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<SEC-DOCUMENT>0000893538-02-000009.txt : 20020415
<SEC-HEADER>0000893538-02-000009.hdr.sgml : 20020415
ACCESSION NUMBER:		0000893538-02-000009
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		9
CONFORMED PERIOD OF REPORT:	20011231
FILED AS OF DATE:		20020319

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ST MARY LAND & EXPLORATION CO
		CENTRAL INDEX KEY:			0000893538
		STANDARD INDUSTRIAL CLASSIFICATION:	CRUDE PETROLEUM & NATURAL GAS [1311]
		IRS NUMBER:				410518430
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-20872
		FILM NUMBER:		02578113

	BUSINESS ADDRESS:	
		STREET 1:		1776 LINCOLN ST STE 1100
		CITY:			DENVER
		STATE:			CO
		ZIP:			80203
		BUSINESS PHONE:		3038618140
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>asci1201_10k.htm
<DESCRIPTION>12/01 10-K
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K </TITLE></HEAD>
<BODY>
<PRE>



=======================================================================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
    of 1934

                       For the fiscal year ended December 31, 2001.

                                       OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934.

                         Commission File Number 000-20872

                       ST. MARY LAND &amp; EXPLORATION COMPANY
             (Exact name of registrant as specified in its charter)

               Delaware                                41-0518430
      (State or other jurisdiction          (I.R.S. Employer Identification No.)
   of incorporation or organization)

             1776 Lincoln Street, Suite 1100, Denver, Colorado 80203
               (Address of principal executive offices) (Zip Code)

                                 (303) 861-8140
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ x ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The  aggregate  market  value of  26,932,198  shares  of  voting  stock  held by
non-affiliates  of the  Registrant,  based  upon the  closing  sale price of the
common  stock on March 12,  2002 of $19.93 per share as  reported  on the Nasdaq
National Market System,  was  $536,758,706.  Shares of common stock held by each
director  and  executive  officer and by each person who owns 10% or more of the
outstanding  common stock or who is otherwise believed by the Company to be in a
control position have been excluded.  This  determination of affiliate status is
not necessarily a conclusive determination for other purposes.

          As of March 12, 2002, the registrant had 27,805,529 shares of common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  information  required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's  definitive  proxy statement  relating to its
2002 annual  meeting of  stockholders  to be filed within 120 days from December
31, 2001.

=======================================================================================================================================


                                TABLE OF CONTENTS
                                -----------------
    ITEM                                                                 PAGE
    ----                                                                 ----
                                     PART I

    ITEM 1.  BUSINESS........................................................1
                 Background..................................................1
                 Business Strategy...........................................2
                 Significant Developments Since December 31, 2000............3
                 Major Customers.............................................4
                 Employees and Office Space..................................4
                 Title to Properties.........................................4
                 Competition.................................................5
                 Government Regulations......................................5
                 Risk Factors................................................9
                 Cautionary Statement about Forward-Looking Statements......19
                 Glossary...................................................20

    ITEM 2.  PROPERTIES.....................................................23
                 Operations.................................................23
                 Acquisitions...............................................27
                 Reserves...................................................28
                 Production.................................................29
                 Productive Wells...........................................29
                 Drilling Activity..........................................30
                 Acreage....................................................31

    ITEM 3.  LEGAL PROCEEDINGS..............................................32

    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............32

    ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT...........................32


                                     PART II

    ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
             RELATED STOCKHOLDER MATTERS....................................34

    ITEM 6.  SELECTED FINANCIAL DATA........................................35

    ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS............................37
                 Overview...................................................37
                 Critical Accounting Policies and Estimates.................37
                 Results of Operations......................................39
                 Liquidity and Capital Resources............................44
                 Accounting Matters.........................................49
                 Effects of Inflation and Changing Prices...................50
                 Environmental..............................................50


                                        i


<PAGE>




                                TABLE OF CONTENTS
                                -----------------
                                   (Continued)
    ITEM                                                                 PAGE
    ----                                                                 ----

    ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
             MARKET RISK....................................................51

    ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................52

    ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE............................52

                                    PART III

    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............52

    ITEM 11. EXECUTIVE COMPENSATION.........................................52

    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT.................................................52

    ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................52

                                     PART IV

    ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 8-K............................................52


                                       ii

<PAGE>




                                     PART I

When we use the terms "St. Mary," "we," "us" or "our," we are referring to St.
Mary Land &amp; Exploration Company and its subsidiaries, unless the context
otherwise requires. We have included technical terms important to an
understanding of our business under "Glossary of Common Oil and Gas Terms".
Throughout this document we make statements that are classified as
"forward-looking". Please refer to the "Forward-Looking Statements" section of
this document for an explanation of these types of assertions.

ITEM 1.  BUSINESS

Background

         St. Mary Land &amp; Exploration Company is an independent energy
company engaged in the exploration, development, acquisition and production of
natural gas and crude oil. St. Mary was founded in 1908 and incorporated in
Delaware in 1915. Our operations are focused in the following five core
operating areas in the United States:

        o   the Mid-Continent region in western Oklahoma and northern Texas;

        o   the ArkLaTex region that spans northern Louisiana and portions of
            eastern Texas, Arkansas and Mississippi;

        o   the onshore Gulf Coast and offshore Gulf of Mexico;

        o   the Williston Basin in eastern Montana and western North Dakota; and

        o   the Permian Basin in eastern New Mexico and western Texas.

         As of December 31, 2001, we had estimated proved reserves of
approximately 23.7 MMBbls of oil and 241.2 Bcf of natural gas, or a total of
383.2 BCFE, 86% of which were proved developed and 63% of which were natural
gas, with a PV-10 value of $363.8 million. For the year ended December 31, 2001,
we produced 54.1 BCFE representing average daily production of 148.2 MMCFE per
day.

         We focus our resources in selected domestic basins where we believe
that our expertise in geology, geophysics and drilling and completion techniques
provides us with competitive advantages. We have assembled a balanced program of
low-to-medium-risk development and exploitation projects to provide the
foundation for steady growth. In addition, we have a portfolio of higher-risk
higher-potential exploration projects that we believe could significantly
increase our reserves and production. We measure and rank our investment
decisions based on their risk-adjusted impact on per share value. In the past,
we have sold selected assets when we believed attractive prices were available,
and we will continue to evaluate such opportunities in the future.

         We seek to develop our existing property base and acquire acreage with
additional potential in our core areas. From January 1, 1999 through December
31, 2001, we participated in the drilling and recompletion of 622 gross wells
with an average success rate of 83%. During that same period we added estimated
proved reserves of 347 BCFE at an average finding cost of $1.15 per MCFE. Our
average annual production replacement was 251% during this three-year period,
and our production has grown at an average rate of 18% per year over the same
time period.

                                       1

         As of December 31, 2001, we had an acreage position of 1,192,077 gross
(539,658 net) acres of which 620,540 gross (347,432 net) acres were undeveloped.
For 2002 we have budgeted capital expenditures of $104.0 million for ongoing
development, exploitation and exploration programs in our core operating areas
and $60.0 million for acquisitions of oil and gas properties and acreage.

         Our principal offices are located at 1776 Lincoln Street, Suite 1100,
Denver, Colorado 80203, and our telephone number is (303) 861-8140.

Business Strategy

         Our objective is to build stockholder value through consistent economic
growth in reserves and production that increase net asset value per share, cash
flow per share and earnings per share. The principal elements of our strategy
are as follows:

        o   Maintain Focused Geographic Operations. We focus on exploration,
            development and acquisition activities in five core operating areas
            where we have built a balanced portfolio of proved reserves,
            development drilling opportunities and higher-risk higher-potential
            exploration prospects. We believe that our leasehold position is a
            strategic asset. Our senior technical managers, each possessing over
            20 years of experience, head up regional technical offices located
            near core properties and are supported by centralized administration
            in our Denver office. We believe that our long-standing presence,
            our established networks of local industry relationships and our
            acreage holdings in our core operating areas provide us with a
            competitive advantage. In addition, we believe that we can continue
            to expand our operations without the need to proportionately
            increase the number of employees.

        o   Continue Exploitation and Development of Existing Properties. We use
            our comprehensive base of geological, geophysical, engineering and
            production experience in each of our core operating areas to source
            prospects for our ongoing low-to-medium-risk development and
            exploitation programs. We conduct detailed geologic studies and use
            an array of technologies and tools including 2-D and 3-D seismic
            imaging, hydraulic fracturing and reservoir stimulation techniques,
            and specialized logging tools to enhance the potential of our
            existing properties. In 2001 we participated in the drilling and
            recompletion of 252 gross drilling wells with an 83% success rate.

        o   Pursue Higher-Risk Higher-Potential Exploration Projects. We have
            allocated approximately 15% of our 2002 drilling and exploration
            capital expenditures budget to higher-risk higher-potential
            exploration projects and unconventional gas projects. Our strategy
            is to test several of these prospects each year that in total have
            the potential to significantly increase our reserves. We seek to
            invest in a diversified mix of exploration projects and generally
            limit our capital exposure by participating with other experienced
            industry partners. We plan to test several of these prospects in the
            Gulf Coast region and Rocky Mountain area during 2002.

        o   Make Selective Acquisitions. We seek to make selective niche
            acquisitions of oil and gas properties that complement our existing
            operations, offer economies of scale and provide further
            development, exploitation and exploration opportunities based on
            proprietary geologic concepts. We believe that the focus on smaller,

                                       2

            negotiated transactions where we have specialized geologic knowledge
            or operating experience has enabled us to acquire attractively
            priced and under-exploited properties. In addition, we will pursue
            corporate acquisitions that we believe will be accretive. Examples
            of this type of acquisition include our 1999 Nance Petroleum
            Corporation and King Ranch Energy, Inc. acquisitions, both of which
            were completed for stock. We believe that 2002 will be a very active
            year for the divestiture of oil and gas properties by larger and/or
            financially leveraged industry participants. We have budgeted $60.0
            million for acquisitions in 2002.

        o   Control Operations. We believe it is important to control geologic
            and operational decisions as well as the timing of those decisions.
            At December 31, 2001, we operated 58% of our properties on a volume
            basis and 54% on a PV-10 value basis. We are the operator of
            properties representing approximately 73% of our 2002 drilling
            capital budget.

        o   Maintain Financial Flexibility. Conservative use of financial
            leverage has long been a critical element of our strategy. We
            believe that maintaining a strong balance sheet is a significant
            competitive advantage that enables us to pursue acquisition and
            other opportunities, especially in weaker price environments. It
            also provides us with the financial resources to weather periods of
            volatile commodity prices or escalating costs.

Significant Developments Since December 31, 2000

        o   2001 Acquisition of Oil and Gas Properties. In November 2001 St.
            Mary completed a $40.5 million acquisition of properties from
            Choctaw II Oil &amp; Gas, Ltd. The properties are located in our
            Williston Basin core area and the Green River Basin in Wyoming and
            produce approximately 1,200 barrels of oil and 4,600 Mcf of gas per
            day.

        o   Increase in 2001 Year-End Reserves. As of December 31, 2001 proved
            reserves increased 9% from December 31, 2000 levels to 383.2 BCFE.
            St. Mary added 35.7 BCFE through acquisitions for cash and 78.6 BCFE
            from drilling activities. There were net downward revisions of
            previous reserves totaling 24.4 BCFE consisting of 32.1 BCFE due to
            price revisions, partially offset by 7.7 BCFE in positive
            performance revisions.

        o   2001 Acquisition of Coalbed Methane Prospects. In 2001 we acquired
            leases covering 115,000 acres in which we own an average 92% working
            interest in the Hanging Woman Basin of Montana and Wyoming for
            prospective coalbed methane development. We have drilled an 18-well
            pilot program and are evaluating its results. We are also currently
            investigating permitting and environmental issues related to these
            prospects. We will be unable to determine the future potential of
            these prospects until we have completed the evaluation of our pilot
            program and have resolved all such permitting and environmental
            issues. An environmental public interest group has filed a lawsuit
            against the federal Bureau of Land Management seeking to cancel
            certain federal leases related to coalbed methane development in
            Montana, which could affect 46,000 of our 115,000 leased acres. We
            will monitor this lawsuit as part of our investigation of
            environmental issues related to these prospects.

                                       3

        o   Senior Convertible Notes. In March 2002 we issued in a private
            placement a total of $100.0 million of our 5.75% senior convertible
            notes due 2022 with a 1/2% contingent interest provision. We
            received net proceeds, after deducting the initial purchasers'
            discount and estimated offering expenses payalbe by us, of $96.7
            million. The Notes are general unsecured obligations and rank on a
            parity in right of payment with all our existing and future senior
            indebtedness and other general unsecured obligations, and are senior
            in right of payment with all our future subordinated indebtedness.
            The Notes are convertible into our common stock at a conversion
            price of $26.00 per share, subject to adjustment. We can redeem the
            Notes with cash in whole or in part at a repurchase price of 100% of
            the principal amount plus accrued and unpaid interest beginning on
            March 20, 2007. The note holders have the option of requiring us to
            repurchase the Notes for cash at 100% of the principal amount plus
            accrued and unpaid interest upon (1) a change in control of St. Mary
            or (2) on March 20, 2007, March 15, 2012 and March 15, 2017. On
            March 20, 2007 we may pay the repurchase price with cash, shares of
            our common stock or any combination of cash and our common stock. We
            are not restricted from paying dividends, incurring debt, or issuing
            or repurchasing our securities under the indenture for the Notes.
            There are no financial covenants in the indenture . We used a
            portion of the net proceeds from the Notes to repay our credit
            facility balance and will use the remaining net proceeds to fund a
            portion of our 2002 capital budget.

Major Customers

         During 2001 sales to Transok Gas Company accounted for 12.0% and sales
to BP Amoco accounted for 11.3% of our total oil and gas production revenue.
During 2000 sales to BP Amoco accounted for 22.3% of our total oil and gas
production revenue. During 1999 sales to Transok accounted for 13.3% of our
total oil and gas production revenue.

Employees and Office Space

         As of December 31, 2001, St. Mary had 179 full-time employees. None of
our employees is subject to a collective bargaining agreement. We consider our
relations with our employees to be good. We lease approximately 42,660 square
feet of office space in Denver, Colorado for our executive and administrative
offices, of which 8,730 square feet is subleased. We also lease approximately
14,990 square feet of office space in Tulsa, Oklahoma; approximately 11,740
square feet in Shreveport, Louisiana; approximately 7,500 square feet in
Lafayette, Louisiana; and approximately 15,830 square feet in Billings, Montana.

Title to Properties

         Substantially all of our working interests are held pursuant to leases
from third parties. A title opinion is usually obtained prior to the
commencement of drilling operations on properties. We have obtained title
opinions or conducted a thorough title review on substantially all of our
producing properties and believe that we have satisfactory title to such
properties in accordance with standards generally accepted in the oil and gas
industry. Our properties are subject to customary royalty interests, liens for
current taxes, and other burdens that we believe do not materially interfere
with the use of or affect the value of such properties. We perform only a
minimal title investigation before acquiring undeveloped properties.

                                       4

Competition

         The oil and gas industry is intensely competitive. Competition is
particularly intense in the acquisition of prospective oil and natural gas
properties and oil and gas reserves. Our competitive position depends on our
geological, geophysical and engineering expertise, our financial resources, and
our ability to select, acquire and develop proved reserves. We believe that the
locations of our leasehold acreage, our exploration, drilling and production
capabilities and the experience of our management and that of our industry
partners generally enable us to compete effectively in our core operating areas.
However, we compete with a substantial number of major and independent oil and
gas companies that have larger technical staffs and greater financial and
operational resources than we do. Many of these companies not only engage in the
acquisition, exploration, development and production of oil and natural gas
reserves, but also have refining operations, market refined products and
generate electricity. We also compete with other oil and natural gas companies
in attempting to secure drilling rigs and other equipment necessary for drilling
and completion of wells. Drilling equipment may be in short supply from time to
time.

Government Regulations

         Our business is subject to various federal, state and local laws and
governmental regulations that may be changed from time to time in response to
economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds, reports concerning
operations, the spacing of wells, unitization and pooling of properties,
taxation and environmental protection. From time to time, regulatory agencies
have imposed price controls and limitations on production by restricting the
rate of flow of oil and gas wells below actual production capacity in order to
conserve supplies of oil and gas.

         St. Mary's operations could result in liability for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. We could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, and the payment of such liabilities could have a material adverse
effect on our financial condition and results of operations. We maintain
insurance coverage for our operations, including limited coverage for sudden
environmental damages, but we do not believe that insurance coverage for
environmental damage that occurs over time is available at a reasonable cost.
Moreover, we do not believe that insurance coverage for the full potential
liability that could be caused by sudden environmental damages is available at a
reasonable cost. Accordingly, we may be subject to liability or may lose
substantial portions of our properties in the event of certain environmental
damages. St. Mary could incur substantial costs to comply with environmental
laws and regulations.

         Energy Regulations. With respect to federal energy regulation, the
transportation and sale for resale of natural gas in interstate commerce have
historically been regulated pursuant to several laws enacted by Congress and
regulations promulgated under these laws by the Federal Energy Regulatory
Commission, or the FERC, and its predecessor. In the past the federal government
has regulated the prices at which gas could be sold. Congress removed all price
and non-price controls affecting wellhead sales of natural gas effective January
1, 1993. However, Congress could reenact price controls in the future.

         Our sales of natural gas are affected by the availability, terms and
cost of transportation. The price and terms of access to pipeline transportation
are subject to extensive federal and state regulation. From 1985 to the present,
several major regulatory changes have been implemented by Congress and the FERC

                                       5

that affect the economics of natural gas production, transportation and sales.
In addition, the FERC is continually proposing and implementing new rules and
regulations affecting those segments of the natural gas industry that remain
subject to the FERC's jurisdiction, most notably interstate natural gas
transmission companies. These initiatives may also affect the intrastate
transportation of gas under certain circumstances. The stated purpose of many of
these regulatory changes is to promote competition among the various sectors of
the natural gas industry, and these initiatives generally reflect more
light-handed regulation.

         The ultimate impact of the complex rules and regulations issued by the
FERC since 1985 cannot be predicted. In addition, many aspects of these
regulatory developments have not become final but are still pending judicial and
final FERC decisions. We cannot predict what further action the FERC will take
on these matters. Some of the FERC's more recent proposals may, however,
adversely affect the availability and reliability of interruptible
transportation service on interstate pipelines. Additional proposals and
proceedings that might affect the natural gas industry are pending before
Congress and the courts. The natural gas industry historically has been very
heavily regulated; therefore, there is no assurance that the less stringent
regulatory approach recently pursued by the FERC and Congress will continue. We
do not believe that we will be affected by any action taken materially
differently than other natural gas producers and marketers with whom we compete.

         Our sales of crude oil, condensate and natural gas liquids are
currently not regulated and are made at market prices. However, in a number of
instances the ability to transport and sell such products are dependent on
pipelines whose rates, terms and conditions of service are subject to FERC
jurisdiction under the Interstate Commerce Act. Certain regulations implemented
by the FERC in recent years could result in an increase in the cost of
transportation service on certain petroleum product pipelines. We do not believe
that these regulations affect us any differently than other producers of these
products.

         Certain operations we conduct are on federal oil and gas leases that
the Minerals Management Service administers. The MMS issues such leases through
competitive bidding. These leases contain relatively standardized terms and
require compliance with detailed MMS regulations and, for offshore leases,
orders pursuant to the Outer Continental Shelf Lands Act, which are subject to
change by the MMS. For offshore operations, lessees must obtain MMS approval for
exploration plans and development and production plans prior to the commencement
of such operations. In addition to permits required from other agencies such as
the Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency, lessees must obtain a permit from the MMS prior to the commencement of
drilling. Lessees must also comply with detailed MMS regulations governing,
among other things:

        o   engineering and construction specifications for offshore production
            facilities;

        o   safety procedures;

        o   flaring of production;

        o   plugging and abandonment of Outer Continental Shelf or OCS wells;

        o   calculation of royalty payments and the valuation of production for
            this purpose; and

        o   removal of facilities.

                                       6

         To cover the various obligations of lessees on the OCS, the MMS
generally requires that lessees post substantial bonds or other acceptable
assurances that such obligations will be met. The cost of such bonds or other
surety can be substantial, and we cannot assure that we can continue to obtain
bonds or other surety in all cases. Under certain circumstances the MMS may
require our operations on federal leases to be suspended or terminated.

         Many of the states in which we conduct our oil and gas drilling and
production activities regulate such activities by requiring, among other things,
drilling permits and bonds and reports concerning operations. The laws of these
states also govern a number of environmental and conservation matters, including
the handling and disposing of waste material, plugging and abandonment of wells,
restoration requirements, unitization and pooling of natural gas and oil
properties and establishment of maximum rates of production from natural gas and
oil wells. Some states prorate production to the market demand for oil and
natural gas.

         Environmental Regulations. Our operations are subject to numerous laws
and regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution resulting from our operations.

         Public interest in the protection of the environment has increased
dramatically in recent years. Onshore and offshore drilling in some areas has
been opposed by environmental groups and, in some areas, has been restricted.
Legislation has also been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes," which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. To the extent laws are enacted or
other governmental action is taken that prohibits or restricts offshore drilling
or imposes environmental protection requirements that result in increased costs
to the natural gas and oil industry (both onshore and offshore), our business
and prospects could be adversely affected. We believe that we are in substantial
compliance with current applicable environmental laws and regulations and that
continued compliance with existing requirements would not have a material
adverse impact on us.

         Violation of environmental laws and regulations can lead to the
imposition of administrative, civil or criminal penalties; remedial obligations;
and in some instances injunctive relief. In addition, violations of
environmental laws or the discharge of hazardous materials or oil could result
in liability for personal injuries, property damage, remediation and cleanup
costs, and other environmental damages. As a result, substantial liabilities to
third parties or governmental entities may be incurred, and the payment of such
liabilities could have a material adverse effect on our financial condition and
results of operations.

         The Oil Pollution Act and regulations thereunder impose a variety of
regulations on "responsible parties" related to the prevention of oil spills and
liability for damages resulting from such spills in United States waters. A
"responsible party" includes the owner or operator of an onshore facility,
pipeline or vessel, or the lessee or permittee of the area in which an offshore
facility is located. OPA assigns liability to each responsible party for oil
cleanup costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. Likewise, if the party fails to report a spill or to cooperate fully

                                       7

in the cleanup, liability limits do not apply. Even if applicable, the liability
limits for offshore facilities require the responsible party to pay all removal
costs, plus up to $75 million in other damages. Few defenses exist to the
liability imposed by OPA.

         OPA imposes ongoing requirements on a responsible party, including the
preparation of oil spill response plans and proof of financial responsibility to
cover environmental cleanup and restoration costs that could be incurred in
connection with an oil spill. As amended by the Coast Guard Authorization Act of
1996, OPA requires responsible parties of covered offshore facilities that have
a worst case oil spill of more than 1,000 barrels to demonstrate financial
responsibility in amounts ranging from at least $10 million in specified state
waters to at least $35 million in federal outer continental shelf waters, with
higher amounts of up to $150 million if a formal risk assessment indicates that
a higher amount should be required based on specific risks posed by the
operations or if the worst case oil-spill discharge volume possible at the
facility may exceed the applicable threshold volumes specified under the final
rule of the United States Department of the Interior Minerals Management
Service. On August 11, 1998, the MMS enacted a final rule implementing these
financial responsibility requirements. We do not anticipate that we will
experience any difficulty in continuing to satisfy the MMS's requirements for
demonstrating financial responsibility under OPA.

         The Federal Water Pollution Control Act, also known as the Clean Water
Act, imposes restrictions and strict controls regarding the discharge of
produced waters and other oil and gas wastes into navigable waters. Permits must
be obtained to discharge pollutants to waters and to conduct construction
activities in waters and wetlands. The FWPCA and similar state laws provide for
civil, criminal and administrative penalties for any unauthorized discharges of
pollutants and unauthorized discharges of reportable quantities of oil and other
hazardous substances. Many state discharge regulations and the Federal National
Pollutant Discharge Elimination System general permits prohibit the discharge of
produced water and sand, drilling fluids, drill cuttings and certain other
substances related to the oil and gas industry into coastal waters. Although the
costs to comply with zero discharge mandates under federal or state law may be
significant, the entire industry is expected to experience similar costs, and we
believe that these costs will not have a material adverse impact on our results
of operations or financial position. The United States Environmental Protection
Agency has adopted regulations requiring certain oil and gas exploration and
production facilities to obtain permits for storm water discharges. Costs may be
associated with the treatment of wastewater or developing and implementing storm
water pollution prevention plans.

         The Comprehensive Environmental Response, Compensation, and Liability
Act, also known as the "Superfund" law, imposes liability, without regard to
fault or the legality of the original conduct, on certain classes of persons
that are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons, including the owner or operator of the
disposal site or sites where the release occurred and companies that transported
or disposed or arranged for the transport or disposal of the hazardous
substances under CERCLA, may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources. It is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.

         We generate both hazardous and nonhazardous solid wastes which are
subject to requirements of the Federal Resource Conservation and Recovery Act
and comparable state statutes. From time to time, the EPA has considered making
changes in nonhazardous waste standards that would result in stricter disposal
requirements for these wastes. Furthermore, it is possible that some wastes that

                                       8

we generate that are currently classified as nonhazardous may be in the future
be designated as "hazardous wastes," resulting in the wastes being subject to
more rigorous and costly disposal requirements. Changes in applicable
regulations may result in an increase in our capital expenditures or operating
expenses.

         We currently own or lease, and have in the past owned or leased,
onshore properties that for many years have been utilized for or associated with
the exploration and production of oil and gas. Although we have utilized
operating and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by us or on or under other locations where such
wastes have been taken for disposal. These properties and the wastes disposed
thereon may be subject to CERCLA, RCRA and analogous state laws. Under such
laws, we could be required to remove or remediate previously disposed wastes
(including waste disposed of or released by prior owners or operators) or
property contamination (including groundwater contamination by prior owners or
operators), or to perform remedial plugging or closure operations to prevent
future contamination.

         Our operations are also subject to the Federal Clean Air Act and
comparable state statutes. Amendments to the Clean Air Act adopted in 1990
contain provisions that may result in the imposition of increasingly stringent
pollution control requirements with respect to air emissions from the operations
of stationary and mobile source equipment. Such air pollution control
requirements may include specific equipment or technologies, permits with
emissions and operational limitations, pre-approval of new or modified projects
or facilities producing air emissions, and similar measures. Failure to comply
with applicable air statutes or regulations may lead to the assessment of
administrative, civil or criminal penalties, and/or result in the limitation or
cessation of construction or operation of certain air emission sources.

Risk Factors

Risks Related to Our Business

         In addition to the other information set forth elsewhere in this Form
10-K, the following factors should be carefully considered when evaluating St.
Mary.

Oil and natural gas prices are volatile, and an extended decline in prices would
hurt our profitability and financial condition.

         Our revenues, operating results, profitability, future rate of growth
and the carrying value of our oil and gas properties depend heavily on
prevailing market prices for oil and gas. We expect the markets for oil and gas
to continue to be volatile. Any substantial or extended decline in the price of
oil or gas would have a material adverse effect on our financial condition and
results of operations. It could reduce our cash flow and borrowing capacity, as
well as the value and the amount of our oil and gas reserves. Lower prices may
also reduce the amount of oil and gas that we can economically produce.

         Historically, the markets for oil and gas have been volatile, and they
are likely to continue to be volatile. Wide fluctuations in oil and gas prices
may result from relatively minor changes in the supply of and demand for oil and
gas, market uncertainty and other factors that are beyond our control,
including:

        o   worldwide and domestic supplies of oil and natural gas;

                                       9

        o   the ability of the members of the Organization of Petroleum
            Exporting Countries to agree to and maintain oil price and
            production controls;

        o   political instability or armed conflict in oil or gas producing
            regions;

        o   the price and level of foreign imports;

        o   worldwide economic conditions;

        o   marketability of production;

        o   the level of consumer demand;

        o   the price, availability and acceptance of alternative fuels;

        o   the availability of pipeline capacity;

        o   weather conditions; and

        o   actions of federal, state, local and foreign authorities.

These external factors and the volatile nature of the energy markets make it
difficult to estimate future prices of oil and natural gas. Declines in oil and
gas prices would reduce our revenue and could also reduce the amount of oil and
gas that we can produce economically and, as a result, could have a material
adverse effect on our financial condition, results of operations and reserves.
Further, oil and gas prices do not necessarily move in tandem. Because
approximately 63% of our proved reserves were natural gas reserves as of
December 31, 2001, we are more susceptible to changes in natural gas prices.

A material portion of our production, revenues and cash flows are derived from
one field.

         Production from the Judge Digby Field accounted for approximately 16%
of our total oil and gas production volumes during 2001. If the level of
production from this field substantially declines other than through normal
depletion over the expected reserve life, it could have a material adverse
impact on our overall production levels and our revenues.

Our future success depends on our ability to replace reserves that we produce.

         Our future success depends on our ability to find, develop and acquire
oil and gas reserves that are economically recoverable. As of December 31, 2001
our proved reserves would last for approximately 7.1 years if produced
constantly at the 2001 rate of production. As a result, we must locate and
develop or acquire new oil and gas reserves to replace those being depleted by
production. We must do this even during periods of low oil and gas prices.
Without successful exploration or acquisition activities, our reserves,
production and revenues will decline rapidly. In addition, approximately 14% of
our total estimated proved reserves at December 31, 2001 were undeveloped. By
their nature, undeveloped reserves are less certain. Recovery of such reserves
will require significant capital expenditures and successful drilling
operations. We cannot assure you that we will be able to find and develop or
acquire additional reserves at an acceptable cost.

                                       10

Our producing property acquisitions carry significant risks.

         Our recent growth is due in part to, and our growth strategy relies in
part on, acquisitions of producing properties and exploration and production
companies. Successful acquisitions require an assessment of a number of factors
beyond our control. These factors include recoverable reserves, future oil and
gas prices, operating costs and potential environmental and other liabilities.
These assessments are inexact and their accuracy is inherently uncertain. In
connection with these assessments, we perform a review of the subject properties
that we believe is generally consistent with industry practices. However, such a
review will not reveal all existing or potential problems. In addition, our
review may not permit us to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. We do not inspect every well.
Even when we do inspect a well, we may not always discover structural,
subsurface or environmental problems that may exist or arise.

         In connection with our acquisitions, we are generally not entitled to
contractual indemnification for preclosing liabilities, including environmental
liabilities. Normally, we acquire interests in properties on an "as is" basis
with limited remedies for breaches of representations and warranties. In
addition, competition for producing oil and gas properties is intense and many
of our competitors have financial and other resources substantially greater than
those available to us. Therefore, we cannot assure you that we will be able to
acquire oil and gas properties that contain economically recoverable reserves or
that we will acquire such properties at acceptable prices.

         Additionally, significant acquisitions can change the nature of our
operations and business depending upon the character of the acquired properties,
which may have substantially different operating and geological characteristics
or be in different geographic locations than our existing properties. While it
is our current intention to continue to concentrate on acquiring properties with
development, exploitation and exploration potential located in our five core
operating areas, we cannot assure you that in the future we will not decide to
pursue acquisitions or properties located in other geographic regions. To the
extent that such acquired properties are substantially different than our
existing properties, our ability to efficiently realize the economic benefits of
such transactions may be limited.

We may not be able to successfully integrate future property or corporate
acquisitions.

         We seek to make selective niche acquisitions of oil and gas properties,
and we will pursue corporate acquisitions that we believe will be accretive.
However, integrating acquired properties and businesses involves a number of
special risks. These risks include the possibility that management may be
distracted from normal business concerns by the need to integrate operations and
systems and in retaining and assimilating additional employees. Any of these or
other similar risks could lead to potential adverse short-term or long-term
effects on our operating results. We cannot assure you that we will be able to
obtain adequate funds for future property or corporate acquisitions,
successfully integrate our future property or corporate acquisitions or that we
will realize any of the anticipated benefits of the acquisitions.

Substantial capital is required to replace and grow reserves.

         We make, and will continue to make, substantial expenditures to find,
acquire, develop and produce oil and natural gas reserves. Our capital
expenditures for oil and gas properties were $182.9 million for 2001 and $125.2
million during 2000. We have budgeted total capital expenditures of $164.0
million in 2002. With the net proceeds from the sale of senior convertible notes

                                       11

in March 2002 (see Item 7., Management's Discussion and Analysis), cash provided
by operating activities and borrowings under our credit facility, we believe we
will have sufficient cash to fund budgeted capital expenditures in 2002. If
additional development or attractive acquisition opportunities arise, we may
consider other forms of financing, including the public offering or private
placement of equity or debt securities. However, if oil and gas prices decrease
or we encounter operating difficulties that result in our cash flow from
operations being less than expected, we may have to reduce the capital we can
spend in future years, unless we raise additional funds through debt or equity
financing. We cannot assure you that debt or equity financing, cash generated by
operations or borrowing capacity will be available to us on acceptable terms to
meet these requirements.

         Future cash flows and the availability of financing will be subject to
a number of variables, such as:

        o   our success in locating and producing new reserves;

        o   the level of production from existing wells; and

        o   prices of oil and natural gas.

         Issuing equity securities to satisfy our financing requirements could
cause substantial dilution to existing shareholders. Debt financing could lead
to:

        o   a substantial portion of our operating cash flow being dedicated to
            the payment of principal and interest;

        o   us being more vulnerable to competitive pressures and economic
            downturns; and

        o   restrictions on our operations.

         If our revenues were to decrease due to lower oil and natural gas
prices, decreased production or other reasons, and if we could not obtain
capital through our credit facility or otherwise, our ability to execute our
development plans, replace our reserves or maintain production levels could be
greatly limited.

We may not obtain a bank credit facility borrowing base redetermination that
adequately meets our anticipated financing needs.

         We have a long-term revolving credit facility with a bank group
consisting of Bank of America, Comerica Bank-Texas and Wells Fargo Bank West.
Under the facility, the maximum loan amount is $115.0 million. The amount
actually available from time to time depends on a borrowing base that the
lenders periodically redetermine based on the value of our oil and gas
properties and other assets. Since we pay commitment fees based on the unused
portion of the borrowing base, we have limited the borrowing base that we have
accepted to correspond with our actual funding requirements. The accepted
borrowing base under the facility as of December 31, 2001 was $100.0 million.

                                       12

         Our next borrowing base redetermination date is scheduled to occur on
or about April 15, 2002. We cannot assure you that the banks will agree to a
borrowing base redetermination that is adequate for our anticipated financing
needs.

If oil and gas prices decrease or exploration efforts are unsuccessful, we may
be required to take additional writedowns.

         There is a risk that we will be required to write down the carrying
value of our oil and gas properties. This could occur when oil and gas prices
are low or if we have substantial downward adjustments to our estimated proved
reserves, increases in our estimates of development costs or deterioration in
our exploration results.

         We follow the successful efforts accounting method. All property
acquisition costs and costs of exploratory and development wells are capitalized
when incurred, pending the determination of whether proved reserves have been
discovered. If proved reserves are not discovered with an exploratory well, the
costs of drilling the well are expensed. All geological and geophysical costs on
exploratory prospects are expensed as incurred. The capitalized costs of our oil
and gas properties, on a field-by-field basis, may not exceed the estimated
future net cash flows of that field. If capitalized costs exceed future net
revenues we write down the costs of each such field to our estimate of fair
market value. Unproved properties are evaluated at the lower of cost or fair
market value. This type of charge will not affect our cash flow from operating
activities, but it will reduce the book value of our stockholders' equity. We
review the carrying value of our properties quarterly, based on prices in effect
as of the end of each quarter or as of the time of reporting our results. Once
incurred, a writedown of oil and gas properties is not reversible at a later
date even if oil or gas prices increase. St. Mary incurred impairment and
abandonment charges on proved and unproved properties of $4.7 million, $6.3
million and $10.6 million in 2001, 2000 and 1999, respectively.

Information concerning our reserves and future net revenue estimates is
uncertain.

         There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and their values, including many factors
beyond our control. Estimates of proved undeveloped reserves, which comprise a
significant portion of our reserves, are by their nature uncertain. The reserve
data included in this Annual Report on form 10-K is estimated. Although we
believe these estimates are reasonable, actual production, revenues and reserve
expenditures will likely vary from estimates, and these variances may be
material.

         Estimates of oil and natural gas reserves, by necessity, are
projections based on geologic and engineering data, and there are uncertainties
inherent in the interpretation of such data as well as the projection of future
rates of production and the timing of development expenditures. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and natural gas that are difficult to measure. The accuracy of any reserve
estimate is a function of the quality of available data, engineering and
geological interpretation and judgment. Estimates of economically recoverable
oil and natural gas reserves and future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions governing future
oil and natural gas prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of oil and natural gas attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows may vary substantially.

                                       13

Any significant variance in the assumptions could materially affect the
estimated quantity and value of the reserves. Actual production, revenues and
expenditures with respect to our reserves will likely vary from estimates, and
such variances may be material. See "Business and Properties--Reserves."

         In addition, you should not construe PV-10 value as the current market
value of the estimated oil and natural gas reserves attributable to our
properties. We have based the PV-10 value on prices and costs as of the date of
the estimate, in accordance with applicable regulations, whereas actual future
prices and costs may be materially higher or lower. For example, values of our
reserves at December 31, 2001 were estimated starting with a calculated weighted
average sales price of $19.84 per barrel of oil (NYMEX) and $2.65 per MMBtu of
gas (Gulf Coast spot price), then adjusted for quality and basis differentials.
During 2001 our realized gas prices were as high as $7.86 per Mcf and as low as
$2.21 per Mcf. Many factors will affect actual future net cash flows, including:

        o   the amount and timing of actual production;

        o   supply and demand for oil and natural gas;

        o   curtailments or increases in consumption by natural gas purchasers;
            and

        o   changes in governmental regulations or taxation.

         The timing of the production of oil and natural gas properties and of
the related expenses affect the timing of actual future net cash flows from
proved reserves and, thus, their actual present value. In addition, the 10%
discount factor, which we are required to use to calculate PV-10 value for
reporting purposes, is not necessarily the most appropriate discount factor
given actual interest rates and risks to which our business or the oil and
natural gas industry in general are subject. As a result, our actual future net
cash flows could be materially different from the estimates included in this
Annual Report on form 10-K.

Our industry is highly competitive.

         Major oil companies, independent producers, and institutional and
individual investors are actively seeking oil and gas properties throughout the
world, along with the equipment, labor and materials required to operate
properties. Many of our competitors have financial and technological resources
vastly exceeding those available to us. Many oil and gas properties are sold in
a competitive bidding process in which we may lack technological information or
expertise available to other bidders. We cannot be sure that we will be
successful in acquiring and developing profitable properties in the face of this
competition.

Exploration and development drilling may not result in commercially productive
reserves.

         Oil and gas drilling and production activities are subject to numerous
risks, including the risk that no commercially productive oil or natural gas
will be found. The cost of drilling and completing wells is often uncertain, and
oil and gas drilling and production activities may be shortened, delayed or
canceled as a result of a variety of factors, many of which are beyond our
control. These factors include:

        o   unexpected drilling conditions;

                                       14

        o   pressure or irregularities in formations;

        o   equipment failures or accidents;

        o   adverse weather conditions;

        o   shortages in experienced labor;

        o   compliance with governmental requirements; and

        o   shortages or delays in the availability of drilling rigs and the
            delivery of equipment.

         The prevailing prices of oil and gas also affect the cost of and the
demand for drilling rigs, production equipment and related services.

         We cannot assure you that the wells we drill will be productive or that
we will recover all or any portion of our investment in such wells. The seismic
data and other technologies we use do not allow us to know conclusively prior to
drilling a well that oil or gas is present or may be produced economically. The
cost of drilling, completing and operating a well is often uncertain, and cost
factors can adversely affect the economics of a project. Drilling activities can
result in dry wells or wells that are productive but do not produce sufficient
net revenues after operating and other costs to cover initial drilling costs.

         Our future drilling activities may not be successful, nor can we be
sure that our overall drilling success rate or our drilling success rate for
activity within a particular area will not decline. Unsuccessful drilling
activities could have a material adverse effect on our results of operations and
financial condition. Also, we may not be able to obtain any options or lease
rights in potential drilling locations that we identify. Although we have
identified numerous potential drilling locations, we cannot be sure that we will
ever drill them or that we will produce oil or natural gas from them or any
other potential drilling locations.

Our business is subject to operating hazards that could result in substantial
losses.

         Oil and gas operations are subject to many risks, including well
blowouts, craterings, explosions, uncontrollable flows of oil, natural gas or
well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks. If any of these hazards occurs, we could sustain substantial losses as a
result of:

        o   injury or loss of life;

        o   severe damage to or destruction of property, natural resources and
            equipment;

        o   pollution or other environmental damage;

        o   clean-up responsibilities;

        o   regulatory investigations and penalties; and/or

        o   suspension of operations.

                                       15

         In addition, we may be liable for environmental damage caused by
previous owners of property we own or lease. As a result, we may face
substantial liabilities to third parties or governmental entities, which could
reduce or eliminate funds available for exploration, development or acquisitions
or cause us to incur losses. An event that is not fully covered by insurance
could have a material adverse effect on our financial condition and results of
operations.

         We maintain insurance against some, but not all, of these potential
risks and losses. We may elect not to obtain insurance if we believe that the
cost of available insurance is excessive relative to the risks presented. In
addition, pollution and environmental risks generally are not fully insurable.
If a significant accident or other event occurs and is not fully covered by
insurance, it could adversely affect us.

Other independent oil and gas companies' limited access to capital may change
our exploration and development plans.

         Many independent oil and gas companies have limited access to the
capital necessary to finance their activities. As a result, some of the other
working interest owners of our wells may be unwilling or unable to pay their
share of the costs of projects as they become due. These problems could cause us
to change, suspend or terminate our drilling and development plans with respect
to the affected project.

Hedging transactions may limit our potential gains and involve other risks.

         To manage our exposure to price risks in the marketing of our oil and
natural gas, we enter into commodity price risk management arrangements from
time to time with respect to a portion of our current or future production.
While intended to reduce the effects of volatile oil and natural gas prices,
these transactions may limit our potential gains if oil or natural gas prices
were to rise substantially over the price established by the hedge. In addition,
such transactions may expose us to the risk of financial loss in certain
circumstances, including instances in which:

        o   our production is less than expected;

        o   the counterparties to our futures contracts fail to perform under
            the contracts; or

        o   a sudden, unexpected event materially impacts oil or natural gas
            prices.

         The terms of our hedging agreements may also require that we furnish
cash collateral, letters of credit or other forms of performance assurance in
the event that mark-to-market calculations result in settlement obligations by
us to the counterparties, which would encumber our liquidity and capital
resources.

Our industry is heavily regulated.

         Federal, state and local authorities extensively regulate the oil and
gas industry. Legislation and regulations affecting the industry are under
constant review for amendment or expansion, raising the possibility of changes
that may affect, among other things, the pricing or marketing of oil and gas
production. Noncompliance with statutes and regulations may lead to substantial
penalties, and the overall regulatory burden on the industry increases the cost
of doing business and, in turn, decreases profitability. State and local
authorities regulate various aspects of oil and gas drilling and production
activities, including the drilling of wells (through permit and bonding
requirements), the spacing of wells, the unitization or pooling of oil and gas

                                       16

properties, environmental matters, safety standards, the sharing of markets,
production limitations, plugging and abandonment, and restoration. Federal
authorities regulate many of these same activities for our drilling and
production operations in federal offshore waters. To cover the various
obligations of leaseholders in federal waters, federal authorities generally
require that leaseholders have substantial net worth or post bonds or other
acceptable assurances that such obligations will be met. The cost of these bonds
or other surety can be substantial, and we cannot assure you that we will be
able to obtain bonds or other surety in all cases. Under some circumstances,
federal authorities may require any of our operations on federal leases be
suspended or terminated. Any such suspension or termination could materially
adversely affect our financial condition and results of operations.

We must comply with complex environmental regulations.

         Our operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities where we are engaged in exploration or production
operations. New laws or regulations, or changes to current requirements, could
have a material adverse effect on our business. We will continue to be subject
to uncertainty associated with new regulatory interpretations and inconsistent
interpretations between state and federal agencies. We could face significant
liabilities to the government and third parties for discharges of oil, natural
gas or other pollutants into the air, soil or water, and we could have to spend
substantial amounts on investigations, litigation and remediation. We cannot be
sure that existing environmental laws or regulations, as currently interpreted
or enforced, or as they may be interpreted, enforced or altered in the future,
will not materially adversely affect our results of operations and financial
condition. As a result, we may face material indemnity claims with respect to
properties we own or have owned.

Our business depends on transportation facilities owned by others.

         The marketability of our oil and gas production depends in part on the
availability, proximity and capacity of pipeline systems owned by third parties.
The unavailability of or lack of available capacity on these systems and
facilities could result in the shut-in of producing wells or the delay or
discontinuance of development plans for properties. Although we have some
contractual control over the transportation of our product, material changes in
these business relationships could materially affect our operations. Federal and
state regulation of oil and gas production and transportation, tax and energy
policies, changes in supply and demand, pipeline pressures, damage to or
destruction of pipelines and general economic conditions could adversely affect
our ability to produce, gather and transport oil and natural gas.

We depend on key personnel.

         Our success will continue to depend on the continued services of our
executive officers and a limited number of other senior management and technical
personnel with extensive experience and expertise in evaluating and analyzing
producing oil and gas properties and drilling prospects, maximizing production
from oil and gas properties and marketing oil and gas production. Loss of the
services of any of these people could have a material adverse effect on our
operations. We currently do not have employment agreements with our executive
officers other than Mark Hellerstein, our Chief Executive Officer. We do not
carry any key person life insurance policies.

                                       17

Ownership of working interests, royalty interests and other interests by some of
our officers and directors may create conflicts of interest.

         As a result of their prior employment with another company with which
St. Mary engaged in a number of transactions, Ronald D. Boone, the Executive
Vice President and Chief Operating Officer and a director of St. Mary, and two
other vice presidents of St. Mary own working interests and royalty interests in
many of St. Mary's properties, which were earned as part of the prior employer's
employee benefit programs. Those persons have no royalty participation in any
new St. Mary properties.

         Mr. Boone also owns 50% of Princeton Resources Ltd. and has a 33%
interest in Baron Oil Corporation, entities that manage the oil and gas working
and royalty interests which he acquired as a result of his prior employment.
Although Mr. Boone does not manage these corporations, he may participate in any
investment decisions made by them.

         David C. Dudley, a director of St. Mary, is Operating Manager of Dudley
&amp; Associates, LLC, a closely-held oil and gas exploration and production
firm. From time to time we may compete with Mr. Dudley's firm for acquisition,
exploitation, exploration or development prospects.

         As a result of these transactions and relationships, conflicts of
interest may exist between these persons and us. Although these persons owe
fiduciary duties to our stockholders and to us, we cannot assure you that
conflicts of interest will always be resolved in our favor.

Risks Related to Our Common Stock

Our certificate of incorporation and bylaws have provisions that discourage
corporate takeovers and could prevent shareholders from realizing a premium on
their investment.

         Our certificate of incorporation and bylaws contain provisions that may
have the effect of delaying or preventing a change of control. These provisions,
among other things, provide for noncumulative voting in the election of the
board of directors and impose procedural requirements on stockholders who wish
to make nominations for the election of directors or propose other actions at
stockholders' meetings. These provisions, alone or in combination with each
other and with the rights plan described below, may discourage transactions
involving actual or potential changes of control, including transactions that
otherwise could involve payment of a premium over prevailing market prices to
shareholders for their common stock

         On July 15, 1999, our board of directors adopted a stockholder rights
plan. The plan is designed to enhance the board's ability to prevent an acquirer
from depriving stockholders of the long-term value of their investment and to
protect stockholders against attempts to acquire us by means of unfair or
abusive takeover tactics. If the board of directors decides in accordance with
its fiduciary obligations that the terms of a potential acquisition do not
reflect the long-term value of St. Mary, under the plan the board of directors
could allow the holder of each outstanding share of our common stock other than
those held by the potential acquirer to purchase one additional share of our
common stock with a market value of twice the exercise price. This prospective
dilution to a potential acquirer would make the acquisition impracticable unless
the terms were improved to the satisfaction of the board of directors. However,
the existence of the plan may impede a takeover not supported by our board,
including a takeover that may be desired by a majority of our stockholders or
involving a premium over the prevailing stock price.

                                       18

Our shares that are eligible for future sale may have an adverse effect on the
price of our common stock.

         At January 31, 2002 we had 27,777,338 share of common stock
outstanding. Of the shares outstanding, approximately 26,904,006 shares were
freely tradable without substantial restriction or the requirement of future
registration under the Securities Act. In addition, as of that date, options to
purchase 2,151,445 shares were outstanding, of which 1,378,403 were exercisable.
These options are exercisable at prices ranging from $9.25 to $33.3125 per
share. In connection with the private placement of the Notes, our executive
officers and directors have entered into lock-up agreements under which they
have agreed not to offer or sell any shares of our common stock or similar
securities for a period of 90 days from March 7, 2002 without the prior written
consent of the initial purchasers of the Notes. The initial purchasers may at
any time waive the terms of these lock-up agreements. Sales of substantial
amounts of common stock, or a perception that such sales could occur, and the
existence of options or warrants to purchase shares of commons stock at prices
that may be below the then current market price of the common stock could
adversely affect the market price of the common stock and could impair our
ability to raise capital through the sale of our equity securities.

Our Chairman of the Board and his extended family may be able to control us.

         Thomas E. Congdon, our Chairman of the Board, and members of his
extended family currently own approximately 18% of the outstanding shares of our
common stock. While no formal arrangements exist, these extended family members
may be inclined to act in concert with Mr. Congdon on matters related to control
of St. Mary, including for example the election of directors or response to an
unsolicited bid to acquire St. Mary. Accordingly, Mr. Congdon and his family may
be able to control or influence matters presented to our stockholders.

We may not always pay dividends on our common stock.

         Although we have paid cash dividends to stockholders every year since
1940 and we expect that our practice of paying dividends will continue, the
payment of future dividends remains in the discretion of the board of directors
and will continue to depend on our earnings, capital requirements, financial
condition and other factors. In addition, the payment of dividends is subject to
covenants in our bank credit facility, including the requirement that we
maintain certain levels of stockholder's equity. The board of directors may
determine in the future to reduce the current annual dividend rate of $0.10 per
share or discontinue altogether the payment of dividends.


Cautionary Statement about Forward-Looking Statements

         This Annual Report on Form 10-K includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical facts, included in
this Form 10-K that address activities, events or developments that St. Mary's
management expects, believes or anticipates will or may occur in the future are
forward looking statements. Examples of forward-looking statements may include
discussion of such matters as:

        o   The amount and nature of future capital, development and exploration
            expenditures;

                                       19

        o   The drilling of wells;

        o   Reserve estimates and the estimates of both future net revenues and
            the present value of future net revenues that are included in their
            calculation;

        o   Future oil and gas production estimates;

        o   Repayment of debt;

        o   Business strategies;

        o   Expansion and growth of operations; and

        o   Other similar matters such as those discussed in Management's
            Discussion and Analysis of Financial Condition and Results of
            Operations.

These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions, expected future developments and other factors we believe are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including such factors as the volatility
and level of oil and natural gas prices, uncertainties in cash flow, expected
acquisition benefits, production rates and reserve replacement, reserve
estimates, drilling and operating risks, competition, litigation, environmental
matters, the potential impact of government regulations, and other matters
discussed under the caption "Risk Factors", many of which are beyond our
control. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those expressed or implied in the forward-looking
statements.

Glossary

         The terms defined in this section are used throughout this Form 10-K.

2-D seismic or 2-D data. Seismic data that are acquired and processed to yield a
two-dimensional cross-section of the subsurface.

3-D seismic or 3-D data. Seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to oil or other liquid hydrocarbons.

Bcf. Billion cubic feet, used herein in reference to natural gas.

BCFE. Billion cubic feet of gas equivalent. Gas equivalents are determined using
the ratio of six Mcf of gas (including gas liquids) to one Bbl of oil.

Behind pipe reserves. Estimated net proved reserves in a formation in which
production casing has already been set in the wellbore but has not been
perforated and production tested.

                                       20

BOE. Barrels of oil equivalent. Oil equivalents are determined using the ratio
of six Mcf of gas (including gas liquids) to one Bbl of oil.

Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.

Dry hole. A well found to be incapable of producing either oil or gas in
sufficient quantities to justify completion as an oil or gas well.

Estimated net proved reserves. The estimated quantities of oil, gas and gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions.

Exploratory well. A well drilled to find and produce oil or gas in an unproved
area, to find a new reservoir in a field previously found to be productive of
oil or gas in another reservoir, or to extend a known reservoir.

Fee land. The most extensive interest that can be owned in land, including
surface and mineral (including oil and gas) rights.

Finding cost. Expressed in dollars per BOE. Finding costs are calculated by
dividing the amount of total capital expenditures for oil and gas activities by
the amount of estimated net proved reserves added during the same period
(including the effect on proved reserves of reserve revisions).

Gross acres. An acre in which a working interest is owned.

Gross well. A well in which a working interest is owned.

Hydraulic fracturing. A procedure to stimulate production by forcing a mixture
of fluid and proppant (usually sand) into the formation under high pressure.
This creates artificial fractures in the reservoir rock, which increases
permeability and porosity.

MBbl.  One thousand barrels of oil or other liquid hydrocarbons.

MMBbl.  One million barrels of oil or other liquid hydrocarbons.

MBOE.  One thousand barrels of oil equivalent.

MMBOE.  One million barrels of oil equivalent.

Mcf.  One thousand cubic feet.

MCFE. One thousand cubic feet of gas equivalent. Gas equivalents are determined
using the ratio of six Mcf of gas (including gas liquids) to one Bbl of oil.

MMcf.  One million cubic feet.

MMCFE. One million cubic feet of gas equivalent. Gas equivalents are determined
using the ratio of six Mcf of gas (including gas liquids) to one Bbl of oil.

                                       21

MMBtu. One million British Thermal Units. A British Thermal Unit is the heat
required to raise the temperature of a one-pound mass of water one degree
Fahrenheit.

Net acres or net wells. The sum of the fractional working interests owned in
gross acres or gross wells.

Net asset value per share. The result of the fair market value of total assets
less total liabilities, divided by the total number of outstanding shares of
common stock.

PV-10 value. The present value of estimated future gross revenue to be generated
from the production of estimated net proved reserves, net of estimated
production and future development costs, using prices and costs in effect as of
the date indicated (unless such prices or costs are subject to change pursuant
to contractual provisions), without giving effect to non-property related
expenses such as general and administrative expenses, debt service and future
income tax expenses or to depreciation, depletion and amortization, discounted
using an annual discount rate of 10%.

Productive well. A well that is producing oil or gas or that is capable of
production.

Proved developed reserves. Reserves that can be expected to be recovered through
existing wells with existing equipment and operating methods.

Proved undeveloped reserves. Reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion.

Recompletion. The completion for production of an existing wellbore in another
formation from that in which the well has previously been completed.

Reserve life. Expressed in years, represents the estimated net proved reserves
at a specified date divided by forecasted production for the preceding 12-month
period.

Royalty. The interest paid to the owner of mineral rights expressed as a
percentage of gross income from oil and gas produced and sold unencumbered by
expenses.

Royalty interest. An interest in an oil and gas property entitling the owner to
shares of oil and gas production free of costs of exploration, development and
production. Royalty interests are approximate and are subject to adjustment.

Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas, regardless of whether such acreage contains estimated net proved
reserves.

Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and to share in
the production.
                                       22


<PAGE>



ITEM 2.  PROPERTIES

Operations

         St. Mary's exploration, development and acquisition activities are
focused in five core operating areas: the Mid-Continent region; onshore Gulf
Coast and offshore Gulf of Mexico; the ArkLaTex region; the Williston Basin in
North Dakota and Montana; and the Permian Basin in west Texas and New Mexico.
Information concerning each of our major areas of operations, based on our
estimated proved reserves as of December 31, 2001, is shown below.

                                               Estimated Proved Reserves
                                       -----------------------------------------
                                         Oil        Gas             MMCFE                     PV-10
                                                              ------------------     -----------------------
                                       (MBbls)     (MMcf)      Amount    Percent     (In thousands)  Percent
                                       -------    -------     -------    -------     --------------  -------
 Mid-Continent Region...........         1,203    119,062     126,281      33.0%       $ 126,219       34.7%
 ArkLaTex Region................         1,295     40,940      48,711      12.7%          37,978       10.4%
 Gulf Coast and Gulf of Mexico..         1,025     44,126      50,274      13.1%          63,594       17.5%
 Williston Basin................        16,248     24,376     121,867      31.8%         101,930       28.0%
 Permian Basin..................         3,898     12,727      36,114       9.4%          34,074        9.4%
                                       -------    -------     -------    -------       ---------     -------
 Total..........................        23,669    241,231     383,247     100.0%       $ 363,795      100.0%
                                       =======    =======     =======    =======       =========     =======

         Mid-Continent Region. Since 1973 St. Mary has been active in the
Mid-Continent region, where operations are managed by our 32-person Tulsa,
Oklahoma office. We have ongoing exploration and development programs in the
Anadarko Basin of Oklahoma and Texas. The Mid-Continent region accounted for 33%
of our estimated proved reserves as of December 31, 2001, or 126.3 BCFE, 85% of
which were proved developed and 94% of which were natural gas. We participated
in drilling 88 gross wells in this region in 2001, including 30 wells operated
by us, 83% of which were completed as producers.

         St. Mary's development and exploration budget in the Mid-Continent
region for 2002 totals $33.0 million. We plan to operate 28 drilling wells in
the Mid-Continent region during 2002 and to utilize three to four drilling rigs
throughout the year. Our 2002 budget also reflects participation in an
additional 100 to 125 wells to be operated by other entities.

         Anadarko Basin. Our long history of operations and proprietary geologic
knowledge enables us to sustain economic development and exploration programs
despite periods of adverse industry conditions. We are applying state of the art
technology in hydraulic fracturing and innovative well completion techniques to
accelerate production and associated cash flow from the region's tight gas
reservoirs. We also continue to benefit from the continuing consolidation of
operators in the basin. We periodically pursue attractive opportunities to
acquire properties from companies that have elected to discontinue operations in
this basin. The $31.6 million acquisition of properties from JN Exploration that
closed in December 2000 is a good example of this type of opportunity.

         Approximately one-half of the drilling activities for 2002 will be
focused on low-to-medium-risk development in the Cromwell, Granite Wash,
Osborne, Red Fork and Spiro formations. In addition, approximately one-half of
our 2002 Mid-Continent capital budget is allocated to deeper, higher-potential
wells in the lower Morrow formation below 19,000 feet at the NE Mayfield Field
in Oklahoma and in various other fields within the Morrow and Springer
formations at depths between 10,000 and 16,000 feet.

                                       23

         Carrier Prospect. Within its inventory of higher-risk higher-potential
exploration prospects, St. Mary holds an aggregate 42% working interest in 5,700
acres in Leon County, Texas. Our Carrier Prospect acreage relates to a platform
reef prospect located near the industry's prolific Cotton Valley pinnacle reef
discovery and targets potentially larger platform reefs that we believe
developed in the deeper waters of the basin during the Jurassic period. We plan
to seek industry participation for an initial test well in 2002.

         Arkoma Basin. In Coal County, Oklahoma, we have acquired a leasehold
position of 5,700 net acres. In 2001, we spud five gross wells, all of which
were completed as gas wells. The producing formations in this area include the
Booch, Hartshorne, Wapanucka and the Cromwell, which is the deepest formation at
approximately 6,700 feet. Our average working interest for these wells is 98%,
and we anticipate drilling at least ten gross wells in this area in 2002.
Initial production rates from the wells have varied from approximately 500 Mcf
per day to 1,250 Mcf per day. We are also actively pursuing additional leasehold
positions within this four township area both through leasing activity and the
acquisition of producing properties.

         In February 2002 we acquired oil and gas properties and an 89-mile gas
gathering system in the Arkoma Basin from Merchant Resources #1 L.P. of Houston,
Texas for $7.8 million in cash. The properties include undrilled locations and
are expected to complement other St. Mary properties in the area. The properties
currently produce an estimated 1,200 Mcf of gas and 65 barrels of oil per day.

         Gulf Coast and Gulf of Mexico Region. St. Mary's presence in south
Louisiana dates to the early 1900's when our founders acquired a franchise
property in St. Mary Parish on the shoreline of the Gulf of Mexico. These 24,900
acres of fee lands yielded more than $5.5 million of gross oil and gas royalty
revenue in 2001. Our onshore Gulf Coast and Gulf of Mexico presence increased
significantly in 1999 with the acquisition of King Ranch Energy. This
acquisition included 260,000 gross undeveloped acres (81,000 net acres) and a
large 3-D seismic database. The Gulf Coast and Gulf of Mexico region accounted
for 13% of our estimated proved reserves as of December 31, 2001, or 50.3 BCFE,
90% of which were proved developed and 88% of which were natural gas.

         St. Mary's diverse activities in the onshore Gulf Coast and Gulf of
Mexico are managed by our 16-person regional office in Lafayette, Louisiana and
include ongoing development and exploration programs in multiple basins onshore
south Louisiana as well as several offshore shallow-water Gulf of Mexico blocks.
Advanced 3-D seismic imaging and interpretation techniques and extensive
subsurface geological interpretations are revitalizing exploration and
development activities in the Miocene trend along the Gulf Coast. Our
exploration and development budget in the Gulf Coast and Gulf of Mexico region
for 2002 is $18.0 million.

         The Judge Digby Field is the largest field acquired in the King Ranch
Energy acquisition and is located outside Baton Rouge, Louisiana in Point Coupee
Parish. We have interests ranging from 12% to 20% in nine wells that are
producing a total of 130 MMcf per day on a gross basis as of February 12, 2002.
This ultra deep field produces from multiple Tuscaloosa reservoirs between
19,000 and 24,000 feet. The wells are characterized by high producing rates such
as the Parlange #11 completed in 2000 at an initial rate of 92,000 Mcf per day.
We believe this well had the highest initial production rate for a well ever
completed onshore Louisiana. New drilling in this field is continuing with the
completion of the Parlange #12 in the deepest field pay ever produced at Judge
Digby with initial rates of 64,000 Mcf per day. The J. Wuertele #2 was also
completed in 2001, at an initial rate of 45,000 Mcf per day. The J. Wuertele #3
was spud on November 15, 2001 and is currently drilling toward a projected total
depth of 22,000 feet. In addition to the drilling activity, multiple

                                       24

recompletions of several wells are anticipated in 2002 in this multi-pay
geologically complex field.

         In the Gulf of Mexico, we plan to test a large 3-D target at Matagorda
701 during 2002. Matagorda 701 is located 50 miles northeast of Corpus Christi,
Texas in 110 feet of water. We also plan to test a large fault block on the east
flank of the Matagorda 700 field in 2002.

         Fee Lands. St. Mary owns 24,900 acres of fee lands and associated
mineral rights in St. Mary Parish located approximately 85 miles southwest of
New Orleans, Louisiana. Since the initial discovery on our fee lands in 1938,
our cumulative oil and gas revenues, primarily landowner's royalties, from the
Bayou Sale, Horseshoe Bayou and Belle Isle fields have exceeded $235 million. We
currently lease 10,357 acres and have an additional 14,557 acres that are
unleased. Our principal operators on the fee properties are BP Amoco, Cabot,
ExxonMobil and Badger Petroleum. We have encouraged development drilling by our
lessees, facilitated the origination of new prospects on acreage not held by
production and stimulated exploration interest in deeper, untested horizons. A
discovery at South Horseshoe Bayou in early 1998 and a subsequent successful
confirmation well in early 1999 established that significant accumulations of
gas are sourced and trapped at depths below 16,000 feet.

         Centennial Project. St. Mary participated in a 51 square mile 3-D
seismic survey over the Spindletop field near Beaumont, Texas, which was
completed in 2001. Our partner group has leased or optioned approximately 19,000
acres within the seismic outline. We have a 21% working interest in this
project, which is planned to be a multi-year exploration and development
program. The partner group plans to drill several wells in this project in 2002.

         ArkLaTex Region. St. Mary's operations in the ArkLaTex region are
managed by our 18-person office in Shreveport, Louisiana. The ArkLaTex region
accounted for 13% of our estimated proved reserves as of December 31, 2001, or
48.7 BCFE, 85% of which were proved developed and 84% of which were natural gas.
In 1992, we acquired the ArkLaTex oil and gas properties of T. L. James &amp;
Company, Inc. as well as rights to over 6,000 square miles of proprietary 2-D
seismic data in the region. Much of the Shreveport office's successful
exploration and development programs have derived from niche acquisitions
completed since 1992 totaling $18.2 million. These acquisitions have provided
access to strategic holdings of undeveloped acreage and proprietary packages of
geologic and seismic data, resulting in an active program of additional
development and exploration.

         Our holdings in the ArkLaTex region are comprised of interests in
approximately 502 producing gross wells, including 98 wells operated by us;
interests in leases totaling approximately 73,500 gross acres; and mineral
servitudes totaling approximately 14,600 gross acres. Activities in the ArkLaTex
region during 2001 focused on the search for new opportunities and potential
analog fields as well as final development of several important field
discoveries made by our geoscientists since 1994. We have expanded into southern
Mississippi where the objective is to leverage our technical expertise in the
Mississippi salt play. St. Mary participated with a 50% working interest in two
successful wells in 2000 in the James Lime play in east Texas, where it
completed the Jones #1 and Jones #2 wells as multi-lateral wells, each with
initial production exceeding 4,000 Mcf per day. We will continue to be active in
this play in 2002.

         In 2002 we will continue to focus on the search for new opportunities
and potential analog fields in which to apply our proprietary geologic models
and production techniques. We anticipate participating in 30 gross wells in the
ArkLaTex region and are the operator of properties representing approximately

                                       25

75% of our 2002 $14 million drilling capital expenditures budget.

         Williston Basin Region. Nance Petroleum Corporation, a wholly owned
subsidiary of St. Mary, has conducted operations in the Williston Basin in
eastern Montana and western North Dakota on our behalf since 1991, initially
under a joint venture arrangement and subsequently as a wholly owned subsidiary.
The Williston Basin region accounted for 32% of our estimated proved reserves as
of December 31, 2001, or 121.9 BCFE, 87% of which were proved developed and 80%
of which were oil.

         Our office in Billings, Montana includes a 28-person staff, some of
which have spent over 20 years and their entire careers in the Williston Basin.
A significant portion of the exploration and development in the Williston Basin
is based on the interpretation of 3-D seismic data. We have successfully used
3-D seismic imaging to delineate structure and porosity development in the Red
River formation. Since 1991 we have successfully completed 30 out of 32 gross
wells drilled and operated. Our prospect inventory continues to expand as
results from current activity lead to additional areas to conduct 3-D seismic
surveys. Seven 3-D surveys are planned for 2002, exceeding the number of surveys
conducted in any prior year.

         St. Mary spent $16 million on exploration and development in the
Williston Basin in 2001. In November 2001 we completed a $40.5 million
acquisition of properties from Choctaw II Oil &amp; Gas, Ltd. The properties are
located in our Williston Basin core area and the Green River Basin in Wyoming
and produce approximately 1,200 barrels of oil and 4,600 Mcf of gas per day. Our
2002 Williston Basin exploration and development capital budget is $22.0
million. We plan to drill ten operated wells with working interests ranging from
60% to 100%. We are the operator of properties representing approximately 80% of
our Williston Basin capital budget in 2002.

         Permian Basin Region. The Permian Basin area covers a significant
portion of eastern New Mexico and western Texas and is one of the major
producing basins in the United States. The basin includes hundreds of oil fields
undergoing secondary and enhanced oil recovery projects. 3-D seismic imaging of
existing fields and advanced secondary recovery programs are substantially
increasing oil recoveries in the Permian Basin. Our holdings in the Permian
Basin resulted from a series of niche property acquisitions since 1995, which
total $21.9 million. We believe that our Permian Basin operations provide us
with a solid base of long-lived oil reserves, promising longer-term exploration
and development prospects and the potential for secondary recovery projects. The
Permian Basin region accounted for 9% of our estimated proved reserves as of
December 31, 2001, or 36.1 BCFE, of which 81% were proved developed and 65% were
oil.

         St. Mary participated in drilling 12 gross wells in 2001 with a 100%
success rate. The East Shugart Delaware Unit waterflood project was initiated in
2000. The initial response from the water injection is anticipated in 2002, and
we are hopeful the East Shugart waterflood will be an analog to our successful
Parkway Delaware Unit waterflood that increased production from 325 Bbl per day
in 1996 when the property was aquired to 1,125 Bbl per day as of February 12,
2002.

         Our Permian Basin capital budget for 2002 is $9.0 million. In addition
to drilling four injection wells in the East Shugart Delaware waterflood, two
Morrow test wells are planned in the Parkway field and six in-fill wells are
planned at Ft. Chadbourne. The HJSA top lease on 30,450 acres in Ward County,
Texas became effective on August 5, 2000 and at year-end 2001 was producing
2,800 MCFE per day net to St. Mary. 3-D seismic data over the 50 square mile

                                       26

lease was reprocessed and is currently being evaluated. We believe opportunities
will develop with respect to our non-operated 21.4% interest in this lease.

         Other Areas. In 2001 we acquired leases covering 115,000 acres in which
we own an average 92% working interest in the Hanging Woman Basin of Montana and
Wyoming for prospective coalbed methane development. We have drilled an 18-well
pilot program and are evaluating its results. We are also currently
investigating permitting and environmental issues related to these prospects. We
will be unable to determine the future potential of these prospects until we
have completed the evaluation of our pilot program and have resolved all such
permitting and environmental issues. An environmental public interest group has
filed a lawsuit against the federal Bureau of Land Management seeking to cancel
certain federal leases related to coalbed methane development in Montana, which
could affect 46,000 of our 115,000 leased acres. We will monitor this lawsuit as
part of our investigation of environmental issues related to these prospects.

         Coalbed methane production is similar to our traditional natural gas
production as to the physical producing facilities and the product produced.
However, the subsurface mechanisms that allow the gas to move to the wellbore
and the producing characteristics of coalbed methane wells are very different
from traditional natural gas production. Unlike conventional gas wells, which
require a porous and permeable reservoir, hydrocarbon migration and a natural
structural and/or stratigraphic trap, the coalbed methane gas is trapped in the
molecular structure of the coal itself until released by pressure changes
resulting from the removal of in situ water. Frequently, coalbeds are partly or
completely saturated with water. As the water is removed, internal pressures on
the coal are decreased, allowing the gas to desorb from the coal and flow to the
wellbore. Unlike traditional gas wells, new coalbed methane wells often produce
water for several months and then, as the water production decreases, natural
gas production increases as the coal seams de-water.

         Coalbed methane gas production requires state permits for the use of
well-site pits and evaporation ponds for the disposal of produced water.
However, groundwater produced from the coal seams can generally be discharged
into arroyos, surface waters, well-site pits and evaporation ponds without
 a permit if it does not exceed surface discharge permit levels, and
if it meets state and federal primary drinking water standards. All of these
disposal options require an extensive third-party water sampling and laboratory
analysis program to ensure compliance with state permit standards. Where water
of lesser quality is involved or the wells produce water in excess of the
applicable volumetric permit limits, additional disposal wells would have to be
drilled to re-inject the produced water back into deep underground rock
formations.

         We are also currently investigating other potential unconventional
natural gas projects in the Rocky Mountains.

Acquisitions

         In November 2001, we completed a $40.5 million acquisition from Choctaw
II Oil &amp; Gas, Ltd. of oil and gas properties  located in our Williston Basin
core area and the Green River Basin in Wyoming.  In December 2000 we completed a
$31.6 million acquisition of oil and gas properties in the Mid-Continent  region
from  JN  Exploration.  Also  in  2000  we  completed  $21.5  million  of  niche
acquisitions  in our  other  core  areas.  During  the last  five  years we have
completed  over $171 million of  acquisitions.  For 2002 we have budgeted  $60.0

                                       27

million for property  acquisitions.  However,  we have the financial capacity to
commit   substantially   greater   resources  to  purchases  should   additional
opportunities  be  identified.  In February  2002 we  completed  a $7.8  million
acquisition of properties in the Arkoma Basin of the  Mid-Continent  region from
Merchant Resources #1 L.P.



<PAGE>



Reserves

         The following table presents summary information with respect to the
estimates of our proved oil and gas reserves for each of the years in the
three-year period ended December 31, 2001, as prepared by both Ryder Scott
Company, independent petroleum engineers, and us. For the periods presented,
Ryder Scott Company evaluated properties representing approximately 80% of our
total PV-10 value while we evaluated the remainder. The PV-10 values shown in
the following table are not intended to represent the current market value of
the estimated proved oil and gas reserves owned by St. Mary. Neither prices nor
costs have been escalated, but prices include the effects of hedging contracts.
You should read the following table along with the sections entitled "Risk
Factors - Risks Related to Our Business - Information concerning our reserves
and future net revenue estimates is uncertain".

                                                                   As of December 31,
                                                           ---------------------------------
                                                           2001           2000          1999
                                                           ----           ----          ----
Proved Reserves Data:
Oil (MBbls)                                              23,669         20,950         18,900
Gas (MMcf)                                              241,231        225,975        207,642
MMCFE                                                   383,247        351,673        321,042
PV-10 value (in thousands) (1)                        $ 363,795    $ 1,153,663      $ 351,016
Proved Developed Reserves                                   86%            87%            84%
Production Replacement                                     166%           168%           541%
Reserve Life (years) (2)                                    7.1            6.7           10.3
- ------------------

(1)      PV-10 value as of December 31, 2001 was calculated using prices in
         effect at December 31, 2001 of $19.84 per barrel of oil (NYMEX) and
         $2.65 per MMBtu of gas (Gulf Coast spot price). Both of these prices
         were then adjusted for transportation and basis differentials. These
         prices were 26 % and 72 % lower, respectively, than prices used to
         calculate PV-10 value as of December 31, 2000.
(2)      Reserve life represents the estimated proved reserves at the dates
         indicated divided by actual production for the preceding 12-month
         period. The value as of December 31, 1999 reflects the acquisition of
         King Ranch Energy in December 1999.

                                       28
<PAGE>



Production

         The following table summarizes the average volumes of oil and gas
produced from properties in which St. Mary held an interest during the periods
indicated:
                                                                      Years Ended December 31,
                                                                    ----------------------------
                                                                     2001       2000       1999
                                                                     ----       ----       ----
  Operating Data:
  Net production:
   Oil (MBbls).................................................     2,434      2,398      1,383
   Gas (MMcf)..................................................    39,491     38,346     22,805
   MMCFE.......................................................    54,093     52,731     31,104
  Average net daily production:
   Oil (Bbls)..................................................     6,667      6,551      3,790
   Gas (Mcf)...................................................   108,195    104,769     62,478
   MCFE........................................................   148,199    144,075     85,216
  Average sales price (1):
   Oil (per Bbl)...............................................   $ 23.29    $ 23.53    $ 16.56
   Gas (per Mcf)...............................................   $  3.73    $  3.44    $  2.21
  Additional per MCFE data:
   Lease operating expense.....................................   $  0.75    $  0.48    $  0.44
   Transportation costs........................................   $  0.04    $  0.04    $  0.03
   Production taxes............................................   $  0.23    $  0.21    $  0.16
   General and administrative..................................   $  0.22    $  0.21    $  0.29
   Depreciation, depletion and amortization....................   $  0.95    $  0.76    $  0.73

(1) Includes the effects of St. Mary's hedging activities. See "Management's
    Discussion and Analysis of Financial Condition and Results of Operations."

Productive Wells

         As of December 31, 2001, we had interests in 947 gross (319 net)
productive oil wells and 1,396 gross (268 net) productive gas wells. Productive
wells are either producing wells or wells capable of commercial production
although currently shut in. One or more completions in the same wellbore are
counted as one well. A well is categorized under state reporting regulations as
an oil well or a gas well based upon the ratio of gas to oil produced when it
first commenced production, and such designation may not be indicative of
current production.

                                       29


<PAGE>



Drilling Activity

         The following table sets forth the wells drilled and recompleted in
which St. Mary participated during each of the three years indicated:

                                                              Years Ended December 31,
                                               ------------------------------------------------------
                                                     2001               2000               1999
                                               ---------------    ---------------     ---------------
                                               Gross       Net    Gross       Net     Gross       Net

   Development:
    Oil....................................       48     14.49       40     17.37        26     10.45
    Gas....................................      154     33.28      107     24.94       105     22.26
    Non-productive.........................       31      7.13       31      9.38        14      5.75

                                                 233     54.90      178     51.69       145     38.46
                                                 ---     -----      ---     -----       ---     -----
   Exploratory:
    Oil....................................        3      1.55        6      4.17         1       .20
    Gas....................................        9      1.84       11      3.63        12      3.84
    Non-productive.........................        7      2.56        8      4.32         9      2.56
                                                 ---     -----      ---     -----       ---     -----
                                                  19      5.95       25     12.12        22      6.60
                                                 ---     -----      ---     -----       ---     -----

   Farmout or non-consent                          9        -         8        -          6        -
                                                 ---     -----      ---     ----        ---     -----

   Total(1) ...............................      261     60.85      211     63.81       173    45.06
                                                 ===     =====      ===     =====       ===    =====

- --------------------------
(1) Does not include 12, 4 and 1 gross wells completed on St. Mary's fee
    lands during 2001, 2000 and 1999, respectively.

         All of our drilling activities are conducted on a contract basis with
independent drilling contractors. We do not own any drilling equipment.

                                       30

<PAGE>



Acreage

         The following table sets forth the gross and net acres of developed and
undeveloped oil and gas leases, fee properties, mineral servitudes and lease
options held by St. Mary as of December 31, 2001. Undeveloped acreage includes
leasehold interests that may already have been classified as containing proved
undeveloped reserves.


                                           Developed Acres (1)    Undeveloped Acres (2)           Total
                                          ---------------------   ---------------------   ---------------------
                                            Gross        Net        Gross        Net        Gross        Net
                                           -------     -------     -------     -------     -------     -------
 Arkansas................................    2,255         399         167          28       2,422         427
 Louisiana...............................   98,588      33,493      41,837      13,818     140,425      47,311
 Montana.................................   43,135      21,869     191,747     144,870     234,882     166,739
 New Mexico..............................    7,280       2,196       1,320         913       8,600       3,109
 North Dakota............................   55,464      22,080     136,511      67,592     191,975      89,672
 Oklahoma................................  193,443      44,728      53,883      18,940     247,326      63,668
 Texas...................................  136,460      48,080     119,252      38,896     255,712      86,976
 Wyoming.................................   12,209       3,318      48,415      38,693      60,624      42,011
 Other (3) ..............................    2,501         346       8,083       4,884      10,584       5,230
                                           -------     -------     -------     -------     -------     -------
                                           551,335     176,509     601,215     328,634   1,152,550     505,143
                                           -------     -------     -------     -------   ---------     -------

Louisiana Fee Properties.................   10,357      10,357      14,557      14,557      24,914      24,914
Louisiana Mineral Servitudes.............    9,845       5,360       4,768       4,241      14,613       9,601
                                           -------     -------     -------     -------     -------     -------
                                            20,202      15,717      19,325      18,798      39,527      34,515
                                           -------     -------     -------     -------     -------     -------

     Total ..............................  571,537     192,226     620,540     347,432   1,192,077     539,658
                                           =======     =======     =======     =======   =========     =======




     -----------
     (1) Developed acreage is acreage assigned to producing wells for the
         spacing unit of the producing formation. Developed acreage in certain
         of St. Mary's properties that include multiple formations with
         different well spacing requirements may be considered undeveloped for
         certain formations, but have only been included as developed acreage in
         the presentation above.
     (2) Undeveloped acreage is lease acreage on which wells have not been
         drilled or completed to a point that would permit the production of
         commercial quantities of oil and gas regardless of whether such acreage
         contains estimated proved reserves.
     (3) Includes interests in Alabama, Colorado, Kansas, Mississippi, South
         Dakota, Utah and Washington. St. Mary also holds an overriding royalty
         interest in an additional 44,388 gross acres in Utah.

                                       31

Item 3.  LEGAL PROCEEDINGS

         From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of this date,
no legal proceedings are pending against us that individually or collectively
could have a material adverse effect upon our financial condition or results of
operations.

         A lawsuit has been filed in the Federal District Court in Montana by an
environmental public interest group seeking the cancellation of all federal
leases related to coalbed methane development issued in the State of Montana
since January 1, 1997 on the grounds of an alleged failure of the federal Bureau
of Land Management to comply with federal environmental laws. The lawsuit
potentially affects 46,000 acres subject to federal leases of the 115,000 acres
in our Hanging Woman Basin coalbed methane project. While we have not been made
a party to the lawsuit and while we believe upon the basis of information
presently available to us that the applicable environmental laws have been
complied with, there is no assurance of the outcome of the lawsuit and therefore
there is no assurance that it will not adversely affect our coalbed methane
prospect. However, even if the Montana federal leases become unavailable, we
anticipate continuing with the Hanging Woman Basin prospect in Wyoming and
obtaining additional non-federal leases in Montana.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of security holders during
the fourth quarter of 2001.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth the names, ages and positions held by
St. Mary's executive officers as of January 31, 2002.

Name                        Age          Position
- ----                        ---          --------
Thomas E. Congdon           75           Chairman of the Board
Mark A. Hellerstein                      President and Chief Executive Officer
Ronald D. Boone             54           Executive Vice President and Chief
                                         Operating Officer
Robert T. Hanley            55           Vice President - Business Development
Richard C. Norris           46           Vice President - Finance, Secretary and
                                         Treasurer
Milam Randolph Pharo        49           Vice President - Land and Legal
Garry A. Wilkening          51           Vice President - Administration and
                                         Controller
Douglas W. York             40           Vice President - Acquisitions and
                                         Engineering

         Each of the executive officers has held the above positions for the
past five years, with the exception of the following:

         Robert T. Hanley has served as Vice President - Business Development
since 2000. Prior to 2000, Mr. Hanley was Chief Financial Officer at Nance
Petroleum Corporation and Panterra Petroleum.

                                       32

         Richard C. Norris has served as Vice President - Finance and Secretary
since 1999. Prior to 1999, Mr. Norris was Vice President - Accounting and
Administration and Treasurer. He joined St. Mary in 1982 as Corporate
Controller.

         Milam Randolph Pharo has served as Vice President - Land and Legal
since 1998. Mr. Pharo joined St. Mary in 1996 as Vice President - Land and was
previously in private practice as an attorney specializing in oil and gas
matters since 1977.

         Garry A. Wilkening joined St. Mary in 1993 as Corporate Controller. He
was named Vice President - Administration in 1999. Prior to joining St. Mary,
Mr. Wilkening was Corporate Controller for Fuel Resources Development Company, a
subsidiary of Public Service Company of Colorado (now named Xcel Energy).

         The executive officers of the Company serve at the pleasure of the
board of directors and do not have fixed terms. Executive officers generally are
elected at the regular meeting of the board immediately following the annual
stockholders meeting. Any officer or agent elected or appointed by the board may
be removed by the board whenever in its judgement the best interests of the
Company will be served thereby without prejudice, however, to contractual
rights, if any, of the person so removed.

         There are no family relationships, first cousin or closer, between any
executive officer and director. There are no arrangements or understandings
between any officer and any other person pursuant to which that officer was
elected.

                                     33
<PAGE>




                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Market Information. St. Mary's common stock is traded on the Nasdaq
National Market System under the symbol MARY. The range of high and low prices
for the quarterly periods in 2001 and 2000, as reported by the Nasdaq National
Market System and adjusted for the two-for-one stock split which was distributed
on September 5, 2000 to shareholders of record as of the close of business on
August 21, 2000, is set forth below:

            Quarter Ended                         High           Low
            -------------                         ----           ---

            December 31, 2001                    $22.20        $14.65
            September 30, 2001                    21.81         14.58
            June 30, 2001                         25.24         19.25
            March 31, 2001                        35.00         20.63

            December 31, 2000                    $34.31        $19.00
            September 30, 2000                    24.31         14.75
            June 30, 2000                         21.03         14.78
            March 31, 2000                        15.75         11.19

         Holders. As of January 31, 2002, the number of record holders of St.
Mary's common stock was 214. Management believes, after inquiry, that the number
of beneficial owners of our common stock is in excess of 3,700.

         Dividends. St. Mary has paid cash dividends to stockholders every year
since 1940. Annual dividends of $0.10 per share were paid in each of the years
1998 through 2001. We expect that our practice of paying dividends on our common
stock will continue, although the payment of future dividends on our common
stock will continue to depend on our earnings, capital requirements, financial
condition and other factors. In addition, the payment of dividends is subject to
covenants in our bank credit facility, including the requirement that we
maintain certain levels of stockholders' equity. Dividends are currently paid on
a semi-annual basis. Dividends paid totaled $2,795,000 in 2001 and $2,775,000 in
2000.

         Restricted Shares. St. Mary issued 5,332,374 shares of its common stock
to the shareholders of King Ranch, Inc. for the acquisition of King Ranch
Energy, Inc. in December 1999. Those shares were subject to contractual
restrictions on transfer until March 31, 2001, and are now freely transferable.
We also issued 518,988 restricted shares of our common stock in connection with
the acquisition of Nance Petroleum Corporation in June 1999. Those shares are
restricted securities under federal securities laws and are also subject to
contractual restrictions on transfer, which expire in increments over a
three-year period from the date of acquisition. In addition, in connection with
our March 2002 issuance of 5.75% senior convertible notes, our executive
officers and directors entered into lock-up agreements under which they have
agreed not to offer or sell any shares of our common stock or similar securities
for a period of 90 days from March 7, 2002 without the prior written consent of
the initial purchasers of the notes.

                                       34

<PAGE>



ITEM 6.           SELECTED FINANCIAL DATA

         The following table sets forth selected consolidated financial data for
St. Mary as of the dates and for the periods indicated. The financial data for
each of the five years presented were derived from the Consolidated Financial
Statements of St. Mary. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which includes a discussion of factors materially affecting the
comparability of the information presented, and in conjunction with St. Mary's
financial statements included elsewhere in this report.

                                                                 Years Ended December 31,
                                                                 ------------------------
                                                  2001        2000        1999        1998        1997
                                                  ----        ----        ----        ----        ----
                                                          (In thousands, except per share data)
Income Statement Data:
Operating revenues:
   Oil and gas production                     $ 203,973   $ 188,407   $  73,387   $  71,413   $  76,603
   Other                                          3,496       7,259       1,527       8,096      15,282
                                              ---------   ---------   ---------   ---------   ---------
Total operating revenues                        207,469     195,666      74,914      79,509      91,885
                                              ---------   ---------   ---------   ---------   ---------

Operating expenses:
   Oil and gas production                        55,000      38,461      19,574      17,770      16,097
   Depletion, depreciation &amp; amortization    51,346      40,129      22,574      24,912      18,366
   Exploration                                   19,518       9,633      11,593      11,705       6,847
   Impairment of proved properties                  820       4,449       3,982      17,483       5,202
   Abandonment and impairment of
    unproved properties                           3,865       1,841       6,616       4,457       2,077
   General and administrative                    11,762      11,166       9,172       7,097       7,645
   Unrealized derivative loss                     1,573           -           -           -           -          -                     -
   Other                                          1,673       1,437       1,802       9,304         606
                                              ---------   ---------   ---------   ---------   ---------
Total operating expenses                        145,557     107,116      75,313      92,728      56,840
                                              ---------   ---------   ---------   ---------   ---------

Income (loss) from operations                    61,912      88,550        (399)    (13,219)     35,045
   Non-operating (expense) income                   376         737          75      (1,027)        (99)
   Income tax (expense) benefit                 (21,829)    (33,667)        406       5,415     (12,325)
                                              ---------   ---------   ---------   ---------   ---------
Income (loss) from continuing operations         40,459      55,620          82      (8,831)     22,621
Gain on sale of discontinued operations,
    net of income taxes                               -           -           -          34         488
                                              ---------   ---------   ---------   ---------   ---------
Net income (loss)                              $ 40,459    $ 55,620    $     82    $ (8,797)   $ 23,109
                                              =========   =========   =========   =========   =========

Basic net income (loss) per common share:
   Income (loss) from continuing operations    $   1.45    $   2.00    $      -    $  (0.40)   $   1.07
   Gain on sale of discontinued operations            -           -           -           -        0.02
                                              ---------   ---------   ---------   ---------   ---------

Basic net income (loss) per share              $   1.45    $   2.00    $      -    $  (0.40)   $   1.09
                                              =========   =========   =========   =========   =========

Diluted net income (loss) per common share:
   Income (loss) from continuing operations    $   1.42    $   1.97    $      -    $  (0.40)   $   1.05
   Gain on sale of discontinued operations            -           -           -           -        0.02
                                              ---------   ---------   ---------   ---------   ---------
Diluted net income (loss) per share            $   1.42    $   1.97    $      -    $  (0.40)   $   1.07
                                              =========   =========   =========   =========   =========


Cash dividends per share                       $   0.10    $   0.10    $   0.10    $   0.10    $   0.10
Basic weighted average common shares
    outstanding                                  27,973      27,781      22,198      21,874      21,240
Diluted weighted average common shares
    outstanding                                  28,555      28,271      22,329      21,874      21,506

                                       35

<PAGE>




                                                                 Years Ended December 31,
                                                                 ------------------------
                                                  2001        2000        1999        1998        1997
                                                  ----        ----        ----        ----        ----
                                                          (In thousands, except per share data)
Balance Sheet Data (end of period):
Working capital                                $  34,000   $  40,639  $  13,440   $   9,785   $   9,618
Net property and equipment                       358,930     252,411    180,664     143,825     157,481
Total assets                                     436,989     321,895    230,438     184,497     212,135
Long-term obligations                             64,000      22,000     13,000      19,398      22,607
Total stockholders' equity                       286,117     250,136    188,772     134,742     147,932

Other Data:
EBITDA (1)                                     $ 113,258   $ 128,679  $  22,175   $  11,693   $  53,411
Net Cash provided by (used in)
  Operating activities                           127,492      92,267     40,755      45,386      43,111
  Investing activities                          (159,075)   (112,868)   (22,243)    (36,982)    (67,477)
  Financing activities                            29,080      13,025    (12,138)     (7,695)     28,140
Capital and exploration expenditures, cash
    and noncash                                  182,863     125,184     91,184      57,855      89,213

- ------------
(1)      EBITDA is defined as earnings before interest income and expense,
         income taxes, depreciation, depletion, amortization, and gain on sale
         of discontinued operations. EBITDA is a financial measure commonly used
         for St. Mary's industry and should not be considered in isolation or as
         a substitute for net income, cash flow provided by operating activities
         or other income or cash flow data prepared in accordance with generally
         accepted accounting principles or as a measure of a company's
         profitability or liquidity. Because EBITDA excludes some, but not all,
         items that affect net income and may vary among companies, the EBITDA
         presented above may not be comparable to similarly titled measures of
         other companies.

                                       36

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATION

Overview

         The year ended December 31, 2001 was volatile, not only for our
industry, but also for the country as a whole. Spot gas prices per MMBtu ranged
from $9.73 to $1.73. The NYMEX gas strip price fell by more than half. Oil
prices dropped from a per barrel high of $32.00 to $17.50. The economy entered a
recession that was further impacted by the events of September 11th and Enron's
collapse. In our industry, rig utilization moved to effective capacity and
resulted in substantial cost increases and diminished service quality. Operating
costs also increased dramatically. Higher drilling, completion and operating
costs and an overheated acquisition market made reserve additions costly.
Through this turbulent environment we modestly grew production and maintained a
strong balance sheet.

         The industry enters 2002 with record gas in storage as well as excess
OPEC capacity and a weakened economy. This suggests to us that we will encounter
weaker prices in the near term. Subject to uncertainties specified in our
cautionary statement about forward looking statements we project that results of
operations for 2002 will reflect lower revenues and lower net income.

Critical Accounting Policies and Estimates

         Our discussion of financial condition and results of operation are
based upon the information reported in our consolidated financial statements.
The preparation of these financial statements requires us to make assumptions
and estimates that affect the reported amounts of assets, liabilities, revenues
and expenses as well as the disclosure of contingent assets and liabilities at
the date of our financial statements. We base our decisions on historical
experience and various other sources that are believed to be reasonable under
the circumstances. Actual results may differ from the estimates we calculated
due to changing business conditions or unexpected circumstances. Policies we
believe are critical to understanding our business operations and results of
operations are detailed below. For additional information on our significant
accounting policies you should see Note 1 and Note 11 in our accompanying
consolidated financial statements.

         Revenue recognition - We are engaged in the exploration, development,
         acquisition and production of natural gas and crude oil. Our revenue
         recognition policy is significant because our revenue is a key
         component of our results of operations and our forward looking
         statements contained in Liquidity and Capital Resources. We derive our
         revenue primarily from the sale of produced natural gas and crude oil.
         Revenue is recorded in the month our production is delivered to the
         purchaser, but payment is generally received between 30 and 90 days
         after the date of production. At the end of each period we make
         estimates of the amount of production delivered to the purchaser and
         the price we received. We use our knowledge of our properties, their
         historical performance, NYMEX and local spot market prices and other
         factors as the basis for these estimates. Variances between our
         estimates and the actual amounts received are recorded in the month
         payment is received.

         Oil and gas reserve quantities - Estimated reserve quantities and the
         related estimates of future net cash flows affect our periodic
         calculations of depletion, depreciation and impairment for our proved
         oil and gas properties. Proved oil and gas reserves are the estimated
         quantities of crude oil, natural gas and natural gas liquids which
         geological and engineering data demonstrate with reasonable certainty
         to be recoverable in future years from known reservoirs under existing

                                       37

         economic and operating conditions. Future cash inflows and future
         production and development costs are determined by applying benchmark
         prices and costs, including transportation and basis differentials, in
         effect at the end of each period to the estimated quantities of oil and
         gas remaining to be produced at the end of that period. Expected cash
         flows are reduced to present value using a discount rate that depends
         upon the calculation for which the reserve estimates will be used.
         Reserve estimates are inherently imprecise and estimates of new
         discoveries are more imprecise than those of proved producing oil and
         gas properties. We expect that periodic reserve estimates will change
         in the future as additional information becomes available or as oil and
         gas prices and costs change. For any period, unknown circumstances
         could have caused us to calculate more or less depletion, depreciation
         or impairment. Changes in these calculations caused by changes in
         reserve quantities or net cash flows are recorded in the period that
         the reserve estimates changed.

         Valuation of long-lived and intangible assets - Our property and
         equipment is recorded at cost. An impairment allowance is provided on
         unproved property when we determine that the property will not be
         developed. We evaluate the realizability of our proved producing and
         other long-lived assets whenever events or changes in circumstances
         indicate that an impairment may have occurred. Our impairment test
         compares the expected undiscounted future net revenues from a property
         using escalated pricing with the related net capitalized costs of the
         property at the end of each period. When the net capitalized costs
         exceed the undiscounted future net revenue of a property the cost of
         the property is written down to our estimate of fair value, which is
         determined by applying a 15% discount rate to future net revenues. Each
         company has its own criteria for acceptable internal rates of return,
         and those criteria can change overtime. Different pricing assumptions
         or discount rates would result in a different calculated impairment.

         Income taxes - We provide for deferred income taxes on the difference
         between the tax basis of an asset or liability and its carrying amount
         in our financial statements. This difference will result in taxable
         income or deductions in future years when the reported amount of the
         asset or liability is recovered or settled, respectively. Our federal
         and state income tax returns are generally not filed before the
         consolidated financial statements are prepared, therefore we estimate
         the tax basis of our assets and liabilities at the end of each period
         as well as the effects of tax rate changes, tax credits and net
         operating loss carryforwards. Adjustments related to differences
         between the estimates we used and actual amounts we reported are
         recorded in the period in which we file our income tax returns.

         The following analysis contains additional discussion of management and
accounting policies that are relevant to specific disclosures.

                                       38
<PAGE>




Results of Operations

         The results of operations for 2000 include the full year impact of two
significant acquisitions made during 1999. On June 1, 1999 St. Mary acquired
Nance and Quanterra Alpha Limited Partnership and then acquired various other
Williston Basin properties later in 1999 and into 2000. On December 17, 1999
St. Mary acquired King Ranch Energy, Inc now named St. Mary Energy Company.

The following table sets forth selected operating data for the periods
indicated:

                                                                         Years Ended December 31,
                                                                      ------------------------------
                                                                      2001         2000         1999
                                                                      ----         ----         ----
                                                                  (In thousands, except per volume data)
  Oil and gas production revenues:
     Gas production.............................................. $ 147,292    $ 131,979    $  50,482
     Oil production..............................................    56,681       56,428       22,905
                                                                  ---------    ---------    ---------
        Total.................................................... $ 203,973    $ 188,407    $  73,387
                                                                  =========    =========    =========

  Net production:
     Gas (MMcf)..................................................    39,491       38,346       22,805
     Oil (MBbls).................................................     2,434        2,398        1,383
     MMCFE.......................................................    54,093       52,731       31,103

  Average sales price (1):
     Gas (per Mcf)............................................... $    3.73    $    3.44    $    2.21
     Oil (per Bbl)............................................... $   23.29    $   23.53    $   16.56

  Oil and gas production costs:
     Lease operating expenses.................................... $  40,505    $  25,567    $  13,641
     Transportation costs........................................     2,321        1,817          893
     Production taxes............................................    12,174       11,077        5,040
                                                                  ---------    ---------    ---------
        Total.................................................... $  55,000    $  38,461    $  19,574
                                                                  =========    =========    =========

  Additional per MCFE data:
     Sales price (see Discussion under Accounting Matters)....... $    3.77    $    3.57    $    2.36
     Lease operating expenses....................................     (0.75)       (0.48)       (0.44)
     Transportation costs........................................     (0.04)       (0.04)       (0.03)
     Production taxes............................................     (0.23)       (0.21)       (0.16)
                                                                  ---------    ---------    ---------
        Operating margin......................................... $    2.75    $    2.84    $    1.73
                                                                  =========    =========    =========

     Depletion, depreciation and amortization.................... $    0.95    $    0.76    $    0.73
     Impairment of proved properties............................. $    0.02    $    0.08    $    0.13
     General and administrative.................................. $    0.22    $    0.21    $    0.29

- ---------------
(1) Includes the effects of the Company's hedging activities.

                                       39


<PAGE>




2001 to 2000 Comparison

         Oil and Gas Production Revenues. Oil and gas production revenues
increased $15.6 million, or 8% to a record $204.0 million in 2001 compared to
$188.4 million in 2000. Revenue from gas production increased $15.3 million or
12%. This increase was a result of a gas production volume increase of 3% and an
8% increase in the average realized gas price to $3.73 per Mcf in 2001. Revenue
from oil production increased $253,000. This increase resulted from an oil
production volume increase of 1% offset by a 1% decrease in the average realized
oil price to $23.29 per Bbl in 2001. Projections of pricing for oil and gas in
2002 lead us to believe that our average realized price for both gas and oil
will decrease in 2002. Our share of revenue from wells completed in 2001 added
$27.5 million of revenue and our December 2000 acquisition of JN Exploration
properties added $11.5 million of revenue and average daily production of 7.4
MMCFE in 2001. Average net daily production increased to a new annual record of
148.2 MMCFE in 2001 compared to 144.1 MMCFE in 2000. Wells completed in 2001
offset 22.3 MMCFE of decline in average daily production from older properties.

         St. Mary hedged approximately 34.6% or 841 MBbls of its oil production
for 2001 and realized a $1.9 million decrease in oil revenue attributable to
hedging compared to a $13.2 million decrease in 2000. Without these contracts we
would have received an average price of $24.08 per Bbl in 2001 compared to
$29.01 per Bbl in 2000. We also hedged 40.6% of our 2001 gas production or 17.6
million MMBtu and realized a $19.2 million decrease in gas revenue attributable
to hedging compared to a $20.5 million decrease in gas revenues in 2000. Without
these contracts we would have received an average price of $4.22 per Mcf for
2001 compared to $3.97 per Mcf in 2000. It is possible with the contracts we
currently have in place and the December 31, 2001 projections of pricing for
natural gas and oil in 2002 that we will record increases in oil and gas
revenues attributable to hedging in 2002.

         Oil and Gas Production Expenses. Oil and gas production expenses
consist of lease operating expenses, production taxes and transportation
expenses. Total production expenses increased $16.5 million, or 43% in 2001 to
$55.0 million compared with $38.5 million in 2000. During 2001 we experienced a
$4.9 million increase in non-recurring LOE most of which related to activity in
the Williston Basin and the Gulf Coast Region. Williston Basin acquisitions in
the last half of 2000 and in 2001 added $1.7 million of LOE. Recurring LOE from
our JN Exploration acquisition properties represented $1.1 million of the
increase and wells completed in 2001 added another $1.1 million. We experienced
higher recurring LOE from wells completed in the Williston Basin, the Permian
Basin and the Gulf Coast/Gulf of Mexico as a result of increased competition for
limited availability of services and general cost inflation. Higher production
taxes and transportation expenses resulting from higher oil and gas revenues
account for $1.6 million of the increase. Total production costs per MCFE
increased 40% to $1.02 for 2001 compared with $0.73 in 2000. An $0.18 per MCFE
increase was due to the increase in non-recurring LOE plus LOE from acquisitions
and wells completed in 2001. Another $0.02 per MCFE increase was due to
increased production taxes and transportation expenses. The remaining increase
is due to general cost inflation. This will be an area of concentration for us
in 2002 as we attempt to decrease oil and gas production expenses in total and
on a per MCFE basis.

         Depreciation, Depletion, Amortization and Impairment. DD&amp;A
increased $11.2 million or 28% to $51.3 million in 2001 compared with $40.1
million in 2000. DD&amp;A expense per MCFE increased 25% to $0.95 in 2001
compared to $0.76 in 2000. This increase reflects acquisitions and drilling
results in 2000 and 2001 that added costs at a higher per unit rate. The
DD&amp;A per MCFE rate was further affected by downward adjustments to reserves
due to pricing differences between December 31, 2001 and December 31, 2000.

                                       40

         St. Mary recorded an $820,000 impairment of proved oil and gas
properties in 2001 compared with $4.4 million in 2000. Impairments in 2001
include a declining performance adjustment of $520,000 from the Thornton South
prospect in Texas and various marginal well impairments.

         Abandonment and impairment of unproved properties increased $2.0
million or 110% to $3.9 million in 2001 compared to $1.8 million in 2000. This
increase is due to an increase in abandonment of expired leases in 2001 and the
impairment of leasehold costs related to several exploratory dry holes.

         Exploration. Exploration expense for 2001 increased $9.9 million or
103% to $19.5 million compared with $9.6 million in 2000. Percentages of total
exploration expense are as follows:

                                                         2001      2000
                                                         ----      ----
        o   Geological and geophysical expenses          19%       24%
        o   Exploratory dry holes                        47%       21%
        o   Overhead and other expenses                  34%       55%

         Oil and gas exploration is imprecise, and success can be affected by
numerous factors. Not every likely geological structure contains oil or natural
gas. Even when oil or natural gas is discovered there are no guarantees that
sufficient quantities can be produced to justify the completion of an
exploratory well. In 2002 we have budgeted for geological and geophysical
expenses and expect to incur overhead and other expenses in the pursuit of
exploration, but we generally explore with an expectation of success.

         General and Administrative. General and administrative expenses
increased $596,000 or 5% to $11.8 million in 2001 compared to $11.2 million in
2000. Increases in compensation expense associated with increased personnel, our
incentive plans and general cost inflation were offset by a $4.3 million
increase in COPAS overhead reimbursements from operations and costs allocated to
exploration expense

         Income Taxes. Income tax expense totaled $21.8 million in 2001
resulting in an effective tax rate of 35.0% compared to $33.7 million in 2000
with an effective tax rate of 37.7%. The effective rate change from 2000
reflects decreased accrued state income taxes from marginal rate adjustments and
a decrease in deferred federal income tax due to a 1% rate decrease from the
highest federal marginal rate.

         Net Income. Net income decreased to $40.5 million for 2001 compared to
$55.6 million for 2000. An 8% increase in gas prices and a 3% increase in
production volumes resulted in a $15.6 million increase in oil and gas
production revenue. Increases in oil and gas production costs and DD&amp;A of
$27.8 million, a $5.2 million decrease from gains on sale of proved property and
KMOC stock and a $9.9 million increase in exploration expense offset the
increase in revenue and an $11.8 million decrease in income tax expense.

                                       41

2000 to 1999 Comparison

         Oil and Gas Production Revenues. St. Mary experienced a record year in
2000 for growth in oil and gas production revenues. This amount increased $115.0
million, or 157% to $188.4 million in 2000 compared to $73.4 million in 1999.
Revenue from gas production increased $81.5 million or 161%. This increase was a
result of a gas production volume increase of 68% and a 56% increase in the
average realized gas price to $3.44 per Mcf in 2000. Revenue from oil production
increased $33.5 million or 146%. This increase resulted from an oil production
volume increase of 73% and a 42% increase in the average realized oil price to
$23.53 per Bbl in 2000. Average net daily production increased to a 12-month
record of 144.1 MMCFE in 2000 compared to 85.2 MMCFE in 1999. Our King Ranch
Energy acquisition and Williston Basin acquisitions since June 1999 have added
$97.0 million of revenue, not adjusted for hedge losses and average net daily
production of 57.7 MMCFE over the prior year. A positive response to a
waterflood at Parkway Delaware Unit combined with a successful gas well
completion and pricing changes in the Permian Basin added 4.6 MMCFE to average
net daily production and $10.9 million of revenue before hedge losses from 1999
to 2000.

         St. Mary hedged approximately 55.4% or 1,329 MBbls of its oil
production for 2000 and realized a $13.2 million decrease in oil revenue
attributable to hedging compared to a $2.0 million decrease in 1999. Without
these contracts we would have received an average price of $29.01 per Bbl in
2000 compared to $18.01 per Bbl in 1999. St. Mary also hedged 44.1% of its 2000
gas production or 18.6 million MMBtu and realized a $20.5 million decrease in
gas revenue attributable to hedging compared to a $558,000 decrease in gas
revenues in 1999. Without these contracts we would have received an average
price of $3.97 per Mcf for 2000 compared to $2.19 per Mcf in 1999.

         Gain (loss) on Sale of Proved Properties. Gain on sale of proved
properties increased to $3.4 million in 2000 from a loss of $55,000 in 1999. St.
Mary recognized a $1.8 million gain on the sale of shallow production from the
HJSA top lease to the previous operator, a $1.0 million gain from the sale of
various properties at auction and a $455,000 gain on the sale of our share of
the Rock Penn Unit in west Texas.

         Gain on sale of KMOC Stock. In February 2000 St. Mary exercised its
option to convert its Khanty Mansiysk Oil Corporation production payment
receivable into common stock of KMOC. In July 2000 we finalized a negotiated
value for the receivable that equated to 21,583 shares of KMOC common stock
under the terms of the original agreement. In December 2000 we sold 14,662 of
these shares and recognized a net gain of $2.2 million.

         Oil and Gas Production Expenses. Total production costs increased $18.9
million, or 96% in 2000 to $38.5 million compared with $19.6 million in 1999.
The KRE acquisition and Williston Basin acquisitions since June 1999 have added
$15.3 million of production costs over 1999. These costs have also increased by
$2.4 million in the Permian Basin as a result of waterflood activities. Total
production costs per MCFE increased 16% to $0.73 for 2000 compared with $0.63 in
1999. We experienced a general $0.06 per MCFE increase in 2000 as a result of
increased production taxes from increased revenue and an increase in lease
operating costs. The additional $0.04 per MCFE increase was due to lease
operating expenses and increased production taxes on increased revenue in the
higher-cost Williston and Permian Basins.

         Depreciation, Depletion, Amortization and Impairment. DD&amp;A
increased $17.6 million or 78% to $40.1 million in 2000 compared with $22.6
million in 1999. DD&amp;A expense per MCFE increased 5% to $0.76 in 2000
compared to $0.73 in 1999. During the first three quarters of 2000 we had

                                       42

reported a decrease in the DD&amp;A rate per MCFE. This decrease was the result
of a lower than average cost per unit from the KRE and Nance acquisitions, the
addition of lower cost reserves from 1999 drilling activities and the effect of
producing property impairments we recognized in the fourth quarter of 1999 and
the first quarter of 2000. In the fourth quarter of 2000 two factors occurred
that reversed this trend. First, we finalized the allocation of KRE acquisition
costs as allowed by accounting standards. Second, year-end downward reserve
adjustments for certain fields caused DD&amp;A per MCFE to increase $0.08 for
the year.

         St. Mary recorded a $4.4 million impairment of proved oil and gas
properties in 2000 compared with $4.0 million in 1999. Impairments in 2000
included a declining performance adjustment of $703,000 from the West Cameron
Block 39 prospect in the Gulf of Mexico. Marginal well impairments included
$656,000 from the Midland prospect in south Louisiana, $271,000 for the NE
Collins prospect in Mississippi, $269,000 for the Heil II prospect in Texas and,
in Oklahoma, $478,000 from the Buffalo Wallow prospect, $371,000 from the Boggy
Creek prospect and $490,000 from the SW Weatherford prospect.

         Abandonment and impairment of unproved properties decreased $4.8
million or 72% to $1.8 million in 2000 compared to $6.6 million in 1999. This
decrease was due to a reduction in abandonment of expired leases in 2000 and the
1999 impairment of South Horseshoe Bayou.

         Exploration. Exploration expense for 2000 decreased $2.0 million or 17%
to $9.6 million compared with $11.6 million in 1999. Percentages of total
exploration expense are as follows:

                                                         2000      1999
                                                         ----      ----
        o   Geological and geophysical expenses          24%       12%
        o   Exploratory dry holes                        21%       45%
        o   Overhead and other expenses                  55%       43%


         General and Administrative. General and administrative expenses
increased $2.0 million or 22% to $11.2 million in 2000 compared to $9.2 million
in 1999. Increases in general and administrative expenses resulting from the KRE
and Nance acquisitions and charitable contributions of $809,000 were partially
offset by a $2.8 million COPAS overhead reimbursement increase related to
operations of the KRE properties and assumption of Permian Basin operations.

         Income Taxes. Income tax expense totaled $33.7 million in 2000
resulting in an effective tax rate of 37.7% compared to a net benefit in 1999 of
$406,000. The effective rate change from 1999 reflects a diminished effect from
alternative fuel credits allowed under Internal Revenue Code Section 29 due to
higher net income before tax, additional accrued state income taxes from income
generated by the properties acquired from KRE and an increase in deferred
federal income tax from a 1% rate increase to the highest federal marginal rate.
During 2000 St. Mary determined that it would be more beneficial to forego the
Section 29 credits generated from 1999 resulting in a net operating loss for
1999 that could be utilized in 2000 to reduce its current liability. This change
also impacted the effective rate for 2000.

         Net Income. Net income increased to $55.6 million for 2000 compared to
$82,000 for 1999. A 56% increase in gas prices, a 42% increase in oil prices and
a 73% increase in oil production volumes and a 68% increase in gas production
volumes resulted in a record $115.0 million increase in oil and gas production
revenue. A $3.5 million increase in gain on the sale of proved properties and
the $2.2 million gain from the sale of KMOC stock contributed to the $120.8
million increase in total operating revenues. These revenue increases were
offset by corresponding increases in oil and gas production costs and DD&amp;A
as well as a $34.1 million increase in income tax expense.

                                       43
<PAGE>



Liquidity and Capital Resources

         Our primary sources of liquidity are the cash provided by operating
activities, debt financing, sales of non-strategic properties and access to the
capital markets. All of these sources can be impacted by significant
fluctuations in oil and gas prices. An unexpected decrease in prices would
reduce expected cash flow from operating activities, might reduce the borrowing
base on our credit facility, could reduce the value of our non-strategic
properties and historically has limited our industry's access to the capital
markets.

         We use cash for the acquisition, exploration and development of oil and
gas properties and for the payment of debt obligations, trade payables and the
payment of stockholder dividends. Exploration and development programs are
generally financed from internally generated cash flow, debt financing and cash
and cash equivalents on hand. In the event of an unexpected decrease in oil and
gas prices, cash uses such as the acquisition of oil and gas properties and
stockholder dividends are discretionary and can be reduced or eliminated. At any
given point in time, we may be obligated to pay for commitments to explore for
or develop oil and gas properties or incur trade payables. However, future
obligations can be reduced or eliminated when necessary. We are currently only
required to make interest payments on our debt obligations. An unexpected
increase in oil and gas prices provides flexibility to modify our uses of cash
flow.

         We continually review our capital expenditure budget to reflect changes
in current and projected cash flow, acquisition opportunities, debt requirements
and other factors.

         Cash Flow. St. Mary's net cash provided by operating activities
increased $35.2 million or 38% to $127.5 million in 2001 compared to $92.3
million in 2000. The increase reflects a change between years of $22.5 million
from the collection of receivables and a change between years of $15.4 million
from increased accounts payable.

         St. Mary's net cash provided by operating activities increased $51.6
million or 127% to $92.3 million in 2000 compared to $40.8 million in 1999. The
increase reflects the effect of increases in oil and gas production and prices.

         Net cash used in investing activities increased $46.2 million in 2001
to $159.1 million compared to $112.9 million in 2000. Total 2001 capital
expenditures for cash, including acquisitions of oil and gas properties,
increased $53.2 million or 45% to $170.5 million in 2001 compared to $117.3
million in 2000 due to an increase in drilling activity in 2001 offset by a
decrease in cash expended for oil and gas property purchases.

         Net cash used in investing activities increased $90.7 million in 2000
to $112.9 million compared to $22.2 million in 1999. Total 2000 capital
expenditures for cash, including acquisitions of oil and gas properties,
increased $77.6 million or 192% to $117.9 million in 2000 compared to $40.3
million in 1999 due to an increase in drilling activity in 2000 and an increase
in cash expended for oil and gas property purchases.

         Net cash provided by financing activities increased $16.1 million to
$29.1 million in 2001 compared to $13.0 million in 2000. The increase is due to
a net $42.0 million increase in long-term debt during 2001 compared to a $9.0
million increase in 2000 offset by a $4.4 million decrease in proceeds received
from the sale of common stock related to our stock option programs. We also

                                       44

repurchased $12.9 million of our common stock during 2001. We used our credit
facility to fund the acquisition of properties from Choctaw and finance current
operations.

         Net cash provided by financing activities increased $25.2 million to
$13.0 million in 2000 compared to cash used in financing activities of $12.1
million in 1999. The increase is due to a net $9.0 million increase in long-term
debt during 2000 compared to a $9.8 million decrease in 1999 and a $6.8 million
increase in proceeds received from the sale of common stock related to St.
Mary's stock option programs. Proceeds from stock option programs were used to
finance current operations and retire outstanding debt under the credit
facility. During 2000 cash flow from operations and stock option programs was
sufficient to reduce the outstanding debt balance to zero. The $22.0 million
balance in outstanding debt at December 31, 2000 was a result of the JN
acquisition.

         St. Mary had $4.1 million in cash and cash equivalents and had working
capital of $34.0 million as of December 31, 2001 compared to $6.6 million in
cash and cash equivalents and working capital of $40.6 million as of December
31, 2000.

         Senior Convertible Notes. In March 2002 we issued in a private
placement a total of $100.0 million of our 5.75% senior convertible notes due
2022 with a 1/2% contingent interest provision. We received net proceeds of
$96.7 million after deducting the initial purchasers' discount and estimated
offering expenses payable by us. The Notes are general unsecured obligations and
rank on a parity in right of payment with all our existing and future senior
indebtedness and other general unsecured obligations, and are senior in right of
payment with all our future subordinated indebtedness. The Notes are convertible
into our common stock at a conversion price of $26.00 per share, subject to
adjustment. We can redeem the Notes with cash in whole or in part at a
repurchase price of 100% of the principal amount plus accrued and unpaid
interest beginning on March 20, 2007. The note holders have the option of
requring us to repurchase the Notes for cash at 100% of the principal amount
plus accrued and unpaid interest upon (1) a change in control of St. Mary or (2)
on March 20, 2007, March 15, 2012 and March 15, 2017. On March 20, 2007 we may
pay the repurchase price with cash, shares of our common stock or any
combination of cash and our common stock. We are not restricted from paying
dividends, incurring debt, or issuing or repurchasing our securities under the
indenture. There are no financial covenants in the indenture. We
used a portion of the net proceeds from the Notes to repay our credit facility
balance and will use the remaining net proceeds to fund a portion of our 2002
capital budget.

         Credit Facility. At December 31, 2001 we had an unsecured long-term
revolving credit facility with a bank group consisting of Bank of America,
Comerica Bank-Texas and Wells Fargo Bank West. Under this facility, the maximum
loan amount was $200.0 million. The amount actually available depends upon a
borrowing base that the lenders periodically redetermine based on the value of
our oil and gas properties and other assets. As of December 31, 2001 the stated
total possible borrowing base was $170.0 million. However, since we pay
commitment fees based on the unused portion of the borrowing base we have
limited the borrowing base that we have accepted to correspond with our actual
funding requirements. The accepted borrowing base was $100.0 million at December
31, 2001. See discussion below regarding the March 4, 2002 amendment to the
credit facility. The facility has a maturity date of December 31, 2006, and
includes a revolving period that matures on June 30, 2003 at which time all
outstanding borrowings convert to a term loan payable in quarterly installments
through the facility maturity date. We must comply with certain covenants
including maintenance of stockholders' equity at a specified level, restrictions
on additional indebtedness, sales of oil and gas properties, activities outside
our ordinary course of business and certain merger transactions. Our next
borrowing base redetermination is scheduled to occur on or before April 15,
2002.

                                       45

         As of December 31, 2001 and 2000, $64.0 million and $22.0 million,
respectively, was outstanding under this credit agreement. These outstanding
balances accrued interest at rates determined by St. Mary's debt to total
capitalization ratio at our option of either (1) the higher of the federal funds
rate plus 1/2% or the prime rate, or (2) LIBOR plus 3/4% when our debt to total
capitalization is less than 30%, up to a maximum of either (a) the higher of the
federal funds rate plus 3/4% or the prime rate plus 1/4%, or (b) LIBOR plus
1-3/8% when our debt to total capitalization is equal to or greater than 50%. At
December 31, 2001 our debt to capitalization ratio as defined under the credit
agreement was 22.4%.

         In conjunction with the sale of the Notes discussed above we negotiated
an amendment to the credit facility on March 4, 2002. This amendment sets the
maximum loan amount to $115.0 million. Pursuant to the amendment, during the
revolving period of the loan, loan balances will accrue interest at our option
of either (1) the higher of the federal funds rate plus 1/2% or the prime rate,
plus an additional 1/4% when our debt to capitalization ratio is greater than
50%, or (2) the LIBOR rate plus (a) 1% when our debt to total capitalization
ratio is less than 30%, (b) 1 1/4% when our debt to capitization ratio is
greater than or equal to 30% but less than 40%, (c) 1 3/8% when our debt to
capitalization ratio is greater than or equal to 40% but less than 50%, or (d) 1
5/8% when our debt to capitalization ratio is greater than 50%. Proceeds from
the Notes were used to repay the outstanding balance under the credit facility.
Amounts repaid under the revolving loan provision of the credit facility will be
available for reborrowing, subject to borrowing base limitations until June 30,
2003. Within 30 days after the closing of the Notes we must provide a pledge of
collateral in favor of the banks to secure repayment of any future borrowings
under the facility. Such collateral will consist primarily of security interests
in the oil and gas properties of St. Mary and its subsidiaries.

         Common Stock. At the annual stockholders meeting on May 23, 2001 the
stockholders of St. Mary voted to increase the amount of authorized common
shares to 100,000,000.

         In July 2000 our board of directors approved a two-for-one stock split
effected in the form of a stock dividend whereby one additional common share of
stock was distributed for each common share outstanding. The stock split was
distributed on September 5, 2000 to shareholders of record as of the close of
business on August 21, 2000. All share and per share amounts for all periods
presented herein have been restated to reflect this stock split.

         In August 1998 our board of directors authorized a stock repurchase
program whereby we may purchase from time-to-time, in open market transactions
or negotiated sales, up to two million of our common shares. Through March 13,
2002 we had repurchased a total of 1,009,900 shares of St. Mary common stock
under the program for $16.2 million at a weighted average price of $15.86 per
share, net of put option sale premiums received. We anticipate that additional
purchases of shares may occur as market conditions warrant. Any future purchases
will be funded with internal cash flow and borrowings under our credit facility.

         Capital and Exploration Expenditures. Expenditures for exploration and
development of oil and gas properties and acquisitions are the primary use of
our capital resources. The following table sets forth certain information
regarding the costs incurred by us in our oil and gas activities during the
periods indicated.

                                       46

                                                  Capital and Exploration Expenditures
                                                  ------------------------------------
                                                           For the Years Ended
                                                               December 31,
                                                           -------------------
                                                      2001        2000        1999
                                                      ----        ----        ----
                                                             (In thousands)

               Development                         $ 98,617    $ 48,996    $ 22,166
               Exploration                           24,506      17,012      20,809
               Acquisitions:
                 Proved                              41,188      53,482      33,080
                 Unproved                            18,552       5,694      15,129
                                                   --------    --------    --------

                     Total                         $182,863    $125,184    $ 91,184
                                                   ========    ========    ========

         We continuously evaluate opportunities in the marketplace for oil and
gas properties and, accordingly, may be a buyer or a seller of properties at
various times. We will continue to emphasize smaller niche acquisitions
utilizing our technical expertise, financial flexibility and structuring
experience. In addition, we are also actively seeking larger acquisitions of
assets or companies that would afford opportunities to expand our existing core
areas, to acquire additional geoscientists or to gain a significant acreage and
production foothold in a new basin.

         St. Mary's total costs incurred for capital and exploration activities
in 2001 increased $57.7 million or 46% compared to 2000. We spent $141.7 million
in 2001 for unproved property acquisitions and domestic exploration and
development compared to $71.7 million for the comparable period in 2000.
Unproved property acquisitions increased by $12.9 million as a result of general
leasing activity and our acquisition of coalbed methane development leases in
the Hanging Woman Basin of Montana and Wyoming. We have drilled an 18-well pilot
program and are evaluating its results. We are also currently investigating
permitting and environmental issues related to the development. We will be
unable to determine the future potential of this development until we have
completed the evaluation of our pilot program and have resolved all permitting
and environmental issues related to the development. An environmental public
interest group has filed a lawsuit against the federal Bureau of Land Management
seeking to cancel certain federal leases related to coalbed methane development
in Montana, which could affect 46,000 of our 115,000 leased acres. We will
monitor this lawsuit as part of our investigation of environmental issues
related to these prospects.

         In November 2001 we purchased oil and gas properties from Choctaw II
Oil &amp; Gas, Ltd. for $40.5 million in cash. We used a portion of our credit
facility for this acquisition. The properties are primarily located in the
Williston Basin of Montana and North Dakota and in the Green River Basin of
Wyoming. The net interests we acquired were producing an estimated 1,200 Bbls of
oil and 4,600 Mcf of gas per day when the acquisition was completed.

                                       47

         Capital Expenditure Budget. The 2002 capital expenditure budget is $164
million, of which $60 million is allocated for acquisitions. Budgeted ongoing
exploration and development expenditures in 2002 for each of our core areas is
as follows (in millions):

        o   Mid-Continent region                                 $ 33.0
        o   Gulf Coast and Gulf of Mexico region                 $ 18.0
        o   ArkLaTex region                                      $ 14.0
        o   Williston Basin                                      $ 22.0
        o   Permian Basin                                        $  9.0
        o   Other                                                $  8.0
                                                                 ------
               Total                                             $104.0
                                                                 ======

         We believe that the amount not funded from our internally generated
cash flow in 2002 can be funded from our existing cash, the net proceeds from
the sale of the Notes and our bank credit facility. The amount and allocation of
future capital and exploration expenditures will depend upon a number of factors
including the number and size of available acquisition opportunities and our
ability to assimilate these acquisitions. Also, the impact of oil and gas prices
on investment opportunities, the availability of capital and borrowing
capability and the success of our development and exploratory activity could
lead to funding requirements for further development. If additional development
or attractive acquisition opportunities arise, we may consider other forms of
financing, including the public offering or private placement of equity or debt
securities.

         Natural Gas and Oil Hedging. We seek to protect our rate of return on
acquisitions of producing properties by hedging cash flow when the economic
criteria from our evaluation and pricing model indicate it would be appropriate.
Management's strategy is to hedge cash flows from investments currently
requiring a gas price in excess of $2.75 per Mcf and an oil price in excess of
$22.00 per Bbl in order to meet minimum rate-of-return criteria. Management
reviews these hedging parameters on a quarterly basis. We anticipate this
strategy will result in the hedging of future cash flows from acquisitions. We
generally limit our aggregate hedge position to no more than 35% of total
production but will hedge up to 50% of total production in certain
circumstances. We seek to minimize basis risk and index the majority of oil
hedges to NYMEX prices and the majority of gas hedges to various regional index
prices associated with pipelines in proximity to our areas of gas production.
Including hedges entered into since December 31, 2001 we have the following
swaps in place:

                              Average          Quantity        Average
        Product            Volumes/month         Type        Fixed price          Duration
        -------            -------------       --------      -----------          --------
      Natural Gas           1,467,000           MMBtu           $  2.84         01/02 - 12/02
      Natural Gas             168,000           MMBtu           $  3.01         01/03 - 12/03
      Natural Gas              59,000           MMBtu           $  3.04         01/04 - 12/04
          Oil                  88,400            Bbls           $ 24.69         01/02 - 12/02
          Oil                  49,800            Bbls           $ 22.67         01/03 - 12/03

         The above  schedule  excludes  commodity  positions  with  Enron  North
America  Corp,  which filed for  bankruptcy  protection  in December  2001.  Our
unrealized discounted hedge gain due from Enron had grown to $4.5 million at the
end of November  2001.  Accounting  rules  require us to record the  ineffective
portion of our hedges in  operations.  We believe the Enron  contracts  we owned
became  ineffective,  due to a change in  counterparty  risk as of November  13,
2001. Accordingly, we adjusted the fair value downward to the reduced estimated

                                       48

fair value as of that date. A net non-cash loss of $1.6 million was recorded in
the fourth quarter of 2001. The portion of the hedge that had been deferred in
accumulated other comprehensive income immediately prior to the loss of
effectiveness will be recognized as non-cash revenue over the next two years
based on the originally scheduled settlement dates. We have estimated that 80%
of the revenue will be realized in 2002 and 20% will be realized in 2003. We
took all legal steps to preserve our rights under these contracts and sold our
claim at a discounted price in February 2002. Both parties have agreed that any
events resulting in an adjustment in the amount of the claim, as contrasted with
the amount collected, will cause a proportional reimbursement from one party to
the other.

         Since the Enron bankruptcy filing, we have further diversified our
hedge positions with various counterparties and require that such counterparties
have clear indications of current financial strength.

         KMOC Stock. In January 2002 we sold our remaining KMOC common stock
resulting in a gain of $838,000.

Accounting Matters

         On January 1, 2001 we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The adoption of SFAS No. 133 resulted in St. Mary recording a
liability of $45.7 million for the fair value of the derivative instruments at
January 1, 2001. The adoption entry resulted in deferral of the recognition of
this liability to accumulated other comprehensive loss of $28.6 million at
January 1, 2001. For 2001 we recognized a $1.6 million net hedge loss from hedge
ineffectiveness on derivative instruments that were designated and qualified as
cash flow hedging instruments comprised primarily of the loss of effectiveness
on Enron North America Corp. hedge contracts. We anticipate that all hedge
transactions will occur as expected.

         In June 2001 the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations." Under this statement all business combinations
must be accounted for under the purchase method. The pooling method is no longer
allowed. The statement also establishes criteria to assess when to recognize
intangible assets separately from goodwill. SFAS No. 141 is effective for
business combinations initiated after June 30, 2001 and for all business
combinations using the purchase method for which the date of acquisition is
after June 30, 2001. At this time we have no pending business combinations that
would be affected by the adoption of this statement.

         In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses the accounting for goodwill and
other intangible assets and provides specific guidance for testing goodwill and
other intangible assets for impairment. This statement is effective for fiscal
years beginning after December 15, 2001. The adoption of this statement did not
have a material effect on our financial position or results of operations.

         In July 2001 the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires companies to recognize the fair
value of an asset retirement liability in the financial statements by
capitalizing that cost as part of the cost of the related long-lived asset. The
asset retirement liability should then be allocated to expense by using a
systematic and rational method. The statement is effective January 1, 2003. We
have not determined the impact of adoption of this statement.

                                       49

         In August 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement provides a single
accounting model for long-lived assets to be disposed of and changes the
criteria that would have to be met to classify an asset as held-for-sale. The
statement also requires expected future operating losses from discontinued
operations to be recognized in the periods in which the losses are incurred,
which is a change from the current requirement of recognizing such operating
losses as of the measurement date. The statement is effective January 1, 2002.
The adoption of the statement did not have a material effect on our financial
position or results of operations.

Effects of Inflation and Changing Prices

         Within the United States in 2000 and 2001 general cost inflation had an
effect on St. Mary as reflected in increased drilling costs and lease operating
costs. We cannot predict the future extent of any such effect.

         St. Mary's results of operations and cash flows are affected by
material changes in oil and gas prices. Oil and gas prices are strongly impacted
by North American influences on gas and global influences on oil in relation to
supply and demand for petroleum products. Oil and gas prices are further
impacted by the quality of the oil and gas to be sold and the location of our
producing properties in relation to markets for our products. Oil and gas price
increases or decreases have a corresponding effect on our revenues from oil and
gas sales. Oil and gas prices also affect the prices charged for drilling and
related services. As oil and gas prices increase, revenues increase and there is
usually a corresponding increase in our costs of drilling and related services.
Also, as oil and gas prices increase, the cost of acquiring producing properties
increases, which could limit the number and accessibility of quality properties
on the market.

         Material changes in oil and gas prices affect the current and future
value of our estimated proved reserves and our borrowing capability, which is
largely based on the value of such proved reserves. Declining natural gas prices
and volatile oil prices characterized most of 2001. The supply of drilling rigs,
personnel, supplies and services was tight through the first half of the year
and the cost of each of these items continued to increase as the service sector
ran at capacity. At the end of the year, record gas in storage, excess OPEC
capacity and a weakened economy resulted in a decrease in demand for these
services. In the near-term we expect decreased competition for these limited
resources to result in stabilization or decreases in the cost of both materials
and personnel and corresponding effects on the cost to explore for, drill for
and produce oil and gas. We continue to have good relationships with our vendors
due to our reputation for timely payment of invoices, a positive by-product of
our strong balance sheet.

Environmental

         St. Mary's compliance with applicable environmental regulations has not
resulted in any significant capital expenditures or materially adverse effects
to our liquidity or results of operations. We believe we are in substantial
compliance with environmental regulations and foresee that no material
expenditures will be incurred in the future. However, we are unable to predict
the impact that future compliance with regulations may have on future capital
expenditures, liquidity and results of operations.

                                       50

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         St. Mary holds derivative contracts and financial instruments that have
cash flow and net income exposure to changes in commodity prices or interest
rates. Financial and commodity-based derivative contracts are used to limit the
risks inherent in some crude oil and natural gas price changes that have an
effect on us. In prior years we have occasionally hedged interest rates, and may
do so in the future should circumstances warrant.

         Our board of directors has adopted a policy regarding the use of
derivative instruments. This policy requires every derivative used by St. Mary
to relate to underlying offsetting positions, anticipated transactions or firm
commitments. It prohibits the use of speculative, highly complex or leveraged
derivatives. Under the policy, the Chief Executive Officer and Vice President of
Finance must review and approve all risk management programs that use
derivatives. The audit committee of our board of directors also periodically
reviews these programs.

         Commodity Price Risk. St. Mary uses various hedging arrangements to
manage its exposure to price risk from natural gas and crude oil production.
These hedging arrangements have the effect of locking in for specified periods,
at predetermined prices or ranges of prices, the prices we will receive for the
volumes to which the hedge relates. Consequently, while these hedging
arrangements are structured to reduce our exposure to decreases in prices
associated with the hedged commodity, they also limit the benefit we might
otherwise receive from any price increases associated with the hedged commodity.
The derivative gain or loss effectively offsets the loss or gain on the
underlying commodity exposures that have been hedged. The fair value of the
swaps are estimated based on quoted market prices of comparable contracts and
approximate the net gains or losses that would have been realized if the
contracts had been closed out at year-end. The fair values of the futures are
based on quoted market prices obtained from the New York Mercantile Exchange and
have been adjusted for our hedging of the basis differential accorded to the
pipelines relative to our areas of production.

         A hypothetical $.10 change in our year-end market prices for natural
gas swaps and futures contracts on a notional amount of 20.3 million MMBtu would
have caused a potential $1.6 million change in net income (loss) before income
taxes for contracts in place on December 31, 2001. A hypothetical $1.00 change
in the year-end market prices for crude oil swaps and future contracts on a
notional amount of 1.7 MMBbls would have caused a potential $1.5 million
change in net income (loss) before income taxes for oil contracts in place on
December 31, 2001. These hypothetical changes were discounted to present value
using a 7.5% discount rate since the latest expected maturity date of some of
the swaps and futures contracts is greater than one year from the reporting
date.

         Interest Rate Risk. Market risk is estimated as the potential change in
fair value resulting from an immediate hypothetical one-percentage point
parallel shift in the yield curve. The sensitivity analysis presents the
hypothetical change in fair value of those financial instruments we held at
December 31, 2001 that are sensitive to changes in interest rates. For
fixed-rate debt, interest rate changes affect the fair market value but do not
impact results of operations or cash flows. Conversely for floating rate debt,
interest rate changes generally do not affect the fair market value but do
impact future results of operations and cash flows, assuming other factors are
held constant. The carrying amount of our floating rate debt approximates its
fair value. At December 31, 2001, we had floating rate debt of $64.0 million and
had no fixed rate debt. Assuming constant debt levels, the cash flow impact for
the next year resulting from a one-percentage point change in interest rates
would be approximately $640,000 before taxes. The results of operations impact

                                       51

may be less than this amount as a direct effect of the capitalization of
interest to wells drilled in the next year. In prior years when the debt amount
was at a reduced level we capitalized a large portion of our interest expense.
Since we cannot predict the exact amount that would be capitalized, we cannot
predict the exact effect that a one-percentage point shift would have on the
results of operations.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements that constitute Item 8 follow the
text of this report. An index to the Consolidated Financial Statements and
Schedules appears in Item 14(a) of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item concerning St. Mary's directors
is incorporated by reference to the information provided in St. Mary's
definitive proxy statement for the 2002 annual meeting of shareholders to be
filed within 120 days from December 31, 2001. The information required by this
Item concerning St. Mary's executive officers is included in Part I--Item
4A--Executive Officers of the Registrant.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated by reference to
the information provided in St. Mary's definitive proxy statement for the 2002
annual meeting of shareholders to be filed within 120 days from December 31,
2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The information required by this Item is incorporated by reference to
the information provided in St. Mary's definitive proxy statement for the 2002
annual meeting of shareholders to be filed within 120 days from December 31,
2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated by reference to
the information provided in St. Mary's definitive proxy statement for the 2002
annual meeting of shareholders to be filed within 120 days from December 31,
2001.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

                                       52

    (a)(1) and (a)(2) Financial Statements and Financial Statement Schedules:

      Report of Independent Public Accountants...............................F-1
      Consolidated Balance Sheets............................................F-2
      Consolidated Statements of Operations..................................F-3
      Consolidated Statements of Stockholders' Equity and Comprehensive
      Income...............................................................  F-4
      Consolidated Statements of Cash Flows..................................F-5
      Notes to Consolidated Financial Statements.............................F-7

         All other schedules are omitted because the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the Consolidated
Financial Statements and Notes thereto.

    (b) Reports on Form 8-K. One report on Form 8-K dated December 10, 2001 was
filed during the last quarter of 2001. This report on Form 8-K included Item 2
and Item 7 regarding the acquisition of oil and gas properties from Choctaw II
Oil &amp; Gas, LTD.


<PAGE>




    (c) Exhibits. The following exhibits are filed with or incorporated by
reference into this report on Form 10-K:

      Exhibit
      Number    Description
      -------   -----------
        2.1     Agreement and Plan of Merger dated July 27, 1999 among St. Mary
                Land &amp; Exploration Company, St. Mary Acquisition
                Corporation, King Ranch, Inc. and King Ranch Energy, Inc. as
                amended by Amendment No. 1 and Amendment No. 2 to Agreement
                and Plan of Merger dated November 8, 1999 (included as Annex A
                to the joint proxy/consent statement and prospectus contained
                in the registrant's Amendment No. 2 to Form S-4/A
                (Registration No. 333-85537) filed on November 12, 1999 and
                incorporated herein by reference)
        2.2     Stock Exchange Agreement dated June 1, 1999 among St. Mary Land
                &amp; Exploration Company, Robert L. Nance, Penni W. Nance, Amy
                Nance Cebull and Robert Scott Nance (filed as Exhibit 10.27 to
                the registrant's Registration Statement on Form S-4
                (Registration No. 333-85537) filed on August 19, 1999 and
                incorporated herein by reference)
        2.3     Stock Exchange Agreement dated June 1, 1999 among St. Mary Land
                &amp; Exploration Company, Robert L. Nance and Robert T. Hanley
                (filed as Exhibit 10.28 to the registrant's Registration
                Statement on Form S-4 (Registration No. 333-85537) filed on
                August 19, 1999 and incorporated herein by reference)
        2.4     Stock Exchange Agreement dated June 1, 1999 between St. Mary
                Land &amp; Exploration Company and Robert T. Hanley (filed as
                Exhibit 10.29 to the registrant's Registration Statement on Form
                S-4 (Registration No. 333-85537) filed on August 19, 1999 and
                incorporated herein by reference)
        3.1     Restated Certificate of Incorporation of St. Mary Land &amp;
                Exploration Company as amended in May 2001 (filed as Exhibit 3.1
                to the registrant's Quarterly Report on Form 10-Q for the
                quarter ended September 30, 2001 and incorporated herein by
                reference)
        3.2     Restated By-Laws of St. Mary Land &amp; Exploration Company as
                amended in July 2001 (filed as Exhibit 3.1 to the registrant's
                Quarterly Report on Form 10-Q (File No. 0-20872) for the quarter
                ended September 30, 2001 and incorporated herein by reference)

                                       53

      Exhibit
      Number    Description
      -------   -----------

        4.1     St. Mary Land &amp; Exploration Company Shareholder Rights Plan
                adopted on July 15, 1999 (filed as Exhibit 4.1 to the
                registrant's Quarterly Report on Form 10-Q/A (File No. 0-20872)
                for the quarter ended June 30, 1999 and incorporated herein by
                reference)
        4.2*    First Amendment to Shareholder Rights Plan dated March 15, 2002,
                as adopted by the Board of Directors on July 19, 2001.

       10.1     Stock Option Plan (filed as Exhibit 10.3 to the registrant's
                Registration Statement on Form S-1 (Registration No. 33-53512)
                and incorporated herein by reference)
       10.2     Stock Appreciation Rights Plan (filed as Exhibit 10.4 to the
                registrant's Registration Statement on Form S-1 (Registration
                No. 33-53512) and incorporated herein by reference)
       10.3     Cash Bonus Plan (filed as Exhibit 10.5 to the registrant's
                Registration Statement on Form S-1 (Registration No. 33-53512)
                and incorporated herein by reference)
       10.4     Net Profits Interest Bonus Plan, As Amended on September 19,
                1996 and July 24, 1997 and January 28, 1999 filed as Exhibit
                10.3 to registrant's Quarterly Report on Form 10-Q (File No.
                0-20872) for the quarter ended March 31, 1999 and incorporated
                herein by reference)
       10.5     Summary Plan Description/Pension Plan dated December 30, 1994
                (filed as Exhibit 10.35 to the registrant's Annual Report
                on Form 10-K (File No. 0-20872) for the year ended December 31,
                1994 and incorporated herein by reference)
       10.6     Non-qualified Unfunded Supplemental Retirement Plan, as amended
                (filed as Exhibit 10.8 to the registrant's Registration
                Statement on Form S-1 (Registration No. 33-53512) and
                incorporated herein by reference)
       10.7     Summary Plan Description 401(k) Profit Sharing Plan (filed as
                Exhibit 10.34 to the registrant's Annual Report on Form 10-K
                (File No. 0-20872) for the year ended December 31, 1994 and
                incorporated herein by reference)
       10.8     St. Mary Land &amp; Exploration Company Stock Option Plan, As
                Amended on March 25, 1999 (filed as Exhibit 10.2 to registrant's
                Quarterly Report on Form 10-Q (File No. 0-20872) for the quarter
                ended March 31, 1999 and incorporated herein by reference)
       10.9     St. Mary Land &amp; Exploration Company Incentive Stock Option
                Plan, As Amended on March 25, 1999 (filed as Exhibit 10.1 to
                registrant's Quarterly Report on Form 10-Q (File No. 0-20872)
                for the quarter ended March 31, 1999 and incorporated herein by
                reference)
       10.10    St. Mary Land &amp; Exploration Company Employee Stock Purchase
                Plan (filed as Exhibit 10.48 filed to the registrant's Annual
                Report on Form 10-K (File No. 0-20872) for the year ended
                December 31, 1997 and incorporated herein by reference)
       10.11    First Amendment to St. Mary Land &amp; Exploration Company
                Employee Stock Purchase Plan dated February 27, 2001 (filed as
                Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q
                (file No. 0-20872) for the quarter ended June 30, 2001 and
                incorporated herein by reference)
       10.12    Form of Change of Control Severance Agreements (filed as Exhibit
                10.1 to the registrant's Quarterly Report on Form 10-Q (File
                No. 0-20872) for the quarter ended September 30, 2001 and
                incorporated herein by reference)
       10.13    Employment Agreement between Registrant and Mark A. Hellerstein
                (filed as Exhibit 10.13 to the registrant's Registration
                Statement on Form S-1 (Registration No. 33-53512) and
                incorporated herein by reference)

                                       54

      Exhibit
      Number    Description
      -------   -----------
       10.14    Credit Agreement dated June 30, 1998 (filed as Exhibit 10.52 to
                the registrant's Quarterly Report on Form 10-Q (File
                No. 0-20872) for the quarter ended June 30, 1998 and
                incorporated herein by reference)
       10.15    Second Amendment to Credit Agreement dated June 27, 2000
                (filed as Exhibit 10.1 to the registrant's Quarterly Report on
                Form 10-Q (File No. 0-20872) for the quarter ended June 30, 2000
                and incorporated herein by reference)
       10.16    Third Amendment to Credit Agreement dated April 30, 2001
                (filed as Exhibit 10.2 to the registrant's Quarterly Report on
                Form 10-Q (File No. 0-20872) for the quarter ended June 30, 2001
                and incorporated herein by reference)
       10.17    Loan and Stock Purchase Agreement dated June 25, 1999 among
                Resource Capital Fund L.P., St. Mary Land &amp; Exploration
                Company and St. Mary Minerals Inc. (filed as Exhibit 10.30 to
                the registrant's Registration Statement on Form S-4
                (Registration No. 333-85537) filed on August 19, 1999 and
                incorporated herein by reference)
       10.18    Credit Agreement dated June 25, 1999 among Summo Minerals
                Corporation, Summo USA Corporation, Resource Capital Fund L.P.
                and St. Mary Minerals Inc. (filed as Exhibit 10.31 to the
                registrant's Registration Statement on Form S-4 (Registration
                No. 333-85537) filed on August 19, 1999 and incorporated herein
                by reference)
       10.19    Replacement Promissory Note dated June 25, 1999 payable to St.
                Mary Minerals Inc. in the amount of $1,400,000 (filed as Exhibit
                10.32 to the registrant's Registration Statement on Form S-4
                (Registration No. 333-85537) filed on August 19, 1999 and
                incorporated herein by reference)
       10.20    Pledge and Security Agreement dated June 25, 1999 among Summo
                Minerals Corporation, Resource Capital Fund L.P., and St. Mary
                Minerals Inc. (filed as Exhibit 10.33 to the registrant's
                Registration Statement on Form S-4 (Registration No. 333-85537)
                filed on August 19, 1999 and incorporated herein by reference)
       10.21    Pledge and Security Agreement dated June 25, 1999 among Summo
                USA Corporation, Resource Capital Fund L.P., and St. Mary
                Minerals Inc. (filed as Exhibit 10.34 to the registrant's
                Registration Statement on Form S-4 (Registration No. 333-85537)
                filed on August 19, 1999 and incorporated herein by reference)
       10.22    Warrant Agreement dated June 25, 1999 among Summo Minerals
                Corporation, Resource Capital Fund L.P. and St. Mary Minerals
                Inc. (filed as Exhibit 10.35 to the registrant's Registration
                Statement on Form S-4 (Registration No. 333-85537) filed on
                August 19, 1999 and incorporated herein by reference)
       10.23    Agreement of Sale and Purchase dated October 16, 2000, effective
                as of September 1, 2000, between JN Exploration and Production
                Limited Partnership, Colt Resources Corporation, Princeps
                Partners, Inc., and The William G. Helis Company, LLC
                (collectively, "JN et al") and St. Mary Land &amp; Exploration
                Company (filed as Exhibit 10.1 to the registrant's Current
                Report on Form 8-K (File No. 0-20872) dated January 5, 2001 and
                incorporated herein by reference)
       10.24    Purchase and Sale Agreement dated September 28, 2001, effective
                as of September 1, 2001; between Choctaw II Oil &amp; Gas, LTD
                and Nance Petroleum Corporation (filed as Exhibit 10.1 to the
                registrant's Current Report on Form 8-K (File No. 0-20872)
                dated December 10, 2001 and incorporated herein by reference)

                                       55

      Exhibit
      Number    Description
      -------   -----------
       10.25*   Registration Rights Agreement between St. Mary Land &amp;
                Exploration Company and Bear, Stearns &amp; Co. Inc., et al
                dated March 13, 2002
       10.26*   St. Mary Land &amp; Exploration Company 5.75% Senior Convertible
                Notes Due 2022 Indenture dated March 13, 2002
       10.27*   First Amendment to Credit Agreement dated December 22, 1998
       10.28*   Fourth Amendment to Credit Agreement dated March 4, 2002
       21.1*    Subsidiaries of Registrant
       23.1*    Consent of Arthur Andersen LLP
       23.2*    Consent of Ryder Scott Company, L.P.
       24.1*    Power of Attorney (included on signature page of this document)
- --------------------
      * Filed with this Form 10-K.


    (d) Financial Statement Schedules.  See Item 14(c) above.

                                       56
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders of
St. Mary Land &amp; Exploration Company and Subsidiaries:

We have audited the  accompanying  consolidated  balance sheets of St. Mary Land
&amp;  Exploration  Company (a  Delaware  corporation)  and  Subsidiaries  as of
December  31,  2001  and  2000,  and  the  related  consolidated  statements  of
operations,  stockholders'  equity and comprehensive  income, and cash flows for
each of the three years in the period ended December 31, 2001.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of St. Mary Land &amp;
Exploration  Company and  subsidiaries as of December 31, 2001 and 2000, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2001, in conformity  with  accounting  principles
generally accepted in the United States.

As explained in Notes 1 and 10 to the  consolidated  financial  statements,  the
Company changed its method of accounting for derivative  instruments and hedging
activities on January 1, 2001.




                                                    /s/ ARTHUR ANDERSEN LLP


Denver, Colorado,
 February 18, 2002.

                                      F-1

<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPLEMENTARY DATA

              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)


                               ASSETS                                                      December 31,
                                                                                     ------------------------
                                                                                      2001              2000
                                                                                     ------            ------
Current assets:
  Cash and cash equivalents                                                       $   4,116         $   6,619
  Accounts receivable                                                                46,484            55,068
  Prepaid expenses and other                                                          2,337             2,134
  Accrued derivative asset                                                            8,194                 -
  Refundable income taxes                                                            11,090                 -
  Deferred income taxes                                                                   -               163
                                                                                -----------       -----------
      Total current assets                                                           72,221            63,984
                                                                                -----------       -----------

Property and equipment (successful efforts method), at cost:
  Proved oil and gas properties                                                     518,912           385,076
  Less accumulated depletion, depreciation and amortization                        (216,288)         (171,412)
  Unproved oil and gas properties, net of impairment allowance
    of $8,908 in 2001 and $7,956 in 2000                                             53,054            35,497
  Other property and equipment, net of accumulated depreciation of $3,120
    in 2001 and $3,600 in 2000                                                        3,252             3,250
                                                                                -----------       -----------
                                                                                    358,930           252,411
                                                                                -----------       -----------
Other assets:
  Khanty Mansiysk Oil Corporation stock                                               1,651             1,651
  Other assets                                                                        4,187             3,849
                                                                                -----------       -----------
                                                                                      5,838             5,500
                                                                                -----------       -----------
                                                                                  $ 436,989         $ 321,895
                                                                                ===========       ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                                            $ 34,858          $ 23,345
  Deferred tax liability                                                              3,363                 -
                                                                                -----------       -----------
      Total current liabilities                                                      38,221            23,345
                                                                                -----------       -----------


Long-term liabilities:
  Long-term debt                                                                     64,000            22,000
  Deferred income taxes                                                              47,685            24,820
  Other noncurrent liabilities                                                          255               987
                                                                                -----------       -----------
                                                                                    111,940            47,807
                                                                                -----------       -----------
Commitments and contingencies (Notes 1,6,7,8,10)
                                                                                -----------       -----------
Minority interest                                                                       711               607
                                                                                -----------       -----------
Stockholders' equity:
  Common stock, $0.01 par value: authorized  - 100,000,000 shares; issued and
    outstanding - 28,779,808 shares in 2001 and 28,553,826 shares in 2000               288               286
  Additional paid-in capital                                                        137,384           132,973
  Treasury stock - at cost: 1,009,900 shares in 2001 and 395,600 shares in 2000     (16,210)           (3,339)
  Retained earnings                                                                 157,739           120,075
  Accumulated other comprehensive income                                              6,916               141
                                                                                -----------       -----------
      Total stockholders' equity                                                    286,117           250,136
                                                                                -----------       -----------
                                                                                  $ 436,989         $ 321,895
                                                                                ===========       ===========


                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                      F-2




<PAGE>




              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)



                                                               For the Years Ended December 31,
                                                               -----------------------------------
                                                                2001          2000           1999
                                                               ------        ------         ------
Operating revenues:
  Oil and gas production                                    $ 203,973      $ 188,407       $73,387
  Gain (loss) on sale of proved properties                        367          3,404           (55)
  Other oil and gas revenue                                     2,166          1,421         1,166
  Gain on sale of KMOC stock                                        -          2,156             -
  Other revenues                                                  963            278           416
                                                             --------       --------      --------
      Total operating revenues                                207,469        195,666        74,914
                                                             --------       --------      --------

Operating expenses:
  Oil and gas production                                       55,000         38,461        19,574
  Depletion, depreciation and amortization                     51,346         40,129        22,574
  Exploration                                                  19,518          9,633        11,593
  Impairment of proved properties                                 820          4,449         3,982
  Abandonment and impairment of unproved properties             3,865          1,841         6,616
  General and administrative                                   11,762         11,166         9,172
  Unrealized derivative loss                                    1,573              -             -
  Other                                                         1,673          1,437         1,802
                                                             --------       --------      --------
      Total operating expenses                                145,557        107,116        75,313
                                                             --------       --------      --------

Income (loss) from operations                                  61,912         88,550          (399)

Nonoperating income (expense):
  Interest income                                                 466            897         1,008
  Interest expense                                                (90)          (160)         (933)
                                                             --------       --------      --------
Income (loss)  before income taxes                             62,288         89,287          (324)
Income tax expense (benefit)                                   21,829         33,667          (406)
                                                             --------       --------      --------
Net income                                                   $ 40,459       $ 55,620      $     82
                                                             ========       ========      ========

Basic net income per common share                              $ 1.45         $ 2.00           $ -
                                                             ========       ========      ========
Diluted net income per common share                            $ 1.42         $ 1.97           $ -
                                                             ========       ========      ========

Basic weighted average shares outstanding                      27,973         27,781        22,198
                                                             ========       ========      ========
Diluted weighted average shares outstanding                    28,555         28,271        22,329
                                                             ========       ========      ========

                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                       F-3



<PAGE>




              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                      (In thousands, except share amounts)

                                                                                                           Accumulated
                                                                Additional                                   Other        Total
                                             Common Stock       Paid-in   Retained      Treasury Stock   Comprehensive Stockholders'
                                         ------------------                         ---------------------
                                           Shares     Amount    Capital   Earnings    Shares     Amount     Income        Equity
                                         ---------- --------- ---------- ---------- ---------- ---------- ------------  ----------
Balance, December 31, 1998               21,984,894  $    220   $ 67,651  $ 69,341   (295,600)  $ (2,470)   $        -    $ 134,742

Comprehensive income:

    Net Income                                    -         -          -        82          -          -             -           82
    Unrealized net gain on marketable
      equity securities available for sale        -         -          -         -          -          -           284          284
                                                                                                                         ----------
Total comprehensive income                                                                                                      366
                                                                                                                         ----------
Cash dividends, $ 0.10 per share                  -         -          -    (2,193)         -          -             -       (2,193)
Treasury stock purchases                          -         -          -         -    (70,000)      (525)            -         (525)
Issuance for Employee Stock
      Purchase Plan                          32,794         -        258         -          -          -             -          258
Employee Stock Purchase Plan
      disqualified distributions                  -         -         20         -          -          -             -           20
Sale of common stock, including income
      tax benefit of stock option exercises  17,660         -        123         -          -          -             -          123
Directors' stock compensation                 7,200         -         57         -          -          -             -           57
Issuance for Acquisition of Nance
      Petroleum Corporation                 518,988         6      3,086         -          -          -             -        3,092
Issuance for Acquisition of King
      Ranch Energy, Inc.                  5,332,374        53     52,779         -          -          -             -       52,832
                                         ---------- ---------  ---------  --------  ---------   --------    ----------    ---------
Balances, December 31, 1999              27,893,910     $ 279  $ 123,974  $ 67,230   (365,600)  $ (2,995)    $     284    $ 188,772

Comprehensive income:
    Net Income                                    -         -          -    55,620          -          -             -       55,620
    Unrealized net loss on marketable
      equity securities available for sale        -         -          -         -          -          -          (143)        (143)
                                                                                                                          ---------
Total comprehensive income                                                                                                   55,477
                                                                                                                          ---------
Cash dividends, $ 0.10 per share                  -         -          -    (2,775)         -          -             -       (2,775)
Treasury stock purchases                          -         -          -         -     30,000)      (344)            -         (344)
Issuance for Employee Stock
      Purchase Plan                          32,296         -        311         -          -          -             -          311
Employee Stock Purchase Plan
      disqualified distributions                  -         -          3         -          -          -             -            3
Sale of common stock, including income
      tax benefit of stock option exercise  619,220         6      8,597         -          -          -             -        8,603
Directors' stock compensation                 8,400         1         88         -          -          -             -           89
                                         ----------   -------  --------- ---------   --------   --------     ---------    ---------
Balances, December 31, 2000              28,553,826     $ 286  $ 132,973 $ 120,075   (395,600)  $ (3,339)     $    141    $ 250,136

Comprehensive income:
    Net Income                                    -         -          -    40,459          -          -             -       40,459
    Unrealized net loss on marketable
      equity securities available for sale        -         -          -         -          -          -          (132)        (132)
    Cumulative effect of adoption of
      accounting principle                        -         -          -         -          -          -       (28,587)     (28,587)
    Change in derivative instrument fair value    -         -          -         -          -          -        35,494       35,494
                                                                                                                          ---------
Total comprehensive income                                                                                                   47,234
                                                                                                                          ---------
Cash dividends, $ 0.10 per share                  -         -          -    (2,795)         -          -             -       (2,795)
Treasury stock purchases                          -         -          -         -   (614,300)   (12,871)            -      (12,871)
Issuance for Employee Stock
      Purchase Plan                          29,772         -        575         -          -          -             -          575
Sale of common stock, including income
      tax benefit of stock option exercise  187,810         2      3,598         -          -          -             -        3,600
Directors' stock compensation                 8,400         -        238         -          -          -             -          238
                                         ----------  -------- ---------- --------- ----------  ----------   ----------  -----------
Balances, December 31, 2001              28,779,808     $ 288  $ 137,384 $ 157,739 (1,009,900) $ (16,210)    $   6,916    $ 286,117
                                         ==========  ======== ========== ========= ==========  ==========   ==========  ===========


                  The accompanying notes are an integral part
                   of these consolidated financial statements.

                                      F-4

<PAGE>







              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (In thousands)



                                                                          For the Years Ended December 31,
                                                                      ---------------------------------------
                                                                         2001          2000          1999
                                                                        ------        ------        ------
Reconciliation of net income to net cash provided
    by operating activities:
  Net income                                                          $ 40,459       $ 55,620          $ 82
  Adjustments to reconcile net income to net
    cash provided by operating activities:
  Gain on sale of KMOC stock                                                 -         (2,156)            -
  (Gain) loss on sale of proved properties                                (367)        (3,404)           55
  Unrealized derivative loss                                             1,573              -             -
  Depletion, depreciation and amortization                              51,346         40,129        22,574
  Impairment of proved properties                                          820          4,449         3,982
  Exploratory dry hole expense                                           9,028            789         4,759
  Abandonment and impairment of unproved properties                      3,865          1,841         6,616
  Deferred income taxes                                                 23,726         21,348          (898)
  Minority interest and other                                           (1,327)         1,260            29
                                                                      --------       --------      --------
                                                                       129,123        119,876        37,199

Changes in current assets and liabilities:
  Accounts receivable                                                     (629)       (23,138)        4,983
  Prepaid expenses and other                                           (11,754)           254         1,118
  Accounts payable and accrued expenses                                 10,752         (4,652)       (2,580)
  Other                                                                      -            (73)           35
                                                                      --------       --------      --------
Net cash provided by operating activities                              127,492         92,267        40,755
                                                                      --------       --------      --------
Cash flows from investing activities:
  Proceeds from sale of oil and gas properties                           4,771          3,573         1,056
  Capital expenditures                                                (131,680)       (65,241)      (34,994)
  Acquisition of oil and gas properties                                (39,124)       (52,076)       (5,294)
  Proceeds from distribution of KMOC stock                               6,960              -             -
  Sale of Chelsea Corporation                                                -              -         2,066
  Receipts from restricted cash                                              -              -           720
  Investment in St. Mary Energy Company                                      -           (420)       12,068
  Other                                                                     (2)         1,296         2,135
                                                                      --------       --------      --------
Net cash used in investing activities                                 (159,075)      (112,868)      (22,243)
                                                                      --------       --------      --------
Cash flows from financing activities:
  Proceeds from long-term debt                                         147,050         45,050        29,750
  Repayment of long-term debt                                         (105,050)       (36,050)      (39,537)
  Proceeds from sale of common stock                                     2,746          7,143           311
  Repurchase of common stock                                           (12,871)          (344)         (525)
  Dividends paid                                                        (2,795)        (2,775)       (2,193)
  Other                                                                      -              1            56
                                                                      --------       --------      --------
Net cash provided by (used in) financing activities                     29,080         13,025       (12,138)
                                                                      --------       --------      --------

Net change in cash and cash equivalents                                 (2,503)        (7,576)        6,374
Cash and cash equivalents at beginning of period                         6,619         14,195         7,821
                                                                      --------       --------      --------
Cash and cash equivalents at end of period                             $ 4,116        $ 6,619      $ 14,195
                                                                      ========       ========      ========

                  The accompanying notes are an integral part
                   of these consolidated financial statements.

                                      F-5

<PAGE>




              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Supplemental schedule of additional cash flow information and noncash
activities:

                                                                For the Years Ended December 31,
                                                           ----------------------------------------
                                                            2001             2000             1999
                                                           ------           ------           ------
                                                                        (in thousands)

      Cash paid for interest                              $   539          $   764          $   916

      Cash paid for income taxes                           10,355           11,205               92

      Cash paid for exploration expenses                   19,518            9,032           11,826

      In January  2001 the Company  issued  8,400  shares of common stock to its
      directors and recorded compensation expense of $237,852.

      In June  2000 the  Company  received  equipment  valued at  $1,202,000  as
      partial proceeds for property sold.

      In January  2000 the Company  issued  8,400  shares of common stock to its
      directors and recorded compensation expense of $88,368.

      In December 1999 the Company  acquired St. Mary Energy  Company  (formerly
      known as King Ranch Energy,  Inc.) for  5,332,374  shares of the Company's
      common stock valued at $52,832,000. The acquisition was accounted for as a
      purchase.

      Following is a table of the noncash items  acquired in the 1999  purchases
      of Nance Petroleum Corporation and King Ranch Energy, Inc. (in thousands):

                                                              Nance        King Ranch
                                                            Petroleum        Energy
                                                            ---------      ----------
      Accounts receivable &amp; other assets               $   789         $  9,772
      Property &amp; equipment                               6,365           25,056
      Accounts payable                                        (642)          (4,490)
      Deferred income taxes                                   (667)          10,426
      Long-term debt                                        (3,389)               -



      In  June  1999  the  Company  acquired  Nance  Petroleum  Corporation  and
      Quanterra  Alpha Limited  Partnership  for 518,988 shares of the Company's
      common  stock  valued  at  $3,091,000  together  with  the  assumption  of
      $3,389,000  of Nance  Petroleum  Corporation  debt.  The  acquisition  was
      accounted for as a purchase.



      In January  1999 the Company  issued  7,200  shares of common stock to its
      directors and recorded compensation expense of $54,612.


                  The accompanying notes are an integral part
                   of these consolidated financial statements.

                                      F-6
<PAGE>




              ST. MARY LAND &amp; EXPLORATION COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

1.   Summary of Significant Accounting Policies:

     Description of Operations:

         St. Mary Land &amp;  Exploration  Company ("St. Mary" or the "Company")
is an  independent  energy  company  engaged  in the  exploration,  development,
acquisition  and  production  of  natural  gas  and  crude  oil.  The  Company's
operations are conducted entirely in the United States.

    Basis of Presentation:

         In July 2000,  St.  Mary's  Board of Directors  approved a  two-for-one
stock split  effected  in the form of a stock  dividend  whereby one  additional
common share of stock was  distributed  for each common share  outstanding.  The
stock split was distributed on September 5, 2000 to shareholders of record as of
the close of business on August 21,  2000.  All share and per share  amounts for
all periods presented herein have been restated to reflect this stock split.

         The  consolidated  financial  statements  include  the  accounts of the
Company  and  its   wholly-owned   subsidiaries.   Subsidiaries   that  are  not
wholly-owned are accounted for using full  consolidation  with minority interest
or by the equity or cost method as  appropriate.  All  significant  intercompany
accounts and transactions have been eliminated.

         The Company  accounts for its investment in Summo Minerals  Corporation
("Summo")  under  the  cost  method  of  accounting.  The  accounting  for  this
investment  was changed  from the equity  method to the cost method in June 1999
after  a  transfer  of  common  shares  that  reduced  the  Company's  ownership
percentage below 20%. The Company's  interests in other oil and gas ventures and
partnerships are accounted for using full  consolidation with minority interest,
including its 58% investment in Box Church Gas Gathering, LLC. The Company's 90%
interest  in  Roswell,  LLC was  accounted  for using  full  consolidation  with
minority  interest  until  December  2000 when the  remaining  10%  interest was
purchased.  The Company's 74% investment in Panterra Petroleum  ("Panterra") was
proportionately consolidated until June 1999 when the remaining 26% was acquired
through the purchase of Nance Petroleum Corporation ("Nance").

    Cash and Cash Equivalents:

         The Company considers all highly liquid  investments  purchased with an
initial  maturity of three months or less to be cash  equivalents.  The carrying
value  of  cash  and  cash  equivalents  approximates  fair  value  because  the
instruments have maturity dates of three months or less.

    Concentration of Credit Risk:

         Substantially  all of the Company's  receivables are within the oil and
gas industry,  primarily from  purchasers of oil and gas and from joint interest
owners. Although diversified within many companies,  collectability is dependent
upon the general  economic  conditions of the industry.  The receivables are not
collateralized, and to date the Company has had minimal bad debts.

         The Company  has  accounts  with  separate  banks in Denver,  Colorado;
Shreveport,  Louisiana;  Tulsa, Oklahoma;  Lafayette,  Louisiana;  and Billings,

                                      F-7

Montana.  At  December  31,  2001 and  2000,  the  Company  had  $6,576,000  and
$11,093,000  respectively,  invested in money  market  funds,  including  margin
accounts  consisting of corporate  commercial paper,  repurchase  agreements and
U.S.  Treasury  obligations.  The Company's  policy is to invest in highly rated
instruments  and to limit  the  amount  of credit  exposure  at each  individual
institution.

    Oil and Gas Producing Activities:

         The Company follows the successful efforts method of accounting for its
oil  and  gas  properties.   Under  this  method  of  accounting,  all  property
acquisition costs and costs of exploratory and development wells are capitalized
when  incurred,  pending  determination  of  whether  the well has found  proved
reserves.  If an exploratory  well does not find proved  reserves,  the costs of
drilling  the well are  charged  to  expense.  Exploratory  dry hole  costs  are
included  in cash  flows  from  investing  activities  within  the  consolidated
statements of cash flows. The costs of development wells are capitalized whether
productive or nonproductive.

         Geological and geophysical costs on exploratory prospects and the costs
of carrying and  retaining  unproved  properties  are  expensed as incurred.  An
impairment  allowance  is  provided  on a  property-by-property  basis  when the
Company determines that the unproved property will not be developed.  Depletion,
depreciation  and amortization  ("DD&amp;A") of capitalized  costs of proved oil
and gas  properties  is  provided on a  field-by-field  basis using the units of
production method based upon proved reserves.  The computation of DD&amp;A takes
into  consideration  restoration,  dismantlement  and abandonment  costs and the
anticipated proceeds from equipment salvage. The restoration,  dismantlement and
abandonment  costs  for  onshore  properties  are  expected  to be offset by the
residual value of lease and well equipment.  The Company had a recorded offshore
abandonment  liability  of  $9,500,000  as of  December  31, 2001 based on total
expected  abandonment  costs of $10,251,000  and a liability of $9,500,000 as of
December 31, 2000 based on total expected abandonment costs of $10,611,000. This
liability  is  included in  accumulated  DD&amp;A  on the  consolidated  balance
sheets.  The  Company  recorded  $313,000,  $1,988,000  and  $34,000 of offshore
abandonment  liability accretion as part of DD&amp;A expense in the consolidated
statements of operations for the years ended  December 31, 2001,  2000 and 1999,
respectively.

         The Company reviews its long-lived  assets for impairments  when events
or changes in circumstances  indicate that an impairment may have occurred.  The
impairment  test  compares  the expected  undiscounted  future net revenues on a
field-by-field  basis with the related net capitalized  costs at the end of each
period. Expected future cash flows are calculated on all proved reserves using a
15% discount rate and escalated  prices.  When the net capitalized  costs exceed
the undiscounted  future net revenue of a property,  the cost of the property is
written down to fair value,  which is  determined  using  discounted  future net
revenues. During 2001, 2000 and 1999 the Company recorded impairment charges for
proved properties of $820,000, $4,449,000 and $3,982,000, respectively.

Sales of Producing and Nonproducing Properties:

         The sale of a partial interest in a proved property is accounted for as
normal  retirement,  and no gain or loss is recognized as long as this treatment
does not significantly affect the  unit-of-production  amortization rate. A gain
or loss is  recognized  for all  other  sales  of  producing  properties  and is
included in the results of operations.

         The sale of a partial interest in an unproved property is accounted for
as a recovery of cost when substantial  uncertainty exists as to recovery of the
cost  applicable to the interest  retained.  A gain on the sale is recognized to
the extent that the sales  price  exceeds the  carrying  amount of the  unproved
property.

                                      F-8

    Other Property and Equipment:

         Other property and equipment is recorded at cost. Costs of renewals and
improvements  that  substantially  extend  the  useful  lives of the  assets are
capitalized. Maintenance and repairs are expensed when incurred. Depreciation is
provided using the  straight-line  method over the estimated useful lives of the
assets from 3 to 15 years.  Gains and losses on  dispositions  of other property
and equipment are included in the results of operations.

    Gas Balancing:

         The Company uses the sales method to account for gas imbalances.  Under
this  method,  revenue  is  recorded  on the basis of gas  actually  sold by the
Company.  The Company  records revenue for its share of gas sold by other owners
that  cannot  be  volumetrically  balanced  in the  future  due to  insufficient
remaining reserves.  Related receivables  totaling $984,000 at December 31, 2001
and  $1,035,000  at  December  31,  2000 are  included  in other  assets  in the
accompanying  balance  sheets.  The Company also reduces revenue for gas sold by
the  Company  that  cannot  be  volumetrically  balanced  in the  future  due to
insufficient remaining reserves.  Related payables totaling $353,000 at December
31,  2001 and  $335,000 at December  31, 2000 are  included in other  noncurrent
liabilities  in  the  accompanying   balance  sheets.  The  Company's  remaining
overproduced  and  underproduced  gas balancing  positions are considered in the
Company's proved oil and gas reserves (see Note 11).

    Financial Instruments:

         Statement  of  Financial   Accounting   Standards   ("SFAS")  No.  133,
"Accounting for Derivative  Instruments and Hedging  Activities," was adopted on
January 1, 2001.  SFAS No. 133 requires  companies to report all  derivatives at
fair value as either assets or liabilities and bases the accounting treatment of
the derivatives on the reasons an entity holds the  instrument.  The adoption of
SFAS No. 133 resulted in the Company  recording a liability of  $45,699,000  for
the fair value of the derivative  instruments at January 31, 2001. The Company's
adoption entry also resulted in deferral of the recognition of this liability to
accumulated other comprehensive loss of $28,587,000.

         The  Company  seeks to protect  its rate of return on  acquisitions  of
producing  properties  or  drilling  prospects  by  hedging  cash  flow when the
economic  criteria from its  evaluation  and pricing model  indicate it would be
appropriate. The derivative instruments used for this purpose are designated and
qualify  as cash flow  hedging  instruments  under  SFAS No.  133.  Management's
strategy is to hedge cash flows from investments currently requiring a gas price
in excess of $2.75 per Mcf and an oil price in excess of $22.00 per Bbl in order
to meet  minimum  rate-of-return  criteria.  Management  reviews  these  hedging
parameters  on a quarterly  basis.  The Company  generally  limits its aggregate
hedge position to no more than 35% of its total  production but will hedge up to
50% of total production in certain circumstances.  The Company seeks to minimize
basis risk and  indexes the  majority of its oil hedges to NYMEX  prices and the
majority of its gas hedges to various  regional  index  prices  associated  with
pipelines in proximity to the Company's areas of gas production.

         The   Company's   hedge   positions   are   diversified   with  various
counterparties, and the Company  requires  that such  counterparties  have clear
indications of current financial strength. See Note 10 for additional discussion
of derivatives.

                                      F-9

    Income Taxes:

         Deferred  income taxes are provided on the  difference  between the tax
basis  of an  asset  or  liability  and its  carrying  amount  in the  financial
statements.  This  difference  will result in taxable  income or  deductions  in
future years when the reported  amount of the asset or liability is recovered or
settled, respectively.

    Earnings Per Share:

         Basic net income per common  share of stock is  calculated  by dividing
net income by the  weighted  average of common  shares  outstanding  during each
year. Diluted net income per common share of stock is calculated by dividing net
income by the weighted  average of common shares  outstanding and other dilutive
securities.  Dilutive  securities of the Company consist entirely of outstanding
options to  purchase  the  Company's  common  stock.  The  outstanding  dilutive
securities  for the years ended  December 31, 2001,  2000 and 1999 were 582,313,
490,288 and 131,356,  respectively.  Antidilutive  options not considered in the
diluted net income per share  calculation  were  625,492,  0 and 513,855 for the
years ended December 31, 2001, 2000 and 1999.

    Stock-Based Compensation:

         The Company accounts for stock-based  compensation  using the intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting  for  Stock  Issued  to  Employees"   ("APB  No.  25")  and  related
interpretations.  Compensation expense for stock options, if any, is measured as
the  excess of the quoted  market  price of the  Company's  stock at the date of
grant over the amount an employee must pay to acquire the stock.

         SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  established
accounting  and  disclosure  requirements  using a  fair-value-based  method  of
accounting for stock-based employee  compensation plans. The Company has elected
to remain on its  current  method of  accounting  as  described  above,  and has
adopted the disclosure requirements of SFAS No. 123.

    Comprehensive Income:

         Comprehensive  income  consists of net income and unrealized  gains and
losses on marketable equity securities held for sale and the effective component
of  derivative  instruments  (net  of  tax)  classified  as  cash  flow  hedges.
Comprehensive   income  is  presented   in  the   consolidated   statements   of
stockholders' equity and comprehensive income.

    Major Customers:

         During 2001 two customers individually accounted for 12.0% and 11.3% of
the Company's  total oil and gas  production  revenue.  During 2000 one customer
individually  accounted for 22.3% of the Company's  total oil and gas production
revenue.  During  1999 one  customer  individually  accounted  for  13.3% of the
Company's total oil and gas production revenue.

    Industry Segment and Geographic Information:

         The Company operates in one industry segment, which is the exploration,
development  and  production  of  natural  gas  and  crude  oil,  and all of the
Company's  operations  are  conducted in the United  States.  Consequently,  the
Company currently reports as a single industry segment.

                                      F-10

    Use of Estimates in the Preparation of Financial Statements:

         The  preparation of financial  statements in conformity with accounting
principles  generally accepted in the United Stated requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts of oil and gas
reserves,  assets  and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

 Reclassifications:

         Certain amounts in the 2000 and 1999 consolidated  financial statements
have been reclassified to correspond to the 2001 presentation.

Recently Issued Accounting Standards:

         In June 2001 the Financial  Accounting  Standards Board ("FASB") issued
SFAS No.  141,  "Business  Combinations."  Under  this  statement  all  business
combinations must be accounted for under the purchase method. The pooling method
is no longer allowed.  The statement also establishes criteria to assess when to
recognize intangible assets separately from goodwill.  SFAS No. 141 is effective
for  business  combinations  initiated  after June 30, 2001 and for all business
combinations  using the  purchase  method for which the date of  acquisition  is
after June 30, 2001. At this time we have no pending business  combinations that
would be affected by the adoption of this statement.

         In June  2001 the  FASB  issued  SFAS  No.  142,  "Goodwill  and  Other
Intangible  Assets." This  statement  addresses the  accounting for goodwill and
other intangible  assets and provides specific guidance for testing goodwill and
other intangible  assets for impairment.  This statement is effective for fiscal
years  beginning after December 15, 2001. The adoption of this statement did not
have a material effect on our financial position or results of operations.

         In July  2001 the FASB  issued  SFAS No.  143,  "Accounting  for  Asset
Retirement Obligations." This statement requires companies to recognize the fair
value  of  an  asset  retirement   liability  in  the  financial  statements  by
capitalizing that cost as part of the cost of the related  long-lived asset. The
asset  retirement  liability  should  then be  allocated  to  expense by using a
systematic and rational method.  The statement is effective  January 1, 2003. We
have not determined the impact of adoption of this statement.

         In  August  2001 the FASB  issued  SFAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets." This statement  provides a single
accounting  model  for  long-lived  assets to be  disposed  of and  changes  the
criteria  that would have to be met to classify an asset as  held-for-sale.  The
statement  also requires  expected  future  operating  losses from  discontinued
operations  to be  recognized  in the periods in which the losses are  incurred,
which is a change from the current  requirement  of  recognizing  such operating
losses as of the measurement  date. The statement is effective  January 1, 2002.
The adoption of the  statement  did not have a material  effect on our financial
position or results of operations.

                                      F-11


2.   Accounts Receivable:

         Accounts receivable are composed of the following:

                                                                          December 31,
                                                         -------------------------------------------
                                                                2001                     2000
                                                         -------------------       -----------------
                                                                         (In thousands)

         Accrued oil and gas sales                              $     29,041            $     38,159
         Due from joint interest owners                               17,042                   6,497
         Receivable for sale of KMOC stock                               -                     7,009
         Other                                                           401                   3,403
                                                         -------------------       -----------------
         Total accounts receivable                              $     46,484            $     55,068
                                                         ===================       =================

3.   Acquisitions

         On November 29, 2001 the Company  completed the  acquisition of oil and
gas properties located in Montana,  North Dakota and Wyoming from Choctaw II Oil
and  Gas,  LTD.  The  Company  paid  $40,526,000  in  cash  after  normal  price
adjustments.  The Company  utilized a portion of its existing credit facility to
fund the acquisition, and the transaction was accounted for as a purchase.

         On December 28, 2000 the Company  completed the  acquisition of oil and
gas  properties  primarily  located in the  Anadarko  Basin of Oklahoma  from JN
Exploration and Production Limited  Partnership and affiliates for $31,613,000
in cash after normal purchase price  adjustments.  The Company  utilized cash on
hand and a portion of its existing  credit facility with Bank of America to fund
the acquisition. The transaction was accounted for as a purchase.

         On December 17, 1999 the Company  completed  the purchase of King Ranch
Energy,  Inc. ("KRE") for 5,332,374 shares of common stock valued at $52,832,000
together with transaction costs of $2,339,000.  After the acquisition KRE's name
was changed to St. Mary Energy  Company.  The  acquired  properties  are located
primarily in the Gulf of Mexico and the onshore Gulf Coast.  The KRE acquisition
has been accounted for by the purchase  method of accounting  and,  accordingly,
the results of operations of KRE beginning December 17, 1999 are included in the
accompanying consolidated financial statements.

         On June 1, 1999 the Company  completed the purchase of Nance  Petroleum
Corporation  and Quanterra  Alpha Limited  Partnership for 518,988 shares of the
Company's common stock valued at $3,091,000  together with transaction  costs of
$56,000 and the assumption of $3,189,000 of Nance debt. The acquisition included
the 26% of Panterra the Company did not previously own, as well as certain other
properties.  The  properties  acquired  are  located in the  Williston  Basin of
Montana and North Dakota. The acquisition was accounted for as a purchase.

                                      F-12

4.   Income Taxes:

         The provision for income taxes consists of the following:

                                                                            For the Years Ended December 31,
                                                                       -------------------------------------------
                                                                          2001             2000             1999
                                                                       ---------        ---------        ---------
                                                                                      (In thousands)
                  Current taxes:
                    Federal                                             $  1,114        $  11,194         $    219
                    State                                                    620            1,181              315
                  Deferred taxes                                          20,095           21,292             (940)
                                                                       ---------       ----------        ---------
                  Total income tax expense (benefit)                    $ 21,829        $  33,667         $   (406)
                                                                       =========       ==========        =========

         The above taxes are net of alternative  fuels credits (Internal Revenue
Code  Section 29) of $185,000 in 2001,  $79,000 in 2000,  and  $283,000 in 1999.
Additionally,  current  federal  tax  does  not  reflect  the  tax  benefit  for
deductions from stock option  exercises of $930,000 in 2001,  $1,771,000 in 2000
and $36,000 in 1999.  Net federal taxes payable for the years ended December 31,
2001, 2000 and 1999 were $184,000,  $9,423,000 and $183,000,  respectively,  and
have been reduced by the tax benefit of stock option exercises.

         The components of the net deferred tax liability are as follows:
                                                                                  December 31,
                                                                       --------------------------------
                                                                          2001                   2000
                                                                       ---------              ---------
                                                                                (In thousands)
                  Deferred tax liabilities:
                      Oil and gas properties                            $ 54,104               $ 32,031
                      Derivative instruments                               3,903                    -
                      Other                                                  147                    282
                                                                       ---------              ---------
                  Total deferred tax liabilities                          58,154                 32,313
                                                                       ---------              ---------

                  Deferred tax assets:
                      Other, primarily employee benefits                   1,716                  5,005
                      State tax net operating loss carryforward            1,915                  1,006
                      State and federal income tax benefit                 3,497                  1,817
                      Alternative minimum tax credit carryforward            184                    -
                                                                       ---------              ---------
                      Total deferred tax assets                            7,312                  7,828
                    Valuation allowance                                     (206)                  (172)
                                                                       ---------              ---------
                    Net deferred tax assets                                7,106                  7,656
                                                                       ---------              ---------

                    Total net deferred tax liabilities                    51,048                 24,657
                    Current deferred income tax assets (liabilities)      (3,363)                   163
                                                                       ---------              ---------
                    Non-current net deferred tax liabilities            $ 47,685               $ 24,820
                                                                       =========              =========
                    Current refundable income taxes
                      (current income taxes payable)                    $ 11,090               $ (1,162)
                                                                       =========              =========

         In accordance  with SFAS No. 109,  "Accounting  for Income  Taxes," the
Company  records  purchase  adjustments  to its  long-term  deferred  income tax
liability  accounts  to more  closely  align  book and tax  basis at the time of
acquisition.  These  adjustments  mitigate  the  effect of  deferred  income tax
expense  or reduced  deferred  income  tax  benefit on future net income  before
income tax from  acquisitions  that utilize the purchase  method for  accounting
principles  generally  accepted in the United  States and are  considered  to be
tax-free basis  transfers for tax accounting.  During 1999 the Company  adjusted
its  long-term  deferred  income tax liability  account for a $667,000  increase
relating to its Nance stock acquisition and recorded a $10,426,000  decrease for

                                      F-13

its KRE stock acquisition, as Nance's book basis was greater than its tax basis,
and KRE's tax basis was  greater  than its book  basis.  During 2000 the Company
recorded a $2,972,000  increase in the KRE adjustment to reflect the utilization
of  additional  tax  benefits  of KRE by King  Ranch,  Inc on its  1999  federal
consolidated  income  tax  return. There  were  no  purchase  adjustments to the
Company's long-term deferred income tax liability accounts in 2001.

         At  December  31,  2001,  the  Company  had  state net  operating  loss
carryforwards of approximately  $40,300,000  that  expire between 2002 and 2017.
The  Company's  valuation  allowance  relates in part to its state net operating
loss  carryforwards,  since  the  Company  anticipates  that  a  portion  of the
carryovers from prior years will expire before they can be utilized, and in part
to a portion of the  anticipated  state benefit from federal  income tax expense
incurred as the Company's existing taxable temporary  differences  reverse.  The
net change in valuation  allowance  in 2001  results  from the state  benefit of
federal income tax that is  now offset by reversing state temporary differences.

         Income tax expense and  benefit  differs  from the amount that would be
provided by applying the statutory federal income tax rate to income before
income taxes for the following reasons:

                                                                        For the Years Ended December 31,
                                                                        --------------------------------
                                                                          2001              2000              1999
                                                                       ---------         ---------         ---------
                                                                                 (In thousands)

        Federal statutory taxes                                         $ 20,420          $ 30,267          $   (137)
        Increase (decrease) in taxes resulting from:
           State taxes (net of federal benefit)                            2,017             4,342               105
           Statutory depletion                                              (238)              (71)             (110)
           Alternative fuels credits (Section 29)                           (185)              (79)             (283)
           Change in valuation allowance                                      34              (826)              (17)
           Other                                                            (219)               34                36
                                                                       ---------         ---------         ---------
        Income tax expense (benefit) from
           continuing operations                                        $ 21,829          $ 33,667          $   (406)
                                                                       =========         =========         =========

5.   Long-term Debt and Notes Payable:

         On March 4,  2002 St.  Mary  entered  into an  agreement  to amend  the
existing  long-term  revolving credit agreement that set the maximum loan amount
at $115.0 million  (unaudited).  The lender may  periodically  re-determine  the
aggregate  borrowing  base  depending  upon the value of St.  Mary's oil and gas
properties and other assets.  The accepted  borrowing base was $100.0 million at
December 31, 2001. The credit agreement has a maturity date of December 31, 2006
and  includes  a  revolving  period  that  matures on June 30,  2003.  Quarterly
principal  payments  will begin on  September  30, 2003.  The amended  agreement
deletes all reference to and  provisions of the  short-term  tranche  previously
available to St. Mary. The Company must comply with certain covenants  including
maintenance  of  stockholders'  equity at a specified  level and  limitations on
additional  indebtedness.  As of December 31, 2001 and 2000,  $64.0  million and
$22.0 million,  respectively, was outstanding under this credit agreement. These
outstanding  balances accrue interest at rates  determined by St. Mary's debt to
total  capitalization  ratio.  During  the  revolving  period of the loan,  loan
balances accrue interest at the Company's option of either (1) the higher of the
federal funds rate plus 1/2% or the prime rate, plus an additional 1/4% when the
Company's  debt to  capitalization  ratio is greater  than 50%, or (2) the LIBOR
rate plus (a) 1% when the Company's debt to toatl  capitalization  ratio is less
than 30%, (b) 1 1/4% when the Company's debt to capitalization  ratio is greater
than or equal to 30% but less than 40%,  (c) 1 3/8% when the  Company's  debt to
capitalization ratio is greater than or equal to 40% but less than 50%, or (d) 1
5/8% when the  Company's  debt to  capitalization  ratio is greater than 50%.The
debt to total  capitalization  ratio as defined under the agreement was 22.4% as

                                      F-14

of December 31, 2001. The weighted  average  interest rate paid in 2001 was 5.9%
including commitment fees paid on the unused portion of the borrowing base.

         The carrying  value of long-term debt  approximates  fair value because
the debt is variable rate and reprices in the short term.

         The Company's  estimated  annual  principal  payments  under the credit
agreement for the next five years are as follows:

                           Years Ending
                           December 31,                 (In thousands)
                      -----------------------         ------------------
                               2002                          $      -
                               2003                             6,400
                               2004                            12,800
                               2005                            12,800
                               2006                            32,000
                                                            ---------
                              Total                          $ 64,000
                                                            =========

6.   Commitments and Contingencies:

         The Company  leases  office space under various  operating  leases with
terms  extending as far as May 31, 2012.  The Company has  noncancelable  annual
subleases  with  affiliates of  approximately  $122,016 for the same term as the
Company's  primary  office lease.  Rent  expense,  net of sublease  income,  was
$839,000,  $782,000  and  $611,000 in 2001,  2000 and 1999,  respectively.  The
Company also leases office equipment under various operating leases.  The annual
minimum lease payments for the next five years are presented below:

                           Years Ending
                           December 31,              (In thousands)
                        ------------------         ------------------
                               2002                    $   931
                               2003                      1,129
                               2004                        866
                               2005                        743
                               2006                        743
                            Thereafter                   3,502
                                                         -----
                               Total                   $ 7,914
                                                         =====

7.   Compensation Plans:

         In January  1992 the  Company  adopted two  compensation  plans for key
employees.  A cash bonus plan allows participants to receive up to 100% of their
aggregate  base  salary.  Any awards  under the cash bonus  plans are based on a
combination of Company and individual performance.  The Company accrued $170,000
for cash bonuses in 2001 that will be paid in 2002,  $1,957,000 for cash bonuses
in 2000 that were paid in 2001,  and  $2,293,000  for cash  bonuses in 1999 that
were paid in 2000.  A net profits  interest  bonus plan allows  participants  to
receive an aggregate  10% net profits  interest  after the Company has recovered
100% of its  investment  in  various  pools of oil and gas  wells  completed  or
acquired during a given year.  This interest  increases to 20% after the Company
recovers 200% of its investment.  The Company records  compensation expense once
it recovers its  investment and net profits  attributable  to the properties are
payable  to  the  employees.   The  Company  recorded  compensation  expense  of
$5,259,000  in 2001,  $877,000 in 2000 and $574,000 in 1999  relating to the net
profits interest bonus plan.

                                      F-15

         In March 1992 the Company adopted a stock  appreciation  rights ("SAR")
plan for officers and directors. SARs vest over a four-year period, with payment
occurring five years after the date of grant.  Between 1993 and 1996 the Company
awarded a total of 342,824 share rights with values  ranging from $5.75 to $7.00
per share.  Compensation  expense  recognized  under the SAR plan was $12,000 in
2000 and $280,000 in 1999. In November 1996 the Company terminated future awards
under the  Company's SAR plan and capped the value of the share rights under the
SAR plan at the then fair market value of the  Company's  common stock of $10.25
per share.  SAR  compensation  expense  recorded after the termination of future
awards related to the vesting of SARs outstanding at the time of the termination
of future  awards and to the  fluctuation  of the stock  price  below the capped
price.  The final SAR  payments  were made in  February  2001.  No  compensation
expense was recognized under the SAR plan in 2001.

         The Company has a defined  contribution  pension plan  ("401(k)  Plan")
that is  subject to the Employee  Retirement  Income  Security Act of 1974.  The
401(k) Plan  allows  eligible  employees  to  contribute  up to 9% of their base
salaries.  The Company  matches each  employee's  contributions  up to 6% of the
employee's  base  salary  and  also  may make  additional  contributions  at its
discretion.  The  Company's  contributions  to the  401(k)  Plan were  $559,000,
$412,000,  and $288,000 for the years ended  December 31, 2001,  2000, and 1999,
respectively.

         In  September  1997 the Board of  Directors  approved the St. Mary Land
&amp;  Exploration Company Employee Stock Purchase Plan ("Stock Purchase Plan"),
which became  effective  January 1, 1998. Under the Stock Purchase Plan eligible
employees  may purchase  shares of the Company's  common stock  through  payroll
deductions  of up to 15% of eligible  compensation.  The  purchase  price of the
stock is 85% of the lower of the fair market  value of the stock on the first or
last day of the purchase period.  The Stock Purchase Plan is intended to qualify
under  Section  423 of the  Internal  Revenue  Code.  The  Company has set aside
1,000,000  shares of its common  stock to be available  for  issuance  under the
Stock  Purchase  Plan.  In 2001,  2000 and 1999  shares  issued  under the Stock
Purchase Plan totaled 29,772, 32,296 and 32,794, respectively. Total proceeds to
the  Company for the  issuance  of these  shares  were  $575,000,  $311,000  and
$258,000 in 2001, 2000 and 1999, respectively. The Company recorded compensation
expense of $20,000, $3,000 and $20,000 in 2001, 2000 and 1999, respectively, due
to  nonqualified  dispositions  of stock  acquired by employees  under the Stock
Purchase Plan.

         In 1990  and 1991 the  Company  granted  certain  officers  options  to
acquire  109,228 shares of common stock at an exercise price of $1.65 per share.
All of these options had been exercised by December 31, 2000.

         In 1996 the Company  established  the St.  Mary Land &amp;  Exploration
Company  Stock  Option  Plan and the St.  Mary Land  &amp;  Exploration  Company
Incentive Stock Option Plan (collectively, the "Option Plans"). The Option Plans
grant  options to  purchase  shares of the  Company's  common  stock to eligible
employees,  contractors,  and  current  and  former  members  of  the  Board  of
Directors. In 2001 the stockholders approved an increase in the number of shares
of the Company's  common stock reserved for issuance under the Option Plans from
3,300,000  shares to  4,300,000  shares.  In 1999 the  Company  granted  623,492
options  at an  exercise  price of $12.38  per  share,  and 7,660  options  were
exercised under the Option Plans. In 2000 the Company granted 653,848 options at
an exercise price of $33.31 per share,  and 589,220 options were exercised under
the Option Plans.  In 2001 the Company  granted  175,729  options at an exercise
price of $15.93 per share and 221,280 options at an exercise price of $21.19 per
share.  During 2001 190,289 options were exercised  under the Option Plans.  All
options  granted to date under the Option  Plans have been  granted at  exercise
prices equal to the  respective  market prices of the Company's  common stock on
the grant dates.

                                      F-16

         A summary of the status of the Company's Stock Option Plans, including
the 1990 and 1991 options and changes during the last three years follows:

                                                                For the Years Ended December 31,
                                        ------------------------------------------------------------------------------
                                                  2001                       2000                      1999
                                        -------------------------- ------------------------- -------------------------
                                                       Weighted                  Weighted                  Weighted
                                                        Average                   Average                   Average
                                                       Exercise                  Exercise                  Exercise
                                           Shares        Price       Shares        Price       Shares        Price
                                        ------------- ------------ ------------ ------------ ------------ ------------

Outstanding at beginning of year           1,986,124      $ 18.95    1,998,254      $ 11.63    1,442,436      $ 11.28

Granted                                      397,009        18.86      653,848        33.31      623,492        12.38
Exercised                                    187,810        11.57      619,220        11.05       17,660         4.95
Forfeited                                     43,648        26.00       46,758        11.74       50,014        13.21
                                        ------------               -----------               -----------
Outstanding at end of year                 2,151,675        19.42    1,986,124        18.95    1,998,254        11.63
                                        ============               ===========               ===========

Options exercisable at year end            1,418,404        17.09    1,150,196        15.00      651,876        10.36
                                        ============               ===========               ===========

Weighted average fair value of
     options granted during the year         $  8.36                   $ 14.75                    $ 5.13
                                        ============               ===========               ===========


         A summary of additional  information related to the options outstanding
as of December 31, 2001 follows:

                                                 Options Outstanding                     Options Exercisable
                                  ------------------------------------------------- ------------------------------
                                                       Weighted
                                                        Average         Weighted                       Weighted
                                                       Remaining        Average                        Average
          Range of                     Number         Contractual       Exercise        Number         Exercise
       Exercise Prices               Outstanding          Life           Price        Exercisable       Price
- ------------------------------    ----------------- ---------------- -------------- --------------- --------------

      $  9.25  -      $ 10.25              431,740     5.3 years            $ 9.63         431,740         $ 9.63
        12.38  -        14.69              585,311     7.6 years             12.56         462,543          12.61
        15.93  -        21.19              509,132     9.0 years             18.56         211,375          18.14
        33.31  -        33.31              625,492     9.0 years             33.31         312,746          33.31
                                  -----------------                                 ---------------

 Total                                   2,151,675     7.9 years             19.42       1,418,404          17.09
                                  =================                                 ===============

         SFAS  No.  123  establishes  a fair  value  method  of  accounting  for
stock-based  compensation  plans either through  recognition or disclosure.  The
Company accounts for stock-based  compensation  under APB No. 25 and has elected
to adopt SFAS No. 123 through  compliance with the disclosure  requirements  set
forth in the  Statement.  Because the exercise  price of the Company's  employee
stock  options  equals the market price of the  underlying  stock on the date of
grant,  no  compensation  expense  is  recognized  under APB No.  25.  Pro forma
information  regarding net income and earnings per share is required by SFAS No.
123 and has been  determined  as if the Company had  accounted  for its employee
stock options under the fair value method of that Statement.

                                      F-17

         The fair value of options is  measured  at the date of grant  using the
Black-Scholes  option-pricing  model.  The fair value of options granted in 2001
was  estimated  using  the  following  weighted-average  assumptions:  risk-free
interest  rate of  4.35%; dividend  yield of  0.53%;  volatility  factor  of the
expected market price of the Company's common stock of 49.79%; and expected life
of the  options  of 4.8 years.  The fair  value of  options  granted in 2000 was
estimated using the following weighted-average  assumptions:  risk-free interest
rate of 5.14%; dividend yield of 0.32%; volatility factor of the expected market
price of the Company's common stock of 47.11%;  and expected life of the options
of 4.8 years.  The fair value of the options granted in 1999 was estimated using
the following  weighted-average  assumptions:  risk-free interest rate of 6.42%;
dividend yield of 0.82%;  volatility  factor of the expected market price of the
Company's common stock of 41.52%; and expected life of the options of 4.8 years.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating  the fair value of traded  options that have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  it
is management's  opinion that the existing  models do not necessarily  provide a
reliable single measure of the fair value of St Mary's employee stock options.

         For purposes of pro forma disclosures, the estimated fair values of the
options  is  amortized  to  expense  over  the  options'  vesting  periods.  Had
compensation  cost been  determined  based on the fair value at grant  dates for
stock  option  awards  consistent  with SFAS No. 123, the  Company's  net income
(loss) and  earnings  (loss) per share would have been  reduced to the pro forma
amounts indicated below:

                                                                                  Pro Forma for the Years
                                                                                      Ended December 31,
                                                                                  -----------------------
                                                                       2001              2000             1999
                                                                       ----              ----             ----
                                                                                   (In thousands, except
                                                                                    per share amounts)

         Net income (loss)                   As reported           $   40,459        $   55,620       $       82
                                             Pro forma             $   37,569        $   52,515       $   (1,530)

         Basic earnings (loss) per share     As reported           $     1.45        $     2.00       $        -
                                             Pro forma             $     1.34        $     1.89       $    (0.07)

         Diluted earnings (loss) per share   As reported           $     1.42        $     1.97       $        -
                                             Pro forma             $     1.32        $     1.86       $    (0.07)

         The effects of applying  SFAS No. 123 in the pro forma  disclosure  are
not necessarily  indicative of actual future amounts,  and SFAS No. 123 does not
apply to awards  granted  prior to 1995.  Additional  awards in future years are
anticipated.

                                      F-18

8.   Pension Benefits

         The Company's employees participate in a non-contributory  pension plan
covering  substantially all employees who meet age and service requirements (the
"Qualified Pension Plan"). The Company also has a supplemental  non-contributory
pension plan covering certain management  employees (the  "Nonqualified  Pension
Plan"). The Company's disclosures about pension benefits are as follows:

                                                        For the Years Ended December 31,
                                                              2001         2000
                                                              ----         ----
                                                                 (In thousands)
     Change in benefit obligations:
        Benefit obligation at beginning of year             $ 3,054      $ 2,588
             Service Cost                                       323          257
             Interest Cost                                      317          193
             Actuarial gain                                   1,485          190
             Benefits paid                                      (81)        (174)
                                                           --------     --------
        Benefit obligation at end of year                   $ 5,098      $ 3,054
                                                           ========     ========

     Change in plan assets:
        Fair value of plan assets at beginning of year      $ 1,775      $ 1,592
             Actual return on plan assets                       (13)          (1)
             Employer contribution                              361          358
        Benefits paid                                           (81)        (174)
                                                           --------     --------
        Fair value of plan assets at end of year            $ 2,042      $ 1,775
                                                           ========     ========

Funded Status                                               $(3,056)     $(1,279)
     Unrecognized net actuarial gain                          2,326          888
     Unrecognized prior service cost                            (20)         (28)
                                                           --------     --------
     Accrued benefit cost                                   $  (750)     $  (419)
                                                           ========     ========

         The Company's  Nonqualified Pension Plan was the only pension plan with
an  accumulated  benefit  obligation  in  excess  of  plan  assets.  The  plan's
accumulated  benefit  obligation was $685,000 at December 31, 2001, and $357,000
at December 31, 2000. There are no plan assets in the  nonqualified  plan due to
the nature of the plan.

         Assumptions used in the measurement of the Company's benefit obligation
are as follows:

                                                        For the Years Ended December 31,
                                                        --------------------------------
                                                              2001          2000
                                                              ----          ----
         Weighted-average assumptions:
              Discount rate                                   7.25%          7.5%
              Expected return on plan assets                   8.0%          8.0%
              Rate of compensation increase                    5.0%          5.0%


                                      F-19

                                                        For the Years Ended December 31,
                                                        --------------------------------
                                                          2001       2000       1999
                                                          ----       ----       ----
                                                                 (In thousands)
         Components of net periodic benefit cost:
              Service cost                                $  323     $  257     $  178
              Interest cost                                  317        193        172
              Expected return on plan assets                (129)      (119)       (88)
              Amortization of prior service cost              (8)        (7)        (7)
              Amortization of net actuarial loss             188         36         90
                                                         -------    -------    -------
              Net periodic benefit cost                   $  691     $  360     $  345
                                                         =======    =======    =======

                                      F-19

         Prior  service costs are  amortized on a  straight-line  basis over the
average  remaining  service period of active  participants.  Gains and losses in
excess of 10% of the greater of the benefit  obligation  and the  market-related
value of assets are  amortized  over the  average  remaining  service  period of
active participants.

9.   Investment in Russian Joint Venture:

         In February  2000 St. Mary  exercised  its option to convert its Khanty
Mansiysk Oil  Corporation  ("KMOC")  production  payment  receivable into common
stock of KMOC.  In July 2000 the Company  finalized a  negotiated  value for the
receivable that equated to 21,583 shares of KMOC common stock under the terms of
the original agreement. In December 2000 the Company sold 14,662 of these shares
for proceeds of $6,157,000,  net of transaction  costs and recognized a net gain
of $2,156,000.

         Subsequent to December 31, 2001 the Company sold its  remaining  shares
of KMOC common stock for proceeds of $2,772,000 and recorded a gain of $838,000.

10.   Derivative Instruments

         The  Company  realized  a  net  loss  of  $21,102,000  from  derivative
contracts for the year ended  December 31, 2001, a net loss of  $33,641,000  for
the year ended December 31, 2000 and a net gain of $2,561,000 for the year ended
December 31, 1999.  All of these amounts are included in oil and gas  production
operating revenues in the consolidated statement of operations.

         Including  hedges  entered into since December 31, 2001 the Company has
the following  commodity  swap  contracts in place to hedge cash flow and reduce
the impact of oil and gas price fluctuations:

                         Average
  Product             Volumes/month     Quantity Type         Fixed Price           Duration
  -------             -------------     -------------         ------------          --------
  Natural Gas           1,467,000           MMBtu              $  2.84             01/02 - 12/02
  Natural Gas             168,000           MMBtu              $  3.01             01/03 - 12/03
  Natural Gas              59,000           MMBtu              $  3.04             01/04 - 12/04
  Oil                      88,400           Bbls               $ 24.69             01/02 - 12/02
  Oil                      49,800           Bbls               $ 22.67             01/03 - 12/03

         This table excludes commodity  positions with Enron North America Corp,
which filed for bankruptcy protection in December 2001. The Company's unrealized
discounted  hedge  gain due from  Enron  had grown to  $4,473,000  at the end of
November 2001. As of November 13, 2001, the Company believed the Enron contracts
it owned became  ineffective  under SFAS No. 133 due to lack of correlation  for
counterparty risk. Accordingly,  the Company adjusted the fair value downward to
the reduced  estimated  fair  value.  A net  non-cash  loss of  $1,779,000  from
counterparty   ineffectiveness   was  offset  by  a  $45,000   gain  from  hedge
ineffectiveness and $161,000 of amortization of other comprehensive  income from
the Enron contracts.  The net amount is the activity recorded for the year ended
December  31,  2001  and  is  reported  as  unrealized  derivative  loss  in the
consolidated  statement of operations.  The Company will amortize the unrealized
hedge  gain from  these  Enron  contracts  over the next two  years.  Unrealized
derivative  gain in the  consolidated  statements  of  operations  will  reflect
amortization  of $2,786,000 over the next twelve months offset by a deferred tax
provision.  The Company  took all legal steps to preserve its rights under these
contracts and sold its claim at a discounted price in February 2002.

                                      F-20

         As noted in the table above, the last of these contracts will expire by
December 31, 2004.  On December 31, 2001 the  estimated  fair value of contracts
designated and qualifying as cash flow hedges under SFAS No. 133 was an asset of
$8,119,000.  The Company will reclassify this amount to gains or losses included
in oil and gas production  operating revenues as the hedged production  quantity
is  produced.  Based on current  prices the net  amount of  existing  unrealized
after-tax  gain  as of  December  31,  2001  to be  reclassified  to oil and gas
production operating revenues in the next twelve months would be $7,076,000. The
Company anticipates that all original forecasted  transactions will occur by the
end of the originally specified time periods.

11.   Disclosures About Oil and Gas Producing Activities:

Costs Incurred in Oil and Gas Producing Activities:

         Costs  incurred in oil and gas property  acquisition,  exploration  and
development  activities,  whether  capitalized  or expensed,  are  summarized as
follows:

                                                   For the Years Ended December 31,
                                                  ---------------------------------
                                                   2001          2000          1999
                                                   ----          ----          ----
                                                           (In thousands)

              Development costs                $  98,617     $  48,996     $  22,166
              Exploration                         24,506        17,012        20,809
              Acquisitions:
                Proved                            41,188        53,482        33,080
                Unproved                          18,552         5,694        15,129
                                               ---------     ---------     ---------
              Total                            $ 182,863     $ 125,184     $  91,184
                                               =========     =========     =========

Oil and Gas Reserve Quantities (Unaudited):

         The reserve  information  as of December 31, 2001,  2000,  and 1999 was
prepared  by Ryder Scott  Company and St.  Mary.  The  Company  emphasizes  that
reserve estimates are inherently imprecise and that estimates of new discoveries
are more  imprecise  than  those of  proved  producing  oil and gas  properties.
Accordingly,  these  estimates  are  expected  to change  as future  information
becomes available.

         Proved oil and gas reserves are the estimated  quantities of crude oil,
natural gas and  natural  gas liquids  which  geological  and  engineering  data
demonstrate  with  reasonable  certainty to be  recoverable in future years from
known  reservoirs  under  existing  economic and  operating  conditions.  Proved
developed  oil and gas  reserves  are those  expected  to be  recovered  through
existing wells with existing equipment and operating methods.

                                      F-21

         Presented  below is a summary  of the  changes  in  estimated  domestic
reserves of the Company:

                                                             For the Years Ended December 31,
                                                             --------------------------------
                                                     2001                  2000                  1999
                                                     ----                  ----                  ----
                                                 Oil or                Oil or                Oil or
                                               Condensate    Gas     Condensate    Gas     Condensate    Gas
                                               ----------    ---     ----------    ---     ----------    ---
                                                (MBbl)     (MMcf)     (MBbl)      (MMcf)     (MBbl)     (MMcf)
Total proved reserves:
         Developed and undeveloped:
         Beginning of year                      20,950    225,975     18,900    207,642      8,614    132,605
         Revisions of previous estimates        (1,334)   (16,421)       210     (1,172)     3,308    (10,445)
         Discoveries and extensions              3,131     59,830      1,707     37,702      2,062     43,501
         Purchases of minerals in place          3,774     13,086      3,149     21,689      6,323     65,129
         Sales of reserves                        (418)    (1,748)      (618)    (1,540)       (24)      (343)
         Production                             (2,434)   (39,491)    (2,398)   (38,346)    (1,383)   (22,805)
                                               -------    -------    -------   --------    -------   --------
         End of year (a)                        23,669    241,231     20,950    225,975     18,900    207,642
                                               =======    =======    =======   ========    =======   ========

Proved developed reserves:
         Beginning of year                      19,006    192,472     16,688    169,379      7,723    112,189
                                               =======    =======    =======    =======    =======   ========
         End of year                            20,679    205,637     19,006    192,472     16,688    169,379
                                               =======    =======    =======    =======    =======   ========

- ------------------
(a) At December 31, 2001, 2000, and 1999, includes  approximately 869, 1,199 and
    1,802 MMcf, respectively, representing the Company's underproduced gas
    balancing position.

Standardized Measure of Discounted Future Net Cash Flows (Unaudited):

         SFAS No.  69,  "Disclosures  About Oil and Gas  Producing  Activities,"
prescribes  guidelines for computing a  standardized  measure of future net cash
flows and changes therein relating to estimated proved reserves. The Company has
followed these guidelines, which are briefly discussed below.

         Future cash inflows and future  production  and  development  costs are
determined by applying benchmark prices and costs, including  transportation and
basis differential,  in effect at year-end to the year-end estimated  quantities
of oil and gas to be produced in the future.  Estimated  future income taxes are
computed using current statutory income tax rates,  including  consideration for
estimated  future  statutory  depletion and alternative  fuels tax credits.  The
resulting future net cash flows are reduced to present value amounts by applying
a 10% annual discount factor.

         The  assumptions  used to compute  the  standardized  measure are those
prescribed  by the  FASB  and the  Securities  and  Exchange  Commission.  These
assumptions  do not  necessarily  reflect the Company's  expectations  of actual
revenues  to be derived  from  those  reserves,  nor their  present  worth.  The
limitations  inherent in the reserve quantity  estimation  process, as discussed
previously,  are equally  applicable to the  standardized  measure  computations
since these  estimates  are the basis for the valuation  process.  The following
prices,  adjusted for transportation and basis  differentials,  were used in the
calculation of the standardized measure:

                                      F-22

                                                For the Years Ended December 31,
                                                --------------------------------
                                                 2001         2000         1999
                                                 ----         ----         ----

            Gas (per Mcf)                     $  2.502     $  8.857     $  2.186
            Oil (per Bbl)                     $ 18.113     $ 25.439     $ 23.847

         The following  summary sets forth the  Company's  future net cash flows
relating  to  proved  oil and gas  reserves  based on the  standardized  measure
prescribed in SFAS No. 69:

                                                        For the Years Ended December 31,
                                                        --------------------------------
                                                       2001          2000          1999
                                                       ----          ----          ----
                                                                (In thousands)

         Future cash inflows                       $1,020,948   $2,648,108      $ 900,199
              Future production and
                development costs                    (444,608)    (570,711)      (344,350)
              Future income taxes                    (140,271)    (727,929)      (150,239)
                                                    ---------    ---------      ---------

         Future net cash flows                        436,069    1,349,468        405,610
         10% annual discount                         (154,192)    (630,984)      (144,296)
                                                    ---------    ---------      ---------

         Standardized measure of
              discounted future net cash flows       $281,877     $718,484      $ 261,314
                                                    =========    =========      =========


         The  principle  sources  of  change  in  the  standardized  measure  of
discounted future net cash flows are as follows:

                                                                      For the Years Ended December 31,
                                                                      --------------------------------
                                                                   2001           2000             1999
                                                                   ----           ----             ----
                                                                               (In thousands)

Standardized measure, beginning of year                        $ 718,484      $  261,314       $  101,946
Sales of oil and gas produced,
           net of production costs                              (170,074)       (183,586)         (53,814)
Net changes in price and production costs                       (820,253)        772,910           82,976
Extensions, discoveries and other,
           net of production costs                                71,265         203,786           76,198
Purchase of minerals in place                                     29,267         104,883          105,728
Development costs incurred during the year                        35,736          12,436            5,816
Changes in estimated future development costs                     (8,370)            351          (25,281)
Revisions of previous quantity estimates                         (17,593)            306           10,976
Accretion of discount                                            109,912          33,871           11,474
Sales of reserves in place                                       (10,548)         (3,329)            (542)
Net change in income taxes                                       298,717        (357,780)         (76,907)
Other                                                             45,334        (126,678)          22,744
                                                               ---------      ----------       ----------
Standardized measure, end of year                              $ 281,877      $  718,484       $  261,314
                                                               =========      ==========       ==========

                                      F-23


12.   Quarterly Financial Information (Unaudited):

         The Company's quarterly financial  information for fiscal 2001 and 2000
is as follows:

                                                            First          Second          Third         Fourth
                                                           Quarter         Quarter        Quarter        Quarter
                                                           -------         -------        -------        -------
                                                                   (in thousands, except per share data)
Year Ended December 31, 2001:
Total revenue                                           $   68,347      $   55,776     $   42,656     $   40,690
     Less: costs and expenses                               36,626          32,804         37,129         38,998
                                                       -----------     -----------    -----------    -----------
Operating income                                        $   31,721      $   22,972     $    5,527     $    1,692

Income before income taxes                              $   31,874      $   23,119     $    5,595     $    1,700
Net income                                              $   20,393      $   14,234     $    4,861     $      971
Net income per common share:
     Basic                                              $     0.72      $     0.51     $     0.17     $     0.04
     Diluted                                            $     0.71      $     0.50     $     0.17     $     0.03

Dividends paid per share                                $        -      $     0.05     $        -     $     0.05


Year Ended December 31, 2000:
Total revenue                                           $   37,411      $   46,822     $   54,314     $   57,119
     Less: costs and expenses                               25,201          22,996         26,151         32,768
                                                       -----------     -----------    -----------    -----------
Operating income                                        $   12,210      $   23,826     $   28,163     $   24,351

Income before income taxes                              $   12,350      $   23,966     $   28,390     $   24,581
Net income                                              $    7,886      $   14,597     $   17,139     $   15,998
Net income per common share:
     Basic                                              $     0.29      $     0.53     $     0.61     $     0.57
     Diluted                                            $     0.29      $     0.52     $     0.60     $     0.56

Dividends paid per share                                $    0.025      $    0.025     $    0.025     $    0.025

13.   Subsequent Events (Unaudited) :

         In March  2002 the  Company  issued in a private  placement  a total of
$100,000,000 of its 5.75% senior convertible notes due 2022 (the "Notes") with a
1/2%  contingent  interest  provision.  The  Company  received  net  proceeds of
$96,700,000  after  deducting  the initial  purchasers'  discount and  estimated
offering  expenses  payable  by the  Company.  The notes are  general  unsecured
obligations  and rank on a parity  in right of  payment  with all  existing  and
future senior  indebtedness and other general  unsecured  obligations.  They are
senior in right of payment with all future subordinated indebtedness.  The Notes
are convertible  into the Company's common stock at a conversion price of $26.00
per share, subject to adjustment.  The Company can redeem the Notes with cash in
whole or in part at a  repurchase  price of 100% of the  principal  amount  plus
accrued and unpaid  interest  beginning on March 20, 2007. The note holders have
the option of redeeming the Notes for cash at 100% of the principal  amount plus
accrued  and  unpaid  interest  upon (1) a change in control or (2) on March 20,
2007,  March 15, 2012 and March 15, 2017.  On March 20, 2007 the Company may pay
the repurchase price with cash, shares of its common stock or any combination of
cash and its common stock.  St. Mary is not  restricted  from paying  dividends,
incurring debt, or issuing or repurchasing  its securities  under the indenture.
There are no financial covenants in the indenture. The Company used a portion of
the net proceeds  from the Notes to repay its credit  facility  balance and will
use the remaining net proceeds to fund a portion of its 2002 capital budget.

                                      F-24

<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                         ST. MARY LAND &amp; EXPLORATION COMPANY
                                         -----------------------------------
                                                    (Registrant)



Date: March 18, 2002                     By: /s/ MARK A. HELLERSTEIN
                                            ---------------------------------
                                            Mark A. Hellerstein
                                            President, Chief Executive Officer
                                            and Director


                            GENERAL POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas E. Congdon and Mark A.
Hellerstein, and each of them, his true and lawful attorney-in-fact and agents
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature                    Title                                Date
- ---------                    -----                                ----

/s/ THOMAS E. CONGDON
- ----------------------       Chairman of the Board of Directors   March 18, 2002
Thomas E. Congdon
 and Director

/s/ MARK A. HELLERSTEIN
- -----------------------      President, Chief Executive Officer   March 18, 2002
Mark A. Hellerstein          and Director

/s/ RONALD D. BOONE
- ----------------------       Executive Vice President, Chief      March 18, 2002
Ronald D. Boone              Operating Officer and Director

/s/ RICHARD C. NORRIS
- ----------------------       Vice President - Finance,            March 18, 2002
Richard C. Norris            Secretary and Treasurer

/s/ GARRY A. WILKENING
- ----------------------       Vice President - Administration      March 18, 2002
Garry A. Wilkening           and Controller

/s/ LARRY W. BICKLE
- ----------------------       Director                             March 18, 2002
Larry W. Bickle

<PAGE>


Signature                    Title                                Date
- ---------                    -----                                ----

/s/ DAVID C. DUDLEY
- ----------------------       Director                             March 18, 2002
David C. Dudley

/s/ ROBERT L. NANCE
- ----------------------       Director                             March 18, 2002
Robert L. Nance

/s/ AREND J. SANDBULTE
- ----------------------       Director                             March 18, 2002
Arend J. Sandbulte

/s/ JOHN M. SEIDL
- ----------------------       Director                             March 18, 2002
John M. Seidl

/s/ WILLIAM J. GARDINER
- -----------------------      Director                             March 18, 2002
William J. Gardiner

/s/ JACK HUNT
- ----------------------       Director                             March 18, 2002
Jack Hunt

</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>3
<FILENAME>exhibit42.htm
<DESCRIPTION>FIRST AMEND TO SHAREHOLDERS RIGHTS PLAN
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K FIRST AMEND TO SH RIGHTS PLAN</TITLE></HEAD>
<BODY>
<PRE>



                                                                    Exhibit 4.2

                                 FIRST AMENDMENT

                                       TO

                             SHAREHOLDER RIGHTS PLAN



         This First Amendment to the Shareholder Rights Plan (the "Plan") of St.
Mary Land &amp; Exploration Company, a Delaware corporation (the "Company"), is
intended to be effective as of July 19, 2001.

         WHEREAS, on July 19, 2001 the Board of Directors of the Company adopted
a resolution to amend the Plan as follows:

                  Section 1(r) shall read, "Purchase Price" shall mean from and
                  after July 19, 2001 $100.00 per share of Common Stock and
                  shall be subject to adjustment thereafter from time to time as
                  provided in this Plan.

                  Section 1(k) is hereby amended to read, "Final Expiration
                  Date" shall mean December 31, 2009.

         The remainder of the Plan shall be unaffected by this First Amendment.

         IN WITNESS WHEREOF, the Company has caused this First Amendment to the
Shareholder Rights Plan to be duly executed on its behalf on March ___, 2002,
intended to be effective as of July 19, 2001.


                                        ST. MARY LAND &amp; EXPLORATION COMPANY,
                                        a Delaware corporation


                                        By: /s/ MARK A. HELLERSTEIN
                                           ------------------------------------
                                             Mark A. Hellerstein, President and
                                               Chief Executive Officer
</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>exhibit211.htm
<DESCRIPTION>SUBSIDIARIES LISTING
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K SUSIDIARIE LIST</TITLE></HEAD>
<BODY>
<PRE>



                                                                   EXHIBIT 21.1



                                  SUBSIDIARIES
                                       OF
                       ST. MARY LAND &amp; EXPLORATION COMPANY


A.       Wholly-owned subsidiaries of St. Mary Land &amp; Exploration Company,
         a Delaware corporation:

         1.       St. Mary Minerals, Inc., a Colorado corporation
         2.       Parish Corporation, a Colorado corporation
         3.       St. Mary Operating Company, a Colorado corporation
         4.       Nance Petroleum Corporation, a Montana corporation
         5.       St. Mary Energy Company, a Delaware corporation
         6.       Roswell LLC, a Texas limited liability company
         7.       Four Winds Marketing LLC, a Colorado limited liability company
         8.       GNK Acquisition Corp., a Texas corporation

B.       Other subsidiaries of St. Mary Land &amp; Exploration Company

         1.       Box Church Gas Gathering LLC, a Colorado limited liability
                  company (58.6754%)
         2.       Centennial Oil &amp; Gas LLC, a Texas limited liability
                  company (50%)
         3.       Trinity River Services LLC, a Texas limited liability company
                  (25%)

C.       Wholly-owned subsidiaries of Parish Corporation:

         1.       Natasha Corporation, a Colorado corporation
         2.       Lucy Corporation, a Colorado corporation

D.       Partnership interests held by Parish Corporation:

         1.       Hilltop Investment Partners, a Colorado general partnership
                  (50%)
         2.       C-470 Venture, a Colorado general partnership (68.858%)
         3.       Parish Ventures, a Colorado general partnership (100%)

E.       Subsidiaries of Lucy Corporation:

         1.       St. Mary East Texas LP, a Texas limited partnership (99%) (the
                  remaining 1% interest is held by St. Mary Land &amp;
                  Exploration Company)

</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>5
<FILENAME>exhibit231.htm
<DESCRIPTION>ARTHUR ANDERSEN CONSENT
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K AA CONSENT</TITLE></HEAD>
<BODY>
<PRE>


                                                                  EXHIBIT 23.1


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into St. Mary Land &amp; Exploration Company
and subsidiaries previously filed Form S-8 Registration Statement Nos.
033-61850, 333-30055, 333-58273 and 333-35352.




                                                     /s/ ARTHUR ANDERSEN LLP



Denver, Colorado,
    March 15, 2002.

</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>exhibit232.htm
<DESCRIPTION>CONSENT OF RYDER SCOTT
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K RS CONSENT</TITLE></HEAD>
<BODY>
<PRE>


                                                                  EXHIBIT 23.2


                   CONSENT OF INDEPENDENT PETROLEUM ENGINEERS



The undersigned hereby consents to the references to our firm in the form and
context in which they appear in the Annual Report on Form 10-K of St. Mary Land
and Exploration Company for the year ended December 31, 2001. We hereby further
consent to the use of information contained in our reports, as of January 1,
2002, 2001 and 2000 setting forth the estimates of revenues from St. Mary Land
&amp; Exploration Company's oil and gas reserves. We further consent to the
incorporation by reference thereof into St. Mary Land &amp; Exploration
Company's Form S-8 (Registration Statement No. 033-61850), Form S-8
(Registration Statement No. 333-30055), Form S-8 (Registration Statement No.
333-58273), and Form S-8 (Registration Statement No. 333-35352).




                                                     Very truly yours,


                                                  /s/ RYDER SCOTT COMPANY, L.P.
                                                  -----------------------------
                                                   Ryder Scott Company, L.P.
Denver, Colorado,
    March 15, 2002.

</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>exhibit1025.htm
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K REG RIGHTS AGREE</TITLE></HEAD>
<BODY>
<PRE>


================================================================================

                                                                   Exhibit 10.25




                          REGISTRATION RIGHTS AGREEMENT

                                     between

                       ST. MARY LAND &amp; EXPLORATION COMPANY

                                       and

                            BEAR, STEARNS &amp; CO. INC.

                         BANC OF AMERICA SECURITIES LLC

                             RBC DAIN RAUSCHER INC.

                            A.G. EDWARDS &amp; SONS, INC.

                            MCDONALD INVESTMENTS INC.

                            COMERICA SECURITIES, INC.





                           Dated as of March 13, 2002


================================================================================


         This REGISTRATION RIGHTS AGREEMENT, dated as of March 13, 2002, is
between ST. MARY LAND &amp; EXPLORATION COMPANY, a Delaware corporation
(together with any successor entity, herein referred to as the "Issuer"), and
BEAR, STEARNS &amp; CO. INC., BANC OF AMERICA SECURITIES LLC, RBC DAIN RAUSCHER
INC., A.G. EDWARDS &amp; SONS, INC., MCDONALD INVESTMENTS INC. and COMERICA
SECURITIES, INC. (collectively, the "Initial Purchasers").

         Pursuant to the Purchase Agreement, dated March 7, 2002 between the
Issuer and the Initial Purchasers (the "Purchase Agreement"), the Initial
Purchasers have agreed to purchase from the Issuer $75,000,000 aggregate
principal amount of 5.75% Senior Convertible Notes due 2022 plus up to an
additional $25,000,000 aggregate principal amount of 5.75% Senior Convertible
Notes dues 2022 upon exercise of the over-allotment option granted to the
Initial Purchasers in the Purchase Agreement (collectively, the "Convertible
Notes"). The Convertible Notes will be convertible into fully paid,
nonassessable common stock, par value $.01 per share, of the Issuer (the "Common
Stock") on the terms, and subject to the conditions, set forth in the Indenture
(as defined herein). To induce the Initial Purchasers to purchase the
Convertible Notes, and in satisfaction of a condition to the Initial Purchasers'
obligations under the Purchase Agreement, the Issuer has agreed to provide the
registration rights set forth in this Agreement.

         The parties hereby agree as follows:

         1.  Definitions.
             -----------

         As used in this Agreement, the following capitalized terms shall have
the following meanings:

         "Affiliate": With respect to any specified Person, means an
"Affiliate," as defined in Rule 144 under the Securities Act, of such Person.

         "Agreement": This Registration Rights Agreement.

         "Blue Sky Application": As defined in Section 6(a)(i) hereof.

         "Broker-Dealer": Any broker or dealer registered under the Exchange
Act.

         "Business Day": A day other than a Saturday or Sunday or any federal
holiday in the United States.

         "Closing Date": The date of this Agreement.

         "Commission": The United States Securities and Exchange Commission.

         "Common Stock": As defined in the preamble hereto.

         "Control": With respect to a Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ability to exercise voting power,
by contract or otherwise.

         "Convertible Notes": As defined in the preamble hereto.

         "Damages Payment Date": Each interest payment date with respect to the
Convertible Notes.

         "Effectiveness Period": As defined in Section 2(a)(iii) hereof.

         "Effectiveness Target Date": As defined in Section 2(a)(ii) hereof.

         "Exchange Act": The Securities Exchange Act of 1934, as amended.

         "Holder": A Person who owns, beneficially or otherwise, Registrable
Securities.

         "Indemnified Holder": As defined in Section 6(a) hereof.

         "Indenture": The Indenture, dated as of March 13, 2002, between the
Issuer and Wells Fargo Bank West, N.A., as trustee (the "Trustee"), pursuant to
which the Convertible Notes are to be issued, as such Indenture is amended,
modified or supplemented from time to time in accordance with the terms thereof.

         "Initial Purchasers": As defined in the preamble hereto.

         "Issuer": As defined in the preamble hereto.

         "Liquidated Damages": As defined in Section 3(a) hereof.

         "Majority of Holders": Holders holding over 50% of the aggregate
principal amount of Convertible Notes outstanding; provided that, for purpose of
this definition, a Holder of shares of Common Stock that constitute Registrable
Securities and issued upon conversion of the Convertible Notes shall be deemed
to hold an aggregate principal amount of Convertible Notes (in addition to the
principal amount of Convertible Notes held by such Holder) equal to the product
of (x) the number of such shares of Common Stock held by such Holder and (y) the
prevailing conversion price, such prevailing conversion price as determined in
accordance with Article 4 of the Indenture.

         "NASD": National Association of Securities Dealers, Inc.

         "Person": An individual, partnership, corporation, unincorporated
organization, trust, joint venture or a government or agency or political
subdivision thereof.

         "Prospectus": The prospectus included in a Shelf Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.

         "Questionnaire Deadline": As defined in Section 2(b) hereof.

         "Record Holder": With respect to any Damages Payment Date, each Person
who is a Holder on the record date with respect to the interest payment date on
which such Damages Payment Date shall occur. In the case of a Holder of shares
of Common Stock issued upon conversion of the Convertible Notes, "Record Holder"
shall mean each Person who is a Holder of shares of Common Stock that constitute
Registrable Securities on the March 1 or September 1 immediately preceding the
Damages Payment Date.

                                       3

         "Registrable Securities": Each Convertible Note and each share of
Common Stock issued upon conversion of Convertible Notes until, in the case of
any such security, (A) the earliest of (i) its effective registration under the
Securities Act and resale in accordance with the Registration Statement covering
it, (ii) expiration of the holding period that would be applicable thereto under
Rule 144(k) under the Securities Act were it not held by an Affiliate of the
Issuer or (iii) its sale to the public pursuant to Rule 144 under the Securities
Act, and (B) as a result of the event or circumstance described in any of the
foregoing clauses (i) through (iii), the legends with respect to transfer
restrictions required under the Indenture are removed or removable in accordance
with the terms of the Indenture or such legend, as the case may be.

         "Registration Default": As defined in Section 3(a)(iv) hereof.

         "Registration Statement": Means any registration statement of the
Issuer that covers any of the Registrable Securities pursuant to the provisions
of this Agreement including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all materials incorporated by reference or explicitly deemed to be incorporated
by reference in such registration statement.

         "Sale Notice": As defined in Section 4(e) hereof.

         "Securities Act": The Securities Act of 1933, as amended.

         "Shelf Filing Deadline": As defined in Section 2(a)(i) hereof.

         "Shelf Registration Statement": As defined in Section 2(a)(i) hereof.

         "Suspension Period": As defined in Section 4(b)(i) hereof.

         "Tia": The Trust Indenture Act of 1939, as in effect on the date the
Indenture is qualified under that act.

         "Underwriting Majority": On any date, Holders holding at least 66 2/3%
of the aggregate principal amount of the Registrable Securities outstanding on
such date; provided, that for the purpose of this definition, a holder of shares
of Common Stock that constitute Registrable Securities and issued upon
conversion of Convertible Notes shall be deemed to hold an aggregate principal
amount of Registrable Securities (in addition to the principal amount of
Convertible Notes held by such holder) equal to (x) the number of such shares of
Common Stock that are Registrable Securities held by such holder multiplied by
(y) the then applicable Conversion Price (as defined in the Indenture).

         "Underwritten Registration" or "Underwritten Offering": A registration
in which securities of the Issuer are sold to an underwriter for reoffering to
the public.

                                       4

         2.  Shelf Registration.
             ------------------


            (a) The Issuer shall:

                  (i) not later than 90 days after the date hereof (the "Shelf
         Filing Deadline"), cause to be filed a registration statement pursuant
         to Rule 415 under the Securities Act (the "Shelf Registration
         Statement"), which Shelf Registration Statement shall provide for
         resales of all Registrable Securities held by Holders that have
         provided the information required pursuant to the terms of Section 2(b)
         hereof;

                  (ii) use its reasonable best efforts to cause the Shelf
         Registration Statement to be declared effective by the Commission no
         later than 180 days after the date hereof (the "Effectiveness Target
         Date"); and

                  (iii) subject to Section 4(b)(i) hereof, use its reasonable
         best efforts to keep the Shelf Registration Statement continuously
         effective, supplemented and amended as required by the provisions of
         Section 4(b) hereof to the extent necessary to ensure that (A) it is
         available for resales by the Holders of Registrable Securities entitled
         to the benefit of this Agreement and (B) conforms with the requirements
         of this Agreement and the Securities Act and the rules and regulations
         of the Commission promulgated thereunder as announced from time to time
         for a period (the "Effectiveness Period") of:

                                             (1) two years after the date of
                              filing of the Shelf Registration Statement; or

                                             (2) such shorter period, from the
                              date of filing of the Shelf Registration Statement
                              until either of (i)the sale pursuant to a Shelf
                              Registration Statement of all the Registrable
                              Securities or (ii) the expiration of the holding
                              period applicable to the Registrable Securities
                              held by Holders that are not Affiliates of the
                              Issuer under Rule 144(k) under the Securities Act.

             (b) No Holder of Registrable Securities may include any of its
         Registrable Securities in the Shelf Registration Statement pursuant to
         this Agreement unless such Holder furnishes to the Issuer in writing,
         prior to or on the 20th Business Day after receipt of a request
         therefor (the "Questionnaire Deadline"), such information as the Issuer
         may reasonably request for use in connection with the Shelf
         Registration Statement or Prospectus or preliminary Prospectus included
         therein and in any application to be filed with or under state
         securities laws. In connection with all such requests for information
         from Holders of Registrable Securities, the Issuer shall notify such
         Holders of the requirements set forth in the preceding sentence. No
         Holder of Registrable Securities shall be entitled to Liquidated
         Damages pursuant to Section 3 hereof unless such Holder shall have
         provided all such reasonably requested information prior to or on the
         Questionnaire Deadline. Each Holder as to which the Shelf Registration
         Statement is being effected agrees to furnish promptly to the Issuer
         all information required to be disclosed in order to make information
         previously furnished to the Issuer by such Holder not materially
         misleading.

                                       5

         3.  Liquidated Damages.
             ------------------

            (a) If:

                  (i) the Shelf Registration Statement has not been filed with
         the Commission prior to or on the Shelf Filing Deadline,

                  (ii) the Shelf Registration Statement has not been declared
         effective by the Commission prior to or on the Effectiveness Target
         Date,

                  (iii) subject to the provisions of Section 4(b)(i) hereof, the
         Shelf Registration Statement is filed and declared effective but,
         during the Effectiveness Period and after the Effectiveness Target
         Date, shall thereafter cease to be effective or fail to be usable for
         its intended purpose without being succeeded within five Business Days
         by a post-effective amendment to the Shelf Registration Statement or a
         report filed with the Commission pursuant to Section 13(a), 13(c), 14
         or 15(d) of the Exchange Act that cures such failure and, in the case
         of a post-effective amendment, is itself declared effective within such
         five Business Day period, or

                  (iv) prior to or on the 45th or 60th day, as the case may be,
         of any Suspension Period, such suspension has not been terminated,
         (each such event referred to in foregoing clauses (i) through (iv), a
         "Registration Default"),

         then the Issuer hereby agrees to pay liquidated damages ("Liquidated
         Damages") to each Holder from and including the day following the
         Registration Default to but excluding the day on which the Registration
         Default has been cured in an amount equal to:

                              (A) with respect to such Holder's Convertible
                    Notes, for the first 90-day period during which a
                    Registration Default shall have occurred and be continuing
                    but excluding the day on which all Registration Defaults
                    have been cured, an amount equal to 0.25% per annum on the
                    principal amount of such Holder's then outstanding and not
                    converted Convertible Notes, increasing to an amount per
                    annum on the principal amount of such Holder's then
                    outstanding and not converted Convertible Notes equal to
                    0.50% on the 91st day, provided that in no event shall the
                    aggregate Liquidated Damages pursuant to this clause accrue
                    at a rate per annum exceeding 0.50% of the sum of the
                    principal amount of the then outstanding Convertible Notes;

                              (B) with respect to such Holder's Common Stock
                    issued upon conversion of Convertible Notes, for the first
                    90-day period during which a Registration Default shall have
                    occurred and be continuing but excluding the day on which
                    all Registration Defaults have been cured, an amount equal
                    to 0.25% per annum on the principal amount of such Holder's
                    converted Convertible Notes, increasing to an amount per
                    annum on the principal amount of such Holder's converted
                    Convertible Notes equal to 0.50% on the 91st day, provided
                    that in no event shall the aggregate Liquidated Damages
                    pursuant to this clause accrue at a rate per annum exceeding
                    0.50% of the sum of the principal amount of the then
                    converted Convertible Notes;

                                       6

             (b) All accrued Liquidated Damages shall be paid in arrears to
         Record Holders by the Issuer on each Damages Payment Date by wire
         transfer of immediately available funds or by federal funds check.
         Following the cure of all Registration Defaults relating to any
         particular Convertible Note or share of Common Stock, the accrual of
         Liquidated Damages with respect to such Convertible Note or share of
         Common Stock will cease.

         All obligations of the Issuer set forth in this Section 3 that are
outstanding with respect to any Registrable Security at the time such security
ceases to be a Registrable Security shall survive until such time as all such
obligations with respect to such Registrable Security shall have been satisfied
in full.

         The Liquidated Damages set forth above shall be the exclusive monetary
remedy available to the Holders of Registrable Securities for such Registration
Default.

         4.   Registration Procedures.
              -----------------------

             (a) In connection with the Shelf Registration Statement, the
         Issuer shall comply with all the provisions of Section 4(b) hereof and
         shall, in accordance with Section 2 hereof, prepare and file with the
         Commission a Shelf Registration Statement relating to the registration
         on any appropriate form under the Securities Act.

             (b) In connection with the Shelf Registration Statement and
         any Prospectus required by this Agreement to permit the sale or resale
         of Registrable Securities, the Issuer shall:

                  (i) Subject to any notice by the Issuer in accordance with
         this Section 4(b) of the existence of any fact or event of the kind
         described in Section 4(b)(iii)(D), use its reasonable best efforts to
         keep the Shelf Registration Statement continuously effective during the
         Effectiveness Period; upon the occurrence of any event that would cause
         the Shelf Registration Statement or the Prospectus contained therein
         (A) to contain a material misstatement or omission or (B) not be
         effective and usable for resale of Registrable Securities during the
         Effectiveness Period, the Issuer shall file promptly an appropriate
         amendment to the Shelf Registration Statement or a report filed with
         the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
         Exchange Act, in the case of clause (A), correcting any such
         misstatement or omission, and, in the case of either clause (A) or (B),
         use its reasonable best efforts to cause such amendment to be declared
         effective and the Shelf Registration Statement and the related
         Prospectus to become usable for their intended purposes as soon as
         practicable thereafter. Notwithstanding the foregoing, the Issuer may
         suspend the effectiveness of the Shelf Registration Statement by
         written notice to the Holders for a period not to exceed an aggregate
         of 45 days in any 90-day period (each such period, a "Suspension
         Period") if:

                        (x) an event occurs and is continuing as a result of
                which the Shelf Registration Statement would, in the Issuer's
                reasonable judgment, contain an untrue statement of a material
                fact or omit to state a material fact required to be stated
                therein or necessary to make the statements therein not
                misleading; and

                                       7

                        (y) the Issuer reasonably determines that the disclosure
                of such event at such time would have a material adverse effect
                on the business of the Issuer and its subsidiaries, taken as a
                whole;

         provided, that (A) in the event the disclosure relates to a previously
         undisclosed proposed or pending material business transaction, the
         disclosure of which would impede the Issuer's ability to consummate
         such transaction, the Issuer may extend a Suspension Period from 45
         days to 60 days and (B) the Suspension Periods shall not exceed an
         aggregate of 90 days in any 360-day period. Each Holder, by its
         acceptance of a Registrable Security, agrees to hold in confidence any
         communication by the Issuer relating to an event described in Section
         4(b)(i)(x) and (y) or Section 4(b)(iii)(D).

                  (ii) Prepare and file with the Commission such amendments and
         post-effective amendments to the Shelf Registration Statement as may be
         necessary to keep the Shelf Registration Statement effective during the
         Effectiveness Period; cause the Prospectus to be supplemented by any
         required Prospectus supplement, and as so supplemented to be filed
         pursuant to Rule 424 under the Securities Act, and to comply fully with
         the applicable provisions of Rules 424 and 430A under the Securities
         Act in a timely manner; and comply with the provisions of the
         Securities Act with respect to the disposition of all securities
         covered by the Shelf Registration Statement during the applicable
         period in accordance with the intended method or methods of
         distribution by the sellers thereof set forth in the Shelf Registration
         Statement or supplement to the Prospectus.

                  (iii) Advise the underwriter(s), if any, and, in the case of
         (A), (C) and (D) below, the selling Holders promptly and, if requested
         by such Persons, to confirm such advice in writing:

                              (A) when the Prospectus or any Prospectus
                    supplement or post-effective amendment has been filed, and,
                    with respect to the Shelf Registration Statement or any
                    post-effective amendment thereto, when the same has become
                    effective,

                              (B) of any request by the Commission for
                    amendments to the Shelf Registration Statement or amendments
                    or supplements to the Prospectus or for additional
                    information relating thereto,

                              (C) of the issuance by the Commission of any stop
                    order suspending the effectiveness of the Shelf Registration
                    Statement under the Securities Act or of the suspension by
                    any state securities commission of the qualification of the
                    Registrable Securities for offering or sale in any
                    jurisdiction, or the initiation of any proceeding for any of
                    the preceding purposes, or

                              (D) of the existence of any fact or the happening
                    of any event, during the Effectiveness Period, that makes
                    any statement of a material fact made in the Shelf
                    Registration Statement, the Prospectus, any amendment or
                    supplement thereto, or any document incorporated by
                    reference therein untrue, or that requires the making of any
                    additions to or changes in the Shelf Registration Statement
                    or the Prospectus in order to make the statements therein
                    not misleading.

                                       8

                  If at any time the Commission shall issue any stop order
          suspending the effectiveness of the Shelf Registration Statement, or
          any state securities commission or other regulatory authority shall
          issue an order suspending the qualification or exemption from
          qualification of the Registrable Securities under state securities or
          Blue Sky laws, the Issuer shall use its reasonable best efforts to
          obtain the withdrawal or lifting of such order at the earliest
          possible time.

                  (iv) Furnish to one counsel for the selling Holders and each
         of the underwriter(s), if any, before filing with the Commission, a
         copy of the Shelf Registration Statement and copies of any Prospectus
         included therein or any amendments or supplements to either of the
         Shelf Registration Statement or Prospectus (other than documents
         incorporated by reference after the initial filing of the Shelf
         Registration Statement), which documents will be subject to the review
         of such counsel and underwriter(s), if any, for a period of two
         Business Days, and the Issuer will not file the Shelf Registration
         Statement or Prospectus or any amendment or supplement to the Shelf
         Registration Statement or Prospectus (other than documents incorporated
         by reference) to which such counsel or the underwriter(s), if any,
         shall reasonably object within two Business Days after the receipt
         thereof. Such counsel or underwriter, if any, shall be deemed to have
         reasonably objected to such filing if the Shelf Registration Statement,
         amendment, Prospectus or supplement, as applicable, as proposed to be
         filed, contains a material misstatement or omission.

                  (v) Subject to the execution of a confidentiality agreement
         reasonably acceptable to the Issuer, make available at reasonable times
         for inspection by one or more representatives of the selling Holders,
         designated in writing by a Majority of Holders whose Registrable
         Securities are included in the Shelf Registration Statement, any
         underwriter, if any, participating in any distribution pursuant to the
         Shelf Registration Statement, and any attorney or accountant retained
         by the Majority of Holders or any of the underwriter(s), all financial
         and other records, pertinent corporate documents and properties of the
         Issuer as shall be reasonably necessary to enable them to exercise any
         applicable due diligence responsibilities, and cause the Issuer's
         officers, directors, managers and employees to supply all information
         reasonably requested by any such representative or representatives of
         the selling Holders, underwriter, attorney or accountant in connection
         with the Shelf Registration Statement after the filing thereof and
         before its effectiveness; provided, however, that any information
         designated by the Issuer as confidential at the time of delivery of
         such information shall be kept confidential by the recipient thereof.

                  (vi) If requested by any selling Holders or the
         underwriter(s), if any, incorporate in the Shelf Registration Statement
         or Prospectus, pursuant to a supplement or post-effective amendment if
         necessary, such information as such selling Holders and underwriter(s),
         if any, may reasonably request to have included therein, including,
         without limitation: (1) information relating to the "Plan of
         Distribution" of the Registrable Securities, (2) information with
         respect to the principal amount of Convertible Notes or number of
         shares of Common Stock being sold, (3) the purchase price being paid
         therefor and (4) any other terms of the offering of the Registrable
         Securities to be sold in such offering; and make all required filings
         of such Prospectus supplement or post-effective amendment as soon as
         reasonably practicable after the Issuer is notified of the matters to
         be incorporated in such Prospectus supplement or post-effective
         amendment.

                                       9

                  (vii) Furnish to each selling Holder and each of the
         underwriter(s), if any, without charge, at least one copy of the Shelf
         Registration Statement, as first filed with the Commission, and of each
         amendment thereto (and any documents incorporated by reference therein
         or exhibits thereto (or exhibits incorporated in such exhibits by
         reference) as such Person may request in writing).

                  (viii) Deliver to each selling Holder and each of the
         underwriter(s), if any, without charge, as many copies of the
         Prospectus (including each preliminary prospectus) and any amendment or
         supplement thereto as such Persons reasonably may request; subject to
         any notice by the Issuer in accordance with this Section 4(b) of the
         existence of any fact or event of the kind described in Section
         4(b)(iii)(D), the Issuer hereby consents to the use of the Prospectus
         and any amendment or supplement thereto by each of the selling Holders
         and each of the underwriter(s), if any, in connection with the offering
         and the sale of the Registrable Securities covered by the Prospectus or
         any amendment or supplement thereto.

                  (ix) If an underwriting agreement is entered into and the
         registration is an Underwritten Registration, the Issuer shall:

                              (A) upon request, furnish to each selling Holder
                    and each underwriter, if any, in such substance and scope as
                    they may reasonably request and as are customarily made by
                    issuers to underwriters in primary underwritten offerings,
                    upon the date of closing of any sale of Registrable
                    Securities in an Underwritten Registration:

                                             (1) a certificate, dated the date
                              of such closing, signed by (y) the Chairman of the
                              Board, the President or a Vice President and (z)
                              the Chief Financial Officer of the Issuer
                              confirming, as of the date thereof, such matters
                              as such parties may reasonably request;

                                             (2) opinions, each dated the date
                              of such closing, of counsel to the Issuer covering
                              such matters as are customarily covered in legal
                              opinions to underwriters in connection with
                              primary underwritten offerings of securities; and

                                             (3) customary comfort letters,
                              dated the date of such closing, from the Issuer's
                              independent accountants (and from any other
                              accountants whose report is contained or
                              incorporated by reference in the Shelf
                              Registration Statement), in the customary form and
                              covering matters of the type customarily covered
                              in comfort letters to underwriters in connection
                              with primary underwritten offerings of securities;

                                       10

                              (B) set forth in full in the underwriting
                    agreement, if any, indemnification provisions and procedures
                    which provide rights no less protective than those set forth
                    in Section 6 hereof with respect to all parties to be
                    indemnified; and

                              (C) deliver such other documents and certificates
                    as may be reasonably requested by such parties to evidence
                    compliance with clause (A) above and with any customary
                    conditions contained in the underwriting agreement or other
                    agreement entered into by the selling Holders pursuant to
                    this clause (ix).

                  (x) Before any public offering of Registrable Securities,
         cooperate with the selling Holders, the underwriter(s), if any, and
         their respective counsel in connection with the registration and
         qualification of the Registrable Securities under the securities or
         Blue Sky laws of such jurisdictions as the selling Holders or
         underwriter(s), if any, may reasonably request and do any and all other
         acts or things necessary or advisable to enable the disposition in such
         jurisdictions of the Registrable Securities covered by the Shelf
         Registration Statement; provided, however, that the Issuer shall not be
         required (A) to register or qualify as a foreign corporation or a
         dealer of securities where it is not now so qualified or to take any
         action that would subject it to the service of process in any
         jurisdiction where it is not now so subject or (B) to subject itself to
         taxation in any such jurisdiction if it is not now so subject.

                  (xi) Cooperate with the selling Holders and the
         underwriter(s), if any, to facilitate the timely preparation and
         delivery of certificates representing Registrable Securities to be sold
         and not bearing any restrictive legends (unless required by applicable
         securities laws); and enable such Registrable Securities to be in such
         denominations and registered in such names as the Holders or the
         underwriter(s), if any, may reasonably request at least two Business
         Days before any sale of Registrable Securities made by such
         underwriter(s).

                  (xii) Use its reasonable best efforts to cause the Registrable
         Securities covered by the Shelf Registration Statement to be registered
         with or approved by such other U.S. governmental agencies or
         authorities as may be necessary to enable the seller or sellers thereof
         or the underwriter(s), if any, to consummate the disposition of such
         Registrable Securities, subject to the proviso in clause (x) above.

                  (xiii) Subject to Section 4(b)(i) hereof, if any fact or event
         contemplated by Section 4(b)(iii)(D) hereof shall exist or have
         occurred, use its reasonable best efforts to prepare a supplement or
         post-effective amendment to the Shelf Registration Statement or related
         Prospectus or any document incorporated therein by reference or file
         any other required document so that, as thereafter delivered to the
         purchasers of Registrable Securities, the Prospectus will not contain

                                       11

         an untrue statement of a material fact or omit to state any material
         fact required to be stated therein or necessary to make the statements
         therein not misleading.

                  (xiv) Provide CUSIP numbers for all Registrable Securities not
         later than the effective date of the Shelf Registration Statement and
         provide the Trustee under the Indenture with certificates for the
         Convertible Notes that are in a form eligible for deposit with The
         Depository Trust Company.

                  (xv) Cooperate and assist in any filings required to be made
         with the NASD and in the performance of any due diligence investigation
         by any underwriter that is required to be retained in accordance with
         the rules and regulations of the NASD.

                  (xvi) Otherwise use its reasonable best efforts to comply with
         all applicable rules and regulations of the Commission and all
         reporting requirements under the rules and regulations of the Exchange
         Act.

                  (xvii) Cause the Indenture to be qualified under the TIA not
         later than the effective date of the Shelf Registration Statement
         required by this Agreement, and, in connection therewith, cooperate
         with the Trustee and the holders of Convertible Notes to effect such
         changes to the Indenture as may be required for such Indenture to be so
         qualified in accordance with the terms of the TIA; and execute and use
         its reasonable best efforts to cause the Trustee thereunder to execute
         all documents that may be required to effect such changes and all other
         forms and documents required to be filed with the Commission to enable
         such Indenture to be so qualified in a timely manner.

                  (xviii) Cause all Registrable Securities covered by the Shelf
         Registration Statement to be listed or quoted, as the case may be, on
         each securities exchange or automated quotation system on which
         securities issued by the Issuer of the same series are then listed or
         quoted.

                  (xix) Provide promptly to each Holder upon written request
         each document filed with the Commission pursuant to the requirements of
         Section 13 and Section 15 of the Exchange Act after the effective date
         of the Shelf Registration Statement, unless such documents are
         available from EDGAR.

                  (xx) If requested by the underwriters in an Underwritten
         Offering, make appropriate officers of the Issuer reasonably available
         to the underwriters for meetings with prospective purchasers of the
         Registrable Securities and prepare and present to potential investors
         customary "road show" material in a manner consistent with other new
         issuances of other securities similar to the Registrable Securities.

             (c) Each Holder agrees by acquisition of a Registrable
         Security that, upon receipt of any notice from the Issuer of the
         existence of any fact of the kind described in Section 4(b)(iii)(D)
         hereof, such Holder will, and will use its reasonable best efforts to
         cause any underwriter(s) in an Underwritten Offering to, forthwith
         discontinue disposition of Registrable Securities pursuant to the Shelf
         Registration Statement until:

                                       12

                  (i) such Holder has received copies of the supplemented or
         amended Prospectus contemplated by Section 4(b)(xiii) hereof; or

                  (ii) such Holder is advised in writing by the Issuer that the
         use of the Prospectus may be resumed, and has received copies of any
         additional or supplemental filings that are incorporated by reference
         in the Prospectus.

         If so directed by the Issuer, each Holder will deliver to the Issuer
         (at the Issuer's expense) all copies, other than permanent file copies
         then in such Holder's possession, of the Prospectus covering such
         Registrable Securities that was current at the time of receipt of such
         notice of suspension.

             (d) Each Holder who intends to be  named as a selling  Holder  in
         the Shelf Registration Statement shall furnish to the Issuer in
         writing, within 20 Business Days after receipt of a request therefor as
         set forth in a questionnaire in the form attached hereto as Annex A,
                                                                     -------
         such information regarding such Holder and the proposed distribution by
         such Holder of its Registrable Securities as the Issuer may reasonably
         request for use in connection with the Shelf Registration Statement or
         Prospectus or preliminary Prospectus included therein. Holders that do
         not timely complete the questionnaire and deliver it to the Issuer
         shall not be named as selling securityholders in the Prospectus or
         preliminary Prospectus included in the Shelf Registration Statement and
         therefore shall not be permitted to sell any Registrable Securities
         pursuant to the Shelf Registration Statement. Each Holder who intends
         to be named as a selling Holder in the Shelf Registration Statement
         shall promptly furnish to the Issuer in writing all information
         required to be disclosed in order to make information previously
         furnished to the Issuer by such Holder not materially misleading and
         such other information as the Issuer may from time to time reasonably
         request in writing.

                  (e) Upon the effectiveness of the Shelf Registration
         Statement, each Holder shall notify the Issuer at least three Business
         Days prior to any intended distribution of Registrable Securities
         pursuant to the Shelf Registration Statement (a "Sale Notice"), which
         notice shall be effective for five Business Days. Each Holder of this
         Security, by accepting the same, agrees to hold any communication by
         the Issuer in response to a Sale Notice in confidence.

         5.  Registration Expenses.
             ---------------------

             (a) All expenses incident to the Issuer's performance of or
         compliance with this Agreement shall be borne by the Issuer regardless
         of whether a Shelf Registration Statement becomes effective, including,
         without limitation:

                  (i) all registration and filing fees and expenses (other than
         filings made by any Initial Purchasers or Holders with the NASD);

                  (ii) all fees and expenses of compliance with federal
         securities and state Blue Sky or securities laws;

                                       13

                  (iii) all expenses of printing (including printing of
         Prospectuses and certificates for the Common Stock to be issued upon
         conversion of the Convertible Notes), messenger and delivery services,
         and telephone;

                  (iv) all reasonable fees and disbursements of counsel to the
         Issuer and, subject to Section 5(b) below, the Holders of Registrable
         Securities;

                  (v) all application and filing fees in connection with listing
         (or authorizing for quotation) the Common Stock on a national
         securities exchange or automated quotation system pursuant to the
         requirements hereof; and

                  (vi) all fees and disbursements of independent certified
         public accountants of the Issuer (including the expenses of any special
         audit and comfort letters required by or incident to such performance).

                  The Issuer shall bear its internal expenses (including,
          without limitation, all salaries and expenses of its officers and
          employees performing legal, accounting or other duties), the expenses
          of any annual audit and the fees and expenses of any Person, including
          special experts, retained by the Issuer.

             (b) In connection with the Shelf Registration Statement required
         by this Agreement, the Issuer shall reimburse the Initial Purchasers
         and the Holders of Registrable Securities being registered pursuant to
         the Shelf Registration Statement, as applicable, for the reasonable
         fees and disbursements, if any, of not more than one counsel, which
         shall be Vinson &amp; Elkins L.L.P. or such other chosen by a Majority
         of Holders for whose benefit the Shelf Registration Statement is being
         prepared and is reasonably acceptable to the Issuer; provided, however,
         that the Company shall be responsible for such fees and disbursements
         only to the extent the corresponding services of such counsel were
         rendered at the request of the Company or its counsel or other
         representatives. The Issuer shall not be required to pay any
         underwriter discount, commission or similar fees related to the sale of
         the Securities.

         6.  Indemnification and Contribution.
             --------------------------------

             (a) The Issuer shall indemnify and hold harmless each Holder,
         such Holder's directors, officers, employees, representatives, agents
         and each person, if any, who controls such Holder within the meaning of
         Section 15 of the Securities Act or Section 20 of the Exchange Act
         (each, an "Indemnified Holder"), from and against any loss, claim,
         damage or liability, joint or several, or any action in respect thereof
         (including, but not limited to, (i) any loss, claim, damage, liability
         or action relating to resales of the Registrable Securities and (ii)
         reasonable attorneys' fees and any and all expenses whatsoever incurred
         in investigating, preparing or defending against any investigation or
         litigation, commenced or threatened, or any claim whatsoever, and any
         and all amounts paid in settlement of any claim or litigation), to
         which such Indemnified Holder may become subject, under the Securities
         Act or otherwise, insofar as any such loss, claim, damage, liability or
         action arises out of, or is based upon:

                                       14

                  (i) any untrue statement or alleged untrue statement of a
         material fact contained in (A) the Shelf Registration Statement or
         Prospectus or any amendment or supplement thereto or (B) any blue sky
         application or other document or any amendment or supplement thereto
         prepared or executed by the Issuer (or based upon written information
         furnished by or on behalf of the Issuer expressly for use in such blue
         sky application or other document or amendment on supplement) filed in
         any jurisdiction specifically for the purpose of qualifying any or all
         of the Registrable Securities under the securities law of any state or
         other jurisdiction (such application or document being hereinafter
         called a "Blue Sky Application"); or

                  (ii) the omission or alleged omission to state in the Shelf
         Registration Statement any material fact required to be stated therein
         or necessary to make the statements therein not misleading, or the
         omission or alleged omission to state in the Prospectus any material
         fact required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading, and shall reimburse each Indemnified Holder promptly
         upon demand for any legal or other expenses reasonably incurred by such
         Indemnified Holder in connection with investigating or defending or
         preparing to defend against any such loss, claim, damage, liability or
         action as such expenses are incurred; provided, however, that the
         Issuer shall not be liable in any such case to the extent that any such
         loss, claim, damage, liability or action arises out of, or is based
         upon, any untrue statement or alleged untrue statement or omission or
         alleged omission made in the Shelf Registration Statement or Prospectus
         or amendment or supplement thereto or Blue Sky Application in reliance
         upon and in conformity with written information furnished to the Issuer
         by or on behalf of any Holder (or its related Indemnified Holder)
         specifically for use therein; provided, further, that as to any
         preliminary Prospectus, this indemnity agreement shall not inure to the
         benefit of any Indemnified Holder or any officer, employee,
         representative, agent, director or controlling person of that
         Indemnified Holder on account of any loss, claim, damage, liability or
         action arising from the sale of the Registrable Securities sold
         pursuant to the Shelf Registration Statement to any person by such
         Indemnified Holder if (i) that Indemnified Holder failed to send or
         give a copy of the Prospectus, as the same may be amended or
         supplemented, to that person within the time required by the Securities
         Act and (ii) the untrue statement or alleged untrue statement of a
         material fact or omission or alleged omission to state a material fact
         in such preliminary Prospectus was corrected in the Prospectus or a
         supplement or amendment thereto, as the case may be, unless in each
         case, such failure resulted from noncompliance by the Issuer with
         Section 4. The foregoing indemnity agreement is in addition to any
         liability that the Issuer may otherwise have to any Indemnified Holder.

             (b) Each Holder, severally and not jointly, shall indemnify and
         hold harmless the Issuer, its directors, officers, employees,
         representatives, agents and each person, if any, who controls the
         Issuer within the meaning of Section 15 of the Securities Act or
         Section 20 of the Exchange Act, from and against any loss, claim,
         damage or liability, joint or several, or any action in respect thereof
         (including, but not limited to, reasonable attorneys' fees and any and
         all expenses whatsoever incurred in investigating, preparing or
         defending against any investigation or litigation, commenced or
         threatened, or any claim whatsoever, and any and all amounts paid in
         settlement of any claim or litigation), to which the Issuer or any such

                                       15

         officer, employee, representative, agent or controlling person may
         become subject, insofar as any such loss, claim, damage or liability or
         action arises out of, or is based upon:

                  (i) any untrue statement or alleged untrue statement of any
         material fact contained in the Shelf Registration Statement or
         Prospectus or any amendment or supplement thereto or any Blue Sky
         Application; or

                  (ii) the omission or the alleged omission to state in the
         Shelf Registration Statement any material fact required to be stated
         therein or necessary to make the statements therein not misleading, or
         the omission or alleged omission to state in the Prospectus any
         material fact required to be stated therein or necessary to make the
         statements therein, in light of the circumstances under which they were
         made, not misleading,

         but in each case only to the extent that such untrue statement or
         alleged untrue statement or omission or alleged omission was made in
         reliance upon and in conformity with written information furnished to
         the Issuer by or on behalf of such Holder (or its related Indemnified
         Holder) specifically for use therein, and shall reimburse the Issuer
         and any such director, officer, employee, representative, agent or
         controlling person promptly upon demand for any legal or other expenses
         reasonably incurred by the Issuer or any such officer, employee or
         controlling person in connection with investigating or defending or
         preparing to defend against any such loss, claim, damage, liability or
         action as such expenses are incurred. The foregoing indemnity agreement
         is in addition to any liability that any Holder may otherwise have to
         the Issuer and any such director, officer, employee or controlling
         person.

             (c) Promptly after receipt by an indemnified party under this
         Section 6 of notice of any claim or the commencement of any action, the
         indemnified party shall, if a claim in respect thereof is to be made
         against the indemnifying party under this Section 6, notify the
         indemnifying party in writing of the claim or the commencement of that
         action; provided, however, that the failure to notify the indemnifying
         party shall not relieve it from any liability that it may have under
         this Section 6 except to the extent it has been materially prejudiced
         by such failure; provided further, however, that the failure to notify
         the indemnifying party shall not relieve it from any liability that it
         may have to an indemnified party otherwise than under this Section 6.
         If any such claim or action shall be brought against an indemnified
         party, and it shall notify the indemnifying party thereof, the
         indemnifying party shall be entitled to participate therein and, to the
         extent that it wishes, jointly with any other similarly notified
         indemnifying party, to assume the defense thereof with counsel
         satisfactory to the indemnified party. After notice from the
         indemnifying party to the indemnified party of its election to assume
         the defense of such claim or action, the indemnifying party shall not
         be liable to the indemnified party under this Section 6 for any legal
         or other expenses subsequently incurred by the indemnified party in
         connection with the defense thereof other than reasonable costs of
         investigation; provided, however, that the indemnified party shall have
         the right to employ counsel to represent jointly the indemnified party
         and its respective directors, employees, officers and controlling
         persons who may be subject to liability arising out of any claim in

                                       16

         respect of which indemnity may be sought by the indemnified party
         against the indemnifying party under this Section 6 if such indemnified
         party shall have been advised in writing that the representation of
         such indemnified party and those directors, employees, officers and
         controlling persons by the same counsel would be inappropriate under
         applicable standards of professional conduct due to actual or potential
         differing interests between them, and in that event the reasonable fees
         and expenses of such separate counsel shall be paid by the indemnifying
         party. It is understood that the indemnifying party shall be liable for
         the reasonable fees and expenses of only one separate firm (in addition
         to local counsel in each jurisdiction) for all indemnified parties in
         connection with any proceeding or related proceedings. Each indemnified
         party, as a condition of the indemnity agreements contained in Sections
         6(a) and 6(b), shall use its reasonable best efforts to cooperate with
         the indemnifying party in the defense of any such action or claim. No
         indemnifying party shall:

                  (i) without the prior written consent of the indemnified
         parties (which consent shall not be unreasonably withheld) effect any
         settlement of any pending or threatened action in respect of which
         indemnification or contribution may be sought hereunder (whether or not
         the indemnified parties are actual or potential parties to such claim
         or action) unless such settlement, compromise or consent includes an
         unconditional release of such indemnified party from all liability
         arising out of such claim, action, suit or proceeding and does not
         include a statement as to or an admission of fault, culpability or
         failure to act by or on behalf of any indemnified party, or

                  (ii) be liable for any settlement of any such action effected
         without its written consent (which consent shall not be unreasonably
         withheld), but if settled with its written consent or if there be a
         final judgment for the plaintiff in any such action, the indemnifying
         party agrees to indemnify and hold harmless any indemnified party from
         and against any loss of liability by reason of such settlement or
         judgment in accordance with this Section 6.

             (d) If the indemnification provided for in this Section 6 is
         unavailable or insufficient to hold harmless an indemnified party under
         subsections (a) or (b) above, then each indemnifying party shall
         contribute to the amount paid or payable by such indemnified party as a
         result of the losses, claims, damages or liabilities (or actions in
         respect thereof) referred to in subsection (a) or (b) above (i) in such
         proportion as is appropriate to reflect the relative benefits received
         by the indemnifying party or parties on the one hand and the
         indemnified party on the other from the registration of the Registrable
         Securities pursuant to the Shelf Registration, or (ii) if the
         allocation provided by the foregoing clause (i) is not permitted by
         applicable law, in such proportion as is appropriate to reflect not
         only the relative benefits referred to in clause (i) above but also the
         relative fault of the indemnifying party or parties on the one hand and
         the indemnified party on the other in connection with the statements or
         omissions that resulted in such losses, claims, damages or liabilities
         (or actions in respect thereof) as well as any other relevant equitable
         considerations. The relative fault of the parties shall be determined
         by reference to, among other things, whether the untrue or alleged
         untrue statement of a material fact or the omission or alleged omission
         to state a material fact relates to information supplied by the Issuer
         on the one hand or such Holder or such other indemnified party, as the

                                       17

         case may be, on the other, and the parties' relative intent, knowledge,
         access to information and opportunity to correct or prevent such
         statement or omission. The amount paid by an indemnified party as a
         result of the losses, claims, damages or liabilities referred to in the
         first sentence of this subsection (d) shall be deemed to include any
         legal or other expenses reasonably incurred by such indemnified party
         in connection with investigating or defending any action or claim which
         is the subject of this subsection (d). Notwithstanding any other
         provision of this Section 6(d), the Holders of the Registrable
         Securities shall not be required to contribute any amount in excess of
         the amount by which the gross proceeds received by such Holders from
         the sale of the Registrable Securities pursuant to the Shelf
         Registration Statement exceeds the amount of damages which such Holders
         have otherwise been required to pay by reason of such untrue or alleged
         untrue statement or omission or alleged omission. No person guilty of
         fraudulent misrepresentation (within the meaning of Section 11(f) of
         the Securities Act) shall be entitled to contribution from any person
         who was not guilty of such fraudulent misrepresentation. For purposes
         of this paragraph (d), each person, if any, who controls such
         indemnified party within the meaning of the Securities Act or the
         Exchange Act shall have the same rights to contribution as such
         indemnified party and each person, if any, who controls the Issuer
         within the meaning of the Securities Act or the Exchange Act shall have
         the same rights to contribution as the Issuer.

             (e) The indemnity and contribution provisions contained in this
         Section 6 shall remain operative and in full force and effect
         regardless of (i) any termination of this Agreement, (ii) any
         investigation made by or on behalf of any Initial Purchaser, any Holder
         or any person controlling any Initial Purchaser or any Holder, or by or
         on behalf of the Issuer, its officers or directors or any person
         controlling the Issuer, and (iii) any sale of Registrable Securities
         pursuant to the Shelf Registration Statement.

         7.  Rule 144A.
             ---------

         In the event the Issuer is not subject to Section 13 or 15(d) of the
Exchange Act, the Issuer hereby agrees with each Holder, for so long as any
Registrable Securities remain outstanding, to make available to any Holder or
beneficial owner of Registrable Securities in connection with any sale thereof
and any prospective purchaser of such Registrable Securities from such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Securities
pursuant to Rule 144A.

         8.  Underwritten Registrations.
             --------------------------

             (a) The Underwriting Majority may sell its Registrable Securities
         in an Underwritten Offering pursuant to the Shelf Registration
         Statement only with the Issuer's consent, which consent may be granted
         or withheld in the Issuer's sole discretion.

             (b) Participation of Holders. No Holder may participate in any
         Underwritten Registration hereunder unless such Holder:

                  (i) agrees to sell such Holder's Registrable Securities on the
         basis provided in any underwriting arrangements approved by the Persons
         entitled hereunder to approve such arrangements (including, without

                                       18

         limitation, the obligation of such Holder to pay all underwriting
         discounts); and

                  (ii) completes and executes all reasonable questionnaires,
         powers of attorney, indemnities, underwriting agreements, lock-up
         letters and other documents reasonably required under the terms of such
         underwriting arrangements.

             (c) Selection of Underwriters. In any such Underwritten Offering,
         the investment banker or investment bankers and manager or managers
         that will administer the offering will be selected by a Majority of
         Holders whose Registrable Securities are included in such Underwriting
         Offering; provided, that such investment bankers and managers must be
         reasonably satisfactory to the Issuer.

         9.  Miscellaneous.
             -------------

             (a) Remedies. The Issuer acknowledges and agrees that any failure
         by the Issuer to comply with its obligations under Section 2 hereof
         may result in material irreparable injury to the Initial Purchasers or
         the Holders for which there is no adequate remedy at law, that it will
         not be possible to measure damages for such injuries precisely and
         that, in the event of any such failure, the Initial Purchasers or any
         Holder may obtain such relief as may be required to specifically
         enforce the Issuer's obligations under Section 2 hereof. The Issuer
         further agrees to waive the defense in any action for specific
         performance that a remedy at law would be adequate.

             (b) No Inconsistent Agreements. The Issuer will not, on or after
         the date of this Agreement, enter into any agreement with respect to
         its securities that is inconsistent with the rights granted to the
         Holders in this Agreement or otherwise conflicts with the provisions
         hereof. In addition, the Issuer shall not grant to any of its security
         holders (other than the holders of Registrable Securities in such
         capacity) the right to include any of its securities in the Shelf
         Registration Statement provided for in this Agreement other than the
         Registrable Securities. Other than as disclosed in the Issuer's
         Offering Memorandum dated March 7, 2002, the Issuer has not previously
         entered into any agreement (which has not expired or been terminated)
         granting any registration rights with respect to its securities to any
         Person, which rights conflict with the provisions hereof.

             (c) Adjustments Affecting Registrable Securities. The Issuer shall
         not, directly or indirectly, take any action with respect to the
         Registrable Securities as a class that would adversely affect the
         ability of the Holders of Registrable Securities to include such
         Registrable Securities in a registration undertaken pursuant to this
         Agreement.

             (d) Amendments and Waivers. This Agreement may not be amended,
         modified or supplemented, and waivers or consents to or departures from
         the provisions hereof may not be given, unless the Issuer has obtained
         the written consent of a Majority of Holders; provided, however, that
         no amendment, modification, supplement, waiver or consent to or
         departure from the provisions of Section 6 that materially and

                                       19

         adversely affects a Holder hereof shall be effective as against any
         such Holder of Registrable Securities unless consented to in writing by
         such Holder.

             (e) Notices. All notices and other communications provided for or
         permitted hereunder shall be made in writing by hand-delivery,
         first-class mail (registered or certified, return receipt requested),
         telex, telecopier, or air courier guaranteeing overnight delivery:

                  (i) if to a Holder, at the address set forth on the records of
         the registrar under the Indenture or the transfer agent of the Common
         Stock, as the case may be; and

                  (ii) if to the Issuer:

                           St. Mary Land &amp; Exploration Company, Inc.
                           1776 Lincoln Street, Suite 1100
                           Denver, Colorado  80203
                           Fax No.:  (303) 861-0934
                           Attention:  Mark A. Hellerstein

                           With a copy to:

                           Ballard Spahr Andrews &amp; Ingersoll, LLP
                           1225 17th Street, Suite 2300
                           Denver, Colorado  80202
                           Fax No.:  (303) 296-3956
                           Attention:  Roger C. Cohen

                  (iii) if to the Initial Purchasers:

                           c/o Bear, Stearns &amp; Co. Inc.
                           383 Madison Avenue
                           New York, New York  10179
                           Fax No.:  (212) 272-3092
                           Attention:  Convertible Capital Markets

                           With a copy to:

                           Vinson &amp; Elkins L.L.P.
                           666 Fifth Avenue, 27th Floor
                           New York, New York  10103
                           Fax No.:  (917) 206-8100
                           Attention:  Alan P. Baden

         All such notices and communications shall be deemed to have been duly
         given: at the time delivered by hand, if personally delivered; five
         Business Days after being deposited in the mail, postage prepaid, if
         mailed; when answered back, if telexed; when receipt acknowledged, if
         telecopied; and on the next Business Day, if timely delivered to an air
         courier guaranteeing overnight delivery.

                                       20

         Copies of all such notices, demands or other communications shall be
         concurrently delivered by the Person giving the same to the Trustee at
         the address specified in the Indenture.

         A document or notice shall be deemed to have been furnished to the
         Holders of the Registrable Securities if it is provided to the
         registered holders of the Registrable Securities at the address set
         forth in clause (i) above.

             (f) Successors and Assigns. This Agreement shall inure to the
         benefit of and be binding upon the successors, assigns and transferees
         of each of the parties, including without limitation and without the
         need for an express assignment, subsequent Holders of Registrable
         Securities; provided, however, that (i) nothing contained herein shall
         be deemed to permit any assignment, transfer or other disposition of
         Registrable Securities in violation of the terms of the Purchase
         Agreement or the Indenture and (ii) this Agreement shall not inure to
         the benefit of or be binding upon a successor or assign of a Holder
         unless and to the extent such successor or assign acquired Registrable
         Securities from such Holder. If any transferee of any Holder shall
         acquire Registrable Securities, in any manner, whether by operation of
         law or otherwise, such Registrable Securities shall be held subject to
         all of the terms of this Agreement, and by taking and holding such
         Registrable Securities such person shall be conclusively deemed to have
         agreed to be bound by and to perform all of the terms and provisions of
         this Agreement and such Person shall be entitled to receive the
         benefits hereof. The Initial Purchasers (in their capacity as Initial
         Purchasers) shall have no liability or obligation to the Issuer with
         respect to any failure by a Holder to comply with, or breach by any
         Holder of, any of the obligations of such Holder under this Agreement.

             (g) Purchases and Sales of Convertible Notes. The Issuer shall not,
         and shall use its reasonable best efforts to cause its affiliates
         (as defined in Rule 405 under the Securities Act) within its Control
         not to, resell or otherwise transfer any Convertible Notes acquired by
         the Company or such affiliates, except pursuant to an effective
         registration statement under the Securities Act or an exemption
         therefrom.

             (h) Third Party Beneficiary. The Holders shall be third party
         beneficiaries to the agreements made hereunder between the Issuer and
         the Initial Purchasers, and such Initial Purchasers shall have the
         right to enforce such agreements directly to the extent they deem such
         enforcement necessary or advisable to protect their rights or the
         rights of Holders hereunder.

             (i) Counterparts. This Agreement may be executed in any number of
         counterparts and by the parties hereto in separate counterparts, each
         of which when so executed shall be deemed to be an original and all of
         which taken together shall constitute one and the same agreement.

             (j) Securities Held by the Issuer or Their Affiliates. Whenever the
         consent or approval of Holders of a specified percentage of Registrable
         Securities is required hereunder, Registrable Securities held by the
         Issuer or its affiliates (as such term is defined in Rule 405 under the

                                       21

         Securities Act) shall not be counted in determining whether such
         consent or approval was given by the Holders of such required
         percentage.

             (k) Headings. The headings in this Agreement are for convenience of
         reference only and shall not limit or otherwise affect the meaning
         hereof.

             (l) Governing Law. This agreement shall be governed by, and
         construed in accordance with, the laws of the State of New York.

             (m) Consent to Jurisdiction. Each party irrevocably agrees that
         any legal suit, action or proceeding arising out of or based upon this
         Agreement or the transactions contemplated hereby ("Related
         Proceedings") may be instituted in the federal courts of the United
         States of America or the courts of the State of New York in each case
         located in the Borough of Manhattan in the City of New York
         (collectively, the "Specified Courts"), and irrevocably submits to the
         exclusive jurisdiction (except for proceedings instituted in regard to
         the enforcement of a judgment of any such court (a "Related Judgment"),
         as to which such Jurisdiction is non-exclusive) of such courts in any
         such suit, action or proceeding. The parties further agree that service
         of any process, summons, notice or document by mail to such party's
         address set forth above shall be effective service of process for any
         lawsuit, action or other proceeding brought in any such court. The
         parties hereby irrevocably and unconditionally waive any objection to
         the laying of venue of any lawsuit, action or other proceeding in the
         Specified Courts, and hereby further irrevocably and unconditionally
         waive and agree not to plead or claim in any such court that any such
         lawsuit, action or other proceeding brought in any such court has been
         brought in an inconvenient forum.

                  (n) Severability. If any one or more of the provisions
         contained herein, or the application thereof in any circumstance, is
         held invalid, illegal or unenforceable, the validity, legality and
         enforceability of any such provision in every other respect and of the
         remaining provisions contained herein shall not be affected or impaired
         thereby.

                  (o) Entire Agreement. This Agreement, together with the
         Purchase Agreement and the Indenture, is intended by the parties as a
         final expression of their agreement and intended to be a complete and
         exclusive statement of the agreement and understanding of the parties
         hereto in respect of the subject matter contained herein. There are no
         restrictions, promises, warranties or undertakings other than those set
         forth or referred to herein with respect to the registration rights
         granted by the Issuer with respect to the Registrable Securities. This
         Agreement supersedes all prior agreements and understandings between
         the parties with respect to such subject matter.

                           [Signature page to follow]

                                       22


         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                        Very truly yours,

                                        ST. MARY LAND &amp; EXPLORATION COMPANY

                                        By: /s/ MARK A. HELLERSTEIN
                                           -------------------------------------
                                           Name: Mark A. Hellerstein
                                           Title:President and CEO

         The foregoing Registration Rights Agreement is hereby confirmed and
accepted as of the date first above written.

                                         BEAR, STEARNS &amp; CO. INC.,
                                            on behalf of the Initial Purchasers


                                         By: /s/ STEPHEN STRATI
                                            ------------------------------------
                                            Name:
                                            Title:


                                       23


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================================================================================
                                                                   Exhibit 10.26


                       ST. MARY LAND &amp; EXPLORATION COMPANY







                         5.75% Senior CONVERTIBLE Notes
                                    DUE 2022





                                    INDENTURE


                           Dated as of March 13, 2002





                          WELLS FARGO BANK WEST, N.A..
                                   as Trustee


================================================================================

                             CROSS-REFERENCE TABLE*

TIA Section                                                    Indenture Section
Section   310(a)(1).........................................................9.10
          (a)(2)............................................................9.10
          (a)(3)..........................................................N.A.**
          (a)(4)............................................................N.A.
          (a)(5)............................................................9.10
          (b)..........................................................9.8; 9.10
          (c)...............................................................N.A.
Section   311(a)............................................................9.11
          (b)...............................................................9.11
          (c)...............................................................N.A.
Section   312(a).............................................................2.5
          (b)...............................................................13.3
          (c)...............................................................13.3
Section   313(a).............................................................9.6
          (b)(1)............................................................N.A.
          (b)(2).............................................................9.6
          (c)..........................................................9.6; 13.2
          (d)................................................................9.6
Section   314(a).............................................6.2; 6.3, 6.4; 13.2
          (b)...............................................................N.A.
          (c)(1).........................................................13.4(a)
          (c)(2).........................................................13.4(a)
          (c)(3)............................................................N.A.
          (d)...............................................................N.A.
          (e)............................................................13.4(b)
          (f)...............................................................N.A.
Section   315(a)..........................................................9.1(b)
          (b)..........................................................9.5; 13.2
          (c).............................................................9.1(a)
          (d).............................................................9.1(c)
          (e)...............................................................8.11
Section   316(a)(last sentence)..............................................2.9
          (a)(1)(A)..........................................................8.5
          (a)(1)(B)..........................................................8.4
          (a)(2)............................................................N.A.
          (b)................................................................8.7
          (c)...............................................................13.5
Section   317(a)(1)..........................................................8.8
          (a)(2).............................................................8.9
          (b)................................................................2.4
- ----------------------------
* This  Cross-Reference  Table  shall not, for  any purpose, be deemed a part of
  this Indenture.
**    N.A. means Not Applicable.



                                TABLE OF CONTENTS


                                    Article I
                   DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1  Definitions.......................................................1
Section 1.2  Other Definitions.................................................7
Section 1.3  Trust Indenture Act Provisions....................................8
Section 1.4  Rules of Construction.............................................8

                                   Article II
                                 THE SECURITIES

Section 2.1   Form and Dating..................................................9
Section 2.2   Execution and Authentication....................................10
Section 2.3   Registrar, Paying Agent and Conversion Agent....................10
Section 2.4   Paying Agent To Hold Money in Trust.............................11
Section 2.5   Securityholder Lists............................................11
Section 2.6   Transfer and Exchange...........................................11
Section 2.7   Replacement Securities..........................................13
Section 2.8   Outstanding Securities..........................................13
Section 2.9   Treasury Securities.............................................14
Section 2.10  Temporary Securities............................................14
Section 2.11  Cancellation....................................................14
Section 2.12  Additional Transfer and Exchange Requirements...................14
Section 2.13  CUSIP Numbers...................................................20

                                   Article III
                                   REDEMPTION

Section 3.1   Right to Redeem; Notice to Trustee..............................20
Section 3.2   Selection of Securities to be Redeemed..........................21
Section 3.3   Notice of Redemption............................................21
Section 3.4   Effect of Notice of Redemption..................................22
Section 3.5   Deposit of Redemption Price.....................................22
Section 3.6   Securities Redeemed in Part.....................................23
Section 3.7   Conversion Arrangement on Call For Redemption...................23

                                   Article IV
                                   CONVERSION

Section 4.1   Conversion Privilege............................................24
Section 4.2   Conversion Procedure............................................25
Section 4.3   Fractional Shares...............................................26
Section 4.4   Taxes on Conversion.............................................26
Section 4.5   Company to Provide Stock........................................26
Section 4.6   Adjustment of Conversion Price..................................27
Section 4.7   No Adjustment...................................................31

                                       ii


Section 4.8   Adjustment for Tax Purposes.....................................31
Section 4.9   Notice of Adjustment............................................31
Section 4.10  Notice of Certain Transactions..................................31
Section 4.11  Effect of Reclassification, Consolidation,
              Merger or Sale on Conversion Privilege..........................32
Section 4.12  Trustee's Disclaimer............................................33
Section 4.13  Voluntary Reduction.............................................33

                                    Article V
                      REPURCHASE OF SECURITIES AT OPTION OF
                          THE HOLDER ON SPECIFIC DATES

Section 5.1   Optional Put....................................................33
Section 5.2   The Company's Right to Elect Manner of Payment
              of Optional Repurchase Price on March 20, 2007..................35
Section 5.3   Purchase with Cash..............................................36
Section 5.4   Payment by Issuance of Shares of Common
              Stock on March 20, 2007.........................................36
Section 5.5   Notice of Election..............................................38
Section 5.6   Covenants of the Company........................................39
Section 5.7   Procedure upon Repurchase.......................................39
Section 5.8   Taxes...........................................................40
Section 5.9   Effect of Optional Repurchase Notice............................40
Section 5.10  Deposit of Optional Repurchase Price............................41
Section 5.11  Securities Repurchased in Part..................................41
Section 5.12  Comply with Securities Laws Upon Purchase of Securities.........41
Section 5.13  Repayment to the Company........................................42
Section 5.14  Conversion Arrangement on Repurchase............................42

                                   Article VI
                                    COVENANTS

Section 6.1   Payment of Securities...........................................42
Section 6.2   SEC Reports.....................................................43
Section 6.3   Compliance Certificates.........................................43
Section 6.4   Further Instruments and Acts....................................43
Section 6.5   Maintenance of Corporate Existence..............................43
Section 6.6   Rule 144A Information Requirement...............................43
Section 6.7   Stay, Extension and Usury Laws..................................44
Section 6.8   Payment of Liquidated Damages...................................44
Section 6.9   Resale of Certain Securities....................................44
Section 6.10  Tax Treatment of Securities.....................................44

                                   Article VII
              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Section 7.1   Company May Consolidate, Etc. Only on Certain Terms.............45
Section 7.2   Successor Substituted...........................................46

                                      iii


                                  Article VIII
                              DEFAULT AND REMEDIES

Section 8.1   Events of Default...............................................46
Section 8.2   Acceleration....................................................47
Section 8.3   Other Remedies..................................................48
Section 8.4   Waiver of Defaults and Events of Default........................48
Section 8.5   Control By Majority.............................................48
Section 8.6   Limitations on Suits............................................49
Section 8.7   Rights of Holders to Receive Payment and to Convert.............49
Section 8.8   Collection Suit By Trustee......................................49
Section 8.9   Trustee May File Proofs of Claim................................50
Section 8.10  Priorities......................................................50
Section 8.11  Undertaking for Costs...........................................50

                                   Article IX
                                     TRUSTEE

Section 9.1   Duties of Trustee...............................................51
Section 9.2   Rights of Trustee...............................................52
Section 9.3   Individual Rights of Trustee....................................53
Section 9.4   Trustee's Disclaimer............................................53
Section 9.5   Notice of Default or Events of Default..........................53
Section 9.6   Reports By Trustee To Holders...................................53
Section 9.7   Compensation and Indemnity......................................53
Section 9.8   Replacement of Trustee..........................................54
Section 9.9   Successor Trustee By Merger, Etc................................55
Section 9.10  Eligibility; Disqualification...................................55
Section 9.11  Preferential Collection of Claims Against Company...............56

                                    Article X
                     SATISFACTION AND DISCHARGE OF INDENTURE

Section 10.1  Satisfaction and Discharge of Indenture.........................56
Section 10.2  Application of Trust Money......................................57
Section 10.3  Repayment To Company............................................57
Section 10.4  Reinstatement...................................................57

                                   Article XI
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 11.1  Without Consent of Holders......................................58
Section 11.2  With Consent of Holders.........................................58
Section 11.3  Compliance With Trust Indenture Act.............................59
Section 11.4  Revocation and Effect of Consents...............................59
Section 11.5  Notation on or Exchange of Securities...........................59
Section 11.6  Trustee To Sign Amendments, Etc.................................60

                                       iv


                                   Article XII
          REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL

Section 12.1  Change in Control Put...........................................60
Section 12.2  Effect of Change in Control Repurchase Notice...................63
Section 12.3  Deposit of Change in Control Repurchase Price...................64
Section 12.4  Securities Purchased in Part....................................64
Section 12.5  Compliance with Securities Laws Upon Purchase of Securities.....64
Section 12.6  Repayment to the Company........................................64

                                  Article XIII
                                  MISCELLANEOUS

Section 13.1  Trust Indenture Act Controls....................................65
Section 13.2  Notices.........................................................65
Section 13.3  Communications By Holders With Other Holders....................66
Section 13.4  Certificate and Opinion as to Conditions Precedent..............66
Section 13.5  Record Date for Vote or Consent of Securityholders..............66
Section 13.6  Rules By Trustee, Paying Agent, Registrar and Conversion Agent..67
Section 13.7  Legal Holidays..................................................67
Section 13.8  Governing Law...................................................67
Section 13.9  No Adverse Interpretation of Other Agreements...................67
Section 13.10 No Recourse Against Others......................................67
Section 13.11 Successors......................................................67
Section 13.12 Multiple Counterparts...........................................67
Section 13.13 Separability....................................................67
Section 13.14 Table of Contents, Headings, Etc................................68

EXHIBITS

Form of Security.............................................................A-1

                                       v


         THIS  INDENTURE  dated as of March 13,  2002 is between  St.  Mary Land
&amp;  Exploration  Company, a Delaware  corporation (the "Company"),  and Wells
Fargo  Bank  West,  N.A.,  a  national  banking  association,  as  Trustee  (the
"Trustee").

         In  consideration of the premises and the purchase of the Securities by
the Holders thereof,  both parties agree as follows for the benefit of the other
and for the equal and ratable benefit of the registered Holders of the Company's
5.75% Senior Convertible Notes due 2022.

                                   ARTICLE I
                   DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.1  Definitions.

         "Affiliate"  means,  with respect to any  specified  person,  any other
person  directly or indirectly  controlling  or controlled by or under direct or
indirect  common  control with such specified  person.  For the purposes of this
definition,  "control"  when used with  respect to any person means the power to
direct the  management  and  policies of such  person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

         "Agent" means any Registrar, Paying Agent or Conversion Agent.

         "Applicable Procedures" means, with respect to any transfer or exchange
of beneficial ownership interests in a Global Security, the rules and procedures
of the Depositary that are applicable to such transfer or exchange.

         "Board of Directors" means the board of directors of the Company or any
authorized committee of the Board of Directors.

         "Business Day" means each day that is not a Legal Holiday.

         "Capital  Stock" of any  Person  means any and all  shares,  interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however  designated) equity of such Person, but excluding any debt
securities convertible into such equity.

         "Cash" or "cash" means such coin or currency of the United States as at
any time of payment is legal tender for the payment of public and private debts.

         "Certificated  Security" means a Security that is in substantially  the
form attached  hereto as Exhibit A and that does not include the  information or
the schedule called for by footnotes 1, 3 and 4 thereof.

         "Closing  Price Per  Share"  means the  closing  price per share of the
Company's Common Stock determined in accordance with Section 4.6(d) hereof.

         "Common  Stock" means the common  stock of the Company,  par value $.01
per  share,  as it exists on the date of this  Indenture  and any  shares of any
class  or  classes  of  Capital  Stock  of  the  Company   resulting   from  any
reclassification  or  reclassifications  thereof and which have no preference in
respect of  dividends  or of amounts  payable in the event of any  voluntary  or
involuntary liquidation,  dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, however, that if at any time
there shall be more than one such resulting class, the shares of each such class
then so issuable on  conversion  of  Securities  shall be  substantially  in the
proportion  which the total  number of shares of such class  resulting  from all
such  reclassifications  bears to the total number of shares of all such classes
resulting from all such reclassifications.

         "Company"  means  the  party  named as such in this  Indenture  until a
successor  replaces it  pursuant to this  Indenture,  and  thereafter  means the
successor.

         "Contingent  Interest"  has the meaning  specified  in Section 1 of the
form of Security attached hereto as Exhibit A.

         "Conversion  Value" of a Security  as of any date means the  product of
the Sale Price of a share of Common  Stock  times the number of shares of Common
Stock  into  which the  Security  could  then be  converted  (assuming  that the
Security was convertible as of such date).

         "Corporate  Trust  Office"  means  the  corporate  trust  office of the
Trustee at which at any  particular  time its corporate  trust business shall be
administered,  which office at the date of the  execution  of this  Indenture is
located at 1740 Broadway,  MAC C7301-024,  Denver,  Colorado  80274,  Attention:
Corporate  Trust  Services,  or at any other time at such  other  address as the
Trustee may designate from time to time by notice to the Company.

         "Default" or "default" means, when used with respect to the Securities,
any event  which is or,  after  notice or passage  of time or both,  would be an
Event of Default.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder,  as in effect from time to
time.

         "Ex-Dividend  Time" means, with respect to any issuance or distribution
on shares of Common  Stock,  the first date on which the shares of Common  Stock
trade  regular  way on the  principal  securities  market on which the shares of
Common  Stock are then  traded  without  the right to receive  such  issuance or
distribution.

         "Fair Market  Value" shall mean the amount which a willing  buyer would
pay a willing seller in an arm's length  transaction (as determined by the Board
of Directors, whose determination shall be conclusive).

         "Final Maturity Date" means March 15, 2022.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in (1) the opinions and  pronouncements  of the Accounting  Principles
Board  of the  American  Institute  of  Certified  Public  Accountants,  (2) the
statements and pronouncements of the Financial  Accounting  Standards Board, (3)
such other statements by such other entity as approved by a significant  segment
of the  accounting  profession  and (4) the  rules  and  regulations  of the SEC
governing the inclusion of financial  statements  (including pro forma financial
statements)  in  registration  statements  filed  under the  Securities  Act and
periodic  reports  required to be filed  pursuant to Section 13 of the  Exchange
Act,  including  opinions and  pronouncements in staff accounting  bulletins and
similar written statements from the accounting staff of the SEC.

                                       2

         "Global  Security"  means  a  permanent  Global  Security  that  is  in
substantially  the form  attached  hereto  as  Exhibit A and that  includes  the
information and schedule called for by footnotes 1, 3 and 4 thereof and which is
deposited with the Depositary or its custodian and registered in the name of the
Depositary or its nominee.

         "Holder" or "Securityholder"  means the person in whose name a Security
is registered on the Primary Registrar's books.

         "Indebtedness"  means obligations (other than nonrecourse  obligations)
of, or  guaranteed  or assumed  by, the Company for  borrowed  money,  including
obligations evidenced by bonds,  debentures,  notes or other similar instruments
and  reimbursement  and cash  collateralization  of letters of credit,  bankers'
acceptances, interest rate hedge and currency hedge agreements.

         "Indenture"  means this Indenture as amended or supplemented  from time
to time pursuant to the terms of this Indenture.

         "Liquidated  Damages" has the meaning  specified in Section 3(a) of the
Registration  Rights  Agreement.  All references  herein or in the Securities to
interest accrued or payable as of any date shall include any Liquidated  Damages
accrued  or  payable  as of such date as  provided  in the  Registration  Rights
Agreement.

         "Market Price" as of any date of determination means the average of the
Sale  Prices of the shares of Common  Stock for the  fifteen  Trading Day period
ending  on  (if  the  third  Business  Day  prior  to  the  applicable  date  of
determination  is a Trading  Day, or if not,  then on the last Trading Day prior
to), the third Business Day prior to the  applicable  Optional  Repurchase  Date
appropriately  adjusted to take into account the  occurrence,  during the period
commencing  on the first of such Trading  Days during such  fifteen  Trading Day
period  and  ending on such date of  determination,  of any event  described  in
Section 4.6; subject, however, to the conditions set forth in Section 4.7.

         "Maturity"  means the date on which the outstanding  principal  amount,
Redemption  Price,  Optional  Repurchase  Price or Change in Control  Repurchase
Price with  respect to such  Securities  becomes  due and  payable as therein or
herein  provided,  whether  at  the  Final  Maturity  Date  or by  acceleration,
conversion, call for redemption, exercise of a repurchase right or otherwise.

         "Moody's" means Moody's Investors Service Inc. and its successors.

         "Officer" means the Chairman of the Board, the Chief Executive Officer,
the President,  any Vice President, the Chief Financial Officer, the Controller,
the  Secretary  or any  Assistant  Secretary,  the  Treasurer  or any  Assistant
Treasurer of the Company.

         "Officers'  Certificate"  means a  certificate  signed by two Officers;
provided,  however,  that for  purposes  of  Sections  4.11 and 6.3,  "Officers'
Certificate"  means a  certificate  signed by the principal  executive  officer,
principal  financial officer or principal  accounting officer of the Company and
by one other Officer.

                                       3

         "Opinion of Counsel" means a written  opinion from legal  counsel.  The
counsel may be an employee of or counsel to the Company or the Trustee.

         "Person" or "person" means any  individual,  corporation,  partnership,
limited liability  company,  joint venture,  association,  joint-stock  company,
trust,  unincorporated  organization,  government  or any  agency  or  political
subdivision thereof or any other entity.

         "Principal"  or   "principal"   of  a  debt  security,   including  the
Securities,  means the principal of the security  plus,  when  appropriate,  the
premium, if any, on the security.

         "Purchase Agreement" means the Purchase Agreement, dated as of March 7,
2002,  between the Company and Bear,  Stearns  &amp;  Co. Inc.,  Banc of America
Securities, LLC, RBC Dain Rauscher Inc., A.G. Edwards &amp; Sons, Inc., McDonald
Investments Inc. and Comerica Securities, Inc.

         "Record Date" shall mean, with respect to any dividend, distribution or
other  transaction  or event in which the holders of shares of Common Stock have
the right to receive  any cash,  securities  or other  property  or in which the
shares  of Common  Stock (or other  applicable  security)  is  exchanged  for or
converted into any combination of cash,  securities or other property,  the date
fixed  for  determination  of  stockholders   entitled  to  receive  such  cash,
securities  or other  property  (whether  such  date is  fixed  by the  Board of
Directors or by statute, contract or otherwise).

         "Redemption  Date" or "redemption  date," when used with respect to any
Security to be redeemed,  means the date fixed for such  redemption  pursuant to
this Indenture.

         "Redemption Price" or "redemption price," when used with respect to any
Security to be redeemed,  means the price fixed for such redemption  pursuant to
this  Indenture,  as set  forth in the form of  Security  annexed  as  Exhibit A
hereto.

         "Registration   Rights   Agreement"  means  the   Registration   Rights
Agreement,  dated as of March 13,  2002,  between the Company and Bear,  Stearns
&amp; Co. Inc.,  Banc of America  Securities  LLC, RBC Dain Rauscher Inc.,  A.G.
Edwards &amp; Sons,  Inc.,  McDonald  Investments Inc. and Comerica  Securities,
Inc., as initial purchasers.

         "Regular Record Date" for the interest (including  Contingent Interest)
payable on the Note means  March 1 and  September  1 (whether  or not a Business
Day), as applicable, next preceding the corresponding Interest Payment Date.

         "Regulation S" means Regulation S under the Securities Act.

         "Restricted  Certificated Security" means a Certificated Security which
is a Transfer Restricted Security.

                                       4

         "Restricted Global Security" means a Global Security that is a Transfer
Restricted Security.

         "Restricted  Security"  means a Restricted  Certificated  Security or a
Restricted Global Security.

         "Rule 144" means Rule 144 under the  Securities Act or any successor to
such Rule.

         "Rule 144A" means Rule 144A under the  Securities  Act or any successor
to such Rule.

         "Sale Price" of the shares of Common Stock on any date means:

                  (1) the closing  per share sale price (or, if no closing  sale
         price is  reported,  the  average of the bid and ask prices or, if more
         than one in either case, the average of the average bid and average ask
         prices) on such date as reported in the composite  transactions for the
         principal  United  States  securities  exchange  on which the shares of
         Common Stock are traded, or

                  (2) if the Common  Shares  are not  listed on a United  States
         national or regional securities  exchange,  as reported by the National
         Association of Securities  Dealers  Automated  Quotation  System or its
         successors.

         "SEC" means the Securities and Exchange Commission.

         "Securities"  means the 5.75% Senior  Convertible Notes due 2022 or any
of them (each, a "Security"), as amended or supplemented from time to time, that
are issued under this Indenture.

         "Securities Act" means the Securities Act of 1933, as amended,  and the
rules and regulations promulgated thereunder, as in effect from time to time.

         "Securities  Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor thereto.

         "Standard &amp;  Poor's" means Standard &amp; Poor's Ratings Service, a
division of The McGraw Hill Companies, Inc., and its successors.

         "Subsidiary"   means,  in  respect  of  any  Person,  any  corporation,
association,  partnership or other business entity of which more than 50% of the
total  voting  power of shares of Capital  Stock or other  interests  (including
partnership  interests)  entitled  (without  regard  to  the  occurrence  of any
contingency) to vote in the election of directors, managers, general partners or
trustees thereof is at the time owned or controlled,  directly or indirectly, by
(i) such Person;  (ii) such Person and one or more  Subsidiaries of such Person;
or (iii) one or more Subsidiaries of such Person.

         "TIA" means the Trust  Indenture Act of 1939, as amended,  as in effect
on the date of this Indenture, except as provided in Section 13.3, and except to
the extent any  amendment  to the Trust  Indenture  Act  expressly  provides for
application of the Trust Indenture Act as in effect on another date.

                                       5

         "Trading Day" means:

                  (1) if the  applicable  Security  is  listed or  admitted  for
         trading  on the New York  Stock  Exchange,  a day on which the New York
         Stock Exchange is open for business;

                  (2) if that  Security  is not  listed  on the New  York  Stock
         Exchange,  a day on which  trades  may be made on the  Nasdaq  National
         Market;

                  (3) if that  Security  is not so listed on the New York  Stock
         Exchange and not quoted on the Nasdaq National  Market,  a day on which
         the principal  U.S.  securities  exchange on which the  Securities  are
         listed is open for business; or

                  (4) if the applicable Security is not so listed,  admitted for
         trading or quoted,  any day other than a Saturday  or a Sunday or a day
         on which banking  institutions  in the State of New York are authorized
         or obligated by law or executive order to close.

         "Trading Price" of a Security on any date of determination means:

                  (1) the average of the  secondary  market bid  quotations  per
         Security  obtained by the Company for $10,000,000  principal  amount of
         the Securities at approximately  3:30 p.m., New York City time, on such
         determination  date  from  three  independent   nationally   recognized
         securities dealers selected by the Company;

                  (2) if at least three such bids cannot  reasonably be obtained
         by the Company, but two such bids are obtained, then the average of the
         two bids shall be used;

                  (3) if only one such bid can  reasonably  be  obtained  by the
         Company, this one bid shall be used; or

                  (4) if the Company cannot  reasonably  obtain at least one bid
         for  $10,000,000  principal  amount of the Securities from a nationally
         recognized  securities dealer or in the Company's  reasonable judgment,
         the bid quotations are not indicative of the secondary  market value of
         the Securities, then the trading price of the Securities will equal (i)
         the  then-applicable  Conversion  Rate of the Securities  multiplied by
         (ii) the Sale Price of the Company's Common Stock on such determination
         date.

         "Trustee"  means  the  party  named as such in this  Indenture  until a
successor  replaces it in accordance with the provisions of this Indenture,  and
thereafter means the successor.

         "Trust  Officer"  means,  with  respect  to the  Trustee,  any  officer
assigned to the Corporate  Trust Office,  and also, with respect to a particular
matter,  any other  officer  to whom such  matter is  referred  because  of such
officer's knowledge of and familiarity with the particular subject.

         "Unrestricted Certificated Security" means a Certificated Security that
is not a Transfer Restricted Security.

         "Unrestricted  Global  Security"  means a Global Security that is not a
Transfer Restricted Security.

                                       6

         "Voting  Stock" of a Person means all classes of Capital Stock or other
interests (including  partnership interests) of such Person then outstanding and
normally  entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.

Section 1.2  Other Definitions.

Term                                                          Defined in Section
- ----                                                          ------------------
"Agent Members"...........................................................2.1
"Bankruptcy Law"..........................................................8.1
"Change in Control".......................................................12.1
"Change in Control Repurchase Date".......................................12.1
"Change in Control Repurchase Notice".....................................12.1
"Change in Control Repurchase Price"......................................12.1
"closing price"...........................................................4.6(d)
"Company Notice"..........................................................5.5
"Company Notice Date".....................................................5.5
"Company Order"...........................................................2.2
"Contingent Payment Regulations"..........................................6.10
"Conversion Agent"........................................................2.3
"Conversion Date".........................................................4.2
"Conversion Rate".........................................................4.1(b)
"Conversion Price"........................................................4.6
"current market price"....................................................4.6(d)
"Custodian"...............................................................8.1
"DTC".....................................................................2.1
"Depositary"..............................................................2.1
"Determination Date"......................................................4.6(c)
"Event of Default"........................................................8.1
"Expiration Date".........................................................4.6(c)
"Expiration Time".........................................................4.6(c)
"Legal Holiday"...........................................................13.7
"NNM".....................................................................4.5
"Optional Repurchase Date"................................................5.1
"Optional Repurchase Notice"..............................................5.1
"Optional Repurchase Price"...............................................5.1
"Paying Agent"............................................................2.3
"Primary Registrar".......................................................2.3
"Purchased Shares"........................................................4.6(c)
"QIB".....................................................................2.1
"Registrar"...............................................................2.3
"Repurchase Press Release"................................................5.5
"Transfer Certificate"....................................................2.12
"Transfer Restricted Security"............................................2.12
"Triggering Distribution".................................................4.6(c)
"Unissued Shares".........................................................12.1

                                       7

Section 1.3  Trust Indenture Act Provisions.


         Whenever  this  Indenture  refers  to a  provision  of  the  TIA,  that
provision is incorporated by reference in and made a part of this Indenture. The
Indenture shall also include those provisions of the TIA required to be included
herein  by the  provisions  of the  Trust  Indenture  Reform  Act of  1990.  The
following TIA terms used in this Indenture have the following meanings:

         "indenture securities" means the Securities;

         "indenture security holder" means a Securityholder;

         "indenture to be qualified" means this Indenture;

         "indenture trustee" or "institutional trustee" means the Trustee; and

         "obligor" on the  indenture  securities  means the Company or any other
obligor on the Securities.

         All other  terms used in this  Indenture  that are  defined in the TIA,
defined by TIA  reference to another  statute or defined by any SEC rule and not
otherwise defined herein have the meanings assigned to them therein.

Section 1.4  Rules of Construction.

         Unless the context otherwise requires:

         (i)   a term has the meaning assigned to it;

         (ii)  an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;

         (iii) words in the singular include the plural, and words in the plural
include the singular;

         (iv)  provisions apply to successive events and transactions;

         (v)   the masculine gender includes the feminine and the neuter;

         (vi)  references to agreements and other instruments include subsequent
amendments thereto; and

         (vii) "herein,"  "hereof" and  other  words  of similar import refer to
this  Indenture  as a  whole and not to any particular Article, Section or other
subdivision.

                                       8


                                 THE SECURITIES

Section 2.1  Form and Dating

         The Securities and the Trustee's certificate of authentication shall be
substantially  in the respective  forms set forth in Exhibit A, which Exhibit is
incorporated  in and  made  part of this  Indenture.  The  Securities  may  have
notations,  legends or  endorsements  required by law,  stock  exchange  rule or
usage.  Each  Security  shall  be  dated  the  date of its  authentication.  The
Securities  are being  offered  and sold by the Company in  transactions  exempt
from, or not subject to, the registration requirements of the Securities Act.

         (a) Restricted Global  Securities.  All of the Securities are initially
being offered and sold to qualified institutional buyers as defined in Rule 144A
(collectively,  "QIBs" or  individually,  each a "QIB") in reliance on Rule 144A
under the  Securities  Act and shall be issued  initially  in the form of one or
more  Restricted  Global  Securities,  which shall be deposited on behalf of the
purchasers  of the  Securities  represented  thereby  with the  Trustee,  at its
Corporate Trust Office,  as custodian for the depositary,  The Depository  Trust
Company ("DTC") (such depositary,  or any successor  thereto,  being hereinafter
referred to as the  "Depositary"),  and  registered  in the name of its nominee,
Cede &amp; Co., duly executed by the Company and authenticated by the Trustee as
hereinafter  provided.  The aggregate  principal amount of the Restricted Global
Security may from time to time be increased or decreased by adjustments  made on
the records of the Securities Custodian as hereinafter provided, subject in each
case to compliance with the Applicable Procedures.

         (b) Global Securities in General.  Each Global Security shall represent
such of the outstanding  Securities as shall be specified therein and each shall
provide that it shall represent the aggregate  amount of outstanding  Securities
from time to time endorsed  thereon and that the aggregate amount of outstanding
Securities represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges, redemptions, purchases or conversions of such
Securities.  Any  endorsement of a Global  Security to reflect the amount of any
increase or decrease in the amount of outstanding Securities represented thereby
shall be made by the  Securities  Custodian  in  accordance  with  the  standing
instructions  and procedures  existing between the Depositary and the Securities
Custodian.

         Members of, or participants in, the Depositary  ("Agent Members") shall
have no rights under this Indenture with respect to any Global  Security held on
their behalf by the Depositary or under any Global Security,  and the Depositary
(including,  for this purpose,  its nominee) may be treated by the Company,  the
Trustee and any agent of the Company or the  Trustee as the  absolute  owner and
Holder of such Global Security for all purposes whatsoever.  Notwithstanding the
foregoing,  nothing  herein  shall (A) prevent the  Company,  the Trustee or any
agent  of  the  Company  or the  Trustee  from  giving  effect  to  any  written
certification,  proxy or other authorization  furnished by the Depositary or (B)
impair,  as between the  Depositary  and its Agent  Members,  the  operation  of
customary  practices  governing  the  exercise  of the rights of a Holder of any
Security.

                                       9

         (c) Certificated  Securities.  Certificated  Securities shall be issued
only under the limited circumstances provided in Section 2.12(a)(1) hereof.

Section 2.2  Execution and Authentication

         An  Officer  shall  sign the  Securities  for the  Company by manual or
facsimile  signature  attested  by the  manual  or  facsimile  signature  of the
Secretary or an Assistant Secretary of the Company.  Typographic and other minor
errors or defects in any such facsimile  signature shall not affect the validity
or enforceability of any Security which has been  authenticated and delivered by
the Trustee.

         If an Officer  whose  signature  is on a Security no longer  holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.

         A Security  shall not be valid  until an  authorized  signatory  of the
Trustee manually signs the certificate of  authentication  on the Security.  The
signature shall be conclusive  evidence that the Security has been authenticated
under this Indenture.

         The  Trustee  shall   authenticate  and  make  available  for  delivery
Securities  for  original  issue  in the  aggregate  principal  amount  of up to
$75,000,000 (plus up to an additional $25,000,000 that may be issued pursuant to
the exercise of the over-allotment  option described in the Purchase  Agreement)
upon receipt of a written order or orders of the Company signed by an Officer of
the Company (a "Company  Order").  The Company Order shall specify the amount of
Securities to be  authenticated,  shall provide that all such Securities will be
represented by a Restricted  Global Security and the date on which each original
issue of Securities is to be  authenticated.  The aggregate  principal amount of
Securities  outstanding  at any  time  may not  exceed  $75,000,000,  except  as
provided above and in Section 2.7.

         The Trustee shall act as the initial authenticating agent.  Thereafter,
the Trustee may appoint an  authenticating  agent  acceptable  to the Company to
authenticate  Securities.  An authenticating  agent may authenticate  Securities
whenever  the  Trustee  may  do  so.  Each   reference  in  this   Indenture  to
authentication  by  the  Trustee  includes  authentication  by  such  agent.  An
authenticating  agent  shall  have the same  rights as an Agent to deal with the
Company or an Affiliate of the Company.

         The  Securities  shall be  issuable  only in  registered  form  without
coupons and only in denominations of $1,000 and any integral multiple thereof.

Section 2.3  Registrar, Paying Agent and Conversion Agent

         The  Company  shall  maintain  one or more  offices or  agencies  where
Securities may be presented for  registration of transfer or for exchange (each,
a  "Registrar"),  one or  more  offices  or  agencies  where  Securities  may be
presented for payment (each, a "Paying Agent"),  one or more offices or agencies
where  Securities may be presented for conversion  (each, a "Conversion  Agent")
and one or more  offices or  agencies  where  notices and demands to or upon the
Company in respect  of the  Securities  and this  Indenture  may be served.  The
Company will at all times maintain a Paying Agent,  Conversion Agent,  Registrar
and an office or agency  where  notices  and  demands to or upon the  Company in
respect of the  Securities  and this  Indenture  may be served in the Borough of
Manhattan, the City of New York. One of the Registrars (the "Primary Registrar")
shall keep a register of the Securities and of their transfer and exchange.

                                       10

         The Company shall enter into an appropriate  agency  agreement with any
Agent  not a  party  to  this  Indenture.  The  agreement  shall  implement  the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this  Indenture.
If the Company fails to maintain a Registrar,  Paying Agent, Conversion Agent or
agent  for  service  of  notices  and  demands  in any  place  required  by this
Indenture, or fails to give the foregoing notice, the Trustee shall act as such.
The Company or any  Affiliate of the Company may act as Paying Agent (except for
the purposes of Section 6.1 and Article X).

         The Company  hereby  initially  designates the Trustee as Paying Agent,
Registrar,  Securities  Custodian and Conversion Agent (which shall initially be
located at 45 Broadway,  12th Floor,  MAC  N2666-120,  New York, New York 10006,
Attention: Corporate Trust Department), one such office or agency of the Company
for each of the aforesaid purposes.

Section 2.4  Paying Agent To Hold Money in Trust

         Prior  to  11:00  a.m.,  New York  City  time,  on each due date of the
principal of or interest,  if any, on any Securities,  the Company shall deposit
with  a  Paying  Agent  a sum  sufficient  to pay  such  principal  or  interest
(including  Contingent  Interest),  if any, so becoming due.  Subject to Section
5.9, a Paying  Agent shall hold in trust for the benefit of  Securityholders  or
the Trustee all money held by the Paying  Agent for the payment of  principal of
or  interest,  if any, on the  Securities,  and shall  notify the Trustee of any
default by the Company (or any other  obligor on the  Securities)  in making any
such  payment.  If the Company or an  Affiliate  of the  Company  acts as Paying
Agent, it shall,  before 11:00 a.m., New York City time, on each due date of the
principal of or interest on any  Securities,  segregate money in such amount and
hold it as a separate  trust fund.  The Company at any time may require a Paying
Agent to pay all money held by it to the  Trustee,  and the  Trustee  may at any
time during the  continuance  of any Default,  upon written  request to a Paying
Agent,  require such Paying  Agent to  forthwith  pay to the Trustee all sums so
held in trust by such Paying Agent.  Upon doing so, the Paying Agent (other than
the Company) shall have no further liability for the money.

Section 2.5  Securityholder Lists

         The  Trustee  shall  preserve  in as  current  a form as is  reasonably
practicable  the most recent list  available to it of the names and addresses of
Securityholders.  If the Trustee is not the Primary Registrar, the Company shall
furnish to the Trustee on or before the third (3rd)  Business Day preceding each
semiannual  interest  payment  date and at such other  times as the  Trustee may
request  in writing a list in such form and as of such date as the  Trustee  may
reasonably require of the names and addresses of Securityholders.

Section 2.6  Transfer and Exchange

         Subject  to  compliance  with any  applicable  additional  requirements
contained in Section  2.12,  when a Security is presented to a Registrar  with a
request to register a transfer thereof or to exchange such Security for an equal
principal amount of Securities of other authorized denominations,  the Registrar
shall  register  the  transfer  or make the  exchange  as  requested;  provided,

                                       11

however,  that every  Security  presented or  surrendered  for  registration  of
transfer or exchange shall be duly endorsed or accompanied by an assignment form
and, if applicable,  a transfer certificate each in the form included in Exhibit
A, and in form satisfactory to the Registrar duly executed by the Holder thereof
or its attorney duly authorized in writing.  To permit registration of transfers
and exchanges,  upon surrender of any Security for  registration  of transfer or
exchange at an office or agency maintained  pursuant to Section 2.3, the Company
shall execute and the Trustee shall authenticate  Securities of a like aggregate
principal amount at the Registrar's  request.  Any exchange or transfer shall be
without charge,  except that the Company or the Registrar may require payment of
a sum  sufficient  to cover  any tax or other  governmental  charge  that may be
imposed in relation thereto, and provided, that this sentence shall not apply to
any  exchange  pursuant  to  Section  2.7,  2.10,  2.12(a)(1),  3.6,  4.2  (last
paragraph), 5.11, 11.5 or 12.4.

         Neither the Company, any Registrar nor the Trustee shall be required to
exchange or register a transfer  of (a) any  Securities  for a period of 15 days
next  preceding any mailing of a notice of  Securities  to be redeemed,  (b) any
Securities or portions thereof selected or called for redemption (except, in the
case of redemption of a Security in part, the portion not to be redeemed) or (c)
any  Securities or portions  thereof in respect of which an Optional  Repurchase
Notice or a Change in  Control  Repurchase  Notice  has been  delivered  and not
withdrawn  by the  Holder  thereof  (except,  in the case of the  purchase  of a
Security in part, the portion not to be purchased).

         All Securities issued upon any transfer or exchange of Securities shall
be valid  obligations  of the Company,  evidencing the same debt and entitled to
the same benefits under this Indenture,  as the Securities surrendered upon such
transfer or exchange.

         (b) Any  Registrar  appointed  pursuant  to Section  2.3  hereof  shall
provide to the Trustee such information as the Trustee may reasonably require in
connection  with the delivery by such  Registrar of Securities  upon transfer or
exchange of Securities.

         (c) Each Holder of a Security  agrees to  indemnify  the  Company,  the
Registrar  and the  Trustee  against  any  liability  that may  result  from the
transfer,  exchange or assignment of such Holder's  Security in violation of any
provision of this  Indenture  and/or  applicable  United States federal or state
securities law.

         The Trustee shall have no  obligation or duty to monitor,  determine or
inquire as to compliance with any  restrictions  on transfer  imposed under this
Indenture or under  applicable  law with respect to any transfer of any interest
in any Security (including any transfers between or among Agent Members or other
beneficial  owners of  interests in any Global  Security)  other than to require
delivery  of such  certificates  and  other  documentation  or  evidence  as are
expressly  required by, and to do so if and when expressly required by the terms
of, this Indenture,  and to examine the same to determine substantial compliance
as to form with the express requirements hereof.

                                       12

Section 2.7  Replacement Securities

         If any mutilated Security is surrendered to the Company, a Registrar or
the Trustee,  or the Company,  a Registrar and the Trustee  receive  evidence to
their satisfaction of the destruction,  loss or theft of any Security, and there
is delivered  to the  Company,  the  applicable  Registrar  and the Trustee such
security or indemnity as will be required by them to save each of them harmless,
then,  in the absence of actual  notice to the  Company,  such  Registrar or the
Trustee  that such  Security  has been  acquired by a bona fide  purchaser,  the
Company  shall  execute,   and  upon  its  written  request  the  Trustee  shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.

         In case any such  mutilated,  destroyed,  lost or stolen  Security  has
become or is about to become  due and  payable,  or is about to be  redeemed  or
purchased by the Company  pursuant to Article III, the Company in its discretion
may,  instead of issuing a new Security,  pay, redeem or purchase such Security,
as the case may be.

         Upon the  issuance of any new  Securities  under this  Section 2.7, the
Company shall require the payment of a sum  sufficient to cover any tax or other
governmental  charge  that may be  imposed  in  relation  thereto  and any other
reasonable  expenses  (including the reasonable fees and expenses of the Trustee
or the Registrar) in connection therewith.

         Every new Security  issued  pursuant to this Section 2.7 in lieu of any
destroyed,  lost or stolen  Security  shall  constitute  an original  additional
contractual  obligation of the Company,  whether or not the  destroyed,  lost or
stolen  Security  shall be at any  time  enforceable  by  anyone,  and  shall be
entitled to all benefits of this Indenture equally and proportionately  with any
and all other Securities duly issued hereunder.

         The provisions of this Section 2.7 are (to the extent lawful) exclusive
and shall  preclude (to the extent  lawful) all other  rights and remedies  with
respect to the  replacement or payment of mutilated,  destroyed,  lost or stolen
Securities.

Section 2.8  Outstanding Securities

         Securities outstanding at any time are all Securities  authenticated by
the  Trustee,  except  for  those  canceled  by it,  those  delivered  to it for
cancellation and those described in this Section 2.8 as not outstanding.

         If a Security  is  replaced  pursuant  to Section  2.7, it ceases to be
outstanding  unless  the  Company  receives  proof  satisfactory  to it that the
replaced Security is held by a bona fide purchaser.

         If a Paying  Agent  (other  than the  Company  or an  Affiliate  of the
Company)  holds on a redemption  date, a Change in Control  Repurchase  Date, an
Optional  Repurchase Date or the Final Maturity Date money sufficient to pay the
principal  of  (including  premium,  if any)  and  accrued  interest  (including
Contingent  Interest) on Securities (or portions  thereof) payable on that date,
then on and after that date such  Securities (or portions  thereof,  as the case
may be) cease to be outstanding and interest on them ceases to accrue.

                                       13

         Subject to the  restrictions  contained in Section 2.9, a Security does
not cease to be  outstanding  because the Company or an Affiliate of the Company
holds the Security.

Section 2.9  Treasury Securities

         In determining  whether the Holders of the required principal amount of
Securities  have  concurred  in  any  notice,  direction,   waiver  or  consent,
Securities owned by the Company or any other obligor on the Securities or by any
Affiliate of the Company or of such other obligor shall be  disregarded,  except
that,  for  purposes of  determining  whether the Trustee  shall be protected in
relying on any such notice, direction,  waiver or consent, only Securities which
a  Trust  Officer  of the  Trustee  actually  knows  are so  owned  shall  be so
disregarded. Securities so owned which have been pledged in good faith shall not
be disregarded if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to the Securities and that the pledgee is
not the Company or any other  obligor on the  Securities or any Affiliate of the
Company or of such other obligor.

Section 2.10  Temporary Securities

         Until  definitive  Securities  are ready for delivery,  the Company may
prepare and execute,  and,  upon receipt of a Company  Order,  the Trustee shall
authenticate and deliver,  temporary  Securities.  Temporary Securities shall be
substantially in the form of definitive  Securities but may have variations that
the Company with the consent of the Trustee considers  appropriate for temporary
Securities.  Without  unreasonable  delay,  the  Company  shall  prepare and the
Trustee shall  authenticate  and deliver  definitive  Securities in exchange for
temporary Securities.

Section 2.11  Cancellation

         The  Company at any time may  deliver  Securities  to the  Trustee  for
cancellation.  The Registrar,  the Paying Agent and the  Conversion  Agent shall
forward  to the  Trustee  or its agent any  Securities  surrendered  to them for
transfer,  exchange,  payment or  conversion.  The Trustee and no one else shall
cancel, in accordance with its standard procedures,  all Securities  surrendered
for transfer,  exchange,  redemption,  payment,  conversion or cancellation  and
shall deliver the canceled  Securities to the Company.  All Securities which are
redeemed,  purchased  or  otherwise  acquired  by  the  Company  or  any  of its
Subsidiaries  prior to the Final Maturity Date shall be delivered to the Trustee
for cancellation and the Company may not hold or resell such Securities or issue
any new  Securities to replace any such  Securities or any  Securities  that any
Holder  has  converted  pursuant  to  Article  IV.  Without  limitation  to  the
foregoing, any Securities acquired by any investment bankers or other purchasers
pursuant to Section  3.7 shall be  surrendered  for  conversion  and  thereafter
cancelled, and may not be reoffered, sold or otherwise transferred.

Section 2.12  Additional Transfer and Exchange Requirements

         (a) Transfer and Exchange of Global Securities.

                  (1)  Certificated  Securities  shall be issued in exchange for
         interests in the Global Securities only if (x) the Depositary  notifies
         the Company that it is  unwilling  or unable to continue as  Depositary
         for the Global Securities or if it at any time ceases to be a "clearing
         agency" registered under the Exchange Act, if so required by applicable
         law or  regulation  and a successor  Depositary is not appointed by the
         Company  within 90 days, or (y) an Event of Default has occurred and is
         continuing.  In either case, the Company shall execute, and the Trustee
         shall,  upon receipt of a Company  Order  (which the Company  agrees to
         delivery promptly), authenticate and deliver Certificated Securities in
         an aggregate  principal  amount equal to the  principal  amount of such
         Global Securities in exchange  therefor.  Only Restricted  Certificated
         Securities  shall be issued in exchange  for  beneficial  interests  in
         Restricted  Global  Securities,   and  only  Unrestricted  Certificated
         Securities  shall be issued in exchange  for  beneficial  interests  in
         Unrestricted  Global  Securities.  Certificated  Securities  issued  in
         exchange  for  beneficial  interests  in  Global  Securities  shall  be
         registered in such names and shall be in such authorized  denominations
         as the Depositary, pursuant to instructions from its direct or indirect
         participants  or  otherwise,  shall  instruct the Trustee.  The Trustee
         shall deliver or cause to be delivered such Certificated  Securities to
         the  Persons in whose names such  Securities  are so  registered.  Such
         exchange   shall  be  effected  in  accordance   with  the   Applicable
         Procedures.

                  (2)  Notwithstanding  any other  provisions of this  Indenture
         other than the  provisions  set forth in Section  2.12(a)(1),  a Global
         Security may not be  transferred as a whole except by the Depositary to
         a nominee of the  Depositary  or by a nominee of the  Depositary to the
         Depositary or another nominee of the Depositary or by the Depositary or
         any  such  nominee  to a  successor  Depositary  or a  nominee  of such
         successor Depositary.

         (b) Transfer and Exchange of Certificated Securities. In the event that
Certificated  Securities  are issued in exchange  for  beneficial  interests  in
Global Securities in accordance with Section 2.12(a)(1) of this Indenture, on or
after such event when  Certificated  Securities  are  presented by a Holder to a
Registrar with a request:

                  (x) to register the transfer of the Certificated Securities to
         a person who will take  delivery  thereof  in the form of  Certificated
         Securities only; or

                  (y) to  exchange  such  Certificated  Securities  for an equal
         principal  amount  of  Certificated   Securities  of  other  authorized
         denominations,  such Registrar  shall register the transfer or make the
         exchange as requested;

provided, however, that the Certificated Securities presented or surrendered for
register of transfer or exchange:


                  (1)  shall  be  duly  endorsed  or  accompanied  by a  written
         instrument  of  transfer  in  accordance  with the proviso to the first
         paragraph of Section 2.6; and

                  (2) in the case of a Restricted  Certificated  Security,  such
         request shall be  accompanied by the following  additional  information
         and documents, as applicable:

                           (i) if such Restricted Certificated Security is being
                  delivered to the Registrar by a Holder for registration in the
                  name of such  Holder,  without  transfer,  or such  Restricted
                  Certificated Security is being transferred to the Company or a
                  Subsidiary of the Company, a certification to that effect from
                  such  Holder  (in  substantially  the  form  set  forth in the
                  Transfer Certificate);

                                       15

                           (ii)  if such  Restricted  Certificated  Security  is
                  being transferred to a person the Holder  reasonably  believes
                  is a QIB in  accordance  with  Rule  144A  or  pursuant  to an
                  effective  registration  statement under the Securities Act, a
                  certification   to  that   effect   from   such   Holder   (in
                  substantially the form set forth in the Transfer Certificate);
                  or

                           (iii) if such  Restricted  Certificated  Security  is
                  being  transferred  (i)  pursuant  to an  exemption  from  the
                  registration  requirements of the Securities Act in accordance
                  with  Rule  144 or (ii)  pursuant  to an  exemption  from  the
                  registration  requirements  of the  Securities Act (other than
                  pursuant  to Rule  144A or Rule 144) and as a result of which,
                  in the case of a Security  transferred pursuant to this clause
                  (ii), such Security shall cease to be a "restricted  security"
                  within the meaning of Rule 144, a certification to that effect
                  from the  Holder (in  substantially  the form set forth in the
                  Transfer Certificate) and, if the Company or such Registrar so
                  requests,  a customary  Opinion of Counsel,  certificates  and
                  other  information  reasonably  acceptable  to the Company and
                  such  Registrar  to  the  effect  that  such  transfer  is  in
                  compliance   with  the   registration   requirements   of  the
                  Securities Act.

         (c) Transfer of a Beneficial  Interest in a Restricted  Global Security
for a Beneficial Interest in an Unrestricted Global Security.  Any person having
a beneficial interest in a Restricted Global Security may upon request,  subject
to the Applicable Procedures,  transfer such beneficial interest to a person who
is required or permitted to take delivery thereof in the form of an Unrestricted
Global Security.  Upon receipt by the Trustee of written  instructions,  or such
other  form of  instructions  as is  customary  for  the  Depositary,  from  the
Depositary or its nominee on behalf of any person  having a beneficial  interest
in a Restricted  Global  Security and the following  additional  information and
documents in such form as is customary for the Depositary from the Depositary or
its  nominee on behalf of the person  having  such  beneficial  interest  in the
Restricted  Global  Security  (all of which may be  submitted  by  facsimile  or
electronically):

                  (1) if such beneficial interest is being transferred  pursuant
         to an effective  registration  statement  under the  Securities  Act, a
         certification to that effect from the transferor (in  substantially the
         form set forth in the Transfer Certificate); or

                  (2) if such  beneficial  interest  is  being  transferred  (i)
         pursuant to an  exemption  from the  registration  requirements  of the
         Securities  Act in  accordance  with  Rule 144 or (ii)  pursuant  to an
         exemption  from the  registration  requirements  of the  Securities Act
         (other  than  pursuant  to Rule  144A or Rule  144) and as a result  of
         which,  in the case of a Security  transferred  pursuant to this clause
         (ii),  such Security shall cease to be a "restricted  security"  within
         the  meaning  of Rule 144,  a  certification  to that  effect  from the
         transferor  (in  substantially  the  form  set  forth  in the  Transfer
         Certificate)  and,  if  the  Company  or the  Trustee  so  requests,  a
         customary  Opinion  of  Counsel,  certificates  and  other  information
         reasonably acceptable to the Company and the Trustee to the effect that
         such transfer is in compliance  with the  registration  requirements of
         the Securities Act,

                                       16

the Trustee, as a Registrar and Securities  Custodian,  shall reduce or cause to
be reduced the aggregate  principal amount of the Restricted  Global Security by
the appropriate principal amount and shall increase or cause to be increased the
aggregate  principal  amount  of  the  Unrestricted  Global  Security  by a like
principal  amount.  Such transfer shall otherwise be effected in accordance with
the  Applicable   Procedures.   If  no  Unrestricted  Global  Security  is  then
outstanding,  the Company shall execute and the Trustee shall, upon receipt of a
Company Order (which the Company agrees to deliver  promptly),  authenticate and
deliver an Unrestricted Global Security.

         (d)  Transfer  of a  Beneficial  Interest  in  an  Unrestricted  Global
Security for a Beneficial  Interest in a Restricted Global Security.  Any person
having  a  beneficial  interest  in an  Unrestricted  Global  Security  may upon
request, subject to the Applicable Procedures, transfer such beneficial interest
to a person who is required or permitted to take delivery thereof in the form of
a  Restricted  Global  Security  (it  being  understood  that  only QIBs may own
beneficial  interests  in  Restricted  Global  Securities).  Upon receipt by the
Trustee  of  written  instructions  or such  other  form of  instructions  as is
customary for the Depositary,  from the Depositary or its nominee,  on behalf of
any person having a beneficial  interest in an Unrestricted Global Security and,
in such form as is customary  for the  Depositary,  from the  Depositary  or its
nominee  on  behalf  of  the  person  having  such  beneficial  interest  in the
Unrestricted  Global  Security  (all of which may be  submitted  by facsimile or
electronically)  a certification  from the transferor (in substantially the form
set forth in the  Transfer  Certificate)  to the  effect  that  such  beneficial
interest  is being  transferred  to a  person  that  the  transferor  reasonably
believes is a QIB in accordance with Rule 144A, the Trustee,  as a Registrar and
Securities  Custodian,  shall  reduce  or  cause  to be  reduced  the  aggregate
principal  amount  of  the  Unrestricted  Global  Security  by  the  appropriate
principal  amount and shall  increase  or cause to be  increased  the  aggregate
principal amount of the Restricted  Global Security by a like principal  amount.
Such  transfer  shall  otherwise be effected in accordance  with the  Applicable
Procedures.  If no Restricted Global Security is then  outstanding,  the Company
shall execute and the Trustee shall,  upon receipt of a Company Order (which the
Company  agrees to deliver  promptly),  authenticate  and  deliver a  Restricted
Global Security.

         (e) Transfers of  Certificated  Securities for  Beneficial  Interest in
Global  Securities.  In the event  that  Certificated  Securities  are issued in
exchange for beneficial  interests in Global  Securities  and,  thereafter,  the
events or  conditions  specified  in  Section  2.12(a)(1)  which  required  such
exchange shall cease to exist,  the Company shall mail notice to the Trustee and
to the Holders  stating that Holders may exchange  Certificated  Securities  for
interests in Global  Securities by complying  with the  procedures  set forth in
this  Indenture  and  briefly  describing  such  procedures  and the  events  or
circumstances requiring that such notice be given.  Thereafter,  if Certificated
Securities are presented by a Holder to a Registrar with a request:

                  (x) to register the transfer of such  Certificated  Securities
         to a person who will take delivery  thereof in the form of a beneficial
         interest in a Global Security, which request shall specify whether such
         Global Security will be a Restricted Global Security or an Unrestricted
         Global Security; or

                                       17

                  (y) to  exchange  such  Certificated  Securities  for an equal
         principal amount of beneficial  interests in a Global  Security,  which
         beneficial  interests  will be owned by the  Holder  transferring  such
         Certificated Securities (provided that in the case of such an exchange,
         Restricted Certificated Securities may be exchanged only for Restricted
         Global  Securities  and  Unrestricted  Certificated  Securities  may be
         exchanged only for Unrestricted Global Securities), the Registrar shall
         register  the  transfer or make the  exchange as requested by canceling
         such  Certificated  Security and causing,  or directing the  Securities
         Custodian to cause,  the aggregate  principal  amount of the applicable
         Global  Security  to be  increased  accordingly  and, if no such Global
         Security is then  outstanding,  the Company shall issue and the Trustee
         shall,  upon receipt of a Company  Order  (which the Company  agrees to
         deliver promptly) authenticate and deliver a new Global Security;

provided, however, that the Certificated Securities presented or surrendered for
registration of transfer or exchange:


                  (1)  shall  be  duly  endorsed  or  accompanied  by a  written
         instrument of transfer in accordance with the proviso to Section 2.6;

                  (2) in the case of a  Restricted  Certificated  Security to be
         transferred  for  a  beneficial  interest  in  an  Unrestricted  Global
         Security, such request shall be accompanied by the following additional
         information and documents, as applicable:

                           (i) if such Restricted Certificated Security is being
                  transferred  pursuant to an effective  registration  statement
                  under the Securities Act, a certification  to that effect from
                  such  Holder  (in  substantially  the  form  set  forth in the
                  Transfer Certificate); or

                           (ii)  if such  Restricted  Certificated  Security  is
                  being  transferred  pursuant  to (A)  an  exemption  from  the
                  registration  requirements of the Securities Act in accordance
                  with  Rule  144 or  (B)  pursuant  to an  exemption  from  the
                  registration  requirements  of the  Securities Act (other than
                  pursuant  to Rule  144A or Rule 144) and as a result of which,
                  in the case of a Security  transferred pursuant to this clause
                  (B), such Security  shall cease to be a "restricted  security"
                  within the meaning of Rule 144, a certification to that effect
                  from such Holder (in  substantially  the form set forth in the
                  Transfer Certificate), and, if the Company or the Registrar so
                  requests,  a customary  Opinion of Counsel,  certificates  and
                  other information reasonably acceptable to the Company and the
                  Trustee to the effect that such transfer is in compliance with
                  the registration requirements of the Securities Act;

                  (3) in the case of a  Restricted  Certificated  Security to be
         transferred  or  exchanged  for a  beneficial  interest in a Restricted
         Global  Security,  such request shall be accompanied by a certification
         from such Holder (in  substantially  the form set forth in the Transfer
         Certificate) to the effect that such Restricted  Certificated  Security
         is being  transferred to a person the Holder  reasonably  believes is a
         QIB  (which,  in the  case of an  exchange,  shall be such  Holder)  in
         accordance with Rule 144A;

                                       18

                  (4) in the case of an Unrestricted Certificated Security to be
         transferred or exchanged for a beneficial  interest in an  Unrestricted
         Global Security, such request need not be accompanied by any additional
         information or documents; and

                  (5) in the case of an Unrestricted Certificated Security to be
         transferred  or  exchanged  for a  beneficial  interest in a Restricted
         Global  Security,  such request shall be accompanied by a certification
         from such Holder (in  substantially  the form set forth in the Transfer
         Certificate) to the effect that such Unrestricted Certificated Security
         is being  transferred to a person the Holder  reasonably  believes is a
         QIB  (which,  in the  case of an  exchange,  shall be such  Holder)  in
         accordance with Rule 144A.

         (f) Legends.

                  (1) Except as permitted by the  following  paragraphs  (2) and
         (3), each Global Security and Certificated Security (and all Securities
         issued  in  exchange  therefor  or upon  registration  of  transfer  or
         replacement  thereof)  shall  bear a legend in  substantially  the form
         called  for by  footnote  2 to  Exhibit  A  hereto  (each  a  "Transfer
         Restricted Security" for so long as it is required by this Indenture to
         bear  such  legend).  Each  Transfer  Restricted  Security  shall  have
         attached   thereto  a  certificate   (a  "Transfer   Certificate")   in
         substantially the form called for by footnote 5 to Exhibit A hereto.

                  (2)  Upon  any  sale  or  transfer  of a  Transfer  Restricted
         Security (w) after the expiration of the holding  period  applicable to
         sales of the Securities  under Rule 144(k) of the  Securities  Act, (x)
         pursuant  to  Rule  144,  (y)  pursuant  to an  effective  registration
         statement  under  the  Securities  Act or  (z)  pursuant  to any  other
         available  exemption  (other  than  Rule  144A)  from the  registration
         requirements  of the  Securities  Act and as a result of which,  in the
         case of a  Security  transferred  pursuant  to this  clause  (z),  such
         Security shall cease to be a "restricted  security"  within the meaning
         of Rule 144:

                           (i)  in  the  case  of  any  Restricted  Certificated
                  Security,  any  Registrar  shall permit the Holder  thereof to
                  exchange  such   Restricted   Certificated   Security  for  an
                  Unrestricted    Certificated    Security,    or   (under   the
                  circumstances  described in Section  2.12(e)) to transfer such
                  Restricted  Certificated  Security to a  transferee  who shall
                  take such Security in the form of a beneficial  interest in an
                  Unrestricted  Global Security,  and in each case shall rescind
                  any  restriction on the transfer of such  Security;  provided,
                  however,  that  the  Holder  of such  Restricted  Certificated
                  Security  shall, in connection with such exchange or transfer,
                  comply with the other  applicable  provisions  of this Section
                  2.12; and

                           (ii) in the  case  of any  beneficial  interest  in a
                  Restricted  Global  Security,  the  Trustee  shall  permit the
                  beneficial owner thereof to transfer such beneficial  interest
                  to a transferee  who shall take such interest in the form of a
                  beneficial  interest in an  Unrestricted  Global  Security and
                  shall rescind any  restriction on transfer of such  beneficial
                  interest;  provided,  that such  Unrestricted  Global Security
                  shall  continue  to be  subject to the  provisions  of Section
                  2.12(a)(2);  and  provided,  further,  that the  owner of such
                  beneficial  interest  shall, in connection with such transfer,
                  comply with the other  applicable  provisions  of this Section
                  2.12.

                                       19

                  (3) Upon the exchange, registration of transfer or replacement
         of Securities not bearing the legend  described in paragraph (1) above,
         the Company  shall  execute,  and the Trustee  shall  authenticate  and
         deliver, Securities that do not bear such legend and that do not have a
         Transfer Certificate attached thereto.

                  (4) After the  expiration  of the holding  period  pursuant to
         Rule 144(k) of the Securities  Act, the Company may with the consent of
         the Holder of a Restricted  Global Security or Restricted  Certificated
         Security,  remove any restriction of transfer on such Security, and the
         Company shall execute,  and the Trustee shall authenticate and deliver,
         Securities that do not bear such legend and that do not have a Transfer
         Certificate attached thereto.

         (g)  Transfers  to the  Company.  Nothing in this  Indenture  or in the
Securities  shall  prohibit  the  sale  or  other  transfer  of  any  Securities
(including  beneficial  interests in Global Securities) to the Company or any of
its  Subsidiaries,  which  Securities shall thereupon be cancelled in accordance
with Section 2.11.

Section 2.13  CUSIP Numbers

         The Company in issuing the Securities may use "CUSIP"  numbers (if then
generally in use),  and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or purchase as a  convenience  to Holders;  provided that any such
notice may state that no  representation  is made as to the  correctness of such
numbers  either as printed on the  Securities or as contained in any notice of a
redemption  or  purchase  and that  reliance  may be  placed  only on the  other
identification  numbers  printed on the  Securities,  and any such redemption or
purchase shall not be affected by any defect in or omission of such numbers. The
Company will promptly notify the Trustee of any change in the "CUSIP" numbers.

                                  ARTICLE III
                                   REDEMPTION

Section 3.1  Right to Redeem; Notice to Trustee

         The  Securities  may be redeemed at the election of the  Company,  as a
whole or from time to time in part,  at any time on or after March 20, 2007,  on
at  least 20 days  and no more  than 60 days  notice  at the  redemption  prices
specified in paragraph 5 of the form of Security  attached  hereto as Exhibit A,
together with accrued  interest  (including  Contingent  Interest) up to but not
including  the  Redemption  Date;  provided  that if the  Redemption  Date is an
interest payment date, interest will be payable to the Holders in whose name the
Securities are registered at the close of business on the relevant  record dates
for payment of such interest.

         If the Company elects to redeem Securities pursuant to this Section 3.1
and paragraph 5 of the  Securities,  it shall notify the Trustee in writing,  at
the earlier of the time the Company  notifies the Holders of such  redemption or
45 days prior to the redemption  date as fixed by the Company  (unless a shorter
notice shall be  satisfactory  to the Trustee),  of the redemption  date and the
principal  amount  of  Securities  to be  redeemed.  If  fewer  than  all of the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall not
be less than ten days after the date of notice to the Trustee.

                                       20

Section 3.2  Selection of Securities to be Redeemed

         If less than all of the  Securities  are to be  redeemed,  the  Trustee
shall, not more than 60 days prior to the redemption date, select the Securities
to be  redeemed.  The  Trustee  shall  make the  selection  from the  Securities
outstanding  and not  previously  called  for  redemption  on a pro rata  basis;
provided,  however,  that  Securities  in  denominations  of $1,000  may only be
redeemed  in whole.  The Trustee may select for  redemption  portions  (equal to
$1,000  or any  multiple  thereof)  of the  principal  of  Securities  that have
denominations  larger than $1,000.  Provisions of this  Indenture  that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.

         If any Security  selected for partial  redemption  is converted in part
before  termination of the  conversion  right with respect to the portion of the
Security so selected,  the converted portion of such Security shall be deemed to
be the portion  selected for  redemption.  Securities  which have been converted
during a selection of Securities to be redeemed  shall be treated by the Trustee
as outstanding for the purpose of such selection.

Section 3.3  Notice of Redemption

         At least 20 days but not more than 60 days  before a  Redemption  Date,
the  Company  shall  mail or cause to be mailed a notice of  redemption  to each
Holder of Securities  to be redeemed at such  Holder's  address as it appears on
the Primary Registrar's books.

         The notice shall identify the Securities  (including  CUSIP numbers) to
be redeemed and shall state:

         (1) the Redemption Date;

         (2) the Redemption Price;

         (3) the then current Conversion Price;

         (4) the name and address of each Paying Agent and Conversion Agent;

         (5)  that  Securities  called  for  redemption  must be  presented  and
surrendered to a Paying Agent to collect the redemption price;

         (6) that Holders who wish to convert  Securities  must  surrender  such
Securities  for  conversion  no later than the close of  business  on the second
Business Day  immediately  preceding  the  redemption  date and must satisfy the
other requirements in paragraph 8 of the Securities;

                                       21

         (7) that, if sufficient  money to effect the payment of the  redemption
price and accrued and unpaid  interest  (including  Contingent  Interest) on all
Securities  to be  redeemed is on deposit  with the Trustee or Paying  Agent and
available  therefor,  interest  (including  Contingent  Interest) on  Securities
called for redemption  shall cease accruing on and after the redemption date and
the only  remaining  right of the  Holder  shall be to  receive  payment  of the
redemption  price,  plus  accrued  and  unpaid  interest  (including  Contingent
Interest),  if any,  upon  presentation  and  surrender to a Paying Agent of the
Securities; and

         (8) if any  Security  is being  redeemed  in part,  the  portion of the
principal  amount of such Security to be redeemed and that, after the redemption
date,  upon  presentation  and  surrender  of such  Security,  a new Security or
Securities in aggregate principal amount equal to the unredeemed portion thereof
will be issued.

         If any of the  Securities  to be  redeemed  is in the  form of a Global
Security,  then the Company shall modify such notice to the extent  necessary to
accord with the procedures of the Depositary  applicable to redemptions.  At the
Company's written request, which request shall (i) be irrevocable once given and
(ii) set forth all relevant  information  required by clauses (1) through (8) of
the preceding paragraph,  the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense.

Section 3.4  Effect of Notice of Redemption

         Once notice of redemption is mailed,  Securities  called for redemption
become due and payable on the redemption date and at the redemption price stated
in the notice,  together with accrued and unpaid  interest,  if any,  except for
Securities  that are converted in accordance  with the provisions of Article IV.
Upon  presentation and surrender to a Paying Agent (unless the Securities are in
the form of a Global  Security),  Securities called for redemption shall be paid
at the  redemption  price,  plus accrued  interest up to but not  including  the
redemption  date;  provided if the redemption date is an interest  payment date,
interest (including Contingent Interest) will be payable to the Holders in whose
names the  Securities  are  registered  at the close of business on the relevant
record dates for payment of such interest.

Section 3.5  Deposit of Redemption Price

         The Company,  prior to 11:00 a.m. New York City time, on the Redemption
Date,  shall  deposit  with a Paying  Agent (or, if the  Company  acts as Paying
Agent, shall segregate and hold in trust) money sufficient to pay the redemption
price of and accrued interest (including  Contingent Interest) on all Securities
to be redeemed on that date,  other than  Securities or portions  thereof called
for  redemption  on that date which have been  delivered  by the  Company to the
Trustee for  cancellation or have been converted.  The Paying Agent shall return
to the Company any money not required for that purpose because of the conversion
of  Securities  pursuant  to  Article  IV or, if such  money is then held by the
Company in trust and is not required for such  purpose,  it shall be  discharged
from the trust.

                                       22

Section 3.6  Securities Redeemed in Part

         Upon presentation and surrender of a Security that is redeemed in part,
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder,  a new Security equal in principal  amount to the unredeemed  portion of
the Security surrendered.

Section 3.7  Conversion Arrangement on Call For Redemption

         In  connection  with any  redemption  of  Securities,  the  Company may
arrange for the purchase and conversion of any Securities  called for redemption
by an  agreement  with one or more  investment  bankers or other  purchasers  to
purchase such  Securities by paying to a Paying Agent (other than the Company or
any of its  Affiliates)  in trust for the Holders,  on or before 11:00 a.m., New
York City time on the Redemption Date, an amount that, together with any amounts
deposited  with such  Paying  Agent by the Company  for the  redemption  of such
Securities,  is not less  than the  Redemption  Price,  together  with  interest
(including  Contingent  Interest) accrued to, but not including,  the Redemption
Date, of such Securities.  Notwithstanding anything to the contrary contained in
this Article III, the obligation of the Company to pay the  Redemption  Price of
such Securities, including all accrued interest (including Contingent Interest),
shall be deemed to be satisfied  and  discharged to the extent such amount is so
paid by such  purchasers;  provided,  however,  that nothing in this Section 3.7
shall relieve the Company of its  obligation to pay the Redemption  Price,  plus
accrued  interest to but excluding the relevant  redemption  date, on Securities
called for redemption. If such an agreement with one or more investment banks or
other  purchasers is entered into, any Securities  called for redemption and not
surrendered  for  conversion  by the  Holders  thereof  prior  to  the  relevant
redemption  date may, at the option of the Company  upon  written  notice to the
Trustee,  be deemed,  to the fullest extent  permitted by law,  acquired by such
purchasers  from such  Holders and  (notwithstanding  anything  to the  contrary
contained in Article IV) surrendered by such  purchasers for conversion,  all as
of 11:00 a.m., New York City time on the Redemption Date,  subject to payment of
the above  amount as  aforesaid.  The  Paying  Agent  shall  hold and pay to the
Holders whose  Securities are selected for redemption any such amount paid to it
for  purchase  in the same  manner as it would  money  deposited  with it by the
Company for the  redemption  of  Securities.  Without the Paying  Agent's  prior
written consent,  no arrangement between the Company and such purchasers for the
purchase and conversion of any Securities shall increase or otherwise affect any
of the powers,  duties,  responsibilities  or obligations of the Paying Agent as
set forth in this  Indenture,  and the Company  agrees to  indemnify  the Paying
Agent from, and hold it harmless against, any loss, liability or expense arising
out  of or in  connection  with  any  such  arrangement  for  the  purchase  and
conversion of any Securities between the Company and such purchasers,  including
the costs and expenses  incurred by the Paying Agent in the defense of any claim
or liability arising out of or in connection with the exercise or performance of
any of its powers, duties, responsibilities or obligations under this Indenture.

                                       23

                                   ARTICLE IV
                                   CONVERSION

Section 4.1  Conversion Privilege

         (a) Subject to and upon compliance with the provisions of this Article,
at the option of the Holder, any Security or any portion of the principal amount
thereof  which is an integral  multiple of $1,000 may be  converted  at any time
prior to maturity at the principal  amount thereof,  or of such portion thereof,
into duly authorized,  fully paid and  nonassessable  shares of Common Stock, at
the Conversion Price,  determined as hereinafter provided, in effect at the time
of conversion.

         (b) The  conversion  rate  applicable to the  Securities,  at any time,
shall equal (A) $1,000 divided by the Conversion Price at such time,  rounded to
three  decimal  places  (rounded up if the fourth  decimal place thereof is 5 or
more and otherwise rounded down) (the "Conversion Rate").

         Notwithstanding   the  foregoing,   if  such  Security  is  called  for
redemption  pursuant to Article III or  submitted or  presented  for  repurchase
pursuant to Articles V or XII,  such  conversion  right shall  terminate  at the
close  of  business  on  the  second  Business  Day  immediately  preceding  the
Redemption Date,  Optional Repurchase Date or Change in Control Repurchase Date,
as the case  may be,  for  such  Security  or such  earlier  date as the  Holder
presents such Security for redemption or for purchase  (unless the Company shall
default in making the Redemption Price,  Optional  Repurchase Price or Change in
Control  Repurchase  Price payment when due, in which case the conversion  right
shall  terminate  at the close of business on the date such default is cured and
such Security is redeemed or purchased, as the case may be). If such Security is
submitted  or  presented  for  purchase  pursuant  to  Article  III  and is then
subsequently withdrawn, such conversion right shall no longer be terminated, and
the Holder of such Security may convert such  Security  pursuant to this Section
4.1. The number of shares of Common Stock issuable upon conversion of a Security
shall be determined by dividing the principal  amount of the Security or portion
thereof  surrendered  for  conversion by the  Conversion  Price in effect on the
Conversion Date. The initial Conversion Price is set forth in paragraph 8 of the
Securities and is subject to adjustment as provided in this Article IV.

         Provisions  of this  Indenture  that  apply to  conversion  of all of a
Security also apply to conversion of a portion of a Security.

         A  Security  in respect of which a Holder  has  delivered  an  Optional
Repurchase  Notice  pursuant  to Section  5.1 or a Change in Control  Repurchase
Notice  pursuant  to Section  12.1(c)  exercising  the option of such  Holder to
require the Company to purchase  such  Security  may be  converted  only if such
Optional  Repurchase Notice or Change in Control  Repurchase Notice, as the case
may be, is withdrawn  by a written  notice of  withdrawal  delivered to a Paying
Agent prior to the close of business on the Business Day  immediately  preceding
the Optional  Repurchase Date or Change in Control  Repurchase Date, as the case
may be, in accordance with Sections 5.9 or 12.2, respectively.

                                       24

         A Holder of  Securities  is not  entitled  to any rights of a holder of
Common Stock until such Holder has converted its Securities to Common Stock, and
only to the extent such Securities are deemed to have been converted into Common
Stock pursuant to this Article IV.

Section 4.2  Conversion Procedure

         To convert a Security, a Holder must (a) complete and manually sign the
conversion  notice on the back of the  Security  and  deliver  such  notice to a
Conversion  Agent, (b) surrender the Security to a Conversion Agent, (c) furnish
appropriate  endorsements and transfer documents if required by a Registrar or a
Conversion Agent, and (d) pay any transfer or similar tax, if required. The date
on which the  Holder  satisfies  all of those  requirements  is the  "Conversion
Date." As soon as  practicable  after the  Conversion  Date,  the Company  shall
deliver to the Holder through a Conversion Agent a certificate for the number of
whole shares of Common Stock  issuable upon the  conversion  and cash in lieu of
any fractional  shares pursuant to Section 4.3.  Anything herein to the contrary
notwithstanding,  in the case of Global  Securities,  conversion  notices may be
delivered and such  Securities may be  surrendered  for conversion in accordance
with the Applicable Procedures as in effect from time to time.

         The person in whose name the Common  Stock  certificate  is  registered
shall be deemed to be a stockholder of record on the Conversion Date;  provided,
however,  that no  surrender  of a Security on any date when the stock  transfer
books of the Company shall be closed shall be effective to constitute the person
or persons  entitled to receive the shares of Common Stock upon such  conversion
as the record holder or holders of such shares of Common Stock on such date, but
such surrender  shall be effective to constitute the person or persons  entitled
to receive such shares of Common Stock as the record  holder or holders  thereof
for all  purposes at the close of business on the next  succeeding  day on which
such stock  transfer books are open;  provided,  further,  that such  conversion
shall be at the  Conversion  Price in  effect on the  Conversion  Date as if the
stock  transfer books of the Company had not been closed.  Upon  conversion of a
Security,  such person shall no longer be a Holder of such Security.  No payment
or adjustment  will be made for dividends or  distributions  on shares of Common
Stock issued upon conversion of a Security.

         Securities so  surrendered  for conversion (in whole or in part) during
the period from the close of business on any regular  record date to the opening
of business on the next succeeding  interest payment date (excluding  Securities
or portions thereof called for redemption on a Redemption Date during the period
beginning  at the close of business  on a Regular  Record Date and ending at the
opening of business on the first Business Day after the next succeeding interest
payment date, or if such interest payment date is not a Business Day, the second
such Business Day) shall also be accompanied  by payment in funds  acceptable to
the Company of an amount equal to the interest  payable on such interest payment
date on the principal  amount of such Security  then being  converted,  and such
interest  shall  be  payable  to  such  registered  Holder  notwithstanding  the
conversion  of such  Security,  subject  to the  provisions  of  this  Indenture
relating  to the  payment  of  defaulted  interest  by the  Company.  Except  as
otherwise  provided in this Section 4.2, no payment or  adjustment  will be made
for accrued  interest on a converted  Security.  If the Company  defaults in the
payment of interest  payable on such interest  payment  date,  the Company shall
promptly repay such funds to such Holder.

                                       25

         Nothing  in this  Section  shall  affect the right of a Holder in whose
name any  Security  is  registered  at the close of business on a record date to
receive the interest  payable on such Security on the related  interest  payment
date in accordance  with the terms of this  Indenture and the  Securities.  If a
Holder converts more than one Security at the same time, the number of shares of
Common  Stock  issuable  upon the  conversion  shall  be based on the  aggregate
principal amount of Securities converted.

         Upon  surrender of a Security  that is  converted in part,  the Company
shall execute,  and the Trustee shall  authenticate and deliver to the Holder, a
new  Security  equal in  principal  amount  to the  unconverted  portion  of the
Security surrendered.

Section 4.3  Fractional Shares

         The  Company  will not issue  fractional  shares of Common  Stock  upon
conversion of  Securities.  In lieu  thereof,  the Company will pay an amount in
cash based upon the current  market  price  (determined  as set forth in Section
4.6(d))  of the  Common  Stock  on the  Trading  Day  immediately  prior  to the
Conversion Date.

Section 4.4  Taxes on Conversion

         If a Holder converts a Security, the Company shall pay any documentary,
stamp or  similar  issue or  transfer  tax due on the  issue of shares of Common
Stock upon such conversion.  However, the Holder shall pay any such tax which is
due because the Holder requests the shares to be issued in a name other than the
Holder's  name.  The  Conversion  Agent may  refuse to deliver  the  certificate
representing  the Common  Stock being  issued in a name other than the  Holder's
name until the  Conversion  Agent receives a sum sufficient to pay any tax which
will be due  because  the  shares  are to be  issued  in a name  other  than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulation.

Section 4.5  Company to Provide Stock

         The Company shall, prior to issuance of any Securities  hereunder,  and
from  time to time  as may be  necessary,  reserve,  out of its  authorized  but
unissued  Common Stock, a sufficient  number of shares of Common Stock to permit
the conversion of all outstanding Securities into shares of Common Stock.

         All shares of Common Stock  delivered upon conversion of the Securities
shall be newly issued shares,  shall be duly authorized,  validly issued,  fully
paid and  nonassessable and shall be free from preemptive rights and free of any
lien or adverse claim.

         The Company will endeavor promptly to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion  of  Securities,  if any,  and will list or cause to have quoted such
shares of Common  Stock on each  national  securities  exchange or on the Nasdaq
National Market ("NNM") or other over-the-counter market or such other market on
which the Common  Stock is then  listed or quoted;  provided,  however,  that if
rules of such automated quotation system or exchange permit the Company to defer
the listing of such Common  Stock until the first  conversion  of the Notes into
Common Stock in accordance  with the provisions of this  Indenture,  the Company
covenants to list such Common Stock  issuable  upon  conversion  of the Notes in
accordance with the requirements of such automated  quotation system or exchange
at such time.

                                       26

Section 4.6  Adjustment of Conversion Price

         The conversion  price as stated in paragraph 8 of the  Securities  (the
"Conversion  Price")  shall be  adjusted  from  time to time by the  Company  as
follows:

         (a) In case the Company shall (i) pay a dividend on its Common Stock in
shares of Common Stock,  (ii) make a distribution  on its Common Stock in shares
of Common Stock,  (iii)  subdivide its  outstanding  Common Stock into a greater
number of shares,  or (iv) combine its  outstanding  Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior thereto shall
be  adjusted  so that the  Holder of any  Security  thereafter  surrendered  for
conversion  shall be entitled to receive  that number of shares of Common  Stock
which it would have owned had such Security been converted  immediately prior to
the happening of such event.  An adjustment made pursuant to this subsection (a)
shall  become  effective  immediately  after  the  record  date in the case of a
dividend  or  distribution  and shall  become  effective  immediately  after the
effective date in the case of subdivision or combination.

         (b) In case the  Company  shall  issue  rights  or  warrants  to all or
substantially  all  holders of its  Common  Stock  entitling  them (for a period
commencing no earlier than the record date described below and expiring not more
than 60 days after such record  date) to  subscribe  for or  purchase  shares of
Common Stock (or securities  convertible into Common Stock) at a price per share
(or having a conversion  price per share) less than the current market price per
share of Common Stock (as determined in accordance  with  subsection (d) of this
Section 4.6) on the record date for the  determination of stockholders  entitled
to receive such rights or warrants,  the Conversion Price in effect  immediately
prior  thereto  shall be  adjusted  so that  the  same  shall  equal  the  price
determined by multiplying the Conversion  Price in effect  immediately  prior to
such  record date by a fraction  of which the  numerator  shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate  conversion price of the convertible  securities so
offered, which shall be determined by multiplying the number of shares of Common
Stock issuable upon conversion of such convertible  securities by the conversion
price per  share of  Common  Stock  pursuant  to the  terms of such  convertible
securities)  would purchase at the current market price per share (as defined in
subsection  (d) of this Section 4.6) of Common Stock on such record date, and of
which the denominator  shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock offered
(or into which the  convertible  securities  so offered are  convertible).  Such
adjustment shall be made  successively  whenever any such rights or warrants are
issued, and shall become effective immediately after such record date. If at the
end of the period during which such rights or warrants are  exercisable  not all
rights or warrants  shall have been  exercised,  the adjusted  Conversion  Price
shall be immediately readjusted to what it would have been based upon the number
of additional shares of Common Stock actually issued (or the number of shares of
Common  Stock  issuable  upon  conversion  of  convertible  securities  actually
issued).

                                       27

         (c) In case the Company shall  distribute to all or  substantially  all
holders of its Common  Stock any shares of Capital  Stock of the Company  (other
than  Common  Stock),   evidences  of  indebtedness  or  other  non-cash  assets
(including  securities  of any person other than the Company but  excluding  (1)
dividends  or  distributions  paid  exclusively  in  cash  or (2)  dividends  or
distributions  referred to in  subsection  (a) of this  Section  4.6),  or shall
distribute  to all or  substantially  all holders of its Common  Stock rights or
warrants to subscribe  for or purchase any of its  securities  (excluding  those
rights and warrants  referred to in subsection (b) of this Section 4.6), then in
each such case the  Conversion  Price  shall be  adjusted so that the same shall
equal the price  determined by  multiplying  the current  Conversion  Price by a
fraction of which the numerator  shall be the current market price per share (as
defined in subsection (d) of this Section 4.6) of the Common Stock on the record
date  mentioned  below  less  the fair  market  value  on such  record  date (as
determined by the Board of Directors,  whose  determination  shall be conclusive
evidence of such fair market  value and which shall be evidenced by an Officers'
Certificate  delivered  to the  Trustee) of the  portion of the  Capital  Stock,
evidences of  indebtedness  or other  non-cash  assets so distributed or of such
rights or warrants  applicable to one share of Common Stock  (determined  on the
basis of the number of shares of Common Stock  outstanding  on the record date),
and of which the  denominator  shall be the current  market  price per share (as
defined in  subsection  (d) of this  Section  4.6) of the  Common  Stock on such
record  date.  Such  adjustment  shall be made  successively  whenever  any such
distribution  is made and shall become  effective  immediately  after the record
date  for  the   determination   of   shareholders   entitled  to  receive  such
distribution.

                  (1) In case the Company  shall,  by dividend or otherwise,  at
         any  time   distribute  (a   "Triggering   Distribution")   to  all  or
         substantially  all  holders  of its Common  Stock cash in an  aggregate
         amount that, together with the aggregate amount of (A) any cash and the
         fair  market  value (as  determined  by the Board of  Directors,  whose
         determination  shall be conclusive  evidence thereof and which shall be
         evidenced by an Officers'  Certificate delivered to the Trustee) of any
         other  consideration  payable in  respect  of any  tender  offer by the
         Company or a  Subsidiary  of the Company for Common  Stock  consummated
         within the 12 months  preceding  the date of payment of the  Triggering
         Distribution  and in respect of which no  Conversion  Price  adjustment
         pursuant  to this  Section  4.6 has been  made and (B) all  other  cash
         distributions to all or  substantially  all holders of its Common Stock
         made  within  the 12  months  preceding  the  date  of  payment  of the
         Triggering  Distribution  and in respect of which no  Conversion  Price
         adjustment  pursuant  to this  Section  4.6 has been  made,  exceeds an
         amount  equal to 10.0% of the product of the current  market  price per
         share of Common Stock (as determined in accordance  with subsection (d)
         of this Section 4.6) on the  Business  Day (the  "Determination  Date")
         immediately preceding the day on which such Triggering  Distribution is
         declared  by the Company  multiplied  by the number of shares of Common
         Stock outstanding on the  Determination  Date (excluding shares held in
         the treasury of the Company),  the Conversion Price shall be reduced so
         that the same shall  equal the price  determined  by  multiplying  such
         Conversion Price in effect  immediately prior to the Determination Date
         by a fraction of which the numerator  shall be the current market price
         per  share of the  Common  Stock  (as  determined  in  accordance  with
         subsection (d) of this Section 4.6) on the Determination  Date less the
         sum of the aggregate amount of cash and the aggregate fair market value
         (determined  as aforesaid in this Section  4.6(c)(1)) of any such other
         consideration  so  distributed,  paid or payable  within such 12 months
         (including, without limitation, the Triggering Distribution) applicable
         to one share of Common Stock  (determined on the basis of the number of
         shares of Common Stock outstanding on the  Determination  Date) and the
         denominator  shall be such current market price per share of the Common
         Stock (as determined in accordance  with subsection (d) of this Section
         4.6) on the  Determination  Date,  such  reduction to become  effective
         immediately  prior to the opening of business on the day next following
         the date on which the Triggering Distribution is paid.

                                       28

                  (2) In case any tender offer made by the Company or any of its
         Subsidiaries  for Common  Stock shall  expire and such tender offer (as
         amended  upon the  expiration  thereof)  shall  involve  the payment of
         aggregate  consideration  in an  amount  (determined  as the sum of the
         aggregate  amount of cash  consideration  and the aggregate fair market
         value (as  determined  by the Board of Directors,  whose  determination
         shall be conclusive evidence thereof and which shall be evidenced by an
         Officers'  Certificate  delivered to the Trustee  thereof) of any other
         consideration) that, together with the aggregate amount of (A) any cash
         and the fair market  value (as  determined  by the Board of  Directors,
         whose  determination  shall be  conclusive  evidence  thereof and which
         shall  be  evidenced  by an  Officers'  Certificate  delivered  to  the
         Trustee)  of any other  consideration  payable  in respect of any other
         tender  offers by the  Company or any  Subsidiary  of the  Company  for
         Common Stock consummated within the 12 months preceding the date of the
         Expiration  Date  (as  defined  below)  and  in  respect  of  which  no
         Conversion Price adjustment  pursuant to this Section 4.6 has been made
         and (B) all cash  distributions to all or substantially  all holders of
         its Common  Stock made within the 12 months  preceding  the  Expiration
         Date and in respect of which no Conversion Price adjustment pursuant to
         this Section 4.6 has been made, exceeds an amount equal to 10.0% of the
         product  of the  current  market  price per  share of Common  Stock (as
         determined in accordance with subsection (d) of this Section 4.6) as of
         the last date (the  "Expiration  Date")  tenders  could  have been made
         pursuant to such tender offer (as it may be amended)  (the last time at
         which  such  tenders  could  have been made on the  Expiration  Date is
         hereinafter  sometimes called the "Expiration  Time") multiplied by the
         number of shares of Common Stock outstanding (including tendered shares
         but  excluding  any shares held in the  treasury of the Company) at the
         Expiration Time, then,  immediately prior to the opening of business on
         the day  after the  Expiration  Date,  the  Conversion  Price  shall be
         reduced  so  that  the  same  shall  equal  the  price   determined  by
         multiplying the Conversion Price in effect  immediately  prior to close
         of business on the Expiration Date by a fraction of which the numerator
         shall  be  the  product  of  the  number  of  shares  of  Common  Stock
         outstanding (including tendered shares but excluding any shares held in
         the treasury of the Company) at the Expiration  Time  multiplied by the
         current  market price per share of the Common Stock (as  determined  in
         accordance  with subsection (d) of this Section 4.6) on the Trading Day
         next succeeding the Expiration  Date and the  denominator  shall be the
         sum  of (x)  the  aggregate  consideration  (determined  as  aforesaid)
         payable to  stockholders  based on the  acceptance  (up to any  maximum
         specified  in the  terms of the  tender  offer) of all  shares  validly
         tendered and not withdrawn as of the Expiration Time (the shares deemed
         so  accepted,  up to  any  such  maximum,  being  referred  to  as  the
         "Purchased  Shares")  and (y) the  product  of the  number of shares of
         Common Stock  outstanding  (less any Purchased Shares and excluding any
         shares held in the treasury of the Company) at the Expiration  Time and
         the current  market price per share of Common Stock (as  determined  in
         accordance  with subsection (d) of this Section 4.6) on the Trading Day
         next succeeding the Expiration Date, such reduction to become effective
         immediately  prior to the opening of business on the day  following the
         Expiration Date. In the event that the Company is obligated to purchase
         shares  pursuant  to  any  such  tender  offer,   but  the  Company  is
         permanently  prevented by applicable law from effecting any or all such
         purchases or any or all such  purchases are  rescinded,  the Conversion
         Price shall again be  adjusted to be the  Conversion  Price which would
         have been in effect based upon the number of shares actually purchased.
         If the application of this Section  4.6(c)(2) to any tender offer would
         result in an increase in the Conversion  Price, no adjustment  shall be
         made for such tender offer under this Section 4.6(c)(2).

                                       29

                  (3) For  purposes of this  Section  4.6(c),  the term  "tender
         offer" shall mean and include both tender  offers and exchange  offers,
         all  references  to  "purchases"  of shares in tender  offers  (and all
         similar  references) shall mean and include both the purchase of shares
         in tender  offers and the  acquisition  of shares  pursuant to exchange
         offers,  and all  references  to  "tendered  shares"  (and all  similar
         references)  shall mean and  include  shares  tendered  in both  tender
         offers and exchange offers.

         (d) For the purpose of any computation under subsections (b) and (c) of
this Section 4.6, the current market price per share of Common Stock on any date
shall be  deemed  to be the  average  of the  daily  closing  prices  for the 30
consecutive Trading Days commencing 45 Trading Days before (i) the Determination
Date or the Expiration  Date, as the case may be, with respect to  distributions
or tender  offers  under  subsection  (c) of this Section 4.6 or (ii) the record
date with respect to  distributions,  issuances or other events  requiring  such
computation  under  subsection (b) or (c) of this Section 4.6. The closing price
for each day shall be the last reported sales price or, in case no such reported
sale takes place on such date, the average of the reported closing bid and asked
prices  in  either  case on the NNM or,  if the  Common  Stock is not  listed or
admitted to trading on the NNM, on the principal national securities exchange on
which the Common  Stock is listed or  admitted  to trading  or, if not listed or
admitted to trading on the NNM or any  national  securities  exchange,  the last
reported  sales  price of the  Common  Stock as quoted on NASDAQ  or, in case no
reported  sales takes place,  the average of the closing bid and asked prices as
quoted on NASDAQ or any comparable  system or, if the Common Stock is not quoted
on NASDAQ or any  comparable  system,  the  closing  sales  price or, in case no
reported sale takes place,  the average of the closing bid and asked prices,  as
furnished by any two members of the National  Association of Securities Dealers,
Inc.  selected  from time to time by the  Company for that  purpose.  If no such
prices are available, the current market price per share shall be the fair value
of a share of Common Stock as determined by the Board of Directors  (which shall
be evidenced by an Officers' Certificate delivered to the Trustee).

         (e) In any  case in  which  this  Section  4.6  shall  require  that an
adjustment be made following a record date or a Determination Date or Expiration
Date,  as the case may be,  established  for  purposes of this  Section 4.6, the
Company  may elect to defer (but only until five  Business  Days  following  the
filing by the Company with the Trustee of the  certificate  described in Section
4.9) issuing to the Holder of any Security  converted  after such record date or
Determination  Date or  Expiration  Date the  shares of  Common  Stock and other
Capital Stock of the Company  issuable upon such  conversion  over and above the
shares of Common Stock and other Capital Stock of the Company issuable upon such

                                       30

conversion only on the basis of the Conversion  Price prior to adjustment;  and,
in lieu of the shares the  issuance of which is so deferred,  the Company  shall
issue or cause its  transfer  agents  to issue  due  bills or other  appropriate
evidence  prepared by the Company of the right to receive  such  shares.  If any
distribution  in  respect  of which an  adjustment  to the  Conversion  Price is
required to be made as of the record date or  Determination  Date or  Expiration
Date therefor is not thereafter made or paid by the Company for any reason,  the
Conversion Price shall be readjusted to the Conversion Price which would then be
in effect  if such  record  date had not been  fixed or such  effective  date or
Determination Date or Expiration Date had not occurred.

Section 4.7  No Adjustment

         No  adjustment  in the  Conversion  Price shall be required  unless the
adjustment  would  require  an  increase  or  decrease  of at  least  1% in  the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this  Section  4.7 are not  required  to be made  shall be  carried
forward and taken into account in any subsequent  adjustment.  All  calculations
under  this  Article  IV shall  be made to the  nearest  cent or to the  nearest
one-hundredth of a share, as the case may be.

         No adjustment  need be made for issuances of Common Stock pursuant to a
Company  plan for  reinvestment  of dividends or interest or for a change in the
par value or a change to no par value of the Common Stock.

         To the extent that the Securities become  convertible into the right to
receive  cash, no adjustment  need be made  thereafter as to the cash.  Interest
will not accrue on the cash.

Section 4.8  Adjustment for Tax Purposes

         The Company shall be entitled to make such reductions in the Conversion
Price,  in addition to those  required by Section  4.6, as it in its  discretion
shall determine to be advisable in order that any stock dividends,  subdivisions
of  shares,   distributions  of  rights  to  purchase  stock  or  securities  or
distributions of securities convertible into or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.

Section 4.9  Notice of Adjustment

         Whenever the Conversion Price or conversion privilege is adjusted,  the
Company shall  promptly mail to  Securityholders  a notice of the adjustment and
file  with the  Trustee  an  Officers'  Certificate  briefly  stating  the facts
requiring  the  adjustment  and the manner of computing it. Unless and until the
Trustee  shall receive an Officers'  Certificate  setting forth an adjustment of
the Conversion Price, the Trustee may assume without inquiry that the Conversion
Price has not been adjusted and that the last  Conversion  Price of which it has
knowledge remains in effect.

Section 4.10  Notice of Certain Transactions

         In the event that:

                  (1) the  Company  takes any  action  which  would  require  an
         adjustment in the Conversion Price;

                                       31

                  (2) the Company  consolidates or merges with, or transfers all
         or substantially all of its property and assets to, another corporation
         and shareholders of the Company must approve the transaction; or

                  (3) there is a dissolution or liquidation of the Company,

the Company shall mail to Holders and file with the Trustee a notice stating the
proposed  record or effective  date,  as the case may be. The Company shall mail
the notice at least ten days  before  such date.  Failure to mail such notice or
any defect therein shall not affect the validity of any transaction  referred to
in clause (1), (2) or (3) of this Section 4.10.


Section  4.11  Effect  of  Reclassification,  Consolidation,  Merger  or Sale on
Conversion Privilege

         If any of the following shall occur,  namely: (a) any  reclassification
or change of shares of Common Stock  issuable upon  conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or  combination,  or any
other  change for which an  adjustment  is  provided  in Section  4.6);  (b) any
consolidation  or merger or  combination  to which the  Company is a party other
than a merger in which the Company is the continuing  corporation and which does
not result in any  reclassification  of, or change (other than in par value,  or
from par  value to no par  value,  or from no par  value to par  value,  or as a
result of a subdivision or combination) in,  outstanding shares of Common Stock;
or (c) any sale or conveyance as an entirety or  substantially as an entirety of
the property and assets of the Company,  directly or indirectly,  to any person,
then the Company, or such successor,  purchasing or transferee  corporation,  as
the case may be,  shall,  as a  condition  precedent  to such  reclassification,
change,  combination,  consolidation,  merger,  sale or conveyance,  execute and
deliver to the Trustee a  supplemental  indenture  providing  that the Holder of
each  Security  then  outstanding  shall have the right to convert such Security
into the kind and amount of shares of stock and other  securities  and  property
(including cash)  receivable upon such  reclassification,  change,  combination,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock  deliverable upon conversion of such Security  immediately prior to
such  reclassification,  change,  combination,  consolidation,  merger,  sale or
conveyance.  Such  supplemental  indenture  shall provide for adjustments of the
Conversion  Price which shall be as nearly  equivalent as may be  practicable to
the adjustments of the Conversion  Price provided for in this Article IV. If, in
the case of any such consolidation, merger, combination, sale or conveyance, the
stock or other securities and property (including cash) receivable  thereupon by
a holder  of  Common  Stock  include  shares  of stock or other  securities  and
property  of a  person  other  than  the  successor,  purchasing  or  transferee
corporation,  as the case may be, in such  consolidation,  merger,  combination,
sale or conveyance,  then such supplemental  indenture shall also be executed by
such other person and shall  contain such  additional  provisions to protect the
interests  of the  Holders of the  Securities  as the Board of  Directors  shall
reasonably consider necessary by reason of the foregoing. The provisions of this
Section 4.11 shall  similarly  apply to successive  reclassifications,  changes,
combinations, consolidations, mergers, sales or conveyances.

         In the  event  the  Company  shall  execute  a  supplemental  indenture
pursuant to this Section 4.11,  the Company shall promptly file with the Trustee
(x) an Officers'  Certificate briefly stating the reasons therefor,  the kind or

                                       32

amount of shares  of stock or other  securities  or  property  (including  cash)
receivable by Holders of the Securities upon the conversion of their  Securities
after any such reclassification,  change,  combination,  consolidation,  merger,
sale or conveyance,  any adjustment to be made with respect thereto and that all
conditions  precedent have been complied with and (y) an Opinion of Counsel that
all conditions precedent have been complied with, and shall promptly mail notice
thereof to all Holders.

Section 4.12  Trustee's Disclaimer

         The Trustee shall have no duty to determine  when an  adjustment  under
this  Article IV should be made,  how it should be made or what such  adjustment
should be, but may accept as conclusive evidence of that fact or the correctness
of any such  adjustment,  and shall be protected in relying  upon,  an Officers'
Certificate  including the Officers'  Certificate with respect thereto which the
Company is  obligated  to file with the  Trustee  pursuant to Section  4.9.  The
Trustee makes no representation as to the validity or value of any securities or
assets  issued upon  conversion  of  Securities,  and the  Trustee  shall not be
responsible  for the  Company's  failure to comply with any  provisions  of this
Article IV.

         The Trustee  shall not be under any  responsibility  to  determine  the
correctness of any provisions  contained in any supplemental  indenture executed
pursuant  to  Section  4.11,  but  may  accept  as  conclusive  evidence  of the
correctness thereof, and shall be fully protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 4.11.

Section 4.13  Voluntary Reduction

         The Company  from time to time may reduce the  Conversion  Price by any
amount  for any  period  of time if the  period  is at  least 20 days and if the
reduction is irrevocable during the period if the Board of Directors  determines
that such reduction would be in the best interest of the Company and the Company
provides  15  days  prior  notice  of any  reduction  in the  Conversion  Price;
provided,  however, that in no event may the Company reduce the Conversion Price
to be less than the par value of a share of Common  Stock.  Any reduction in the
Conversion  Price in  accordance  with this  Section  4.13  shall  apply only to
conversions  completed on a  Conversion  Date  occurring  within the time period
during  which  such  reduced  Conversion  Price  is in  effect.  Any  conversion
completed  on a  Conversion  Date  occurring  prior to such period  shall not be
retroactively recalculated to take into effect such reduced Conversion Price.

                                   ARTICLE V
                     REPURCHASE OF SECURITIES AT OPTION OF
                          THE HOLDER ON SPECIFIC DATES

Section 5.1  Optional Put

         On March  20,  2007,  March  15,  2012 and March  15,  2017  (each,  an
"Optional  Repurchase Date"),  each Holder shall have the right, at the Holder's
option,  to require the  Company to  repurchase,  and upon the  exercise of such
right  the  Company  shall  repurchase,  all of  such  Holder's  Securities  not
theretofore  called  for  redemption,  or any  portion of the  principal  amount
thereof that is equal to $1,000 or an integral  multiple  thereof as directed by
such Holder  pursuant to Section 5.3  (provided  that no single  Security may be
repurchased  in  part  unless  the  portion  of the  principal  amount  of  such

                                       33

Securities  to be  outstanding  after such  repurchase  is equal to $1,000 or an
integral multiple  thereof),  at a purchase price equal to 100% of the principal
amount of the  Security  to be  repurchased  plus  accrued  and unpaid  interest
(including Contingent  Interest),  if any, on such Optional Repurchase Date (the
"Optional Repurchase Price").

         Securities shall be repurchased by the Company pursuant to this Section
5.1 and paragraph 7(a) of the Securities on the Optional Repurchase Date, at the
Repurchase Price, at the option of the Holder thereof, upon:

         (a) delivery to the Paying  Agent by the Holder of a written  notice of
purchase  (an  "Optional  Repurchase  Notice")  at any time from the  opening of
business  on the date that is 20 Business  Days prior to an Optional  Repurchase
Date until the close of business on such Optional Repurchase Date stating:

                  (1) the  certificate  number of the Security  which the Holder
         will deliver to be repurchased,

                  (2) the portion of the principal  amount of the Security which
         the Holder will deliver to be repurchased, which portion must be $1,000
         or an integral multiple thereof,

                  (3) that such  Security  shall be purchased as of the Optional
         Repurchase  Date pursuant to the terms and conditions  specified  under
         paragraph 7(a) of the Securities and in this Indenture, and

                  (4) in the event that the Company elects,  pursuant to Section
         5.2 hereof,  to pay the Optional  Repurchase Price to be paid as of the
         Optional  Repurchase  Date  occurring on March 20, 2007, in whole or in
         part,  in shares  of Common  Stock  but such  portion  of the  Optional
         Repurchase Price shall ultimately be payable to such Holder entirely in
         cash  because  any  of  the  conditions  to  payment  of  the  Optional
         Repurchase  Price in shares of Common Stock is not  satisfied  prior to
         the close of business on such Optional Repurchase Date, as set forth in
         Section 5.3 hereof,  whether  such Holder  elects (i) to withdraw  such
         Optional Repurchase Notice as to some or all of the Securities to which
         such Optional  Repurchase  Notice relates (stating the principal amount
         and  certificate  numbers of the Securities as to which such withdrawal
         shall  relate),  or  (ii) to  receive  cash in  respect  of the  entire
         Optional  Repurchase Price for all Securities (or portions  thereof) to
         which such Optional Repurchase Price relates, and

         (b) delivery of such Security to the Paying Agent prior to, on or after
the Optional  Repurchase Date (together with all necessary  endorsements) at the
offices of the Paying Agent,  such delivery  being a condition to receipt by the
Holder of the Optional Repurchase Price therefor;  provided,  however, that such
Optional  Repurchase  Price shall be so paid  pursuant to this Article V only if
the Security so  delivered to the Paying Agent shall  conform in all respects to
the description thereof in the related Optional Repurchase Notice.

         If a Holder,  in such Holder's  Optional  Repurchase  Notice and in any
written notice of withdrawal  delivered by such Holder  pursuant to the terms of
Section 5.9 hereof,  fails to indicate such Holder's  choice with respect to the
election set forth in clause (4) of Section 5.1(a),  such Holder shall be deemed
to have elected to receive cash in respect of the Optional  Repurchase Price for
all Securities  subject to the Optional  Repurchase  Notice in the circumstances
set forth in such clause (4).

                                       34

         The Company shall  purchase from the Holder  thereof,  pursuant to this
Article V, a portion of a Security if the  principal  amount of such  portion is
$1,000 or an integral  multiple of $1,000.  Provisions  of this  Indenture  that
apply to the  purchase of all of a Security  also apply to the  purchase of such
portion of such Security.

         Any purchase by the Company contemplated  pursuant to the provisions of
this Article V shall be consummated by the delivery of the  consideration  to be
received by the Holder promptly  following the later of the Optional  Repurchase
Date and the time of delivery of the Security.

         Notwithstanding  anything herein to the contrary, any Holder delivering
to the Paying Agent the Optional  Repurchase Notice contemplated by this Section
5.1 shall have the right to withdraw such Optional Repurchase Notice at any time
prior to the close of business on the Optional  Repurchase Date by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section 5.9.

         The Paying Agent shall promptly notify the Company of the receipt by it
of any Optional Repurchase Notice or written notice of withdrawal thereof.

Section  5.2 The  Company's  Right  to  Elect  Manner  of  Payment  of  Optional
Repurchase Price on March 20, 2007

         The Optional  Repurchase  Price of  Securities  on March 20,  2007,  in
respect of which an Optional  Repurchase Notice pursuant to Section 5.1 has been
given, or a specified  percentage  thereof,  will be paid by the Company, at the
election  of the  Company,  with  cash  or  shares  of  Common  Stock  or in any
combination  of cash and shares of Common Stock,  subject to the  conditions set
forth in Section 5.2 and 5.3 hereof. The Company shall designate, in the Company
Notice  delivered  pursuant  to Section 5.5  hereof,  whether  the Company  will
purchase the Securities for cash or shares of Common Stock, or, if a combination
thereof,  the  percentages  of the Optional  Repurchase  Price of  Securities in
respect of which it will pay in cash and shares of Common  Stock;  provided that
the Company will pay cash for  fractional  interests in shares of Common  Stock.
For purposes of determining the existence of potential fractional interests, all
Securities  subject  to  purchase  by the  Company  held by a  Holder  shall  be
considered  together  (no  matter  how  many  separate  certificates  are  to be
presented).  Each Holder whose Securities are purchased pursuant to this Article
V shall receive the same percentage of cash or shares of Common Stock in payment
of the Optional Repurchase Price for such Securities,  except (i) as provided in
Section 5.4 with regard to the payment of cash in lieu of  fractional  shares of
Common  Stock and (ii) in the event that the Company is unable to  purchase  the
Securities  of a Holder  or  Holders  for  shares of Common  Stock  because  any
necessary  qualifications  or  registrations of the shares of Common Stock under
applicable  state  securities laws cannot be obtained,  the Company may purchase
the  Securities  of such Holder or Holders for cash.  The Company may not change
its election with respect to the  consideration (or components or percentages of
components  thereof) to be paid once the Company has given its Company Notice to
Holders  except  pursuant to this  Section 5.2 or pursuant to Section 5.4 in the
event of a failure to satisfy,  prior to the close of  business on the  Optional
Repurchase Date, any condition to the payment of the Optional  Repurchase Price,
in whole or in part, in shares of Common Stock.

                                       35

         At least  three  Business  Days  before the Company  Notice  Date,  the
Company shall deliver an Officers' Certificate to the Trustee specifying:

                  (1) the manner of payment selected by the Company,

                  (2) the information required by Section 5.5,

                  (3) if the  Company  elects  to pay  the  Optional  Repurchase
         Price, or a specified  percentage  thereof,  in shares of Common Stock,
         that the  conditions to such manner of payment set forth in Section 5.4
         have been or will be complied with, and

                  (4)  whether  the  Company  desires  the  Trustee  to give the
         Company Notice required by Section 5.5.

Section 5.3  Purchase with Cash

         On the Optional  Repurchase  Date  occurring on March 20, 2007,  at the
option of the Company, the Optional Repurchase Price of Securities in respect of
which an Optional Repurchase Notice pursuant to Section 5.1 has been given, or a
specified  percentage thereof, may be paid by the Company with cash equal to the
aggregate Optional Repurchase Price of such Securities. If the Company elects to
purchase  Securities on the Optional Repurchase Date occurring on March 20, 2007
with cash,  the Repurchase  Press Release,  as provided in Section 5.5, shall be
issued and the Company  Notice,  as provided  in Section  5.5,  shall be sent to
Holders (and to beneficial  owners as required by applicable  law), in each case
not later than the Company  Notice  Date,  as  provided  in Section  5.5. On the
Optional  Repurchase  Dates  occurring on March 15, 2012 and March 15, 2017, the
Optional  Repurchase  Price of the  Securities  in respect of which an  Optional
Repurchase Notice pursuant to Section 5.1 has been given must be paid in cash.

Section 5.4  Payment by Issuance of Shares of Common Stock on March 20, 2007

         On the Optional  Repurchase  Date occurring on March 20, 2007 only (but
not on the Optional  Repurchase  Dates occurring on March 15, 2012 and March 15,
2017), at the option of the Company, the Optional Repurchase Price of Securities
in respect of which Optional  Repurchase  Notices,  pursuant to Section 5.1 have
been given, or a specified percentage thereof, may be paid by the Company by the
issuance of a number of shares of Common Stock equal to the quotient obtained by
dividing  (i) the amount of cash to which the Holders  would have been  entitled
had the Company elected to pay all or such specified percentage, as the case may
be, of the Optional  Repurchase  Price of such Securities in cash by (ii) either
(x) 95% of the Market Price of a share of Common Stock (if the Company elects to
pay 33% or less of the Optional  Repurchase  Price in respect of which  Optional
Repurchase  Notices  pursuant to Section 5.1 have been given in shares of Common
Stock) or (y) 93% of the Market Price of a share of Common Stock (if the Company
elects to pay more than 33% of the Optional Repurchase Price in respect of which
Optional Repurchase Notices pursuant to Section 5.1 have been given in shares of
Common Stock), subject to the next succeeding paragraph.

                                       36

         The  Company  will not  issue a  fractional  share of  Common  Stock in
payment of the Optional Repurchase Price.  Instead the Company will pay cash for
the current market value of the fractional  share. The current market value of a
fraction  of a share of Common  Stock shall be  determined  by  multiplying  the
Market Price by such fraction and rounding the product to the nearest whole cent
with one half cent being  rounded  upwards.  It is  understood  that if a Holder
elects to have  more  than one  Security  repurchased,  the  number of shares of
Common  Stock  shall  be based  on the  aggregate  amount  of  Securities  to be
repurchased.

         If the Company  elects to purchase  the  Securities  by the issuance of
shares of Common Stock (i) the Repurchase Press Release,  as provided in Section
5.5, shall be issued and the Company  Notice,  as provided in Section 5.5, shall
be sent to the Holders (and to beneficial owners as required by applicable law),
in each case not later than the Company Notice Date, as provided in Section 5.5,
and (ii) each Holder delivering an Optional  Repurchase Notice shall receive the
same  proportion  of shares of Common Stock and cash for the  Securities of such
Holder to be repurchased.

         The Company's right to exercise its election to purchase the Securities
pursuant to this  Article V through the issuance of shares of Common Stock shall
be conditioned upon:

         (a) the Company's not having given its Company Notice of an election to
pay  entirely  in cash and its giving of timely  Company  Notice of  election to
purchase all or a specified  percentage of the Securities  with shares of Common
Stock as provided herein;

         (b) the  registration  of the  shares of  Common  Stock to be issued in
respect of the payment of the Optional Repurchase Price under the Securities Act
or the Exchange Act, in each case, if required for the initial issuance thereof;

         (c) any necessary  qualification or registration under applicable state
securities laws or the availability of an exemption from such  qualification and
registration; and

         (d) the  receipt by the  Trustee  of an  Officers'  Certificate  and an
Opinion of Counsel each stating that (A) the terms of the issuance of the shares
of Common  Stock are in  conformity  with this  Indenture  and (B) the shares of
Common Stock to be issued by the Company in payment of the  Optional  Repurchase
Price in respect of Securities  have been duly  authorized  and, when issued and
delivered  pursuant to the terms of this  Indenture  in payment of the  Optional
Repurchase  Price in respect of the Securities,  will be validly  issued,  fully
paid and non-assessable and, to the best of such counsel's knowledge,  free from
preemptive rights, and, in the case of such Officer's Certificate,  stating that
conditions  (a),  (b) and (c) above and the  condition  set forth in the  second
succeeding  sentence  have been  satisfied  and, in the case of such  Opinion of
Counsel, stating that conditions (b) and (c) above have been satisfied.

         Such Officers' Certificate shall also set forth the number of shares of
Common Stock to be issued for each $1,000 principal amount of Securities and the
Sale  Price of a share of Common  Stock on each  Trading  Day  during the period
commencing  on the first Trading Day of the period during which the Market Price
is calculated and ending three  Business Days prior to the  applicable  Optional
Repurchase  Date.  The Company  may pay the  Optional  Repurchase  Price (or any
portion thereof) in shares of Common Stock only if the information  necessary to

                                       37

calculate  the Market Price is  published in The Wall Street  Journal or another
daily  newspaper of national  circulation.  If the foregoing  conditions are not
satisfied  with respect to a Holder or Holders prior to the close of business on
the  Optional  Repurchase  Date and the Company has  elected to  repurchase  the
Securities  pursuant to this  Article V through the issuance of shares of Common
Stock,  the Company  shall pay,  without  further  notice,  the entire  Optional
Repurchase Price of the Securities of such Holder or Holders in cash.

Section 5.5  Notice of Election

         Not less than 20 Business Days prior to each Optional  Repurchase  Date
(the  "Company  Notice  Date"),  the Company shall (i) issue a press release for
publication on the PR Newswire or an equivalent  newswire  service giving notice
of such  Optional  Repurchase  Date (a  "Repurchase  Press  Release"  ) and (ii)
deliver  to the  Holders in the manner  provided  in Section  13.2 its notice of
election to  repurchase  Securities  with cash or shares of Common  Stock or any
combination  thereof,  as  applicable,  on such  Optional  Repurchase  Date (the
"Company Notice"). Such Company Notice shall state the manner of payment elected
and shall contain the following information:

         In the event the  Company has  elected to pay the  Optional  Repurchase
Price (or a  specified  percentage  thereof)  on the  Optional  Repurchase  Date
occurring  on March 20, 2007 with  shares of Common  Stock,  the Company  Notice
shall:

         (a) state that each Holder will  receive  shares of Common Stock with a
Market Price equal to such specified percentage of the Optional Repurchase Price
of the Securities held by such Holder (except any cash amount to be paid in lieu
of fractional shares);

         (b) set forth the method of calculating  the Market Price of the shares
of Common Stock; and

         (c) state that  because the Market Price of shares of Common Stock will
be  determined  prior to the  Optional  Repurchase  Date,  Holders will bear the
market  risk  with  respect  to the value of the  shares  of Common  Stock to be
received  from  the  date  such  Market  Price  is  determined  to the  Optional
Repurchase Date.

         In any case,  each  Company  Notice  shall  include a form of  Optional
Repurchase Notice to be completed by a Holder and shall state:

         (d) the Optional Repurchase Price and the Conversion Rate;

         (e) the name and address of the Paying Agent and the Conversion Agent;

         (f) that Securities as to which an Optional  Repurchase Notice has been
given may be  converted  pursuant  to Article IV hereof  only if the  applicable
Optional  Repurchase  Notice has been withdrawn in accordance  with the terms of
this Indenture;

         (g) that  Securities must be surrendered to the Paying Agent to collect
payment;

                                       38

         (h) that the Optional  Repurchase Price for any Security as to which an
Optional  Repurchase  Notice  has  been  given  and not  withdrawn  will be paid
promptly  following  the later of the Optional  Repurchase  Date and the time of
surrender of such Security as described in (g);

         (i) the procedures the Holder must follow to exercise repurchase rights
under this Article V and a brief description of those rights;

         (j) briefly, the conversion rights of the Securities; and

         (k) the  procedures  for  withdrawing  an  Optional  Repurchase  Notice
(including,  without  limitation,  for a conditional  withdrawal pursuant to the
terms of Sections 5.1 or 5.9).

         If any of the  Securities  to be  redeemed  is in the  form of a Global
Security,  then the Company shall modify such notice to the extent  necessary to
accord  with the  applicable  procedures  of the  Depositary.  At the  Company's
request, the Trustee shall give such Company Notice in the Company's name and at
the Company's expense;  provided,  however, that, in all cases, the text of such
Company Notice shall be prepared by the Company.

         Upon determination of the actual number of shares of Common Stock to be
issued for each $1,000 principal amount of Securities,  the Company will publish
such  determination  at the  Company's web site on the World Wide Web or through
such other public medium as the Company may use at that time.

Section 5.6  Covenants of the Company

         All shares of Common Stock  delivered  upon purchase of the  Securities
shall be newly  issued  shares or  treasury  shares,  shall be duly  authorized,
validly issued,  fully paid and  nonassessable and shall be free from preemptive
rights  and  free of any  lien or  adverse  claim.  The  Company  shall  use its
reasonable efforts to list or cause to have quoted any shares of Common Stock to
be issued to purchase  Securities on the principal national  securities exchange
or over-the-counter or other domestic market on which the shares of Common Stock
are then listed or quoted.

Section 5.7  Procedure upon Repurchase

         The Company  shall  deposit cash (in respect of a cash  purchase  under
Section 5.3 or for fractional  shares of Common Stock,  as applicable) or shares
of Common Stock, or a combination thereof, as applicable, at the time and in the
manner as provided in Section 5.10,  sufficient  to pay the  aggregate  Optional
Repurchase  Price of all Securities to be purchased on the  applicable  Optional
Repurchase Date pursuant to this Article V.

         As soon as practicable after the Optional  Repurchase Date, the Company
shall deliver to each Holder  entitled to receive shares of Common Stock through
the Paying Agent,  a  certificate  for the number of full shares of Common Stock
issuable  in payment of the  Optional  Repurchase  Price and cash in lieu of any
fractional  shares of Common Stock. The Person in whose name the certificate for
shares of Common Stock is  registered  shall be treated as a holder of record of
shares  of  Common  Stock  on the  Business  Day  next  following  the  Optional
Repurchase  Date.  Subject to Section 5.4, no payment or adjustment will be made
for  dividends on the shares of Common Stock the record date for which  occurred
on or prior to the Optional Repurchase Date.

                                       39

Section 5.8  Taxes

         If a Holder  of a  Security  is paid in shares  of  Common  Stock,  the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
such issue of shares of Common Stock. However, the Holder shall pay any such tax
which is due because the Holder requests the shares of Common Stock to be issued
in a name other than the Holder's  name.  The Paying Agent may refuse to deliver
the certificates  representing the shares of Common Stock being issued in a name
other than the Holder's name until the Paying Agent receives a sum sufficient to
pay any tax which  will be due  because  the  shares  of Common  Stock are to be
issued in a name other than the Holder's name. Nothing herein shall preclude any
income tax withholding required by law or regulations.

Section 5.9  Effect of Optional Repurchase Notice

         Upon receipt by the Paying Agent of the Optional Repurchase Notice, the
Holder of the Security in respect of which such Optional  Repurchase  Notice was
given shall (unless such Optional Repurchase Notice is withdrawn as specified in
the  following  two  paragraphs)  thereafter  be entitled to receive  solely the
Optional  Repurchase  Price  with  respect  to  such  Security.   Such  Optional
Repurchase  Price  shall be paid to such  Holder,  subject  to  receipt of funds
and/or shares of Common Stock by the Paying Agent,  promptly following the later
of (x) the Optional  Repurchase Date with respect to such Security (provided the
conditions in Section 5.1 have been  satisfied)  and (y) the time of delivery of
such Security to the Paying Agent by the Holder  thereof in the manner  required
by Section 5.1. Securities in respect of which an Optional Repurchase Notice has
been given by the Holder  thereof  may not be  converted  pursuant to Article IV
hereof on or after the date of the delivery of such Optional  Repurchase  Notice
unless such  Optional  Repurchase  Notice has first been  validly  withdrawn  as
specified in the following two paragraphs.

         An Optional  Repurchase  Notice may be  withdrawn by means of a written
notice of  withdrawal  delivered to the office of the Paying Agent in accordance
with the Optional Repurchase Notice at anytime prior to the close of business on
the applicable Optional Repurchase Date specifying:

         (a) the  certificate  number of the  Security  in respect of which such
notice of withdrawal is being submitted;

         (b) the  principal  amount of the  Security  with respect to which such
notice of withdrawal is being submitted; and

         (c) the  principal  amount,  if any,  of such  Security  which  remains
subject to the original Optional Repurchase Notice and which has been or will be
delivered for purchase by the Company.

         A written notice of withdrawal of an Optional  Repurchase Notice may be
in the form set forth in the preceding  paragraph or may be in the form of (i) a
conditional  withdrawal  contained in an Optional  Repurchase Notice pursuant to

                                       40

the terms of Section 5.1(a)(4) or (ii) a conditional  withdrawal  containing the
information  set  forth  in  Section  5.1(a)(4)  and the  immediately  preceding
paragraph  and  contained  in a written  notice of  withdrawal  delivered to the
Paying Agent as set forth in the immediately preceding paragraph.

         There shall be no purchase of any Securities pursuant to this Article V
(other  than  through the  issuance of shares of Common  Stock in payment of the
Optional Repurchase Price, including cash in lieu of fractional shares) if there
has  occurred  (prior to, on or after,  as the case may be, the  giving,  by the
Holders of such Securities,  of the required Optional  Repurchase Notice) and is
continuing  an Event of  Default  (other  than a default  in the  payment of the
Optional  Repurchase  Price with respect to such  Securities).  The Paying Agent
will promptly  return to the respective  Holders thereof any Securities (x) with
respect to which an Optional  Repurchase Notice has been withdrawn in compliance
with this  Indenture,  or (y) held by it during the  continuance  of an Event of
Default  (other than a default in the payment of the Optional  Repurchase  Price
with respect to such  Securities) in which case, upon such return,  the Optional
Repurchase Notice with respect thereto shall be deemed to have been withdrawn.

Section 5.10  Deposit of Optional Repurchase Price

         Prior to 11:00  a.m.,  New York City  time,  on the  Business  Day next
following  the Optional  Repurchase  Date,  the Company  shall  deposit with the
Trustee or with the Paying  Agent an amount of money (in  immediately  available
funds if deposited  on such  Business  Day) and/or  shares of Common  Stock,  if
permitted  hereunder,  sufficient to pay the aggregate Optional Repurchase Price
of all of the Securities or portions thereof which are to be purchased as of the
Optional Repurchase Date.

Section 5.11  Securities Repurchased in Part

         Any Security which is to be purchased only in part shall be surrendered
at the office of the  Paying  Agent  (with,  if the  Company  or the  Trustee so
requires,  due  endorsement  by, or a written  instrument  of  transfer  in form
satisfactory  to the Company or the Trustee duly executed by the Holder  thereof
or such  Holder's  attorney  duly  authorized  in writing) and the Company shall
execute and the  Trustee  shall  authenticate  and deliver to the Holder of such
Security,  without  service  charge,  a  new  Security  or  Securities,  of  any
authorized  denomination  as  requested  by such Holder in  aggregate  principal
amount equal to, and in exchange for, the portion of the principal amount of the
Security so surrendered which is not purchased.

Section 5.12  Comply with Securities Laws Upon Purchase of Securities

         In  connection  with any offer to purchase  or  purchase of  Securities
under this  Article V  (provided  that such  offer or  purchase  constitutes  an
"issuer  tender  offer" for purposes of Rule 13e-4 (which term,  as used herein,
includes any successor  provision thereto) under the Exchange Act at the time of
such offer or purchase),  the Company shall (i) comply with Rule 13e-4 under the
Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form
or report) under the Exchange Act, and (iii)  otherwise  comply with all federal
and state  securities  laws so as to permit  the rights  and  obligations  under
Article  V to be  exercised  in the time  and in the  manner  specified  in this
Article V.

                                       41

Section 5.13  Repayment to the Company

         The Trustee and the Paying  Agent shall  return to the Company any cash
or shares of Common  Stock  that  remain  unclaimed  for two  years,  subject to
applicable unclaimed property law, together with interest or dividends,  if any,
thereon held by them for the payment of the Optional Repurchase Price; provided,
however,  that to the  extent  that the  aggregate  amount  of cash or shares of
Common  Stock  deposited  by the Company  pursuant to Section  5.10  exceeds the
aggregate Optional  Repurchase Price of the Securities or portions thereof which
the Company is obligated to purchase as of the Optional  Repurchase  Date,  then
promptly after the Business Day next following the Optional  Repurchase Date the
Trustee  shall return any such excess to the Company  together  with interest or
dividends,  if any, thereon.  After that, Holders entitled to money must look to
the Company for payment as general  creditors,  unless an  applicable  abandoned
property law designates another Person.

Section 5.14  Conversion Arrangement on Repurchase

         Any Securities  required to be repurchased under this Article V, unless
surrendered  for  conversion  before  the  close  of  business  on the  Optional
Repurchase  Date,  may be  deemed  to be  purchased  from  the  Holders  of such
Securities for an amount in cash not less than the Optional Repurchase Price, by
one or more  investment  bankers  or other  purchasers  who may  agree  with the
Company to purchase  such  Securities  from the  Holders,  to convert  them into
shares of Common Stock of the Company and to make payment for such Securities to
the Trustee in trust for such Holders.

                                   ARTICLE VI
                                    COVENANTS

Section 6.1  Payment of Securities

         The  Company  shall  promptly  make  all  payments  in  respect  of the
Securities on the dates and in the manner  provided in the  Securities  and this
Indenture.  An  installment  of  principal  or  interest  (including  Contingent
Interest)  shall be  considered  paid on the date it is due if the Paying  Agent
(other than the Company)  holds by 11:00 a.m.,  New York City time, on that date
money,  deposited by the Company or an Affiliate thereof,  sufficient to pay the
installment.  The Company  shall,  to the fullest  extent  permitted by law, pay
interest  on  overdue  principal   (including   premium,  if  any)  and  overdue
installments of interest  (including  Contingent  Interest) at the rate borne by
the Securities per annum.  All references in this Indenture or the Securities to
interest shall be deemed to include Liquidated Damages, if any, payable pursuant
to the Registration Rights Agreement.

         Payment of the  principal  of (and  premium,  if any) and any  interest
(including Contingent Interest) on the Securities shall be made at the Corporate
Trust  Office of the  Paying  Agent  specified  in  Section  2.3 in such coin or
currency  of the  United  States of  America  as at the time of payment is legal
tender for payment of public and private debts;  provided,  however, that at the
option of the  Company  payment of interest  may be made by check  mailed to the
address of the Person entitled  thereto as such address appears in the Register;
provided  further that a Holder with an aggregate  principal amount in excess of
$2,000,000  will be paid by wire transfer in immediately  available funds at the
written  election of such Holder delivered to the Paying Agent at least ten (10)
Business Days prior to the Regular Record Date for the next succeeding  Interest
Payment Date.

                                       42

Section 6.2  SEC Reports

         The Company shall file all reports and other  information and documents
which it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange  Act,  and within 15 days after it files them with the SEC, the Company
shall file copies of all such reports,  information and other documents with the
Trustee.

         Delivery of such reports,  information  and documents to the Trustee is
for  informational  purposes  only and the  Trustee's  receipt of such shall not
constitute   constructive  notice  of  any  information   contained  therein  or
determinable  from  information  contained  therein,   including  the  Company's
compliance  with any of its  covenants  hereunder  (as to which the  Trustee  is
entitled to rely exclusively on Officers' Certificates).

Section 6.3  Compliance Certificates

         The Company shall deliver to the Trustee,  within 90 days after the end
of each  fiscal  year of the  Company  (beginning  with the fiscal  year  ending
December 31, 2002), an Officers' Certificate as to the signer's knowledge of the
Company's  compliance with all conditions and covenants on its part contained in
this  Indenture  and stating  whether or not the signer  knows of any default or
Event of Default.  If such  signer  knows of such a default or Event of Default,
the Officers' Certificate shall describe the default or Event of Default and the
efforts to remedy the same.  For the purposes of this  Section  6.3,  compliance
shall be determined  without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.

Section 6.4  Further Instruments and Acts

         Upon request of the Trustee,  the Company will execute and deliver such
further  instruments and do such further acts as may be reasonably  necessary or
proper to carry out more effectively the purposes of this Indenture.

Section 6.5  Maintenance of Corporate Existence

         Subject to Article  VII,  the  Company  will do or cause to be done all
things  necessary  to preserve  and keep in full force and effect its  corporate
existence.

Section 6.6  Rule 144A Information Requirement

         Within  the  period  prior  to the  expiration  of the  holding  period
applicable  to sales of  Restricted  Securities  under  Rule  144(k)  under  the
Securities Act (or any successor  provision),  the Company  covenants and agrees
that it shall,  during  any  period in which it is not  subject to Section 13 or
15(d) under the Exchange Act, make available to any Holder or beneficial  holder
of Securities or any Common Stock issued upon conversion  thereof which continue
to be  Restricted  Securities  in  connection  with  any  sale  thereof  and any
prospective  purchaser of  Securities  or such Common Stock  designated  by such
Holder  or  beneficial  holder,  the  information   required  pursuant  to  Rule

                                       43

144A(d)(4) under the Securities Act upon the request of any Holder or beneficial
holder of the  Securities  or such  Common  Stock and it will take such  further
action as any Holder or  beneficial  holder of such  Securities  or such  Common
Stock may reasonably  request,  all to the extent  required from time to time to
enable such Holder or beneficial  holder to sell its  Securities or Common Stock
without  registration  under the  Securities  Act within the  limitation  of the
exemption  provided by Rule 144A, as such Rule may be amended from time to time.
Upon the request of any Holder or any  beneficial  holder of the  Securities  or
such Common Stock,  the Company will deliver to such Holder a written  statement
as to whether it has complied with such requirements.

Section 6.7  Stay, Extension and Usury Laws

         The Company  covenants  (to the extent that it may lawfully do so) that
it shall not at any time insist upon,  plead, or in any manner  whatsoever claim
or take the benefit or advantage  of, any stay,  extension or usury law or other
law which would  prohibit or forgive the Company  from paying all or any portion
of the principal of, premium, if any, or interest (including Liquidated Damages,
if any) on the Securities as contemplated  herein,  wherever enacted,  now or at
any  time  hereafter  in  force,  or  which  may  affect  the  covenants  or the
performance of this Indenture, and the Company (to the extent it may lawfully do
so) hereby  expressly  waives  all  benefit or  advantage  of any such law,  and
covenants that it will not, by resort to any such law,  hinder,  delay or impede
the  execution of any power herein  granted to the Trustee,  but will suffer and
permit the execution of every such power as though no such law had been enacted.

Section 6.8  Payment of Liquidated Damages

         If  Liquidated  Damages  are  payable by the  Company  pursuant  to the
Registration  Rights  Agreement,  the  Company  shall  deliver to the  Trustee a
certificate  to that effect  stating (i) the amount of such  Liquidated  Damages
that is payable and (ii) the date on which such Liquidated  Damages are payable.
Unless  and  until a Trust  Officer  of the  Trustee  actually  receives  such a
certificate,  the Trustee may assume  without  inquiry  that no such  Liquidated
Damages are payable.  If the Company has paid Liquidated Damages directly to the
Persons  entitled to it, the Company  shall deliver to the Trustee a certificate
setting forth the particulars of such payment.

Section 6.9  Resale of Certain Securities

         During the period of two years after the last date of original issuance
of any  Securities,  the  Company  shall  not,  and shall not  permit any of its
"affiliates" (as defined under Rule 144 under the Securities Act) to, resell any
Securities,   or  shares  of  Common  Stock  issuable  upon  conversion  of  the
Securities,  which constitute  "restricted  securities" under Rule 144, that are
acquired  by any of them  within  the  United  States or to "U.S.  persons"  (as
defined in Regulation S) except pursuant to an effective  registration statement
under the Securities Act or an applicable exemption therefrom. The Trustee shall
have no responsibility  or liability in respect of the Company's  performance of
its agreement in the preceding sentence.

Section 6.10  Tax Treatment of Securities

         The Company agrees, and by acceptance of beneficial  ownership interest
in the Securities  each  beneficial  holder of Securities will be deemed to have
agreed,  for  United  States  federal  income  tax  purposes  (1) to  treat  the

                                       44

Securities as  indebtedness  that is subject to Treas.  Reg. Sec.  1.1275-4 (the
"Contingent  Payment  Regulations")  and, for purposes of the Contingent Payment
Regulations,  to treat the fair market value of any stock beneficially  received
by a beneficial  holder upon any  conversion  of the  Securities as a contingent
payment and (2) to be bound by the Company's  determination  of the  "comparable
yield" and "projected  payment  schedule,"  within the meaning of the Contingent
Payment Regulations,  with respect to the Securities. A Holder of Securities may
obtain the amount of original  issue  discount,  issue date,  yield to maturity,
comparable yield and projected  payment schedule by submitting a written request
for it to the Company at the following address: St. Mary Land &amp;  Exploration
Company,  1776 Lincoln Street,  Suite 1100, Denver,  Colorado 80203,  Attention:
Chief Financial Officer.

                                  ARTICLE VII
              CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Section 7.1  Cmpany May Consolidate, Etc. Only on Certain Terms.

         The Company shall not  consolidate  with or merge into any other Person
(in a  transaction  in which the Company is not the  surviving  corporation)  or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless:

         (1) in case the Company  shall  consolidate  with or merge into another
Person (in a transaction in which the Company is not the surviving  corporation)
or convey,  transfer  or lease its  properties  and assets  substantially  as an
entirety to any Person,  the Person formed by such  consolidation  or into which
the Company is merged or the Person which acquires by conveyance or transfer, or
which  leases,  the  properties  and assets of the Company  substantially  as an
entirety (i) shall be a corporation,  limited liability company,  partnership or
trust,  shall be  organized  and validly  existing  under the laws of the United
States of America, any State thereof or the District of Columbia (whether or not
such  Person  is a  direct  or  indirect  subsidiary  of a  Person  which is not
organized under the laws of any of such  jurisdictions) and (ii) shall expressly
assume,  by an indenture  supplemental  hereto,  executed  and  delivered to the
Trustee,  in form  satisfactory to the Trustee,  the due and punctual payment of
the principal of and any premium and interest (including Contingent Interest) on
all the Securities  and the  performance or observance of every covenant of this
Indenture  on the  part of the  Company  to be  performed  or  observed  and the
conversion  rights  shall be  provided  for in  accordance  with  Article IV, by
supplemental  indenture  satisfactory  in  form  to the  Trustee,  executed  and
delivered  to the Trustee,  by the Person (if other than the Company)  formed by
such  consolidation  or into which the Company  shall have been merged or by the
Person which shall have acquired the Company's assets;

         (2) immediately  after giving effect to such  transaction,  no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and

         (3) the Company has  delivered to the Trustee an Officers'  Certificate
and an  Opinion  of  Counsel,  each  stating  that such  consolidation,  merger,
conveyance,  transfer or lease and, if a  supplemental  indenture is required in
connection with such transaction,  such supplemental  indenture comply with this
Article and that all conditions  precedent  herein provided for relating to such
transaction have been complied with.

                                       45

Section 7.2  Successor Substituted

         Upon any  consolidation  of the Company  with, or merger of the Company
into,  any other Person or any  conveyance,  transfer or lease of the properties
and assets of the  Company  substantially  as an  entirety  in  accordance  with
Section 7.1, the successor Person formed by such consolidation or into which the
Company is merged or to which such  conveyance,  transfer or lease is made shall
succeed to, and be  substituted  for, and may exercise every right and power of,
the  Company  under this  Indenture  with the same  effect as if such  successor
Person had been named as the Company herein, and thereafter,  except in the case
of a lease,  the  predecessor  Person shall be relieved of all  obligations  and
covenants under this Indenture and the Securities.

                                  ARTICLE VIII
                              DEFAULT AND REMEDIES

Section 8.1  Events of Default

         An "Event of Default" shall occur if:

                  (1)  the  Company  defaults  in the  payment  of any  interest
         (including  Contingent  Interest) on any Security when the same becomes
         due and payable and the default continues for a period of 30 days;

                  (2) the Company  defaults in the payment of any  principal  of
         (including,  without limitation,  any premium, if any, on) any Security
         when the same  becomes  due and  payable  (whether  at  maturity,  upon
         redemption,  on an  Optional  Repurchase  Date,  a  Change  in  Control
         Purchase Date or otherwise);

                  (3)  the  Company  fails  to  comply  with  any of  its  other
         agreements  contained  in the  Securities  or  this  Indenture  and the
         default continues for the period and after the notice specified below;

                  (4) a default  under any  mortgage,  indenture  or  instrument
         under  which  there may be issued or by which  there may be  secured or
         evidenced any  Indebtedness  of the Company or any of its  Subsidiaries
         whether such  Indebtedness now exists,  or is created after the date of
         this Indenture, which default (a) involves the failure to pay principal
         of  or  any  premium  or  interest  on  such   Indebtedness  when  such
         Indebtedness  becomes due and payable at the stated  maturity  thereof,
         and such default shall continue  after any  applicable  grace period or
         (b) results in the  acceleration of such  Indebtedness  unpaid prior to
         the  stated  maturity  thereof  and,  in the  case of (a) or  (b),  the
         principal  amount of such  Indebtedness,  together  with the  principal
         amount of any other  Indebtedness  so unpaid at its stated  maturity or
         the stated  maturity of which has been so  accelerated,  aggregates $10
         million or more;

                  (5) failure by the Company or any of its  Subsidiaries  to pay
         final judgments  aggregating in excess of $10 million,  which judgments
         are not paid, discharged or stayed for a period of 60 days;

                  (6) the  Company  pursuant  to or within  the  meaning  of any
         Bankruptcy Law:

                                       46

                           (i) commences a voluntary case or proceeding;

                           (ii)  consents  to the entry of an order  for  relief
                  against it in an involuntary case or proceeding;

                           (iii)  consents to the  appointment of a Custodian of
                  it or for all or substantially all of its property; or

                           (iv) makes a general  assignment  for the  benefit of
                  its creditors; or

                  (7) a court  of  competent  jurisdiction  enters  an  order or
         decree under any Bankruptcy Law that:

                           (i) is for relief against the Company in an
                  involuntary case or proceeding;

                           (ii)  appoints a Custodian  of the Company or for all
                  or substantially all of the property of the Company; or

                           (iii) orders the liquidation of the Company;

         and in each case the order or decree remains unstayed and in effect for
60 days.

         The term  "Bankruptcy Law" means Title 11 of the United States Code (or
any  successor  thereto) or any  similar  federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

         A default  under clause (3) above is not an Event of Default  until the
Trustee  notifies  the  Company,  or the  Holders  of at least 25% in  aggregate
principal amount of the Securities then  outstanding  notify the Company and the
Trustee,  of the default,  and the Company  does not cure the default  within 60
days after receipt of such notice. The notice given pursuant to this Section 8.1
must specify the  default,  demand that it be remedied and state that the notice
is a "Notice of Default."  When any default under this Section 8.1 is cured,  it
ceases.

         The Trustee shall not be charged with knowledge of any Event of Default
unless  written  notice  thereof shall have been given to a Trust Officer at the
Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder
or any agent of any Holder.

Section 8.2  Acceleration

         If an Event of Default  (other  than an Event of Default  specified  in
clauses (6) or (7) of Section 8.1) occurs and is continuing, the Trustee may, by
written  notice to the  Company,  or the  Holders  of at least 25% in  aggregate
principal  amount of the Securities then  outstanding  may, by written notice to
the Company and the Trustee, declare all unpaid principal on the Securities then
outstanding  (if not then due and  payable) to be due and payable  upon any such
declaration, and the same shall become and be immediately due and payable. If an
Event of Default  specified  in clauses (6) or (7) of Section  8.1  occurs,  all

                                       47

unpaid principal of the Securities then outstanding  shall ipso facto become and
be immediately  due and payable without any declaration or other act on the part
of the Trustee or any Holder.  The Holders of a majority in aggregate  principal
amount of the Securities  then  outstanding by written notice to the Trustee may
rescind an  acceleration  and its  consequences  if (a) all  existing  Events of
Default,  other than the nonpayment of the principal of the Securities which has
become  due  solely by such  declaration  of  acceleration,  have been  cured or
waived;  (b) to the extent  the  payment of such  interest  is lawful,  interest
(calculated  at  the  rate  per  annum  borne  by  the  Securities)  on  overdue
installments of interest and overdue  principal,  which has become due otherwise
than by such  declaration  of  acceleration,  has been paid;  (c) the rescission
would  not  conflict  with  any  judgment  or  decree  of a court  of  competent
jurisdiction;  and (d)  all  payments  due to the  Trustee  and any  predecessor
Trustee under Section 9.7 have been made.  No such  rescission  shall affect any
subsequent default or impair any right consequent thereto.

Section 8.3  Other Remedies

         If an Event of Default occurs and is  continuing,  the Trustee may, but
shall not be obligated to,  pursue any available  remedy by proceeding at law or
in  equity to  collect  the  payment  of the  principal  of or  interest  on the
Securities or to enforce the  performance  of any provision of the Securities or
this Indenture.

         The Trustee may maintain a  proceeding  even if it does not possess any
of the Securities or does not produce any of them in the proceeding.  A delay or
omission by the Trustee or any  Securityholder in exercising any right or remedy
accruing  upon an Event of  Default  shall  not  impair  the  right or remedy or
constitute  a waiver of or  acquiescence  in the Event of Default.  No remedy is
exclusive of any other  remedy.  All  available  remedies are  cumulative to the
extent permitted by law.

Section 8.4  Waiver of Defaults and Events of Default

         Subject  to  Sections  8.7 and  11.2,  the  Holders  of a  majority  in
principal amount of the Securities then outstanding by notice to the Trustee may
waive an  existing  default or Event of Default  and its  consequence,  except a
default or Event of Default in the  payment of the  principal  of or interest on
any  Security,  a failure by the Company to convert any  Securities  into Common
Stock or any  default or Event of Default  in respect of any  provision  of this
Indenture or the  Securities  which,  under Section 11.2,  cannot be modified or
amended  without the  consent of the Holder of each  Security  affected.  When a
default or Event of Default is waived, it is cured and ceases.

Section 8.5  Control By Majority

         The Holders of a majority in principal  amount of the  Securities  then
outstanding  may direct the time,  method and place of conducting any proceeding
for any  remedy  available  to the  Trustee  or  exercising  any  trust or power
conferred on it.  However,  the Trustee may refuse to follow any direction  that
conflicts with law or this Indenture,  that the Trustee determines may be unduly
prejudicial to the rights of another Holder or the Trustee,  or that may involve
the Trustee in personal  liability  unless the  Trustee is  furnished  indemnity
satisfactory  to it;  provided,  however,  that the  Trustee  may take any other
action  deemed  proper  by the  Trustee  which  is not  inconsistent  with  such
direction.

                                       48

Section 8.6  Limitations on Suits

         A Holder may not pursue any remedy with  respect to this  Indenture  or
the  Securities  (except  actions for payment of overdue  principal  or interest
(including Contingent Interest) or for the conversion of the Securities pursuant
to Article IV) unless:

                  (1) the  Holder  gives  to the  Trustee  written  notice  of a
         continuing Event of Default;

                  (2) the  Holders  of at least 25% in  principal  amount of the
         then  outstanding  Securities  make a written request to the Trustee to
         pursue the remedy;

                  (3) such Holder or Holders furnishes to the Trustee reasonable
         indemnity to the Trustee against any loss, liability or expense;

                  (4) the Trustee  does not comply  with the  request  within 60
         days after receipt of the request and the furnishing of indemnity; and

                  (5) no direction  inconsistent  with such written  request has
         been given to the Trustee during such 60-day period by the Holders of a
         majority in principal amount of the Securities then outstanding.

         A Securityholder  may not use this Indenture to prejudice the rights of
another  Securityholder  or to obtain a preference  or priority  over such other
Securityholder.

Section 8.7  Rights of Holders to Receive Payment and to Convert

         Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive  payment of the principal of and interest on the
Security,  on or after the  respective  due dates  expressed in the Security and
this  Indenture,  to convert such Security in accordance  with Article IV and to
bring suit for the  enforcement of any such payment on or after such  respective
dates or the right to convert,  is absolute and  unconditional  and shall not be
impaired or affected without the consent of the Holder.

Section 8.8  Collection Suit By Trustee

         If an  Event  of  Default  in the  payment  of  principal  or  interest
(including  Contingent  Interest) specified in clauses (1) or (2) of Section 8.1
occurs and is continuing,  the Trustee may recover  judgment in its own name and
as trustee of an express  trust  against the  Company or another  obligor on the
Securities  for the whole amount of  principal  and accrued  interest  remaining
unpaid,  together  with,  to the extent that payment of such interest is lawful,
interest on overdue principal and on overdue installments of interest (including
Contingent Interest), in each case at the rate per annum borne by the Securities
and such further  amount as shall be  sufficient to cover the costs and expenses
of collection,  including the reasonable compensation,  expenses,  disbursements
and advances of the Trustee, its agents and counsel.

                                       49

Section 8.9  Trustee May File Proofs of Claim

         The Trustee may file such proofs of claim and other papers or documents
as may be  necessary  or  advisable  in order to have the claims of the  Trustee
(including any claim for the reasonable  compensation,  expenses,  disbursements
and advances of the Trustee,  its agents and counsel) and the Holders allowed in
any judicial  proceedings  relative to the Company (or any other  obligor on the
Securities),  its  creditors or its property and shall be entitled and empowered
to collect and receive any money or other property payable or deliverable on any
such claims and to distribute  the same,  and any Custodian in any such judicial
proceeding  is hereby  authorized  by each  Holder to make such  payments to the
Trustee and, in the event that the Trustee  shall  consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the  reasonable  compensation,  expenses,  disbursements  and  advances  of  the
Trustee,  its agents and counsel,  and any other  amounts due the Trustee  under
Section 9.7, and to the extent that such payment of the reasonable compensation,
expenses, disbursements and advances in any such proceedings shall be denied for
any reason, payment of the same shall be secured by a lien on, and shall be paid
out of,  any and all  distributions,  dividends,  money,  securities  and  other
property  which the  Holders  may be  entitled  to receive in such  proceedings,
whether in  liquidation  or under any plan of  reorganization  or arrangement or
otherwise.  Nothing herein contained shall be deemed to authorize the Trustee to
authorize  or consent to, or on behalf of any Holder,  to  authorize,  accept or
adopt  any  plan  of  reorganization,  arrangement,  adjustment  or  composition
affecting the  Securities or the rights of any Holder  thereof,  or to authorize
the  Trustee  to  vote  in  respect  of the  claim  of any  Holder  in any  such
proceeding.

Section 8.10  Priorities

         If the Trustee  collects any money  pursuant to this Article  VIII,  it
shall pay out the money in the following order:

         First, to the Trustee for amounts due under Section 9.7;

         Second,  to Holders for amounts  due and unpaid on the  Securities  for
principal and  interest,  ratably,  without  preference or priority of any kind,
according to the amounts due and payable on the  Securities  for  principal  and
interest, respectively; and

         Third, to the Company.

         The Trustee  may fix a record date and payment  date for any payment to
Holders pursuant to this Section 8.10.

Section 8.11  Undertaking for Costs

         In any suit for the  enforcement  of any  right or  remedy  under  this
Indenture  or in any suit against the Trustee for any action taken or omitted by
it as  Trustee,  a court in its  discretion  may require the filing by any party
litigant  in the suit of an  undertaking  to pay the costs of the suit,  and the
court in its  discretion  may  assess  reasonable  costs,  including  reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses  made by the party
litigant. This Section 8.11 does not apply to a suit made by the Trustee, a suit
by a Holder  pursuant  to Section  8.7, or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.

                                       50

                                   ARTICLE IX
                                     TRUSTEE

Section 9.1  Duties of Trustee

         (a) If an Event of Default has occurred and is continuing,  the Trustee
shall  exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise as a prudent  person would
exercise  or use  under  the  circumstances  in the  conduct  of his or her  own
affairs.

         (b) Except during the continuance of an Event of Default:

                  (1)  the  Trustee  need  perform  only  those  duties  as  are
         specifically set forth in this Indenture and no others; and

                  (2) in the  absence of bad faith on its part,  the Trustee may
         conclusively   rely,  as  to  the  truth  of  the  statements  and  the
         correctness of the opinions  expressed  therein,  upon  certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture.  The Trustee,  however,  shall examine any certificates
         and opinions which by any provision hereof are specifically required to
         be delivered to the Trustee to determine whether or not they conform to
         the requirements of this Indenture.

         (c)  The  Trustee  may  not be  relieved  from  liability  for  its own
negligent  action,  its  own  negligent  failure  to  act,  or its  own  willful
misconduct, except that:

                  (1) this paragraph does not limit the effect of subsection (b)
         of this Section 9.1;

                  (2) the Trustee  shall not be liable for any error of judgment
         made in good  faith by a Trust  Officer,  unless it is proved  that the
         Trustee was negligent in ascertaining the pertinent facts; and

                  (3) the Trustee shall not be liable with respect to any action
         it takes or omits to take in good faith in accordance  with a direction
         received by it pursuant to Section 8.5.

         (d) No provision of this Indenture  shall require the Trustee to expend
or risk  its own  funds  or  otherwise  incur  any  financial  liability  in the
performance  of any of its duties  hereunder  or in the  exercise  of any of its
rights or powers unless the Trustee shall have  received  adequate  indemnity in
its opinion  against  potential  costs and  liabilities  incurred by it relating
thereto.

         (e) Every  provision of this  Indenture  that in any way relates to the
Trustee is subject to subsections (a), (b), (c) and (d) of this Section 9.1.

                                       51

         (f) The Trustee shall not be liable for interest on any money  received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the  Trustee  need not be  segregated  from other  funds  except to the
extent required by applicable law.

Section 9.2  Rights of Trustee

         Subject to Section 9.1:

         (a) The Trustee may rely conclusively on any document believed by it to
be  genuine  and to have been  signed or  presented  by the proper  person.  The
Trustee need not investigate any fact or matter stated in the document.

         (b) Before the Trustee acts or refrains from acting, it may require, at
the expense of the Company,  an Officers'  Certificate or an Opinion of Counsel,
which shall conform to Section 13.4(b).  The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance  on such  Certificate
or Opinion.

         (c) The Trustee may act through its agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.

         (d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes  to be  authorized  or within its rights or
powers.

         (e) The Trustee  may consult  with  counsel of its  selection,  and the
advice  or  opinion  of such  counsel  as to  matters  of law  shall be full and
complete  authorization  and  protection  in respect of any such  action  taken,
omitted or suffered by it  hereunder  in good faith and in  accordance  with the
advice or opinion of such counsel.

         (f) The Trustee  shall be under no  obligation  to exercise  any of the
rights or powers  vested in it by this  Indenture at the request or direction of
any of the Holders  pursuant to this  Indenture,  unless such Holders shall have
furnished  to the Trustee  security  or  indemnity  satisfactory  to the Trustee
against the costs,  expenses  and  liabilities  which might be incurred by it in
compliance with such request or direction.

         (g) The Trustee shall not be bound to make any  investigation  into the
facts or matters stated in any resolution,  certificate,  statement, instrument,
opinion,  report, notice, request,  direction,  consent, order, bond, debenture,
note,  other  evidence  of  indebtedness  or other  paper or  document,  but the
Trustee, in its discretion,  may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall  determine to
make such further inquiry or investigation,  it shall be entitled to examine the
books,  records and premises of the Company,  personally or by agent or attorney
at the sole cost of the  Company  and shall  incur no  liability  or  additional
liability of any kind by reason of such inquiry or investigation.

         (h) The  Trustee  shall not be deemed to have  notice of any Default or
Event of Default  unless a Trust  Officer of the  Trustee  has actual  knowledge
thereof or unless written notice from the Company or the Holders of at least 25%
of the  Securities  of any event  which is in fact such a default is received by
the  Trustee at the  Corporate  Trust  Office,  and such notice  references  the
Securities and this Indenture.

                                       52

         (i) The rights, privileges,  protections, immunities and benefits given
to the Trustee, including,  without limitation, its right to be indemnified, are
extended to, and shall be enforceable  by, the Trustee in each of its capacities
hereunder,  and to each agent,  custodian and other Person employed by it to act
hereunder.

Section 9.3  Individual Rights of Trustee

         The  Trustee in its  individual  or any other  capacity  may become the
owner or pledgee of  Securities  and may  otherwise  deal with the Company or an
Affiliate  of the  Company  with the same  rights  it would  have if it were not
Trustee.  Any Agent may do the same with like  rights.  However,  the Trustee is
subject to Sections 9.10 and 9.11.

Section 9.4  Trustee's Disclaimer

         The Trustee makes no  representation  as to the validity or adequacy of
this Indenture or the Securities,  it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement  in the  Indenture or the  Securities  other than its  certificate  of
authentication.

Section 9.5  Notice of Default or Events of Default

         If a default or an Event of Default  occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the  default or Event of Default  within 90 days after it occurs.  However,  the
Trustee  may  withhold  the  notice if and so long as a  committee  of its Trust
Officers in good faith determines that withholding notice is in the interests of
Securityholders,  except  in the case of a  default  or an Event of  Default  in
payment of the principal of or interest on any Security.

Section 9.6  Reports By Trustee To Holders

         If such report is required  by TIA  Section  313,  within 60 days after
each May 15, beginning with the May 15 following the date of this Indenture, the
Trustee shall mail to each Securityholder a brief report dated as of such May 15
that  complies with TIA Section  313(a).  The Trustee also shall comply with TIA
Section 313(b)(2) and (c).

         A copy of each  report at the time of its  mailing  to  Securityholders
shall be mailed to the Company  and filed with the SEC and each stock  exchange,
if any, on which the  Securities are listed.  The Company  promptly shall notify
the Trustee  whenever  the  Securities  become  listed on any stock  exchange or
listed or  admitted  to trading on any  quotation  system and any changes in the
stock  exchanges  or  quotation  systems on which the  Securities  are listed or
admitted to trading and of any delisting thereof.

Section 9.7  Compensation and Indemnity

         The  Company   shall  pay  to  the  Trustee  from  time  to  time  such
compensation  (as agreed to from time to time by the  Company and the Trustee in
writing)  for its  services  (which  compensation  shall not be  limited  by any
provision  of law in  regard to the  compensation  of a  trustee  of an  express
trust). The Company shall reimburse the Trustee upon request for all reasonable,
actual  disbursements,  expenses  and  advances  incurred  or made  by it.  Such
expenses may include the  reasonable,  actual  compensation,  disbursements  and
expenses of the Trustee's agents and counsel.

                                       53

         The Company  shall  indemnify  the Trustee or any  predecessor  Trustee
(which for purposes of this Section 9.7 shall include its  officers,  directors,
employees  and  agents)  for,  and hold it harmless  against,  any and all loss,
liability or expense  including taxes (other than taxes based upon,  measured by
or determined by the income of the Trustee),  (including  reasonable  legal fees
and expenses) incurred by it in connection with the acceptance or administration
of its duties under this Indenture or any action or failure to act as authorized
or  within  the  discretion  or  rights or  powers  conferred  upon the  Trustee
hereunder  including  the  reasonable  costs and expenses of the Trustee and its
counsel in defending  itself  against any claim or liability in connection  with
the  exercise  or  performance  of any of its  powers or duties  hereunder.  The
Trustee  shall  notify the Company  promptly of any claim  asserted  against the
Trustee  for  which  it may seek  indemnity.  The  Company  need not pay for any
settlement  without  its  written  consent,  which  shall  not  be  unreasonably
withheld.

         The Company need not reimburse the Trustee for any expense or indemnify
it against any loss or liability incurred by it resulting from its own negligent
action, negligent failure to act, bad faith or willful misconduct.

         To secure the Company's  payment  obligations  in this Section 9.7, the
Trustee  shall  have a senior  claim to which the  Securities  are  hereby  made
subordinate  on all money or property  held or collected by the Trustee,  except
such money or property held in trust to pay the principal of and interest on the
Securities.  The obligations of the Company under this Section 9.7 shall survive
the  satisfaction  and discharge of this Indenture or the resignation or removal
of the Trustee.

         When the Trustee incurs expenses or renders  services after an Event of
Default specified in clauses (6) or (7) of Section 8.1 occurs,  the expenses and
the  compensation  for the  services  are  intended  to  constitute  expenses of
administration  under any  Bankruptcy  Law. The provisions of this Section shall
survive the termination of this Indenture.

Section 9.8  Replacement of Trustee

         The Trustee  may resign by so  notifying  the  Company in writing.  The
Holders of a majority in principal amount of the Securities then outstanding may
remove the Trustee by so  notifying  the  Trustee in writing  and may,  with the
Company's written consent,  appoint a successor Trustee.  The Company may remove
the Trustee by so notifying the Trustee in writing if:

         (1) the Trustee fails to comply with Section 9.10;

         (2) the Trustee is adjudged a bankrupt or an insolvent;

         (3) a receiver or other public  officer  takes charge of the Trustee or
its property; or

         (4) the Trustee  becomes  incapable of performing its duties under this
Indenture.

                                       54

         If the  Trustee  resigns or is  removed  or if a vacancy  exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.  The resignation or removal of a Trustee shall not be effective until a
successor Trustee shall have delivered the written acceptance of its appointment
as described below.

         If a successor  Trustee  does not take office  within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders  of 10% in  principal  amount of the  Securities  then  outstanding  may
petition any court of competent  jurisdiction for the appointment of a successor
Trustee at the expense of the Company.

         If the  Trustee  fails to comply  with  Section  9.10,  any  Holder may
petition any court of competent  jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.

         A  successor  Trustee  shall  deliver  a  written   acceptance  of  its
appointment to the retiring Trustee and to the Company.  Immediately after that,
the retiring  Trustee  shall  transfer all property held by it as Trustee to the
successor  Trustee  and be  released  from  its  obligations  (exclusive  of any
liabilities that the retiring Trustee may have incurred while acting as Trustee)
hereunder,  the  resignation  or removal of the  retiring  Trustee  shall become
effective,  and the  successor  Trustee  shall have all the  rights,  powers and
duties of the  Trustee  under this  Indenture.  A successor  Trustee  shall mail
notice of its succession to each Holder.

         A retiring Trustee shall not be liable for the acts or omissions of any
successor Trustee after its succession.

         Notwithstanding  replacement  of the Trustee  pursuant to this  Section
9.8, the Company's  obligations under Section 9.7 shall continue for the benefit
of the retiring Trustee.

Section 9.9  Successor Trustee By Merger, Etc

         If the Trustee consolidates with, merges or converts into, or transfers
all  or  substantially   all  of  its  corporate  trust  assets  (including  the
administration  of this  Indenture)  to,  another  corporation,  the  resulting,
surviving  or  transferee  corporation,  without any further  act,  shall be the
successor  Trustee,  provided such transferee  corporation  shall qualify and be
eligible under Section 9.10.  Such successor  Trustee shall promptly mail notice
of its succession to the Company and each Holder.

Section 9.10  Eligibility; Disqualification

         The Trustee shall always satisfy the  requirements  of paragraphs  (1),
(2) and (5) of TIA Section 310(a).  The Trustee (or its parent holding  company)
shall have a combined  capital  and surplus of at least  $50,000,000.  If at any
time the Trustee shall cease to satisfy any such  requirements,  it shall resign
immediately in the manner and with the effect  specified in this Article IX. The
Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein
shall prevent the Trustee from filing with the SEC the  application  referred to
in the penultimate paragraph of TIA Section 310(b).

                                       55

Section 9.11  Preferential Collection of Claims Against Company

         The  Trustee  shall  comply  with TIA  Section  311(a),  excluding  any
creditor  relationship  listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section  311(a) to the extent  indicated
therein.

                                   ARTICLE X
                     SATISFACTION AND DISCHARGE OF INDENTURE

Section 10.1  Satisfaction and Discharge of Indenture

         This  Indenture  shall cease to be of further  effect (except as to any
surviving  rights  of  conversion,  registration  of  transfer  or  exchange  of
Securities herein expressly  provided for and except as further provided below),
and the Trustee,  on demand of and at the expense of the Company,  shall execute
proper instruments  acknowledging  satisfaction and discharge of this Indenture,
when

                  (1) either

                           (i)  all  Securities  theretofore  authenticated  and
                  delivered   (other  than  (i)   Securities   which  have  been
                  destroyed, lost or stolen and which have been replaced or paid
                  as  provided  in  Section  2.7 and (ii)  Securities  for whose
                  payment  money has  theretofore  been  deposited  in trust and
                  thereafter  repaid to the Company as provided in Section 10.3)
                  have been delivered to the Trustee for cancellation; or

                           (ii) all such Securities not theretofore delivered to
                  the Trustee for cancellation

                                    (a) have become due and payable, or

                                    (b) will become due and payable at the Final
                           Maturity Date within one year, or

                                    (c) are to be called for  redemption  within
                           one  year  under  arrangements  satisfactory  to  the
                           Trustee for the giving of notice of redemption by the
                           Trustee  in the  name,  and at  the  expense,  of the
                           Company,

                  and the Company,  in the case of clause (a), (b) or (c) above,
                  has   irrevocably   deposited  or  caused  to  be  irrevocably
                  deposited  with the Trustee or a Paying  Agent (other than the
                  Company or any of its  Affiliates) as trust funds in trust for
                  the purpose cash in an amount  sufficient to pay and discharge
                  the entire  indebtedness  on such  Securities not  theretofore
                  delivered to the Trustee for  cancellation,  for principal and
                  interest  to  the  date  of  such  deposit  (in  the  case  of
                  Securities  which have become due and payable) or to the Final
                  Maturity Date or Redemption Date, as the case may be;

                                       56

                  (2) the  Company  has paid or caused to be paid all other sums
         payable hereunder by the Company; and

                  (3) the Company  has  delivered  to the  Trustee an  Officers'
         Certificate and an Opinion of Counsel, each stating that all conditions
         precedent   herein  provided  for  relating  to  the  satisfaction  and
         discharge of this Indenture have been complied with.

         Notwithstanding  the satisfaction and discharge of this Indenture,  the
obligations  of the Company to the Trustee  under Section 9.7 shall survive and,
if money shall have been deposited  with the Trustee  pursuant to clause (1)(ii)
of this Section,  the  provisions  of Sections  2.3,  2.4, 2.5, 2.6, 2.7,  2.12,
Article  IV,  Article V, the last  paragraph  of Section  6.2,  this  Article X,
Article XII and Section 13.5,  shall survive until the Securities have been paid
in full.

Section 10.2  Application of Trust Money

         Subject to the  provisions  of Section  10.3,  the  Trustee or a Paying
Agent shall hold in trust,  for the benefit of the Holders,  all money deposited
with it  pursuant  to  Section  10.1 and  shall  apply  the  deposited  money in
accordance  with  this  Indenture  and  the  Securities  to the  payment  of the
principal of and interest on the Securities.

Section 10.3  Repayment To Company

         The  Trustee and each Paying  Agent shall  promptly  pay to the Company
upon request any excess money (i)  deposited  with them pursuant to Section 10.1
and (ii) held by them at any time.

         The Trustee and each Paying Agent shall pay to the Company upon request
any money held by them for the payment of  principal  or interest  that  remains
unclaimed  for two  years  after a right to such  money has  matured;  provided,
however,  that the Trustee or such Paying Agent,  before being  required to make
any such  payment,  may at the expense of the Company cause to be mailed to each
Holder entitled to such money notice that such money remains  unclaimed and that
after a date specified therein, which shall be at least 30 days from the date of
such mailing,  any unclaimed balance of such money then remaining will be repaid
to the Company.  After  payment to the Company,  Holders  entitled to money must
look to the Company for payment as general creditors.

section 10.4  Reinstatement

         If the  Trustee  or any  Paying  Agent is  unable to apply any money in
accordance  with Section 10.2 by reason of any legal  proceeding or by reason of
any  order  or  judgment  of any  court  or  governmental  authority  enjoining,
restraining  or  otherwise  prohibiting  such  application,  then the  Company's
obligations  under  this  Indenture  and the  Securities  shall be  revived  and
reinstated as though no deposit had occurred pursuant to Section 10.1 until such
time as the Trustee or such Paying Agent is permitted to apply all such money in
accordance with Section 10.2;  provided,  however,  that if the Company has made
any payment of the  principal  of or interest on any  Securities  because of the
reinstatement of its obligations,  the Company shall be subrogated to the rights
of the Holders of such  Securities  to receive any such  payment  from the money
held by the Trustee or such Paying Agent.

                                       57

                                   ARTICLE XI
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 11.1  Without Consent of Holders

         The Company and the Trustee may amend or supplement  this  Indenture or
the Securities without notice to or consent of any Securityholder:

         (a) to comply with Sections 4.11 and 7.1;

         (b) to cure any ambiguity, defect or inconsistency;

         (c) to make any other change that does not adversely  effect the rights
of any Securityholder;

         (d) to comply with the provisions of the TIA; or

         (e) to appoint a successor Trustee.

Section 11.2  With Consent of Holders

         The Company and the Trustee may amend or supplement  this  Indenture or
the Securities with the written consent of the Holders of at least a majority in
aggregate principal amount of the Securities then outstanding. The Holders of at
least  a  majority  in  aggregate   principal  amount  of  the  Securities  then
outstanding  may waive  compliance in a particular  instance by the Company with
any  provision  of  this  Indenture  or the  Securities  without  notice  to any
Securityholder.  However,  notwithstanding  the foregoing but subject to Section
11.4, without the written consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 8.4, may not:

         (a) change the  Maturity of the  principal  of, or interest  (including
Contingent Interest) on, any Security;

         (b)  reduce  the  principal  amount  of,  or any  premium  or  interest
(including Contingent Interest) on, any Security;

         (c) reduce the amount of  principal  payable upon  acceleration  of the
maturity of any Security;

         (d) change the place or  currency  of payment of  principal  of, or any
premium or interest on, any Security;

         (e)  impair  the right to  institute  suit for the  enforcement  of any
payment on, or with respect to, any Security;

         (f) adversely  affect the right of Holders to convert  Securities other
than as provided in or under Article IV of this Indenture;

                                       58

         (g) reduce the  percentage  of the  aggregate  principal  amount of the
outstanding Securities whose Holders must consent to a supplement or amendment;

         (h) reduce the  percentage  of the  aggregate  principal  amount of the
outstanding  Securities  necessary  for the waiver of  compliance  with  certain
provisions  of this  Indenture  or the  waiver of  certain  defaults  under this
Indenture; and

         (i) modify any of the provisions of this Section or Section 8.4, except
to increase any such  percentage  or to provide that certain  provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby.

         It shall not be  necessary  for the consent of the  Holders  under this
Section  11.2  to  approve  the  particular  form  of  any  proposed  amendment,
supplement or waiver,  but it shall be  sufficient if such consent  approves the
substance thereof.

         After an  amendment,  supplement  or waiver  under  this  Section  11.2
becomes  effective,  the Company  shall mail to the Holders  affected  thereby a
notice briefly  describing the amendment,  supplement or waiver.  Any failure of
the Company to mail such notice, or any defect therein,  shall not, however,  in
any way impair or affect  the  validity  of any such  amendment,  supplement  or
waiver.

Section 11.3  Compliance With Trust Indenture Act

         Every  amendment to or supplement of this  Indenture or the  Securities
shall  comply  with  the TIA as in  effect  at the  date of  such  amendment  or
supplement.

Section 11.4  Revocation and Effect of Consents

         Until an amendment,  supplement or waiver becomes effective,  a consent
to it by a Holder is a  continuing  consent by the  Holder and every  subsequent
Holder of a Security or portion of a Security  that  evidences  the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any  Security.  However,  any such  Holder or  subsequent  Holder may revoke the
consent as to its Security or portion of a Security if the Trustee  receives the
notice of revocation  in writing  before the date the  amendment,  supplement or
waiver becomes effective.

         After an amendment,  supplement or waiver becomes  effective,  it shall
bind every Securityholder,  unless it makes a change described in any of clauses
(a) through  (i) of Section  11.2.  In that case the  amendment,  supplement  or
waiver  shall bind each Holder of a Security  who has  consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.

Section 11.5  Notation on or Exchange of Securities

         If an amendment,  supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate  notation on the Security about the changed
terms and return it to the Holder. Alternatively,  if the Company or the Trustee
so  determines,  the Company in exchange  for the  Security  shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.

                                       59

Section 11.6  Trustee To Sign Amendments, Etc

         The  Trustee  shall  sign  any  amendment  or  supplemental   indenture
authorized  pursuant  to  this  Article  XI if  the  amendment  or  supplemental
indenture  does  not  adversely  affect  the  rights,  duties,   liabilities  or
immunities of the Trustee.  If it does, the Trustee may, in its sole discretion,
but  need  not sign it.  In  signing  or  refusing  to sign  such  amendment  or
supplemental indenture, the Trustee shall be entitled to receive and, subject to
Section 9.1,  shall be fully  protected in relying  upon,  an Opinion of Counsel
stating that such amendment or supplemental indenture is authorized or permitted
by this  Indenture.  The  Company  may not  sign an  amendment  or  supplemental
indenture until the Board of Directors approves it.

                                  ARTICLE XII
          REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL

Section 12.1  Change in Control Put

         (a) In the event  that a Change in Control  shall  occur,  each  Holder
shall have the right (a "Change in Control Repurchase  Right"),  at the Holder's
option,  but subject to the provisions of Section 12.1(a) hereof, to require the
Company to  repurchase,  and upon the  exercise of such right the Company  shall
repurchase,   all  of  such  Holder's  Securities  not  theretofore  called  for
redemption,  or any portion of the  principal  amount  thereof  that is equal to
$1,000 or an integral  multiple  thereof as directed by such Holder  pursuant to
Section 12.3  (provided  that no single  Securities  may be  repurchased in part
unless the portion of the principal  amount of such Securities to be outstanding
after such repurchase is equal to $1,000 or an integral  multiple  thereof),  on
the date (the  "Change in Control  Repurchase  Date") that is a Business  Day no
earlier than 30 days nor later than 60 days after the date of the Company Notice
at a  purchase  price  in cash  equal  to 100% of the  principal  amount  of the
Securities to be repurchased (the "Change in Control  Repurchase  Price"),  plus
accrued and unpaid interest (including  Contingent  Interest) to, but excluding,
the Change in Control Repurchase Date; provided,  however,  that installments of
interest (including  Contingent  Interest) on Securities whose Maturity is prior
to or on the Change in Control  Repurchase  Date shall be payable to the Holders
of such Securities, registered as such on the relevant regular record date.

         A "Change in Control"  shall be deemed to have occurred if, as a result
of any transaction or series of transactions,  any of the following occurs after
the date hereof:

                  (1) any "person" or "group" (as such terms are defined  below)
         is or becomes the "beneficial  owner" (as defined  below),  directly or
         indirectly,  of shares of Voting Stock of the Company  representing 50%
         or more of the total voting power of all outstanding  classes of Voting
         Stock of the Company or has the power, directly or indirectly, to elect
         a majority of the members of the Board of Directors of the Company; or

                  (2) the  Company  consolidates  with,  or merges with or into,
         another  Person or the  Company  sells,  assigns,  conveys,  transfers,
         leases or otherwise  disposes of all or substantially all of the assets

                                       60

         of the  Company,  or any Person  consolidates  with,  or merges with or
         into,  the  Company,  in  any  such  event  other  than  pursuant  to a
         transaction in which the Persons that "beneficially  owned" (as defined
         below),  directly or indirectly,  shares of Voting Stock of the Company
         immediately  prior to such transaction  "beneficially  own" (as defined
         below),  directly or indirectly,  shares of Voting Stock of the Company
         representing  at least a  majority  of the  total  voting  power of all
         outstanding  classes of Voting  Stock of the  surviving  or  transferee
         Person; or

                  (3) there shall occur the  liquidation  or  dissolution of the
         Company.

         For the purpose of the definition of "Change in Control",  (i) "person"
and "group" have the meanings  given such terms under Section 13(d) and 14(d) of
the Exchange Act or any successor provision to either of the foregoing,  and the
term "group" includes any group acting for the purpose of acquiring,  holding or
disposing  of  securities  within  the  meaning  of Rule  13d-5(b)(1)  under the
Exchange Act (or any successor  provision  thereto),  (ii) a "beneficial  owner"
shall be determined in accordance  with Rule 13d-3 under the Exchange Act, as in
effect on the date of this Indenture, except that the number of shares of Voting
Stock of the Company shall be deemed to include,  in addition to all outstanding
shares of Voting Stock of the Company and Unissued  Shares  deemed to be held by
the  "person" or "group" (as such terms are defined  above) or other Person with
respect to which the Change in Control determination is being made, all Unissued
Shares deemed to be held by all other Persons, and (iii) the terms "beneficially
owned"  and  "beneficially  own"  shall  have  meanings  correlative  to that of
"beneficial  owner". The term "Unissued Shares" means shares of Voting Stock not
outstanding  that are  subject  to  options,  warrants,  rights to  purchase  or
conversion privileges exercisable within 60 days of the date of determination of
a Change in Control.

         Notwithstanding  anything  to the  contrary  set forth in this  Section
12.1,  a Change in Control  will not be deemed to have  occurred  if the closing
price  (determined in accordance  with Section 4.6(d) of this  Indenture) of the
Common Stock for any five Trading Days within:

                           (i) the period of the ten  Trading  Days  immediately
                  after  the  later  of the  Change  in  Control  or the  public
                  announcement of the Change in Control, in the case of a Change
                  in Control  resulting  solely  from a Change in Control  under
                  Section 12.1(a)(1); or

                           (ii) the period of the ten Trading  Days  immediately
                  preceding  the Change in  Control,  in the case of a Change in
                  Control  resulting  from a Change  in  Control  under  Section
                  12.1(a)(2) or (3),

is at least equal to 105% of the Conversion Price in effect on such Trading Day.


         (b)  Within  10  Business  Days  after  the  occurrence  of a Change in
Control, the Company shall mail a written notice of the Change in Control to the
Trustee (and the Paying Agent if the Trustee is not then acting as Paying Agent)
and to each Holder (and to beneficial owners as required by applicable law). The
notice  shall  include the form of a Change in Control  Repurchase  Notice to be
completed by the Holder and shall state:

                                       61

                  (1) the date of such  Change  in  Control  and,  briefly,  the
         events causing such Change in Control;

                  (2) the date by which the Change in Control  Repurchase Notice
         pursuant to this Section 12.1 must be given;

                  (3) the Change in Control Repurchase Date;

                  (4) the Change in Control Repurchase Price;

                  (5) briefly, the conversion rights of the Securities;

                  (6) the name and address of each Paying  Agent and  Conversion
         Agent;

                  (7) the Conversion Price and any adjustments thereto;

                  (8) that Securities as to which a Change in Control Repurchase
         Notice has been given may be converted  into Common  Stock  pursuant to
         Article  IV of this  Indenture  only to the  extent  that the Change in
         Control  Repurchase  Notice has been  withdrawn in accordance  with the
         terms of this Indenture;

                  (9) the  procedures  that the Holder  must  follow to exercise
         rights under this Section 12.1;

                  (10)  the  procedures  for  withdrawing  a Change  in  Control
         Repurchase Notice, including a form of notice of withdrawal; and

                  (11) that the Holder must satisfy the  requirements  set forth
         in the Securities in order to convert the Securities.

         If any of the Securities is in the form of a Global Security,  then the
Company  shall  modify  such notice to the extent  necessary  to accord with the
procedures of the Depositary applicable to the repurchase of Global Securities.

         A Holder may exercise its rights  specified in  subsection  (a) of this
Section 12.1 upon delivery of a written notice (which shall be in  substantially
the form  included  in  Exhibit A hereto and which may be  delivered  by letter,
overnight courier, hand delivery, facsimile transmission or in any other written
form and, in the case of Global Securities,  may be delivered  electronically or
by other means in accordance with the Depositary's  customary procedures) of the
exercise of such rights (a "Change in Control Repurchase  Notice") to any Paying
Agent  at any time  prior to the  close of  business  on the  Business  Day next
preceding the Change in Control Repurchase Date.

         The delivery of such  Security to any Paying Agent  (together  with all
necessary  endorsements) at the office of such Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Repurchase Price therefor.

                                       62

         The Company shall  purchase from the Holder  thereof,  pursuant to this
Section 12.1, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of the Indenture that apply
to the purchase of all of a Security pursuant to Sections 12.1 through 12.6 also
apply to the purchase of such portion of such Security.

         Notwithstanding  anything herein to the contrary, any Holder delivering
to a Paying Agent the Change in Control  Repurchase Notice  contemplated by this
subsection  (c)  shall  have the  right  to  withdraw  such  Change  in  Control
Repurchase Notice in whole or in a portion thereof that is a principal amount of
$1,000 or in an  integral  multiple  thereof  at any time  prior to the close of
business on the Business  Day next  preceding  the Change in Control  Repurchase
Date by  delivery  of a written  notice of  withdrawal  to the  Paying  Agent in
accordance with Section 12.2.

         A Paying Agent shall  promptly  notify the Company of the receipt by it
of any Change in Control Repurchase Notice or written withdrawal thereof.

         Anything herein to the contrary notwithstanding,  in the case of Global
Securities,  any  Change  in  Control  Repurchase  Notice  may be  delivered  or
withdrawn and such  Securities  may be  surrendered or delivered for purchase in
accordance with the Applicable Procedures as in effect from time to time.

Section 12.2  Effect of Change in Control Repurchase Notice

         Upon  receipt by any Paying  Agent of the Change in Control  Repurchase
Notice  specified in Section  12.1(c),  the Holder of the Security in respect of
which such  Change in Control  Repurchase  Notice was given shall  (unless  such
Change in Control  Repurchase Notice is withdrawn as specified below) thereafter
be entitled to receive the Change in Control  Repurchase  Price with  respect to
such  Security.  Such Change in Control  Repurchase  Price shall be paid to such
Holder promptly following the later of (a) the Change in Control Repurchase Date
with respect to such Security  (provided the conditions in Section  12.1(c) have
been  satisfied) and (b) the time of delivery of such Security to a Paying Agent
by the Holder thereof in the manner required by Section  12.1(c).  Securities in
respect  of which a Change in  Control  Repurchase  Notice has been given by the
Holder  thereof may not be converted into shares of Common Stock on or after the
date of the  delivery of such Change in Control  Repurchase  Notice  unless such
Change in Control Repurchase Notice has first been validly withdrawn.

         A Change in Control  Repurchase  Notice may be  withdrawn by means of a
written  notice  (which may be  delivered  by letter,  overnight  courier,  hand
delivery,  facsimile  transmission or in any other written form and, in the case
of Global  Securities,  may be  delivered  electronically  or by other  means in
accordance with the Depositary's  customary  procedures) of withdrawal delivered
by the Holder to a Paying  Agent at any time prior to the close of  business  on
the Business Day immediately  preceding the Change in Control  Repurchase  Date,
specifying the principal  amount of the Security or portion  thereof (which must
be a  principal  amount of $1,000 or an  integral  multiple  of $1,000 in excess
thereof) with respect to which such notice of withdrawal is being submitted.

                                       63

Section 12.3  Deposit of Change in Control Repurchase Price

         On or before 11:00 a.m.,  New York City time,  on the Change in Control
Repurchase  Date,  the Company  shall  deposit with the Trustee or with a Paying
Agent (other than the Company or an Affiliate of the Company) an amount of money
(in immediately available funds if deposited on such Business Day) sufficient to
pay the aggregate  Change in Control  Repurchase  Price of all the Securities or
portions  thereof  that  are  to be  purchased  as of  such  Change  in  Control
Repurchase  Date. The manner in which the deposit  required by this Section 12.3
is made by the Company shall be at the option of the Company, provided that such
deposit  shall be made in a manner such that the Trustee or a Paying Agent shall
have immediately available funds on the Change in Control Repurchase Date.

         If a Paying Agent holds,  in accordance  with the terms  hereof,  money
sufficient  to pay the Change in Control  Repurchase  Price of any  Security for
which a Change in Control  Repurchase Notice has been tendered and not withdrawn
in accordance  with this  Indenture  then,  on the Change in Control  Repurchase
Date, such Security will cease to be outstanding and the rights of the Holder in
respect thereof shall  terminate  (other than the right to receive the Change in
Control Repurchase Price as aforesaid).  The Company shall publicly announce the
principal  amount of Securities  purchased as a result of such Change in Control
on or as soon as practicable after the Change in Control Repurchase Date.

Section 12.4  Securities Purchased in Part

         Any Security that is to be purchased  only in part shall be surrendered
at the  office  of a Paying  Agent and  promptly  after  the  Change in  Control
Repurchase Date the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security,  without service charge,  a new Security
or  Securities,  of such  authorized  denomination  or  denominations  as may be
requested  by such  Holder,  in  aggregate  principal  amount  equal to,  and in
exchange for, the portion of the principal amount of the Security so surrendered
that is not purchased.

Section 12.5  Compliance with Securities Laws Upon Purchase of Securities

         In  connection  with any offer to purchase  or  purchase of  Securities
under Section 12.1,  the Company shall (a) comply with Rule 13e-4 and Rule 14e-1
(or any successor to either such Rule),  if applicable,  under the Exchange Act,
(b) file the related Schedule TO (or any successor or similar schedule,  form or
report) if required  under the Exchange Act, and (c)  otherwise  comply with all
federal and state  securities  laws in connection with such offer to purchase or
purchase  of  Securities,  all so as to permit  the  rights of the  Holders  and
obligations  of the Company under  Sections 12.1 through 12.6 to be exercised in
the time and in the manner specified therein.

Section 12.6  Repayment to the Company

         To the  extent  that the  aggregate  amount  of cash  deposited  by the
Company  pursuant  to  Section  12.3  exceeds  the  aggregate  Change in Control
Repurchase Price together with interest (including Contingent Interest), if any,
thereon of the  Securities or portions  thereof that the Company is obligated to
purchase,  then promptly after the Change in Control Repurchase Date the Trustee
or a Paying Agent,  as the case may be, shall return any such excess cash to the
Company.

                                       64

                                  ARTICLE XIII
                                  MISCELLANEOUS

Section 13.1  Trust Indenture Act Controls

         If any provision of this Indenture limits,  qualifies or conflicts with
the duties imposed by any of Sections 310 to 317, inclusive,  of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.

Section 13.2  Notices

         Any  notice,  request or  communication  shall be given in writing  and
delivered in person or mailed by first-class mail, postage prepaid, addressed as
follows:

         If to the Company:

                           St. Mary Land &amp; Exploration Company
                           1776 Lincoln Street, Suite 1100
                           Denver, Colorado  80203
                           Attention:  Richard Norris
                           Telephone:  (303) 863-4334
                           Facsimile:  (303) 861-0934

         If to the Trustee:

                           Wells Fargo Bank West, N.A.
                           1740 Broadway, MAC: C7301-024
                           Denver, Colorado 80274
                           Attention:  Gretchen L. Middents
                           Telephone:  (303) 863-6450
                           Facsimile:  (303) 863-5645

         Such notices or communications shall be effective when received.

         The  Company  or the  Trustee  by notice  to the  other  may  designate
additional or different addresses for subsequent notices or communications.

         Any notice or communication  mailed to a Securityholder shall be mailed
by  first-class  mail to it at its  address  shown on the  Register  kept by the
Primary Registrar.

         Failure to mail a notice or communication  to a  Securityholder  or any
defect  in  it  shall  not  affect  its   sufficiency   with  respect  to  other
Securityholders.  If a notice or communication to a Securityholder  is mailed in
the manner  provided  above,  it is duly  given,  whether  or not the  addressee
receives it.

                                       65

Section 13.3  Communications By Holders With Other Holders

         Securityholders  may  communicate  pursuant to TIA Section  312(b) with
other  Securityholders  with respect to their rights under this Indenture or the
Securities.  The Company,  the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).

Section 13.4  Certificate and Opinion as to Conditions Precedent

         (a) Upon any  request or  application  by the Company to the Trustee to
take any action under this  Indenture,  the Company shall furnish to the Trustee
at the request of the Trustee:

                  (1) an Officers'  Certificate  stating that, in the opinion of
         the  signers,   all  conditions  precedent  (including  any  covenants,
         compliance  with which  constitutes  a  condition  precedent),  if any,
         provided for in this  Indenture  relating to the  proposed  action have
         been complied with; and

                  (2) an Opinion of Counsel stating that, in the opinion of such
         counsel,  all  such  conditions  precedent  (including  any  covenants,
         compliance  with which  constitutes  a condition  precedent)  have been
         complied with.

         (b) Each Officers'  Certificate  and Opinion of Counsel with respect to
compliance  with a condition or covenant  provided for in this  Indenture  shall
include:

                  (1) a statement  that the person  making such  certificate  or
         opinion has read such covenant or condition;

                  (2) a  brief  statement  as to the  nature  and  scope  of the
         examination  or  investigation  upon which the  statements  or opinions
         contained in such certificate or opinion are based;

                  (3) a statement that, in the opinion of such person, he or she
         has made such  examination or  investigation  as is necessary to enable
         him or her to  express  an  informed  opinion as to whether or not such
         covenant or condition has been complied with; and

                  (4) a  statement  as to whether or not, in the opinion of such
         person,  such condition or covenant has been complied  with;  provided,
         however, that with respect to matters of fact an Opinion of Counsel may
         rely on an Officers' Certificate or certificates of public officials.

Section 13.5  Record Date for Vote or Consent of Securityholders

         The  Company  (or,  in the event  deposits  have been made  pursuant to
Section 10.1, the Trustee) may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized  or permitted  under this  Indenture,  which record date shall not be
more than thirty (30) days prior to the date of the commencement of solicitation
of such action. Notwithstanding the provisions of Section 11.4, if a record date
is fixed,  those persons who were Holders of Securities at the close of business
on such record date (or their duly designated proxies),  and only those persons,
shall be  entitled  to take such action by vote or consent or to revoke any vote
or consent previously given,  whether or not such persons continue to be Holders
after such record date.

                                       66

Section 13.6  Rules By Trustee, Paying Agent, Registrar and Conversion Agent

         The Trustee may make reasonable rules (not  inconsistent with the terms
of this  Indenture)  for action by or at a meeting of  Holders.  Any  Registrar,
Paying Agent or Conversion Agent may make reasonable rules for its functions.

Section 13.7  Legal Holidays

         A "Legal  Holiday"  is a  Saturday,  Sunday or a day on which  state or
federally chartered banking  institutions in New York, New York and the state in
which the  Corporate  Trust Office is located are not required to be open.  If a
payment date is a Legal  Holiday,  payment shall be made on the next  succeeding
day  that  is not a  Legal  Holiday,  and  no  interest  shall  accrue  for  the
intervening period. If a Regular Record Date is a Legal Holiday, the Record Date
shall not be affected.

Section 13.8  Governing Law

         This Indenture and the  Securities  shall be governed by, and construed
in  accordance  with,  the laws of the  State of New  York,  without  regard  to
principles of conflicts of laws.

Section 13.9  No Adverse Interpretation of Other Agreements

         This Indenture may not be used to interpret another indenture,  loan or
debt  agreement  of the  Company  or a  Subsidiary  of  the  Company.  Any  such
indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 13.10  No Recourse Against Others

         All  liability  described  in  paragraph  18 of the  Securities  of any
director,  officer,  employee or shareholder,  as such, of the Company is waived
and released.

Section 13.11 Successors

         All  agreements  of the Company in this  Indenture  and the  Securities
shall bind its successor.  All agreements of the Trustee in this Indenture shall
bind its successor.

Section 13.12  Multiple Counterparts

         The parties may sign  multiple  counterparts  of this  Indenture.  Each
signed  counterpart  shall  be  deemed  an  original,  but all of them  together
represent the same agreement.

Section 13.13  Separability

         In case any provisions in this Indenture or in the Securities  shall be
invalid, illegal or unenforceable,  the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

                                       67

Section 13.14  Table of Contents, Headings, Etc.

         The  table of  contents,  cross-reference  sheet  and  headings  of the
Articles and Sections of this  Indenture  have been inserted for  convenience of
reference  only,  are not to be  considered a part  hereof,  and shall in no way
modify or restrict any of the terms or provisions hereof.

                                       68

         IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date and year first above written.

                                ST. MARY LAND &amp; EXPLORATION COMPANY

                                By:     /s/ RICHARD C. NORRIS
                                       -----------------------------------------
                                       Name: Richard C. Norris
                                       Title:Vice President - Finance

                                WELLS FARGO BANK WEST, N.A., as Trustee

                                By:     /s/ GRETCHEN L. MIDDENTS
                                       -----------------------------------------
                                       Name: Gretchen L. Middents
                                       Title:Vice President

                                       69

                                   EXHIBIT A
                           [FORM OF FACE OF SECURITY]

         [UNLESS THIS  CERTIFICATE IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE
OF THE DEPOSITORY  TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER,  EXCHANGE OR PAYMENT,  AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE &amp;  CO. OR IN SUCH OTHER NAME AS IS REQUESTED  BY AN  AUTHORIZED
REPRESENTATIVE  OF THE DEPOSITORY  TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE  &amp;  CO. OR TO SUCH OTHER  ENTITY AS IS  REQUESTED  BY AN  AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY),  ANY TRANSFER,  PLEDGE OR OTHER
USE HEREOF FOR VALUE OR  OTHERWISE  BY OR TO ANY  PERSON IS  WRONGFUL  SINCE THE
REGISTERED OWNER HEREOF,  CEDE &amp; CO., HAS AN INTEREST HEREIN.  THIS SECURITY
IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS  REGISTERED  IN THE  NAME OF A  DEPOSITARY  OR A  NOMINEE  THEREOF.  THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED  CIRCUMSTANCES  DESCRIBED
IN THE INDENTURE  AND,  UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED  EXCEPT AS A
WHOLE BY THE  DEPOSITARY  TO A NOMINEE OF THE  DEPOSITARY OR BY A NOMINEE OF THE
DEPOSITARY  TO THE  DEPOSITARY  OR ANOTHER  NOMINEE OF THE  DEPOSITARY OR BY THE
DEPOSITARY  OR ANY SUCH NOMINEE TO A SUCCESSOR  DEPOSITARY  OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY.]1

         [THIS  SECURITY  (OR  ITS  PREDECESSOR)  WAS  ORIGINALLY  ISSUED  IN  A
TRANSACTION  EXEMPT FROM REGISTRATION  UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE  "SECURITIES  ACT"),  AND THIS SECURITY AND THE SHARES OF COMMON STOCK
ISSUABLE  UPON  CONVERSION  THEREOF  MAY  NOT  BE  OFFERED,  SOLD  OR  OTHERWISE
TRANSFERRED  IN THE  ABSENCE OF SUCH  REGISTRATION  OR AN  APPLICABLE  EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION  FROM THE  PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

         THE HOLDER OF THIS SECURITY  AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS  SECURITY  AND THE  SHARES OF COMMON  STOCK  ISSUABLE  UPON  CONVERSION
THEREOF MAY BE OFFERED,  RESOLD, PLEDGED OR OTHERWISE  TRANSFERRED,  ONLY (I) IN
THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL  BUYER (AS  DEFINED  IN RULE 144A UNDER THE  SECURITIES  ACT) IN A
TRANSACTION  MEETING  THE  REQUIREMENTS  OF RULE 144A,  (II)  OUTSIDE THE UNITED
STATES  IN AN  OFFSHORE  TRANSACTION  IN  ACCORDANCE  WITH  RULE 904  UNDER  THE
SECURITIES  ACT,  (III)  PURSUANT TO AN EXEMPTION  FROM  REGISTRATION  UNDER THE

- -----------------------------------------------------------
1 This paragraph should be included only if the Security is a Global Security.

                                      A-1

SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE), (IV) IN THE UNITED STATES TO
AN INSTITUTIONAL  "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),  (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES  ACT) THAT,  PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER  CONTAINING  CERTAIN  REPRESENTATIONS  AND
AGREEMENTS RELATING TO THE REGISTRATION OF TRANSFER OF SUCH NOTES AND AN OPINION
OF COUNSEL  ACCEPTABLE TO THE COMPANY THAT SUCH  TRANSFER IS IN COMPLIANCE  WITH
THE SECURITIES ACT, OR (V) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE  SECURITIES  ACT, IN EACH OF CASES (I) THROUGH  (V) IN  ACCORDANCE  WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL,  AND EACH  SUBSEQUENT  HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]

         [THE  HOLDER  OF  THIS  SECURITY  IS  ENTITLED  TO  THE  BENEFITS  OF A
REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED
TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE  HEREOF,  AGREES TO BE BOUND BY
AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.]2

- -----------------------------------------------------------
2 These paragraphs to be  included only if the Security is a Transfer Restricted
  Security.

                                      A-2

                       ST. MARY LAND &amp; EXPLORATION COMPANY

CUSIP:  792 228 AA6                                               R-____________

                     5.75% SENIOR CONVERTIBLE NOTES DUE 2021

         St.  Mary Land &amp; Exploration Company, a Delaware  corporation  (the
"Company",  which  term  shall  include  any  successor  corporation  under  the
Indenture   referred   to  on  the   reverse   hereof),   promises   to  pay  to
__________________________,   or  registered  assigns,   the  principal  sum  of
_____________________________  Dollars  ($__________) on March 15, 2022 [or such
greater  or lesser  amount as is  indicated  on the  Schedule  of  Exchanges  of
Securities on the other side of this Security].3

         Interest Payment Dates: March 15 and September 15

         Regular Record Dates: March 1 and September 1

         This  Security is  convertible  as  specified on the other side of this
Security. Additional provisions of this Security are set forth on the other side
of this Security.

         IN WITNESS  WHEREOF,  the Company has caused this instrument to be duly
executed.

                               ST. MARY LAND &amp; EXPLORATION COMPANY


                               By:
                                      ------------------------------------------
                                      Name:
Attest:                               Title:

By:
      -------------------------------------------
      Name:
      Title:

Dated:
       ------------------------------------------

Trustee's Certificate of Authentication:  This is one of the Securities referred
to in the within-mentioned Indenture.

WELLS FARGO BANK WEST, N.A., as Trustee


      Authorized Signatory

By:
      -------------------------------------------

- -----------------------------------------------------------
3 This phrase should be included only if the Security is Global Security.

                                      A-3

                       [FORM OF REVERSE SIDE OF SECURITY]

                       ST. MARY LAND &amp; EXPLORATION COMPANY
                     5.75% SENIOR CONVERTIBLE NOTES DUE 2022

         1. Interest (Including Contingent Interest)

         St.  Mary Land &amp; Exploration Company, a Delaware  corporation  (the
"Company",  which  term  shall  include  any  successor  corporation  under  the
Indenture  hereinafter  referred to),  promises to pay interest on the principal
amount of this Security at the rate of 5.75% per annum. In addition, the Company
will pay contingent interest ("Contingent Interest"), subject to the accrual and
record date provisions  described above, to the holders of Securities during any
six-month  period from March 15 to September  14 and from  September 15 to March
14, as appropriate, commencing with the six-month period beginning September 15,
2002,  if the average  Trading  Price of  Securities  for the five  Trading Days
ending on the second  Trading Day  immediately  preceding  the  beginning of the
relevant  six-month  period  equals  120%  or more of the  principal  amount  of
Securities.   Contingent  Interest  will  accrue  on  this  Security  under  the
conditions specified in the Indenture and in this Note at a rate per annum equal
to the greater of (i) cash  dividends,  if any, paid by the Company per share of
its common stock, par value $.01 per share, during such period multiplied by the
then applicable  Conversion Rate (as defined in the Indenture referred to below)
and divided by $1,000 and (ii) a per annum rate equal to 5.00% of the  Company's
estimated  per  annum  borrowing  rate for  senior  non-convertible  fixed  rate
Indebtedness  with a Maturity  comparable to this Security,  but in no event may
the rate of Contingent  Interest  exceed a per annum rate of 0.50%.  The Company
shall pay  interest  semiannually  on March 15 and  September  15 of each  year,
commencing September 15, 2002. The Company shall make all determinations related
to the  payment  of  Contingent  Interest  and shall  file with the  Trustee  an
Officers'   Certificate   setting  forth  the  calculations   relevant  to  such
determinations. Interest (including Contingent Interest) on the Securities shall
accrue  from the most  recent  date to which  interest  has been  paid or, if no
interest has been paid, from March 13, 2002; provided, however, that if there is
not an  existing  default  in the  payment  of  interest  (including  Contingent
Interest) and if this Security is  authenticated  between a Regular  Record Date
referred to on the face hereof and the next  succeeding  Interest  Payment Date,
interest  shall accrue from such  Interest  Payment  Date.  Interest  (including
Contingent  Interest)  will be computed on the basis of a 360-day year of twelve
30-day  months.  Any reference  herein to interest  accrued or payable as of any
date shall  include any  Liquidated  Damages  accrued or payable on such date as
provided in the Registration Rights Agreement.

         If any Security is surrendered for conversion subsequent to the Regular
Record Date preceding an Interest  Payment Date but on or prior to such Interest
Payment Date (except Security called for redemption on a Redemption Date between
such Regular Record Date and Interest Payment Date), the Holder of such Security
at the close of  business  on such  Regular  Record  Date shall be  entitled  to
receive the interest (including Contingent Interest) payable on such Security on
such Interest Payment Date  notwithstanding the conversion thereof. Any Security
surrendered  for conversion  during the period from the close of business on any
Regular Record Date next  preceding any Interest  Payment Date to the opening of
business on such  Interest  Payment Date shall (except in the case of Securities
which have been called for  redemption on a Redemption  Date within such period)

                                      A-4

be  accompanied by payment in New York Clearing House funds or other funds of an
amount equal to the interest  (including  Contingent  Interest)  payable on such
Interest Payment Date on the Security being  surrendered for conversion.  Except
as provided in this Security or in the  Indenture,  no adjustments in respect of
payments of interest  (including for conversion on any dividend or distributions
or interest  (including  Contingent  Interest)) on any Security  surrendered for
conversion on any dividend or  distributions or interest  (including  Contingent
Interest)  on the Common  Stock  issued upon  conversion  shall be made upon the
conversion of any Security.

         All  percentages  resulting from any  calculation  with respect to this
Security will be rounded, if necessary, to the nearest one hundred-thousandth of
a percentage point (with five one-millionths of a percentage point being rounded
upward) and all dollar  amounts used in or resulting  from any such  calculation
with respect to this Security will be rounded to the nearest cent (with one-half
cent being rounded upward.)

         2. Method of Payment

         The Company  shall pay  interest  on this  Security  (except  defaulted
interest)  to the  person  who is the  Holder of this  Security  at the close of
business  on March 1 or  September  1, as the case may be,  next  preceding  the
related  Interest  Payment Date.  The Holder must  surrender  this Security to a
Paying Agent to collect payment of principal. The Company will pay principal and
interest  in money of the  United  States  that at the time of  payment is legal
tender for payment of public and private debts.  The Company may,  however,  pay
principal and interest in respect of any Certificated  Security by check or wire
payable  in such  money;  provided,  however,  that a Holder  with an  aggregate
principal  amount in  excess  of  $2,000,000  will be paid by wire  transfer  in
immediately available funds at the election of such Holder. The Company may mail
an  interest  check to the  Holder's  registered  address.  Notwithstanding  the
foregoing, so long as this Security is registered in the name of a Depositary or
its nominee,  all payments  hereon shall be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee.

         3. Paying Agent, Registrar And Conversion Agent

         Initially, Wells Fargo Bank West, N.A. (the "Trustee," which term shall
include any successor trustee under the Indenture  hereinafter referred to) will
act as Paying Agent,  Registrar and Conversion Agent. The Company may change any
Paying Agent,  Registrar or Conversion  Agent without notice to the Holder.  The
Company or any of its Subsidiaries may, subject to certain limitations set forth
in the Indenture, act as Paying Agent or Registrar.

         4. Indenture, Limitations

         This  Security is one of a duly  authorized  issue of Securities of the
Company  designated  as  its  5.75%  Senior  Convertible  Notes  due  2022  (the
"Securities"),  issued under an Indenture  dated as of March 13, 2002  (together
with any supplemental indentures thereto, the "Indenture"),  between the Company
and the  Trustee.  The  terms  of this  Security  include  those  stated  in the
Indenture  and those  required by or made part of the  Indenture by reference to
the Trust  Indenture  Act of 1939,  as amended,  as in effect on the date of the

                                      A-5

Indenture.  This  Security is subject to all such terms,  and the Holder of this
Security is referred to the Indenture and said Act for a statement of them.

         The Securities are senior unsecured  obligations of the Company limited
to  $75,000,000  aggregate  principal  amount,  subject  to  Section  2.2 of the
Indenture.  The Indenture  does not limit other debt of the Company,  secured or
unsecured.

         5. Optional Redemption

         The Securities are subject to redemption, at any time on or after March
20, 2007,  on at least 20 days and no more than 60 days  notice,  in whole or in
part, at the election of the Company, at a Redemption Price equal to 100% of the
principal amount thereof,  together with accrued interest (including  Contingent
Interest) up to but not  including  the  Redemption  Date;  provided that if the
redemption  date is an Interest  Payment  Date,  interest will be payable to the
Holders in whose names the Securities are registered at the close of business on
the relevant record dates.

         6. Notice of Redemption

         Notice of  redemption  will be mailed by  first-class  mail at least 20
days but not more than 60 days  before  the  Redemption  Date to each  Holder of
Securities to be redeemed at its registered address. Securities in denominations
larger  than  $1,000 may be redeemed  in part,  but only in whole  multiples  of
$1,000. On and after the Redemption Date, subject to the deposit with the Paying
Agent of funds sufficient to pay the Redemption Price plus accrued interest,  if
any,  accrued to, but excluding,  the Redemption  Date,  interest shall cease to
accrue on Securities or portions of them called for redemption.

         7. Repurchase of Securities by the Company at Option of Holder

         (a) Subject to the terms and  conditions  of the  Indenture  and at the
option of the Holder,  on March 20, 2007,  on March 15, 2012 and March 15, 2017,
the Company shall become obligated to purchase all of such Holder's  Securities,
or any portion of the  principal  amount  thereof  that is equal to any integral
multiple of $1,000,  at a Repurchase Price equal to 100% of the principal amount
of the Securities to be repurchased, plus accrued and unpaid interest (including
Contingent Interest) to, but excluding, March 20, 2007, March 15, 2012 and March
15, 2017,  as the case may be. On March 20, 2007,  the  Repurchase  Price may be
paid,  at the option of the  Company,  in cash or by the  issuance  of shares of
Common Stock, or in any combination  thereof,  in accordance with the Indenture.
On March 15, 2012 and March 15, 2017, the Repurchase  Price must be paid in cash
only.

         (b) In addition,  subject to the terms and  conditions of the Indenture
and at the  option  of the  Holder,  following  the  occurrence  of a Change  in
Control,  the Company  shall become  obligated to purchase all of such  Holder's
Securities,  or any portion of the principal amount thereof that is equal to any
integral  multiple of $1,000,  on the date that is 45 days after the date of the
Company  Notice given in connection  with such Change in Control at a repurchase
price equal to 100% of the principal amount of the Securities to be repurchased,
plus  accrued  and  unpaid  interest  (including  Contingent  Interest)  to, but
excluding, the Change in Control Repurchase Date.

                                      A-6

         8. Conversion

         Subject to compliance with the provisions of the Indenture, a Holder of
a Security  may convert the  principal  amount of such  Security (or any portion
thereof  equal to $1,000 or any integral  multiple of $1,000 in excess  thereof)
into  shares of Common  Stock at the  Conversion  Price in effect at the time of
conversion  under certain  circumstances  described in the Indenture;  provided,
however,  that if the Security is called for redemption or subject to repurchase
upon a specific  date pursuant to Article V of the Indenture or upon a Change in
Control,  the  conversion  right will  terminate at the close of business on the
Business Day immediately  preceding the redemption date or the Change in Control
Repurchase  Date,  as the case may be, for such Security or such earlier date as
the Holder presents such Security for redemption or purchase (unless the Company
shall default in making the redemption  payment,  Optional  Repurchase  Price or
Change in Control  Repurchase Price, as the case may be, when due, in which case
the conversion  right shall  terminate at the close of business on the date such
default is cured and such Security is redeemed or purchased).

         The Company will notify  Holders of any event  triggering  the right to
convert the Security as specified above in accordance with the Indenture.

         A  Security  in respect of which a Holder  has  delivered  an  Optional
Repurchase Notice or a Change in Control Repurchase Notice exercising the option
of such  Holder to  require  the  Company to  repurchase  such  Security  may be
converted  only if such notice of exercise is withdrawn in  accordance  with the
terms of the Indenture.

         The initial Conversion Price is $26.00 per share, subject to adjustment
under certain circumstances.  The number of shares of Common Stock issuable upon
conversion of a Security is  determined by dividing the principal  amount of the
Security or portion thereof  converted by the Conversion  Price in effect on the
Conversion Date. No fractional  shares will be issued upon  conversion;  in lieu
thereof, an amount will be paid in cash based upon the closing price (as defined
in the  Indenture) of the Common Stock on the Trading Day  immediately  prior to
the Conversion Date.

         To convert a Security, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to a Conversion Agent,
(b)  surrender  the  Security to a  Conversion  Agent,  (c) furnish  appropriate
endorsements  and transfer  documents if required by a Registrar or a Conversion
Agent,  and (d) pay any  transfer or similar  tax, if  required.  Securities  so
surrendered  for  conversion  (in whole or in part)  during the period  from the
close of business  on any Regular  Record Date to the opening of business on the
next succeeding Interest Payment Date (excluding  Securities or portions thereof
called for redemption or subject to repurchase  upon a specific date pursuant to
Article V of the  Indenture  or upon a Change in Control on a  Redemption  Date,
Optional  Repurchase Date or Change in Control  Repurchase Date, as the case may
be,  during the period  beginning  at the close of business on a Regular  Record
Date and ending at the opening of business on the first  Business  Day after the
next succeeding Interest Payment Date, or if such Interest Payment Date is not a
Business Day, the second such Business Day) shall also be accompanied by payment
in funds acceptable to the Company of an amount equal to the interest payable on
such Interest  Payment Date on the principal  amount of such Security then being
converted,  and  such  interest  shall  be  payable  to such  registered  Holder
notwithstanding  the conversion of such  Security,  subject to the provisions of
this Indenture relating to the payment of defaulted interest by the Company.  If
the Company defaults in the payment of interest (including  Contingent Interest)
payable on such Interest  Payment Date,  the Company shall  promptly  repay such
funds to such  Holder.  A Holder may  convert a portion  of a Security  equal to
$1,000 or any integral multiple thereof.

                                      A-7

         9. Conversion Arrangement on Call for Redemption

         Any Securities called for redemption, unless surrendered for conversion
before the close of business  on the  Business  Day  immediately  preceding  the
Redemption  Date,  may be  deemed  to be  purchased  from  the  Holders  of such
Securities  at an  amount  not less than the  Redemption  Price,  together  with
accrued interest, if any, to, but not including,  the Redemption Date, by one or
more  investment  bankers or other  purchasers who may agree with the Company to
purchase such Securities from the Holders,  to convert them into Common Stock of
the Company and to make payment for such Securities to the Paying Agent in trust
for such Holders.

         10. Tax Treatment

         The  Company  agrees,  and  by  acceptance  of a  beneficial  ownership
interest in the Securities each  beneficial  holder of Securities will be deemed
to have agreed,  for United States  federal income tax purposes (1) to treat the
Securities as  indebtedness  that is subject to Treas.  Reg. Sec.  1.1275-4 (the
"Contingent  Payment  Regulations")  and, for purposes of the Contingent Payment
Regulations,  to treat the fair market value of any stock beneficially  received
by a beneficial  holder upon any  conversion  of the  Securities as a contingent
payment and (2) to be bound by the Company's  determination  of the  "comparable
yield" and "projected  payment  schedule,"  within the meaning of the Contingent
Payment Regulations,  with respect to the Securities. A Holder of Securities may
obtain the amount of the original issue discount, issue date, yield to maturity,
comparable yield and projected payment by submitting a written request for it to
the Company at the following address:  St. Mary Land &amp;  Exploration Company,
176 Lincoln  Street,  Suite  1100,  Denver,  Colorado  80203,  Attention:  Chief
Financial Officer.

         11. Denominations, Transfer, Exchange

         The Securities are in registered form without coupons in  denominations
of $1,000 and integral  multiples of $1,000.  A Holder may register the transfer
of or exchange  Securities in accordance  with the Indenture.  The Registrar may
require a Holder,  among other things, to furnish  appropriate  endorsements and
transfer documents and to pay any taxes or other  governmental  charges that may
be imposed in relation thereto by law or permitted by the Indenture.

         12. Persons Deemed Owners

The Holder of a Security may be treated as the owner of it for all purposes.

         13. Unclaimed Money

         If money for the payment of principal or interest (including Contingent
Interest)  remains unclaimed for two years, the Trustee or Paying Agent will pay
the money back to the  Company  at its  written  request.  After  that,  Holders
entitled to money must look to the Company for payment.

                                      A-8

         14. Amendment, Supplement and Waiver

         Subject to certain  exceptions,  the Indenture or the Securities may be
amended or  supplemented  with the consent of the Holders of at least a majority
in principal amount of the Securities then outstanding,  and an existing default
or Event of Default and its  consequence or compliance with any provision of the
Indenture  or the  Securities  may be waived in a particular  instance  with the
consent of the Holders of a majority in principal  amount of the Securities then
outstanding. Without the consent of or notice to any Holder, the Company and the
Trustee may amend or supplement  the Indenture or the Securities to, among other
things,  cure any ambiguity,  defect or  inconsistency  or make any other change
that does not adversely affect the rights of any Holder.

         15. Successor Corporation

         When  a  successor  corporation  assumes  all  the  obligations  of its
predecessor  under the Securities and the Indenture in accordance with the terms
and conditions of the Indenture,  the  predecessor  corporation  will (except in
certain  circumstances  specified  in the  Indenture)  be  released  from  those
obligations.

         16. Defaults and Remedies

         Under the Indenture,  an Event of Default  includes:  1. default for 30
days  in  payment  of  any  interest  (including  Contingent  Interest)  on  any
Securities;  1.  default  in  payment  of  any  principal  (including,   without
limitation,  any premium,  if any) on the Securities when due; 1. failure by the
Company  for 60  days  after  notice  to it to  comply  with  any  of its  other
agreements  contained in the  Indenture or the  Securities;  1. a default  which
involves  the  failure  to  pay  principal  of or any  premium  or  interest  on
Indebtedness  of the  Company  and its  Subsidiaries,  or which  results  in the
acceleration  of  such  Indebtedness  prior  to its  stated  maturity,  if  such
Indebtedness aggregates $10 million or more; 1. failure by the Company or any of
its  Subsidiaries to pay final  judgments  aggregating in excess of $10 million,
which  judgments are not paid,  discharged or stayed for a period of 60 days; 1.
certain events of bankruptcy, insolvency or reorganization of the Company. If an
Event of  Default  (other  than as a result of  certain  events  of  bankruptcy,
insolvency or reorganization  of the Company or any of its Subsidiaries)  occurs
and is  continuing,  the  Trustee or the  Holders  of at least 25% in  principal
amount of the Securities then  outstanding  may declare all unpaid  principal to
the  date of  acceleration  on the  Securities  then  outstanding  to be due and
payable immediately,  all as and to the extent provided in the Indenture.  If an
Event of Default occurs as a result of certain events of bankruptcy,  insolvency
or  reorganization  of the  Company,  unpaid  principal of the  Securities  then
outstanding shall become due and payable  immediately without any declaration or
other act on the part of the  Trustee  or any  Holder,  all as and to the extent
provided  in the  Indenture.  Holders  may  not  enforce  the  Indenture  or the
Securities  except  as  provided  in the  Indenture.  The  Trustee  may  require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities then  outstanding may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing default
(except a default in payment of  principal  or  interest  (including  Contingent
Interest)) if it determines that withholding  notice is in their interests.  The
Company is required to file periodic  reports with the Trustee as to the absence
of default.

                                      A-9

         17. Trustee Dealings with the Company

         Wells Fargo Bank West,  N.A., the Trustee under the  Indenture,  in its
individual or any other  capacity,  may make loans to, accept  deposits from and
perform  services  for the  Company  or an  Affiliate  of the  Company,  and may
otherwise  deal with the Company or an Affiliate  of the Company,  as if it were
not the Trustee.

         18. No Recourse Against Others

         A director,  officer, employee or shareholder,  as such, of the Company
shall  not have any  liability  for any  obligations  of the  Company  under the
Securities  or the  Indenture  nor for any claim  based on, in  respect of or by
reason of such  obligations  or their  creation.  The Holder of this Security by
accepting this Security waives and releases all such  liability.  The waiver and
release are part of the consideration for the issuance of this Security.

         19. Authentication

         This Security shall not be valid until the Trustee or an authenticating
agent manually signs the certificate of authentication on the other side of this
Security.

         20. Abbreviations and Definitions

         Customary  abbreviations  may be used in the name of the  Holder  or an
assignee,  such as:  TEN COM (= tenants  in  common),  TEN ENT (= tenants by the
entireties),  JT TEN (= joint  tenants  with  right of  survivorship  and not as
tenants in common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act).

         All terms  defined in the  Indenture  and used in this Security but not
specifically  defined herein are defined in the Indenture and are used herein as
so defined.

         21. Indenture to Control; Governing Law

         In the case of any conflict between the provisions of this Security and
the  Indenture,  the provisions of the Indenture  shall  control.  This Security
shall be governed by, and construed in accordance with, the laws of the State of
New York, without regard to principles of conflicts of law.

         The  Company  will  furnish to any  Holder,  upon  written  request and
without charge, a copy of the Indenture.  Requests may be made to: St. Mary Land
&amp;  Exploration Company,  1776 Lincoln Street,  Suite 1100, Denver,  Colorado
80203, Attention: Chief Financial Officer.

                                      A-10


                                 ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to


- --------------------------------------------------------------------------------
                  (Insert assignee's soc. sec. or tax I.D. no.)






- --------------------------------------------------------------------------------
              (Print or type assignee's name, address and zip code)

and irrevocably appoint
                        --------------------------------------------------------
agent to  transfer  this  Security  on the books of the  Company.  The agent may
substitute another to act for him or her.

                                     Your Signature:


Date:
      ----------------------------   -------------------------------------------
                                     (Sign  exactly as your name appears on the
                                     other side of this Security)

*Signature guaranteed by:


By:
      ----------------------------

- -----------------------------------------------------------
* The signature must be guarnteed by an institution  which is a member of one of
the following recognized signature guaranty programs:(i) the Securities Transfer
Agent  Medallion  Program  (STAMP);(ii)  the New York stock  Exchange  Medallion
Program  (MSP);(iii)  the Stock Exchange  Medallion  Program  (SEMP;or (iv) such
other guaranty program acceptable to the Trustee.

                                      A-11


                                CONVERSION NOTICE

         To convert this  Security  into Common Stock of the Company,  check the
box: |_|

         To convert only part of this Security, state the principal amount to be
converted (must be $1,000 or a multiple of $1,000): $____________.

         If you want the stock  certificate  made out in another  person's name,
fill in the form below:


- --------------------------------------------------------------------------------
                  (Insert assignee's soc. sec. or tax I.D. no.)






- --------------------------------------------------------------------------------
              (Print or type assignee's name, address and zip code)


                                        Your Signature:


Date:
      -----------------------------     ----------------------------------------
                                        (Sign  exactly as your name  appears  on
                                        the other side of this Security)

*Signature guaranteed by:


By:
      -----------------------------

- -----------------------------------------------------------
* The signature must be guarnteed by an institution  which is a member of one of
the following recognized signature guaranty programs:(i) the Securities Transfer
Agent  Medallion  Program  (STAMP);(ii)  the New York stock  Exchange  Medallion
Program  (MSP);(iii)  the Stock Exchange  Medallion  Program  (SEMP;or (iv) such
other guaranty program acceptable to the Trustee.

                                      A-12


    OPTION TO ELECT REPURCHASE UPON A CHANGE IN CONTROL OR ON SPECIFIC DATES

To:      St. Mary Land &amp; Exploration Company

         To elect to have this  Security  purchased  by the Company  pursuant to
Article V  (Repurchase  at Option of Holder on  Specific  Dates) or Article  XII
(Repurchase  at Option of Holder  Upon a Change in  Control)  of the  Indenture,
check the applicable box:

         |_|   Article V (Repurchase at Option of Holder on Specific Dates)

         |_|   Article XII (Repurchase  at  Option  of Holder  Upon a  Change in
               Control)


Date:
      ----------------------------  --------------------------------------------


                                    --------------------------------------------
                                    Signature(s)

                                    Signature(s)   must  be   guaranteed   by  a
                                    qualified    guarantor    institution   with
                                    membership   in   an   approved    signature
                                    guarantee  program  pursuant to Rule 17Ad-15
                                    under the Securities Exchange Act of 1934.

                                    --------------------------------------------
                                    Signature Guaranty



Principal amount to be redeemed
( in  an  integral  multiple of
$1,000, if less than all):

- ----------------------------------


Notice: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.

                                      A-13


SCHEDULE OF EXCHANGES OF NOTES4

         The following exchanges, redemptions, repurchases or conversions of a
part of this global Security have been made:

   Principal Amount of this
  Global Security Following                                     Amount of Decrease in        Amount of Increase in
    Such Decrease Date of         Authorized Signatory of     Principal Amount of this     Principal Amount of this
    Exchange (or Increase)         Securities Custodian            Global Security              Global Security
- -------------------------------------------------------------------------------------------------------------------




- -----------------------------------------------------------
4 This schedule should be included only if the Security is Global Security.


                                      A-14


            CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
                 OF TRANSFER OF TRANSFER RESTRICTED SECURITIES5

Re:      5.75% Senior  Convertible Notes due 2022 (the "Securities") of St. Mary
         Land &amp; Exploration Company

         This  certificate  relates to $_______  principal  amount of Securities
owned in (check applicable box)

         |_|  book-entry or |_|  definitive  form by  ____________________  (the
                                 "Transferor").

         The  Transferor has requested a Registrar or the Trustee to exchange or
register the transfer of such Securities.

         In connection  with such request and in respect of each such  Security,
the Transferor does hereby certify that the Transferor is familiar with transfer
restrictions  relating  to the  Securities  as  provided  in Section  2.6 of the
Indenture  dated as of March 13, 2002  between  St. Mary Land &amp;  Exploration
Company and Wells Fargo Bank West, N.A. (the  "Indenture"),  and the transfer of
such  Security is being made  pursuant to an  effective  registration  statement
under the  Securities  Act of 1933,  as amended  (the  "Securities  Act") (check
applicable  box) or the  transfer  or  exchange,  as the  case  may be,  of such
Security does not require  registration  under the Securities Act because (check
applicable box):

         |_|  Such  Security  is  being  transferred  pursuant  to an  effective
registration statement under the Securities Act.

         |_| Such Security is being acquired for the  Transferor's  own account,
without transfer.

         |_| Such Security is being  transferred  to the Company or a Subsidiary
(as defined in the Indenture) of the Company.

         |_| Such  Security  is being  transferred  to a person  the  Transferor
reasonably  believes is a  "qualified  institutional  buyer" (as defined in Rule
144A or any successor  provision thereto ("Rule 144A") under the Securities Act)
that is  purchasing  for its own  account  or for the  account  of a  "qualified
institutional  buyer",  in each  case to whom  notice  has been  given  that the
transfer  is being  made in  reliance  on such  Rule  144A,  and in each case in
reliance on Rule 144A.

         |_| Such Security is being transferred  outside the United States in an
offshore transaction in accordance with Rule 904 under the Securities Act.

         |_| Such  Security  is being  transferred  in the  United  States to an
institutional  "accredited investor" (as defined in Rule 501(a)(1),  (2), (3) or
(7) of Regulation D under the Securities Act) that, prior to such transfer, will
furnish to the Trustee a signed letter containing  certain  representations  and
agreements relating to the transfer of such Securities and an opinion of counsel
acceptable  to  the  Company  that  such  transfer  is in  compliance  with  the
Securities Act.

- -----------------------------------------------------------
5 This  certificate  should only  be included  if this Security  is  a  Transfer
  Restricted Security.

                                      A-15

         |_| Such  Security is being  transferred  pursuant to and in compliance
with an exemption from the registration requirements under the Securities Act in
accordance  with Rule 144 (or any  successor  thereto)  ("Rule  144")  under the
Securities Act.

         |_| Such  Security is being  transferred  pursuant to and in compliance
with an exemption  from the  registration  requirements  of the  Securities  Act
(other  than an  exemption  referred  to above)  and as a result  of which  such
Security will, upon such transfer,  cease to be a "restricted  security"  within
the meaning of Rule 144 under the Securities Act.

         The Transferor  acknowledges  and agrees that, if the  transferee  will
hold  any  such  Securities  in the  form of  beneficial  interests  in a global
Security which is a "restricted  security"  within the meaning of Rule 144 under
the  Securities  Act,  then such transfer can only be made pursuant to Rule 144A
under the Securities Act and such transferee must be a "qualified  institutional
buyer" (as defined in Rule 144A).


Date:
      ---------------------------- ---------------------------------------------
                                   (Insert Name of Transferor)


</PRE>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>9
<FILENAME>exhibit1027.htm
<DESCRIPTION>FIRST AMEND TO CREDIT AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K FIRST AMEND CREDIT AGREE</TITLE></HEAD>
<BODY>
<PRE>
                                                                  Exhibit 10.27

                 [First Amendment to Credit Agreement]

NationsBank
Energy Banking Group
P.O. Box 830104
Dallas, TX 75283-0104
Tel 214 508-1200



December 22, 1998



St. Mary Land &amp; Exploration Company
Mr. David L. Henry, Chief Financial Officer
1776 Lincoln Street, 11th Floor
Denver, Colorado, 80203

RE: Credit Agreement dated June 30, 1998 between St. Mary Land &amp; Exploration
    Company and NationsBank, N.A., as Agent, and Lenders.

Dear David:

Pursuant to Section 7.5 Limitation on Sales of Property, Lenders hereby consent
to Borrower's sale of certain oil and gas properties located in Oklahoma.
Additionally, upon the sale of such properties, the Aggregate Borrowing Base is
reduced to $105,000,000 until the next Determination Date. For purposes of this
reduction, the effective date of ther revised Aggregate Borrowing Base is
December 21, 1998.

David, please feel free to call me if you have any questions or if I can be of
additional assistance.

Sincerely,

David C. Rubenking
Senior Vice President

Cc: Tom Foncannon
    Mark Thompson


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>10
<FILENAME>exhibit1028.htm
<DESCRIPTION>FOURTH AMEND TO CREDIT AGREEMENT
<TEXT>
<HTML>
<HEAD><TITLE>DECEMBER 31, 2001 10-K FOURTH AMEND CREDIT AGREE</TITLE></HEAD>
<BODY>
<PRE>


                                                                  Exhibit 10.28

                      FOURTH AMENDMENT TO CREDIT AGREEMENT


         THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (herein called the
"Amendment") made as of March 4, 2002, by and among St. Mary Land &amp;
Exploration Company, a Delaware corporation ("Borrower"), Bank of America, N.A.,
individually and as Agent ("Agent"), and the undersigned lenders (the
"Lenders").


                              W I T N E S S E T H:

         WHEREAS, Borrower, Agent and Lenders entered into that certain Credit
Agreement dated as of June 30, 1998 (as heretofore amended, modified or
supplemented, the "Original Agreement"), for the purpose and consideration
therein expressed, whereby Lenders became obligated to make loans to Borrower as
therein provided; and

         WHEREAS, Borrower, Agent and Lenders desire to amend the Original
Agreement for the purposes described herein.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:


                                   ARTICLE I.

                           Definitions and References
                           --------------------------

         ss. 1.1. Terms Defined in the Original Agreement. Unless the context
                  ---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.

         ss. 1.2. Other Defined Terms. Unless the context otherwise requires,
                  -------------------
the following terms when used in this Amendment shall have the meanings assigned
to them in this. 1.2.

                  "Amendment" means this Fourth Amendment to Credit Agreement.

                  "Credit Agreement" means the Original Agreement as amended
hereby.


                                   ARTICLE II.

                         Amendment to Original Agreement
                         -------------------------------

         ss. 2.1. Defined Terms. The following definitions in Section 1.1 of the
                  -------------
Original Agreement are hereby amended in their entirety to read as follows:

                  'Evaluation Date' means each of the following:
                    ---------------

                  (a) Each date which either Borrower or Lender, at their
         respective options, specifies as a date as of which the Borrowing Base
         is to be redetermined, provided that each such date must be the first
         or last date of a current calendar month; provided that neither
         Borrower nor Lender shall be entitled to request more than one such
         redetermination during the period between any consecutive Evaluation
         Dates described in subsection (b) of this definition; and

                  (b) March 1 and September 1 of each year." "'Eurodollar
         Margin' means                                       ------------
         ------
                  (a) during the Tranche A Revolving Period with respect to each
         Eurodollar Loan:

                           (i) when the Debt to Capitalization Ratio in effect
                  hereunder is less than 0.30 to 1.0, 1.00%, or

                           (ii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.30 to 1.0 but less
                  than 0.40 to 1.0, 1.25%, or

                           (iii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.40 to 1.0 but less
                  than 0.5 to 1.0, 1.375%, or

                           (iv) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.50 to 1.0, 1.625%; and

                  (b) after the Tranche A Revolving Period with respect to each
                      Eurodollar Loan:

                           (i) when the Debt to Capitalization Ratio in effect
                  hereunder is less than 0.30 to 1.0, 1.125%, or

                           (ii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.30 to 1.0 but less
                  than 0.40 to 1.0, 1.375%, or

                                       2


                           (iii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.40 to 1.0 but less
                  than 0.5 to 1.0, 1.625%, or

                           (iv) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.50 to 1.0, 1.875%."

                  "'Loan Documents' means this Agreement, the Notes, the
                  ----------------
         Security Documents, the Letters of Credit, the LC Applications, and all
         other agreements, certificates, documents, instruments and writings at
         any time delivered in connection herewith or therewith (exclusive of
         term sheets and commitment letters)."

                  "'Oil and Gas Properties' means those oil and gas properties
                  ------------------------
         and related interests, whether now owned or hereafter acquired by any
         of the Restricted Persons, but only to the extent included in the most
         recent reserve report delivered pursuant to paragraph 2.8(b)."

         ss. 2.2. Permitted Investments. Clause (b) of the definition of
                  ---------------------
Permitted Investments in Section 1.1 of the Original Agreement which reads

         "(b) Investments by Borrower in any of its wholly owned Subsidiaries,"
is hereby amended in to read as follows:

         "(b) Investments by Borrower in any of its wholly owned Subsidiaries
which are Guarantors,"

         ss. 2.3. Additional Definitions. The following definitions of
                  ----------------------
"Collateral", "Guarantor", "Security Documents" and "Senior Convertible Notes"
are hereby added to Section 1.1 of the Original Agreement to read as follows:

                  "'Collateral' means all property of any kind which is subject
                  ------------
         to a Lien in favor of Lenders (or in favor of Agent for the benefit of
         Lenders) or which, under the terms of any Security Document, is
         purported to be subject to such a Lien."

                  "'Guarantor' means any Subsidiary of Borrower which now or
                  -----------
         hereafter executes and delivers a guaranty to Agent pursuant to Section
         6.19."

                  "'Mortgaged Properties' means the Oil and Gas Properties that
                  ----------------------
are mortgaged to Agent under the Security Documents."


                  "'Security Documents' means the security agreements, deeds of
                  --------------------
         trust, mortgages, chattel mortgages, pledges, guaranties, financing
         statements, continuation statements, extension agreements and other
         agreements or instruments now, heretofore, or hereafter delivered by
         any Restricted Person to Agent in connection with this Agreement or any
         transaction contemplated hereby to secure or guarantee the payment of

                                       3

         any part of the Obligations or the performance of any Restricted
         Person's other duties and obligations under the Loan Documents."

                  "'Senior Convertible Notes' means those certain 5.75% Senior
                  --------------------------
         Convertible Notes issued by Borrower pursuant to the Offering
         Memorandum from Borrower initially circulated on March 6, 2002, in the
         aggregate principal amount of up to $115,000,000, due in March 2022, as
         amended, modified, supplemented, or restated from time to time."

                  "Senior Convertible Note Documents' means the Senior
                  ----------------------------------
         Convertible Notes, the Indenture pursuant to which the Convertible
         Senior Notes are issued, and any other documents or instruments which
         govern the Senior Convertible Notes."

         ss. 2.4. Engineering Reports. Section 2.8(b) of the Original Agreement
                  -------------------
is hereby amended in its entirety to read as follows:


                  "(b)     Engineering Reports.
                           -------------------

                           (i) No later than March 1 of each year that this
                  Agreement is in effect, commencing March 1, 1999, Borrower
                  shall submit to each Lender, in a format and using the pricing
                  and cost assumptions and discount factors required by the
                  Securities and Exchange Commission, a report, prepared by a
                  qualified independent engineer acceptable to Agent, setting
                  forth, as of December 31 of the immediately preceding year,
                  all of the revenues (and the future volumes of production to
                  be derived therefrom) attributable to all proved Oil and Gas
                  Properties owned by Borrower as of such date.

                           (ii) No later than September 1 of each year that this
                  Agreement is in effect, commencing September 1, 2002, Borrower
                  shall submit to each Lender, in a format and using the pricing
                  and cost assumptions and discount factors required by the
                  Securities and Exchange Commission, a supplement to the most
                  recent report delivered pursuant to subsection (ii)
                  immediately above, prepared by an in-house engineer of
                  Borrower acceptable to Agent in its reasonable judgment,
                  setting forth, as of June 30 of the same year, all of the
                  revenues (and the future volumes of production to be derived
                  therefrom) attributable to all proved Oil and Gas Properties
                  owned by Borrower as of such date.

         ss. 2.5. Commitment Fee. Section 2.5(b) of the Original Agreement is
                  --------------
hereby deleted in its entirety and replaced with the following:

                  (b) Tranche A Loan Commitment Fee. In consideration of
                      -----------------------------
         Lenders' commitment to enter into this Agreement and to advance funds
         to Borrower as Tranche A Loans, Borrower will pay to Agent, for pro
         rata distribution to each Lender in accordance with its Percentage
         Share, a commitment fee determined on a daily basis by applying the
         Tranche A Commitment Fee Rate to such Lender's Percentage Share of the

                                       4

         unused portion of the Tranche A Borrowing Base on each day during the
         Tranche A Revolving Period, determined for each such day by deducting
         from the amount of the Tranche A Borrowing Base at the end of such day
         the Tranche A Facility Usage. Promptly at the end of each Fiscal
         Quarter and at the end of the Tranche A Revolving Period, Agent shall
         calculate the commitment fee then due and shall notify Borrower
         thereof. Borrower shall pay such commitment fee to Agent within five
         Business Days after receiving such notice. As used in this section,
         "Tranche A Commitment Fee Rate" means:

                           (i) when the Debt to Capitalization Ratio in effect
                  hereunder is less than 0.30 to 1.0, .35%, or

                           (ii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.30 to 1.0 but less
                  than 0.40 to 1.0, .40%, or

                           (iii) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.40 to 1.0 but less
                  than 0.5 to 1.0, .45%, or

                           (iv) when the Debt to Capitalization Ratio in effect
                  hereunder is greater than or equal to 0.50 to 1.0, .50%."

         ss. 2.6. Regularly Scheduled Payments of Principal of Tranche A Note.
                  -----------------------------------------------------------
Section 2.7(c) of the Original Agreement is hereby deleted in its entirety and
replaced with the following:

                  "(c) Regularly Scheduled Payments of Principal of Tranche A
                       ------------------------------------------------------
         Note. The principal of the Tranche A Note shall be due and payable in
         ----
         fourteen (14) quarterly installments, each of which shall be equal to
         the greater of (i) one-fourteenth (1/14) of the aggregate unpaid
         principal balance of the Tranche A Note at the end of the Tranche A
         Revolving Period or (ii) sixty percent (60%) of the Net Oil and Gas
         Revenues during the applicable Accounting Quarter, and shall be due and
         payable on the last day of each Fiscal Quarter, beginning September 30,
         2003 and continuing regularly thereafter until the Tranche A Maturity
         Date, at which time the unpaid principal balance of the Tranche A Note
         and all interest accrued thereon shall be due and payable in full."

         ss. 2.7. Provisions Concerning Collateral and Guaranty of Subsidiaries.
                  -------------------------------------------------------------
Sections 6.15, 6.16, 6.17, 6.18, 6.19 and 6.20 are hereby added to the Original
Agreement immediately after Section 6.14 to provide as follows:

                  "Section 6.15. Agreement to Deliver Security Documents.
                                 ---------------------------------------
         Borrower agrees to deliver and to cause each other Restricted Person to
         deliver to secure the Obligations, deeds of trust, mortgages, chattel
         mortgages, security agreements, financing statements and other Security
         Documents in form and substance satisfactory to Agent for the purpose
         of granting, confirming, and perfecting first and prior liens or
         security interests in Oil and Gas Properties to which are attributed

                                       5

         80% of the total value of the Oil and Gas Properties as determined by
         Agent after consultation with Borrower and in all personal property of
         the Restricted Persons, including but not limited to the stock of all
         of Borrower's Subsidiaries, in each case no later than thirty (30) days
         after the issuance of the Senior Convertible Notes.

                  Section 6.16. Title Review. Borrower agrees that Agent's
                                ------------
         counsel shall review the lease files for the Oil and Gas Properties and
         existing title reports and title opinions covering the properties
         subject to the Security Documents. Based upon such review and in order
         to confirm title to the Oil and Gas Properties, Agent may request, and
         Borrower agrees to deliver, such additional favorable reports and/or
         title opinions which Majority Lenders determine in their reasonable
         judgment are necessary from legal counsel acceptable to Agent with
         respect to any Oil and Gas Properties designated by Agent, based upon
         title examinations to dates acceptable to Agent and stating that a
         Restricted Person has good and defensible title to such Oil and Gas
         Properties, free and clear of all Liens other than Permitted Liens, and
         covering such other matters which Majority Lenders determine in their
         reasonable judgment are necessary.

                  Section 6.17. Perfection and Protection of Security Interests
                                -----------------------------------------------
         and Liens. Borrower will from time to time deliver, and will cause each
         ---------
         other Related Person from time to time to deliver, to Agent any
         authorizations to file financing statements, extension agreements and
         other documents, properly completed and executed (and acknowledged when
         required) by Related Persons in form and substance satisfactory to
         Agent, which Agent requests for the purpose of perfecting, confirming,
         or protecting any Liens or other rights in Collateral securing any
         Obligations.

                  Section 6.18. Production Proceeds. Notwithstanding that, by
                                -------------------
         the terms of the various Security Documents, Restricted Persons are and
         will be assigning to Agent and Lenders all of the "Production Proceeds"
         (as defined therein) accruing to the property covered thereby, so long
         as no Default has occurred and is continuing Restricted Persons may
         continue to receive from the purchasers of production all such
         Production Proceeds, subject, however, to the Liens created under the
         Security Documents, which Liens are hereby affirmed and ratified. Upon
         the occurrence and during the continuance of a Default, Agent and
         Lenders may exercise all rights and remedies granted under the Security
         Documents, including the right to obtain possession of all Production
         Proceeds then held by Restricted Persons or to receive directly from
         the purchasers of production all other Production Proceeds. In no case
         shall any failure, whether purposed or inadvertent, by Agent or Lenders
         to collect directly any such Production Proceeds constitute in any way
         a waiver, remission or release of any of their rights under the
         Security Documents, nor shall any release of any Production Proceeds by
         Agent or Lenders to Restricted Persons constitute a waiver, remission,
         or release of any other Production Proceeds or of any rights of Agent
         or Lenders to collect other Production Proceeds thereafter.

                  Section 6.19. Guaranties of Borrower's Subsidiaries. Each
                                -------------------------------------
         Subsidiary of Borrower shall, promptly upon request by Agent, execute
         and deliver to Agent an absolute and unconditional guaranty of the

                                       6

         timely repayment of the Obligations and the due and punctual
         performance of the obligations of Borrower hereunder, which guaranty
         shall be satisfactory to Agent in form and substance. Borrower will
         cause each of its Subsidiaries to deliver to Agent, simultaneously with
         its delivery of any Security Document to Agent, written evidence
         satisfactory to Agent and its counsel that such Subsidiary has taken
         all corporate or partnership action necessary to duly approve and
         authorize its execution, delivery and performance of such Security
         Document and any other documents which it is required to execute.

                  Section 6.20. Maintenance of Liens on Eighty Percent of Oil
                                ---------------------------------------------
         and Gas Properties. The Mortgaged Properties shall constitute at least
         ------------------
         eighty percent (80%) of the total value of the Oil and Gas Properties.
         Within thirty (30) days following each Determination Date, Restricted
         Persons will execute and deliver documentation in form and substance
         satisfactory to Agent, granting to Agent first perfected Liens on and
         in Oil and Gas Properties that are not then part of the Mortgaged
         Properties, sufficient to cause the Mortgaged Properties to constitute
         eighty percent (80%) of the total value of the Oil and Gas Properties
         directly owned by Restricted Persons. In addition, Borrower will
         furnish to Agent title due diligence in form and substance satisfactory
         to Agent and will furnish all other documents and information relating
         to such properties as Agent may reasonably request."

         ss. 2.8. Indebtedness. Section 7.1 of the Original Agreement is hereby
                  ------------
amended by deleting the period at the end of subsection 7.1(h) and substituting
therefor "; and" and adding the following subsection (i) immediately thereafter
to read as follows:

                  "(i) Indebtedness of Borrower in an original principal amount
         not to exceed $115,000,000 evidenced by the Senior Convertible Notes,
         provided that neither the Senior Convertible Notes nor any other Senior
         Convertible Note Document may be modified except as expressly permitted
         pursuant to Section 8.1(p)."

         ss. 2.9. Limitation on Liens. Section 7.2 of the Original Agreement is
                  -------------------
hereby deleted in its entirety and replaced with the following:

                  "Section 7.2. Limitation on Liens. No Restricted Person will
                                -------------------
         create, assume or permit to exist any Lien upon any of the Oil and Gas
         Properties included in the Aggregate Borrowing Base except liens for
         taxes not delinquent or being contested in good faith and by
         appropriate proceedings and for which adequate reserves have been set
         aside on Borrower's books; operator's, mechanic's, workmen's,
         materialmen's and other like liens arising in the ordinary course of
         business in respect of obligations not overdue or which are being
         contested in good faith and by appropriate proceedings and for which
         adequate reserves have been set aside on Borrower's books."

         ss. 2.10. Negative Covenants. Sections 7.12, 7.13 and 7.14 are hereby
                   ------------------
added to the Original Agreement immediately after Section 7.11 to provide as
follows:

                                        7

                  "Section 7.12. Prohibited Contracts. No Restricted Person will
                                 --------------------
         amend or permit any amendment to any contract or lease which releases,
         qualifies, limits, makes contingent or otherwise detrimentally affects
         the rights and benefits of Agent or any Lender under or acquired
         pursuant to any Security Documents in any material respect.

                  Section 7.13. Limitation on Prepayments on Senior Convertible
                                -----------------------------------------------
         Notes. No Restricted Person will purchase, repurchase, defease or make
         -----
         any prepayments on or with respect to the Senior Convertible Notes.

                  Section 7.14. Certain Contracts. Except as expressly provided
                                -----------------
         for in the Loan Documents, no Restricted Person will, directly or
         indirectly, enter into, create, or otherwise allow to exist any
         contract or other consensual restriction on the ability of any
         Restricted Person to (i) pay dividends or make other distributions to
         Borrower, (ii) redeem equity interests held in it by Borrower, (iii)
         repay any of its assets to Borrower, and (iv) pledge its assets or
         properties to Agent or any Lender."

         ss. 2.11. Events of Default. Section 8.1 of the Original Agreement is
                   -----------------
hereby amended as follows:


                  (a)      by deleting the "and" at the end of subsection 8.1(l);

                  (b) by deleting the period at the end of subsection 8.1(m) and
         substituting therefor ";"; and

                  (c) by adding the following subsections (n), (o) and (p)
         immediately after Subsection 8.1(m) to read as follows:

                           "(n) Any Restricted Person fails to deliver to Agent
                  any the Security Document as required pursuant to Section 6.15
                  or Section 6.19;

                           (o) Borrower fails to duly observe, perform or comply
                  with any covenant, agreement, or provision of any Senior
                  Convertible Note Document which has not been waived in
                  accordance with the Senior Convertible Note Documents and such
                  failure is not remedied within the applicable period of grace
                  (if any) provided therein; and

                           (p) Without the express prior written consent of
                  Majority Lenders, Borrower amends or modifies any Senior
                  Convertible Note Document in a manner which requires the
                  consent of all or the holders of a majority of the principal
                  of the Senior Convertible Notes."

         ss. 2.12. Amendments. The provision in the last sentence of Section
                   ----------
2.10 of the Original Agreement which currently reads:

                                       8

                  "(6) release Borrower from its obligation to pay such Lender's
                  Note."

is hereby deleted and replaced with the following:

                  "(6) release Borrower from its obligation to pay such Lender's
                  Note or any Guarantor from its guaranty of such payment."


                                  ARTICLE III.

                           Conditions of Effectiveness
                           ---------------------------

         ss. 3.1. Effective Date. This Amendment shall become effective as of
                  --------------
the date first above written when and only when:

                  (a) Agent shall have received all of the following, at Agent's
         office, duly executed and delivered and in form and substance
         satisfactory to Agent, all of the following:

                           (i)      this Amendment;

                           (ii) a certificate of the Secretary of Borrower dated
                  the date of this Amendment certifying: (1) that the
                  resolutions attached to that certain Omnibus Certificate dated
                  as of June 30, 1998 (the "Original Certificate") authorize the
                  execution, delivery and performance of this Amendment by
                  Borrower; (2) that the names and true signatures of the
                  officers of the Borrower attached to the Original Certificate
                  are authorized to sign this Amendment; and (3) that all of the
                  representations and warranties set forth in Article IV hereof
                  are true and correct at and as of the time of such
                  effectiveness;

                           (iii) A favorable opinion of counsel for Restricted
                  Persons as to the organization of Borrower, the due
                  authorization, execution and delivery of this Amendment and
                  the enforceability of the Credit Agreement, as amended by this
                  Amendment, in form and substance acceptable to Agent;

                           (iv) such other supporting documents as Agent may
                  reasonably request; and

                  (b) Borrower shall have paid, in connection with such Loan
         Documents, all fees and reimbursements to be paid to Agent pursuant to
         any Loan Documents, or otherwise due Agent and including fees and
         disbursements of Agent's attorneys; and

                  (c)      the Senior Convertible Notes have been issued.

                                       9

                                   ARTICLE IV.

                         Representations and Warranties
                         ------------------------------

         ss. 4.1. Representations and Warranties of Borrower. In order to induce
                  ------------------------------------------
each Lender to enter into this Amendment, Borrower represents and warrants to
each Lender that:

                  (a) Except as set forth in the Disclosure Schedule attached
         hereto as Exhibit A, the representations and warranties contained in
         Article V of the Original Agreement are true and correct at and as of
         the time of the effectiveness hereof.

                  (b) Borrower has duly taken all action necessary to authorize
         the execution and delivery by it of this Amendment and to authorize the
         consummation of the transactions contemplated hereby and the
         performance of its obligations hereunder. Borrower is duly authorized
         to borrow funds under the Credit Agreement.

                  (c) The execution and delivery by Borrower of this Amendment,
         the performance by Borrower of its obligations hereunder and the
         consummation of the transactions contemplated hereby do not and will
         not (i) conflict with any provision of (1) any Law, (2) the
         organizational documents of Borrower, or (3) any agreement, judgment,
         license, order or permit applicable to or binding upon Borrower, (ii)
         result in the acceleration of any Indebtedness owed by Borrower, or
         (iii) result in or require the creation of any Lien upon any assets of
         properties of Borrower. Except as expressly contemplated in the Loan
         Documents no consent, approval, authorization or order of, and no
         notice to or filing with, and Tribunal or third party is required in
         connection with the execution, delivery or performance by Borrower of
         this Amendment or to consummate any transactions contemplated hereby.

                  (d) When duly executed and delivered, each of this Amendment
         and the Credit Agreement will be a legal, valid and binding obligation
         of Borrower, enforceable in accordance with its terms, except as such
         enforcement may be limited by bankruptcy, insolvency or similar Laws of
         general application relating to the enforcement of creditors' rights.

                  (e) The audited annual Consolidated financial statements of
         Borrower dated as of December 31, 2000, and the unaudited quarterly
         Consolidated financial statements of Borrower dated as of September 30,
         2001, fairly present Borrower's Consolidated financial position at such
         dates and the Consolidated results of Borrower's operations and
         Borrower's Consolidated cash flows for the periods ending on such dates
         for Borrower. Copies of such financial statements have heretofore been
         delivered to each Lender. Since such dates no Material Adverse Change
         has occurred.

                                       10


                                   ARTICLE V.

                                  Miscellaneous
                                  -------------

         ss. 5.1. Ratification of Agreements. The Original Agreement as hereby
                  --------------------------
amended is hereby ratified and confirmed in all respects. The Loan Documents, as
they may be amended or affected hereby, are hereby ratified and confirmed in all
respects. Any reference to the Credit Agreement in any Loan Document shall be
deemed to be a reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
Lenders under the Credit Agreement, the Notes, or any other Loan Document nor
constitute a waiver of any provision of the Credit Agreement, the Notes or any
other Loan Document.

         ss. 5.2. Survival of Agreements. All of Borrower's representations,
                  ----------------------
warranties, covenants and agreements herein shall survive the execution and
delivery of this Amendment and the performance hereof, including the making or
granting of the Loans, and shall further survive until all of the Obligations
are paid in full to each Lender and all of Lender Parties' obligations to
Borrower are terminated. All statements and agreements contained in any
certificate or instrument delivered by Borrower hereunder or under the Credit
Agreement to any Lender shall be deemed representations and warranties by
Borrower or agreements and covenants of Borrower under this Amendment and under
the Credit Agreement.

         ss. 5.3. Loan Documents. This Amendment is a Loan Document, and all
                  --------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.

         ss. 5.4. Governing Law. This Amendment shall be deemed a contract and
                  -------------
instrument made under the laws of the State of Colorado and shall be construed
and enforced in accordance with and governed by the laws of the State of
Colorado and the laws of the United States of America, without regard to the
principles of conflicts of law.

         ss. 5.5. Counterparts. This Amendment may be separately executed in any
                  ------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.

         THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.

                                       11

<PAGE>





         IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.



                                      ST. MARY LAND &amp; EXPLORATION COMPANY



                                      By:    /s/ MARK HELLERSTEIN
                                         ---------------------------------------
                                         Name:   Mark Hellerstein
                                               ---------------------------------
                                         Title:  President and CEO
                                               ---------------------------------





<PAGE>





                                      BANK OF AMERICA, N.A.
                                      Agent, LC Issuer and Lender



                                      By:   /s/ RICHARD L. STEIN
                                         ---------------------------------------
                                         Name: Richard L. Stein
                                         Title:Principal





<PAGE>





                                      COMERICA BANK-TEXAS
                                      a Lender



                                      By:  /s/ THOMAS G. RAJAN
                                         ---------------------------------------
                                         Name: Thomas G. Rajan
                                         Title:Vice President


<PAGE>





                                      WELLS FARGO BANK, N.A., formerly known as
                                      Wells Fargo Bank West, N.A.,
                                      a Lender



                                      By:  /s/ KAREN L. ROGERS
                                         ---------------------------------------
                                         Name: Karen L. Rogers
                                         Title:Vice President

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