although one large shareholder expressed concern about the magnitude of the reported value of the 2011 executive equity awards in relationship to Cimarex’s 2011 financial performance. The 2011 equity awards were made in January 2011 following a record year of financial performance in 2010. Cimarex’s financial, operational and stock performance all decreased in 2011. +In response, the Compensation and Governance Committee: +· Continued its ongoing shareholder outreach efforts. +· Refined the annual cash incentive program for 2013 to provide for updated specific measurable goals and objectives that align with the company’s financial and operational goals and objectives. +· Postponed the timing of long-term equity awards to December of each year beginning in 2013. The postponement provides the Committee with more fully developed peer group data and performance results, allowing the Committee to make more informed equity award decisions that correlate to Cimarex’s objectives of executive retention and alignment of value of the awards with financial and operational performance. +· Eliminated all tax gross ups in change in control payment arrangements. +22 +Table of Contents +COMPENSATION DISCUSSION AND ANALYSIS +This Compensation Discussion and Analysis, or CD&A, describes Cimarex’s executive compensation program for 2012 and certain elements of the 2012 program. We use this program to attract (when appropriate) and retain the executives who lead our business. This CD&A explains how the Compensation and Governance Committee (the Committee) of the Board of Directors made 2012 compensation decisions for our executives, including the following Named Executive Officers (NEOs) +· Thomas E. Jorden, Chairman of the Board, Chief Executive Officer (CEO) and President +· Paul Korus, Senior Vice President, Chief Financial Officer (CFO) +· Joseph R. Albi, Executive Vice President, Chief Operating Officer +· Stephen P. Bell, Executive Vice President-Business Development +· John A. Lambuth, Vice President-Exploration +· F. H. Merelli (former Chairman of the Board, deceased August 2012) +This CD&A is divided into two sections: +Section 1 discusses 2012 and early 2013 actions related to executive compensation. +Section 2 discusses our compensation framework, post-employment compensation, retirement benefits, perquisites and other compensation policies. +SECTION 1 +2012 PERFORMANCE OVERVIEW +· Grew production 6% to a record 626.5 MMcfe/d; combined Permian Basin and Mid-Continent production increased 20% to an all-time high of 586 MMcfe/d. +· Increased proved reserves 10% to 2.3 Tcfe, adjusted for property sales reserves increased 13%. +· Added 757 Bcfe of proved reserves from extensions and discoveries replacing 330% of production. +· Net income of $353.8 million, or $4.07 per diluted share. +· Cash flow from operating activities of $1.2 billion. +· Sold $306 million of non-strategic assets which will be reinvested in core area exploration and development activities. +· Evaluated, de-risked and expanded our acreage position in several key long-term future drilling projects. +· Ended the year with debt to total capitalization of 18%. +2012 AND EARLY 2013 COMMITTEE ACTIONS +TOPIC +ACTION +RATIONALE +Base Salary Review +Recommended no increases in executive base salaries. +Following comparison of Cimarex base salaries to those for like positions at peer companies, the Committee did not recommend base salary increases. +23 +Table of Contents +Annual Short-Term Incentive plan +Authorized annual cash short-term awards to the CEO of 119% of base salary (target of 100% of base salary) and to the other NEOs at approximately the target level of 100% of base salary (range from 90% to 110%). +Based on the achievement of the factors more specifically described under Key Compensation Actions for 2012 in Section 1, Compensation Discussion and Analysis, the Committee determined that Cimarex had achieved target performance during 2012 and awarded cash incentives at approximately the target level of 100% of each executive’s base salary. +Refined our annual cash incentive program for 2013 to (i) provide for updated specific measurable goals and objectives and (ii) for a target of 100% of base salary and a maximum of 200% of base salary; there is no minimum award. +The measurable goals and objectives align with the company’s financial and operational goals and objectives. The refinement is responsive to shareholder concerns about a more specific description of the methodology followed for distribution of short-term cash incentive awards. +Long-Term Equity Incentives +Postponed timing of LTI awards from January 2012 to May 2012. +Agreed to postpone 2013 LTI awards to December 2013. +Responsive to shareholder concerns about perceived misalignment of executive compensation to company performance. The postponement provides the Committee with more fully developed peer group data and performance results, allowing the Committee to make more informed equity award decisions that correlate to Cimarex’s objectives of executive retention and alignment of value of the awards with financial and operational performance. +Authorized long-term equity awards to NEOs (including the CEO) with a value of $9,015,422. The awards consist of 50% time-vested restricted stock and 50% performance-based restricted stock, with the actual number of shares to be delivered based upon relative total shareholder return. +The value of the 2012 long-term equity awards represented a substantial reduction from the January 2011 long-term equity awards. See the Summary Compensation Table for the value of the stock awards for the last three years. Compensation consultant recommended a target value for the awards between the 50 th and 75 th percentiles when compared to 2012 awards made by peer companies. The Committee recommended awards slightly below the 65 th percentile. +Director Compensation +Increased annual equity retainer from $165,000 to $180,000 and annual cash retainer from $50,000 to $65,000. +Based on a market review of director compensation at peer group companies, the compensation consultant advised that Cimarex Director compensation was below the 50 th percentile. The increased compensation brings Director compensation to approximately the 62 nd percentile. +24 +Table of Contents +Clawback Policy +Adopted a clawback policy in February 2012 +Responsive to anticipated rules and regulations to be adopted by the SEC under the Dodd-Frank Act. +Organizational Changes +Elected Thomas Jorden as Chairman of the Board +Elected Stephen Bell as Executive Vice President-Business Development +Elected John Lambuth as Vice President-Exploration +Cimarex’s founder and long-time CEO, F. H. Merelli died in August 2012. At the time of his death, Mr. Merelli was Chairman of the Board. Mr. Jorden was elected to fill this vacancy. Mr. Bell was promoted to reflect additional responsibilities, and Mr. Lambuth was promoted to succeed to Mr. Jorden’s previous exploration responsibilities. +Succession Plan +The Committee reviewed the key-employee succession plan presented by management. +Cimarex’s key-employee succession plan is presented to the Committee and summarized for the Board each year. +Shareholder Engagement +Committee directed management to reach out to principal shareholders to discuss the 2012 Say-on-Pay Vote. +Cimarex’s 2012 Say-on-Pay vote was 69%. The Committee and Board of Directors are committed to continuing discussions with shareholders regarding their concerns about Cimarex and its executive compensation program. +Eliminated tax gross ups +Recommended the Board approve elimination of tax gross ups in change in control payment arrangements. +Responsive to proxy advisory firm voting guidelines. +RESPONSE TO 2012 SAY ON PAY VOTE AND SHAREHOLDER OUTREACH +At the 2012 Annual Meeting, 69% of the shareholders who voted approved our executive compensation on an advisory basis. The outcome was disappointing to Cimarex, its Board of Directors and the Compensation and Governance Committee for various reasons, including the fact that the overall structure of our executive compensation program had not changed from previous years. Based on input from shareholders, we believe that the 2012 voting result was largely attributable to a perception of misalignment of executive pay with financial and operational performance. Cimarex has historically aligned the performance elements of compensation with Cimarex’s financial and operational performance. However, in January 2011, the Committee authorized equity awards that were influenced by outstanding 2010 financial and operational results, coupled with a very high stock price on the date of grant. Cimarex’s 2011 performance decreased measurably from its 2010 performance, and, as a result, the Summary Compensation Table total compensation for each executive reflected a significant increase in 2011 compensation, whereas Cimarex’s financial, operational and stock price performance all decreased in 2011. +We also learned that our shareholders would like us to provide more details about how the Committee arrived at its annual short-term cash incentive award decisions. Our discussions revealed that there was not one universal form of long-term awards preferred by shareholders. Certain shareholders expressed a preference for grants of options, whereas other shareholders preferred grants of restricted stock, performance equity or cash. +The Compensation and Governance Committee considered the matters raised by shareholders in our outreach activities as it evaluated our executive compensation policies and procedures. As discussed elsewhere in the CD&A, we have taken the following principal actions: +· Continued our shareholder outreach program to address shareholder concerns about Cimarex and its executive compensation. +· Refined the annual cash incentive program for 2013 to provide for updated specific measurable goals and objectives that align with the company’s financial and operational goals and objectives. (See a more detailed description of the program in this CD&A under Early 2013 Compensation Actions ”) +25 +Table of Contents +· Postponed the timing of long-term equity awards to December of each year. The postponement provides the Committee with more fully developed peer group data and performance results, allowing the Committee to make more informed equity award decisions that correlate to Cimarex’s objectives of executive retention and alignment of value of the awards with financial and operational performance. +· Eliminated all tax gross ups in change in control payment arrangements. +KEY COMPENSATION ACTIONS FOR 2012 +The following highlights the Committee’s key compensation decisions for 2012, as reported in the 2012 Summary Compensation Table. These decisions were made with the advice of the Committee’s independent consultant, Longnecker & Associates. (See Section 2 of Compensation Discussion and Analysis for additional discussion regarding the role of the Committee’s compensation consultant.) +CEO Compensation +Effective September 30, 2011, Mr. Jorden was elected CEO. The following key decisions were made by the Committee since his election: +· Effective September 30, 2011, as a result of Mr. Jorden’s promotion from Executive Vice President to CEO, his annual base salary was increased from $504,000 to $672,000. +· Mr. Jorden’s base salary was not increased in 2012. +· Mr. Jorden’s 2012 annual cash incentive award was $800,000, or 119% of his base salary. +· His annual long-term incentive award value at the date of grant (May 18, 2012) was $2,549,445. +These adjustments were reviewed in detail by the Committee and its independent consultant. In 2012, approximately 83% of Mr. Jorden’s compensation was performance based. The Committee considered several factors, including input from its independent consultant and salary data from peer groups. +Other NEO Compensation +The Committee also made compensation adjustments for the other NEOs comprised of 2012 annual cash incentive awards made in February 2013 and long-term equity awards in May 2012. These adjustments were based upon the recommendations of the CEO, evaluation by the Committee, the advice of the Committee’s independent consultant, salary data from peer and comparator groups, internal pay relationships based on relative duties and responsibilities, the executive’s impact on Cimarex’s results and for retention purposes. Based upon these considerations, the Committee made the following 2012 NEO compensation decisions: +2012 Salary (1) +2012 Annual +Incentive Award +2012 Long- Term +Incentive Grant +Value +Total +% of +Total +Compensation +that is +Performance- +Based +Paul Korus, CFO +$ +452,000 +$ +474,600 +$ +1,593,425 +$ +2,520,025 +82% +Joseph R. Albi +$ +500,000 +$ +550,000 +$ +1,912,127 +$ +2,949,314 +83% +Stephen P. Bell +$ +395,231 +$ +462,000 +$ +1,593,425 +$ +2,440,425 +84% +John A. Lambuth +$ +324,615 +$ +325,000 +$ +1,367,000 +$ +2,016,616 +84% +(1) In May 2012, the Committee determined not to increase NEO base salaries. Mr. Bell’s salary was increased from $385,000 to $420,000 in September 2012, based on his promotion to Executive Vice President. In October 2012, Mr. Lambuth’s salary was increased to $365,000 based on his promotion to Vice President-Exploration. +26 +Table of Contents +Base Salary Determination +We provide competitive base salaries to attract and retain talented executives and to provide a fixed base of cash compensation. We compare each NEO’s base salary with the base salary paid for a similar executive position by companies in our Compensation Peer Group. See Competitive Positioning later in this CD&A for a list of the companies in the Compensation Peer Group. The Committee then may adjust base salaries based on a number of factors, which may include the executive’s job responsibilities, management experience, individual contributions, number of years in his position and current salary. +In May 2012, the Committee’s independent consultant advised that a 4% increase in each executive’s base salary would be appropriate. The Committee concluded that the NEOs’ (other than the CEO) base salaries were at or above the 75 th percentile and did not recommend base salary increases. The CEO’s base salary was not at the targeted percentile; however, he requested that the Committee not increase his base salary. +Annual Cash Incentive Awards +In February 2013 the Committee met to deliberate and determine NEO (including the CEO) annual cash incentive awards for 2012 services. The individual target for the CEO and each other NEO is 100% of his base salary. There is no minimum award, and an individual’s maximum award is 200% of his base salary. +The CEO recommended individual NEO awards at the target level of approximately 100% of each executive’s 2012 year-end base salary. The CEO stated that his award recommendations were based on Cimarex’s achievement of its 2012 financial and operational expectations. He indicated that there were four principal factors that contributed to Cimarex achieving its expectations: +· 6% increase in average 2012 daily production. +· 10% increase in year-end proved reserves over 2011, and when adjusted for property sales, a 13% increase in proved reserves +· Met its threshold after-tax rate-of-return on investment in exploration and development drilling +· Property sales of $306 million of non-core, long-lived oil and gas properties. +Based principally on these four performance measurements, the CEO recommended that the individual NEO awards be made at the target level. The Committee’s independent consultant concurred that the CEO’s recommendations were reasonable. The Committee, in consultation with its independent consultant, accepted the CEO’s recommendations, and the Board approved the Committee’s recommendations. +The Committee, with its independent consultant, and without management present, deliberated on the CEO’s annual cash incentive award. Based on its analysis of the CEO’s 2012 performance, including his successful transition to the role of CEO during the illness of Mr. Merelli and following Mr. Merelli’s death, and in consideration of the fact that he has requested no compensation increases during this period, the Committee recommended and the Board approved a cash incentive award to the CEO of 119% of his base salary. The Committee’s independent consultant concurred with this recommendation. Following are the CEO and other NEO 2012 annual cash incentive awards: +Name +Cash Incentive Award +% of Year-End +Base Salary +Thomas E. Jorden, CEO +$ +800,000 +119% +Paul Korus, CFO +$ +474,600 +105% +Joseph R. Albi +$ +550,000 +110% +Stephen P. Bell +$ +462,000 +110% +John A. Lambuth +$ +325,000 +90% +Beginning with awards for 2013 services, the Committee will implement its newly adopted annual cash incentive award program. See Early 2013 Compensation Actions at the end of this Section 1 for a description of the refined annual cash incentive award program. +27 +Table of Contents +Long-Term Equity Incentive Award Program +Our long-term equity incentive award program balances the short-term annual cash incentive program by focusing executive efforts on the activities and short-term results that lead to long-term shareholder value. Each year the Committee grants awards to NEOs of time-vested restricted stock and performance-based restricted stock. The performance measure used to determine the number of shares to be delivered upon vesting is Cimarex’s relative stock price performance when compared to companies in the S&P 400 and 500 Oil and Gas Exploration Indices (Stock Performance Peer Group). See Competitive Positioning in this CD&A for a list of the companies in the 2012 Stock Performance Peer Group. +The time-vested and performance awards vest three years from the date of grant and are subject to a continuous service requirement. Dividends equivalent to those paid on Cimarex common stock are paid on the shares of time-vested restricted stock. Dividends applicable to the performance awards of restricted stock are accrued and only paid on the shares earned at the time of vesting. +The number of performance shares earned is determined by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in the Stock Performance Peer Group for the 30 trading days preceding the date of grant and the 30 trading days preceding the third anniversary of the grant. The Committee ranks Cimarex and calculates its relative performance percentile. The following table illustrates shares that would be earned at various relative stock performance price percentiles (assuming 21 companies in the Peer Group). +Cimarex’s Rank Among +Peer Companies +Relative Stock Price +Performance Percentile +Percent of Performance +Shares Earned +1-5 +75-100% +100% +6-10 +52-71% +54-92% +11-15 +29-48% +6-46% +16-21 +0-24% +0% +On May 18, 2012, the Committee granted executive equity awards with a total value based on competitive market data. Each award consists of 50% time-vested restricted stock and 50% performance based restricted stock. The time-vested restricted stock vests upon completion of three years of service. The number of performance shares earned is based on Cimarex’s relative TSR when compared with companies in its Stock Performance Peer Group. The Committee granted to the NEOs a total of 179,078 shares. The number granted to each NEO was based on the relative roles and responsibilities of the CEO and other NEOs. The Committee awarded 33% of the total shares to Mr. Jorden, 25% of the total shares to Mr. Albi and the remaining 42% of the total shares were divided equally between Messrs. Bell and Korus. The following table reflects the awards made by the Committee: +Name +No. of Shares Subject +to Award +Grant Date Value of +Long-Term Equity +Incentive Award (2) +% of Total Compensation +Thomas E. Jorden, CEO +59,692 +$ +2,549,445 +63% +Paul Korus, CFO +37,308 +$ +1,593,425 +63% +Joseph R. Albi +44,770 +$ +1,912,127 +65% +Stephen P. Bell +37,308 +$ +1,593,425 +65% +John Lambuth +24,000 +(1) +$ +1,157,760 +68% +F. H. Merelli +0 +$ +0 +– +(1) The grant of performance shares to Mr. Lambuth was made in August 2012 in connection with his promotion to Vice President. This grant was not part of the May 2012 grant to executive officers, as Mr. Lambuth was not an executive officer at that time. +(2) Represents the grant date fair value, which is consistent with the estimate of aggregate compensation cost to be recognized over the service period based on the probable outcome of the performance conditions and is consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. +28 +Table of Contents +ALIGNMENT OF CEO COMPENSATION TO TOTAL SHAREHOLDER RETURN (TSR) +Our executive compensation program design is intended to be competitive and to link executive compensation with company performance. One of the principal ways that we measure this alignment is by measuring TSR. TSR is one of the principal reasons investors buy our stock, it is a good indicator of what management has done to create value over time, and it is a good indicator of total performance outcomes. +The Committee reviewed an analysis by management of a comparison of (i) relative CEO realizable compensation to relative TSR and (ii) absolute Cimarex CEO realizable compensation compared to absolute Cimarex TSR. The data used in this analysis was derived from publicly filed documents with the SEC by each company in our Compensation Peer Group. The principal purpose of the review was to assess whether Cimarex’s TSR and CEO compensation (i) are aligned with companies in our Compensation Peer Group and (ii) are aligned on an absolute basis. For purposes of this analysis, “realizable compensation” includes: +· actual salary earned over the three-year period +· actual short-term incentives earned over the three-year period +· Black Scholes value of stock options granted during a three-year period, measured by the stock price at the end of that period +· value of restricted shares granted during the three-year period, calculated at the stock price at the end of that period +· value of performance shares earned and vested during the three-year period, calculated at the stock price at the end of that period +· value of any long-term cash incentives paid during the three-year period +· value of benefits provided during a three-year period +Relative CEO Realizable Pay to Relative TSR +The following graph depicts relative realizable CEO compensation compared to relative TSR for a historical measurement period of five separate three-year periods through December 31, 2011. The comparison group is our Compensation Peer Group. +CEO Relative Realizable Pay Compared to Relative TSR +Comparison of Absolute CEO Realizable Pay to Absolute Total Shareholder Return +The following graph illustrates our CEO realizable pay compared to our TSR for the years 2008 through 2012. Indexed TSR represents the cumulative total return of Cimarex stock for a five-year period based on a $100 investment at the start of the first year and reinvestment of all dividends. The data for 2008 through 2010 represents realizable compensation for only F. H. Merelli, our former CEO. The data for 2011 includes weighted realizable compensation, including realizable compensation +29 +Table of Contents +for F. H. Merelli who served as CEO for nine months in 2011 and realizable compensation for Thomas Jorden who served as CEO for three months in 2011. Realizable compensation for 2012 represents only compensation for Thomas Jorden, Cimarex’s current CEO. The table shows the value of the investment at the end of each year. +Absolute CEO Realizable Compensation Compared to Annual Shareholder Returns +2008 through 2012 +Comparison of Cimarex CEO Realizable Compensation to Median Realizable Compensation +of Companies in Our Compensation Peer Group for 2011 +The following graph reflects that our total 2011 CEO pay is .65 times the median of our peers. The s represents the median or the 50 th percentile. +EARLY 2013 COMPENSATION ACTIONS +ANNUAL CASH INCENTIVE AWARD PROGRAM +In response to comments from some of the company’s larger shareholders, the Committee reviewed its annual cash incentive award program. While the Committee believes that its past award decisions have resulted in cash awards that were aligned with +30 +Table of Contents +the company’s performance, the Committee understands that the goals and objectives may not have been transparent to its shareholders. As a result, the Committee refined the program by approving new strategic measurable goals and objectives that will apply to 2013 annual cash incentive awards that will be measured and paid in 2014. +2013 strategic goals: +o Achieve threshold or greater economic return on invested capital. +o Increase production compared to previous year (absolute and on a debt-adjusted basis). +o Increase reserves compared to previous year (absolute and on a debt-adjusted basis). +o Deliver at least one new project that contains significant future investment potential. +2013 tactical goals: +o Improve management of base property production. +o Continued improvement of drilling and completion performance and decrease in related costs. +o Analyze Cimarex’s midstream operations in order to decide whether to retain and develop or to divest. +o Develop and implement corporate financial modeling tool. +o Develop and implement an HR staffing and succession plan for key levels of management below executive team. +o Continue improvement of safety and environmental management of operations. +The strategic and tactical measures and objectives have been clearly communicated to the NEOs. At year end, management will deliver a report of results to the Committee with respect to each goal and provide its recommendation and the basis for its recommendations for individual awards. The Committee and its independent compensation consultant will review management’s recommendations and accept or modify those recommendations. The non-management members of the Board will consider the recommendations of the Committee. +Each NEO, including the CEO, has a target award equal to 100% of base salary and a maximum award of 200% of base salary; there is no minimum award. +LONG-TERM EQUITY INCENTIVE AWARDS +In February 2013, the Committee, in response to the perception that executive compensation was not aligned with Cimarex’s short-term financial performance, determined to postpone the timing of the long-term equity grants from May 2013 to December 2013 and to make long-term equity awards in December of each succeeding year. This provides the Committee with additional competitive and financial performance information for consideration in making long-term NEO equity award decisions. +ELIMINATION OF TAX GROSS UP PAYMENTS +In March of 2013 the Board amended the Cimarex Energy Co. Change in Control Severance Plan to eliminate any participant’s right (including the right of any NEO) to a tax gross-up payment. +Cimarex’s Change in Control Severance Plan is the only plan that provided for a tax gross up payment to a participant following a change in control if any payments received by the participant as a result of the change in control become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. See Potential Payments upon Change in Control or Termination for a more detailed description of this Plan. +SECTION 2 +OUR COMPENSATION FRAMEWORK +OBJECTIVES OF OUR EXECUTIVE COMPENSATION PROGRAM +Our principal business objective is to profitably grow our proved oil and gas reserves and production for the long-term benefit of shareholders. The primary strategy we use to achieve this objective is to reinvest our cash flow from operations at a competitive rate of return. Our executive compensation program is designed to retain and attract, when needed, the experienced professionals necessary to carry out this strategy. +31 +Table of Contents +DESIGN OF EXECUTIVE COMPENSATION PROGRAM +We design our executive compensation program to: +· Align performance incentives with the long-term interests of our shareholders. +We align the long-term interests of our shareholders with the interests of our executives by paying a substantial portion of each executive’s total compensation in the form of performance-based equity awards. The actual awards delivered are dependent upon relative TSR. Also, stock ownership guidelines encourage executives to have a meaningful ownership stake. +· Provide competitive total compensation opportunities that retain, and attract when needed, executive talent. +We provide compensation opportunities to our executives at levels that are competitive with equivalent positions at companies with which we may compete for talent. In general, we reference the 75 th percentile when we review base salary, long-term equity awards and total compensation. Actual compensation earned by an executive may be above or below this level based on company and individual performance. +· Link compensation earned to achievement of short-term and long-term financial and strategic objectives. +We provide an annual incentive cash award opportunity that is designed to reward executive efforts for achievement of company financial and strategic objectives. Our long-term equity incentive awards are designed to encourage above average stock price performance. +ELEMENTS OF EXECUTIVE COMPENSATION +We principally use three elements of executive compensation to carry out the design of our executive compensation program: +u +Base salary +Retain executive team and maintain program to attract other executives when needed. +u +Annual cash incentive award +Reward executives for short-term financial and operational results. +u +Annual long-term equity award +Focus executive efforts on activities and short-term results that lead to long-term shareholder value. Use time-vested restricted stock for retention and performance measure based on relative TSR to align executive’s interest with the interest of shareholders. +COMPETITIVE POSITIONING +In support of our compensation objectives, we reference the median and the 75 th percentiles of a peer group of companies to determine an appropriate total value and mix of pay for executives. The peer group is comprised of companies in the oil and gas industry with similar market capitalization and revenue. The Committee reviews companies in this peer group on an annual basis. The median and 75 th percentiles are a reference point only; we do not automatically compensate each executive at these levels. Several variables, including individual and division performance, time in position, annual company performance and three-year relative stock price performance influence the actual executive compensation decisions. +In May 2012, the Committee approved Cimarex’s Compensation Peer Group. The companies included in the Peer Group at the time of selection are companies in our industry of similar size and scope of operations and similar market capitalization and revenue. The 2011 year-end market capitalization of these companies ranged from $700 million to $16.4 billion, and the revenue at the time of selection in May 2012 ranged from $928 million to $3.8 billion. Following are the companies included in the Compensation Peer Group: +Peer Company +Peer Company +Cabot Oil & Gas Corporation +QEP Resources, Inc. +Concho Resources, Inc. +Quicksilver Resources Corp. +Denbury Resources Inc. +Range Resources Corp. +Linn Energy, LLC +SM Energy Company +Newfield Exploration Co. +Southwestern Energy Co. +Noble Energy Inc. +Ultra Petroleum Corporation +Pioneer Natural Resources Co. +Whiting Petroleum Corporation +32 +Table of Contents +Under our long-term equity incentive award program, we grant performance awards of restricted stock. The performance measure used to determine the number of shares to be delivered upon vesting is Cimarex’s relative stock price performance when compared to companies in the S&P 400 and 500 Oil and Gas Exploration Indices (the “Stock Performance Peer Group”). The companies included in the Stock Performance Peer Group at the time of granting the 2012 performance awards were: +S&P 400 Oil & Gas Exploration Index +S&P 500 Oil & Gas Exploration Index +Bill Barrett Corp. +Anadarko Petroleum Corp. +EQT Corp. +Comstock Resources Inc. +Apache Corp. +Newfield Exploration Co. +Forest Oil Corp. +Cabot Oil & Gas Corp. +Noble Energy Inc. +Plains Exploration & Production co. +Chesapeake Energy Corp. +Pioneer Natural Resources Co. +Quicksilver Resources Corp. +Denbury Resources Inc. +QEP Resource, Inc. +SM Energy Company +Devon Energy Corp. +Range Resources Corp. +EOG Resources Inc. +Southwestern Energy Co. +ROLE OF COMPENSATION CONSULTANT AND MANAGEMENT I N COMPENSATION DECISIONS +Compensation Consultant +The Committee has engaged the firm of Longnecker & Associates as its independent compensation consultant to fulfill the following responsibilities: +· Advise the Committee on management proposals, as requested. +· Undertake special projects at the request of the Committee. +· Participate in Committee meetings. +· Review the selected peer group and survey data for competitive comparisons. +· Provide market data and recommendations on NEO compensation. +The Committee has considered the six independence factors adopted by the NYSE and determined that its consultant, Longnecker & Associates, is independent within the meaning of the NYSE listing standards. +In 2012, as part of its ongoing services to the Committee, a representative of Longnecker attended or participated by teleconference at five of the meetings of the Committee. Longnecker provided the following services in 2012: +· Reviewed and provided input on Compensation Discussion and Analysis in the 2012 Proxy Statement. +· Attended February 20, 2012 Committee meeting and consulted with the Committee on annual cash incentive awards. +· Reviewed and made executive base salary recommendations. +· Provided an executive compensation analysis and recommendation for long-term equity grants. +· Conducted a market analysis of Board compensation. +· Recommended base salary increases in connection with executive promotions. +The total amount of fees paid to Longnecker for 2012 services to the Committee was $66,027. In addition, the Committee reimburses Longnecker for reasonable travel and business expenses. +Management +Our CEO and President is the principal management resource for compensation recommendations to the Committee with respect to the other NEOs. The CEO (i) provides an annual assessment of Cimarex’s overall financial and operational performance, and (ii) subjectively evaluates individual NEO performance and recommends individual base salary adjustments, annual cash incentive awards and long-term equity awards. His subjective evaluations generally include factors such as scope of responsibility, contribution to company performance, technical competence, managerial skills and advancement potential. The Committee considers the CEO’s recommendations in making Committee decisions regarding executive compensation. The Committee exercises its discretion to accept, reject or modify management compensation recommendations. +Our Vice President of Human Resources acts as an informational resource to Longnecker and the Committee and compiles survey and other compensation data for their review. The Committee, in consultation with Longnecker, reviews this information when making executive compensation and program design decisions. +33 +Table of Contents +POST-EMPLOYMENT COMPENSATION +Employees, including the NEOs, are covered by the Cimarex Change in Control Severance Plan. The Plan provides for “double trigger” payments if (i) there is a change-in-control (as defined in the Plan) and (ii) an employee is terminated for any reason other than “cause” (as defined in the Plan) within two years following a change in control. In that event, the employee is entitled to (i) cash severance payments of salary and cash incentive award, (ii) a pro-rata portion of annual cash incentive bonus and (iii) continued medical, dental, disability and life insurance benefits for two years. See “Potential Payments upon Change in Control or Termination” for a more detailed description of these benefits. In addition, the 2011 Equity Incentive Plan and the terms of employee equity award agreements provide for acceleration of vesting of outstanding equity awards upon the occurrence of a change-in-control. +RETIREMENT BENEFITS +Employees, including the NEOs, are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. Cimarex matches dollar-for-dollar employee contributions to the plan up to 7% of the employee’s cash compensation, subject to limits imposed by the Internal Revenue Code. The Board is authorized to make profit-sharing contributions under the Plan, and in February 2013, the Board authorized a profit-sharing contribution of 3% of the gross pay of eligible participants under the Plan. +In addition, eligible participants, including the NEOs, may participate in the Supplemental Savings Plan, which is a non-qualified deferred compensation plan that permits participants to make contributions (and to receive matching contributions) in excess of the Internal Revenue Code limitations. See Compensation Tables, 2012 Nonqualified Deferred Compensation for information about contributions to the Supplemental Savings Plan. The Committee administers this plan and designates who may participate. Benefits are paid upon termination of employment. In the event of a change in control, each participant receives a lump sum cash payment of the amount allocated to his account. +PERQUISITES +We provide a limited number of perquisites (personal benefits) to our NEOs, including financial and estate planning and a medical reimbursement program. Our corporate aircraft is generally not available for personal use by any employee. With the authorization of our CEO, the corporate aircraft may be used by an employee or a member of his/her family for medical emergency purposes. The incremental cost for non-business use of our corporate aircraft, if any, is disclosed in the Summary Compensation Table . We use the Standard Industry Fare Level tables published by the Internal Revenue Service to determine the amount of compensation income that is imputed to the executive for tax purposes for personal use of corporate aircraft. +OTHER COMPENSATION POLICIES +Compensation Risk Assessment +In 2011, the Committee performed a thorough review of the possible connection between incentives and excessive risk taking. The Committee’s review covered Cimarex’s compensation policies and practices covering executive and non-executive employees to determine whether the policies and practices encourage excessive risk taking by employees. The Committee’s analysis included: +· What are the metrics for determining awards? +· Who are plan participants? +· How are the pools and individual awards determined? +· What is the maximum individual award potential (maximum individual incentive to take risk)? +· What is the maximum possible cost if awards were paid at maximum (maximum cost exposure)? +· What is the decision-making and approval process? +· What are the systemic limitations on the ability to take excessive risks in order to influence compensation? +In 2012 the Committee determined that there had been no systemic changes to any of the elements of compensation decision making and operational decision making since its review in 2011. The Committee again reviewed the 2011 analysis and determined that risks from compensation policies and practices for Cimarex employees are not reasonably likely to have a material adverse effect on Cimarex. +34 +Table of Contents +Total Pay and Internal Pay Equity Guidelines +The Committee considers total compensation at the time it makes a decision on any element of executive compensation. The Committee also reviews the relationship of the CEO’s total compensation to the total compensation of each of the other NEOs. +Internal pay equity guidelines provide that the CEO’s base salary should not be more than three times the base salary of the next highest compensated NEO, and the CEO’s cash incentive award should not be more than three times the cash incentive award of the next highest cash incentive award. The Board must approve any deviation from these guidelines. For 2012, the CEO’s base salary and annual cash incentive award were consistent with our internal pay equity guidelines. +Stock Ownership and Holding Requirements +Our Corporate Governance Guidelines require that each independent director own Cimarex stock in an amount equal to three times his annual cash retainer. In addition, the CEO is expected to own Cimarex shares in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to own stock in an amount equal to three times his annual base salary. A newly elected director or a newly appointed executive officer has three years from the date of their initial election or appointment to comply with the Guidelines. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership. Shares subject to options are not counted. Each of the independent directors, the CEO and the other NEOs comply with these guidelines. +Clawback Policy +We have adopted a clawback policy providing that, in the event of an accounting restatement due to material noncompliance with financial reporting requirements under the U.S. federal securities laws, the Committee has the right to use reasonable efforts to recover from any of our current or former executive officers who received incentive-based compensation related to the restatement and received during the three-year period preceding any such accounting restatement. This policy applies to incentive-based compensation granted on or after June 1, 2012. This clawback policy will be interpreted in the best judgment of the Committee in a manner consistent with any applicable rules or regulations adopted by the SEC or the NYSE Stock Market as contemplated by the Dodd-Frank Act. +Non-Hedging and Non-Pledging Policies +Our insider trading policy applies to all executives, employees and directors and prohibits transactions in puts, calls or other derivative securities on an exchange or in any other organized market. Our policy also strongly discourages these individuals from engaging in certain forms of hedging or monetization transactions such as zero-cost collars and forward sale contracts. Any person wishing to enter into such an arrangement must first clear the proposed transaction with the General Counsel or Corporate Secretary. The policy also prohibits executive, employees and directors from holding Cimarex stock in a margin account or pledging Cimarex stock as collateral for a loan. An exception to this prohibition may be granted by the General Counsel or Corporate Secretary if a person can clearly demonstrate the financial capacity to repay the loan without resort to the pledged stock. +Tax Law Considerations +The Committee considers the impact of applicable tax laws with respect to executive compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the amount of compensation that Cimarex may deduct on its federal income tax return for compensation paid to certain executive officers to no more than $1 million per year. There are exceptions to the $1 million limitation for performance-based compensation meeting certain requirements. The performance awards of restricted stock are the only element of executive compensation designed to qualify for the performance-based exception to the $1 million deduction limit, provided additional requirements are met. The performance award program and the performance metrics applicable to the awards were approved by Cimarex shareholders in May 2011. The Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under Section 162(m). +35 +Table of Contents +COMPENSATION AND GOVERNANCE COMMITTEE REPORT +The Compensation and Governance Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis section of Cimarex’s 2013 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Cimarex’s 2013 Proxy Statement. +THE COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +36 +Table of Contents +COMPENSATION TABLES +SUMMARY COMPENSATION TABLE +The following table describes 2012, 2011 and 2010 compensation of our CEO, CFO and the three other most highly compensated executive officers. In compliance with SEC interpretations, the table also discloses the 2012, 2011 and 2010 compensation of F. H. Merelli, our former Chairman and CEO, who died in August 2012. +Name and +Principal Position +Year +Salary +Bonus +Stock +Awards (1) +Option +Awards +Non-Equity +Incentive Plan +Comp. (2) +Change in +Pension +Value and +Nonqualified +Deferred +Comp. +Earnings +All Other +Comp. (3) +Total +Thomas E. Jorden +Chief Executive +Officer and +President +(CEO) +2012 +$ +672,000 +$ +— +$ +2,549,445 +$ +— +$ +800,000 +$ +— +$ +44,740 +$ +4,066,185 +2011 +$ +538,621 +$ +— +$ +3,494,478 +$ +479,260 +$ +750,000 +$ +— +$ +43,590 +$ +5,305,949 +2010 +$ +477,625 +$ +— +$ +2,097,000 +$ +— +$ +1,061,600 +$ +— +$ +56,392 +$ +3,692,617 +Paul Korus +Sr Vice President, +Chief Financial +Officer +(CFO) +2012 +$ +452,000 +$ +— +$ +1,593,425 +$ +— +$ +474,600 +$ +— +$ +48,232 +$ +2,568,257 +2011 +$ +444,881 +$ +— +$ +3,494,478 +$ +287,556 +$ +350,000 +$ +— +$ +56,714 +$ +4,633,629 +2010 +$ +428,575 +$ +— +$ +2,097,000 +$ +— +$ +865,500 +$ +— +$ +45,617 +$ +3,436,692 +Joseph R. Albi +Exec Vice +President-Chief +Operating Officer +2012 +$ +500,000 +$ +— +$ +1,912,127 +$ +— +$ +550,000 +$ +— +$ +83,692 +$ +3,045,819 +2011 +$ +465,772 +$ +— +$ +3,494,478 +$ +479,260 +$ +400,000 +$ +— +$ +70,276 +$ +4,909,786 +2010 +$ +439,808 +$ +— +$ +2,097,000 +$ +— +$ +964,600 +$ +— +$ +64,850 +$ +3,566,258 +Stephen P. Bell +Exec Vice +President-Business +Development +2012 +$ +395,231 +$ +— +$ +1,593,425 +$ +— +$ +462,000 +$ +— +$ +59,786 +$ +2,510,442 +2011 +$ +378,621 +$ +— +$ +3,494,478 +$ +479,260 +$ +350,000 +$ +— +$ +57,015 +$ +4,759,374 +2010 +$ +364,292 +$ +— +$ +2,097,000 +$ +— +$ +770,600 +$ +— +$ +58,924 +$ +3,290,816 +John A. Lambuth +Vice President- +Exploration +2012 +$ +324,615 +$ +$ +1,367,000 +$ +— +$ +325,000 +$ +— +$ +42,637 +$ +2,059,252 +F.H. Merelli, +2012 +$ +563,077 +$ +— +$ +0 +$ +— +$ +0 +$ +— +$ +3,892,946 +$ +4,456,023 +(5) +Former Executive +2011 +$ +900,596 +$ +— +$ +6,988,955 +$ +— +$ +600,000 +$ +— +$ +116,068 +$ +8,605,619 +Chairman +2010 +$ +867,500 +$ +— +$ +4,194,000 +$ +— +$ +1,760,000 +$ +— +$ +46,040 +$ +6,867,540 +37 +Table of Contents +(1) Represents the grant date fair value, which is consistent with the estimate of aggregate compensation cost to be recognized over the service period based on the probable outcome of the performance conditions and is consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. The following represents the maximum potential value of each award based upon the closing stock price on the date of grant multiplied by the total number of shares subject to the award: +Executive Officer +2012 Award +2011 Award +2010 Award +Thomas E. Jorden, CEO +$ +3,308,728 +$ +4,307,670 +$ +2,758,500 +Paul Korus, CFO +$ +2,067,982 +$ +4,307,670 +$ +2,758,500 +Joseph R. Albi +$ +2,481,601 +$ +4,307,670 +$ +2,758,500 +Stephen P. Bell +$ +2,067,982 +$ +4,307,670 +$ +2,758,500 +John A. Lambuth +$ +1,681,400 +— +— +F. H. Merelli +$ +0 +$ +8,615,340 +$ +5,517,000 +(2) Amount reported for the year earned. +(3) The following describes the components of other items of compensation, including any perquisite in excess of $10,000: +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Life +Insurance +Premiums +Total +Other +Compensation +Thomas E. Jorden, CEO +2012 +$ +— +$ +41,500 +$ +3,240 +$ +44,740 +2011 +$ +— +$ +40,350 +$ +3,240 +$ +43,590 +2010 +$ +— +$ +42,800 +$ +3,140 +$ +56,392 +Paul Korus, CFO +2012 +$ +3,803 +$ +41,500 +$ +2,929 +$ +48,232 +2011 +$ +— +$ +40,350 +$ +2,882 +$ +56,714 +2010 +$ +— +$ +42,800 +$ +2,817 +$ +45,617 +Joseph R. Albi +2012 +$ +3,036 +$ +41,500 +$ +3,240 +$ +83,692 +(a) +2011 +$ +— +$ +40,350 +$ +3,094 +$ +70,276 +2010 +$ +5,180 +$ +42,800 +$ +2,891 +$ +64,850 +Stephen P. Bell +2012 +$ +14,808 +$ +41,500 +$ +3,478 +$ +59,786 +2011 +$ +14,212 +$ +40,350 +$ +2,453 +$ +57,015 +2010 +$ +13,730 +$ +42,800 +$ +2,394 +$ +58,924 +John A. Lambuth +2012 +$ +— +$ +39,743 +$ +2,894 +$ +42,637 +F. H. Merelli, former Executive +Chairman +2012 +$ +142,837 +$ +41,500 +$ +2,160 +$ +3,892,946 +(b) +2011 +$ +— +$ +40,350 +$ +3,240 +$ +116,068 +2010 +$ +— +$ +42,800 +$ +3,240 +$ +46,040 +(a) Mr. Albi’s total other compensation includes $19,003 for estate planning costs, $16,193 for medical reimbursements and $720 for reserved parking, for total perquisites of $35,916. +(b) Mr. Merelli’s total other compensation includes $3,660,000 for termination by reason of death benefits under his employment agreement and $46,449 for use of the corporate aircraft for personal medical issues, for total perquisites of $46,449. +38 +Table of Contents +The incremental cost of the use of corporate aircraft is based on the average variable operating costs which include fuel, repairs, catering, landing fees, ground services and other miscellaneous variable costs divided by the annual number of hours the aircraft flew to determine the average variable cost per hour which is then multiplied by the hours flown for personal use. The incremental costs include “deadhead” flights related to such usage. Fixed costs that do not change based on usage are not included. +(4) This is the first year that Mr. Lambuth is included as an NEO in the Summary Compensation Table. Therefore, information is reported only for the 2012 fiscal year. +(5) Mr. Merelli, former Executive Chairman, died in August 2012. Pursuant to the terms of his employment agreement, Mr. Merelli’s estate was paid $3,600,000, representing two times his annual salary of $915,000 and the maximum bonus of 200% of his $915,000 base salary. +2012 GRANTS OF PLAN-BASED AWARDS +2012 Non-Equity Incentive Plan +The following table describes the target and maximum amounts of annual cash incentive awards for the NEOs and the actual award paid in March 2013. The non-equity incentive plan provides for no minimum (threshold) award. The amounts listed in the Target column represent 100% of the year-end monthly base salary annualized. The amounts listed in the Maximum column represent 200% of the year-end monthly salary annualized. See the description of our annual cash incentive award plan in Section 1, Compensation Discussion and Analysis . +Estimated Future Payouts Under +Non-Equity Incentive Plan +Name +Threshold +Target +Maximum +Actual +Award +Paid in +March 2013 +Thomas E. Jorden, CEO +$ +0 +$ +672,000 +$ +1,344,000 +$ +800,000 +Paul Korus, CFO +$ +0 +$ +452,000 +$ +904,000 +$ +474,600 +Joseph R. Albi +$ +0 +$ +500,000 +$ +1,000,000 +$ +550,000 +Stephen P. Bell +$ +0 +$ +420,000 +$ +840,000 +$ +462,000 +John A. Lambuth +$ +0 +$ +360,000 +$ +720,000 +$ +325,000 +F. H. Merelli +$ +— +$ +— +$ +— +$ +— +39 +Table of Contents +Equity Incentive Plan Awards +The following table provides information regarding the awards of restricted stock and options made to the CEO, CFO and other NEOs in 2012. No option awards were made in 2012. See Section 1, Compensation Discussion and Analysis for more information about these awards. +Award +Comp +Comm. +Estimated Future Payouts Under Equity +Incentive Plan Awards +Grant Date Fair +Name +Type of +Award (1) +Grant +Date +Approval +Date +Threshold (2) +Target (3) +Maximum +Value of Stock & +Option Awards +Thomas E. Jorden +CEO +RSA +5/18/12 +5/16/12 +29,846 +59,692 +$ +2,549,445 +(4) +Paul Korus CFO +RSA +5/18/12 +5/16/12 +18,654 +37,308 +$ +1,593,425 +(4) +Joseph Albi +RSA +5/18/12 +5/16/12 +22,385 +44,770 +$ +1,912,127 +(4) +Stephen Bell +RSA +5/18/12 +5/16/12 +18,654 +37,308 +$ +1,593,425 +(4) +John Lambuth +RSA +(5) +7/13/12 +7/13/12 +4,000 +4,000 +$ +209,240 +RSA +9/13/12 +9/13/12 +12,000 +— +24,000 +$ +1,157,760 +(4) +F. H. Merelli +NA +NA +NA +0 +0 +0 +$ +0 +(1) RSA = Restricted stock (time-vested and performance shares) +(2) One-half of the total potential award will vest on the third anniversary of the award, subject to continued service. +(3) Terms of the performance awards do not specify a targeted number of shares. The number of shares that vest depends on Cimarex’s stock price performance relative to peers and is not computed until the third anniversary of the award. See Long-Term Equity Incentive Award Program for the method of computing the number of shares that vest. Cash dividends will be paid on the threshold number of shares during the vesting period and accrued during the vesting period on the remaining number of shares which are subject to measurement of relative total shareholder return upon satisfaction of vesting. +(4) Represents the grant date fair value of the performance awards based on the probable outcome of the performance conditions, which is consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. +(5) Does not represent a performance award. Represents a CEO discretionary time-vested restricted stock award that vests five years from the date of grant. The award was made prior to Mr. Lambuth becoming an executive officer in September 2012. +40 +Table of Contents +The following table provides information about all outstanding options and unvested stock awards held by the CEO and each NEO as of December 31, 2011: +Outstanding Equity Awards at December 31, 2012 +OPTION AWARDS +STOCK AWARDS +Number of Securities Underlying +Unexercised Options +Equity Incentive Plan Awards That Have +Not Vested +Name +Exercisable +Unexercisable +Option +Exercise Price +Option +Expiration +Date +No. of Shares +Market Value of +Unearned Shares (1) +Thomas E. Jorden +CEO +0 +25,000 +$ +55.96 +9/30/2018 +157,555 +(2) +$ +9,095,650 +Paul Korus, CFO +0 +15,000 +$ +55.96 +9/30/2018 +135,171 +(3) +$ +7,803,422 +Joseph R. Albi +0 +25,000 +$ +55.96 +9/30/2018 +142,633 +(4) +$ +8,234,208 +Stephen P. Bell +0 +25,000 +$ +55.96 +9/30/2018 +135,171 +(3) +$ +7,803,422 +John A. Lambuth +0 +0 +— +— +43,500 +(5) +$ +2,511,255 +F. H. Merelli +0 +0 +— +— +0 +0 +(1) The amount in this column reflects the closing market price of the stock as of December 31, 2012 ($57.73) multiplied by the number of shares reported in the previous column. +(2) 33,500 shares of a 50,000 share award vested on January 4, 2013; 47,863 shares could vest on January 3, 2014, and 59,592 shares could vest on May 18, 2015. +(3) 33,500 shares of a 50,000 share award vested on January 4, 2013; 47,863 shares could vest on January 3, 2014 and 37,308 shares could vest on May 18, 2015. +(4) 33,500 shares of a 50,000 share award vested on January 4, 2013; 47,863 shares could vest on January 3, 2014 and 44,470 shares could vest on May 18, 2015. +(5) 5,000 shares will vest on July 23, 2013, 2,500 shares will vest on June 23, 2014, 4,000 shares will vest on July 1, 2015, 4,000 shares will vest on July 13, 2017, and 24,000 shares could vest on September 13, 2015. +41 +Table of Contents +The following table provides information about the stock awards that vested during 2012. Options were exercised by the estate of F.H. Merelli who died in August 2012. +2012 OPTION EXERCISES AND RESTRICTED STOCK VESTED +2012 OPTION EXERCISES +2012 STOCK VESTING +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($) +Thomas E. Jorden +— +$ +— +30,000 +$ +1,873,000 +Paul Korus +— +$ +— +30,000 +$ +1,873,000 +Joseph R. Albi +— +$ +— +30,000 +$ +1,873,000 +Stephen P. Bell +— +$ +— +30,000 +$ +1,873,000 +John A. Lambuth +— +$ +— +3,000 +$ +169,110 +F. H. Merelli +422,400 +(1) +$ +17,716,109 +(1) +60,000 +$ +3,747,600 +118,863 +(2) +$ +7,295,217 +(2) +(1) This option was exercised by the Estate of F. H. Merelli prior to its scheduled expiration date of December 6, 2012. Mr. Merelli did not exercise this option prior to his death in August 2012. +(2) Represents shares paid upon acceleration of vesting upon the death of Mr. Merelli. +The following table provides information on the Supplemental Savings Plan contributions and earnings for our NEOs in each of the last three fiscal years. Participants may defer a maximum of 50% of total annual cash compensation, provided that the amount deferred may not exceed the dollar limitation on elective deferrals under the Internal Revenue Code section 402(g) in effect on January 1 of the calendar year of deferral (2012 limitation was $22,000). In 2012, Cimarex matched 100% of the participants’ contributions up to 7% of the participant’s total annual cash compensation. +42 +Table of Contents +2012 NONQUALIFIED DEFERRED COMPENSATION +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions in +Last FY (2) +($) +Aggregate +Earnings in Last +FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +Thomas E. Jorden, CEO +2012 +$ +17,000 +$ +17,000 +$ +207 +$ +— +$ +545,364 +(3) +2011 +$ +16,500 +$ +16,500 +$ +223 +$ +— +$ +511,404 +2010 +$ +16,500 +$ +16,500 +$ +292 +$ +— +$ +478,420 +Paul Korus, CFO +2012 +$ +17,000 +$ +17,000 +$ +51,798 +$ +— +$ +385,478 +(3) +2011 +$ +16,500 +$ +16,500 +$ +(6,167 +) +$ +— +$ +299,927 +2010 +$ +16,500 +$ +16,500 +$ +22,500 +$ +— +$ +273,333 +Joseph R. Albi +2012 +$ +17,000 +$ +17,000 +$ +35,895 +$ +— +$ +318,296 +(3) +2011 +$ +16,500 +$ +16,500 +$ +(856 +) +$ +— +$ +248,629 +2010 +$ +16,500 +$ +16,500 +$ +28,241 +$ +— +$ +216,724 +Stephen P. Bell +2012 +$ +17,000 +$ +17,000 +$ +65,201 +$ +— +$ +503,842 +(3) +2011 +$ +16,500 +$ +16,500 +$ +21,880 +$ +— +$ +404,888 +2010 +$ +16,500 +$ +16,500 +$ +5,742 +$ +— +$ +350,247 +John A. Lambuth +2012 +$ +17,000 +$ +17,000 +$ +24,466 +$ +— +$ +283,280 +F. H. Merelli, Chairman +2012 +$ +17,000 +$ +17,000 +$ +88,440 +$ +— +$ +801,544 +(3) +2011 +$ +16,500 +$ +16,500 +$ +23,869 +$ +— +$ +679,311 +2010 +$ +16,500 +$ +16,500 +$ +60,569 +$ +— +$ +622,681 +(1) The amounts included in this column are also included in the Salary column in the Summary Compensation Table . +(2) The amounts reported in this column are included in the All Other Compensation column and footnote 3 thereto in the Summary Compensation Table. +(3) The following table sets forth amounts included in the aggregate balance at December 31, 2012 that were reported as compensation to the named executive officer in the Summary Compensation Table for previous years. +Named Executive Officer +Amount of Previously +Reported Compensation +Thomas E. Jorden +$ +472,172 +Paul Korus +$ +471,056 +Joseph R. Albi +$ +265,119 +Stephen P. Bell +$ +341,739 +John A. Lambuth +$ +NA +F. H. Merelli +$ +491,374 +43 +Table of Contents +POTENTIAL PAYMENTS UPON CHANGE IN CONTROL OR TERMINATION +We do not consider post-termination benefits as a material element of executive compensation because NEO post-termination benefits are the same benefits available to all full-time employees. Post-termination benefits are not included in the Committee’s analysis of total compensation. +We are obligated to make certain payments to employees, including our NEOs, or to accelerate the vesting of their equity awards pursuant to the following plans and agreements: +· Change in Control Severance Plan that covers all full-time employees, including the NEOs +· 2002 Stock Incentive Plan and 2011 Equity Incentive Plan that governs all equity awards made to directors and employees, including the NEOs +· Change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +· Supplemental Savings Plan +We currently do not pay severance benefits or accelerate equity awards upon the retirement of the NEOs. Individual performance assessments, compensation arising from our annual compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +Change in Control +We are obligated under certain agreements to pay benefits upon a “change in control” event. Cimarex’s definition of “ change in control ” as used in its 2002 Stock Incentive Plan and its 2011 Equity Incentive Plan, its Change in Control Severance Plan and the change in control provisions that survived certain expired employment agreements with each NEO is the same. In summary, a change in control event means any of the following: +· Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities of Cimarex by an individual or group. +· Members of our Board of Directors cease to constitute a majority of the directors during any period of twelve months. +· A reorganization, share exchange or merger unless (i) the shareholders prior to the reorganization or merger continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the members of the Board of the corporation resulting from the merger or reorganization were members of the Board at the time of executing the agreement to reorganize or merge. +· The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +The following is a summary of those agreements that provide for payment to the CEO and the other NEOs in the event of a change in control event coupled with termination of employment without cause: +Change in Control – Termination Without Cause +Our Change in Control Plan provides for the payment of severance benefits to all active employees in the event of termination following a change in control. In the event of a change in control, if an employee is terminated for any reason other than “cause” (as defined in the plan) within two years following a change in control, each employee would be entitled to: +· Cash severance payments of up to two years’ salary and cash incentive award. +· A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +44 +Table of Contents +· Continued medical, dental, disability and life insurance benefits for two years. +We assumed the change in control provisions from the now-expired employment agreements between each of Messrs. Albi, Bell, Jorden and Korus and a predecessor company. Each agreement provides that if the executive is terminated without cause following a change in control event (as defined in the agreement), the executive is entitled to a lump-sum payment equal to two times the executive’s base salary at the time of the change in control. Benefits payable under these agreements are forfeited if the executive receives benefits under any other change in control plan, including the Cimarex Energy Co. Change in Control Severance Plan. As a practical matter, the change in control benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change in control event. +Change in Control – No Termination +Our 2002 Stock Incentive Plan and our 2011 Equity Incentive Plan provide for acceleration of vesting of equity awards in the event of a change in control. +Termination of Employment +Death or Disability +The award agreements for grants of equity under the 2002 Stock Incentive Plan and the provisions of the 2011 Equity Incentive Plan provide for acceleration of vesting of the award in the event of death or disability. Benefits under the Supplemental Savings Plan are paid upon death or disability. +Mr. Merelli, former Executive Chairman, died in August 2012. Pursuant to the terms of his employment agreement, Mr. Merelli’s estate was paid a death benefit of $3,600,000, representing two times his annual salary of $915,000 and the maximum bonus of 200% of his $915,000 base salary. In addition, pursuant to the terms of his performance award agreements, as a result of his death, 118,863 shares of restricted stock vested, which represented a portion of the 195,726 unvested shares subject to his performance awards. The performance calculation as of the date of his death resulted in the forfeiture of 76,863 shares. +Termination Without Cause +Benefits under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +Estimated Benefits upon Various Termination Scenarios +Payments upon a change in control or termination of employment include various elements of compensation. The elements of compensation that may be included in a change in control or severance payment are: +(A) +(B) +(C) +(D) +(E) +ANNUAL AVERAGE +CASH COMPENSATION (1) +CASH INCENTIVE (2) +LONG TERM +AWARD PAYOUT (3) +SUPPLEMENTAL +SAVINGS (4) +OTHER BENEFITS (5) +Thomas Jorden +$ +2,894,000 +$ +725,760 +$ +6,240,145 +$ +545,364 +$ +27,613 +Paul Korus +$ +1,728,600 +$ +488,160 +$ +4,933,455 +$ +385,478 +$ +28,814 +Joseph Albi +$ +1,950,000 +$ +540,000 +$ +5,363,490 +$ +318,206 +$ +20,731 +Stephen Bell +$ +1,652,000 +$ +453,600 +$ +4,950,155 +$ +503,842 +$ +11,553 +John Lambuth +$ +1,342,942 +$ +350,377 +$ +1,383,120 +$ +283,280 +$ +27,640 +(1) Amount represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2011 and 2012, as provided in the Change in Control Severance Plan. +(2) Amount represents the average incentive bonus as provided in the Change in Control Severance Plan. +45 +Table of Contents +(3) Amount represents the value of accelerated vesting of restricted stock and options based upon the closing price of Cimarex’s common stock as of December 31, 2012 of $57.73 per share. +(4) Amount represents estimated payments under the Supplemental Savings Plan. +(5) Amount represents the estimated value of continued medical, dental, disability and life insurance benefits for two years as provided in the Change in Control Severance Plan. +The following table provides the estimated compensation and present value of benefits potentially payable to the NEO in the event of a change in control or termination under various scenarios. The amounts shown assume that the termination or change in control occurred on December 31, 2012. The actual amounts to be paid can only be determined at the time of the executive’s actual separation from Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements or modify these arrangements, from time to time. +The following describes potential payments to the NEOs in the event of a change in control or termination under various scenarios: +NAME +TERMINATION +WITHOUT CAUSE (1) +(D) +TERMINATION AS A +RESULT OF +DEATH OR +DISABILITY +(C) +CHANGE IN +CONTROL) +(No Termination) +(C) +TERMINATION +ON CHANGE +IN CONTROL +(A+B+C+D+E) +Thomas Jorden +$ +545,364 +$ +6,785,509 +$ +6,240,145 +$ +10,432,882 +Paul Korus +$ +385,478 +$ +5,318,933 +$ +4,933,455 +$ +7,564,507 +Joseph Albi +$ +318,206 +$ +5,698,396 +$ +5,363,490 +$ +8,209,127 +Stephen Bell +$ +503,842 +$ +5,453,997 +$ +4,950,155 +$ +7,571,150 +John Lambuth +$ +283,280 +$ +1,666,400 +$ +1,383,120 +$ +3,387,359 +46 +Table of Contents +STOCK OWNERSHIP OF DIRECTORS, MANAGEMENT AND CERTAIN BENEFICIAL OWNERS +BENEFICIAL OWNERSHIP BY EXECUTIVE OFFICERS AND DIRECTORS +The following table shows, as of March 15, 2013, the number of shares of common stock “beneficially owned,” as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, by the NEOs, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned (1) +Beneficial +Ownership Total +Percent of +Class +Named Officers +Thomas E. Jorden (also director) +225,593 +225,593 +<1 +% +Paul Korus +150,481 +150,481 +<1 +% +Joseph R. Albi (also director) +171,329 +171,329 +<1 +% +Stephen P. Bell +177,532 +177,532 +<1 +% +John A. Lambuth +45,567 +45,567 +<1 +% +Directors +Jerry Box +14,921 +14,921 +<1 +% +Hans Helmerich +546,971 +(2) +546,971 +(2) +<1 +% +David A. Hentschel +28,893 +28,893 +<1 +% +Harold R. Logan, Jr. +8,384 +8,384 +<1 +% +Floyd R. Price +1,301 +1,301 +<1 +% +Monroe W. Robertson +17,470 +17,470 +<1 +% +Michael J. Sullivan +23,667 +23,667 +<1 +% +L. Paul Teague +52,987 +(3) +52,987 +(3) +<1 +% +All executive officers and directors +as a group (17 persons) +1,690,512 +1,690,512 +2 +% +(1) Includes restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include deferred compensation units held by some directors. There are no shares of common stock that could be purchased by the exercise of vested stock options within the 60-day period following March 15, 2013. +(2) Includes 11,450 shares owned by Mr. Helmerich’s wife. Mr. Helmerich disclaims beneficial ownership of the shares held by his wife. Also includes 55,000 shares owned by The Helmerich Foundation, of which Mr. Helmerich is co-trustee, and 452,000 shares held by the Estate of W. H. Helmerich III, of which Mr. Helmerich is the trustee. +(3) Includes 9,066 shares owned by Mr. Teague’s wife. Mr. Teague disclaims beneficial ownership of the shares held by his wife. +47 +Table of Contents +BENEFICIAL OWNERS OF MORE THAN FIVE PERCENT +Each of the following shareholders beneficially owns five percent or more of our outstanding shares of common stock. The following table provides information regarding their stock ownership and is based on their filings with the SEC. +Voting Authority +Dispositive Authority +Total Amount +of Beneficial +Percent of +Name and Address +Sole +Shared +Sole +Shared +Ownership +Class +Artisan Partners +875 East Wisconsin Ave., #800 +Milwaukee, WI 53202 +0 +4,896,604 +0 +5,070,198 +5,070,198 +5.9 +% +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +5,471,457 +0 +5,471,457 +0 +5,471,457 +6.3 +% +Capital World Investors +333 South Hope Street +Los Angeles, CA 90071 +8,345,000 +0 +8,345,000 +0 +8,345,000 +9.6 +% +Harris Associates L.P. +Two North LaSalle St., #500 +Chicago, IL 60602-3790 +5,023,522 +0 +5,023,522 +0 +5,023,522 +6.4 +% +T. Rowe Price Associates, Inc. +100 E. Pratt Street +Baltimore, MD 21202 +3,563,001 +0 +8,929,492 +0 +8,929,492 +10.3 +% +OTHER MATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we believe that all reports were timely filed in 2012, except a report of Mr. Price’s initial director grant and a report of Mr. Sullivan’s option exercise were not timely filed. Forms 5 covering these transactions have been filed. +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com . Any person, whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with non-management directors may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +Shareholder Proposals +If you want to submit a proposal for possible inclusion in next year’s proxy statement, you must submit it in writing to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. Cimarex must receive your proposal on or before December 6, 2013. Cimarex will consider only proposals meeting the requirements of the applicable rules of the SEC. +48 +Table of Contents +QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING +Why did I receive these proxy materials? +We are providing these proxy materials in connection with the solicitation by the Board of Directors of Cimarex Energy Co., a Delaware corporation, of proxies to be voted at our 2013 Annual Meeting of Shareholders and at any adjournment or postponement of the Meeting. The Meeting will take place on May 15, 2013, beginning at 9:00 a.m. Mountain Daylight Time, at the Hershner Room, 1700 Lincoln Street, Denver, Colorado. +Who is entitled to vote at the Annual Meeting? +Holders of Cimarex common stock at the close of business on March 19, 2013 are entitled to receive the Notice of Annual Meeting and to vote their shares at the Meeting. As of that date, there were 86,433,834 shares of Cimarex common stock outstanding and entitled to vote. Each share of common stock is entitled to one vote on each matter properly brought before the Meeting. +What is the difference between holding shares as a shareholder of record and as a beneficial owner? +If your shares are registered in your name with Cimarex’s transfer agent, Continental Stock & Transfer Company, you are the shareholder of record of those shares. This Notice of Annual Meeting and Proxy Statement and any accompanying documents have been provided directly to you by Cimarex. +If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the beneficial owner of those shares, and this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been forwarded to you by your broker, bank or other holder of record. As the beneficial owner, you have the right to direct your broker, bank or other holder of record how to vote your shares by using the voting instruction card or by following their instructions for voting by telephone or on the Internet. +How to I vote? +You may vote using any of the following methods: +· By mail +Complete, sign and date the proxy or voting instruction card and return it in the prepaid envelope. If you are a shareholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by your proxy card as recommended by the Board of Directors. +· By telephone or on the Internet +Cimarex has established telephone and internet voting procedures for shareholders of record. These procedures are designed to authenticate your identity, to allow you to give your voting instructions and to confirm that those instructions have been properly recorded. +You can vote by calling the toll-free telephone number on your proxy card. Please have your proxy card handy when you call. Easy-to-follow voice prompts will allow you to vote your shares and confirm that your instructions have been properly recorded. +The website for Internet voting is www.proxyvote.com . Please have your proxy card handy when you go to the website. As with telephone voting, you can confirm that your instructions have been properly recorded. If you vote on the Internet, you also can request electronic delivery of future proxy materials. +The availability of telephone and Internet voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. Therefore, we recommend that you follow the voting instructions in the materials you receive. +If you vote by telephone or on the Internet, you do not have to return your proxy or voting instruction card. +· In person at the Annual Meeting +Shareholders who attend the Annual Meeting may vote in person at the Meeting. You may also be represented by another person at the Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the Meeting. +What can I do if I change my mind after I vote? +If you are a shareholder of record, you can revoke your proxy before it is exercised by: +· Giving written notice to the Corporate Secretary of Cimarex; +· Delivering a valid, later-dated proxy, or a later-dated vote by telephone or on the Internet in a timely manner; or +· Voting by ballot at the Annual Meeting. +49 +Table of Contents +If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other holder of record. +All shares for which proxies have been properly submitted and not revoked will be voted at the Annual Meeting. +What shares are included on the proxy card? +If you are a shareholder of record, you will receive only one proxy card for all the shares you hold of record: +· in certificate form; and +· in book-entry form. +If you are a Cimarex employee, you will receive a proxy or voting instruction card for all the shares you hold in the Cimarex 401(k) Plan. Your proxy card will serve as a voting instruction card for the Plan trustee. +If you do not specify your voting instructions on the proxy card, the Plan trustee will vote your shares in the same proportion as it votes shares for which it did receive timely instructions. To allow sufficient time for voting by the trustee, your voting instructions must be received by 11:59 p.m. Eastern Daylight Time on May 12, 2013. +What is “householding” and how does it affect me? +We have adopted a procedure, approved by the Securities and Exchange Commission, called “householding.” Under this procedure, shareholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials or in “notice and access” (see below) will receive only one copy of this Notice of Annual Meeting and Proxy Statement, unless we are notified that one or more of these shareholders wishes to continue receiving individual copies. If you and other Cimarex shareholders living in your household do not have the same last name, you may also request to receive only one copy of future proxy statements. +Householding reduces our printing costs and postage fees. Shareholders who participate in householding will continue to receive separate proxy cards. Also, householding will not in any way affect dividend check mailings. +If you are eligible for householding, but you and other shareholders of record with whom you share an address currently receive multiple copies of this Notice of Annual Meeting and Proxy Statement, or if you hold Cimarex stock in more than one account, and in either case you wish to receive only a single copy of each document for your household, please obtain instructions by contacting Alliance Advisors LLC, 200 Broadacres Drive, 3 rd Floor, Bloomfield, NJ 07003, or by telephone, 1-877-777-2857. +If you participate in householding and wish to receive a separate copy of the Notice of Annual Meeting and Proxy Statement, please contact Alliance Advisors as indicated above and a separate copy will be sent to you promptly. If you do not wish to continue to participate in householding and prefer to receive separate copies of these documents in the future, please contact Alliance Advisors as indicated above. +If you are a beneficial owner, you can request information about householding from your broker, bank or other holder of record. +Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials? +We are pleased to distribute our proxy materials to certain shareholders via the Internet under the “notice and access” approach permitted by the rules of the Securities and Exchange Commission. This approach reduces our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting. On or about April 1, 2013, we mailed a “Notice of Internet Availability of Proxy Materials” to participating shareholders containing instructions on how to access the proxy materials on the Internet. +Can I access the proxy materials on the Internet? +We are distributing our proxy materials to certain shareholders via the Internet under the “notice and access” approach permitted by the rules of the Securities and Exchange Commission. On or about April 1, 2012, we will mail to certain of our shareholders a notice of Internet availability of proxy materials with instructions about how to access our proxy statement and annual report and how to vote online. If you receive a notice of Internet availability by mail, you will not receive a printed copy of the proxy materials in the mail unless you request them. The notice of Internet availability instructs you on how to submit your proxy on the Internet. If you would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the notice of Internet availability. +Even if you do not participate in “notice and access,” the Notice of Annual Meeting and Proxy Statement are available on the Internet at http://www.allianceproxy.com/cimarex/2013. +Is there a list of shareholders entitled to vote at the Annual Meeting? +The names of shareholders of record entitled to vote at the Meeting will be available at the Meeting and for ten days prior to the Meeting for any purpose germane to the Meeting, at our principal executive offices at 1700 Lincoln Street, Suite 1800, Denver, Colorado, by contacting the Corporate Secretary of Cimarex. +50 +Table of Contents +What is a broker non-vote? +If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum but will not be able to vote on those matters for which specific authorization is required under the rules of the New York Stock Exchange. +If you are a beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares on the ratification of KPMG, even if the broker does not receive voting instructions from you. However, your broker does not have discretionary authority to vote on the election of directors, the advisory approval of executive compensation or on any shareholder proposal without instructions from you, in which case a broker non-vote will occur and your shares will not be voted on these matters. +What is a quorum for the Annual Meeting? +The presence of the holders of stock representing a majority of the voting power of all shares of stock issued and outstanding and entitled to vote at the Annual Meeting, in person or represented by proxy, is necessary to constitute a quorum. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining a quorum. +What are the voting requirements to elect the Directors and to approve each of the proposals discussed in this Proxy Statement? +Vote Required +Broker Discretionary +Voting Allowed +Item 1. Election +of Directors +Majority of Votes Cast +No +Item 2. Advisory +Approval of Executive Compensation +Majority of shares present and entitled to vote +No +Item 3. Ratification +of KPMG +Majority of shares present and entitled to vote +Yes +· Abstentions. If you abstain from voting on Item 1, under our bylaws, abstentions are not considered cast and will have no effect on the outcome of Item 1. If you abstain from voting on Items 2 and 3, abstentions on each of these Items will have the effect of a vote against each Item. +· Broker Non-Votes. Broker non-votes will have no effect on the outcome of Items 1 and 2. Because Item 3 is a routine matter on which a broker has discretionary authority, no broker non-votes will likely result from this Item. +How will my shares be voted at the Annual Meeting? +At the Meeting, the proxies appointed by the Board of Directors (the persons named in the proxy card) will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your shares will be voted as the Board of Directors recommends, which is: +· FOR the election of each of the Director nominees named in this Proxy Statement; +· FOR the approval on an advisory basis of the compensation of our named executive officers; and +· FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2013 fiscal year. +Could other matters be decided at the Annual Meeting? +As of the date of this Proxy Statement, we did not know of any matters to be raised at the Annual Meeting, other than those referred to in this Proxy Statement. +If you return your signed and completed proxy card to vote by telephone or on the Internet and other matters are properly presented at the Annual Meeting for consideration, the proxies appointed by the Board of Directors will have the discretion to vote for you. +Who will pay for the cost of this proxy solicitation? +Cimarex will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by our Directors, officers or employees in person or by telephone, electronic transmission and/or facsimile transmission. We have hired Alliance Advisors LLC, 200 Broadacres Drive, 3 rd Floor, Bloomfield, NJ 07003, to distribute and solicit proxies. We will pay Alliance Advisors a fee of $6,000, plus reasonable expenses, for these services. +Who will count the votes? +Alliance Advisors LLC, our proxy solicitor, will tabulate the votes and act as an inspector of election. +51 +PROXY THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS CIMAREX ENERGY CO. The +undersigned appoints Thomas E. Jordan and Paul Korus as proxies, with power +to act without the other and with power of substitution, and authorizes them +to represent and vote, as designated on the other side, all the shares of +common stock of Cimarex Energy Co. held of record by the undersigned with all +powers that the undersigned would possess if present at the Annual Meeting of +Shareholders to be held in the Hershner Room, 1700 Lincoln Street, Denver, +Colorado 80203, on May 15, 2013, at 9:00 a.m., Mountain Daylight Time, or any +adjournment thereof. For participants in the Cimarex 401(k) Plans, this +proxy, when properly executed, will be voted in the manner directed by the +undersigned. If no direction is given, if the card is not signed, or if the +card is not received prior to 11:59 p.m., Eastern Daylight Time, on May 12, +2013, the Plan's Trustee will vote your shares held in the Plan in the same +proportion as shares were voted by other Plan participants. (Continued, and +to be marked, dated and signed, on the other side) PLEASE DETACH ALONG +PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. Important Notice Regarding +the Availability of Proxy Materials for the Annual Meeting of Shareholders to +be held May 15, 2013. The Proxy Statement and our 2012 Annual Report to +Shareholders are available at: http://www.allianceproxy.com/cimarex/2013 +FOR AGAINST +ABSTAIN (01) Hans Helmerich (02) Harold R. Logan, Jr. (03) Monroe W. +Robertson . . . . . . . . . . THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO +DIRECTION IS INDICATED, WILL BE VOTED “FOR” ALL THE NOMINEES LISTED UNDER +PROPOSAL 1, “FOR” PROPOSALS 2 AND 3. THIS PROXY IS SOLICITED ON BEHALF OF THE +BOARD OF DIRECTORS. Please mark your votes like this The Board of Directors +recommends a vote FOR all the nominees listed under Proposals 1 and FOR +Proposals 2 and 3. The Board of Directors recommends a vote FOR all the +nominees listed below: 1. Election of three Class II directors: The Board of +Directors recommends you vote FOR the following proposals: FOR AGAINST +ABSTAIN 2. Advisory approval of executive . . .. compensation 3. Ratify the +appointment of KPMG LLP . . .. as our independent auditors for 2013 I plan on +attending the meeting .. . NOTE: Please sign as name appears hereon. Joint +owners should each sign. When signing as attorney, executor, administrator, +corporate officer, trustee or guardian, please give full title as such. +Signature Signature (if held jointly) Date: , 2013 CONTROL NUMBER PLEASE +DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. CIMAREX +ENERGY CO. As a shareholder of Cimarex Energy Co., you have the option of +voting your shares electronically through the Internet or on the telephone, +eliminating the need to return the proxy card. Your electronic vote +authorizes the named proxies to vote your shares in the same manner as if you +marked, signed, dated and returned the proxy card. Votes submitted +electronically over the Internet or by telephone must be received by 7:00 +p.m., Eastern Time, on May 14, 2013. CONTROL NUMBER PROXY VOTING INSTRUCTIONS +Please have your 11 digit control number ready when voting by Internet or +Telephone INTERNET Vote Your Proxy on the Internet: Go to www.cesvote.com +Have your proxy card available when you access the above website. Follow the +prompts to vote your shares. TELEPHONE Vote Your Proxy by Phone: Call 1 (888) +693-8683 Use any touch-tone telephone to vote your proxy. Have your proxy +card available when you call. Follow the voting instructions to vote your +shares. MAIL Vote Your Proxy by Mail: Mark, sign, and date your proxy card, +then detach it, and return it in the postage-paid envelope provided. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001104659-13-024854/proxy_rpt.txt b/raw/proxies/0001168054/0001104659-13-024854/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..7182f4b2f00c47fc5a5767013eda117ac10afaf9 --- /dev/null +++ b/raw/proxies/0001168054/0001104659-13-024854/proxy_rpt.txt @@ -0,0 +1,39 @@ +Review of related party transactions +Yes +Independent Lead Director +Yes +Non-Hedging and non-pledging policies +Yes +Diverse Board skills and experience +Yes +Clawback policy +Yes +Annual Board and Committee self-evaluations +Yes +Management and director stock ownership guidelines +Yes +Annual equity grants to directors +Yes +Tax Gross Ups +No +Annual Board education +Yes +Code of Business Conduct and Ethics +Yes +Cimarex provides access through its website ( www.cimarex.com ) to the following governance information: +· Corporate Governance Guidelines +· Code of Business Conduct and Ethics +· Code of Ethics +· Stock Ownership Guidelines +· Complaint and Reporting Procedures +· Board of Directors +· Board of Directors – Background and Experience +· Committee Charters +· Executive Management – Background and Experience +We will provide copies of these items without charge upon written request to our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, 18 th Floor, Denver, Colorado 80203. +4 +Table of Contents +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline (1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The Lead Director may take any action he deems appropriate or necessary, including, without limitation, forwarding the information to the Board for consideration or, with the concurrence of the Board, retaining independent or outside counsel, accountants or other advisors to address the concern. No adverse action will be taken against any individual making any such communication to the Lead Director. +Shareholder Outreach +Cimarex’s relationships with its shareholders are an important part of our corporate governance profile, and we recognize the value of taking their views into account. Engagement with shareholders helps us to understand the larger context and impact of our operations, learn about expectations for our performance, assess emerging issues that may affect our business or other aspects of our operations and shape corporate and governance policies. +Consistent with our commitment to seek and respond to shareholder input on corporate governance topics, we have considered and discussed with investors a wide variety of matters, including our executive compensation program and disclosures and have made changes in these areas. See Response to 2012 Say on Pay Vote and Shareholder Outreach, Compensation Discussion and Analysis elsewhere in this Proxy Statement. \ No newline at end of file diff --git a/raw/proxies/0001168054/0001104659-14-024742/proxy.txt b/raw/proxies/0001168054/0001104659-14-024742/proxy.txt new file mode 100644 index 0000000000000000000000000000000000000000..9ef62d2b9c9a5dd71ff6f2f06d89bc8a8f944fa9 --- /dev/null +++ b/raw/proxies/0001168054/0001104659-14-024742/proxy.txt @@ -0,0 +1,3642 @@ +DEF 14A +1 +a14-2296_2def14a.htm +DEF 14A +Table of Contents +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +SCHEDULE 14A +Proxy Statement Pursuant to Section 14(a) of +the Securities Exchange Act of 1934 (Amendment No. ) +Filed by the Registrant x +Filed by a Party other than the Registrant o +Check the appropriate box: +o +Preliminary Proxy Statement +o +Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2)) +x +Definitive Proxy Statement +o +Definitive Additional Materials +o +Soliciting Material Pursuant to §240.14a-12 +Cimarex Energy Co. +(Name of Person(s) Filing Proxy Statement, if other than the Registrant) +Payment of Filing Fee (Check the appropriate box): +x +No fee required. +o +Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. +(1) +Title of each class of securities to which transaction applies: +(2) +Aggregate number of securities to which transaction applies: +(3) +Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): +(4) +Proposed maximum aggregate value of transaction: +(5) +Total fee paid: +o +Fee paid previously with preliminary materials. +o +Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. +(1) +Amount Previously Paid: +(2) +Form, Schedule or Registration Statement No.: +(3) +Filing Party: +(4) +Date Filed: +Table of Contents +1700 Lincoln Street, Suite 1800 +Denver, CO 80203-4518 +NOTICE OF 2014 ANNUAL MEETING OF SHAREHOLDERS +TIME AND DATE +9:00 a.m. Central Daylight Time on Thursday, May 15, 2014 +PLACE +Hyatt Regency Tulsa +100 East Second Street +Tulsa, Oklahoma, USA, 74103 +ITEMS OF BUSINESS +Item 1. Election of Directors +Item 2. Advisory vote to approve executive compensation +Item 3. Approve 2014 Equity Incentive Plan +Item 4. Ratification of independent auditors +Transact any other business that properly comes before the Meeting and any adjournment or postponement of the Meeting +RECORD DATE +March 19, 2014 +MAILING DATE TO SHAREHOLDERS +April 4, 2014 +MATERIALS TO REVIEW +This booklet contains our Notice of 2014 Annual Meeting and Proxy Statement. Our 2013 Annual Report is available on our website at www.cimarex.com . +PROXY VOTING +It is important that your shares be represented and voted at the Meeting. You can vote your shares by following the Internet or telephone instructions on page 8 of this proxy statement. If you received a paper copy of the proxy card, you may also vote by completing and mailing the proxy card in the postage-paid envelope provided for your convenience. You may also attend and vote at the Annual Meeting. You may revoke your proxy at any time before the vote is taken by following the instructions on page 10 of this proxy statement. +April 4, 2014 +Mary Kay Rohrer +Corporate Secretary +Table of Contents +TABLE OF CONTENTS +Page No. +Voting Information +2 +Proxy Statement Summary +3 +Proxy Statement +7 +Questions and Answers +8 +Election of Directors (Item 1) +12 +Election Process +12 +Director Nominations +13 +Director Qualifications +13 +2013 Nominees for Class III Directors +13 +Continuing Directors +15 +Director Compensation +17 +Corporate Governance +18 +Board and Committee Information +19 +Board Leadership Structure +20 +Board Committees +21 +Director Independence and Related Person Transactions +22 +Risk Oversight +23 +Executive Sessions +23 +Shareholder Engagement +23 +Stock Ownership Directors, Management and Certain Beneficial Owners +24 +Compensation Discussion and Analysis +26 +Compensation and Governance Committee Report +40 +Compensation Tables +41 +Summary Compensation Table +41 +2013 Grants of Plan-Based Awards +43 +Outstanding Equity Awards at December 31, 2013 +44 +2013 Option Exercises and Restricted Stock Vested +45 +2013 Nonqualified Deferred Compensation +45 +Potential Payments upon Change in Control or Termination +46 +Advisory Vote to Approve Executive Compensation (Item 2) +49 +Approve 2014 Equity Incentive Plan (Item 3) +49 +Report of Audit Committee +56 +Ratification of Independent Auditors (Item 4) +57 +Audit and Non-Audit Fees +57 +Policy for Approval of Audit, Audit-Related and Tax Services +57 +Other Matters +58 +Section 16(a) Beneficial Ownership Reporting Compliance +58 +Complaint and Reporting Procedures +58 +Table of Contents +VOTING INFORMATION +WE WANT TO HEAR FROM YOU – VOTE TODAY +It is important that you vote. Please carefully review the proxy materials for the 2014 Annual Meeting of Shareholders and follow the instructions below to cast your vote on all of the voting matters. +Voting Matters and Board Recommendations +Our Board’s Recommendation +Election of Directors (page 12) +FOR each Director Nominee +Advisory Vote to Approve Executive Compensation (page 49) +FOR +Approve 2014 Equity Incentive Plan (page 49) +FOR +Ratification of Independent Auditors (page 57) +FOR +Advance Voting Methods +Even if you plan to attend the 2014 Annual Meeting of Shareholders in person, please vote right away using one of the following advance voting methods (see page 8 for additional details). Make sure to have your proxy card or voting instruction form in hand and follow the instructions. +You can vote in advance in one of three ways: +Visit the website listed on your proxy card/voting instruction form to vote VIA THE INTERNET +Call the telephone number on your proxy card/voting instruction form to vote BY TELEPHONE +Sign, date and return your proxy card/voting instruction form in the enclosed envelope to vote BY MAIL +Voting at our 2014 Annual Meeting of Shareholders +All shareholders of record may vote in person at the 2014 Annual Meeting of Shareholders, which will be held on Thursday, May 15, 2014 at 9:00 a.m., local time, at the Hyatt Regency Tulsa, 100 East Second Street, Tulsa, Oklahoma. Beneficial owners may vote in person at the meeting if they have a legal proxy, as described in the response to question 14 on page 11 of “Questions and Answers about the Meeting and Voting.” +2 +Table of Contents +Proxy Statement Summary +Director Nominees (page 12) +You are being asked to vote on the following four Director Nominees. Directors are elected by a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 12. +NAME +AGE +DIRECTOR +SINCE +POSITION +INDEPENDENT +AC +C/G +NOM +OTHER +PUBLIC +BOARDS +David A. Hentschel +80 +2002 +Retired, former Chairman and CEO, Occidental Oil and Gas Corporation +Yes +X +X +0 +Thomas E. Jorden +56 +2011 +Chairman and CEO, President, Cimarex Energy Co. +No +0 +Floyd R. Price +65 +2012 +Retired, former executive officer, Apache Corp. +Yes +X +X +1 +L. Paul Teague +79 +2002 +Retired, former Vice President Texaco USA +Yes +X +X +0 +Continuing Directors (page 15) +The following are Cimarex’s continuing Directors. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 15. +NAME +AGE +DIRECTOR +SINCE +TERM +EXPIRES +POSITION +INDEPENDENT +AC +C/G +NOM +OTHER +PUBLIC +BOARDS +Joseph R. Albi +55 +2011 +2015 +Chief Operating Officer +No +0 +Jerry Box +75 +2005 +2015 +Chairman, Newpark Resources +Yes +X +X +1 +Hans Helmerich +55 +2002 +2016 +Chairman and former CEO of Helmerich & Payne +Yes +X +X +3 +Harold R. Logan +69 +2009 +2016 +Chairman, Suburban Propane Partners L.P. +Yes +X +X +2 +Monroe W. Robertson +64 +2005 +2016 +Private investor +Yes +X +X +1 +Michael J. Sullivan +74 +2002 +2015 +Senior Attorney, Lucas Roca Rothgerber +Yes +X +X +1 +AC +Audit Committee +C/G +Compensation and Governance Committee +NOM +Nominating Committee +Governance Highlights (page 18) +Cimarex is committed to good corporate governance, which promotes the long-term interests of shareholders, strengthens the Board of Directors, fosters management accountability, and helps build public trust in Cimarex. Highlights include: +· 8 of 10 independent directors +· Independent Lead Director +· Majority Voting +· Active Shareholder Engagement +· Clawback policy +· Non-Hedging and Non-Pledging Policies +· Director and Management Stock Ownership Guidelines +· No Tax Gross Ups +3 +Table of Contents +2013 Executive Compensation (page 29) +Below is the 2013 compensation for each Named Executive Officer as determined under the Securities and Exchange Commission (“SEC”) rules. See the notes accompanying the 2013 Summary Compensation Table on page 42 for more information. +Name and +Principal Position +Salary +Bonus +Stock +Awards +Option +Awards +Non-Equity +Incentive +Plan Comp. +All Other +Comp. +Total +Thomas E. Jorden +Chairman and Chief Executive Officer +$ +751,616 +$ +— +$ +4,785,000 +$ +— +$ +1,620,000 +$ +58,975 +$ +7,215,591 +Paul Korus +Senior Vice President, Chief Financial Officer +$ +463,539 +$ +— +$ +2,791,250 +$ +— +$ +750,000 +$ +48,440 +$ +4,053,229 +Joseph R. Albi +$ +523,077 +$ +— +$ +3,190,000 +$ +— +$ +930,000 +$ +48,440 +$ +4,691,517 +Chief Operating Officer +Stephen P. Bell +Executive Vice President-Business Development +$ +428,654 +$ +— +$ +2,791,250 +$ +— +$ +750,000 +$ +56,436 +$ +4,026,340 +John A. Lambuth +$ +368,654 +$ +— +$ +2,791,250 +$ +— +$ +645,000 +$ +48,440 +$ +3,853,344 +Vice President-Exploration +A Significant Portion of our CEO’s 2013 Compensation is At Risk +The accompanying graph illustrates our CEO’s 2013 at-risk compensation. A significant portion of reported compensation is an incentive for future performance and realized only if Cimarex meets certain performance measures. +4 +Table of Contents +How CEO Pay is Tied to Cimarex’s Performance (page 34) +Our compensation programs are designed to align performance incentives with the long-term interests of our shareholders. The programs also provide competitive total compensation opportunities that retain, and attract when needed, executive talent and link compensation earned to achievement of short-term and long-term financial and strategic objectives. Our Compensation and Governance Committee considers performance in two primary ways: +· Cimarex’s operating performance; and +· Return to shareholders over time, both on an absolute basis and relative to other companies in the S&P Oil & Gas Exploration Index and our compensation peer group (see page 38). +2013 Financial and Operating Highlights +· Total shareholder return of 82.9% on a one year basis and 20.8% on a three year basis. +· Generated a record of $2.0 billion revenues. +· Realized net income of $564.7 million, or $6.47 per diluted share, which benefited from a reduction in our estimated exposure to litigation expense of $90.3 million (after tax) that had been accruing since 2008. +· Generated $1.3 billion of cash flow from operating activities. +· Invested $1.6 billion in exploration and development. +· Grew production 11% to a record 692.6 MMcfe/d. +· Increased proved reserves 11 percent to 2.5 Tcfe, 26 percent of which are oil. +· Added 727 Bcfe of proved reserves from extensions and discoveries replacing 288 percent of production. +· Delineated and expanded our Delaware Basin acreage position uncovering several long-term future drilling projects. +· Ended 2013 with debt-to-total capitalization of 19 percent. +Return to Shareholders +Cimarex has consistently returned value to its shareholders. The following chart shows how a December 31, 2008 investment of $100 in Cimarex common stock would have grown to $404.04 on December 31, 2013, which includes dividends reinvested quarterly for those who wish to consider total shareholder return when evaluating executive compensation. The chart also compares the total shareholder return on Cimarex common stock to the same investment in the S&P 500 Index and the Dow Jones Exploration & Production Index over the same period. +5 +Table of Contents +2013 Enhancements to the Compensation Program +We continue to monitor our compensation program so that it remains linked to Cimarex’s performance. In 2013 we implemented the following changes: +· We completed the change in the timing of our long-term equity awards from January of each year to December. This change provides the Compensation and Governance Committee with more fully developed peer group data and with Cimarex’s performance results for the prior calendar year. +· We refined the annual cash incentive program to provide cash awards based on specific measurable goals and objectives approved by the Compensation and Governance Committee that align with Cimarex’s financial and operational goals and objectives. +6 +Table of Contents +PROXY STATEMENT +We are furnishing you this proxy statement to solicit proxies to be voted at the 2014 Annual Meeting of Shareholders of Cimarex Energy Co. (“Cimarex” or the “Company”). The meeting will be held at the Hyatt Regency Tulsa, 100 East Second Street, Tulsa, Oklahoma 74103 on May 15, 2014 at 9:00 a.m. Central Daylight Time. The proxies also may be voted at any adjournments or postponements of the meeting. +The mailing address of our principal office is 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. We are first furnishing the proxy materials to shareholders on April 4, 2014. +All properly executed written proxies and all properly completed proxies submitted by telephone or internet that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked prior to completion of voting at the meeting. +Only owners of record of shares of Cimarex common stock (“Common Stock”) as of the close of business on March 19, 2014, the record date, are entitled to notice of and to vote at the meeting or at any adjournments or postponements of the meeting. Each owner of Common Stock on the record date is entitled to one vote for each share of Common Stock held. On March 19, 2014, there were 87,028,195 shares of Common Stock issued and outstanding. +IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 15, 2014. +The Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2013 are available at www.allianceproxy.com/cimarex2014. +7 +Table of Contents +QUESTIONS AND ANSWERS +P ROXY M ATERIALS AND V OTING I NFORMATION +1. Why did I receive these proxy materials? +We are providing these materials in connection with the solicitation by the Board of Directors of Cimarex Energy Co., a Delaware corporation, of proxies to be voted at our 2014 Annual Meeting of Shareholders and at any adjournment or postponement of the Meeting. The Meeting will take place on May 15, 2014, beginning at 9:00 a.m. Central Daylight Time, at the Hyatt Regency Tulsa, 100 East Second Street, Tulsa, Oklahoma 74103. +2. What is the difference between holding shares as a shareholder of record and as a beneficial owner? +If your shares are registered directly in your name with Cimarex’s registrar and transfer agent, Continental Stock Transfer & Trust Company, you are considered a shareholder of record with respect to these shares. If your shares are held in a brokerage account or bank, broker or other nominee, you are considered the beneficial owner of these shares. +3. What shares are included on the proxy card? +If you are a shareholder of record, you will receive only one proxy card for all the shares you hold of record in certificate form and in book-entry form. +If you are a Cimarex employee, you will receive a proxy or voting instruction card for all the shares you hold in the Cimarex 401(k) Plan. Your proxy card will serve as a voting instruction card for the Plan trustee. If you do not specify your voting instructions on the proxy card, the Plan trustee will vote your shares in the same proportion as it votes shares for which it did receive timely instructions. To allow sufficient time for voting by the trustee, your voting instructions must be received no later than 11:59 p.m. Eastern Daylight Time on May 12, 2014. +4. What different methods can I use to vote? +By Written Proxy. All shareholders of record can vote by written proxy card. If you are a shareholder of record and receive a notice regarding the availability of proxy materials, you may request a written proxy card by following the instructions included in the notice. If you are a beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other nominee. +By Telephone or Internet. All shareholders of record can vote by calling the toll-free telephone number on the proxy card. Please have your proxy card when you call. Voice prompts will direct you on how to vote your shares and will confirm that your voting instructions have been recorded properly. +Shareholders may also vote on the internet by accessing the website noted on the proxy card. Please have your proxy card when you go to the website. As with telephone voting, you can confirm that your voting instructions have been recorded properly. +Beneficial owners may vote by telephone or Internet if their bank, broker or other nominee makes those methods available, in which case the bank, broker or other nominee will include the instructions with the proxy materials. +8 +Table of Contents +5. What are my voting choices for each of the proposals to be voted on at the 2014 Annual Meeting of Shareholders and what are the voting standards? +Proposal +Voting Choices and Board Recommendation +Voting Standard +Item 1. Election of Four Class III Directors +· vote in favor of all nominees; +· vote in favor of specific nominees; +· vote against all nominees; +· vote against specific nominees; +· abstain from voting with respect to all nominees; or +· abstain from voting with respect to specific nominees. +The Board recommends a vote FOR each of the nominees. +Majority of votes cast +Item 2. Advisory Vote to Approve Executive Compensation +· vote in favor of the advisory proposal; +· vote against the advisory proposal; or +· abstain from voting on the advisory proposal. +The Board recommends a vote FOR the advisory proposal to approve executive compensation. +Majority of shares present and entitled to vote +Item 3. Approve the 2014 Equity Incentive Plan +· vote in favor of the Plan; +· vote against the Plan; or +· abstain from voting on the Plan. +The Board recommends a vote FOR approval of the 2014 Equity Incentive Plan. +Majority of shares present and entitled to vote +Item 4. Ratification of the Appointment of KPMG LLP as Independent Auditors +· vote in favor of the ratification; +· vote against the ratification; or +· abstain from voting on the ratification. +The Board recommends a vote FOR the ratification. +Majority of shares present and entitled to vote +6. What if I am a beneficial owner and do not give voting instructions to my broker? +As a beneficial owner, in order to ensure your shares are voted in the way you would like, you must provide voting instructions to your bank, broker or other nominee by the deadline provided in the materials you receive from your bank, broker or other nominee. If you do not provide voting instructions to your bank, broker or other nominee, whether your shares can be voted by such person depends on the type of item being considered to vote. +Non-Discretionary Items. The election of Directors, the advisory vote to approve executive compensation and the approval of the 2014 Equity Incentive Plan are non-discretionary items and may not be voted on by brokers, banks or other nominees who have not received specific voting instructions from beneficial owners. +Discretionary Items. The ratification of the appointment of KPMG LLP as Independent Auditors is a discretionary item. Generally banks, brokers and other nominees that do not receive voting instructions from beneficial owners may vote on the proposal in their discretion. +9 +Table of Contents +7. How are abstentions and broker non-votes counted? +Item 1. Election of Four Class III Directors. If you abstain from voting in the election of directors, you have not cast a vote and the abstention will not be counted in determining the outcome of the election. Broker non-votes are not considered a vote cast under our Bylaws and will have no effect on the outcome of the election of directors. +Item 2. Advisory Vote to Approve Executive Compensation. If you abstain from voting on the advisory vote to approve executive compensation, you are considered present and entitled to vote, and your shares are considered in the calculation of whether Item 2 received the affirmative vote of a majority of shares present and entitled to vote. The effect of an abstention is a vote against Item 2. Broker non-votes will have no effect on the outcome of Item 2 because broker non-votes are not entitled to vote and are not considered in the calculation of a majority of shares present and entitled to vote. +Item 3. Approve the 2014 Equity Incentive Plan. If you abstain from voting on the proposed 2014 Equity Incentive Plan, you are considered present and entitled to vote, and your shares are considered in the calculation of whether Item 3 received the affirmative vote of a majority of shares present and entitled to vote. The effect of an abstention is a vote against Item 3. Broker non-votes will have no effect on the outcome of Item 3 because broker non-votes are not entitled to vote and are not considered in the calculation of a majority of shares present and entitled to vote. +Item 4. Ratification of Appointment of KPMG as Independent Auditors. If you abstain from voting on the ratification of KPMG LLP as Cimarex’s independent auditors, you are considered present and entitled to vote, and your shares are considered in the calculation of whether Item 4 received the affirmative vote of a majority of shares present and entitled to vote. The effect of an abstention is a vote against Item 4. Because Item 4 is a routine matter on which a broker has discretionary authority, no broker non-votes likely will result from this Item. +8. What can I do if I change my mind after I vote my shares? +You may revoke your proxy prior to the completion of voting by: +· Giving written notice to Cimarex’s Corporate Secretary; +· Delivering a valid, later-dated proxy, or a later-dated vote by telephone or on the Internet in a timely manner; or +· Voting by ballot at the Annual Meeting. +9. Can I access the proxy materials on the Internet? How can I sign up for the electronic proxy delivery service? +We are distributing our proxy materials to certain shareholders via the Internet under the “notice and access” approach permitted by the SEC. On or about April 4, 2014, we will mail to certain of our shareholders a notice of Internet availability of proxy materials with instructions explaining how to access our proxy statement and annual report and how to vote online. If you receive a notice of Internet availability by mail, you will not receive a printed copy of the proxy materials in the mail unless you request them by following the instructions for requesting such materials included in the notice of Internet availability. +Even if you do not participate in “notice and access,” the Notice of Annual Meeting and Proxy Statement are available on the Internet at http://www.allianceproxy.com/cimarex/2014 . +10. Who counts the votes? +Alliance Advisors LLC, our proxy solicitor, will tabulate the votes and act as inspector of election. +10 +Table of Contents +11. When will Cimarex announce the voting results? +We will announce the preliminary voting results at the Annual Meeting of Shareholders. Cimarex will report the final results in a Current Report on Form 8-K filed with the SEC. +12. How are proxies solicited, and what is the cost? +We bear all expenses incurred in connection with the solicitation of proxies. We hired Alliance Advisors LLC to assist with the solicitation of proxies for an estimated fee of $6,000 plus expenses. We will reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of Common Stock. +Our Directors, officers and employees also may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities. +13. What is householding? +As permitted by the Securities Exchange Act of 1934 (the “1934 Act”), as amended, only one copy of this Proxy Statement is being delivered to shareholders residing at the same address, unless the shareholders have notified Cimarex of their desire to receive multiple copies of the Proxy Statement. This is known as “householding.” +Upon oral or written request, we will promptly deliver a separate copy of the Proxy Statement to any shareholder residing at an address to which only one copy was mailed. Direct requests for additional copies for the current year or future years to our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. +Shareholders of record residing at the same address and currently receiving multiple copies of the Proxy Statement may contact our registrar and transfer agent, Continental Stock Transfer & Trust Company, by phone at (888) 509-5580 or by mail at 17 Battery Place South, 8 th Floor, New York, NY 10004, to request a single copy be mailed in the future. +Beneficial owners should contact their broker or bank. +14. How can I vote at the meeting if I am a beneficial owner? +If you are a beneficial owner and want to vote your shares at the annual meeting, you will need to ask your bank, broker or other nominee to furnish you with a legal proxy, bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can still attend the meeting. We encourage you to vote your shares in advance, even if you intend to attend the meeting. Please note that if you request a legal proxy, any previously executed proxy will be revoked, and your vote will not be counted unless you appear at the meeting and vote in person or legally appoint another proxy to vote on your behalf. +C OMPANY D OCUMENTS, C OMMUNICATIONS AND S HAREHOLDER P ROPOSALS +15. How can I view copies of Cimarex’s corporate documents and SEC filings? +Our Corporate Governance Guidelines, Board Committee Charters, Code of Business Conduct and Code of Ethics and SEC filings are posted on our website at www.cimarex.com . Upon request, we will promptly deliver (free of charge) a copy of the Form 10-K to any shareholder. Direct such requests to our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995 and facsimile (303) 295-3494. +11 +Table of Contents +16. How can I communicate with Cimarex’s Directors? +Communications can be addressed to our Directors by mail in care of our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, telephone (303) 295-3995, facsimile (303) 295-3494 or by calling our Confidential Hotline (1-888-519-1898). All communications will be forwarded to our Lead Director. The Lead Director may take any action deemed appropriate or necessary, including, without limitation, forwarding the information to the Board for consideration or, with the concurrence of the Board, retaining independent or outside counsel, accountants or other advisors to address the concern. No adverse action will be taken against any individual making any such communication to the Lead Director. +17. How do I submit a proposal for action at the 2015 Annual Meeting of Shareholders? +A proposal to be acted upon at the 2015 Annual Meeting of Shareholders will be acted upon only: +· If the proposal is to be included in the proxy statement, pursuant to Rule 14a-8 under the 1934 Act, the proposal is received by our Corporate Secretary on or before December 5, 2014 and the proposal meets the requirements of the applicable rules of the SEC and the requirements of our bylaws. +· If the proposal is not to be included in the proxy statement, pursuant to our bylaws, the proposal is submitted in writing to our Corporate Secretary no earlier than January 15, 2015 and no later than February 14, 2015, and such proposal is, under Delaware General Corporation Law, an appropriate subject for shareholder action. +ELECTION OF DIRECTORS (ITEM 1) +Election Process +Our current Board consists of ten members, which is the maximum number of Directors permitted by our Certificate of Incorporation. The Board is divided into three classes, Class I, Class II and Class III Directors. At each Annual Meeting a class of directors is elected for a term expiring at the Annual Meeting in the third year following the year of election. Each Director holds office until his successor is elected and qualifies. +The terms of the four Class III directors, David A. Hentschel, Thomas E. Jorden, Floyd R. Price and L. Paul Teague, will expire at the 2014 Annual Meeting. The Nominating Committee, at its February 2014 meeting, nominated Messrs. Hentschel, Jorden, Price and Teague for re-election as Class III directors, with a term expiring at the 2017 Annual Meeting. +If prior to the Annual Meeting a nominee becomes unavailable to serve as a Director, any shares represented by a proxy directing a vote will be voted for the remaining nominees and for any substitute nominee(s) designated by our Board or its Nominating Committee. As of the mailing of these proxy materials, the Board knows of no reason why any Director nominee would not be available to serve as a Director. +A nominee is elected if the votes cast for his election exceed the votes cast against his election. Each nominated Director has tendered an irrevocable resignation that is effective upon his failure to receive the required vote and the Board’s acceptance of such resignation. If a nominee fails to receive more favorable votes than votes cast against him, the Nominating Committee will act on an expedited basis following the Annual Meeting to determine whether to recommend that the Board accept the Director’s resignation. The Nominating Committee and the Board may consider any factors they deem relevant in deciding whether to accept the Director’s resignation. The Director whose resignation is under consideration must abstain from participating in any decision regarding his resignation. The Board will publicly disclose its decision regarding acceptance of his resignation within 90 days after the results of the election are certified. If the resignation is not accepted, the Director will continue to serve as a Director until his successor is elected and qualified. If the Board accepts the resignation, then the Board may fill the vacancy in accordance with the Bylaws or may decrease the size of the Board in compliance with the Certificate of Incorporation. +12 +Table of Contents +Director Nominations +The Nominating Committee is responsible for identifying and evaluating nominees for Director and for recommending to the Board a slate of nominees for election at each Annual Meeting. Nominees may be suggested by Directors, members of management, shareholders or, in some cases, by a third-party firm. +The Committee will consider nominees recommended by shareholders. The Committee did not receive nominations for the 2014 Annual Meeting from any shareholder prior to the deadline for shareholder nominations. Shareholders who wish to nominate persons for election as directors at the 2015 Annual Meeting must submit a timely written notice complying with Cimarex’s Bylaws to the Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203-4518, facsimile (303) 295-3494. To be timely, the shareholder’s written notice must be received between January 15, 2015 and February 14, 2015. +Director Qualifications +In its assessment of each potential candidate, the Nominating Committee considers the nominee’s judgment, integrity, experience, independence, understanding of Cimarex’s business or related industries and such other factors that the Committee determines are pertinent in light of the needs of the Board. The Committee also considers the ability of a nominee to devote the time and effort necessary to fulfill his or her responsibilities to Cimarex. Our Nominating Committee charter specifically includes diversity of gender and ethnicity in the list of desirable attributes sought in our Board composition. +Although all the current Directors have extensive oil and gas experience, either as company executives or attorneys, their experience is with companies with widely different operating strategies. This diversity and depth of experience benefits our Board in executing its duty of oversight and guidance. +2013 Nominees for Class III Directors +Upon the recommendation of the Nominating Committee, the Board has nominated each of David A. Hentschel, Thomas E. Jorden, Floyd R. Price and L. Paul Teague for election as Class III Directors to serve until the Annual Meeting of Shareholders to be held in 2017. The Board has determined that all of the nominees are independent under the New York Stock Exchange corporate governance rules, except Thomas E. Jorden. Each of the Director nominees currently serves on the Board. We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected. +The Board believes that the combination of the various qualifications, skills and experiences of the 2014 Director nominees would contribute to an effective and well-functioning Board. The Board also believes that, individually and as a whole, the Directors possess the necessary qualifications to provide effective oversight of the business and quality advice and counsel to Cimarex. +Included in each Director nominee’s biography is an assessment of the specific qualifications, attributes, skills and experience of such nominee based on the qualifications described above. +The Board of Directors recommends a vote FOR the election of each of the Director nominees. +DAVID A. HENTSCHEL, age 80 +Position, Principal Occupation and Business Experience +Mr. Hentschel was Chairman and Chief Executive Officer of Occidental Oil and Gas Corporation, a subsidiary of Occidental Petroleum, from 1986 until 1993 and from 1997 until 1999, when he retired. He also served as President and Chief Executive Officer of Canadian Occidental Petroleum, Ltd., now known as Nexen, from 1995 until 1997. He was in charge of the worldwide exploration and production operations for Cities Service and Occidental Oil and Gas Corporation for the last 20 years of his 40-year career. +13 +Table of Contents +Mr. Hentschel was a director of Occidental Petroleum from 1987 until 1993 and of Canadian Occidental or Nexen from 1985-2009. During his service as a director of Nexen, he was chair of the audit committee and a member of the compensation committee and various other committees. He was also a director of the Bank of Oklahoma from 1984 until 1995. +Key Attributes, Experience and Skills +Mr. Hentschel brings considerable executive experience in the domestic and international oil and gas industry to the Board. Mr. Hentschel’s extensive leadership background and his service on Nexen’s audit and compensation committees provide strong skills and experience for his service on our Compensation and Governance Committee. +THOMAS E. JORDEN, 56 +Position, Principal Occupation and Business Experience +Mr. Jorden is the Chairman of the Board, Chief Executive Officer and President of Cimarex. He has served Cimarex in various capacities since September 2002. He was elected CEO in September 2011, from 2003 to 2011 served as Executive Vice President-Exploration and from 2002 to 2003 as Vice President-Exploration. +Key Attributes, Experience and Skills +Mr. Jorden brings to the Board over 30 years of experience in the oil and gas exploration and production industry, and as our Chief Executive Officer, a deep understanding of our business, operations and long-term strategic issues and goals. Mr. Jorden holds undergraduate and graduate degrees in geophysics and has headed the company’s exploration program since the company’s inception. His service on the Board creates an important link between management and the Board. +FLOYD R. PRICE, 65 +Position, Principal Occupation and Business Experience +Mr. Price, a former executive officer of Apache Corp., held various positions with Apache Corp. from 1991 through 2009, including Executive Vice President and Corporate Exploration Officer; President, Apache Canada; President, Apache International; and Exploration Manager. Apache Corp., with headquarters in Houston, is an oil and gas exploration and production company with domestic and international operations. Mr. Price serves as Chairman of the Board and as a member of the audit and compensation/governance committees of Tamarack Valley Energy Ltd., Calgary, Alberta, Canada, a publicly held company traded on the TSX Venture Exchange. Tamarack is involved in the identification, evaluation and operation of resource plays in the Western Canadian sedimentary basin. From June 2000 to January 2013, Mr. Price served as a director, chairman of the board and member of the compensation and governance committee of Gastar Exploration, Inc., a publicly held company located in Houston, Texas. Gastar is engaged in the exploration, development and production of natural gas, natural gas liquids, oil and condensate in the United States and is traded on the NYSE MKT. +Key Attributes, Experience and Skills +Mr. Price has over 35 years of experience in the exploration and production business. Mr. Price has considerable domestic and international experience in the oil and gas industry, and has held leadership positions with a large public oil and gas company. His experience during the past three years serving as a director of public and private companies also provide him with invaluable Board skills and experience. Mr. Price brings extensive oil and gas exploration, operations, management and financial experience to Cimarex’s Audit Committee. +L. PAUL TEAGUE, 79 +Position, Principal Occupation and Business Experience +Mr. Teague served 35 years with Texaco Inc. He retired in 1994 as Vice President, Western Exploration & Producing Region of Texaco USA in Denver, Colorado. Mr. Teague held various positions with Texaco USA, including Vice President-Producing in +14 +Table of Contents +Houston; Vice President of the New Orleans Producing Division; Division Manager, New Orleans; and General Superintendent of the Offshore Division in New Orleans. +Key Attributes, Experience and Skills +Mr. Teague holds a degree in Petroleum Engineering from Louisiana Tech University and is a graduate of the University of Southern California Executive Program. He has several industry affiliations, including the former Chairman of the API Executive Committee on Drilling and Production Practices, former President of the Colorado Petroleum Association, a 50-year Legion of Honor Member of the Society of Petroleum Engineers and a member of the Rocky Mountain Oil & Gas Hall of Fame. He brings his executive experience with a major oil and gas company to bear on corporate governance and executive compensation issues in his role as Chairman of our Compensation and Governance Committee. +Continuing Directors – Class I – Term Expires 2015 +JOSEPH R. ALBI, 55 +Position, Principal Occupation and Business Experience +Mr. Albi was named Chief Operating Officer in September 2011. He has served Cimarex in various capacities since September 2002, including Executive Vice President-Operations from 2005 to 2011, Senior Vice President-Corporate Engineering from 2003 to 2005 and Vice President-Engineering from 2002 to 2003. +Key Attributes, Experience and Skills +Mr. Albi has over 30 years of experience in the oil and gas industry. His extensive understanding of the management of oil and gas production and drilling operations, business development, environmental and safety management and oil and gas marketing provide the Board with considerable insight about the operations of Cimarex. +JERRY BOX, 75 +Position, Principal Occupation and Business Experience +Mr. Box was Chairman of Magnum Hunter Resources, Inc. from October 2004 until June 2005, and a director of Magnum Hunter from March 1999 to June 2005. He retired in June 2005 at the time of the acquisition by Cimarex of Magnum Hunter. Mr. Box served as President, COO and a director of Oryx Energy Company from February 1998 to March 1999. He had previously held a number of managerial and executive positions with Oryx Energy and its predecessor company, Sun Oil Company. Mr. Box serves as a non-management director and Chairman of the Board of Newpark Resources, Inc. of The Woodlands, Texas, an oilfield services company traded on the NYSE. +Key Attributes, Experience and Skills +Mr. Box holds undergraduate and graduate degrees in geology. He has served for several years in an executive capacity with public and private companies. Mr. Box has served on numerous oil and gas committees and task forces and as a President and Treasurer of the Dallas Petroleum Club. His extensive experience as an executive for companies in the energy business makes his service on the Compensation and Governance Committee particularly valuable. +MICHAEL J. SULLIVAN, 74 +Position, Principal Occupation and Business Experience +Mr. Sullivan has been a senior attorney, partner or special counsel for the Arizona-based law firm, Lewis Roca Rothgerber LLP since 2001, and the managing attorney of the Casper office of that firm. Mr. Sullivan practiced law as a partner with Brown, Drew, Apostolos, Massey & Sullivan from 1964 to 1986 and from 1995 until 1998. +15 +Table of Contents +Mr. Sullivan is a director and member of the compensation committee of First Interstate BancSystem, Billings, Montana and a director and member of the compensation and governance and audit committee of Sletten Construction, Inc., Great Falls, Montana (a non-public company). From 2001 to May 2009 he served as a director and during his tenure as a member of the audit, corporate social responsibility committee and governance committee of Allied Irish Bank Group, Dublin, Ireland. From 2003 to 2010 he served as a director of the Kerry Group Plc, a global food and food ingredients producer headquartered in Tralee, the county town of County Kerry, Ireland. +Key Attributes, Experience and Skills +Mr. Sullivan brings a wealth of experience and a diverse background to our Board. In addition to his Juris Doctor degree, he has an undergraduate degree in petroleum engineering, years of governmental service as the Governor of Wyoming (1987-1995) and Ambassador to Ireland (1998-2001), and 37 years’ experience practicing law in the areas of natural resources, mediation and business. As Governor, he was involved in the process of reviewing and administering Wyoming’s budget. This experience is particularly relevant in his service on the Audit Committee. Mr. Sullivan’s education, legal experience, particularly in mediation and litigation, and his domestic and international service all provide a background that is beneficial in addressing the issues coming before the Cimarex Board. +Continuing Directors – Class II – Term Expires 2016 +HANS HELMERICH, 55 +Position, Principal Occupation and Business Experience +Mr. Helmerich has served as Chairman of Helmerich & Payne, Inc. (H&P) since March 2012 and a director since 1987. H&P is a publicly held company primarily engaged in contract drilling for oil and gas wells for exploration and production companies using drilling rigs it designs and builds and is one of the major land and offshore platform drilling companies in the world. Mr. Helmerich served as CEO from 1989 until March 2014 and as President from 1989 until March 2012 after joining H&P in 1981. Helmerich & Payne’s exploration and production business was merged into Cimarex in 2002. +Mr. Helmerich serves as a director of Atwood Oceanics, Inc., Houston, Texas, an international offshore drilling company traded on the NYSE, and as a Trustee of The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin. +Key Attributes, Experience and Skills +Mr. Helmerich’s background with the drilling sector of the oil and gas business provides the Board with insight into an aspect of Cimarex’s business that represents a significant expenditure in Cimarex’s capital budget. His over 25 years of executive experience provide a strong background for his service on Cimarex’s Board and on the Compensation and Governance Committee. In addition, his service as a director of Atwood Oceanics and as a Trustee of The Northwestern Mutual Life Insurance Company provide him with additional experience and knowledge to serve as a Director. +HAROLD R. LOGAN, JR., 69 +Position, Principal Occupation and Business Experience +Mr. Logan currently serves as Chairman of the Board of Supervisors of Suburban Propane Partners, L.P. and is a Director of Graphic Packaging Corporation. He is also a Director of two privately held companies – Basic Materials and Services LLC that invests in companies providing specialized services for the pipeline construction and sand/silica industries, and Hart Energy Publishing, publisher of Oil and Gas Investor and other energy publications. +Mr. Logan was a Co-Founder of TransMontaigne, Denver, Colorado, in 1995 and Chief Financial Officer, Executive Vice President, Treasurer and a director through 2002. He served as a director of TransMontaigne and chairman of its finance committee from 2002-2006. From 1987 to 1995, he was Senior Vice President/Finance, Chief Financial Officer and a director of Associated Natural Gas Corporation. Prior to that, Mr. Logan was an investment banker with Dillon Read & Co. Inc. and Rothschild, Inc. +16 +Table of Contents +Since 1998, Mr. Logan has been a director of nine public companies and has served on audit, compensation and governance committees. +Key Attributes, Experience and Skills +Over the past 39 years, Mr. Logan’s education, investment banking/venture capital experience and business financial management experience have provided him with a comprehensive understanding of business and finance. Mr. Logan’s expertise and experience have been relevant to his responsibilities of providing oversight and advice to the management of public companies, and is of particular benefit in his role as Lead Director and as a member of Cimarex’s Audit Committee. +MONROE W. ROBERTSON, 64 +Position, Principal Occupation and Business Experience +Mr. Robertson is currently a private investor. Mr. Robertson retired from Key Production Company, Inc. (a company acquired by Cimarex in 2002) after serving ten years with the company. While with Key, he held the positions of President, Chief Operating Officer, Senior Vice President and Principal Financial Officer. Mr. Robertson has served in executive capacities with three other public energy companies, Apache Corp., Gulf Oil Corporation and Terra Resources. +Mr. Robertson currently serves as a Director, Chairman of the Audit Committee and member of the Compensation and Nominating committee of Earthstone Energy, Inc. (formerly named Basic Earth Science System), Denver, Colorado, a publicly traded independent exploration and production company. +Key Attributes, Experience and Skills +Mr. Robertson has comprehensive knowledge of the financial and operational sides of the exploration and production business, which is of considerable value in his service as Chairman of the Audit Committee. +DIRECTOR COMPENSATION +Our Compensation and Governance Committee administers our director compensation program. Director compensation is designed to be near the 50 th percentile of that paid by comparable public oil and gas companies with similar market capitalization and revenue. We use the same group of companies in reviewing Director compensation as we use in reviewing executive base salary and total direct compensation. See Competitive Positioning, Section 2, Compensation Discussion and Analysi s for a list of, and the methodology followed in selecting these companies. The Committee uses its independent compensation consultant, Longnecker & Associates, to review Director compensation. The Committee, after reviewing the consultant’s recommendations with the CEO and Vice President of Human Resources, recommends Director compensation for Board consideration and approval at the Board meeting held following each year’s annual meeting of shareholders. Payment of director compensation occurs on June 1 of each year. +At the May 15, 2013 meeting, the Committee’s independent consultant reviewed director compensation and reported that director compensation was at the 53 rd percentile of director compensation paid by comparable public oil and gas companies. The consultant recommended that no changes be made to director compensation, and the Committee and the Board concurred with the consultant’s recommendation. 2013 non-employee Director compensation consisted of the following: +· Annual cash retainer of $65,000 +· Annual equity retainer of $180,000, comprised of restricted stock that vests in one-third increments on each anniversary of the date of grant +· Committee chairman fee of $20,000 +· Lead Director (who also acts as Nominating Committee chairman) fee of $20,000 +· Board meeting attendance fee of $1,800 per meeting +· Committee meeting attendance fee of $1,500 per meeting +17 +Table of Contents +2013 Compensation +NAME +FEES PAID IN CASH 1 +STOCK AWARDS 2 +TOTAL +Jerry Box +$ +83,300 +$ +180,000 +$ +263,300 +Hans Helmerich +$ +83,300 +$ +180,000 +$ +263,300 +David Hentschel +$ +83,300 +$ +180,000 +$ +263,300 +Harold Logan +$ +112,900 +$ +180,000 +$ +292,900 +Floyd Price +$ +87,800 +$ +180,000 +$ +267,800 +Monroe Robertson +$ +114,400 +$ +180,000 +$ +294,400 +Michael Sullivan +$ +87,800 +$ +180,000 +$ +267,800 +L. Paul Teague +$ +103,300 +$ +180,000 +$ +283,300 +(1) Represents fees earned for services as a Director during 2013, including the annual cash retainer fee, Board and Committee meeting attendance fees, Committee Chairman fee and Lead Director fee. +(2) Represents the aggregate grant date fair value computed as the market value (average of the high and low trading prices) of the the 2,567 shares of restricted stock as of the May 15, 2013 grant date. +The following table discloses as of December 31, 2013 the aggregate number of outstanding unvested stock awards and the market value of those awards. (Market value uses a $103.475 share price, which is based on the average of the high and low trading prices on December 31, 2013.) The directors have the right to vote and receive dividends on unvested stock awards. There were no outstanding vested but unexercised option awards as of that date. +Director +Unvested Stock Awards +Market Value +Jerry Box +5,171 +$ +535,069 +Hans Helmerich +5,171 +$ +535,069 +David Hentschel +5,171 +$ +535,069 +Harold Logan +5,171 +$ +535,069 +Floyd Price +3,435 +$ +355,437 +Monroe Robertson +5,171 +$ +535,069 +Michael Sullivan +5,171 +$ +535,069 +L. Paul Teague +5,171 +$ +535,069 +Our Corporate Governance Guidelines require that each independent director own Cimarex stock in an amount equal to three times his annual cash retainer. A newly elected director has three years from the date of his or her initial election to comply with the Guidelines. Restricted stock, restricted stock units and deferred compensation units are counted in calculating ownership; shares subject to options are not counted. Each of the independent directors complies with these guidelines. +CORPORATE GOVERNANCE +Cimarex’s website ( www.cimarex.com ) includes corporate governance materials that are helpful in understanding our corporate governance practices: +· +Corporate Governance Guidelines +· +Code of Business Conduct and Ethics +· +Code of Ethics for CEO, CFO and Chief Accounting Officer +· +Stock Ownership Guidelines +· +Complaint and Reporting Procedures +· +Background and Experience of our Board of Directors +· +Committee Charters +· +Background and Experience of Executive Management +We believe that good corporate governance promotes the long-term interests of shareholders, strengthens Board and management accountability and helps build public trust. Copies of corporate governance materials may be requested from our Corporate Secretary, Cimarex Energy Co., 1700 Lincoln Street, Suite 1800, Denver, Colorado 80203. +18 +Table of Contents +A summary of key governance matters are noted in the table below: +Size of Board +10 +Code of Business Conduct and Ethics +Yes +Number of independent directors +8 +Corporate Governance Guidelines +Yes +Majority voting for directors +Yes +Disclosure Committee for financial reporting +Yes +Classified Board +Yes +Board and Audit Committee risk oversight +Yes +Separate Chairman and CEO +No +Compensation risk assessment +Yes +Independent Lead Director +Yes +Review of related party transactions +Yes +Diverse Board skills and experience +Yes +Non-Hedging and non-pledging policies +Yes +Annual Board and Committee self-evaluations +Yes +Clawback policy +Yes +Annual equity grants to directors +Yes +Management and director stock ownership guidelines +Yes +Annual Board education +Yes +Tax Gross Ups +No +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline (1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The Lead Director may take any action he deems appropriate or necessary, including, without limitation, forwarding the information to the Board for consideration or, with the concurrence of the Board, retaining independent or outside counsel, accountants or other advisors to address the concern. No adverse action will be taken against any individual making any such communication to the Lead Director. +B OARD AND C OMMITTEE I NFORMATION +Our Board +During 2013, the Board of Directors met five times. The Board has three Committees: the Audit Committee, the Compensation and Governance Committee and the Nominating Committee. During 2013, each director attended greater than 75% of the Board and the Board Committees meetings on which he served. All Board members are expected to attend the Annual Meeting. All of our Directors attended our 2013 Annual Meeting. +NAME +AGE +DIRECTOR +SINCE +POSITION +INDEPENDENT +OTHER +PUBLIC +BOARDS +Joseph R. Albi +55 +2011 +Chief Operating Officer, Executive Vice President, Cimarex +No +0 +Jerry Box +75 +2005 +Retired, Chairman, Newpark Resources +Yes +1 +Hans Helmerich +55 +2002 +Chairman and former CEO, Helmerich & Payne +Yes +3 +David A. Hentschel +80 +2002 +Retired, Former Chairman, CEO Occidental Oil & Gas Corp +Yes +0 +Thomas E. Jorden +56 +2011 +Chairman and CEO, Cimarex +No +0 +Harold R. Logan, Jr. +69 +2009 +Chairman, Suburban Propane Partners, L.P. +Yes +2 +Floyd R. Price +65 +2012 +Retired, Former Executive Vice President, Apache Corp +Yes +1 +Monroe W. Robertson +64 +2005 +Private Investor +Yes +1 +Michael J. Sullivan +74 +2002 +Senior Attorney, Lucas Roca Rothgerber LLC +Yes +1 +L. Paul Teague +79 +2002 +Retired, Former Regional Vice President, Texaco USA +Yes +0 +19 +Table of Contents +Board Leadership Structure +Cimarex has a combined Chairman of the Board and CEO. Cimarex also has a Lead Director who is chosen annually from our independent directors. Following is a summary of the functions of the Chairman of the Board/CEO and the Lead Director, as provided in our Lead Director Charter: +Duties and Responsibilities of Chairman of the Board +Duties and Responsibilities of Lead Director +Preside over Board meetings. +Preside at all Board meetings at which the Chairman of the Board is not present. +Call special meetings of the Board. +Solicit agenda items from non-management directors, review Board meeting agenda and materials, and provide input to the Chairman of the Board. +Approve agenda for Board meetings. +Authority to call meetings of non-management directors and, as appropriate, set the agenda. +Preside over shareholder meetings. +Preside at all meetings of non-management directors and at all executive sessions of non-management directors. +Facilitate and participate in formal and informal communications with and among directors. +Act as Chairman of the Nominating Committee. +Liaison between the Chairman and Board members and facilitate communication among full Board. +Review interested party communications directed to Board and take appropriate action. +Retain outside advisors and consultants who report directly to the Board on board-wide issues. +The Board believes that the roles of a combined Chairman/CEO and an independent Lead Director having the duties described above serve the interests of our shareholders because this structure provides an appropriate balance between strategy development and independent oversight of management. +Thomas Jorden was elected Chief Executive Officer on September 30, 2011 and Chairman of the Board on August 14, 2012. He has served as an executive officer of Cimarex since its formation in 2002. He has considerable knowledge and experience gained through his executive positions with Cimarex and prior industry experience. This knowledge and experience allow him to focus the activities of the Board on matters most relevant to the success of Cimarex. +Our Board structure is designed to avoid any undue influence by the Chairman of the Board/CEO on the Board. The Compensation and Governance Committee is comprised entirely of independent Directors. When the Board acts on the Compensation and Governance Committee’s recommendation for compensation of the Chairman/CEO, it acts without him being present. +The substantial experience and background of our independent Board members ensure their active and knowledgeable involvement in Board matters. This involvement, and the presence and involvement of our Lead Director, provide the Board with a strong and independent point of view. +20 +Table of Contents +Board Committees +The table below provides 2013 membership and meeting information for each of the Board Committees: +NAME +AUDIT +COMP/GOV +NOMINATING +Jerry Box +X +X +Hans Helmerich +X +X +David Hentschel +X +X +Harold Logan +X +X +Floyd Price +X +X +Monroe Robertson +X +X +Michael Sullivan +X +X +L. Paul Teague +X +X +2013 Meetings Held +8 +5 +2 +Audit Committee +The Audit Committee is comprised entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Audit Committee Charter is available on our website at www.cimarex.com . Under its Charter, the Audit Committee performs the following functions: +· Appoints independent auditors; +· Approves the nature and scope of services of independent auditors and reviews range of fees for such services; +· Oversees internal audit function; +· Reviews qualification and independence of auditors; +· Reviews and discusses with independent auditors (i) the auditors’ responsibilities and management’s responsibilities in audit process, (ii) overall audit strategy, (iii) scope and timing of annual audit, and (iv) any significant risks identified during auditors’ risk assessment procedures; +· Monitors integrity of financial statements; +· Monitors compliance with legal and regulatory requirements; and +· Reviews and reports to Board on corporate and financial risk processes. +The Board of Directors has determined that each of the members of the Audit Committee is financially literate and independent as defined by the rules of the SEC and the NYSE. The Board has also determined that each of Messrs. Logan, Price and Robertson is an “audit committee financial expert” as defined by the SEC’s rules. +Compensation and Governance Committee +The Compensation and Governance Committee is comprised entirely of independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Compensation and Governance Committee Charter is available on our website at www.cimarex.com . Under its Charter, the Compensation and Governance Committee performs the following functions: +Compensation Functions +· Recommends CEO and executive officer cash compensation for approval by the Board; +· Recommends director compensation for approval by the Board; +· Reviews and recommends to the Board that the Compensation Discussion and Analysis be included in our proxy statement; +· Determines amount and terms of equity awards; +· Reviews and approves long-term incentive plans; +· Reviews relationship of compensation to risk; and +· Approves the nature and scope of services of independent compensation consultant. +21 +Table of Contents +Governance Functions +· Oversees corporate governance; +· Develops plans for managerial succession; and +· Oversees annual Board and Committee evaluations. +Compensation and Governance Committee Interlocks and Insider Participation. Hans Helmerich, a member of the Committee, was an executive officer of Cimarex from February 14, 2002 until September 30, 2002. Cimarex was formed on February 14, 2002, as a wholly owned subsidiary of Helmerich & Payne, Inc. for the purpose of facilitating a spinoff by Helmerich & Payne of its oil and gas exploration and production business. Cimarex became a publicly traded company on September 30, 2002, at which time Mr. Helmerich resigned as an executive officer. +Nominating Committee +The Nominating Committee is comprised of all of the independent Directors and is governed by a Board-approved Charter stating its responsibilities. A copy of the Nominating Committee Charter is available on our website at www.cimarex.com . Under its Charter, the Nominating Committee performs the following functions: +· Determines desired Board skills and attributes; +· Recommends candidates to serve on the Board and to stand for election at annual meeting of shareholders or to fill a vacancy occurring between meetings; and +· Recommends Committee appointments. +Director Independence and Related Person Transactions +Our Corporate Governance Guidelines require that a majority of our Board of Directors be independent as defined by applicable laws, rules, regulations and listing standards. We comply with the criteria for independence established by the New York Stock Exchange (“NYSE”) listing requirements and other governing laws and regulations. +Each year the Compensation and Governance Committee reviews the independence of our directors and any related person transactions. On the basis of this review, the Committee delivers a report to the Board of Directors, and the Board makes independence determinations based on the Committee’s report and supporting documents. +As a result of this review, the Board has affirmatively determined that Jerry Box, Hans Helmerich, David Hentschel, Harold Logan, Floyd Price, Monroe Robertson, Michael Sullivan and L. Paul Teague, representing eight of our ten Directors, are independent of Cimarex and its management. Thomas Jorden and Joseph Albi are not independent because of their employment as CEO and COO of Cimarex, respectively. +In making these determinations, the Board considered that in the ordinary course of business, relationships and transactions may occur between Cimarex and entities with which some of our Directors are or have been affiliated. As a result of the Committee’s review, certain relationships and transactions are not considered to be material transactions that would impair a Director’s independence, including the following: +· The Director is an employee of another company that does business with Cimarex, and our annual sales to or purchases from the other company amount to less than 2% of the annual revenues of the other company and that such sales to or purchases from the other company are part of our ordinary course of business and conducted in the same manner as we obtain services from other companies that provide similar services; or +· The Director is a director (but not an employee) of another company that does business with Cimarex. +Hans Helmerich is the Chairman of the Board and, until March 5, 2014, was the CEO of Helmerich & Payne, Inc., a company with which Cimarex engages in ordinary course of business transactions. During Helmerich & Payne’s fiscal year ended September 30, 2013, Cimarex paid Helmerich & Payne $14.7 million for drilling rigs and services in arms’ length transactions and as part of our ordinary course of business and in the same manner as we obtain services from other companies that provide similar services. The aggregate amount of the payment represented 0.47% of Helmerich & Payne’s revenue during that period. The Committee reviewed these transactions and concluded that (i) the transactions are proper and not material when compared to both Cimarex’s total drilling costs and Helmerich & Payne’s total revenues; (ii) the transactions occur in the ordinary course of business and at arms’ length; (iii) the Board does not review or approve drilling service contracts or arrangements; and +22 +Table of Contents +(iv) Mr. Helmerich’s relationship with Helmerich & Payne, Inc. does not interfere with his independent judgment as a director of Cimarex. +Risk Oversight +The Board has overall responsibility for risk oversight. In carrying out its responsibility, the Board has requested that the Audit Committee discuss with management and report to the Board with respect to: +· Processes Cimarex follows to mitigate corporate risks; +· Guidelines and processes pertaining to financial risk assessment; +· Steps management takes to measure, monitor and control such financial risk exposures; and +· Management’s conclusion as to the effectiveness of the guidelines and processes utilized to mitigate such corporate and financial risks and exposures. +In addition, at each of its four meetings held during the year, management provides the Board with an overview of Cimarex’s operations, financial results and other aspects of its business. Significant strategic considerations, such as material acquisitions or mergers are brought to the Board for deliberation and, as appropriate, decisions. +The Audit Committee, at its December 2013 meeting, reviewed, discussed and, at the February 25, 2014 meeting, reported to the Board about corporate, operational and financial risks and Cimarex’s processes for mitigation of these risks. +Compensation Risk Oversight +In February 2014, the Compensation and Governance Committee performed a thorough review of the possible connection between incentives and excessive risk taking. The Committee’s review covered Cimarex’s compensation policies and practices covering executive and non-executive employees to determine whether the policies and practices encourage excessive risk taking by employees. The Committee’s analysis included: +· What are the metrics for determining awards? +· Who are plan participants? +· How are the pools and individual awards determined? +· What is the maximum individual award potential (maximum individual incentive to take risk)? +· What is the maximum possible cost if awards were paid at maximum (maximum cost exposure)? +· What is the decision-making and approval process? +· What are the systemic limitations on the ability to take excessive risks in order to influence compensation? +The Committee determined that risks from compensation policies and practices for Cimarex employees are not reasonably likely to have a material adverse effect on Cimarex. +Executive Sessions +The non-employee members of the Board meet in executive session at each regularly scheduled Board meeting. The Lead Director presides over executive sessions. During 2013, four executive sessions were held, and all of the non-employee Directors attended each session. These sessions allow non-employee Directors to review the CEO’s performance and his compensation, to discuss issues of importance to Cimarex, including the business and affairs of Cimarex, as well as matters concerning management, without any member of management present. +Shareholder Engagement +Cimarex’s relationships with its shareholders are an important part of our corporate governance profile, and we recognize the value of taking their views into account. Engagement with shareholders helps us to understand the larger context and impact of our operations, learn about expectations for our performance, assess emerging issues that may affect our business or other aspects of our operations and shape corporate and governance policies. +23 +Table of Contents +Consistent with our commitment to seek and respond to shareholder input on corporate governance topics, we have considered and discussed with investors a wide variety of matters, including our executive compensation program and disclosures and have previously made changes in these areas. +S TOCK O WNERSHIP +D IRECTORS , M ANAGEMENT AND C ERTAIN B ENEFICIAL O WNERS +Beneficial Ownership by Executive Officers and Directors +The following table shows, as of March 15, 2014, the number of shares of common stock “beneficially owned,” as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, by the NEOs, the directors, and all executive officers and directors, as a group: +Name of Beneficial Owner +Shares +Owned (1) +Beneficial +Ownership Total +Percent of +Class +Named Executive Officers +Thomas E. Jorden, CEO (also director) +230,544 +230,544 +<1 +% +Paul Korus, CFO +134,228 +134,228 +<1 +% +Joseph R. Albi, COO (also director) +160,748 +160,748 +<1 +% +Stephen P. Bell +136,327 +136,327 +<1 +% +John A. Lambuth +73,500 +73,500 +<1 +% +Directors +Jerry Box +12,488 +12,488 +<1 +% +Hans Helmerich +464,315 +(2) +464,315 +(2) +<1 +% +David A. Hentschel +31,460 +31,460 +<1 +% +Harold R. Logan, Jr. +8,476 +8,476 +<1 +% +Floyd R. Price +4,868 +4,868 +<1 +% +Monroe W. Robertson +15,037 +15,037 +<1 +% +Michael J. Sullivan +17,234 +17,234 +<1 +% +L. Paul Teague +54,291 +(3) +54,291 +(3) +<1 +% +All executive officers and directors as a group (17 persons) +1,577,105 +1,577,105 +2 +% +(1) Includes restricted stock, direct and indirect ownership of common stock and equivalent shares of common stock held by the trustee for the benefit of the named individual in the Cimarex Energy Co. 401(k) Plan. Does not include deferred compensation units held by one director. There are no shares of common stock that could be purchased by the exercise of vested stock options within the 60-day period following March 15, 2014. +(2) Includes 11,450 shares owned by Mr. Helmerich’s wife. Mr. Helmerich disclaims beneficial ownership of the shares held by his wife. Also includes 55,000 shares owned by The Helmerich Foundation, of which Mr. Helmerich is co-trustee, and 350,000 shares held by the Estate of W. H. Helmerich III, of which Mr. Helmerich is the trustee. +(3) Includes 9,066 shares owned by Mr. Teague’s wife. Mr. Teague disclaims beneficial ownership of the shares held by his wife. +24 +Table of Contents +Beneficial Ownership of More than Five Percent +Each of the following shareholders beneficially owns five percent or more of our outstanding shares of common stock. The following table provides information regarding their stock ownership and is based on their filings with the SEC. +Voting Authority +Dispositive Authority +Total Amount +of Beneficial +Percent of +Name and Address +Sole +Shared +Sole +Shared +Ownership +Class +BlackRock Inc. +40 East 52 nd Street +New York, NY 10022 +8,575,880 +0 +9,066,432 +0 +9,066,432 +10.40 +% +The Vanguard Group +100 Vanguard Boulevard +Malvern, PA 19355 +77,764 +0 +4,697,953 +70,064 +4,768,017 +5.49 +% +25 +Table of Contents +COM PENSATION DISCUSSION AND ANALYSIS – TABLE OF CONTENTS +Page No. +Executive Summary of Compensation Discussion and Analysis (“CD&A”) +27 +Compensation Discussion and Analysis +28 +Section 1 +28 +Summary of 2013 and Early 2014 Compensation Decisions +28 +Response to 2013 Say on Pay Vote and Shareholder Engagement +29 +Key 2013 Compensation Actions +29 +CEO Compensation +29 +Other NEO Compensation +30 +Base Salary Determination +30 +Annual Cash Incentive Awards +30 +Long-Term Equity Incentive Award Program +32 +Elimination of Tax Gross Up Payments +33 +Alignment of CEO Compensation to Total Shareholder Return +34 +Early 2014 Compensation Decisions +35 +2014 Annual Cash Incentive Award Goals +35 +Section 2 +36 +Our Compensation Framework +36 +Objectives +36 +Design +36 +Principal Elements of Executive Compensation +36 +Competitive Positioning +37 +Role of Compensation Consultant and Management in Compensation Decisions +37 +Other Compensation Arrangements +38 +Post-Employment and Other Employment Arrangements +38 +Retirement Benefits +39 +Perquisites +39 +Other Compensation Policies +39 +Total Pay Considerations +39 +Stock Ownership and Holding Requirements +39 +Clawback Policy +39 +Non-Hedging and Non-Pledging Policies +40 +Tax Law Considerations +40 +Compensation and Governance Committee Report +40 +26 +Table of Contents +Executive Summary of Compensation Discussion & Analysis (CD&A) +2013 BUSINESS AND FINANCIAL PERFORMANCE OVERVIEW +· Total shareholder return of 82.9% on a one year basis and 20.8% on a three year basis. +· Generated a record of $2.0 billion revenues. +· Realized net income of $564.7 million, or $6.47 per diluted share, which benefited from a reduction in our estimated exposure to litigation expense of $90.3 million (after-tax) that had been accruing since 2008. +· Generated $1.3 billion of cash flow from operating activities. +· Invested $1.6 billion in exploration and development. +· Grew production 11% to a record 692.6 MMcfe/d. +· Increased proved reserves 11 percent to 2.5 Tcfe, 26 percent of which are oil. +· Added 727 Bcfe of proved reserves from extensions and discoveries replacing 288 percent of production. +· Delineated and expanded our Delaware Basin acreage position uncovering several long-term future drilling projects; +· Ended 2013 with debt-to-total capitalization of 19 percent. +2013 EXECUTIVE COMPENSATION +2013 Salary +2013 Annual Cash +Incentive Award +2013 Long-Term +Incentive Grant +Value +Total +% of Total +Compensation at +Risk +Thomas E. Jorden, CEO +$ +810,000 +$ +1,620,000 +$ +4,785,000 +$ +7,215,000 +89 +% +Paul Korus, CFO +$ +472,000 +$ +750,000 +$ +2,791,250 +$ +4,013,250 +88 +% +Joseph R. Albi +$ +540,000 +$ +930,000 +$ +3,190,000 +$ +4,660,000 +88 +% +Stephen P. Bell +$ +435,000 +$ +750,000 +$ +2,791,250 +$ +3,976,250 +89 +% +John A. Lambuth +$ +375,000 +$ +645,000 +$ +2,791,250 +$ +3,811,250 +90 +% +ELEMENTS AND MIX OF EXECUTIVE COMPENSATION +Cimarex’s executive compensation program directly links a substantial portion of executive compensation to Cimarex’s performance through annual and long-term incentives. The mix of the pay elements for the CEO and other NEOs for fiscal 2013 is shown below. This information is based on the Summary Compensation Table data and highlights the substantial portion of compensation that is at risk and will be realized only if performance criteria are met. Of the CEO’s total disclosed 2013 compensation, 89% is at risk and is linked to Cimarex’s future performance and 67% of his 2013 disclosed compensation is service-based and performance-based long-term equity incentive compensation. The average compensation mix for the other NEOs is 89% at risk compensation and 70% service-based and performance-based long-term equity incentive compensation. +Pay Elements +Pay Element Rationale +Base Salary +Annual Cash Incentive +Long-Term Equity Incentive +Retain and attract, when needed, talented executives +Encourage short term operational/financial performance +Encourage retention and above average stock price performance +27 +Table of Contents +C OMPENSATION D ISCUSSION AND A NALYSIS +This Compensation Discussion and Analysis (“CD&A”) describes Cimarex’s executive compensation program for 2013 and certain elements of the 2013 program. We use this program to retain and attract (when appropriate) the executives who lead our business. This CD&A explains how the Compensation and Governance Committee (the Committee) of the Board of Directors made 2013 compensation decisions for our executives, including the following Named Executive Officers (NEOs) +· Thomas E. Jorden, Chairman of the Board, Chief Executive Officer (CEO) and President +· Paul Korus, Senior Vice President, Chief Financial Officer (CFO) +· Joseph R. Albi, Chief Operating Officer (COO) +· Stephen P. Bell, Executive Vice President-Business Development +· John A. Lambuth, Vice President-Exploration +This CD&A is divided into two sections: +Section 1 discusses 2013 and early 2014 actions related to 2013 executive compensation. +Section 2 discusses our compensation framework, post-employment compensation, retirement benefits, perquisites and other compensation policies. +SECTION 1 +Summary of 2013 and Early 2014 Compensation Decisions +TOPIC +ACTION +RATIONALE +Base Salary Review +Increased CEO’s base salary from $672,000 to $810,000. +CEO’s base salary was significantly below the 50 th percentile of Cimarex’s peers. +Increased COO’s base salary by 8% +A larger than 4% market increase was recommended due to the increased responsibilities. +Increased remaining NEOs’ base salaries by 4% +Maintain alignment of the NEOs with the market. +Annual Short-Term Incentive plan +Authorized annual cash short-term awards to the CEO of 200% of year-end base salary (target of 100% of base salary) and to the other NEOs at a range from 152% to 179% of year-end base salary (target of 100% for all other NEOs). +Annual cash awards were based on the achievement of financial and strategic objectives. See Key Compensation Actions for 2013 in Section 1, Compensation Discussion and Analysis. +28 +Table of Contents +TOPIC +ACTION +RATIONALE +Long-Term Equity Incentives +Authorized long-term equity awards to NEOs (including the CEO) with an aggregate grant date fair value of $16,348,750. The number of shares that may be earned pursuant to these awards is determined by Cimarex’s relative stock price performance. The awards vest three years from the date of grant and are subject to a continuous service requirement. A minimum of 50% of the shares granted and a maximum of 100% of the shares granted may be earned at the end of the three-year period. +The range for 2013 long-term equity awards recommended by the compensation consultant represented a total value between the 50 th and 75 th percentiles when compared to 2012 awards made by peer companies (which was the latest public information available). The Committee approved awards at approximately the 75 th percentile when compared to peer company 2012 awards. The Committee considered Cimarex’s total shareholder return for the past one and three years, NEO total direct compensation compared to peer companies, Cimarex’s strong 2013 financial and operational performance, and the compensation consultant’s recommended range. +Director Compensation +Recommended no increases during 2013 for director compensation. +Based on a market review of director compensation at peer group companies, the compensation consultant advised that Cimarex Director compensation was at the 53 rd percentile and recommended no increases for 2013. +See Key 2013 Compensation Actions below for more detail. +Response to 2013 Say-on-Pay Vote and Shareholder Engagement +At the 2013 Annual Meeting of Shareholders, 91% of the votes cast were in favor of the advisory vote to approve executive compensation. The Committee considered this a favorable outcome and believed it conveyed our shareholders’ support of the Committee’s compensation decisions in 2012 and early 2013 and shareholders’ overall satisfaction with Cimarex’s executive compensation programs. Consistent with this support, the Committee retained the core design of our executive compensation programs for the remainder of 2013, as it believes the programs continue to retain, attract, when appropriate, and appropriately incent senior management. +As part of our regular shareholder engagement, we consider and discuss with shareholders a number of matters throughout the year, including executive compensation and governance. The Committee carefully considers any feedback and routinely reviews executive compensation practices and governance. +Key 2013 Compensation Actions +The following discusses the Committee’s key 2013 compensation decisions, which are reflected in the 2013 Summary Compensation Table below. These decisions were made with the advice of the Committee’s independent consultant, Longnecker & Associates. (See Section 2 of Compensation Discussion and Analysis for additional discussion regarding the role of the Committee’s compensation consultant.) +CEO Compensation +· Effective June 1, 2013, Mr. Jorden’s base salary was increased from $672,000 to $810,000. Prior to the increase, Mr. Jorden’s base salary was well below the 50 th percentile of CEOs of our peer companies, and the Committee, with the concurrence of its independent consultant, increased his base salary to near the 50 th percentile. +· Mr. Jorden’s 2013 annual cash incentive award was $1,620,000, or 200% of his year-end base salary. +· His annual long-term incentive equity award value at the date of grant (December 12, 2013) was $4,785,000. +29 +Table of Contents +These adjustments were reviewed in detail by the Committee and its independent consultant. The Committee considered several factors, including input from its independent consultant and salary data from peer companies. In 2013, approximately 89% of Mr. Jorden’s compensation as disclosed in the Summary Compensation Table was at risk. +Other NEO Compensation +The Committee also made compensation decisions for the other NEOs comprised of base salary adjustments, 2013 annual cash incentive awards made in February 2014 and long-term equity awards made in December 2013. These adjustments were based upon the recommendations of the CEO, evaluation by the Committee, the advice of the Committee’s independent consultant, salary data from peer and comparator groups, internal pay relationships based on relative duties and responsibilities, the executive’s impact on Cimarex’s results, and for retention purposes. Based upon these considerations, the Committee made the following 2013 NEO compensation decisions: +2013 Salary +2013 Annual Cash +Incentive Award +2013 Long-Term +Incentive Equity +Grant Date Fair +Value +Total +% of +Total +Compensation +that is +At Risk +Paul Korus, CFO +$ +472,000 +$ +750,000 +$ +2,791,250 +$ +4,013,250 +88 +% +Joseph R. Albi +$ +540,000 +$ +930,000 +$ +3,190,000 +$ +4,660,000 +88 +% +Stephen P. Bell +$ +435,000 +$ +750,000 +$ +2,791,250 +$ +3,976,250 +89 +% +John A. Lambuth +$ +375,000 +$ +645,000 +$ +2,791,250 +$ +3,811,250 +90 +% +Base Salary Determination +We provide competitive base salaries to retain and attract, when appropriate, talented executives and to provide a fixed base of cash compensation. We compare each NEO’s base salary with the base salary paid for a similar executive position by companies in our Compensation Peer Group. See Competitive Positioning later in this CD&A for a list of the companies in the Compensation Peer Group. The Committee then may adjust base salaries based on a number of factors, including job responsibilities, management experience, individual contributions, number of years in position and current salary. +In May 2013, the Committee’s independent compensation consultant reviewed the NEOs’ base salaries compared to market and recommended an annual increase of 3.5% to 4% to maintain market alignment. The consultant also advised that the CEO’s base salary was below market and recommended an increase in the CEO’s base salary to at least the 50 th percentile of the Compensation Peer Group. The Committee also recognized that the executive officers’ base salaries were not increased for the period June 1, 2012 through May 31, 2013 and that the Chief Operating Officer was particularly affected, as he had assumed significant additional responsibilities at the time he was promoted to Chief Operating Officer in September 2011 but had not received a base salary increase in consideration of those increased responsibilities since September 2011. Therefore, the Committee considered (i) the recommendations of the consultant, (ii) that the base salaries of the NEOs, including the CEO, were not increased for the period June 1, 2012 through May 31, 2013 and (iii) that the Chief Operating Officer had not received a base salary increase reflecting his increased responsibilities associated with his September 2011 promotion. The Committee recommended, and the Board approved, the following base salary increases effective June 1, 2013: +Name +Title +5/31/13 +Base Salary +After 6/1/13 +Base Salary +Percent Increase +Thomas E. Jorden +CEO and President +$ +672,000 +$ +810,000 +20.5 +% +Joseph R. Albi +Chief Operating Officer +$ +500,000 +$ +540,000 +8.0 +% +Stephen P. Bell +Executive Vice President-Business Development +$ +420,000 +$ +435,000 +3.6 +% +Paul Korus +Senior Vice President, CFO +$ +452,000 +$ +472,000 +4.4 +% +John A. Lambuth +Vice President-Exploration +$ +360,000 +$ +375,000 +4.2 +% +Annual Cash Incentive Awards +In February 2014, the Committee met to deliberate and determine NEO (including the CEO) annual cash incentive awards for 2013 services. The individual target for the CEO and each other NEO is 100% of his base salary. There is no minimum award and an individual’s maximum award is 200% of his base salary. +30 +Table of Contents +In December 2012, the Committee adopted 2013 strategic and tactical goals and objectives to be measured in 2014. The following represents the level of achievement of the 2013 strategic and tactical goals and objectives: +2013 Strategic and Tactical Goals and Objectives +Achievement +Achieve threshold or greater economic return on invested capital. +Very Good. Exceeded threshold for after tax return on invested capital based on internal measurements which consider only discounted future cash flows from proved developed reserves. +Increase production compared to previous year (absolute and on a debt-adjusted basis). +Very Good. Increased absolute production by 11% and debt-adjusted production by 9%. +Increase reserves compared to previous year (absolute and on a debt-adjusted basis. +Very Good. Increased absolute reserves by 11% and debt-adjusted reserves by 9%. +Deliver at least one new project that contains significant future investment potential. +Fair. Tested one exploration concept that will continue to be tested and continue to review additional exploration concepts. +Improve management of base property production. +Very Good. Production growth in 2013 enhanced by promotions of Vice President of Production and Director of Production and their management of production activities as well as the greater role of Cimarex’s Exploration Regions in managing the production contributions from their drilling programs. +Continue improvement of drilling and completion performance and decrease in related costs. +Excellent. Decreased drilling times and costs; increases in completion costs more than offset by production gains. +Analyze midstream operations in order to decide whether to retain and develop or to divest. +Very Good. Hired plant manager and other experienced midstream employees and brought Triple Crown plant in Culberson County, Texas online; established multiple markets for production in Permian; evaluating monetization of Mid-Continent plants. +Develop and implement corporate financial modeling tool. +Excellent. Implemented new software that provides ability to generate cash flow forecasts that incorporate base production and production increases from planned drilling programs. +Develop and implement HR staffing and succession plan for key levels of management below executive team. +Fair. Continue to make progress in the face of shortage of skilled manpower and leadership. The shortage affects Cimarex and its competitors. +Improve operational safety and environmental management. +Excellent. Hired Director of Health, Environment and Safety; continue to improve environmental compliance and agency relationships; continue to stress culture of safe and environmentally responsible operations. +31 +Table of Contents +Based principally on the achievement of the 2013 strategic and tactical goals and objectives, the CEO recommended cash incentive awards for the other NEOs in the range of 159% to 172% of their year-end 2013 salaries. The Committee’s independent consultant concurred that the CEO’s recommendations were reasonable. The consultant also had recommended a pool for cash incentive awards for all NEOs in the range of $3.7 million to $5.2 million based on the consultant’s review of the company’s achievement of the 2013 strategic and tactical goals. The Committee, after considering the achievement of the 2013 financial and operational objectives and in consultation with its independent consultant, accepted the CEO’s recommendations, and the Board approved the Committee’s recommendations. +The Committee, with its independent consultant, and without management present, deliberated on the CEO’s annual cash incentive award. Based on its analysis of the CEO’s 2013 performance described above and the CEO’s leadership of the company and management of senior executives and other employees to achieve this performance, the Committee recommended and the Board approved a cash incentive award to the CEO of 200% of his base salary. The Committee’s independent consultant concurred with this recommendation and the total cash incentive awards to all NEOs of $4.7 million was within the recommendation of the compensation consultant of a reasonable range of $3.7 million to $5.2 million. Following are the CEO and other NEO 2013 annual cash incentive awards: +Name +Cash Incentive Award +% of Year-End +Base Salary +Thomas E. Jorden, CEO +$ +1,620,000 +200 +% +Paul Korus, CFO +$ +750,000 +159 +% +Joseph R. Albi +$ +930,000 +172 +% +Stephen P. Bell +$ +750,000 +172 +% +John A. Lambuth +$ +645,000 +172 +% +Long-Term Equity Incentive Award Program +Our long-term equity incentive award program balances the short-term annual cash incentive program by focusing executive efforts on the activities and short-term results that lead to long-term shareholder value. Each year the Committee grants equity awards of restricted stock to NEOs. +The number of shares that may be earned is determined by the relative stock price performance of Cimarex when compared to the stock price performance of companies in the S&P 400 and 500 Oil and Gas Exploration Indices (Stock Performance Peer Group). See Competitive Positioning in this CD&A for a list of the companies in the 2013 Stock Performance Peer Group. The awards vest three years from the date of grant and are subject to a continuous service requirement. A minimum of 50% of the shares granted and a maximum of 100% of the shares granted may be earned at the end of the three-year period. +Dividends equivalent to those paid on Cimarex common stock are paid on 50% of the shares awarded, and dividends applicable to the remainder of the shares awarded are accrued and only paid on the shares earned following calculation of Cimarex’s relative stock price performance compared to companies in the Stock Performance Peer Group at the end of the performance period. All of the shares subject to the award have the same voting rights as outstanding shares of Cimarex common stock. +For restricted stock awards made in December 2013, the total number of shares earned is determined by calculating the percentage difference between the average per share closing price for shares of Cimarex and each company in the Stock Performance Peer Group for the 30 trading days preceding the date of grant and the 30 trading days preceding the third anniversary of the grant. The Committee ranks Cimarex and calculates its relative performance percentile. Companies that are not in the Stock Performance Peer Group at both the beginning and the end of the performance period are not included in the calculation. The following table illustrates shares that would be earned at various relative stock performance price percentiles (assuming 24 companies in the Peer Group). +Cimarex’s Rank Among +Peer Companies +Relative Stock Price +Performance Percentile +Percent of +Shares Earned +1-6 +75-100% +100% +7-12 +52-71% +77-99% +13-18 +29-48% +51-73% +19-24 +0-24% +50% +32 +Table of Contents +On December 12, 2013, the Committee granted long-term equity awards to the NEOs with a total grant date fair value of $16,348,750 based on competitive market data for companies in Cimarex’s Compensation Peer Group. See Competitive Positioning in this CD&A for a list of the companies in the Compensation Peer Group. The Committee’s compensation consultant recommended awards with a value between the 50 th and 75 th percentiles when compared to companies in the Compensation Peer Group. (Comparative data is obtained from public filings disclosing 2012 NEO compensation of companies in the Compensation Peer Group.) The Committee approved awards at approximately the 75 th percentile based on Cimarex’s total shareholder return for the past one and three years, the total direct compensation of our NEOs compared to our peer companies, Cimarex’s 2013 financial and operational performance, and the compensation consultant’s recommended range. +The Committee granted a total of 205,000 restricted shares to the NEOs (including the CEO). The number of shares granted to each NEO was based on the relative individual roles and responsibilities. Of the total number of shares granted to the NEOs (including the CEO), the Committee awarded 29.3% of the shares to Mr. Jorden, 19.5% of the total shares to Mr. Albi and the remaining 51.2% of the total shares were divided equally among Messrs. Bell, Korus and Lambuth. The following table reflects the awards made by the Committee: +Name +No. of Shares Subject +to Award +Grant Date Value of +Long-Term Equity +Incentive Award (1) +Thomas E. Jorden, CEO +60,000 +$ +4,785,000 +Paul Korus, CFO +35,000 +$ +2,791,250 +Joseph R. Albi +40,000 +$ +3,190,000 +Stephen P. Bell +35,000 +$ +2,791,250 +John Lambuth +35,000 +$ +2,791,250 +(1) Represents an estimate of the fair value of the shares as of the grant date utilizing a Monte Carlo valuation technique as permitted by the guidance provided by FASB ASC Topic 718. The estimated fair value is the aggregate compensation cost to be recognized over the service period based on the results of the Monte Carlo analysis. +2013 Vesting of NEO Equity Awards +On January 4, 2013, the performance period applicable to the January 4, 2010 NEO equity awards ended. Cimarex’s relative stock price performance percentile was 42% at the end of the performance period, resulting in the vesting of 67% of the shares subject to the January 4, 2010 award. The following table reflects the shares originally granted to each NEO and the number of shares that vested at the end of the three-year performance period: +Name +No. of Shares Granted 1/4/2010 +No. of Shares Vested 1/4/2013 +Thomas E. Jorden, CEO +50,000 +33,500 +Paul Korus, CFO +50,000 +33,500 +Joseph R. Albi +50,000 +33,500 +Stephen P. Bell +50,000 +33,500 +The vesting of these awards and the value at vesting is also reported in 2013 Option Exercises and Restricted Stock Vesting table in this Proxy Statement. Mr. Lambuth was not an executive officer at the time of the January 4, 2010 awards. Mr. Lambuth’s service-based award that vested in 2013 is included in the 2013 Option Exercises and Restricted Stock Vesting table. +Elimination of Tax Gross Up Payments +In March 2013, the Board amended the Cimarex Energy Co. Change in Control Severance Plan to eliminate any participant’s right (including the right of any NEO) to a tax gross-up payment. +Cimarex’s Change in Control Severance Plan is the only plan that provided for a tax gross up payment to a participant following a change in control if any payments received by the participant as a result of the change in control become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. See Potential Payments upon Change in Control or Termination for a more detailed description of this Plan. +33 +Table of Contents +Alignment of CEO Compensation to Total Shareholder Return +Cimarex CEO Total Compensation Compared to Cimarex Total Shareholder Return +The following graph illustrates our CEO compensation compared to our TSR for the years 2009 through 2013. Indexed TSR represents the cumulative total return of Cimarex stock for a five-year period based on a $100 investment at the start of the first year and reinvestment of all dividends. The data for 2009 and 2010 represents reported compensation for only F. H. Merelli, our former CEO. The data for 2011 includes weighted compensation, including compensation for F. H. Merelli, who served as CEO for nine months in 2011, and compensation for Thomas Jorden, who served as CEO for three months in 2011. Compensation for 2012 and 2013 represents only compensation for Thomas Jorden, Cimarex’s current CEO. The table shows the value of the investment at the end of each year. +Relative CEO Total Compensation Compared to Relative Total Shareholder Return +The following graph depicts alignment of relative CEO compensation compared to relative Total Shareholder Return for the years ended December 31, 2010 through December 31, 2012. The information is only provided through 2012 because 2013 CEO peer company compensation information is not publicly available at this time. The companies used for the relative comparison are the companies in our Compensation Peer Group. We have also included, as a point of reference, Cimarex’s CEO compensation for the years ended December 31, 2011 through December 31, 2013. +34 +Table of Contents +Multiple of Median CEO Compensation +The graph below reflects that Cimarex’s 2012 CEO total direct compensation represents 64% of the median CEO total direct compensation of companies in our Compensation Peer Group. The information provided is for 2012 peer group CEO total direct compensation because 2013 CEO peer company compensation information is not publicly available at this time. We have also included, as a point of reference, Cimarex’s 2013 CEO total direct compensation. +Early 2014 Compensation Decisions +2014 Annual Cash Incentive Award Goals +In December 2013, the Committee approved the following strategic goals and objectives that will apply to 2014 annual cash incentive awards that will be measured and paid in 2015: +2014 strategic goals: +o Achieve good return on invested capital. +o Increase production compared to previous year on a debt-adjusted basis. +o Increase reserves compared to previous year on a debt-adjusted basis. +o Deliver at least one new project that contains significant future investment potential. +2014 tactical goals: +o Improve management of base property production. +o Continued improvement of drilling and completion performance and decrease in related costs. +o Continued focus on staffing and succession planning at all levels. +o Develop internal five-year plan and capital model. +o Emphasize and improve health, safety and environmental management. +o Prepare for Delaware Basin Wolfcamp development decision. +The strategic and tactical measures and objectives have been clearly communicated to the NEOs. At year end, the CEO will deliver a report of results to the Committee with respect to each goal and provide the CEO’s recommendation and the basis for the CEO’s recommendations for individual awards. The Committee and its independent compensation consultant will review management’s recommendations and accept or modify those recommendations. The non-management members of the Board will consider the recommendations of the Committee. Each NEO, including the CEO, has a target award equal to 100% of base salary and a maximum award of 200% of base salary; there is no minimum award. +35 +Table of Contents +SECTION 2 +Our Compensation Framework +Objectives +Our principal business objective is to profitably grow our proved oil and gas reserves and production for the long-term benefit of shareholders. The primary strategy we use to achieve this objective is to reinvest our cash flow from operations at a competitive rate of return. Our executive compensation program is designed to retain and attract, when appropriate, the experienced professionals necessary to carry out this strategy. +Design +We design our executive compensation program to: +· Align performance incentives with the long-term interests of our shareholders. +We align the long-term interests of our executives with the long-term interests of our shareholders by paying a substantial portion of each executive’s total direct compensation in the form of performance-based equity awards. The actual awards delivered are dependent upon relative TSR so that the more our shareholders benefit through shareholder returns compared to our Stock Performance Peer Group, the more our executives benefit through increased vesting of performance-based equity and the relative increase in stock price compared to our Stock Performance Peer Group. Also, stock ownership guidelines encourage executives to have a meaningful ownership stake. +· Provide competitive total direct compensation opportunities that retain and attract, when needed, executive talent. +We provide compensation opportunities to our executives at levels that are competitive with equivalent positions at companies with which we may compete for talent. In general, when we review base salary, long-term equity awards and total direct compensation, we reference the 50 th and 75 th percentiles. Actual compensation earned by an executive may be outside this range based on company and individual performance and industry competition for talented executives. +· Link compensation earned to achievement of short-term and long-term financial and operational objectives. +We provide an annual incentive cash award opportunity that is designed to reward executive efforts for achievement of company financial and operational objectives. Our long-term equity incentive awards are designed to encourage above average stock price performance and are structured to encourage retention of executives. +Principal Elements of Executive Compensation +We principally use three elements of executive compensation to carry out the design of our executive compensation program, collectively referred to as “Total Direct Compensation”: +Ø +Base salary +Retain executive team and, when appropriate, attract other executives. +Ø +Annual cash incentive award +Reward executives for short-term financial and operational results. +Ø +Annual long-term equity award +Focus executive efforts on activities and short-term results that lead to long-term shareholder value. Use time-vested restricted stock for retention and performance measures based on relative TSR to align executives’ interests with the interests of shareholders. +36 +Table of Contents +Competitive Positioning +In support of our compensation objectives, we reference the 50 th and 75 th percentiles of a peer group of companies to determine an appropriate total value and mix of pay for executives. We look at individual NEO and total NEO Total Direct Compensation compared to individual NEO and total NEO Total Direct Compensation of companies in our Compensation Peer Group. Because not all of our NEO positions are directly comparable to NEO positions of companies in our Compensation Peer Group, we believe that reviewing aggregate Total Direct Compensation of all NEOs provides an appropriate reference for comparative purposes. The Compensation Peer Group is comprised of companies in the oil and gas industry with similar market capitalization and revenue. The Committee annually reviews companies in this peer group. The 50 th and 75 th percentiles are reference points only; we do not automatically compensate each executive at these levels. Several variables, including individual and division performance, time in position, annual company performance and one- and three-year relative stock price performance influence the actual executive compensation decisions. +In May 2013, the Committee approved Cimarex’s Compensation Peer Group to be used for 2013 compensation decisions. The companies included in the Peer Group at the time of selection are companies in our industry of similar size and scope of operations and similar market capitalization and revenue. At the time of selection, the 2012 year-end market capitalization of these companies ranged from $3.7 billion to $26.98 billion, and the annual revenue ranged from $810 million to $4.2 billion. For the comparable periods, Cimarex’s market capitalization was $9 billion and revenue was $1.6 billion. +2013 Compensation Peer Group +Peer Company +Peer Company +Cabot Oil & Gas Corporation +QEP Resources, Inc. +Concho Resources, Inc. +Range Resources Corp. +Denbury Resources Inc. +SM Energy Company +Energen Corp. +Southwestern Energy Co. +Newfield Exploration Co. +Ultra Petroleum Corporation +Noble Energy Inc. +Whiting Petroleum Corporation +Pioneer Natural Resources Co. +WPX Energy, Inc. +Under our long-term equity incentive award program, we grant performance-based awards of restricted stock. The performance measure used to determine the number of shares to be delivered upon vesting is Cimarex’s relative total shareholder return, or TSR, when compared to companies in the S&P 400 and 500 Oil and Gas Exploration Indices (the “Stock Performance Peer Group”). +2013 Stock Performance Peer Group +S&P 400 Oil & Gas Exploration Index +S&P 500 Oil & Gas Exploration Index +Bill Barrett Corporation +Anadarko Petroleum Corp. +EQT Corp. +Comstock Resources Inc. +Apache Corp. +Newfield Exploration Co. +Forest Oil Corp. +Cabot Oil & Gas Corp. +Noble Energy Inc. +Plains Exploration & Production co. +Chesapeake Energy Corp. +Pioneer Natural Resources Co. +Quicksilver Resources Corp. +Denbury Resources Inc. +QEP Resources, Inc. +SM Energy Company +Devon Energy Corp. +Range Resources Corp. +EOG Resources Inc. +Southwestern Energy Co. +Role of Compensation Consultant and Management in Compensation Decisions +Compensation Consultant +The Committee has engaged the firm of Longnecker & Associates (“Longnecker”) as its independent compensation consultant to fulfill the following responsibilities: +· Advise the Committee on management proposals, as requested. +· Undertake special projects at the request of the Committee. +· Participate in Committee meetings. +· Make recommendations concerning the Compensation Peer Group. +37 +Table of Contents +· Review the selected peer group and survey data for competitive comparisons. +· Provide market data and recommendations on NEO compensation. +The Committee has considered the six independence factors adopted by the NYSE and has determined that its consultant, Longnecker, is independent within the meaning of the NYSE listing standards. +In 2013, as part of its ongoing services to the Committee, one or more representatives of Longnecker attended or participated by teleconference at five of the meetings of the Committee. Longnecker provided the following services in 2013: +· Reviewed and provided input on the CD&A in the 2013 Proxy Statement. +· Attended February 25, 2013 Committee meeting and consulted with the Committee on annual cash incentive awards. +· Reviewed and made executive base salary recommendations. +· Made recommendations concerning the Compensation Peer Group. +· Conducted a market analysis of Board compensation. +· Provided an executive compensation analysis and recommended range for long-term equity grants. +· Recommended compensation in connection with an executive hiring. +The total amount of fees paid to Longnecker for 2013 services to the Committee was $83,899. In addition, the Committee reimburses Longnecker for reasonable travel and business expenses. +Management +Our CEO and President is the principal management resource for compensation recommendations to the Committee with respect to the other NEOs. The CEO (i) provides an annual assessment of Cimarex’s overall financial and operational performance, and (ii) subjectively evaluates individual NEO performance and recommends individual base salary adjustments, annual cash incentive awards and long-term equity awards. His subjective evaluations generally include factors such as scope of responsibility, contribution to company performance, technical competence, managerial skills and advancement potential. The Committee considers the CEO’s recommendations in making Committee decisions regarding executive compensation. The Committee exercises its discretion to accept, reject or modify these compensation recommendations. +Our Vice President of Human Resources acts as an informational resource to Longnecker and the Committee and compiles survey and other compensation data for their review. The Committee, in consultation with Longnecker, reviews this information when making executive compensation and program design decisions. +Other Compensation Arrangements +Post-Employment and Employment Arrangements +All employees, including the NEOs, are covered by the Cimarex Change in Control Severance Plan. The Plan provides for a “double trigger” so that payments are made only if (a) there is a change in control (as defined in the Plan) and (b) an employee is terminated for any reason other than “cause” (as defined in the Plan) within two years following a change in control. In that event, the employee is entitled to (i) cash severance payments of two times annual salary and average cash incentive award, (ii) a pro-rata portion of annual cash incentive bonus for the current year, and (iii) continued medical, dental, disability and life insurance benefits for two years. See Potential Payments upon Change in Control or Termination for a more detailed description of these benefits. In addition, the 2011 Equity Incentive Plan, the proposed 2014 Equity Incentive Plan, and the terms of employee equity award agreements provide for acceleration of vesting of outstanding equity awards upon the occurrence of a change in control. +Cimarex assumed the change in control provisions from the now-expired employment agreements between each of Messrs. Albi, Bell, Jorden and Korus and a predecessor company. The assumed portion of each agreement provides that if the executive is terminated without cause following a change in control event (as defined in the agreement), the executive is entitled to a lump-sum payment equal to two times the executive’s base salary at the time of the change in control. Benefits payable under these agreements are forfeited if the executive receives benefits under any other change in control plan, including the Cimarex Energy Co. Change in Control Severance Plan. As a practical matter, the change in control benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change in control event than those payable under the assumed agreements. +38 +Table of Contents +In 2010, prior to becoming an NEO, John Lambuth, Vice President-Exploration, entered into a retention agreement with Cimarex. The agreement requires Cimarex to make a payment of $600,000, less required withholdings, to Mr. Lambuth if he remains employed through June 1, 2014 or upon an earlier change in control (as defined in the Change in Control Severance Plan) or termination of Mr. Lambuth by Cimarex other than for cause. +Retirement Benefits +Employees, including the NEOs, are eligible to participate in the Cimarex 401(k) defined contribution retirement plan. Cimarex matches dollar-for-dollar employee contributions to the plan up to 7% of the employee’s cash compensation, subject to limits imposed by the Internal Revenue Code. The Board is authorized to make profit-sharing contributions under the Plan and, in February 2014, the Board authorized a profit-sharing contribution of 4% of the gross cash compensation of eligible participants under the Plan. +In addition, eligible participants, including the NEOs, may participate in the Supplemental Savings Plan, which is a non-qualified deferred compensation plan that permits participants to make contributions (and to receive matching contributions) in excess of the Internal Revenue Code limitations for 401(k) plans. See Compensation Tables, 2013 Nonqualified Deferred Compensation for information about contributions to the Supplemental Savings Plan. The Committee administers this plan and designates who may participate. Benefits are paid upon the later to occur of termination of employment or the time elected by the participant. In the event of a change in control, each participant receives a lump sum cash payment of the amount allocated to his or her account. +Perquisites +We provide a limited number of perquisites (personal benefits) to our NEOs, including financial and estate planning and a medical reimbursement program. Our corporate aircraft is generally not available for personal use by any employee. With the authorization of our CEO, however, the corporate aircraft may be used by an employee or a member of his/her family for medical purposes. The incremental cost for non-business use of our corporate aircraft, if any, is disclosed in the Summary Compensation Table . We use the Standard Industry Fare Level tables published by the Internal Revenue Service to determine the amount of compensation income that is imputed to the employee for tax purposes for personal use of corporate aircraft. There was no non-business use of our corporate aircraft during 2013. +Other Compensation Policies +Total Pay Considerations +The Committee considers total direct compensation at the time it makes a decision on any element of executive compensation. The Committee also reviews the relationship of the CEO’s total compensation to the total compensation of each of the other NEOs. +Stock Ownership and Holding Requirements +Our Corporate Governance Guidelines require that each independent director own Cimarex stock in an amount equal to three times his annual cash retainer. In addition, the CEO is expected to own Cimarex shares in an amount equal to five times his annual base salary, and each executive officer who reports to the CEO is expected to own stock in an amount equal to three times his annual base salary. A newly elected director or a newly appointed executive officer has three years from the date of his or her initial election or appointment to comply with the Guidelines. Restricted stock, restricted stock units, deferred compensation units and performance awards are counted in calculating ownership. Shares subject to options are not counted. Each of the independent directors, the CEO and the other NEOs comply with these guidelines. +Clawback Policy +We have adopted a clawback policy providing that, in the event of an accounting restatement due to material noncompliance with financial reporting requirements under the U.S. federal securities laws, the Committee has the right to use reasonable efforts to recover from any of our current or former executive officers who received incentive-based compensation related to the restatement and received during the three-year period preceding any such accounting restatement. This policy applies to incentive-based compensation granted on or after June 1, 2012. This clawback policy will be interpreted in the best judgment of the Committee in a manner consistent with any applicable rules or regulations adopted by the SEC or the NYSE as contemplated by the Dodd-Frank Act. +39 +Table of Contents +Non-Hedging and Non-Pledging Policies +Our insider trading policy prohibits directors, officers and designated employees from engaging in hedging or monetization transactions and other employees are strongly discouraged from engaging in such transactions. Any other employee wishing to enter into such an arrangement must first submit the proposed transaction for approval by the compliance officer designated in the policy. The policy also prohibits directors, officers and employees from holding Cimarex stock in a margin account or pledging Cimarex stock as collateral for a loan. +Tax Law Considerations +The Committee considers the impact of applicable tax laws with respect to executive compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), limits the amount of compensation that Cimarex may deduct on its federal income tax return for compensation paid to certain executive officers to no more than $1 million per year. There are exceptions to the $1 million limitation for performance-based compensation meeting certain requirements. The performance-based portion of our restricted stock awards are the only element of executive compensation designed to qualify for the performance-based exception to the $1 million deduction limit, provided additional requirements are met. The Committee attempts to preserve the deductibility of compensation paid to executive officers but does not limit executive compensation to amounts deductible under Section 162(m). +COMPENSATION AND GOVERNANCE COMMITTEE REPORT +The Compensation and Governance Committee has reviewed and discussed with management the preceding Compensation Discussion and Analysis section of Cimarex’s 2014 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Cimarex’s 2014 Proxy Statement. +THE COMPENSATION AND GOVERNANCE COMMITTEE +L. Paul Teague, Chairman +Jerry Box +Hans Helmerich +David A. Hentschel +40 +Table of Contents +COMPENSATION TABLES +S UMMARY C OMPENSATION T ABLE +The following table describes 2011-2013 compensation of our CEO, CFO and the three other most highly compensated executive officers. +Non-Equity +Name and +Stock +Option +Incentive Plan +All Other +Principal Position +Year +Salary +Bonus +Awards (1) +Awards +Comp. (2) +Comp. (3) +Total +Thomas E. Jorden +2013 +$ +751,616 +$ +— +$ +4,785,000 +$ +— +$ +1,620,000 +$ +58,975 +$ +7,215,591 +Chief Executive +2012 +$ +672,000 +$ +— +$ +2,549,445 +$ +— +$ +800,000 +$ +44,740 +$ +4,066,185 +Officer and +2011 +$ +538,621 +$ +— +$ +3,494,478 +$ +479,260 +$ +750,000 +$ +43,590 +$ +5,305,949 +President +(CEO) +Paul Korus +2013 +$ +463,539 +$ +— +$ +2,791,250 +$ +— +$ +750,000 +$ +48,440 +$ +4,053,229 +Senior Vice +2012 +$ +452,000 +$ +— +$ +1,593,425 +$ +— +$ +474,600 +$ +48,232 +$ +2,568,257 +President, Chief +2011 +$ +444,881 +$ +— +$ +3,494,478 +$ +287,556 +$ +350,000 +$ +56,714 +$ +4,633,629 +Financial Officer +(CFO) +Joseph R. Albi +2013 +$ +523,077 +$ +— +$ +3,190,000 +$ +— +$ +930,000 +$ +48,440 +$ +4,691,517 +Chief Operating +2012 +$ +500,000 +$ +— +$ +1,912,127 +$ +— +$ +550,000 +$ +83,692 +$ +3,045,819 +Officer +2011 +$ +465,772 +$ +— +$ +3,494,478 +$ +479,260 +$ +400,000 +$ +70,276 +$ +4,909,786 +Stephen P. Bell +2013 +$ +428,654 +$ +— +$ +2,791,250 +$ +— +$ +750,000 +$ +56,436 +$ +4,026,340 +Executive Vice +2012 +$ +395,231 +$ +— +$ +1,593,425 +$ +— +$ +462,000 +$ +59,786 +$ +2,510,442 +President-Business +2011 +$ +378,621 +$ +— +$ +3,494,478 +$ +479,260 +$ +350,000 +$ +57,015 +$ +4,759,374 +Development +John A. Lambuth +2013 +$ +368,654 +$ +$ +2,791,250 +$ +— +$ +645,000 +$ +48,440 +$ +3,853,344 +Vice President- +2012 +$ +324,615 +$ +$ +1,367,000 +$ +— +$ +325,000 +$ +42,637 +$ +2,059,252 +Exploration +41 +Table of Contents +(1) +Represents the grant date fair value of the awards, which is an estimate of aggregate compensation cost to be recognized over the service period based on the probable outcome of the performance conditions and is an estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718. The awards are valued as market-based awards using the Monte Carlo simulation method assuming a target number of shares that would be issued because this is deemed to be the “probable” payout percentage at the time of grant consistent with the estimate of aggregate compensation cost to be recognized over the service period. Actual payouts with respect to the awards can range from 50 percent to 100 percent of the award based on the relative ranking of the Company’s TSR in comparison to the peer group over the three-year performance period. If the Company’s performance results in 100% of the award being paid, the grant date fair value of the maximum number of shares for each of the NEOs pursuant to the awards granted in 2013 based on the closing price of the company’s common stock on the December 12, 2013 date of grant would have been as follows: Mr. Jorden $5,792,400; Mr. Albi $3,861,600; and each of Messrs. Korus, Bell and Lambuth $3,378,900. +(2) +Amount reported for the year earned. +(3) +The following describes the components of other items of compensation, including any perquisite in excess of $10,000: +Executive Officer +Unused +Vacation +Company +Contributions +to Retirement +Plans +Life +Insurance +Premiums +Total +Other +Compensation +Thomas E. Jorden, CEO +2013 +$ +— +$ +45,200 +$ +3,240 +$ +58,975 +(a) +2012 +$ +— +$ +41,500 +$ +3,240 +$ +44,740 +2011 +$ +— +$ +40,350 +$ +3,240 +$ +43,590 +Paul Korus, CFO +2013 +$ +— +$ +45,200 +$ +3,240 +$ +48,440 +2012 +$ +3,803 +$ +41,500 +$ +2,929 +$ +48,232 +2011 +$ +— +$ +40,350 +$ +2,882 +$ +56,714 +Joseph R. Albi +2013 +$ +— +$ +45,200 +$ +3,240 +$ +48,440 +2012 +$ +3,036 +$ +41,500 +$ +3,240 +$ +83,692 +2011 +$ +— +$ +40,350 +$ +3,094 +$ +70,276 +Stephen P. Bell +2013 +$ +7,996 +$ +45,200 +$ +3,240 +$ +56,436 +2012 +$ +14,808 +$ +41,500 +$ +3,478 +$ +59,786 +2011 +$ +14,212 +$ +40,350 +$ +2,453 +$ +57,015 +John A. Lambuth (b) +2013 +$ +— +$ +45,200 +$ +3,240 +$ +48,440 +2012 +$ +— +$ +39,743 +$ +2,894 +$ +42,637 +(a) +Mr. Jorden’s total other compensation includes $9,926 for medical reimbursements and $609 for reserved parking. +(b) +This is the second year that Mr. Lambuth is included as an NEO in the Summary Compensation Table. Therefore, information is reported only for the 2013 and 2012 fiscal years. +42 +Table of Contents +2013 GRANTS OF PLAN-BASED AWARDS +2013 Non-Equity Incentive Plan +The following table describes the target and maximum amounts of annual cash incentive awards for the NEOs and the actual award paid in March 2014 for 2013 services. The non-equity incentive plan provides for no minimum (threshold) award. The amounts listed in the Target column represent 100% of the year-end monthly base salary annualized. The amounts listed in the Maximum column represent 200% of the year-end monthly base salary annualized. See the description of our annual cash incentive award plan in Section 1, Compensation Discussion and Analysis. +Estimated Future Payouts Under +Non-Equity Incentive Plan +Actual +Award +Paid in +Name +Threshold +Target +Maximum +March 2014 +Thomas E. Jorden, CEO +$ +0 +$ +810,000 +$ +1,620,000 +$ +1,620,000 +Paul Korus, CFO +$ +0 +$ +472,000 +$ +944,000 +$ +750,000 +Joseph R. Albi +$ +0 +$ +500,000 +$ +1,000,000 +$ +930,000 +Stephen P. Bell +$ +0 +$ +435,000 +$ +870,000 +$ +750,000 +John A. Lambuth +$ +0 +$ +375,000 +$ +750,000 +$ +645,000 +2013 Equity Incentive Plan Awards +The following table provides information regarding the awards of restricted stock and options made to the CEO, CFO and other NEOs in 2013. No option awards were made in 2013. See Section 1, Compensation Discussion and Analysis, Long Term Equity Incentive Award Program, for more information about these awards. +Award +Comp. +Comm. +Estimated Future Payouts Under Equity +Incentive Plan Awards +Grant Date +Fair Value of +Stock & +Type of +Grant +Approval +Option +Name +Award (1) +Date +Date +Threshold (2) +Target (3) +Maximum +Awards (4) +Thomas E. Jorden, CEO +RSA +12/12/13 +12/12/13 +30,000 +60,000 +$ +4,785,000 +Paul Korus CFO +RSA +12/12/13 +12/12/13 +17,500 +35,000 +$ +2,791,250 +Joseph Albi +RSA +12/12/13 +12/12/13 +20,000 +40,000 +$ +3,190,000 +Stephen Bell +RSA +12/12/13 +12/12/13 +17,500 +35,000 +$ +2,791,250 +John Lambuth +RSA +12/12/13 +12/12/13 +17,500 +35,000 +$ +2,791,250 +(1) RSA = Restricted stock (service-based and performance-based shares) +43 +Table of Contents +(2) One-half of the total potential award will vest on completion of continuous service on the third anniversary of the grant date of the award. +(3) Terms of the awards do not specify a targeted number of shares. The number of shares that are earned depends on Cimarex’s stock price performance relative to peers and is not computed until the third anniversary of the grant date of the award. See Long-Term Equity Incentive Award Program for the method of computing the number of shares that vest. Cash dividends will be paid on the threshold number of shares during the vesting period and accrued during the vesting period on the remaining number of shares that are subject to measurement of relative TSR upon satisfaction of the continuous service requirement. +(4) Represents an estimate of the fair value of the shares as of the grant date utilizing a Monte Carlo valuation technique as permitted by the guidance provided by FASB ASC Topic 718. The estimated fair value is the aggregate compensation cost to be recognized over the service period based on the results of the Monte Carlo analysis. The awards are valued as market-based awards assuming a target number of shares would be issued because this is deemed to be the “probable” payout percentage at the time of grant consistent with the estimate of aggregate compensation cost to be recognized over the service period. +Outstanding Equity Awards at December 31, 2013 +O PTION A WARDS +S TOCK A WARDS +Number of Securities +Underlying +Equity Incentive Plan Awards That Have +Not Vested +Unexercised Options +Option +Name +Exercisable +Unexercisable (1) +Option +Exercise Price +Expiration +Date +No. of Shares +Market Value of +Unearned Shares (2) +Thomas E. Jorden, CEO +0 +25,000 +$ +55.96 +9/30/2018 +167,555 (3) +$ +17,578,195 +Paul Korus, CFO +0 +15,000 +$ +55.96 +9/30/2018 +120,171 (4) +$ +12,607,140 +Joseph R. Albi +0 +25,000 +$ +55.96 +9/30/2018 +132,633 (5) +$ +13,914,528 +Stephen P. Bell +0 +25,000 +$ +55.96 +9/30/2018 +120,171 (4) +$ +12,607,140 +John A. Lambuth +0 +0 +— +— +73,500 (6) +$ +7,710,885 +(1) Each of the option awards will vest in full on September 30, 2014. +(2) The amount in this column reflects the closing market price of the stock as of December 31, 2013 ($104.91) multiplied by the number of shares reported in the previous column. +(3) 34,940 shares of a 47,863 share award vested on January 3, 2014, between a minimum of 29,796 and a maximum of 59,592 shares could vest on May 18, 2015 and between a minimum of 30,000 and a maximum of 60,000 shares could vest on December 12, 2016. +(4) 34,940 shares of a 47,863 share award vested on January 3, 2014, between a minimum of 18,654 and a maximum of 37,308 shares could vest on May 18, 2015 and between a minimum of 17,500 and a maximum of 35,000 shares could vest on December 12, 2016. +(5) 34,940 shares of a 47,863 share award vested on January 3, 2014, between a minimum of 22,235 and a maximum of 44,470 shares could vest on May 18, 2015 and between a minimum of 20,000 and a maximum of 40,000 shares could vest on December 12, 2016. +44 +Table of Contents +(6) 2,500 shares will vest on June 23, 2014, 4,000 shares will vest on July 1, 2015, 4,000 shares will vest on July 13, 2016, 4,000 shares will vest on July 13, 2017, a minimum of 12,000 and a maximum of 24,000 shares could vest on September 13, 2015, and a minimum of 17,500 and a maximum of 35,000 shares could vest on December 12, 2016. +2013 O PTION E XERCISES AND R ESTRICTED S TOCK V ESTED +2013 OPTION EXERCISES +2013 STOCK VESTING +Name +Number of Shares +Acquired on Exercise +(#) +Value Realized on +Exercise +($) +Number of Shares +Acquired on Vesting +(#) +Value Realized on +Vesting +($) +Thomas E. Jorden +— +$ +— +33,500 +$ +2,011,005 +Paul Korus +— +$ +— +33,500 +$ +2,011,005 +Joseph R. Albi +— +$ +— +33,500 +$ +2,011,005 +Stephen P. Bell +— +$ +— +33,500 +$ +2,011,005 +John A. Lambuth +— +$ +— +5,000 +$ +375,550 +2013 N ONQUALIFIED D EFERRED C OMPENSATION +The following table provides information on the Supplemental Savings Plan (the “Plan”) contributions and earnings for our NEOs in each of the last three fiscal years. Under the terms of the Plan, a participant may make an elective contribution to the Plan of an amount that exceeds the maximum amount permitted to be contributed to his account in the Cimarex 401(k) Plan (an “excess contribution”) provided that the excess contribution does not exceed the dollar limitation on elective deferrals under the Internal Revenue Code section 402(g) in effect on January 1 of the calendar year of deferral (2013 limitation was $17,500). Cimarex will match 100% of the excess contributions up to 7% of a participant’s eligible compensation. A participant may also elect to have up to 50% of his compensation and up to 100% of his bonus withheld from his compensation and allocated to his Plan account. Cimarex does not match these contributions. +Name +Executive +Contributions +in Last FY (1) +($) +Registrant +Contributions in +Last FY (2) +($) +Aggregate +Earnings in Last +FY +($) +Aggregate +Withdrawals/ +Distributions +($) +Aggregate +Balance at Last +FYE +($) +Thomas E. Jorden, CEO +2013 +$ +17,500 +$ +17,500 +$ +173 +$ +— +$ +580,126 +(3) +2012 +$ +17,000 +$ +17,000 +$ +207 +$ +— +$ +545,364 +2011 +$ +16,500 +$ +16,500 +$ +223 +$ +— +$ +511,404 +Paul Korus, CFO +2013 +$ +138,854 +$ +17,500 +$ +142,102 +$ +— +$ +608,523 +(3) +2012 +$ +17,000 +$ +17,000 +$ +51,798 +$ +— +$ +385,478 +2011 +$ +16,500 +$ +16,500 +$ +(6,167 +) +$ +— +$ +299,927 +Joseph R. Albi +2013 +$ +17,500 +$ +17,500 +$ +43,828 +$ +— +$ +426,712 +(3) +2012 +$ +17,000 +$ +17,000 +$ +35,895 +$ +— +$ +318,296 +2011 +$ +16,500 +$ +16,500 +$ +(856 +) +$ +— +$ +248,629 +45 +Table of Contents +Stephen P. Bell +2013 +$ +17,500 +$ +17,500 +$ +38,093 +$ +— +$ +576,524 +(3) +2012 +$ +17,000 +$ +17,000 +$ +65,201 +$ +— +$ +503,842 +2011 +$ +16,500 +$ +16,500 +$ +21,880 +$ +— +$ +404,888 +John A. Lambuth +2013 +$ +17,500 +$ +17,500 +$ +33,445 +$ +$ +351,313 +(3) +2012 +$ +17,000 +$ +17,000 +$ +24,466 +$ +— +$ +283,280 +(1) The amounts included in this column are also included in the Salary column in the Summary Compensation Table. +(2) The amounts reported in this column are included in the All Other Compensation column and footnote 3 thereto in the Summary Compensation Table. +(3) The following table sets forth amounts included in the aggregate balance at December 31, 2013 that were reported as compensation to the named executive officer in the Summary Compensation Table for previous years. +Named Executive Officer +Amount of Previously +Reported Compensation +Thomas E. Jorden +$ +479,286 +Paul Korus +$ +388,646 +Joseph R. Albi +$ +288,816 +Stephen P. Bell +$ +368,170 +John A. Lambuth +$ +240,680 +P OTENTIAL P AYMENTS U PON C HANGE IN C ONTROL OR T ERMINATION +We do not consider post-termination benefits as a material element of executive compensation because NEO post-termination benefits are the same benefits available to all full-time employees. Post-termination benefits are not included in the Committee’s analysis of total compensation. +We are obligated to make certain payments to employees, including our NEOs, or to accelerate the vesting of their equity awards pursuant to the following plans and agreements: +· Change in Control Severance Plan that covers all full-time employees, including the NEOs +· 2002 Stock Incentive Plan and 2011 Equity Incentive Plan that govern all equity awards made to directors and employees, including the NEOs +· Change in control provisions for the benefit of Messrs. Albi, Bell, Jorden and Korus, as assumed by Cimarex +· Supplemental Savings Plan +Our change-in control arrangements keep our senior executives focused on pursuing all corporate transaction activity that is in the best interests of shareholders regardless of whether those transactions may result in their own job loss. Uncertainty created by a corporate transaction can create retention risk for a company. In addition, change-in-control protection is often needed to retain and attract, when appropriate, the best talent because many of the companies with whom we compete for talent provide change-in-control protection. +We currently do not pay severance benefits nor do our equity award agreements provide for acceleration of equity awards upon the retirement of the NEOs. Individual performance assessments, compensation arising from our annual compensation program (except to the extent provided in the contractual arrangements described above) and overall wealth accumulation are not factors that affect post-termination benefits. +46 +Table of Contents +Change in Control +We are obligated under certain agreements to pay benefits upon a “change in control” event. Cimarex’s definition of “change in control” as used in its 2002 Stock Incentive Plan and its 2011 Equity Incentive Plan, its Change in Control Severance Plan and the change in control provisions that survived certain expired employment agreements with each NEO are the same. In summary, a change in control event means any of the following: +· Acquisition of 30% or more of the shares of our outstanding common stock or the combined voting power of voting securities of Cimarex by an individual or group. +· Members of our Board of Directors, or directors nominated by those directors, cease to constitute a majority of the directors during any period of twelve months. +· A reorganization, share exchange or merger unless (i) the shareholders prior to the reorganization or merger continue to own more than 40% of the outstanding common stock and combined voting power of the resulting corporation following the reorganization or merger; and (ii) at least a majority of the members of the Board of the corporation resulting from the merger or reorganization were members of the Board at the time of executing the agreement to reorganize or merge. +· The complete liquidation or dissolution of Cimarex or the sale of all or substantially all of its assets. +The following is a summary of those agreements that provide for payment to the NEOs in the event of a change in control event coupled with termination of employment without cause: +Change in Control – Termination Without Cause +Our Change in Control Plan provides for the payment of severance benefits to all active employees in the event of termination following a change in control. In the event of a change in control, if an employee is terminated for any reason other than “cause” (as defined in the Plan) within two years following a change in control, that employee would be entitled to: +· Cash severance payments of up to two years’ salary and cash incentive award. +· A pro rata portion of the annual cash incentive bonus award otherwise payable for the year of termination. +· Continued medical, dental, disability and life insurance benefits for two years. +We assumed from a predecessor company the change in control provisions from the now-expired employment agreements of each of Messrs. Albi, Bell, Jorden and Korus with such company. Each agreement provides that if the executive is terminated without cause following a change in control event (as defined in the agreement), the executive is entitled to a lump-sum payment equal to two times the executive’s base salary at the time of the change in control. Benefits payable under these agreements are forfeited if the executive receives benefits under any other change in control plan, including the Cimarex Energy Co. Change in Control Severance Plan. As a practical matter, the change in control benefits assumed under the employment agreements only benefit these executives if the Change in Control Severance Plan described above has been terminated. The Change in Control Severance Plan provides for greater benefits payable upon the occurrence of a change in control event than those payable under the assumed agreements. +Change in Control – No Termination +Our 2002 Stock Incentive Plan and our 2011 Equity Incentive Plan provide for acceleration of vesting of equity awards in the event of a change in control. +47 +Table of Contents +Termination of Employment +Death or Disability +The award agreements for grants of equity under the 2002 Stock Incentive Plan and the provisions of the 2011 Equity Incentive Plan provide for acceleration of vesting of awards in the event of death or disability. Benefits under the Supplemental Savings Plan also are paid upon death or disability. +Termination Without Cause +Benefits under the Supplemental Savings Plan are payable to each NEO upon termination of employment. +Estimated Benefits upon Various Termination Scenarios +Payments upon a change in control or termination of employment include various elements of compensation. The elements of compensation that may be included in a change in control or severance payment are: +(A) +(B) +(C) +(D) +(E) +ANNUAL AVERAGE +CASH +COMPENSATION (1) +CASH INCENTIVE (2) +LONG TERM +AWARD PAYOUT (3) +SUPPLEMENTAL +SAVINGS (4) +OTHER BENEFITS (5) +Thomas Jorden +$ +3,793,616 +$ +751,616 +$ +17,446,192 +$ +580,126 +$ +29,712 +Paul Korus +$ +2,015,539 +$ +463,539 +$ +11,985,637 +$ +608,523 +$ +29,323 +Joseph Albi +$ +2,353,077 +$ +523,077 +$ +13,782,525 +$ +426,712 +$ +22,170 +Stephen Bell +$ +1,948,654 +$ +428,654 +$ +12,475,137 +$ +576,524 +$ +11,839 +John Lambuth +$ +1,663,077 +$ +368,654 +$ +7,710,885 +$ +351,313 +$ +27,963 +(1) Amount represents two times the annual average compensation (salary and cash incentive bonus) paid to the executive for 2012 and 2013, as provided in the Change in Control Severance Plan. +(2) Amount represents the average incentive bonus as provided in the Change in Control Severance Plan. +(3) Amount represents the value of accelerated vesting of restricted stock and options based upon the closing price of Cimarex’s common stock as of December 31, 2013 of $104.91 per share. +(4) Amount represents estimated payments under the Supplemental Savings Plan. +(5) Amount represents the estimated value of continued medical, dental, disability and life insurance benefits for two years as provided in the Change in Control Severance Plan. +The following table provides the estimated compensation and present value of benefits potentially payable to each NEO in the event of a change in control or termination under various circumstances. The amounts shown assume that the termination or change in control occurred on December 31, 2013. The actual amounts to be paid can only be determined at the time of the executive’s actual separation from Cimarex or the occurrence of a change in control. Actual payments may be more or less than the amounts described below. In addition, the company may enter into new arrangements or modify these arrangements, from time to time. +48 +Table of Contents +The following describes potential payments to the NEOs in the event of a change in control or termination under various scenarios. [Note that the alphabetical references in the headings refer to the element of compensation described above]: +NAME +TERMINATION +WITHOUT CAUSE +(D+(E)) (1) +TERMINATION AS A +RESULT OF +DEATH OR +DISABILITY +(C+D+E) (1) +CHANGE IN +CONTROL +(No Termination) +(C) (1) +TERMINATION +ON CHANGE +IN CONTROL +(A+B+C+D+E) (1) +Thomas Jorden +$ +609,838 +$ +18,056,030 +$ +17,446,192 +$ +22,601,262 +Paul Korus +$ +637,846 +$ +12,623,483 +$ +11,985,637 +$ +15,102,561 +Joseph Albi +$ +448,882 +$ +14,231,407 +$ +13,293,025 +$ +17,107,561 +Stephen Bell +$ +588,363 +$ +13,063,499 +$ +12,475,137 +$ +15,440,807 +John Lambuth +$ +379,276 +$ +8,090,161 +$ +7,710,885 +$ +10,121,892 +(1) The alphabetical code refers to the elements of compensation that may be included in a change in control or severance payment as described at the beginning of this section, Estimated Benefits upon Various Termination Scenarios. +ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (ITEM 2) +At the 2013 Annual Meeting, 91% of the votes cast were in favor of the advisory vote to approve executive compensation. The Compensation and Governance Committee (the “Committee”) considered this favorable outcome and believed it conveyed our shareholders’ support of the Committee’s compensation decisions in 2012 and early 2013 and shareholders’ overall satisfaction with Cimarex’s executive compensation programs. Consistent with this support, the Committee decided to retain the core design of our executive compensation programs for the remainder of 2013, as it believes the programs continue to attract, retain and appropriately incent executives. +As part of shareholder engagement, we interact with shareholders on a number of matters throughout the year, including executive compensation and governance. The Committee carefully considers any feedback and routinely reviews executive compensation practices and corporate governance. +At the 2014 Annual Meeting of Shareholders, we will again hold an annual advisory vote to approve executive compensation. The Committee will continue to consider the results from this year’s and future advisory votes on executive compensation, as well as feedback from shareholders through the course of such year. A shareholder advisory vote will be held at the 2017 annual meeting to vote again on the frequency of the advisory vote to approve executive compensation, i.e. if the advisory vote should be held every one, two or three years. +Because your vote is advisory, it will not be binding upon the Board. However, the Board values shareholders’ opinions, and the Committee will take into account the outcome of the vote when considering future executive compensation decisions. The Board recommends that shareholders vote FOR the following resolution: +RESOLVED, that the shareholders approve, on an advisory basis, the compensation of Cimarex’s Named Executive Officers, as disclosed in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related narrative. +The Board of Directors unanimously recommends a vote FOR the advisory vote to approve executive compensation. +APPROVE 2014 EQUITY INCENTIVE PLAN (ITEM 3) +We are asking our shareholders to approve the Cimarex Energy Co. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by our Board of Directors on February 25, 2014, subject to approval of our shareholders. If approved by our shareholders, the 2014 Plan will become effective as of the annual meeting date, May 15, 2014. The 2014 Plan will replace our 2011 Equity Incentive Plan (the “2011 Plan”). +49 +Table of Contents +Our Board believes that the 2014 Plan will play an important role in our human resource and business strategy by allowing us to continue to attract and retain experienced and highly qualified individuals to contribute to our long-term success. We believe that stock-based compensation fosters and strengthens a sense of proprietorship and personal involvement in our success, thereby advancing the interests of Cimarex and our shareholders. +The 2014 Plan authorizes for issuance a maximum number of shares, subject to adjustment, determined as the sum of 4,700,000 shares of our common stock, plus the number of shares remaining available under the 2011 Plan on May 15, 2014 (as of March 3, 2014, 1,810,398 shares), plus the number of shares related to awards outstanding under the 2011 Plan as of such date that thereafter terminate unexercised by expiration or are forfeited. The 2014 Plan is a flexible share authorization plan. Shares subject to an award other than an option or stock appreciation right will count as 2.38 shares for every share subject to the award. Shares subject to an option or SAR will count as one share for every share subject to the award. +The Board of Directors recommends a vote FOR approval of the Cimarex Energy Co. 2014 Equity Incentive Plan. +Background and Purpose +The 2014 Plan will replace the 2011 Plan, subject to shareholder approval. The primary purposes of the 2014 Plan are to provide flexibility in the types of available awards and design of awards, modify certain individual award limits and revise the performance measures for qualified performance-based awards. +Equity Plan Costs +Management and our Board are cognizant of the expense attributable to compensatory stock awards, as well as dilution, and strive to maintain both at appropriate levels. We believe that we have demonstrated sound equity compensation practices. Our average three-year burn rate for 2011-2013 was 1.67%, which is under the industry threshold established by Institutional Shareholder Services of 4.3%. While there are several methodologies to arrive at burn rates, we have used the current Institutional Shareholder Services methodology for determining our burn rate for the last three years. The total number of shares authorized for issuance under the 2014 Plan represents approximately 7.4% of our shares of common stock outstanding as of March 3, 2014. +Status of the 2011 Plan +As of March 3, 2014, the equity awards available and outstanding under the 2011 Plan, and their respective features, were as follows: +Options Outstanding +482,612 +Restricted Stock (full-value) Outstanding +1,594,802 +Weighted average exercise price of outstanding options +$59.88 +Weighted average remaining term of outstanding options +5.2 years +Shares available for grant +1,810,398 +If the 2014 Plan is not approved by our shareholders, the 2011 Plan will remain in effect in its present form. If the 2014 Plan is approved by shareholders, future equity awards will be made from the 2014 Plan and we will not grant any additional awards under the 2011 Plan. Equity awards previously granted under the 2011 Plan will remain outstanding in accordance with their terms. +2014 Equity Incentive Plan +General +We have included several features in the design of the 2014 Plan that reflect our commitment to effective corporate governance, including: +50 +Table of Contents +· administration by our Compensation and Governance Committee, a committee of independent directors; +· a flexible share authorization plan that provides that the shares available for issuance will be reduced by 1.00 share for each share subject to an award in the form of an option or stock appreciation right or 2.38 shares for each share subject to awards other than an option or stock appreciation right; +· reasonable share counting provisions, which generally provide that when awards expire or are forfeited, the shares reserved for those awards are returned to the share reserve and become available for future awards. However, shares of common stock that are tendered to us in payment of the exercise price of an option, are withheld to cover tax withholding obligations, are repurchased by us with option proceeds, or are not delivered upon exercise of a stock appreciation right are not returned to the share reserve; +· all options and stock appreciation rights must have an exercise price equal to or greater than the fair market value of our common stock on the date of grant and a maximum term of no more than seven years; +· a prohibition on repricing of options and stock appreciation rights or similar actions without shareholder approval; +· award limits on the number of shares and payment amounts for certain individuals during a calendar year; and +· prohibition of dividend or dividend equivalent payments on options or stock appreciation rights and restrictions on dividend or dividend equivalent payments for awards of performance-based stock or units before the award is earned. +Performance-Based Awards +A significant portion of total annual compensation of our executive officers is paid in the form of long-term equity awards to more closely align the interests of management with the long-term interests of our shareholders. The 2014 Plan includes features designed to preserve the deductibility of payments that constitute qualifying performance-based compensation for purposes of section 162(m) of the Internal Revenue Code, as well as to provide for compensation that may not meet such requirements. +Summary of the 2014 Plan +The following summary describes briefly the material terms of the 2014 Equity Incentive Plan (referred to in this discussion as the “Plan”) and is qualified in its entirety by reference to the full text of the Plan. Please read the full text of the Plan included as Appendix A to this proxy statement. Capitalized terms not defined in the summary are defined in the attached Plan document. +Awards. Awards available under the Plan include options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other stock-based awards. +Administration. The Plan is administered by our Compensation and Governance Committee (the “Committee”), which is comprised of non-employee directors of Cimarex. Subject to the provisions of the Plan, the Committee has the authority to select the participants who will receive the grants and awards, determine the type and terms of the grants and awards and interpret and administer the Plan and awards. The Committee may amend, modify or supplement the terms of outstanding awards and exercise certain discretion. To the extent permitted by law, the Committee may delegate authority to grant awards to certain eligible employees to a subcommittee of the Board or to one or more officers. +Eligibility and Participation. All employees, officers, and directors of Cimarex or an affiliate are eligible to participate in the 2014 Plan when selected by the Committee for an award. Certain consultants and advisers who provide services to us or an affiliate are also eligible to participate when selected by the Committee for an award. As of March 3, 2014, we have approximately 908 full-time employees, and 175 employees and eight non-employee directors are participants in the 2011 Plan. +Stock Subject to the Plan, Adjustments and Share Counting. Subject to shareholder approval, the maximum number of shares of our common stock available for issuance under the 2014 Plan will be the sum of (a) 4,700,000 shares, plus (b) the number of shares remaining available under the 2011 Plan determined as of May 15, 2014 (as of March 3, 2014 1,810,398 shares), plus (c) the number of shares related to awards under the 2011 Plan and the 2014 Plan that thereafter terminate unexercised by expiration or are forfeited. The shares may be used for any type of award under the 2014 Plan. The number of shares is subject to adjustment on account of a recapitalization, reclassification, split, combination, exchange, stock dividend or similar corporate event. Outstanding awards under the 2014 Plan are also subject to similar adjustments for these types of events. No more than 1,000,000 of the shares will be available for incentive stock options. +51 +Table of Contents +Shares subject to an award other than an option or SAR will count as 2.38 shares for every share subject to the award. Shares subject to an option or SAR will count as one share for every share subject to the award. Shares that relate to awards under the 2014 Plan or the 2011 Plan that terminate unexercised by expiration or are forfeited will be available again for issuance in the same amount as such shares were counted against the share limit. Available plan shares will not be increased for shares tendered or withheld in connection with exercise of an option, withheld to satisfy tax withholding obligations, repurchased by us with option proceeds, or not delivered upon net settlement or net exercise of a SAR. +Shares and Market Value. Shares issuable under the 2014 Plan include shares of our common stock, par value $0.01 per share. On March 3, 2014, the reported closing price per share of our common stock on the NYSE was $115.19. +Individual Award Limits. The 2014 Plan includes individual award limits on the maximum number of shares that may be subject to awards granted to certain individuals during any calendar year as follows: +Number of Shares +Options or Stock Appreciation Rights +1,000,000 +Restricted Stock or Performance Shares +300,000 +Non-Employee Director awards +20,000 +Stock Options and Stock Appreciation Rights. Each option entitles the holder to purchase a specified number of shares at a specified exercise price. Each option agreement will specify whether the option is an “incentive stock option,” or “ISO” (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or the Code), or a nonqualified stock option. Each stock appreciation right entitles the holder to receive, upon exercise, the excess of the fair market value of a share at the time of exercise over the grant price of the stock appreciation right multiplied by the specified number of shares to which the stock appreciation right is being exercised. Except for substitute awards, the exercise or grant price of each option and stock appreciation right will be at least 100 percent of the fair market value of a share on the date the award is granted. The term of any option or stock appreciation right may not exceed seven years and the option or stock appreciation right will vest over a period determined by the Committee. The award agreement may provide that the period of time over which an option other than an incentive stock option and stock appreciation right may be exercised will be automatically extended if on the scheduled expiration date, the exercise of the option or stock appreciation right would violate applicable securities laws or our insider trading policy. Each option or stock appreciation right agreement will specify the consequences to the award with respect to a termination of service with us and our affiliates. +Restricted Stock and Restricted Stock Units. The Committee may grant an award of shares of restricted stock, which is an award of actual shares subject to a risk of forfeiture and restrictions on transfer. The Committee may also grant an award of restricted stock units, which is a bookkeeping entry representing the equivalent of shares of stock. The terms and conditions of any award of restricted stock or restricted stock units will be determined by the Committee. Restrictions may be based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, holding requirements or any other restrictions determined by the Committee. Except as set forth in the award agreement, upon termination of a participant’s services, any unvested shares of restricted stock or restricted stock units will be forfeited. +Performance Awards. The Committee may also grant a performance award in the form of performance shares, performance units, or a cash-based award which vest or payout based on the attainment of performance goals and any other terms and conditions determined by the Committee. The terms and conditions of any award of performance shares, performance units, or a cash-based performance award will be determined by the Committee. Each award agreement will set forth the extent to which the participant will retain performance shares, performance units or cash-based awards upon termination of service. +The Committee may grant one or more awards designed to qualify as “performance-based” compensation under Section 162(m) of the Code based on the grant, vesting, or payout of such awards being contingent on the achievement of certain pre-established performance goals. The Committee will establish objective performance goals within 90 days of the beginning of the performance period and the formula or other methodology used to determine the number or value of shares, units, or payout of any earned award. The target awards, performance goals and formula or methodology for determining awards need not be the same for all participants. +52 +Table of Contents +A performance goal under the 2014 Plan may be based on one or more of the following measures: +· rate of return on exploration capital; +· stock performance measures (including relative price performance); +· revenue; +· earnings before interest, taxes, depreciation and amortization, or EBITDA; +· funds from operations; +· funds from operations per share; +· operating income; +· pre- or after-tax income; +· production levels; +· proved, probable and/or possible reserve levels and/or additions; +· discounted present value of proved, probable and/or possible reserves; +· cash available for distribution; +· cash available for distribution per share; +· net earnings; +· earnings per share; +· return on investment; +· return on equity; +· return on assets; +· share price performance; +· improvements in the company’s attainment of expense levels; +· implementation or completion of critical projects; +· return on capital employed; +· debt, credit or other leverage measure or ratios; +· capital expenditures; +· finding and development costs; +· property or mineral leasehold acquisitions or disposition; +· improvement in cash flow, either before or after tax; and +· any combination or derivation of the any of the foregoing. +The performance goals may be expressed in absolute amounts, on a per share basis, as a growth rate or change from preceding periods, or as a comparison to the performance of specified companies or other external measures, and may be related to one or any combination of corporate, group, unit, division, affiliate or individual performance. +The performance measures may be based on pro forma numbers and may include or exclude the effect of payment of awards under the 2014 Plan and any other incentive or bonus plan of the company. Subject to Section 162(m) requirements, the level of attainment of the performance goal may be adjusted to exclude (a) certain extraordinary or non-recurring items as described in the applicable accounting rules, (b) the effects of any changes in accounting principles affecting the reported results of the company or a business unit, or (c) any other adjustment consistent with the requirements of Section 162(m) that is pre-specified for the plan year by the Committee. +After the applicable performance period has been completed, the Committee will certify the level of achievement of the performance goals and determine the number or value of any earned award. +Other Stock-Based Awards. The Committee may grant other types of stock-based awards in which participants may (a) acquire shares of stock or (b) receive an award, whether payable in cash or stock, the value of which is determined in whole or in part, based on the value of our common stock, subject to the terms and conditions of the 2014 Plan. +Dividends and Dividend Equivalents. The Committee will determine and set forth in the award agreement whether the participant will be entitled to receive (currently or on a deferred basis) dividends or dividend equivalents with respect to shares of stock covered by the award; provided, however, in no event may dividends or dividend equivalents be paid on (i) options or stock appreciation rights or (ii) awards that vest or pay based on the attainment of performance goals until and to the extent the award is earned, although amounts can be accumulated. The Committee may provide that any dividends paid on shares subject to an award will be reinvested in additional shares of stock, which may or may not be subject to the same vesting conditions and restrictions applicable to the award. +53 +Table of Contents +Tax Withholding. The 2014 Plan provides that participants may elect to satisfy certain federal, state, and local income tax and employment tax withholding requirements by remitting to us cash or, subject to certain conditions, shares, or by instructing us to withhold shares payable to the participant. +Change in Control. Upon the occurrence of a change in control, generally: (a) the unvested portion of any outstanding options and stock appreciation rights will become immediately and automatically vested; (b) the unvested portion of a restricted stock award will become immediately and automatically vested and payable; the unvested portion of a restricted stock unit award will become immediately and automatically vested and payable, subject to applicable tax rules; and (c) the performance period for outstanding unvested performance shares and performance units will be deemed completed and the extent to which the applicable performance goals have been satisfied will be determined, subject to adjustment for the date of the change in control. +For purposes of the 2014 Plan, a “change in control” occurs upon the occurrence of any one of the following events: +· Any individual, entity or group becomes the beneficial owner of 30 percent or more of either our outstanding shares of common stock or the combined voting power of our voting securities; or +· The directors on our Board at the beginning of any 12-month period, or directors nominated by those directors, cease to constitute a majority of the Board; or +· There is a reorganization, share exchange or merger unless (a) following such business combination the beneficial owners of the then outstanding shares of our common stock and outstanding voting securities prior to such business combination beneficially own, directly or indirectly, more than 40 percent of the then outstanding shares and combined voting power of the securities entitled to vote generally in the election of directors in substantially the same proportions as their ownership immediately prior to such business combination and (b) at least a majority of the board resulting from such business combination were members of the incumbent board; or +· The closing of (a) a complete liquidation or dissolution of the company or (b) the sale or disposition of all or substantially all of the assets of the company. +Recoupment of Awards. Awards granted or amounts payable under the 2014 Plan will be subject to the terms of any company compensation recoupment policy then applicable, if any, to the extent the policy applies to such award or amount and any provisions of applicable law relating to cancellation, rescission, payback, or recoupment of compensation. +Repricing. Except for adjustments to reflect the effects of certain corporate transactions, the 2014 Plan requires shareholder approval of any amendment or modification to outstanding options or stock appreciation rights that reduces the exercise or grant price, either by lowering the exercise or grant price or by cancelling and replacing the award with a lower exercise or grant price; or provides for a cancellation for cash or another award if the exercise or grant price is higher than the then-current fair market value; or provides for any other change that would be treated as a repricing by the stock exchange upon which our shares are traded. +Amendment and Termination. Generally, our Board may amend, modify or terminate the 2014 Plan at any time; provided, however, that no amendment or modification may become effective without approval of shareholders if shareholder approval is required to satisfy any applicable statutory or regulatory requirements or if we determine shareholder approval is otherwise necessary or desirable. +Plan Term. Subject to approval by our shareholders, the 2014 Plan will become effective May 15, 2014 and will terminate on May 15, 2024, ten years from the effective date. +Federal Income Tax Information +The following is intended only as a brief general summary of the current material U.S. federal income tax aspects of awards granted under the 2014 Plan. The tax consequences to a participant will depend upon the type of award granted to the participant. In general, if a participant recognizes ordinary income in connection with the grant, vesting, or exercise of an award, we will be entitled to a corresponding deduction equal to the amount of the income tax recognized by the participant. This summary does not address the effects of other federal taxes (including possible excise taxes) or taxes imposed under state, local, or foreign tax laws. Tax consequences may vary depending on particular circumstances, and administrative and judicial interpretations of the application of the federal income tax laws are subject to change. +Options and Stock Appreciation Rights. In general, a participant does not have taxable income upon the grant of an option or a stock appreciation right. The participant will recognize ordinary income upon exercise of a nonqualified stock option equal to +54 +Table of Contents +the excess of the fair market value of shares acquired on exercise over the aggregate option price for the shares. Upon exercising a stock appreciation right, the participant will recognize ordinary income equal to the cash or fair market value of the shares received over the aggregate base price for the shares. A participant will not recognize ordinary income upon exercise of an incentive stock option, or ISO, except that the alternative minimum tax may apply. If a participant disposes of shares acquired upon exercise of an ISO before the end of the applicable holding periods, the participant will recognize ordinary income. Otherwise, a sale of shares acquired by exercise of an option or a stock appreciation right generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the participant’s tax basis in the shares. We normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with an option or stock appreciation right, but no tax deduction relating to a participant’s capital gains. We will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods before selling or transferring the shares. +Restricted Stock, Restricted Stock Units, Performance Awards, and Other Stock-Based Awards. If an award is subject to a restriction on transferability and a substantial risk of forfeiture (for example, restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred amounts at the earlier of the removal of the restrictions on transferability or when the risk of forfeiture lapses. However, the participant may elect under Section 83(b) of the Code within 30 days of the date of grant to recognize ordinary income on shares of restricted stock as of the date of grant equal to the excess of the fair market value of the shares on the date of grant, over the amount paid, if any. If an award has no restriction on transferability or is not subject to a substantial risk of forfeiture, the participant generally must recognize ordinary income equal to the cash or the fair market value of shares received. If a participant receives an award which includes a performance and/or vesting requirement or other restriction that must be satisfied prior to payment or receipt of shares, the participant will generally not recognize income for federal income tax purposes at the time of grant of such award and we are not entitled to a deduction at that time. At the time the performance and/or vesting requirements or other restrictions are satisfied, the participant will recognize ordinary income in an amount equal to the fair market value of any shares delivered or the amount of any cash paid. If a participant sells or disposes of shares delivered to the participant pursuant to an award, the participant will recognize short-term or long-term capital gain or loss measured by the difference between the sale price and the participant’s tax basis in the shares. +Section 409A. Section 409A of the Code imposes election, payment and funding requirements on “nonqualified deferred compensation” plans. If a nonqualified deferred compensation arrangement subject to Section 409A of the Code fails to meet, or is not operated in accordance with, the requirements of Section 409A, then compensation deferred under the arrangement may become immediately taxable and subject to a 20 percent additional tax. Certain awards that may be issued under the 2014 Plan may constitute a “deferral of compensation” subject to the requirements of Section 409A of the Code. +Section 162(m). Compensation that qualifies as “performance-based” compensation is excluded from the $1 million deduction limitation of Section 162(m). Under the 2014 Plan, options, and stock appreciation rights granted with an exercise price at least equal to 100 percent of the fair market value of the underlying shares on the date of grant and certain other awards paid to covered employees that are conditioned upon achievement of performance goals are intended to qualify as “performance-based” compensation. A number of requirements must be met in order for compensation paid or earned with respect to an award granted under the 2014 Plan to qualify as performance-based compensation for purposes of Section 162(m). +New Plan Benefits +Subject to the approval of our shareholders, the 2014 Plan will become effective May 15, 2014. As of the date of this proxy statement, no awards have been granted under the 2014 Plan. Awards are subject to the discretion of the Compensation and Governance Committee and are therefore not determinable. +55 +Table of Contents +Equity Plan Compensation Table +The following table presents information about outstanding options, warrants and rights and the number of shares remaining available for future issuance under our 2011 Plan as of December 31, 2013. Subject to shareholder approval of the 2014 Equity Incentive Plan, any shares remaining available for future issuance under the 2011 Plan, as set forth column (c) will be available under the 2014 Plan. +Number of shares to +be issued upon +exercise of +outstanding options, +warrants and rights +(a) +Weighted-average +exercise price of +outstanding options, +warrants and rights +(b) +Number of shares +remaining available +for future issuance +under equity +compensation plans +(excluding securities +reflected in +column (a) +(c) +Equity compensation plans approved by shareholders +531,016 +(1) +$ +59.783 +1,809,228 +(2) +Equity compensation plans not approved by shareholders +- +- +- +Total +531,016 +(1) +$ +59.783 +1,809,228 +(2) +(1) +Represents shares issuable upon the exercise of outstanding nonqualified stock options issued under our 2011 Plan. Cimarex does not have any options, warrants or rights outstanding or available for issuance under any non-shareholder approved equity compensation plans. +(2) +Represents shares available for future issuance under our 2011 Plan. Shares subject to options granted under the 2011 Plan count as one share, and full-value awards (restricted stock, restricted stock units, performance stock and performance stock units) count as 2.34 shares against the number of shares available for issuance under the 2011 Plan. +REPORT OF AUDIT COMMITTEE +The Audit Committee on behalf of the Board of Directors oversees (i) the quality of the Company’s financial reporting; (ii) the independent auditors’ qualifications and independence; and (iii) the performance of the Company’s internal auditors and independent auditors. In so doing, it is the responsibility of the Committee to maintain free and open communication between the directors, the independent auditors and the management of the Company. All members of the Audit Committee meet the independence, experience and financial literacy requirement of the New York Stock Exchange, the Sarbanes Oxley Act and any rules or regulations promulgated by the Securities and Exchange Commission. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available on our website at www.cimarex.com . +Management is responsible for the Company’s financial statements and the financial reporting process, including the systems of internal controls and disclosure controls and procedures. The Company’s independent registered public accounting firm is responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes and uses the Company’s internal audit department to assist with these responsibilities. +The Audit Committee reviewed Cimarex’s audited financial statements as of and for the year ended December 31, 2013 and met with both management and KPMG, Cimarex’s independent public accounting firm, to discuss those financial statements and the effectiveness of Cimarex’s internal control over financial reporting. In addition, we have received from KPMG the communication required by Public Company Accounting Oversight Board (PCAOB) Rule 3526, Communication with Audit Committees Covering Independence, and discussed with KPMG their independence from Cimarex and its management. The Audit Committee also discussed with KPMG any matters required by the PCAOB Auditing Standards, No. 16, Communication with Audit Committees. +56 +Table of Contents +Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that Cimarex’s audited financial statements be included in Cimarex’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. +THE AUDIT COMMITTEE +Monroe W. Robertson, Chairman +Harold R. Logan, Jr. +Floyd R. Price +Michael J. Sullivan +The Audit Committee Report does not constitute soliciting material and shall not be deemed to be filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates the Audit Committee Report by reference. +RATIFICATION OF INDEPENDENT AUDITORS (ITEM 4) +The Audit Committee of the Board has appointed KPMG LLP to audit our financial statements for 2014. Since October 1, 2002, KPMG LLP has served as our independent auditors. +We are asking that shareholders ratify the appointment of KPMG LLP as independent auditor. If shareholders fail to ratify the appointment, the Audit Committee may reconsider this appointment. A KPMG LLP representative will be at the Annual Meeting to answer appropriate questions and to make a statement if he or she desires. +The Board of Directors recommends a vote FOR the ratification of KPMG LLP as Cimarex’s independent auditors for 2014. +Audit and Non-Audit Fees +The following table shows the fees for professional services rendered by KPMG LLP for the audit of Cimarex’s annual financial statements for the years ended December 31, 2013 and December 31, 2012, and fees billed for other services rendered by KPMG LLP during those periods: +Years Ended +December 31, +2013 +2012 +Audit Fees (1) +$ +1,076,127 +$ +1,056,909 +Audit-Related Fees (2) +$ +0 +$ +80,000 +Tax Fees (3) +$ +175,056 +$ +216,001 +All Other Fees +$ +0 +$ +0 +(1) +Audit fees were principally for audit work performed on the consolidated financial statements and internal controls over financial reporting. +(2) +Audit-related fees were principally for services associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities offerings, e.g., comfort letters and consents and assistance in responding to SEC comment letters. +(3) +Tax fees were principally for services related to tax compliance and reporting and analysis services. +Policy for Approval of Audit, Audit-Related and Tax Services +The Audit Committee annually reviews and pre-approves certain categories of audit, audit-related and tax services to be performed by our independent auditors, subject to a specified range of fees. The Audit Committee also may pre-approve specific services. Certain non-audit services as specified by the SEC may not be performed by our independent auditors. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. The services described in the above table were pre-approved by the Audit Committee in 2012 and 2013. +57 +Table of Contents +O THER M ATTERS +Section 16(a) Beneficial Ownership Reporting Compliance +Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock, to file reports of ownership of, and transactions in, our common stock with the SEC. Based on a review of such reports, and on written representations from our reporting persons, we believe that all reports were timely filed in 2013. +Complaint and Reporting Procedures +We have established complaint and reporting procedures that are posted on our website at www.cimarex.com. Any person, whether or not an employee, who has a concern about the conduct of Cimarex or any of our people, including accounting, internal accounting controls or auditing issues, may, in a confidential or anonymous manner, communicate that concern by calling our confidential hotline, 1-866-519-1898. Any interested party, whether or not an employee, who wishes to communicate directly with non-management directors may call the confidential hotline. The hotline is available 24 hours a day, seven days a week and is completely confidential. Comments will be typed verbatim and will be delivered to a representative with authority to investigate the concern. +58 +Table of Contents +CIMAREX ENERGY CO. +2014 EQUITY INCENTIVE PLAN +Table of Contents +TABLE OF CONTENTS +Page +1. +ESTABLISHMENT AND PURPOSE +A-1 +1.1 +Establishment +A-1 +1.2 +Purpose +A-1 +2. +DEFINITIONS +A-1 +2.1 +“Affiliate” +A-1 +2.2 +“Award” +A-1 +2.3 +“Award Agreement” +A-1 +2.4 +“Board” or “Board of Directors” +A-1 +2.5 +“Cause” +A-1 +2.6 +“Change in Control” +A-1 +2.7 +“Code” +A-2 +2.8 +“Committee” +A-2 +2.9 +“Covered Employee” +A-2 +2.10 +“Disabled” or “Disability” +A-3 +2.11 +“Dividend Equivalent” +A-3 +2.12 +“Effective Date” +A-3 +2.13 +“Employee” +A-3 +2.14 +“Exchange Act” +A-3 +2.15 +“Exercise Price” +A-3 +2.16 +“Fair Market Value” +A-3 +2.17 +“Family Member” +A-3 +2.18 +“Grant Date” +A-3 +2.19 +“Minimum Statutory Withholding” +A-3 +2.20 +“Non-Employee Director” +A-3 +2.21 +“Option” +A-3 +2.22 +“Other Stock-Based Award” +A-4 +2.23 +“Participant” +A-4 +2.24 +“Performance Award” +A-4 +2.25 +“Performance Goals” +A-4 +2.26 +“Performance Period” +A-4 +2.27 +“Performance Shares” +A-4 +2.28 +“Performance Units” +A-4 +2.29 +“Prior Plan” +A-4 +2.30 +“Restricted Stock” +A-4 +2.31 +“Restricted Stock Unit” or “RSU” +A-4 +2.32 +“Restriction Period” +A-4 +2.33 +“Securities Act” +A-4 +2.34 +“Service” +A-4 +2.35 +“Service Provider” +A-4 +2.36 +“Share” +A-4 +2.37 +“Stock Appreciation Right” or “SAR” +A-4 +2.38 +“Substitute Awards” +A-5 +3. +PLAN ADMINISTRATION +A-5 +3.1 +General +A-5 +3.2 +Delegation by the Committee or the Board +A-5 +3.3 +Recoupment of Awards +A-6 +3.4 +No Repricing +A-6 +A-i +Table of Contents +3.5 +Limitations on Authority +A-6 +3.6 +Deferral Arrangement +A-6 +3.7 +No Liability +A-6 +3.8 +Book Entry +A-6 +4. +STOCK SUBJECT TO THE PLAN +A-6 +4.1 +Number of Shares +A-6 +4.2 +Individual Award Limits +A-7 +4.3 +Share Counting +A-7 +5. +ELIGIBILITY AND PARTICIPATION +A-7 +6. +STOCK OPTIONS +A-8 +6.1 +Grant of Options +A-8 +6.2 +Award Agreement +A-8 +6.3 +Exercise of Option +A-8 +6.4 +Termination of Service +A-9 +6.5 +Limitations on Incentive Stock Options +A-9 +6.6 +Transferability +A-9 +6.7 +Family Transfers +A-9 +6.8 +Rights of Holders of Options +A-10 +7. +STOCK APPRECIATION RIGHTS +A-10 +7.1 +Grant of Stock Appreciation Rights +A-10 +7.2 +Award Agreement +A-10 +7.3 +Exercise of Stock Appreciation Right +A-10 +7.4 +Effect of Exercise +A-11 +7.5 +Termination of Service +A-11 +7.6 +Transferability +A-11 +7.7 +Rights of Holders of Stock Appreciation Rights +A-11 +8. +RESTRICTED STOCK AND RESTRICTED STOCK UNITS +A-11 +8.1 +Grant of Restricted Stock or Restricted Stock Units +A-11 +8.2 +Award Agreement +A-11 +8.3 +Restrictions on Transfer +A-11 +8.4 +Forfeiture; Other Restrictions +A-11 +8.5 +Restricted Stock Units +A-12 +8.6 +Termination of Service +A-12 +8.7 +Stockholder Privileges +A-12 +9. +QUALIFIED PERFORMANCE BASED COMPENSATION +A-12 +9.1 +Grant or Vesting of Award Subject to Objective Performance Goals +A-12 +9.2 +Establishment of Performance Goals +A-12 +9.3 +Value of Performance Shares and Performance Units +A-13 +9.4 +Achievement of Performance Goals; Earning of Awards +A-13 +9.5 +Payment of Performance Awards +A-13 +9.6 +Termination of Service +A-13 +9.7 +Transferability +A-13 +9.8 +Stockholder Rights +A-13 +A-ii +Table of Contents +10. +OTHER STOCK-BASED AWARDS +A-14 +11. +DIVIDENDS AND DIVIDEND EQUIVALENTS +A-14 +12. +TAX WITHHOLDING +A-14 +13. +EFFECT OF CHANGES IN CAPITALIZATION +A-14 +13.1 +Changes in Stock +A-14 +13.2 +Change in Control +A-15 +13.3 +Reorganization in Which the Company Is the Surviving Entity and in Which No Change in Control Occurs +A-16 +13.4 +Adjustment +A-16 +13.5 +No Limitations on the Company +A-16 +14. +REQUIREMENTS OF LAW +A-16 +14.1 +General +A-16 +14.2 +Rule 16b-3 +A-17 +15. +GENERAL PROVISIONS +A-17 +15.1 +Disclaimer of Rights +A-17 +15.2 +Nontransferability of Awards +A-17 +15.3 +Changes in Accounting or Tax Rules +A-17 +15.4 +Nonexclusivity of the Plan +A-17 +15.5 +Captions +A-17 +15.6 +Other Award Agreement Provisions +A-17 +15.7 +Other Employee Benefits +A-17 +15.8 +Severability +A-18 +15.9 +Governing Law +A-18 +15.10 +Section 409A +A-18 +16. +AMENDMENT, MODIFICATION AND TERMINATION +A-18 +16.1 +Amendment, Modification, and Termination +A-18 +16.2 +Awards Previously Granted +A-18 +17. +STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN +A-18 +18. +DURATION +A-19 +A-iii +Table of Contents +CIMAREX ENERGY CO. +2014 EQUITY INCENTIVE PLAN +1. ESTABLISHMENT AND PURPOSE +1.1 Establishment . Cimarex Energy Co., a Delaware corporation (the “ Company ”) hereby establishes and adopts the Cimarex Energy Co. 2014 Equity Incentive Plan (the “ Plan ”). +1.2 Purpose . The purpose of the Plan is to promote the interests of the Company by granting awards to certain employees, directors and other service providers of the Company or its Affiliates as an additional incentive for them to contribute to the long-term financial success of the Company. +2. DEFINITIONS +For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply: +2.1 “ Affiliate ” means (a) any company or other trade or business that controls, is controlled by or is under common control with the Company (including any “ Subsidiary ” within the meaning of Section 424(f) of the Code) or (b) any entity in which the Company has a significant equity interest, as determined by the Committee. +2.2 “ Award” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Performance Share, Performance Unit, Dividend Equivalent, or Other Stock-Based Award granted under the Plan. +2.3 “ Award Agreement ” means the written agreement, contract or other instrument or document evidencing any Award under the Plan. Award Agreements and other Plan documents may be delivered or accepted electronically using electronic mail, the Internet or any other form of electronic communication. Each Award Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of the Plan and any Award Agreement, the provisions of the Plan shall govern. +2.4 “ Board ” or “Board of Directors” means the board of directors of the Company. +2.5 “ Cause ” means, with respect to any Participant, as determined by the Committee and unless otherwise provided in an applicable agreement between the Participant and the Company or an Affiliate, (a) gross negligence or willful misconduct in connection with performance of duties; (b) conviction of a criminal offense (other than minor traffic offenses); or (c) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreement, if any, between the Participant and the Company or an Affiliate. Any determination by the Committee whether an event constituting Cause has occurred will be final, binding and conclusive. +2.6 “ Change in Control ” means and shall be deemed to have occurred upon the occurrence of any one of the following: +(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “ Person ”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the then outstanding shares of Common Stock (the “ Outstanding Company Common Stock ”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided, however , that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the +A-1 +Table of Contents +Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction that described in clauses (i) and (ii) of subsection (c) below; or +(b) During any period of twelve months beginning after the Effective Date, individuals who, as of the Effective Date, constitute the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided, however , that any individual becoming a director at the beginning of such twelve-month period, whose election, appointment or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or +(c) The closing of a reorganization, share exchange or merger (a “ Business Combination ”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 40% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction will own the Company through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be and (ii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination or were elected, appointed or nominated by the Board; or +(d) The closing of (i) a complete liquidation or dissolution of the Company or, (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 40% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board. +If required for compliance with Section 409A of the Code, in no event will a Change in Control be deemed to have occurred if the transaction is not also a “change in ownership or effective control of” the Company or a “change in the ownership of a substantial portion of the assets of” the Company as determined under Treasury Regulation Section 1.409A-3(i)(5). +2.7 “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations, interpretations, and administrative guidance issued thereunder. +2.8 “ Committee ” means the Compensation and Governance Committee of the Board, or such other committee performing the functions of a compensation committee, or, if such committee of the Board has not been appointed, the Board. +2.9 “ Covered Employee ” means a “covered employee” within the meaning of Section 162(m)(3) of the Code, or any successor provision. +A-2 +Table of Contents +2.10 “ Disabled ” or “Disability” means, unless otherwise provided in an employment, consulting or other services agreement, if any, or Award Agreement between the Participant and the Company or an Affiliate, the Participant (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company. +2.11 “ Dividend Equivalent ” means a right granted under Section 11 to receive cash, Shares, other Awards or other property equal in value to dividends paid with respect to a specific number of Shares. +2.12 “ Effective Date ” means May 15. 2014, subject to approval of the Plan by the Company’s stockholders on such date. The Plan was approved by the Board on February 25, 2014. +2.13 “ Employee ” means, as of any date of determination, an employee (including an officer) of the Company or an Affiliate. +2.14 “ Exchange Act ” means the U.S. Securities Exchange Act of 1934, as it may be amended from time to time, or any successor act thereto. +2.15 “ Exercise Price ” means the exercise price for each Share subject to an Option. +2.16 “ Fair Market Value ” means, unless otherwise determined by the Committee, the fair market value of a Share as of a particular date, determined as follows: (a) the closing sale price reported for such Share on the national securities exchange or national market system on which such stock is principally traded, or if no sale of Shares is reported for such trading day, on the next preceding day on which a sale was reported, or (b) if the Shares are not then listed on a national securities exchange or national market system, or the value of such Shares is not otherwise determinable, such value as determined by the Committee in good faith in its sole discretion consistent with the requirements under Section 409A of the Code. +2.17 “ Family Member ” means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Participant, a trust in which any one or more of these persons have more than fifty percent (50%) of the beneficial interest, a foundation in which any one or more of these persons (or the Participant) control the management of assets, and any other entity in which one or more of these persons (or the Participant) own more than fifty percent (50%) of the voting interests; provided, however, that to the extent required by applicable law, the term Family Member shall be limited to a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the Participant or a trust or foundation for the exclusive benefit of any one or more of these persons. +2.18 “ Grant Date ” means, as determined by the Committee, the latest to occur of (a) the date on which the Committee approves an Award, (b) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 5, or (c) such other date as may be specified by the Committee in the Award Agreement. +2.19 “ Minimum Statutory Withholding ” means as defined in Section 12. +2.20 “ Non-Employee Director ” means a non-employee member of the Board. +2.21 “ Option ” means a right granted to a Participant to purchase Shares at such time and price, and subject to such other terms and conditions as are set forth in the Plan and Award Agreement. An Option granted under the Plan may be an “ Incentive Stock Option ” within the meaning of Section 422 of the Code or a “ Non-Qualified Stock Option ,” which does not meet the requirements of such Code section. +A-3 +Table of Contents +2.22 “ Other Stock-Based Award ” means an Award that is granted to a Participant under Section 10. +2.23 “ Participant ” means any Employee, Non-Employee Director or other Service Provider of the Company or an Affiliate who has met the eligibility requirements set forth in Section 5 and to whom an Award has been made under the Plan. +2.24 “ Performance Award ” means an Award of Performance Shares or Performance Units granted to a Participant under Section 9. +2.25 “ Performance Goals ” means as defined in Section 9.2. +2.26 “ Performance Period ” means the period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to the Award are to be measured. +2.27 “ Performance Shares ” means an Award of Shares granted to a Participant under Section 9, subject to such other terms and conditions as are set forth in the Plan and Award Agreement. +2.28 “ Performance Units ” means an Award granted to a Participant under Section 9, payable in cash or, in the discretion of the Committee, in Shares or in a combination of cash and Shares, subject to such other terms and conditions as are set forth in the Plan and Award Agreement. +2.29 “ Prior Plan ” means the Cimarex Energy Co. 2011 Stock Incentive Plan. +2.30 “ Restricted Stock ” means a Share granted to a Participant under Section 8, which is subject to restrictions set forth in Section 8.3 and to such other terms and conditions as are set forth in the Plan and Award Agreement. +2.31 “ Restricted Stock Unit ” or “RSU” means a right granted to a Participant under Section 8 to receive, in the discretion of the Committee, Shares, a cash payment equal to the Fair Market Value of Shares or a combination of cash or Shares, subject to such other terms and conditions as are set forth in the Plan and Award Agreement. +2.32 “ Restriction Period ” means the period during which Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based upon the passage of time, the achievement of Performance Goals or upon the occurrence of other events as determined by the Committee, in its discretion), as provided in Sections 8.3 and 8.4. +2.33 “ Securities Act ” means the U.S. Securities Act of 1933, as it may be amended from time to time, or any successor act thereto. +2.34 “ Service ” means service as a Service Provider to the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Participant’s change in position or duties shall not result in interrupted or terminated Service, so long as such Participant continues to be a Service Provider to the Company or an Affiliate. Whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Committee, which determination shall be final, binding and conclusive. +2.35 “ Service Provider ” means an Employee, officer or director of the Company or an Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate. +2.36 “ Share ” means a share of common stock, par value $0.01 per share of the Company. +2.37 “ Stock Appreciation Right ” or “SAR” means a right granted to a Participant under Section 7 to receive an amount determined in accordance with Section 7.3, subject to such other terms and conditions as are set forth in the Plan and the Award Agreement. +A-4 +Table of Contents +2.38 “ Substitute Awards ” means Awards granted in substitution for, or in assumption of, outstanding awards previously granted by an entity affiliated with or acquired by the Company, with which the Company combines or from which the Company has separated. +3. PLAN ADMINISTRATION +3.1 General . The Plan shall be administered by the Committee, which shall have full power and authority to take all actions and to make all determinations as are required or permitted under the Plan. +(a) In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the eligible individuals described in Section 5, determine the Awards to be made pursuant to the Plan, or Shares to be issued thereunder and the time at which such Awards are to be made, fix the Option Price (or Grant Price), determine the period and manner in which an Option (or Stock Appreciation Right) becomes exercisable, establish the duration and nature of Restricted Stock or Restricted Stock Unit restrictions, establish the terms and conditions of Performance Awards, and establish such other terms and requirements of the various Awards under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form of the Award Agreements that shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. +(b) Subject to Section 3.4, the Committee may amend, modify, or supplement the terms of any outstanding Award including, but not limited to, amending an Award or exercising discretion under an Award or under the Plan to: (i) accelerate the date on which an Award becomes vested, exercisable, or transferable, (ii) extend the term of any Award, including the period following the termination of the Service Provider’s Service to the Company during which the Award shall remain outstanding, (iii) waive any conditions with regard to vesting, exercisability, or transferability of an Award, and (iv) recognize differences in local law, tax policy, or custom with regard to Awards made to foreign nations or individuals who are employed outside the United States. Notwithstanding the foregoing, no amendment or modification may be made to an outstanding Option or Stock Appreciation Right that causes the Option or Stock Appreciation Right to become subject to Section 409A of the Code, without the Participant’s written consent; provided, however , appropriate adjustments may be made to outstanding Options and Stock Appreciation Rights pursuant to Section 13. +(c) As a condition to any Award, the Committee shall have the right, in its discretion, to require Participants to return to the Company Awards previously granted under the Plan. Subject to the terms and conditions of the Plan, any such subsequent Award shall be upon such terms and conditions as are specified by the Committee at the time the new Award is granted. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Participant on account of actions taken by the Participant in violation or breach of or in conflict with any non-competition agreement, any agreement prohibiting solicitation of employees of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Participant. Furthermore, the Committee may annul an Award if the Participant is an Employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award Agreement or the Plan, as applicable. +(d) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding, final and conclusive for all purposes and on all persons. +3.2 Delegation by the Committee or the Board . The Committee or the Board may, from time to time, delegate to one or more officers of the Company, and the Board may delegate to one or more committees of the Board (including committees of the Board consisting solely of one or more members of the Board who are also officers of the Company), the power and authority to grant or document Awards under the Plan to specified groups of eligible individuals, subject to such restrictions and conditions as the Committee or the Board, in their sole +A-5 +Table of Contents +discretion, may impose. The delegation shall be as broad or as narrow as the Committee or the Board shall determine. To the extent that the Committee or the Board has delegated the authority to determine certain terms and conditions of an Award, all references in the Plan to the Committee’s exercise of authority in determining such terms and conditions shall be construed to include the officer or officers, or the Board committee or committees, to whom the Committee or the Board has delegated the power and authority to make such determination. However, no delegation will be made if it would (a) result in the loss of an exemption under Rule 16b-3(d) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Company, (b) cause Awards intended to qualify as “performance-based” compensation under Section 162(m) of the Code to fail to so qualify, (c) result in a related-person transaction with an executive officer required to be disclosed under Item 404(a) of Regulation S-K (in accordance with Instruction 5.a.ii thereunder) under the Exchange Act, or (d) be impermissible under the Delaware General Corporation Law. +3.3 Recoupment of Awards . Notwithstanding any other provision of this Plan to the contrary, any Award granted or amount payable or paid under this Plan shall be subject to the terms of any compensation recoupment policy then applicable, if any, of the Company, to the extent the policy applies to such award or amount. By accepting an award or the payment of any amount under the Plan, each Participant agrees and consents to the Company’s application, implementation and enforcement of (a) any such policy and (b) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation and expressly agrees that the Company may take such actions as are permitted under the policy or applicable law without further consent or action being required by such Participant. To the extent that the terms of this Plan and the policy or applicable law conflict, then the terms of the policy or applicable law shall prevail. +3.4 No Repricing . Notwithstanding any other provision of the Plan, no amendment or modification may be made to an outstanding Option or Stock Appreciation Right that (a) reduces the Exercise Price or Grant Price, either by lowering the Exercise Price or Grant Price or by canceling the outstanding Option or Stock Appreciation Right and granting a replacement Option or Stock Appreciation Right with a lower Exercise Price or Grant Price or by cancellation for cash or another Award if the Exercise Price or Grant Price is higher than the current Fair Market Value, or (b) would be treated as a repricing under the rules of the exchange upon which Shares of the Company trade, without the approval of the stockholders of the Company; provided, however , that appropriate adjustments may be made to outstanding Options and Stock Appreciation Rights pursuant to Section 13. +3.5 Limitations on Authority . The Committee shall, in exercising its discretion under the Plan, comply with all contractual and legal obligations of the Company or the Committee in effect from time to time, whether contained in the Company’s charter, bylaws, or other binding contract, or in the Committee’s charter, or in applicable law. +3.6 Deferral Arrangement . The Committee may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish in accordance with Section 409A of the Code, which may include provisions for the payment or crediting of interest or Dividend Equivalents, including converting such credits into deferred stock units. +3.7 No Liability . No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any Award or any Award Agreement. +3.8 Book Entry . Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use of electronic or other forms of book-entry. +4. STOCK SUBJECT TO THE PLAN +4.1 Number of Shares . Subject to adjustment as provided in Section 13, the maximum number of Shares available for issuance under the Plan will be equal to the sum of (a) 4,700,000 Shares plus (b) the number of Shares available for future Awards under the Prior Plan as of the Effective Date of this Plan plus (c) such additional Shares that become available under the Prior Plan or the Plan pursuant to Section 4.3. Subject to adjustment as provided in Section 13, 1,000,000 Shares available under the Plan will be available for issuance pursuant to Incentive Stock Options. Shares issued or to be issued under the Plan shall be either authorized but unissued Shares +A-6 +Table of Contents +or, to the extent permitted by applicable law, issued Shares that have been reacquired by the Company or any Subsidiary. +4.2 Individual Award Limits. +(a) Awards Granted to Eligible Persons Other Than Non-Employee Directors. For purposes of complying with Section 162(m) of the Code, the maximum number of Shares that may be subject to: (i) Options or Stock Appreciation Rights that are granted to an eligible person other than a Non-Employee Director during any calendar year shall be 1,000,000 Shares and (ii) for Awards other than Options or Stock Appreciation Rights that are granted to an eligible person other than a Non-Employee Director during any calendar year shall be limited to 300,000 Shares, in each case for each such Award type individually. The maximum amount that may be paid as a cash-settled Performance Award during a calendar year for a Performance Period to an eligible person other than a Non-Employee Director shall be limited to $5 million dollars. The limitations in this Section 4.2(a) are subject to adjustment as provided in Section 13. +(b) Awards Granted to Non-Employee Directors. The maximum number of Shares that may be subject to an Award granted to any Non-Employee Director during any calendar year shall be limited to 20,000 Shares for all such Awards in the aggregate, subject to adjustment as provided in Section 13.1 +4.3 Share Counting . Shares subject to an Award will be counted as used as of the Grant Date. +(a) For each Share subject to an Award of an Option or a Stock Appreciation Right, the number of Shares available for issuance under the Plan shall be reduced by one Share. For each Share subject to an Award other than an Option or Stock Appreciation Right, the number of Shares available for issuance under the Plan shall be reduced by 2.38 Shares. The target number of Shares issuable under a Performance Share grant will be counted against the share issuance limit set forth in Section 4.1 as of the Grant Date, but such number will be adjusted to equal the actual number of Shares issued upon settlement of the Performance Shares to the extent different from such target number of Shares. +(b) Notwithstanding anything to the contrary in Section 4.1, any Shares related to Awards under the Plan or the Prior Plan that terminate unexercised by expiration or are forfeited will be available again for issuance under the Plan in the same amount as such Shares were counted against the limit set forth in Section 4.1. +(c) The number of Shares available for issuance under the Plan will not be increased by the number of Shares (i) tendered or withheld or subject to an Award granted under the Plan or the Prior Plan surrendered in connection with the Shares upon exercise of an Option, (ii) deducted or delivered from payment of an Award granted under the Plan or the Prior Plan in connection with the Company’s tax withholding obligations pursuant to Section 12, (iii) purchased by the Company with proceeds from Option exercises, or (iv) subject to a SAR granted under the Plan that is settled in Shares that were not issued upon the net settlement or net exercise of such SAR. +5. ELIGIBILITY AND PARTICIPATION +Awards may be made under the Plan to any Service Provider, as the Committee will determine and designate from time to time. An eligible person may receive more than one Award, subject to such restrictions as are provided herein. +A-7 +Table of Contents +6. STOCK OPTIONS +6.1 Grant of Options . Subject to the provisions of this Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, it its sole discretion; provided that Incentive Stock Options may be granted only to eligible Employees of the Company or of any parent corporation or subsidiary corporation (as permitted by Section 422 of the Code). +6.2 Award Agreement . Each Option granted under the Plan will be evidenced by an Award Agreement that shall specify the Exercise Price, the number of Shares covered by the Option, the maximum duration of the Option, the conditions upon which the Option will become vested and exercisable and such other provisions as the Committee shall determine, consistent with the terms of the Plan. The Award Agreement shall specify whether the Option is intended to be an Incentive Stock Option or a Non-Qualified Stock Option. +(a) Exercise Price. The Exercise Price for each Option shall be as determined by the Committee and shall be specified in the Award Agreement. The Exercise Price shall be: not less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date; provided, however , that the foregoing minimum Exercise Price shall not apply to Substitute Awards. +(b) Number of Shares. Each Award Agreement shall state that it covers a specified number of Shares, as determined by the Committee. +(c) Term. Each Option shall terminate as set forth in the Award Agreement and all rights to purchase Shares will expire at such time as the Committee shall determine; provided, however , no Option shall be exercisable later than the seventh (7 th ) anniversary of the Grant Date. +(d) Restrictions on Exercise. The Award Agreement shall set forth any installment or other restrictions on exercise of the Option during the term of the Option. Each Option shall become exercisable and vest over such period of time, or upon such events, as determined by the Committee. An Award Agreement may provide that the period of time over which an Option other than an Incentive Stock Option may be exercised shall be automatically extended if on the scheduled expiration date of the Option the Participant’s exercise of such Option would violate applicable securities laws or the Company’s insider trading policy as in effect from time to time; provided, however , that during such extended exercise period the Option may only be exercised to the extent the Option was exercisable in accordance with its terms immediately prior to such scheduled expiration date and the extended exercise period shall end not later than 30 days after the exercise of such Option would first no longer violate such laws or policy (the “ Extended Exercise Period ”). The Award Agreement may also provide for the automatic exercise of any such Option in which the Fair Market Value of a Share (as determined on the first day of the Extended Exercise Period in which the exercise would no longer violate such laws or policy) exceeds the Exercise Price by delivery to the Participant Shares equal to such excess amount, less any required tax withholding. +6.3 Exercise of Option. +(a) Manner of Exercise. An Option granted hereunder shall be exercised, in whole or in part, by providing written or electronic notice, on a form provided by the Company, to an employee as designated by the Company, or by complying with any alternative exercise procedures that may be authorized by the Committee, specifying the number of Shares to be purchased and accompanied by full payment of the Exercise Price for the Shares and satisfaction of any tax withholding requirements. +(b) Payment. A condition to the issuance or other delivery of Shares as to which an Option is exercised shall be the payment of the Exercise Price and satisfaction of any tax withholding requirements. The Exercise Price of an Option shall be payable to the Company in full, in any method permitted under the Award Agreement, including: (i) in cash or in cash equivalents acceptable to the Company; (ii) by tendering (either by actual delivery or by attestation) unrestricted Shares already owned by the Participant on the date of surrender, subject to such terms, conditions and limitations as the Company may determine, to the extent the Shares have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option shall be exercised, provided that, in the case of an Incentive Stock Option, the right to make payment in the form of +A-8 +Table of Contents +already owned Shares may be authorized only at the time of grant, (iii) any other method approved or accepted by the Committee in its sole discretion, including, but not limited to (A) a cashless (broker-assisted) exercise that complies with all applicable laws or (B) withholding of Shares otherwise deliverable to the Participant pursuant to the Option having an aggregate Fair Market Value on the date of exercise equal to the Exercise Price or (iv) any combination of the foregoing. Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars. +(c) Delivery of Shares. Promptly after the exercise of an Option by a Participant and the payment in full of the Exercise Price, such Participant shall be entitled to the issuance of certificates evidencing such Participant’s ownership of the Shares purchased upon exercise of the Option. Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of certificates through the use of electronic or other forms of book-entry. +6.4 Termination of Service . Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s Service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. +6.5 Limitations on Incentive Stock Options. +(a) General; Initial Exercise. Any Incentive Stock Option granted under the Plan shall contain such terms and conditions, consistent with the Plan, as the Committee may determine necessary to qualify such Option as an Incentive Stock Option. Any Incentive Stock Option granted under the Plan may be modified by the Committee to disqualify such Option from treatment as an Incentive Stock Option under Section 422 of the Code. The aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year, under the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be determined as of the Grant Date and each Incentive Stock Option shall be taken into account in the order granted. +(b) Ten Percent Stockholders. An Incentive Stock Option granted to a Participant who is the holder of record of more than ten percent (10%) of the combined voting power of all classes of stock of the Company shall have an Exercise Price at least equal to one hundred and ten percent (110%) of the Fair Market Value of a Share on the Grant Date of the Option and the term of the Option shall not exceed five (5) years. +(c) Notification of Disqualifying Disposition. If any Participant shall make any disposition of Shares acquired pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), the Participant shall notify the Company of such disposition within ten (10) days thereof. +6.6 Transferability . Except as provided in Section 6.7, during the lifetime of a Participant, only the Participant (or, in the event of legal incapacity or incompetency, the Participant’s guardian or legal representative) may exercise an Option. Except as provided in Section 6.7, no Option shall be assignable or transferable by the Participant to whom it is granted, other than by will or the laws of descent and distribution. +6.7 Family Transfers . If authorized in the applicable Award Agreement, a Participant may transfer, not for value, all or part of an Option to any Family Member. For the purpose of this Section 6.7, a “not for value” transfer is a transfer which is (a) a gift, or (b) unless applicable law does not permit such transfers, a transfer to an entity in which more than fifty percent (50%) of the voting interests are owned by Family Members (or the Participant) in exchange for an interest in that entity. Following a transfer under this Section 6.7, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the original Participant in accordance with this Section 6.7 or by will or the laws of descent and distribution. The events of termination of Service under an Option shall continue to be applied with respect to the original Participant, following which the Option shall be exercisable by the transferee only to the extent, and for the periods specified in the applicable Award Agreement. +A-9 +Table of Contents +6.8 Rights of Holders of Options . An individual holding or exercising an Option shall have none of the rights of a stockholder of the Company (for example, the right to receive cash or dividend payments or distributions attributable to the subject Shares or to direct the voting of the Shares) until the Shares covered thereby are fully paid and issued to such individual. Except as provided in Section 13, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance. +7. STOCK APPRECIATION RIGHTS +7.1 Grant of Stock Appreciation Rights . Subject to the provisions of this Plan, Stock Appreciation Rights may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant freestanding Stock Appreciation Rights, Stock Appreciation Rights that are granted in tandem with an Option, or any combination thereof. +7.2 Award Agreement . Each Stock Appreciation Right will be evidenced by an Award Agreement that shall specify the Grant Price, the number of Shares covered by the Stock Appreciation Right, the maximum duration of the Stock Appreciation Right, the conditions upon which the Stock Appreciation Right shall become vested and exercisable and such other provisions as the Committee shall determine, consistent with the terms of the Plan. +(a) Grant Price. The per Share exercise price (“ Grant Price ”) for each Stock Appreciation Right shall be determined by the Committee and shall be specified in the Award Agreement. Other than with respect to Substitute Awards, the Grant Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date of the Stock Appreciation Right. +(b) Number of Shares. Each Award Agreement shall state that it covers a specified number of Shares, as determined by the Committee. +(c) Term. Each Stock Appreciation Right shall terminate and all rights with respect to the Stock Appreciation Right shall expire at such time as the Committee shall determine; provided, however , no Stock Appreciation Rights shall be exercisable later than the seventh (7 th ) anniversary of the Grant Date. +(d) Restrictions on Exercise. The Award Agreement shall set forth any installment or other restrictions on exercise of the Stock Appreciation Right during its term. Each Stock Appreciation Right shall become exercisable and vest over such period of time, or upon such events, as determined by the Committee (including based on achievement of Performance Goals or future service requirements). An Award Agreement may provide that the period of time over which a Stock Appreciation Right may be exercised shall be automatically extended if on the scheduled expiration date of the Stock Appreciation Right the Participant’s exercise of such right would violate applicable securities laws or the Company’s insider trading policy as in effect from time to time; provided, however , that during such extended exercise period the Stock Appreciation Right may only be exercised to the extent the right was exercisable in accordance with its terms immediately prior to such scheduled expiration date and the extended exercise period shall end not later than 30 days after the exercise of such Stock Appreciation Right would first no longer violate such laws. The Award Agreement may also provide for the automatic exercise of any such Stock Appreciation Right in which the Fair Market Value of a Share (as determined on the first day of the Extended Exercise Period in which the exercise would no longer violate such laws or policy) exceeds the Grant Price by delivery to the Participant Shares equal to such excess amount, less any required tax withholding. +7.3 Exercise of Stock Appreciation Right . A Participant desiring to exercise a Stock Appreciation Right shall give written or electronic notice, on a form provided by the Company, of such exercise to the Company with the information the Company deems reasonably necessary to exercise the Stock Appreciation Right. If a Stock Appreciation Right is issued in tandem with an Option, except as may otherwise be provided by the Committee, the Stock Appreciation Right shall be exercisable during the period that its related Option is exercisable. Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying: +A-10 +Table of Contents +(a) The excess of the Fair Market Value of a Share on the date of exercise over the Grant Price; by +(b) The number of Shares with respect to which the Stock Appreciation Right is exercised. +Notwithstanding the foregoing provisions of this Section 7.3 to the contrary, the Committee may establish and set forth in the Award Agreement a maximum amount per Share that will be payable upon the exercise of a Stock Appreciation Right. At the discretion of the Committee, the payment upon exercise may be in cash, Shares, or any combination thereof, or in any other manner approved by the Committee in its sole discretion. The Committee’s determination as to the form of settlement shall be set forth in the Award Agreement. +7.4 Effect of Exercise . If a Stock Appreciation Right is issued in tandem with an Option, the exercise of the Stock Appreciation Right or the related Option will result in an equal reduction in the number of corresponding Shares subject to the Option or Stock Appreciation Right that were granted in tandem with such Stock Appreciation Right and Option. +7.5 Termination of Service . Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Stock Appreciation Right following termination of the Participant’s Service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Stock Appreciation Rights issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. Any Stock Appreciation Right issued in tandem with an Option shall be exercisable following termination of the Participant’s Service to the same extent that its related Option is exercisable following the Participant’s termination of Service. +7.6 Transferability . A Stock Appreciation Right shall only be transferable upon the same terms and conditions with respect to transferability as are specified in Sections 6.6 and 6.7 with respect to Options. +7.7 Rights of Holders of Stock Appreciation Rights . An individual holding or exercising a Stock Appreciation Right shall have none of the rights of a stockholder of the Company (for example, the right to receive cash or dividend payments or distributions attributable to the subject Shares or to direct the voting of the Shares) until the Shares covered thereby are fully paid and issued to such individual. Except as provided in Section 13, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance +8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS +8.1 Grant of Restricted Stock or Restricted Stock Units . Subject to the provisions of this Plan, the Committee at any time and from time to time, may grant Shares of Restricted Stock or Restricted Stock Units to Participants in such amounts as the Committee shall determine. +8.2 Award Agreement . Each grant of Restricted Stock or Restricted Stock Units will be evidenced by an Award Agreement that shall specify the Restriction Period, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted and such other provisions as the Committee shall determine. +8.3 Restrictions on Transfer . Except as provided in this Plan or an Award Agreement, the Shares of Restricted Stock and Restricted Stock Units may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the Restriction Period established by the Committee and specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction or any other conditions, as specified by the Committee, in its sole discretion. All rights with respect to the Restricted Stock or Restricted Stock Units granted to a Participant shall be available during his or her lifetime only to such Participant, except as otherwise provided in an Award Agreement or at any time by the Committee. +8.4 Forfeiture; Other Restrictions . The Committee may impose such other conditions and restrictions on any shares of Restricted Stock or Restricted Stock Units as it may deem advisable including a requirement that the Participant pay a specified amount to purchase each Share of Restricted Stock, restrictions +A-11 +Table of Contents +based upon the achievement of specific Performance Goals, time-based restrictions on vesting following the attainment of the Performance Goals, time-based restrictions or restrictions under applicable laws or under the requirements of any stock exchange or market upon which Shares are then listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units. +8.5 Restricted Stock Units . A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement. Restricted Stock Units may be settled in cash or Shares, or a combination, as determined by the Committee and set forth in the Award Agreement. +8.6 Termination of Service . Unless otherwise provided by the Committee in the applicable Award Agreement, upon the termination of a Participant’s Service with the Company or an Affiliate, any Shares of Restricted Stock or Restricted Stock Units held by such Participant that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited, and the Participant shall have no further rights with respect to such Awards, including but not limited to any right to vote Restricted Stock or any right to receive dividends or Dividend Equivalents with respect to Restricted Stock or Restricted Stock Units. +8.7 Stockholder Privileges . Unless otherwise determined by the Committee and set forth in the Award Agreement: +(a) A Participant holding Shares of Restricted Stock shall generally have the rights of a stockholder to vote the Shares of Restricted Stock during the Restriction Period. The Committee may provide in an Award Agreement that the holder of such Restricted Stock shall be entitled to receive cash dividends actually paid with respect to the Restricted Stock in accordance with and subject to Section 11. +(b) A Participant holding Restricted Stock Units shall have no rights of a stockholder of the Company with respect to the Restricted Stock Units. The Committee may provide in an Award Agreement that the holder of such Restricted Stock Units shall be entitled to receive Dividend Equivalents in accordance with and subject to Section 11. +9. QUALIFIED PERFORMANCE BASED COMPENSATION +9.1 Grant or Vesting of Award Subject to Objective Performance Goals . The Committee may, in its discretion, condition the grant, vesting, or payment of an Award on the attainment of one or more pre-established objective Performance Goals, in accordance with the “qualified performance based compensation” exception to Section 162(m) of the Code. Subject to the terms of the Plan, the Committee may grant Performance Shares and/or Performance Units in such amounts and upon such terms as the Committee shall determine. A Performance Share or Performance Unit entitles the Participant to receive Shares, cash or a combination, upon the attainment of performance goals and/or satisfaction of other terms and conditions determined by the Committee when the Award is granted and set forth in the Award Agreement. +9.2 Establishment of Performance Goals . All Performance Goals established pursuant to this Section 9.2 shall be objective and shall be established by the Committee within 90 days after the beginning of the period of service to which the Performance Goal relates (and in no event after passage of more than 25% of the period to which the Performance Goal relates). Performance Goals means one or more goals determined by the Committee, in its discretion, with respect to an Award for a Performance Period (the “ Performance Goals ”). The Performance Goals may provide for a targeted level or levels of performance for a Performance Period based on one or more of the following performance measures: (a) rate of return on exploration capital; (b) stock performance measures (including relative stock price performance); (c) revenue; (d) earnings before interest, taxes, depreciation and amortization (“ EBITDA ”); (e) funds from operations; (f) funds from operations per share; (g) operating income; (h) pre- or after-tax income; (i) production levels; (j) proved, probable and/or possible reserve levels and/or additions; (k) discounted present value of proved, probable and/or possible reserves; (l) cash available for distribution; (m) cash available for distribution per share; (n) net earnings; (o) earnings per share; (p) return on investment; (q) return on equity; (r) return on assets; (s) share price performance; (t) improvements in the +A-12 +Table of Contents +Company’s attainment of expense levels; (u) implementation or completion of critical projects; (v) return on capital employed; (w) debt, credit or other leverage measures or ratios; (x) capital expenditures; (y) finding and development costs; (z) property or mineral leasehold acquisitions or disposition; (aa) improvement in cash flow, either before or after tax; and any combination or derivation of any of the foregoing. Any Performance Goal based on one or more of the foregoing performance measures may be expressed in absolute amounts, on a per share basis, as a growth rate or change from preceding periods, or as a comparison to the performance of specified companies or other external measures, and may be related to one or any combination of corporate, group, unit, division, Affiliate or individual performance. +The performance measures may, at the discretion of the Committee, be based on pro forma numbers and may, as the Committee specifies, either include or exclude the effect of payment of the incentives payable under this Plan and any other incentive or bonus plans of the Company. The Performance Goals may differ from Participant to Participant. The Committee may, subject to the requirements of Section 162(m) of the Code for Awards intended to be performance-based, provide that the attainment of the Performance Goal shall be measured by appropriately adjusting the evaluation of the attainment of the performance goal to exclude (i) any extraordinary or non-recurring items as described in the applicable accounting rules, (ii) the effect of any changes in accounting principles affecting the reported results of the Company or a business unit, or (iii) any other adjustment consistent with the requirements of Section 162(m) of the Code that is pre-specified by the Committee. The Performance Goals applicable to a particular Award shall be set forth by the Committee in the Award Agreement. +9.3 Value of Performance Shares and Performance Units . Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. Each Performance Unit shall have an initial value representing the equivalent of a Share. The Committee shall set Performance Goals in its discretion which, depending upon the extent to which the Performance Goals are achieved, will determine the number and/or value of Performance Shares or Performance Units that will be paid or delivered to the Participant. +9.4 Achievement of Performance Goals; Earning of Awards . Subject to the terms of the Plan, after the applicable Performance Period has been completed, the Committee shall certify prior to the grant, vesting, or payment of any Award that the applicable Performance Goals have been satisfied. Except as may otherwise be provided herein or as may otherwise be contained in the Award Agreement (which provisions shall comply with Section 162(m) of the Code, for Awards intended to comply with such provision), in the event that the Performance Goals are not satisfied, the Award shall not be granted or become vested or payable, as applicable except as otherwise determined by the Committee. +9.5 Payment of Performance Awards . The time and form of payment of Performance Awards earned by the Participant shall be as determined by the Committee and be set forth in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay, deliver or remove restrictions from earned Performance Shares and Performance Units following the Committee’s determination of actual performance against the Performance Goals and/or other terms and conditions established by the Committee. Any such payment, delivery or removal of restrictions on Shares or cash may be made subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payment of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award. The Committee may provide in an Award Agreement for the payment of Dividend Equivalents in accordance with and subject to Section 11. +9.6 Termination of Service . Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Shares or Performance Unit Awards following termination of Service. Such provisions shall be determined in the sole discretion of the Committee and need not be uniform among all Awards of Performance Shares or Performance Units and may reflect distinctions based upon the reason for termination. +9.7 Transferability . Except as otherwise provided in an Award Agreement, Performance Awards may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by the laws of descent and distribution. +9.8 Stockholder Rights . A Participant receiving a Performance Share or a Performance Unit Award shall have the rights as a stockholder to vote only such Shares actually issued to the Participant. The Participant’s +A-13 +Table of Contents +right, if any, to dividends or Dividend Equivalents with respect to a Performance Share or a Performance Unit Award will be determined in accordance with Section 11 and set forth in the Award Agreement. +10. OTHER STOCK-BASED AWARDS +From time to time during the duration of this Plan, the Committee may, in its sole discretion, adopt one or more incentive compensation arrangements for Participants pursuant to which the Participants may (a) acquire Shares under the Plan, whether by purchase, outright grant, or otherwise, or (b) receive an Award, whether payable in cash or in Shares, the value of which is determined, based in whole or in part, on the value of Shares. Any such arrangements shall be subject to the general provisions of this Plan and all cash payments or Shares issued pursuant to such arrangements shall be made under this Plan. +11. DIVIDENDS AND DIVIDEND EQUIVALENTS +Subject to the terms of the Plan and any applicable Award Agreement, a Participant shall, if so determined by the Committee, be entitled to receive, currently, or on a deferred basis, dividends or Dividend Equivalents, with respect to the Shares covered by the Award. Holders of an Option or Stock Appreciation Right shall not be entitled to receive cash dividend payments or Dividend Equivalents on shares covered by such Awards, except as provided in Section 13. The Committee may provide that any dividends paid on Shares subject to an Award must be reinvested in additional Shares, which may or may not be subject to the same vesting conditions and restrictions applicable to the Award; provided, however , in no event may dividends and Dividend Equivalents be paid on Awards that vest or pay based on the achievement of Performance Goals until and to the extent the Award is earned, although the amounts can be accumulated. Notwithstanding the award of Dividend Equivalents or dividends, a Participant shall not be entitled to receive an extraordinary dividend or distribution unless the Committee shall have expressly authorized such receipt. All distributions, if any, received by a Participant with respect to an Award as a result of any split, stock dividend, combination of Shares, or other similar transaction shall be subject to the restrictions applicable to the original Award. +12. TAX WITHHOLDING +The Company (or any Affiliate) shall have the right to deduct from payments of any kind otherwise due to a Participant any federal, state, or local taxes, domestic or foreign, of any kind required by law with respect to the vesting of or other lapse of restrictions applicable to Awards or upon the issuance of any Shares or payment of any kind upon the exercise of any Options or Stock Appreciation Rights. At the time of such vesting, lapse, payment, or exercise, the Participant shall pay to the Company or Affiliate any amount that the Company or Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. +In accordance with any procedures that may be determined by the Committee, the Participant may elect to have Shares withheld or to deliver Shares to satisfy the minimum statutory withholding rates for federal, state and local income taxes and employment taxes that are applicable to supplemental taxable income ( “Minimum Statutory Withholding” ) obligations. The Participant may elect to satisfy Minimum Statutory Withholding obligations, in whole or in part, (a) by causing the Company or the Affiliate to withhold Shares otherwise issuable to the Participant or (b) by delivering to the Company or the Affiliate Shares already owned by the Participant (for any period as may be required by the Company). The Shares so delivered or withheld shall have an aggregate Fair Market Value not in excess of such withholding obligations. The Fair Market Value of the Shares used to satisfy such withholding obligation shall be determined as of the date that the amount of tax to be withheld is to be determined. A Participant who has made an election pursuant to this Section 12 may satisfy his or her withholding obligation only with Shares that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. +13. EFFECT OF CHANGES IN CAPITALIZATION +13.1 Changes in Stock . The number of Shares for which Awards may be made under the Plan and the individual Award share and dollar limits in Section 4.2 shall be proportionately increased or decreased for any increase or decrease in the number of Shares on account of any recapitalization, reclassification, split, reverse split, combination, exchange, dividend or other distribution payable in Shares, or for any other increase or decrease in +A-14 +Table of Contents +such Shares effected without receipt of consideration by the Company occurring after the Effective Date (any such event hereafter referred to as a “Corporate Event” ). In addition, subject to the exception set forth in the second sentence of Section 13.4, the number and kind of shares for which Awards are outstanding shall be proportionately increased or decreased for any increase or decrease in the number of Shares on account of any Corporate Event. Any such adjustment in outstanding Options or Stock Appreciation Rights shall not increase the aggregate Exercise Price or Grant Price payable with respect to shares that are subject to the unexercised portion of an outstanding Option or Stock Appreciation Right, as applicable, and the adjustment shall comply with the requirements under Section 409A of the Code. The conversion of any convertible securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company’s stockholders of securities of any other entity or other assets (including an extraordinary cash dividend but excluding a non-extraordinary dividend payable in cash or in stock of the Company) without receipt of consideration by the Company, the Company shall proportionately adjust (a) the number and kind of shares subject to outstanding Awards and/or (b) the Exercise Price per share of outstanding Options and the Grant Price of outstanding Stock Appreciation Rights to reflect such distribution. Notwithstanding the foregoing, upon the occurrence of any event or transaction contemplated in this Section 13.1, any changes contemplated herein shall be modified to the minimum extent necessary, in the sole discretion of the Committee, to avoid any tax that may otherwise become due under Section 409A of the Code. +13.2 Change in Control. +(a) Stock Options and SARs. Upon the occurrence of a Change in Control, the unvested portion, if any, of outstanding Options and SARs shall become immediately and automatically vested. In addition, the Company or successor or purchaser, as the case may be, may make adequate provision for the assumption of the outstanding Options or SARs or the substitution of new options or SARs for the outstanding Options or SARs on terms comparable to the outstanding Options and SARs. The Committee may provide that any Options or SARs that are outstanding at the time the consummation of the Change in Control shall expire at the time of the closing so long as the Participants are provided with at least 45 days advance notice of expiration. The Committee need not take the same action with respect to all outstanding Options or SARs. +(b) Restricted Stock and Restricted Stock Units. Upon the occurrence of a Change in Control, the unvested portion of a Restricted Stock Award shall become immediately and automatically vested and payable; the unvested portion of a Restricted Stock Unit Award shall become immediately and automatically vested and payable at the time provided in Section 13.2(d). +(c) Performance Shares and Performance Units. Upon the occurrence of a Change in Control, the Performance Period for each outstanding unvested Performance Share Award and Performance Unit Award shall be deemed to be completed immediately prior to the Change in Control. The Committee shall certify the extent to which the applicable Performance Goals have been satisfied based on the results achieved during the actual Performance Period, including any adjustment necessary to take into account the actual date of the Change in Control. Notwithstanding the foregoing, for Performance Awards intended as qualifying performance-based awards, any accelerated vesting or payout shall be subject to such adjustment as required by Section 162(m) of the Code. +(d) Section 409A and Change in Control. If an Award subject to Section 13.2(b) or 13.2(c) is exempt from the requirements of Section 409A of the Code, it shall be paid within 30 days following the termination or resignation. If an Award is subject to the requirements of Section 409A, then it shall be paid within the 30-day period following the six month anniversary of the Participant’s “separation from service” (within the meaning of Section 409A of the Code). If a Participant’s termination or resignation is not a “separation from service” or the payment event is not a Section 409A distribution event, subject to the requirements of Section 409A of the Code, the Award shall be paid as of the earlier of the time specified in the Award Agreement or one day after the six month anniversary of the date the Participant has a separation from service following the Change in Control. +The Committee need not take the same action with respect to all outstanding Awards or to all outstanding Awards of the same type. +A-15 +Table of Contents +13.3 Reorganization in Which the Company Is the Surviving Entity and in Which No Change in Control Occurs. Subject to the exception set forth in the second sentence of Section 13.4, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the Company with one or more other entities and in which no Change in Control occurs, any Award theretofore made pursuant to the Plan shall pertain to and apply solely to the securities to which a holder of the number of securities subject to such Award would have been entitled immediately following such reorganization, merger, or consolidation, and, in the case of Options and Stock Appreciation Rights, with a corresponding proportionate adjustment of the Exercise Price or Grant Price per share so that the aggregate Exercise Price or Grant Price thereafter shall be the same as the aggregate Exercise Price or Grant Price of the Shares remaining subject to the Option or Stock Appreciation Right immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement evidencing any other Award, any restrictions applicable to such Award shall apply as well to any replacement Shares received by the Participant as a result of the reorganization, merger or consolidation. Notwithstanding the foregoing, upon the occurrence of any event or transaction contemplated in this Section 13.3, any changes contemplated herein shall be modified to the minimum extent necessary, in the sole discretion of the Committee, to avoid any tax that may otherwise become due under Section 409A of the Code. +13.4 Adjustment . Adjustments under Section 13 related to Shares or securities of the Company shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. The Committee may provide in the Award Agreements at the time of Award, or pursuant to any other arrangement or agreement at any time with the consent of the Participant, for different provisions to apply to an Award in place of those described in Sections 13.1, 13.2 and 13.3. Notwithstanding the foregoing, any different provisions or changes to provisions contemplated herein shall be modified to the minimum extent necessary, in the sole discretion of the Committee, to avoid any tax that may otherwise become due under Section 409A of the Code. +13.5 No Limitations on the Company . The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. +14. REQUIREMENTS OF LAW +14.1 General . The Company shall not be required to issue or sell any Shares under any Award if the issuance or sale of such Shares would constitute a violation by the Participant, any other individual exercising an Option or Stock Appreciation Right, or the Company of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any Shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of Shares hereunder, no Shares may be issued or sold to the Participant or any other individual exercising an Option or Stock Appreciation Right pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any Shares underlying an Award, unless a registration statement under the Securities Act is in effect with respect to the Shares covered by such Award, the Company shall not be required to issue or sell such Shares unless the Committee has received evidence satisfactory to it that the Participant or any other individual exercising an Option may acquire such Shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Committee shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance or sale of Shares pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the Shares covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. +A-16 +Table of Contents +14.2 Rule 16b-3 . During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by the Committee does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Committee, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Committee may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement. +15. GENERAL PROVISIONS +15.1 Disclaimer of Rights . No provision in the Plan, in any Award or in any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Company or any Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or beneficiary under the terms of the Plan. +15.2 Nontransferability of Awards . Except as provided in Sections 6.6, 6.7 and 7.6 or otherwise at the time of grant or thereafter, no right or interest of any Participant in an Award granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subject to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Awards shall only be transferable by will or the laws of descent and distribution to the extent provided under this Plan, and payment of any amounts due thereunder shall be made to, and exercise of any Option or Stock Appreciation Right may be made by, the Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is unable to care for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. +15.3 Changes in Accounting or Tax Rules . Except as provided otherwise at the time an Award is granted, notwithstanding any other provision of the Plan to the contrary, if, during the term of the Plan, any changes in the financial or tax accounting rules applicable to any Award shall occur which, in the sole judgment of the Committee, may have a material adverse effect on the reported earnings, assets or liabilities of the Company, the Committee shall have the right and power to modify as necessary, any then outstanding and unexercised Options, Stock Appreciation Rights and other outstanding Awards as to which the applicable services or other restrictions have not been satisfied. +15.4 Nonexclusivity of the Plan . The adoption of the Plan shall not be construed as creating any limitations upon the right and authority of the Committee to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Committee in its discretion determines desirable. +15.5 Captions . The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement. +15.6 Other Award Agreement Provisions . Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion. +15.7 Other Employee Benefits . The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option or Stock Appreciation Right, the sale of Shares received upon such exercise, the vesting of any Restricted Stock, receipt of Performance Shares, distributions with respect to +A-17 +Table of Contents +Restricted Stock Units or Performance Units, or Other Stock-Based Awards shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such employee are determined, including without limitation, benefits under any pension, profit sharing, 401(k), life insurance or salary continuation plan, except as may be specifically be provided otherwise under the terms of such other employee benefit plan or program. +15.8 Severability . If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. +15.9 Governing Law . The validity and construction of this Plan and the Award Agreements shall be construed in accordance with and governed by the laws of the State of Delaware other than any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan and the Award Agreements to the substantive laws of any other jurisdiction. +15.10 Section 409A . Notwithstanding anything in this Plan to the contrary, the Plan and Awards made under the Plan are intended to comply with the requirements imposed by Section 409A of the Code. If any Plan provision or Award under the Plan would result in the imposition of an additional tax under Section 409A of the Code, the Company and the Participant intend that the Plan provision or Award will be reformed to avoid imposition, to the extent possible, of the applicable tax and no action taken to comply with Section 409A of the Code shall be deemed to adversely affect the Participant’s rights to an Award. The Participant further agrees that the Committee, in the exercise of its sole discretion and without the consent of the Participant, may amend or modify an Award in any manner and delay the payment of any amounts payable pursuant to an Award to the minimum extent necessary to meet the requirements of Section 409A of the Code as the Committee deems appropriate or desirable. Subject to any other restrictions or limitations contained herein, in the event that a “specified employee” (as defined under Section 409A of the Code) becomes entitled to a payment under the Plan that is subject to Section 409A of the Code on account of a “separation of service” (as defined under Section 409A of the Code), such payment shall not occur until the date that is six months plus one day from the date of such “separation from service.” Any amount that is otherwise payable within the six (6) month period described herein will be aggregated and paid in a lump sum amount without interest. +16. AMENDMENT, MODIFICATION AND TERMINATION +16.1 Amendment, Modification, and Termination . Subject to Sections 3.2, 15.10 and 16.2, the Board may at any time terminate, and from time to time may amend or modify the Plan; provided, however , that no amendment or modification may become effective without approval of the stockholders of the Company if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. +16.2 Awards Previously Granted . Except as otherwise may be required under Section 15.10, notwithstanding Section 16.1 to the contrary, no amendment, modification or termination of the Plan or any Award Agreement shall adversely affect in any material way any previously granted Award, without the written consent of the Participant holding such Award. +17. STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN +The initial effective date of the Plan is May 15, 2014, subject to the approval of the Company’s stockholders at the 2014 Annual Meeting of Stockholders on that date. The Plan was approved by the Board on February 25, 2014, subject to the approval of the Company’s stockholders. No amount shall be paid to any Participant under the Plan unless such stockholder approval has been obtained within the period ending 12 months after the date the Plan was adopted by the Board. +A-18 +Table of Contents +18. DURATION +Unless sooner terminated by the Board, this Plan shall terminate automatically on May 15, 2024, which is 10 years from the Effective Date. After the Plan terminates, no Awards may be granted. Awards outstanding at the time the Plan terminates shall remain outstanding in accordance with the terms and conditions of the Plan and the Award Agreement. +A-19 +PROXY THIS +PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS CIMAREX ENERGY CO. The +undersigned appoints Thomas E. Jordan and Francis B. Barron as proxies, with +power to act without the other and with power of substitution, and authorizes +them to represent and vote, as designated on the other side, all the shares +of common stock of Cimarex Energy Co. held of record by the undersigned with +all powers that the undersigned would possess if present at the Annual +Meeting of Shareholders to be held at the Hyatt Regency Tulsa, 100 East +Second Street, Tulsa, Oklahoma 74103, on May 15, 2014, at 9:00 a.m., Central +Daylight Time, or any adjournment thereof. For participants in the Cimarex +401(k) Plans, this proxy, when properly executed, will be voted in the manner +directed by the undersigned. If no direction is given, if the card is not +signed, or if the card is not received prior to 11:59 p.m., Eastern Daylight +Time, on May 12, 2014, the Plan's Trustee will vote your shares held in the +Plan in the same proportion as shares were voted by other Plan participants. +(Continued, and to be marked, dated and signed, on the other side) PLEASE +DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. Important +Notice Regarding the Availability of Proxy Materials for the Annual Meeting +of Shareholders to be held May 15, 2014. The Proxy Statement and our 2013 +Annual Report to Shareholders are available at: http:/ /www.allia +nceproxy.com/cimarex/2014 +Please mark +your votes like this . THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO +DIRECTION IS INDICATED, WILL BE VOTED “FOR” ALL THE NOMINEES LISTED UNDER +PROPOSAL 1 AND “FOR” PROPOSALS 2, 3, AND 4. THIS PROXY IS SOLICITED ON BEHALF +OF THE BOARD OF DIRECTORS. The Board of Directors recommends a vote FOR all +the nominees listed under Proposal 1 and FOR Proposals 2, 3, and 4. The Board +of Directors recommends a vote FOR all the nominees listed below: 1. Election +of four Class III directors: The Board of Directors recommends you vote FOR +the following proposals: FOR AGAINST 2. Advisory vote to approve executive +compensation 3. Approve 2014 Equity Incentive Plan 4. Ratify the appointment +of KPMG LLP as our independent auditors for 2014 FOR AGAINST ABSTAIN (01) +David A. Hentschel (02) Thomas E. Jorden (03) Floyd R. Price (04) L. Paul +Teague I plan on attending the meeting NOTE: Please sign as name appears +hereon. Joint owners should each sign. When signing as attorney, executor, +administrator, corporate officer, trustee or guardian please give full title +as such Signature Signature (if held jointly) Date: , 2014 CONTROL NUMBER +PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. +CIMAREX ENERGY CO. As a shareholder of Cimarex Energy Co., you have the +option of voting your shares electronically through the Internet or on the +telephone, eliminating the need to return the proxy card. Your electronic +vote authorizes the named proxies to vote your shares in the same manner as +if you marked, signed, dated and returned the proxy card. Votes submitted +electronically over the Internet or by telephone must be received by 7:00 +p.m., Eastern Time, on May 14, 2014. CONTROL NUMBER PROXY VOTING INSTRUCTIONS +Please have your 11 digit control number ready when voting by Internet or +Telephone MAIL Vote Your Proxy by Mail: Mark, sign, and date your proxy card, +then detach it, and return it in the postage-paid envelope provided. +TELEPHONE Vote Your Proxy by Phone: Call 1 (888) 693-8683 Use any touch-tone +telephone to vote your proxy. Have your proxy card available when you call. Follow +the voting instructions to vote your shares. INTERNET Vote Your Proxy on the +Internet: Go to www.cesvote.com Have your proxy card available when you +access the above website. Follow the prompts to vote your shares. ABSTAIN \ No newline at end of file diff --git a/raw/proxies/0001168054/0001104659-14-024742/proxy_rpt.txt b/raw/proxies/0001168054/0001104659-14-024742/proxy_rpt.txt new file mode 100644 index 0000000000000000000000000000000000000000..b938efe8525a937e03e1dff5346dbb8298fbe170 --- /dev/null +++ b/raw/proxies/0001168054/0001104659-14-024742/proxy_rpt.txt @@ -0,0 +1,19 @@ +Review of related party transactions +Yes +Diverse Board skills and experience +Yes +Non-Hedging and non-pledging policies +Yes +Annual Board and Committee self-evaluations +Yes +Clawback policy +Yes +Annual equity grants to directors +Yes +Management and director stock ownership guidelines +Yes +Annual Board education +Yes +Tax Gross Ups +No +Interested parties may communicate with our Board by mail directed to our Corporate Secretary or by calling our Confidential Hotline (1-866-519-1898). All communications will be forwarded to the Lead Director for his review. The Lead Director may take any action he deems appropriate or necessary, including, without limitation, forwarding the information to the Board for consideration or, with the concurrence of the Board, retaining independent or outside counsel, accountants or other advisors to address the concern. No adverse action will be taken against any individual making any such communication to the Lead Director. \ No newline at end of file